Direct response

Two announcements made in the last two weeks caught our attention.

One was Simon & Schuster’s deal with Author Solutions, creating a new Archway Editions publishing imprint. This was the third such major deal with a publisher for ASI, following similar arrangements forged with romance publisher Harlequin and Christian publisher Thomas Nelson (now owned by HarperCollins).

The other was Publishers Lunch’s deal with Random House, creating the new online bookstore-lite, Bookateria. This was the second such major deal with a heavily-trafficked website for Random House, following a similar arrangement forged with the political site, Politico.

Of the two, the S&S-ASI connection offers less obvious benefits. ASI has apparently built a remarkably efficient engine to get a book delivered from a manuscript. And every publisher has many times more authors knocking at their door than they could possibly consider publishing. And many of them will never find a publisher so would be good candidates for self-publishing services.

But there are both ethical and practical commercial challenges to converting author aspirants who come looking for a deal to customers willing to buy self-publishing services. ASI seems to have persuaded publishers that the conversion works enough of the time to make the connection between publishers and ASI worth making. Let’s remember that the Harlequin and Nelson deals preceded both the acquisition of ASI by Pearson and the deal announced last week with S&S. Presumably, S&S and Pearson knew something about the results from those prior deals and were proceeding with some evidence that using a known publisher as a front door for self-publishers was an idea that works.

On the other hand, neither Nelson nor Harlequin has trumpeted the results of their ASI deal and authors may notice that the legions of successful self-publishers (John Locke, Amanda Hocking, Hugh Howey, Bella Andre, and more than a few others) seems bereft of ASI clients.

There are more questions than answers generated by these deals so far. It appears that the publishers really have nothing to do with their new customers aside from bringing them into the tent. (S&S says in the press release that they’ll be watching the sales of Archway books to see what authors it might want to sign for the house. But isn’t that what every big publisher should be doing across the self-publishing landscape right now?) Will the association with self-publishing damage the core publishing brands? Will the publishers feel some ownership of the self-publishers from whom they profit? Will real synergies develop between the publishers and their ASI connections, or will this remain largely a branding trick?

While all of that remains to be seen, if the ASI-publisher connections deliver revenue to publishers with little or no effort on their part, other publishers will be open to doing the same thing. The question is whether they do.

It is not difficult to discern the value delivered by the collaboration between Publishers Lunch and Random House to deliver Bookateria, a search-and-shopping experience with a Publishers Lunch perspective. It gives Lunch an easy way to deliver real convenience and value to its audience and modestly monetize it at the same time. And it further tests and proves the concept Random House first demonstrated with Politico. By delivering the tech around a pretty complete catalog of available books able to be monetized through affiliate relationships, Random House has created a “product” that any web site with substantial traffic can benefit from in the way Lunch now will.

Publishers Lunch, because it is constantly reporting book news, has more opportunities than the average site to link to purchase pages for a book it is mentioning. It regularly refers to various and sundry lists of award winners and top sellers and it makes nothing but great sense for them to make purchase of these books easy (and make a little money at the same time.)

It may be (and I’m not on the inside of any of these deals; aside from our partnership in Publishers Launch Conferences, Michael Cader of Publishers Lunch runs his businesses and I run mine) that Publishers Lunch is taking a more active role in merchandising books than Politico is. That would make sense. Books are PL’s business, and they have to both be thoughtful and appear thoughtful about how they present them. And since this capability is probably at least as much about providing utility to site visitors as it is about increasing revenue, the merchandising would want to reflect the site’s knowledge and point of view.

I have long believed that book and ebook distribution would ultimately follow the web’s innate tendency to verticalize audiences. Why wouldn’t you buy your political books or sports books or knitting books where you learn about them and be guided more by recommendations of “domain experts” than “book experts”?

I had visualized this verticalization working out from a publisher, which would use its content to attract audiences which it would then monetize many ways, including by selling them books and ebooks of its own and from other publishers. To varying degrees, this is what I saw unfolding with Hay House, F+W Media, Osprey, and Harlequin with the most highly-developed Big House example being Tor Books inside of Macmillan.

Some new propositions — notable among them being the still-promised book retailer Zola and the distributed sales “apps” from Impelsys and Ganxy — were built around the understanding that book curation was most effectively done by the experts and communities functioning in any domain and it made sense to deliver a way for them to enable their own ecommerce for the content they suggested or reported on to their audiences.

But it is in a trade publisher’s DNA to work with aggregators and intermediaries (which is what bookstores, mass merchants, libraries, wholesalers, and special sales outlets are). Random House applied the same vision of distributed and vertical curation but decided that they didn’t need to offer the entire ecommerce solution to execute on it.

So Politico and Publishers Lunch — and, one presumes, more to follow — use Random House to provide their catalog and metadata and some level of curation and they all rely on the existing retail network to complete the transactions and do the fulfillment. Random House and their partners (presumably) share affiliate revenues from the retailers, not the “full margin” on the content sales.

This could be viewed as a bit klunky from the customer’s perspective and it definitely will be for some. You wouldn’t be “shopping” and then “checking out” as two discrete and serial experiences. Each “buy” decision would take you to a retailer choice and then deep-link you to the purchase page for that book at the retailer you choose. Anybody who wants to purchase multiple titles would definitely find this less convenient than just shopping on a retailer’s site.

But if the retailer were delivering the curation and information that Politico or Publishers Lunch is offering in the area of vertical interest, then the customer would probably do their multiple-title shopping at the retailer anyway. The Random House-powered strategy is more opportunistic than that. It’s more about facilitating impulse purchasing than attracting a shopper.

And when you stop and think about it for just a minute, you realize that conversion is likely to be much higher by offering customers a choice of their favorite retailers than it would be if you were signing them up to a new account with a retailer (web site) they hadn’t purchased from before. This is true even in the case of Publishers Lunch, which has credit card numbers for a large number of its most regular visitors because they’re members of Publishers Marketplace. It would be even more of a barrier to making a purchase at Politico and other non-membership sites.

One veteran publishing marketer told me that conversion on clickthroughs to Amazon were very high in his experience, ranging from 8% to 17%. He really doubted whether any fledgling retailer could achieve anything like that rate of conversion.

That constitutes evidence that the revenue achievable as an affiliate could well be higher than what could be gained executing the sales and keeping “full margin”, which brings along with it full responsibility for maintaining an infrastructure and providing customer service. None of that is necessary working as an affiliate.

There is a superficial similarity to these two initiatives. Both involve a company offering tech at scale to help another company monetize its existing network in ways that it doesn’t now. How effective that monetization really will be is still an open question. But it would appear that the ASI service to publishers entirely depends on that: aside from whatever revenue it can yield, there’s no other real benefit to the publisher and, in fact, it could confuse or cheapen the perception of their core business.

The Random House offer to websites, on the other hand, has all sorts of “soft” value. The partnering web site unambiguously offers a service to its site visitors by enabling rapid purchase of relevant content encountered while pursuing their vertical interest. Selling content and earning revenue is only one way to win; they also benefit from more traffic and more stickiness, the inevitable by-products of improving the value being offered any site’s visitors.

What is also interesting to contemplate about the Random House-powered distributed curation is what its potential impact will be on the retail network. Enabling the content purchaser to choose her retailer would, one assumes, distribute the sales from their site in pretty much the same proportions as the market had already.

On the other hand, it might also make it easier for consumers to switch. It could dilute the advantage Amazon has built through their usually superior (compared to other retailers) curation and presentation. It would make it much easier for a supporter of independent bookstores to make the choice to buy from them. (The choices presented are obviously flexible. Politico offers “Politics and Prose” bookstore, an indie based in Washington that specializes in political books. Bookateria instead offers Indiebound, the ABA’s way of sending you to an independent retailer.)

One more observation. There have been two retailers expected to make their appearance anytime now for the last six months: the big publisher-created Bookish and the previously-mentioned Zola Books. The rumors about both of them say that they are having a really hard time making the metadata we have in our industry work well enough to execute on ecommerce. Obviously, Random House had to overcome that same problem to deliver their proposition (although perhaps the bar was a bit lower since they execute sales as an affiliate rather than transacting themselves). An informational page for Bookateria makes it clear that metadata improvement will be an ongoing work-in-progress.

As the other big publishers look at what Random House is doing and wonder if they should be doing the same, they might want to rethink the digital aphorism that anything, once done, can be replicated in half the time and for half the cost. Even if that’s true, starting now to replicate the Random House capability could take a year or more; this is not something that Random House dreamed up last week. In a year, Random House could pick off a number of very desirable large sites and improve their metadata organization even further. I don’t think any competitor who takes this concept seriously will be able to afford to wait for proven success or failure to start developing if they want to be in this game.

NPR did a great job of choosing four minutes of me to sound wise on All Things Considered as part of a publishing roundup. Or you can read a summary of my bit instead of listening to it. We start with the Random House and Penguin merger and meander a bit from there.

This is the last post for the fourth calendar year of The Shatzkin Files. Our annual rhythm is that our quietest week of the year (this one) is followed rapidly by our most intense: the 7-1/2 days of conference programming in four days on the calendar that comprise Digital Book World  2014 and the two Publishers Launch events that bookend it. 

Happy New Year to all my readers, and especially the many of you who take the time to add to the conversation here in the comment string. Double-especially to those of you who dispense your wisdom in concise doses.

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Blog posts have been scarcer for the past couple of months because I’ve been so engaged with a major responsibility: putting together what amounts to 7-1/2 days of conference programming that will be presented on four days next month in New York City.

As most readers of this blog probably know, we’re responsible for the programming of the two-day extravaganza that is Digital Book World. DBW 2013 — taking place on January 16 and 17 at the Hilton New York Hotel — will be the fourth iteration of the event, which aims to explore the commercial challenges facing trade publishing in the digital transition. DBW is not about technology per se; it is about the business problems publishers must cope with in an age of technological change.

DBW’s main two days are divided between morning plenary programming — all 1500+ people in one big room — and afternoon breakouts. We’ll have up to five simultaneous breakout sessions in each of three slots each day. So we have what amounts to 4-1/2 days of programming in the breakouts plus one on the main stage.

Because people really do come from all over the world to attend DBW, we were delighted to agree when they asked us at Publishers Launch Conferences (the conference business I own with Michael Cader) to add a show on each side of theirs to build out a week of programming. (The team at DBW itself are also putting together some pre-conference workshops that will run on Tuesday.)

So on Tuesday, January 15, we’ll do our second annual “Children’s Publishing Goes Digital” conference at the McGraw-Hill Auditorium (put together with the invaluable assistance of our Conference Chair and close friend, Lorraine Shanley of Market Partners). And on Friday, January 18, we’re presenting (in conjunction with the DBW team) a new program called “Authors Launch“, a full day of marketing advice for publisher-published authors. (Self-published authors are welcome and will learn a lot, but the program is framed for authors who are working with publishers, not looking for ways to avoid them.)

Programming the “Children’s Publishing Goes Digital” show revealed what we think will be the most important theme in the children’s book space for the next few years: the development of  digital “platforms” that, like subscription offerings (which some, but not all of them, clearly are), will “capture” consumers and make them much less likely to get ebooks and other digital media from outside of it. The list of platform aspirants in this space is long and varied: Storia from Scholastic; RRKidz from Reading Rainbow (the TV show brand); Poptropica from Pearson (which launched Wimpy Kid before it was a book); Magic Town; Disney; Capstone; and Brain Hive. All of them are presenting, as well as NOOK, which, like Amazon Kindle, has announced parental controls on its platform that encourage parents to manage their kids’ reading experience there.

There are other big issues in children’s publishing, particularly the creation of original IP by publishers so they can better exploit the licensing opportunities that follow in the wake of successful kids’ books. We’ll have data presentations from Bowker and from Peter Hildick-Smith of Codex to help our audience understand how kids books are found and selected outside the bookstore in today’s environment.

But we know that the digital discovery and purchase routines will be markedly affected by the platforms as they establish themselves. Publishers are faced with an interesting conundrum. They can’t reach the audiences that are loyal to a platform without going through the platform. But it is the presence of many publishers’ books that strengthens the attraction of the platform and, once it gains critical mass, the value of the content to it (and probably what it will be willing to pay for the content) is reduced. So publishers licensing content to these platforms may be strengthening beasts that will ultimately eat them. I think the roundtable conversation Lorraine and I will lead at the end of the day, which will include publishers Karen Lotz of Candlewick, Barbara Marcus of Random House, and Kate Wilson of Nosy Crow, will have interesting things to say about that paradox.

We’ve developed some “traditions” in the four years we’ve been doing Digital Book World. As we’ve done the past two years, the plenary sessions will open on Tuesday with the “CEOs’ view of the future” panel organized and moderated by David Nussbaum, the CEO of DBW’s owner F+W Media and the man who really dreamed up the idea of this conference. David will be joined this year by Marcus Leaver of Quarto, Karen Lotz of Candlewick, and Gary Gentel of Houghton Mifflin Harcourt. And Michael Cader and I will — as we have every year at DBW — moderate a panel to close the plenaries, “looking back and looking forward” with agent Simon Lipskar of Writers House; Harper’s new Chief Digital Officer, Chantal Restivo-Alessi, and Osprey CEO Rebecca Smart.

Among the presenters on the main stage who will be unlike what our audiences usually hear at a digital publishing conference will be Teddy Goff, the digital director for the Obama campaign, who will talk about targeting and marketing techniques that might serve us well in the publishing world; Ben Evans of Enders Analysis in London, who will tell us how publishing fits into the strategies of the big tech companies (Amazon, Apple, Facebook, Google, and Microsoft) that he tracks regularly*; ex-Macmillan president and now private equity investor Brian Napack, talking with Michael Cader about the investment climate in publishing; and Michael D. Smith, Professor of Information Technology and Marketing from Carnegie-Mellon, talking about a study he and his colleagues have done on the real commercial impact of piracy.

(We’ve also scheduled a breakout session for Teddy Goff so he can talk more about the Obama campaign for those in attendance who want to learn more of its lessons to apply.)

We’re also delighted to have gotten Robert Oeste, Senior Programmer and Analyst from Johns Hopkins University Press, to deliver his wonderfully insightful, entertaining, and informative presentation on XML, the subject so many of us in publishing need to understand better than we do. And we will after he’s done. (We’re also giving Oeste a break-out slot to talk about metadata which I’ll bet a lot of our audience will choose to attend after they’ve heard him on XML.)

Some authors have had remarkable success without help from publishers in the past year, but few or none more than Hugh Howey, the author of “Wool”, who has just signed a groundbreaking print-only deal for the US with Simon & Schuster. His dystopian futurist novel has sold hundreds of thousands of self-published ebook copies and rights all over the world and to Hollywood. We’ll have a chat with Howey about how he did it and we’ll be joined by his agent, Kristin Nelson, for that dialogue. Kristin will stick around to join a panel of other agents (Jay Mandel of William Morris Endeavor, Steve Axelrod, and Jane Dystel from Dystel & Goderich) to talk about “Straddling the Models”: authors who work with publishers but are also doing some things on their own.

We will have several panels addressing the challenges of discovery and discoverability from different angles. One called “Closing the New Book Discovery Gap” teams Patrick Brown of Goodreads with three publishing marketers — Matt Baldacci of Macmillan, Angela Tribelli of HarperCollins, and Rachel Chou of Open Road — and is chaired by Peter Hildick-Smith. That will focus on what publishers can do with metadata and digital marketing to make it more likely their titles will get “found”. Barbara Genco of Library Journal will share data on library patron behaviors and then helm a panel discussion with Baker & Taylor, 3M, Darien Public Library, and Random House exploring the role of libraries in driving book discovery and sales. Another session called “Making Content Searchable, Findable, and Shareable” introduces three new propositions from Matt MacInnis of Inkling, Linda Holliday of Citia, and Patricia Payton of Bowker, along with SEO expert Gary Price of INFODocket. Publishing veteran Neal Goff (who is also the proud father of Obama’s digital director) will moderate that one. MacInnis, Holliday, and Payton offer services that will help publishers improve the search for their books. Price will talk knowledgeably about how the search engines will react to these stimuli.

We’re covering new business model experimentation (with Evan Ratliff of The Atavist, Brendan Cahill of Nature Share, Todd McGarity of Hachette, and Chris Bauerle of Sourcebooks) where publishers discuss ways to generate revenue that are not the old-fashioned ones. We’ll underscore the point that we’re about changes caused by technology rather than being about technology with our “Changing Retail Marketplace” panel, featuring publishers and wholesalers talking about the growth of special sales (through retailers that aren’t bookstores and other non-retail channels).

The future for illustrated books will be discussed by a panel with a big stake in how it goes: John Donatich of Yale University Press, Michael Jacobs of Abrams, Marcus Leaver of Quarto, and JP Leventhal of Black Dog & Leventhal. Two publishers who have invested in Hollywood — Brendan Dineen of Macmillan and Pete Harris of Penguin — will talk about the synergies between publishing and the movies with consultant Swanna McNair of Creative Conduit.

We will have major US publishers and Ingram talking about exports: developments in the export market for books — print and digital. And we’ll have some non-US publishers joining Tina Pohlman of Open Road and Patricia Arancibia of Barnes & Noble talking about imports: non-US publishers using the digital transition to get a foothold in the US market.

One session I think has been needed but never done before is called “Clearing the Path” and it is about eliminating the obstacles to global ebook sales. That one will start with a presentation by Nathan Maharaj and Ashleigh Gardner of Kobo where they will enumerate all the contractual and procedural reasons why ebooks are just not available for sale in markets they could reach. And then Kobo will join a panel conversation with Joe Mangan of Perseus and agent Brian Defiore to talk about why those barriers exist and what might be done in the future to remove them.

Oh, yes, there’s much much more: audience-centric (what I call “vertical”) publishing; the changing role of editors; the evolving author-publisher relationship; and a conversation about the “gamification” of children’s books. David Houle, the futurist and Sourcebook author who wowed the DBW 2012 audience, will return with his Sourcebooks editor, Stephanie Bowen, to discuss their version of “agile” publishing: getting audience feedback to chunks before publishing a whole book.

We will also do some stuff that is more purely “tech”. We have a panel on “Evolving Standards and Formats” discussing the costs and benefits of EPUB3 adoption, which will be moderated by Bill McCoy of IDPF. Our frequent collaborator Ted Hill will lead a discussion about “The New Publishing IT Department”. Bill Kasdorf of Apex will moderate a discussion about “Cross-Platform Challenges and Opportunities” which is about delivering content to new channels.

But purely tech is the exception at Digital Book World, not the rule.

And purely tech won’t show up at all at Authors Launch on Friday, January 18, the day after Digital Book World.

Authors Launch is what we think is the first all-day marketing seminar aimed squarely at authors with a publisher, not authors trying to work without one. It is pretty universally taken as a given that authors can do more than they ever have before to promote themselves and their books and that publishers should expect and encourage them to do that. But, beyond that, there is very little consensus. What should the publisher do and what should the author do? That question is going to be addressed, in many different ways, throughout the day.

The Authors Launch program covers developing an author brand, author involvement and support for their book’s launch, basic information about keyword search and SEO, use of metrics and analysis, a primer on media training, when and how to hire a publicist or other help, and a special session on making the best use of Goodreads. We’ll cover “audience-centric” marketing, teaching authors to think about their “vertical” — their market — and understand it.

The faculty for Authors Launch includes the most talented marketers and publicists helping authors today: Dan Blank, co-authors MJ Rose and Randy Susan Meyers, journalist Porter Anderson, David Wilk, Meryl Moss, Lucinda Blumenfeld, agent Jason Allen Ashlock, and former Random House digital marketer Pete McCarthy.

We have assembled a group of publishers and an agent to discuss how an author should select the best places to invest their time from the staggering array of choices. (Facebook, Twitter, YouTube, Pinterest, etcetera.) That panel will include agent Jennifer Weltz of The Naggar Agency as well as Matt Baldacci of Macmillan, Rachel Chou of Open Road, Rick Joyce of Perseus, and Kate Stark of Penguin. Matt Schwartz, VP, Director of Digital Marketing and Strategy for the Random House Publishing Group, will conduct the session on metrics.

A feature of both our Kids show on Tuesday and the Author show on Friday are opportunities for the audience to interact with the presenters in smaller groups so each person can get his or her own questions answered. At Kids we’ll do that at lunchtime, seating many of our presenters at tables with a sign carrying their name so our attendees can sit with them and engage. At Authors Launch, we’ll be conducting rounds of workshops, crafted so that the authors can get help in their own vertical (genre fiction, literary fiction, topical non-fiction, juvies, and so forth), and on the topics of greatest need for them.

We are sure the week of January 15-18 will prove to be an energizing and stimulating one for all of us living in the book publishing world. We hope you’ll join us.

Digital Book World Week | January 15-18, 2013

Children’s Publishing Goes Digital | Tuesday, January 15, McGraw-Hill Auditorium
DBW Pre-Conference Workshops | Tuesday, January 15, Hilton New York Hotel
Digital Book World Conference + Expo | January 16-17, Hilton New York Hotel
Authors Launch | Friday, January 18, Hilton New York Hotel

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One great benefit of stepping outside your own world — which for me is the world of general trade publishing — is that you can get a jolt of perspective when you do. It really took only a few minutes of listening to Annette Thomas, the global head of professional and college publishing for Macmillan, at the Charleston Conference to underscore an important point. Thomas was talking about how Macmillan had to solve the problem of linking together content that was delivered in journal articles with that delivered in books, a format distinction she correctly saw made no sense to somebody who just wanted the information regardless of the form in which it was initially delivered.

In professional and academic publishing, it is pretty much a requirement to understand the context of all content. Any observation, discovery, or opinion needs to be connected to the other knowledge and information that relates to it to have validity. Scholarship and professional knowledge all live in a world where the total body of relevant information is the key to understanding the value of any new contribution. (And, indeed, the creators of any new contribution are carefully placing their work in the context of all that came before it.)

This is not true for trade publishing, where — more often than not — each book being read is judged and appreciated for what exists between its own covers.

This brings me to two observations about how publishing is changing and how trade publishers need to think differently that are relevant and have not been said to death (if, in fact, they’ve been said by anybody else at all.)

We often observe that book publishing is many businesses, by which we usually mean that academic or professional or college textbook publishing has little to do with “trade”. But it is also true that trade publishing is many businesses. Even within fiction, the publishing skills and markets for genres like romance and science fiction are quite different than for literary fiction.

But non-fiction is even more diverse. And some of it has a lot to learn from professional publishing.

What the top professional publishers will tell you is that the challenge for them is to deliver content within the workflow. That means that accountants or construction engineers are trying to get particular things done and what they look to publishers to do is to help them accomplish their tasks. That means software. And the content they need should be provided within that workflow so they have the knowledge they’re looking for when they want to apply it.

Well, some consumer publishing also addresses content needs that arise in a workflow. Consumers of gardening books, knitting books, and cookbooks are all using the knowledge they present within a workflow context.

What that means to me is that we’re not far away from these tasks being addressed by workflow tools: apps. Your gardening app, for example, will help define your challenge. It will ask you questions. How big is your front yard? How big is your back yard? How much sun do they get? How much time do you have to spend with this? Do you want flowers, shrubs, or vegetables?

Then the app will tell you, “Mike, it’s March 15, dig a hole.” “Mike it’s April 10, drop a seed in the hole.” “Mike it’s April 28 and we see it hasn’t rained in your neighborhood for a week. Water your garden.” Etcetera.

When that day comes, the publisher with the really terrific gardening book better hope they’ve made a good licensing deal with the owner of the app. Power will have shifted.

If I were a publisher of books that address a challenge that is actually handled through a workflow, I’d start now trying to be the licensor, not the licensee.

And that brings me to the second observation.

When you read self-published books (and I do: some of the big bestsellers anyway), you become aware by omission of what a publishers would do to improve them. The lack of copy-editing and proofreading is often what is most apparent, but more acute readers also see the deficiencies in development that good editors correct before a book goes to press.

Because major publishers tend to spend a fair amount of money acquiring most of the titles they do and — correctly or not — see it is a major expense (drain on overheads) to publish each and every title, they tend to be careful about making sure each book is really ready for prime time before they print it. That means there is almost always some editorial input from somebody with commercial responsibility (the acquiring editor or somebody who works for the AE) but there is also certainly professional copy-editing and proofreading of every single book. My highly anecdotal view of self-published books is that for them there is no such guarantee.

I have advocated previously that big publishers should see the value of branding their work as “professional”, which I believe argues for minimizing the number of brands they ask consumers to remember. Nuanced brands make sense in a B2B world (for buyers and reviewers) but are likely to just confuse or be ignored by consumers. But as more and more self-published material makes its way to the public and even onto bestseller lists, the reading public (at least those of us who care about grammar, syntax, and punctuation) might be well served by branding that says, in effect, “this book has been edited, copy-edited, and proofread by professionals”.

But now I’m seeing that thinking isn’t granular enough. If a publisher adopted that suggestion, they’d be locking themselves into maintaining those high quality standards across everything they do. In the long run, is that the right idea?

I’m beginning to think it isn’t. As we see increasingly that self-published material can reach extremely large audiences, it will probably become important before long for the established publishers to be able to test titles in the marketplace without doing the full editorial job on them. In fact, if Sourcebook’s “agile publishing model” (by which a non-fiction book by my friend and client, futurist David Houle, is being released in ebook chunks for audience feedback before being assembled into a “final” published version that will also be printed) were to gain traction and be used more broadly, it would almost certainly mean that parts of the editing job should be bumped back to the end (or else would have to be done twice).

When the big publishers float through the looking glass and realize that they are really wasting their clout and resources if they don’t crank up to do many more titles than they do now (which they haven’t yet, but I believe they will; and I think Penguin’s acquisition of Author Solutions is the first sign of recognition of that reality by a major house), they’ll see that not all the books they’ll want to publish in the future can get the same full-on treatment that they give to all the books they publish now. They’ll want to be able to publish an author’s short non-fiction ebook about the topic of their novel — because the author wants them to — without giving it thousands of dollars worth of editorial development its revenue forecasts wouldn’t justify. The solution might be to create secondary brands, or it might be about “badging” each book with the amount of editorial attention it actually got. But one signal of quality might not fit all books.

One remarkable facet of my Charleston trip was something I’m quite sure would never happen to me in New York. I had the same cab driver coming in from the airport on Wednesday and then going back out again on Thursday! I also managed to take off from LaGuardia before the nor’easter hit and come back the following evening after it had come through. I saw a little evidence of what was reported to me was “a blizzard” that I’m not sorry I missed.

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Now that the DoJ’s response to the public comments has made it overwhelmingly likely that the settlement it negotiated with Hachette, HarperCollins, and Simon & Schuster will be accepted by the Court, it is time to contemplate the changes we’ll see in the ebook marketplace in the next couple of months.

The settlement requires the three affected publishers to inform retailers working under agency agreements that they can be released from them. Ten days is alloted from the time of the Court’s acceptance for that to take place. Then the retailers have 30 days to terminate their agreement and then the publishers have 30 days from receiving that notice to actually end it.

So the process could be almost instantaneous, if the publishers served notice immediately, the retailers responded immediately, and the publishers reacted to the response immediately. Or it could take as long as 70 days from the Court judgment, if everybody used the entire time alloted by the judgment.

Assuming that Amazon acts with competence and alacrity in its own interests (and I’d expect nothing less), the entire process could take no more than 40-45 days with them. (Each retailer can be on its own clock.) That should liberate Amazon from most pricing constraints on the three settling defendants’ books by the middle of September.

There’s a bit of confusion in the settlement language here. In the same paragraph, IV-B, that lays out the 10-day, 30-day, and 30-day requirements as described above, it also says that 30 days after “entry of the Final Judgment” (the starting gun for everything), the Settling Defendants take “each step” required to terminate or not renew or extend the agreement. Or maybe the language makes sense to a lawyer but I’m just confused. It seems like they’re asking for results before the first 30-day period would have expired.

The settlement, which ostensibly does not eliminate agency agreements (although it clearly eviscerates them), requires that any new agreements not allow publishers to dictate final sale prices by the retailers, except to cap them (in an unwieldly way we’ll consider below in more detail) and also disallows any “most favored nation” (MFN) clauses protecting any retailer from the impact of other retailers’ pricing decisions. These restrictions are specified to last for two years for each retailer, starting from the date the old agreement’s price-controlling clauses are mooted, whether by the agreement being terminated or by the publisher notifying the retailer, in writing, that the offending clauses will not be enforced.

It is back to the drawing board for new agreements. Ostensibly they can be “agency” agreements by which the publisher sets a price and pays a commission for sales based on that price. But since agency agreements were actually attractive because they achieved what is now deemed illegal price parity across the marketplace, these publishers must be rethinking the efficacy of the model. I would be.

So new contracts will be needed between the three settling publishers and all the retailers. And they’ll need to be crafted, negotiated, and signed within a maximum 70-day window.

Anybody responsible for this who remembers what a combination marathon-and-sprint these negotiations were in 2010 won’t be planning any 2-week vacations over the next few months.

There is one big fat joker in the settlement. The publishers are allowed to negotiate agreements limiting the retailers from discounting from the publishers’ (now) suggested prices. The settlement allows the publisher to prohibit discounts on their books which in the aggregate over one year exceed the margin the retailer has earned on those books.

In principle, that isn’t complicated. Retailer A sells ebooks with a retail value of $1 million in a year and would earn $300,000 in commissions. They have to charge customers at least $700,000 for those ebooks, or they’d be in violation of a contract that the settlement allows the publishers to negotiate.

In practice, monitoring and enforcing that might be a nightmare. It requires either reporting or tracking of ebook sales and the prices at which they’re transacted which is far more robust than what has been required or done so far. But even with perfect data, it’s still extremely difficult to assure compliance, particularly if a retailer is inclined to “spend” its whole allotment of discount margin. The wording of the settlement would seem to require allowing discounting that exceeded the margin earned over the course of the year, as long as the cumulative discounts were under the stipulated cap at the end.

What that also means is that retailers can’t work with price-matching bots alone. It isn’t sufficient for Retailer A to monitor Retailer B’s pricing and automate meeting or beating it because Retailers A and B aren’t selling the same quantities of each publisher’s other books and therefore don’t have the same “budget” for discounting. This is a game of three-dimensional tic-tac-toe. The retailers have to watch each other and, at the same time, watch how their discounting to consumers stacks up against the allowances they are earning through above-cost sales for each of the three settling publishers.

And the publishers need to watch the sales of each of the retailers, presuming they are provided with data they don’t now get to allow it, to make sure each one is staying under its cap.

We can’t make too many assumptions here. The settlement rules allow a publisher to negotiate a discounting cap based on total margin, but they don’t require a retailer to agree to it. And there is no acceptable punishment specified for a retailer breaking the cap, so that will have to be worked out in the negotiations about to take place (if they haven’t already started).

One thing the DoJ was completely right about is that the whole agency idea breaks down if it isn’t applied across most of the Big Six. Random House demonstrated that for the first year of agency when they stayed out and reaped an immediate double bonanza. By sticking with their wholesale pricing model (by which the retailer gets 50% off a wildly unrealistic ebook price that would be almost impossible to sell very many copies at), they got more money for each copy sold than they would have under agency (by which the retailer only gets 30% but of a much lower, realistic, selling price). And, at the same time, Random House ebooks benefited from the aggressive discounting (led by Amazon but matched by other ebook retailers) at which their high-profile titles, alone among the Big Six competitive set, were offered to the consumer.

In fact, it was made clear by Apple to the publishers when they were recruited for the iBookstore that the store would only open if at least four of them signed on. Apple was probably thinking that without having a critical mass of top-flight titles, their store would have no appeal and not be worth operating. What publishers may have been thinking about is that if were a lot of Big Six titles being discounted because they weren’t covered by agency rules, the ones that weren’t would be at a tremendous competitive disadvantage.

It seems that the necessity for concerted action to make agency work is a core element of DoJ’s thinking that collusion was required to implement it. But the specific allegations of collusion (the Picholine meeting that took place long before anybody was thinking about agency or an Apple bookstore and the various instances where publishers are alleged to have told each other whether they were in or out of the program) seem very weak, particularly when you acknowledge that they all knew “four or no store”.

Something that one comes away with from reading the settlement language is that we might see some very different terms in the replacement contracts. DoJ’s suspicions were aroused by the great similarity among the agency contracts and they seem to be asking that they not look so similar when they are renegotiated.

This could drive any number of changes. Publishers could return to a wholesale model. Publishers could try to change the agency commission, now uniformly fixed at 30%. It even seems like publishers are being told that the commissions don’t have to be uniform across retailers (although negotiating different terms would seem to violate the spirit of the Robinson-Patman Law that a previous generation of publishers grew up believing required them to give the same terms to all like sellers. There is a R-P exception for contractual relationships, however.)

In fact, there is language in the settlement agreement which seems aimed at stopping publishers from even revealing the details of these agreement in case one of their competitors could find out. (One might assume an agent with clients at more than one house would be able to figure out the commercial terms from their royalty statements. Actually, one would assume that a responsible agent wouldn’t be waiting for a royalty statement to find out.)

So the settling publishers have to negotiate new deals. The other agency publishers (Macmillan and Penguin who are fighting the legal battle and didn’t settle and Random House, enjoying one more big delayed benefit from having stayed out initially which is that the collusion argument certainly can’t be stretched to cover them) will have to rethink their pricing as they see what happens in the changed marketplace.

It is a safe prediction that one of the stories of Christmas 2012 will be the extent to which the agency publishers dropped prices from what they were permitted to charge to meet competition, driven by Amazon.

Remember that the permissible discounting constraint is an annual number. There are any number of strategies Amazon could pursue (and I wouldn’t presume to be smarter than they’ll be about choosing the right one), but if they chose to press their opportunity to the max this Christmas, they could cut prices to the bone – way below “cost” — and figure to make up the margin in the 9 months that will remain the first year of the contract.

Whatever they do, the agency publishers will have to respond in their pricing too.

It’s an equally safe prediction that a consequence of that will be that fledgling authors living at the lower price points will lose market share. That will not be obvious and nobody will actually notice.

Of course, B&N and Kobo also have to figure out a pricing strategy and a means to execute it.

Apple has to completely rethink what it will do as a retailer because publisher price-setting has been severely crippled and they never seemed to want to do it themselves.

And I have to think again about whether my conviction that publishers need to sell direct to the end consumer stands up in a world where Amazon is free to turn its pricing guns on any competitor and make them look like extortionists no matter what price they charge consumers for their ebooks.

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In a prior post, I observed that the apparently-successful subscription offerings for books were in niches. And I said I believed that a more general subscription model wouldn’t work for ebooks the way it has seemed to work for music (Spotify), movies and TV shows (Netflix), and audiobooks (Audible).

By that I meant two things. First of all, it will be impossible for any aggregator to secure the rights to anything like enough of the most appealing titles to deliver an offering comparable to what’s succeeded in other media. But even if they did, that kind of offering wouldn’t deliver nearly as much value to the book reader as general subscription offerings do in other media.

The latter point is based on intuitive speculation. The former is based on an informed view of the commercial realities.

Let’s briefly reiterate the case about consumer appeal. The number of songs, movies, and even audiobooks a subscriber might use in a month (the normal billing period for any subscription, so a relevant unit of measurement) dwarfs the number of books most people would read or refer to. And the heaviest readers — people who read several books a month — are often in genres (romance, science fiction) that already have subscription offerings. They don’t need a more general one.

So the price a subscription offering can command for general ebooks is almost certainly lower in relation to an individual book purchase than the price that can be charged in other media in relation to purchase. That was reflected in the thinking of the fledgling company that got me started writing these posts. They wanted to go to market with a subscription price of about $5 a month, which is less than Spotify, Netflix, or Audible!

(I may disagree with them about the overall viability of the subscription idea, but at least they recognize the necessity of a truly bargain price point.)

But it will be very hard for them, or anybody else, to put together a title base sufficiently appealing for that offering to work commercially.

Big books that consumers know about and want drive them to the points of acquisition for the title. When bookstores talk about how sales are going, they almost always cite the particular books that are driving traffic to their stores (or bemoan the fact that there haven’t been enough of them). That’s why booksellers heavily discounted Harry Potter titles the day they came out and why Book-of-the-Month Club and Literary Guild promoted the availability of the biggest bestsellers they had rights for in their advertising.

Everybody in trade publishing understands this effect. Publishers “overpay” for big books because they know the control of them provides critical leverage dealing with bookstores and wholesalers. BOMC and Literary Guild would bid up the prices for rights to predictable bestsellers beyond what the books would “earn” in royalties on book club sales to gain the value those books had bringing members into the Clubs.

When consumers tie themselves into a subscription service, the power equation shifts for those people. Some of the power of the titles that brought in the consumer is transferred to the owner of the subscription service. If there is enough of value to keep the consumer from looking elsewhere for more content, that can provide great leverage.

It creates enough leverage that Audible can flip the 70-30 model and pay publishers 30% of the attributable revenue for digital downloads of their audiobooks. Since they are the content providers for both iTunes (Apple) and Amazon (their parent company), they have an effective monopoly on audiobooks sold that way. Any publisher that doesn’t want to agree to that split for the subscription business, and I know of at least one very big one that doesn’t, effectively has to live without most of the digital download market for their audio titles.

There have been expressions of dissatisfaction with the payment formula by which Spotify compensates the owners of the songs in their service. But how could there not be? With a combination of free and very low-cost offerings, Spotify is delivering music for far less cost to the consumer than purchasing a collection would require. (There is, theoretically, compensation on the back end because the subscription fee has to continue to be paid to maintain access, whereas older consumers — like me — get a lot of “free” listening to the music we purchased years ago.)

But less cost to consumers means less revenue to be divided by creators. And book authors can’t expect to collect on “repeat reads” the way music creators can collect on “repeat plays”.

So, from an author’s perspective, putting content into a general subscription service threatens to build up the leverage for a market channel that will almost certainly find it less necessary in the future to pay high prices for incremental content.

Simon Lipskar at Writers House, which represents a significant number of major bestselling writers, sees subscriptions as an inherently bad deal for successful writers. In our conversation about this, he echoed my thinking by saying, “Subscriptions by definition transfer the brand value of the author to the brand of the subscription service.”

Users of subscription services, he explained, are attracted to the services by the presence of authors they want to read. But once they are members and paying a monthly fee, their dollars are earmarked for the service rather than to the acquisition of individual discrete books by individual authors.

From Lipskar’s perspective, which is the author’s perspective, “these services act as a very expensive distribution model, inserting themselves between the publishers who license books from authors and the readers who read them, often taking a much bigger piece of the pie than traditional retailers.”

(This point by Lipskar makes me recall my Dad’s — Leonard Shatzkin’s — disdain 50 years ago for the “other” methods of selling consumer books — book clubs and direct mail — because they did, indeed, require more of the consumer’s dollar to execute than selling through stores did. Dad liked “efficient” and he’d argue until the cows came home that bookstores, including returns, were a remarkably efficient mechanism for distributing consumer books. This, of course, was long before the Internet. He started saying it before there were bookstore chains or national wholesalers.)

Lipskar can imagine a subscription service more along the lines of the traditional Book-of-the-Month-Club, in which readers are aided in their discovery of titles by a curatorial/editorial process that helps to select quality titles and, even more important from a commercial perspective, in which the reader’s monthly fee just funds a discount on a discrete monthly purchase.

Lipskar says that for a subscription service to be embraced by authors and publishers, the economics would have to favor authors and their publishers to a much greater extent than the models currently on the market. On that note, the one thing he said he simply could not imagine would be good for authors (or publishers) on any level would be the “all you can eat” model like Spotify, which he believes has spawned a broad feeling within the music business to be a very effective means of transferring the financial value of music from the creators to Spotify.

All the big publishers know that continuing to sign up the authors is what provides the oxygen that keeps them alive. The biggest threat from Amazon is not that they’ll extract another point or three of margin — although that is definitely a continuing concern — but that they’ll reach a point where their market share is large enough to enable them to start signing up really desirable authors on a regular basis and pull them from the rest of the distribution ecosystem. (It is worth noting that Barnes & Noble and Kobo and Apple have as much at stake in that regard as the major publishers do.)

Because of that, major publishers will never do anything that would distress the major agents. It doesn’t really matter whether a close reading of a contract would give a publisher the “right” to put an author’s work into a subscription service. If the publisher believes the author’s agent would react adversely to them doing that, they’ll be very disinclined to do it.  And some agents might well react adversely to their doing that for any book, not just one under contract to that agent, because agents for big authors who think the way I’m describing don’t want to see subscription services enabled at all!

So that’s why I believe that fledgling subscription services have practically zero chance to get major publishers to commit major books to their pool of available titles.

Of course, there is one entity that might make subscription for general books work and that’s Amazon. They are actually already trying to pull this off even though their efforts have apparently been unanimously rebuffed by the biggest publishers.

The Kindle Owners Lending Library (KOLL) is offered to “subscribers” to Amazon Prime, the retailer’s overall package of “loyalty” benefits offering that start with free shipping. KOLL allows a loan of an unlimited length, so it is, in effect, a cat’s paw for an ebook subscription program.

Amazon is only now able to offer a robust selection in that program because of a combination of its willingness to spend and the ebook contracts it has with most publishers aside from the Big Six, as well as a very large pool of self-published titles in Kindle Direct Publishing KOLL has not — so far — noticeably damaged the ability of the publishers to sell their “branded author” ebooks successfully. The ebooks from successful authors are still benefiting from a “power law” distribution of sales (things tend to move that way in the Internet world) that favors the biggest SKUs.

Amazon has marketplace clout that dwarfs that of any fledgling with a great idea and they went to great lengths to build up a robust title repository for the KOLL debut. Still, when they launched in November 2011 they only had 5,157 titles which they said included “over 100 current and former New York Times Best Sellers”. It wasn’t an impressive selection.

But the wholesale purchasing terms under which Amazon acquires the ebooks of all publishers except the Big Six apparently enable Amazon to lend any title it wants to, as long as it purchases a copy to lend each time it does so. And it is in the ether that Amazon offered publishers a lot of money to put titles into this program. They have an impressive list of publishers whose work they are offering — including Scholastic, Norton, Bloomsbury, Grove/Atlantic, Workman/Algonquin, F+W Media, Lonely Planet, Rosetta Books as well as their own publishing imprints — but there’s no way to know how many of them went for the deals being offered or which ones are included simply because Amazon is buying a copy of any ebook from them each time a customer wants to borrow one.

And while agency pricing rules are definitely a barrier that makes it more difficult for a Big Six publisher to participate, there seemed to be no burst of creativity on any publisher’s part to figure out a way around it.

So Amazon is, in effect, conducting an experiment testing my theory that a general subscription offering won’t be a powerful magnet. For now, the test is to see how many of the Prime customers find it possible to live largely or entirely within the selection of titles that KOLL offers them, and particularly whether they are weaning those customers away from the higher-profile offerings of the Big Six. Perhaps we’ll see Amazon extend the reach of KOLL sometime by offering a Kindle feature package that is cheaper than what Prime has to be to offer free shipping. I’d sort of expect that. Wouldn’t you?

Will Amazon have an argument to make in a year or two, to publishers or to authors, saying that there is a substantial pool of desirable readers they that they can only reach by participating in KOLL?

They might.

But can anybody else but Amazon put together the combination of the audience and title base they have, piggybacking as they are on Prime and willing as they are to buy an ebook just to lend it once to demonstrate that they can?

I doubt it.

It was been called to my attention by Pam Boiros of Books24x7 that in my prior piece I gave Safari Books Online credit for pioneering the subscription model and the payment by metered usage and that actually credit for both should go to Books24x7. Safari came along a few short years after Books24x7 had started the model which they operate today across a wide range of verticals, serving a mostly institutional customer base. I thank Pam for refreshing my memory, which was the source of the information. Safari is still a great service and the closest thing to a trade subscription model outside the single-publisher efforts, but they followed a path that was originally cut by Books24x7.

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Another fledgling ebook retailing venture came through our office this month touting a subscription proposition. I told the entrepeneur “I’m skeptical of the subscription model for ebooks,” and he said, “I know”.

We had a great chat, but I’m still skeptical. When I say that, I mean I’m skeptical that a general offering subscription model can work.

There certainly is a logic to subscriptions, particularly for those who think the book business should learn from other content businesses. Cable TV really started with subscription and then only later moved to pay-per-view, which is more like the ebook sales model (but not exactly). We have Netflix for movies and TV, Audible for audiobooks, and a host of services for music, the most successful of which seems to be Spotify.

I have a Spotify subscription, even though I don’t use it much. Perhaps foolishly, I’m comfortable spending $119.88 a year (which is what $9.99 a month comes out to) to have access to just about any song I might ever want to hear instantly when the urge (or suggestion) to hear it arises. (Spotify very seldom disappoints me by not having the song.) And that’s even though most of my listening needs are satisfied with the 6,000 or so songs I have in my iTunes repository of which the best 1,000 are on my phone.

Spotify was cited by the entrepreneur I met as a motivation for him to start his ebook subscription business. As he correctly pointed out, “sharing a playlist” with a fellow Spotify subscriber enables them to immediately — with no additional cost or friction — “consume” that music. Sharing an iTunes playlist with somebody just leads them to having to make purchases which, quite aside from the money, put time and (a considerable) effort between receiving the playlist and enjoying it.

So, it is posited, this logic should apply to books. With a host of very explainable exceptions, I’m not sure it does, at least not anytime soon.

I’m fresh off a speech in Washington about what the DoJ doesn’t understand about publishing. The answer, if boiled down to a single word, would be “granularity”.

According to the MPAA, North American movie releases for 2007, 2008 and 2009, were 609, 633 and 558 respectively. There are foreign films and perhaps some below-the-radar indie films that must be added to that number to reckon what’s being made available, but it gives you an order of magnitude.

The Big Six publishers average more than 3,500 titles a year each. And there is far more production of titles beyond the Big Six in publishing than there is production of movies beyond the Hollywood studios. It would be very conservative to estimate that there are 100,000 new professionally-produced book titles a year intended for consumers. (Many more are published for professionals or as school or college texts and were you to add in self-published ebooks, which sometimes reach big audiences, they would multiply that number.)

Commercial releases of music would fall in between movies and books in number, but much closer to movies.

That’s the short answer as to why most people share music and movie experiences with far more friends and acquaintances than book experiences. It is also the short answer to why people outside the book business just can’t grasp it; each one of those books is a separate creative and commercial endeavor, down to having its own contract, its own development path and schedule, and its own marketing requirements.

(It also helps explain why many people who use libraries for some of their reading don’t use it for all. No library will have all the books a voracious patron would want to read.)

In the days before Amazon.com and digital books, there were two kinds of subscription services that worked for consumer books.

Book clubs offered price deals and curation (help with selection) but it was the price deals that really attracted members. Before ubiquitous bookstores (which arrived in the 1980s), Book-of-the-Month Club and The Literary Guild got the highest-profile books distributed to consumers who would have had a hard time getting to them (as well as those near bookstores who just wanted the convenience of mail delivery.) As bookstores spread, the Clubs found that “niche clubs” (around mysteries, science fiction, or subjects like gardening) were apparently more profitable than the big general interest clubs. (“Apparently” is a highly operative word, but the explanation of that will wait for another day.)

The other subscription concept that worked was the “continuity series”. The market leader there was Time-Life Books. These books were about a particular subject (World War II, say) and they were “packaged” specifically for the series and not available in stores. Continuity relied on the combination of intense subject interest and the “collection” mentality: somebody who started collecting the series didn’t want to have holes in their collection.

Both models were pretty much blown out of the water by online book purchasing which suddenly made every book available for home delivery to everybody everywhere.

In specific niches, subscription models can work very well. The granddaddy of them on the digital side is Safari Books Online, originally conceived and built by O’Reilly in partnership with Pearson. Safari serves a community of programmers and has a huge collection of instructional and reference books which they can use on the job. Most users of these books dip in and out of them, rather than reading them straight through. And they frequently like the idea of checking out what several books might say about a problem they’re tackling.

Safari pioneered the model of dividing the publishers’ share of the subscription fees by metering usage. The more your book is viewed, the more money you get from the pot. And since users of Safari will almost always find the answers they need within the service, leaving your book out means it won’t be found and used. Since at least some of the time Safari usage could lead to a sale of the book itself (even if not very often for most books), that discovery element is lost along with any Safari-generated revenue if the book isn’t included in the database. A publisher should feel pretty confident that they aren’t losing many sales being inside Safari.

(The model that looks like “all you want for a price” to the purchaser and like “pay per use” to the content owner in even purer form than Safari does it is the deal offered by Recorded Books for its digital downloading service for audiobooks to libraries. There are other subscription models in the library space; it is a distraction to the point of this post to get into them which is why they’re not covered here.)

O’Reilly saw at the beginning that their books alone wouldn’t be the strongest subscription offer so they were open to participation by others from the very beginning. Safari is exceptional in at least three ways: they are bigger than one publisher; they are built on a professional user base; and they deliver value primarily through chunks, not end-to-end reads.

But if a publisher is strong in a niche, a subscription service can work for them too: Baen Books (science fiction) and Harlequin (romance) are two niche publishers who have sold subscriptions successfully. (In fact, Harlequin recognizes sub-niches, further segmenting their audience for better subscription targeting.) The Osprey-owned sci-fi house, Angry Robot, offers subscriptions. eBooks by subscription are also part of the model for Dzanc, which does more literary books (fiction and non-fiction; they’re really less niche-y, except for “quality”) and it will be interesting if they can make the “quality” paradigm work the way “romance” and “science fiction” do.

Sourcebooks is a general trade publisher, but they have a robust romance list. They’re trying to establish a club and community called “Discover a New Love” which operates more like the old BOMC: subscribers can choose one of four featured titles each month in addition to getting other benefits from discounts on other books to early looks at some titles.

Subscriptions are offered in the children’s ebook area as well. Disney Digital Books has a monthly subscription service, as does Sesame Street eBooks. In both cases, the model is browser-based delivery rather than downloads.

F+W Media is a publisher that works across many verticals (niches). They had two big head starts. One is simply being vertical. They have audiences that are defined by their interest, which has been the key to making a subscription offer work in the book business. The other is that they were once publishers of magazines and operators of book clubs, so they have experience with direct customer contact and managing those relationships. They also had a lot of names. And F+W is managing subscription offerings for many things other than ebooks.

Most of F+W’s communities have been non-fiction (subject-specific) and they offer subscriptions for content in art, writing, and design. But they are also venturing into the romance market now and their Crimson Romance offer is an “all you can read” model. Baen introduces the wrinkle of releasing a novel in stages to subscribers, like a serial.

And we note in the recent reminder that the TED conferences started doing ebooks (sort of: only within an iOS app) that a subscription model is part of their thinking too. Once again: in a niche. The app that enables them to manage subscriptions is powered by The Atavist, which is another attempt to build a following for a publisher distinguishing itself by its content choices, like TED or Dzanc, rather than around already-established consumer clustering (romance, sci-fi, or a topic like writing or design.)

It is worth noting that there are “all you can eat” subscription offers and ones that are limited but which offer discounts on further purchases. That variation exists in other media too. Spotify is one price for everything; Audible and Netflix meter your use and you can pay more if you consume more.

There’s a pretty strong pattern here to the subscription offers we see.

They’re usually done by publishers. (Safari isn’t a publisher anymore, but it was started by publishers.) That means they’re working with the publishers’ margins (bigger than an aggregator’s margins). Controlling the product flow means they can make good use of intereaction with their audience, learning through data and conversation what they should be doing next. And, most important of all: from a product offer point-of-view, they’re focused.

They’re precisely the opposite of Spotify or Netflix or Audible who all want every single song, movie or TV show, or audiobook they can lay their hands on.

So, what about a more general model for ebooks?

It hasn’t happened yet and I don’t think it will anytime soon, despite the ambitions of my recent visitor. The challenges of putting together the title base for one are daunting and, as I hope this post makes clear, so is providing and demonstrating persuasive value.

I can see only one player that might be able to pull off a more general subscription offering in the near term. (You can guess who that is.) The “whys” of that will be the topic of a future post.

One thing that is pretty certain is that when there are many publishers offering subscriptions in their niches (and someday there will be), they’ll each be powered by a Cloud-based service of one kind or another. None will be asking the IT department to create the software to handle it.

I will admit that I haven’t programmed anything specific about “subscriptions” into the “Book Publishing in the Cloud” program we’re running on July 26, but if that’s what any attendee wants to find out, they’ll have a great opportunity at our “Conversations with an Expert” session to get the answers. Almost all of the speakers will be available during structured chat time, as well as representatives from the great companies that are sponsoring the event. 

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

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

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

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

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

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

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

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

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

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

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

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

I think the latter. Here’s why.

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

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

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

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

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

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

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

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

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It is hard to believe that we’re starting to plan the fourth annual Digital Book World conference, which will be held January 16-17, 2013 at the Hilton in New York City. But we are.

The first DBW was held in 2010. Planning for it began the June before when David Nussbaum and Sara Domville of F+W Media called me to say “we think there can be a better conference than any we’ve been to about digital change in publishing.” They challenged me to come up with an approach and to take on programming the event.

What I hit upon then as a differentiating proposition was to make Digital Book World focus on the business issues created by digital change in trade book publishing. We wouldn’t focus on tech, per se. We wouldn’t focus on how digital change would affect publishers who didn’t rely primarily on bookstores to reach their customers. It has long been my belief that general trade publishers would be the most challenged by the digital transition because their core proposition, their key value-add, was putting books into bookstores.

That’s worked for us very well. Not only have we had three very successful DBWs, I believe we have really helped focus the conversation about the digital transition. When we booked agents to speak at DBW 2010, it was the first time they had been featured at an industry event on digital change. Of course, the agents’ role — and the nature of their organizations — has changed as much as publishers and booksellers have in recent years. We’ve looked at the globalizing impact of the digital transition, how bookstores are coping with it, how publishers’ relationships with libraries are changing, and, repeatedly, how digital change is affecting trade publishers’ organizations, staffing, and workflows.

Then in 2012, Michael Cader and I formed Publishers Launch Conferences because, as big and sprawling and complete as DBW is (and with 30 different breakout sessions plus a ton of plenary programming, 150 or more speakers, and about 2000 attendees, it is definitely the biggest conversation about digital change for trade publishers held anywhere on the planet), we can’t cover everything there and we need interim conversations throughout the year.

As it happens, PLC is letting us focus on subsets of the broader conversation — one might call them “verticals” — that require a deeper dive. Last year we used that capability to deliver “eBooks for Everyone Else”, the primer for ebook publishing without an IT department, in New York and San Francisco and a half-day show dedicated to children’s book publishing in Frankfurt. Both of these ultimately enriched DBW itself; we made “eBEE” a breakout track and did our own full day Pub Launch standalone on children’s book publishing as a co-located event at DBW 2012.

We have two exciting vertical shows lined up for Pub Launch 2013 that will definitely spawn programming for DBW tracks.

“Publishing in the Cloud”, which we’ll stage on July 26 at Baruch on 25th and Lexington in Manhattan, is about SaaS (“Software as a Service”) for publishing. We think SaaS is starting to change publishing practices, workflows, and the IT departments themselves. SaaS will mean a totally different deployment of technology resources for big publishers and enable capabilities that were previously out of reach for smaller publishers.

Although almost all the from-stage presentations at “Cloud” will be by publishers who are using SaaS services, the suppliers will be there too. They’ll meet the delegates at their sponsor tables during breaks and will also participate in “speed-dating” sessions, where the attendees meet sponsors and the speakers in small groups that enable exchanges about the very specific challenges attendees come to the conference to have addressed.

“Publishers Launch Hollywood”, which will take place on October 22 at the Hollywood Renaisssance, will be the first conference event specifically designed to introduce the movie and TV communities to the new opportunities created by digital publishing. Networks, studios, producers, screenwriters, and agents in LA all control properties that would make books that can sell and can now be delivered at a nominal cost. We know of one major studio about to announce a program to sell 300 “classic” scripts as ebooks. NBC, the one major network not already affiliated with a publisher (CBS has S&S, ABC has Hyperion, and Fox has HarperCollins) has started its own ebook publishing operation. These initiatives are the tip of an opportunity iceberg and we plan to bring that message to Hollywood and deliver the information about all the new ways that exist for film and TV properties to generate more fame and more revenue that are now readily available.

Both SaaS and publishing’s Hollywood connection will find their way to the DBW program for next January. They join a list of topics we think are moving up on the agenda for publishers and that we’ll want to cover pretty thoroughly at DBW 2013..

Digital is making the world smaller. That creates opportunity for US publishers to sell more abroad and opportunity for foreign publishers to sell more here. We will feature more on export, more on import, and more conversation with international publishers in general next January. (There’s quite a bit of this on our PLC BEA show, which will take place on June 4.)

Pretty clearly, DRM (digital rights management) is an element in transition in our dymanic ebook world. We’d say that conversation began in earnest at DBW 2012 when Matteo Berlucchi, the CEO of ebookseller Anobii, made his plea to eliminate DRM as a way to combat Kindle lock-in. Now Pottermore is selling DRM-free ebooks, getting heretofore inconceivable concessions from Amazon and other ebook retailers as a result, and Macmillan has just announced that their Tor.com division will make the same switch in the next two months. The future of DRM, and, more to the point for us, the impact on piracy and on the overall marketplace, will be front and center at DBW 2013.

Discovery is a topic that has been on our minds for some time, but it is getting increasingly crucial as bookstores decline. Discovery is about metadata, of course, and that’s a subject we’ve covered at DBW before (and will again.) Many social reading and sharing options are being developed. Whether these give publishers and authors the tools they need to propel a book to the level of awareness necessary to get sales and word-of-mouth rolling is something we’ll definitely be trying to learn more about at DBW 2013.

The importance of brand and community is increasingly obvious. I’ve been thinking about a whole conference on verticals (which we’ll probably do as a Publishers Launch event in 2013), but we’ll start that process at DBW 2013. The best example we know of a multi-niche publisher is F+W Media, the owners of DBW. I think 2013 may be their time for a more featured role in the programming. Under the same heading, we take note of name-gathering efforts at several major houses. How names get gathered, how they get segmented and used, and what difference it is making to increase sales and reduce marketing costs will be a prime topic at DBW 2013, particularly now that Pottermore has shown us a whole new way name-gathering efforts might work.

As the traditional paths to market (bookstores) atrophy and sales of books prove more difficult to get, alternate revenue opportunities are going to grow in importance. We know of some. For one thing, international markets are more accessible. There are also new business propositions like Semi-Linear “citia” apps for high-concept non-fiction and Yummly for recipes and food content that offer publishers licensing revenues. And publishers may learn that some of their future dollars will come to them in pennies. Micro-transactions enabled by Copyright Clearance Center (a Publishers Launch global sponsor, but also the purveyors of Rightslink, a capability we think publishers will increasingly find indispensable as a rights marketing tool) and AcademicPub, among others, will likely deserve a real airing by DBW 2013.

We’re also seeing new models developing inside and outside of publishing houses and we’ll be putting examinations of them on the program too. Late last year, Penguin launched Book Country (a portal to help fledgling writers improve their work and get to market) and Sourcebooks is pioneering an “agile” publishing model with futurist David Houle (a hit with our DBW 2012 audience whom we’ll probably bring back in 2013.) Sourcebooks and F+W are also trying subscriptions, a model pioneered by O’Reilly with Safari a decade ago. To the extent that DRM fades, experimentation is further enabled. New models will be an important topic by next January.

We’ll also be gathering data from any source we can and as we have at all DBWs past. Self-publishing is a subject that is bound to get coverage beyond Book Country; I’d love to assemble a panel of self-publishing authors that have turned down major deals (and have really done it themselves instead, not signed with Amazon as their publishers!) And, of course, ebook pricing will be a topic we’ll figure out a way to cover even though most of the retailer and publisher players feel highly constrained talking about it.

The digital transition won’t last forever. Transitions don’t. At some point, the transition is over and we’re into a new world. But if one prediction for eight months from now is safe, I think it would be that we’ll still be in a state of flux next January, with a year away as hard to predict then as it was last January. Digital Book World every January and Publishers Launch Conferences throughout the year still have a lot more value to deliver.

What I want from writing this piece are suggestions for what we should cover at DBW. What do you think the burning issues will be in publishing’s digital transition by next January? We’ll be convening the DBW Conference Council at the end of June to discuss this question, but we’d love to be further informed by your thoughts by then. Comments are fine; sending us emails (to [email protected]) is fine; making suggestions to us when you see us at other shows is also fine. But please tell us what you think.

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Amazon has three pretty powerful things going for them, and two are entirely their own doing.

Number one: Amazon is, by far, the most book-industry-focused company that is actually active in endeavors much larger than the book business. Barnes & Noble and Ingram are just as focused, but they really don’t go beyond the book business. Google and Apple are, like Amazon, leveraging their book activities into other areas and vice-versa, but they have nowhere near the presence in the book business that Amazon does. (Kobo, which is focused on the book business but has just been bought by a much larger Internet retailer, is still a bit of a wild card in this regard.)

Number two: Amazon executes. Their hardware and software and platforms and content delivery all work just about perfectly. It seems odd to me that, at this relatively late date in the ebook switchover, Amazon is still the only place I can shop for ebooks and see my choices arrayed by (highly granular) subject with the most recently published books on top. (Note to all competitive retailers: please let me know the minute your shopping experience can offer the same thing!)

Number three: Amazon is the runaway market leader in the only two segments of the book business that are growing — ebooks and the online purchasing of print — and they are cleverly leveraging the leadership position they have to make challenging them even more difficult in the future. Their willingness to take losses on some transactions to grow share, on Kindle devices to lock customers into their ecosystem and on eboooks when they can to emphasize they are the low-cost provider, is supported by the wide array of products, in media and far outside, on which they don’t need to sacrifice margin for competitive advantage.

Amazon’s industry focus is natural, since books is where they started (even though books are now a fraction of their business). Their history gives them the presence and the knowledge to be highly disruptive. They know how to go after authors directly (apparently even more effectively than Barnes & Noble, which has been signing up content on a proprietary basis for well over a decade and actually owns a publishing company). They use price as a weapon to sell books, disadvantage competitive retailers online and in stores, and to lock in customer loyalty for print (with their Prime program) and ebooks (with their proprietary Kindle platform).

Amazon’s execution has been a keystone of their success from the very beginning, from their invention (or at least early use) of a database for “discovery” even larger than their supply capabilities (they wanted the customer to know when a book they wanted was no longer available, so they could choose something else), promise dates for delivery that were almost always met, customer service that aggressively solved every problem, and intuitive navigation and execution that did for online retailing what Apple did with hardware and operating software. And when Amazon decided to do hardware, they might not have made anybody forget Steve Jobs, but they have apparently made his company address the Kindle Fire with a pricing response on their iPad.

But none of this would worry the rest of the publishing ecosystem — publishers, retailers, and agents — if it weren’t for the fact that everything in publishing seems to be flowing downhill toward a future where the vast majority of what people read as books is both found and purchased (and often consumed) online.

Actually, there are two more important components to Amazon’s success: their lack of involvement in the most capital-intensive elements of the legacy book business (press runs and returns as a publisher, brick stores as a retailer) and their brilliance at acquiring companies that might have provided platforms to cause them trouble. There have probably been many of those (and they are very graphically represented here) but I can immediately point to three:

* the acqusition of Mobi ten years ago took the one format that could have united the ebook market, then divided between the Palm and Microsoft formats, out of circulation before some other retailer (specifically: Barnes & Noble) could have served the entire marketplace and perhaps made ebooks accelerate many years before the Kindle;

* the acquisition of Lexcycle which gave them Stanza, an ebook platform that was extremely consumer-friendly and cross-platform, which could have constituted a threat to Kindle’s development when the Amazon format was in its infancy;

* the acquisition of The Book Depository, an global onliner retailer of print that had developed technology and logistics that would have made it a great foundation for competing with Amazon for global book sales, which was done at the very time that three major publishers on each side of the Atlantic were investing in competitive retailing enterprises (Bookish in the US and Anobii in the UK).

The Book Depository acquisition was very well timed, coming as it did just as there are signs that the British public would really prefer to buy its books online, that the French (like the rest of Europe, we’re sure) are beginning to seriously enter the digital book future, and that the Swiss are starting to worry about the decline of their brick book business.

It is natural that any player who has made the bet that brick-and-mortar bookstores have a future would be hostile to Amazon. It is becoming increasingly obvious that technology is enabling Amazon not just to persuade book customers to shop with them, but also to buy from them when they’ve shopped elsewhere.

I am entirely sympathetic with Tim O’Reilly’s admonition that we should “buy where we shop”. Note that Tim made this point almost a decade ago, when the suggestion being made by me (among others) that bookstores were seriously threatened by digital change was dismissed by most people in the industry.

But it being right doesn’t make it so.

Publishers have a valuable proposition to offer authors as long as Amazon is one of a diversified set of paths to the purchasing consumer. In today’s world, where print is still 70% of the sales of even most straight text books and most of the print is still sold in stores, an author who has the opportunity to work with a regular publisher makes real a sacrifice of market exposure to work directly with Amazon. Even if Amazon were to eschew its Kindle-only insistence on ebooks for titles it signs directly through its imprints (and we hear rumors from the deal-making world that they might on a selective basis), Amazon would still have a great challenge getting exposure for one of its titles through brick outlets. (Some research by Laura Hazard Owen documents the difficulty they’ve had with that so far.) And one important thing Amazon hasn’t learned from its experience is how to meter inventory into stores to maximize marketing exposure but keep returns manageable.

But the publishers’ advantage here has a shelf life. For online sales, individual authors are becoming persuaded that Amazon gets them more than the other outlets combined. Barry Eisler has expressed great satisfaction with his Amazon-only sales. Another author, Robert Niles, reports that Amazon far outsells all the other ebook retailers for his self-published work and thinks it is because Amazon promotes the self-published author more effectively.

When you read through this thread from Amazon’s online forum among authors discussing what happens when the retailer picks one of their books for a price promotion, you get a sense of the excitement they generate through the sales they can create with tools which are uniquely at their disposal.

What that probably means is that more and more authors will be available exclusively through Kindle, some because an Amazon imprint signed them and others because they don’t bother to put their books up on other sites for paltry sales. If that happens, Amazon’s natural advantages just grow.

Although Anobii’s founding CEO, Matteo Berlucchi, tells an imaginative and persuasive story about converting the social aspect of books into a commercial proposition (which has been the effort of independent start-up Copia for the past year), I think the challenge for them and for Bookish, the US version of a publisher-sponsored online book retailer, is steep. The problem for them is the same as B&N’s; Amazon brings resources and ammunition to this competition that stem from a much bigger base than the book business alone. They can use books as loss-leaders to sell more movies or computers or groceries. (By the way, this is exactly what brick book retailers coped with competing for bestseller business with mass merchants who could sacrifice margin on books that brought people into their store because they could make it up on other items.)

There is really only one way for publishers to compete with Amazon for authors in the future and that’s to find book customers Amazon doesn’t have, either by working through other retailers or by creating direct publisher-to-customer contact. The percentage of sales which go to Amazon is the single most important barometer of a book publishing company’s future. Of course, every publisher wants to make their Amazon sales grow. Their challenge is to make other sales grow faster.

Of course, the retailers are a critical focus for us at Digital Book World at the Sheraton in New York, January 23-25. We’ll have presentations from Amazon, B&N, Kobo, Google, Bookish, Anobii, Copia, and from some independent booksellers. We’ll have a panel of players talking about creating new markets, globally and locally. And we’ll have publishers talking about creating communities in genres and in topics, building their capabilities to talk directly to their customers without an intermediary’s help. 

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Obviously my day job, consulting, informs a lot of what goes into The Shatzkin Files. I guess it is just as obvious that I can’t quote everybody who tells me something or attribute everything I want to write about to a specific company or individual. I don’t make a living writing this blog and I wouldn’t make a living at all if people in the industry couldn’t trust me to keep their confidences.

But once in a while people inside competitive companies tell me things that they want the world of publishing to know about what they’re doing. That’s happened twice this week and, in both cases, publishers were making it very clear that they are doing things that will add real value to authors’ marketing efforts, things that no self-publishing author could do for themselves. Self-publishing authors could be wrong, but a read through the comment string of a recent post here makes it clear that they don’t much believe publishers add value in marketing.

On Monday, I was talking to Fritz Foy, the senior VP for Digital Publishing and Strategic Technology at Macmillan. My mission was to recruit speakers from Macmillan for Digital Book World. The conversation turned to the question of “collecting names” for marketing purposes. I had learned previously that Macmillan really has a company-wide effort to do that. That’s something I have advocated. I thought it was so important that I went to the unusual (for me) effort of learning some fundamentals of direct contact management and writing about them on the blog 14 months ago. But Macmillan is the only company I’m aware of that makes email address capture an objective across the company, although we see pockets of name-gathering activity in other majors.

Fritz emphasized that collecting names wasn’t the only priority. Using them, using them well, and tracking what happened when they used them were the keys. (I was reminded, as I was again by the next conversation I’ll describe, of the adage “you can’t improve what you don’t measure”.) To demonstrate, he pulled some October numbers from tor.com, which one would assume, based on the relatively longstanding tor.com effort, probably constitutes the company’s biggest single pool of email addresses.

And they had a lot of them, enough to have sent over 650,000 emails to their lists in the month of October. That’s impressive. But what’s positively stunning is that more than 30% of those emails got opened (that’s more than 200,000) and more than 20% of those clicked through: took the action that Macmillan asked them to take in the email. That’s in the neighborhood of 40,000 actions.

Now the actions were, for the most part, to get free access to more content. (Only 15% of the mailings were purely “marketing”.) They weren’t selling anything. But what Fritz was demonstrating was the growth of what I call “investment marketing”: marketing that produces a result that makes subsequent marketing efforts cheaper or more productive. These tor.com numbers are going to grow, inexorably. Another indication of how solid Macmillan’s lists are is that only 0.1% unsubscribed!

If I were an author (or agent) looking for a sci-fi publisher, it would impress me that Macmillan has lists that get a 30% open rate. It would make me feel they could do things to promote my book that another publisher without those lists couldn’t do. I don’t know what the growth rate is on those lists, but most things (sales, device penetration, self-publishing) in the digital publishing world have been more than doubling each year and these could well be too.

The key point to take on board here is that tor.com is a flagship; Macmillan is doing this across their company. They are building other verticals as well. If other publishers aren’t systematically taking names, getting email permissions, and testing what can be done with them, Macmillan will build up marketing capabilities that it will get increasingly expensive to compete against.

There is little doubt that Amazon’s author-recruitment efforts for their imprints include the promise to mail to known buyers in the author’s genre. They almost certainly can send more than 600,000 emails in a month for many books and genres. But can they get a 30% open rate and a 20% clickthrough?

And Amazon, a retailer, can’t get trapped into just pushing the books it signs up when their consumer brand, and their sales, depend on offering full range of selection of available titles across publishers’ lists. That conflict is compounded as they sign up more and more titles as proprietary. (But it will also be ameliorated if the titles they sign are higher profile than they’ve been so far.)

The day may not be far off when agents are going to be asking publishers “how many emails can you send in support of this book on publication day?” If I were in Amazon’s shoes, I’d be pushing that question. It looks like Macmillan is methodically building the ability to provide an answer.

But not everybody with a modern view of marketing agrees with me (and Macmillan) about the importance of name-gathering, which brings us to the second conversation this week.

We got a call from Open Road Integrated Media asking us to come down to their shop and learn a bit about what they’re doing. Open Road is an ebook publishing company founded by former Harper CEO Jane Friedman which has been an annoyance to the big publishers. Jane has been in the business for more than four decades in high positions at major houses (at Random House before Harper). She knows the agents and she knows how the game of signing up content works.

So she moved against the establishment by offering a standard deal of a 50% share of ebook revenues, when the major publishers are holding the line at 25%. (Open Road’s deal includes the ability to recoup one-half the digitization cost before paying what we usually call royalties but which they call “profit share”. ORIM says that comes to less than $500 per title. Open Road pays no advances.) She used her understanding of the ambiguities in legacy publishing contracts to sign up backlists from both living authors and estates, including Willam Styron, Lawrence Block, Carl Hiaasen, Alice Walker, and others.

Those have been the headlines about Open Road and that was pretty much the extent of my knowledge of their proposition. Without any other knowledge of their economics — their ability to raise money, their burn rate, their sales — I was skeptical about the sustainability of their model, if it rested primarily on paying 50% for what others were paying 25% for and gathering high-quality backlist of titles not nailed down already for ebooks, which is a limited resource.

It turns out they have a lot more going for them than that. But they don’t gather names.

Open Road’s head marketer is Rachel Chou, who worked with Jane Friedman at Harper. Jane and Rachel, and former Scholastic CEO Barbara Marcus, who is an advisor to Open Road on children’s and YA acquisitions, made the point that Open Road is a marketing company. That’s what they do. And their bullpen with about a dozen people in cubicles working away is just about exclusively devoted to marketing. Except that, in their eyes, marketing and sales and author relations are all the same thing to them, and they see a workflow built around that perception as a key differentiator.

In fact, they see the consolidation of functions in their shop as a significant competitive advantage. In the ebook world, marketing and sales are so closely related that it is hard to see how to parse them. That’s partly because the promotions by ebook retailers could be the single most important marketing component (a point made emphatically by Diversion Books’ Scott Waxman at our eBooks for Everyone Else shows in New York and San Francisco), but it is also because all marketing efforts at Open Road are aimed at driving sales to the ebook retailers. (Their widgets all have buy buttons for the full range of retailer choices.)

But that’s not where the competitive advantage of their structure comes into play.

Rachel spelled that out. One of the major retailers came to them in the past few weeks with a big sales opportunity. They could place 15 Open Road titles in a major promotion that would sell a lot of books. One catch: they needed the titles cleared for the promotion within 24 hours.

Another catch that is characteristic of the ebook world: this was a price promotion that required clearing the participation of each book with its agent. That’s 15 agents. Rachel and her team of marketers, who have the agents of the Open Road ebooks on their own speed-dials, got the job done and got all 15 books into the promotion.

Moving that fast would be a non-starter in any significant publishing house. Whether the opportunity came in through sales or marketing, neither team would own the agent relationships. I believe in most houses it would be necessary to have the agent calls made by the editor who had signed the book. Certainly, the editor would have to be consulted before anybody from marketing or sales could make such a call. And that round of communication, which would include explaining the promotion opportunity to each of the affected editors, would never be attempted within a 24-hour window. Realistically, 24 days would be a challenge.

Open Road is organized differently than legacy publishers because there is so much they don’t have to do! There is very little in the way of a production department (there is a person who creates their covers and Pablo Defendini, who was a key player building Macmillan’s tor.com, is their “interactive producer”.) There is no sales department. There is no inventory management. Everybody works in a room that is dominated by a wall with a 2-month marketing calendar, listing all the events and anniversaries they might promote around. They have 75% or 80% of their company dedicated to marketing, which everybody — including all the big publishers who have expressed an opinion to me — agrees is the prime responsibility of the book publisher in the digital era.

But, even within that, Open Road is organized for efficiency and speed based on the realities of the value chain for ebooks. Their marketers are assigned books which “fit together”, so they are consistently going back to the same blogs and websites for promotion. They can develop relationships. They’re not really a “vertical” publisher (by genre or by topic) but they do have multiple titles from the same author, which helps.

To be fair, the other major publishers are reorganizing themselves constantly into more marketing-focused and less bureaucratic organizations. Just this past week, Simon & Schuster announced organizational changes which effectively shift resources from physical store sales to online marketing (which is admittedly an oversimplification.) The big companies all have great leadership and they’re well aware that they have to change. And I know for sure there are plenty of initiatives I haven’t heard about because the houses feel there’s competitive advantage to keeping them quiet. In fact, Rachel Chou told me about newsletters that are published readers at HarperCollins were getting open rates when she was there a couple of years ago that were even higher than Fritz’s tor.com numbers in October!

Open Road’s team would point to other distinctions between them and other publishers. (They not only claim to be different from the legacy print publishers, they don’t recognize any of the other ebook publishers as true competitors either.) They do extensive video interviews with every author (or a descendant in the case of a deceased author) which creates a rich library of video content. It’s a point of pride with ORIM that these are not fodder for video trailers, but give them real editorial material that can be made into solid programming, often combining video from several authors thematically into “mashups”. They distribute that video aggressively and claim they’ve now reached the point where they’re a recognized B2B brand by some digital media and bloggers who come to the Open Road website, unbidden, to pick up video. Of course, all the video is tagged so the Open Road marketers can track its placement, downloads, and any clickthroughs that result to the retailers.

And that leads us to metrics. Open Road is relentless about data and analytics. They make the point that they can test different covers or tag lines on Facebook or in other media and have answers within hours about what works best. The Open Road team believes that the big houses don’t give their marketers the kind of tools ORIM has to measure the impact of campaigns and that their competitors’ corporate structures don’t enable fast changes in the pitch or the artwork based on data.

These may not be sustainable advantages. Tools can be provided. Workflows can be changed to permit faster responses when that’s necessary. The established houses can raise their royalty rates. How fast things will change in the big houses is an open question (and the answer is different for every house), but it is undeniable that the decision-making structures that worked for print books readily accepted time lags that are a real handicap in the evolving ebook world.

Jane Friedman and her team claim that there is a marketing plan for every book for every quarter! (They admit there’s some ganging there; a bunch of different books might be part of the same Mother’s Day effort.) Whether that is scaleable and replicable when they are ten times their current size (approximately 1400 titles) is another question. But it is certainly a point of differentiation today.

Open Road doesn’t sell direct, only through intermediaries. And they eschew name and email address capture of end users, preferring to rely on the combination of the viral distribution of content and their always-developing relationships with bloggers and websites.

Both Macmillan and Open Road are doing things that no big trade house could have imagined five years ago. Macmillan is applying scale; Open Road is applying the speed and flexibility enabled by a smaller organization. But both of them are employing what I’d call “investment marketing”: doing things on behalf of their books that build their capabilities to do more on behalf of subsequent books. I think that’s the key for publishers who want to give authors and agents convincing reasons to publish with them in the future.

We’ll do a panel on “investment marketing” at Digital Book World in January. Of course, Open Road and Macmillan will be on it. So will F+W Media, a vertical publisher (investment marketing is much more natural for vertial publishers) and we expect to add one more Big Six house which is doing interesting things in this regard.

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