The Shatzkin Files


Business models are changing; trial and error will ensue


The announcement late last week that Random House is starting three digital-first imprints was just the most recent example showing that publishers are exploring new business models. Just days earlier we got news of the partnership between Simon & Schuster and Author Solutions making S&S the third major publisher — preceded by Christian publishing titan Thomas Nelson and dominant romance publisher Harlequin — to put their name to an offering in the “author services” sector.

One might say that S&S is the first of the Big Six to take such a big step in this direction, except that Pearson, Penguin’s parent company, actually bought Author Solutions a couple of months ago and HarperCollins bought Thomas Nelson last year. So, in fact, three of the Big Six are now involved with author services and it is four out of six if you remember the other recent big news, that Penguin and Random House are merging. (And that’s not counting more modest initiatives like HarperCollins’s “Authonomy” or Penguin’s “Book Country”.)

I remember being on a panel in Canada a few years ago with Carolyn Pittis, the very smart digital pioneer from HarperCollins, who referred to the way most publishers did business — buying the right to exploit copyrights and then monetizing them — as one possible business model for a publisher’s organization. She explicitly mentioned “author services” as another one. That was before her company had launched Authonomy, a couple of years before “Book Country”. In other words, big publishers have been thinking for a while about “author-pays” models (just as the professional publishers have).

This really all follows the lead of Amazon, which has made a practice for years of selling a la carte every component of its own value chain. I was just reading an ebook called “The Amazon Economy” published by The Financial Times (an example of a non-book publisher adjusting its own business model to include being a book publisher, about which more on another day) that suggested that Amazon actually makes more money making its infrastructure available to others than it does using it to sell stuff.

In other words, there is potentially profit in deconstructing one’s value chain and selling access to it in pieces.

In a sense, publishers have known this for a long time. They’ve made the part of their operation that handles things after the books exist: warehousing, distribution, credit and collection, and sales available to other publishers for years. Some publishers, like Random House, have built distribution into a significant business with its own management structure within the corporation. Perseus, which as a publisher is itself a roll-up of a number of smaller houses, has built a distribution service that has more than 300 clients. Ingram, whose core wholesaling operation combined with the Lightning subsidiary they built in the 1990s to provide print-on-demand and later digital services, has a comparable publisher distribution offering.

But what Author Solutions — and a host of less robust (and largely cheaper) competitors — has shown is that there is also very widespread demand for the services that precede the actual delivery of books ready for sale.

I have no way except inference to know how Nelson and Harlequin are doing with their author services offering powered by Author Solutions, but the fact that Penguin parent Pearson bought them and S&S has now done this deal certainly suggests that ASI has a good story to tell. Of course, they are market leaders because they make money, and they make money by having good margins. And the prices announced for the services for the Archway initiative — ASI’s project with S&S — are higher than those services could be purchased for elsewhere. That doesn’t mean they won’t sell lots of aspiring authors on using them.

This is all very logical, but also very tricky. Most publishers — at least until very recently — would have thought about the services they sold in a distribution bundle as “commodities”, widely available and highly comparable. It is true that any of the major publishers, many minor ones, and distributors even beyond Ingram and Perseus can deliver the core capabilities: active accounts with all the major retailers, the ability to transact with them and collect the money, and placement of the messages of availability throughout the supply chain. Obviously, they all strive to do these things better than the next guy and to justify charging a point or two more because they’re better at it.

But further up the value chain the publishers’ pride and belief in a qualitative difference between what they have and what the next guy has is much greater. Publishers generally believe in their editors and marketers more than they believe in their sales forces and warehouses. (Buddies of mine in sales 20 years ago used to say, with conscious irony, that there were two kinds of books: editorial successes and sales and marketing failures.) They see their time and bandwidth as precious. They are far more reluctant to make that time available for rent and, in fact, it would appear that all three of the big publisher deals with Author Solutions rely on ASI to provide those capabilities. They’re not coming from the publishers themselves.

All of this sidesteps another important component of successful publishing: the coordination of all these activities. Successful publishing is the result of a lot of very small decisions: in editing, in presentation (both the book itself and the metadata, like catalog copy and press releases, that support it), and, increasingly, in the SEO tags and signals about “placement” that are included in the book’s digital file or marketing metadata. In the digital age, these things can change over time. Every day’s news — about UN votes or Pentagon sex scandals or anything else — could call for a change in the metadata around a book published a month or a year ago to make it more likely to be shown by the search engine queries being placed today.

(The FT ebook on Amazon, which I recommend, makes it clear that Amazon also sells “coordination” on the retail side as an extremely important, and apparently much-appreciated, value-add.)

Indeed, whether to put more effort into a book or stop paying attention to it is — or should be — based on an analysis of sales and search trends, as well as more old-style measures like the reviews it is getting.

In the old pre-internet days, publishing books was like launching rockets. Most crashed to the earth, some went into orbit. But the publisher’s efforts — most of the time — were limited to the launch. Then the marketing team could move on. This was not a way of doing business that was appealing to authors, but it was consistent with the realities of the marketplace. The big book chains wouldn’t keep a title in stock if its sales appeal wasn’t evident at the cash register within 90 days. Without copies of a title in the stores, there was no point to the publisher pushing it.

That’s something that has changed dramatically in the digital age. With some titles and genres achieving half their sales through ebooks or online bookselling, there is no longer a time limit on marketing effectiveness. In what is a subject we will certainly explore at a future conference, this must be causing traffic jams in publishers’ marketing departments. They can no longer be counting on the older titles making way and clearing marketers’ schedules to work on newer ones.

Open Road is a digital-only publisher that works primarily, but not exclusively, with backlist. (Recently they seem also to be specializing in books brought in from offshore publishers and in helping illustrated book publishers break into ebooks.) What impressed me when I met with them a year ago was that they didn’t distinguish between “frontlist” and “backlist”. They marketed to the calendar and the events and holidays everybody was thinking about, not to the newness of their books. I believe this actually brought increased relevance to their marketing. Obviously, this was also making a virtue of necessity because they didn’t have a flow of “new” books to tout. But it also capitalized on the new situation: that the books don’t suddenly become largely unavailable because retailers throw them off the shelves.

A by-product of the extended sales life of books is that it makes it easier for publishers to cluster them for marketing purposes. Now four books on a similar topic can be pushed in unison, even if they were published months or even years apart. Open Road has made ample use of that reality.

These are challenges and opportunities that compel publishers to rethink the organization of their marketing departments and the deployment of their marketing resources. It is an opportunity for a publisher to extend its value to an author if it pushes an author’s book six months or a year later when a related title hits the marketplace or a news event makes an older book newly relevant. Since authors are increasingly able to do some useful things on their own behalf to capitalize on these opportunities, they will be increasingly impatient with publishers that quit on their books too soon..

There are things the author just can’t do. They can’t adjust the book’s metadata and add tags. They can’t push for or buy promotional screen placement from the retailers when somebody else’s new book makes them suddenly relevant again. Authors also don’t have the benefit of arriving at marketing best practices and rules of thumb by examining performance data across various groupings of titles: large title sets, categorized sets, comparable-selling sets, and others. They’re counting on the publishers to do that.

The publisher’s role in coordinating and managing a myriad of details has always been one of its principal value-adds and it can be even more so in the digital age. But only if they actually do it, and there’s precious little indication that they intend to do it for the titles they’re being paid for.

Jane Friedman (the blogger and expert advisor to writers, not the CEO of Open Road) points out that her alma mater, Writers Digest, and Hay House — the vertical publisher in mind-body-spirit that has done so well interacting with their reading audience — also did ASI deals. She points out that the big successes we all know about among self-published authors — John Locke, Joe Konrath, and Amanda Hocking being the headline names — didn’t go through ASI. Jane takes issue with the ASI promise to help publishers “monetize unpublished manuscripts”. It’s hard to dispute that publishers who are primarily in business to pay authors to publish them could be walking a fine line having a business model right alongside that charges authors for services that are unlikely to lead to them making money.

On the other hand, Random House has made an emphatic statement about the value legitimate publishers can bring with the success of “Fifty Shades of Gray”, originally a self-published story and now, very much thanks to the biggest publisher, the biggest commercial success of all time. No self-published book has come close and it will be a very long time before one does. I see their digital-first imprints (which they are not the first to launch, but seem to be the first promoting aggressively to the self-publishing diaspora) as a step toward a different business model that recognizes the new commercial realities of publishing. It enables lower-investment publishing — the authors in these digital-first imprints are unlikely to receive advances at levels commensurate with most Random House books — and perhaps they’ll get less editing attention too. Marketing is simplified by the fact that print isn’t involved and therefore retail stores aren’t either. So the threshold for profitability is much lower and, as we have learned, they can still decide to give any book in these new imprints the “full treatment” — print copies stacked up in stores — later on if they want to.

It is too early to judge whether the tie-up between publishing houses and author services offers will produce value on all sides. All these publishers now have or will have, at the very least, a stable of self-published authors that are contributing margin to them and in which they have a financial stake (even if they didn’t have to invest to get it). There is definitely inherent conflict between trying to make the most money one can from an author hiring publishing services and recruiting authors and books that will be commercially successful.

But publishers still know how to make books with commercial potential sell better than mere civilians do. Whether ASI and their partner publishers can find the formula that makes the promise inherent in a publisher’s brand productive for authors that hire services under it is a question that will be answered in the months to come.

Having more companies trying to figure it out certainly improves the odds that somebody will (and ASI has every interest in spreading best practices as they emerge). And more and more cheaper services for those aspects of self-publishing that really are commodities means that ASI and all its partners are going to have to demonstrate convincingly that they can add effective marketing to their offering mix if they’re going to be around ten years from now.

Michael Cader and I are doing our first Authors Launch show, in partnership with our friends at Digital Book World, on Friday, January 18, the day after the 2-day DBW 2013 will end. The question of where the line gets drawn between publisher efforts and author efforts is a major topic. We have a great roster of experts to serve as faculty: the aforementioned Jane Friedman, along with Porter Anderson, Jason Allen Ashlock, Dan Blank, ex-Random House marketer Pete McCarthy, co-authors Randy Susan Meyers and M.J. Rose, Meryl Moss, and David Wilk. Among the publishers speaking will be Matt Baldacci of Macmillan, Rachel Chou of Open Road, Rick Joyce of Perseus, and Matt Schwartz of Random House. This is a conference really intended for published authors rather than self-published, but it will teach skills and insights for any author willing to invest time and effort to sell their book.

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  • http://www.facebook.com/eric.riback Eric Riback

    Seems to me usurious to charge authors a significant fee (that does not even include copy editing) and then provide as compensation only a royalty similar to that which authors who benefit by actually being well published by the same firm would receive. I guess the old maxims of what the market will bear and buyer beware apply.

    • http://idealog.com/blog Mike Shatzkin

      Eric, I think it is “worse” than that because there is no real distribution being assured here, regardless of price.

      Mike

  • TW

    Re: these new digital-only imprints from Major Publishers, will they be able to compete when they are offering only 25% net royalties? What parts of their “disaggregated value chain” (tangible or not) are so much better than what is offered by Amazon, BN, Smashwords, Apple, etc., who are offering royalties of as much as 70%?

    • http://idealog.com/blog Mike Shatzkin

      I think it really depends on whether the publishers are able to provide marketing, which was really the point to the piece. That, and the advance, is how they justify paying 25% to the authors they sign. If there’s no marketing and you’re charging the author on the way in, no doubt the 25% is a lot harder to swallow.

      Mike

  • TW

    Re: Author Services – unlike Amazon, which has always been ‘selling’ something, the Major Publishers are turning 180 degrees from buying to selling something to authors when they get into Author Services, whether it’s their full value chain or disaggregated pieces. This is significant and non-linear, and worth more attention to what it does to publishers’ brand as well as business models and org structures.

    • http://idealog.com/blog Mike Shatzkin

      Looks like all the publishers are really trying to minimize this. They provide some limited branding, but ASI provides all the services and does all the work. It would be interesting to know more about how this has worked at Harlequin and Nelson, who have been at it for a while.

      Mike

  • http://www.facebook.com/LauraVanWormer Laura Van Wormer

    The question is, will publishers push these self-published books into the distribution chain with their own lists to sweeten the “packages” they are selling to individuals? In terms of eBooks at the moment, there are, at best, around 110,000 eBook editions of work originally issued by book publishers (Including titles previously published by book publishers which have been independently reissued by new players). At Amazon these 110,000 titles are drowning in 1,400,000 self-published titles. B & N’s got it going with what, 1,800,000 self published eBook titles? As a result the two make a tremendous amount of money shaking publishers down for special marketing dollars if they don’t wish to see their titles–particularly fiction–sink without a trace in the morass. We’ve only got the one major bookstore chain across the U.S. left, B & N, so what happens when it is Penguin calling, not iUniverse? Will Penguin combine discounts of self-published titles with their regular list? Can any individual with means use a major publisher to buy floor space across the country for his book?

    • http://idealog.com/blog Mike Shatzkin

      Laura, I don’t think the self-published books are getting a publisher push at all, and I don’t think any of those authors have sufficient access to the publishers’ sales departments to enable them to buy display space through them. I am not sure how the flood of self-published titles (not sure where your numbers come from) is affecting discovery of the conventionally-published lists. So far, if DBW’s ebook bestseller lists are any guide, most of the bestselling titles are still from major publishers at major publisher prices.

      Mike

      • http://twitter.com/DavidGaughran David Gaughran

        That’s a cooked list. Look at the Amazon bestseller lists. Regularly 25% self-published.

      • Malcolm Hume

        We don’t know how Amazon gets the numbers it gives us, either.

      • http://twitter.com/DavidGaughran David Gaughran

        The system behaves in logical, predictable ways. You can estimate someone’s sales with reasonable accuracy based on their sales rank. Just because Amazon doesn’t spell out the algorithms, it doesn’t mean they can’t be deduced.

      • http://idealog.com/blog Mike Shatzkin

        I think your feeling that you can correlate rank with sales volume is a belief you share with the folks at the Digital Book World community who compile bestseller lists across retailers. All they have to work with is ranks but they — working with data analyst (and Harper VP) Dan Lubart — figure they can translate rank to units with enough precision to compile a reasonable cross-retailer list.

        Mike

      • http://twitter.com/DavidGaughran David Gaughran

        Hi Mike, I typed out a long response yesterday, but it doesn’t seem to have posted.

        In short, I said that the problems isn’t necessarily translating rank to units with precision – when I said it was a cooked list, I meant it.

        The DBW peeps lay out their methodology here: http://www.digitalbookworld.com/2012/digital-book-world-e-book-best-seller-list-methodology/

        They openly state that they seek to reduce the impact of “one hit wonders”, introduce price bias into the charts (where the retailers have none), and openly discriminate against books that only appear on one bestseller list (you get extra “points” for appearing on several – over and above what raw sales would get you).

        Whether you like it or not, that makes this a cooked list. It also should be mentioned that all of these changes – by accident or design – serve to reduce the number of self-published work that appears (which often are exclusive to Amazon or break out exclusively there, or who are priced cheaper).

        In short, you can’t use the DBW list as any accurate barometer of how self-published books are doing. It’s a list to make traditional publishers feel better about themselves.

      • http://idealog.com/blog Mike Shatzkin

        In a world where there are no pure numbers to report at all by anybody for bestseller lists, a clear and declared methodology that includes guesswork and intepretation is the best available option. Since Amazon now is estimated to account for around 60 percent of ebook sales, there is some logic to “penalizing” a book for not being available to 40 percent of the market. Whether it is the “right” formula for doing that or not is open to debate, but at least the methodology is spelled out to enable the debate.
        Mike

      • http://twitter.com/DavidGaughran David Gaughran

        If you penalize a book for not being available in certain retailers, then it’s no longer a “bestseller” list and becomes some kind of “consistent seller across all platforms” list. Which is not the same thing. Same goes for weighting by price.

      • http://idealog.com/blog Mike Shatzkin

        Right. Except there’s no way to actually know how many units something is selling through ranks anyway. So it always contains an element of a guess. And if it isn’t available to 40% of the consumers, you’re not crazy to count that for something in your approximation calculation.

        Mike

      • http://twitter.com/PeterTurner Peter Turner

        I would add that the discovery issue caused by the flood of self-pub’d (original), out-of-copyright, and auto-generated eContent is more strongly effecting backlist than front list. By the by, there are 33MM ISBNs active and no measure of titles withou ISBNs.

      • http://idealog.com/blog Mike Shatzkin

        That is truly an impressive — and frightening — number.

        Mike

    • http://twitter.com/DavidGaughran David Gaughran

      “At Amazon these 110,000 titles are drowning in 1,400,000 self-published titles. B & N’s got it going with what, 1,800,000 self published eBook titles?”

      Laura, where did you get these numbers? I can see 1,609,962 e-books in the Kindle Store – including free books – with no breakdown of self-published versus traditionally published. Indeed, my estimates would be way off yours. What are you basing this on?

  • http://twitter.com/DavidGaughran David Gaughran

    Mike,

    I find it hard to believe that you don’t make one mention of the angry reaction from authors regarding Simon & Schuster’s link-up with Author Solutions. Did you miss it, or is it just not that important?

    In case it’s the former, Porter Anderson covered it here: http://janefriedman.com/2012/11/29/writing-on-the-ether-66/

    “It is too early to judge whether the tie-up between publishing houses and author services offers will produce value on all sides.”

    Let me stick a neck out and make a prediction: Simon & Schuster’s move will enable Author Solutions to exploit even more unsuspecting writers (150,000 and counting).

    Dave

    • http://idealog.com/blog Mike Shatzkin

      Well, actually, I think you answered your own question in your comment.
      No, I don’t think it is important because yes, I think ASI will be able to continue selling their services very effectively. From their perspective, it doesn’t matter how many authors complain and rail. What matters is how many pay. And I don’t think the former is having much impact on the latter.
      And I don’t think that proves they’ve created value. It proves they’ve created a salable proposition.

      Mike

      • http://twitter.com/DavidGaughran David Gaughran

        I think you are taking a very narrow view here. You don’t think it’s important that the entire writing community is up in arms about this deal? You don’t think it’s important that organizations like Writer Beware are slating Author Solutions (and Simon & Schuster and Penguin by proxy)?

        You know what, Mike? Part of the reason ASI might be able to “continue selling their services very effectively” is because they have been legitimized by the Penguin purchase and the Simon & Schuster deal. Writers know this. They know more will be duped because of this and they are shocked that Penguin and Simon & Schuster are getting involved with a company with such an awful history like ASI.

        You talk a lot about the value chain above (which is somewhat ironic given that your piece shows how little publishers value the opinions and welfare of authors). The fact is that the only essential components of the new value chain are writers and readers. That’s all that’s *needed* – and all the old middlemen have to prove to authors that they are still worth a slice of the action. IMO, the only people doing that effectively right now are retailers. Amazon are easily worth 30% of my action. A publisher (or literary agent or distributor) less so.

        While I’m here, this is untrue:

        “There are things the author just can’t do…”

        I can adjust metadata and add tags. I can also buy promotional screen placement from Amazon, but I have zero interest in doing it because the ROI is awful – I’ll let publishers torch their money instead. And I would also argue that self-publishers’ best practices in terms of marketing is quite a bit ahead of traditional publishers. You’re forgetting that we continually share data and are a lot more progressive in terms of experimenting. For example, we saw the value of free way before traditional publishers, and realized the benefits of pricing cheaply in a developing market (something UK publishers learned quicker than their US counterparts). While the publishers have been catching up to that, we’ve been on the next thing: decoding the Amazon algorithms.

        There are plenty of things the publisher just can’t do. But the list of things the publisher *won’t* do – for anything but a small handful of books – is even longer again.

  • http://www.facebook.com/profile.php?id=100004628737284 John Andrews

    These services could be serious competition for the vanity publishing industry.

    • http://idealog.com/blog Mike Shatzkin

      These services *are* the vanity publishing industry! c 2012.

      Mike

  • http://www.facebook.com/profile.php?id=100004628737284 John Andrews

    As a consumer ‘Faber and Faber’ still means ‘high quality’ to me – and I cannot see Author Services ASI ever having this cachet, so a Walmart of publishing (ie an Amazon) will do better.

  • cle001

    But, ASI?

    For decades folks have been shouting WARNING! WARNING! WARNING!

    Can they be serious?

    • http://idealog.com/blog Mike Shatzkin

      People may have been shouting, but ASI has been growing.

      Mike

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