June, 2012

Auletta’s New Yorker piece is good orientation for thinking about the DoJ case

Writing about the lawsuit the DoJ has instituted against Apple and five leading publishers is very hard. It’s a big issue and doing it justice requires navigating two very large and complex bodies of knowledge: anti-trust law and the trade book publishing business. Whenever I write about it, I feel handicapped because I don’t know much except what I’ve read lately about anti-trust law.

I just know the industry. And I know the arguments for “collusion” or “conspiracy” are mostly built on illogic or misunderstanding of what is called “evidence”.

And I know that all prosecutors have the right and responsibility to decide what cases are worth making. It is on that basis that I think the DoJ is terribly wrong in pursuing this case, that the consequences of doing this will be dire for the industry and the reading public, and — again apologizing for not knowing anything about anti-trust law — that this action will lead directly to a real and obvious monopoly which will have to be addressed at some future time.

Except then it will be too late to undo the damage or to rebuild what will have been destroyed.

The June 25, 2012 issue of The New Yorker has an article by Ken Auletta called “Paper Trail” which is a sympathetic synthesis that untangles and clarifies a complex web of law and behavior. Except for a single sentence where Auletta attributes Microsoft’s investment in a new venture jointly owned with Barnes & Noble to be primarily driven by the desire “to produce a more popular tablet computer” (I think there were other motivations that were more important), I don’t take issue with his presentation of the facts.

(Bob Kohn, the founder and CEO of RoyaltyShare, who is a lawyer experienced and knowledgeable about the issues and who filed his own comments with the DoJ, provides an alternative view to those of the legal experts chosen from academia by Auletta. He is surprised that Barry Hawk of Fordham Law School failed to come up with the well-known 1979 BMI v CBS case, decided by the U.S. Supreme Court, as a relevant precedent, and that Tim Wu of Columbia Law School could not understand the obvious point that Amazon was selling the ebooks at a loss to lock people into their ecosystem, where prices could obviously be raised later. But I’ll leave it to the lawyers to argue the law. On the business side, Auletta’s facts were solid and his choice of interviewees on all sides, quite aside from yours truly, was excellent.)

Reading Auletta inspires me to extend or re-emphasize a few things he said or touched on, some of which I learned from his piece.

I perhaps should have known, but didn’t, that Hachette USA had lobbied the Justice Department to examine Amazon’s predatory practices. (And frankly, had I known, I would never have reported it. I’m not a reporter; I’m an independent synthesizer, analyst, and articulator. There’s a difference.) Auletta reports that Hachette made what should be the very powerful argument that their copyrighted material was being used to sell Kindle devices and “drive bookstores out of business”. The point is accurate (and since Auletta’s reporting on an appeal that was made in 2009, also prescient) but elides an even bigger one.

Kindle was locking people into the Amazon purchasing ecosystem. What publishers saw, very early in the game, really, was that Amazon was aggregating customers that would soon find it difficult to get an ebook from any other source. In the parlance: their switching costs would be high. And they were the industry’s best customers.

(I mean, imagine this! “They’re locking customers into their platform with our books by selling them at a loss!” How would any business react? And do you think you need to “collude” with your competitor to come to the same conclusion? Give me a break.)

I was at the least reminded by Auletta’s piece, though perhaps I should already have been aware, that Apple had stipluated to all the publishers that they wouldn’t open iBookstore unless four of the Big Six were on board. That fact gives rise to a series of obvious observations that surely haven’t been mentioned often enough.

1. If that’s true, then all the chatter about publishers discussing their intentions to proceed is one very large and very red herring. Apple had made it clear that there would be four or no store. That’s all any of them needed to know.

2. How could Apple have proceeded any other way? As it was, the biggest of the Six (Random House) holding out really handicapped iBookstore and the Agency Five. Not only did it give Random House (and Amazon) a whole lot of price-advantaged brand-name-author books (with Random House also collecting the higher wholesale-pricing cut from the retailer), it kept those many desireable titles out of the iBookstore.

Most of the other publishers seemed unimpressed with the share iBookstore took of sales in 2010 even though the Random House books weren’t competing. But everybody was delighted with the additional reading screens delivered by iPads that brought them, as well as Random House, a lot more ebook sales through the other ebook retailers.

I don’t think that iBookstore would have been viable for Apple without four of the Big Six. It was perfectly reasonable for Apple to have made that business determination. It would have been irresponsible of them not to have done the calculation. Is Justice saying that, knowing that, they shouldn’t tell a potential trading partner if they were asked?

If the law actually prohibits this, which seems impossible, please change the law. And if you can’t change the law and if you have to choose which one is a smart one to enforce, this is a good “skip”.

3. A lot has been made of the fact that Apple has required the publishers to let them price-match. Now we know that Apple drove the deal. They said to the publishers, “we’ll let you set the price. as long as you don’t make us look like monkeys in relation to the print book price. But, of course, you can’t require us to sell at a price disadvantage, so you have to allow us to match any lower price.” How could Apple, or anybody else, do it any other way unless they were fools? They couldn’t allow themselves to be locked into a price that made them look extortionate to the consumer. They were proposing the terms on which they’d provide their proprietary access to their devices. Isn’t this a reasonable demand?

If the law prohibits this, please change the law.

I really liked the fact that Auletta emphasized, for the first time in any widely-distributed story I can remember, that the publishers going to agency sacrificed significant revenue by doing so. He quoted agent Simon Lipskar praising them for being far-sighted, willing to accept a hit on their watch to build a sustainable ecosystem. He quoted a CEO who estimated that $100 million was the aggregate hit to profits in a year.

Part of the $100 million that publishers lost provided some of the $200 million that Auletta reports Nook invested in delivering and launching the Color Nook. That’s a consumer benefit provided by the competition that is provided by agency pricing. The same is true of Kobo devices and Amazon devices, which are getting better and better and cheaper and cheaper thanks to the subsidy provided by the sale of publishers’ content.

If the law prohibits this, please change the law.

The most poignant part of the piece to a relative insider was Auletta’s reporting on the much-derided Picholine dinner in September, 2008. David Young of Hachette is reported to have organized it to welcome Markus Dohle, the new CEO of Random House, to New York. Anybody who knows David Young, as I am very pleased to have done for years, will recognize this immediately as the friendly and gracious behavior that is entirely characteristic of him.

As Auletta makes clear, this dinner took place before Apple had even announced it was going into the book business. In fact, I think it was still in the period when the Jobs pronoucement that “people don’t read books” was the prevailing wisdom from Silicon Valley.

And if the law prohibits this, and makes it part of a conspiracy, you’re making me happier than ever that I wrote a book on the New York Knicks instead of going to law school.

Auletta’s piece concludes on a telling, and chilling point. John Sargent spells out how small publishing is in relation to the giants now influencing its fate, which Auletta identified as Amazon, Apple, Facebook, Google, and Microsoft. Their strategies all involve the book business in some way. Sargent’s observation that books, by which he means the book publishing ecoystem that has built up around paper over the past 300 years, could become “roadkill in a larger war” gives pause.

It is increasingly easy to imagine. And it is worth considering seriously before it is a fait accompli.

It isn’t Amazon’s job to figure out what the book business needs to look like. They’re doing their job, which is to maximize the opportunities for their business as they see them within the rules of the game and the limitations imposed by competition and their trading partners.

Seeing that it isn’t their job means recognizing that it is everybody’s job. A lot of people need a better understanding of what publishing does and is for that to happen. I think the DoJ is making it very clear that smart people with a lay knowledge of the publishing industry routinely misapply what they think they know from other places.

Publishing one book is complicated, although a bit simpler if digital only. Publishing 200,000 books a year, which is what the industry does, is infinitely more complicated and made only more so by digital opportunity. Nobody from some other place — any other place — has entertained equivalent workflow, operational, administrative, and financing complexity.

I think the Auletta piece is valuable because it exposes the lie in the cartoon picture of “Greedy Big Publishing” stiffing the poor novel-reader while the selfless heroes at Kindle fight to save them two or three bucks a book. (And never mind that the price of your reader dropped by 50% because the guys across the street are offering one too.)

It isn’t Amazon’s job to do the PR for the other guys either.

I am speaking on approximately this topic at the 5th Annual GW Ethics & Publishing Conference at George Washington University on Monday, July 9th. 


Does Pew study prove ebooks in libraries are safe for publishers?

I haven’t seen this written elsewhere, but the latest Pew ebook study seems to me to confirm that the publishers are doing the right thing for sales by constricting the availability of many of the most attractive books from library shelves.

That conjecture on my part comes from a data point that some may interpret a different way.

The data point that interested me is that 41% of respondents who at some time borrowed an ebook from a library bought the most recent ebook they read.

To some, this could suggest that publishers’ fears that library patrons will be weaned away from buying ebooks are overblown. Indeed, it is certainly possible that “discovery” at the library of a desirable ebook could lead to the purchase of a title for which the wait would be too long.

It could mean that.

What it seems to me more likely to mean is that the lack of library access to the most commercial titles forces those readers who care more about what they read than what they pay to purchase titles which the library doesn’t have (and which they probably “discovered” somewhere else.)

According to Jeremy Greenfield’s report on the Digital Book World site (wth apologies to them for changing their “e-book” styling to our unhyphenated standard):

“eBook borrowers being buyers is a phenomenon that’s true in the print world as well,” said Molly Raphael, president of the American Library Association. “We know this anecdotally and this data that shows it is an important finding for us.”

Raphael said that ebook borrowers will discover a book they want to borrow and then see that they have to wait for it to become available and will get impatient and buy it. eBook borrowers also sometimes sample ebooks by borrowing them and then buy them.

What Raphael says is true. But it could also well be that the number purchasing books would drop sharply if all the commercial publishers made their most popular titles available, particularly if they did it without windowing.

There’s lot of other interesting data in the study. What really caught my eye is that 58% of Americans have a library card. I find that number considerably higher than my intuition would have suggested.

A couple of other data points from the study feel like they support my view that publishers are doing the right thing for their commercial interests. Pew found that 55% of the e-book readers who also had library cards said they preferred to buy their ebooks and 36% said they preferred to borrow them from any source—friends or libraries. But among the ebook borrowers, only 33% say they generally prefer to buy ebooks and 57% say they generally prefer to borrow them. Combined with the point that has gotten a lot of early attention, that most patrons don’t even know that libraries offer ebooks, I see a very strong suggestion that library availability of ebooks will reduce sales more than stimulate them.

None of this is conclusive but I thought my instinctive conjecture was out of step with the spin the study was getting and therefore worth this brief Friday post.


Talking to Hollywood folks about publishing

I spent an enlightening few days in Los Angeles last week doing some networking and research ahead of our “Movie/TV-to-book” conference, which will take place on October 22 in Hollywood. The premise of our event is that “everybody in Hollywood needs an ebook strategy” and it was definitely encouraging to have had that idea endorsed by every person I talked to.

We got help with introductions to the local community from our friends at the Intellectual Property Group, an agency. Larry Becsey, who has the corner office there, is an old friend of mine. I was introduced to Larry in the early 1970s by Harry Sloan, who had been a classmate at UCLA. Harry went on to a very successful career that included being head of Filmways and MGM Studios.  At the time Becsey and I met, Harry was Ron Howard’s lawyer and Larry was Ron Howard’s agent.I don’t think I’ve seen Harry since but Larry and I have stayed friends for four decades.

So Larry and his partner, agent Joel Gotler, made a few calls and circulated my blogpost on this subject to a few friends and the meetings I had materialized as a result of their efforts. Here are some examples of what I learned through these conversations about the new mutual opportunities for Hollywood to connect with the publishing world.

There are two entities I spoke with that are off the track a little bit for the Hollywood conference but which have serious marketing propositions for the publishing community.

The Baby-First Network, in the words of its founder, Guy Oranim, was visualized as a combination between Baby Einstein and Sesame Street. I admit I would never have imagined that a TV network for infants would make any sense, but they’re gaining audience steadily and, as they knew they would, have the moms watching along with their wee ones.

That is opening up some fabulous marketing opportunities which they’re going to exploit by making their prime-time programming parenting-centric, rather than infant-centric. Baby-First already did a multiple-book deal for infant books with Readers Digest; I think they’ll both be able to publish parenting and collaborate with one or more publishers who do, delivering unique new market reach that any book publisher would love to have.

The other marketing discovery for publishers was from Insight Entertainment where Matt Lesher, with whom I met, has collaborated with former MTV anchor Adam Curry on an author-interview program. They do it once or twice a week, primarily distributed through iOS and Android apps. Curry’s based in Austin and he does the interviews by Skype from wherever the author is. Lesher reports to me that they count sales of between 750 and 7500 copies of every book they cover. They know because their business model is to get paid with the referral income; of course there are other sales they generate but can’t see or count.

Do publishers know about this yet? Not so much, reports Lesher. I don’t know whether this works for our Hollywood conference, but it surely is something to put on stage at Digital Book World! (And any publisher who wants to can go ahead and pitch an author now: send a note to [email protected])

Part of the payoff for going to LA for these meetings was becoming aware of things going in what is already our business that hadn’t registered with me. I met with lawyer Wayne Alexander, who with Kassie Evashevsky at UTA represents the movie/TV interests for author Hugh Howey. Howey has a string of successful futurist novella which due to reader demand was expanded via several installments into a long novel under the general label of “Wool”. (Five installments have been assembled into a single novel: the “Wool” omnibus edition.)

Howey is doing so well selling his ebooks through ebook stores that even very big deals brought in by his agent, Denver-based Kristin Nelson, couldn’t entice him to trade in his self-publishing career for all that a big US publisher could offer. Meanwhile, his team has sold his book in the UK and Brazil the movie rights to 20th Century Fox. I found this story interesting on many levels, including that fans of a novella could encourage extending the story to full-length.

I don’t know what Howey had working for him besides the strength of his story (I’m trying to find out) but his commercial tale will definitely interest Hollywood because it proves that something can become a success through ebooks alone. One thing that distinguishes Hollywood-originated “self-publishing” stories from all others, probably including Howey’s, is that everybody who might publish in Hollywood has five friends who, among them, have half-a-million Twitter followers. He got his ball rolling, but imagine how much easier it would be for a Hollywood entity to do that.

Another publishing-centric discovery I made last week was the Hollywood development arm of Penguin, run by Pete Harris. Called the Penguin Development Group, it is an in-house team assigned to identify and generate originals ideas and opportunities for books and series to be published in imprints across the house. Penguin expects many of the books from this source will be developed commercially into feature films, original television and video games.

When I was (successfully) recruiting Peter Gethers, the head of Random House Studio, for the Hollywood conference, he talked about their recent movie-based-on-their-book, “One Day.” According to Peter, the movie was moderately successful financially, but the book sales skyrocketed (in Germany and the US, where they were Random House, Inc. publications) bringing the company substantial profits. And, as he points out, they’ve also established an author who will produce other successful books for them in the future.

I spoke to trans-media producer Zak Kadison both before I went out there and after I got back. Zak is a big believer in the value of self-publishing. He is developing a project with multiple components and was deep into a publishing deal for it when the major house he was negotiating with started to demand contract terms he couldn’t live with. He walked away, confident that he can self-publish the book he wants out to spearhead the project even if he doesn’t succeed in engaging another publisher. Of course, he’d like the big advance and the clout of a big house, but only if the tradeoffs aren’t onerous. Self-publishing is an acceptable alternative.

A central point to the conference is to show Hollywood what becomes possible in a digital book world that wasn’t possible before. I found a very unusual example of that in a meeting with Trond Knutsen of L.A. Theatre Works. L.A. Theatre Works produces audios of plays with a very unusual model. They “stage” performances (with scripts, without sets or costumes) of plays which is repeated five times in front of an audience of about 300 people. Then they edit the recording and deliver the output as a show on public radio, a podcast, and an audiobook.

Because of their 25-year reputation for quality, they get professional actors to do these readings for compensation they’d find unacceptable anywhere else. (Recently, they had Calista Flockhart in their version of Romeo and Juliet.)

When I met with Trond, I asked him “why not put the audio together with the script as an enhanced ebook.” Turns out that’s exactly their intention. They have already launched a series of these for plays for which rights either weren’t an issue or were a resolvable one (several plays by Shakespeare, Importance of Being Earnest, She Stoops to Conquer). In other cases, they’ve worked with a summary of the scenes rather than the scripts (The Crucible).

I told Trond I loved this as an example of what could be done: they’ve leveraged their core competency (producing these audios). It turns out there’s another reason for L.A. Theatre Works to be on our program. Trond believes that same core competency can be leveraged on behalf of other ebook producers who might have scripts they want to present with audio themselves. They now do about 10 of these productions a year, but they could do 20 or even 30 if there were “call” to do so. That makes them an even better presentation for our audience because they’re not just showing “what can be done” but offering a resource to help others do it.

Part of why I went to LA and had all these conversations was to learn how Hollywood thinks about these issues and how I should frame them so that our potential audience will know what we’re talking about. I got two great suggestions in that regard.

One is to say “now everybody can pursue an Alloy Entertainment strategy.” Alloy is the bi-coastal media company (The Vampire Diaries, Gossip Girl, Sisterhood of the Traveling Pants) that packages books to get projects rolling as a core strategy. Alloy sells them to publishers, which requires proprietary expertise and contacts that are not broadly distributed. But the core concept of establishing a project as a book so the IP can be controlled for movies, TV, or games is one they’re identified with that everybody in Hollywood understands.

The other phrase I was instructed to use was “development Hell”. That describes the projects that have made the rounds and show no signs of getting made (or “greenlighted”, in Hollywood jargon.) These can be in various stages of development — treatment or screenplay, optioned or even bought — but, from the producer’s point of view, they look like write-offs at the moment.

Projects in development Hell could well be rescucitated by being novelized and launched as a book. All of these projects are stories that a producer once fervently believed in and invested in. Often that won’t have changed. A book could provide a new path to success. And, as publishing is now, a book can be developed and launched for what in Hollywood terms is a minimal incremental investment.

Hollywood is a town full of creative people. They have stories; they have writers with time on their hands; and they have more local people who can reach the public on a per-capita basis than anyplace else on earth. Once the creative executives there wrap their minds around the opportunities offered by digital publishing, I think we’ll see many bestsellers coming from them.

Tony Schulte, one of the kindest and most decent people I ever met during my life in publishing, died this past weekend at the age of 82. When I met Tony he was second in command at Random House. That followed his long stint at Simon & Schuster and preceded his time as a banker, consultant, and executive recruiter. He had been in the business for about 60 years and he kept meeting people until the very end. Everybody who knew him will feel some pain at his passing. Somebody’s going to have to find a pretty large hall to accommodate all of us who will want to attend his memorial, which it is said will take place in September. It is safe to say that Tony’s friends-to-enemies ratio would put him in the Hall of Fame. It approached infinity.


Selling direct will become an essential capability for publishers to have

One question on which I have had a long-standing difference of opinion with most of my friends in the biggest publishing houses — or at least with their publicly-stated views — is whether it is sensible for them to sell direct to end consumers.

That conversation was joined last week among three very smart people with very different perspectives. Madeline McIntosh of Random House, who added the title COO to her business card last week, expressed the opinion at the IDPF event at BEA that Random House would not “add value” by selling direct. This was in the context of whether it made sense to remove DRM, which, it has been suggested would help make it possible for publishers to transact ebook sales with consumers. (Some of the strongest advocacy for removing DRM certainly comes from publishers like O’Reilly and Baen who have built up robust retail businesses. F+W has a direct business across their two dozen or so verticals, and they sell DRM free.)

At the same event, Sourcebook founder and CEO Dominique Raccah enumerated useful things her company is able to do because they have direct customer contact, including testing out ideas for covers with live potential customers.

And following that, Andrew Rhomberg, a founder of the fledgling ebook bargain and conversation site, Jellybooks, took up Dominique’s side of this not-quite-engaged discussion in a post on the Digital Book World blog to make the point that the data publishers can gather through experimentation makes it worth having the direct customer relationship.

I agree with Andrew that publishers should sell direct, but the experimentation and data-gathering arguments he made — which actually resonate with the Jellybooks mission to improve discovery through both a different merchandising approach and by creating Groupon-like “deals” to entice purchasers — don’t strike me as the most persuasive arguments to make the case.

Partly that is because some of what Soucebooks accomplishes, like getting consumer reaction to covers, could be achieved without selling direct. Macmillan has told us that they have millions of email names (and the right to send them missives: what Seth Godin dubbed “permissions”) and has demonstrated that they can get a lot of response if they ask for an action. All that has been happening without them selling direct. (Macmillan will be starting to do that. Their VP, Fritz Foy, announced last week at our Pub Launch BEA conference that they’ll shortly be opening an ebook store, DRM-free. Hosting that event was the reason I didn’t hear Madeline and Dominique speaking around the corner.)

Our friends at Vogue Knitting Magazine use their Twitter followers to get opinions about how they should handle certain editorial choices they face for their magazine, just by asking.

Madeline was not saying that Random House shouldn’t have conversations directly with the readers of the books they publish. And they are certainly familiar with the point about data made by Dominique and emphasized by Andrew. They are, after all, the publishers of “The Lean Startup” by Eric Ries, which emphasizes the use of feedback loops to shape business strategies, including for the launching of the book! And everybody who knows Random House knows they are an analytical, systematic, and data-responsive organization.

What I took away from what I read Madeline saying was “we don’t have to execute the transaction in order to have direct customer contact and knowledge.” And what I also took away is, “whether it is because we don’t want to hurt our intermediary retailers or because we don’t want them to hurt us, we’d rather avoid competing with them. And if we sell our books direct, we are competing with them.”

That’s a powerful concern and it is built into the DNA of the biggest trade publishers. Selling direct works against the magic of trade publishing, which is the leverage provided by so many intermediaries helping reach the end consumer. I remember five years ago, when I was running most weekends with a Big Six C-level executive, telling him that I had just come around to the point of view that publishers should sell direct. He hadn’t then; he may not have yet.

I once had the (on more reflection) crazy idea that if all the publishers sold all the books of all the other publishers. there would be such a vast array of deal choices in the ecosystem that it would undercut the attempts of retailers to win share by selectively cutting prices.

But agency pricing changes that game because the price of an agency-model ebook is the same in all sales venues. In that case, does it reinforce the old logic of pushing sales through the intermediaries (as my running partner then and Madeline now apparently believe) or does it point to the path Raccah and Sourcebooks have taken, that Macmillan seems headed for, and which Rhomberg supports?

I think the latter. Here’s why.

We’re at the point now where all publishers understand that direct customer contact is essential. They may not all be fully aware that they are in a race with authors to gather the lengthiest list of useful customer contacts, but they are. The conversations between agents and publishers will very shortly start addressing how many names and permissions the author has with the number of names and permissions that apply to the author’s book the publisher can provide.

If a publisher works with the agency model — and Random House is a uniquely privileged publisher at this moment because they alone sell on the agency model without any pressure from the DoJ to change their practice — they can sell direct at their established price with the confidence that no retailer will embarrass them to their audience by undercutting them. That means there are three highly compelling reasons to sell direct:

1. If you have engaged in a dialogue that has “made” the sale, you don’t want to take the chance it will get “unmade” by sending the customer to a retailer with a vast array of choices, often suggesting other publishers’ books right on the same page which houses your book. There is wisdom that says every required click costs sales. Sending the purchaser to a retailer to execute a sale you have made not only lengthens the click stream, it introduces distraction and competition.

2. When an agency publisher makes a sale through an intermediary, it pays the intermediary 30% of the customer revenue for execution. Making the sale directly, adding that 30% to the 70% which would otherwise have been the publisher’s and author’s revenue, adds nearly 43% more revenue. Nobody is expecting publisher-direct sales to become a big share quickly, but a 43% increment is large. In some genres and niches, publishers might get to 20% direct sales in the next few years. In that case, selling direct would add more than 8% to their income, and to the income of any of their authors working on a percentage of the publisher’s net ebook revenue (which is almost every one that has earned back their advance).

3. It is much easier to execute further engagement with direct customers than through intermediaries. And further engagement is soon going to be desireable and before long will become essential. For example, an author could write a new ending or epilogue to a book (think non-fiction, not just fiction; this is already a big deal at tech publisher O’Reilly) that the author and publisher would want every  prior purchaser to have for free. Easily done if the customers are yours; a huge pain if they aren’t. Or a publisher next year might be happy to provide non-DRMd ebooks for customers who previously bought protected versions. Or a publisher and author might want to try an experiment of sending a sample of half the author’s next book for free to the readers of the last one. It will be far easier to get retailers to play along on things like this if they have to do it to remain “competitive” (more reminders that competition won’t just be about price!) with what the publisher provides its direct customers.

No retailer jumps for joy about publishers selling direct. Those publishers that do now, including Sourcebooks, the enthusiast publisher F+W Media (our partners putting on Digital Book World), and others, are usually publishing titles that are outside the circle of highly price-promoted big books. They’re managing to do it even without agency pricing. (I can’t resist noting that the DoJ doesn’t seem to care that Amazon won’t let these publishers use agency pricing, even though they might work that way with other retailers and, in my opinion at least, putting them at a disadvantage against their larger competitors).

But one clear lesson we should have all learned by now about digital change is that the bright lines that divided the author function from the publisher function from the retailer function are progressively being erased. It is possible for any of these players to perform any of these functions. (Indeed, a key idea behind Joe Regal’s new Zola Books business is that authors can do their own curation and become retailers, an idea everybody will have to wrap their head around just when we’re getting used to the idea that authors can become publishers!) Amazon isn’t shy about publishing; publishers need to overcome their reticence about retailing.

The guess here is that the ability to sell direct effectively will be seen as a necessary survival skill for publishers by two years from now, if not sooner.


Learned (or figured out) at BEA 2012

BookExpo America, trade publishing’s industry-wide gathering, just completed what must be considered another successful year at Javits Center last week. Attendance was pretty much what it had been last year and the lines for autographs on the convention floor certainly gave off the feeling of enthusiasm and excitement that publishers want to see.

Convention roundups are best delivered by people like Laura Hazard Owen and my Publishers Launch partner, Michael Cader, who make a real effort to take in the breadth of what is going on. I, on the other hand, have my meetings and chats with friends that seem to fill up the days so my impression of the overall is just that: an impression. An ad hoc impression.

One thing that seems pretty clear is that my forecast for the future of BEA from 2009 was unduly pesssimistic. I like to get to what I think is the heart of the matter, but in this case I was overly simplistic. I got it right that bookstores would continue to decline but I got it wrong to think that would doom BEA within three or four years. Although other retailers stock books more than they used to, there are nowhere near the number of opportunities for publishers to talk to customers that there were even in 2009. But publishers are that much more interested in talking to any source of shelf space that they can and, in fact, non-book retailers often aren’t hit by the field sales forces.

So there continues to be sufficient reason for publishers to exhibit to keep them coming (albeit with smaller stands and less staff than the big guys used to bring). And that brings a whole slew of other players, including the ever evolving set of companies with digital propositions looking to get the attention of publishers large and small.

Aside from our Publishers Launch conference, which made lots of news and was an altogether satisfying event from an organizer’s perspective with a number of really fabulous presentations, I had a handful of takeaways from BEA 2012.

1. Metadata is still a mess. For a BEA panel outside Publishers Launch, we reunited the incredibly engaging team of Newlin and Toolan to discuss metadata. Bill Newlin of Avalon, a division of Perseus, and Fran Toolan, the “Chief Igniter” (CEO) of Firebrand Technologies, know it all about metadata and are both passionate and extremely entertaining in discussing it. I heard from somebody who saw the session or talked to them afterwards that they might be getting bored with presenting on the subject. I checked in with Bill afterwards and he said he just had to freshen up the presentation; it remained important and he wouldn’t stop.

Then I talked to Karina Luke, who had spoken about metadata for us in London last year when she was at Penguin and who now is in charge of Book Industry Communication (BIC), the BISG equivalent in the UK which has, among its responsibilities, the monitoring of industry complicance with metadata standards and certifying publishers for competence. “Is this really still a problem?” I asked her. “Yes.” “Even among the big publishers? Don’t they have it all straight?” “No.”

Since metadata has, as Karina makes clear, literally replaced catalogs and sales reps as the most important and mission-critical source of information about a publisher’s books, this is a bit shocking. We had Jonathan Nowell of Bookscan do a presentation at Pub Launch Frankfurt last year which demonstrated pretty emphatically the relationship between metadata and sales. He’s repeated the presentation, first for us at Digital Book World, and then under other auspices. Apparently not enough publishers have seen it.

2. Still, nobody reports selling illustrated books effectively as ebooks. I have asked the question over and over of every illustrated book publisher I know. One Big Six house that is doing ebooks for all the titles in one of their divisions with a lot of illustrated titles, told me that most of the time sales of the digital edition are in the single digit percentages of the total sale. Very successful illustrated ebooks might do 15% of the print sale. For immersive reading, that percentage is a big multiple of that.

Illustrated books as ebooks have not yet demonstrated that they will work in the marketplace.

3. Still, nobody reports a formula that can deliver repeated commercial success with enhanced ebooks. We all know about a few instances that have worked, but, so far, no publisher has come up with a formula to make enhanced ebooks commercially sound propositions.

We introduced Ron Martinez’s “Aerbook Maker”, a cloud-based technology that makes it easy to build complex ebooks and apps and cuts the cost of doing so dramatically. Martinez’s technology will definitely reduce the cost of experimentation and allow a lot more titles to hit the marketplace. Maybe that can jump-start a business both by making the costs go down and by making it easier for the creative people, including the author, to engage with the technology.

There certainly isn’t a business yet.

4. Publishers still haven’t focused on creating rights databases (which I identified as the biggest problem of the decade over a year ago.) This is a knotty problem for publishers. Sales of books are, in general, flat or down. Sales of rights, particularly in small bits and pieces (chunks), are going up. But without rights databases, the cost of those transactions can often eat the all revenue.

Exactly what to do is an extremely complex problem for any house to tackle and requires some high-level consideration, planning, and resource allocation. But I think it is obvious that the correction must begin with properly databasing the rights in current contracts as they are signed. Even this is apparently not happening yet in most places, according to the “support” industry that would help publishers change this.

Meanwhile, the “in” baskets in the permissions departments will continue to be piled higher and the number of unattended=to opportunities that might have been really remunerative or helped with the marketing of the book will be a subject to be considered at some future time.

(I recall now that my wife, Martha Moran, increased sales by some huge multiple in the 15 months she was doing special sales for Crown in the late 1970s. Her singular innovation was to create a set of form letters that allowed her to answer every request within a couple of days. The impact was immediate. It might well be the same when some publisher creates such a policy for its Rights and Permissions requests.)

5. The problems that distributors are facing with ebooks in the public library market are being duplicated in the K-12 library market. People in that space tell us that they suffer from the same concerns on the part of publishers that keep some players out of the public library market. Is there any way to offer ebooks in school libraries that won’t cannibalize sales of multiple copies in school settings? That’s as much a conundrum as the public library one, but it gets a lot less attention from the public or the publishers.

6. The slowdown in ebook share growth got a bit of conversation. Did I believe it was real? Sure, it is. And it is probably a very natural state of things. Before ebook reader prices plummeted, which they have really done in the past year or two, the readers only made real economic sense to people who read a lot of books. The first mover advantage Amazon gained with Kindle (which was the first device that was easy to load and also hooked up to a lot of titles) was huge because they self-selected the heaviest readers with their pricing. I’ve never seen figures that would prove it, but I’ll bet Nook also has found that ebooks sold per new device is declining from what they saw at first.

Another reason for this, besides the bias of heavy readers to be early adopters, is that so many devices being sold now are replacements. There is a tendency to “load up” on a new device. That’s not necessary on a replacement, particularly a replacement within the same retail ecosystem. So device sales have lost their power as a leading indicator of ebook share growth.

7. The most stimulating and exciting conversation I had at BEA was with Marcello Vena, the director of digital business at RCS Libri, a large book publishing group that owns Rizzoli and Fabbri Editori. RCS Libri is part of RCS Mediagroup, one of the largest EU media holding companies. They own a lot of media businesses including newspapers, magazines, radio, and online advertising.

RCS Libri is doing a large number of innovative things with ebooks, both illustrated and straight text. They’ve done an illustrated ebook on museums that has been a huge success in Italy and will be delivered in English by Rizzoli. They’re starting two new vertical imprints dedicated to genre series in Italian: Rizzoli Max for thrillers from Rizzoli and Fabbri Editori Life for romance novels from Fabbri Editori. All titles will be issued simulaneously as inexpensive hardcovers and ebooks starting this week. The initial list of the thriller series includes a book by my favorite self-published author, John Locke.

RCS is thinking globally and also innovating locally, including in the way they manage promotional pricing of their digital products online. Of course, what’s stimulating for me will probably be stimulating for an audience as well, so I’ve booked Marcello Vena to speak at the Publishers Launch Conference in Frankfurt on October 8.

I turned 65 during BEA. People older than I am are getting harder to find at industry events. But I really enjoyed seeing two of them at BEA.

Martin Levin is in his 90s. He went to law school after he retired from his publishing career, which concluded after he was chairman of Times Mirror Publishing, which then owned Abrams and New American Library. For the past two decades he has done M&A with the law firm Cowan, Liebowitz, and Latman. Martin greeted me with a big smile saying how happy he was that my career has gone so well. But he pointed out, accurately, “you’re not nearly as smart as your father.” Then he recalled some of Dad’s accomplishments, including putting in a vendor-managed inventory program at Doubleday in the 1950s.

Joe Friedman was a new sales rep at Doubleday when that program was instituted. He went on to a career leading sales at Penguin and then working for the ABA. He’s 76 now and hasn’t been in the business for a decade or more. He came in to Manhattan from Long Island on two separate days just “to see if anybody remembers” who he is. I was glad to see him. I wish I’d gotten his email address. I hope he found a few others with whom to discuss old times.