Digital Book World

In an indie-dominant world, what happens to the high-cost non-fiction?


I first learned and wrote about Hugh Howey about four years ago. At the time, he was one of the first real breakthrough successes as an indie author, making tens of thousands of dollars a month exclusively through Amazon for his self-published futurist novel, “Wool”. As soon as I could track him down, I invited Hugh and his agent, Kristin Nelson, to speak at the next Digital Book World, which they did several months later, in January 2013.

In the years since, Hugh has had a very public profile as a champion of indie publishing and as a critic of big publishers. When I first encountered Howey, he and his agent had already turned down more than one six-figure publishing deal. Nelson ultimately did a print-only deal for “Wool” with Simon & Schuster, a deal consummated before the big publishers made the apparently-universal decision that they would not sign books for which they didn’t get electronic rights.

This week there was a lengthy interview with Howey done by DBW editor Daniel Berkowitz published on the DBW blog. In this piece, Howey reviews many of his complaints against publishers. According to him, their royalty rates are too low and they pay too infrequently and on too much of a delay. Their authors are excluded from Kindle’s subscription revenue at Kindle Unlimited. Their ebook prices to consumers are too high. And, on top of that, they pay too much rent to be in New York City and they pay their big advances to wealthy authors who don’t really need the money, while aspiring authors get token advance payments that aren’t enough to give them time off to write.

Howey’s observations are not particularly welcomed by publishers, but he has a deep interest in indie authors and, by his lights, is always trying to help them by encouraging them to indie-publish through Amazon rather than seeking a traditional deal through an agent. He has organized the AuthorEarnings website and data repository along with Data Guy, the games-business data analyst who has turned his analytical skills to the book business whom we featured at the most recent Digital Book World this past March.

Howey and I have had numerous private conversations over the years. He’s intelligent and sincere in his beliefs and truly devotes his energy to “industry education” motivated by his desire to help other authors. Yet there are holes in his analysis of the industry and where it is going that he doesn’t fill. Given his substantial following and obvious comfort level doing the marketing (such as it is, and it appears Howey’s success as an author hasn’t required much) for his own books as well as his commercial performance, it is easy to understand why he would never consider publishing any other way but as he has, as an indie author who is “all in” with Amazon. But he seems to think what worked well for him would work best for anybody.

In this interview, Howey says that any author would be better off self-publishing his or her first book than going the route of selling it to a publisher. And he actually dismisses the marketing effort required to do that. Howey says the best marketing is publishing your next book. He thinks the best strategy is for authors to write several books a year to gain success. In fact, he says taking time away from writing to do marketing is a bad choice. Expecting most writers, or even many writers, to do several books a year strikes me as a highly dubious proposition.

It is impossible to quarrel with the fact of Howey’s success. But he makes a big mistake assuming that what worked effectively for him makes self-publishing the right path for anybody else, let alone everybody else.

Howey also has an unrealistically limited view of the output of big publishing. If you read this interview (and I would encourage anybody interested in the book business to do so), you see that he thinks almost exclusively about fiction or, as he puts it, “storytelling”. Books come, like his did, out of an author’s imagination and all the author needs is the time to write. Exposure through Amazon does the rest.

He gives publishers credit for putting books into stores (although he would have them eliminate returns, which would cut down sharply on how effectively they accomplished that). But he thinks stores will be of diminishing importance. (We certainly agree on that.) He gives credit for the indie bookstore resurgence to Amazon, which would be true if you credit Amazon with the demise of Borders that wiped out over 400 big bookstores and created new opportunities for indies. But the idea that Amazon is allied with indie bookstores is contradicted by two realities. One is that the indie stores won’t stock Amazon-published books. The other is that Amazon, now in the process of opening its second retail store, may plan dozens, hundreds, or thousands more to come! We really don’t know. Certainly, very few indie bookstores would be applauding that.

Here’s how Howey sums up his advice to authors.

“Too few successful self-pubbed authors talk about the incredible hours and hard work they put in, so it all seems so easy and attainable. The truth is, you’ve got to outwork most other authors out there. You’ve got to think about writing a few novels a year for several years before you even know if you’ve got what it takes. Most authors give up before they give themselves a chance. It’s similar to how publishers give up on authors before they truly have a chance.”

This seems like sound advice, but it isn’t how it appeared to work for Howey. He published a novella which was the start of Wool and his Amazon audience asked for more. Three more novellas later, over a period of just a few months, and the four combined became his bestselling novel. Six months after he started, he was making $50,000 a month or more and had an agent selling his film rights. Then his agent started selling his book rights in non-US territories and in other languages. Meanwhile, Howey continued to earn 70 percent of the revenues from his ebooks, in a deal Amazon offered that matched what they paid to agency publishers, the biggest publishers. (Would Amazon be paying authors 70 percent if publishers hadn’t come up with that number for agency? Should big publishers get some of the credit for the very good deal indie authors are getting?)

The logic that Howey offers about how self-publishing stacks up against doing deals with a big house is very persuasive, but there are two pieces of reality that contradict it.

One is that, at this time, four years after Howey did “Wool” and eight years after the launch of Kindle, there are no noteworthy authors who have abandoned their publishing deals for self-publishing. (It appeared briefly that Barry Eisler was the first such author, except that it turned out he signed an Amazon Publishing deal after turning down a Big Six contract; he didn’t go indie. And, frankly, while he’s somewhat successful, he’s not a show-stopper author for any publisher.) In fact, Amazon’s own publishing strategy has apparently switched away from trying to persuade big commercial fiction authors to do that and is focused on the genre fiction that is the core of the self-publishing done through them. Howey has been offering the same analysis for quite a few years now but so far, the publishers have lost hardly anybody they care to keep to self-publishing. And we’re now in a period where the split of books sold online (ebooks and print) to books sold in stores (where publishers are beyond helpful; they’re necessary) appears to have stabilized — at least for the time being — after years of stores losing share.

The other is that Howey’s analysis totally leaves out one of the biggest categories of publishing: big non-fiction like history or biographies or industry analyses that take years of research and dedication to complete. Unlike a lot of fiction, those books not only take time, they require serious help and expense to research. In a imagined future world where all books are self-published, aspiring fiction writers give up very little (small advances) and successful fiction authors have the money to eat while they write the next book they can make even more money on doing it the Howey way (even though none have). But big non-fiction books like Jane Mayer’s “Dark Money” (or anything by David McCullough) took years of research to put together. “Dark Money” was undoubtedly financed at a very high level by the Doubleday imprint at Penguin Random House. How books like that will be funded in the future is not covered by Howey’s analysis.

Now, that’s not to say they must be. Economic realities do rule. Howey’s thesis that things are shifting in Amazon’s direction and away from the ecosystem that has sustained big book publishers is correct. He predicts that there will be three big publishers where once there were six and now there are five. I concur with that. As that happens, maybe the big fiction writers will take Howey’s advice.

But that solution is no solution for authors like Jane Mayer or David McCullough. A world without publishers where authors do the writing and the publishing might give us an output of fiction comparable to what we have now. But the biggest and best non-fiction would need another model if publishers weren’t able to take six-figure investment risks to support them. Amazon’s not offering it and neither is Howey. If the future unfolds as Howey imagines it, we’ll never know what books we’re missing.

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If the industry is changing, publishing house structures, processes, and budgets need to change too


A thought kept recurring — one I’ve written about before — while I was learning new stuff at Digital Book World last week. The structure of publishing houses and of the publishing process as it has developed over the past century make some of the challenges and opportunities of publishing in the emerging digital era very hard to address for publishers operating at any degree of scale.

One example arose from the incredibly insightful presentation from Author Earnings’ Data Guy. As most readers of this blog know, Data Guy is the pseudonym for an author-cum-analyst who scrapes the sites of book retailers, starting with Amazon, and breaks down the sales of ebooks (and now print books too) looking for insights. One of the most compelling Data Guy insights shown in what he presented at DBW is the importance of “introductory” pricing for debut authors. What DG’s data strongly suggests is that the odds of a debut author breaking through are increased dramatically by having very-low ebook pricing.

That’s quite a challenge for a conventional publisher who has a one-book-plus-option deal with a debut author. Making money becomes very much more difficult if ebook prices are lowered dramatically. Doing that would almost certainly also require that the print edition for the debut be a trade paperback, not a hardcover, or the stores would feel really disadvantaged by the edition they had to carry. So to adopt this as a strategy, publishers would have to sign all debut authors to contracts for two (or more) books, so the debut could be seen as a loss-leader with a later opportunity to cash in.

Otherwise, the publisher takes a loss on the debut book and then, even with an option, has to bid against other publishers if the debut is commercially successful (which does not mean it necessarily “made money”).

Here’s another way publishing as it is done now structurally precludes using modern techniques. One piece of wisdom from DBW workshops last week was repeated in Monday’s New York Times. Andrew Rhomberg’s Jellybooks enables publishers to track the ebook reading of a book across enough people to draw some interesting conclusions. The Jellybooks data is being used by some publishers, apparently right now mostly in Germany, to adjust marketing spending. Publishers can reduce what was planned to be spent on a book nobody’s finishing, or increase the budget for one which is getting a surprising level of traction. But there is clearly no time, or appetite, for addressing the fact that most people abandon midway through Chapter Five.

Now that there is a tool that enables publishers to understand how readers react to a book, wouldn’t they want a publishing structure that gave them time to use what they can learn to craft a more appealing piece of intellectual property?

Here’s another takeaway from DBW that requires structure changes at publishers. The “transforming” publishers often cited the need to create consumer-facing brands to work for them. Mary Ann Naples mentioned it as part of Rodale’s strategy. Dominique Raccah’s Sourcebooks has created “Put Me In the Story” and “Simple Truths” to appeal directly to consumers, while not trying to make Sourcebooks a consumer brand at all. Marcus Leaver is in the process of reorganizing Quarto around verticals and nesting them in the “Quarto Knows” rubric to create a public face that is logical for consumers.

Publishers need to come to grips with this. Publishing brands — house names and imprints — have always cultivated their B2B reputations. They are about impressing bookstore buyers, library collection developers, reviewers, and authors. They are not about selling to the public. Yet imprints that are not audience-centric are still being created, and most big houses have books for the same or similar audiences housed in different imprints. It certainly won’t always be possible to create new brands that are also new businesses, as Sourcebooks has done (once from a standing start and once by acquisition) and which Quarto may ultimately aspire to do with Quarto Knows. But all houses need to be rethinking their imprint and presentation structures, as well as tailoring their acquisition decisions to fit an audience-centric strategy.

Another point Mary Ann Naples made, citing a speech that Dominique Raccah made a couple of DBWs ago, is that experimentation and failure are a critical requirement for success. One wonders how many of our biggest publishers — which are, after all, corporations seeking profits and measuring their sales and margins quarter-by-quarter — have built that understanding into their internal scorecards. It seems doubtful that employees of big houses are encouraged to try things that might very well not work and then take the learnings on to a next experiment.

We’ve been experiencing the structural barriers to doing the right thing throughout the building of Logical Marketing Agency, the digital marketing enterprise I work on with Pete McCarthy and Jess Johns. One of our core tenets is that valuable market research is now pretty cheap, and it should be done to inform all acquisition decisions and as a first step preceding all other marketing decisions, including the writing of any copy.

Even getting publishers to accept the idea that research should be the first step built into the marketing workflow has been hard, although we’re making progress. We’ve worked with all the Big Five houses, and lots of others, and perhaps 100 bestselling authors. We now see a couple of big houses that are really beginning to see the light. What has been much harder to get across, even though it should become standard practice, is persuading publishers to do research into a topic or author they’re looking to acquire. Only in a couple of cases where publishers were preparing for a possible bidding war have we succeeded in getting publishers to make that investment.

Understanding “why” isn’t hard. There is simply no budget for editors to do research on a book not yet under contract. But there should be a research budget for editors. To not have it means we are requiring editors to invest the house’s money based on hunches and guesses when actual data and facts could be employed. Sometime in the future, we’ll look back at a time when editors had no budget to do research into big acquisitions and wonder what we were thinking. And the answer will be that big houses hadn’t yet matched their structures, processes, and workflows to the new digital realities.

It would be nice to think that big houses are indeed rethinking their imprint structures and acquisition-to-development-to-publishing workflows from end to end, but out of the public eye. The industry is transforming. Each house has to examine itself for how it too should change.

I was flattered that the folks at Bookbub, writing about the marketing takeaways from DBW, ranked my observations about how publishers need to work more effectively with authors on their digital footprints and branding number one. This also points to two really significant structural issues.

One is that publishers sell individual titles, not author careers. Many authors have books across houses, and houses are reluctant to invest in selling other publishers’ books. That creates a real barrier to thinking through and investing in the author’s branding in many cases.

The other problem is this. Even the marketing departments of publishing houses are challenged to keep up with all the opportunities in digital and to think about them across titles and verticals as well as authors. But the house’s normal “interface” with authors and agents is through editors, not marketers. And editors are often not as conversant with these digital issues as their marketing colleagues are.

Some things have to change. Probably most houses need to start schooling editors in digital marketing, at least so they know uniformly more about what authors ought to do to help themselves than the typical author or agent does. That kind of training should perhaps extend to authors as well. But that calls for marketers to be directly in touch with authors and agents, which at the very least complicates the “control” the editors have over those relationships.

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Now Kings of ebook subscription, what will impede the ebook share growth for Amazon?


With the news this morning that Scribd has thrown in the towel on unlimited ebook subscriptions, Amazon is the last player standing with an “all-you-can-eat” ebook subscription offer for a general audience. The juxtaposition of the publishers’ insistence on being paid full price for ebooks being lent once and the late Oyster’s and the now thrice-hobbled Scribd’s (they did a reduction of their romance offering last summer and then cut back on audiobooks to stem prior waves of over-consumption) pursuit of customers with an unlimited-use offer was always doomed. The only hope for the subscription services was that they would grow so fast that publishers wouldn’t be able to live without their eyeballs and would relent on the sale price.

That didn’t happen.

When Digital Reader reported the Scribd news this morning (the first place I learned of it, although I learned a lot more when I saw the Pub Lunch account an hour or two later), they also linked back to a story I’d missed in October explaining that Amazon was fiddling with what they put in their own unlimited sub offer, Kindle Unlimited.

Because Amazon couldn’t get cooperation from agency publishers (which, at a prohibitive and ultimately suicidal price, Oyster and Scribd did), they exploited their ability to deliver ebooks from the non-agency publishers to the max. Or, they did that at first. What Nate Hoffelder of Digital Reader uncovered last Fall was that Amazon was selectively removing those titles as they saw fit, which lowered their costs. (The information that led to this discovery was originally posted as a comment by Kensington’s CEO Steve Zacharius on this blog.)

A lot, if not most, of what Kindle Unlimited “lends” are ebooks compensated for by a “pool” of cash Amazon puts in each month. The size of that pool is solely determined by them and the per-page compensation for those books has inched downwards. Nonetheless, in the aggregate it amounts to a lot of money that is available only to ebook “publishers” (usually indie authors) who give Amazon an exclusive ebook license for the title. The publisher can sell print and audio elewhere, but if they want to share in the KU pool their ebook has to be Kindle only.

The disruptive news that I had missed last October is that a handful of smaller publishers — not just indie authors — are now seeing it as financially beneficial to be Kindle-only for ebooks.

This next bit is reporting what is still a rumor. But I have just been told by somebody who would know that Barnes & Noble will be withdrawing Nook from the UK market. That news is unrelated to the subscription business, but it is additional good news for Amazon.

For anybody concerned about a diverse ebook marketplace, these are ominous developments. With both the biggest ecosystem and the deepest pockets, Amazon can afford to continue to reward ebook copyright owners with increased compensation for exclusivity. As their share grows, it will be increasingly tempting for ebook publishers, be they indie authors or something a bit larger, to take the higher rewards for cutting out the other ebook vendors. And so Kindle progressively builds a better catalog than any of its ebook competitors. Which leads to more market share.

Etcetera. Or, in the modern parlance, “rinse and repeat”.

With Kindle Unlimited now the only “unlimited” ebook subscription play left (although Scribd can still claim a better selection of titles, at least for a while longer), presumably its market share will also continue to grow. As that happens, even big publishers may start to see financial benefits in putting some titles from their backlist into it. (Who knows? Authors, working on a percentage of the ebook revenues, might start insisting on it!) If and when that starts, the challenge for iBooks, Nook, Kobo, and Google to maintain a competitive ebook title offering will escalate.

Presumably, there is some percentage of the ebook market that Kindle could control that would lead to anti-trust concerns. Their share has been growing almost inexorably since the Department of Justice and Judge Cote put their thumbs on the scale a few years ago to punish the publishers and Apple for what they saw as price-fixing.

We will look for enlightenment on this subject from anti-trust attorney Jonathan Kanter at Digital Book World. Is there any percentage of the ebook market that if one entity controlled it would constitute a prima facie monopoly that calls for government action? Or even of the total book market, including print?

Even before we get to whether they plan 100 or 400 bookstores beyond the one they’ve got and the one more they are apparently planning, it is hard to see what will impede the growth of Amazon’s ebook market share. Inexorable growth by Amazon? That’s a topic we’ve been thinking about for years.

I was kicking this post around with Pete McCarthy before publishing it. I’m really struck by a point he made to me. Pete points out that buying and owning units of content has become anachronistic behavior for music and video. Kids today don’t stuff their own iTunes repository. They eventually move from streaming YouTube to subscribing to Spotify. (And that’s why Apple started Apple Music.) Nobody buys videos anymore; we just subscribe to Netflix or take temporary custody of content through an “on demand” service.

So book publishers are probably fighting a rearguard action trying to perpetuate the “own-this-content” model, particularly at relatively higher prices than they could command last year or five years ago.

Of course, that’s what Scribd and Oyster were thinking about when they built their repositories and committed themselves to invest to build a user base. Oyster ran out of time. Scribd has had to trim their sails. Subscriptions seemed like a natural business for Google, but they haven’t gotten into it. (Although they hired much of the Oyster staff, so perhaps that’s a chapter not yet written.)

But Amazon continues with Kindle Unlimited, able to shift their economics without disrupting their business. And, if Pete McCarthy’s insight about the direction of consumer behavior must inevitably extend to books — and renting access to a repository becomes the dominant model replacing owning-your-content — that’s another way they’re better positioned than anybody else to dominate the last mile of book distribution in the years to come. Publishers should always be aware that it’s a risky business to have a business model that contradicts the trends in consumer behavior.

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Agents who come to Digital Book World will learn a lot they can immediately apply


The mission of the Digital Book World conference is industry education around digital change. There is a plethora of programming for this year’s event that will serve that purpose particularly well for literary agents. Of all the people in the industry, it would seem to me that agents would get the fastest and surest “return on investment” for the time and expense of attending DBW.

At the top of the “definitely not to be missed” list for agents are two items: the main stage presentation and breakout Q&A by Data Guy, the stats guru of Hugh Howey’s “Author Earnings” website, and the panel discussion called “Finding Common Ground: How publishers and authors — regardless of what path they’re taking — are working together”.

Really necessary knowledge will also be delivered by Michael Cader, immediately preceeding Data Guy’s appearance, when he reviews the sources of industry data and clarifies what can realistically be discerned from them and what can’t. One more set of information no informed agent can be without will come from Rand Fishkin, the founder, former CEO, and Wizard of Moz, who knows more about Search Engine Optimization (SEO) and explains it better than anybody on the planet. Understanding SEO today is as important for everybody in our business as understanding “advance sale” or “coop advertising” was in years past.

And, speaking of “coop advertising”, DBW will also feature an appearance by Fred Argir, the new Chief Digital Officer at Barnes & Noble. In a conversation with me, he will be laying out some insights from the biggest bookstore chain on new ways they might collaborate on marketing with publishers in the future.

The Author Earnings website scrapes and interprets Amazon data, breaking down Amazon bestsellers by publisher type: Big Five, indie authors, and others. Then AE goes further, trying to calculate what share of the revenue went to authors. Recent enhancements to AE’s data collection have improved the precision of their sales and income estimates. They’re showing steady market share gains by indie authors with their lower-priced books, particularly since in their new contracts the publishers have “succeeded” in preventing discounting from their agency prices.

Any agent trying to advise an author curious about or tempted by self-publishing really must know what Data Guy is up to. This will be DG’s first public presentation. His breakout Q&A will be moderated by Michael Cader, so the most knowledgeable industry perspective will be present as DG delivers his compelling alternative view of our sales universe.

The “Common Ground” panel explores the new reality that author efforts constitute a critical component of all book marketing today. Jane Friedman, the leading indie author Sherpa in our business, will moderate a panel of two agents and two editors with extensive experience working with authors who have published both indie and through houses. Jane Dystel of Dystel & Goderich and Julie Trelstad of Writers House are the agents; Johanna Castillo of Atria (S&S) and Jaime Levine of Diversion Books are the publishers. These five people will draw on recent experience with dozens of authors to help us understand the current state-of-the-art for author and publisher collaboration around marketing.

The challenge of “discovery” or helping readers find their “next book” has been moving up the industry agenda since Digital Book World started in 2010. Rand Fishkin of Moz will be focusing on “choosing the right web marketing channels for your book”. Agents who might previously have pushed for an ad in New York Times Book Review or a 5-city author tour need to understand what is the most effective use of support dollars today. Fishkin’s talk is also expected to provoke a lot of questions so he, like Data Guy, will have a breakout session that will allow attendees to get him to address their personal cases.

There are two other whole categories of information agents need to know about that are big components of our DBW program.

The four additional sessions on marketing could also be considered “can’t miss” for the agent keeping up with the digitally-affected ecosystem: one on ebook pricing; one on tracking “the book buyer’s journey” from discovery to purchase; a third on inbound and content marketing; and a fourth on email marketing. Since authors are critical players on the content marketing front and many also possess substantial email lists , it’s obvious that any agent would benefit from these!

(And on the day before DBW officially opens, when we have a full slate of other programming including our Publishers Launch Kids conference, we have four “Mostly Marketing Masterclasses” — on SEO, audience research, managing paid digital media, and sales data analysis — which are a separate ticket but also worth considering for any agent that wants to do a deep dive into modern book marketing.)

The other big category is understanding the larger ecosystem in which publishing exists, mostly shaped by the biggest tech companies. For the past 20 years, publishing has been increasingly dependent on and has given up a great deal of control to the likes of Amazon, Apple, Facebook, and Google. Those “Four Horsemen” are the ongoing focus of NYU Stern School of Business Professor Scott Galloway, who will describe them and their strategies in a Main Stage talk. Two speakers with a skeptical view of tech’s impact on publishing economics are Jon Taplin of USC’s Annenberg School and anti-trust attorney Jonathan Kanter. Taplin will lay out his theory about how Silicon Valley has steadily devalued content in favor of tech and what the content industry can do to fight back. And Kanter will explore the near-term possibilities for anti-trust activity that could loosen the grip those companies, each bigger than the whole book industry, have on our ecosystem. In the same vein, Jessica Saenger of Germany’s Boersenverein will update us about anti-monopoly activity taking place in Europe that could affect those companies and, since every US company and author gets real revenue from Europe, is important to all of us.

There’s tons more: the company transformation talks (eight of them); author Virginia Heffernan on how the Internet is changing culture as well as how we buy and consume content; a session on sales reporting and analytics chaired by Hachette’s former CMO, Evan Schnittman. And what is actually a core topic for them, every agent needs to hear the panel discussing potential changes to copyright law being chaired by Roy Kaufman of Copyright Clearance Center.

It seems pretty certain that the agent who attends Digital Book World will be better prepared to do the jobs of advising authors about marketing and business, as well as negotiating their deals, than the agent who doesn’t.

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News this week that demonstrates how timely Digital Book World programming can be…and a thought about Amazon bookstores


There are some days that the news I see just makes me feel so good about the programming we’re doing for this year’s Digital Book World. One of those days was earlier this week when the news pointed directly to three items on our program.

As I wrote in the last post, we have an entire unit on “company transformation”, headlined by John Ingram of Ingram Content Group and Mary Ann Naples of Rodale presenting on the main stage. The six other companies are in three pairs for break-out sessions, structured specifically to allow questions from the audience. One pairing is Dominique Raccah of Sourcebooks and Marcus Leaver of Quarto. Both of those companies made real news yesterday that is relevant to their transformation.

Quarto just announced the acquisition of Harvard Common Press. In the announcement, Quarto’s US president and CEO Ken Fund noted that the acquisition delivered Quarto 25,000 recipes. Why would they be mentioning that? Because the transforming Quarto uses its database of recipes both as part of its QuartoKnows information repository and to add power to its This Is Your Cookbook custom cookbook creation service. Quarto’s transformation has already created a situation where the components of books have value in addition to what is delivered by sales of the book in its published form.

Sourcebooks’s news also comes from its custom book creation capability, Put Me In the Story. The publisher just announced collaboration with Barnes & Noble by which those customized children’s books will be offered at 200 B&N stores. PMITS, which licenses big brand children’s books from across the industry for its unique customization engine, has already been a significant contributor to the company’s bottom line. This partnership, which will fuel discovery and awareness as well as sales, should supercharge the growth.

We also are excited to be featuring Fred Argir, the new Chief Digital Officer of Barnes & Noble, for a main-stage conversation, so this is timely news from that perspective as well.

And, finally, yesterday a story hit my radar that is a couple of weeks old but ties right in to a panel discussion we’ve been organizing for months on “Women at the Intersection of Publishing, Technology, and Finance”. The study it references, called “Elephant in the Valley”, contains some pretty shocking statistics about what the tech world is like for women. Our awareness that this was an important subject for discussion had been piqued by the controversy last Fall when the South by Southwest conference (SXSW) first announced a panel to discuss sexual harrassment in the gaming world, then cancelled it because of…harrassment of and physical threats against the prospective speakers! An immediate protest followed, including some big companies announcing they would boycott SXSW unless they corrected their error. That did it. They rescheduled the panel.

We have always been among those who believed that publishing is a female-friendly environment, but we know that women in publishing have to interact with the tech and finance worlds. So we put together a panel to discuss how the world looks to publishing women interacting with reputedly less-female-friendly industries. Chaired by Charlotte Abbott of Abbott Communications, the discussing group will be Dominique Raccah of Sourcebooks, Susan Ruszala of NetGalley, Joanna Stone Herman of investment bankers DeSilva + Phillips, and Katherine McCahill of Penguin Random House. “Elephant in the Valley” certainly provides plenty of grist for that panel’s mill.

It is always a challenge to put together a program that discusses the future of publishing and tech some months in advance. It is really bolstering to see pieces put into place many weeks ago of such current interest as we count down the last 30 days before the event.

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And since I’m posting today, I have a word or two on this.

A Wall Street Journal story has propelled a rumor that Amazon will open 400 or more stores in malls into industry discussion. Nobody really knows whether it is true and, as I write this, Amazon has not commented for the record.

If it is true, then I certainly am guilty of one wrong prediction. When Amazon opened their store in Seattle last year I figured it to be a one-off and a learning experience for them. I have always thought they’d steer clear of bricks-and-mortar for many reasons. One of those reasons, which made more sense when they were much smaller than they are now, is that their stock valuation was based on the fact that they are in future-oriented businesses, not stuck with the pre-internet limitations and cost structures of physical stores.

But, on the other hand, the network of distribution centers they have built could also be a great asset for a retail network. The WSJ story has spawned a subsequent explanation, or rumor, that they’re planning lots of stores, not just bookstores.

You don’t have to think too hard to come up with disruptive things Amazon could do if they made this move. Heres one example. They have a print-on-demand capability. They try hard to get publishers to give them files for that so that they don’t have to rely on publisher supply from press runs. Publishers are highly resistant to that idea, which is understandable. They figure that if Amazon can print their own, they won’t buy from the press run. That reduces the runs and makes all their other business less efficient, as well as probably costing them margin on their Amazon sales.

But think about the implications of POD if Amazon has stores. POD books have never been intended for bookstore shelves. They are in a repository to be manufactured “on demand”. They are often non-returnable because publishers don’t want to pay the (higher) POD unit costs and face returns as well.

But what if Amazon said “make your books available for our POD and we are more likely to put them on our shelves”? Why would they do that? Because the “cost” of that inventory would be a lot less than the wholesale price; it would be their print cost.

That would be a truly disruptive rock if they threw it into the publishing ecosystem pool. It isn’t a reason for them to open up stores, but it would surely be a benefit they could capitalize on if they did. With their infrastructure and resources, Amazon almost certainly could open “profitable” retail stores that would put pressure on other retailers and their suppliers. Whether they’ll see that as an opportunity worth pursuing is what we’re going to find out.

There’s an early-bird pricing deadline for Digital Book World coming up at the end of the day Monday, February 8. For the best discount, use the Publishers Lunch code: LUNCH. The 7th DBW program looks at the Four Horsemen (Amazon, Apple, Facebook, and Google), company transformation, and modern marketing in great depth. And we’re really proud of our Mostly Marketing Masterclasses, running alongside our Publishers Launch Kids conference on Monday, March 7, the day before the “official” DBW. Check out the whole program on the DBW website.

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Transformation of companies and the book industry itself are not just 21st century phenomena


Company transformation is a major theme at this year’s Digital Book World conference. By “transformation” we mean substantial changes in a company’s business model or core competencies or revenue streams. We found eight worthy companies to speak on this subject. Six of them — Houghton Mifflin Harcourt, Ingram, Quarto, Rodale, Sourcebooks, and Wiley — are long-established players in the book business that have changed considerably in some fundamental ways compared to what they were and did ten years ago. Two of them — NetGalley and Diversion Books — started relatively recently to bring digital innovation to the publishing business and have moved considerably beyond their original goals and business models.

What got us started on this whole line of thinking was an article in the Nashville Tennessean last summer about Ingram. It documented what has been a pretty massive transformation over the past two decades from a company that was a traditional book wholesaler to one that has a big technology component providing a variety of services to the global publishing industry.

As Chairman and CEO John Ingram will discuss in detail with me on the stage at DBW, the changes we see today at Ingram really date from the creation of Lightning Print in 1997. The idea of “print on demand” — manufacturing a single copy of a book to order — became extraordinarily powerful when it was incorporated into the supply chain through the global supplier with the biggest network of bookstores and libraries. Ingram could put the book they manufactured this afternoon on an even footing with those titles for which they stocked inventory from publishers. At first this was just for paperbacks with pretty strict limitations on trim size and bulk. As time went by, Lightning improved the technology to deliver much higher quality, color, and hardcovers.

The ebook revolution dawned at about the same time as Lightning began. It didn’t take long for the repository of digital files Ingram held to become an even more valuable asset. It is now called CoreSource, and it drives both POD and ebook distribution.

But, in fact, Ingram had transformed, and transformed the industry, once before. That happened in the 1970s, right about the time I started working full-time in the trade book business. And it is a story that everybody trying to understand today’s transformation would appreciate and learn from.

I had forgotten until I searched that I had written about this before, nearly seven years ago when this blog was brand spanking new. Here’s an edited version of the story as I told it then.

***********************

Before the early 1970s, wholesalers to the trade were local and carried a relatively small number of titles. Their main job was to provide back-up stock of bestsellers very quickly. Most bookstores went directly to the publishers for just about everything else. Baker & Taylor was national, but focused on the library market. And Ingram (which was Tennessee Book Company until the Ingram family bought them) was a small and pretty insignificant player. Harry Hoffman was their president.

Most of those local wholesalers to the trade actually leaned on other business for most of their volume: school supply, library supply, or mass-market books and magazines. They looked to the trade book business for multiple copy sales of a handful of titles that were hot.

The wholesalers’ challenge was that they couldn’t carry everything, and for anything except the top titles, there was no assurance of any demand.

And that created the retailers’ challenge. Most of what they ordered from a wholesaler wouldn’t get delivered. The “fill rate” (percentage of what’s ordered that is delivered) was terrible. On average, it was well below 50%.

The flip side of this was bad for the wholesalers. Most of the orders they got from stores couldn’t be filled, but still required some level of processing and communication to tell their customers what they wouldn’t get. So, cumulatively, they spent a lot of money on the orders they couldn’t make a nickel on.

And here was everybody’s shared challenge: all of this took a lot of time and effort that was unproductive and didn’t get books back on the shelves.

One day in about 1972, a former colleague of Hoffman’s from his tenure at Bell & Howell stopped by to visit and showed the Ingram team a new gadget called a microfiche reader. The reader enabled one to see what was on a piece of film that was about 3 inches by 5 inches and was literally packed with information. What somebody saw in that meeting (and Michael Zibart, a longtime friend of ours who did the buying at Ingram then and is now owner and publisher of BookPage, thinks it was Hoffman himself) was that Ingram could put the inventory count for every book it stocked on a single microfiche. So if somehow the stores could have a reader, they could get the inventory of Ingram’s books mailed to them each week.

(Yes: mailed! Isn’t it amazing how klunky life was before email and the web?)

If stores could see what books were actually there, they’d stop ordering books Ingram didn’t have. And they’d know, with reasonable certainty, what they were going to get when they placed an order. And the very good news for Ingram was that they would no longer have to process orders they couldn’t fill.

The challenge for Ingram was to get the microfiche readers Bell & Howell made, which were not inexpensive, into the stores’ hands. They decided to do that by renting them, asking the stores to pay a monthly fee (memory says it was $10 a month) to have them. So they went to the ABA Convention (American Booksellers Association, which sold the convention to Reed Exhibitions in the 1990s and which Reed turned into BEA) in Los Angeles in 1973 to peddle the readers. They had no idea what reaction they’d get.

It turned out to be overwhelmingly positive. The stores, many of which didn’t yet know Ingram, were enthusiastic about the concept and willing to pay to rent the reader. Ingram was able to charge the publishers for the cost of creating the microfiche (I think that started at $1 per month per title listed). So they created self-liquidating efficiencies which immediately supercharged their fill rate (into the 90s), boosted their volume and customer base, and eliminated lots of waste: the money they spent processing orders they couldn’t fill. As a bonus, Ingram was able to put their unique title number, which they needed to fill an order, on the microfiche so the stores did the “coding” for them, writing those numbers on orders that they sent in by mail. (We didn’t even have faxes yet.) More costs eliminated.

Within a year or two, Ingram was the first really powerful national trade wholesaler. Baker & Taylor, national but much more library-focused, copied the microfiche innovation later in the 1970s. Stores were able to stock backlist much more efficiently because they could single-source multiple publishers and order with much greater frequency.

This was really a transformation story before we thought about companies changing in this way. But it wasn’t just a company that changed that time, it was the whole industry. And it probably was changed more by the microfiche and the growth of effective wholesaling than by any other single thing that happened after that until…Lightning Print.

Two worthy extensions of this piece. John Ingram did a nice little interview with Daniel Berkowitz at the Digital Book World blog.

And my good friend Joe Esposito published a piece about a year ago citing the Ingram microfiche innovation for the significant milestone that it was. Esposito made the further point that what Ingram did for the industry was subsequently what Jeff Bezos did with Amazon for the consumer. That is, of course, particularly ironic, since it was Ingram’s inventory and rapid fulfillment capabilities that Bezos used to get Amazon started.

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Book publishing lives in an environment shaped by larger forces and always has


(Note to my readers. This longer-than-usual post is really two. The first half is a recital of what I believe is very relevant history. The second half is about how things are now. Although I am personally fascinated by the historical context, if you get bored with the history, the bolded text below marks the spot you can skip down to to get to “today”.)

Book publishing has always adapted to an environment shaped by larger forces. That hasn’t changed.

Andrew Carnegie provided a big lift early in the 20th century when he financed a lot of libraries, taking books and reading into every corner of the country. In the 1930s, publishers led by Putnam and Simon & Schuster made “returns” a part of the commercial equation between publishers and bookstores because the depression was making stores especially wary of taking on inventory.

After World War II, the mass-market paperback revolution was made possible by a network of magazine wholesalers (also called “IDs”, or “independent distributors”) who could push product out to hundreds of thousands of points of purchase.

In the 1960s, shopping center development boomed. The mall developers wanted “bankable” entities to sign up for their stores before the projects were built. Banks providing mortgage cash liked national brand names for that purpose better than unknown local entrepreneurs. That fact spawned the mall chains, Waldenbooks and B. Dalton, which each grew into the hundreds of stores by the 1970s. All those new stores opening created pipelines for publishers to fill that made the book business grow even faster.

Then in the late 1980s, Wall Street believed the destination superstore was a good bet and happily financed Borders (which bought Walden) and Barnes & Noble (which bought Dalton) to build out the 100,000+-title store model. This again created huge pipelines for publishers to fill and, unlike the situation when 25,000-title mall stores were proliferating, the orders to fill them went deep into publishers’ backlists.

All of this 20th century growth fit a similar model for publishers, leaning on booksellers to present their books to the public and to manage the inventory in an ever-expanding number of bookshops. So publishers continued to focus on business-to-business marketing, honing their expertise at positioning their titles for reviewers, bookstore buyers, and library collection developers but only occasionally addressing the public, or any segment of any book’s consumer audience, directly. And they continued to focus their sales efforts on persuading stores to make commitments to their books. The ability to get “buys” from the booksellers really drove marketing and revenue.

Then in 1995, Amazon arrived and changed the game in many ways. And we can see in retrospect that the birth of Amazon heralded an even bigger change in the commercial context for publishers. Amazon’s arrival began an era which is now in full flower, where the environment for book publishers is largely influenced by major tech companies for which publishing is a hardly-noticed activity even though their impact on the world of publishing is profound. Although there are certainly others who figure in, the environment today for marketing and delivering books is shaped by what Professor Scott Galloway of NYU Stern School of Business calls “The Four Horsemen”: Amazon, Apple, Facebook, and Google.

Amazon, like booksellers before them, handled the direct relationship with consumers and evolved, after an early period of depending on Ingram for their stock, to staging the inventory to serve them. It pretty quickly became apparent that they were much more disruptive than prior innovators in many ways. Among them:

Amazon operated in an environment without geographical constraints; their sales weren’t constrained by local boundaries like the physical bookstores. They could effectively provide service to customers from anywhere. So even in the beginning, when they were taking such small share away from each of the existing market players that they hardly noticed it, Amazon was building a substantial customer base for itself.

Pretty early in the game, Amazon persuaded Wall Street that it was “different” and didn’t ultimately have to make its fortune selling books. Books were just the key to the first step: customer acquisition. The profits would come from subsequent steps: selling those customers other things (and — the more sophisticated part — selling the infrastructure it was creating at scale). Once the investment community was on board to finance that strategy, Amazon was liberated to price-compete in a way that, it is clear in retrospect, no book-centric retailer could keep up with.

The number of shipping points for Amazon, which have recently proliferated and is now in the dozens at least, grew slowly, so Amazon was inherently more “efficient” with its purchases than bookstores could possibly be. Each book shipped to them had a much bigger sales base than it would in a single store and therefore also had a much lower chance of being returned. At the same time, as they took sales away from brick-and-mortar stores, returns from that side of the business tended to go up, at first because the publishers’ sales forecasting was unconsciously working with a diminishing base, and then later because moving to fewer titles in stock became part of the solution to reduced sales and returns were part of how they got there.

The book-buying public adjusted very quickly to Amazon. For several decades leading to the 1990s, publishers and bookstores had learned that a massive in-store selection was a powerful magnet to draw customers. The choice of books has always been so granular that it is virtually impossible for any retailer to stock everything a customer might want. Jeff Bezos knew and understood that, and he had the vision to understand how an online retailer could benefit from the impossible challenge a brick-and-mortar bookstore faced.

Amazon used a Baker & Taylor database that hadn’t been “cleaned”, so it had a lot of out-of-print books in it. Amazon turned that into a benefit for their customers, because it gave Amazon a platform to tell a searcher that the book they wanted was no longer available if that were the case. (If you just don’t find your book when you search, you would be inclined to look again elsewhere. But if you find it and are told it is out of print, you would perhaps look for a substitute.) Combining that with rigorous “promise dates” telling customers when their books would arrive progressively lured, and then satisfied, more and more book buyers. The less likely the buyers thought it would be that they’d find a book in a store, the more likely it would be they’d just order it from Amazon. In a story we’ve told on this blog before, we learned on a consulting assignment with Barnes & Noble in the first couple of years of this century how dramatically the buying habits of academics had shifted away from store-shopping to buying from Amazon.

By the end of the first decade of this century, the future had arrived with a vengeance. Amazon dominated the rapidly-growing ebook business, driving the publishers into an embrace with Apple (one “Horseman” come to save them from another) that brought them into conflict with the Department of Justice. And then Borders, one of the two dominant national bookstore chains and proprietors of more than four hundred 100,000-title stores nationwide, shut down, taking a big double-digit percentage of the nation’s bookstore shelf space with them.

The collapse of Borders had an impact on the publishers’ ecosystem comparable to what the effect will be on sea levels when the Greenland or West Antarctica ice sheets break off: a sudden surge of change reflecting a long-term trend. As Hemingway wrote about the way things often happen: “gradually, then suddenly”.

And this brings us to the world we live in today. Like a frog in gradually heated water, many of us have lived through the change so we may think we’re more adjusted to it than we actually are.

Publishers now live in a world where more than half the sales for most of them — the exceptions are those who are heavily into illustrated books and children’s books — occur online through varying combinations of print and ebooks. Their two biggest accounts — Amazon for online sales and Barnes & Noble for stores — each reign supreme for their channel of the business. (And although Amazon has opened a store and Barnes & Noble has an online sales capability, they are likely to remain the leading player where they are now and much less important in the other channel.) Because they’re so important, they can be increasingly aggressive in how much margin they insist on as discount from the publishers’ price and various merchandising fees.

When bookstores were the distribution path for books, they were also the primary avenue for “discovery”. That was what the big store was about. People could browse it and find things they had no idea existed that they wanted to buy. But, as we all know, “discovery” now is largely an online thing, driven by some magical combination of “search engine optimization”, social media promotion and word-of-mouth, and online retailer merchandising.

So the model that has served publishers for a century, putting out books through a network of stores that both draw in the public and contextually position the books for them (in topical “sections” and some featured placements like windows or front tables), has been seriously eroded. What has replaced big parts of it are online purchases of books “discovered” through a variety of mostly online channels. And that’s where the Four Horsemen become so prominent.

Amazon and Apple are, along with Barnes & Noble, where most of publishers’ sales will take place. Each retailer does its own merchandising, of course. All of them will undoubtedly be increasing the variety and sophistication of its offerings, but will also have different rules and algorithms influencing how they respond to descriptive copy and metadata triggers the publishers will be providing. Understanding how this all this works at Amazon and Apple as well as publishers always did with Barnes & Noble and other brick-and-mortar retailers is a clear agenda item for all publishers. And they get it.

What some are still learning is “the fallacy of last click attribution”. (This is one of the more important nuggets of knowledge I’ve picked up in the past couple of years from my partner, Peter McCarthy, as we’ve been building our Logical Marketing business.) In a nutshell, that means that where somebody buys something is not necessarily where they made the buying decision. If you’re an Amazon Prime subscriber getting free shipping on your books, you go to Amazon to buy regardless of where you learned about the book. And that’s why all four horsemen are so important.

Although Google is also a retailer, a much less potent one than Amazon or Apple, Google’s importance is that it dominates search. And despite the penetration of apps on both the iOS and Android platforms (more everybody needs to understand about Apple and Google), search is still the primary way almost everybody looks for things. Google still has in the neighborhood of 60 to 70 percent of search activity (even though Microsoft’s Bing now powers AOL and Yahoo search). Many of the sales transacted on Amazon and Apple are made because of search results delivered by Google. According to the latest SimilarWeb numbers, approximately 25% of Amazon’s traffic originates as a Google search. One quarter. And Amazon is one of Google’s very largest advertisers.

Google also has an enormous impact on an author’s ability to be part of the merchandising process. Google Plus hasn’t turned out to be much of a social interaction platform, but an author’s profile there can have a big impact on how the author and his/her books rank for search. This has long been true but is not, even now, universally appreciated.

In short, Google Plus author pages are nearly as important as Amazon author pages, a fact totally independent of the traffic either of them gets.

Facebook is the only one of the Four Horsemen that doesn’t (for now, anyway) actually function as a retailer at all, but Facebook is increasingly important to book marketing. Something north of two billion people use Facebook, a billion of them every day. Nineteen percent of the world is on Facebook; forty percent of Internet users. More and more time is spent there by more and more people.

As anybody who uses it knows, Facebook makes it incredibly simple to share content or links. More and more authors and publishers are learning how to use Facebook as a marketing and advertising tool. Everybody’s there. Rule #1 of marketing: fish where the fish are.

So the transactions take place primarily at Amazon, often at Barnes & Noble (still) and Apple, and occasionally at Google. But the drivers to the transactions are Google and Facebook. (And others, of course, but none approaching the importance of those two.) How successfully publishers will sell books in the future will largely depend on how well they master the opportunities presented by Amazon, Apple, Facebook, and Google.

One of the big new opportunities, beyond the scope of this piece to cover in detail but very much part of the new operating environment, is “nearly effortless global” sales. All of the Four Horsemen reach every corner of the planet. The structural barrier there is that the responsible sales operators haven’t historically had to think about many different global sales opportunities.

Another is to make better synergistic use of author relationships. What authors do on Facebook and Google Plus (and a host of other social networks) needs to become part of the publisher’s overall picture of the book and its marketing. And the structural barrier there is that the editor is too often forced to be the conduit for this coordination, a task for which they are neither prepared nor supported.

Operating through and with these behemoth companies is a big challenge for our industry. David Young, who just retired from Hachette UK, shared an observation with me when he was CEO of Hachette US a few years ago. The CEO of a big publisher in the past could always get the CEO of his or her biggest accounts on the phone if necessary. That was no longer true eight years or so ago when he made the observation, talking about Amazon. (And talking about Amazon a few years before Hachette and Amazon had a very public dispute that hurt Hachette sales very badly.)

There are two legacy accounts for publishers that remain critical to their future: Barnes & Noble, the industry’s one omni-channel wholesaler, and Ingram, which began as a book wholesaler but which has morphed into a service provider helping publishers with all sorts of modern challenges, including global distribution, print-on-demand, and now, with the acquisition of Aer.io, the ability to promote and sell through new technology Ingram and Aer.io offer. Ingram, unlike any of the other players, is helping smaller publishers with tools to enable them to punch above their weight. That is likely to be a growth proposition in the years to come.

But B&N and Ingram, just like all the publishers, will have to understand the strategies and activities of the four big companies driving change and creating a new ecosystem for the book business. They’ll also have to do it without a direct line to their CEOs. But, then, not very many publishers were able to get Andrew Carnegie on the phone 100 years ago either.

Digital Book World 2016 has a lot of programming addressing the issues raised in this piece. Professor Scott Galloway will talk about the Four Horsemen. Professor Jon Taplin of USC will analyze how revenue has moved from content creators to tech companies and suggest some ways some if it might be clawed back. Rand Fishkin, founder, former CEO (and now Wizard) of Moz and perhaps the most knowledgeable person in the world about search, will offer the latest insights into how search is being affected by “local” and “mobile” and then have a session to take questions.

Virginia Heffernan, author of Magic & Loss will discuss the cultural and economic impacts of the digital age for content creators.  Antitrust attorney Jonathan Kanter  will look at the relationships among book publishers, major technology players, and consumers from a competitive and regulatory perspective

Roy Kaufman of Copyright Clearance Center will moderate a panel talking about changes in copyright law, something also driven by big players affecting the publishers’ commercial environment. And we have a slew of presentations about companies “transforming” — changing how they do business in fundamental ways while maintaining the revenues that sustain them. That will include a presentation from Ingram Chairman and CEO John Ingram. And Barnes & Noble’s new Chief Digital Officer, Fred Argir, will talk about how they are building out an “omni-channel” strategy and what they can offer publishers in the way of improved digital discovery.

And there will be panel discussions of both the issues we identified as publishing opportunities: global sales and marketing collaboration with authors.

DBW 2016 takes place in New York March 7-9, 2016.

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Big focus at DBW 2016 on the tech companies that are shaping the world the book business has to live in


Realities change.

Ever since Amazon arrived in the “book business” 20 years ago, each year the “book business” has become less and less of a stand-alone industry. Of course, the only part that ever really was a stand-alone was the trade business, where the entire ecosystem: authors and their agents, publishers, booksellers, and even — for the most part — the printers lived in a world of mutual dependency but pretty much standing apart from what went on in the rest of the world.

Amazon actually took advantage of that industry insularity. They developed a business model that used books as a customer-recruitment tool but with the intention of making their profits elsewhere. In ways that were not understood at the time, that strategy was both viable (the book publishing world didn’t believe Wall Street would fund a company nearly indefinitely with current losses to build a future position of strength, but they did) and impossible for a book-dependent business to compete with. (Barnes & Noble and Borders had to make money selling books; Amazon didn’t.)

By the latter part of the first decade of this century, a Big Five CEO in the US delivered this observation to me. “I used to be able to get the CEO of my biggest accounts on the phone if there was something to discuss.” That was no longer possible with Amazon. And, in fact, if he could have gotten Jeff Bezos on the phone, there would have been very little to talk about.

When we started Digital Book World in 2010, we were following closely in the footsteps of O’Reilly Media’s Tools of Change conference, which had established itself a few years before and shut down a year or two after we started. The F+W executives who had the vision for DBW thought ToC was not “practical”; they felt that it didn’t give book business attendees “actionable” takeaways. When we agreed to program a competing event, providing “actionable” programming was our prime objective. We achieved that, initially, by eschewing what we saw as the “cover the tech developments and the book business will figure out how to follow” mindset of ToC in favor of a focus on how digital was changing the world of trade publishing. Our intent has been to concentrate on what publishers need to do to adapt to the change.

This year when we met with our Conference Council to plan the next DBW, they told us our business needed to hear more about the big tech companies. That reflected the reality the CEO observed nearly ten years ago. Our world is being shaped by the big tech companies. And that doesn’t just mean the obvious one, Amazon, which is almost every book publisher’s biggest trading partner. It means Facebook and Google, which have become perhaps our primary marketing mechanisms. And, of course, it also means Apple, which has become the second-leading ebook provider to Amazon.

I was proud to see I wrote this (linked to above) back in 2011:

The point most emphatically made by all of this is that the book business is a cork floating on a digital device stream. We don’t control our environment. We must keep adapting to what bigger players, some of which have pretty minimal bandwidth to engage us in a dialogue and pretty minimal interest in what’s best from our point of view, see as the best strategy for them.

Indeed, we have reached a point where every trade publisher needs a strategy for its company’s dealings with the tech giants. And the forces that might affect the growth, stability, or strategies of the big tech companies, including anti-competition actions by and within the European Union, now call for attention and understanding from publishers in the US who could be affected by these changes.

Since the mission of Digital Book World remains to inform and educate book publishers about how digital change will affect them, we took the hint from our Council and have lined up a number of speakers for DBW 2016 who will shed light on the technology companies that are increasingly shaping the ecosystem in which we live.

We intend to make DBW 2016 the indispensable conference for book people who recognize the need to understand the tech companies we interact with every single day.

We’re really proud to be featuring SEO expert, blogger, and Moz founder, Rand Fishkin, at a book publishing conference for the first time. Search Engine Optimization is the single most important new skill publishers are learning to market their books effectively in the digital environment. And Moz is the single most important tool for Search Engine Optimization. Fishkin arguably knows more about the science of search, local, and mobile marketing than anybody else on the planet. He will deliver a talk from the main stage about what everybody needs to know about search now and then he will also be available for a 50-minute Q&A session in a breakout.

Scott Galloway is a Clinical Professor of Marketing at NYU Stern School of Business where he teaches Brand Strategy and Digital Marketing. One of his primary interests is tracking the biggest tech companies. His talk on the “Four Horsemen” (Amazon, Apple, Facebook, and Google) demonstrates the depth of his understanding. We were really pleased to find an academic who has made a specialty of studying the four companies we identify as most influential in the environment publishers must operate in. At DBW, Galloway will talk about these companies with special attention to how their strategies and future growth will affect us in the book business.

Jon Taplin is a Professor at the Annenberg School at the University of Southern California. He is a veteran of the music and movie businesses, having produced concerts for Bob Dylan and The Band and more than a dozen movies, including “Mean Streets” and “The Last Waltz”. He also has stints as an investment banker and a founder of the first Internet video on demand service in the 1990s. Taplin sees the tech-centric and libertarian Silicon Valley values having gradually taken control of the revenues for content away from content creators, a point of view he spells out in a video called “Sleeping Through A Revolution”. In his talk at Digital Book World, Taplin will explain how tech took control away from content creators and spell out what he thinks the content community can do to fight back and start getting paid more fairly for the quality content that he believes drives the success of many tech companies on the Internet.

Virginia Heffernan is a journalist who writes frequently at Medium and in the New York Times Magazine on the intersection of content and technology. Her next book, coming from Simon & Schuster in June, is called “Magic and Loss: The Internet as Art”. Heffernan sees the Internet as a large collective art project. She will look at how the Internet and digital technologies have changed our fundamental relationship with content. Heffernan reminds us that the Grateful Dead probably began our reordering of thinking about how content creators can benefit commercially from their work, being the inventors of the idea of “giving away” the music (encouraging their fans to go ahead and record their concerts and share the tapes), making up for any lost revenue from sales of recordings by selling concert tickets and branded chotchkes. Heffernan will also explore the impact of ebooks on how people read and the value of books as branding assets and calling cards for professionals and experts.

Jonathan Kanter is an antitrust attorney at Cadwalader, Wickersham & Taft and co-head of the firm’s technology group. Jonathan represents both tech companies and content providers. He is totally familiar with the business models of the major tech companies, including Amazon, Apple, Facebook, and Google. This includes both the benefits they provide and concerns that some of these companies use their position in the market to distort competition to the detriment of content providers. At DBW, Kanter will focus on how book publishers interact with the big tech platforms. He will explain the current antitrust actions pending against big tech companies and the potential impact on US-based book publishers.

We’ve also asked Kanter to talk about what remedies might be applicable here in the longer term to preserve the important services that big tech companies offer to consumers while at the same time protecting the rights and businesses of content creators. Could the government impose rigorous but intelligent remedies that address concerns without destroying the value that these tech companies create? Kanter will spell out how things could get worse for the content industries if there are no controls and explore how government agencies could use enforcement action or regulation.

And we’re working on more. There are anti-monopoly legal actions taking place in Europe against the both Amazon and Google. While Kanter will include those in his analysis, we are also talking to our European friends, looking for the right person to bring us a report from the front on these as well.

Until the last two decades — starting with the arrival of Amazon — book publishing only had to understand itself to plot its strategy. That has changed. Without real knowledge of how the tech world is changing its ecosystem and engaging book-readers with other choices for their information and entertainment, highly-predictable changes will be very surprising. Digital Book World 2016 aims to help publishers build that understanding as the next stage of the digital transition unfolds.

Register now for Digital Book World 2016, taking place March 7-9, 2016 at The New York Hilton.

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It is being proven that smaller bookstores can work commercially


Sometimes it takes a decade or more for an insight to be validated, but it is always nice when it happens.

Around the turn of the century, I was developing a business called “Supply Chain Tracker”, which had a nice client base for a few years. What we did was take the data feeds — Excel spreadsheets — provided by publishers’ major accounts and find the nuggets of insight within them that enabled better inventory decisions.

This followed the logic of one of Shatzkin’s Laws, which in this case is “every spreadsheet is one calculation short of useful”. We added some calculations to make meaningful metrics out of raw data. For B&N’s spreadsheets reporting inventory and sales activity to publishers, two of these were calculating the “percentage of store inventory sold” from the “on hand” and “sales this week” columns and “the percentage of total stock in the warehouse” derived from “on-hand in the stores” and “on-hand in the warehouse”.

My first client for this work was Sterling in the final year that they were independently owned before they were bought by B&N, which still owns them. When we showed our first prototype of a Supply Chain Tracker report to Sterling, we sorted by “the percentage of total stock in the warehouse” and two books popped to the top: 5000 copies with 100 percent in the warehouse! When Sterling’s then-Sales VP (later CEO) Charles Nurnberg saw that he said, “those books have been there since October!” This analysis was taking place the following February.

It turns out that B&N at the time had no systematic check of this metric in their workflow. If a B&N buyer bought five thousand copies and didn’t order a “store distribution”, the books would go into the warehouse and just sit there. It was a hole in their system. And since publishers tended to eyeball the spreadsheets in order of “sales”, looking for books that needed to be replenished, they just never caught this.

When Sterling showed the problem to the responsible execs at B&N, it bolstered the view of one of them that having the publishers intelligently reviewing inventory was useful support for the chain’s buying activity. They became supporters of our Supply Chain Tracker reporting (which we then extended to other accounts: Borders, Books-A-Million, Amazon, Ingram, and Baker & Taylor). But Barnes & Noble was everybody’s biggest account at the time and they offered the most robust reporting, so they were the primary focus of our work.

Let’s recall that the early years of this century were still the years of superstore expansion. B&N and Borders were proudly featuring stores that had 120,000 titles or more. It was precisely because they stocked so many titles and that the great majority of them turned very slowly that they wanted the additional publisher help in inventory tracking, particularly further down the sales ranks. And no publishers seemed more logical candidates for that help than university presses. B&N wanted to stock them more heavily, but their books were predominantly in the slow-turning majority. Distinguishing the books that would sell a copy or two in a store versus the ones that wouldn’t demanded the deep title knowledge of the publisher combined with the insight of well-structured reporting. Our work seemed to fit, so B&N subsidized our relatively expensive engagements providing our reports and tutorials on how to use them to university presses.

What we found as we started analyzing, though, was disappointing and initially surprising to all of us. But, as we thought about it, it was intuitively logical.

The university press titles had effectively stopped selling, even in B&N stores that were near university campuses. Why? Those sales had all moved to Amazon, which, at the time, was barely more than five years old. This first struck us all as disappointing and surprising. But, then, think about it…

The university professor would hear about a book. S/he’d go down to the local bookshop — could be a B&N or another store, didn’t matter — and look for the book. It would almost always not be there. So s/he’d “special order” it and wait for it. It didn’t take long for this to become an expectation, so ordering online became a very sensible default behavior. By 2002 and 2003, when we were doing this work, the battle to sell the obscure book to an audience that knew it was there and wanted it through a brick-and-mortar store was already lost. When you thought about this, it was intuitive, even though none of us anticipated it when we started doing the work.

Cambridge University Press at the time had a sales representative (since deceased) named Steve Clark. He was one of my most engaged B&N-subsidized clients. As we were doing this work and analysis, Clark told me that Amazon was already a bigger account for CUP than all other US retail outlets combined! That was a “wow”. But it underscored the degree to which Amazon had captured market share from the stores on hard-to-find books.

B&N still operated smaller stores that had been in the B. Dalton chain and Borders had a similar chain called Waldenbooks. While B&N and Borders were building out the 100,000-plus title stores, their mostly-mall chains were 20,000 and 30,000 title stores. They were in the process of shutting them down as leases expired.

With full knowledge of the strategy that governed their activity in those days, I said to my principal contact at B&N, “you guys should be figuring out how to use your infrastructure to make the twenty-thousand title store work”. He said to me, “Mike, we’re thinking about the million title store!” In other words, there was no appetite to take on board what we had all just learned to make a big change to the overall strategy. They had fully absorbed and couldn’t rapidly unlearn the lesson first discovered by my father, Leonard Shatzkin, when he was running Brentano’s in the 1960s: a big selection of books is a huge magnet for customers.

Unfortunately, Amazon had already changed that reality in a few short years after their inception. The huge selection was not as powerful a magnet as the online marketplace when the customer knew exactly what they wanted, particularly if it wasn’t a bestseller.

Now, flash forward to the present day. I’ve been fishing for lessons from retailers around the world that might constitute useful insight for the Digital Book World audience. My friend Lorraine Shanley of Market Partners suggested I talk to Anna Borne Minberger, the CEO of the Pocket Shop chain of stores, owned by the Swedish publisher, Bonniers. I got to meet Minberger for a conversation at the Frankfurt Book Fair in the last fortnight.

And, lo and behold, Pocket Shop has taken the suggestion I made to Barnes & Noble well over a decade ago and made it work at an extreme I didn’t imagine. Their tiny bookstores stock only about TWO thousand titles, but they are a thriving chain in Sweden and Finland now expanding into Germany. Their formula is a very small title selection placed in very-high-traffic locations (of particular interest here in New York City where both our main railroad stations are losing somewhat larger bookstores) with highly knowledgeable and helpful staff. I didn’t get into the details of buying, inventory management, and centralized infrastructure support in our Frankfurt conversation.

But, near as I can tell, Barnes & Noble still needs a solution to grow their book business; the strategy today only seems to be about how to profitably manage shrinking it. Particularly if it continues to work in Germany, a market (unlike Sweden and Finland) where online buying is strong and Amazon is a real presence in the market, one would think that the Pocket Shop formula would be even more effective if supported by the B&N infrastructure and branding in the United States. Of course, making a strategic shift of this nature is probably a heavier lift for B&N now than it would have been when I first suggested it many years ago.

But I don’t discern any other strategy that leads to growth in what B&N is doing now. If they don’t try copying Pocket Shops strategy in the US, maybe somebody else will. One could execute on this leaning on Ingram’s infrastructure rather than creating one’s own supply chain. Who knows? Maybe even Pocket Shops themselves would like to give it a try.

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Ebooks change the game for both backlist and export


There are two aspects of the business that ebooks should really change.

One is that ebooks can really enable increases in sales of the backlist.

The other is that ebooks will really enable sales outside the publisher’s home territory.

The second piece of this hardly even requires much effort. At a conference called Camp Coresource hosted by Ingram two weeks ago, Mary Cummings of Diversion Books, which last year launched a romance-only eBookstore app, EverAfter Romance, reported just short of half of EverAfter’s app users are coming from outside the “home” (US) market. Of that 49 percent, only about 6 percent come from the UK and Canada. Of course, Diversion owns world rights on many titles. And the rest of the world has far more than half the people, even far more than half the English speakers, in the world. So the US is still responsible for far more users per capita, but that’s really of secondary importance. Getting half one’s customers from markets that would have been very hard to reach ten years ago — without any extraordinary efforts — is a very new thing.

This global reality comes up in another frequent current discussion. The big publishers are suggesting that ebook sales have plateaued, perhaps even declined. Amazon says “not true”, that ebook sales are still rising. Some analysis, such as what is done by Data Guy for Author Earnings, says that the publishers’ big books are losing ebook share to the indies, primarily relying on data scraped from Amazon to make the case. The most commonly-offered explanations are that publishers’ success forcing higher ebook prices for their titles, combined with a decline in new converts to ebooks (who are inclined to “load up” their devices when they first start reading digitally) account for the apparent trend.

But the comparison can also be skewed. All Amazon sales from outside the US that are not made through a local Amazon store are credited to the US store. And when Amazon distributes indie ebooks, they always (or at least almost always) have global rights. So it could well be the case, and often is, that the publisher-ebooks that are being compared to the indie-ebooks are working on a smaller territorial base for sales. There is an apples-to-oranges problem that makes it difficult to compare Amazon sales of indie ebooks to those from publishers.

The point to capture is that just having ebooks for sale around the globe can bring markets to a customer’s door, wherever the book originated. Any rights management policy that prevents an ebook from being on sale anywhere is likely to be costing some sales.

The backlist challenge is trickier and the results might not be as obvious. Two of the biggest drivers of ebook sales are discovery in response to search and the amplified effect of existing sales momentum in bestseller lists and retailer recommendations. (“People who bought this, bought that.”) A power law distribution seems inherent in ebook sales. Those that sell develop sales momentum; those that don’t remain hidden and buried.

But a lot of that has to do with metadata. Publishers have been getting better and better at writing the descriptive copy that determines whether search engines identity them as an “answer” to the right queries. That means that as you go back in time, the copy is less and less likely to be useful for the purpose.

And there are some realities about budgets and effort allocation in big companies to take into account. The lion’s share, and that means more than 90 percent, of budgets and internal effort allocations for marketing go to the current frontlist. The backlist has many times the number of titles as the frontlist, so a much smaller amount of money and assignable labor is spread over a far larger number of titles. On a per-title basis, there have hardly been any resources available for backlist. And since backlist sales of ebooks have not generally been robust, predicting the ROI necessary to increase those budget allocations requires courage. Or foolhardiness.

Then there are corporate political realities. New books have advocates. There are the editors in the house who signed them and whose careers will be affected by how well they do. There is a publisher for each imprint watching the imprint’s P&L, firm in the belief that very few backlist books can move the needle but that every new title can. And the publishers and editors are also the ones who know the books and tell the marketers what they’re about and (too often) who the audiences are for them.

And, on top of that, publishers often count on backlist sales to be the most profitable precisely because they don’t have to allocate marketing spending or staff time to those books. There sometimes seems to be a fear operating at publishing houses that starting to expend marketing effort on backlist is opening a Pandora’s Box which would compromise the most profitable aspect of their business.

But there are hopeful signs that this is changing.

Carolyn Reidy, the CEO of Simon & Schuster, keynoted the recent annual meeting of the Book Industry Study Group by underscoring how S&S has changed its approach to capture backlist opportunities. Reidy made the point that between print bought online and ebooks, more than 60 percent of the company’s sales came from Internet channels. She said that at S&S’s weekly marketing meeting, which I’m sure was almost exclusively frontlist-oriented until very recently, they are now looking at their books “through a lens of daily opportunities”. That could include noting it if a book is listed for a prize or mentioned on a TV show or in a tweet by a celebrity. The chances that a book will be discovered by somebody searching for the book that way are multiplied if the book’s descriptive copy points the search engines in the right direction.

This is an approach we first saw for ourselves at Open Road Digital Media a few years ago. Their “marketing calendar” focused on holidays and predictable events like graduations, not the publication dates of forthcoming books. Of course, Open Road didn’t have any frontlist at that time. All the books they acquired in the early days of the company were backlist for which digital rights were somehow available. They made a virtue of a deficiency. But marketing the backlist in the light of the most current “daily opportunities” is precisely the right thing to do.

It is worth noting that when Reidy spoke at Digital Book World in January 2014, she pointed to the opportunities in global. In the prior year, she noted, S&S had sold ebooks in more than 200 countries.

Recognition of an opportunity is a necessary first step and assigning human and capital resources to pursue it is the second. But the biggest publishers are also going to need digital tools to fully exploit what is now open to them. When we looked at what Open Road was doing, they had about 1000 titles in their shop, all of which had just been acquired by the team in place. They could keep them in their heads. The biggest publishers have tens of thousands of titles in their backlists, many (if not most) of which were acquired and launched by editors and publishers who are no longer in their employ. Many of them have old and out-of-date descriptive copy which is not readily updated because nobody working there now knows the book.

It will soon be seen as necessary to employ technology to monitor the news and social graph and to “bounce” the results of each “daily opportunity” off the possiblities in the backlist. It will for quite a while longer still require humans to do some targeted research into what today’s relevant search terms are and to write the descriptive copy that will respond to them, but technological assistance will multiply the effectiveness of the human efforts.

We should expect the backlists to start increasing their share of every publisher’s annual sales. And we should expect offshore ebook sales to do the same.

There are recent reports from the US and UK that print unit sales are up while ebook unit sales are down. This is being celebrated by some as an indication that book consumers are turning away from digital reading to go back to print. Perhaps because I intuitively find this so unlikely, I can think of caveats.

The presumed reductions and growth are very small and the measurement techniques are pretty crude, so there is an accuracy question. But we also know — as was referred to in the main body of the post above — that new ebook converts tend to “load up” their digital device when they start reading that way. I believe the purchases at first are somewhat “aspirational”, but then settle into a rhythm more like replacement. So ebook purchases are inflated in relation to ebook consumption early in one’s ebook-reading “career”. Fewer new ebook readers each month (which we certainly have) mean fewer people loading up.

Of course, print book sales actually rising, which is the implication from the recent data, is an independent marker that, if borne out over time, requires another explanation and that would be one that I don’t have yet.

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