General Trade Publishing

Books as brands and the opportunities to sell book-branded merchandise

There’s a lot in this post that anticipates conversations we will have at Digital Book World 2016, coming up March 7-9 at the New York Hilton. “Transformation” will be an important theme at that event and nothing says “transformation” more than revenue sources you didn’t used to have.

It was really 20 years ago that it first occurred to me that “content marketing” would, at least in part, replace “marketing content”. Or at least partly replace selling content. As the world progressed, so did my understanding of how this would play out, and I saw that publishing would increasingly be done by entities extending their brand or their audience reach. I called that the “atomization” of publishing and have written about it for a few years.

But the way it worked out, thanks to an Amazon far more powerful than I envisaged in the 1990s, is that publishers don’t actually sell their content direct to consumers very often. Their primary job — their primary responsibility to the authors they sign up — is to get the content sold by whatever means possible. Publishers have mostly learned that trying to take sales away from Amazon to make them directly costs far more in lost sales than it gains in even ostensibly improved margin. (And, in fact, the margin does not improve most of the time even if the share retained of the selling cost rises, because the cost of serving customers exceeds the cost of having Amazon do it for you.)

So an idea that briefly seemed right to me in the 1990s — that publishers would use their content as a springboard to market other things — never materialized. And what’s happened is mostly the other way around: people who sell other things are creating content, sometimes competing with publishers, to bring in customers for their primary products.

The world that I envisioned back then has played out somewhat in vertical publishing. F+W has been building on its book and magazine audiences to sell other things, including live events, for nearly a decade. Rodale will be launching online courses this month. They also do “summits”, which are several days long, built around the authority of a book and author, and which are free events out of which products are created from the content that attendees can purchase.

The general trade publishers are trying some of this too. Macmillan has sold mugs and t-shirts through and other sites it controls that did “fairly well, but nothing earthshattering”.

HarperCollins has been a bit more aggressive. A scale email channel – their Bookperk bargain newsletter (which was just grown by acquisition last week) – allows them to effectively promote all sorts of things, from e-book bargains to discounts on print front list to event tickets to just fun things, like a chance to win Notorious RBG temporary tattoos. Combining some of that, they have done two virtual pop-up stores – one for Father’s Day and one last Christmas – where they sold signed editions and non-books like Roxane Gay “Bad Feminist” t-shirts and Agatha Christie tote bags.

But the publishers mostly have the limitation we pointed out at the top that cramps their ability to sell non-book items: they don’t actually sell very many books or ebooks themselves either. So their content marketing efforts are not routinely building toward a transactional relationship with the audiences they touch. That means that “upsells” are not about “putting another item in the shopping cart”. They’re about getting a customer to use a shopping cart with them for perhaps the first time. That’s much harder.

The full potential to sell “other stuff” is now being demonstrated through the “custom book” play from Sourcebooks called “Put Me in the Story”. There are other personalized books — like those offered by Quarto (This Is Your Cookbook), Chronicle (“I See Me” children’s books, which are custom books based on Chronicle titles), or the global sensation for kids called “Lost My Name”. But PMITS is different because it works with highly-established children’s book brands and delivers personalized versions of them. So PMITS sees itself from the git-go as a brand enhancement and extension, making a new revenue stream available for the publishers (and authors and illustrators) of the books they build on.

Like the other personalized book creators, PMITS does have a shopping cart; they do have a transactional relationship with their customers.

So when they look at non-book gift products, the book again is central, as it is for their core offer. Like with the book, there’s a royalty payment tied for non-book product that’s directly derived from books and it’s another whole new revenue stream for many authors and illustrators. From Sourcebooks’ perspective, this is what they were trying to do from the beginning. The personalized books add a revenue stream, and now personalized gifts add another revenue stream. (Chronicle also sells chotchkes like stuffed animals that “go with the books” but they are not evidently deeply into doing branded chotchkes, creating extra value for commodity items around the book’s fame.)

Put Me in the Story uses the book’s brand as the key asset distinguishing their non-book products to create companion gifts.

For example, they used the artwork from their own bestselling “I Love You So” Marianne Richmond book to create personalized gifts including puzzles, wall art and placemats. They’re now beginning to expand their offerings to include many other product types including nightlights, backpacks and ornaments (that last actually in beta just in the last two weeks). Last month, they had a bestseller with a Halloween Scare book and its corresponding Trick or Treat bag.

Selling stuff beyond the books themselves has been on the PMITS road map all along and was launched in a “beta” mode a year ago for holiday season 2014. They’re now working to scale it with new content partners and merchandise so they can create some unique gift bundles with books as the foundation.

The customization capability inherent in PMITS is not actually the most important piece that enables them to sell non-book chotchkes. The requirements are the direct customer relationship with the reader and the licensing relationship with the owner of the book. Sourcebooks has created both with Put Me In the Story. Any publisher with a strong ecommerce business would have the pieces in hand for their own books (as Chronicle is now demonstrating). One could see the value and the opportunity here for a big book retailer, but the effort required to create the licensing relationships necessary would be substantial. (Of course, a big book retailer that owned its own content would have an advantage here. And we can think of one…)

An important principle is being established here. A book creates a brand. There are many things people want — beer mugs and scarves and t-shirts among them — that have greater consumer value if they are branded. Put Me In the Story has made that abundantly clear.

Note that Digital Book World, the biggest global discussion of how digital is changing the publishing business, has moved from the January slot it occupied for its first six years to March 7-9, 2016 at the New York Hilton. In addition to the “transformation” theme, this year we have a strong focus on the tech companies that are affecting publishing’s world. How do Amazon, Apple, Facebook, and Google strategies and initiatives affect publishers and authors? Our program is loaded with experts on that. 

Digital change may have seemed to slow down, but Digital Book World is still covering aspects of it that none of us know well enough yet. You’ll want to be there. The first Early Bird deadline expires at the end of the day on Monday, November 9. To get your best price, sign up through Publishers Marketplace by then.


It is being proven that smaller bookstores can work commercially

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


Ebooks change the game for both backlist and export

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

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

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

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

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

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

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

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

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

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

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

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

But there are hopeful signs that this is changing.

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

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

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

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

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

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

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

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

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


What Oyster going down demonstrates is not mostly about the viability of ebook subscriptions

The news that the general ebook subscription offering Oyster is throwing in the towel was not really a surprise. The business model they were forced to adopt for the biggest publishers — paying full price for each use of a book with a threshold trigger at considerably less than a complete read while, at the same time, offering consumers a monthly subscription price that barely covered the sale of one book, let alone two — was inevitably unprofitable. Their only hope was that they’d build a large enough audience fast enough that publishers would become in some way dependent on it (if not the revenue it produced) and agree to different terms.

It would be a mistake to interpret Oyster’s demise as clear evidence that “subscriptions for ebooks don’t work”. Obviously, they can. Safari has been a successful and profitable business for nearly two decades. The Spain-based 24Symbols has been operating an ebook subscription business, mostly outside the US and mostly not in English, for too many years to be running exclusively on spec VC money. Scribd has very publicly (and a bit clumsily, in my opinion) adjusted their subscription business model to accommodate what were unprofitable segments in romance ebooks and audiobooks, but the inference would be that for other segments the business model is working just fine. And then there’s Amazon’s Kindle Unlimited, which is sui generis because they control so many of the parts, including deciding more or less unilaterally how much they’ll pay for much of the content.

What seemed obvious to many of us from the beginning, though, was that a stand-alone subscription offer for general trade books could not possibly work in the current commercial environment. The Big Five publishers control the lion’s share of the commercial books that any general service would need. All of those publishers operate on “agency” terms, which makes it extremely difficult, if not impossible, for a subscription service to pull those books in unless the publisher allows it. The terms that the publishers would participate in the subscriptions required, which were, apparently, full payment for the book after a token amount was “read” by a subscriber, combined with a limited number of titles offered (no frontlist), made the subscription offer inherently unprofitable.

The publishers see the general subscription offers as risky business for books that are currently selling well a la carte. Not only would they threaten those sales, they threaten to convert readers from a la carte buying to going through the subscription service. To publishers, this just looked like another potential Amazon: an intermediary that would control reader eyeballs and have increasing clout to rewrite the terms of sale.

So they only participated in a limited way. Penguin Random House (the biggest, and in shouting distance of half of the most commercial books all by themselves) and Hachette Book Group did not even experiment with the non-Amazon subscriptions. HarperCollins and Simon & Schuster, and to a lesser extent Macmillan, participate in a limited way. Multiple motivations drove the participation that did take place. The primary goad, probably, was to simply oppose Amazon. Having customers nested anyplace except the behemoth in Seattle can look like a good idea to most publishers. But another was to collect at least some of that VC money poured into an unlikely-to-work business model before it was exhausted. And because the publishers got to decide which books to include, they could choose backlist titles that weren’t generating much revenue anyway and which might benefit from “discovery” within the subscription service.

(Carolyn Reidy, the CEO at Simon & Schuster, tipped to this in her talk last week at the BISG Annual Meeting where she specifically mentioned the value of the discovery S&S has seen take place in the subscription platforms.)

But not all the subscription services were equal. The established Safari was in a market niche, serving mostly B2B customers in technology companies. (They have recently gone to an expanded offering because Boeing and Microsoft techies don’t just need books about programming; they’re also parents and cooks and gardeners so general-interest non-fiction can appeal to them. But that’s not the foundation of Safari’s business and they’re not trying to push fiction.) Scribd had a foundation business as a sort-of “YouTube for documents” that the ebook subscription business both built on and enhanced. For Amazon, Kindle Unlimited just gave them another way to transact with the ebook customer and it gave them another outlet for their exclusive Kindle content.

Only Oyster and another pretty-much simultaneous startup, Entitle (which had a proposition more like a book club than a straight subscription service), were trying to make the alternative ebook revenue stream into a stand-alone business. Entitle went down before Oyster. Librify, another variation on the theme, was acquired by Scribd.

So the failure of Oyster is actually another demonstration of a “new” reality about book publishing, except it is not so new. Book publishing — and book retailing — are no longer stand-alone businesses. Publishing and bookselling are functions, and they can be quite complementary to other businesses. And as adjuncts to other businesses, they don’t actually have to be profitable to be valuable. What that means is that entities trying to make them profitable — or, worse, requiring them to be profitable to survive — are at a stark competitive disadvantage.

Amazon is the past master at making this reality obvious. Remember that they started as a “book retailer” and nothing else. They leaned on Ingram’s Oregon warehouse to enable their business model, which was to take an order for a book and accept payment, then procure the book from Ingram and send it to the customer, and then a little later pay Ingram’s bill. This positive cash-flow model was so brilliant that Ingram could have readily enabled lots of copycats, and they formed a division called Ingram Internet Support Services to do just that. So Amazon killed that idea by cutting their prices to no-margin levels and discouraged anybody else from getting into the game. That was in the late 1990s.

They could do that because the financial community had already accepted Amazon’s strategy of using books to build a customer base and to measure future business prospects by LCV — the “lifetime customer value” of the people they did business with. And it became clear pretty rapidly that they could sell book readers other things so no- or low-margin sales were simply customer acquisition tactics. This was a game Barnes & Noble and Borders couldn’t play.

Now book and ebook sales are almost certainly no more than a single-digit percentage of Amazon’s total revenue. Kindle Unlimited, like their publishing enterprises and self-publishing offerings, are small parts of a powerful organization that has many ways to win with every customer they recruit.

Scribd is not as powerful as Amazon, but they began with a network of content creators and content consumers. That gave them a marketing advantage over Oyster — not every customer had to be acquired at high cost since many potential customers were already “in the tent”. But it also gave them some stability. Eyebrows were raised recently when Scribd put the brakes on the lending of romance books and audiobooks. But tweaking the business model for those verticals simultaneously leaves open that the model is actually working in other niches.

We can see this playing out in a much more limited way in Barnes & Noble stores, where books are being replaced on shelves by toys and games. But that’s not likely to be enough diversification to matter in the long run. It is certainly not going to get B&N where Amazon is, where far more than nine out of every ten dollars comes from something other than books. And Barnes & Noble is nowhere near a point Amazon has reached: where the profit from book sales is incidental if they keep bringing in new customers and also keeps them loyal.

The story on Oyster, still incomplete as of now, is that a lot of their management team is on its way to Google, which, in effect, “bought” the company to get them. Google seems to be trying hard to make sure we don’t think they bought Oyster’s business, they just bought Oyster’s staff. Obviously, Google fits the description of a company with many other interests in which books can play a part. In the beginning, that was all about search. Now it is also about the Android ecosystem and media sales in general. An ebook subscription business, or even a content subscription business, could make sense in Google’s world. But it would be a relatively small play for them. My hunch, and it is only a hunch, is that they have something other than a mere “book subscription service” in mind for that Oyster staff to work on. Smarter observers than I seem to believe that the personnel Google recruited give them knowledge about Oyster’s mobile reading and discovery technology. Of course, that’s core information for Google.

Similarly, Apple, which now has subscription service for music, might also consider doing one for books — or for all media — at iOS at some point. They don’t have one of Amazon’s advantages — a big stable of intellectual property they control — but they are all about creating an ecosystem that people stay in and don’t leave. Book subscriptions could enhance that.

But the central point I’d take away from this is not that subscription failed, but that a pure book business play failed. One obvious question that provokes is when we will see some signs of synergy between Kobo and their owners at Rakuten, who presumably have Amazon-type ambitions but haven’t seemed to use their ebook business to help pursue them.

And what is true of book retail is also true of book publishing, as we observed in this space quite some time ago. Both publishing and book retailing will increasingly become complements to larger enterprises and decreasingly be stand-alone activities that business can dedicate themselves to for profit.

The New York Times this morning has a front-page article essentially reporting that the ebook surge is over, at least for now, and the print business appears stable. This is great news for publishers if the trend is real. Unfortunately, there were a few important points either elided or ignored that might have undercut the narrative.

One is that, while publishers report ebook sales as a percentage of total book sales steady or slightly declining, Amazon says (and Russell Grandinetti was quoted in the article) their ebook sales are going up. Assuming all this is true, is the difference perhaps sales migrating away from publishers (which sales would be reported by the AAP stats they rely on) and moving to cheaper indie titles available only through Amazon (which sales would not)?

Another is that publishers are raising prices on ebooks and making the price rises stick because of Agency. Is all the sales resistance created by higher prices resulting in print sales, or is some of it causing the book to be rejected for something cheaper? In other words, might total sales for many titles be less than publishers would have looked for before? (At least one agent tells me this is the case.)

And another is that the indie bookstore resurgence has occurred in the years following Borders’s demise and the shifting of the product mix in Barnes & Noble. It is worth asking whether the indies are temporary beneficiaries of a sudden shelf space deficiency or whether we’re really seeing not only an increase in print reading, but a renewed interest by book readers to go to stores to buy the print. That question isn’t posed in this piece.


Barnes and Noble results and the latest news from Perseus

The most recent Barnes & Noble financial results — which appear to have discouraged Wall Street investors — aren’t good news for the book business. They show that the sale of books through their stores is flat at best, as is the shelf space assigned to books. And it would take a particularly optimistic view of their NOOK results to see anything but an accelerating slide to oblivion for what was, for a time a few years ago, the surging challenger to Kindle.

It is safe to say that every book publisher wants a healthy Barnes & Noble. I asked the CEO of one large publisher recently whether the touted recent growth of independent bookstores was making up for the loss a few years ago of Borders. The response was “not even close”. Less dramatic than all the Borders stores going out at one time is that B&N must logically be reducing its shelf space for books, since some stores — though not many — are closing and the presence of toys and games is growing in those that remain.

In some ways, changes in the merchandise mix makes sense. Borders and B&N were, for quite some time, in a competition to provide the greatest possible in-store selection. With Borders out and most indies a fraction of the size of superstores, B&N can have the biggest selection available to most consumers with fewer titles in stock than they had before. (They do not publish any data that shows makes it explicit that there is a reduced title selection. One can only intuit that from the fact that other products have a growing presence and that some publishers report anecdotally that midlist is harder to place in the stores.) In any case, since the slowest-selling books are really barely selling at all, it would make sense that replacing them with other products could add to the store’s margins.

If B&N is successfully weeding only the slowest selling books, they should be removing titles that are turning so slowly that, after the initial hit of taking the returns, the publishers’ revenue line shouldn’t be too seriously affected.

But the overall store experience is definitely diminished. When big store selections were being built up in the 1990s, it was widely believed — or understood — that the books that didn’t sell brought people into the store to buy the books that did sell. And some book categories have so few strong sellers that eliminating the slower-turn books means you don’t have much of a section at all.

And all this ultimately drives sales online and that usually means to Amazon. (I did a calculation several years ago that suggested that Amazon had picked up several times the amount of once-was-Borders business that B&N did. It was Bowker data that I based it on.) It could well be the case that Barnes & Noble has held close to the same market share over the past few years, but they were the logical inheritors of the Borders brick-and-mortar business, and that is not what happened.

The real failure we see at B&N, which almost certainly affected the NOOK business as well as the stores, was that the customer knowledge within the dot com and NOOK operations apparently has never been used on behalf of the store business. This might be blamed on organizational silos that ran these three components as separate businesses. The failure is otherwise hard to explain. How hard can it be, really, to dig up email addresses of people who bought a book by a particular author to let them know s/he’ll be autographing books near where they live sometime soon?

Or, putting that in terms Barnes & Noble should relate to, might you not be able to charge the publishers a promotional fee for doing that? (AND you’d drive more traffic and sell more books!)

We had a recent conversation with Sergio Herz of the Livraria Cultura chain in Brazil. They are much smaller than B&N, 17 stores rather than many hundreds. But they started a dot com business in the mid-1990s, about the time Amazon did and before (which started as a joint venture between B&N and Bertelsmann called Books Online, or BOL). Their dot com is by far their largest single store, doing 28 percent of the chain’s total sales. (We don’t see how to discern from B&N’s public numbers how they compare with Cultura in that regard, but we’ll admit to being something less than the best analyst of financial reporting.)

One thing that distinguishes Cultura is the success of their in-store events, which are frequent (thousands per year) and take place in theater-like spaces within their stores. When I asked Herz whether Cultura drove dot com customers to store events he told me they do, and have done so “from the beginning”. Cultura’s management sees the integration of their stores and their dot com presence as an important competitive tool, becoming increasingly important as Amazon makes inroads into the Brazilian market.

That should be B&N’s secret sauce as well: delivering an integrated branded experience, with customer loyalty payoffs that encourage book readers to stick with B&N for both in-store and online purchasing of print and their branded ebooks, applying whichever would work best for them for each book they purchase. And while they do not appear to use their email lists on behalf of store events, B&N does enable online purchase for in-store pickup. The offer to do that appears on book product pages; it isn’t particularly featured. You can also buy in a store for dispatched delivery as if bought online. But there is almost no promotion of that capability either. I would guess that if you asked loyal B&N customers, many wouldn’t even be aware those choices exist. And if you are not a B&N customer, you certainly would have no idea. Promotion of those capabilities to former Borders customers (which would have been a highly targetable group when the Borders demise was still fresh) might have enabled B&N to do better at picking up their business instead of having the lion’s share of them apparently go to Amazon.

The people who own and run B&N are plenty smart. Before the game changed and was complicated by the online option, they had organized their supply chain to give them real competitive advantage over Borders and all other book retailers. But they were tripped up by a combination of Amazon’s longer-term view as an upstart in the 1990s and early 2000s when B&N was an established and profitable company. This was a classic “innovator’s dilemma”, failing to employ a new technology to maximum advantage because a legacy position was being defended.

Amazon was willing to lose money for many years to build its customer base. That was how they could build their stock price. B&N was a profitable company at the top of their category. Profits were how they grew their stock price. This not only discouraged deep investment in the early years of online bookselling, it discouraged the kind of discounting from their online store that Amazon did. Both of them knew that discounted books online put competitive pressure on the brick-and-mortar business. That was fine with Amazon. It was not appealing to Barnes & Noble.

In fact, long before NOOK, Barnes & Noble tried to be in the ebook business. At the turn of the present century, they had such ambition in the ebook space that they built a capability that was later spun out to be a company called Publishing Dimensions (now owned by Jouve) to help publishers with the digital conversion from print books to ebooks. But in the early part of the last decade, the ebook business wasn’t ready yet. There were three formats: PDFs (we all know about them), Microsoft Reader, and Palm Digital. Most ebooks were read on Palm, but Palm’s strategy was to sell the content themselves rather than let retailers do it.

Mobi was invented as a solution to the formats problem, to be one that could serve both MS Reader and Palm. By the time Mobi was created, B&N had expended a lot of cash and effort on an ebook market that didn’t materialize. They never took the next step of using Mobi. Amazon, bought Mobi in 2005 and effectively buried it for a while, only to bring it a couple of years later as the format that ran on the Kindle.

The ebook decisions B&N made were not crazy. Launching the Kindle business was a big roll of the dice for Amazon in 2007 when there had been no empirical evidence that there would really be an ebook market. Once again, as with the deep discounting of print books for online sales in the 1990s, the heavy investment in building a customer base made more sense for a multi-product retailer whose stock price responded to customer base growth, regardless of revenue or profitability, than for a more conventional legacy retailer.

When B&N decided to go after the ebook market with the NOOK, organizationally they did it with a dedicated and largely independent effort, not an integrated one. That might have been necessary. But it also might have been B&N’s last chance to build on its one distinctive advantage: having a strong store base and a real dot com business. (Borders never had the latter and Amazon, of course, doesn’t have the former.)

Doing the integration among the three strands of their business — stores, dot com, and ebooks — should still be Barnes & Noble’s top priority. That’s their biggest lever. There potentially are others. Moving from a sale-and-return purchasing paradigm to consignment terms with publishers, which would also almost certainly require allowing vendor-managed inventory, would also really help their financials by removing a large capital requirement. But it would also require rewriting the rule book on buying and substantial changes to their systems. There is also a potential opportunity getting indie authors to pay the cost of putting printed-on-demand copies on the store shelves on consignment as well, with potential profit in the printing and sales as well as new positioning with the growing base of indie authors and their readers. The recent attention Walmart got for stocking one indie title tips to the potential PR and merchandising advantage of that tactic.

But the time B&N has to change the reality that they can’t seem to grow their market share continues to shorten. The one big advantage they are likely to retain over their competitors in Seattle — who are certainly growing theirs! — will be a cooperative attitude from the publishers, who live in fear of Amazon’s growing power. But even that advantage has its limits.


The news comes this week that Perseus has engaged bankers to help them sell their company. This follows the collapse about a year ago of the sale of Perseus to Hachette with the simultaneous handoff of Perseus’s distribution business — many times the size of its publishing operation — to Ingram.

There has never been any official or public explanation of what caused the Hachette deal to be called off a year ago. But the tricky part of selling this company is definitely that the distribution component will likely need a different home than the publishing assets. It will take a Big Five or other very large publisher to be able to absorb the publishing assets of Perseus. Those companies do distribution deals, but they seem to prefer much larger publishers for that service than many of the hundreds of Perseus distribution clients are.

Ingram was the logical home for the distribution business because it has the ability to scale, has been developing the automation of its distribution service offering through Ingram Spark, and it already handles smaller clients routinely. If Perseus’s estimated $300 million in distribution business yields about $40 million in revenue (as we’ve seen in one estimate), that’s a pretty small business for one of the Big Five to take on as a separate operation. But the many small publishers wouldn’t necessarily combine very well with the current distribution activities of the big houses.

So whichever big publisher might want the Perseus publishing operations (primarily Basic Books, Running Press, Da Capo, and the travel publisher Avalon) might well need an Ingram in the deal the same way Hachette did. It will almost certainly take a combination of two companies to swallow this particular elephant. Presumably the publishing components lean on some acquirer’s overhead, but the distribution piece would probably take a bit of a margin hit as a stand-alone.

There are, presumably, some companies who might want to break into the publishing business with a fully operational scaled entity like Perseus distribution. So maybe a new entrant will be enabled by this opportunity.

Of course, Ingram was interested the first time because they want to add clients to their existing distribution operation. Presumably, they still do. Perhaps they get back in this game again as somebody’s partner, like they did last time. But in the short run, it wouldn’t take a rocket scientist to tell Ingram that Perseus clients, knowing the company is on the block, might be receptive to switching and at least some of the growth Ingram sought might be attainable through salesmanship rather than through acquisition.


The Audience Information Sheet is more useful than the Title Information Sheet for marketers (and for publicity and sales too)

The core principles and workflows around marketing books really require change in the digital age, and perhaps more radical change than many people thought. The time-honored process was to somehow communicate knowledge of what was inside a book to book reviewers and bookstore buyers so they could decide whether it was suitable for their audience or their customers. In other words, intimate knowledge of what the book said was presented by the publisher to professional intermediaries who would get word of the book, and copies of the books themselves, to the purchasing public.

The copy was B2B, and the critical requirement to create it was knowledge of the book’s content.

In the digital world we live in now, none of this is true any longer. A core purpose of the marketing effort for books today is to get them “discovered”. That largely means having them show up high on the list of returns for relevant searches. If that’s the objective, then the key knowledge required is not so much what’s in the book as what search terms the most likely customers will use to ask the question or express the desire for which the book is the right answer or fit. And in the world of digital information, Google is the primary intermediary, not the reviewer or bookstore buyer. The copy the publisher creates and puts into digital play will almost certainly be seen more often by potential customers for the book than by industry professionals.

So the copy today must be B2C, intended for consumers, and the core requirement to create it is knowledge of the book’s audiences, where they are found online, and the language they use to discuss the book’s topic. And gaining that knowledge almost always requires research. (As it happens, stronger consumer-directed copy usually ends up being stronger and more effective influencer-directed copy as well.)

One of the longstanding tools of the trade for book marketers has been the Title Information Sheet. Everybody who has worked in trade publishing over the past several decades is familiar with them; every publisher creates and uses them. The TIS contains the beginning and then eventually the ultimate core metadata for the book as well as copy that describes its content, its author, and some ideas about its market.

Two months ago, the Logical Marketing brain trust — Peter McCarthy and Jess Johns — came up with a new tool we think could — we really believe should — become the new standard. We call it the Audience Information Sheet. We have now gotten two pretty substantial publishers to start using them. One — not Big Five, but big — took some seminars with us, had us write them a manual, and is now implementing AIS into their workflow.

Then we beta-tested the AIS with Logical Marketing’s most active Big Five client, a company constantly innovating in digital marketing. They came back to us last week with the word that they’re going to start incorporating our new AIS, which we will provide them, into their workflow. It is worth noting that the ones we create will be somewhat deeper and more sophisticated than the ones created by the previously mentioned client doing it themselves. The do-it-yourself effort was “right-sized” to fit the publisher’s capabilities and resources. What they do without us covers the semantics very well; we do a lot more with audience segmentation and analysis in the ones we deliver.

Both these publishers see what we see. The TIS was the core information needed by book marketers before Google. The AIS has the core information book marketers — as well as people responsible for sales and publicity — need now.

Here are the components of an Audience Information Sheet.

1. A high-level audience profile describing the book’s audience in very general terms. “Married moms who range in age from their twenties to their early fifties.” “His audience associates him with his work around obesity, healthy eating, and nutrition.” This description might also include other authors the audience might consider to be “comps”.

2. Demographic insights into the audiences, such as we find them in social and search, for which we employ tools to analyze the characteristics of the people it finds and learn their age, marital status, gender, income level.

3. Behavior and lifestyle insights include the personal interests of the audience and their occupations/professions, and spending/purchasing habits.

4. Geographic insights are gained both from “search trends” and “social trends”. We look for geographical areas that “over-index” for interest in the book’s subject, genre, settings, or for audiences with the right characteristics.

5. Audience segmentation and targeting examines each of the major audience segments (“Moms”, “Natural/whole/organic food community”, “Popular science”) that logically follow from the research and tells you where you find them (geographically or institutionally), what brands they like, what topics they talk about, and what platforms (Facebook, Instagram) they frequent. The number of audience segments broken out this way varies with the book, of course, but anywhere from three-to-six such segments is typical.

6. Keywords, Topics, Phrases, and Influencers are lists that are the key pieces of information to employ for all marketing efforts that follow. We present the search terms that are important to surface the book’s audience, including how many times each term is searched each month, in the U.S. (Or in other countries, as appropriate. We can do this work from the perspective of just about any country that uses our alphabet.) Then hashtagged subjects are listed with the number of Tweets in the past month and the number of Instagram posts that have occurred (measuring the amount of “chatter” around a book and the form it takes). Then the key influencers, the Twitter accounts (and, from there, the sites, blogs, and other accounts they use) that would be most productive to engage on behalf of the book, are enumerated as well.

Every component of the AIS gives marketers useable data. Beyond consumer marketing online, the data informs old-fashioned publicity efforts and can direct sales activity as well. As marketing opportunities present themselves during the course of a book’s life, those responsible for pitching the book will find useful guidance in the AIS over and over again. Only time will tell, but it sure feels to us like we’ve created a tool that, once used, will be very hard to do without.

Logical Marketing has been issuing a weekly email roundup of new developments we see in the worlds of search, social, and tech. You can take a look at these here and, if you find it useful, sign up for a free subscription.


Two pieces of news last week that foretell changes in the ebook marketplace

Two pieces of news this past week and how things play out with them might foretell some things about the direction of the ebook market.

One news item is that reading on phones is really taking off.  More than half of ebook consumers use their phones at least some of the time and the number that primarily read on phones is up to one in seven.

The other is that the German ebook market will shortly be predominantly DRM-free. With Random House fast-following fellow global publisher Holtzbrinck in ditching the digital locks, one of the largest non-English markets in the world is going where the English-language market has determinedly refused to tread. [There are exceptions, of course — O’Reilly, Tor, Harlequin’s digital first imprint Carina, Baen, and other small, primarily genre publishers.]

It was less than a month ago that Holtzbrinck made that announcement and we figured Random House wouldn’t be far behind.

A lot of theories about ebooks are about to be tested.

My personal reaction to the switch to mobile phone reading is “what took so long?” I started reading ebooks on a Palm Pilot in 1999. I got excited about it because it brought books to a device I was already carrying all the time anyway. In the beginning to me, that was the whole point to ebooks: I didn’t need another device beyond the one I already had on my person all the time anyway. In 2002, there was a meme active for a little while which questioned the value proposition of ebooks. Why would anybody want them? I spoke at a Seybold Conference about that with a simple answer:

If you really use a Personal Digital Assistant each day, are among the growing number that carry one with you all the time, you don’t need anybody to explain the value and utility of ebooks. The converse of this is that if you don’t use a PDA regularly, ebooks are of very little value to you. There is some minor utility to having a book and reader software on your notebook, but not much.

It might have been that search for more “value” in ebooks that drove years of experimentation in making them something more than screen-fitted rendering of text, trying to add functionality using digital capability in a long succession of commercial failures.

My friend, Joe Esposito, one of publishing’s more imaginative thinkers, identified and named the concept of “interstitial reading” some years ago, by which he meant grabbing a few minutes with a book on a check-out line or waiting for the movie to start. I remember a former neighbor of mine who always had a book in hand when he got in the elevator on the 14th floor and read a page or two as we descended to the lobby. That was a peculiar habit with a printed book; it is going to be increasingly common practice as more of us read on hand-helds we always have in our possession.

It could be that publisher Judith Curr of the Atria imprint at S&S is hitting the nail on the head when she predicts that the future of reading is on phones and paper.

An important question going forward is how reading on the phone will affect the shopping patterns. Here we have an interesting dichotomy which depends on the individual use case. What kind of phone do you have, Apple or Android? And which ereading ecosystem do you prefer, Amazon Kindle, Apple iBooks, or somebody else’s like Google or Kobo or Nook?

Here’s why it matters. When you use the iBooks app on an iPhone, you can shop for books right in the app. I haven’t done it except to buy a book I knew I wanted. I usually read on the Kindle app and occasionally on the Google Play app. In both cases, I do my shopping from my PC on the Kindle or Google Play site. My purchase is instantly accessible on my phone after I make it, but it is a two-machine process for me to buy.

Of course, I can also go to the Kindle or Google Play sites through my phone’s browser. Going outside the app is a requirement, but using another device is not. (Frankly, it is just easier to do the shopping with a real screen and keyboard.)

The limitations on iOS devices are created because Apple insists on its 30 percent cut for sales made within their apps. Android doesn’t, so the Android versions of apps do allow shopping within the app. Still, as with almost everything, it appears that more content-purchasing and consumption takes place among iOS users than Android users.

One would expect that as phone reading increases, it will tend to favor the “home stores” for the phones themselves. Those are iBooks and Google Play. This is obviously not any sort of mortal blow to Kindle if my own experience, maintaining the Kindle habit almost uninterrupted, is any guide. But it is definitely a bit easier to buy within the app you read in than to have to go outside of it.

If is an often-made point that phones come with built-in distractions of email and text messages arriving all the time. But tablet computers — which have steadily been taking ereading share from print and dedicated ereading devices for some years now — have email arriving all the time too. And tablet computers offer the whole web as a potential distraction too, just like the phones do. I’m not sure that the distraction component has changed that much recently during the rise of phone ereading.

And there are already lots of writers who do very short chapters (like the bestselling one of all, James Patterson) that readily satisfy the “interstitial reading” windows. It will take an analysis that there is probably no obvious metadata for to decide whether books that are already “chunked” benefit from the movement to phone-reading.

New reading habits do spawn publishing initiatives. Our friend, Molly Barton (longtime Penguin digital director), has a publishing startup called Serial Box that plans to parcel out long-form novels in self-contained chunks.

The German ebook market is much a smaller part of total book sales than ours, estimated at around five percent of sales rather than in the mid-20s. That is due to a combination of economic factors — including that Amazon is hobbled by fixed pricing that places ebook discounting off limits — as well as any cultural ones. (Online book sales in Germany are variously estimated between 15 and 25 percent — perhaps half what it is in the US. Amazon does have the lion’s share of that. Bookstores have half the business; the rest is split among direct sales, mass merchants, other non-bookstores, and catalogs.)

But one publisher after another has concluded that watermarking (what is often called “soft DRM”) is all the restraint on pass-along and casual sharing that is needed. Now all the big publishers will work that way.

My friends in Germany tell me that there are still small publishers who want to keep DRM, which they will probably be enabled to do for some time. In fact, the Adobe DRM holds the information about who is a valid purchaser, so it might not be simple for retailers to walk away from it even after the locks are no longer required if they want to do more than guess whether a customer wanting to re-download a prior purchase is actually entitled to. And it might be very difficult for the market to totally dismiss DRM, if the English-language publishers still want it applied to the English-language books sold in Germany. That’s substantial business and the retailers — particularly Amazon — wouldn’t want to force a situation where the output of US and UK publishers must either be DRM-free too or not available in the German market.

It has always been the concern of many publishers, agents, and big authors that removal of DRM would result in unfettered sharing which could really hurt book sales. A longtime DRM skeptic, publisher and industry thought-leader Tim O’Reilly, once characterized DRM as “progressive taxation”, which would seem to validate the notion that big authors have something to worry about. (O’Reilly publishes professional content which changes and updates often; precisely the opposite, from a fear-of-sharing point of view, of what James Patterson publishes.) Clearly, German publishers observing what has happened in their market don’t share that fear. American publisher and part of the Holtzbrinck publishing group,Tom Doherty, has also talked publicly about the (lack of) impact of Tor’s switch to DRM-free: “…the lack of DRM in Tor ebooks has not increased the amount of Tor books available online illegally, nor has it visibly hurt sales”.

Aside from increasing the potential to lose sales through pass-along, the other impact of removing the DRM requirement could be to make it easier for anybody to be an ebook retailer putting content on just about any device. The necessity of providing DRM has always been blamed for cost and technology barriers that kept retailers from going into ebooks in any casual way. Theoretically, the cost of being an ebook retailer in a DRM-free environment could be much lower, including a claimed and hoped-for diminution of customer service requirements. If true, that could be especially important for ebook sales in verticals, where a range of content could be a sensible add-on for a retailer’s offerings. People who sell hard goods don’t want to deal with DRM and the customer service requirements it creates.

The tech details of this run deeper than my personal knowledge, but people whose sophistication about it I respect caution me not to expect that much change in this regard. Watermarking (“soft” DRM, or DRM without “digital locks”) is also non-trivial from a tech point of view. New reading systems could proliferate without DRM-discipline, which could also create customer service requirements. It could be the claims for ease-of-use without DRM will turn out to be overblown. We will see.

It has always been my contention that the DRM discussion was more heated than the effect really warranted. Since I never really wanted to move an ebook from one ecosystem to another, or pass an ebook along to somebody else, DRM never got in my way. But it was also obviously blocking entrants from joining the ebook retailing ranks and creating major customer service issues for any independent efforts.

The two things to watch in Germany are whether ebook sales, particularly for top titles, are maintained or softened in any way by pass-along and, at least as important, whether new ebook retailing really is enabled by ditching the DRM requirement. The watermarking will help publishers find the source of ebooks that end up being publicly pirated or posted. I wouldn’t expect some explosion of piracy, but there will certainly be a lot to learn.

The chances are pretty good that what will be learned will lead to DRM-free coming to the English language as well in the next couple of years.


The big global publishers are integrating across both territories and languages

Since I posted this two days ago, one of the Big Five CEOs pointed out some things I missed that are important. These are addressed in a post-script at the bottom. Subscribers to the blog would have received the original post without the “correction”. My apologies.

The announcement this week that John Sargent has apparently moved up another notch in the global Holtzbrinck hierarchy reminds us that the cross-border and now cross-language integration of the publishing giants, a very complex undertaking, continues to develop. Sargent was already the global “trade” head for the company, which suggested that integration of the publishing strategy and operations across Macmillan (Holtzbrinck’s trade division) companies was already an important priority. Now he is EVP of the entire global entity.

This follows an announcement a few months ago by HarperCollins that it was appointing digital head Chantal Restivo-Alessi to be EVP, International, to oversee the publishing through Harper’s growing foreign language capabilities.

Until very recently, just publishing simultaneously in a coordinated way across English language companies located in different countries was a seldom-attempted challenge. HarperCollins and Holtzbrinck seem to be shooting right past that hurdle and are setting themselves up to publish in multiple languages in a coordinated way, which is a much heavier lift.

The publishers who are doing this are seeing at least two things that motivate them.

One is that selling books is considerably more profitable for publishers than selling rights. This fact has been behind the creation of the global trade publishing behemoths in the English language. Until things began to change in the 1970s, there really were no trans-national book publishing companies. Since then, acquisitions have given us five big global trade book publishing houses. The only American-owned one, Simon & Schuster, and the French-owned one, Hachette, seem to have the least integrated global English trade presences. Simon & Schuster just has less in the way of foreign-based assets. Both Hachette and Penguin Random House have a federated structure by which the local companies report up to the parent, not to a global trade head. Macmillan and HarperCollins have both been more aggressive about integrating their international English publishing efforts.

And now both of them appear to be interested in extending that integration beyond their English-language companies.

The logic behind this kind of integration is both clear and unassailable. In the Internet age, as we’ve seen for a long time, there really is no such thing as “local” publication anymore. Anything announced anywhere is heard everywhere. And it actually requires active controls to stop anything that is available anywhere from also being available everywhere. Because English is so widely known beyond native English-speakers, the English language editions of new high-profile books sell in many countries for which the first language is not English. This has become a new factor in placing non-English rights.

Until the Internet really “arrived” two decades ago, the rights-trading activity could take time and it didn’t matter, even within the English-speaking world. I remember about 20 years ago when my friend George Gibson discovered the bestseller phenomenon “Longitude” by Dava Sobel. He published it in the US and it became a big bestseller. But even though it was a story that took place in England, it took him a year or more to make a sale to a UK-based publisher. (When he did, “Longitude” went on to one of the longest-runs of all time on the UK bestseller lists.)

A story like that would be very unlikely today. Gibson owned those rights to sell. The chances are the search traffic numbers alone would have accelerated the process of finding a buyer. Or else the US publisher, even a tiny one like Walker, where Gibson was at the time, would have released the ebook for global distribution and made some sort of deal for print to be made available as well.

Because the marketing of each and every book starts with the enthusiasm of an acquiring editor, and because each new deal an agent can negotiate is a new opportunity to get a publisher to overpay, both agents and publishers were comfortable with the process as it has always been. Relatively few of the high-profile agented books are even sold for “world English”, let alone with rights beyond the English language. Just like publishers’ value is directly related to the number of accounts through which they find customers for a book, an agent’s value is directly related to the number of deals they can make for each property.

If an author can get the reach they need through Amazon alone, then it is hard to accept a royalty from a publisher of a third or less of what Amazon will pay directly. Amazon, the publishers, and the author community are all very aware of this. It is one of the two main reasons why publishers try so hard to shift share away from Amazon. (The other, of course, is that the bigger Amazon’s share of the market, the more leverage it gives them to push for a bigger share of each sale.)

And if we see a trend where one publishing deal gets an author just about all their revenue, it will also be harder for authors to accept paying a full 15 percent agent’s commission to get it, particularly once the author becomes a global brand. (And the big brand authors are precisely the ones whose books will benefit the most from a coordinated global publishing effort.)

The structural impediments to publishing this way are not trivial. It will be a very long time — not in the working careers of any of today’s executives — before coordinated global publishing is important for any but the biggest books on the list. Most titles that each of the local companies puts out will be territorially constrained, as they have always been.

But it will, indeed, be the biggest ones — probably fewer than five percent of the titles that could earn half the revenue — that the coordinated efforts will affect. These are the books that every big global house needs to sustain itself.

Nielsen, through its Books & Consumer data service, is able to create individual author profiles for approximately 350 authors: those with substantial enough sales to enable digging down into the demographics of their book buyers and getting useful information with granularity. I’d guess those profiles will make popular reading as the publishers develop their global capability, particularly since Nielsen is also tracking across both countries and languages. And those 350 authors are almost certainly among the 500 top candidates for this type of treatment.

Sargent and Restivo-Alessi are blazing a new trail. Integration of publishing efforts this way will affect advances, royalties, workflows, and marketing strategies. They will effectively create “new propositions” to put in front of the biggest authors in the world. Penguin Random House and Hachette, because of their internal structures and S&S, because of its relative US-centricity, will be challenged to keep up. (Until their internal structures change, of course, or until they make some other adjustment. Which they will.)

Agents for the biggest authors in the world will be hearing the new pitch. On the one hand, they’ll be looking at opportunities to do record-breaking contracts. On the other hand, they’ll be doing what used to be two, three, four, or more deals in one and, in the long run, probably making at least some of their authors wonder whether they should have to pay that same hefty commission the next time around. When an author in this category asks for a fee reduction to continue the relationship, I suspect that most of the time, they’ll get it.

Of course, working in multiple languages and territories is something Amazon can also do very well. But they will probably stay out of this competition, at least at the beginning, because it will be a high-advance environment and Amazon has shown no taste for that as a strategy.

Nonetheless, the signs are that the ecosystem at the top of the commercial pyramid is going to have some new distinguishing characteristics. It has been noted many times in many places by many people that the economy the Internet creates favors the winners and exacerbates power law distribution. This is about to become another example.


And now the postscript.

In fact, the “structural” differences are not as dramatic as the post describes them, although there are differences and, indeed, HarperCollins and Macmillan are best-positioned to offer and execute on global multi-language and multi-territory deals than the others.

Markus Dohle is the CEO of Penguin Random House. He has the same “authority” as Murray and Sargent do. But Random House has always been highly “federated”, with a lot of power in the imprints. That makes coordination across territories that much more challenging, as does the fact that PRH is twice the size of HarperCollins and six times the size of the other three. Being of a “certain” size is necessary to make global publishing possible, but the larger you are beyond the minimum required, the harder is coordination. It could even be that smaller global publishers — there aren’t many, but Quarto is one example and Bloomsbury another — could execute on this concept even better than the Big Five. On the other hand, smaller publishers won’t compete for the massive books like those of the 350 authors that Nielsen tracks.

In Hachette’s case, Arnaud Nourry in France holds a position above all the companies as well. All the English-language Hachette publishers report to him, as well as others. But since the biggest books have their biggest share of sales in English, and because Hachette too has given great autonomy to the local companies, it is still likely that they would find it difficult to engineer the kind of coordination we’d expect to see from Harper and Macmillan in the relatively near future.

And, finally, Carolyn Reidy of Simon & Schuster is also a global head, but the company doesn’t have nearly the resources across languages and countries that the other four do.

Since I’m adding this post-script, I will also report that a couple of significant agents pushed back at me on Twitter, saying that they were very skeptical of the potential for big company coordinated synergy across the world. They’re saying they’ll be hard to convince. But, then, so did the original piece.

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The publishing world is changing, but there is one big dog that has not yet barked

Recent data seem to show that, for the publishers, the growth in the retail ebook market has slowed down or stopped (at least for the moment), while Amazon’s ebook sales apparently continue to grow. The share of the market controlled by the publishing establishment — the Big Five publishers and others — is starting to be slowly eroded. This does not yet suggest that an author’s best bet is to go out on his/her own and we may be a very long way from that. But it does suggest that life may get increasingly difficult for publishers.

The headline data we saw last week is that Hachette’s ebook sales went down last year. All their sales declined, but ebooks fell faster and the percentage of their business in ebooks is diminishing. How much that has to do with their war last year with Amazon over terms is not clear.

What we’re also seeing and hearing is that publishers might have boxed themselves in with their return to agency pricing. When publishers first “raised prices” by instituting agency pricing for ebooks in 2010, they saw no reduction in ebook sales, which continued to grow. Michael Cader’s analysis (can’t find it in print, but he told it to me) was that publishers may have misread the real impact of price increases because they raised them in a growing market. The number of ebook readers was increasing every day, so those who were put off by the high prices were outnumbered by the new entrants who just wanted to read their books digitally on their shiny new devices.

Whatever is the reason, the anecdotal reports I’m getting suggest that the price increases aren’t being so easily swallowed in the current round of Agency pricing. Amazon may not care about ending discounting from those prices because they don’t need to or want to, but it would appear that the new deals won’t let them. They certainly don’t have the flexibility to do so that they did before Agency came to the marketplace. So the sometimes startlingly high publisher-set prices are prevailing. And, aside from the Hachette numbers that were reported, we’re hearing widespread but totally unofficial reports that big publisher ebook sales are dropping noticeably when their new higher agency prices are activated.

Hugh Howey told me this was happening in a private exchange three months ago. I didn’t believe him. I do now.

We continue to see a shift in market share. Amazon’s share continues to grow, as does Apple’s. Nook’s share continues to shrink. Google and Kobo are harder to read, but both are smaller than the others anyway.

But this is not a zero-sum game and it isn’t simple. It’s Rubik’s Cube complicated.

Some of the change in the market could be due to subscription services taking a chunk of ebook consumption out of the by-the-book retail market. Although Scribd and Oyster appear to have very small market shares, Scribd was so “successful” with some readers that they had to cut back their romance offering; it was apparently costing them too much to provide all the books their romance subscribers could read.

Amazon’s Kindle Unlimited may be having a bigger impact on the overall market. In all these cases, it is the public understanding that the subscription services are “purchasing” the ebooks from the established publishers. (Kindle’s own authors are compensated with a “by the page read” division of a pot that Amazon arbitrarily decides.) But the Big Five aren’t participating in KU and they aren’t putting their new books — the biggest sellers with the highest prices — into the subscription services. So all the reader bandwidth and revenue going through those services might be coming out of the big players’ and big books’ share.

Our friends at Ingram told me another piece of anecdata which may also be at play. They keep track of the number of SKUs that sell 100 copies or fewer and those that sell 10,000 copies or more. The aggregate sales of the former group is growing; the aggregate sales of the latter group is not. What that suggests is that the sales of books that are not really commercial are taking share away from those that are, whether those that are come from publishers or indie authors like Hugh Howey. Whether that particular change is yet impactful, it is inexorable.

The reduction in ebook sales of hot new titles could be starting to affect future deals — one agent told me unambiguously that it is visible — which would be the next step in the indie vision of how publishers disappear. Publishers base their advances on revenue expectations, which, for ebooks, might now be diminishing. If authors can’t get the same big advance as they did before, might they prefer to go it alone and take the bigger share of ebook revenues they can (still) get with a do-it-yourself approach? Obviously, for some, as the equation shifts, that could happen.

But, at the same time, we’re seeing print book sales, and — at least for the moment — print book retail shelf space, holding their own. As long as that’s true, publishers still have a vital role to play. As long as the proposition “we put books on shelves” has value, so do publishers.

In fact, Ingram (not Amazon) offers the complete suite of services a publisher needs to provide, as does Perseus, whose distribution business Ingram tried to acquire in the 3-way deal with Hachette that went sour about a year ago. Both of them can get a book printed, offset in a print run or on-demand. They warehouse and bill and collect. They have a sales force. They do business with all the retail outlets that every publisher does. And they offer all those capabilities on a marginal cost basis. (The big publishers offer a similar suite of services, but generally are less interested in smaller players that Ingram and Perseus are happy to serve.) Whether you publish one book, 100 books, or have a long list, all you need is the rights to the book and the cash to pay your costs and you can buy the logistical capability to match any publisher.

But you won’t have two things that really matter:

the capability to coordinate the many marketing activities that go into maximizing a book’s success in the marketplace, and;

the “brand” that tells retailers they should believe your hype and stock your book before they know for sure it will sell.

For big author brands, the “sure to sell” component might well be in place, but the marketing complications, and the risk (because a lot of inventory could be involved) would not be trivial.

What this means for the future of publishers, or for what will constitute the best business decision for authors, is not obvious. Everybody trying to make money in the future from the books they write will suffer from the problem the data Ingram cites points to: the increasing share of the readers’ attention that will be taken by books not published with serious commercial intent. If publishers lower their prices to compete more effectively with indie-published books and the subscription offers, their revenue will go down but so will the indies’, who will lose some of the benefits they now gain from their pricing advantage.

It is sometimes suggested that publishers need to move out of Manhattan to be competitive, but, in fact, there are many ways to reconfigure aside from that. The service offerings from Ingram and Perseus (and others: one example is that Donnelley also offers publishers the ability to convert manufacturing management and warehousing overheads to variable costs) allow publishers to get leaner and more focused on their core missions of identifying, developing, and marketing content.

What is definitely true is that the share of the reading market held by commercially-minded publishers (not just commercial “for profits”, but also university presses) will diminish as both successful self-published authors and hundreds of thousands of others who don’t succeed (and maybe don’t even care) take their content to market on their own.

The university and academic presses, of course, have a defining characteristic that might well protect them. They require certified knowledge to underpin their books. (Whether you’re publishing about accounting or brain surgery, you need validated authority that will be an insuperable barrier for independent publishing.)

This is not a death-knell for anybody. This is a changing world for everybody. Of the current household names, only Amazon and Ingram are structurally positioned to grow quite naturally in a shrinking overall market. (The publishers can grow by acquiring each other, and PRH and HarperCollins would seem to be in the best position to take advantage of that.) Amazon will sell an increasing share of the books; Ingram will provide more and more services to more and more publishers while they remain the biggest supplier to everybody besides Amazon that sells books. (Perseus can also expand its distribution business.) The roster of publishers will continue to consolidate, as it has been doing pretty relentlessly (except for a recent decade of relative stability which seems to have now unleashed a more recent stage of more extreme consolidation) for at least 40 years. But as long as print is sold in stores and, after that, as long as half of the books are sold by somebody other than Amazon, there will be a need for publishers that most authors will be delighted to allow compensation for.

Let’s remember that there is a very big dog that has not barked. No major author of recurring bestsellers has stepped up to take charge of his or her own output. It is bound to happen someday, and if you’d asked me five years ago, I would have been sure it would have happened by now. Five years ago I would also have figured that one of the big publishers by 2025 would be a version of United Artists, several major authors organized to share an organization and create their own brand. There have been no signs of that yet either. Indie publishing is still growing and it seems that established publishing is at a standstill. But we’re still many years — most likely a decade or more — from any real changing of the guard.

I don’t see myself as a sophisticated reader or analyst of fiction. But I want to offer the opinion that “Go Set A Watchman”, the controversial new release from “To Kill A Mockingbird” author Harper Lee, is a very worthwhile book. And, by my reading, both the story and the Atticus Finch character fit perfectly well with what we read in “Mockingbird”. What changed most between the two books was the circumstances of the south. “Mockingbird” takes place in a time of unquestioned white dominance. “Watchman” takes place in a time when white dominance is under serious threat. It is a more complex time and deals with more complex issues. It is easy to see why a commercial editor in the late 1950s would find “Watchman” a very uncomfortable book to sell and “Mockingbird” much easier to place in the market.

There are dueling opinions on this. I agree with novelist Ursula Le Guin (you’ll have to click on “newest post” if you go there before she publishes her next one; not sure how you’ll navigate after that), not with the bookseller who thinks the book is so bad that the store is compelled to offer refunds to disappointed readers.


No post here today, but one on BookMachine

I’m trying something new today, having posted about the basics of an online strategy for authors over at BookMachine. As usual, I focus at the end on how publishers could be abetting such a strategy. I’m not the guy to write a manual for the self-published (although I think there are some helpful ideas in the post for them as well).

This is, obviously, an outreach to find readers who haven’t found The Shatzkin Files. It is a shorter post than you usually find here.

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