June, 2009

The evolving role of agents

Because of a couple of panels I spoke on last spring and because of the development of FiledBy, I have had more and more conversations lately with agents. They are part of the General Trade Publishing ecosystem. So their lives are getting more difficult and more complicated, like everybody else’s in Book Valley.

The agents’ concern is frequently expressed as “what do I tell my authors?”  Publishers are increasingly insistent that a prospective author have an internet platform to build on before they sign a book. Editors always wanted credentials to back up a writer’s authority on any subject; now they’d like to see that the writer has a following on that subject as well.

But agents are also concerned about themselves. The two most innovative imprint initiatives in recent memory — Bob Miller’s HarperStudio inside HarperCollins and Roger Cooper’s Vanguard inside Perseus — are built on the idea of reducing risk, paying the author a lower advance. Yes, they also promise a higher reward (higher royalty), but experienced agents know most books don’t earn anything beyond the advance.

Miller and Cooper are smart guys and it could well be that their imprints will have a higher percentage of earnouts than most. But, as smart guys, they wouldn’t be willing to pay more on the high side if they didn’t believe they were saving at least that much on the risk side.

The advance pool is probably shrinking. John Sargent, Macmillan’s CEO, said as much at a gathering of agents a couple of months ago when he explained that the de-leveraging that is taking place throughout the economy is also taking place in publishing. Big houses just won’t have the cash available to them that they used to, and that means less money for advances, less money for printing, and less money for promoting.

But in addition to shrinking, publishing advances are taking on much more of a power law configuration, with concentration at the top and a long tail of books getting less and less (and extended by mushrooming self-publishing where the “advance” is actually negative; it’s a cost!)

This is already having an effect. I have heard from people who know that larger agencies are now shopping among the smaller ones to buy them out. It takes more agents working to pay the same rent than it used to. And the smaller agents are finding it harder and harder to make a living so they’re ready to sell out a bit of their upside to get some stability. The small number of agents that have clients at the power end of a power law distribution are doing great; those who have traditionally made a living on making lots of second level deals are really suffering.

Compounding the problem for agents is the changing nature of publishing opportunity. While the sales and royalty potential of the book through the publisher is declining, other opportunities are opening up. There is a multiplicity of ebook channels that in the aggregate do not replace the revenue that print used to provide and doesn’t anymore. Chunks of books and material too short to be published as a book can be sold through them. Agents have for years been trying to split off audio rights to sell to Audible or Brilliance or Tantor Media. The opportunity to sell content to web sites seems to be emerging. But all of these deals require conceiving, pitching, closing, negotiating, and contract reviewing. For fifteen percent of what?

And further comlicating things is the ubiquitous self-publishing option. As self-publishing becomes part of the strategic approach to getting a “real” publisher (and it is), it adds a further complication to the business relationship between agent and writer. Is it fair for an agent to work with a writer on developing a proposal or a manuscript and then, when it fails to sell to a publisher, see that writer self-publish what amounts to a collaborative effort without owing anything to the agent? I think most agents would say, “NO!”

An agent for a book writer carries the same title as the agent for an actor or the agent for a performing musician but that’s a bit misleading. A book writer’s agent is really a business partner, more like the managerof an actor or musician. I see the writer and agent as two halves of a business: the writer creates the product and the agent handles the B2B relationships necessary to turn it into money.

When the book agent’s job, most of the time, was to find the biggest possible up-front payment for an author’s work, a straight commission deal made complete sense. With writer-pays options becoming not only more common and accessible, but more sensible as a commercial choice and, indeed, becoming part of the step-ladder to commercial success, it increasingly will not.

At a conference on “Giving It Away” in Toronto at which I spoke two weeks ago, Carolyn Pittis of HarperCollins was explicit that the publisher buying content and making money by selling it was “one model”, and she pointed out that there is a “fee for services” model as well. The inference I drew was “that’s not what we’re doing today, but every option is on the table for tomorrow.” Why not? Don’t we have to believe that one of the exit strategies for the investors in Author Solutions, the biggest rollup of self-publishing service companies, might be to sell to one of the Big Six who, despairing of the future of their publishing model, tries to buy their way into a new one?

I am old enough to remember that agent’s fees, now standard at 15% of revenue, once were 10% (like the agents in other businesses I referred to at the top.) When that change happened — was Scott Meredith the first? — many of the 10 percenters sneered at the change as exploitation. But eventually they all went that way. About 10 years ago, agent Richard Curtis started EReads, an ebook publishing company which gave his authors, and others, another choice besides throwing the ebook rights in for print publishers who, at that time, seldom exploited them. Curtis was also excoriated in some circles for generating a conflict of interest, which, indeed, it would have been if he steered his authors away from better ebook options with their publishers. (He doesn’t do that.) It would be like a doctor owning a medical testing business, for crying out loud! (And they do do that…)

A friend of mine in the financial business wrote a book 20 years ago and wanted to get an agent to sell it. He knew the advance would be low, but he also knew the book would add credibility to his business. He wanted it sold. An agent told him that the agency only handled books on which they thought the advance would be $25,000 or more, yielding a commission of $3,750 at the normal 15%. This friend told the agent, take the first $3,750. The agent took the book, sold it for $6,000, and everybody was happy. This kind of arrangement, as well as others where the agent actually charges a fee for helping an author manage self-publishing options, are going to have to become more common in the future. Let’s not be too judgmental about the pioneering agents who change the paradigm.


Family businesses

The New York Times had a story on Tuesday morning about an advantage the Ford Motor Company had over its competitors at GM and Chrysler: it is still family-owned. As the Times explained, the family ownership was able to take a longer view than their competitors. In fact, we still don’t know whether the re-tooling the family has ordered up will work in the long run. But we do know that they have had a steadier and more far-sighted management because the family cared about the long-term health of the business, not just the next quarter’s profits.

This recalled to me a conversation that I had with Peter Wiley, currently the Chair of the Board of John Wiley & Sons, over dinner 15 or more years ago. Peter said then that he believed Wall Street undervalued family ownership. As Peter put it, “just about all our competitors are focused on quarter-to-quarter results. Mike, my family has owned this company since 1807. I am not thinking quarter-to-quarter.” Wiley’s financial results (even though they have suffered in this recession along with everybody else) over time have certainly vindicated Peter’s opinion.

Family-controlled businesses have been  been ubiquitous in publishing through my whole career. When I was young, there were Scribners at Scribners, Doubledays at Doubleday, sometimes two Roger Strauses at Farrar, Straus & Giroux. When family-controlled but publicly-traded Barnes & Noble acquired Sterling in 2002, they acquired it from the founding families: the Hobsons and the Boehms.

I have consulted with several family-owned or -controlled businesses. Wiley, Barnes & Noble, and Ingram are distinguished by how well managed and basically competent they are as organizations. They really do the “blocking and tackling” well. A big part of the competitive edge of all three companies is in the quality of their operations.

They make the investments, particularly in infrastructure, that are critical to the business. I once asked Peter Wiley why it was that his company’s travel web sites were so much more commercially successful than those of other publishers with equivalently-strong travel brands. “Constant, controlled experimentation,” he said. “What worked for us was on the third try. We didn’t get it right the first two times.” Family ownership — with belief — can make those kinds of investments and stay with them. And it can support a second and third attempt to make a good strategy that is tricky to execute succeed.

John Ingram, the member of the owning Ingram family who runs the book industry-related businesses, got a clear vision of the potential in print-on-demand a little over a decade ago. Very few other owners, and almost certainly no publicly-traded owner, would have made a bet of the scale, in relation to the size of the company, that he did with Lightning Print. But John could see that POD would become extremely important and that Ingram, because of its position in the supply chain, was in a great position to apply the technology. And although it took a few years for him to be proven right, the family had the commitment to see it through and, as a result, Lightning occupies an increasingly central place in the US supply chain and is the linchpin of Ingram’s plans for future growth as the traditional book wholesaling business contracts.

What most distinguishes the successful and still-profitable Barnes & Noble from its once equal and now reeling competitor, Borders, is the quality of B&N’s supply chain. That required investments in warehouses and systems that Borders, long ago sold by its founding family, didn’t have the long-view management to make.

Now I’m working with another family business called BookMasters, in Ashland, Ohio. BookMasters started out as a printer in the 1960s. Their operations have grown in both directions along the value chain from printing. They have a business, BookMasters Digital, that provides an XML workflow from concept to the press. And they have another division, BookMasters Distribution, that takes the output from the presses and provides warehousing, sales, fulfillment, and collection. The Wurster family that owns BookMasters has many business characteristics in common with the Wileys, Riggios, and Ingrams. They have a high degree of loyalty with many long-standing employees. They have a persistent commitment to operational excellence. And they have a high degree of strategic consistency: they are willing to build things over a long period of time.

John Ingram saw over a decade ago that the book wholesaling business Ingram was in was living on borrowed time. He saw Lightning as a bridge to the future. Dave Wurster knows that printing is not a growth industry and he’s building his bridge to sustainability with service offerings that expand his importance to his customer base. Over time, both of these family owners can see the possibility of a totally transformed businesses. Their focus primarily is on how to make sure their business survives a long time, not on immediate profit. In a time of great change, I believe it’s a competitive edge.


The need for critical mass is why verticalization is a process

I had the good fortune to spend a couple of days last week in Toronto to speak at a conference on “Giving it Away”, how the culture of “free” is affecting the book business. My workshop sessions were called “Giving It Away with a Purpose”, by which I meant using content as “bait” to build community.

Since this was a workshop, most of the 90 minutes in each session was spent hearing from my audience about their publishing and marketing challenges and trying to help them see how the concepts of vertical and community applied to their particular examples. One of the many pieces of wisdom I’ve picked up from Mark Bide over the years is that we often “learn what we think by saying it”; questions from the audience force me to articulate things that might have been lurking in the back of my mind but had been left unsaid, even internally.

And what I learned that I already knew from these exchanges has to do with “critical mass” and its role in the shift from horizontal to vertical.

I read a piece about a month ago (who knows where, but I think I was originally steered to it by the ReadWriteWeb daily email) about the “X of Y found this review helpful” found on Amazon. What the article explained is why you don’t, and won’t see this employed effectively on any other bookseller’s site. Of all the people who buy books on Amazon, only a small percentage of them write reviews. (Many books don’t have reviews on Amazon; you are often invited to be the “first” to review a book.) Then of all the people who read the reviews, only a small percentage of those will comment as to whether the review was helpful. And a small percentage of a small percentage is an tiny, tiny percentage.

So only when you start out with the number of book customers Amazon has, which is a multiple of BN.com’s customer base (which is, presumably, in second place), can you get enough reviews and enough ratings of the value of the reviews to get a meaningful “Y” for “X of Y found this useful.”

And that was not what we talked about in Toronto.

In the course of my presentation, I talked about FiledBy.com, the new venture offering authors free web sites of which I am a co-founder. Carolyn Pittis of HarperCollins, a very acute thinker about digital strategy, pointed out from the audience that FiledBy is totally horizontal: it’s about book authors of all kinds. She wondered if my own new venture might contradict my own theory about verticals.

Temporarily, it might, although the initial “vertical” of FiledBy is book creators (there are sites there not just for authors, but also for illustrators, editors, and others who are credited with creative contributions to books that have ISBNs.) But the creators of FiledBy are very aware that as the number of authors registered with us grows, we will be able to put authors together by interest, creating sub-communities of mystery authors or history authors or knitting authors. And we intend to do that.

Earlier in the presentation, I had expressed the thought that Facebook and Twitter are like AOL for Internet 2.0. AOL (and Compuserve and Prodigy) made the online world, and then the internet, easy for everybody to use. As the internet itself got easier to use, the on-ramp wasn’t necessary anymore and, in fact, the parts of AOL that are healthy today are the verticals they created in the early part of the 21st century when they (belatedly) saw this coming. Soon we will see social networking and short messaging tools everywhere and we will be more likely to employ them in verticals, among people of similar interests, than in the world at large, which is what the horizontal communities are.

Communities require critical mass. It’s great be able throw out a question for the community to answer, but if nobody’s there, it is ineffective. If only 20 editors and 10 agents were on PublishersMarketplace, the deal database wouldn’t be worth much.  By the same token, growth in a community enables niching to get more and more narrow and deep.

Soon, publishers are going to see that they that they require critical mass by vertical in order to do cost-effective marketing. That is going to lead to a reshuffling of publishing portfolios, which will be the topic of a subsequent post.

Another big piece of ebook news landed this morning. ScrollMotion has announced that one million titles are on their way to them from LibreDigital! One always presumes that publishers want every title they have on every possible platform so that similar announcements will come from other ebook players soon, but this is another huge stride forward for the ebook business. And for ScrollMotion.

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The emerging opportunity for today’s publishers

Last week I went to a “brown bag lunch” session organized by Daily Lit featuring Gail Glickman Horwood, head of digital strategy for Martha Stewart Living and a veteran of nearly 15 years in the web business for magazines and for AOL. Gail was an engaging and knowledgeable presenter and she stressed two points, one that will be familiar to readers of this blog and another that we will explore a bit further today.

The familiar one is “vertical.” Among Gail’s examples were that Martha Stewart has found a real nugget in “cupcakes” which is, literally, a slice of a slice of what the overall brand connotes. But she cited some eye-popping numbers (which I didn’t write down and have already forgotten) for the page views they got with cupcake features on their site. And Martha Stewart’s web operations reflect the understanding that even her very focused brand covers multiple niches: they separate gardening from cooking from fitness.

The less familiar one is that “everybody is a publisher.” Gail brought it up in the context of “know your competition.” This is a variation of our suggestion that you must “know your web world”. But the point Gail wanted to make is that competition is “not who you think it is.” It is, she made clear, every web site and every blogger who is talking to the same audience you are about the same subjects you are.

This is at the heart of the publisher’s challenge today. It used to be that meaningful competition could come only from somebody with roughly equivalent capital resources: the ability to publish “at scale.” This is no longer the case. A hundred different bloggers can each be peeling away small fractions of the audience but the cumulative impact is extremely corrosive and, for the publication that relies on critical mass to support scale it can be devastating.

But could what is so threatening today be tomorrow’s opportunity for publishers?

At the heart of Horwood’s presentation and a key to my “shift” argument is that the “act” of publishing — putting content out in a way that anybody can gain access to it — has become trivially simple and cheap. So for any subject, including cupcakes, the amount of “published” material available has exploded. The content is no longer scarce. And while the well-funded legacy publisher with a brand and an audience still has significant advantages, it also has significant overheads.

But let’s look at the problem from the non-traditional publisher’s point of view. Some of these, and the ones that Horwood has focused on, are, essentially, content creators without a publishing business model. Bloggers (like me) write because they have something to say and are willing to build a non-paying audience by saying it. In my case, the blogging fits into a larger business strategy of brand-building that is rewarded with consulting and speaking assignments.

But think about the “publishers” who are not content creators? Who are they? Every brand purveying a product or a service that is not about content creation! Every bank, every insurance company, every manufacturer, every retailer, every accounting or architecture firm, every contractor, every lawyer has a web site. Brands are learning that they should have Facebook pages and Twitter accounts.

But they don’t know anything about content creation, content monetization, or rights. Big companies can be spending many millions a year acting as publishers without knowing these things. That’s the opportunity for today’s experienced publishers.

Exploiting this opportunity depends entirely on vertical content: depth of content intended for a coherent community. The architecture firm, contractor, and lawyer need focused content. Meanwhile, the major publishers continue to focus their attention on horizontal development. The latest example is Penguin’s new web initiative announced today. There is a lot to compliment them on, especially being willing to experiment with new content in new formats. There are things to complain about such as the rendering of really cool technology they have for showing the books, which they got from Issuu. It looks great but on my laptop and my browser (Chrome) the type was a bit uncomfortably small and there was no obvious way to enlarge it.

The main shortcoming of the initiative, from this seat, is that it does nothing to move a horizontal house toward verticality.

Horwood, in her talk, made it clear that non-publishers are frequently asking the Martha Stewart organization for content. Her response to that is cautious, perhaps excessively so from our perspective. But the central point is that the potential for partnership between content-creating legacy publishers and the new crop of web publishers who don’t know about content-creation is an emerging opportunity. Publishers with a depth of content in verticals will be able to benefit; those without it will not.

In the next few years, we are going to see massive reshuffling of the portfolios of copyrights held by the biggest houses when the inevitability of verticals become clear. What’s probably going to happen is that the biggest general trade houses will become sellers and the niche players like Martha Stewart and many others will be the buyers, taking what look like the least attractive and least profitable IP off the majors’ hands. Since the biggest houses will have to shrink, this will look like an opportunity to turn lead weights into gold bars.

But just as department stores found that the business model doesn’t work if all they sell is ready-to-wear, big publishers are going to find that most of them can’t live on fiction and celebrity bios alone. The books that sell most of their copies to horizontal (i.e. mass) audiences through horizontal channels (i.e. general bookstores) are the ones with the least potential for secondary revenue generation in the emerging vertical world. They are the ones that are hardest to convert to loyal niche audiences. We’ll need a big publisher to handle that business, but pretty soon we’ll find we can get along with a lot fewer than six.


What replaces charging for content? Does anybody really know?

Do you know “Newser”? It’s a news aggregation and filtering service that is, in its way, even more threatening to the established order than things like Google News or Memeorandum. The latter two services are entirely automated: they find and organize news stories from all over the web and quote just a snippet of the story to tell the reader the gist. Then they link through to the original source. This procedure is frustrating newspaper publishers everywhere. They believe traffic is a good thing, and these aggregators drive a lot of traffic. But, in many cases, a user might find all the value they need in the aggregation and snippets and never click through. And those who do click through are not likely enough to explore the rest of the site of the organization that reported and created the original story. So originating publishers raise the question as to whether these links and snippets constitute “fair use” of their copyrighted material.

But Newser doesn’t quote snippets; Newser rewrites — they “digest” — the story. So there’s no copyright issue at all, since copyright protects the form of presentation, not the actual information. You get the summary of the stories on Newser’s web site or email blast (the equivalent of Google News or Memeorandum) and then, when you click through, you get Newser’s rewritten version of the story. Then you get another click opportunity to go to the “source”, which is the original reporting that gave rise to the Newser rewrite. Of course, there is no legal requirement for them to do that, and a “good reporter” would write their story from several sources and synthesize, but nonetheless, Newser does get you through the gist of a bunch of stories very quickly.

What’s the business model here that pays for this rewriting and technology? I haven’t got a clue. There are lots of ads, but we all know that very few internet businesses not called Google will be adequately sustained by ads.

I like Newser and find it useful, but I have no idea how they’ll make money if they don’t start asking me for some. And while I can certainly see paying for a level of aggregation and curation, there’s no way I’d pay for Newser.

One interested party in Newser is journalist Michael Wolff. I first met Michael a dozen or so years ago when he had a business creating books that showed you how to find what you needed on the net. (You read that right; it was before Google was invented.) This was a successful publishing operation for a time. Michael and I have had the occasional check-in lunch since then. But in the past few weeks he has been putting up a daily column for Newser and I’ve become a huge fan. His writing is crisp and his thinking is out-of-the-box. And his politics, like Newser’s (apparently) and mine, are pretty liberal.

Wolff had a column this week about the futility of trying to get people to pay for content on the web, the latest strategy articulated by Rupert Murdoch (about whom Wolff has written a biography and a man he really knows well), Steve Brill, and others. Wolff sees the prospects of making that work as just about hopeless and suspects that the purveyors of the strategy inside publishers know this as well. He says some of the people advocating the idea of subscriptions and micro-payments inside the big publishers know it won’t work:

“And finally, it is a process for so many of these guys of trying to run out the clock. Many people will keep their jobs through the next phase, failed though it will ultimately be, of making shareholders and partners and content makers believe that there might actually be a strategy and a way out of this intractable mess. Indeed, many will be retired before everybody concludes the traditional media game is done and the Internet people take over.”

I have suggested that we’re in a shift from paying for content (IP) to paying for context (community.) This is being enabled by vertical development on the web. But we also see that development as a long-run process, not an immediate solution.

So our question, for which Wolff may have an answer that he hasn’t given us (but, then, neither has anybody else), is what happens “when the Internet people take over?” And by what miracle do they deliver us from this “intractable mess?” In the short run, what will replace it? Where will Newser go for stories to digest?


The ebook TTS argument goes on

Random House came in for some ridicule last week because they have apparently disenabled TTS on ebooks they are giving away for free. I see this piece as nothing more than a cheap shot. Random House responded to the Authors Guild position opposing TTS by attempting to disenable it for the Kindle 2, as, we believe, other publishers will if it can actually be done.  If they are concerned about the authors’ wrath when the capability is on ebooks that were sold and on which the authors earned royalties, of course they’ll disenable it on the ones they give away too. What confirms this piece as a cheap shot is that there is no evidence presented that any other publisher takes a different position. Why single out Random House?

The author of another piece on the same subject is very gentle about the efforts “on behalf of authors” to block text-to-speech technology for ebooks, and in the Kindle 2 in particular. The authors’ position (to the extent that the Authors Guild and those literary agents who are opposing TTS actually represent the authors’ position) is just wrong. There is no evidence that any significant number of consumers buy books in multiple forms (the three main choices being printed, e-text, and audio). Even people who do both read and listen don’t tend to buy the book in two forms to enable that; they read some books and listen to others. Similarly, people who read both print and digital don’t try to do both with the same book. (What’s my evidence? Observation. But nobody has offered the least bit of evidence to the contrary and I haven’t met anybody yet who says “you aren’t talking about me.”)

So, in fact, enabling a digital file to serve two purposes would only increase sales by offering extra value. If that’s right (and it has at least as much chance of being right as the notion that there is cannibalization), blocking TTS is costing publishers sales and costing authors royalties.

I made the argument when this first came around three months ago that the TTS capability will be ubiquitously available so that people will be able to take any text they have and apply that capability against it. All Kindle 2 does is make it a bit more convenient. So this position is a fail on several counts. The fact that it is handicapping the handicapped is contemptible. The fact that it is denying authors and publishers revenue when it is supposed to be protecting them is just dumb. And standing in the way of applying developing technology to the benefit of all writers and readers can’t possibly be a sustainable position.

We did a quick check in this office for TTS apps. I think the Authors Guild and the agents should check these out.

Are they planning to sue the consumers who acquire and use these apps? Are they really going to add to the burden of ebook publishing the need to find ways to lock up the text against all these technologies?

Thanks to all of you who viewed the Shift speech over the past weekend. It is disappearing from our site but is replaced by a link to a new annotation platform from our client SharedBook. If you have thoughts on the speech, that’s the place to express them. There are browser limitations to that platform which are posted with the link.


The “shift” speech

On May 28, I gave a speech called “Stay Ahead of the Shift: How Content-Centric Publishers Can Flourish in a Community-Centric Web World” at BookExpo America. From today (June 12) through Monday morning (June 15), we are able to show you the video of the speech (below). We have also put the slides and full text on the speeches page of our site.

A transcript of the speech is viewable via a new annotation platform hosted by our clients, SharedBook. That platform enables comment on the speech, section by section, in what constitutes an experiment for SharedBook and for us. We hope many of you who see the speech will return to comment.

Please note that this platform is only available to IE & Firefox users. If you are having difficulty reading the justified text, we have found it is easier if you reduce the width of your browser.

After Monday, June 15, the speech can still be viewed on PublishersMarketplace by members only.


Politics, not publishing, today

This is a post about New York State Democratic politics but not about the coup this week in the State Senate, which is a rapidly-developing story being covered by reporters on the scene. Comic operas could certainly be written about either New York or California state politics without having to change a single fact.

Like most liberal Democrats who have been frustrated for most of the last 40 plus years, with a very brief respite for Jimmy Carter and some years of sympathetic agony with Bill Clinton, I’m a huge fan of President Obama (and his whole family.) Whatever compromises he’s making with what would seem to be liberal principles are dwarfed by the enormous strides he is taking to make America a fairer and more equitable society.

But I’m also a New Yorker and being a Democrat in New York carries its own set of frustrations. We haven’t elected a Democratic mayor in New York City since the kind but feckless David Dinkins 20 years ago. We replaced the brazenly imperious Giuliani with the more gently imperious Bloomberg, and we seem stuck with Mayor Mike for as long as he cares to pay to stick around.

But it is at the state level that the annoyance is greatest. There was cause for great optimism when we followed three terms of Pataki by electing crusading Attorney-General Eliot Spitzer by a record 70+% majority in 2006. Even before his weakness for paid sex became public, Governor Spitzer had stamped himself as an even more arrogant tyrant than Giuliani himself (although Spitzer’s public policies were more socially conscious and at least he paid for his own out-of-wedlock dalliances; Giuliani used city funds to “protect” his paramour and now wife while he was still married to Donna Hanover, the woman he got elected with.) And meanwhile we found out that the State Comptroller we elected, Alan Hevesi, was abusing the public trust as well and was forced out of office.

What a mess. But it got worse. David Paterson, whose limitations were not readily apparent when he was the Minority Leader of the NY State Senate, replaced Spitzer as Governor and has demonstrated almost daily that he’s not up to the job. Among the many things he did that we might wish he hadn’t was to appoint a relatively conservative upstate Congresswoman, Kirsten Gillibrand, to replace Senator Clinton when Hillary became Secretary of State. The calculus, apparently was “upstate” and “female”, and that narrowed the choices to a second term Congresswoman whose family is at least as Republican as it is Democratic and whose Palin-like credentials included that she and her husband slept with a gun by their bed to ward off possible intruders.

Now here’s where I part company with my new President.

It is a reality of New York State Democratic politics that, in a statewide primary where there is a clear liberal and a clear “moderate” (we NY Democrats don’t do “conservative”), the liberal will always win. This rule was formulated by my late friend, Professor Richard Wade, who demonstrated it by helping Hugh Carey and Mario Cuomo to the governorship. Carey defeated the highly favored (and more “moderate”) Howard Samuels in the primary in 1974; Cuomo knocked off favored NYC Mayor Ed Koch in 1982.

In fact, just about any clearly-liberal downstate Democrat would beat Gillibrand in a primary in 2010.

The New York Democratic establishment, which now consists primarily of Senator Chuck Schumer but also includes the Clintons, is supporting Gillibrand. I don’t know their reasons. The White House is involved too, putting pressure on potential opponents in the 2010 primary to stay out of the race. They were successful in persuading Congressman Steve Israel to withdraw. Congresswoman McCarthy from Long Island, who isn’t that liberal on many issues but is a champion of gun control (as is Schumer, for that matter), has also pulled her hat out of the ring. So now the one chance we have to knock off this faux Democratic senator foisted on us by a weak Democratic governor is that NYC Representative Carolyn Maloney will take her on. Congresswoman Maloney is my representative in Congress and I fervently hope she’ll make the attempt, even though the White House is strongly discouraging a race.

From the President’s perspective, he is just seeking peace within the Democratic Party. I am sure he — and his political strategist, Rahm Emanuel — thinks that avoiding primaries makes the party stronger. So he’s also trying to prevent new Democrat Arlen Specter from having to face a primary for his Senate seat in Pennsylvania.

But I think that notion is just plain wrong and Obama need look no further than his own election last year to prove it. Primaries energize the Democratic Party. They bring in new blood and they inspire volunteer effort. Congressman John Hall in the Hudson Valley, who won his seat in 2006 at the same time Gillibrand was winning hers, had to beat several candidates in a Democratic primary. Without the several-month organizing runway that primary fight gave him, he wold never have beaten 6-term Republican incumbent Sue Kelly in November.

If Maloney opposes Gillibrand, she’ll beat her. And Maloney would be a stronger candidate against the Republicans (not that we need it; any Democrat will win) in November because she’ll have an enthusiastic party behnd her. Similarly, if Congressman Sestak beats Specter in Pennsylvania, he’ll beat whatever arch-conservative the Republicans nominate on their side.

So if the White House would just stay out of these battles, they would end up with stronger support in the Senate in 2011. Primaries in the Democratic Party are far more likely to build the party than to weaken it.

For you publishing junkies, my apologies for staying clear of it today. But remember that from this Friday morning, June 12, until Monday morning, June 15, the full video of my “Stay Ahead of the Shift” speech will be linked from this site for anybody to see. For those of you who are subscribers to PublishersMarketplace.com, you don’t have to wait. That’s where it lives.

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Is ebook pricing really a key to sales? We’re about to find out…

For those of you who missed the “Stay Ahead of the Shift” speech at BEA, we posted a link to the slides, but over this coming weekend we’ll do even better. From Friday morning, June 12 until Monday morning, June 15, we will post a link to a video of the entire speech! It is available now on PublishersMarketplace to subscribers only; we are able to offer this link through the generosity of Michael Cader to allow non-subscribers to Marketplace to see the speech. If you weren’t there, I hope you’ll take advantage of the opportunity.

Although there is more mystery than information about ScrollMotion’s new “million book title” offering through Apple’s App store (what are these titles? where are they coming from?), two things are clear.

1. By offering a catalog that sits in the ebooks they’re selling you, they are making shopping considerably easier than any other ebook vendor besides Amazon, and maybe even easier than Amazon does for Kindle.

2. Their prices are going to be high, not attempting anything like the deep discounting of Amazon that others are striving to match but, instead, often pricing the ebook higher than the print version.

I don’t take too seriously one oft-raised objection to ScrollMotion. Because each book carries the application, each book you buy for your iPhone will appear as an icon on your screen and take up a bit more of your capacity than the other books (Kindle, Stanza) that have a resident application and only deliver the content itself each time you acquire a new title. Most people will have no problem with the idea that after they read a book, they should delete it from their screen to avoid visual and digital clutter.

What has not been mentioned in the press I’ve seen following this week’s announcement is that Scroll Motion also has some significant advantages in presentation and functionality. They have a split screen capability to enable illustration or graphics on the top while text continues to appear in the bottom. They can synchronize it so that the pictures change in synch with the text movement. So they can do illustrated books better than anybody else. And they have copy-and-paste, notes and extracts, and emailing ability straight from the app.

These capabilities open up the world of textbooks to Scrollmotion, which may be part of the secret to getting such a huge cache of titles. If they actually get anywhere near a million titles (and the first question I was asked by an executive at a competing ebook platform is “what’s the trick behind that claim?”), they will have the most robust offering in ebooks. That’s huge and it is a big component of what propelled Kindle to the front of the ebook parade when it came out. But Kindle also had two other strong gales at their back: a huge book-buying audience at Amazon and very enticing pricing.

What actually concerns me most about Scroll Motion is margin, and I think the pricing reflects the challenges to margin. With Apple taking a 30% brokerage fee off the top of all sales, the publishers have to split the remaining 70% with Scroll Motion. I don’t know what the deal is, but let’s assume it is “50-50”: Scroll Motion and the publisher split the post-Apple swag in half. That would leave the publisher working on 35% of the actual selling price

Readers of this blog know that I have been advocating that publishers seize control and move things in precisely the opposite direction by reducing the “discount off retail” they offer to virtual intermediaries. Doing that is a critical if publishers are going to offer the public attractive (and, increasingly, expected) ebook pricing and maintain some semblance of adequate margin going forward.

If I’m right about that, then publishers may be taking a huge step in the wrong direction with Scroll Motion, advertising to other intermediaries that they can afford to live on a miniscule percentage of the consumer’s ebook dollar.

Many of the digerati I know would predict that Scroll Motion’s offering will fall on its face. The app thing is not digitally elegant and the prices are insane. I am not so sure they won’t succeed because I’ve always thought choice of titles, quality of merchandising, and ease of purchase were the most important components of an ebook offering and they are promising to be stellar on all those fronts.

Another book and ebook merchandising topic I’ve been discussing lately on a listserv is whether the retailers are missing a bet not enabling “affiliate” fees to be paid for email referrals in addition to web clicks. We did some research here and of the many online booksellers we check found that only Abe Books (owned by Amazon) overtlyt extends an offer of this kind: if you put one of their widgets in an email, they’ll capture the clickthrus and pay a 7% commission on sales. (Perhaps that can be done with some other widget at some other retailer, but nobody else we checked suggests it.)

It seemed like a slam dunk to us that a retailer offering to spiff customers for an email recommendation that results in a sale would be a winner. It would produce incremental sales and increase customer loyalty. I was, frankly, surprised by pushback on a listserv that suggested that it would result in too much unwanted spam. I am holding fast to my opinion that this is a good idea (nothing can be proven without somebody with reach and scale trying it, of course) but I’m also interested in yours.


Director of “research” in a publishing house? Yes, more than 50 years ago!

Leonard Shatzkin was trained in printing. He left City College of NY a semester short of a degree in the social sciences to go to Carnegie Tech for three years to get a BS in Printing, which he received in 1941. His first job was as production manager at House Beautiful magazine when he and his college bride, Eleanor Oshry (who was, I suspect, at least part of the reason he abandoned the CCNY degree for three more years of undergraduate school in the first place!) moved to New York after graduation.

But Len shortly had to leave the House Beautiful job because of World War II. Rather than military service, he found a spot as a research scientist on The Manhattan Project (another story for another blog post). After the war, he landed a spot as production manager at The Viking Press and his career in book publishing had begun.

I don’t know the specific suggestions or ideas that led to this, but after a couple of years at Viking, proprietor Harold Guinzberg told Len to find a job at a bigger publishing house. “You have lots of big ideas,” Guinzberg told him. “I’m not interested in big ideas; I just want to publish the books that interest me. You should find a place that is more compatible with your ambition.” So, in 1951, when a former professor of Len’s from Carnegie Tech named Charles Pitkin offered Len a job at Doubleday, he took it.

Doubleday had its own printing plant in Garden City, Long Island. At first, Len’s main responsibilities had to do with running the plant. It was unusual, perhaps unheard of, for production managers to move into the senior executive ranks at a book publishing house, but Len found the way.

There was a committee at Doubleday that determined the first printing quantities for all new books. Len was on that committee, whose key members were, of course, the representatives of the sales department who, it was assumed, would be the first to know how many books were needed. In his first year on this committee, Len lived with the frustration of the sales department’s refusal to make timely decisions about printings.

The consequences of this were severe. These were the days before computers (of course) which meant that when 12 new books were scheduled to ship on March 20, invoices had to be prepared in advance to meet the shipments as they left the plant. If one of the 12 books didn’t make it, a paperwork nightmare was created. So all 12 books had to make it. If time was tight, and with late decisions on printings, time was just about always tight, each “first printing” effectively had to become two printings. First the plant would produce the number of books needed to fulfill all the prepared invoice shipments and then, after all those were done, they all went back on press to complete all the “first” printings.

Sometime in 1953, Len got permission to hire a mathematician: a young Polish immigrant named George Blagowidow. Len set George to work doing a regression analysis of the orders received from the sales force and, using techniques that are pretty much the same as what the networks use to predict election returns from key precincts, was able to predict the total advance sale from a small sampling of orders. (It is necessary to mention here that, while there were multi-outlet department store “chains” all over the country, there were almost no large national buys equivalent to what Amazon, Barnes & Noble, and Borders would place today.)

When George’s work was well in hand, Len was prepared for the next meeting of the first printing committee. The sales management opined that, on a number of books, they did not have sufficient data to make a printing decision. Then Len handed them a sealed envelope. “In here are the numbers for what will be the total of advance orders for all these books,” he told them. “You can open it now or you can open it later, but don’t tell me there isn’t enough information to know what to print. There is.”

As a result of that stunt, Len was appointed to a newly-created position, Director of Research.

His next big assignment was probably partly a result of his having undermined the credibility of the sales management. Doubleday had two sales forces: 13 reps covered the trade and 10 sold “Garden City Books”, which was a promotional line Doubleday had in those days (like Outlet Book Company was in relation to Crown until that independent publisher was sold to Random House in the 1980s.) The company was going to wind down the Garden City imprint and combine the sales forces. They knew they needed to get rid of some reps, but a) they didn’t know how many and b) they didn’t trust the sales management to cut the force sufficiently. So they handed the question to Shatzkin — and his cohort Blagowidow — to determine the new configuration.

Len and George set out to scientifically determine what a sales rep contributed to sales. They did that by calculating the discretionary income by territory (I did this exercise under my Dad’s supervision about 20 years later, using the county-by-county data provided by Sales Management Magazine). That gave them an index of how much they should be expecting in sales from each territory. Then they calculated how many accounts there should be (theoretically) in each territory, and compared that to what the rep covered. Then they looked at the sales they got from accounts where the reps called and compared them to sales from accounts where the rep did not call.

Their conclusion was that, indeed, Doubleday did not need 23 reps, they needed thirty-five! (At that time, the 13 reps in the Doubleday sales force might already have been the largest sales force fielded by any publisher.) The new large sales force led to other innovations, including the creation of the Dolphin Books imprint, which I covered in a prior post.

Of course, field sales forces peaked in size some years ago and have been shrinking since. (And although it would drive Dad crazy, I’m sure his analytical techniques would support a field force reduction. Most likely, though, using his techiques would also create territories that are configured differently than they are in most houses.) But Random House copied the Doubleday practice and today’s publishing “old timers” remember the days in the 1960s, 70s, and 80s when Random House and Doubleday had the largest and most powerful field sales organizations, which gave them an edge over everybody else.

Today is when the Big Six publishers need a Director of Research. There are more decisions to be made today that require research, quantification, and analysis than what Doubleday faced in the 1950s. What Len Shatzkin did in that position more than 50 years ago anticipated the MBA-rich IT and corporate staffs that exist today.