June, 2011

Would million ebook-selling author John Locke be better off with a publisher? I think he very well might…

The experience of the most successful self-published author I know of, just described in his newest book, makes a powerful but unintended case that authors who want to really make money are still better off with a publisher.

I discovered the author John Locke a few months ago when I was learning a bit about the self-publishing world from Joe Konrath and Barry Eisler. I tried one of his 99 cent books and loved it. Now I’ve read four. He strikes me as a cross between the long-dead Jim Thompson and the very current Carl Hiaasen. More sophisticated readers than I have told me his plots are derivative. None of the books struck me that way, but it could well be that savvy acquiring editors would have dismissed him if had no track record of commercial appeal.

Locke has just published a new book explaining (and titled) “How I Sold One Million eBooks in Five Months”. It reveals a hard-working, tightly-focused, very sophisticated marketer with a clear plan and the discipline to follow it. Every self-publishing author should read it, of course, which is the market Locke identifies. One of his key tenets is to really understand whom a book is intended for so that the content itself and the marketing approach are always aimed at precise targets.

One of the problems Locke sees with publishers is that he thinks that they will always push to broaden the appeal of a book, which he thinks would diminish its appeal to the core niche audience that he sees as the key to successful author brand-building. I’m about to reinforce that stereotype because it is obvious to me that he really missed identifying a key target audience with his new book. Editors and marketers in publishing houses ought to read it. They have a lot to learn from John Locke’s insights and techniques.

His book will help them make better publishing decisions and marketing decisions. His book will help them make more money.

But if John Locke’s also interested in making the most money, he ought to rethink whether issuing his books at 99 cents without a publisher is really the best commercial strategy.

Let’s do the math. Locke has sold 1 million ebooks at 99 cents each. He gets 35% of the revenue, so that amounts to something less than $350,000 (credit card fees are deducted from the net). There are some production costs involved (he hires a cover designer and he gets help formatting his books), so knock off another ten or fifteen grand. That means his net for nine novels averages out to about $35,000 each. He’s getting no apparent revenue from print and he’s getting no print exposure in stores which would further stimulate online sales. At 35 cents per copy, he’s earning less than the per unit royalty he’d get from a publisher selling his books for about $2.99, the point at which the 70% payment from agency re-sellers would kick in, even if the publisher didn’t yield at all on the now-prevailing 25% royalty standard. And if his books were $9.99, he’d be getting $1.75 a copy from a publisher, or about five times what he’s getting now.

Of course, if Locke himself sold the ebooks at $2.99, he’d be taking in six times more per book, or about $2.10 a copy.

But, either way, he seems to be leaving a lot of money on the table. Without a publisher’s efforts, he’s certainly leaving a lot of marketing on the table too. And the print in stores is only the single most important part of it. Selling even a modest 10,000 hardcovers would net him in excess of $20,000 in royalties, or more than half of what he’s averaged so far from each of his ebooks.

It would be facile, and I think it would be mistaken, to attribute Locke’s success primarily to the fact that his books sell for 99 cents. In fact, Locke himself bristles at that notion. He points out in his new “how-to” book that there are a lot of authors selling for 99 cents that haven’t achieved the sales that he’s achieved. He downplays the degree to which that would be due to the appeal of his writing but instead attributes his sales to his thoughtful and systematic marketing efforts.

I agree that his thoughtful and systematic marketing efforts are more important than his 99 cent price. (That’s sort of the point to this whole post!) But there is nothing about what he’s done that couldn’t be just as well done to support a book from a publisher that is in hardback at $20 or more and is a $9.99 ebook. Would he sell as many as the 100,000 or so units he’s averaging per title that way?

Nobody knows for sure, but with the same effort on his part and the additional marketing, exposure, and accessibility he’d gain with a publisher, my own hunch would be that he’d sell more. I’ve read four of the books featuring his major character Donovan Creed and I’m nowhere near sick of him yet. I’m as cautious as anyone about generalizing from my own experience, but I know that if the next one were ten bucks instead of one, it wouldn’t deter me. I pay ten bucks or more for most of the ebooks I read, as do a lot of people.

One of the things that the ebook retailers know for sure but that publishers can only guess about is the degree to which the purchasers of 99 cent books are a market separate from the purchasers of “branded” books at $9.99 and up. Many believe, and I’m among them, that there are distinctly separate groups of buyers here and that people like me, who mix it up, are the exception. If that’s true, there would be some risk for Locke (and to an acquiring publisher) in switching him over to a model which requires that he get his success from a different pool of customers and makes it hard for his existing readership to come along.

But if the markets are distinct, there is also some great potential reward. If there are people who only choose from the cheap books, there are also people who want to choose from the professionally validated books, the ones from the major publishers. The more you believe the markets are distinct, the more opportunity there could be for Locke in using what he’s done to launch himself independently as the springboard to a career as a published author with a major player.

Amanda Hocking succeeded with an independent effort but then signed with a major house. Barry Eisler intended to leave publishers behind and do it himself, but quickly found that Amazon’s publishing program — how long before we start referring to the Big Seven? — actually suited him more than doing-it-himself. Now we do the quick math on Locke and find that it constitutes a weak argument for the economic benefits of self-publishing.

It is important to for us all to remember that we’re still in a world where most of the books are sold in print and in stores; that this is more true outside the US than it is here; and that it will remain true outside the US for quite a while longer than it will here. The challenges of the digital age for publishers are very real and the self-publishing option is much more viable than it was a decade ago, or even three years ago. But there’s still plenty of life in the legacy model. I’d be surprised if some big publishers aren’t preparing offers for Mr. Locke that he’d be obliged to consider seriously if his goal is to make the most money from his writing that he possibly can. If Amanda Hocking could get $2 million for four books, how well is John Locke really doing financially getting less than 20% of that for nine?

The most frequently persuasive argument I can think of for self-publishing is speed to market, particularly for an outsider who doesn’t even yet have an agent. Finding an agent takes time. Getting a proposal up to an agent’s professional standards takes time. Publisher consideration and contract negotiating following offers take time. All of this can often take a year or more; it is rare to accomplish it in six months. And then the publisher will need persuasion to deliver it to the market in less than six months. (This is not irrational on the publishers’ part; maximizing sales in print still requires a long runway because the planning in mass merchant outlets requires assigning specific titles to slots many months in advance. That’s a marketplace reality, not an invention of publishers.)

I think self-publishing as a path to publisher discovery may become a new standard and, if it does, the ebook operations being set up by literary agencies may ultimately be viewed in a different light.

My prediction with Locke is that he will end up getting an offer he can’t refuse from a publisher to create a new character. The Donovan Creed series and his westerns will continue to be issued for 99 cents, but something new will be done the conventional way. And, unless my hunch is way wide of the mark, for the next several years the ones done the conventional way will make Locke a lot more money.


Which flies the coop first? the chicken or the egg?

There are lessons that can be taught or learned in one segment of publishing that can then apply to another. Well over a decade ago, Mark Bide and I were discussing the business model for journals. The way it works is that the university pays the professors a salary and rewards them with promotions and tenure for writing publishable material for the journals. Then the journal publisher pays nothing for the article (although they spend lots of money managing peer review and doing other things associated with editing, curating, and delivering the content.) Then the university pays for the IP all over again by buying (now licensing) the journal.

From our earliest understanding of the Internet and its potential for disintermediation, this seemed like a very vulnerable model. “How will we know when there’s a problem developing with the model?” I asked Mark. “When the publishers are having trouble getting submissions,” he said. “The problem will become obvious on the supply side before it becomes obvious on the demand side.

One of the challenges for a retail player trying to be a publisher is the difficulty of getting other retailers to play along. Even the most dominant US retailers, Amazon in the online world and Barnes & Noble in brick stores, don’t have a total monopoly on the customer base. People buy books online through outlets other than Amazon and people buy books in stores that aren’t owned by Barnes & Noble. And, of course, either of the two delivers grossly incomplete access to the total customer base without the other.

Barnes & Noble has been acquiring content directly for a long time. They’re very aware of the dichotomy between having a monopoly on content for your stores’ benefit versus making it more broadly available in the content’s best interests. Almost from the minute B&N acquired Sterling, Borders stopped stocking Sterling books (a problem that matters much less today than it did a few years ago.) And Sterling had a real sales force, retailer-friendly sales policies, and all of the systems necessary to support moving their books through intermediaries. Amazon does not.

Amazon took the first steps to fill that gap by making a deal with Houghton Mifflin Harcourt a few months ago, giving HMH a right of first refusal (apparently) to purchase paperback rights (excluding Amazon, we’d assume) to the books Amazon was publishing through their proprietary imprints. I have no inside information, but I would assume that one of the things Larry Kirshbaum will figure out early in his new role there will be how to get real print book distribution for the books he will be acquiring.

Amazon’s strategy appears to be that they’ll use their checkbook, the offer of 70% ebook royalties from the most powerful ebook platform, and their close connection to the online consumer, to get the books they want on the terms they want. And what they seem to want most for the books they pay for is “Kindle exclusive”: the ability to build up an inventory of titles available through Kindle but not through Nook, iBookstore, Google, or Kobo, let alone the stores here and abroad served by Ingram and OverDrive.

Barnes & Noble is familiar with that idea. They wouldn’t let other stores sell their Sparknotes study guide line. They never made it generally available through Sterling’s organization because they perceived value in having it be uniquely available through their stores and online channels.

But they didn’t avoid that dichotomy. The value they perceived is to the retailing entity, not to the content holder. Since their retail business was something like 50 times bigger than Sterling, it might not have been seen as a terribly difficult decision even though the content holder is always better off if the book is sold in as many places, online or offline, as possible.

Last week, PW did a story introducing Amazon’s “summer list”: ostensibly the books being published by them in the next few weeks. Obviously, these books were signed up before Kirshbaum’s arrival.

I’m not a bookseller. I have no expertise to apply to look at a list of books and decide what should be in any particular bookstore. But nothing on this list looked like a “must have” for an independent bookseller. To make sure, I reached out to a smart one I know and asked her to look at the PW list. “Would you stock these books?” was my question.

Her answer was interesting. “I don’t know about any of these,” she said. “For the most part, I learn about books by sales reps visiting our store and telling us about them. Nobody has ever told us about these.”

I had my staff do a little bit of searching. We couldn’t find a consolidated list of Amazon’s summer offerings online. What we found was the press release announcing 32 titles that PW referred to, but that release only listed 19 of the 32. We couldn’t find anything on any of these books at the Houghton Harcourt web site. We were able to find 14 more titles by looking under the various Amazon imprints (including Seth Godin’s Domino partnership with them) for a total of 33 coming or having been released from last March through November. Is this the “summer list”? Maybe, with global warming…

We found nothing about any of the titles on the Houghton site. Oddly enough, they did publish a prior title by one of the Amazon authors, Max Allen Collins, but they haven’t listed the current one, a collection of short stories.

(Here’s an ironic thought. You think Amazon will place an ad in the PW Announcement Issue to get this all straight?)

So, as far as we can tell, the Amazon summer list contains very few books that the old publishing guard, publishers or booksellers, will suffer much for having missed.

Except, of course, that maybe Amazon can create demand among the millions of online customers they have for books and ebooks. If they do, and the word of mouth grows to a point that independent booksellers find they must stock these books, Amazon will really have created a new publishing paradigm. That certainly seems to be what Godin is counting on.

Nobody — or at least very few — outside Amazon knows what new capabilities will be put in place to support the publishing programs Kirshbaum will build. Barry Eisler indicated at our Publishers Launch BEA conference that he had received a six figure advance for the book he just signed directly with Amazon to publish. He seemed to expect, or at least had hopes for, a robust bricks-and-print strategy along with his high ebook royalty. But he’ll have the same problem with Barnes & Noble and independents that Sterling had with Borders: it will take the perception of a very high level of demand to compel them to stock a book from a company they think is taking the bread right off their table.

A related development is that Arthur Klebanoff, one of the original ebook publishers founded on the idea that the big publisher standard of 25% ebook royalties creates opportunity for entrepreneurs, told the British AAA (the agents) this past week that he’d be delighted to publish their backlists and pay a 50% royalty. To agents who are already planning to do this themselves (and quite a discussion has broken out in the UK about whether that is a legitimate thing for agents to do; the AAA has decided it is) Klebanoff points out that things can go wrong with ebook publication (it might not sell, for one thing) and agents would be wise not to jeopardize their relationship with an author client when there are alternative ways to get a high royalty.

Klebanoff seems here to be jumping squarely into competition with Jane Friedman’s Open Road, which has been signing up content with very much the same pitch. (Open Road also has other attributes to tout, primarily some very talented digital marketers and a focus on developing tools and techniques to do that work effectively.)

Meanwhile, other agents are setting up their own digital publishing capabilities and service offerings continue to mushroom. Agents tell me — two were in the office this week talking about this — that their authors are frequently asking about self-publishing.

Does the insight Bide offered to me late in the last century about scholarly journals end up applying to trade publishers? Will the most obvious sign of a challenged model become the resistance of authors to their blandishments and their advances? There seem to be a lot of entities betting on the idea that it will.

It is worth noting here that there’s one dog that hasn’t barked. Richard Curtis was the first ebook publishing agent. He set up his E-Reads business over a decade ago. He also pays 50% royalties. Richard did not create E-Reads to compete with publishers on royalties but because when he did publishers just wouldn’t do the ebooks. He has built his enterprise since that time to nearly a $1 million annual business (meaning that he’s delivering half-a-million a year to authors for properties that, at least until very recently and perhaps still, would never have been put into ebooks by a publisher.) But his name is noticeably absent from the chorus using higher ebook royalties as a public prod to bedevil publishers.


Data helps us understand ebook pricing impacts

My new buddy and client over at iobyte, Dan Lubart, inspired a post last week about Amazon’s new Sunshine promotion because he documented its impact on their bestseller list.

Since then he’s put up two new posts that are only worth reading if you care at all about the effect of price on today’s ebook market. I think that includes most of us.

There is legitimate debate about how bestseller lists should be organized in the ebook age. I pointed out last winter that it really wasn’t tenable for ebook lists to keep score on unit sales only when the price range extended from 99 cents to $19.99. And, in fact, that kind of price variation has already led to clever authors and publishers gaming the system: lowering prices to get on bestseller lists and then raising them to capitalize on the additional discovery that takes place once they’re on. My suggestion was that the grading be on “price times units”.

Those who like that idea quickly see that this is similar to how movies work; they report the box office receipts, not the number of tickets sold. Those who don’t like the idea say that what a bestseller list is supposed to communicate is what books are being read by the most people.

Dan’s two most recent posts illuminate how this question plays out in the real marketplace.

In the first, he appears to have discovered that Barnes & Noble may have arbitrarily decided that an ebook priced at $2.99 or less won’t be placed in the top 125 of their bestsellers. This conclusion is based on convincing circumstantial evidence. What Dan first noticed was that only one book in the Sunshine promotion, and then two, had hit the Nook bestseller list. Watching those books, he saw one, “My Horizontal Life”, fall from rank number 1 to rank number 127 in one day.

That’s beyond a statistical anomaly. That’s damn near an impossibility, unless the rules of the game were changed.

So Dan checked further and found that all the inexpensive ebooks had dropped below rank 125, but that they were dominant from 126 to 200.

Since I’m the guy who pointed out a few months ago that lumping 99 cent ebooks with $19.99 ebooks was mixing apples and broccoli, I think it is fine that Barnes & Noble has taken this additional curatorial step. The New York Times makes it clear that its ebook bestseller list does not “actively track” a variety of titles including those that are self-published. I think it is fair to say that neither has a “transparent” methodology. But putting their thumb on the scale might be delivering a more useful result for the users of their lists.

I found Dan’s next post even more revealing about the nature of the ebook marketplace, particularly at Amazon.

What he showed, through analysis of the price of the titles and their rankings, was that the disruptive effect on the bestseller list of the Sunshine promotion was very brief. It lasted about a week. Seeing this recalled a story my Dad once told me and therein lies the explanation.

In the 1950s, Doubleday tried an experiment of putting books into supermarkets. What they found, repeatedly, was that the books sold well the first week and then sales collapsed.

The explanation for this was very simple. Bookstores see their customers — even most of their best customers — relatively infrequently. But supermarkets see their customers weekly or even more often. So a display of books is quickly seen by just about all who might be interested. They either buy something or they don’t. But after a week, everybody who visits that store has seen it and, unless the choice of books the next time they pass it is very obviously different, they will have no need to shop from it again. (By the way, this is a reason to create automatic title rotation by not assigning one title per pocket, but that’s a different subject than we’re discussing in this post.)

What Dan’s Amazon data would suggest is that the low-priced shopping cohort is a herd that responds quickly. When Amazon announced their Sunshine promotion, the most avid low-price buyers shopped it immediately and made their purchases. That created the spike in low-priced bestsellers which we acknowledged in our prior post.

But in the second week, with the same selection of books in the Sunshine promotion, that effect virtually disappeared. The low-price shoppers had done their purchasing from that selection. The normal buying patterns on the site reasserted themselves on the list. What one can see from Dan’s data is that the highest-priced band of ebooks took a real hit in ranking during the first week of the Sunshine promotion but in the second week the impact was much reduced and the lowest-priced books were apparently taking share only from the next band up. The highest-priced band had totally regained its pre-promotion share of the list.

Dan always reminds me that “ranking” and “sales” are not the same thing. It is possible that the Sunshine promotion elevated the spotlighted inexpensive books without reducing the sales of the books knocked down or off the list. In fact, I am one who believes that the purchasers of low-priced books are really a different group of people, for the most part, than those who buy the higher-priced books.

But since those bestsellers definitely lost the discoverability created by their presence on or high up on the list, it would open up a whole new set of questions if they got the same sales without what most of us assume is the important lift to discovery provided by bestseller ranking.

The ebook world is rapidly shifting and changing. With the pool of ebook consumers continuing to grow quickly, the buying patterns are bound to be temporary. The next batch of ebook customers might be more price-sensitive or less; they might respond to a price promotion as quickly as the Kindle customers did to Sunshine in the future or they might get slower. But what Dan Lubart is making clear is that the impact of price promotion is visible, if you have the right tools to look.


Merchandising ebooks is a problem not really solved yet

I have always been in the process of reading at least one book since I was about 8 years old. When I was a little kid, I’d find them in the house (Dad was in publishing) or at the library in my home village of Croton-on-Hudson or in the school library. Sometimes extraordinary measures delivered a lot of reading material. On the fourth to the last day of second grade, I got the chicken pox and was in bed for a couple of weeks. I had already developed an affinity for a Random House series of children’s books on American history called Landmark Books, which are still available. Dad knew the person at the printer responsible for the Random House account and a box of 40 of them arrived the day after I was diagnosed and was completely read through by the time I was back on my feet.

When I was in junior high school, I found that a big drug store in the retail space at 42nd and Vanderbilt in Grand Central Station had a massive selection of mass-market paperbacks and that became a shopping destination for me for a while.

As an adult, the shopping and discovery moved to bookstores. And although I did occasionally get my ideas of what to read next from book reviews or friends’ recommendations, usually I just shopped. I would go browse American history or biography or sports (baseball always had its own shelves within sports).

It never took me much time to find what I wanted to read next until I started reading ebooks.

In the pre-Kindle ebook era, I was a captive of the Palm Digital store, because I read on a Palm and their commercial approach was to not allow other retailers to sell their format. The choices were limited because the publishers before the arrival of Kindle were reluctant to make the investments required to deliver ebooks to me and the four other people who read them at the time. That changed immediately when Kindle arrived and, because of Kindle and the other major formats that have hit the marketplace since then, the choices are robust. Just about every new book I’d want to read is available for my device of choice (the iPhone) and the digitization of the backlist just carries on going deeper and deeper into publishers’ repositories.

But the merchandising, at least for somebody who shops on the iPhone (it’s a bit better through the ereading devices or PCs), leaves a lot to be desired. My shopping experiences are actually a bit of a random walk. I ask my ebook retailer to show me books by category and, since my categories don’t change much (and haven’t since I was a kid) I tend to see the same books over and over again, far too many of which I have already read (perhaps in somebody else’s format.)

A short time ago I was shopping for my next read on the iPhone. I started out shopping with Kindle and then Nook and a few minutes on each of their mobile sites didn’t turn up anything that moved me. Then at Google Ebooks I found “Making of the President 1968” by Theodore White. That was definitely one I wanted to read. I bought it and I’m in the middle of it.

There is no particular guarantee that I’ll find my next book on Google. I haven’t found any clear pattern yet among the four stores I shop regularly (Kobo being the fourth). Obviously, if I know I want to read another James Patterson or John Locke thriller, any of them would deliver it to me quickly and painlessly in response to a search. It is when I am hunting by subject that the search returns seem to be pot luck. I’m probably not making it any easier on the retailers by spreading my shopping around; if any of them actually did have a good engine to take my purchasing and reading profile and make the next great recommendation, I’d be screwing it up by spreading around my data.

All of this underscores how difficult is the challenge being faced by Bookish in the US and aNobii in the UK, two “find what to read next” sites financed by major publishers. And they join a long line of sites that have tried to build recommendations and community conversation around what people are reading: Goodreads, Shelfari, Library Thing, and the new ebook platform, Copia.

It happens that our office is now going through the exercise of placing the book of “The Shatzkin Files” on platforms other than its originator, Kobo. (Kobo’s 60-day exclusive is about up.) When we encountered a limit of seven keywords in loading process for Kindle, I inquired about it. Why limit this, I wondered?

I got a good answer when I asked. It turns out that any author or publisher’s inclination would be to put in lots and lots of keywords. That was my intention. I was going to take every keyword from every post and put it in for the book. But, on reflection, as my friend at Amazon pointed out, that really wouldn’t be helpful to the reader who was searching. The fact that one blog post is about a holocaust survivor doesn’t mean that somebody searching under that topic would want my book, of which more than 99% is about things totally unrelated.

It turns out that Amazon uses algorithms created by full text searching to enhance what they can deliver in response to searches in ways that the publisher and author would not necessarily think about when creating metadata. As an example, he pointed to a book that you’ll discover on Amazon if you search  for “erasure coding”, a term of art that might very well not have been included by any author or publisher inserting keywords but which their more sophisticated methods enable you to use for discovery.

My friend at Amazon didn’t say this, and maybe I’m reading too much into what they do, but it almost seems like the keywords we put in could be superfluous and the capabilities they have through full-text analysis and algorithms actually govern what is discovered. Of course, if the solicitation of keywords from authors and publishers is a placebo, that’s not something I’d expect them to reveal.

I was just looking for “American history” when I found “Making of the President 1968” on Google (and didn’t find it anyplace else in the time I allotted to look.) So Amazon’s sophisticated capabilities didn’t deliver it to me and now their engine doesn’t know that this was a book I wanted because I bought it someplace else.

But I’m really glad I found this book, which was probably pretty recently made available in ebook form. I was active in that campaign and at the Democratic Convention in Chicago, where I was Pierre Salinger’s assistant on the first McGovern campaign. (George McGovern declared late to give the Bobby Kennedy supporters who couldn’t abide Gene McCarthy a place to go. I had been one of those; I left the Ambassador Hotel an hour before Kennedy was shot on June 4, 1968 because the security was tight and I couldn’t get into the party. Ironic.) The author of the Making of the President books, Theodore White, was a friend of Salinger’s and I met him at the convention. But I’m saving the stories of that campaign for another post on another day.


A debate across panels is coming at our London show on June 21

It looks like we’re going to have a bit of an unintended debate stretching across several of our panels at the Publishers Launch show in London. Since I’m the guy who put the show together, I can speak with authority to the fact that it was really unintended. But I consider it serendipitous and proof of Branch Rickey’s axiom that “luck is the residue of design”.

I first started probing the question of new business models for agents two years ago when I was organizing the first Digital Book World conference. I had been asked by F+W Media to create a program that would be (in their words) “more practical” than they found Tools of Change to be. I was in partnership with O’Reilly at that time working on a “StartWithXML” show to take place in London. I wasn’t really looking for a reason to compete with them; we were collaborators.

But as I thought about what they did (which I like) and what I might do, I realized that our approaches would be different and our shows would be different. In my mind, the clearest delineation of the difference was that I put agents squarely into the middle of our show planning. This move is a bit counterintuitive in the conference business since agents have never been big ticket-buyers for the industry’s digital education events. But I thought then — and events have subsequently confirmed — that agents were key actors in the digital transition. You can explore the tech challenges of digital change without them, but you can’t really think about the changing economics of trade publishing without bringing them into the conversation.

What seemed logical then — also confirmed by subsequent events — is that agents might become ebook publishers. This had actually happened a decade before, when agent Richard Curtis set up his E-Reads business at a time when most publishers just wouldn’t do ebooks for most titles, if at all. Richard had run into political problems with the agents’ association (AAR) which I believe he headed at the time. They have a code of ethics which could be interpreted to prohibit an agent-publisher such as he had become. In fact, I was a bit surprised (but definitely sensitized and enlightened) when a good friend of mine who is a successful and highly ethical agent told me she couldn’t possibly participate in a conversation that might be seen to endorse the idea of agents becoming publishers.

We put together a panel on “new models” for agents at DBW 2010. We repeated it last year (even though there’s a natural reluctance to repeat things year to year), and we surely are going to include the topic at DBW 2012 next January.

And that brings us to what is going to happen in London on June 21.

We have four prominent agents speaking on different panels on the program. At least three of them are likely to renew the conversation about whether an agent can become a publisher and still be a credible representative for an author.

One of the panels I’m most looking forward to on that day is called “An Emerging Opportunity: Selling into the US”. Charlie Campbell, an agent at Ed Victor Ltd., will participate on that one. We wanted Charlie on the panel based on a conversation we had with him a few months ago about the possibilities he saw for his office’s clients to capture sales in the US through ebooks. When Victor’s office announced the creation of a new publishing operation to handle their own authors’ books, our interest heightened. So Charlie will be explaining how that publishing operation will work and how it benefits the authors in their stable within the context of capturing US sales from a UK or Ireland base. His fellow panelists will be publishers.

Our last panel of the day has Michael Cader and me interviewing four leading luminaries of UK publishing. Three of them are publishers, but the fourth is the agent Jonny Geller of Curtis Brown. Curtis Brown is frequently rumored to be about to start an operation similar to what Victor has announced. (In the US, by the way, agent Scott Waxman — a member of the DBW Conference Council and one of the original participants in our conversations about this — has created a publishing adjunct to his business called Diversion.) Our focus in that panel was not intended to be on the ethics of agents starting publishing companies, but now I think the topic is likely to arise.

Why? Because a third agent on the program that day, Peter Cox of Redhammer, has placed it front and center with a post he published yesterday called “Your Agent Should Not Be Your Publisher”. Peter is on a panel about “Innovation in Marketing and Business Practice.” He caught our attention because he’s been training his authors in digital marketing for years and because he told us he was thinking that the agent’s model had to change to handle fewer clients for a higher-than-standard percentage of the revenue. We didn’t ask Peter at the time how he felt about agents becoming publishers.

It turns out he is very firmly against it and is very clear and articulate about why he thinks that. The moderator of that panel is Richard Mollet of the Publishers Association. I’m sure his membership will very much want him to invite Cox to expand on his ideas. Cox’s panel takes place after Campbell’s but before Geller’s. The juxtaposition of the commentary across the panels will probably be of great interest to the audience and should make for some very interesting tweeting. Maybe we’ll need a special hashtag just for #agentsaspubs!

It was the fourth agent on the program that we thought was going to have the trickiest assignment. David Miller of Rogers, Coleridge and White Ltd. will be discussing “Territorial Rights and Open Markets” with Richard Charkin and Toby Mundy. Since the future of both practices depends very largely on what agents will agree to as the publishing landscape changes, I had thought David had the most politically challenging conversation of the group. It turns out that he’s excused from what will certainly be one of the most controversial aspects of the day’s discussions, although in our very open format, everybody’s free to say pretty much what they want. Perhaps Philip Jones, the moderator of that panel, will want to touch on this question with his panel as well.

It might be that at Publishers Launch Frankfurt we’ll stage this more directly as a debate (but that’s a crowded program and it might be hard to fit it in). You can bet it will be aired thoroughly at Digital Book World next January. And you can be pretty damn sure we’ll be generating some news on this topic (and others too, I’m sure) out of “A Global View of Digital Change”. If you’re in (London) town on June 21, you ought to be there.


Technology, curation, and why the era of big bookstores is coming to an end

I stumbled across a Sarah Weinman post from a few months ago that posits the notion that the chain bookstore (by which it would appear she means the superstores of the past 20 years, not the chain bookstores in malls that grew up in the prior 20 years) perhaps had a natural life cycle which is now coming to an end. She points out that the investment by Wall Street in the concept of massive destination bookstores enabled their creation, but ultimately resulted in great excess: too many stores with too many square feet to fill and too many books in them that don’t sell.

This is a really good and thoughtful post and I think the observation that the availability of capital built the excess which is now partly responsible for dragging down the structure is correct. But it triggered some additional thoughts that make me want to again trace the history (which I believe has called for smaller bookstores for several years) from before the 1990s when Sarah’s post picks it up and to look at bookstore history through the lens of tech development, which I think both enabled the massive bookstores and is now bringing about their demise.

The core challenge of bookselling — in the past, present, and future, online and in stores, for printed books or digital ones — is curation. How does the bookseller help the reader sort through all of the possible reading choices, of which there are, literally, millions, to find the reader’s next purchase?

In a shop, that curation begins with with what the store management puts on the shop shelves. The overwheming majority of customers in a brick bookstore who buy something choose from what is in the store.

The second line of curation in a shop is in the details of the shelving itself. Is the book face out or spined? Is it at eye-level or ankle-level? Is it on a front table in a stack? Is it displayed in more than one section of the store, which would increase the likelihood it will be seen?

And the third line of curation in a brick bookstore is what the sales personnel know and tell the customers.

In the period right after World War II, there was virtually no technology to help booksellers with curation at all. Sales reps would call (or not) and show catalogs of forthcoming books from which the bookseller would order. There were hundreds of publishers any full-line bookstore would have to do business with. But there weren’t very many full-line bookstores then. Departments stores and small regional chains (Burrows Brothers in Cleveland, Kroch’s & Brentano’s in Chicago) were the principal accounts.

Frankly, what was stocked in most stores then had a huge randomness component. This was the world my father, Leonard Shazkin, encountered when he became Director of Research at Doubleday in 1954 and, a few years later, created the Doubleday Merchandising Plan. By offering the service of tracking the sales in stores, using reps to take physical inventories in the days before computers could track it, Doubleday took the order book out of the bookstore’s hands for the reordering of Doubleday backlist titles. That solved the problem of breaching the first line of curation. And the reps, now freed of the enormously time-consuming task of selling the buyer on backlist reorders title by title, had more time to affect the second and third lines of curation: the display of the books in the stores and the knowledge the store personnel had about Doubleday books. Sales of Doubleday books exploded, approximately quadrupling for the backlist.

In the early 1960s, Len saw the impact of increased selection from the bookstore’s side of the table. He had moved from Doubleday to Crowell-Collier/Macmillan, which owned the Brentano’s chain. He was put in charge. At first, Brentano’s weakest store was its outlet in Short Hills, New Jersey. They doubled the selection of books and, almost instantly, Short Hills became the best-performing store in the chain.

It took until the late 1960s, when shopping centers were springing up across the country, for the first two national book chains, Walden and B. Dalton, to develop and become a serious force in the industry. And in the early 1970s, Ingram and Baker & Taylor became the first national book wholesalers to cover the country with a wide selection of titles. Dalton and Ingram became industry leaders and both were boosted by technology breakthroughs.

Dalton installed smart cash registers that enabled them to key in a number for each book, telling them what had sold. They didn’t use ISBNs, which were in their infancy; Dalton assigned their own SKU (stock-keeping unit) numbers which were stickered onto the books. The system was far from perfect, but it was revolutionary. For the first time, a bookseller and its publisher suppliers knew some real sales data in a timely fashion (Dalton’s numbers were tallied weekly). And the system also enabled Dalton to keep books that were selling in stock through automated means as well.

Ingram was the first wholesaler to employ microfiche technology to tell booksellers what was available right now in their warehouse. The weekly microfiches were, of course, primitive signals of availability compared to today’s instantaneous online capabilities, but this was also a revolutionary breakthrough. It enabled rapid resupply for all stores, including the chains, of the books they sold each day..

In the late 1970s, scanning technology had developed so that the Dalton key-in-the-SKU system could be leapfrogged by Walden using ISBNs at the register, which could often be scanned into the computer record. Also being developed at that time were various methods for automated order processing between publishers and their customers. By the middle of the 1980s, just before the period when Sarah’s narrative begins, bookstores were growing rapidly. The cost of putting the books on the shelves was dropping in relation to sales and the ability to put the right books on the shelves at the right time was enhanced for everybody. Good curation became much cheaper and much easier and, not surprisingly, sales of books grew dramatically.

Paradoxically, the decline of mass-market paperback distribution created new opportunities for the biggest publishers in hardcover. Mass-market grew on the illusory efficiency of forced distribution. For the first two decades after World War II, the rack-sized paperbacks would show up in the pockets at your local drug store or five and dime without a local buyer having to make a selection. That, combined with a much smaller share of margin going to the retailer, paid for the inherent inefficiencies of ham-handed curation. (And, let’s remember, only the covers had to be sent back for “returns”.)

But as paperbacks became more important and more mainstream, the biggest customers of the local wholesalers who racked them wanted better margins and more control. And the sales volumes had built to the point that many of them could now afford a buyer to deal directly with a number of mass market publishers, so the best accounts started shifting to direct. This weakened the original distribution network, but it opened up the opportunity for publishers to put books other than the rack-sized paperbacks into what had been rack-only accounts.

The first probes with larger trade paperbacks were with romance authors like Rosemary Rogers. The mass channels were more comfortable trying an experiment with format and price with authors they already knew.

The first great exploitation of mass distribution for what was really a trade book was by Peter Mayer (the boss) and Bill Shinker (the marketer) at Avon with the book “The People’s Pharmacy” in about 1975. Avon, a paperback house that published a lot of romance titles, had been one of the pioneers putting the larger books into the mass channel.

Bantam then used the technique for hardcovers, again starting with authors the mass channel already knew like Louis L’Amour and Clive Cussler, before hitting a massive all-channels mass-market home run with “Iacocca” in 1985. (And thanks to Jack Romanos, who was running things there then, for helping me get my recollections straight.)

The increased efficiency of distribution through technology and disintermediation in turn enabled discounting. Crown Books built a chain in the 1980s which mostly sold remainders and bargain books but carried a good selection of current titles with bestsellers deeply discounted. This fueled a further increase in unit sales.

Meanwhile, independent bookstores beginning to use primitive computerized inventory management systems were proving repeatedly what Brentano’s had demonstrated to Len Shatzkin in 1963: a big selection of books attracts a very substantial clientele. So technologically-driven efficiency lent a hand to delivering a more attractive selection (curation) by making it a bigger selection.

And in the late 1980s, these two things — the Crown discounting attraction and the independents large selection attraction — were combined by entrepreneurs in Austin, Texas, who created a store called Bookstop that provided both. Bookstop became the prototype “super” bookstore and, before long, Wall Street money was financing Barnes & Noble (which had bought Dalton) and Borders (which had bought Walden) to roll out these bookselling behemoths nationwide.

Which is where Sarah’s post kicks in. But in the context of what came before, I’d add one element she didn’t to the analytical mix. It created a paradigm shift in curation using technology. It’s called Amazon dot com.

While even the largest bookstore had shelf space limiting its title selection, Amazon did not. Through good luck (licensing the Baker & Taylor database which contained a lot of out-of-print titles), good thinking (providing a clear “promise date” for the available books and assisting people’s search efforts by telling them explicitly if a book was not available), and brilliant execution (Amazon’s hallmark from its first moment until the present day), Amazon completely shifted the psychology of book shopping.

Until Amazon, if you wanted any particular book or if you didn’t know exactly what you wanted, your best strategy was to go to the shop with the biggest selection to try to find it. Once Amazon happened, the magnet of in-store selection lost its power for many customers. If you knew what you wanted and you didn’t need it right this minute, the most efficient way to buy it would be to go to Amazon and order it. Customers who would have been browsing store aisles and, if necessary, placing special orders with their bookstore, now just shopped online.

I first saw what is clearly the impact of this through some work I did with Barnes & Noble sales data for university presses about a decade ago. In the recent years before that work, starting in the late 1990s, Barnes & Noble had tried to expand its selection of university press titles. This was applying a time-honored understanding of curation to improve the store selection.

But the results were beyond disappointing. Sales were not rising for the university presses; returns were. What became increasingly clear was that professors, the biggest market for university press books, were a leading edge demographic shifting their buying online. Makes sense, really, considering that they were often finding out about the books they wanted to order through something that had occurred online!

It was at that time — about 2002 or 2003 — that the late Steve Clark, then sales rep for Cambridge University Press and one of the publishers I was working with, told me that Amazon was a bigger account for his company than all other US retailers combined.

This was a big “aha” for me. I had grown up with the Brentano’s “selection” story and had seen it demonstrated over and over again throughout my career that increasing the title selection in a location increased the traffic and increased the sales. Technology had changed the reality. The magnetic power of a physical space full of books to bring in shoppers had been weakened. The surest way to find something that wasn’t as ubiquitous as a current bestseller remained a visit the store with the most selection. But that store was no longer in a building. It was in your computer.

And, ultimately, that is the single most powerful force bringing the era of the super bookstore to an end.

Of course, massive selection is only the first aspect of curation and the other parts are not nearly so well done online. Or, at least, they haven’t been yet. This is a major conundrum for the industry as bookstores fade and it’s the reason three big publishers have financed the startup Bookish. The stores depend on the publishers’ metadata to do this work and the publishers’ depend on the stores’ systems and merchandising creativity. Perhaps partly because the necessary collaboration hasn’t occurred, an effective online equivalent to in-store browsing hasn’t yet been developed.


Amazon’s Sunshine Program is another wake-up call for the Big Six

Amazon began a program on June 1 that will apparently run for two weeks. When you go to the Kindle home page, there’s a banner across the top reading “Sunshine Deals, Over 600 Books on Sale for $0.99, $1.99, and $2.99”.

These books are not from the big agency publishers, who set their own prices. Amazon apparently reached out to smaller publishers and worked out deals with them. Amazon could have simply cut these prices themselves, but doing that would require them to take a big margin hit. More likely, the markdown is being shared. (And, in addition, Amazon has plenty of books priced in that band all the time that could simply be featured in this promotion.)

Amazon gains a great price promotion. The publishers in question gain substantial additional visibility for their titles.

Fortunately, there is one entity tracking the impact of price on ebook sales able to tell us: this is having a real impact.

Dan Lubart of iobyte’s “eBook MarketView” blog tracks ebook sales rankings by price band at Amazon. (He tracks it at other retailers too, but, in this case, Amazon is the one that matters.) Dan’s graph tracking the average price of Kindle bestsellers shows a pronounced impact from this promotion.

The average daily price of Kindle bestsellers took a leap on March 1 when Random House moved to agency and a whole slew of bestselling titles could no longer be discounted by Amazon. The Sunshine promotion has very suddenly brought that average bestseller price down to about where it was on March 1!

Dan has another chart showing the distribution of bestsellers among four price bands: up to $2.99, $3-$7.99, $8-$9.99, and $10 and up. Most agency-priced ebooks of titles whose currently available print versions are hardcovers are in the top two price bands. Since the promotion began, the number of bestsellers in the cheapest band has grown from 31 to 47. (He’s charting the top 100, taking out anything that he recognizes as “not a book.”) Half of the increase came out of the top-priced band with the other half distributed between the middle two bands.

In a conversation with Dan about this research, he pointed out that what he’s tracking is ranking, not sales. The movement of titles on and off and up and down on the bestseller list (top 100 rankings) doesn’t tell us anything about unit sales. That’s the piece of the puzzle that the publishers do know (for their own books).

There are a some critical points here, all of which are more important than they are surprising.

1. Amazon can create pricing promotions that will have an immediate and dramatic impact on the ebook bestseller list. (We observed three months ago that publishers might suddenly have a pricing problem with bestseller lists.)

2. Agency publishers are disadvantaged by this fact. The only way they can participate in a price promotion with Amazon is if they lower their agency price across all retailers (which isn’t going to be that exciting to Amazon). On the other hand, publishers on wholesale terms have much more flexibility to “buy into” a promotion (although that flexibility isn’t complete: Robinson-Patman would probably require them to participate in similar promotions with other retailers if other retailers wanted to create them).

3. Since Amazon has demonstrated so clearly that price has a major impact on ebook sales, and since agency publishers can control their prices, it follows that agency publishers need to be experimenting with the impact of price promotion (as self-published authors have already been doing, by the way).

But experimentation only makes sense if you can evaluate the results of what you test. As far as we know, the iobyte database is the only tool that exists right now to help publishers do that. That’s why we’ve started to work with Dan to introduce what he’s doing into the routines and workflows of the major houses.

One observer of Amazon’s new program speculated that it might be a step toward “dynamic pricing”, which is what airlines and hotels use to maximize their revenues for seats and rooms. I’m not sure that forecast makes sense. Airline seats and hotel rooms are limited in number; if you sell one too cheap, you can’t sell it to the next person for more money.

But ebooks are infinitely replicable. The trick for the airlines and hotels is to maximize revenue over a limited — fixed — number of sales. The trick for publishers is to maximize revenues over an unlimited — variable — number of sales. Cutting price to get on a bestseller list that might increase discovery and awareness and maybe generate sales at a newly-raised price is a tactic that almost certainly should be routinely, but not capriciously, employed.

It can’t be a good thing for agency publishers if the only price promoting taking place is with their competitors’ books.

I also discovered looking closely at this promotion that Amazon is not flawless. When I go to the Kindle store on my iPhone and tap on the Sunshine deals, I find lots of agency books listed, which, of course, are not price-promoted. Obviously a mistake — and from my experience a pretty rare one — by the folks at Amazon. (Since I know there are a few readers of The Shatzkin Files in Seattle, perhaps this will be corrected before you have the chance to see it but I first noticed it yesterday — Saturday — and it is still that way as I post much later in the day on Sunday.)


Are open markets for ebooks a race to the bottom on price? Maybe our London show will help me understand

Sometimes something seems very obvious to me, but other people — smart people I respect — don’t see it that way and it makes me wonder if I’m missing something.

What I’m thinking about that way today is the future of “open territories” in the ebook world.

When English-language rights are sold to US and UK publishers, some territories outside the home markets are “closed” and others are kept “open.” Closed territories are reserved to the publisher who owns them; in open territories a US edition and a UK edition can both be legitimately sold.

For most of my career in publishing, Europe was an open market. Both the American and British editions of a book would be available there. Although currency fluctuations came and went and could temporarily change these things, most times the US edition carried a lower cover price (when converted to the local currency) but the UK editions were usually more widely available. Sales reps from the UK tended to call on the once-small but persistently growing number of bookstores that carry English-language books. British publishers had warehouses that were closer, shipping costs that were lower, lead times that were shorter, and customer service groups that were more comfortable dealing with Europeans.

With the coming of the EU, British publishing has moved to formalize and make contractual what was previously just their natural advantage. British publishers pointed to the fact that once an American edition was sold in Europe, EU rules would allow its importation into the UK itself! So unless the European market were closed to US editions, Britain itself was not closed to US editions. And that, quite naturally, was not a situation that British publishing could accept.

Of course, for an American edition to wind up on a British shelf would require two trips across the water: one from a US warehouse to Europe and then another from Europe to the UK. It might seem that this double-shipping would wipe out any presumed US pricing advantage, and I don’t recall any evidence of US-published imports showing up in any number. Nonetheless, for the past several years, UK publishers have succeeded frequently, if not universally, in excluding the American editions from Europe.

As with all things in publishing this subject is being revisited as publishing adjusts to ebooks.

As we know, the ebook market started to take off in the US in late 2007 and has grown to be a solid double-digit percentage of publishers’ sales with much higher numbers, often 50% or more, of the units sold in the opening weeks for major titles. In the past few months, British ebooks have started on a similar, perhaps even more accelerated, growth trajectory. So ebook revenue is squarely on the radar screen of the English-language publishers who are increasingly cognizant of English’s position as the world’s leading second language. Nowhere is this effect more evident or the future sales expectations greater than in Europe.

Right now, the European ebook market is still miniscule. Germany, one of the countries with the most advanced local-language digital infrastructures, recently reported ebook sales of one-half of one percent of the market. But it is not uncommon for German bookshops to see double-digit sales percentages of English-language books in their shops so we know there’s an English-language market there. English-language publishers, with the experience of explosive growth in their home markets under their belts, have good reason to expect the same thing to happen in Europe and for them to be among the principal beneficiaries.

But there’s a problem. Or, at least, I think there’s a problem.

The open-market competition for print books is waged primarily around service. The reps that call on the stores tend to take business away from the companies that call less often. The advantages of proximity and familiarity favor the British; sometimes the advantage of price can favor the Americans. But no trade publisher in either country tries to create cheaper, locally-priced editions of trade books for the European market.

In the ebook market, the competitive factors that prevail in print are moot. If a store sets up to sell ebooks, it will list every one in the catalogs it offers. As the ebook market matures, that will mean that, if the territory is open, both the UK and US editions will be available to the consumer. And with no other basis on which to make the decision of which to buy, the customer will almost certainly choose the ebook edition with the lowest price.

The logic of this seems inexorable to me. As the market grows, as the publishers become more aware of it, and as the consumers learn more about what is on offer, offering a lower price will be the only effective way to grow share in an open territory. This is damaging to everybody except the ebook consumer, who will get windfall price cuts. The publishers will gain share, but lose revenues. The authors, operating on a piece of the sale price, will lose revenues. And the lower prices for these English-language ebooks will further erode local-language sales and further undercut brick bookstores.

(European bookstores are extremely vulnerable to sales erosion as the market shifts to digital because the English-language selection they offer will look increasingly paltry compared to what will be available online.)

But some very smart agents seem to see something different from what I see. At our “eBooks Go Global” conference at BEA last week, Simon Lipskar of Writers House specifically declined to insist on closed markets and celebrated the virtues of “competition” on behalf of his writers. In another BEA session, Stephanie Abou at Foundry was quoted by one reporter saying “our goal to get authors the best shot at being published the best way. what that means is we have this fight to keep Europe non-exclusive.”

Of course, timing is everything in life and in dealmaking. There really is no European market for ebooks to speak of yet. There are structural impediments to growth. A panel including Google, Kobo, Ingram, and OverDrive at “eBooks Go Global” spelled out some of the complex local compliance issues that make it take time to set up a store in each new country. My concern about a “race to the bottom” assumes a much more developed market than we have today, with both US and UK editions made ubiquitously available in a European ebook market that resembles what we’re seeing today in the UK, if not in the US. That may be two years away, or even more.

So maybe Simon and Stephanie do see what I see but they might also see it as far enough away not to be relevant yet for deals they’re making now. But maybe our difference is more fundamental. They both referenced “competition” in expressing support for open territories. It is precisely my concern about the effects of price competition that it seems to me they’re ignoring.

It feels to me like I must be missing something somewhere. Not only do I think the agents should be moving to close markets in the interests of their clients, I think publishers in both New York and London should be moving to close markets because they’ll ultimately make no money on the books for which the markets are open. I’d say it is better to control a closed market for half your list (or even a third of it!) than have an open market for all of it.

This subject is of great interest in the US but it is existential in the UK. Sales made in Europe are already critical to UK-based publishers, on titles where Europe is open as well as on titles where they control it contractually. Since UK publishers are already trying to close the market in their favor for print, one can hardly expect them to be less zealous about closing it for digital books. But their leverage to close Europe, for digital or print, is primarily based on their ability to sell print in the UK. Those are the sales they can make that nobody else can. And those are the sales that finance serious advances that nobody else will pay.

But will that leverage vanish as bookstores diminish and the sales of print become less important?

The panel that will explore this subject at our “Global Perspective on Digital Change” conference in London on June 21 will be my next chance to be enlightened on this subject and shown the flaw in my thinking if open territories for ebooks are not a race to the bottom. We’ll have publishing CEOs Richard Charkin of Bloomsbury and Toby Mundy of Atlantic Books and agent David Miller of Rogers, Coleridge and White discussing this topic with Philip Jones of Future Book moderating. I’m sure this panel, along with many others on that day, will be opening some minds. Mine is lined up to be among them.