April, 2010

What I Would Have Said in London, Part 4

This is the last of a 4-part series describing what I was intending to say to a live audience at the Publishers Association in London on April 28. In Part 1, I tried to make clear that a lot can happen in 20 years, which is the prediction arc for the first three posts. In Part 2, I described what I think is the world of information that will include publishing in 20 years. In Part 3, I suggest what I think publishers will evolve to and make some suggestions about how to get from where we are to where we’re going. And now, in Part 4, I take a shorter view, looking at the changes we can expect to see in the next two or three years.

Now let’s think about the pretty immediate future.

The year-on-year growth of ebook sales as charted by the IDPF shows overall sales volume growing by more than 2 or 3 times over the same period in the previous year and accelerating. Squinting at the chart, it looks to me like wholesale volume in the fourth quarter of 2007 was about $7 million, in the fourth quarter of 2008 the sales were about $16 million (2+x over last year), and in the fourth quarter of 2009 they were about $55 million (3+x over last year, about 8x over two years ago).

Anecdotal reports say that for new narrative books, ebook sales are already in high single or low double digit percentages of the total number of units the book sells.

You have to figure that the percentage growth on a per-title basis is less than the overall number for industry growth. The overall sales growth is partly attributable to more and more titles being made available as ebooks, so the expectations for unit growth for an individual title wouldn’t be quite as fast.

If ebook sales for new titles now are 7.5%, which seems like a low-but-reasonable estimate, and if that number doubles annually, which also seems conservative, we’d expect the ebook percentage to be 15% a year from now and 30% two years from now. In that light, a forecast of 25% ebook sales for new narrative books published by the end of 2012 (a bit over two-and-a-half years from now, and not to be confused with saying 25% of dollar sales volume will be produced by ebooks by then) is actually pretty restrained.

The volume of print book units sold online is likely to be a similar number to the number of ebooks by then. That means that by the end of 2012, the expectation would be that fully half of the unit sales in the US for a new narrative title will be rung up online. Online sales not only require almost no sales force, no warehouse, and no complex support apparatus to achieve (that is: the services normally offered as “sales and distribution”), they also really require no inventory. Print books ordered online can be printed on demand.

Making this forecast even more likely to be valid is the trend of diminishing sales in brick-and-mortar stores. Both major chains have reported substantially lower same store sales, year on year, for the past two years. Like the growth in ebook sales, this is a trend which it is hard to see changing over the next few years. Or ever, if the 20 year view we contemplated in an earlier piece in this series pans out.

There are a number of obvious implications of the situation we see unfolding if this fairly short term analysis proves correct. Authors will be more inclined to self-publish, particulary their out-of print backlist and any title a publisher doesn’t offer an advance reflecting high expectations. That means that, on average, desireable books will be harder and more expensive for publishers to sign. The pressure for publishers to give more than a 25% ebook royalty will intensify. There will be excess capacity throughout the print supply chain: printing, warehousing, and sales operations, and the price of distribution services on offer will go down because the overhead cost of maintaining it, as a percentage of the sales it supports, will have gone up for those with fixed operations.

Because the whole motivation for this lengthy multi-part post was to address the publishers in London, I want to close with a thought about a re-think that should be taking place among British publishers and agents over the next few years.

In general, it is true that the Web diminishes the value of “local”. Part of the reason that bookstores are so challenged is that the customer around the corner from them who wants to shop online finds Amazon.com or BN.com just as “close” as their local store. On the other hand, the Web opens up a potential global market to anybody connected with it.

For the past decade or more, the UK publishers have, in the stated interests of defending their territorial rights in their own home market, tried to bring English-language rights for Europe, which for years was ceded as “open” to books from the US or UK, into their exclusive grant of rights. The stated justification for this has been that the rules of the European Union allow any wholesaler in Holland or France to ship books into Britain and, if they bought from US sources, US editions could find their way onto UK bookstore shelves. Ignoring for the moment the number of ocean miles, warehouse handlings, and individual company profits a book taking that route to the UK would have to pay for (making one wonder, “you can’t compete with that?”), the wisdom of building high territorial walls might very shortly be called into question.

For if a British publisher has an inside track to a British writer or a British-told story that has global appeal; and if the marketing for that book is mainly going to take place online through niche communities on the Web that are often geo-neutral but are certainly accessible from anywhere at no particular cost whether they are or not; then a British publisher can reach half the US market for that author with no inventory risk at all. Furthermore, territorial disputes between English-language publishers about ebook rights are making total global sales coverage increasingly problematical. The blogosphere is full of stories about people who can’t download an English-language book in Peru or Greece because the rights situation is ambiguous. Having one global publisher will assure total worldwide availability in a way that rights-dealing is making increasingly difficult. Agents will understand that.

So I’d bet that a number of British publishers will, over the next few years, find the defense of territoriality a rear-guard and retrograde reaction to the new realities. In fact, aggressively selling the books you publish throughout the world, is not only possible but the most profitable and author-friendly way to navigate the next, and (from the long historical perspective) one of the last, twists of the book market.


What I Would Have Said in London, Part 3

This is the third of four posts covering the subject matter of an address I had hoped to make to the Publishers Association in London on April 28 but which was cancelled by the Iceland volcano. In the first post, we explored the nature of change in publishing and I tried to underscore how much disruption technology can cause in media in a 20-year period. In the second post, I sketched a vision of what I thought the communication ecosystem will look like 20 years from now. In this post, I outline what I expect the new prevailing model will become and look for some current efforts that point to it. And the last post in this group will take a more short-term view and discuss some changes we might expect to see in the next three years.

Over the next 20 years, the power to put books on store shelves — or, for non-trade publishers: the power to put “books” into people’s hands by other means — will lose its leverage. It won’t provide marketplace advantage anymore. And furthermore, the channels of remuneration for content won’t be book-specific, so there will be no particular efficiency and probably some competitive disadvantage to being a specialist delivering books, or content in book-length and book-form.

At the same time, and not necessarily connected, content-and-community worlds will become increasingly evident on the Web. An advertising agency in New York called Verso has already seen the opportunity in creating vertical “channels”: collections of 100 or 150 web sites that are topic-specific. Their first thought was to sell publishers on targeted advertising campaigns working those channels. I am sure many more opportunities to market through those logical and topic-selected collections of sites will become evident over time.

What I’m imagining is that web “front ends” will develop to all these subjects. Google is one way to search for Paris, France, and find double-digit millions of possible pieces of content. But the concept of a thoughtful and organized AllParis.com (instead of the ad-driven uncurated link farm you get from that URL now) seems inevitable. Imagine that everything that today has a Wikipedia entry had organized and crowd-enhanced access to bloggers, references, lists of books, related travel information, and, most of all, connections to the people who were thinking, writing, researching, and living out that thing. I believe that’s will we’ll see develop over time, organically and driven by commercial awareness as people how to make money by fostering it.

There are a handful of signposts to what I’m thinking about in our experience already. The most fully developed version of this vision is the Publishers Marketplace community built, from scratch and with no outside capital at all, by Michael Cader. Starting with one of the earliest, and still one of the best-executed, versions of a daily newsletter built on links to the most relevant posted content of the last 24 hours, Cader has built a community of thousands of members paying substantial fees for the benefit of being part of it. I could do a whole series of blogposts on the Marketplace site alone; I won’t. But if you’re a publisher seriously trying to envision a future, you should spend some time with it. And keep two things in mind:

1. He did it with no money.

2. He did it by using content as bait, to attract eyeballs, and he monetized the community.

Michael Cader has a very unique set of personal skills that enabled him to do it with no money. But the process of content as bait to attract the eyeballs and then providing tools, features, and databaes to monetize the community is one we will see replicated many times in the next 20 years to build many brands that will, in effect, be the publishing community of the 21st century.

Another example of doing this right that has recently debuted is from Sourcebooks and it’s called Poetry Speaks. Dominique Raccah, the Publisher (and owner) at Sourcebooks, has published poetry successfully for many years. She’s also navigated the world of sound, selling CD-and-book packages for well over a decade. Maybe that helped, or maybe it was just “vision”, but in Poetry Speaks she’s created a site that is “open” to all poets and poetry publishers. It provides tools and it provides reasons for the poets and the fans of poets and poetry to gather and interact. Yes, the site sells poems and books and audios, but “buy this book” doesn’t hit you in the face. Poetry does.

Our client Sterling Publishing is moving ahead with a web community initiative based on their publishing assets in photography. Joe Craven, who spearheads new business initiatives, looked ahead to the sales decline of their key lists in that subjects. He figured it was worth a shot to put lots of content on the web for free, attract a community, and then try to monetize the community. As a result, there will be a major web effort launching this Fall. Pixiq will use an editorial team already in place to build out a web presence, using legacy content, acquriing content through relationships they had developed from long experience, and leveraging professional and semi-professional connections built over many years of publishing to the audiences of professional, semi-professional, and amateur photographers.

Oxford University Press has just launched a new initiative which represents another way to develop a vertical called Oxford Bibliographies Online. They’re using their considerable academic expertise to delivered curated and constantly updated bibliographies by subject as a subscription product. This is brand new and just announced, but the idea has promise as one that will give them a unique position in each discipline for which they implement it and which can be a component of a vertical strategy in less academically-intense areas. Although the OUP initiative will garner subscribers mostly from institutional library customers, one would think Sourcebooks and Sterling will watch OBO with some interest. Surely, the function of curation being served here will be applicable to Poetry Speaks and Pixaq as well.

Both Sourcebooks and Sterling are aware of the fact that the web activity they are generating to create these communities can also be useful to sell books. But in the forefront of their thinking is  “the community”: what people they are trying to attract and what they can give those people that will make them come, stay, create value, and perceive value. The fact that any thought of immediate book merchandising is secondary is what makes these initiatives stand out to me. And both of these sites will, in time, develop real business models that are hardly dependent on content sales at all. That’s already true of Publishers Marketplace.

By creating a brand and a community for their sites which is really independent of the parochial interests of their own publishing programs, it makes it much more likely that Poetry Speaks and Pixiq can, in time, become important components of their competitor’s marketing efforts. Which side of that fence do you want to be on for the most important subjects you publish?


What I Would Have Said in London, Part 2

This is the 2nd of a 4-part post spelling out what I would have said if I had appeared at the Annual General Meeting of the UK Publishers Association on Wednesday, April 28, and not been cancelled by a volcano. Part 1 set the stage, spelling out how much change can take place in 20 years. This post offers a vision of the world of information and entertainment (or what we today think of as the world of “content”) 20 years from now. Part 3 will suggest what a publisher’s role can be in the new paradigm and Part 4 will take a shorter view, looking at the change we should expect in the next 2 or 3 years.

If we accept that 20 years is time for things to change a lot and with the belief that the pace of change in the world of information and entertainment is accelerating because of digital technology, here’s a view of what happens to content, audiences, and what will pass for “publishing” 20 years from now.

I’d expect that 20 years from now, the “local” hard drive will be relatively unimportant: a relatively short-term “emergency” cache for the rare moments when you aren’t easily connected to the network (the internet.) Data — all data, including everything you think you “own” — will live in “the cloud.” Kids in 2030 will find it as quaint to think of not being able to get at your files except by getting to your own computer as kids today would think it was to not be able to call somebody unless you could find a phone booth and they were at home (which was the situation 20 years ago.) Local storage may be seen by some as a virtue, but it is a virtue manufactured of necessity. It’s actually a hindrance. We will very shortly expect to get at all our files at any time based on a password or an iris scan or a fingerprint or some combination thereof (depending on our need for security.)

And we’ll access those files through a multiplicity of devices, which by then will really just be screens of varying descriptions with online access. There will be big ones that hang on our walls for us to watch movies on and to put a Picasso in when we’re not watching a movie. There will be small ones, foldable ones, and ones that come in rolls where you can use whatever roll width suits your immediate purpose. With your password, you’ll be able to use my screen for your data, just as you can use my computer to get at your gmail account today. There will be screens you can write and underline on which will store your markings (to share or not, as you choose.)

(I don’t want to get into the fact that we’re working toward converting a phone conversation into having the hologram of the person on the other end in the room for your chat, and I don’t know enough to know the timetable for that, but maybe we’ll get there in 20 years too!)

When screen technology progresses sufficiently, the idea of using paper will become a total anachronism. Paper won’t record and store your notes or annotations; screens will. For any volume of content, paper gets heavy. Screens don’t. If you could call anything up on a screen in your pocket that you could get today on paper, why would you want the paper? Nobody will, except for the artistic value that is associated with antiques. Paper won’t even be as good as a screen for your grocery shopping list. (I am imagining that my wife would be able to add an item or two to the screen list I have folded in my back pocket while I’m walking to the store.)

Even illustrated and coffee table books will be just about defunct, except as pure works of art. Screens will be able to deliver better image quality with more flexibility: to blow up the image, or rotate it (which you can see in the “Elements” ebook on the iPad today.) Screens can deliver you the accompanying text on top of the image for you to read it and then “take it away” for you to see the image alone. Books can’t do that.

Now, if this becomes true, it obviously changes the face of publishing. If distribution of all content is digital, and it is hard to see why it would not be, then the list of businesses that exist today that won’t exist in 20 years is a long one. Bookstores will exist, but they’ll be curiosity shops carrying used books and perhaps a handful of printed-on-demand newer items for the few print-pervy holdouts that remain (and 20 years from now, there will still be some.) It is hard to see survival for newsstands. Printing may still exist for packaging, but it won’t for newpapers, magazines, or books (except for the handful printed-on-demand.)

The change for publishers, though, is far more profound than a simple change in delivery mechanism would suggest. Publishers, indeed all commercial media in our lifetime, have been defined primarily by format. Some do books; some do magazines; some do newspapers. Others called producers do movies or television or radio. The capital and skill set requirements for a format effectively channeled the media company. For the most part, big media was not topic- or subject-specific; it was format-specific.

But when the exchange between publisher and content consumer becomes a file, rather than a book or magazine or movie or TV show, then format becomes irrelevant. A file can hold any of the formats we have historically thought of: text, photographs, diagrams, maps, video, audio. A file can also hold games and productivity software. So the publisher that is limited by the formats of the 20th century will not be competitive in the cloud-and-screen based media exchange of the future.

Wrapping our heads around the transition from physical media to digital gives some clues to how publishing and publishers will have to change to survive, but there’s another aspect of the web development we can expect over the next 20 years that is just as important. We call that the shift from “horizontal media” to “vertical.”

We’ve seen that media have been defined by format. The companion thought is that media have rarely been defined by topic or subject. Whether you’re talking about CBS or the BBC, The New York Times or the Times of London, or Random House in either country, the subject of the content is not limited. These companies will cover news, sports, public affairs, science, every academic discipline at some level, and pure entertainment. Except in the spheres where publishing exists in service to or as an extension of another establishment (educational, academic, professional), the primary identify of most publishers of scale is by their format, not their audience.

But we already see that the Web has changed that. Even superficially-“horizontal” brands on the web — Huffington Post and Gawker being two examples that are popular in the US — serve pretty specific interests (politics and celebrity, respectively, in these two cases.) And there are far more examples of new successful web brands which are subject specific: on sports, politics, women’s interest, health, crafts, cars. These businesses are built, first of all, on repeat visitors to a particular web site. But when they’re smart, they add user-generated content which turns into databases. They have lengthy comment strings to their blogposts which attract an audience of their own.

And they are building the publishing brands of 2030.

When we lived in a world of physically-produced and hand-delivered content, barriers of cost and scale effectively kept content scarce. It is no longer. Anybody who creates any content today can make it available to the world for no incremental cost if they have a web connection. Lots of professional content creators — individual and institutional — feel it is in their best interest to make content available without charge on the Web (sometimes with advertising support; sometimes not.)  A consumer 20 years ago couldn’t read good writing and watch videos all day about whatever is their favorite subject for free unless they went to a library, where access would be bureacratic and cumbersome. A consumer with a web connection today surely can. All of this inevitably reduces the price anybody can charge for a competing piece of content in any form.

Here’s the important point for publishers to take on board. Content is being devalued by technology. This is inexorable. It is not anybody’s fault. It is not in anybody’s power to change it. The price consumers will be willing to pay for content is going to go down because of the laws of supply and demand. It is true that professional content creators can benefit from efficiencies and cost savings offered by the same technologies, so the loss of revenue doesn’t necessarily translate into an equivalent loss of income or profit. But the general direction is one way: down. Businesses that depend on monetizing the content they create will continue to be increasingly challenged over the next 20 years as they have been over the last 10. This won’t end well for the formula of creating content and selling it.

But if the price of content must inexorably go down because of the laws of supply and demand, publishers should look at what might go up for the same reason. And what will become more valuable over time is the audience looking at the content. Content won’t be scarce and command revenue, but human attention will. As the world verticalizes, the owner or controller of the web community that has (for example) the gardeners will be the one to decide what new gardening content is needed. However it is montetized — by standalone sale, or as part of a subscription, or supported by advertising, or underwritten by a sponsor — the control will belong to the entity that commands the eyeballs.

What all of this means, taken together, is that the successful publisher of the year 2030 will own a web community which is both a principal source of content and provides the audience for it. The community will not be content-centric alone; but we aren’t getting into that in more detail right now because sketching out the whole concept for “vortals” is “out of scope” for this exercise.

The publisher who owns “knitting”, or perhaps “knitting sweaters”, will develop and curate the content and control access to the audience just as surely as a major publisher has controlled access to bookstores shelves or a newspaper publisher to newsstand sales in our lifetimes.

Without bookstores and without any general marketplace dedicated to the sale of “books” as a format, the idea of a General Trade Publisher will have no meaning.

That’s 20 years away so publishers have some time to get from “here” to “there”. But they won’t get “there” by staying “here.”


Points of No Return: Making Information Pay for 2010

This is the third year in a row that we’ve put together the Making Information Pay conference for the Book Industry Study Group, in conjunction with Ted Hill of THA Consulting. We’ve repeated the formula we’ve applied for the past two years, doing an industry survey on the conference theme to provide some additional insight.

This year’s conference is called “Points of No Return.” It looks at things from the perspective of publishing’s employees and seeks to discover when the markets, technologies, and process changes make things so different that old skills don’t map, old organizational structures have to be completely revamped, and people really have to develop new capabilities, accept new roles, or be forced to move on.

Our survey this year tried to gauge the feelings of publishing’s labor force about the changes they’re seeing in their company and throughout the industry. We also asked for a reaction to a number of industry “buzzwords” (like “Twitter” and “vertical”.) A report on the survey results will be distributed at the conference, but here are three little nuggets:

1. The preponderant majority of workers in all parts of publishing — editorial, marketing, sales, IT, distribution — believe that significant changes caused by technology either have occurred or are occurring now. No surprise there, but the surprise will be that there is one function people think is changing much less than everything else. And wouldn’t you know it is one that I think will likely change more than any other over the next few years?

2. Half of our respondents think publishing will become a more profitable business in the future, but they split down the middle as to whether the business will be smaller and more profitable or larger and more profitable. There’s a similar split on expectations about whether there will be more jobs or fewer. (Half of those expressing an opinion think there will be more jobs! Stop the presses!!)

3. What I found to be a startling percentage of our respondents think Twitter is a fad, soon to fade away.

Making Information Pay delivers a concise program: two 90-minute sessions surrounding a 30-minute networking break that starts at 9 and concludes at 12:30. We designed the program so that the first 90 minutes delivers facts and insights about the industry and the second half features reports from the front lines of change.

After BISG Executive Director Scott Lubeck opens the program and I deliver a very short keynote, Kelly Gallagher of Bowker will begin the morning segment talking about what Bowker PubTrack Consumer has discovered consumers are saying that is relevant to publishers thinking about points of no return. PubTrack has delivered some great insights over the past year, from demonstrating how important in-store display is to book sales to quantifying consumer attitudes about ebooks in a special study done jointly with BISG. He will highlight the Bowker findings most relevant to our program’s theme.

The Gilbane Group is also working with BISG, doing research on the seven “essential processes” (which I still call “systems”) that publishers need to keep up to date in order to stay viable as their businesses change. Do your production processes support tagging chunks of content that you might want to sell separately from the whole book? If not, you will lose revenue as the market for fragments develops. Does your royalty accounting process enable you to report to authors on sales of this kind and divide revenues appropriately? If not, then you’ll have a different set of problems exploiting those new opportunities. David Guenette of Gilbane will tell the MIP audience what the seven essential processes are, why they’re critical, and what pitfalls await if they are not ready for what’s coming.

George Lossius of Publishing Technology will tackle one of the paralyzing challenges of our current environment: how can publishers make substantial investments in technology when the business climate is changing so quickly around them? Lossius maintains that there are things we do know that can guide us; he’ll be helping publishers see what truths are stable and reliable to guide their investment decisions, even when a lot is not.

Jabin White of Wolters Kluwer has worked through some major process changes within his own company. We’ve asked him to focus on the people-centered challenges of those changes. How do you bring people along when change might be making them uncomfortable or unhappy? And how does an organization deal with the changes in job skills required, which could mean changes in the particular people required, in the least disruptive way?

The second half of the program will start with Bruce Shaw and Adam Salamone of Harvard Common Press who will present an eye-opening view of how the strategy for new title acquisition changes when a publisher becomes sensitive to its role as a vertical player. They demonstrate convincingly that decisions change when an editor sees they are acquiring content for a database rather than simply publishing a book.

Phil Madans is deeply involved in Hachette’s move to a digital workflow for book development. This requires a shift from an “assembly line” way of working to a “collaborative” one. Editors no longer finish their work before they engage with design and production; there’s a lot more being done simultaneously rather than consecutively. Hachette is well along in building this new process; Madans will offer insights that will be very useful to other publishers still contemplating this switch

Matt Baldacci of Macmillan, who oversees all the marketing spending at his company, is covering the challenge of changes in where marketing dollars are allocated, and the processes and skill sets necessary to do successful marketing in today’s marketplace.

Maureen McMahon of Kaplan draws on her prior experience directing sales at Random House to analyze the changes in sales, which she sees as having moved from requring “closing” to requiring “connecting”, all of which leads to different hiring criteria than she would have applied only a few years ago.

And on top of that, BISG has two sponsors with useful messages. Steve Walker of SBS Worldwide offers his Electronic Distribution Center, which gives publishers completely new supply chain capabilities and a web-based tracking mechanism that cuts administration and communication costs at the same time. And John Konczal of Sterling Commerce has tools to enable new business models, such as those that the Gilbane analysis points out as requirements earlier in the conference.

We’re very excited about this program; we think people at every publishing house will have something to take home and apply that very afternoon, which is always our objective. As readers of this blog well know, I’ve been speaking at, running, and going to digital change conferences for almost two full decades. To my knowledge, there has never been one before that focused on people in their jobs. How will mine change? Will I still be able to do it? Will it still be here for me? And what do I have to do to make sure I can stay employed in publishing?

We think these are questions a lot of people are thinking about. If you’re one of them, join us at Making Information Pay on May 6!

I am interrupting the “What I Would Have Said in London” series to bring you this time-sensitive post. We’ll resume WIWHSIL with Part 2 tomorrow.


What I Would Have Said in London, Part 1

I have gotten some requests, in comments and off-the-blog, to write what I was going to say to the AGM of the PA in an appearance I was supposed to make there on Wednesday, April 28. I felt terrible about having to cancel an engagement that was booked many months ago but it was tied into a trip to the London Book Fair which was cancelled due to the Iceland volcano. Since I was really prepared for the talk, updating the “Stay Ahead of the Shift” speech from last year’s Book Expo and adding some thoughts about the immediate future in the US market that I think British publishers should take on board, the suggestion is one I can readily respond to.

The premise underlying this piece (and really much of my work) is that all of us, to function, must have a view of how we think things in publishing will change. Change has been a constant in publishing forever, of course. In my lifetime, in the US, mass-market paperbacks and mall stores have risen and fallen; wholesalers have gone from local warehouses that replenish bestsellers to national operations that can provide hundreds of thousands, if not millions, of titles to any store in 24 hours; general trade publishing has consolidated from tens of real competitors to a Big Six; and, in the past 20 years or so, the superstore, usually run by a chain, with over 100,000 titles has became about the only brick-and-mortar formula that seemed sustainable. (NB: On that last point, I think more focused, smaller stores would actually work better, but it would take a large player with a real supply chain to try them to find out.) When I started in the 1970s, the big national accounts were less than 20% of a publisher’s sales and the field reps were responsible for much more than half the business. It would be inflating the importance of the field now to say that those numbers have reversed.

But the changes we’ve been experiencing in the last ten years have been much more dramatic. The combination of used books and the Long Tail enabled by print-on-demand, all delivered by Internet retailing, has eaten relentlessly, if invisibly, into the market for publishers’ new offerings and estabished backlist. The growth of Internet ordering has sapped the viability of the brick-and-mortar network and in the past decade we’ve seen shelf space shrink following relentless growth since the end of World War II.

And, at the same time, even before the recent growth in ebook sales provoked a new digital consciousness, marketing opportunities have been shifting from the print and broadcast world to online.

Publishers have adapted to these changes by changing their sales force deployments, discovering the virtues of social network marketing, and, more recently, going to XML-based origination procedures that make it easier to deliver a book’s content in a variety of ways (the principal ones being as a book, as an ebook, and as a web page.) Publishers who saw the future coming were able to prepare for it. Cambridge University Press, for example, had tens of thousands of old backlist titles set up for print-on-demand long before other publishers did and they reaped a harvest of sales and profits in the past decade as a result. Last year, Simon & Schuster shifted resources from field reps to telemarketers. In an age when Skype allows free face-to-face phone calls and gas prices do nothing but rise, one can’t help feeling they are also getting ahead of a curve by doing that.

Changes of this kind make it clear that a publisher is required to have a view about where things are likely to be going  to plan their business intelligently. It is our purpose to explore that: first with a long view, looking perhaps 20 to 25 years out, and then with a more immediate one thinking about changes that are literally “coming right up.” Because it’s what I know best, this view is US-centric, but because the US is the largest English-speaking market in the world and the view from where I sit (intellectually, not geographically) is that the world is now any and every publisher’s market, these thoughts should be relevant to a UK publisher even if they aren’t primarily centered on the UK market.

I hope we can agree on two things before we start, though. One is that increasingly profound change is inevitable. And the other is that all future planning, just as inevitably, depends on one’s view of what that change will be.

So, with that as preamble, I want to try to envision two futures: one long-term — which we will call “the next 20 years” — and one short-term, looking ahead just two or three years.

Before tackling the 20 year vision, which will be disturbingly dissimilar to where we are now, I want to remind you from recent history how much can change in 20 years. Once again, I cite US-based examples, but I think these will probably be reminiscent of some aspect of local history for every market in the world.

In 1968, television in the United States was dominated by three over-the-air networks that divided pretty much 100% of the national audience, approximately in thirds on average, but it was not uncommon for a single show to have half the national audience. Major cities had a few local stations available in addition; most of the country did not.

By 1988, cable television penetration had reached well over half US households, delivering a choice of many dozens of channels and network TV’s share of the audience had plunged. Today there are five national TV networks in the US and they share substantially less than half the total audience. Top-rated shows fight for the attention of 15% of the country, not fifty.

In 1982, record companies were on the verge of explosive growth. The Sony Walkman and other portable cassette players were joining cassette players in cars, creating an incentive for maturing boomers to re-buy music they’d purchased 10 or 20 years before on records. A very few years later, the same phenomenon repeated with CDs. Back catalog in new formats became a gold mine for established companies.

But by 2002, the CD sales had turned into a curse. They were gold masters, easily ripped by any computer into the new digital formats which ultimately meant iTunes and iPod for the most part. The transition from analog to digital, which stripped the record companies of the power they had which was based on their ability to put product on store shelves, was accelerated by the CDs that all consumers had by then. The fuel for the final burst of record company profitability in the 1990s resulted in the fire that burned them up.

Newspapers in the US had their biggest year yet for advertising sales in 1989. Things got even better in the early 1990s, with growth in classified ads leading the way.

But then along came the Web. Classified advertising moved to Craig’s List, in some ways to eBay, and to many niche sites for camera buffs and auto aficionados and a host of online real estate communities. Google and Yahoo and the web itself disaggregated and reaggregated the content newspapers produced. Both the advertising model and the circulation that drove the advertising were challenged. Twenty years later, many newspapers have died and those that survive are hanging on by their fingernails and desperately grasping for a formula that will allow them to sustain their business online.

In 1975, the mass market paperback business in the United States was the tail wagging the hardcover dog. Agents and authors were balking at the idea that the hardcover house would get 50% of the subsequent paperback income, even though it had always been that way. In 1979, Crown Publishing sold the paperback rights for the long-forgotten novel “Princess Daisy” to Bantam for $3.1 million, a number that still stands as the record for a mass market licensing deal. As my father predicted in his seminal book, In Cold Type, published in 1982, the distribution model for mass markets was inherently inefficient and couldn’t last for trade-type books. It didn’t. By 1995, mass market publishing was a genre business, which was how it started after World War II and what it is, for the most part, today.

Twenty years ago, we went online through very slow modems to very limited and klunky online portals: Prodigy, Compuserve, and the seemingly-modern America Online. The World Wide Web hadn’t yet been invented!

Today we carry the world’s information in the palm of our hand and we’re annoyed if we can’t get a connection, 24/7/365.

And twenty years ago, the book business was on the verge of its last great boom. In the US, Wall Street was just discovering that very large free-standing bookstores, offering consumers 100,000 titles or more under one roof, were cash-generating machines. They opened the vaults for Barnes & Noble and Borders to open hundreds of such stores across the United States. In the mid-1990s, Amazon.com was founded, enabling sales even deeper into the backlist.

But, although it wasn’t as dramatic as the record companies’ distribution of CDs, there were the seeds of old publishing’s destruction sown. Amazon also enabled the sales of used books and the Long Tail, books that had — before Amazon and Ingram’s Lightning Print made the idea of “out of print” an anachronism — stopped competing with the new offerings of publishers. Now they were alive again. That alone would have made things much more difficult. In addition, the impact of growing online sales steadily weaken bookstores and consequently undermine the primary USP  publishers always had: that they could put books on retail shelves. These factors have made establishment publishing an increasingly difficult proposition every day of the past decade.

This admitted stage-setter is the first of what will be a four-part post. The next installment will spell out a vision of the world of communication into which publishing will fit 20 years from now. The third piece will suggest what a publisher will look like then. And the fourth will cover some changes we can expect over the next three years which, among other things, might call for some recalibration of the competition between UK-based publishers and US-based ones. I’ll publish one each day that I don’t have something else until all four are up. And I’ll have added links to the subsequent pieces in this postscript as they’re made available.


Returns may be going, but some book sales will go along with them

Sometimes expressing your opinion can have unintended consequences.

In a post last week, I observed that the explosive growth of ebooks made it likely, in my opinion (shared by others, some of whom are in high places), that as many as half the book purchases could be online purchases by the end of 2012. I see many consequences of that change, but one of them is likely to be a complete reconsideration of the long-standing industry policy of accepting returns from retailers and wholesalers of unsold inventory.

My reasoning was that once returns only help you reach half the potential market, viable publishing becomes possible without them. And with perhaps more than half of the brick-and-mortar outlets (by that time) for most books (excluding bestsellers, which are sold in mass merchants) being accessed through a single retailer (Barnes & Noble) that has its own distribution centers and a managed supply chain, returns would start to fade away. (With their robust supply chain capabilities, B&N will be able to work the new marketplace, which will undoubtedly feature a higher discount no-returns option, to their competitive advantage.)

I didn’t deal with my feelings about that (mixed) or the impact on sales I would expect (damaging), but I’m moved to do so today because my prediction has led to a celebration in anticipation of that turn of events, a 2-part series (Part 1 is here and Part 2 is there) called “Publishing 3.0: A World Without Inventory” by agent, ebook publisher, and digital thinker Richard Curtis. He casts preprinted inventory distributed with returns as “the speculative model” and a no-returns marketplace supplied largely with books printed on demand as “the prepaid model.”

Richard characterizes returns as “a bargain with the devil” and “an addiction”. He cites return rates in the neighborhood of 50% (which they are — and even higher — on some books but which they are not for any publisher across their list) as the killer of publishing profits. But I think Richard leaves two very important realities out of his analysis:

1. Inventory creates sales that would not take place without the inventory placement.

2. Publishers (and Richard’s clients: authors) have a great deal to gain from the publisher’s practice of selling returnable.

In fact, this piece effectively argues that a responsible agent will prefer a publisher that allows returns to one that does not for their client, if the royalty rates are the same (and often if they are not.)

Before making the two arguments promised above, let me deal with three realities that are often elided when returns are discussed.

First of all, book publishing is not the only business with returns, despite frequent claims by returns skeptics that it is. Newspapers and magazines have returns, of course. But, apparently, so does technology hardware! I learned this hearing our client Copia present itself and its parent company, DMC, to publishers. DMC is very deep-pocketed. They make the point that putting out six ereader devices (which they are doing) requires the financing to put tens of millions of dollars of inventory onto retail shelves, and taking them back, eating the cost of producing them if they don’t sell. That’s one reason why there are few upstart manufacturers of consumer electronics. Even if you could get in the door at Walmart and get an order for your gadget, the financing required to fill the order would be beyond anything but a large and well-established company. So the principle that the manufacturer insures the retailer who stocks speculative inventory is not applied to books alone.

Second: publishers are customarily asking retailers to put books on their shelves before there has been any public exposure to the title. It hasn’t been reviewed (except possibly by the diminishing industry sources for pre-publication reviews); it hasn’t been sampled by the public; it hasn’t been read by the sales rep pushing it or by the buyer deciding about investing in it. The promotion plans are promises that are sometimes not kept. It is a competitive requirement to offer returns in that situation if the publisher wants the books in place at retail on publication date. I have never heard a clear narrative about the introduction and spread of returns in publishing. Curtis’s account, which confirms my understanding, is that the practice began in the 1930s. This was before my Dad’s time in the business; he thought it was Viking Press that began the practice. But the practice apparently spread so quickly that nobody got clear credit for starting it. And we all got a lesson about the competitive requirement when Harcourt Brace Jovanovich tried to eliminate returns (in favor of much higher discounts) in 1981 and rescinded the policy in about 90 days because the trade just wouldn’t stock their books.

And third, publishers’ practices affect returns. Most returns from major retailers to publishers are on big books for which the publisher wants to force out a quantity that creates a noticeable presence in the stores. There are occasions when the over-ordering is due to retailers being zealous or concerned that they’ll have trouble getting replenishment inventory. But, more often, they are due to publishers pushing out bigger quantities because they know that bigger stacks in the store make the book move faster. Or because the rep wants credit for a bigger sale. Or because the publisher’s discount schedule rewards a larger buy with a better price.

(It is commonly suggested by no-returns advocates that publishers at least eliminate returns on backlist. It would be a dumb publisher that did that. The way you entice the trade to buy without returns is by increasing the discount, shifting margin from the publisher to the retailer. But backlist returns are already low for most publishers. So following this suggestion would lead to a publisher giving away margin to reduce returns on the segment of the list on which there aren’t many returns. It is worth noting that no publisher that I know of has taken the bait to eliminate returns on backlist.)

And all that leads to me making the first point: that inventory creates sales that wouldn’t otherwise occur. The point is made over and over again, most recently by Bowker PubTrack data (click that link and take a look; it’s quite startling) that what happens in the store — how books are displayed and what clerks say (which is also affected by how books are displayed) — influences a lot of purchases. If we don’t have retail locations with books merchandised to entice people to buy, I believe overall book sales will go down. And as long as we do have stores (which we will for quite some time, even after the end of 2012), then the books well displayed in them will have a competitive advantage over the books that are not.

And the first point leads to the second point. The author, in effect, “hires” the publisher to maximize the sales of the author’s book. Pushing out inventory and taking the returns that enable pushing out inventory are part of what a publisher does for an author that the author can’t do for herself. While I believe that publishers will move to no-returns and no-inventory models for many books, and that will enable the publication of  books that would have been too risky the conventional way, the sales expectations for these books will definitely be lower than for those published with inventory and risk. And let’s remember that the cost of each book produced is substantially higher printing one at a time compared to a press run. Press runs are distinctly more profitable if returns aren’t astronomical and very few books are published with the expectation of astronomical returns.

So the days of returns may be numbered, just as the days of brick-and-mortar bookstores likely are numbered, but that’s not a good thing for overall book sales or even for the profits of publishers. For the books with highly-targetable audiences the effects will be less damaging but for the books that sell the most — the kind that agents represent to publishers — it will mean a great reduction in the chances that the book will take off and reach big numbers. And for the publishers that step down from returns by managing them before they eliminate them, there will be a real competitive advantage.

I didn’t make it to London. I’m in good company. My friends who are in London are wondering exactly how and when they’ll get home. Of course, there are far worse places to be stuck.

I see in today’s Shelf Awareness that The Bookseller in the UK has been sold by its corporate owner to an entrepreneur (its publisher, Nigel Roby) just a week after Publishers Weekly in the US was sold by its corporate owner to an entrepreneur (its long-ago former publisher, George Slowik.) There are powerful structural and institutional forces that have weakened the inherent position of a trade magazine for trade publishing in both markets and making a success of them will be a real challenge. We wish the bold new owners luck with their ventures.


What does a consultant do at the London Book Fair?

I spent a chunk of yesterday working on this post while, with one eye, I was watching the news about the volcanic eruption in Iceland that shut UK air traffic. As I post this on Friday morning with a flight scheduled to leave tomorrow night near midnight, I’d guess the chances of actually getting there might be as low as 50-50. In fact, the post has already been edited because two people from one client I was going to work with there — Copyright Clearance Center — already had to cancel because of the air travel disruption. I hope the post will be of interest no matter how this turns out.

It’s been a running joke between me and my oldest friends (none of whom are in the book business or digital space or anywhere near it, having chosen careers long ago as teachers, lawyers, engineers, TV directors, and other “normal” comprehensible things) that all of them wonder “what the hell does Mike do?”

It has occurred to me that readers of The Shatzkin Files might wonder very much the same thing. So while I’m thinking through my planning for what promises to be a very busy time next week at the London Book Fair, it seemed to me that writing about it would both help me think and spell out a bit about how a book business consultant adds some value and earns a living. And hey, maybe we’ll promote some clients and some of these activities of mine at the same time!

My principal mission next week is to talk to UK publishers, mostly to the digital strategists but also to some senior management, about the following initiatives:

1. I am just starting to organize the program for the second annual Digital Book World conference, which will take place in New York in January, 2011. I’ll be doing a post here sometime after London to enlist the help of all my readers in brainstorming and planning this, but what I’m going to do next week is tell publishers what I have in mind and get feedback and suggestions. It is an article of faith among the US publishing community that we’re “way ahead of them” and, indeed, I am not aware of conferences dedicated to publishers in the UK that are comparable to Digital Book World, O’Reilly’s Tools of Change, or the Book Business Conference and Expo. (There is London Online, but that is not a conference focused on book publishing.) Since it would seem that the world of digital would bring publishers of different nationalities closer together, not further apart, I’ll be looking for possible speakers as well as ideas, and probing whether it makes sense for our partners at F+W to really market our conference in the UK to look for paid attendees as well.

2. We’re also on the verge of formally announcing a new program in partnership with F+W Media: E2BU, Enhanced Ebook University. The White Paper, being written by Pete Meyers, is expected to go out for “peer review” next week. Kirk Biglione of Oxford Media Works, our CTO, has been leading our effort to craft a multi-track webinar program that will also be part of the initial E2BU offering. Since this effort is all virtual, we’ll definitely want to market it in the UK. I’m expecting UK participants in our webinar sessions (as “faculty”) and we’re recruiting peer reviewers from the UK for the White Paper as well.

3. As readers of this blog know, we’ve been working with Copia, a new ebook platform with social networking integrated in (and six ebook reader hardware offerings as well). Copia offers some unique marketing opportunities to publishers that are simply not a part of any competitive platform. So we’ll be using the London Book Fair to meet with the digital heads of UK houses to jump-start the awareness of this new platform and sales channel among non-US publishers. The response to the Copia presentation among publishers and agents in New York has been unanimously enthusiastic. Meanwhile, from the Copia side, we’ve been seeing that we need to engage with publishers well beyond their ebook departments; really taking advantage of Copia will require the involvement and creativity of editors and marketers. I’m looking forward to seeing how the UK publishers react to the opportunity.

4. London Book Fair ends this coming Wednesday, April 21. Exactly one week later, I’ll be addressing the AGM of the PA (which everybody in the UK knows is the “annual general meeting of the Publishers Association.”) My remarks are already thoroughly planned, of course. I’ll be talking about where the world of content and publishing will be in 20 years, predicting a world where owning IP won’t be of nearly as much commercial value as owning eyeballs. And I’ll be talking about a couple of publishers who are already getting ahead of that change. Then I’ll discuss where the US book marketplace is going in the next three years, which I think has very significant implications for UK publishers thinking about territoriality and global markets. But I’ll be using the book fair to get somewhat more acquainted with how UK publishers see their market today, hoping to find additional bits of relevant information to sprinkle into the talk.

The London Book Fair is not just about meeting publishers and publishing operatives from “across the pond” or around the world. Sometimes it is presenting an opportunity for us to work in person with US clients who are not based in New York, or to introduce clients to US publishers who are not based in New York, as with these:

5. I have also written on the blog about our “freight forwarder” client, SBS Worldwide and their eDC supply chain solution. Steve Walker, the Chairman of SBS, is speaking at the BIC (that’s Britain’s Book Industry Communication, their rough equivalent to our BISG) Supply Chain Meeting, an annual London Book Fair event. So, of course I’ll go see that. In addition, we’re using the London Book Fair to introduce Steve and eDC to a couple of US publishers from outside NYC.

6. In the same vein, we’ll use London Book Fair to meet with our clients at Bookmasters. They have a very broad suite of author- and publisher-support services, which have grown organically from their roots as a short-run printer. The range of their services really extends across the entire publishing value chain: literally from getting the book written (if necessary), getting it set up for printing or digital distribution with an XML workflow, content conversion, printing (POD, short run digital, or offset), and all sales and distribution services up to and including a toll-free number to take orders. And, unlike others that approach that range of services, they’re a willing on-ramp to publishing for individual authors and tiny publishers. Bookmasters is based in Ashland, OH and they’ve just created a new position called Business Development Manager for Integrated Solutions and put a new executive named Bob Kasher in place who is making their very complex set of solutions accessible to potential customers. LBF gives us a chance to meet and refine the way the propositions are being presented in light of real customer reactions and responses.

Oh, that’s not all, of course. I’ve been invited to speak in Ljubljana at a digital publishing event next year and the person who invited me will be available for a chat in London. I’m having dinner with the head of one of the big DADs (digital asset distributors) that I hadn’t yet had the opportunity to know personally. I’m seeing a Boston-based publisher with which I’ve had some conversations about digital change to see if there’s a potential engagement. I’m meeting with an Irish publisher to be interviewed for a thesis he’s writing. And I’m seeing lots of old friends before my wife comes in and we head off with two of those old friends (and their dog) to spend a weekend seeing Scotland from our base at The Pineapple in Dunmore.

I certainly won’t be bored at the London Book Fair and now you know why new posts from me might be sparse until I get back to the States on April 29.


Looking at the iPad from an ebook reader’s perspective

Here’s a quick review of the iPad. I’ve had it for a few days now and, based on what I know so far, it isn’t going to be a very important part of my life. It has great capabilities, but it has real limitations. The capsule summary is “not as good for straight text ereading as a Kindle; fabulous for visual stuff like movies and pictures and games (which I don’t play) but limited there by not supporting Flash.”

So far, I’ve watched a movie (using the Netflix app here might be the biggest payoff here for me with it, but I’m usually not big on movies out of theaters), gotten books from three platforms (Kindle, Kobo, and, of course, the iBook store), grabbed the Elements book-app (cool…). I also got a Vook (Dr. Jekyll and Mr. Hyde), which was enough for me to see “not my cup of tea.” Maybe others on other subjects will be different…better. This one was both just not appealing (a clip introducing John Barrymore embedded in the first page of the story) and defective (a bunch of links that don’t work.)

The keyboard is miles better than one on a phone, but nowhere near as good as one on a laptop or netbook. So it isn’t a substitute for carrying a full-function computer on a trip, regardless of what software they eventually build for it. And if you’re going to carry another keyboard, what have you gained over carrying a netbook?

I bought it because I needed to see it and, to tell the truth, I thought it would be cool to carry it around the London Book Fair next week and show it to a lot of people in publishing who had not seen it yet. But the damn thing weighs a pound-and-a-half and doesn’t fit in any pockets (the Kindle fits in the hip pocket of most sports jackets which, frankly, I wear regularly for the pockets!) and I’m not slinging a briefcase on my shoulder to have the iPad when the iPhone keeps me adequately connected in a conference or trade show situation. It’s worth putting in my suitcase to show friends in some situations, but it won’t be with me most of the time.

There was some fun I could have on a computer or an iPhone that was definitely better with the iPad: using the YouTube app, punching in the names of old rock stars, and watching clips. (The sound from the iPad speakers is more than passable.) And being able to show photographs on the big iPad screen will be a great benefit for some people.

But as a straight ereading device, it just doesn’t cut it for me. The extra weight (over a Kindle or an iPhone) just isn’t sufficient compensation for the extra screen capability. It isn’t as good as the iPhone for reading in bed in the dark because the much more light it throws off makes it harder to avoid annoying your significant other. It took me a while to find it, but the lock that allows you to lie on your side and have the type lie in its side with you is managed by a button on the device itself, not a setting in the ereader platform, which is how Kindle and Kobo do it on the iPhone.

And Apple has not mastered the shopping experience for books yet. The iBook store shows far too few books per category. You see “new in fiction” and you ask for “all” and you get 23 titles? Give me a break! Or you go to “history” and see “recent releases” and you ask for “all” and see 18 titles? It looks great, but this is not using the unlimited bookshelf of the web to anything near its potential.

When you search for “baseball” in the iBook store, it doesn’t tell you how many results you get, but the answer is 117, strikingly similar to Kobo.

Kobo’s shopping experience is similar. When you search for a topic (I chose “baseball”). you are told how many results are being returned to you (I got 114.) While shopping for Kindle titles requires you to go “out of app” to their store on the web, that’s not really a problem (you can hardly tell the difference.) Of course, Amazon is the champion of choice — their killer app — and there are 946 search results for baseball. That suggests to me that both Kobo and iBooks have a long way to go to catch up to Kindle’s selection of titles. That means the advantage remains with Amazon for the foreseeable future.

I had a chat today with a collaborator who is more tech-savvy than I. He said he’s hearing the “too heavy for an ereader” comment from a lot of people. He theorized that perhaps some people might get an iPad instead of a computer if all they needed a computer for was web-surfing and emailing. But he admitted a netbook might be a smarter purchase in that situation for a lot of people.

Certainly, this device is not going to put the Kindle out of business and I doubt it will be the preferred ereader for any heavy consumer of books, or what books are today.

But the good news for publishers is that Apple will sell a lot of them as “content machines”: to people who aren’t primarily book readers. We might pick up some new ebook readers from the large universe of people who hardly read books now as a result. That would expand the market to our benefit.

On the other hand, anybody interpreting the announced 750,000 ebook “downloads” (not “purchases”) to 600,000 iPad purchasers in the first weekend as promising for publishers would need more data to come to that conclusion. That number by itself isn’t impressive, but we don’t know how many Kindle or Kobo (or other) books were downloaded by new iPad owners. Only Amazon knows for sure, but I’ll bet that 600,000 Kindle owners download three times that many book files in the first 24-48 hours they have their devices and it would be a bit of an upset (to me) if initial iPad activity were heavier with non-iBook content than with books purchased directly from Apple.

So the hunch from here is that the iPad will help us grow the ebook market but the makers of lighter and cheaper e-ink devices don’t have to leave the field just yet.

I thought Kassia’s take on this was useful as well. She explores the Ibis Reader which I didn’t (it sells little or no “branded” content so it is of less interest to me.) We mostly seem to agree about the iPad and ereading except that because she’s a woman,  she’s thinking this will encourage men to carry some form of handbag. Good luck with that one…


Serious disruption just over the near horizon

The monthly release of ebook sales figures by the IDPF provides a regular reminder about how fast this market is growing and it always provokes me to project the curve into the future and think about the implications. It was an IDPF data release that triggered the thought that we needed a “Tipping Points” panel at Digital Book World last January which turned out to be one of the highest-rated presentations by the attendees of the conference. And it was another release of that data that made me say on this blog on March 22 that I thought ebook sales would reach 20-25 percent of the sales for new works of narrative writing by the time of Obama’s reelection in November 2012.

Then last week, The Economist had a story quoting Carolyn Reidy, the CEO of Simon & Schuster, forecasting S&S ebook sales in that range in “3 to 5 years.” This is the first time that I’m aware of that a Big Six CEO has been willing to put their name on a forecast that is just about as aggressive as my own. Another conversation with the head of another one of the Big Six companies captured a forecast that is in the same ballpark.

So I think it is worth a few moments to contemplate what it means if this forecast is accurate, or even close to accurate.

If by the end of 2012, 25% of sales for a new book are digital, then about half of new book sales will be made through online purchases if we count the print book sales made through online retailers (mostly Amazon.)

Online print sales can be served through inventory generated on demand. So, if these estimates are right, we are less than three years away from a publisher (or author) being able to reach half the market for a book without inventory risk!

Having half the market reachable without print-run risk or inventory storage; having half the customers connecting with their reading through online paths that make them at least theoretically identifiable; and having a quarter of those customers reading through a medium that enables interactivity will make all the changes we’ve seen so far in trade publishing appear trivial. And if the very perspicacious Carolyn Reidy, her unnamed counterpart, and I are right, that disruption is going to take place before many books now under contract reach their publication date.

The immediately disruptive effects of this, for which every major publisher should be preparing right now, include:

1. Publishers are going to really have to rethink the development process for their ebooks. Right now, publishers put their creative energy into optimizing print books; ebooks are an afterthought.  The most forward-thinking houses are going to XML workflows which will reduce the costs of conversion to ebook formats. But are any of them fundamentally rethinking how the editor and author shape the project to optimize the ebook experience? That working relationship is going to have to undergo fundamental change.

2. It will be eminently sensible to launch books with a no-inventory strategy and move to press runs with returns allowable when reviews or sales have proven that it makes sense. Of course, publishers will be happy to sell anytime on a no-returns basis and for some books launched “digital first” there could be enough no-returns demand to generate a printing, but the idea of printing and distributing speculatively will make less and less sense as the potential market to be reached by that tactic diminishes as a share of the whole. By the way, this reality would give B&N, the only retailer with its own DC resupply infrastructure, an additional competitive advantage.

3. A non-US publisher will be able to reach half the US market without needing an operation of any kind in the States. This is a sea-change that could even encourage our UK counterparts to reconsider their staunch defense of territorial rights. We already know that the greatest part of marketing value beyond the display and positioning in a bookstore is generated online. That means it can be done from anywhere without a local nexus. By the end of 2012, we’re saying half of all the sales potential can also be reached with the product without a local nexus: no requirement of local inventory or any shipping or revenue collection facility beyond your digital distribution and print-on-demand partner.

4. Because books or ebooks will be purchased by half of their customers electronically, the potential exists to know exactly who those are and to establish interaction with them. Obviously, the intermediaries have both selfish and customer-oriented reasons not to share data, but for ebooks, at least, publishers will find hooks to get readers to check in with the publisher and establish contact. (Of course, they will also be selling more and more units direct to consumers, without any intermediary at all.) This opportunity presents a new battleground for competitive advantage that publishers will have to pursue both for marketing and for author relations.

5. Publishers will have to start devoting the bandwidth and resources to direct sales that they devote to intermediary sales today. The notional 50-50 split of sales between terrestrial and online means that half the sales are actually direct sales. Publishers will increasingly find ways to influence those sales decisions, but the companies that devote management attention and resources to the challenge will find those ways faster, to their competitive advantage.

6. There’s an inevitable concurrent downward spiral of brick-and-mortar retail inherent in this forecast that sales are moving online. The nearly-limitless online selection has been an increasingly powerful magnet since the day Amazon opened and in the new paradigm there will be a growing body of talked-about content not visible on store shelves. It is beyond the scope of today’s speculation to consider what this means for the strategy and survival of bookstores and wholesalers and for publishers’ expectations for them, but it’s not likely to be pretty.

7. Self-publishing strategies for entities that can do the marketing become much more compelling. It is no secret that an author can make more money on each copy sold managing her own publication through Lulu or Author Solutions or Bookmasters. If half the market is directly available without regard to the effectiveness of a field sales force then we can be sure, at the very least, new title acquisition will be more challenging for established publishers. The big players will still be the only big bankrolls in town, but that’s a two-edged sword that can lead to overspending and losses as well as to securing desirable projects.

8. If the infrastructure for direct sales management at most publishers will be woefully lacking, the infrastructure for print warehousing and delivering print orders at most houses is likely to be heavily underutilized. That should lead to a reduction in the charges for distribution services, adding pressure to a business that will already suffer from the growing viability of no-inventory publishing. And publishers with volume-related pricing contracts with their printers will find they don’t need as much capacity as they contracted for a year or two before.

For the past three years, Ted Hill and I have conceived and organized the program for the Book Industry Study Group’s Making Information Pay conference, coming up on May 6. Our theme this year — Points of No Return — addresses precisely this issue from the perspective of how functions will be organized, what the changing skill sets will be, and how secure people doing jobs today can feel about having a job they can do tomorrow. If you found that this post gave you something to think about, you’ll find MIP a morning very well spent.


Practical and ethical challenges posed by digital content delivery

The New York Times published two apparently unrelated articles over the weekend which address questions raised by the rise of digital content creation and distribution. One was an op-ed piece in the Saturday paper by author Mark Aronson about the challenge of collecting the permissions necessary to include copyrighted material in enhanced ebooks. On Sunday, the Magazine published a piece by Randy Cohen, “The Ethicist”, about the rights and wrongs of downloading a pirated book file in a situation where the file’s acquirer had already bought and paid for a copy of the book presented in the file.

These are both thoughtful pieces to which I hope to add some useful observations.

Aronson’s piece elaborates on the challenge facing authors and publishers who want to include useful material in enhanced ebooks, particularly for non-fiction. He is an experienced non-fiction writer who knows about the challenge of collecting permissions for material in his books. He’s right when he says that the problem really escalates for enhanced ebooks. Aronson’s focus is on material from the “archives of the world’s art (now managed by gimlet-eyed venture capitalists” and other material controlled by museums and academic libraries.

We have lived for a long time with a very cumbersome permissions world. To use a picture of a great painting or a museum’s invention or artifact requires painstaking individual requests for permission and negotiations (usually) by the author, who is charged by contract with delivering this material with permissions already secured to the publisher. The usage matrix has been pretty well defined for print: what kind of book; what size printing; what langagues or territories affected; what number of copies to be printed, but each licensor converts that data into its own pricing policy.

The amounts of money charged are collectively of great value to the licensors. Viewed on an individual project basis, though, they are sometimes painfully high for the author or publisher but small enough for the licensor that lengthy negotiation that could lead to concessions based on mutual self-interest occurs relatively seldom.

Along come ebooks and enhanced ebooks (and, for that matter, web presentations of material in books which might be for promotional purposes.) In many cases, publishers have simply foregone the illustrated material for the digital presentation because securing the rights is either too painful or too expensive a process. The process that publishing has lived with in the print world needs to be fixed, says Aronson, and then we can move on to do something about how this can work better for digital content delivery as well.

So, far, I agree with him. It is the specifics of his remedy with which I’d suggest some modification.

Aronson’s suggeston for print is that the Author’s Guild and Association of American Publishers combined (coincidentally or not, the two entities who are the plaintiffs and negotiators of the Google Books settlement currently pending) establish a “grid of standard rates” and then “compel rights holders to confirm to industry norms.”

Two problems with that. One is that the AG and AAP are really not in the business of securing licenses for publishers. The entity that is in that business is Copyright Clearance Center, the CCC (and, full disclosure: our client.) What Aronson is suggesting is actually a hybrid of two kinds of licensing that CCC enables: “collective” licensing, such as is done for photocopying where companies agree to allow their material to be copied, CCC collects annual licensing fees from corporations and other entities, and shares them based on surveys of actual usage; and individual licenses granted by a copyright-owner for use on the c/r owner’s terms. In the latter case, CCC facilitates many of the transactions but doesn’t tell the rightsholder what to charge (or conversely, tell the licensor what to pay.)

CCC is positioned better than any other entity to attack this problem, but it’s much harder to implement such a simple solution for printed books. The differences in value of different copyrighted material can be vast and the rightsholders know that. The owners of the most valuable material are going to be reluctant to license it for an “average” fee and there is nothing the AG or AAP or CCC could do to compel or persuade them to act against their own interests.

Rightsholders know that when a book is created and printed, many tens, perhaps hundreds, of thousands of dollars of investment are involved. They want their fair share which, from their perspective, would be “what the traffic would bear”, not an arbitrary, standard amount.

But the enhanced ebook problem that triggered Aronson’s piece, and for which he offers the additional “solution” of payments based on actual sales (i.e. downloads), might actually be amenable to a collective-based licensing solution (but still a hybrid.)

In the case of enhanced ebooks, the marketplace is going to be much more challenging. There will be many more rights requests because relief from the minimum investments in printing will put far more creative works into play. And at the same time, the pool of potential licensors is growing by leaps and bounds as we move toward a digital camera in the hands of every cell phone user. Because the barriers to entry for ebooks, enhanced or otherwise, are so much lower than for press-run books, these will reach a point (if they haven’t already) where the cost of the transaction — reaching the right person, connecting with them, describing the potential licensed use and negotiating the price — is going to be more than it is worth, regardless of the licensing fee. And these costs will effectively be driving down the licensing fee.

Imagine if each bar had to negotiate with each songwriter to put their tune in the jukebox. That’s a considerably less complicated problem than the one we’ll have with images and text licenses for ebooks, and still it can only be solved with a collective licensing solution from BMI or ASCAP, which deliver a service close to what CCC does for photocopying.

So we see applying a hybrid similar to what Aronson describes, but with some nuanced differences. The future we’d imagine is for CCC to start gathering rights for a reservoir of content that can be licensed on a standardized basis for ebooks and web use, with the understanding that the fee for each individual use is going to be low enough that it wouldn’t have been worth the transaction cost on both sides to have negotiated it. The most valuable material would remain outside that reservoir (because the rightsholders wouldn’t agree to put it in) and would, therefore, be bypassed by most licensors when they put their products together. So if you hold your stuff out you can sell it for more each time, but you’re likely to sell it less often.

Aronson’s explicit concern is that only the “most popular subjects” will be covered in enhanced ebooks under the present regime. The solution suggested here would probably appeal to the owners of material on the least popular subjects; those that are rarely licensed now and where anything that would encourage more widespread use would be attractive.

It is also important to remember that digital presentations have a capability print doesn’t: they can deliver the reader directly to the digital doorstep of the licensor with a link. If you run an obscure museum with an obscure collection of art and artifacts, a linked licensed image could deliver you traffic and customers very effectively. A program such as what we’re envisioning here could make the link a standard component of the licensing arrangement.

The bottom line on this story is that I agree with Aronson that we need a new model for permissions in the digital world or important creativity and commerce will be choked. But we have to start with the pool of material that is of the least individual value in order to start at all. As that pool grows and is used increasingly, the incentive will grow for rightsholders to place more and more of their material in it.

As for the Ethicist…

The question arose because somebody who bought the 1,074-page new Stephen King novel didn’t want to carry it around on a trip and found the publisher had not yet issued an ebook. This person, who says they “generally disapprove of illegal downloads” felt they were okay in this case because they had previously bought the book and the publisher wasn’t facilitating their need for a digital copy.

The Ethicist agreed.

This position outraged my friend, the literary agent Richard Curtis who, on his eReads blog, takes strong exception. Quoting Richard’s two most emphatic paragraphs:

These dirtbags now have a champion in Randy Cohen. Go on, help yourself. The author and publisher have been paid once and don’t need to be paid for another edition of the same book.  While you’re at it, rip off the book club and the mass market paperback editions.

Cohen’s exculpation of this morally challenged idiot buying an e-book from a pirate site is the equivalent of condoning the purchase of black market goods from a fence. Does anybody know what Talmudic tractate he consulted to justify stealing – to describe it as “illegal” but not “immoral?” If so, we invite you to submit chapter and verse.

Personally, I find the characterization “stealing” overblown (obvious to me, but I might well be provoked to explain more by commenters to this post) and the distinction between “ethical” and “legal” perfectly comprehensible.

The Ethicist’s piece already acknowledged Richard’s point of view. Cohen interviewed and quoted his own friend, Jamie Raab of Grand Central Publishing (Hachette) who said:

“Anyone who downloads a pirated e-book has, in effect, stolen the intellectual property of an author and publisher. To condone this is to condone theft.”

I see this as a digital transition problem (it won’t be long before an ebook edition is available for every book for which a print book is available) and, if the author is suffering in this case (and I’m not sure there’s any demonstration here that the author is), it is partly the fault of the publisher whose policies haven’t matured sufficiently to deliver a cash customer what they want to buy.

Would Raab or Curtis have taken a different position if the King book purchaser in question had scanned his or her own copy to make a digital file to carry in their ereader? Or would they consider that a legitimate “first sale” right? (And what would a court say?) It is hard for me to understand how the King reader who, after all, paid more for the print copy than they would have for an ebook if the publisher had made an ebook available should be characterized as a “thief” (Raab) or a “dirtbag” (Curtis.)

Joe Esposito and I wrote a piece almost four years ago strongly suggesting that publishers should declare a clear policy about the digital rights conveyed with the purchase of a print book. We wrote the piece in the earliest period of contention about what Google was doing scanning books, so our point was made from a library-centric perspective. But we anticipated problems like this one and we concluded our piece this way:

Developed, articulated policies about digital licensing are a much better way to protect publishers’ interests than lawsuits against marketing channels. The next decade or two will see the relationship between digital and printed content dramatically recast. Publishers can embrace that relationship, or watch it—and themselves—fall apart.

I’d say that the publisher and author would be standing on much firmer ground to complain if there were a stated policy about the digital rights that are conferred with a print purchase. The mere act of creating this policy would force a publisher to think through situations exactly like this one, which I really don’t think many have.

Where we stand now is that laws and policies written before any of these issues were contemplated (or possible) are transparently inadequate and insensitive to current reality. As a guy who accepts the necessity of DRM specifically to discourage casual sharing that could seriously undermine the commercial basis of publishing, I’m on board with the idea that we in the industry want to steer people away from piracy. But I don’t think we’re going to win many friends, or many arguments, putting no policy in place to cover these situations and then villifying paying customers who try to address their own legitimate needs.