January, 2012

One takeaway from Digital Book World that is not to be missed

I think just about everybody has fun at Digital Book World, but it is hard to have more fun there than I do. It’s damn near a year of work coming together over a couple of days with dozens of smart speakers making me personally look good for putting them on the program. So they work hard and satisfy the audience and I get congratulated. What could be better (for me) than that?

(OK, I did do a little bit of work. Besides emceeing the show and co-hosting the final panel, I delivered opening remarks trying to set the stage.)

There were a lot of great takeaways this year. Perhaps the biggest news was the final presentation before the wrap-up panel Michael Cader and I hosted. That was by Matteo Berlucchi, the CEO of Anobii, a UK-based ebook retailer that has substantial investment from Penguin, Random House, and HarperCollins. Matteo didn’t exactly “call for the end” of DRM, but he certainly described a better world without it. And the main point he made was, “I want to sell to Kindle customers and the only way I can do that is if we get rid of DRM.” The combination of the message and the messenger made this the most newsworthy presentation of the show, I thought.

But the factoid that most grabbed me was delivered on the previous day as part of the data developed by AllRomanceebooks.com about the romance readers market. Very superficially, the point being made was also about DRM, but that’s actually a distraction. There was a much larger point buried within.

All Romance is a specialized ebook retailer. To serve the romance reader community more effectively, they’ve built out the BISAC taxonomy for romance, adding more categories. And they’ve added a metadata element called “flames” which basically measure the frequency and explicitness of the sex scenes in any particular book.

The romance world, particularly among the cognescenti in it, is a very anti-DRM environment. And an outfit like All Romance, which has no “device lock-in” working for them — essentially everything they sell gets “side-loaded” somehow, and DRM can often make that more challenging — is right in step with their community sentiment. So the survey contained questions trying to get at the audience attitude about DRM.

There were two relevant stats that I recall. One is that only about 20% of even All Romance’s readers really resist books with DRM. That is to say: 80% don’t. But the factoid that grabbed me is that 96% (that’s not a typo: ninety-six percent) of the ebooks they sell do not have DRM.

All Romance also reports that 91% of the titles they have available are protected by DRM. That makes sense, since all the titles from all the Big Six publishers and all the titles from Harlequin except those from their new digital-first imprint, Carina, have DRM.

What this means is that the nine percent of All Romance’s offerings that do not have DRM are selling 96% of their units overall. And since only 20% of their customers find DRM as a strong deterrent to sales, that means those fledglings are outselling all the majors for other reasons.

This provokes two very important lines of inquiry to me, and neither of them have anything to do with DRM.

The first one would be top of mind to me if I were a major publisher. What are these books that are selling like hotcakes? Why are these books selling like hotcakes? Why can’t we publish these books that are selling like hotcakes?

It is a virtual certainty that a lot more romance ebooks are sold through the “traditional” channels like the Kindle and Nook and Kobo stores than through All Romance. But they have a market big enough to get 6,000 respondants to a survey in a couple of weeks so they’re definitely serving a big clientele. They’ve obviously aggregated an audience that is buying a lot of books that major publishers are missing. Some of this is due to price, undoubtedly, since the All Romance stats also showed robust sales at price points below where the majors are usually most comfortable. Some of it could be attributed to a raunchier title selection being compiled by the smaller upstart title selection (remember All Romance’s “flame” ratings.) Some of it might be loyalty to authors who could be signed up by majors with the right offers.

But if 24 out of every 25 books being sold by a pretty damn big specialist retailer to the biggest ebook genre that I competed in were outside of my immediate competitive set (which, for the Big Six, is basically each other and Harlequin), I’d want to know more about the details of that. And I’d also be asking All Romance what I could do to get more sales from their audience. I have a feeling they’d say that better metadata, more sex (within the pages of the books, that is), and lower prices are all more important than stripping off the DRM, but it’s s conversation the big publishers should be having with them.

The second question that the data provokes to me is whether this phenomenon — all these successful books outside the purview of the major houses — is a unique characteristic of romance books. I don’t know if there’s an All Mystery ebooks vendor or an All Thrillers ebook vendor or even an All Sci-Fi ebook vendor (I’ll bet we’ll find out from our comment string after this is posted!!!) but, if there is, it would be interesting to find out if this is true there too.

These are the immediate questions All Romance’s appearance put in the front of my mind. I think they show another aspect of verticalization. As a vertical retailer, they invent new metadata elements that really help them merchandise to their audience. What that suggests is an opportunity for an All History or All Politics retailer as well; enhancing metadata might be even more valuable for non-fiction subjects than it is for specialized fiction.

There was an article about Amazon by Brad Stone in this week’s issue of Bloomberg Business Week in which I was quoted about Larry Kirshbaum, the former head of Time Warner Book Group (now Hachette) and currently the head of a new Amazon imprint whose mission it is to recruit mainstream authors to be published by the retailer. Many of Larry’s former colleagues and counterparts at big publishers take this decision of his to join Amazon extremely personally and it is reflected in what they say they now feel about Larry himself. That was reflected in my quote which says that Larry “has gone from one of the most well-liked people in publishing to the one of the most reviled.”

I want to make clear that I was not expressing my personal opinion. I still very much like Larry Kirshbaum and I’m a bit embarrassed to be quoted (even accurately) characterizing the feeling about him in these terms. The people running big NY houses see Amazon as a bare-knuckled competitor. With their responsibility for the continued success and viability of their own enterprises and the threat Amazon poses in that regard, contentiousness is built into the interaction and competition between Amazon and the big publishers. I believe my quote accurately reflected the degree to which that is transferred to personal feelings, even for somebody whom so many people have known and liked for years. Although I well understand the feelings my quote described, this is one case where I wish I hadn’t been so candid.


Learning some things at ABA’s Winter Institute

The American Booksellers Association held their seventh annual “Winter Institute” in New Orleans this year, and it took place last week. When I had a meeting at Frankfurt in October with the ABA’s Chief Executive Officer, Oren Teicher, to recruit him to speak at Digital Book World 2012 (which he will do this coming week), he urged me to attend so I could get a taste of the optimism and innovative spirit of the independent booksellers who gather to share best practices and learn more, largely from each other, about how to run successful stores.

(Actually, Skip Prichard of Ingram captured this “learning from each other” zeitgeist beautifully in his opening remarks when he stopped talking and told the attendees, seated at round tables in the ballroom in front of him, to tell each other the most important new thing they had done in the past year. The room buzzed with activity for a few minutes and then Skip resumed his talk, confident that everybody in his audience had learned something during his time on the stage. It was an artful moment.)

I attended about half of the 3-day show and it is easy to see why a number of publishers are so enthusiastic about it. The publishers and other hangers-on (press and observers like me) are hardly noticeable in a sea of booksellers. And, indeed, this year (at least), they were a very optimistic bunch. The anecdotal impression was of many stores who had great years. Some attributed this to the demise of Borders but others thought there had to be another explanation because the closest Borders to them was too far away to be responsible.

There is data and anecdata that suggest that we’ll look back on 2011 as a year when the hockey-stick-like ebook growth slowed. (“Plateaued” would be too strong a word.) We may learn that even the Christmas devices-as-gifts effect on ebook sales wasn’t as strong this year as in years past because many of the “new” devices are actually “replacements”, which won’t spark the same sort of pipeline-filling buying spree that is apparently set off when people get their first ereader. Combined with Borders closing and the closing of other indies, this could have brought national store inventory more in line with more-slowly-reducing print book purchases in stores by consumers.

Anyhow, the vibe at WI7 was great. And so was the program. What I enjoyed most was bestselling author and fledgling Nashville bookseller Ann Patchett, who claims she not only doesn’t read ebooks or write a blog; she claims never to have even read a blog! (I was wondering if she does email.) But she talked about her experiences encouraging booksellers to handsell her work and the joy she gets from handselling the books she loves. Her talk was inspirational and witty and charming. Even though the only “practical” suggestion (not a bad one) was that stores find a local author to be part of their ownership-management (they do attract press coverage, as Ann pointed out), it was a highlight for most of the people there.

But there were two other sessions, which opened my eyes in one case and turned my thinking around in another, that delivered the most compelling additional insights for me.

Matt Sutko of ABA moderated a session of booksellers talking about their experiences selling ebooks. He delivered data before the panel discussion (ABA has visibility into the activity on many member web sites and can present an aggregate picture) and one particular element really caught my attention. This is the one that opened my eyes.

What I found startling were two things in juxtaposition. Matt reported that the percentage of ebook sales to total sales on ABA member web sites rose from 0.7% to 5.2% in 2011. That’s a 750% increase, which is impressive even though the Google eBook capability kicked in during that year. But it is also actually understated, because the total volume of business on these sites rose by 82%. So the share increase of 750% is in an environment where total sales nearly doubled.

(I only wish that Matt had given us a breakdown of the same data by half-year, so we could see the growth within Google’s first year. I think ABA would benefit going forward by tracking and reporting those stats by quarter.)

There is good reason to believe that kind of dramatic share growth can continue into the future. Many stores just got started with their ebook program (Chris Morrow of Northshire, one of the most successful and innovative indies in the country, told me he only started selling ebooks in December! He’s not alone.) And store after store reported steady efforts educating their staff, educating their customers, making things clearer on their web site, and learning how to be good merchants online as they are in their shops. (They also pointed to improvements in the infrastructure being made by Google at their request.) All of these things take time. But they also improve the customer experience and increase sales.

Many people acknowledge that Barnes & Noble performed a bit of a miracle with the Nook, moving to a strong second-place position in ebook sales in a year. But B&N is a chain; their booksellers are paid staff and their learning is all aggregated and reflected on one centrally-controlled web site. The ABA membership, somewhat fewer stores and less shelf space to begin with and without a highly-visible device to anchor their efforts, moves more slowly and with less cohesion into the digital age. But they’re moving and they’re making progress. And they have loyal customers who want to shop with them if they can.

So I personally will postpone writing off Google ebooks or the possibility that indies can be important ebook vendors until we see at least one more year of data.

The thing I got turned around on was World Book Night.

World Book Night, which will take place on Monday, April 23, is an “event” in which it is envisaged that about 20,000 people in the US will each give away 50 books to total strangers, for a total of 1 million books passed from human to human in one book-awareness-raising night. It was first done in the UK and was deemed a success: the books chosen for giveaways spiked in sales and the participating stores and publishers all seemed to think it gave the business a shot in the arm.

I first heard about this from a presentation by Madeline McIntosh of Random House at the BISG annual meeting last September. Certainly no fault of Madeline’s, but I just didn’t “get it” the first time. Twenty thousand people to give away books? Where are they going to find them? How much distracting effort is this going to take? The “harumph” in my brain overwhelmed my imagination, I guess.

But as Carl Lennertz, who quit his job with HarperCollins to head up the World Book Night effort, explained what had taken place and what would, imagination picked up the idea. (Maybe the “harumph” piece was rendered inactive by the overall vibe of WI7.) He described an effort that has already gotten contributions of paper and printing for the giveaway books, aggregating and reshipping (by Ingram) to the contact points, as well as permissions from publishers and authors to include the books and waive royalties. B&N is in. Libraries are in. Everybody is in!

But it was actually Oren Teicher’s appeal to the stores to get involved that brought back lessons of my youth to see the real virtue in World Book Night.

My first post-college “real” job was putting together the McGovern campaign in upstate New York in 1971 and 1972. We saw various hurdles we needed to jump — winning over delegates to the annual state convention of reform Democrats, holding a delegate nominating caucus in each congressional district, getting petitions signed to put the delegate candidates on the ballot, and then components of the primary campaign itself — as a series of discrete “organizing opportunities”. When you have a “cause” and you need help with a specific and comprehensible task, it brings out volunteers who will ask you to tell them what to do.

And that’s what World Book Night presents local stores: an enormous “organizing opportunity”. They get to galvanize their customers around their mutual love of books, enlisting them to participate in spreading the joy of reading. That strengthens the bonds to particular people and to the community at large. They get to take these efforts to the local media and give them a local spin and generate more conversation around these books and books in general. And that is something, as Oren pointed out, that 500 independent bookstores can do better than 500 Barnes & Nobles!

The collective effort of many individuals can have a galvanizing national impact, as we saw two years ago with the Tea Party and over the past few months with the Occupy movements. I’m not promising to stand on the corner of 2nd Avenue and 51st Street and hand out books next April 23, but I’m sure way past believing it is a waste of time to find 20,000 people who will do the equivalent in their neighborhood.

[Subsequent to posting this, I got a note from Jamie Byng of Canongate in the UK, whose idea this whole effort was. It’s clear in that note that WBN is looking for 50,000 US volunteers to give books away, not 20,000 as I mistakenly reported here. I believe the target of 1 million total books as reported here is still correct.]

In addition to Oren Teicher speaking from the main stage at Digital Book World this week about indie booskeller data from last Christmas, the growth of the ebook program, and the business model experiments being conducted by various indies with different publishers, we’ll have a panel of indies discussing new business model approaches in a breakout session moderated by John Mutter of Shelf-Awareness. I hope to see lots of you at Digital Book World or at our kickoff Publishers Launch Conference on childrens books on Monday, also at the Sheraton. If you’re a reader of The Shatzkin Files and you see me, please say hello.


Show me the data!

One thing we try to do at Digital Book World is to present our audiences with useful, relevant, and, when we can, original data. It is a familiar complaint in our industry that we drive blind. Part of that is due to the sheer diversity and granularity of the “book business”. And another part is due to the blistering rate of change. The net result is that we are constantly trying to read tea leaves. We do our best to deliver some useful tea leaves to our DBW audience.

I make no pretension here to telling you all you’ll hear at DBW (which would be bad business even if I were able to do it!) But here is a roster of the data presentations and a small taste of what the DBW audience is going to get from each one.

We’ll start off with James McQuivey of Forrester Research doing a reprise of a high-level survey of publishing executives that they inaugurated at DBW 2011. Forrester got good participation in the survey, including getting fully filled-out responses from at least two of the Big Six executives.

One very interesting fact from the Forrester research is that the consensus for when the trade business will become 50% digital has moved up from 2015 to 2014. When Forrester announced the original number at DBW 2011, it seemed to many to be aggressive. A year later, it is not likely that the new prediction that it will come sooner is going to surprise a lot of people. We are apparently now used to the accelerating pace of change, but perhaps just in time to have to readjust to it slowing down. (More on that to follow.)

The team of the Milan office of A.T.Kearney (the big global consulting firm) and the Italian ebook retailer Bookrepublic have been tracking the spread of digital reading worldwide. They presented research at last year’s IfBookThen conference in Milan and followed it up with additional research presented at the Publishers Launch conference in Frankfurt. They’ve extended their investigation further — about devices, about internet purchasing, about ebook uptake, market-by-market around the world — for this year’s Digital Book World. They have added questions about self-publishing and piracy to the research they did previously and responses to them will be reported at Digital Book World.

One insight they’ve had is extremely provocative. They say, “We should stop thinking of self-publishing simply as a nice way for indie authors to be published. Viewed another way, measuring self-publishing activity calculates the amount of money Amazon (and others) are no longer sharing with publishers. And it’s growing.”

The data that will justify that insight will be part of the presentation we’ll see at Digital Book World.

We decided to take an intensive look at the romance genre because it is often considered to be the consumer segment that has moved most rapidly into the digital future. We were fortunate to enlist the help of the ebook retailer AllRomanceEbooks.com in our investigation. They circulated a survey that got responses from almost six thousand of their customers. The results of that survey will be announced at DBW and will be followed by a panel discussion with special attention to what other genres and segments of trade publishing can learn from what has happened in the romance market.

What caught my eye from the preliminary results was that only 4% of the ebooks All Romance sells have DRM. Since they carry the ebooks of all the major publishers, and all of those have DRM, what this statistic tells us is what a vast business exists in romance publishing outside the realm of the biggest players in the industry. I’ll leave the analysis to the experts we’ll have on stage for this discussion, but I personally wouldn’t leap to the conclusion that DRM-free is the only reason that 96% of the sales were of that category. Those books are undoubtedly cheaper as well. They may score higher on All Romance’s unique “flame” scoring system (which is all about how frequent and explicit the sex scenes are). But I would imagine that any big publisher hearing that statistic would, at the very least, have its curiosity piqued.

It turns out that a big component of All Romance’s sales success is that they took it upon themselves to add sub-categories describing romance — such as that flame index referred to above — that didn’t exist in the industry’s BISAC standard. That’s metadata!

Metadata isn’t ever going to be a “sexy” subject but it is certainly becoming an increasingly popular one. Our early polling of Digital Book World registrants indicates that our breakout session on metadata might be the most heavily-attended of the 30 breakouts on the schedule. (And everybody who goes will be glad they did. We just reviewed the content of the session with presenters Bill Newlin and Fran Toolan; it’s going to be great!)

Having been told for months and years that good metadata enables sales and bad metadata prevents them, I wanted to get some factual confirmation of that. So I asked Jonathan Nowell, the UK-based head of BookScan and the bibliographic source BookData, if he could do some research to connect the two (his being the only organization that has the information to tie metadata to sales data.) Jonathan did a presentation on this subject for Publishers Launch Frankfurt; he’s updating it for Digital Book World.

The most arresting takeaway last October at the Frankfurt presentation was that adding “enhanced metadata” elements to a basket of backlist books not only stopped their normal sales decay, it reversed it and actually made sales of those books rise after the metadata was improved. Everybody will really be able to visualize the importance of metadata after they hear Jonathan’s presentation.

Verso Media is an advertising agency with high digital consciousness and a deep interest in book purchasing and consumption habits. They survey book consumers looking for insights about the digital changeover. The single most startling takeaway for me from the preliminary results I saw from this year’s research is that the number of people who actually resist the idea of reading digitally has gone up from 49% to 51% of respondents. This data point is in line with other tea leaves that suggest that we might have started to hit real resistance to ebooks, slowing down the digital switchover from the rates of the past few years. And that certainly would not have been what I would have predicted. Jack McKeown, who has held senior positions at three major publishing houses, oversees the Verso research and will present it.

At our Publishers Launch “Children’s Books Go Digital” show on Monday, Conference Chair Lorraine Shanley recruited two trend analysts who are offering interesting trend and data observations of their own.

Amy Henry, VP of Youth Beat, observes that parents and kids are sharing personal experiences more than we remember from our youth. More than 2/3 of teenagers listen to music with their parents! The takeaway is that parents can be marketing conduits to their kids; they’re not just gatekeepers you need to sneak your way past, which is how they have often been characterized in the past.

Ira Mayer, Publisher of Youth Market Alerts, delivers data that tells us that two-thirds of the apps Moms get for their kids are either free or under a buck. Fewer than 10% are more than $3. These are sobering facts, but anybody entering the app space to make money better know them!

Kelly Gallagher, Vice-President in charge of research at Bowker, will have important data to share at both shows. His team has been surveying a pool of book purchasers on behalf of BISG for a couple of years and has charted the growth of the ebook market for the industry throughout that time. The data he’ll be reporting from the latest fielding is so fresh that it misses the deadline for this post. But it would seem likely that the data will show that the ebook switchover is finally slowing down after about five years of doubling or more than doubling annually. That would be of meaningful interest to everybody in trade publishing and would tend to confirm Verso’s finding that the point of more determined ebook resistance grows nearer.

Bowker also runs a study of the children’s book market and he will share appropriate data from that research at the Pub Launch show on Monday. Kelly showed me a couple of slides that suggest that young children’s print could be around for a while. Parents like the idea that a book isolates kids from what are otherwise constant digital stimuli. And what attracts kids to digital is portability (having access to more titles) which, broadly speaking, is more important as kids get older. And he’ll reprise that data presentation at Digital Book World on Tuesday, followed by a panel discussion among participating publishers in the study, including Disney, Scholastic, and HarperCollins. That discussion will be moderated by Kristen McLean, founder of Bookigee and former executive director of the Association of Booksellers for Children.

I don’t mean to suggest that data is all we do at our conferences, or even most of what we do. It isn’t. But we see it as part of our job to encourage the development of original information, such as we did in conjunction with All Romance and Nielsen, as well as to deliver information from efforts already underway within the industry, like the reports we’ll get from Bowker.

Digital Book World will also feature main-stage presentations from Amazon, Barnes & Noble, and Kobo which we expect will also be data-rich (as well as one on business model experimentation from Oren Teicher of the American Booksellers Association), helping us all understand what happened this past Christmas. Keeping up with this pace of change is hard enough; doing it without data is impossible.


Some things that were true about publishing for decades aren’t true anymore

Back when my father, Leonard Shatzkin, was active with significant publishers — the quarter century following World War II — he observed that very few books actually took in less cash than they required. That is not to say that publishers saw most books as “profitable”. Indeed, they didn’t. They placed an overhead charge of 25% or 30% or more on each book so most looked unprofitable. But that didn’t change the fact that the cash expended to publish just about every book was less than the cash it brought back in.

The exceptions were usually attributable to a large commercial error, most commonly paying too much of an advance to the author or printing far more copies than were needed. But, absent that kind of mistake, just about every book brought back somewhat more revenue than it required to publish it.

This led Len to the conclusion that the best strategy for a publisher was to issue as many titles as the organizational structure would allow. That was a lesson he passed along to the next generation of publishing leadership that came under his influence. And the leading proponent of that business philosophy was Tom McCormack, who worked for Len at Doubleday in the late 1950s, then went on to Harper & Row before he ascended to the presidency of then-tiny St. Martin’s Press in 1969. Tom often credited the insight that publishing more books was the path to commercial success as a key component of the enormous growth he piloted at St. Martin’s over three decades.

(I checked in with Tom, who is long-retired as a publishing executive but a very active playwright, about how many books didn’t claw back the cash expended. He told me that his “non-confirmable recollection” is that the percentage that did at least get their money back ranged from 85% to 92%. He recalls “incredulity” from his counterparts in other houses, whom he believes simply couldn’t “wrap their minds around the meaning of the statistic: revenues minus disbursements.” He went on to tell me that this number “seemed effectively irrelevant to them. They had an overriding and deeply flawed notion of something they called title-profitability. They thought they were analyzing the profitability of a title with their ‘p&l’.”)

Despite the apparent immutability of the fact at the time that most titles brought in incremental margin, many publishers who were losing money would come to the opposite conclusion. They would decide they should cut their lists, pay more attention to the titles they published, and create more profits that way. I remember discussing the futility of that approach in the 1980s with my friend and client, Dick McCullough, who was at that time the head of sales at Wiley. When I observed that the publishing graveyard was littered with the bones of publishers who pursued cutting their lists as the path to profits, Dick said of their efforts to cut “yes, and very successfully too”.

I got another lesson about this reality in the late 1980s when a company I consulted to (Proteus Books) sued its distributor (Cherry Lane Music) for a failure of “due skill and competence” in the sales efforts for Proteus Books. One of Proteus’s expert witnesses was Arthur Stiles, who had been Sales Director at several companies, including Doubleday, Lippincott, and Harper & Row. Stiles confirmed that big and competent publishers routinely put out thousands of copies of titles in advance of publication, with extremely few failures in terms of getting the initial placements. He was testifying in a time that was still like what my father experienced: the industry’s title counts were growing, but so were the the number of bookstores in which they could be placed.

Those days are over. And, coupled with the ebook revolution, the implications of that are profound.

A few things happened to change the environment so that it became no longer true that even big publishers could get all the distribution they needed on every title to assure a positive return of cash.

1. The title output of the industry has grown enormously. In the 1960s, the total output of the industry was in the neighborhood of 10,000 titles a year. Now it is something more than 30 times that number published traditionally, with a multiple of that number being self-published. Each new book is competing against more new titles every two weeks than a book fifty years ago would have competed against in a year!

2. Nothing published ever dies. Fifty years ago, stores were smaller and, while there’s no easy way for me to measure this, I’d guess that the active backlist across publishers was probably no more than 25,000 titles. Superstore growth in the 1980s, the efficiency of Ingram as a national wholesaler, and computer systems that helped stores track their inventory and sales fueled backlist expansion. Even in the early 1990s, the total of truly competitive titles was probably in the low six figures. But then came Amazon’s unlimited shelf space and Ingram’s Lightning Print to deliver one copy at a time, and, even before ebooks, the competitive set of available titles had probably jumped to seven figures.

3. Bookstore shelf space is declining. Nobody who has been reading this blog needs much elaboration on that point.

What that means is that a list-cutting therapy that McCullough and I saw in the 1980s as suicidal and which McCormack explained repeatedly was folly is no longer crazy. (Oh, how I wish my dear departed Dad was around to discuss this with!) And the new conjecture in this blogpost is that the day might come when a publisher with an extensive backlist might decide that the most profitable path would be to hardly publish any new titles at all!

The portfolio of any longstanding publisher today contains a lot of backlist which is pure profitable gold in the ebook era. Contracts often give publishers the rights to a book for the life of copyright if they continue to sell it. (I’ll confess here that there is a caveat to this point coming up in an italicized postscript below.) So a major publisher doing $600 million and up (of which there are six), almost certainly has triple-digit millions of sales in its backlist, which is increasingly shifting to digital. Even the most sober industry observers are seeing revenues exceeding 50% from ebooks in the next two or three years, which would mean that substantially more than half the units of these books are selling electronically.

So, let’s say you’ve got a company doing a billion dollars in annual revenue and barely eeking out a profit or perhaps even losing money. With a strategy of continuing to publish what you own as ebooks, you can see digital backlist revenue of $150 million, decaying by 10% a year, with gross margins giving you $100 million or more in cash flow. Offloading all the print operations for which you own rights to a distributor or competitor will provide incremental revenue as well. (You only need help for the offline print sales. Getting the online sales requires no operational capability.) You’d then need a minimal organization to do some marketing (not a lot), sign up and put out some additional titles that would be chosen for being risk-free (not a lot), and to handle the administration and royalty processing for your thousands of contracts. Five or ten million ought to cover those costs very handily.

Of course, the other thing you could do is sell your rights to that backlist. But I think it would require somebody to overpay in relation to your net discounted cash flow to make that attractive because the costs of keeping it all for yourself would be so minimal.

One hopes that today’s publishers are looking at the simple statistic Len and Tom authored: revenues minus disbursements by title. No doubt today’s biggest publishers are looking carefully at the performance of their copyrights in a way that sorts the new titles from the backlist. But doing so is only useful if they’re apportioning their costs properly across the title base. If they are, what is described in this post will be evident if and when it is true. In the meantime, careful focus on new title acquisitions and accepting that the healthiest way to manage for the future might be to reduce the commitment to new title development will have to replace the clear truths that guided smart publishing strategy for previous generations.

The history and analysis are all valid, but there is one big monkey wrench in this scenario I’ve sketched. There is a provision in the 1978 copyright law that allows authors to reclaim rights to their books after 35 years. Titles published in 1978 become eligible for reversion, called “recapture” apparently, starting in 2013. (With logic that is ironically typical of what Congress does when it touches copyright law, older titles are on a slower track for liberation.) Agents are planning for this; publishers will have to deal with it. I am given to understand that publishers can only retain these books for life of copyright by, in effect, reacquiring them. (Should be lots of fun!)

So, in fact, the backlist attrition might be faster than 10% (but it might not, because ebooks may create more readers for backlist than we had before as well.)

It is also true that many publishers have already been moving in the direction I suggest: pruning their new title counts and being particularly cautious with midlist. Of course, there was a conviction by many that list-pruning was a good strategy even before it actually was a good strategy, but the execution of it has been much more rigorous over the past decade.


The digital future still is a mystery if you don’t publish “immersive reading”

I have made previous mention of my notion that what has been one very cohesive trade book industry would “trifurcate”: break into at least three distinct businesses: 1) books that are straight narrative text intended for immersive reading; 2) adult books that are not straight text, either very chunkable (like cookbooks or travel books) or highly illustrated; and 3) children’s books. Admittedly, even this is an oversimplification.

This conjecture is built on the reality that we’ve learned how to move immersive reading from paper to screen in a way that satisfies the consumer. A pretty simple technological trick — “reflowing” the text so that it adjusts to the screen size alloted to it — makes the text “work” across a wide range of devices and reader software. There are definitely differences among Kindle and Nook and Kobo and Google and iBooks and they don’t offer precisely the same outputs and features on their own devices or on iOS or Android, but the differences are subtle and apparently most people are comfortable with the various consumption experiences.

So relatively simple conversion from the version prepared for print, which can even be done through automated services like Smashwords or through tools now being offered by The Atavist and Vook (and others), and are handled within the workflows of many publishers at a trivial financial cost, delivers an alternative to the print version of a book that is commercially viable. It isn’t costly, it isn’t complicated, and the person who formerly read her favorite novelist or subject in print could switch to device reading with relatively little pain or friction.

And they have. Ebook consumption has been going up by double or more each year since the Kindle arrived a little over four years ago.  (And there is evidence that the growth will continue. Amazon just announced the best Kindle holiday season ever — with over a million Kindle devices sold each week in December and with the single biggest day ever for Kindle book downloads on Christmas Day. — Note “downloads” not “sales”.)

So far, this has worked to the benefit of established book publishers, their authors, and for fledgling new authors as well. Ebooks are generally cheaper than their print counterparts (and sometimes quite a bit cheaper, despite some propaganda to the contrary) but publishers’ margins haven’t suffered. Authors are getting a bit less on ebooks than they did on hardcovers in print, but they get a bit more than they did on paperbacks. There are vocal consumers who protest the agency pricing that keeps ebooks at $9.99 and up during their hardcover life, but Kobo, the only retailer to discuss these matters, reports more unit sales in the agency price bands than at the low end where the self-published authors are.

We would not suggest that stability of prices or royalties or consumer behavior going forward is to be expected; we’re still in a time of great change. But, so far, the publishers of fiction and non-fiction that is delivered as straight text have had a relatively painless switchover from selling 100% of their output in print to selling an average of more than 20% of it in digital form, with shares as high as 50% being reported on some titles in the first weeks after publication.

Until the arrival of the iPad in April of 2010 and then the NookColor and the tablets from Kindle, Nook, and Kobo which have become available more recently, the dedicated reading devices wouldn’t handle complex page layouts and the iPhone screen was far too small for illustrated material to be usefully displayed. Barnes & Noble made serious efforts to get children’s books available for their color screens about two years ago. Kobo seemed hopeful this Fall about what they’d see in ebook sales for graphic novels, but they only have 300 titles so far so I’m not sure what impact that can have. I have not seen any reports about how illustrated material is selling through either retailer.

Some research we did says that Kobo has 995 titles “just for Kobo Vox: 33 art and travel, 332 comics and graphic novels, 29 home and food, 539 illustrated kids, 57 illustrated non-fiction, and 58 read-along kids. The breakdown for Kindle Fire isn’t as clearly spelled out, but they do have 100 “comics for Kindle Fire” and 691 “children’s books for Kindle Fire”. One interesting note is that the audio-video only works on Kindle’s iOS app,, not on the Kindle Fire device itself!

Of course, the iPad started all this and might still be the best device for consuming color and illustrated material.

Nook has by far the most illustrated material listed: 1210 children’s picture books and 596 “enhanced Nook books”. They might have as many as 5000 comics, graphic novels, and manga titles, but deeper investigation makes us question that number. They list 7700 “Cooking, Food, & Wine” titles for the Nook, but we don’t know how many of those are highly illustrated.

I have been asking publishers about sales of their children’s and illustrated trade material. I haven’t found anybody yet that says they’re going well. On the children’s side, where there have been pockets of success, the one Big Six digital executive who expressed an opinion to me felt that price was killing sales for the ebook versions of successful franchises. Children’s apps from such distributors as Touchy Books are priced quite low, generally $2.99 and less. But many branded titles like Eloise are $9.99 and $12.99 and up! This executive points out that paying that price for a novel you will spend many hours with is much less painful than paying it for a children’s book your kid will work through in 15 minutes or less.

Undoubtedly, another large factor mitigating against converting illustrated print book sales to digital is that ebooks don’t make good gifts and illustrated print books do.

I recently spoke with CEOs of two companies that publish primarily illustrated books. Both of them report being stumped by the challenge of making their illustrated print output into something that will work commercially as an ebook. “Fixed page layout” is the solution du jour, delivering the book page as a unit but where the pinch-and-spread touchscreen technology enables the reader to expand type to make it readable or pictures to make them more visible. Of course, doing that means that the whole page no longer fits on the screen. And that means that the smooth experience devices offer for immersive reading, where page-turning is effortless and one can read the text without stopping to think about the form factor, is interrupted and not nearly as satisfactory for books delivered that way.

More complex page layouts are more expensive to convert, can present thorny rights issues for images, and the books haven’t sold well in digital form. On top of that, the retailers can (and often do) ask for their own specific customization of the files. These factors combine to create a very unattractive commercial equation. Until the Fall of 2011, one ebook retailer told me there were 10,000 or fewer illustrated ebooks in the marketplace, out of a total of many hundreds of thousands, perhaps more than a million, straight text titles. The plethora of larger-screen and color devices that hit the market this past fall created a burst of conversion activity of these titles, perhaps doubling the number in the marketplace during the last quarter. We await reporting on the impact of the new devices and the additional illustrated product in the market, but nobody’s reported any breakout successes yet.

This has to be frightening to anybody in the illustrated book business. Bookstores are disappearing. Sales are moving to digital. We’ve had an iPad in the marketplace for almost two years. And we have as yet discovered no formula for success to convert a successful illustrated print book to a successful illustrated ebook.

(We have reports coming at Digital Book World from Kindle, Nook, and Kobo. We’ve asked them all to report on how illustrated books did this past Christmas. Each of them limits their reporting to what they think they can tell us without compromising their competitive position with each other. We’ll see what we learn.)

While many children’s books share a commercial challenge with adult books that aren’t straight immersive reading, they have more differences than similarities. Once you get past the commonality of “more expensive to create for less of a demonstrated market”, things really diverge.

Books for digital presentation for little kids particularly will require skills that book publishers never had to have, particularly for animation and games. App technology is overkill for books of immersive reading; it is very useful for content intended to interest kids. Indeed, children’s book publishers are finding themselves competing with (or employing or acquiring or collaborating) design and animation studios that weren’t thinking much about the book business until the book business morphed into something akin to what they were doing. (A slew of these companies will be on stage for our “Publishers Launch Children’s Books at Digital Book World” conference on January 23, co-located with the big Digital Book World extravaganza.)

The adult book challenges are much more varied. There are, broadly speaking, two kinds of illustrated books: those illustrated for beauty and those illustrated to inform. The latter require tight control of the placement of illustrations and captions in relation to the text, just the kind of challenge that causes agita when readying content for different sized screens. And the beauty books, of course, have to be carefully designed for aesthetic satisfaction.

But it isn’t just illustrations that stamp a book as “not immersive reading.” Books of content chunks, like cookbooks or travel guides, are also not “optimized” merely by making them reflowable. There are some fabulous apps for both (“How to Cook Everything” by Mark Bittman and ones pulled from Rick Steves’ books like guides to the Louvre and Versailles), but these are not direct “lifts” from the books. They are separately constructed products. However well they sell, they don’t provide the same cost synergy with the book production that the publishers of novels and biographies are getting.

These very well-done apps underscore one of the problems with simple “conversion” of books other than straight text for immersive reading. If I get all the words in the novel, nothing inherently provokes the question of whether something more should have been done to make it better. But whereas a printed book requires a still picture, in a digital rendition that could just as well be a video or an animation. Remaking those choices is very expensive; ignoring them means delivering content the consumer can easily imagine being better than it is.

As less and less shelf space is allocated to books of immersive reading, there may be some temporary opportunity opened up for the publishers of other books. Books and Books, a chain begun in Miami which is catching attention for its survival strategies during what are generally tough times for bookstores, is famously emphasizing illustrated books. Not only do these not convert well to ebooks, they aren’t as well displayed in an online shopping environment.

At the same time, there are specialty retailers like JoAnn Stores and Michaels that continue to sell books related to their primary businesses selling crafts and hobby materials. These outlets become more important to publishers as bookstore shelf space disappears, but they also become more important to consumers. Since the content these consumers want does not convert as well to digital consumption, it stands to reason that they’ll still want the printed books for some time to come. Publishers of these books will be redoubling their efforts to cover these stores and enable them to substitute for the bookstores being lost.

The publishers I spoke to recently have already “verticalized”; they’ve been publishing in very specific non-fiction subject niches. They’ve been focusing efforts on building up their special sales departments, the part of a book publisher that looks for sales opportunities outside the bookstore and library channels which publishers usually call home.

As digital shifts continue to reduce bookstore shelf space and the readers of novels and biographies spend less time in bookstores where they might see the children’s books and art books and how-to books that don’t work as well on devices, more imagination and innovation will be required of publishers who formerly could make their living selling their wares through those stores. One example is what Workman has done with their soft-reference franchise “1000 Places to See Before You Die”, which they are trying to turn into a monetizable community. This is a good idea and nicely executed; whether it will turn into a profitable one remains to be seen. And, of course, it is not a template that can be broadly applied.

This much is clear. Publishers of immersive reading can, at least in the short run, largely count on keeping the sales from readers they’ve always had. The problem for these publishers will be keeping the big authors (at a sustainable royalty rate) if the business becomes largely digital and most readers can be accessed without the capabilities of a major company operating at scale.

The publishers of the rest of the book output who have depended on the bookstore network would appear to have a far more onerous challenge. They have to largely reinvent their product and perhaps their business models to get some digital revenue without any blueprint for success. In fact, there may not be a replicable template for how we satisfy consumers of much of the non-immersive content which for hundreds of years has been presented in books. But the publishers of those books have no choice except to look for one. With increasing urgency.

Of course, the Holy Grail is to monetize the content in other ways, made possible by XML workflows, taxonomies, and lots of intelligent tagging. There are instances where this works: Wiley and Random House both have robust b2b businesses with their travel content. But it is a significant incremental effort to go from being a book publisher, even a niche-y one, to creating a profitable business model around multiple uses of the content and the community the content attracts. It has been the mission of the company that is our partner in Digital Book World, F+W Media. Their scale enables them to spread the cost of investments across a substantial number of communities. This is not just about technology. For example, their crack events team, which makes the complex DBW event run like an atomic clock, is employed by a variety of the 20 or more F+W communities over the course of the year.  

One of the DBW sessions this year is “The Digital Future for the Illustrated Book” which will feature speakers from Kobo, Time Home Entertainment, Quarto Publishing, and Aptara.

One other trick being employed worth mentioning is a digital add-on to the print book. Melville House, an innovative publisher tied to a bookstore in Brooklyn, calls these web-based efforts “hybrid books” and they call the enhancements “illuminations.” A variation on the theme has been employed by the innovative publisher Black Dog & Leventhal; they add a CD-Rom with all the artwork in the Louvre to add to their Louvre book and all the cartoons in the history of New Yorker, which would never fit into a print book. It was a BDL book on The Elements which spawned the breakthrough iPad app. These are useful ideas, but I’m not sure they solve the existential problem publishers are facing.