February, 2010

Dad could really help publishers with analysis they need to do


I was extremely fortunate in my “choice” of parents. I had both admiration and affection for them, and I always had a great time just shooting the bull with my dad, Leonard Shatzkin. He was a real visionary about the publishing business and was also very witty and cogent. A great deal of what passes for my insight is really just a recycling of his.

He died in May of 2002. Until the last six months or so of his life when the heart failure that killed him so weakened him that he couldn’t really think anymore, he was still working hard on what he always considered to be the most important commercial challenge for book publishers: how to manage the inventory in retail locations. In fact, he was developing a system he hoped to commercialize as a solution for independent stores. I didn’t want to say “what independent stores?” to him back then, even though it was already obvious to me that their existence was seriously threatened. Dad had shaped his view of publishing during the 1950s, when the industry was near the front end of what was nearly half-a-century of unfettered growth.

That period of growth was over by 2000, and those of us who were trying to measure the trajectory of digital change in the early 2000s couldn’t avoid seeing it. Dad might have seen it 10 or 20 years earlier, but he was intellectually and emotionally incapable of accepting it in the last few years of his life. In fact, while taking control of the inventory in independent bookstores had been the key to the growth Dad fostered at Doubleday in the 1950s and in building the Collier Books imprint, which he created, for what we now call Macmillan I in the 1960s, it didn’t present the same level of opportunity in the 2000s. He had been right for many years about this, but he wasn’t anymore.

Another immutable truth in my father’s picture of book publishing which also turned out not to be permanent was his belief that book publishers should just keep expanding their lists, pretty much without limits. When Dad launched Collier Books by doing 600 titles a year in 1962, the entire industry only produced about 10,000 titles. In Dad’s time, it was probably true that most books big houses did contributed to profits, so the more titles you did, the more profits you made. Tom McCormack, who was a protege of Dad’s in the late 1950s and then went on to a long and successful career as CEO of St. Martin’s Press (now part of Macmillan II), attributed much of his success and St. Martin’s to Tom’s own recycling of Dad’s insight.

There is this beast in publishing known as the “title P&L.” The “title P&L” proceeds from the mistaken premise that titles, standing alone, deliver profits or make losses. In fact, that’s not true, because a substantial chunk of a publishing house’s costs are not title-specific; some costs are not really attributable in any sensible way.

The way “title P&L”s normally work is that “overhead” — rent, salaries, etc. — is figured as a percentage of sales (which, if you look back to last year, is, indeed, a calculable number across any company.) By “distributing” the unattributable costs that way, the logic says, you make sure that each book covers its “share” of the costs of keeping the doors open. But, as McCormack pointed out many times over his career, the rent didn’t go up because he signed a new title and it was nonsensical to charge each title, let alone each sale, for the rent.

Dad had a very succinct and persuasive way to explain the folly of the “title P&L” logic. What he suggested is that every house do a recalculation of their overall P&L at the end of each year. To do it, they should take out every title that failed to earn back the overhead charge (usually somewhere between 35% and 45%) because those had, by the internal logic, “lost money.” Surely, if you take out all the titles that lost money, you would see your overall calculation of profits rise. Right?

But it never does, it always falls. Why is that? Because most of the titles deemed to have lost money by “title P&L” logic actually made a contribution to overhead. That is, the direct revenues attributable to that title were greater than the direct expenses charged to it; they just weren’t sufficient to be scored as profitable when the overhead tax was deducted. But if you subtract all the books that earned 6% or 10% or 19% or 34% margin on sales, you subtract actual dollar contributions to overhead and profit.

Important point: overhead and profit are both produced by gross margin on sales. When enough margin has been generated to cover all the overheads, the margin becomes profit. So titles don’t earn profits or losses, they contribute more money or less to overhead and, in some cases, actually don’t recover their direct costs. The titles that don’t recover their costs clearly have lost money; all other titles contribute to overhead and, if it is covered, to profits, but they aren’t, strictly speaking, profitable in and of themselves.

All that was true in Dad’s day and is still true today. What has changed (I think; I haven’t actually done the analysis with a real house’s numbers) is that the percentage of titles that don’t even recover their direct costs is rising. It is actually getting harder and harder to publish new titles successfully, even if the standard of success is lowered to “recovered all costs” from “delivered its pro rata contribution to overhead.”

That’s because each title published today is facing a much more challenging commercial environment than each title published two, three, four, or five decades ago. Each title competes with more titles in the marketplace and more new titles coming into the marketplace: print-on-demand and online used books have snared a great deal of market share that used to be available only to new titles and backlist kept alive in print-run quantities by publishers. And, for the past 10 years, each new title is coming into a marketplace that has less shelf space available for books overall than it had for the last title.

So the “keep publishing more and more” paradigm that Dad believed in and that McCormack credited with St. Martin’s growth may not actually work anymore. In fact, any sentient publisher today would have to look at their output regularly to recalibrate what new title publishing is actually profitable. I expect that analysts in every major house are slicing and dicing their lists, trying to figure out whether they can discern — by level of advance or subject matter or by imprint or editor or agent — which bets will return the cash invested and bring profit to the house.

We can assume those analyses are being done, but can we assume they’re being done right? Without any inside view of the details (and I don’t have one), we’ll assume (hope) that the crude application of a single overhead percentage to each title is not the standard for analysis. If it is, the house doing that will almost certainly be led to erroneous conclusions, just as Dad and Tom pointed out they were if they saw a book that contributed 30% margin as “unprofitable” and would think they’d be better off not publishing it.

The big publisher of 2010 has another problem besides the reality that new titles are harder and harder to launch to any standard of acceptable return. They also have to feed a machine built to handle a certain volume of printed books when the decline of print book sales is being accelerated by the shift to digital. The additional margins in digital (which are being produced as long as prices can be maintained) are not very helpful if they need to be diverted to pay for warehouse space, field sales forces, and higher unit printing costs because there is less print “throughput” to support them.

Big publishing management is aware of this challenge; it is part of what drives up the value (and prices) of big brand franchise authors. The big authors are still the fastest way to guarantee the volume of print output and sales necessary to fill those volume-guarantee contracts with the printers, absorb the warehouse space, and cover the cost of calling on accounts that sell print only. And look at the irony. With less volume, unit costs per book go up, which reduces total gross margin. And if warehouse and sales organization costs are fixed (they aren’t but it is hard to adjust them quickly, the way you can cut a press run or a marketing spend), then the percentage of sales they will consume will go up. So much for calculations of overhead as a percentage!

The big variable publishers have to deal with today is marketing cost. The most common rationale for list-cutting is that it will allow a greater amount of marketing attention to the books that are published. But that articulation actually begs the question, because marketing resources are variable. If you add more, you increase the overhead nut you have to cover before you get to profits. And if you reduce those resources, then you’ll be chasing your tail trying to put more marketing effort behind each title.

The analysis of how to cut has to be done; it is pure insanity for publishers to keep cranking out new titles if they are losing on many of them. Some of the ones they lose on have the potential to be big but just don’t make it; some aren’t even seen to have that potential. But the ultimate answer is not in how or how much a publisher can reduce title output, but in how they focus it. That’s the secret to reducing marketing costs and it is something we will certainly explore in another post someday.

14 Comments »

Do enhanced ebooks create a comeback trail for packagers?


This post contains a reference to our next conference effort: this year’s Making Information Pay for the Book Industry Study Group. There is a survey associated with this conference about how processes and job descriptions are changing that we really hope everybody employed in a publishing house — particularly those people involved in editorial, production, marketing, and sales — will take. If you’re employed by a publisher, please respond to the survey!

Even though I personally have concerns about the precious money that could be wasted on “enhanced ebooks”, I know that we’re going to see an explosion of interest in them and a huge escalation of investment in them in the next couple of years. That’s why I’m working on a new project called Enhanced Ebook University (EEBU) about which there will be much more to say in the next few weeks.

The idea behind EEBU is, to twist a quote from Mark Twain, “everybody’s talking about enhanced ebooks but nobody is quite sure what they are.” The first task of EEBU will be to survey the possibilities of what can be done and how it can be done. The process of building the outline for the White Paper that will be part of this project has uncovered a lot of great ideas that give me some renewed hope that enhanced ebooks can be more useful, and more supportive of the immersive reading experience, than were the CD-Roms we created 15 years ago.

One thing we’re hearing often enough now so that it is becoming a new cliche is that making enhanced ebooks is “like producing a movie.” The point is that there are many creative efforts that need to be integrated. This all makes me nervous for publishers. This is not their skill set. This is CD-Rom land. This is an invitation to spend enormous sums of money creating products that will never earn back their costs.

Now what I’m wondering is whether the enhanced ebook could lead to the resurgence of a diminishing breed: the (enhanced e)book packager. It may be already happening.

Starting in the 1960s and famously led by Paul Hamlyn, who consecutively created and then sold packagers Hamlyn and then Octopus, the UK-based packagers of heavily-illustrated books intended to be delivered in multiple languages became a critical component of commercial book production worldwide. The “packaged” book had a number of requirements that challenged publishers. They were illustration- and design-intensive; they required large amounts of subject and photo research that then needed to be rendered in a consistent and (for each title) formulaic way; and they required an understanding of design and language requirements so that they could be printed for different language markets with just a black plate change. (Some languages consistently take more characters to express the same thought than others and knowledge of those details was a component of the packagers’ expertise.)

Packaging evolved over the years. Some packagers, like Dorling Kindersley and Octopus, went for the greater margins of being publishers. With the greater margins, of course, also came greater risk as they invested in books, rather than being hired hands creating them on the back of a publisher’s firm order for copies. (One major packager — Quarto — evolved into a bifurcated company that is half-packager and half-publisher.) As the bookstore chains and other large customers like the mass merchants grew, they sometimes went directly to the packagers at Frankfurt, rather than waiting for a publisher to buy the book and offer it to them. That disintermediation reduced cover prices for the packaged books in those outlets which put further pressure on any attempts by publishers to sell the books in the remaining parts of the market.

Packagers existed for a reason: they added value. They organized themselves differently from publishers, focusing on complex project management challenges that publishers didn’t want. They set up important relationships, with Asian printers and with photo stock houses, and developed skill sets, for templated design and efficient assembly of books from multiple component parts, that publishers didn’t have.

So today we have ScrollMotion (which acts, in many ways, like a publisher), Brad Inman’s Vook in the United States and Peter Collingridge’s Enhanced Editions in the UK and, according to Peter Meyers — a veritable font of knowledge on this subject that I just tapped for EEBU — literally hundreds of others that now call themselves “app developers” offering up the equivalent of book packaging services for enhanced ebooks. These entities probably have a bright immediate future; they can do things that publishers will find themselves highly challenged to do for themselves.

In these still early days of developing the EEBU idea, it had already occurred to me that agents were going to be playing in this sandbox. When I first looked at Blio, it seemed immediately to me that authors had a key role to play and Blio’s very intuitive toolkit made it possible for them to do that. I included an agent in my initial round of readers for the EEBU White Paper outline because I believe that  before very long big agents will be hiring staff to help their authors execute enhanced ebooks. Meyers, who seems seems to have done more thinking about this subject than anybody else I’ve met (I’m meeting Collingridge next week at Tools of Change), also posited that agents could become the new packagers in the emerging enhanced ebook landscape.

One other point has arisen repeatedly in our early research for EEBU and also touches on another upcoming project of ours: the next BISG Making Information Pay conference that we’re organizing which, this year, is on “Points of No Return.” (That’s the one I want publishing company employees to take the survey on.) PONR is trying to assess how much the workflows and jobs will change in editorial, production, marketing, and sales as the digital revolution takes hold. That project intersects this discussion: when we make ebooks first or enhanced ebooks often, will the required skill sets change so much for editorial and production people that the current incumbents will be unqualified?

At least one expert I’ve talked to thinks they will be. A friend who has worked in trade publishing but who is now oveseeing vast programs that create college textbooks says that the editorial skill sets that work for print alone don’t seem to port to multi-media. I have heard this before. When we were doing research for the BISG conference in 2008, a digital operator at Wiley made a very similar observation.

The use of outside packagers for ebooks might not work as well as it did for illustrated books twenty and thirty years ago. Packaged books, generally, did not have single authors or, if they did, the author was secondary to the idea and to the package. In fact, the author was usually hired by the packager that had the idea rather than the author developing and pitching the idea, which is how the agented-author book usually works with publishers. That argues for the agent-as-packager model.

Or it argues that some kinds of enhanced ebooks — the movie-like ones — won’t be the purview of publishers at all. I saw somebody suggesting an enhanced ebook of Avatar. Good idea. I had the same idea. But the way I’ve been thinking about it is that it will come from the film producer. It would be a lot easier for somebody working for James Cameron to pull five minutes of movie clips and 100 stills and hire somebody to turn the script into a ten thousand word narrative than it would be for somebody working for a book publisher to do this. Why would anybody think a book publisher would be needed for a tie-in of this kind in an app and enhanced ebook world? The publisher was needed for thebook tie-in because the publisher put the product on store shelves. Publishers have no advantage over movie studios for access to the App or Kindle stores.

On the other hand, there are a lot of enhancements to ebooks that aren’t so movie-like and which would be more like what an author or publisher could provide expertise to do better: character description capsules; background material about a person, place or thing; back story narratives that would interrupt the flow for most people; links to sources or further information. It could be that the Baker & Taylor Blio tool, and other things like it that are coming along, will enable an author and editor to accomplish a lot of that. They can even mix in the video. But it wouldn’t make them qualified to shoot it or even curate it, let alone negotiate for any rights.

That’s the kind of thing we’ll be exploring in the EEBU project.

19 Comments »

Notes from a lecture by Professor Cader


Michael Cader did a brilliant analysis of Thursday’s New York Times piece on ebook pricing, published exclusively for paid subscribers to Publishers Lunch. The Times piece’s shortcoming was that it tended to sensationalize the news that the prices the public will pay for current brand-name ebooks will be going up. If you observe the book business for fun, you can perhaps afford not to have access to content like Michael’s analysis. But if you’re in it for a living and you want to seriously keep up with what’s going on, I suggest you save $20 somehow on other publications each month and reinvest it in a Publishers Marketplace membership. I am not the only blogger moved to make this suggestion by this piece.

I am working under the rash assumption that Cader will not sue me for quoting his remarks without regard to fair use limitations (particularly after the commercial in that first paragraph.) Of course, I do my best to add some Shatzkin Files value to my quotes and paraphrases as well.

Michael’s overall point, as I read it (and these are my words, not his): “we in the business know what’s going on with ebook pricing; apparently reporters outside the business do not. And therefore a great deal of misunderstanding is circulated among the book-buying public and it behooves the trade publishing community to get the word out to make sure that the public understands what’s really behind what they pay for ebooks.”

His device to illustrate this point is to describe some common misunderstandings fostered by the Times piece — all of which are real misunderstandings and none of which are just convenient straw horses — and knock them down.

Frankly, it is only the overall point on which I’m not sure I agree. I am not convinced it makes much difference whether we push the “truth” out or not. Amazon’s recent “concession” statement over the Macmillan dust-up tried to channel potential consumer anger at Macmillan and away from them. That’s an effort that is bound to fail. Everybody who buys from Amazon knows that they’re buying from Amazon. On the other hand, “Macmillan” is not an active book imprint at the moment in the United States. The books the corporation called Macmillan puts out are under the imprints St. Martin’s, Farrar Straus, and Holt, and their subsidiary imprints. My wife found the Macmillan Dictionary for Children online and that book is published by Simon & Schuster! So good luck to Amazon trying to get the consumer to punish a corporate entity whose name isn’t on the cover of its books.

But the myths Cader describes are ubiquitous misunderstandings and they were clearly promoted in the Times piece. As Michael describes them (in italics):

* $9.99 never was the top e-book price; people pay more than that every day.

The Times piece makes a big deal out of consumer expectations of the $9.99 price. Cader points out that recent data from the ebook retailer Kobo described at Digital Book World — which shows that at Kobo they sell as many books for more than $9.99 as they do for exactly $9.99 — and Amazon’s own data undercut that notion. Cader says surveys of Amazon data have shown that 30% of the SKUs are priced higher than $9.99.

I have been told directly by a responsible person at Amazon that 4% of the titles they sell are deep-discounted to $9.99 and those represent 25% of the total sales. Of the other 75% of the sales, many (most) are less than $9.99 without necessarily deep-discounting, according to Cader, 30% are more. I have personally bought many Kindle books for more than $9.99 and some for more than $14.99.

But what I’d see as the biggest fallacy in this whole “customer expectations” meme was not mentioned by Cader. So far we have a relatively small percentage of book readers who have ever purchased an ebook at all! General consumer expectations can not be set by a sliver of the group who are early adapters. In fact, publishers are being smart precisely because they are tackling this consumer pricing problem before the market really does become general and a large population of book readers do have experience with the current price structure.

* The implicit, false promise of cheap e-books was made by the people who profit, at very nice margins, from selling the devices, not from publishers.

This is true for the $9.99 books offered by Amazon and Sony and, now, Barnes & Noble. Other etailers, like Kobo or B&N before the Nook, were offering that same price to keep up with (keep down with?) Amazon. But the central point is right. Amazon created the expectation of $9.99 pricing to sell readers; publishers didn’t create it to sell books!

The two companies most likely to save publishers from an Amazon stranglehold on their future general readership, Apple and Google, would also place “margin from ebook sales” very low on their list of objectives for participation in the ebook supply chain.

If the market really could stabilize with three or more reliable paths to the general ebook consumer, with price competition among the content,  but not price-competition driven by external forces, it would be one of the most important strategic accomplishments of the current generation of publishing management, to whatever degree their policies enabled it to happen.

* Brand-new ebooks sold at $9.99 are generally sold at a loss by the retailer.

And, as Cader goes on to point out, this is led by a retailer with a $50 billion market cap with an implicit expectation that it will drive smaller retailers out of the game. Publishers are taking the steps they are explicitly to encourage a more diverse marketplace. So, Mr. and Ms. Consumer, whose side are you on?

* People who can afford an ereading device can afford all proposed ebook prices.

Cader is making the point that conscientious reporters should make put price complaints into context. I’d personally dwell more on the “dog bites man” aspect of reporting that people favor lower prices. Has anybody ever found a consumer who favored higher prices? Has anybody ever found anybody who would prefer to pay more for anything they buy? From here it would seem that all reports of what people say they want to pay or say they would pay in some hypothetical circumstances are pretty much meaningless. Michael says “put them in context.” I really wonder whether this kind of senselessly speculative commentary ought to be reported at all!

* Publishers are lowering [my emphasis] their ebook prices.

Cader captures the massive irony of what is going on here with this one. From reading this piece or from reading Amazon’s note to Macmillan, you’d get the impression that “greedy” publishers are “raising” ebook prices. That’s not actually the case. The publishers going to the Agency model are actually reducing their price per unit sold; they’re just insisting that booksellers not sell those books as loss leaders. As Cader put it, “we in the trade know that publishers are preparing to lower their ebook prices by 50 percent or more, and reduce their own profit margins. But customers don’t; they hear that publishers are raising prices.”

* The new “top price” is going to be $12.99 more often than not.

The public reporting is that the Agency-priced books from Apple will be $12.99 and $14.99, with no additional detail. Cader seems to know that most, or at least a large number, of those books will be at the lower of those two prices. Undoubtedly, some people will refuse a book they want to read on a device they paid over $200 for because of a $5 difference in price ($14.99) from their prior expectation ($9.99). But somewhat fewer will be reluctant at $12.99, which is where the price will apparently be a great deal of the time. Certainly, nobody writing for a newspaper knows the future balance between those two price points.

* Surveys show many people will pay more than $9.99 for ebooks.

Cader points out (and my personal repeated experience confirms) that people often do pay more than $9.99 now, even according to the stats we’ve seen. But what he doesn’t point out, so I will, is that those stats are stacked!  Amazon prices all the hottest and most desireable books at $9.99, and therefore so does Kobo and other Amazon competitors. So the clustering of consumer purchasing around that price is largely driven by the appeal of the product at that price point.

That is: people bought the book, not the price!

* Goldman Sachs says ebook prices are not the biggest factor in purchasing a device–but expensive devices are an obstacle.

This is from a survey that Cader has seen and I have not. But the point is that portability is the main benefit consumers see in ebook devices, with price running second and ease of purchase nearly even with price as a perceived benefit. Ebook purchase decisions are not made on price alone.

What this data also would tell us is that ebook reading is going to spread because the price of devices is coming down and the circulation of ebook-able devices, smartphones and iPads, is increasing regardless of dedicated reader prices.

* Publishers have rewarded and honored early ereader adopters with a lot of free book giveaways, and some very inexpensive price promotions.

Much has been made in other places (not in the Times piece and not in Cader’s report) of the fact that the Kindle “bestseller list” contains a lot of free or almost-free books. Some of those are public domain titles, but many are not. Those that aren’t are provided by publishers as promotions, usually an offer of an older book by a multi-title author who has a new one just out. Does any retailer billboard the publishers who “have made books available for you for free?” Not that I’ve ever seen.

I do believe that the price of content will be driven down over time because of the laws of supply and demand. The amount of content being made available every day is staggering. However, the established publishing companies still have pretty much a monopoly position on curating and branding it. Curating and branding save consumers an enormous amount of time and effort; that’s why they are willing to pay for them. Publishers and the authors whose brands they are enhancing and maxmizing are operating in an increasingly competitive world, but they are both totally sensible and totally unremarkable in trying to maximize the rewards for their efforts.

82 Comments »

Sometimes it is hard to get through on a new solution for publishers


One thing that makes trade publishing companies a bit confusing to outsiders is that they’re all organized a little differently. I remember years ago when the great editor, the late Alan Williams, was running a small general trade house near the end of his career. At one point, Alan’s sales and marketing director came to him and said, “I’d like to have publicity, which now reports in to ‘publishing’, report to me.” And Alan said, “fine.”

Then a few months later, the sales and marketing director said, “I’d like to have subsidiary rights, which now reports in to ‘publishing’, report to me.” And Alan said “no.” Alan’s logic was: “I need the capabilities of subsidiary rights reporting to me to make acquisition and product development decisions.” (Those were clearly different times, when book club and paperback sales potential could affect an acquisition decision, which they almost certainly wouldn’t today.) But, even then, Alan recognized that a different editor-publisher doing different books might look at it precisely the other way around.

In an ideal publishing world, the vision of a book and its market promulgated by an author and “gotten” by an acquiring editor, will guide all the work done by (in large houses) legions of people to develop the book’s editorial quality and presentation in any form, its “messaging” for marketing, its pricing, and its ultimate merchandising and delivery to the public.

I have observed for years that “each book published presents the opportunity to make an unlimited number of decisions, which must be resisted”. In big houses, those decisions are often made by committee. It creates a lot of meetings; more meetings than anybody can stand. That’s why good publishing management is constantly trying to delineate the lines of authority for decision-making because just about everything can become the subject of a cross-functional committee, if you let it.

Which raises the question of how you do introduce cross-functional ideas to a publishing house at anything other than the CEO or COO level, a strategy which has its own limitations. On Friday, we had a company in our office seeking our advice about how to advance their proposition. They were a large Indian printer with strong capabilities bolted at both ends: prepress services that included XML workflows and content conversion and complete warehousing fulfillment services, down to the single copy level. They could see all sorts of problems they could solve for publishers that would reduce costs and grow sales, particularly with supply to Africa, which is a problematic but growing market.

They had already engaged one of the most senior and knowledgeable consultants in the industry to help them. He just couldn’t find the “right” person to talk to in each house. Efficiencies that result from more sensible linking of prepress to printing, or printing to warehousing and fulfillment, will fall in multiple bailiwicks in any publisher of consequence. He called us; we called in two other senior consultants who might be able to help. It was a sales development meeting for all of us (that’s consultant-speak for “an uncompensated opportunity to help somebody in the hope that work might result from it”.) But none of us felt the integrated services and cost savings would be easy to sell because of the structural impediments. The best advice that came out of that meeting (and it wasn’t from me) was “sell them that you can grow revenue in Africa; revenue enhancements are easier to sell than savings.”

We’ve been helping a client called SBS Worldwide tackle a similar problem. The label most publishers would put on them is “freight forwarder”, but because they are entreprenurial, aggressive, and creative out-of-the-box thinkers, they’ve built capabilities that make them much more than that. By forming a partnership with a big company in China, they have put freight-forwarding capabilities (which, standing alone, consist merely of commissioning the transport companies to move goods — usually by land, then by sea, and then by land — and keeping track of where the goods are throughout their journey) into the same service offering as warehousing, pick and pack, splitting and combining shipments, and handwork like stickering or prepack assembly. And they deliver these services at Asia prices, not Western prices. SBS wrapped it all up with a great web-based reporting system that “sees” the goods from end to end any way you want to, tied a ribbon around it, and called it eDC for “electronic Distribution Center.”

The capabilities this offers a publisher — with no capital investment — doing a lot of printing in China for the American or European markets are enormous. They can consolidate shipments from four printers, split off 700 separate packages for the Barnes & Noble stores, the shipments to the top five distribution center customers, and 200 review copies (with a press release folded in), and send each its most efficient way directly from Asia.

And they can hold books in Asia if they aren’t needed right away and the publisher’s warehouse is full or would like them “metered” in. I am aware of two major houses who have expressed warehouse space pain within the past year. I don’t imagine asking for cash for more warehouse space would be well received in the current business environment.

And eDC can customize looks at those shipments so that each stakeholder inside or outside the publisher can see their own view: their distribution center, their customers’ distribution centers, their sales people, and their editors. This can take an enormous communications burden off their organization.

The challenge SBS faces is that the freight forwarder is viewed as the most commoditized and least important component of the supply chain (they don’t absorb much of the budget compared to the other costs of delivering the inventory). Many publishers just let the printer “deliver” to their warehouse (so the printer may be choosing the freight forwarder). In that case, the production director is “buying” what SBS is selling, and it isn’t crazy that production’s first instinct is to let the printer handle it. (After all, they’re trying to choose the lowest “landed price” for the book, aren’t they?)

Some larger houses have a “supply chain management” function, which takes a broader view. But, even there, vested interests come into play. Does the house need to continue showing “throughput” to justify distribution center fixed costs? Does the supply chain department or production department even want to develop a routine involvement with marketing functions like review copies and sales interactions like delivery to Barnes & Noble stores?

Print book publishing is shrinking because of the alternatives being offered by technology. Sometimes technology can turn that shrinking into an advantage by collapsing functions, or reconfiguring the relationship between departments. But publishers are structurally resistant to entertaining propositions that could do just that. There’s no widely applicable solution to this problem except to have an energetic COO that looks for solutions with a broader organizational perspectives that her functional heads might resist.

5 Comments »

Why are you for killing bookstores?


No news from here today; just rumination.

Those of us in the book business have to choose which anti-social position we want to take.

Some people are for the most rapid possible adoption of ebooks. They can be cheaper. They don’t require paper which pollutes when you create it and adds carbon footprint every time you ship it around. They have much greater functionality, or at least the potential for it. They enable business models that don’t require capital-intensive infrastructure.

But have you thought about this? If you are for the most rapid possible adoption of ebooks, you are for killing bookstores faster.

Although there are probably few people reading this blog who expect bookstores to be around in 15 or 20 years (and those who do will undoubtedly leave a comment!), there are many who would like to keep them around as long as possible. There is a magic to being in a building surrounded by 40,000, 60,000, 100,000 different books. Bookstores are inherently community centers. They make possible the wide dissemination and promotion of great writing. They enable people to see heavily-illustrated books before they purchase them.

But have you thought about this? If you are for bookstores lasting as long as possible, you want to slow down the uptake of ebooks.

As individuals, which side you’re on is a matter of personal preference. Although I have mostly read ebooks for more than 10 years and haven’t read a printed book in two years, I am for bookstores lasting as long as possible. It’s a “health of society”and a “health of my industry” question for me. I think both will be much poorer when bookstores go away.

My societal preference isn’t enough to motivate a self-indulgent guy like me to inconvenience myself, so I read electronically, not on paper. But it does not distress me to remain part of a small minority. It helps keep bookstores alive.

Individuals decide this question on personal preference; businesses think about competitive advantage.

Barnes & Noble and the biggest legacy publishers clearly have an interest in slowing down ebook uptake. Even though B&N and the big publishers are now in the ebook business, their competitive advantage exists heavily on the print side. They recognize that they have to live in the ebook world to serve the authors and customers they’ve had for years, so they do. But I don’t think a single big player in legacy publishing could give you a convincing description of how they maintain their scale and power when digital becomes the rule and print the exception. Can that day possibly be more than 20 years away? Might it be 10? I know a man that will take a bet that it will be five.

Apple and Kobo and Google and a slew of new players clearly have an interest in accelerating the growth of the ebook business because that’s the only part of the book business they’re in.

Amazon sells mostly print, but they sell print online. As sales migrate from print to electronic, it is still good for the print business at Amazon. Reducing print sales drives bookstores out of business, one by one. They go out because their sales went down 10% or 20% or 30%. But the remaining 70% or 80% or 90% of their print book business is demand to be redistributed. When a store disappears, some of those sales migrate to online purchases. And most of that moves to Amazon.

And, as we observed on this blog nearly a year ago, Amazon’s position as an online print retailer would be much harder to dislodge than their position as a leading ebook retailer (particularly with a major weapon — discount pricing on hot new titles — apparently being taken out of their hands by Agency pricing.)

Even though I believe that ebook hegemony will be harder for Amazon to defend than their dominance of online print, their strategy of pushing the move to digital reading has paid big dividends so far. Amazon delivered the Kindle, which was the first really great catalyst to move people from print to digital. (The iPhone was probably the second.) It is clear that Amazon gained an enormous first mover advantage by doing that and succeeded in converting a large number of their best book-buying customers to digital.

Both Barnes & Noble and Borders have suffered same-store sales declines for the past two years. Lots of those Kindle owners might have stopped buying some of their books in stores because they switched to electronic reading. They’re locked in to buying from Amazon until either there’s another way to put books on their Kindle or they move on to another device. Amazon created high switching costs for many of the best bookstore customers in the country. So they now own business they used to compete for and, at the same time, diminish their brick-and-mortar competition driving more print book business to the web.

The big legacy publishers’ greatest strength is their unique ability to handle print book distribution. There really are only a handful of companies in this country (the Big Six plus a few distributors and a tiny number of other publishers) that can put a book into every brick-and-mortar outlet where a customer might buy one. Doing that requires capabilities and relationships that you either have now or never will.

Although the big publishers and big authors have been allies fighting Amazon’s selling policies because they want to preserve print-driven book pricing, in the longer run their interests diverge. As ebook sales keep rising as a percentage of the total, the big publishers’ position weakens and the big authors’ position strengthens.

The book business has always been one with very low financial barriers to entry. Ebook publishing makes getting into the game even cheaper. It is also going to bring increased competition to book publishers from content-creators outside publishing. None of this is appealing if your power as a publisher is the ability to control shelf space and get fast reprints.I don’t think anybody would want to be accused of being in favor of killing bookstores faster. And very few of us would be comfortable having it said we were trying to slow down the progress of digital technology, strategizing to slow down ebook uptake. But you are for one or the other, unless you don’t have any opinion at all.

Those of us in the book business have to choose which anti-social position we want to take.
Some people are for the most rapid possible adoption of ebooks. They can be cheaper. They don’t require paper which pollutes when you create it and adds carbon footprint every time you ship it around. They have much greater functionality, or at least the potential for it. They enable business models that don’t require capital-intensive infrastructure.
But have you thought about this? If you are for the most rapid possible adoption of ebooks, you are for killing bookstores faster.
Although there are probably few people reading this blog who expect bookstores to be around in 15 or 20 years, there are many who would like to keep them around as long as possible. There is a magic to being in a building surrounded by 40,000, 60,000, 100,000 different books. Bookstores are inherently community centers. They make possible the wide dissemination and promotion of great writing. They enable people to see heavily-illustrated books before they purchase them.
But have you thought about this? If you are for bookstores lasting as long as possible, you want to slow down the uptake of ebooks.
As individuals, which side you’re on is a matter of personal preference. Although I have mostly read ebooks for more than 10 years and haven’t read a printed book in two years, I am for bookstores lasting as long as possible. It’s a “health of society”and a “health of my industry” question to me. I think both will be much poorer when bookstores go away.
My preference doesn’t extend to personally inconveniencing myself, so I read electronically, not on paper. But it does not distress me to remain part of a small minority. It keeps bookstores alive.
On the other hand, many businesses have a vested stake in this question.
Barnes & Noble and the biggest legacy publishers clearly have an interest in slowing down ebook uptake. Even though B&N and the big publishers are now in the ebook business, their competitive advantage exists heavily on the print side.
Apple and Kobo and Google and a slew of new players clearly have an interest in accelerating the growth of the ebook business because that’s the only part of the book business they’re in.
Amazon sells print, but they sell print online. As sales migrate from print to electronic, it is a double-edged sword for Amazon. Reducing print sales drives bookstores out of business, one by one. They go out because their sales went down 10% or 20% or 30%. But the remaining 70% or 80% or 90% of their business remains in print. When a store disappears, some of those sales move to online purchases. And most of that moves to Amazon.
And, as we observed on this blog nearly a year ago, Amazon’s position as an online print retailer would be much harder to dislodge than their position as a leading ebook retailer (particularly with a major weapon — discount pricing on hot new titles — apparently being taken out of their hands by Agency pricing.)
Despite our contention that ebook hegemony will be harder for Amazon to defend than their dominance of online print, the evidence is that Amazon has decided that the fastest possible shift to digital is best for them. That’s why they have pushed Kindle so hard. That’s why they have pushed Kindle pricing so hard.
The big legacy publishers’ greatest strength is their unique ability to handle print book distribution. There really are only a handful of companies in this country (the Big Six plus a few distributors and a tiny number of other publishers) that can put a book into every brick-and-mortar outlet where a customer might buy one. Doing that requires capabilities and relationships that you either have now or never will.
Although the big publishers and big authors have been allies fighting Amazon’s selling policies because they want to preserve print-driven book pricing, in the longer run their interests diverge. As ebook sales keep rising as a percentage of the total, the big publishers’ position weakens and the big authors’ position strengthens.
The book business has always been one with very low financial barriers to entry. Ebook publishing makes getting into the game even cheaper. It is also going to bring increased competition to book publishers from content-creators outside publishing.
I don’t think anybody would want to be accused of being in favor of killing bookstores faster. And very few of us would be comfortable having it said we were trying to slow down the progress of digital technology, strategizing to slow down ebook uptake. But you are for one or the other, unless you don’t have any opinion at all.

151 Comments »