The Shatzkin Files

Bowker reported last week that 12% of the ebooks being bought now are self-published. There was skepticism about the methodology from The Digital Reader and Good e-Reader says Bowker’s data should be taken “with a grain of salt”. But the exact number doesn’t matter; the trend does. The share of the consumer ebook dollar going to books that aren’t coming from publishing entities means that the new Big Six for ebooks are the ones we know well — Penguin Random House and the four (HarperCollins, Hachette, Simon & Schuster, and Macmillan) that among them add up to about their size — plus Anybody Press.

And Anybody Press is almost certainly growing faster in ebook sales than any of the other Big Six.

This is happening almost solely with individual authors and still mostly with authors who are not in demand by the commercial publishers. Although it does happen that authors turn down their next deal to self- or unconventionally-publish (which publishing with an Amazon imprint, even under advance-against-royalty terms, still is because there’s to date no effective retail distribution), it’s still rare for that to happen.

The self-publishing or Amazon-publishing route still requires pretty much giving up on bookstore or other retail distribution. (Or so it has seemed. The news that Amazon has sold a million of “The Hangman’s Daughter”, an unknown number through the paperback licensed to Houghton Harcourt, may be contradicting that notion. Except we don’t know how many Houghton Harcourt has sold.) But the ebook royalties are higher, so it is a balance that deserves, and gets, constant review by agents and authors as the share of sales through bookstore or other retail distribution continues to decline.

If I were the business development manager for Anybody Press (and, on some consulting projects we are working on, I am) I would see lots of target markets for growth. I’d encourage my targets to keep doing the calculation of what the sales times royalty rate is for the “bought online” portion of the market versus what the sales times royalty rate is for a conventional deal that gets you the “whole” market. As the “bought online” share grows, more and more genres and authors will find that giving up the retail sale in favor of a bigger share of the revenue per sale online is to their financial benefit.

And the way things are developing — “Hangman’s Daughter” aside — you might not have to give up the store sale forever.

The “Wool” deal, where Hugh Howey sold only print rights to Simon & Schuster, hasn’t really been replicated yet for anything else that big, but it will be. (Successful indie authors John Locke and Bella Andre have done different versions of the same trick.) Royalty rates on ebooks from big publishers are bound to go up (while royalty rates for print books will probably go down). These will change the details of the calculations as they transpire.

Another way to make the jump from purely online sales to a publication strategy that includes print in stores is to use print-on-demand technology from Ingram’s Lightning Source. That’s how Open Road, which began life as an opportunistic ebook-only publisher, has chosen to manage print beyond Amazon. As has Byliner. (You can always deliver print with Amazon by working through their CreateSpace capability.) Now, that’s not the same as being published with an advance sale in the stores on pub date, but it does mean that if somebody walks into a Barnes & Noble or an indie bookstores and asks for your book, they’ll be able to order it for delivery in a day or two.

So aside from the market share fight big publishers will have with each other, there’s going to be a continuing market share fight between Anybody Press and the commercial industry. And for some time to come, Anybody Press is going to be winning. The question, like the question about online (and Amazon) market share growth is: where does it stop?

Big publishers do have ways to fight back. Putting together our upcoming (September 26) Marketing Conference with Peter McCarthy, who used to plot digital marketing strategy for Random House, I’m learning what can be accomplished when scaled technology and expertise are employed by engaged title-and-audience knowledge. And, particularly viewed in a global context and aside from straight narrative books, the print-at-retail component has a long way to go before it becomes irrelevant. But when I say that, I mean “many years”, not “many decades”.

This amorphous but growing competition is the “atomization” concept I wrote about recently in action. It can’t be neglected in the consideration of any branch of publishing’s future. In fact, indie entities, which is the way I think about atomization, are more likely to be disruptive on a larger scale than indie authors have been so far. So we might have Any Organization Press growing even faster in the next few years than Anybody Press has for the past few.

What people spend for books won’t necessarily shrink drastically, but where the money goes will shift drastically. The challenge for today’s leading revenue producers will be to find the ways their business models can adapt to the shift.

At our Publishers Launch Conference on the Wednesday of BEA, Michael Cader and I introduced a new feature we think will become regular at our events: a candid 1-on-1 conversation between us. It went well.

In fact, it went so well that what reads like a pretty damn accurate verbatim account of much of it constituted a story for Ed Nawotka at Publishing Perspectives. So, now, thanks to Ed, much of the world knows that I made a number of pretty bold forecasts, probably the boldest of which is that we’ll see the US market boil down to one dominant trade publisher over the next 10 years.

There are a lot of unexpressed assumptions in that calculation. And, in the “predicting the future” part of my business, when I say 10 years I don’t count myself “wrong” if it takes 15. So, with thanks to Ed for reporting me accurately, it seems worthwhile to elaborate a bit more on what I said last week.

Operating with absolutely no “inside” knowledge, I outlined two expectations I have for initiatives we’ll see from Penguin Random House, about which I’ve written before. One is that they’ll create an ebook subscription offering which operates exclusively for their own books. The other is that they’ll apply the knowledge they’ve already gained about vendor-managed inventory (VMI) to create book departments within stores of all kinds, taking advantage of the reduction of shelf space in dedicated bookstores and the related challenges facing all other retailers to maintain top line revenues for whatever is their line of business as sales of all things, not just books, migrate online. Both of these capabilities could also be extended to include their distribution clients; it might require some renegotiation of terms to do it, but it would almost certainly be seen as a beneficial add-on by the distributees.

If PRH did that, and if they hit my made-up-from-thin-air target of 1000 proprietary sales locations over a couple of years, the new trade behemoth would have a bigger distribution base than all the other trade houses to go along with their already-bigger checkbook. So the consolidation of the general trade business under them could occur author-by-author as contracts expire, not requiring them to buy or merge with other companies.

I think the ebook subscription service is a relative no-brainer, assuming Random House can come up with the deal structure to get big authors to agree to it and, without a third party taking out some of the revenue, that should be doable. They don’t need 100% participation; I’d guess that if half the big-brand authors go ahead, the others will follow and the rest should be delighted with the opportunity.

I also think that every major publisher should be offering an ebook subscription service for their kids’ books, because they all have extensive lists and major brand names for that market and subscriptions will prove a very convenient way for parents to give kids lots of reading material at a predictable cost as the book world goes increasingly digital. There are aggregators in the field doing that now across many publishers’ titles, but there might be room for a lot of offers here and the publishers would be wise to consider whether they do best by creating their own subscription offers, licensing their big brand content to aggregators, or doing both.

But the build-up of proprietary offerings at retail and the prediction that trade publishing will consolidate as radically as I forecast, depend on the future of consumer behavior which nobody, and certainly not I, can predict with any certainty.

What most industry observers track is how the percentage of a publisher’s revenue that comes from digital books is rising. That’s commonly considered to be in the 25-30 percent range at the moment, going up by perhaps 30-40% a year (so next year it might e 33-38 percent) after having been rising much faster in recent years. A more nuanced view of this recognizes that it is particular books that (so far) really sell in digital form — generally books you read from beginning to end rather than those you skip around or dip into or which require illustrations — while others do not. For fiction, we are likely at 50% or more digital for a high percentage of the titles published.

In fact, PriceWaterhouseCoopers, tracking ebook sales against print sales, believes that digital will exceed print in a pretty short time.

But an even more important index if you’re charting the future of publishing is what’s bought in stores versus what’s bought online. Obviously, all ebooks are bought online. But there’s pretty strong evidence that the percentage of print books sold online is still steadily rising. In our discussion on stage, Michael Cader (the most reliable source for industry facts there is) remarked on the fact that Amazon print sales are still rising; more slowly than before, but still rising. Juxtapose that fact against the reality that total sales of print books through retailers are not rising, and sales through bookstores are certainly shrinking and it is clear that the online share of print sales is still going up.

I’m assuming that trend will continue. When bookstores close, the people who shopped in them often switch to buying online. When a bookstore reduces the selection of titles it offers, as Barnes & Noble certainly seems to have done, some of the people who browsed it are going to switch to browsing online. This leads to more stores closing and to more stores reducing their book inventory. It’s called a vicious cycle. It’s not a new concept.

Every publisher is trying to put print books into more retail places with great urgency. Some have better lists for it than others; some have better sales policies and other tools for it than others. But the barrier, most of the time, is that buying books is really hard for retailers. Each book is a unique product that has to be tracked uniquely and thought about uniquely and a store has to have at least hundreds, and preferably thousands or tens of thousands of them to be a decent place to shop for books.

That’s why vendor-managed inventory is so important; it can eliminate the need for the store to have book-buying expertise as a pre-condition for them to carry a decent range of books, even in a defined niche market.

So if PRH does what I think they will do and the shelf space for bookstores keeps shrinking and the share of book sales that take place in stores shrinks along with it, the position of other general trade publishers becomes increasingly difficult to navigate. PRH has additional distribution that nobody else has and the biggest checkbook among publishers. Amazon will have an increasing share of the potential market, so authors signing with them will be missing less and less eschewing what most publishers could give them beyond Amazon and the biggest checkbook of all.

Almost two decades ago, when the Internet first posed a threat to the business model for scholarly journals, I asked my friend, Mark Bide (now head of business development for Publishers Licensing Society in the UK), what would be the early warning sign that the traditional journals model is headed for trouble. He said “when the scholars stop submitting to the journals. As long as the scholars submit, their business will work.” In other words, the danger wasn’t so much losing their sources of sales as it was losing their sources of intellectual property.

It looks to me like that wisdom will apply to general trade publishers over the next decade or so.

In the discussion with Cader, we talked about how the other publishers might respond to this. It would take all four of them merging to present an equivalent title offering to PRH, and that would, at the very least, take some time. Another possibility is that a third party aggregator could create a competitive set of titles, or even do the job for the whole industry including PRH. But the challenge there would be terms; publishers need to give up margin to make this workable for a 3rd party, a problem PRH wouldn’t have on their own. And it is also true that PRH could probably complete its set of bestsellers if it had to by buying in those that it didn’t publish for this offering. One CEO I talked to about this nearly a year ago conceded that, if PRH went this way, that CEO’s company would almost certainly have to sell them whatever books they wanted.

And while this post is still extremely speculative, it has what might be the virtue of being fairly consistent with the thinking reflected in the speech I did at BEA six years ago predicting “the end of general trade publishing houses”. 

Final point on this one. I am not saying that nobody but one publisher will publish books that people will want. There will be publishers in many niches, including fiction niches. What I’m predicting is that the “general trade” model of a publisher that issues books on subjects across the board, trusting the book retailing system to sort out the books for the customers by subject and genre, will consolidate to a single player in the next couple of decades.

It’s a busy week for us this week, with BookExpo America in town. We have our all-day Publishers Launch conference on Wednesday, May 29, and a solid two days of appointments on Thursday and Friday. I have the time today to present two ideas we’ll be touching upon at the conference and that I’ll be asking about in those meetings and it seems worthwhile to do so.

Although the tools for making complex ebooks are getting better and more ubiquitous, a point that will be driven home by Aerbook’s Ron Martinez’s presentation at Pub Launch, there is still not much evidence that ebooks sell much outside those which are narrative reading. I believe our panel of illustrated book publishers is going to tell us that they don’t pin their hopes on digital editions but rather on finding more effective ways to continue selling printed books. It will be interesting to hear whether the companies that have identifiable verticals, which means, among other things, retail establishments that aren’t bookstores might be persuaded to sell their books, see this differently than those with more general lists. Of our four publishers, Quarto and Rodale have clear verticals, Abrams is still mostly about art books (although they have more limited output in verticals), and Dorling Kindersley is perhaps the most general and referency of the group.

Although it is helpful to all publishers to be vertical, or audience-centric, it will be increasingly necessary for those whose sales don’t move to digital. The pressures on publishers who are distributing more than half their output as ebooks will be different, but they won’t include the urgent necessity of constantly finding new outlets for their wares to be shown and sold.

And even with the tools getting easier, making ebooks out of illustrated content is going to require much more individualized attention from the creators. Just mastering the long list of vendors and their capabilities that Martinez will outline is no small task. Decisions will have to be made about what devices and platforms to optimize for. Publishers of novels don’t have those complications.

So publishing narrative reading and publishing any other kind of book increasingly look like two separate businesses to me.

I’m also aware of two data points that define an opportunity publishers may not be sufficiently aware of: ebooks make it much more productive to market the backlist.

Data point number one is going to be presented at Pub Launch. Dan Lubart of Iobyte Solutions and HarperCollins is going to show a slide that makes it clear that titles a year old or more hit the ebook bestseller list more often than titles in the first week or two of their life.

The second data point comes from a consulting job we’re working on. We’ve interviewed some publishers about their digital marketing efforts. And we’ve learned, from a small sample, that their budgeting practices squeeze out backlist marketing just as much today as they did before the ebook revolution began.

So what is happening to make the sales that Lubart will document is not because of marketing, it is because of circumstances and availability. In the print world, circumstances can’t have the same impact because there often is no availability.

With ebooks, once they’re loaded into a retailer’s system, they’re always available.

It seems like a slam dunk that every publisher, particularly the larger ones with the biggest backlists, should be developing techniques to scan for opportunity (could be reflected in sales “deltas” from week to week; could be reflected in today’s headline news to somebody with real knowledge of the backlist, particularly the non-fiction backlist) and capitalize on it.

This has been one of the core approaches taken by the relatively recent entrant, Open Road. Since so much of their publishing list is comprised of backlist and so little of it is new titles, it was sort of a natural for them to think differently about allocating marketing effort and dollars. They market to the day on the calendar, not the day of publication.

I suspect we will see staff with the title “backlist digital marketer” pretty ubiquitously before long. We’ve found that even in some houses that organize their marketing efforts by vertical, the backlist is being given short shrift. There should be a lot of “notes to self” being written when Lubart presents his slide about backlist sales.

Another of our Pub Launch panels is comprised of people who have the words “business development” in their job title, which we put together because such a job title hardly existed just a few years ago. Maybe by next BEA we’ll be able to put together a panel of backlist marketers.

Our May 29 conference is built around the theme of “scale” in our business, which means something different than it did a very short time ago. Usually “using scale” means “employing the competitive advantages of size” but it can also be leveraging efficiency; the key beneficial characteristic of scale is that unit costs decline with increased activity.

In times past in publishing, the advantages of scale included lower printing costs (bigger companies doing more volume get better prices); lower warehousing and systems cost (because operations almost always get cheaper on a unit basis as they get bigger); and more revenue for each unit sold (because bigger publishers with better lists could get retailer and wholesaler customers to buy at slightly lower discounts).

All of these scale advantages were centered around what has been the core capability of a book publisher: to put books in sight and in reach of consumers on retail shelves. For the better part of the past 100 years, the publisher who could do that more effectively than its competitors had a significant advantage in the marketplace.

But with more and more of the business of customers finding and buying books shifting away from stores, those scale advantages are both reversing in reality and diminishing in importance. Publishers who had built great systems, efficient warehouses, and a nonpareil sales network find them managing less and less “throughput.” That means that less of their business is taking place in their scale-advantaged activities, but it also means the price of maintaining them is going up on a unit basis.

That’s why you see the two Big Six publishers who have invested most heavily in their scalable activities — Random House and Hachette — most active in competing with Ingram and Perseus (two companies far more dedicated to providing services) pursuing distribution clients. They can offer the benefits of their scale pricing to clients and, at the same time, preserve those benefits for themselves as the print-to-store segment of their business diminishes.

The shift in the business to online discovery and purchase would, at first glance, seem to have a leveling effect. Scale in reaching customers that used to require big publishing operations are now largely offered by Amazon, Apple, and Google. When you “searched” for a book in stores (whether you knew you were searching for that specific book or not), you might find it there and you might not. And you were ever so much more likely to find it if the publisher had a stack of copies in the front than if they had one spine-out copy in a store section. Those distinctions aren’t nearly as determinant of whether you’ll find a book at Amazon, or have it suggested to you by Google.

So the smartest big companies have focused on where scale can benefit them in the new context. Brian Murray, the CEO of HarperCollins, made the point to me over a year ago that his company was advantaged because they were launching books by the dozen into the marketplace every week, and each one gave them an additional opportunity to learn about search optimization, customer reactions, and how various tools from Facebook to Pinterest worked to boost awareness and sales. He was confident that the volume of activity they engaged in provided its own scale advantage.

As former Random House marketing strategist Pete McCarthy will make exceedingly clear in his introductory remarks at our May 29 show (and will amplify considerably at the Marketing show we’ll hold on September 26 just about to be announced), publishers can and should plan and execute all their marketing efforts in a holistic way to keep learning both about the components of the marketplace environment and about individual consumers. And, yes, the bigger companies will have a definite scale advantage in doing that.

But in our increasingly unbundled book business, “scale” — unit costs going down with increased activity — can be applied to niches with precision.

Companies like Hay House and Harvard Common Press and even F+W Media are relatively tiny compared to Random House (even before the Penguin acquisition) or HarperCollins or Hachette, but their focus on specific audiences means they may learn more on a niche-by-niche, or even customer-by-customer, basis than the big guys do.

I keep being amazed at what my longtime clients at Vogue Knitting can do on the back of a relatively small-circulation magazine brand in a niche market, including staging phenomenally successful and profitable live events that will ultimately dwarf the returns from their book publishing efforts (and augment them at the same time). But they can truly apply the scale they have reaching the audience of people who knit and want to know more about it. Nobody can do it as effectively as they can.

(I’ve told this story before. An agent told me several years ago that he had sold a mind-body-spirit title to Random House and that they sold 12,000 copies. He sold the author’s second book to Hay House, a MBS publisher, and they sold 200,000 copies. At that time, I believe Hay House had about one million email addresses of MBS-interested people. They undoubtedly have many more now. That’s people that you can mail to free; scale doesn’t come more starkly presented than that. For MBS scale, Hay House is the 800 pound gorilla.)

What we’re beginning to see repeatedly is that scale can be provided from a position outside publishing. One of our panels on May 29 is of new publishers that work from a base outside the publishing business. Two major daily newspapers (the Chicago Tribune and the Toronto Star), a kids’ animation studio (Frederator), and a business school (Wharton) all have publishing programs. They’re built on their own scale, and they have cost-effectiveness both on the content creation side and the audience-reaching side of the spectrum of publishing activity provided by their existing activities.

Publishers have watched Amazon come into the publishing business employing their scale. They’re now seeing Google do the same thing. Google’s entrance is in a self-created game niche, apparently far less threatening than Amazon’s far-reaching multi-genre plus general publishing approach to signing up titles many publishers might also be competing for. (How long before Apple decides to publish some books?)

These cuts to the commercial publishers’ share of the market are coming from literally thousands of directions. Each is a relative pinprick, but cumulatively they could lead to a lot of bleeding. Will the “scale” that a big publisher can bring to marketing from the experience they have with thousands of titles from across the interest universe provide a proposition that gets them into the game for the biggest commercial-potential books that can be produced by this new myriad of players? If there is truly scalable marketing activity, it should only become more efficient by adding relevant titles to its activity base. That would seem like the modern publishing equivalent of the perpetual motion machine.

I’m not smart enough to know if that’s possible, but I don’t think we’d even be asking the question if bookstores had the share they had five years ago.

A dramatic demonstration of the opportunities that can be provided by scale occurred yesterday, when Amazon announced its new initiative “Kindle Worlds” around fan fiction. Fan fiction has existed in a commercial box; because it depends on using characters invented and owned elsewhere, it couldn’t be sold. But the all time record bestseller “50 Shades of Gray”, liberated by rewriting away from the “Twilight” characters that spawned it, showed the powerful commercial possibilities in the genre.

So Amazon is applying scale to create a whole new commercial enterprise. First, they are licensing the rights to material fans can turn into their own stories, starting with properties from Alloy Entertainment but clearly planning to build out from there. Then Amazon will sell (and own copyright) in the output, using its huge audience as a commercial launching pad and paying royalties to all the stakeholders. Everybody in the game wins: the originators, the fans who create the fiction, the fans who buy and read the fiction, and, of course, Amazon.

A few weeks ago, I wrote that there are three big forces driving the future of publishing: scale, verticalization, and atomization.

I was wrong. I had forgotten my own blogpost from last September when I identified another trend that belongs with the first three: “unbundling”. The book business, in the trade segment I follow most closely but in every other segment as well, is seeing its value proposition becoming unbundled in a number of ways.

Up until very recently, a trade publisher controlled just about every aspect of a book’s publication. The indispensible parts of the value publishers offered were two: the advance against royalties that often provided essential financing to enable the writer to create the manuscript and the network of relationships and infrastructure that put books on shelves for consumers to find and buy them.

Because the publisher was taking both a capital and reputational risk with every book published, it was natural that it would handle all the supporting steps: developmental and copy-editing, marketing and publicity, design and manufacturing. The publisher would commission the artwork for the book’s cover and determine what was the best foot forward on flap copy.

Until the turn of the 21st century, it was the exceptional author who had any kind of “platform” that could be employed for the book’s marketing: something like a TV show or newspaper column or fame achieved some other way that could be a springboard for promoting the book. In the cases where those opportunities existed, publishers recognized that the book was being “piggybacked” onto something that had its own commercial purpose and was not subject to the wishes or timetables of a book’s publisher.

What changed before the publishing business changed is that many of us have some sort of platform now, as in “a way to reach an audience”. And, although my platform isn’t comparable to Rush Limbaugh’s or Jay Leno’s, it is, indeed, mine all mine and I can do what I want with it. Many other people have platforms of their own that are far more powerful than mine.

It could be said that publishers themselves began the unbundling process as they got authors to use their platforms to market their books. With the advent of ebooks and driven by the CreateSpace services offered by Amazon, it became possible for any author to publish his or her own book and those with a platform, or even just building one, no longer had to get the assent of a publisher to put their book into the market.

My friend, futurist David Houle (whose new book “Entering the Shift Age” has been published by Sourcebooks), was frustrated in 2007 with his inability to connect with a publisher for his predictive thinking. He was just starting his blog, “Evolution Shift” and it didn’t have enough history or audience to persuade any publisher he found to put out his companion book, “The Shift Age”. So he did it himself, through Amazon, even before there was a Kindle. Over the years, David has sold about 7,000 copies of his book, many through Amazon but many more through his own public appearances as a speaker. (And what he’s made per copy is far more than what he’d have made in a publishing deal.)

Since Houle published “The Shift Age” several years ago, an industry has grown around offering services for publishing. This is referred to as the “author services” business. The core offerings are to take the creator’s file (in Word or InDesign) and make it accessible in various ebook formats at the front end and then to interact with ebook retailers (delivering the file and capturing the sales information and the revenue) at the other end. The services offered by the retailers themselves (and you can get this help from Amazon, Apple, Barnes & Noble, and Kobo) don’t push the ebook out to other ebook retailers. Amazon is the only one to offer a companion print option.

The first mover on these services in the ebook age outside the retailers was Smashwords. They’ve been joined by a host of others. Author Solutions, acquired about a year ago by Penguin, rolled up a number of companies that offered these services in the print-only world that existed before Kindle. They have all come to recognize that publishers provide more than the essential services at each end of the publishing process; they also provide editing and packaging and marketing services in the middle. So these have popped up as discrete offerings — “unbundled” — both through the complete service providers and as stand-alones.

Now there’s an aggregator of the stand-alone service providers, BiblioCrunch, which features a host of freelancers that any author can access. Another fledgling, NetMinds, which has made some news lately by publishing Nolan Bushnell’s book, makes provision of expert services in many categories a part of its model.

This unbundling effect plays out in interesting ways. When Hugh Howey sold the rights to his smash success “Wool” to Random House UK (before he had a US publisher), they worked with Howey and did some editing, including creating an additional chapter, for their edition. Howey took that component of Random House’s work and was able to make it available for the print edition he licensed in the US to Simon & Schuster and then incorporated it into the ebook version he sold himself.

All of this evidence that the publishers’ proposition is being unbundled leads to two strategic observations.

As the services game shifts from “authors” to “entities” (what I call atomization and of which there are new examples just about every single day), there is a critical job description missing from the service offerings. That job is “publisher”. The publisher makes the overall decisions about the editorial, production, and marketing resources that are committed to each book.

In the author services environment, this role can often be useful but would not be missed in many circumstances. There is no “what to publish” decision; the author has a book. There are very limited “resource allocation” decisions because the available resources to allocate are the author’s own.

But as entities of all kind take over from authors as the primary providers of books outside the industry itself, the role of publisher becomes critical. Decisions will need to be made.

There are 26 categories of helper available in BiblioCrunch. “Publisher” is not one of them.

I met last week in Los Angeles with a team of producers and development executives who are acting on an idea I have pushed: that Hollywood can become an important center for fiction book publishing. They have a core resource of thousands of great stories developed in the hopes that they will become a movie that ultimately doesn’t get funded, or as they say out there, “green-lighted”. This team has over 100 projects that are candidates for their book publishing efforts, but they can’t just “do them all”. They have to set up a company, pay to turn scripts into novels (or, at least, narrative stories), and put them into ebook and probably also print book formats. So, they asked me, which ones would you do first?

I said, “I wouldn’t ask me. I’d ask a publisher.” I named two very good and experienced ones immediately who are currently unemployed. These people have vast experience with all the decisions that are required: which stories are most saleable as books, what length the books should be, what style they should be written in, and how they should be titled, packaged, and promoted.

This necessity is even more evident when one thinks about non-fiction entities that might become publishers. If every museum, library, and department of a university is “a publisher waiting to happen” (and I believe all of them are), how could any of them proceed without a publisher?

If you were trying to get a museum started on becoming a book publisher, you’d begin with a discovery process that asked key questions. Who comes to the museum and what do you know about them? Who comes to the museum’s web site and what do you know about them? What IP do you already own that could be publishable as books? What good IP could you lay your hands on if you would publish it as a book? What is your relationship to sources of IP and marketing, like academic institutions, not-for-profits, or other museums? If you asked supporters of your museum for money to fund a publishing program, would they give it to you?

What the publishing program should be in response to the answers to those questions is something only a publisher has real experience figuring out. The publisher is the first service the entity needs. Renting a publisher takes precedence over renting an editor or a cover artist.

Ingram Publisher Services had a great success with a wildly expensive ($625) cookbook series (Modernist Cuisine: The Art and Science of Cooking) created by Nathan Myhrvold, the former Microsoft executive. Perhaps lost in the reporting of that story is the fact that Myhrvold’s first stop was to engage Bruce Harris, the former Publisher of Harmony Books and a former Random House sales executive. Harris has “publisher” in his DNA, and he undoubtedly shaped key decisions, probably including engaging Ingram in the first place, let alone directing their activites, that were instrumental to the success of the project.

So the first strategic point is that hiring all the services without hiring a publisher is like having a football team without a quarterback.

The second strategic observation is that the industry itself, but particularly the trade component of it, is also being unbundled. Disparate efforts that bookstores aggregated and welded together are now coming apart.

Here I’m not thinking about the value chain for each book, which is overseen by the publisher, but the value chain for the industry, which includes the supply chain. Although there have always been some vertical bookstores — in New York City until a few years ago they ranged from specialists in architecture to specialists in mysteries — most books were sold in general bookstores that sold everything. As publishers are forced to reach readers in different ways than they used to, the subject of a book, and the consistency of audience appeal within a publisher’s list, becomes a key to its marketing in ways it never was.

But ebooks are creating another distinction, between books that are meant to be read from start to finish and all other books: art books, illustrated instruction, references, and compendia. Narrative writing, particularly fiction, works as ebooks. The others don’t. That increasingly encourages publishers who depend primarily on narrative reading to stick to it and to not publish books of other kinds.

It is also creating a differentiated distribution problem for publishers, depending on their output. Publishers of novels and narrative non-fiction are seeing the decline in their print book sales compensated for by increases in their ebook sales. They have a new challenge reaching the audiences and making them aware of their books, but their problem isn’t exacerbated by the format change. Many of their readers simply switch over from print to digital on whatever device they want to use and one-color straight text printing enables reducing the print runs without costs getting completely out of line.

But that’s not true for publishers of other books. As bookstores close and readers switch to digital formats, they face existential questions. They can’t suffer the print run reductions readily. They can’t just make a digital version by copying the print. And, if they did, it won’t sell.

Some illustrated book publishers have robust distribution outside the bookstores, to museums or gift shops, for example. In some cases, the book trade was already a diminishing share of their business before the ebook revolution happened.

But the impact of digital change on publishers that used to all depend together on a healthy bookstore network is very highly variable. Their fates were joined. They’re now being unbundled.

Although the organizing theme of our Pub Launch BEA conference is “scale”, the other trends definitely get their moment. Ken Michaels of Hachette will talk about tools his company has developed that are being unbundled and delivered as services to other publishers. And the particular challenge of the illustrated book publishers as they lose the ability to piggyback on bestseller traffic in bookstores is the subject of the final chunk of the day’s programming. First, Ron Martinez of Aerbook will survey the new tools available to make putting an illustrated book into digital form cheaper and more effective. Then a panel of illustrated book publishers — Joseph Craven (Quarto Group), Tim Greco (Dorling Kindersley), Lindy Humphreys (Abrams), and Mary Ann Naples (Rodale) – will talk about how they are adjusting to the new retailing environment unbundling is creating in a panel discussion moderated by former Crown Illustrated publisher Lauren Shakely.

The overarching theme of our upcoming Publishers Launch Conference at BookExpo America on May 29 is “scale”. I thank my PLC partner, Michael Cader, for urging that we label that as a core concern worthy of being the centerpiece for a day’s discussion. (With that nudge, I identified “scale”, along with “verticalization” and “atomization”, as one of the three big forces driving publishing change in the current era of transition.)

We’re covering “scale” from many angles on May 29.

The program will kick off with a presentation from Pete McCarthy, formerly a digital marketing strategist at Random House, about moving beyond our standard understanding of “industry data” — what we learn about the industry in the aggregate from BookStats and Bowker and others — to mining and analyzing the massive amounts of public data about readers: who they are and where they are. The data we care about, and that can really help us, isn’t labeled “book publishing data” but is far more useful and actionable than much of what we try to decipher meaning from that is tagged that way.

The requirements of scale threaten to really change the business of literary agents. Since the rise of agents as intermediaries between publishers and authors in the 1950s and 1960s, it has always been possible for agents to operate as very tiny operations. Single-agent offices have never been terribly unusual, and agents could run a successful business with a handful of prosperous clients, or even just one! The unusual convention in publishing by which the buyer (the publisher) customarily pays for the lunch at which the seller (the agent) learns about the buyer’s likes and priorities has been a symbol of the viability of this highly decentralized world.

But those times are changing. The opportunities for self-publishing and the requirements for authors to be self-promoters have placed new demands on literary agency offices. It is often no longer sufficient to have knowledge of acquiring editors and what they want and a network of foreign co-agents who can help place projects in other languages and territories. Agencies large and small are adding self-publishing services, which can include capabilities as mundane as getting cover art designed and as sophisticated as distribution to a global network of ebook retailers. This adds the potential for “conflict” for the agents. In some cases, agencies have chosen a course that might present a choice for an author between a publisher’s deal and their agent’s deal.

These changes and the challenges they present will be discussed by three agents — Brian DeFiore of DeFiore and Company, Robert Gottlieb of Trident Media Group, and Scott Hoffman of Folio Literary Management — in a conversation that will be moderated by Michael Cader.

We will have presentations from three publishers about how they are employing scale. David Nussbaum of F+W Media (owners of our Digital Book World partners) will talk about how they support a variety of vertical businesses with central services providing ecommerce and event management that make it possible for all their communities to benefit from a wider variety of offerings and capabilities. Ken Michaels of Hachette will describe some of his company’s solutions to knotty challenges like digital marketing and metadata quality that they are then making available industry-wide as SaaS offerings. And Jeff Abraham of Random House will be talking about their efforts to utilize scale in a new publishing environment, to drive efficiency and reach in the supply chain and to reach consumers more effectively via their marketing programs.

Ben Evans of Enders Analysis studies big companies that operate at scale far beyond our industry but whose activities very much affect us: namely Amazon, Apple, Facebook, Google, and Microsoft. His presentation will focus on how their strategies and activities influence the environment for the publishing industry, with insights as to how publishers can surf the waves of these giants’ activities rather than be overwhelmed by them.

As publishers have rethought their organizations in the past several years, the words “business development” have popped up in publishing job titles, which they never had before. We’ll have four publishers talking about what “business development” means to them: Peter Balis of John Wiley, Andrea Fleck-Nisbet of Workman, Adam Silverman of HarperCollins, and Doug Stambaugh of Simon & Schuster, in a panel conversation moderated by Lorraine Shanley of Market Partners International.

Brian Napack was President of Macmillan for several years; he’s now an investor at Providence Equity Partners. In a conversation with Michael Cader, Napack will discuss how he views the importance of scale as an investor and how his views have evolved since he was an operator in one of the large companies that might be challenged by the scale of even larger competitors.

The changes in publishing and the provision of services have also enabled publishing with less organization or investment and by the application of scale created outside publishing to new publishing enterprises. A panel of new publishers with roots outside the industry: Jennifer Day of the Chicago Tribune, Steve Kobrin of Wharton Digital Press, Alison Uncles of the Toronto Star/Star Dispatches, and David Wilk of Frederator Books will talk about how their organizations publish in ways that wouldn’t have been possible or even conceivable a few short years ago on a panel that will be moderated by longtime Harper executive and digital pioneer Carolyn Pittis.

Dan Lubart of Iobyte Solutions has been tracking ebook sales data for years and has been providing the data and analysis behind the Digital Book World ebook bestseller list. Lubart will present insights from “behind” the bestseller list data, including a deeper dive into the trends relating to ebook pricing. The ebook bestseller lists have been the evidence of strong challenges to the publishers who operate with scale on their side, as an increasing number of self-published authors have seen their work rise to the very top of the charts.

Our conference will also tackle the special problems facing illustrated book publishing. The success of ebooks has been pretty much confined to narrative reading made reflowable on devices of any screen size. No formula or format has yet proven to work commercially for illustrated books. We’ll address that question from two angles.

Ron Martinez of Aerbook is the best thinker we know around the question of making creative complex ebooks and apps more efficiently. His company has developed its own tool, Aerbook Maker, to address that challenge. But Ron is also knowledgeable about and respectful of other efforts, including tools from Apple and Inkling, that reduce the cost of experimentation for illustrated book publishers looking for ways to deliver an appealing and commercially viable digital version of their content. He will kick off our discussion of the challenges for illustrated book publishing by reviewing the tools and best practices for lower-cost experimentation. And in his quest to improve the margins for illustrated book publishers delivering virtual versions, he has also worked out what might be a marketing and distribution tool that can improve the equation from the revenue side.

Ron will be followed by a panel of illustrated book publishers talking about how they plan to thrive in an environment where the virtual solution hasn’t arrived and the store environment is becoming more challenging. Joseph Craven of the Quarto Group, Tim Greco of Dorling Kindersley, Lindy Humphreys of Abrams, and Mary Ann Naples of Rodale will discuss these issues in a panel moderated by Lauren Shakely, who faced these challenges herself as the longtime publisher at Crown Illustrated.

Our normal practice at Publishers Launch Conferences, which this review of our planned show spells out, is to put the smartest and most articulate players really dealing with the challenges of digital change in the spotlight to talk about what they’re doing and what they’re facing. This has the virtue of showcasing real solutions to real problems.

Frankly, our view is that very few of the outside disruptors, often tech- and private equity-centric start-ups providing “solutions” to the problems as they perceive them, have gained much traction or added much value. We’ll get more perspective on that from our “business development” panel, who are the ones in their companies charged with interacting with the aspirants, but we stick to the belief that there is more to be gained by watching what the established publishing players and the biggest companies in technology are doing than in tracking the theories spawned by industry outsiders who think their insights will change our world.

But we recognize a weakness to our approach. There are some things the established players just can’t discuss. We can’t expect Random House and Penguin — or their biggest competitors — to talk about what the merger of the two biggest publishers will mean to the marketplace. We can’t expect publishers who must trade with Amazon and Barnes & Noble to discuss the impact of their unique marketplace power — one in online sales and one in brick-and-mortar — on publishers’ margins. We can’t expect agents and publishers to talk candidly about when and whether established authors might be willing to eschew their bookstore sales in favor of higher margins on their online sales through a direct tie to Amazon.

But Michael Cader and I have informed opinions on these subjects and neither of us is looking for a job in the industry beyond the one we already have, which is, from our different perches and platforms, to call them as we see them. So we’re going to engage in a 30-minute 1-on-1 discussion of the topics we think it would be hard for the speakers we recruit to discuss as candidly as we will.

I think our discussion will be a highlight of what will be a stimulating day. Frankly, I’m looking forward to all of it. Join us if you possibly can.

The organizers of the Buenos Aires Book Fair, which will run for the next few weeks, invited me to speak at an opening session of their event last Friday. They left the topic completely up to me. What I offered to do, which the organizers liked, was to review the history of the past 20 years of digital change in the US and in the English language which has brought us to this point. The presumption is that understanding how it happened to us will help them understand what is going to happen in their market, in other Spanish-speaking markets, and in other countries and other languages.

The underlying premise of my talk, which was delivered formally at a Book Fair opening event last Friday and informally to other gatherings they scheduled for me — of students, of young editors, and of some publishing executives — and in a meeting consulting with about 20 employees of one publishing house, was that what happened in the US and then elsewhere in English was unique and would not be replicated in the same way in other languages and territories. What I had identified as the unique characteristics of the US market were:

Three hundred million people with one language, one currency, one commercial set of rules.

A powerful player (Amazon) able to change both publisher behavior (twisting arms to have them provide more titles as ebooks) and consumer habits (getting them to consider what started as an expensive device — a $400 Kindle) with their marketplace power.

Indeed, no other market has those two elements. In fact, in many markets, including all of the players I talked to in Latin America, Amazon is not seen as a really signficant factor.

In addition to the conditions that made the US market unique, I stated two additional assumptions which drew little objection from my audiences in Buenos Aires.

At some point — whether it is five years from now or 20 years from now — the world’s book publishing markets will look very similar. That is, the effects we see in the US — patterns of ebook uptake and the consequently devastating effects on bookstores — will somehow be replicated in other markets.

Both because the unique market characteristics of the US don’t exist elsewhere and because the market already made in the US has created global players and infrastructure that weren’t here when the ebook revolution caught hold, we need to expect that it will be a different path to the future in other places from what we saw in the US. The markets will not be made by the inherent marketplace scale and by Amazon, as ours was.

I thought some things we’ve seen constituted “universal” lessons worth taking on board. We’ve seen ebooks consistently work commercially for narrative reading and not for any other kinds of books. We haven’t seen “enhancements”, like video or interactivity, pay off in bigger sales or in making it easier to command higher prices. I suggested they should expect the same, and the people I spoke with agreed. They should also expect that the product competition from outside the commercial publishing community, which we’ve seen so far primarily from self-published authors, will drive down the prices for books from established authors as it has in our market.

But the more I probed, looking for what would make the market, the more I ended up in blind alleys. There is no online purchasing market anywhere in Latin America to compare with ours. That’s why Amazon hasn’t gained a strong foothold. Kobo’s strategy of working through local booksellers — an alliance has been formed in Brazil and they are clearly looking for partners elsewhere — apparently hasn’t made much of a dent either. One publisher said Apple sales were “promising”, but they’re still “insignificant”.

The reality underlying all this futility is the relative dearth of credit card use. In the US, we have had about three generations of ubiquitous credit card use. They are second nature to us. And the online purchasing world — Amazon in particular — would never have achieved the position they have if that weren’t true.

Well, it isn’t true in Latin America.

There is no way to make an ebook market, which must be an online market, without a payment mechanism. And the one we have in the US isn’t set up to work in Argentina, Brazil, or the rest of Latin America (or, for that matter, in many other parts of the world).

Of course, the cell phone carriers, who do send a bill and collect money from the masses in all these countries where credit card use is limited, had figured that out a long time ago. Nokia and others have been dancing around this opportunity for years. Txtr, a Germany-based ebook play, targets the cell phone companies as its path to the market. Txtr is building an inventory of titles and has come up with an ultra-low-cost ereading device called beagle to jumpstart their market. In doing that, they show that they learned something from Google’s experience, where ebook sales only started to grow when the Nexus7 tablet, which is tied to Google, made its way into the market.

All the conversation led me to come up with my own version of an “answer”; I don’t know if anybody else has made this suggestion but the small bit of conversation I was able to have between having this thought and leaving Buenos Aires didn’t uncover evidence that anybody else had.

It takes three components to make an ebook market:

1. A device to read the ebooks on. That could be a laptop or desktop computer or dedicated ereading device, but it is most likely to be a smart phone or a tablet.

2. A store: a merchandised selection of ebooks that can be shopped through browsing and searching that is compatible with the device.

3. A payment mechanism.

In the US, we really didn’t think about the payment mechanism. For many other places in the world, that’s a very tricky part.

Txtr is trying to deliver the missing pieces to the solution to the telcos, right down to delivering a very inexpensive device that can be the reader if the cell phone is not.

What occurred to me, and I’m wondering whether it is being developed by anybody else, is what I think would be an even better — as in more likely to build a market quickly — solution. What I’m imagining is that a device manufacturer (or more than one, but if one, preferably one that makes both smart phones and tablets) teams up with a cell phone company (to do the billing) and persuades the ebook retailers — Amazon, Google, B&N, Kobo — to accept payment through the phone company. Then that hardware manufacturer has a fabulous value proposition to help them sell their devices and the ebook market has a choice of the best retailers with the best selections of ebooks already aggregated.

Actually, persuading one retailer will persuade them all. If Samsung were pushing a tablet and smartphone and got any of the major ebook retailers to go for the proposition, the others would surely have to follow. And, in fact, it would make sense for either Apple or Google to do this when they sell apps in credit-card-challenged markets as well.

Another complication in some places — particularly Brazil and Argentina at the moment — is created by complex regulations that make the sale of hardware manufactured outside their country either impossible to get or extremely expensive. Although that’s a problem that extends beyond the book business, it is much more likely to be solved by a multi-function device-maker than for one dedicated only to ebook consumption.

It is interesting to think about Apple’s position here. The other big ebook retailing operations already provide apps for both iOS and Android devices as a matter of course. The iBookstore, however, is a Mac-only play. If the solution I’m envisioning were to roll out around the world — and one can imagine a company like Samsung making such a thing happen — would that continue to be the wisest play for the Apple-owned ebook retailer? I think not, but one can only imagine how intense the internal discussions around that point could be.

The idea of vendor-managed inventory has never become particularly popular in the book business, despite a few experiments over the years where it was implemented with great success. (And despite the fact that I was pushing for it back in 1997 and 1998.) But as the book business overall declines, with the print book business leading the slide and that portion of the print book business which takes place in retail stores falling off at an alarming rate, it is time for the industry to think about it again.

In fact, VMI for the book business began with the ID wholesalers and mass-market paperbacks right after World War II. The IDs — the initials stood for “independent distributors” — managed the distribution of magazines and newspapers at newsstands and other accounts within their geographical territory. The retailers had no interest in deciding how many copies of LIFE they got in relation to Ladies Home Journal; the ID made that determination. And since only the torn off covers were necessary for confirmation of a “return”, the “bulk” cost of distribution was in putting the copies in, not taking back the overage. And because newspapers and magazines had a disciplined frequency, it was obvious that you had to clear out yesterday’s, or last week’s, or last month’s to make room for the next issue.

When the first mass-market paperback publishers started their activity right after World War II, providing books for, among others, returning servicemen who had access to special servicemen’s editions of paperbacks (in a program created by the polymath Philip Van Doren Stern, a Civil War historian and friend of my father’s) they helped the jobbers along by having monthly lists. They also were comfortable with a book only having a one-month shelf life and having the stripped covers serve as evidence the book hadn’t been sold.

For quite some time, the initial allocations to the ID wholesalers (the local rack jobbers were called “Independent Distributors”) were really determined by the paperback publishers. Eventually, that freedom to put books into distribution choked the system, but there were a lot of other causes of the bloat. By the 1960s, many bookstores were carrying paperbacks and many other big outlets were served “direct” by the publishers, leaving the IDs with the least productive accounts. But VMI, even without any system and very little in the way of restraints on the publishers, was responsible for the explosive growth of mass-market paperbacks in the two decades following World War II.

In the late 1950s, Leonard Shatzkin, my father, introduced The Doubleday Merchandising Plan, which was VMI for bookstores on Doubleday books. For stores that agreed to the plan, reps reported the store’s inventory back to headquarters of Doubleday books rather than sending an order. Then a team posted the inventories, calculated the sales, and followed rules to generate an order of books to the store. Sales mushroomed, particularly of the backlist, and returns and cost of sales plummeted. Doubleday was launched into the top tier of publishing companies.

In a much more modest way, a distributor that my father owned called Two Continents introduced a VMI plan in the 1970s. Even with a very thin list and no cachet, we (I was the Marketing Director) were able to get 500 stores on the Plan in a year. We achieved similarly dramatic results, but from a much more modest base.

Two Continents was undone by the loss of some distribution clients. The Doubleday plan was undermined by reps who convinced headquarters years after my father left that their stores would be more comfortable if they wrote the Plan orders rather than letting them be calculated at headquarters. And the rise of computerized record-keeping systems for inventory and national wholesalers who could replenish stock quickly improved inventory performance, and store profitability, without VMI. Although our client West Broadway Book Distribution has successfully operated VMI in specialty retail for more than a decade, and Random House has worked some version of VMI at Barnes & Noble for the past several years, the technique has hardly been considered by the book trade for a long time.

It is time for that to change. What can foster the change is a recognition about VMI that is readily apparent in West Broadway’s implementations in non-bookstores, but would not have been so obvious to the bookstores using Doubleday’s or Two Continents’ services.

From the publisher’s perspective, the requirement that there be a title-by-title, book-by-book buying function in the store in order for the store to stock books purely and simply reduces the number of stores that can stock books. The removal of that barrier was the key achievement of the ID wholesalers racking paperbacks after World War II. Suddenly there were thousands of points of sale that didn’t require a buyer.

From the store’s perspective, buying — and managing the supply chain to support the buying decisions — is expensive. VERY expensive. Books are hard to buy. New ones are coming all the time; the number of publishers from which they come (and who are the primary sources of information about the books, even if you could “source” them from wholesalers at a slight margin sacrifice for operational simplicity) is huge; the shelf life of any particular title is undeterminable; and the sales in any one outlet are very hard to read.

Consider this data provided by a friend who owns a pretty substantial bookstore.

Looking at the store’s records for a month, 65% of the units sold were singles: one copy of a title. Only 35% were of books that sold 2 or more. (I didn’t ask the question, but that would suggest that 80-90 percent of the titles that sold any copies sold only one.)

Then, the following month, once again 65% of the units sold were singles. But only 20-30 percent of them were the same books as had sold as singles the prior month. Upwards of 70% of them were different titles. And upwards of 70% of the ones that sold one the prior month didn’t sell at all.

To further underscore how slowly book inventory moves, another report they do shows that more than 80% of the titles in the store do not sell a single copy in any particular month. So it is no surprise that an analysis of books from a major publisher that promotes heavily showed that more than half the new titles they receive from that publisher don’t sell a single copy within a month of their arrival in the store, which would include the promotion around publication date!

These data points demonstrate another compelling reason for VMI. When a store sells none of 80% of its titles in a month, and of the ones they do sell 80% of those sell one unit, they clearly need information about what is going on in other stores to know which ones to keep or reorder and which ones to return. Above the Treeline is an inventory service which provides its stores with broader sales data to address that issue, but the information is not as granular or as susceptible to analysis as what a publisher or aggregator could do with VMI.

Partly because of the high cost of buying and a supporting supply chain that a book outlet requires, publishers will see shelf space for books drop faster than retail demand. (The closure of Borders, which wiped out a big portion of the shelf space, is part of what is behind the recent good sales reports from many independents.) At the same time, retailers of all things will be under increased pressure to find more sales as the Internet — often, but not always, Amazon — keeps eating into their market.

This all adds up to VMI to me. We’ll see over the next couple of years whether industry players come to the same conclusion.

There are three overarching realities that are determining the future course of book publishing. They are clear and they are inexorable:

Scale, and its close cousin “critical mass”, is the ability to use size as a competitive advantage in any endeavor;

Verticalization, or being in sync with the inherent capability of the Internet to deliver anything of interest in an audience-specific way; and

Atomization, or the ability for any person or entity to perform the most critical component of publishing — making content available and accessible to anybody anywhere — without capital and without an organization dedicated to distribution.

Scale

In the 20th century, scale in publishing was really an internal concept. Big publishers had more resources to sign books, get to bookstores, and roll out marketing than smaller ones. Barnes & Noble and Borders had supply chain and cost advantages over independent bookstores, except that Ingram and other wholesalers lent their scale to provide partial compensation. Bigger literary agencies had negotiated more boilerplate agreements than smaller ones and often had helpful relationships that went beyond publishing, but a single operator could still cultivate enough editors to make a legitimate case that he or she could place a book as effectively as the giants.

But that’s changed entirely in the past 10 years. Now publishing operates in a world increasingly controlled by Amazon, Apple, and Google, all companies that make far more money outside of books than through books. One Big Six CEO observed to me about five years ago that the time had passed when s/he could call all the biggest trading partners of their company and reach the CEO instantly. Penguin Random House has merged into a publishing company that will control about half the most commercial titles in the marketplace, but any suggestion that their size will enable them to dictate much to Amazon, Apple, or Google is deluded.

What Random House can do is apply scale against other publisher competitors. And they will.

Critical mass is a scale-related concept but it is also a component of verticalization. When a publisher, or any aggregator, has enough material to allow it to ignore competition in a consumer offer, it has achieved the effective barrier to entry that scale also provides. For example: subscription models for general books are a very difficult commercial proposition because the biggest agents for the biggest authors wouldn’t want their titles included. But Amazon might just have so many titles they can make available through a subscription offering that they can do it successfully even without the top of the bestseller list. The new Penguin Random House combination might also be able to do something here, if the avoidance of a 3rd party could generate enough revenue for the authors to change the minds of the agents, even though they’d be doing it with just their books. After all, Spotify was able to aggregate enough music to sell subscriptions even before they brought The Beatles into their catalog.

Another smart and relevant application of scale is by F+W Media (our partners in Digital Book World conferences), which publishes across a range of communities. They are able to offer each one the advantages of a direct retailing operation, because they maintain that capability through the scale of their entire operation. Some of the verticals in which they apply it wouldn’t be able to support such a capability on their own. F+W applies scale to their niches with their web and event teams as well.

Verticalization

In the 20th century, most trade books reached their customers through bookstores. That liberated publishers to be largely audience-agnostic in their choices about what to publish. They could stick a memoir, a novel, a knitting book, a travel guide, and a kid’s pop-up book into the same box and the bookstore would sort it out for the consumer, putting it on the appropriately-labeled shelf for the shopper.

In those days, the devotee of any subject from baseball to cookbooks would think nothing of browsing the shelves of several different bookstores to find all the offerings relevant to their interests.

Those days are gone. Twice.

Thanks to Google and its competitors, the entire universe of offerings around any topic of interest are aggregated and surfaced very quickly. And bookstores and the staff and shelf space publishers used to sort things out are disappearing.

All of this is driving publishers to be audience-centric in their thinking in ways that were never required before. If the Internet is how customers are reached, not bookstores, it becomes evident pretty quickly that it makes for highly inefficient marketing to be all over the lot with your subject matter or genres. It didn’t used to matter to publishers if they had the “next book” for the person who bought the last book. But it surely does when you’ve spent good marketing money and effort to find and reach that person, and when you can often stay in touch with them in a cost-free (or at least very low-cost) way going forward.

It is in audience-centric marketing that scale can be applied successfully today, using size and resources to improve the ability to reach out rather than to lower the unit cost of some internal mechanistic function. Understanding the reality of verticalization should also prompt publishers to rethink the way they define and build brands. Imprints are brands within a publishing house meant to communicate to their trading partners: bookstore buyers and reviewers in one direction and authors and agents in the other. In a vertical world, brand-building should be much more audience-centric. This particular requirement to think differently seems to be very challenging for publishers.

Atomization

In the 20th century, it took capital and an organization to publish a book. While you always had to provide your own capital to be a publisher, ways evolved to “rent” the organization, specifically the distribution services offered by most publishers and some specialist organizations.

The barrier to entry for book publishing was always relatively low compared to other media: magazines, newspapers, radio, TV, and movies would all require much more of a financial and organizational commitment than was required to publish a book. But there definitely was a fence around the book publishing world, and the position of “gatekeeper” was both well-earned and well-rewarded.

But those days are gone too.

As of this writing in April 2013, sales of any book of narrative reading will, depending on topic or genre, be 20% to 60% in ebooks, which requires no inventory investment and minimal distribution infrastructure. Sales of the printed books — the other 40% to 80% — will be anywhere from 25% to 50% through online channels. Those sales can also be achieved (largely through Amazon) without an investment in inventory, printed at the moment they’re ordered.

The first flood of opportunists exploiting this new reality were authors who self-published. Some, like Bob Mayer and Joe Konrath, took the brands they’d built through traditional publishing (and sometimes even the very books themselves) and created a new commercial model where the majority share of margin taken by the publisher was divided between them and the retailer, usually Amazon. Others, like Amanda Hocking and John Locke in the early days  and hundreds of others since, built publishing brands on their own. These authors were driven by the desire for recognition of their writing and, in some cases, by the conviction that they could make money. Their existence in large numbers fueled the creation of an “author services” industry. The biggest and most profitable of the companies in that business, Author Solutions, was bought by Penguin a year ago. Amazon built a business called CreateSpace to serve this market; Barnes & Noble and Kobo and Apple all offered varieties of the same set of capabilities.

Recently, we have seen a rush of other content creators — newspapers, magazines, web sites, and new companies dedicated to exploiting the book opportunity — building their presence as book publishers, or at least as ebook publishers. There are experiments with content types (short form, author-centric) and business models (subscription being a frequently-tried one on which the jury is still definitely out).

But all of this is a precursor to the next wave, when every law firm, accounting firm, consulting firm, department of a college or university, retailer, service provider, and manufacturer will see the benefits to them of building the function of book publishing into their marketing mix. This will truly constitute an existential threat to book publishing as a business, because these entities will not be building their publishing programs with profits primarily in mind. That will make it exceedingly difficult for the companies that do — the book publishing business we’ve always known — to compete. The quality they deliver costs money. The prices they need to charge are based on their costs.

Their books will be in a marketplace competing with titles supported by other rewards and priced with considerations other than profit in mind.

Scale, verticalization, atomization. Examine any new proposition you hear about against the filter of those concepts and I think you’ll have a pretty fair sense of whether it has much chance for success. Hitting two of those three marks is no guarantee of prospering, but failing to hit any would be a pretty fair assurance of failure.

Our Publishers Launch conference at BEA on May 29 has several presentations focused on the theme of scale. We’ll have presentations from Random House, Hachette, and F+W Media about how they’re applying it for competitive advantage. We’ll have a panel of agents discussing how scale affects their role in publishing. And in a discussion my PLC partner Michael Cader and I will be having, trying to talk about the things people in publishing jobs are constrained to discuss, it will certainly be a core topic.

Our regular readers may notice a relative lack of links in this post. Because this synthesizes and re-articulates many thoughts we’ve expressed over the years, we thought it might be more helpful to gather the relevant internal links here at the bottom of the post rather than placing some of them throughout. The links from speeches and posts here are presented chronologically to document the evolution in thinking that led to today’s post.

End of General Trade Publishing Houses: Death or Rebirth in a Niche-by-Niche World – 5/31/2007

Stay Ahead of the Shift: What Publishers Can Do to Flourish in a Community-Centric Web World – 5/29/2009

The Emerging Opportunity for Today’s Publishers – 6/17/2009

The Need for Critical Mass is Why Verticalization is a Process – 6/22/2009

Verticalization in Action – 7/2/2009

Why Publishers Need to Understand Brand – 9/23/2009 

My Advice is Not Always Easy to Follow, But Sometimes It Proves Right Anyway – 3/29/2010

Cool Springs Press, a Gardening Publisher that Really Understands “Vertical” – 6/23/2010

Publishing is Living in a World Not of Its Own Making – 7/24/2011 

Will Book Publishers Be Able to Maintain Primacy as Ebook Publishers? – 10/9/2011 

True “Do-It-Yourself” Publishing Success Stories Will Probably Become Rare – 11/6/2011 

Publishers Adding Value on the Marketing Side – 11/17/2011 

Two Questions That Loom Over the Trade Publishing Business – 2/28/2012 

Amazon’s Growth and Its Lengthening Shadow – 4/30/2012 

Everybody in Hollywood Needs an Ebook Strategy – 5/14/2012 

Subscription Models Seem to Me to Be for Ebook Niches, Not a General Offer – 7/16/2012 

Explaining My Skepticism about the Likelihood of Success for a General Subscription Model for Ebooks – 7/22/2012 

Going Where the Customers Are Might Be an Alternative to Selling Direct – 8/9/2012 

Full-Service Publishers Are Rethinking What They Can Offer – 9/4/2012 

New Publishing Companies Are Starting That Are Much Leaner Than Their Established Competitors – 9/24/2012 

Peering Into the Future and Seeing More Value in the Random Penguin Merger – 11/26/2012 

Business Models Are Changing; Trial and Error Will Ensue – 12/3/2012 

Rethinking Book Marketing and Its Organization in the Big Houses – 12/17/2012 

Buying Is a Hard Thing for Bookstores to Do Effectively, and That Becomes an Increasingly Important Reality for Publishers – 1/23/2013 

Ideas about the Future of Bookselling – 2/7/2013 

Publishers Are Reshaping Themselves – 3/12/2013 

Atomization: Publishing as a Function Rather than an Industry – 3/19/2013 

More on Atomization: Why the New Publishers Are Coming – 3/26/2013 

The most recent post here laid out a future for trade publishing that will be less and less about traditional publishers and more and more about non-traditional publishers delivering books into the marketplace without the financing or “approval” of a profit-seeking publisher. That’s a radical change from the industry we’ve seen grow over the past 100 years when book sales in retail stores of all kinds have been the primary revenue source for publishers and authors.

Obviously, the likelihood of what that post predicts coming to pass is dependent on the validity of the argument that a substantial amount of commercially viable publishing will take place without the funding of the commercial trade publishers. Of course, “commercial viability” is a function of the publisher’s objectives; the new book publishing entities have ways to win that aren’t just about the profit they make publishing their books.

Books have a mystique and symbolic power, for a reason. For three centuries, they have been at the center of high-value communication of stories, information, and ideas. The number of entities that generate content that fits that description is far larger than the number of book publishers, and includes entities that wouldn’t be thought of as publishers of any kind at all.

Because delivering a book requires managing a huge variety of details and because selling one effectively has always needed a multi-faceted organization and an investment in inventory, until recently only companies dedicated to the business of books could effectively publish them.

Not anymore.

Because of ebooks and digital distribution, it is now possible for any content packaged as an ebook — if marketed effectively to its target audience — to find its readers (or to be found by them). The big publishers of today are all grappling with how to re-connect with their readers in an information universe that has been redefined. Meanwhile, the networks by which they have always connected with readers in the past — bookstores and mass merchants and even libraries — are becoming less and less relevant as readers increasingly read on devices and find what they’ll read through their online interactions.

But where there are challenges and painful adjustments in store for the biggest publishers, there is vast new opportunity for just about every other enterprise that connects to a lot of people and knows something about what those people want to know. And companies are increasingly figuring that out.

Jeremy Greenfield is the editor of the Digital Book World website; we partner with DBW to deliver their annual conference. Long before the post last week “predicting” that entities that aren’t book publishers would become book publishers, Jeremy had been keeping a list of them. It’s impressive. When we asked Jeremy what was on his list, he sent us this note:

Most recently, Scientific American launched a series of ebooks. American Express Publishing launched an ebook line with Vook. The Atlantic began to publish its own ebooks. USA Today published USA Tomorrow, a collection of expert predictions about the future of America. Harlequin and Cosmopolitan magazine inked a deal to publish several ebooks a month together. Newsweek/Daily Beast entered into a partnership with Vook to publish ebooks. Playboy launched a series of shorts for the Kindle, the Washington Post announced an e-book program, and the Chronicle of Higher Education, a trade publication focused on the higher education field, launched an e-book business. Other notable companies to jump into the space are magazine publishers Conde Nast and Hearst and NBC News, a division of NBC Universal. And the Wall Street Journal has recently rejuvenated its e-book program.

In addition to these, we know of more: the New York Times, the Toronto Star, the Chicago Tribune, the Boston Globe, TED Books, Esquire, the Guardian, Wharton Business School, the US Army, Provincetown Public Library, the Saturday Evening Post, Xiamen Bluebird Cartoon Company of China, cartoon-producer Fred Seibert creating Frederator Books, and Scott Rudin and Barry Diller’s Brightline, and many others.

Of course, all of these are content-producing entities; many of them are even print-content producers. But it simply wasn’t in their power to decide to become book publishers until the world changed.

Three companies which started out with content-generation ideas of their own — Vook, Byliner, and Atavist — are frequent partners for these new publishers, as are existing publishers from Big Six players to Perseus’s Constellation, Ingram, new ebook publishers Open Road, Diversion and Rosetta, and other companies like INscribe and PressBooks. (Not all of these have gotten into this game yet, but they certainly all will.) These companies are serving the first wave of fledgling publishers and the aspirants so far have been content-generating companies.

Some of those we’ll soon see wouldn’t think of themselves as content creators. Before long, I’d expect to see every museum, every historical society, every consulting firm and law firm and accounting firm joining the party.

For example, a law firm of our acquaintance sent us a notice last year that key members of their team had put together a “White Paper” about changes in trademark law. I called the partner there that I knew and asked “why don’t you publish it as an ebook?” He said, “I don’t know.”

Another attorney to whom I told the story patiently explained to me that intellectual property like this was created to be given away to lure clients to the firm and impress them. Why, I was asked, should we publish it as ebook? What would we gain?

That’s pretty simple. Somebody will go to Amazon and search “trademark law”. You want to come up! And, in fact, you could price your White Paper at $100. It wouldn’t be great for sales, but you’d get the discovery benefit and you’d be putting a marketplace value on what you’re giving away for free. You win twice.

The next wave will be everybody else: every brand with a following, a meaning, a reputation, a website. The next group will need editorial services which presents a whole new set of opportunities for writers, agents, and, especially, packagers. And it will present an opportunity for me to elaborate more on atomization in another post.

Of course, we’ve got this subject covered at our upcoming Publishers Launch Conference at BEA on May 29. The program is starting to take shape, and we’ll have a panel called “Outsiders: New Book Publishing Operations from Media and Content Companies”. Steve Kobrin of Wharton Digital Press, Alison Uncles of the Toronto Star, and David Wilk, just appointed the publisher of Frederator Books, will be speaking on it. Each of their programs is quite different from the others, as are their objectives. But all of them are heading up businesses that would scarcely have been conceivable five years ago.