May, 2011

Amazon’s news of hiring Kirshbaum is a helluva start for BEA

Amazon dropped a shoe last week when they announced their new mystery imprint, Thomas & Mercer Books, and started signing authors, including self-publishing evangelist, Joe Konrath.

Last night they dropped the other shoe, which turned out to be a very heavy boot. They signed former Time Warner Publishing (the company that is now Hachette Book Group) CEO Larry Kirshbaum to head up a new general trade imprint for them.

The next thing to drop will be a few pennies as the industry wakes up to a very new day.

Konrath complained in a blog post over the weekend that independent bookstores planned to boycott the Thomas & Mercer imprint. It would appear Konrath (who, in his pre-ebook-evangelist days worked hard to promote through independents) took very personally what was meant to be resistance to Amazon.

One would suspect that the books Kirshbaum is going to acquire will be very hard for any bookseller that wants to serve and keep her customers to avoid stocking. In other words, the Kirshbaum signing might have cured Konrath’s concern.

Where did this arise before? Many times, many places. Borders stopped buying Sterling books when the independent publishers was acquired by B&N. The relationship between Sterling and Amazon is more complicated, but it would be safe to say that sales of Sterling books were not Amazon’s highest priority and sales through B&N’s biggest competitor were not Sterling’s.

Amazon briefly (for a couple of days) turned off Macmillan’s buy buttons in January 2010 in an fleeting and unsuccessful attempt to persuade the big houses not to go to agency pricing.

When Barnes & Noble bought Sterling, they stated clearly that they did not intend to publish precisely the kind of books Kirshbaum is now going after: “non-fiction and literary fiction.” Although things have changed in what has been nearly a decade since that acquisition, Sterling was a “category” publisher when B&N acquired them and have never stepped aggressively into the high-advance, agented arena that is Kirshbaum’s natural milieu.

I’d say one of the pennies dropping might be at B&N, where they are probably reconsidering their title acquisition strategy. If their biggest retail competitor is going after the biggest authors directly, can they afford not to?

Five years ago we lived in a world where every book that mattered sold more copies at brick stores than it did online. Five years from now every book that matters will sell more copies online than it does in a brick store. The Amazon decision may mark the commercial turning point of that massive shift.

The edge in maximizing online sales revenues will go to the publisher that can manage online pricing and marketing most effectively. That not only means raising and lowering prices dynamically to get the most possible revenue, it might also mean experimenting with free sample sizes to see what delivers the best rate of conversion to a sale. It certainly also means having the best list of potential readers to alert to a book’s publication.

Publishers have a steep hill to climb to develop skills in that regard that Amazon has been honing for years. The announcement of Bookish, a community and information site for readers, seems like a weak counterweight to this Amazon announcement. I would imagine Kirshbaum will have signed away a few books the Big Six publishers wanted before Bookish even opens its doors.

Agents, who have just gotten a big new bidder to drive up the prices of everything valuable they have to sell, are having a very good day. Publishers, as they say: not so much.

I hope I’ll see you at either the memorial celebration of Ruth Cavin’s life tomorrow (Tuesday) afternoon at 5:30 at the Salmagundi Club at 5th Avenue and 11th Street or at our “eBooks Go Global” conference at Javits all day on Wednesday, where the topic of this blogpost will surely arise!


eBook sales comparisons to print aren’t always what they seem

When Amazon talks about how ebooks are selling in relation to print books, as they did again this week, they are comparing apples to apples. They are comparing what their customers bought in digital form versus what they bought in print in any given period of time.

When PW or the AAP or even the publishers themselves talk about how the industry is doing selling ebooks in relation to print books, they are usually comparing apples to oranges. They are comparing what actual consumers bought from retailers in digital form with what retailers and wholesalers bought from publishers in print form for any period of time. So they are comparing ebooks that consumers actually bought now with print books that consumers might, or might not, buy later.

(It is true that sometimes Nielsen BookScan numbers are referenced in these comparisons and, in that case, they are apples to apples because BookScan measures cash register sales which are legitimately comparable to the ebook numbers. PW, for example, reported that BookScan sales were down 26% for paperbacks and AAP numbers were down 36%, which underscores the effect being explained in this post.)

The ubiquitously flawed comparison is fundamental to understanding many things. It is part of the explanation of why ebook penetration numbers appear to fall sometimes, even though it is counterintuitive that they would.

There is probably a difference in the month-to-month fluctuations in consumer behavior purchasing print and digital books. For one thing, Christmas presents of print would tend to be purchased before December 25 and Christmas presents of ebook-capable devices would tend to result in ebook sales after December 25. (The devices would have been sold before Christmas, of course.) It might be true that people buy more ebooks in the first month or two that they own a device than they do on an ongoing basis.

But analyzing ebook pentration from these numbers is much more complicated than that because we must also take into account the fluctuations in trade ordering behavior which are also partly driven by the publishers’ collective decision about when to issue new books.

As frontlist-oriented as ebook consumption seems to be, the reporting of print book shipments would be even more so because big slugs of of big books are shipped to stores for publication date. Publishers tend to issue far fewer big books in January and February than at any other time of the year. The data suggest that returns fluctuation isn’t as great as shipment fluctuation, but the same returns on a lower sales base yield a higher returns percentage, or a relatively higher impact in depressing apparent print sales.

The lower the print number, the higher the percentage of total sales will be of the same ebook number.

So for the period left in our time of transition when Christmas presents of devices add new digital reading converts — and we certainly have one or two more Christmases like that coming, if not three or four — we can expect ebook sales surges right after Christmas that calm down in March and later.

For the period left in our time of transition when there’s a significant brick infrastructure requiring inventory in anticipation of Christmas sales — and we have some more years of that to expect too — sales of print measured by publisher shipments will look much higher in the fourth quarter of the year than in the first quarter of the following year. Then, assuming the amount of shelf space lost in the post-Christmas period doesn’t cancel out the effect of more big titles coming from publishers in March and after, print sales will rise again.

And for the period left in our time of transition when big publishers continue to slot big books to come in Fall in time for Christmas, hold them back at the turn of the year, and start issuing them again as we move toward the second quarter, and that also most certainly will continue for a couple more years or more because these patterns are deeply ingrained in companies resistant to change of this kind, the ordering pattern of the stores will be reinforced by the issuing pattern of the publishers.

There are always other factors in play. When publishers went to agency, ebook sales briefly went down because the big publishers’ take per copy went down. A smaller version of that impact was just registered when Random House went to agency on March 1. We also have a real impact, if one that is hard to calculate, from the Borders troubles. Publishers aren’t shipping to them, and other retailers are being cautious because so much Borders inventory is competing with them at distressed prices at the moment.

But the apples-to-oranges comparison, where print shipments to the sales channels are lumped with ebook consumer sales for the purposes of analysis, assures us that we’ll see some optical illusions. One of them is the apparent drop in ebook share that will be a seasonal feature of conversation for at least a couple more years.

Next Tuesday afternoon there will be a memorial celebration for the life of Ruth Cavin, the longtime mystery editor at the St. Martin’s division of Macmillan, who died at age 92 in January. It convenes at 5:30 at the Salmagundi Club at 5th Avenue and 11th Street. Ruth was a childhood friend of my mother’s, close to both of my parents from their days in college, and I knew her from my Day One to her Day Last. She was a wonderful person and I hope to see many of the people who knew and loved her at the event.


Consignment might be helpful, but it is not a panacea and not easy to implement

One of the commenters on the blog asked last week about consignment selling, because, he believes, a number of publishers are entertaining it. (I am not personally aware of that, but it doesn’t seem unreasonable that they would be contemplating it.) This is a subject I’ve paid some attention to over the years, partly because I had a hand in creating a business which puts the books of many publishers into specialty retail chains on a consignment basis, and has been doing so for well over a decade.

Of course, we’ve had pretty widespread (but not universal) returnability of books in the US market for the better part of a century. (It might be worth noting that Britain has ubiquitous return privileges now, but returns were not the norm when I first became aware of the UK trade in the early 1970s.) But it is not the same thing for a bookstore to buy books from a publisher with the right to return them as it would be for the store to receive books on consignment although much of the logic behind the two is very much the same.

Consignment underscores that the inventory risk is mostly with the publisher, as well as timing the store’s responsibility to pay to the date of their sale rather than to the date when goods were shipped to them. But just like there is variation in sale-and-return terms that is material, so there is with consignment terms.

Under the sale-and-return convention that governs the sale of most books today, here are some important variables.

1. The discount off the retail price.

2. Whether the store pays the inbound freight or the publisher does. (I am not aware of a publisher who pays return freight.)

3. Whether the amount credited for a return is equal to the amount the store originally paid for the book or, as is often the case, just a little bit less.

4. The payment terms: how soon after shipment (which is usually the invoice date) the publisher expects to be paid.

All of these except the amount credited for a return would also be variables in a consignment arrangement. Saying “consignment” doesn’t promise a particular discount, doesn’t imply anything about who pays freight, and doesn’t in and of itself stipulate a speed of payment.

The point is that saying “consignment” isn’t saying enough to describe the commercial relationship. What’s the discount compared to the sale-and-return discount? How often and how soon after the sale is made is the store obliged to pay?

The reason that stores ask for consignment is that they believe it will improve their cash position and enable them to carry more inventory. In fact, there are circumstances in which consignment would speed up payment. When hundreds of thousands of copies of a new novel from a perennially bestselling author land at Barnes & Noble, they’ll sell a large number of them long before the 60, 90, or 120 days they’re going to take to pay the publisher. If consignment called for weekly payments for sales made through the prior week (which is a reasonable formula), the cash flow on hundreds of thousands of sales would be worse for the chain than it is in the current paradigm.

For consignment to be an advantage to the store, one or more of three things must be true. Payment must be delayed after the sale is made, payment must be infrequent, or the store must be permitted to carry many books that it would otherwise have deemed too slow-moving to be worth the investment.

Consignment will add responsibility for publishers, just like the agency model, which also changed the buy-sell relationship between publishers and retailers, did in the ebook world. Consignment inventory is owned by the publisher, not by the store. It is possible that consignment could create “nexus” and possible tax liabilities for the publishers in locales they’ve never heard of.

Of course, consignment would have been a great advantage to the publishers if the inventory Borders possessed had been consigned because publishers would have been entitled to take it back. Under sale-and-return terms, Borders “owns” that inventory, even if the invoices for it haven’t been paid. Lots of unpaid-for inventory is now being sold at fire-sale prices, making it more difficult for publishers to sell replenishment inventory of those titles to stores which are in sound financial health and paying their bills.

From the store’s point of view, consignment terms are all about cash flow. Publisher, however, particularly those whose results are reported in a public company, also think about the balance sheet. When publishers print a book (as I understand it; I’m not an accountant) and put it in their warehouse, it is on their books valued at the unit cost of manufacture. When they ship it to a store and invoice it, the value of the book as an asset grows to the price they invoiced. If they consigned it to the store, its value would remain the manufacturing cost until it was sold.

What that adds up to is that any publisher switching to consignment terms would take an apparent “hit” to their financials. It would be a one-time hit because once the new system took hold, books would steadily be moving from inventory-value to sales-value. And there would be a longer-run balance sheet benefit that large returns wouldn’t suddenly erase value. (This would happen because the returned inventory had been valued at the publisher’s sale price; now it will be valued at cost of manufacture if the returned stock is returned to inventory. If it isn’t, and it often isn’t, it’s a write-off.) It might be a lot to explain to shareholders or senior management that very large slugs of sales were substantially delayed in being recognized.

The store, on the other hand, would suffer no comparable impact. Under sale-and-return, they had the books at their cost on their balance sheet, but they were also debited for the cash they paid or owed. With consignment, they recognize neither the value of the books nor the payment for them until they’re sold, when they book the sale and also recognize the obligation to pay.

Consignment would definitely give the stores an apparently infinite return on inventory investment; there would be no inventory investment. The only limitation on how much stock the store would want is the available space to display it. The incentive to be rigorous about monitoring inventory really shifts from the retailer to the publisher or distributor.

Retailers have been striving for consignment terms, also called “pay on scan”, for years because, overall, inventory investment is one of the major working capital requirements for most of them. When we set up the distributor mentioned above in the late 1990s, we used consignment as a way to “guarantee” a store’s margin and their ROI. The retailer gets a fixed margin based on the retail price. The distributor makes all the inventory management decisions — shipments and returns — and pays the freight to ship the books in and out.

One other wrinkle of consignment is that “shrink” — inventory disappearing without going through the cash register — becomes a shared problem because it delays payment until inventory is ultimately reconciled. That is only really forced to happen when the publisher or distributor takes a complete inventory (rare) or calls for the return of a book that hasn’t been reported as sold but the store finds it isn’t there.

Under sale-and-return, the store pays for what is shipped to it. Shrink is entirely the store’s problem. This is an important concern to any publisher contemplating moving to consignment.

Another reason — and a good one — that publishers resist consignment is that they have a much-less-certain accounting of what they are owed. They are depending on the store’s POS system capturing every sale, with the differences being made up on a very delayed basis when inventory is taken or returns are requested and not found. Orders by a retailer of the same books from another source — if the consignment relationship isn’t a sole-source relationship — can seriously complicate the record-keeping.

If it is true that a number of publishers are contemplating a consignment model, that’s a good thing because it would demonstrate creative thinking is occurring where it is required. As we have said over and over again, shelf space at retail is going to be an increasingly vexed issue in our business in the months and years to come. Anything publishers can do to make it easier and more attractive for owners of brick locations to put books on their shelves is going to be needed and appreciated. Consignment, properly done and properly positioned, can be helpful, but it isn’t a panacea and it requires a lot of consideration of the details of implementation.

Consignment terms for retailers, I must admit, is one of the few important topics not being discussed at either our “eBooks Go Global”  conference at BEA on May 25 or our “Global Perspective on Digital Change” conference in London on June 21. If you’ll be in the vicinity on those dates, click the links and check out the programs. We’re very excited about what we’ve been able to put together.


“A Global Perspective on Digital Change” will be our first show in London

The first Publishers Launch Conferences show outside the United States, “A Global Perspective on Digital Change”, will be at the Congress Centre in central London on June 21, with the Publishers Association serving as our partners in putting on the event. We also owe special thanks to the PA’s group of Digital Directors, who were extremely generous with their time and insight. If you can be in London that day, you couldn’t find a better way to spend it than with us.

We’re still putting the finishing touches on what will be a one-day conference packed with illuminating conversation, but we can tell you quite a bit about it already. We aim to deliver strategic, practical, and focused discussion of near-term issues and opportunities. This won’t be a showcase for cool products or a venue to debate what the future might look like some day. We’re examining essential issues — ebook “export” opportunities; what happens to territorial rights; hiring and retraining to meet today’s challenges; revamping publishing systems for a dual print and digital paradigm; getting “found” on digital shelves — that publishing professionals should focus on now to thrive in the days to come.

The UK market is in between the US and the rest of the world in its migration from print to digital reading. Kindle and iPad sales really took off last Christmas and, while ebook penetration may be a fourth or less of what it is in the US, it has grown enough to be disruptive and to generate a consensus acceptance that very substantial change in the industry is inevitable.

On the one hand, my PLC partner Michael Cader and I have followed the developments in the US very closely so we have some firsthand experience with some aspects of what the UK trade is going through. On the other hand, we know history won’t repeat itself precisely. There are important differences in the markets and there is a substantial group of companies with experience and capabilities developed in the North American market that can hit the ground running in Britain or anywhere else in the world. That alone will make everybody else’s experience different than what happened in the US.

In order to be sure we were talking with the UK industry, not at it, we took some preparatory steps. In February, we put a large number of ideas for panels and topics up on Survey Monkey and invited 70 players in the UK book trade to express their opinions on them. In five days, 40 of the people responded.

Then we followed up by spending three days in London meeting with about 50 people to discuss our ideas and theirs. Our partners at the PA provided invaluable assistance, hosting our conversations and inviting us to join a regular meeting of the Digital Directors to get the insights of the most knowledgable people in the UK market. Those conversations were crucial in helping us focus properly on topics and in locating some key sources of insight. Frankly, despite our long experience working with the British publishing community (I have visited London on business three or four times a year for 35 years), putting this conference together would have been impossible without the help we got.

But because of that help, I think we’ll be presenting the UK publishing community with a lot of very useful discussion that hasn’t taken place at the many prior gatherings that have discussed book publishers and digital change.

One topic that we identified very early is the opportunity we see for publishers in Britain and Ireland to sell into the US market now without payng for a distributor infrastructure or taking an inventory risk. When we started to explore this topic, we learned that, of course, people are definitely starting to plan for it. Some are starting to exploit it. This was something we thought should be happening below the radar, and it is.

This is a peculiar opportunity, because it might be more important for independent UK publishers large and small than it is for the biggest global players. We’re still filling out the panel for this one, but we have Helen Kogan of Kogan Page, an independent whose company was already working in the US market (and therefore has some helpful experience to pass along) but who is seeing the expanded opportunity presented by digital, and Jean Harrington of Maverick House Publishers in Dublin. Jean is also President of Publishing Ireland and we invited her to join this particular conversation for a reason. The Irish diaspora in the US has a particularly strong identity with the old country and we expect books of Irish history and Irish fiction will find a substantial additional market through ebook sales in America.

We’re working on adding another British publisher and an agent to that dialogue.

Another topic arose out of a conversation that longtime UK consultant Mark Bide and I had while we were at Tools of Change in New York in February. How long will it be, I wondered, before half of UK sales are digital? Mark said he wasn’t sure about the timing, but he was sure that the publishers’ systems, overhead allocations, staffing, and infrastructure would require a lot of adjustment to be ready for that day. That’s a good conference topic, we thought.

Then, in our conversations at the PA 10 weeks ago, Anthony Forbes Watson, the MD of Pan Macmillan, told us he had charged his team with thinking through the question exactly as we had defined it. Anthony wants to know “what does 50% ebooks look like? What do we have to do to be ready for it?” The next day we talked to James Long of Pan Mac who told us that, yes, he was actually the person in the company with the primary responsibility for thinking this question through.

We decided the best frame for this conversation was “thinking about the future.” James, as he will tell us on June 21, is largely focused on what Pan Mac needs to do in systems development and integration, workflow changes, and skills development to be ready for a 50% digital world.

But there are two other aspects of preparing for the future we felt could be illuminated by other panelists we recruited.

Perseus, a US company whose Constellation division that provides digital services to smaller publishers is a global sponsor of Publishers Launch Conferences, is one of several companies in the world (Ingram in the US is another; so might Random House be in the US and the UK) that are investing in warehouses and print book distribution capabilities at precisely the time many publishers are disinvesting in them, precisely because they know that most publishers will have to disinvest in them. They’re trying to be there for publishers who want to dispose of fixed cost overheads for the shrinking print book market. We put Rick Joyce of Perseus into this conversation to cover the sensitive topic of consolidation on the physical side (a subject that Dominic Myers, the MD of Waterstone’s, famously put on the UK publishing community’s agenda a couple of months ago.)

Copyright Clearance Center, the US RRO which is also a global sponsor of Publishers Launch Conferences, has steadily called our attention to another industry-wide challenge: the need to manage rights more effectively and on a more granular level to take advantage of emerging opportunities to license chunks and fragments for apps, ebooks, and web sites. We thought that the voice for this topic in London should be local, and we were pleased that Sara Faulder, head of the Publishers Licensing Society, agreed to join this conversation.

Mark Bide has agreed to moderate this group in what I think will be a dialogue about publishers and the digital future unlike any the audience will have heard before. (Except, that is, if they are at our Publishers Launch BEA show on May 25, where we’ll have a different version of this conversation, one more focused on export and rights sales than infrastructure, but also covering the change we’ll see to selling more and more fragments.)

We’re not above stealing our own ideas and giving them a local spin. One panel that was extraordinarily successful at Digital Book World last January was one we describe in shorthand as “new skill sets”. It’s about capabilities publishers need to get that they don’t have and it is about process and workflow changes and the use of cross-functional teams as well as hiring in or training people with new skills. Charlie Redmayne of HarperCollins did that panel for us in New York in January and is reprising it at our BEA show. In London, he’ll be joined by Juan Lopez-Valcarel of Pearson and Jacks Thomas, the CEO of Midas Public Relations, on a panel moderated by Jo Howard of Mosaic Search & Selection Ltd. One of the key elements in the New York discussion of this, which we expect will arise again in London, is “when is it best to hire in the skills and when is it better to retrain the people I already have?” This is a subject every publisher needs to be thinking about that isn’t discussed in public very often.

We’ll have three of the top digital leaders of UK houses — George Walkley of Hachette, David Roth-ey of HarperCollins, and Sara Lloyd of Pan Macmillan — joining Michael and me for a dialogue about the big companies who have cut their teeth on the US market and are now taking their capabilities worldwide, starting in the UK. We’ll be talking about Amazon, Apple, Google, Kobo, Ingram, and Overdrive (the six clearly-declared and clearly-capable global ebook players) as well as Sony, aspirants like Copia and Blio, and US titan Barnes & Noble (which has shown no clear signs of global interest yet.) It looks to us like there is only one UK player with a global perspective, still-tiny cell phone provider Mobcast, but we’ll be learning from our panelists whether there are others we should be considering. And our audience will learn more about the North American companies which are bound to be a big part of the local market’s ebook life in the years to come.

We’ve reached a time when “metadata” is an important subject to discuss, no matter how dry or back room it has seemed. We were fortunate to get Graham Bell of EDItEUR to moderate a dialogue about this for us. He’s recruited Jon Windus of Nielsen and Karina Luke of Penguin to discuss it with him. We’re now looking for a retailer to join them. The condition of metadata in the marketplace is not good enough in enough places yet. This is costing publishers sales. This panel will explain why that is and what every publisher should do to make sure this isn’t a huge hole in the side of their boat as online sales, print and digital, grow and the impact of metadata grows right along with them.

We are also going to have a discussion of the future of territorial rights. Richard Charkin of Bloomsbury, a well-known skeptic about them, and David Miller, an agent with Rogers, Coleridge and White Ltd., have agreed to participate. We’re looking for a full-throated defender of the current territorial regime to join them in what will be more of a conversation than a debate. We wonder whether territorial rights make as much sense in a 50% ebook world as they do in the 5% ebook world we might now be in. The agent’s voice in this conversation might be the most important one because, after all, they decide whether the deals are acceptable or not.

One thing that the territorial rights dialogue will certainly entertain is what we should expect to see in terms of author initiatives. That topic is bound to come up in two other discussions as well. There’s one we’re now calling “experiments, best practices, and out of the box thinking” which is really about innovation. But we are going to focus on innovation in business models and practices and innovation in marketing, not on product innovation. We are still working on putting this group together, but we were very impressed with our preliminary conversations with two of the panelists.

Marc Gascoigne is at Angry Robot, a sci-fi imprint started by HarperCollins and then bought by Osprey. Angry Robot’s better mousetrap is its community focus; Gascoigne will make the case that doing that right (which many publishers say they want to do) requires that everybody, and that means every editor and everybody else, communicate directly with the audience. It is hard to see putting that across in many established trade houses.

Richard Mollet of the PA will moderate the conversation with the innovators.

Also on that panel will be Peter Cox, an agent with Redhammer. Cox is changing his own business model (providing more in the way of services to his authors, but charging them more for it and looking to represent fewer authors, not more) but he’s effectively changing the author-publisher relationship as well by making the author an active marketer and community gatherer. He’ll have examples and he’ll have ideas that will challenge the thinking of many publishers and agents in the audience.

The last panel of our day is intended as a Grand Finale. Michael Cader and I will sit with Stephen Page of Faber, Rebecca Smart of Osprey, John Makinson of Penguin, and agent Jonny Geller of Curtis Brown. We’ll get their take on the speed of the ebook takeup and its consequences.

How will British publishers cope in a market that may soon have no full-line bookstore chain? How will the industry cope with the rise of self-publishing? Is there any real danger of a consolidated English-language world in which London becomes subsidiary to New York? Or, in some companies, might it be vice-versa? Will both agents and publishers be changing the core business models which have prevailed for the past century over the next few years?

What excites me about the last panel — aside from the sheer smarts and savvy of the people we got to join us — is the diversity of their perspectives. The publishers run companies of different sizes and with very different approaches to building their publishing lists. The agent joining us has gained a reputation as one of the most digitally savvy players in the UK market. Michael and I thrive on spirited conversations with very smart people; we think we’re going to finish the day very stimulated and with big smiles on our faces.

And we think our audience will too.

Of course, before we get to London, we’ll be running our “eBooks Go Global” show aimed at international visitors and their trading partners at BEA. At that show, we’re particularly excited about two panels we won’t be doing in London. One is with a few booksellers already working with the new Google Ebooks capability reporting on how it is functioning for them. The other takes a slightly different approach to the “selling in the US” opportunity. Patricia Arancibia of Barnes & Noble, which has aggregated about ten times as many ebooks in Spanish as most people in Spanish markets will tell you exists, will open a lot of foreign publishers’ eyes to the possibilities that exist for them in the US market. We’ll also have a chat with Barry Eisler, the author who turned down half-a-million bucks to self-publish. And that’s not all. Tickets still available… And tickets still available for London as well.

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The old publishing value chain got twisted a bit last week

Although the value chain in trade publishing for the last century has, for the most part, kept retailers between publishers and consumers and kept publishers between retailers and authors, that has never been 100% true. Doubleday covered the whole value chain in the 1950s, when it not only owned the Doubleday Book Shops and the Literary Guild book clubs, it also owned printing plants. In the early 1960s, the Crowell-Collier Publishing Company bought (and eventually renamed itself) Macmillan (and that’s the old Macmillan that became part of Simon & Schuster in the 1980s, not the new Macmillan which was what the renamed Holtzbrinck group became a few years ago) and they also bought the Brentano’s bookstore chain.

I sold books to both Brentano’s and Doubleday in the 1970s and I don’t recall it ever being an issue that they had publisher ownership. Of course, that was before trade publishing consolidated into anything remotely resembling a Big Six.

After those two chains were sold in the 1980s (and I’m going to admit that I forget whether Walden which became Borders or Dalton which became Barnes & Noble bought each of them), in a period of two decades when publishers and book retailers grew enormously, the neatness of the division between the publisher’s role and the retailer’s was mostly respected. A number of retailers — notably B&N and Borders, but suppliers to the mass merchants as well — bought bargain books directly from packagers during that period, but joint ownership of significant publishing and retailing capabilities was, temporarily, suspended.

But Barnes & Noble was particularly aggressive at direct sourcing of book content and around the turn of the century announced the goal that 10% of their volume should come from directly-sourced product. To further that objective, in late 2002, B&N outbid several other companies (including at least one very large publisher) for the independent niche publisher, Sterling. Immediately, Borders stopped buying Sterling books and Barnes & Noble started stocking a lot more of them than they had in the past.

Meanwhile, the Internet was forcing everybody to rethink the paradigm. Even before the Kindle was launched in November, 2007, Amazon was encouraging authors to “publish” with them directly. All they could offer was the connection to the vast majority of online consumers — no print runs, no presence in any brick stores — but this could still be attractive and productive for some authors. My friend and client, David Houle, a futurist who blogs at Evolution Shift, published his “Shift Age” book with Amazon before Kindle and has sold thousands of copies, many of them at his own speeches. He’s very happy earning about $7 on every sale of a $17 book. No publisher was going to offer him as much as a third of that per copy.

As online sales grew, and then were further fueled by ebook sales starting in late 2007, it became increasingly obvious to many that publishers would have to start selling direct themselves. Some did. Harlequin has done so for years. F+W Media, one of the most aggressive publishers employing a vertical community strategy, announced a year ago that they would use Ingram to sell their books as well as those of their competitors to their direct audiences. Macmillan announced a similar plan for science fiction through, although that idea has apparently never been implemented.

Part of what has discouraged the big publishers from selling direct is the threat of retaliation by Amazon and Barnes & Noble, both of which are much happier if the customer contact for big books is through them, thank you very much. Since both companies really exercise direct influence on many consumers, big publishers are inclined to respect their concerns.

To a certain extent.

And then we had the events of last week.

Amazon, which had previously established imprints for author-direct publishing and for translations of foreign works and had created a relationship with Houghton Harcourt to address their prior inability to get brick store distribution for books they owned, announced a new romance imprint called Montlake Romances. (Personally, I thought it was a bit strange that they announced it with just one book coming this Fall, rather than 10 books coming next week!) That put them squarely into the publishing business in a new way, and one could only imagine that the mystery shoe and thriller shoe and sci-fi shoe will be soon to drop.

In the same vein, Barnes & Noble has a program called Pub It! to enable authors to by-pass publishers and earn bigger royalties. They also still own Sterling, which gives them in-house the distribution capabilities that Amazon had to team with Houghton Harcourt to get. And with Sterling they also have the entire infrastructure in place to deal with authors and their care and feeding which could constitute competitive advantage when the gloves come off chasing brand-name authors.

So both of the giant retailers are looking more and more like publishers.

But it turns out the publishers were cooking something up too. On Friday, we learned about a new business called Bookish, which will be the “new digital destination for readers.” In its announcement release, Bookish promises to use content and software tools to promote discussion and discovery around books and to answer the reader’s question: “what book should I read next?”

What was most eye-catching about Bookish was its backing by three of the Big Six: Hachette, Penguin, and Simon & Schuster, who have apparently been planning this move for quite some time.

What was downplayed, but perhaps most significant, is that Bookish is trying to straddle the same fence that Google, and, to a lesser extent, Kobo are: being an ally of existing retailers while selling direct to consumers itself.

It really is impossible to speculate intelligently about Bookish’s potential for success. What they’re suggesting they’ll do is reminiscent of Copia and Goodreads and Library Thing, and none of them have yet replaced the marketing power of the brick store, a fact which is front and center in the minds of the trade publishers who depend on that merchandising.

But it will certainly accomplish one thing: giving the big publishers a direct path to the consumer. The hunch here is that if any one of these three big publishers had gone aggressively into direct sales, they would have risked serious retaliation from both of their two biggest customers: Amazon and Barnes & Noble. But it will be hard for them to retaliate against three publishers who, among them, deliver about half the biggest commercial books in the marketplace.

Let’s remember a year ago January when Amazon briefly sought to block agency terms for ebooks by removing buy buttons from Macmillan books when they briefly thought they could stop the plan from being implemented. As quickly as it became clear that the five publishers determined to implement agency would not be deterred from doing so, Amazon retreated. (In fact, they graciously joined Macmillan in compensating authors who might have lost sales during the brief period the buy buttons were inactive.)

And that brings up another important point about Bookish: what it says about the common interests among fierce adversaries, which the trade publishers certainly are. The times call for collaboration among competitors in trade publishing. It is a little bit nuts that several of them are building competing romance, mystery, and science-fiction “communities”, which only leaves the field wide open for a third party to be the biggest aggregator in each of the verticals and also allows much smaller competitors to look comparable on the web. But collaboration models have to withstand anti-trust concerns. Presumably three of the biggest publishers jointly investing in this web venture will.

Whether or not the Bookish team can invent the general book marketing future, or, through competition, spur Amazon and to be more creative about online merchandising, remains to be seen. But this past week certainly gave us further indications that the publishing value chain is being drastically reshaped and that the neat roles we’ve been used to for 100 years have less and less applicability to publishing’s future.

I chuckle when I think about a very smart person from a major house who was telling me just about a year ago, right after agency was implemented, “whew, now I think things can settle down for a while.” Actually, “things” are just getting moved over to the fast track so they can really change. Montlake and Bookish within a day of each other; Barry Eisler (who’s speaking at our “eBooks Go Global” show at BEA on May 25) and Amanda Hocking going in opposite directions within a week or so of each other a couple of months ago; these are significant events but they’re also signs of accelerating change.


The subscription model for ebooks hasn’t emerged yet, but it will

From the beginning of Digital Change Thinking Time, which for me goes back to the mid-1990s, “subscription” has been high on the list of future expectations. That’s natural. The subscription model has emerged as the dominant one for cable TV (although there is still some pay-per-use) and Netflix works that way as well. Lots of people subscribe to satellite radio. Rhapsody is a successful subscription service for music. Pandora for music has a free model and a paid model, as does Spotify.

Subscriptions actually have a history in trade publishing too, where they were called “book clubs”. The print book club model, which also depended heavily on the club’s role in curation (or title selection), was doomed by the arrival of online bookselling. But O’Reilly has demonstrated the common sense (and worked out the mechanics) of a subscription model for ebooks with their wildly successful Safari program for the past several years.

In the past week, Publishing Perspectives offered up a thoughtful piece by Javier Celaya speculating on a free subscription, ad-supported model for ebooks like Spotify is for the music business. PP’s editor, Ed Nawotka extended the speculation to a model of piecework sales: buying a book in chunks or chapters.

Neither of those is what I have in mind. This piece by John Konczal, building on what’s being done in the textbook business, comes closer.

We’ve reached the point where Amazon with their Kindle and B&N with their Nook are perfectly positioned to make a subscription offer. Publishers will have mixed feelings about it and the agents for the top-selling authors have good reasons to be against it, but the proposition seems (to me) to be one that will be compelling to many consumers and will offer tremendous advantages to the retailer that offers it. In fact, I’m a bit surprised it hasn’t happened already.

Here’s how I imagine it working.

The retailer creates a pool of content that will be offered through the subscription service. The proposition to the consumer will be that for a price (let’s say: $50 a month), they can read all they want from the content pool. In turn, the retailer divides 70% of that money (or 75% or 80%) among the publishers in proportion to how many “pages” (a somewhat arbitrary but internally consistent measure) of their material have been read. Of course, all available public domain content will be in the pool.

I am guessing that a very high proportion of the owners of self-published and small press books will find the proposition attractive from the beginning. How the big publishers would react is less certain. My belief is that the smart ones will try it: put in some titles, perhaps from their deep backlist, to get some visibility as to how the program would work.

Meanwhile, the consumers who do this will determine the course of events from there. It seems possible that the impact of this offer will be similar to the impact of the e-ink readers: the heaviest book consumers will see the greatest financial merit in the proposition. And just like customers for Amazon Prime (one annual fee for shipping) and Kindle or Nook owners are highly resistant to buying outside those programs, customers for this subscription service would largely be lost to other book consumption. It will take a more powerful desire to read any one particular book to make it a purchase outside the subscription than it takes to buy it now.

So that, in turn, will drive more books into the program. Authors, and therefore their agents, won’t want to be left out. The early entrants to the program will reap a relative bonanza because they’re on a shelf with less competition which will drive further expansion of the title base.

The tricky part here is setting the right price. As I was thinking about this piece, a reader pointed out a conversation on the Internet about this subject from a different perspective. Here the question was: “what would you pay to read any book anytime you want?” The bidding seemed to begin at about $100 a month. That strikes me as high, particularly since the pool of titles would certainly lack most high-profile books, at least in the beginning.

But a retailer setting the price too low could cost itself a lot of money. Lots of heavy readers spend more than $40 or $50 a month buying books now and, of course, they’d be the first ones to enter such a program (to save money). The benefit for the retailer would be that those customers would be “locked in” to the service, not buying anything elsewhere.

Of course, this idea runs totally afoul of agency pricing. The publishers who are using agency will have the hardest time even experimenting with such a subscription program. On the other hand, if the subscriber base becomes large enough, it will force some reconsideration.

There are all sorts of wrinkles one can imagine beyond this initial idea. There could be a “premium” subscription that had the higher-profile books, creating a more robust revenue pool for them. There could be “vertical” subscriptions for genres or topics. There could be a special discount for subscribers to purchase books not in the pool (except for agency books, of course, whose terms would not allow it.) And a company like Harlequin or a sci-fi imprint of a major house could create their own in-house pool that might attract subscribers. (In fact, the innovative small sci-fi publisher, Baen Books, already has a subscription service!)

But with ebook consumption now climbing rapidly toward half or more of the sales for many titles, it seems inevitable that models that won’t require a transaction for each and every book must emerge. I’d be a bit amazed if conversations about an idea like this, or something like it, aren’t taking place inside the biggest ebook retail shops already.

We created a “thinking about the future” panel for both of our upcoming Publishers Launch shows. They will entertain the subscription question, among other issues, with an eye to the special complexities of international implementation. At our eBooks Go Global show aimed at international visitors and their trading partners at BEA, the panel will feature Tracey Armstrong, the CEO of Copyright Clearance Center; publishers Ricky Cavallero of Mondadori and Cyrus Kharadi of Random House; and agent Simon Lipskar of Writers House. This panel of four incredibly sharp and thoughtful people, moderated by Ed Nawotka, the editor of Publishing Perspectives, represents a real diversity of viewpoints and will explore the practical barriers to this and other innovations across international markets.


Who would buy a print publisher? An internet vertical creator!

Nolo Press, the Berkeley-based publisher of books and software on the law for laypeople, announced this week that the company has been acquired by Internet Brands, an internet company that builds verticals. This news should be seen as another one of those things happening for the first time that will almost certainly happen repeatedly in the years to come.

What I’ve been trying to get across aggressively for at least four years, since my “End of General Trade Publishing Houses” speech at the 2007 BEA, is that the world will move to vertical community organization and that publishers have natural advantages to lead those communities. But “natural advantages” are not the same as “divine right”; publishers can also license their content to or be bought by the community creators. That’s what the Nolo purchase underscores.

Taking a look at the web sites for “Internet Brands” (which I hadn’t done before today but I’ll bet not too many others in publishing had either) shows a very impressive array of content and audience development across a wide range of subjects. In fact, the Internet Brands web site provides a bit of a roadmap for a 20th century publisher trying to make it through the 21st.

IB organizes its universe into eight overall headings: automotive, careers, health, home, licensing, money, shopping, and travel. There is a lot of diversity under each heading: verticals within the verticals.

“Licensing” is a bit of an outlier. That appears just to be an outlet for them to sell proprietary technology and under it they have only two offerings. One is software that obviously comes from their automotive vertical which parses information about cars myriad ways to enable sales and fleet licensing. The other is called vBulletin, forum and user-generated content management software for online community creation. These two software offerings would appear to be at the heart of IB’s own business but, like Amazon, they are making money helping other people make money with the capabilities that they required to make money!

The other seven headings are divided into dozens of niche sites. There are more under “automotive” than I care to count — scores — for every car, it would seem, and for certain sub-interests as well. There are 13 sites under “careers”, including dedicated ones for airline, aviation, health, freelance, and work-at-home moms.

There are 13 sites under “health”, nine under “home” (including sites for crafting, gardening, do-it-yourself, and real estate), nine under “money”, 13 under “shopping” (including several different flavors of bargain and coupon sites), and 24 under “travel”.

Diving deeper into the verticals is more than I’m going to do for this piece, but it would seem likely that certain content nuggets could be employed within more than one of their sites.

Under IB’s “careers” heading is a site called and it is within that niche that Nolo’s legal information for consumers will fall, although one suspects that Nolo can create content that could apply to many of IB’s sites.

Internet Brands started out in the late 1990s as an array of car-focused sites, which explains why that vertical is so thoroughly built out. After they had been in business for several years, they saw the merit in “scaling” their technology outside the automotive niche. Their sites appear to be a hodge-podge — some are clearly directories to help consumers find resources and to help resources find customers. But others seem to present real services to consumers.

One very law-focused blog covering the transaction notes that Nolo is a much classier content aggregation than the ones IB had acquired previously in that niche. They mistake IB’s Expert Hub brand to be law-focused itself; it isn’t. Expert Hub is also verticalized and includes lawyers, dentists, chiropractors, and accountants among the professionals it will help you find.

It appears that IB is an ad-driven play, not primarily focused on creating community value in the ways we think will ultimately be necessary in addition to user-generated content and curation: sales of a variety of goods and services and real opportunities to connect with others who share your interests and challenges. But they also appear already to be profitable and generating healthy search traffic with their focused aggregations of content. Right now the forums IB has appear to be bolted on, rather than core, but perhaps the Nolo purchase signals a new stage in IB’s growth where there will be an even greater focus on content generation.

Unfortunately, some of the further information links on IB’s site (“press releases”, “SEC filings”) were dead, perhaps because investors took the company private in a $640 million deal last September. But I think we publishing types will want to learn more about IB and any other companies like them because they’ll be investing in us, buying us, competing with us, and becoming us in the years to come.


But what if it gets really easy to deliver apps or enhanced ebooks?

This is an unusually brief post today, but some worthy observations don’t require long explanations.

I wrote nearly 18 months ago about my concern that publishers’ interest in enhanced ebooks would bring on a repeat of the commercially disastrous CD-Rom era of the mid-1990s. Of course, since the CD-Rom era, a lot has changed.

* The opportunities in linking and multiple media have been explored every conceivable way through the web.

* The number of devices on which people can readily consume enhanced content has exploded.

* A number of tools have been announced that can enable one person working alone, even without much technical expertise, to put an enhanced product together, if they have the digital assets and the rights to use them.

The tools are really in the news lately. Vook, the start-up that has been pioneering video integration into ebooks, has a tool kit being trialed called Mother Vook. Packager Charlie Melcher has a new initiative called Push Pop which promises transmedia authoring tools for Apple’s iOS. And I see on the web a new company called Yapper, for “your app maker”, that looks like Smashwords on steroids.

There are also tool sets operating at a more sophisticated level, but still making development more efficient. Touch Press has just applied its capabilities — which, among other things, enable them to make objects “spin” to be viewed from all sides — to a third iPad app called “Gems and Jewels”. (They had previously done “The Elements” and “The Solar System”.) We’re working with a developer in New York on some sports encyclopedia apps that make use of their proprietary system development to convert large databases to app presentations very efficiently.

A question that will probably rise in importance is whether the system that enables you to make an app for the iOS operating system will also get you to epub or HTML5. That’s one the “do-it-yourself” system developers will also have to answer.

(It might be worth observing parenthetically — which is why I’m doing it that way — that we see Apple developing the huge monopoly position on apps that Amazon has selling independently-published ebooks through the Kindle platform. While it almost always makes sense to distribute content as broadly as you can to amortize the investment in intellectual creativity, Kindle gets you so much of the ebook market and Apple so much of the app market that the effort-reward ratio to doing the rest can only make sense if there’s very little effort required.

(A companion parenthetical observation is that iPad apps with no iPhone-size counterpart are another sign that the creation tools aren’t powerful enough. I know you can’t recreate “The Elements” as it is done for the iPad on an iPhone screen, but you certainly have, within what was done, the makings of a terrific alternative fitted to the form.)

I don’t know how good the enhanced ebook and app creation tools are…yet. (Other people will judge that and tell me.) There have been announcements like what we’re hearing from Vook and Push Pop before that didn’t deliver or haven’t yet, going back to the beginning of ebook time in the early 1990s. There was fairly recent buzz that disappeared about Zinio Fusion. There was a Google App Inventor for Android ballyhooed last year, but that hasn’t been heard from lately. In fact, robust tools were part of the early promise of Blio, which got us very excited 18 months ago, but they have failed to gain traction along with the rest of the Blio platform. The “so easy anybody can do it” promise hasn’t been really fulfilled yet.

But I know the tools will get great eventually. And that might be soon.

When they do it will mean that anybody can make a media- and link-rich ebook; just add intellect.

That’s a trend I’m not sure works in favor of big publishers who are looking for opportunities to apply scale. These tools, if they work, undermine scale by reducing the need for tech wizardry in product creation. Of course, editorial wizardry is still required.

There’s one more trend I expect to see over the next couple of years: a marked increase in the number of ebooks created from what was originally illustrated book content. Some of those books integrated visual images for practical purposes, to illustrate how to tie a tie or cut a piece of wood, or as the images do in the print version of “The Elements”. For some books, “coffee table books”, the illustrations are the featured content.

In either case, the ebooks of 2007-2011 weren’t really suitable for them; in the next couple of years, publishers will be learning how to make appealing digital products with intellectual property like that.

This will be a process of trial, feedback, and improvement on an industry-wide level as we all learn what people actually like, do, and value. But there will be skill development on a highly individualized basis as people develop and express their editorial “touch” for integrating the elements, managing them through Mother Vook, Push Pop, Yapper, Blio, or one of the next dozen competitors that arise.

Will small entrepreneurial publishers develop and relate to these resources best, or big ones? In the next couple of years, I think we’ll find out.

We have one segment of our “eBooks Go Global” show at BEA that will explore the strategy and approach to investing in enhancement, another that looks at what skill sets publishers need to find or get, and yet another featuring publishers managing their digital publishing without much in the way of internal tech resources. And we’ve just added a short demo from Charlie Melcher to show us the tools he’s about to deliver. Here’s the registration link.

On this Thursday, May 5, we’ll be taking part in BISG’s annual Making Information Pay conference. We worked closely with BISG’s Scott Lubeck in putting together this year’s show, which is called “Constructing the 21st Century Publishing Enterprise.” There will be a keynote by Hachette COO Ken Michaels and important presentations on discovery within the context of the semantic web. We’re delivering a presentation jointly with Heather Reid of CCC and David Marlin of Metacomet about what we’ve learned from talking to publishers and service providers about rights databases. Rights databases, like the other topics at MIP and like the topics discussed in the body of this post, will be moving from a peripheral position to center stage in the very near future.