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The following post is a collaboration with my friend Joe Esposito, the CEO of GiantChair. The post was Joe’s idea, but I contributed enough to its completion to justify a claim of shared authorship. Joe has kindly agreed to allow this received wisdom to be delivered to the world through The Shatzkin Files.

As thunder roared above the mountaintop, God sat on a throne of light. She stroked her braid and contemplated her new shoes.

“Who goes there?” God shouted.

“It is but a poor publisher,” the tiny figure said.  “I have come for guidance in the treacherous ways of publishing in the digital age.  I have oodles of Googles, but no money in my pocket.  What dost thou command?”

“A poor publisher, eh?” God snorted, shaking the trees around them.  “That’s what the angels call a redundancy.”

“Oh, please, Lord.  Help me navigate the shoals of the noble Barnes and the forest where dwell the Amazons.  Take me beyond my borders to a realm of growth and economic success.  My very soul depends on my making buckets of money.”

God looked at the puny publisher and took pity on him.

“Do as I say,” God thundered, “and you will save your heavenly soul and a place for yourself in the value chain.”  She thus proceeded to lay down these precepts–but as God is timeless, they came in no particular order.

1. Thou shalt regard thy former competitor as thy future collaborator.

2. Thou shalt let no intermediary stop you from knowing your customer, nor stop your customer from knowing you.

3. Thou shalt publish no book intended for an audience outside your spheres of direct influence.

4. Thou shalt read Dr. Faustus in all its editions–Amazon, Barnes & Noble, Apple, and Google–and know that Mephistopheles always appears first as a helpmate.

5. Thou shalt not forsake thine own brand.

6. Thou shalt create new brands and master the power and importance of brands.

7. Thou shalt respect and value thy communities with the same devotion thou hath always given to copyrights.

8. Thou shalt recognize that metadata is everywhere and associating it meaningfully is thy job.

9. Thou shalt not fail to test a new marketing channel in order to protect an old one.

10. Thou shalt deliver thy content in every imaginable form that thy customers request or might require.

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We had a very successful debut annual conference for Digital Book World last January, even though we didn’t conceive the idea until June, put together a group of helpers (which we now call our Conference Council) until July, or draft the initial program until August. This year we’re way ahead of that schedule. We’ve put together a fabulous Council to advise us this year and we’re having a meeting of many of them next week to discuss the agenda and to start getting suggestions for speakers.

The Council gives us wide exposure and connections to the trade publishing industry. That way we make sure we don’t miss any ideas and we don’t miss knowing about any talented people whom our audience would want to hear.

We have several publishing company presidents and CEOs (Sara Domville of F+W, Marcus Leaver of Sterling, Maureen McMahon of Kaplan, Brian Napack of Macmillan, Dominique Raccah of Sourcebooks) and some presidents and CEOs from other companies and support organizations in the industry (Kristen McLean of the Association of Booksellers for Children, Tracey Armstrong of Copyright Clearance Center, Peter Clifton of Filedby, David Cully of Baker & Taylor, Joe Esposito of GiantChair, John Ingram of Ingram Content Companies, Scott Lubeck of The Book Industry Study Group, and Steve Potash of Overdrive Systems.)

We have other senior level executives, many with specific digital responsibilities (Peter Balis of Wiley, Ken Brooks of Cengage, Mark Gompertz of Simon & Schuster, Madeline McIntosh of Random House, Thomas Minkus of the Frankfurt Book Fair, Larry Norton of Borders, Kate Rados of F+W Media, Charlie Redmayne of HarperCollins, Adam Salomone of Harvard Common Press, John Schline of Penguin, Evan Schnittman of Oxford University Press, Michael Tamblyn of Kobo, Maja Thomas of Hachette, and Tom Turvey of Google.)

We have agents (Sloan Harris of ICM, Simon Lipskar of Writer’s House, and Scott Waxman of the Waxman Agency) and industry consultants and commentators (Michael Cairns of Persona Non Data, Ted Hill of THA Consulting, and Lorraine Shanley of Market Partners International.) And because he is our media partner, we have help from Michael Cader of Publishers Marketplace as well. And we also get great input from others on the F+W team: David Nussbaum, David Blansfield, Cory Smith, Guy Gonzalez, and Matt Mullin.

So we have all the Big Six represented, as well as small publishers, industry-wide associations and service providers, wholesalers, digital distribution partners, retailers, and agents. All of these people have real input into the topic list and speakers. Many of them are joining us for a meeting next week to review our ideas for the program, which we previewed on this blog about a month ago.

Because Digital Book World tries to be at the cutting edge of trade publishing and digital change, we often face one or both of two challenges. Sometimes we believe something should be happening, or be about to happen, but we may not know where or whether the publishers leading the charge will talk about it. Several topics come to mind that fit that description: vertical efforts inside general trade houses; what houses are doing to adjust to reduced expectations for print sales in bookstores; how houses are gearing up or changing their sales efforts to compete in and serve a growing list of digital intermediaries; how enhanced ebook and ebook first creation change the traditional order of things in product development.

The other challenge we have to work around is when people can say things privately but not publicly. One topic that is very tough to talk about is ebook royalties, which is a major point of contention between publishers and leading agents at the moment. The big houses are pretty adamantly trying to hold the line (publicly) at a royalty of 25% of net receipts. But upstart publishers like Jane Friedman’s Open Road appear to be willing to pay 50%; publishing through Smashwords yields 85% (but sells the books without DRM, which would frequently scare the copyright owners of valuable properties); and self-publishing through a distributor would deliver a yield somewhere in between. (Remember: self-publishing ebooks carries no inventory risk.) In that environment, some agents are able to wring some concessions from some publishers. But the agent can’t talk about that without jeopardizing her ability to get concessions for her clients and no publisher will volunteer to reveal the isolated concession and start turning that into a policy.

Some things are just hard to discuss. Do booksellers, or even the publishers and wholesalers who supply them, want to talk about the possibility of their impending demise? But how can one plan for the future and ignore that elephant in the room? If a publisher suddenly sees the necessity of developing direct selling relationships with end users, after years of telling booksellers he was against it, does that publisher want to talk about those efforts in public?

When competitors participate in industry education initiatives, they must draw lines around what they will reveal and what they won’t. One ebook-responsible executive we know at a major house is persistently reluctant to reveal what he’s doing or what he’s thinking. But he has a boss, one who is proud of what he does and what their house does, who pushes him forward as a speaker.

Frankly, I think these challenges are greater for us than they are for other conferences on digital change that focus more on technology than they do on business practices. Very few publishers are masters of tech; usually they’re working with outside suppliers who are happy to share best practices. But business practices are different; they’re more sensitive. Sometimes the reluctance to share them is sound. Sometimes constraints are even legally required. Since our job is to focus on business practices, we’re glad to have relationships with very knowledgable players who will candidly engage with us on these challenges so we can figure out the best way to protect true proprietary knowledge but still disseminate valuable information.

We’re really proud of the illustrious group we have gotten to advise our efforts, and we get great value from them even though their first responsibility is to the company they work for. We feel confident that this group helps us cast a net that is wide and broad enough to assure us that any major development in the trade book world will hit our radar screen and that we’ll know if there are informed people willing to talk about it.

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As readers of this blog know, I’ve been on the “vertical” trail for a long time and I try to stay abreast of book publishers’ efforts to realize the advantages of subject specialization and community building. I wrote a whole post about the Sourcebooks initiative, Poetry Speaks, when it launched last Fall. I have often referred to the vertical efforts of Hay House and Harvard Common Press. And I’m proud to have had a small role in Sterling’s creation of Lark Crafts and their forthcoming Pixiq site for photography.

But of all the efforts I’ve seen so far, the book publisher who seems to have taken the vertical vision we espouse the furthest — one that elevates community-building above content-selling as the first priority — is Cool Springs Press in Nashville, Tennessee. We spent some time earlier this week talking to Roger Waynick, their founder and CEO, to learn more about what they do, looking for lessons that other publishers can apply.

The thing that was most striking about our conversation with Roger was the frequency with which he referred to “our industry”, by which he did not mean the book business! He meant the lawn and garden business, which is the vertical that Cool Springs Press serves. This is a nuanced but massive differentiator. If a company thinks of itself as a “book publisher”, it is already off on the wrong track. If it thinks of itself as a content- and information-provider for an industry or a community, its self-image will lead to it doing the right thing much more often. And the very first right thing a book publisher with community aspirations has to do is to create a site that has very little reference to books, which they have.

Waynick knew nothing at all about publishing when he started Cool Springs Press in 1994. He was looking for a book about gardening and he started from the highly logical presumption that what he needed was local information, since gardening has to match the geography. A visit to a large and well-stocked local bookstore yielded nothing except confirmation that what he wanted didn’t exist.

So he created it and he created a formula. He found a local gardening advisor with a media presence and created a “Tennessee Gardening” book. Waynick had intuitively done the right thing. Finding content knowledge and promotional capability combined meant that he had recruited what the smartest publisher with experience would have called the best possible author. Before long, he was extending his franchise, creating gardening books by state, one after another. (At this point, Cool Springs has state-specific gardening books for 48 states.)

In 2003, large Nashville publisher Thomas Nelson embarked on a strategy to expand out of their religious publishing niche. (They didn’t ask me…) They acquired a few smaller publishers with non-controversial publishing programs and Waynick took the opportunity to sell his business. For the next few years, until Nelson management changed and the strategy changed to re-focus on their core business, he consulted to them and stayed somewhat in touch with the business he’d created.

But when the strategy at Nelson changed, Waynick was ready to buy his company back and turn it into a real content vertical. In 2007, he regained control of Cool Springs Press, set up trade distribution through Ingram Publisher Services, and started to invest seriously in the capabilities he needed to be more than just a book publisher.

Waynick’s key insight was that the lawn and garden customer was looking for solutions. And solutions, to be practical, had to be local. So he constructed a taxonomy around plants (roses, gardenias) and around actions (planting, weeding) to tag the content in his state-specific books. Waynick estimates that, since reacquiring Cool Springs in 2007, he’s spent a dollar on upgrading, tagging, and curating old content for every four dollars he has spent creating new books. And he invested that money upgrading his content repository with faith, but no clear plan about how he’d get it back.

In a formulation that echoes what we’ve heard earlier from Harvard Common Press talking about cookbooks and recipes, Waynick said he needed to see his content as a database of information, not as a collection of books. And just like Harvard Common, he looks at his database for “what’s missing” to direct him about what new content he needs to acquire.

He continued to build on his special retailing network. (Ingram handles Cool Springs’s trade sales, but Waynick maintains the relationships with the lawn and garden trade directly.) He recalls that, when he started, it seemed wildly counterintuitive to a national chain to put a Tennessee book in only the Tennessee stores, and so forth. But his sales were so robust that the skepticism quickly melted away. He built closer relationships with those special retailers by custom publishing: putting together books especially for a particular retailer. His path was smoothed in all these things by his author relationships; many of them were, like his first author, local gardening experts with radio shows popular with the core audience.

This year, for the first time, substantial revenue has flowed to Cool Spring from content licensing. About 10% of Cool Springs’s revenue will come from licensing content to web sites and creating apps for other players in the lawn and garden space. About 25% will come from the book trade, 35% from home center book sales, 15% from individual lawn and garden centers, and the balance from other special outlets like hardware stores.

The way Waynick sees it, the licensing side of the business has just begun to work. Next year will be far larger than this. He expects licensing sales to surpass book sales for his company in 2012.

Cool Springs has an online bookstore at gardenbookstore.net. In his retailing capacity, he sells the books of all his competitors. The day we spoke, Waynick pointed out that only two of the 15 books on his retailing front page were his publications; the rest came from other publishers. Perhaps because he’s a “customer”, he says that more and more of his competitors seems receptive to collaboration, allowing him access to their material for his efforts to provide content to retailers and wholesalers in the lawn and garden industry.

Waynick is not terribly concerned about competitors. Having been the first to act on the insight that gardening is local and that content has to be developed with a highly local point of view, and then having invested to put his content into shape for re-use, he really sees no other player that can deliver the variety of relevant content that he can. And now he’s moving on to a new opportunity that he is uniquely positioned to exploit.

Reflecting the initiative by First Lady Michelle Obama, school gardens are springing up all over the country. Waynick says that over 3000 new ones were created last year. Working with school administrators, Waynick is developing curriculum for the schools from his content. This also puts him in a position to help his retailers and his authors find additional opportunities. And how convenient is it for him that education in this country is organized the same way his book program is: state-by-state!

Waynick also recognizes the value of his author base. He does his best to keep his authors working, and not just on books. They blog for him and create content for his licensing clients as well.

One point that Waynick made in our conversation is an important one for all publishers to take on board: the presentation of content needs to be sensitive to the audience. Too often, he says (and he’s right), publishers end up with catalog copy meant to sell a book to a store buyer being presented on a web site to an end user customer. The copy is wrong for the purpose. He credits his distributor, Ingram, with having a system that helps him deliver the right metadata to the right places.

The future for Cool Springs Press looks very bright. Waynick is already providing content for a number of national retailers, including one of the brand leaders, which is what has jump-started his licensing revenues. These players see good content as a critical competitive requirement. They represent a growth market for web content, apps, and custom books and the growth opportunities they will offer will far exceed the rate of shrinkage in the traditional book market.

What we think will be interesting to watch going forward is how much Cool Springs moves into the business of selling things other than content to the audiences they keep growing and nurturing. They’re certainly positioned to do that.

But the important thing is that they can readily withstand shrinkage in the book trade or even in the printed book business. They’re bound to become an increasingly important marketing mechanism for all their competitors, who will become increasingly dependent on them for exposure to the consumer audience. And they’re in that position because they’re vertical and because they were willing to invest in their long run value to their community.

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Big publishers have to be very happy about how things have been developing in the ebook world over the last six months or so. In that time, we have gone from a situation in which Kindle appeared to so totally dominate digital reading that Kindle-only publishing seemed an imminent threat to disintermediate publishers to one where it is not only Amazon’s hegemony that is threatened. Even their position as the ebook market leader isn’t safe.

Although one of the big factors in this change, the iPad, was unforseen at the time, we wrote around 16 months ago about the possibility that Amazon’s position leading the pack on ebooks would be hard to defend in one of the first posts on this blog.

As the ebook world has evolved (so far), we have the following “facts on the ground.” You will see from this recitation why so many people outside commercial publishing see eliminating DRM as a key to ebook marketplace efficiency. Our guess is that, regardless of the merits of the idea, going DRM-free is a non-starter for the big houses because it will be a non-starter with most big authors and most big agents.

1. If you buy an ebook from the Kindle store, you can read it on many devices within the Kindle reader software. That software is currently available for the iPhone, iPad, iPod Touch, PC, Mac, and Blackberry with Android reportedly on the verge. If the Kindle book has no DRM, though, you can read it on any reader that supports the Mobi format or you can use a program like Calibre to convert your Kindle book to epub, which can be read on just about all other devices.

2. But if you buy an ebook from Kobo or BN (through their “reader” software, not for the Nook), you can do the very same thing (and Kobo’s Android app is at least a bit ahead of Kindle’s; it was announced over the last weekend).

3. If you buy a book from iBooks, the iPad bookstore, you can only read it on an iPad and, soon, on an iPhone. That is, unless it were DRM-free which is, some are told, an option for publishers.

4. If you want to read on a Kindle device, you can only read books you buy from the Kindle store (unless you select from DRM-free mobi files, which leaves out the biggest books).

5. If you buy a Nook, you can theoretically read epub content obtained elsewhere by putting it through its DRM paces at Adobe Digital Editions, but it ain’t easy. My expert on these subjects, Kirk Biglione, points out that this is one of the big advantages of loading devices through wireless means (which sidestep having to deal with ADE) rather than computer synching. Because ADE is a challenge for most people, the interoperability across devices promised for epub files is, for protected files, more theoretical than real.

6. The Sony Reader is like the Nook: theoretically able to handle anything epub but made much more difficult by Adobe DRM. Sony is also suffering at the moment from having no apparent mobile strategy.

7. Bottom line: DRM creates hassles if you try to read on anything except the platform on which you bought. But Kindle, Kobo, and BN Reader (not Nook), provide a pretty seamless experience across devices.

8. The promise of the presumably-imminent Google Editions is that you will be able to read them on all systems that browse the web (except that Kindle’s browsing is not going to provide a terribly satisfying experience and Sony, which doesn’t provide a web browser, is probably left out of the Google Editions party).

So the e-ink devices generate the real lock-in, or, more often, lock-out, problem. It is your Kindle device that locks you into the Kindle store; your Kindle file can be ported to a non-Kindle device using the Kindle reader software.

This is a mixed, but probably mostly negative, blessing for future sales of Kindle devices. On the one hand, consumers who figure this out will be increasingly unwilling to chain themselves to a reader that makes them buy files they can’t use elsewhere. On the other hand, the spouse of a friend cracked her Kindle a few days ago and because of the hundreds of books she’d bought over the years from the Kindle store, couldn’t really consider purchasing any other reader as a replacement. So she bought a new Kindle.

So while the Kindle store almost certainly still has the most titles of any ebook retailer, Amazon is definitely facing some uphill battles selling devices to new customers. Even before the iPad hit in April, DigiTimes reported that Nook devices outsold Kindles in March. (Could this be the power of 700 retail locations talking after the cream of the online customer base had already been harvested by Amazon over the past 2+ years?) Then they reported yesterday that total e-ink monochrome ebook reader sales were 700,000+ for April and May, of which 37% were Nook and 16% were Kindle. In the same two months, of course, Apple reports selling 2 million iPads. So, in two months, iPads outsold Kindle devices about 20 to 1.

That means that even if 2 million new iPad owners, on average, buy 1/3 as many ebooks as 700,000 new single-purpose ebook device purchasers, the larger, full-color, web-ready screens sold in the last two months would be responsible for as much ebook consumption as the book-dedicated devices.

Meanwhile, the device prices are coming down sharply. Kobo announced a $159 device on sale at Borders a month ago. Since then Borders announced their own branded device for $119. Then Barnes & Noble cut the price of the Nook to $149 for the wifi model and $199 equipped with 3G. Many had been anticipating a price cut before year-end by Amazon from the $259 level they have maintained; but the B&N move forced their hand and Kindle just announced they were coming down to $189. Because aside from all the competition that Kindle faces on the device side, the Agency model has made it harder for them to keep customers loyal with a pricing advantage on the biggest books.

What this adds up to is that a much more diversified marketplace is developing for ebooks than publishers would have dared hope for a year ago. This, in turn, makes the customized ebook offering that Ingram is enabling (as they announced last week in a deal with F+W) even more powerful, because more and more devices — and therefore consumers — will be able to readily take advantage of ebook offers that aren’t served up from the Kindle store. Since one of the great unmet challenges of book sales on the web is merchandising — making it quick and easy for consumers to find what they want — curated offerings on specialized sites might really work better for a lot of people. And then Amazon will feel some of the pain that big publishers do, being horizontal in an increasingly vertical world.

On the other hand, big publishers have apparently lived past the danger of a massive problem: the possibility that authors could find most of their audience by setting up with Kindle alone. There is still more complexity to be added. Google will arrive shortly with a big splash. Newcomers Copia (a client of Idea Logical) and Blio are still planning market entries in 2010, and they each have some unique propositions the current players do not. The more different places an ebook might successfully be sold; the more variety in the way ebooks get merchandised; and the more benefit that can accrue from effective distribution of files and metadata; the more a publisher with some savvy will look like a sensible option to an author who might be thinking of a do-it-yourself effort.

There was a conference called Untethered last week. I didn’t go because it was an “all publishing” conference about technology, and I am skeptical about any horizontal approach. But there was a panel of publishing CEOs asked to estimate how much of book sales would be ebooks five years from now. The high guesses were 40-50%. I think they’re low. And if the question is what percentage of the books that are narrative writing are ebooks by five years from now, I think they are way low. (Apologies to the first batch of people to see this post and those who got it by subscription because I hadn’t quite finished this thought when I put it up. I saw it later and fixed it.)

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Last winter, before the announcement of the Agency model as the path to ebook price maintenance, some major publishers had acknowledged out loud that enhancing ebooks in various ways would be the way to keep the public paying print book prices for content.

That got me thinking. First I thought about the CD-Rom debacle of the mid-1990s. But then I thought: if publishers are going to be spending time and money enhancing their ebooks, maybe this time around it can be done thoughtfully and knowledgably. And that’s where the idea for Enhanced Ebook University, E2BU, came from.

E2BU is a partnership of The Idea Logical Company and Digital Book World, the unit of F+W Media with which we work on an annual conference. We are providing the content and our Digital Book World partners are providing the hosting, tech, and marketing. We’re delighted that, so far, Aptara and Copia have signed on as sponsors. We’re starting out with three core offerings which we hope the larger community of the ebook-interested will find of value.

Our White Paper, entitled “Enhanced Ebooks Today and Tomorrow: A Survey for Authors and Publishers”, is a soup-to-nuts survey of the possibilities inherent in enhanced ebooks, written for the publishing people, not the geeks. We hired Peter Meyers to write it. Pete is the former editor of O’Reilly’s Missing Manuals series and, as near as I can tell, the person on the planet who has done more thinking about how the ebook experience can be enhanced than any other. Pete was already working on his own project, “A New Kind of Book” when we met. He has written a really solid study, which itself was “enhanced” by peer review from more than two dozen industry professionals.

E2BU will also launch a series of nine webinars for publishing professionals on June 29. The first session in the series will be free. The kickoff program describes the “state of the art” for enhanced ebooks today. In later sessions, we will cover the complex rights issues that ebook enhancements raise, the complications of multiple platforms, the options for and challenges to producing enhanced ebooks, and issues of analytics and marketing.

Our webinar moderator is Kirk Biglione, whose Oxford Media Works advises publishers and others on tech issues. Kirk is also the Chief Technology Officer for the whole E2BU project. Joining Kirk for the kickoff session will be Jessica Goodman of Wiley (who will talk about their amazing How to Cook Everything app), Theodore Gray of Touch Press (behind the renowned iPad app, The Elements), and Rhys Cazenove of Enhanced Editions in London (the creators of one of last year’s most successful enhanced ebooks, Bunny Munro.)

In addition to the webinar series, E2BU plans a special session especially for authors who, we believe, will find it increasingly necessary to know what ebook enhancement is all about and to be preparing material for enhancement as they create their books.

The third offering will be the E2BU Resource Directory. The Directory will be an increasingly robust guide to services on offer to help publishers with ebook enhancement. It will cover app and web developers, software, a/v, development tools, digital conversion, media production partners, DADs, content management services, analytics, and social media/ereading platforms. The Directory will launch with over 100 company listings.

The entire E2BU project is overseen by Jess Johns of The Idea Logical Company, who will take charge of the blog and field what we expect will be many suggestions for more webinars and Directory entries.

So what is a guy like me, who is a skeptic about many aspects of ebook enhancement and who makes a living trying to get publishers to do “the right thing”, doing creating a program like this?

I see signs everywhere that, even though the initial impetus for ebook enhancement — that it would help maintain prices — has receded a bit, the impulse to explore the possibilities remains very strong. Our analysis of publishing’s “shift” includes the observation that format-specific publishing will yield to format-agnostic publishing. Format-specificity was a requirement of the physical world; you couldn’t distribute printed books through the airwaves and you couldn’t embed in a magazine.  When content creators and audience owners deliver to their customers through files, constraints disappear. Files can be anything: words, pictures, sound, moving images, amination, games, productivity software. Newspaper web sites have had an explosion of video content in the past few years; reporters are often carrying flip-cams these days.

And publishers are feeling an increased need to master video. On a recent tour of HarperCollins, I was shown the new TV production facility they have in the New York office. They do author interviews whenever authors come in. Last week, Peter Kaufman, a longtime TV and publishing veteran, was explaining his ideas about a holistic approach to video creation for publishers which he believes could save them lots of money and deliver them much higher-quality footage for various uses.

On the same day, I saw the Managing Director of an independent literary publisher in London who is currently hiring a video professor for his staff. Earlier in the week, we had a visit from a game developer who wants to develop game “apps” for publishers built around the characters and plots of books they are already publishing.

In other words, publishers are going to be spending money and effort enhancing their ebooks, whether Mike Shatzkin’s instincts say that’s likely to pay off or not. It would be best if that were a thoughtful process. Publishers investing in enhancement should do so understanding the full range of possibilities and having absorbed an informed dialogue about what their effors are likely to mean to the reader and the author, critical stakeholders who are sometimes a bit inconvenient to consult during development. We’re confident that the whole E2BU program: the paper, the webinars, and the directory, will help publishers make sounder — and less risky — ebook enhancement decisions.

I would add that while all this is going on, I am currently reading The Girl with the Dragon Tattoo on my iPhone and wishing that they’d built in a way for me to identify all those Swedish proper nouns with a click. That would be enhancement I could really go for.

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I had occasion during this past week to speak at the global strategic meeting of Harlequin. Often when I am asked to speak, even internally to publishers, I am explicit told “we want you to scare the hell out of them.” Since I think of myself as a pretty unthreatening guy, I’m always a bit disconcerted by the reality that I’m doing that. But, of course, my core message is not very comforting to most people in the legacy publishing business. (And, I hasten to say, Harlequin never made that suggestion, nor, as this post should make clear, is it really relevant in their case.)

The message is scary for most because the essence of what I’m saying is that publishers over the next decade or two will have to change the way they think about how they deliver value. Their core asset base will shift from being the intellectual property they own or develop to the audiences they command. Publishers with vertical content offerings have a big head start to making that adjustment and general trade publishers hardly know what to make of the message at all.

I think my argument is pretty simple. It has two principal components.

I posit that the price of content must go down because of the laws of supply and demand. Even though digital delivery does actually increase “demand” (because people can consume more media if they have the means to do so always at hand), it increases supply much more. You used to need a publisher to spend some money and to commit an organization to get content into “supply”. Now you just need an internet connection. So I see downward pressure on the selling price of content going far into the future. This does not mean that eventually all content will be free, but it does mean that everybody will consume more and more free content and, therefore, be generally less willing to pay money for content to augment what is free.

The second component of my argument is that audiences for content will be (mostly)  aligned around interests. I call that “vertical”. The most successful legacy consumer media, including all of the biggest book publishers, tried to satisfy a wide range of interests, which I call “horizontal”.

I put those two things together and I say that getting from today (selling content) to tomorrow (selling audiences) depends on using today’s asset to build tomorrow’s. This might sound like something close to insanity if you’re Random House or Simon & Schuster or Penguin. It can make a lot of sense to you if you’re F+W Media or Hay House or Chelsea Green or Cool Springs Press. It seemed to make total sense to the people at Harlequin.

To prepare for the Harlequin conversation, I made a list of “most important things to think about” for them going forward. Here it is. If you’re really a vertical publisher, it should be a useful road map. To the extent that makes no sense at all, it indicates that your company is locked into competition for a pool of revenue and sales opportunity that will shrink, slowly for a while, but only for a while.

1. Use content as bait. When you make the leap that the eyeballs you own are the key to future monetization, not the copyrights you own, then you readily see the value of exploiting the content to attract eyeballs. This means many different things in different contexts, and, of course, the content-selling model still provides most of the cash and will for quite a while, but this is a key principle to apply. The free and freemium strategies you use will be different if your objective is to build a loyal community than if  you have the more immediate objective of selling something on the back of the giveaway.

2. Be sensitive to low-overhead competition and be prepared to imitate their new models. We’re heading for the day — actually we’re already in it — when it won’t take a big organization to reach a lot of book readers. (We’ll be transacting half our book purchases online in the next couple of years.) When companies smaller than yours are offering cheaper products with different delivery models — subscription, print-on-demand, whatever — watch them closely and try what they’re doing so you understand it. (Of course, Harlequin was already very much onto this idea. They just launched their own low-price imprint, Carina Press.)

3. Grow! Acquire competitors, or coopt them. Once you’ve defined the audiences you are going after, you have defined the way in which you will seek “scale”. If somebody else is going for the same audience you are, you want first to hope they don’t see it as an audience-acquisition play (and most publishers don’t yet.) While you’re fortunate enough to have competitors who are still focused primarily on monetizing IP, they’ll want to work with you if you have access to an audience that might buy their IP. Then you can use their content as bait to attract eyeballs for your community.

4. Find multiple ways to engage your audience. For community-building, it is not nearly sufficient to deliver product offers online. You have to figure out ways to make your community come to you; you have to figure out ways that members of the community can create value for each other. A key metric for you is how frequently you touch each member of your audience (or, even better, how frequently they touch you). The number of people absolutely guaranteed to open an email you send them will be an important measure of the health of your asset base.

5. Sell everybody else’s ebooks (the recent F+W and Ingram proposition). Almost nobody in your community gives a damn about which books are yours and which are somebody else’s. They want entertainment or information or to solve a problem; if you’re serving them as a community you don’t win by cutting them off from what they want because somebody else published it. A complete (but curated) ebook offering is a first step in the right direction. Ultimately, of course, you want to offer all the print books and all the other “stuff” that is relevant to the community, information-based or just plain products. That’s part of your monetization potential.

6. Build multiple brands with meaning. There are a very small number of companies whose name itself has true consumer meaning as a brand. (In fact, Harlequin is the leading one.) But if you can appeal to a community, you have an oppotunity to build a brand. Brands are shortcuts for consumers; they orient us as to what to expect in products or services, including social cred, quality, and  price. For as long as we have robust print delivery (and I think that might be as little as another five years), we have an opportunity to deliver URLs to people offline. That’s not as “efficient” as delivering them online (where the recipient can immediately click through) but it offers the chance to reach a lot of people who might not be online explorers. (I don’t want to give away Harlequin’s trade secrets here, but I was taken aback to hear how many senior citizens are in their audience; people who might well not be available to be pinged online.) But don’t use a book to push people to promote a generic web site where they’ll arrive and say “why am I here?” Deliver them to something relevant, something that will entice them to come back; a site you can, in good faith, urge the reader of a book to visit with the expectation that it will extend the engagement between you and your reader, to your mutual benefit.

When I deliver this message to the general trade community: publishers, authors, agents, retailers, the reaction is often a blank stare. That’s understandable; getting from a horizontal trade publisher to becoming one that “owns audiences” is a long and winding road. It is a totally rational decision to say, “that’s not the business I’m in; I’ll stick with what I’m doing until I’m the last one standing.” But there were no blank stares from the people at Harlequin. They know they have a large and loyal audience that cares about their brand. Even if the game changes from IP to eyeballs, they can readily see how they can still play.

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I have found a way to describe the difference between the Digital Book World conference we organize for F+W Media and the O’Reilly conference Tools of Change which I believe is accurate and is certainly not intended to be a pejorative description of  Tools of Change. I go to TOC and I find it very valuable, but different from what we’re trying to do.

Tools of Change explores developments in technology that have impact or can have impact on publishing (in general) and helps publishers (of all kinds) understand how to apply them. Digital Book World explores business challenges to trade publishing (defined as book publishers who work primarily through the retail network, or “the trade”) generated by digital change and helps publishers address them. So if I were organizing Tools of Change, I’d want to scan the horizon for technologies that could have an impact and ask “how?” Because I’m organizing Digital Book World, I’m looking at trade publishing’s commercial environment and operations for the impact of technology and asking “what should we do?”

The next Digital Book World Conference is set for January 25-26, 2011. That obliges us to ask: what will the hot digital change questions be eight months from now? What should we be planning to discuss then that will be immediate and relevant to the attendees we’re targeting: the editorial, marketing, sales, and digital strategy people in trade book publishing houses?

To help us figure that out, we’re in the process of recruiting the DBW 2011 Conference Council. That group of about 30 people — CEOs, digital strategists, and marketers from publishing houses large and small, agents, retailers, and independent industry thought leaders — will help us define the panels and choose the speakers that can enlighten and inspire. I’ll introduce you to that group in a future post; the team is in formation at the moment.

Today’s blog is to recruit the readers of The Shatzkin Files to help too. I hope you will.

Here are 15 topics, or speculations, we’ve identified to start building an agenda for discussion next January. Do you have any thoughts on any of these to refine our thinking? Some of these are ideas looking for examples: do you know particular people or companies doing things suggested here (or not suggested here) we should be highlighting? And, most important, what are we missing?

1. What’s going to be in an ebook? We’re definitely moving past the stage where the ebook is a “straight lift” from the print: half-titles, blank pages, and all. As ebook sales are rising, publishers are paying more attention to presentation and quality control. And there have been a few experiments with “enhanced ebooks” that contain added content and features, some of which are presenting books as “apps” to increase the functionality that can be offered. Where will we be drawing the line between “standard” new ebook features — dictionaries and linked notes, for example — and enhancements that might be worth extra money? And what enhancements will we see working in the sense that consumers see them to be worth paying for?

2. What will ebook sales channels look like eight months from now? In addition to the main ones we have today — Kindle, iBooks and the App Store, Nook and B&N, Sony, Ingram Digital and Content Reserve — will we be seeing substantial sales through Google and the Android marketplace, B&T’s Blio, and Copia as well? Will the mobile phone service providers be creating retail outlets that matter too? Will the retailers newly in the ereader game — Walmart and Costco and Best Buy — also be motivated to create a branded outlet of their own to sell ebooks?

3. To what extent will publishers view single-title marketing as a practical endeavor? We’ve maintained that title-by-title marketing is the Achilles heel of general trade publishing and that the steady erosion of book-format-oriented marketing opportunities (book review pages in newspapers, radio and TV talk shows) and verticalization call for different marketing strategies. Where will publishers’ thinking be next January on the challenge of launching each new title into the marketplace?

4. How much progress will publishers be making on establishing direct-to-customer contact? What has characterized trade publishing is its dependence on intermediaries to reach the market. And what has made trade publishing possible is the leverage provided by those intermediaries, allowing publishers to reach millions of readers through mere thousands of touch points. But all publishers today acknowledge that the intermediary structure is breaking down and direct contact with end users is necessary. How is that working out? We may need two panels to answer that question: one of niche publishers that will find it pretty natural to do and one of general trade publishers who will undoubtedly find it very hard and complicated.

5. How important is the mobile phone market? How fast is it growing? What kind of books work best on it? And what do publishers have to do differently to please that market than what they do for larger-screen PCs, tablets, and ereaders?

6. How are publishers tackling the shrinking marketplace for printed books? Are they shedding warehouse space or considering consolidation with other players? Are they renegotiating printing contracts, reconsidering what constitutes a “minimum run” or acceptable print book margins? Are they developing new short-run and POD models to complement their prior pressrun models? Are they launching any new books with a no-pressrun strategy?

7. How much progress are publishers making toward changing their workflow, so that we have “ebook first” editorial processes? Since the beginning of ebooks over a decade ago, the standard technique has been to make them after the print book has been completed, and for the editor and author to focus their efforts on making the best possible print product. There is an increasingly widespread belief that this is backwards, and more complex ebooks help make a compelling argument for reversing the order of things. How far will we have moved in that direction by next January?

8. Does the growth of ebook sales change the thinking of publishers and agents about the efficacy of dividing up the territories for single languages? Do publishers start to see a growth in offshore sales facilitated by ebooks? Anecdotal reporting by O’Reilly, which owns global rights in all its titles, suggests that they’re seeing big sales growth in digital from markets that are hard-to-reach with print.

9. Do non-US publishers start to establish more of a sales presence in the US exclusively through virtual means? We’ve been suggesting on this blog that the growth of online sales — print books and digital books — will soon enable reaching a majority of the US sales potential without inventory, which means without the need for a warehouse or a distributor. That should lead to greater penetration of our market by offshore publishers, in all languages. Will we see enough signs of this by January 2011 to build a discussion around it?

10. How does the future look for the brick-and-mortar bookstore marketplace? On this blog (and elsewhere), concerns have been expressed about the impact on bookstores of the increasing shift to online purchasing for both print and ebooks. Christmas 2010 is being viewed in the consumer electronics industry as the “ebook Christmas”. When we’ve had a chance to digest the sales numbers of new devices and we combine that with what we know about the impact devices have on a consumer’s print book purchases, how do we see the future of bookstores when next January rolls around?

11. Is “profitable self-publishing” an idea gaining credibility or is it a pipedream? In 2009, author J.A. Konrath made a bit of a splash when he blogged about the substantial revenues he was earning putting his short stories and out-of-print backlist on Kindle without a publisher. Will there be more stories like this by January? Will this look like a viable option for established authors?

12. What’s the best approach to ebook distribution for small and mid-sized publishers? Will the original DADs (digital asset distributors) like Ingram Digital and LibreDigital provide the full service suite and sales effort that smaller publishers need? Or will the publishers-as-distributors model — notably including O’Reilly, who went into the business last February, as well as trade publishers and trade distributors like Perseus and NBN and Ingram Publisher Services, be the better option? How much is effective ebook distribution dependent on technical competence and how much of it requires sales competence?

13. After many years of discussion, are we yet beginning to see some new revenue models with any impact, like subscriptions (Disney has tried it now, in addition to O’Reilly’s Safari), selling books by the slice, or new models to compensate for library lending? We know that publishers need metadata-labeled fragments of their books for marketing purposes, but, for trade publishers, is there yet any indication that there’s a real payoff for that kind of tagging in sales revenue?

14. How much of the print backlist is still locked up by rights issues and what impact can different royalty offers have in clearing it up?Jane Friedman’s Open Road has had some success signing up established backlist for higher ebook royalties than the majors want to pay. Is the reservoir of candidates for this treatment substantial? How are agents and big publishers going to resolve these issues?

15. Is the notion of publishers building vertical presences on the web, so often expressed and promoted on this blog, gaining any significant traction in the real world? How are Poetry Speaks and Oxford Bibliographies Online and the forthcoming Pixiq from Sterling doing at establishing a new publishing model? What other examples are emerging or will emerge of publishers using delivering vertical solutions to create new business models?

At the Digital Book World conference, we want to be strategic and we want to be practical. And we want to be focused on the real-world problems digital change is forcing trade publishers to face. Have we left out any of yours?

I have finished this but not posted it yet and am already thinking of things I left out. A substantial publisher I spoke to last week learned from having his trip to the London Book Fair cancelled that he doesn’t need to go there anymore. This company has already given up its BEA floor space in favor of a meeting room. And this CEO himself is no longer going to go to Frankfurt and can see the day not far off when his company will no longer take space there either. Are trade shows  an anachronism in the age of digital communication? I have a feeling you readers and the Conference Council will think of a lot more.

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This is the third of four posts covering the subject matter of an address I had hoped to make to the Publishers Association in London on April 28 but which was cancelled by the Iceland volcano. In the first post, we explored the nature of change in publishing and I tried to underscore how much disruption technology can cause in media in a 20-year period. In the second post, I sketched a vision of what I thought the communication ecosystem will look like 20 years from now. In this post, I outline what I expect the new prevailing model will become and look for some current efforts that point to it. And the last post in this group will take a more short-term view and discuss some changes we might expect to see in the next three years.

Over the next 20 years, the power to put books on store shelves — or, for non-trade publishers: the power to put “books” into people’s hands by other means — will lose its leverage. It won’t provide marketplace advantage anymore. And furthermore, the channels of remuneration for content won’t be book-specific, so there will be no particular efficiency and probably some competitive disadvantage to being a specialist delivering books, or content in book-length and book-form.

At the same time, and not necessarily connected, content-and-community worlds will become increasingly evident on the Web. An advertising agency in New York called Verso has already seen the opportunity in creating vertical “channels”: collections of 100 or 150 web sites that are topic-specific. Their first thought was to sell publishers on targeted advertising campaigns working those channels. I am sure many more opportunities to market through those logical and topic-selected collections of sites will become evident over time.

What I’m imagining is that web “front ends” will develop to all these subjects. Google is one way to search for Paris, France, and find double-digit millions of possible pieces of content. But the concept of a thoughtful and organized AllParis.com (instead of the ad-driven uncurated link farm you get from that URL now) seems inevitable. Imagine that everything that today has a Wikipedia entry had organized and crowd-enhanced access to bloggers, references, lists of books, related travel information, and, most of all, connections to the people who were thinking, writing, researching, and living out that thing. I believe that’s will we’ll see develop over time, organically and driven by commercial awareness as people how to make money by fostering it.

There are a handful of signposts to what I’m thinking about in our experience already. The most fully developed version of this vision is the Publishers Marketplace community built, from scratch and with no outside capital at all, by Michael Cader. Starting with one of the earliest, and still one of the best-executed, versions of a daily newsletter built on links to the most relevant posted content of the last 24 hours, Cader has built a community of thousands of members paying substantial fees for the benefit of being part of it. I could do a whole series of blogposts on the Marketplace site alone; I won’t. But if you’re a publisher seriously trying to envision a future, you should spend some time with it. And keep two things in mind:

1. He did it with no money.

2. He did it by using content as bait, to attract eyeballs, and he monetized the community.

Michael Cader has a very unique set of personal skills that enabled him to do it with no money. But the process of content as bait to attract the eyeballs and then providing tools, features, and databaes to monetize the community is one we will see replicated many times in the next 20 years to build many brands that will, in effect, be the publishing community of the 21st century.

Another example of doing this right that has recently debuted is from Sourcebooks and it’s called Poetry Speaks. Dominique Raccah, the Publisher (and owner) at Sourcebooks, has published poetry successfully for many years. She’s also navigated the world of sound, selling CD-and-book packages for well over a decade. Maybe that helped, or maybe it was just “vision”, but in Poetry Speaks she’s created a site that is “open” to all poets and poetry publishers. It provides tools and it provides reasons for the poets and the fans of poets and poetry to gather and interact. Yes, the site sells poems and books and audios, but “buy this book” doesn’t hit you in the face. Poetry does.

Our client Sterling Publishing is moving ahead with a web community initiative based on their publishing assets in photography. Joe Craven, who spearheads new business initiatives, looked ahead to the sales decline of their key lists in that subjects. He figured it was worth a shot to put lots of content on the web for free, attract a community, and then try to monetize the community. As a result, there will be a major web effort launching this Fall. Pixiq will use an editorial team already in place to build out a web presence, using legacy content, acquriing content through relationships they had developed from long experience, and leveraging professional and semi-professional connections built over many years of publishing to the audiences of professional, semi-professional, and amateur photographers.

Oxford University Press has just launched a new initiative which represents another way to develop a vertical called Oxford Bibliographies Online. They’re using their considerable academic expertise to delivered curated and constantly updated bibliographies by subject as a subscription product. This is brand new and just announced, but the idea has promise as one that will give them a unique position in each discipline for which they implement it and which can be a component of a vertical strategy in less academically-intense areas. Although the OUP initiative will garner subscribers mostly from institutional library customers, one would think Sourcebooks and Sterling will watch OBO with some interest. Surely, the function of curation being served here will be applicable to Poetry Speaks and Pixaq as well.

Both Sourcebooks and Sterling are aware of the fact that the web activity they are generating to create these communities can also be useful to sell books. But in the forefront of their thinking is  ”the community”: what people they are trying to attract and what they can give those people that will make them come, stay, create value, and perceive value. The fact that any thought of immediate book merchandising is secondary is what makes these initiatives stand out to me. And both of these sites will, in time, develop real business models that are hardly dependent on content sales at all. That’s already true of Publishers Marketplace.

By creating a brand and a community for their sites which is really independent of the parochial interests of their own publishing programs, it makes it much more likely that Poetry Speaks and Pixiq can, in time, become important components of their competitor’s marketing efforts. Which side of that fence do you want to be on for the most important subjects you publish?

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This is the 2nd of a 4-part post spelling out what I would have said if I had appeared at the Annual General Meeting of the UK Publishers Association on Wednesday, April 28, and not been cancelled by a volcano. Part 1 set the stage, spelling out how much change can take place in 20 years. This post offers a vision of the world of information and entertainment (or what we today think of as the world of “content”) 20 years from now. Part 3 will suggest what a publisher’s role can be in the new paradigm and Part 4 will take a shorter view, looking at the change we should expect in the next 2 or 3 years.

If we accept that 20 years is time for things to change a lot and with the belief that the pace of change in the world of information and entertainment is accelerating because of digital technology, here’s a view of what happens to content, audiences, and what will pass for “publishing” 20 years from now.

I’d expect that 20 years from now, the “local” hard drive will be relatively unimportant: a relatively short-term “emergency” cache for the rare moments when you aren’t easily connected to the network (the internet.) Data — all data, including everything you think you “own” — will live in “the cloud.” Kids in 2030 will find it as quaint to think of not being able to get at your files except by getting to your own computer as kids today would think it was to not be able to call somebody unless you could find a phone booth and they were at home (which was the situation 20 years ago.) Local storage may be seen by some as a virtue, but it is a virtue manufactured of necessity. It’s actually a hindrance. We will very shortly expect to get at all our files at any time based on a password or an iris scan or a fingerprint or some combination thereof (depending on our need for security.)

And we’ll access those files through a multiplicity of devices, which by then will really just be screens of varying descriptions with online access. There will be big ones that hang on our walls for us to watch movies on and to put a Picasso in when we’re not watching a movie. There will be small ones, foldable ones, and ones that come in rolls where you can use whatever roll width suits your immediate purpose. With your password, you’ll be able to use my screen for your data, just as you can use my computer to get at your gmail account today. There will be screens you can write and underline on which will store your markings (to share or not, as you choose.)

(I don’t want to get into the fact that we’re working toward converting a phone conversation into having the hologram of the person on the other end in the room for your chat, and I don’t know enough to know the timetable for that, but maybe we’ll get there in 20 years too!)

When screen technology progresses sufficiently, the idea of using paper will become a total anachronism. Paper won’t record and store your notes or annotations; screens will. For any volume of content, paper gets heavy. Screens don’t. If you could call anything up on a screen in your pocket that you could get today on paper, why would you want the paper? Nobody will, except for the artistic value that is associated with antiques. Paper won’t even be as good as a screen for your grocery shopping list. (I am imagining that my wife would be able to add an item or two to the screen list I have folded in my back pocket while I’m walking to the store.)

Even illustrated and coffee table books will be just about defunct, except as pure works of art. Screens will be able to deliver better image quality with more flexibility: to blow up the image, or rotate it (which you can see in the “Elements” ebook on the iPad today.) Screens can deliver you the accompanying text on top of the image for you to read it and then “take it away” for you to see the image alone. Books can’t do that.

Now, if this becomes true, it obviously changes the face of publishing. If distribution of all content is digital, and it is hard to see why it would not be, then the list of businesses that exist today that won’t exist in 20 years is a long one. Bookstores will exist, but they’ll be curiosity shops carrying used books and perhaps a handful of printed-on-demand newer items for the few print-pervy holdouts that remain (and 20 years from now, there will still be some.) It is hard to see survival for newsstands. Printing may still exist for packaging, but it won’t for newpapers, magazines, or books (except for the handful printed-on-demand.)

The change for publishers, though, is far more profound than a simple change in delivery mechanism would suggest. Publishers, indeed all commercial media in our lifetime, have been defined primarily by format. Some do books; some do magazines; some do newspapers. Others called producers do movies or television or radio. The capital and skill set requirements for a format effectively channeled the media company. For the most part, big media was not topic- or subject-specific; it was format-specific.

But when the exchange between publisher and content consumer becomes a file, rather than a book or magazine or movie or TV show, then format becomes irrelevant. A file can hold any of the formats we have historically thought of: text, photographs, diagrams, maps, video, audio. A file can also hold games and productivity software. So the publisher that is limited by the formats of the 20th century will not be competitive in the cloud-and-screen based media exchange of the future.

Wrapping our heads around the transition from physical media to digital gives some clues to how publishing and publishers will have to change to survive, but there’s another aspect of the web development we can expect over the next 20 years that is just as important. We call that the shift from “horizontal media” to “vertical.”

We’ve seen that media have been defined by format. The companion thought is that media have rarely been defined by topic or subject. Whether you’re talking about CBS or the BBC, The New York Times or the Times of London, or Random House in either country, the subject of the content is not limited. These companies will cover news, sports, public affairs, science, every academic discipline at some level, and pure entertainment. Except in the spheres where publishing exists in service to or as an extension of another establishment (educational, academic, professional), the primary identify of most publishers of scale is by their format, not their audience.

But we already see that the Web has changed that. Even superficially-”horizontal” brands on the web — Huffington Post and Gawker being two examples that are popular in the US — serve pretty specific interests (politics and celebrity, respectively, in these two cases.) And there are far more examples of new successful web brands which are subject specific: on sports, politics, women’s interest, health, crafts, cars. These businesses are built, first of all, on repeat visitors to a particular web site. But when they’re smart, they add user-generated content which turns into databases. They have lengthy comment strings to their blogposts which attract an audience of their own.

And they are building the publishing brands of 2030.

When we lived in a world of physically-produced and hand-delivered content, barriers of cost and scale effectively kept content scarce. It is no longer. Anybody who creates any content today can make it available to the world for no incremental cost if they have a web connection. Lots of professional content creators — individual and institutional — feel it is in their best interest to make content available without charge on the Web (sometimes with advertising support; sometimes not.)  A consumer 20 years ago couldn’t read good writing and watch videos all day about whatever is their favorite subject for free unless they went to a library, where access would be bureacratic and cumbersome. A consumer with a web connection today surely can. All of this inevitably reduces the price anybody can charge for a competing piece of content in any form.

Here’s the important point for publishers to take on board. Content is being devalued by technology. This is inexorable. It is not anybody’s fault. It is not in anybody’s power to change it. The price consumers will be willing to pay for content is going to go down because of the laws of supply and demand. It is true that professional content creators can benefit from efficiencies and cost savings offered by the same technologies, so the loss of revenue doesn’t necessarily translate into an equivalent loss of income or profit. But the general direction is one way: down. Businesses that depend on monetizing the content they create will continue to be increasingly challenged over the next 20 years as they have been over the last 10. This won’t end well for the formula of creating content and selling it.

But if the price of content must inexorably go down because of the laws of supply and demand, publishers should look at what might go up for the same reason. And what will become more valuable over time is the audience looking at the content. Content won’t be scarce and command revenue, but human attention will. As the world verticalizes, the owner or controller of the web community that has (for example) the gardeners will be the one to decide what new gardening content is needed. However it is montetized — by standalone sale, or as part of a subscription, or supported by advertising, or underwritten by a sponsor — the control will belong to the entity that commands the eyeballs.

What all of this means, taken together, is that the successful publisher of the year 2030 will own a web community which is both a principal source of content and provides the audience for it. The community will not be content-centric alone; but we aren’t getting into that in more detail right now because sketching out the whole concept for “vortals” is “out of scope” for this exercise.

The publisher who owns “knitting”, or perhaps “knitting sweaters”, will develop and curate the content and control access to the audience just as surely as a major publisher has controlled access to bookstores shelves or a newspaper publisher to newsstand sales in our lifetimes.

Without bookstores and without any general marketplace dedicated to the sale of “books” as a format, the idea of a General Trade Publisher will have no meaning.

That’s 20 years away so publishers have some time to get from “here” to “there”. But they won’t get “there” by staying “here.”

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This blog and my speeches contain frequent references to what we see as the big shifts the book publishing industry, and some publishers more than others, are feeling. The horizontal and format-specific product-centric media of the 20th century are inexorably yielding to the vertical and format-agnostic community-centric delivery environment for content that will soon predominate.

In that context, we’ve observed that the most general publishers are the most challenged. The distinction between publisher and retailer is blurring; in a decade or two it will be a distinction without much difference. What has always been the source of competitive advantage to trade publishers is leverage; they could reach thousands, tens of thousands, or even millions of customers for their wares through retail channels that aggregated audiences for content creators and curated content for consumers.

The non-trade components of the book business: publishers of textbooks, professional information, databases, and academic content already tended to specialize by subject so the challenge of being audience-specific, a prerequesite to creating community, had already been met. Non-trade publishers had never depended much on horizontal intermediaries. Even in college textbook publishing, which depended (and still largely does) on the college bookstore to actually deliver the product and collect the consumer’s money, the marketing component of the bookstore’s contribution was and is minimal. The publisher works vertically through a network of professors to drive adoptions, and adoptions are what drive the sales.

Trade publishers, which are called trade publishers because they reach consumers through “the trade” network of bookstores, libraries, and the wholesalers that serve them, have been generally alert since the 1970s to the importance of what are generically called “special sales”. Those are sales that come from outside the book trade, often from retailers in other channels. Special sales experts learned pretty quickly that you did better when you had a selection of books for an audience. If you had one book of Jewish interest, you couldn’t do much with it. If you had a dozen, it could make sense to buy a mailing lists of rabbis. If you had one home repair book, you couldn’t afford the cost of setting up relationships with retailers of hardware or construction materials (particularly thinking back to days before those outlets had consolidated into giant retailers like Home Depot and Loew’s.) But if you had a list, then the mutual interest in a relationship was obvious to both sides.

Some publishers specialized. When I was consulting with Wiley in the 1980s as they were developing their fledgling trade program, they brought their philosophy of really covering the needs of a vertical market from sci-tech to trade. They didn’t want just one resume book for job-hunters: they wanted one at every sensible price point and different ones for different kinds of jobs. One day a sales rep called in from the road to suggest that they deliver a book on the cover letters that should go out with resumes. They already knew they had a market through specialized customers of all kinds and through their direct mail efforts. The lists that worked for resume books would also work for cover letter books.

The most “general” of the general trade publishers tended not to develop the same depth of specialized lists. When Wiley considered that cover letter book, they knew they’d be able to sell it very efficiently and they knew it would enhance their relationship with individuals and channel partners through and to which they were already selling a lot of books. Would the cover letter book be big? Possibly not, but it didn’t have to be to make it clearly worth doing.

But the big trade houses were not built that way. And the biggest books, the sexiest books, the most exciting books, don’t tend to be in niches. In fact, niche identification can dampen sales in a general trade market. The CEO of a major house told me a couple of years ago that he didn’t want to label a book that could become a betseller a “mystery” title. Mystery was a “category” (read: “niche”) and, while those books tended to meet theshhold expectations more readily, he perceived them as harder to break out to the sales levels they could achieve if they were perceived as unique.

We are now seeing the early signs of what will soon be a tendency, then a trend, and then a stark reality: you just can’t sell as many copies of most books if you don’t have a proprietary position with a vertical audience. The early signs are evident through companies like O’Reilly Media (computer programming and technology), Hay House (mind body spirit), Chelsea Green (sustainable living), Harvard Common Press (cookbooks and pregnancy-childbirth), and F+W Media (several niches, including writers and crafts), which have special retail channels and huge email lists of individual customers that the big houses simply don’t. Niche by niche, the big houses will find it impractical to publish in areas that were once productive for them. Their need for each book to be “big” individually — for the single title to provide its own critical mass — works against what you must do to be “big” in a niche. To do that requires a more across-the-list kind of thinking that is counterintuitive to a company that makes the lion’s share of its sales through trade channels.

So for just about all the books that aren’t novels, memoirs, celebrity-driven, or epic works of popular history or politics, trade publishers are increasingly handicapped. Unfortunately for them, things are going to get worse.

The obvious problem is that the capacity of the general trade market to merchandise and move product is diminishing. I hate to invoke the old wisdom that many things happen “gradually, then suddenly”, but it is often true and we have been gradually losing bookstores for the past decade. What happens to the economics of the big publishers if we lose a big chunk of superstores pretty suddenly?

I recall a dinner conversation with the Chairman  of a large diversified multi-niche publisher two years ago. Even back then, we were speculating about the possible sudden demise of Borders. (Hey! It hasn’t happened; maybe we were wrong!) My dinner companion said, “you know, Mike, we’re as diversified as a publisher can be, but if Borders went out, we’d definitely feel it. It would really hurt us.”

“Temporarily,” I said. He needed me to explain.

“Sure, you’ll suffer a bad debt if they go out. That hurts right now. But over the next couple of years, you’ll get a lot of cheap and useful assets from competitors of yours that couldn’t withstand the blow. By a couple of years from now, you’ll be ahead.”

“You may be right,” he said.

So even with the obvious problem, a multi-niche publisher has a big advantage over a general publisher, just as it does over smaller niche players. But the ground for the general publishers is about to shift in ways that will be even more challenging.

Because “book publishing” in an increasingly vertical world is less and less about content sales in the unit of “books” (although that will be the lion’s share of revenue for a long time) and more and more about sales bigger than the book (databases that stretch across many books and other things too) or smaller than the book (chapters or fragments that naturally stand alone or which address a particular content need.) The iPhone app as a unit of delivery is accelerating the latter trend. The value of a database across titles has long been demonstrated by O’Reilly’s “Safari” offering, which generates more revenue for them than all but one trade account.

As the percentage of a publisher’s revenue that is generated by fragments and aggregations rises, so does the value of being vertical and, especially, so does the value of a direct relationship with the end users. The fragments piece is especially important, especially challenging, and requires new ways of thinking (and perhaps new contracts.) For example, Dominique Raccah, the visionary leader of Sourcebooks, whose Poetry Speaks is building a model for vertical community building, has found that many publishers of poetry aren’t sure they have the rights to license her vertical to sell individual poems! Does that mean she has to go directly to the poets for those rights? And how long will it be before it is more important to a poet to have their individual poems available for sale on Poetry Speaks than to have them available in a publisher’s collection bound as a book?

Bruce Shaw, the longtime empresario of Harvard Common Press, is demonstrating another aspect of this thinking that we’ve expected for a long time but hadn’t seen in practice before. He told us about a macaroni and cheese cookbook his house was considering for publication. Normally, Bruce reports, that’s a subject they’d skip because it just isn’t distinctive enough to make the ambitous sales targets he normally sets for print publications. But, in this case, he’s doing the book because his overall recipe database (all the thousands of recipes HCP has published in over 30 years in business) is light on mac and cheese recipes. So he’s willing to publish the book, knowing he’s going to make less profit than he normally requires, because it is a subsidized way to improve the value of his overall database of recipes.

The question of selling fragments opens up a host of other challenges: figuring out what is a saleable fragment, tagging it with an identifier and metadata, managing transaction costs for a much higher volume or low-value transactions, and retro-fitting accounting systems to process author royalties that will require increasingly complex analysis of smaller amounts of money.

In fact, there is opportunity on what might be viewed as a micro- or nano-level of transaction, too small for even a niche publisher to manage the customer relationship and the transaction. That is going to present new opportunities for our client, Copyright Clearance Center, which we’ll elaborate on in future posts.

There’s a great deal of new opportunity out there but a lot of it is in pennies, not hundred dollar bills.

Let’s hear it for Wifi in the air! This is the first post for The Shatzkin Files filed from an airplane. Boy, did I have fun at Spring Training!

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