September, 2011

Four years into the ebook revolution: things we know and things we don’t know

One could say (and I would) that the ereading revolution is coming up to its 4th anniversary since it was late November 2007 when Amazon first released the Kindle. There had been dedicated ereading devices before then, including the Sony Reader — in the market when Kindle arrived and still here, if not wildly successful — and the already-defunct Rocket Book and Softbook devices that had debuted and disappeared some years before. And in the early 1990s we had the Sony Bookman, which showed only a few lines of text at one time and disappeared with barely a trace. The biggest-selling ebook format, before Kindle, put content on the Palm Pilot and the total ebook market was so far beneath a rounding error that any investment by a publisher in digitization was being made on faith, not on commercial evidence.

And many people in publishing believed that reading on a screen would take many years to take hold, if it ever would.

Now, less than four years later, we are living in a changed world, although not yet a transformed one. But transformed might be coming very soon.

As ebook sales in the US now appear to have reached the 20% of revenue threshhold at some publishers already (so it is there or will be for everybody very soon), there are some things we can say we know about the shape of the future, but some very important other things that we don’t know yet.

We know that most people will adjust pretty readily to reading straight text narrative books on a screen rather than paper.

We know that parents will hand their iPad, iPhone, or Nook Color device to a kid so that they can enjoy children’s books on the device.

We don’t know whether adult illustrated book content will be equally well accepted by book consumers on devices, even though there are more and more devices capable of displaying pretty much what publishers deliver on a printed page.

We don’t know what parents will pay for a brief illustrated children’s book delivered for a device, but it appears it might be much less than they’re willing to pay for paper.

We know that consumers will pay paperback prices and more for plain vanilla ebooks, or “verbatim” ebooks.

We don’t know whether consumers will accept paying higher prices for video, audio, or software enhancements to the verbatim ebooks.

In fact, we don’t know if consumers would pay paperback prices for ebooks if the paperback were not ubiquitously on sale as a benchmark for pricing.

We know that ebook uptake, as measured in sales or their percentage of publishers’ revenues, has doubled or more than doubled every year since 2007.

We know that rate of growth is mathematically prevented from continuing for even three more years (because it would put ebooks at 160% of publishers’ revenues if it did!)

We know from announcements about new devices and a recent Harris poll predicting increased device purchasing that there are no expectations for a slowdown in ebook adoption anytime soon.

We don’t know if we’re going to find a barrier of resistance, or perhaps we should call it the barrier of “paper-insistence”, at some sales level over the next two years (at the end of which ebooks would be 80% of publishers’ revenues at the growth rates we’ve seen over the past four years).

We know there’s a big and developing market for English language ebooks globally, as the ebook infrastructure builds out in markets around the world.

We don’t know how quickly those markets will develop or how big they can ultimately become.

We know that the number of bookstores suffered a sharp reduction in 2011 because of the Borders bankruptcy.

We don’t know if the remaining brick retail network, the bookstores led by B&N and including the independents as well as the shelf space devoted to books by the mass merchants, will get a second wind from the disappearance of the Borders competition, buying publishers some temporary stability in their store network, or if the erosion of shelf space will continue (or even accelerate).

We don’t know what the loss of brick store merchandising will mean to the ability of publishers and authors to introduce new talent to readers, or even just to introduce a new work by established talent.

We don’t know if improved book discovery and merchandising is amenable to the application of “scale” by publishers outside of vertical niches, be they topics or genres.

We know that agents and authors will accept an ebook royalty of 25% of net receipts in today’s environment, where 70% or more of the sales are still made in print.

We don’t know if the threat of the alternative publishing options will force that royalty rate up if sales fall below 50% print or 30% print.

We don’t know if sales falling below 50% print or 30% print is several years away or much less.

We know that the Epub 3 standard and HTML5 enable app-like features to be delivered as ebooks.

We don’t know if those features will make any commercial difference for the straight text content which is the only commercially-proven ebook type.

We know that content-creating brands that are not book publishers are using the relative ease of publication of ebooks to deliver their own content to the ebook marketplace.

We don’t know if book publishers will develop an ebook publishing expertise that will make them able to persuade those brands in time to go through them, the way they have in the print book world, rather than disintermediating them.

Since I have been expressing my concerns about the impact of the ebook revolution on general trade publishing, which I have been doing with dramatic intent since six months before the Kindle at the BEA in 2007, I have been saying the general trade houses have to get audience-centric (which means choosing content to fit vertical niches).

Today I will add another urgent suggestion to general trade publishers: reconsider your commitments to publish illustrated books in any time frame more extended than a year or two and think about sticking to straight text, unless you have paths to the customers for those books that do not go through bookstores. If we do end up in an 80% ebook world anytime soon, and we very well might, you’ll want to own the content you know works (for the consumer) in that format, not what you don’t know works any way other than in print.

For children’s books, the key is brand. There will be demand for Eloise and Madeline and Alice in Wonderland for years to come, but the product and pricing equations could be totally up for grabs.


The ebook marketplace could definitely confuse the average consumer

There are no links in this post. I refer to searches done in several ebookstores, but the pages reporting results would be dynamic, so creating a link wouldn’t assure you’d see the same results as I saw. You can replicate the searches and you may or may not see the same thing because the facts might change.

Here’s what the ebook marketplace looks like without agency pricing.

Having just polished off Phil Pepe’s “61” about Roger Maris’s great home run season of 50 years ago, I was ready for my next read. No book has gotten more press on my radar over the past week than the new memoir from Jacqueline Kennedy, transcriptions of interviews she did with historian Arthur Schlesinger just a few months after JFK’s assassination. That looked like a good next choice for me.

(I have learned through the exercise described herein that the book is actually billed as “by Caroline Kennedy”, who controlled the property, edited it, and contracted for its publication and also “by Michael Beschloss”, the historian who wrote the introduction.)

Although I have several readers loaded on my ereading device (the iPhone), I have found myself recently defaulting to the Kindle store because it is the best place for me to browse. It allows me to search very granularly by category and sub-category (which the others don’t) and to array the choices in inverse order of publication (which the others don’t, or if they do, they don’t make it obvious enough how). That’s how I found “61” and “The House That Ruth Built”, my two most recent reads in baseball history (my favorite subject.)

However, when you know you want a very specific book, all the ebook services are pretty much equivalent. They all let you search by title or author and deliver what you’re looking for. Since I like to spread my reading around to keep up with what the various experiences are like, I decided to search Nook first for “Jacqueline Kennedy”.

And the search engine found 22 items matching my search, the first two of which were what I was looking for.

Sort of.

Match number 1 was the book I wanted (“Jacqueline Kennedy: Historic Conversations on Life with John F. Kennedy” by Caroline Kennedy), but only available for pre-order, delivery taking place on January 3, 2012. The list price is $29.99 and the NOOK price is $9.99. Obviously, not agency, Apparently B&N will accept about a $5 bath on each copy, presuming they get these $29.99 ebooks at 50% off from the publisher, Hyperion.

But I want to read it now!

Match number 2 is the same book. However it is a “NOOK Book Enhanced (eBook)”. It is available right now. The list price is $60.00 and the NOOK price is $32! That’s thirty-two dollars! List price of SIXTY dollars? WTF?

Let’s note here that B&N is apparently making very little margin on this, if they’re paying 50% to Hyperion. But since I’m the biggest spendthrift I know on ebooks (I happily bought and read both “Fall of Giants” and “George Washington” from Penguin for $19.99 without blinking; some years ago I bought an ebook bio of Grover Cleveland for $28) and this price stops me, I wonder if anybody would buy it.

So I kept shopping.

My next stop was Google eBooks. The book I’m after was not in the first two pages of results returned in a search under “Jacqueline Kennedy”. (However, there was one book called “Inventing a Voice: The Rhetoric of American First Ladies of the Twentieth Century” that is on sale for $42.36 and another called “The Kennedy Family: an American dynasty, a bibliography with indexes” for $55.20).

So I tried Kobo. By the time I got to the bottom of the first page of results, we were on to other Jacquelines. And the book I wanted, the one getting all the publicity, wasn’t shown.

I almost never use the iBookstore because the selection is more limited. But I decided to try it for this. I found something cool immediately: it gave me an auto-complete choice for “Jacqueline Kennedy” when I had typed a few letters of her first name. Helpful on an iPhone.

Here I found a variation of what I’d found on NOOK. The first listing was for the plain vanilla ebook, only for pre-order for January 3, 2012 delivery, for $14.99. (iBookstore, unlike NOOK, doesn’t list a publisher’s list price.)

The second listing labeled “Jacqueline Kennedy The Enhanced Edition” offered that book for $19.99, also without telling me what the publisher’s list price was.

One thing was odd. iBookstore says that the “print length” of the enhanced edition is 400 pages and the print length of the vanilla edition is 256 pages! Since I thought most of the enhancement was video and audio, that’s a bit of a headscratcher too.

So, finally, I went to Kindle. The number one listing there, available now, was “Jacqueline Kennedy (Kindle Edition with Audio/Video)” for $9.99. The book’s page says the list price is $60 and the Kindle price is a saving of 83%. (Of course, I bought it, and I can tell you that my iPhone progress bar says there are 349 pages in the book!)

What that suggests is that Amazon could be subsidizing sales of this book to the tune of a massive $20 per copy sold! (Next time I’m with a person from Amazon, the cup of coffee is on me.) I’m assuming that Amazon is paying half that $60 retail price to Hyperion.

People’s deals are private and I don’t claim inside knowledge, but my understanding is that all publishers sell to Apple on what amount to agency terms (publisher sets a price with Apple and Apple remits 70% of it) but that part of the commitment is that iBookstore can lower its price to meet competition and adjust remittances accordingly. Perhaps what happened here is that Hyperion set its Apple price at $19.99, figuring that nobody else (meaning Kindle or NOOK, in this case, since apparently Google and Kobo don’t have the enhanced book and aren’t listing the vanilla one for future sale) would drop the price more than that. But Kindle did. So, if I’m right about terms, iBookstore will shortly see this, cut its price to $9.99, and Hyperion will find themselves getting 70% of $9.99 from Apple rather than 70% of $19.99. And still Kindle and NOOK will be paying $30 a copy with Amazon Kindle choosing to lose $20 a copy to sell them and B&N NOOK choosing not to subsidize and probably hardly selling any.

Amazon’s strategy before agency was to aggressively discount the most high-profile books, the ones that the reading public would most often search for, in order to send the strong signal that their prices are the lowest and to force less-affluent competitors to engage in costly price competition. In this case, that strategy is being applied successfully, although both iBookstore and NOOK can respond. Whether one thinks it is a good thing or a bad thing that the deepest-pocketed retailer can spend $20 a copy on a big book to promote a price perception depends on your point of view but this clearly demonstrates what the publishers, the retailers, and the consumers face when a high-profile, high-demand book is sold without the price discipline of agency terms.

Clearly, something has to change here. Perhaps Google and Kobo aren’t listing this title because they can’t or don’t want to sell an enhanced ebook. Perhaps Hyperion didn’t offer it to them. We know that Apple insists on agency-like terms and Amazon is just as determined to stick with wholesale terms. My understanding is that B&N will work either way although they have made public statements that seem to support agency. In cases like this, though, I’d expect B&N to pursue the same terms as Apple gets (which, because it includes publisher price control, Amazon doesn’t want). B&N certainly doesn’t want to be selling an ebook for $32 their competitors are selling for ten and twenty dollars less than that and they also don’t want to lose $20 a copy on a high-volume title. (Perhaps by the time you read this, there will have been price adjustments already made.)

But if B&N and Apple both had terms that allowed them to cut to Amazon’s discounted price and just pay less for each ebook, it is hard to see how Amazon could accept that!

I am sorry there is no way to present this as anything other than confusing. Maybe one of the service providers or experts at our “eBooks for Everyone Else” show will be able to explain it better!


Children’s books: the new value chain is a work-in-progress

It occurred to us about a year ago that the children’s book business was wide open for disruption from new players outside the publishing business. Already, two of the companies we mentioned in a post back then about the new entrants that might be the actual instruments of disruption have linked up with established publishers. That suggests that the legacy publishers and the new ones need some help from each other to deliver profitable children’s book publishing going forward.

Even though I’ve been a skeptic about the commercial viability of “enhanced” ebooks and content-based apps, my reservations are inversely proportional to the age of the intended reader. For the past 18 months or so, it has become clear that tablets and color ereaders would become ubiquitous. Roger McNamee of Elevation Partners, one of the visionary investors in Silicon Valley, has been making the pitch that tablets will be replacing PCs and that the opportunity for content creators is to figure out what will work best in the tablet form factor. (To be fair to Roger, I vastly oversimplify: his analysis, which includes the decline of Microsoft and Google and the rise of HTML5, is much more sophisticated than that.) That’s more or less what the companies cited in the post from last November were already working on a year ago, focused on children’s books.

That focus is totally logical. While enhancement for adult books, particularly for books of immersive reading like novels or narratives of history, has required creators to figure out ways to change established behavior that immersive readers will accept (with a stark lack of success so far, I’d say), we’ve been delivering “enhanced” children’s books for years. Die-cuts, pop-ups, and computer chips to make books talk, sing, squeal, and be responsive to touch commands have been implemented for a long time.

And allowing a book to deliver on another established behavior — reading aloud to a child — is a trivial technical problem in the digital context. Touchy Books has an app that will deliver a wide selection of books that with a “read aloud” option for 99 cents and up. Every household with a digital device with color and touchscreen capabilities can give these to a kid for far less than the cost of books.

The companies we talked about in that post — Oceanhouse Media, Ruckus Media, Smashing Ideas, and Trilogy Studios — were focusing on that opportunity. It struck me at the time that these digital content packages could rapidly overtake the appeal of books for these younger audiences and their gatekeepers. I concluded the piece by saying that publishers who wanted to stay in the kids’ books game in the next few years would have to buy one of these studios or start one.

Regular readers of this blog know I’m comfortable acknowledging that predictions made here can be wrong. This one is already being proven right.

Last May, Random House bought the digital developer Smashing Ideas. Smashing Ideas was actually not a newbie formed around the tablet opportunity; it was a digital developer with a decade of experience working with a variety of big non-publishing brands. But they had the tech chops to pursue the tablet opportunity and had been developing children’s apps for Random House for several months before the acquisition. Random House saw the opportunity to accelerate their own development of digital product creation skills by cross-pollinating the SI team with their own. And their stated intention, at least so far, is to allow SI to sustain its third-party development business, even for competing publishers.

Last week, Ruckus Media formed a new partnership, described by Ruckus CEO and experienced book publishing veteran Rich Richter as like a music business “label deal”, with Scholastic. (In a “label deal”, a small record company develops the content and then turns it over to a large record company for manufacturing and distribution, sort of like an “imprint deal” — rare these days — in publishing. There is the implication there that Scholastic also invests and shares ownership in the product. If it were described as a “distribution deal”, that would not be implied. )

There are some interesting wrinkles here. Ruckus is developing original digital content for Scholastic to sell and market. Projects that are starting from scratch are in the pipeline, but Ruckus is also looking for out-of-print children’s books that deliver some brand recognition and can be built more quickly into interesting digital products to jumpstart the list. They’re paying advances for those and it would seem likely that agents will give them a lot to choose from.

What is made very clear by the Ruckus-Scholastic deal that wasn’t as obvious in the link between Random House and Smashing Ideas is that digital developers can use help from publishers, not just the other way around. Although there have definitely been commercial successes delivered by these non-publishers, most of them appear to be from licensing brands already established elsewhere or leveraging public domain titles. Those are thin reeds for a sustainable business model. The licenses will get harder to obtain as publishers figure out how to make these products themselves and the field could get very crowded with multiple digital versions of public domain classics.

Ruckus is doing a smart thing jumping in to mine the world of “out-of-print”. With their visibility, early start, and willingness to pay advances, they have a good chance to harvest the best low-hanging fruit before others get into the game. But this strategy also has a shelf life; a few years from now there won’t be many opportunities of this kind left to be exploited.

And when you can’t get properties that already give you a branding head start, the ability publishers have to introduce books into the marketplace — knowing the influencers and, at least for a while, having the additional marketing and revenue opportunities delivered by print — can provide crucial help that is necessary no matter how clever the new digital products are.

Scholastic, of course, has a very special marketing platform. They are in direct touch with an enormous number of teachers, probably more than a million, who are the gatekeepers for many times that number of kids. (It should be noted that while Scholastic’s position there is dominant, it is not unique. There’s a division of Readers Digest called Weekly Reader that delivers a similar mindshare opportunity to a smaller number of teachers, probably about 200,000. One must wonder how that marketing capability will become part of this picture. Who will acquire whom?)

But the other big players in children’s publishing, even if they don’t have frequent email exchanges with hundreds of thousands of teachers, also have a great deal to offer. Even the newbies who have started successfully (Oceanhouse Media began with a unique partnership business model for its developers which, combined with its license of Dr. Seuss product, has apparently enabled it to be profitable without needing outside capital) will probably find that what big companies like Random House and Scholastic can deliver will be useful, if not essential, before very long.

And, conversely, the big publishers will find it hard to muster the dedicated focus on original digital products (as Richter said to me last week, “that’s all I think about from the time I get up in the morning”) that these new studios do. Alliances, whether by acquisition or some other means, are natural. We should expect to see more combinations like this developing in the months to come.

Both Ruckus Media and Scholastic are on the program for our half-day Publishers Launch Conference in Frankfurt “Children’s Publishing Goes Digital”. (Thanks to our esteemed Chair for that event, Lorraine Shanley of Market Partners, for that!)

That event shouldn’t be confused with our all-day Publishers Launch Conference in Frankfurt “eBooks Around the World”. Follow the links to learn more or register for both. 


What smaller publishers, agents, and authors need to know about ebook publishing

As the shift from a print-centric book world to a digital one accelerates, more and more digital publishers are creating themselves.

The biggest publishers, with the resources of sophisticated IT departments to guide them, have been in the game for years now and paying serious attention since the Kindle was launched by Amazon late in 2007. But as the market has grown, so has the ecosystem. And while three years ago it was possible to reach the lion’s share of the ebook market through one retailer, Amazon, on a device that really could only handle books of straight narrative text, we now have a dizzying array of options to reach the consumer on a variety of devices and with product packages that are as complicated as you want to make them.

Free or very inexpensive service offerings through web interfaces suggest to every publisher of any size, every literary agent, and every aspiring author “you can do this” and, the implication is, “effectively and without too much help”. Indeed, services like Amazon’s KDP (Kindle Direct Publishing) service, Barnes & Noble’s PubIt!, and service providers Smashwords and BookBaby, offer the possibility of creating an ebook from your document and distributing it through most ebook retailers, enabled for almost all devices, for almost no cash commitment.

Is it really that simple? One suspects not, since literary agencies are creating ebook publishers (for example: The Scott Waxman Agency’s Diversion) and baskets of services (for example: The Knight Agency in Atlanta) and consulting to help their authors. And a bit further upstream, ebook distribution companies (for example: MintRight) and ebook-first publishers (for examples: Open RoadRosetta, and the granddaddy of them all, Richard Curtis’s e-Reads) are creating more alternatives, sometimes propositions explicitly addressed to the agents. If publishing ebooks to all channels were really a simple matter of uploading a file, it would hardly seem necessary to build all this infrastructure.

We know that small publishers, literary agents, and authors are becoming publishers at an astounding rate. Two years ago when I was trying to organize a panel of literary agents to talk about working with authors on a charge-for-services basis instead of a share-the-royalties basis, it was hard to get volunteers to discuss new models. Two weeks ago, a major agent outside New York said to me, “we all have to think about it now; we have no choice.”

In short, it isn’t just the big publishers who are compelled to develop a digital strategy to adjust their businesses to changing times. Their smaller competitors, the agents they depend on to deliver their content, and even the authors that have always just depended on the publishers to handle the business of getting a book from a manuscript to a purchase, are all assessing the new landscape. They are considering what new approaches might reduce or eliminate their need for a publisher, or at least reduce the publisher’s share of the take.

Although the correct strategy for any entity would depend on the factors that prevail in each case, there are things it would seem that everybody entering this arena needs to know and understand.

First of all, what are all the things publishers do to get from manuscript to sale, are all the steps necessary, and what do they cost? Developmental editing, copy-editing, mark-up for design, creating metadata: these are all things publishers do routinely. Are they critical for every book? Would a purchaser-reader notice if a publishing newbie left any of them out? Will the services that promise to make and distribute an ebook without a cash investment do these things well?

The ebooks themselves have gotten increasingly complicated. The ebook standard epub (used for just about every ebook not intended for the Kindle ecosystem) has risen to the challenge posed by apps to be able to accommodate color and video and audio and software elements. Everybody who knows that “you get what you pay for” expects complicated ebooks to take more effort and money to create than ebooks of straight narrative text. But what constitutes “complex”? And how much more money does that additional effort cost the publisher that wants to deliver an ebook more complicated than just simple text?

Marketing ebooks also requires a whole new set of knowledge and skills. The key to all ebook marketing is the accompanying metadata: coding that travels along with the file specifying its core bibliographic information and price, but which can also tell a retailer or a search engine much more than that. Search engine optimization (SEO) is the art of delivering metadata that makes the book more likely to be found in response to various searches and queries; that’s yet another set of understandings new ebook publishers have to acquire.

That is just the beginning of what is possible (and therefore necessary) in ebook marketing. Sample chapters can be given away. Web sites can be invoked as partners.

And authors and publishers can, and therefore must, engage in “social network marketing”: using Twitter and Facebook and commenting in high-profile streams to catch attention and gain credibility with core audiences for the books. This is more knowledge to acquire.

Any new publisher will need to understand the paths to market. Yes, Amazon gets more than half of the US ebook sales and Barnes & Noble gets half of the rest. But it isn’t that way on every book, ignoring the others leaves a big chunk of the market unexploited, and things are changing quickly. Amazon’s market share has dropped by a huge percentage in the past two years.) OverDrive is the primary path to libraries. Ingram aggregates many independent stores. Baker & Taylor is opening up markets among mass merchants. Kobo is as important in Canada as B&N is in the US and works in markets all over the world. Google has the ebook ecosystem making the most serious penetration of independent book retailers. Sony is about to introduce new devices that could increase their importance. And Apple is doing its best to dominate sales to its own device holders, who constitute a large wedge of the ebook customer pie.

One can go to all of these channels directly but there are also a slew of services to handle what is the increasingly complex job of delivering to and administering the multiple channels. Perseus Constellation, Ingram Digital, INscribe DigitalLibreDigital (just bought by Donnelley), and Bookmasters as well as the automated services like Smashwords, BookBaby, and MintRight we mentioned above, and others offer service packages to do that and to help with the creation and marketing needs as well.

As we said at the top, nowhere is the change in publishing greater than in the agent community. What has been a stable business model for generations is now, suddenly, changing. There seem to be as many new models and approaches as there are literary agencies. That adds another thing that all of the fledging epublishers — some of which are agents, others being small publishers and authors — need to know about and understand. The relationships among authors, agents, and publishers are getting much more complicated and everybody needs to spend some time thinking that through and discussing what it means.

If all this strikes you as a set of topics worthy of a day’s discussion, we’re in agreement. We think it is too. And that’s why our new Publishers Launch Conferences partnership with Michael Cader is delivering a day-long event called “eBooks for Everyone Else” in New York (in conjunction with The Center for Publishing at New York University’s School of Continuing and Professional Studies) on Monday, September 26 and in San Francisco (co-located with F+W Media’s new StoryWorld conference) on Wednesday, November 2.

Not only do we have an expert-packed lineup to deliver the information, we’ve carved out time for our attendees to get their own specific questions answered by the experts and by the providers of many of the services that are part of the new ecosystem. If the business of ebook publishing is part of your future strategy, you’re bound to get the knowledge and make the connections you need at eBooks for Everyone Else.

Among the leading service providers who will participate in eBooks for Everyone Else in New York and be available for “speed-dating” conversations with attendees are our global sponsors Copyright Clearance Center, Constellation, and Bowker, as well as supporting sponsors Ingram Content Group, INscribe Digital, B&N’s PubIt!, Kobo, and BookBaby. (Kobo and PubIt! will be speaking from the main stage as well.)

Our New York show features an all-star lineup of literary agents including Jane Dystel, Robert Gottlieb, Sloan Harris, and Scott Waxman. We have a distinguished group of publishing veterans — including Jack Perry and David Wilk, Smashwords founder Mark Coker, Renee Register, Iris Blasi, Rich Fahle, Ron Martinez, and Joshua Tallent — who will present advice and insight to help you develop a comprehensive ebook strategy. Most of them will be available at the breaks and alongside the speed-dating sessions to lead small group discussions and answer your questions about creating, marketing, and distributing your ebooks. (The San Francisco roster is slightly different, but just as powerful.)

Michael Cader and I will be moderating all the day’s activities, asking questions, and helping to put an enormous volume of facts into a strategic context for an audience with a staggering array of choices as to how to proceed with ebook publishing.