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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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I hope it is a mistaken impression — it certainly isn’t scientifically arrived at — but I have the feeling that there is widespread sentiment among self-published writers opposing publishers’ attempts through the agency model to keep ebook prices up. I have said before that I think agency pricing has, in many ways, saved the ebook business from monopoly control by its strongest retailer. Today I want to posit another virtue of the model: that it boosts the revenue of all writers, whether they are published by an agency publisher or working entirely on their own.

When some workers are in a union and others who can do a similar job are not, bad feelings can arise. The union workers fight to keep wages and benefits up and they use the power of the union to express a workers’ point of view about conditions on the job. And they see workers who are willing to do the same job for less as “scabs”. Inherent in that view is the belief that agreeing to work for less undermines the objectives of the union (which the union workers pay for through dues, of course) and the opinions people hold readily take on the coloration of moral positions, not just commercially-motivated ones.

From the point of view of the non-union worker, of course, a job is a job and a wage is a wage. Union membership might not be open to them anyway, for any number of reasons, and, even if it were, the cost-benefit relationship between the union dues and the wages and working conditions might not look like an attractive bargain. For example, union benefits that deliver advantages through seniority might not be much of an attraction to somebody who doesn’t expect to stay in the job or the area for a long time.

Another aspect of this is that the unions’ ability to bargain for workers raises the costs of production for management which raises prices for everybody. The unionized workers, benefiting directly from the higher costs, may either not notice that point or not care. The workers outside the union, unemployed or less gainfully employed, might well care.

Unionized workers and union officials would argue, and I would generally agree, that the benefits the union achieves for its workers actually pull up the wages and working conditions for all workers. It might literally be more “democratic” for employers to be free to hire non-union labor and for workers to be free to take non-union jobs, but that doesn’t mean that it isn’t in the vested interest of all the workers for the unions to be pushing to improve wages and working conditions in those situations they can influence.

An analogous situation is now developing among writers of books, thanks to the democratization of access for authors created by the ebook revolution.

I think of the agented authors, published by the Big Six and other major publishers, as the unionized workers. Their union management is the agent community. The structure is different that it is for auto workers in a factory or miners in a pit, but the effect is very similar. Agents control the access that major publishers have to the labor they want: the writers who can deliver the books they can most readily sell. With that control comes the ability to drive up prices and improve working conditions.

The prices — which we call advances against royalties — that publishers have to pay for agented writers is part of the industrial cost structure of publishing. And the prices that publishers are charging consumers for ebooks through the agency model are necessary to maintain revenue levels that will support the industry as it has developed over the past century.

Agented writers pay “union dues”: 15% commission to the agents. And, like a union, the opportunity to get the privilege of paying those dues is limited, not democratically distributed. But those writers get the benefits of an environment negotiated between powerful industrial capability (the publishers) and controllers of a critical labor source.

This explains a longstanding anomaly in publishing, by which the big publishers have not only been the ones paying the big advances but have also generally paid higher royalties as a percentage of the sale price than smaller ones. Smaller publishers seldom pay 15% of retail royalties, as big publishers routinely do. They’ll often ask for (and get) 50% of foreign rights revenue, which big publishers very seldom do. So the players with the leverage and the checkbooks pay more than the players without it. That shows the power of controlling the labor supply, which agents do, coupled with professional negotiating skills, which agents have.

Of course, book consumers aren’t buying a “union label”; they’re buying an author’s name, perhaps sometimes undergirded by a known publisher’s branding, or the subject or the pass-along affects of branding (reviews and notices in credible places), or the recommendation of a friend (who bought the author’s name or subject or the endorsement.)

Thanks to agency, the most obvious way to for a consumer to distinguish between the “union” books and the “non-union” books is by price. The major publishers are (generally) maintaining prices of $9.99 to $14.99 for ebooks available in print as hardcovers for two or three times that amount and then, usually, at $7.99 and up when the printed book is in paperback. The non-union books — the self-published books by authors who (again, generally) couldn’t get into the “union” — are most often available for $2.99 or less, often for as little as $0.99.

This price differential, along with it being obvious to the purchaser that the unit cost of what the consumer receives when an ebook is purchased must have been trivial, has led to pretty widespread excoriation of the pricing levels of agency books.* This should not be confused with any apparent reluctance on the consumers’ part to buy them; the biggest books in print appear to also be the biggest ebook sellers, despite the fact that the print versions have far fewer direct competitors overall and none at the great price differentials that exist for ebooks.

That those consumers who are price-consciopus see it as a matter worth protesting that their favorite author’s book is $12.99 or $14.99 when there are many books available that are superficially comparable (same genre, same length) at a fifth or a tenth of that price, is not surprising. When you meet the consumer that says “I want to pay more”, you’ll have met a breed considerably rarer than the rich person who comes out for higher taxes. (Thank you, Warren Buffett.)

But I want to argue here that all authors, including those who self-publish for $0.99 or $2.99, should be applauding the big publishers’ efforts to keep the perception of value for branded books high by keeping prices high and stopping retailer discounting. Authors should be vocally supporting price maintenance and the agency model, even if they are not “in the union”. There are several reasons for this.

1. Although the standard big publisher split of ebook revenues (75-25 in favor of the publisher) allows a self-published author to gain comparable or even greater revenue at a lower price, those are just today’s transient conditions. It will be easier for authors (through agents) in the future to improve the split than it would be for the publishers to raise prices in the future to get authors more money. If the consumer is putting more money in the pot, then there’s more to divide. The division is something to fight over; keeping prices and value perception high benefits both sides.

2. If big publishers were to sharply reduce their ebook prices, print would die much faster. That would further reduce revenues in the pool for publishers and authors as well as accelerating the disappearance of bookstores, eliminating free visibility and marketing responsible for millions of book sales.

3. If big publishers reduced their prices sharply, the key marketing distinction that fostered the discovery of such writers as Amanda Hocking and John Locke would be eliminated. On the comment stream of a blogpost I read on this subject (can’t find it so can’t link it), one person posted a string of suggestions for major publisher survival strategies that included “cut all your prices to $2.99.” Why? Because it would eliminate all the competition from the self-published riff-raff that is using price as a marketing tool. So not only would the publishers and branded authors make less money, the aspirants would find their path to success cut off as well.

(This suggestion actually makes the point that self-publishers who scream  ”big publishers are stupid and they should cut their prices like us” should be very careful what they wish for.)

A cost-driven print book commercial model has created a legacy business which has made consumers willing to pay $25-30 for what is for many an 8-10 hour immersive reading experience. Millions of readers conditioned this way find paying around half that price to be a great bargain. The entire mechanism by which those printed books have been selected and delivered — the aggregation and curation of the major publishers’ offerings — is depended upon by the consumers who spend all that money.

No doubt, over time this will change. The print book infrastructure, which has inventory and supply chain costs that are responsible for the pricing conventions that have developed, will not last forever. Almost certainly, books will get cheaper and cheaper. But writers will also make less money when there is less to divide, not more. All writers, whether they’re among the fortunate ones that have a publisher pushing them or whether they’re trying to do it themselves, should be grateful that publishers are doing their damnedest to maintain prices and the perception of value for writers’ work. If that segment of consumers that complains about prices finds fault with agency pricing and the publishers’ insistence that the digital discount from the highest print price be limited to about 50% at the moment, that’s understandable.

But if writers join in that bashing, I think that’s a failure of understanding and, in effect, opposition to their own self-interest.

* It would be misleading not to mention that much of the “consumer” opposition to agency-priced books has been egged on by the self-interested. That’s one way it is in the (short-term) interest of the self-published author to be vocal in opposition to agency. If you sell that as a point of “principle” to a reader, you’ve steered them away from your competition.

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OK, now we know another new paradigm for book publishing in the digital age with the announcement of self-publishing author John Locke’s new deal for print distribution with Simon & Schuster.

The big publishers have said for a while now that they won’t be signing up books for print rights only. That makes sense, up to a point.

It is logical that with print declining and digital sales rising, publishers don’t want to be investing in an author only to control the getting-smaller part of the sales. We’re in this moment when print sales are still vitally important but less so every day. Ebooks don’t require the same organizational scale as distributed print, so authors legitimately feel that they can get the substantial part of that sale without giving up the 75% of the ebook royalties big publishers demand as the price to gain access to the print distribution capability that makes real use of big publisher scale.

But there are limits to the publishers’ logic to walk away from print-only deals. Publishers also have the challenge of feeding the big organization they’ve built to deliver print to its shrinking marketplace. It is hard to ignore sales volume you need to support expensive operations.

The first crack in the wall of “we don’t do print-only” was Houghton Harcourt’s deal with Amazon to publish the print edition of some titles originated by Amazon imprints. Houghton made the point that although it might look like what they were doing was a print-only deal, it really broke no precedents. They pointed out, accurately, that when a publisher acquires paperback rights to a book another house did in hardcover (the most common sort of licensing deal 30 or 40 years ago but not so common now), the ebook rights would stay with the originating publisher. That, they said, was all that was happening in this case.

As a fan of Locke’s Donovan Creed books (I just finished reading another one yesterday!), I had already done some analysis and written that I thought he was leaving a lot of money on the table working exclusively on the ebook side. (I ignored a deal he had with “Telemachus Press” to do print of his books because I figured they’d hardly sell any; the deal announced today would tend to confirm that assumption.)

Although the details of the Locke deal with Simon & Schuster haven’t been revealed, it is characterized as a distribution deal. Strictly speaking, that would make Locke himself the publisher and the party responsible for the cost of inventory. S&S would warehouse that inventory and handle all the mechanics of distribution, including billing and collecting. Then they would remit the larger portion — probably more than 70% and less than 80% — of the revenue they receive to Locke.

How profitable Locke’s print sales will be for him depend on his costs for print (which are in turn a function of how well he and Simon & Schuster match what is printed and distributed to the demand for his books), the retail price he sets, and, of course, the numbers he can sell.

There is another way Locke will profit. The increased awareness of his books that he’ll gain by having them in stores should generate more ebook sales and he presumably doesn’t share those with his print distributor.

There have been a number of signs this year that the publishing world is changing dramatically.

In March we had Barry Eisler, who had sold many books through conventional deals with major publishers, decline a six-figure deal with a major house. At first, Eisler was going to self-publish, but then he decided to take a (presumably) six-figure deal to be published by Amazon instead.

Amanda Hocking, who had started (like Locke) as a startlingly successful self-publishing author, accepted a deal with a major house to continue her career, pretty much the opposite of Eisler’s originally-intended path (although closer to what he actually did in the end).

Then J.K. Rowling, the author of the Harry Potter series, announced she was creating her own online destination, Pottermore, to deliver ebooks. Rowling is apparently not just disintermediating her publisher from her ebook sales; she’s leaving out many of the online retail channels as well.

Last week we had the news that superstar non-fiction author Tim Ferriss became the first truly marquee signing for Amazon’s own publishing efforts.

And now we have Locke entirely self-publishing, but working through a major house to get his printed material into the supply chain.

When we discussed Eisler’s original decision, we talked about the fact that self-publishing left the substantial revenues from print untapped. The Hocking and Ferriss deals are similar, even though hers is with a traditional publisher and his is with Amazon. They are both pursuing what they think will be the most lucrative alternative for them, choosing from among options by which they get paid and somebody else does all the non-writing parts of the work.

Rowling’s initiative and Locke’s are both real self-publishing plays. I am skeptical that Pottermore is worth tracking as a commercial example by any but a small handful of wildly successful authors. It’s an anomaly in many ways. Harry Potter to publishing in the past decade is like the Beatles to music in the 1960s; nothing else comes close to its level of commercial success. What Rowling is doing might work just fine (although I have my doubts that it will reach more readers than if she used more conventional means, she might make more money and she might build a platform for other opportunities), but that doesn’t mean it would work for anybody else.

Locke might be an outlier as well. Nobody else except perhaps Hocking has achieved his level of self-publishing success. And, unlike Hocking, who is a writer who just wants to be a writer and is delighted to have a publisher take over her business responsibilities, Locke is an experienced businessperson who seems to prefer managing his own commercial affairs.

In the Locke deal, though, we can see the outlines of future arrangements by which publishers can reconfigure their dealmaking to adjust to changing times. It isn’t just agents who are changing their business models or offering new services to accommodate the reality of self-publishing fostered by the growing ebook market share (and Locke’s agent, Jane Dystel, is one that has announced that her office is doing just that), publishers will adjust as well.

The model of “self-publishing through a major house ” can be a workable one for all sides if it is restricted to authors whose commercial appeal has already been established. Since all the major houses have distribution deal models, it might not be long before there’s a person at each one assigned to making sure that authors and agents are as well taken care of as “clients” as they were in the past working through their editors.

These deals will morph. For example, does Locke really have to pay the printer, or will S&S cover him on that and just take the costs out of proceeds? If S&S were doing a deal like this for books that hadn’t already been published digitally, would they be able to extract a modest share of ebook sales as compensation for doing the ebook setup? And deals like this could evolve to also include some other costs — like copy-editing or cover creation – being fronted by the publisher, or I guess I should say “the distributor”.

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News of the 7-figure Tim Ferriss deal with Amazon that hit the news this (Wednesday) morning must have leaked out to the press yesterday (Tuesday) because I got a call from a reporter asking for comment on Amazon’s “big new hardcover” book deal. The question confused me yesterday, but seeing the announcement about Ferriss today featuring the hardcover makes it clear what the trigger was for that call.

I’d call this deal both an outlier and a harbinger.

It’s an outlier because Ferriss clearly did it for reasons that weren’t strictly financial. According to The New York Times and Publishers Lunch, Ferriss called Amazon seeking the deal. Ferriss decided he’d rather be with a technology company than a publishing company. Ferriss is excited by the unenumerated opportunities he sees having a publisher that has direct relationships with the ultimate consumers.

To analyze the competition between the big publishers and Amazon, I think we need to think about four components of the deal and the publication.

The first thing on many authors minds is the advance against royalties they can get for signing a contract. This deal is reported as 7-figures. We know that Amazon has deeper pockets than any publisher. So they can compete with advances. Since Crown (a division of Random House) had reportedly paid 7-figures for Ferriss’ last book in 2008, perhaps Amazon offered only a sensible competitive number here. But publishers, all too aware that Amazon competed in the ebook marketplace by selling big titles at a loss, have to be concerned that they might be willing to sign some big authors at a loss as well.

The other components to think about are the main channels of sale for the book. I will stipulate in advance that this is a bit over-simplified but I think simplification here promotes understanding (and unncecessarily complicating things would obscure it).

Ferriss is a non-fiction author. For big non-fiction books today, the largest sales channel is usually print sold in stores. Generalizations are dangerous (and generally wrong), but it would be reasonable to think that Ferriss sells 50% of his books that way. If so, that’s a problem for him with Amazon because store sales of print will be the hardest for Amazon to get. Barnes & Noble recently made clear that they would only consider stocking an Amazon-originated title if they could sell the ebook (Nook) edition as well as the print. Amazon hasn’t stated a policy on that, but, to my knowledge, all the publishing deals they’ve made have required ebook exclusivity for the Kindle.

At our on-stage conversation at the Publishers Launch BEA show, Barry Eisler — who had just done his own book deal with Amazon for a substantial advance — admitted that Kindle exclusivity was the one part of the deal he wasn’t crazy about. More on what that means to ebook sales further down in this post, but it would appear that ebook exclusivity is blocking print store sales at the largest possible outlet. Unless Amazon has some distribution cards up its sleeve that we haven’t seen yet, the loss of brick store print sales (and exposure) would appear to be the biggest negative for Ferriss in doing this deal.

It is likely that Amazon expects to sell a lot of those hardcover books through the next channel to consider, print books sold online. In this case, Amazon has a very high percentage of the total market, perhaps in the 80-to-90 percent range. Given their ability to give a book of theirs exposure and perhaps even using that direct customer knowledge that Ferriss seems so intrigued by, it isn’t unreasonable to think that they can sell more than their fair share of those books. It’s also seems likely (generalizing again) that 25% of Ferriss’s publisher-generated revenue could come from print sold online. Maybe Amazon is paying him a higher royalty than the standard on that as well.

Of course, the main commercial reason for both sides to do this deal is for sales of the ebook, the Kindle edition. On the one hand, Kindle sales are said by publishers I’ve spoken with to have fallen from 90% to 50-60% of the total ebook sale. (Barnes & Noble’s Nook is credited with the lion’s share of the rest.) But the publishers don’t know how much of Kindle’s sale (or Nook’s sale or Kobo’s sale) is consumed on the proprietary device. If I read on a Nook and Kindle has an exclusive on a book, I’m stuck. But if I read Nook books on my iPhone or iPad and Kindle has an exclusive on a book, I can just switch over for that one book without a problem.

That means that some big part of the 40-50% of the ebook market that isn’t Kindle is accessible through the Kindle reader on an iOS or Android device. It’s a guess, but I think a reasonable one (maybe even a very conservative one) to say that 35% of Kindle reading is done on non-Kindle devices. Adding those people in would suggest that the Kindle store has meaningful access to anywhere from 67% to 75% of the total ebook marketplace.

And we’d assume that Ferriss is getting a 70% royalty from Amazon on those sales, four times what he’d get if a publisher gave him 25% of the ebook royalty (because they’d be dividing the same 70%.)

My bottom line on this is that Ferriss would get a sliver of what would be half the business (print in stores). He could well get as little as 10 percent of that potential (or 5% instead of 50% of what would have been his total publisher revenue.) Depending on the royalty structure, he’ll get at least as much and perhaps a bit more on the online revenue piece, so let’s call it 30% instead of what would have been 25% of his total publisher revenue. So on those two pieces, he’d be getting 35% of the former total whole, rather than 75%, or a bit less than half.

But on the ebook side, he’ll get about 4 times the royalty on about 70% of the sales, or 2.8 times as much revenue as he would have gotten from a publisher. If that had been 25% of revenue of the former “whole”, it would be 70% of the former whole now. Added to the 35% he’s getting from what would have been the other 75%, that back-of-the-envelope set of guesses delivers him 105% of what he would have gotten from a publisher, even giving up almost all the print store sales.

And, of course, he has high expectations for what he and Amazon can do together with all that customer knowledge. If he’s right about that, he could do considerably better.

This is sobering math for the big publishers. The numbers would look better for Amazon if we were generalizing about fiction, where the percentage sold as ebooks is somewhat higher. But, more important, the segment of the business where Amazon is disadvantaged — print in stores — is shrinking inexorably as a total of the whole. When we run this same exercise a year from now, the percentage assumptions we’ll be making will be lower for that component and higher for the other two.

So it’s clear why the deal is both an outlier and a harbinger. Giving up the store sale is a difficult thing for any author to do, particularly when the math works out to be so close to breakeven (and we haven’t factored in the marketing impact of books in stores, which is real.) It took an author with a particular personal bent to pursue that choice. But it is a harbinger because the math would appear to be moving in Amazon’s direction. The one way I can see for publishers to improve their chances of looking good in this calculation is to raise their ebook royalty percentage. Of course, there’s no reason that Amazon couldn’t do the same thing.

If you’re going to Frankfurt, you must consider attending one of our Publishers Launch Conferences events there. On Monday, October 10, we’ll present “eBooks Around the World”, which will include lots of original data, talks from every major global ebook retailer, the scoop on the growing importance of collective licensing, documentation of the benefits that a medium-sized publisher got from a digital workflow, an instructive presentation connecting metadata quality and sales results, and (as they say) much, much more.

On Tuesday, October 11, we’ll deliver a half-day event called “Children’s Publishing Goes Digital”, chaired by Lorraine Shanley of Market Partners, which will explore creation, marketing, rights, brand new product types and brand new players in what might be the fastest-changing part of our business.

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Anybody who doesn’t find the publishing business interesting in its time of digital change is simply not paying close enough attention. No matter what story we’re focused on, scratch the surface (or scratch your head) and you find you are pondering something else. This was a week for the press to be asking me (and many others) about the lawsuit against Apple and the publishers surrounding the implementation of agency. I have little expertise to comment on the suit’s legal merits, but a week of thinking about agency has made me (and others) realize implications that hadn’t been evident to us previously.

As I was reviewing my last blog post before publishing it, I had the new thought (referred to in a brief postscript) that Amazon was actually doing the Big Six publishers a favor by denying agency terms to everybody else. Since big authors have a common interest with big publishers in maintaining retail prices for ebooks that don’t undercut print and which deliver a per-copy revenue flow comparable to print, there is reason for a big author to prefer a publisher that has the power to maintain the ebook price across the retail network. Full-fledged agency publishers have that capability; the others do not.

A moment of explanation might be required for any readers who might be lost in the details of the agency, wholesale, and hybrid models of ebook-selling. Agency is the term for “the publisher actually sells the ebooks to the consumer, not the retailer; the retailer gets a cut but cannot change the price from what the publisher has set.” Wholesale is the term for “the publisher sells the ebooks to the retailer, based on the notional retail price set by the publisher; the retailer can then set the consumer price keeping all, part, none, or less than none — selling as a loss-leader — of the margin that the publisher’s discount provided.” And hybrid is the term for “the publisher has to agree to giving Apple a fixed percentage of the selling price; Amazon insists on a wholesale arrangement by which they set the price; therefore, Apple’s standard arrangement by which it can lower prices (and the publisher’s share) to match any other retailer on the web makes the publisher vulnerable to having its revenue from Apple readjusted downwards based on discounts offered by somebody else.”

The short story is that only under a total agency model does the publisher control price. In any other case, the price is effectively controlled by the retailer willing to offer the lowest price. That would be the retailer willing to live with the least margin and, as was amply demonstrated by the discounting that took place before agency came to publishing, that might be a negative margin. Retailers in the US (although not in all countries) can sell below cost if they think it is to their advantage to do so.

All the actors are rational here. Amazon extends agency terms to the Big Six publishers because, after the Macmillan dust-up of January 2010, Amazon has been persuaded that they could lose the ebooks of those publishers from their shop if they don’t. Losing the ebooks from one of the major houses would damage what has been one of Amazon’s main strategic advantages since the Kindle was launched: the widest selection of commercially-attractive ebooks in the marketplace. They take the gamble, which appears to be a winner, that publishers smaller than the Big Six will not want to withhold product from the world’s biggest ebook retailer, the one that still accounts for substantially more than 50% of the ebook sales for many titles.

And, in some cases, publishers have avoided the discomfort of the hybrid model — which requires them to commit to Apple that Apple will have the lowest price on the Web when they can’t actually control everybody else’s price  – by not selling to the iBookstore because Apple won’t buy on wholesale terms. So Amazon yields where they think they must (to the Big Six) and continues to enjoy the advantages of price control with the rest, while at the same time discouraging some publishers from making their titles available through a competitor. This all makes sense to me as I understand their point of view.

What I noticed while writing the last piece is that there is an unintended consequence here for Amazon way upstream from the ebooks sale: the policy is strengthening the Big Six’s already powerful grip on the biggest titles from the biggest authors. Amazon wants to compete for those authors and can offer a better royalty on Amazon sales to entice them (when Amazon pays 70% to the author, the author keeps it all; when they pay 70% to the publisher, the author does not get it all, even if s/he succeeds in negotiating something better than the industry standard of a 25% ebook royalty share.) But Amazon reportedly wants ebook exclusivity, which cuts out a big chunk of the ebook market, and they are seriously handicapped getting a print sale through brick retailers.

(If you want a more thorough explanation of the way ebook revenues get split up, I wrote in detail about ebook royalties under the agency and wholesale models here and here.)

Because print sales in stores still matter (and for as long as they do) there is a risk and a sacrifice for any author giving exclusivity to Amazon, although there are also clearly compensating considerations as well.

At about the same time I was noticing this, my friend Eoin Purcell in Ireland was noticing something else. Apple’s new policy on apps, by which you can’t sell through an app without giving Apple its standard 30% cut, also offers up a sparkling new opportunity to agency publishers that would be accessible only at some risk to any but the Big Six.

The immediate consequence of Apple enforcing this policy of theirs was to drive the direct-to-our-store connection from the Kindle, Nook, Kobo, and Google apps. Because those retailers only get 30% margin from the publishers, they can’t afford to give 30% to Apple for the privilege of in-app selling.

But publishers don’t have that margin problem. They already pay 30% for their sales, and if they put their own apps up with sales enabled through them, they’d only be paying what they already are to a retailer for the privilege. So apps for authors or genres or series of any kind could be offered as free downloads through the App Store with direct-purchase buttons inside. These could send you to the iBookstore, if the right kind of landing environment could be created, or to the publisher’s own landing page where sales commissionable to Apple could be made.

Of course, the same thing could be done as a Nook app in the B&N ecosystem, and it would be smart for the publisher to offer one, as well as a web app that constituted an Amazon version (which wouldn’t be offered through the Apple App Store but would have to get to you another way), to keep relative peace among its customers. But a publisher can only do this if it is sure its prices won’t be undercut, which would force a further margin reduction under Apple’s rules.

Like Eoin, I have no idea whether any of the Big Six publishers are working on this idea or whether any of the major agents have suggested the possibility. But we’re talking about literally hundreds of smart people here, so it would be surprising if nobody’s exploring this possibility (except if Eoin and I are both missing something that makes it a non-starter.)

The transformation of publishing is rich with circumstances to amuse anybody who appreciates irony. Cheaper ebooks, which consumers love, are making bookstores, which consumers also love, gasp for the breath to survive. The closest thing to a monopoly threat in the business, Amazon and Kindle, work to drive consumer prices down. Apple’s great success with new devices coupled with their very slow start at retailing, generates agency pricing and sales opportunities for other retailers that probably benefited Barnes & Noble the most. B&N, the brick retailer most skilled at logistics but only newly-minted as any sort of tech company, finds not one but two unoccupied niches in the eink product suite: color and touch-screen.

And now, Amazon’s policy limiting the publishers that can fully implement agency, designed to isolate the Big Six and enable discounting of everybody else’s ebooks, may be spawning a new opportunity for big authors and big publishers to work together that other publishers can’t compete with. Perhaps denying this capability to other publishers actually helps Amazon be alone as a 7th competitor, but it certainly has its ironic aspects at a moment when Amazon is putting on a full-court press to persuade big authors to work directly with them!

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Agents work for authors and sell books (mostly) to big general trade publishers, but there’s really a partnership at work there. Nearly all the books big publishers buy, and almost without exception those for which big money is paid, come to them from agents. There’s a symbiotic dependency between them.

Publishers depend on agents to sort through the possibilities to discover new talent, develop proposals to a professional level, and handhold and cajole the author through the lengthy process of actually delivering the manuscript a contract calls for. Agents live in a world where the big publishers are really the only source of substantial revenue.

So they have lunch a lot to discuss what amount to joint efforts. I don’t know if it is unique to publishing, but our industry’s convention that the buyer (the publishing editor) pays for the seller’s (the agent’s) lunch must be very unusual. By constantly monitoring what the editors are looking for and are inclined to buy and each house’s current frame of mind of what will work and what won’t, agents get the information that, in turn, directs them to what will sell. What will “sell”, to an agent, means what people who are personally known will want to buy. It doesn’t require the agent to think in terms of what the public will buy; that’s the publisher’s job. The agent’s job is to deliver what the publishers have decided is commercially viable.

There is, in general, a great deal of mutual respect here. Obviously, there is a point where the partnership becomes adversarial: publishers want to pay as little as they can for books and agents want to get as much as they can. But, in general, these competing interests are resolved in ways consistent with the need both sides have to continue working together in the future. There are only six very large houses and only a small handful of others that can occasionally play at that level. And while the agent community is somewhat less consolidated (you can be a very successful agent with only one or two big clients; you can’t be a very successful big publisher with only one or two big authors), both sides do each deal knowing there will be a next deal they’ll want to do with each other coming along soon.

This symbiosis is important to remember when we consider that one of the big publishers’ defenses against disintermediation is their ability to curate, to filter. There is a school of thought (which is an attractive one to publishers thinking about their role in the increasingly digital world of books) that when content choices become more plentiful, reliable branded filters become more valuable. All sides recognize that the principal brand value lies with the author. I am increasingly coming to the view that the big publisher name — Random House or Simon & Schuster — also communicates “value” to the consumer, although it doesn’t describe the potential reading experience with anything like the specificity that the author name does. The agent name, of course, means nothing at all to the public. So the publisher is essentially getting credit for a filtering process for which they are the last step after agents have done a lot of weeding out before them.

Two years ago, when we were organizing the first Digital Book World conference, we foresaw that ebooks would lead to much cheaper and more accessible self-publishing opportunities that some authors, at least, would be keen to explore. When we started to organize a panel on the subject, we learned that the rules of the AAR (which is, effectively, the agents’ trade association, although it doesn’t act as such in many ways because of its highly independent-minded membership and the potential for restraint-of-trade violations) were interpreted by many to mean that agents could neither set up publishing operations nor charge authors for services. In that ancient time, very few agents would openly discuss the possibility of working with authors in anything but the time-honored way of selling their proposals to publishers on commission.

But times have changed. A quick check of recent news and announcements in our office turned up nine agencies with announced digital propositions. These range from Waxman Literary Agency’s Diversion Books, an ebook publisher, to the Ed Victor Agency’s Bedford Square Books publishing arm working through Open Road, to, in most cases, consulting services for the agency’s clients on ebook development and distribution.

The other seven on our list right now are The Knight Agency, BookEnds, Dystel & Goderich Literary Management, McDermid Agency, Levine Greenberg, Curtis Brown UK, and Andrea Brown Literary Agency. There are certainly some we’ve missed. And there will undoubtedly be more in the weeks to come.

The Knight Agency did a really nice job of laying out the suite of services they’re going to provide through their offering. It’s very impressive, including content editing, line and copyeditor referrals, ISBN number assignment, copyright registration, cover copy, cover design and consultation, file conversions to ePub and mobi, uploading files to major retailers, dynamic pricing, metadata, search engine optimization, marketing plans, subsidiary rights, royalty tracking and payments, oversight of existing contracts and obligations, and, down the road, arranging for print publication through POD or other means.

But what really surprised me was that the Knight Agency says they are absorbing all costs except copy-editing and working for 15% of the revenue. The range of services they are offering, even without the copy-editing (which can be anywhere from $500 to $3000 or more, depending on the length and complexity of the manuscript), requires real humans to spend real time doing the work. They seem to be offering to design the cover at their expense, which is a value of anywhere from $200 to $2000. The Knight Agency is undertaking a substantial investment in each book that will be done in this program and, if I’m reading them right, will only get that money back at 15 cents on the revenue dollar before they earn any profit.

That’s a commitment! And even though the service is being offered only to existing clients of the agency (at least for now), it’s an impressive one.

So with that context, I’d offer a few observations.

I don’t know what other agents have planned, but Knight has definitely thrown down a marker that other agencies will be highly challenged to match. (Of course, the first thing to see is how well Knight can do against their own checklist!)

Many of the agents, but not Waxman with Diversion, are specifying that their services are only for existing agency clients. That’s a good way of putting a toe in the water and it’s a good way to minimize the concern of publishers. But it’s not likely to last as the policy for any of them that do this kind of work successfully. If their ebook publishing services actually work and the business is shifting in that direction, why would you turn down an opportunity that came from outside the client base. Why would you turn down the opportunity to offer the same suite of services to all the clients of some other agency that doesn’t want to build this themselves? (That’s an opportunity almost certain to arise for all of them.)

Publishers are also working on self-publishing services. Distributors have been noodling for some time about packaging these services for agents. Knight has promised to do a lot, including a substantial per-book investment, for 15% of the revenue. Are any of these other players now going back to the drawing board to reconsider their pricing? I would think so.

How everybody is going to feel about these agent service offerings is going to depend a lot on how they’re used. To the extent that they are used as leverage by authors with big backlists to push publishers to higher ebook royalties, the big houses won’t be pleased with them. But if they turn out primarily to be “farm systems”, giving exposure and building awareness for an author who can then “graduate” to a “real” publishing deal, everybody might be all smiles. If that’s what happens, these services become something like the new digital world’s equivalent of an agent getting an author to write a piece for the New York Times Sunday Magazine or to start blogging to build a following: a career-building step that leads to a major house. If that ends up being the prevailing effect, everybody will be smiling.

Let’s remember that Amanda Hocking went from self-publishing to a major publisher deal and that Barry Eisler decided that taking Amazon’s offer to publish him was more appealing that truly doing it himself.

Perhaps for as long as five or ten years, the print component will remain an important part of any book’s total revenue potential. None of these agents can do much to help there (although a distributor could.) Even if what Knight offers turns out to be high quality across the range of services and what they’re offering to cover out of their pocket versus what they’re planning to take in revenue is sustainable (hard to say from here), they’re still going to want to sell lots of books to publishers. Will this service offering help them or hurt them in that regard? Will publishers see them as developing competition? Or will the commercial proposition of each book on offer remain the key element of each negotiation?

We’ve come a long way in the past two years, from a time when many agents thought getting involved with self-publishing was a non-starter to a moment now when, in the words of one agent I spoke to last week, “none of us has any choice” but to provide digital publishing advice or capabilities to their clients. The next two years will probably bring much more change than that.

We’re putting together a new Publishers Launch Conferences show called eBooks for Everyone Else for both New York (on September 26) and San Francisco (on November 2). More details will be announced shortly. “Everyone else” is anybody without an IT department, and we always knew agents would be an important part of our audience (along with authors and small- and midsized-publishers) and our program. Looks like that show will be very well timed.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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