General Trade Publishing

Before the Internet deconstructed the publishing value chain and enabled new models, both publishers and booksellers benefited from a lot of what I’d call “secondary business”. Secondary business was not what they were set up or primarily intending to do, but which they easily could accommodate to earn easy margin that supported their primary operations.

Publishers controlled an apparatus that could make bound books out of manuscripts and put them on bookstore shelves for patrons to buy. These were not trivial capabilities and they were much in demand. Although  the principal business model for a commercial publisher was to select what to publish, develop it editorially in collaboration with the author, and then take the risk of printing inventory and distributing it in hopes that it would sell, sometimes opportunities arose that were less risky ways to employ their skills.

I had my first experience with this kind of publishing in the late 1970s when my friend Caroline Latham was the writer-for-hire and then publishing consultant to a wealthy man named Jack Eisner. Eisner was a Warsaw Ghetto survivor with an exciting and moving story of his experiences on the run from the Nazis during World War II. After the war, he built a very successful import-export business so that by three decades after the war he had the time and resources to deliver his story to the broadest possible audience.

Caroline co-wrote his book, The Survivor. Eisner hired Abby Mann (the Academy Award-winning screenwriter of Judgment at Nurenberg) to write the screenplay for the movie, and the play was written by Susan Nanus. Jack financed the production of the play on Broadway, where it had an extremely brief run.

Caroline engaged me to help her make the book deal. We were working with William Morrow, a fine and venerable publisher. They paid Eisner no advance. Eisner agreed to put up a substantial sum (I think it was $75,000) for advertising and promotion of the book. Morrow made all the decisions about printing and distribution. With a deal like that, they couldn’t lose. And they didn’t, although the book didn’t sell very well in relation to the investment made in it by Eisner. It is worth noting that there is a paperback edition of the book, renamedThe Survivor of The Holocaust, still available from Kensington.

The more common author of this kind for publishers would have written a business book that “paid off” for the author in ways other than trade store sales. Sometimes it just enhanced their reputation and improved their primary business. Some business book authors move large numbers of copies of their books themselves. In bygone days, “selling” your book to a trade publisher (for little or no advance) with contractually-stipulated author buy-backs was a deal that worked for both sides. I remember a very significant trade publisher telling me over a decade ago that “author sales” constituted one of their largest distribution channels.

Working with an established publisher has a couple of distinct advantages: the imprimateur of a brand name is one and their ability to move copies through commercial channels is another. But it also comes with definite drawbacks for the commercially-minded author. The profit on books the author moves is shared with the publisher. And the time schedules for trade publishing are traditionally glacial; virtually every author’s first disappointment is how long it takes from the time their book is completed until the time a publisher puts it out.

One stark example of an author who does better self-publishing than he could do with a trade house is Michael Durkin. Michael is a sales trainer and motivational speaker who sells his own self-published book, bundled together with audio CDs that are simply recordings of his speeches. The package of the book with about six of the CDs sells for $100 and he sells about 25,000 of these a year, mostly through the 100 or more speaking engagements he usually does, plus a few from his own web site. Durkin is so averse to sharing his margin that he doesn’t even try to sell his material through Amazon! Durkin also points out that his book is a fabulous prospecting tool; he uses it regularly as a door-opener. It gets people to hire him for the speaking engagements that fuel his product sales which, if you figure that his cost of goods leaves him with a margin of more than $80 per package sold, is producing a solid seven-figure profit for him annually.

Durkin agrees that 20 years ago he almost certainly would have worked through a publisher with a buy-back arrangement which would have meant a significant hit to his margin. And it would have constituted a very nice subsidy for a publisher.

Bookstores also have lost what is collectively a vast amount of secondary income to the Internet. My father briefly fought a battle in the 1950s to stop the practice of giving wholesalers more discount than bookstores got. Len wanted to force library supply to go through retailers so that library purchases were subsidizing the retail bookstore network, not warehouses that simply extended the publishers’ supply chain. It was a great insight (although both libraries and wholesalers, deeply cognizant of the value-added services wholesalers perform today for libraries, would argue persuasively against it today as, apparently, they did then.)

What often distinguished a successful independent store was its ability to do “back door” trade: serving local businesses, schools, and community groups. If a local reading group needed 10 copies of a book, they’d buy it from their local bookshop. Bulk business, and there is lots of it in every community in America, was most conveniently transacted through a local merchant. Now it is most conveniently transacted through the Internet. When a “back door” book business succeeds (like Jack Covert’s 800CEO-Read business based in Milwaukee and originally spawned by the independent Schwartz Bookstores), it is because it develops a far-flung following (served largely through the Net) rather than a local one.

It only works now if it is built on a vertical principle so it can appeal to a global audience. Being local doesn’t provide enough of a competitive edge for a local purchaser who is looking for wide selection, the ability to buy in bulk, the ability to ship to different recipients, and the ability to handle all that business online.

It is almost impossible to prove this with data, particularly retrospectively, but my intuitive hunch is that competitive independent stores in the 1980s and 1990s outdid their chain competition largely because of their ability to develop and serve secondary business — business above and beyond what is delivered by the traffic that comes in  the front door, shops the displays, and walks out with the goods. If that were true, it would explain why independents seemed to be hit harder than the chains in the first decade and more of the Amazon-led online bookselling revolution.

But all publishers and all brick-and-mortar book retailers earned critical margin in bygone days from sources that have alternatives they didn’t have then, even though neither the publishers nor the booksellers would have identified this business as critical to their survival. That’s another manifestation of the permanent alterations occurring to the ecosystem that spawned and enabled the existence of a general publishing business.

BookExpo America is this week. I’m really sorry I’m missing the Self-Publishing Day on Monday. That’s clearly a movement that is rapidly growing in importance; one we’ll have to “cover” a bit at Digital Book World next January. It’s an increasingly potent commercial force that all elements of the trade community — authors, agents, publishers, wholesalers, and retailers – will want to understand. I can’t make it because I’ve got meetings elsewhere in the city all day Monday. I am planning to be on the floor all three days the exhibits are open. I know many big houses are off the floor in meeting rooms this year; I’ll be paying attention to  how that changes the feel of the show.

I can already tell I’m glad to have Cader’s BEA LunchtoGo app; I don’t believe I’ve had such a simple stand number look-up device. (It has lots of other data and functionality as well, but that’s mainly what I’ll use it for.) I’ve got an iPhone now but I have had a handheld organizer since 1986. I remember a few years ago Frankfurt offered data of this kind for the Palm Pilot which you secured by having it “beamed” from one of the kiosks they set up around the Book Fair for the purpose. The process was klunky and, as I remember, so was the tool. I don’t think the experiment made it into a second year. But Lunch’s tool is much cooler, and it shows how a web site can work just like an app (as long as you’re connected; the data’s in the cloud, not in your hard drive) and dodge the restrictions of the Apple environment.

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A shoe dropped today.

Author J. A. Konrath, who has been self-publishing on Kindle and reporting about it for quite some time, just contracted to have the latest in his series of novels featuring female cop Jack Daniels published by the new Amazon Encore imprint. Encore was originally announced as Amazon’s way to pick up and feature already self-published books. They apparently bent the guidelines a bit to include Konrath’s yet-unpublished book, Shaken. Amazon will publish the Kindle edition at $2.99 in October and release a paperback at $14.95 next February.

Although Konrath is a media- and tech-savvy author who has published with major New York houses (the Jack Daniels series was previously published by Hyperion), he is not a regular NY Times Bestseller brand. Not only is he not a multi-million dollar advance recipient, he makes it clear that the novel he just signed with Encore was rejected by the New York publishing houses. So Amazon had a low bar to jump to secure him for its Encore line.

Nonetheless, this is a significant jolt to conventional publishing economics. Sales of Konrath’s $2.99 ebook will deliver him about $2.10 a copy (Konrath says $2.04; not sure where the other six cents is going…), as much or more as he would make on a $14.95 paperback from a trade publisher, and significantly more than he’d make on a $9.99 ebook distributed under “Agency” terms and current major publisher royalty conventions. And, however one feels about the degree to which pricing is a barrier to ebook sales, one must assume that the $2.99 price will result in a lot more ebook sales than a $9.99 price would. Many times the sales!

We’ve been imagining a split market for ebooks: “branded” ones from conventional publishers being sold in the $10-$15 range and “commodity” ones from lesser-known sources (authors and publishers) at $1.99 and $2.99. Over time, we figured that improved curation of the cheaper ones, plus promotional pricing by the branded ones, would drag the overall pricing down. That’s been behind our concern that maintaining anything close to the current pricing for print will be almost impossible to do over time.

I think “over time” just became more compressed as a result of Konrath’s move.

Here are a few things to think about and watch as we go.

1. Konrath made it clear that his deal with Amazon is under a strict NDA. We’ve gotten used to reading about his financial results and, indeed, Amazon loses a major benefit of their relationship with him if they don’t allow him to talk about how much money he’s making.

2. We got a comment on another blogpost from a reader complaining about not being able to get books on Nook that were available on Kindle. Without any detail as to what books the reader was talking about, it was impossible to diagnose the reason. I could only assure the reader (who wondered if the retailer was declining to stock some titles) that Barnes & Noble certainly wanted everything possible available on Nook. Although Amazon intends to try to sell the print book through non-Amazon channels (an effort Konrath frankly admits he doesn’t place great stock in), it would be a bit of a surprise if they made the ebook available through any non-Kindle channels.

3. Giving up non-Kindle channels today for an ebook isn’t necessarily giving up a lot, particularly with Kindle clients available to be used on other devices. Publishers have been hoping that iBooks and the Agency model would result in a more diverse ebook ecosystem, reducing their dependence on Kindle to reach the ebook audience. What happens if more authors, and bigger authors, follow Konrath’s lead. Could Kindle end up being the only ebook outlet for enough important titles to seriously impede attempts to compete with it?

4. In explaining his decision to sign with Encore, Konrath credits Amazon with being able to “send an email to every person who bought” a previous book of his through their website.  This underscores the importance of email list organization at publishing houses, and the opportunity almost totally missed by publishers to entice book purchasers to register their interest in an author. (Yes, some publishers make a half-hearted effort in that direction, but where are the experiments — like Thomas Nelson’s — to give all the bookstore purchasers something of value if they’ll check in with the publisher after they’ve bought the book from a retailer?)

5. It will be fascinating to see how the rest of the retail trade — bricks-and-mortar — reacts to buying a book which delivers profit to Amazon on each and every copy sold. Sterling was a client of mine when Barnes & Noble bought them. Borders stopped stocking their books almost immediately. Only long-standing relationships with independent retailers saved their distribution through that channel, but there was definitely negative feedback from indies about supporting their perceived enemy. A retailer’s first loyalty is usually — and should be — its audience. By the time Shaken comes out in print, it is likely to have sold tens of thousands of copies as a Kindle ebook and, especially because of its unique role as a groundbreaking publishing model, is going to be known and anticipated by the audience of print book customers who haven’t made the switch to digital reading.  Will Amazon sell print to their competitors successfully? Will they offer return privileges? Will they offer competitive discounts? Will they use wholesalers? This will be fun to watch.

Konrath’s deal with Amazon was negotiated by his agent (which, according to Publishers Marketplace’s “Who Represents” database is Jane Dystel, but this was last updated in 2006.) We know that Amazon has reached out to agents lately. Many authors will be asking their agents to investigate this alternate avenue to the marketplace on their future books. Signing up new books for what publishers would consider reasonable advances just got harder. So did maintaining a 25% royalty rate for ebooks.

I met Joe Konrath once, in January 2007 at Google’s Unbound conference, which I emceed and at which he spoke. So I’ve been aware of his ongoing narrative, making pretty serious bucks selling books of his he controlled (out of print or never published) through Kindle. I have been surprised recently at who did not know about him, including a close friend who herself is a successful mystery writer and all of the agents at a pretty large NYC shop thinking hard about their digital future. His days of relative obscurity are over; Konrath has carved out a permanent place for himself in the annals of publishing history with this move.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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I don’t think too many future predictors are .300 hitters, and one ground ball I tapped out to shortstop was my hunch that the iPad wouldn’t have an immediate significant impact on ebook sales (although I thought it would be important over time.) According to data and analysis uniquely developed and provided by Michael Cader, published last Wednesday (which you need to subscribe to Publishers Marketplace to get and, if you don’t yet, what are you waiting for?), I was proved wrong in less than a month. Apparently if we get slightly larger and portable screens into people’s hands, they want to read books on them. And they don’t need to be e-ink and be lightweight (like Kindle and Nook and Sony Reader and the new Kobo Reader and a slew of forthcoming devices) to have that impact.

All we know from Apple is that they sold about a million iPads in the month of April, with 3G sales beginning only at month end. (Virtually everything sold in April was wifi-only.) We got download numbers, but no real guidance about what they meant in terms of sales. We can figure out that any sales numbers we can gather are for an average installed base of 500,000 iPads.

We wouldn’t expect the monthly sales rate of a million units to be sustained; there were a lot of pre-orders and launch-hype sales in April’s numbers. But with May being launch month for the 3G version and both the wifi and 3G models available going forward, and the 3G model apparently much more popular than the wifi-only, a sale of 500,000 in May which is 3G launch month and a “run rate” of 300,000 a month going forward would seem a modest expectation. If that’s right, then the average installed base in May will be 1.25 million, in June 1.55 million. So the installed base for June will be triple what it was in April.

Cader got anonymized information from an unknown number of large Agency publishers for the April sales. He says that for most of the companies he surveyed, iBooks sales were 12 to 15 percent of their ebook total before the 3G models landed! And then two companies reported sales jumps of 300 and 400 percent on the weekend that they did. And one publisher who showed Cader figures by title revealed that there were already books on which the iPad sales exceeded Kindle sales.

Cader’s analysis pointed out two nuances that need to be considered when interpreting these numbers. The Agency Five impact is overstated because of relatively restricted competition. They have far fewer titles competing with them in the iBooks environment than they do in the Kindle store, the Kobo store, the Sony store, or from the ebook independents. Giant Random House and lots of smaller publishers just weren’t there. So even if the sales of all five publishers were 12 percent of their total ebook sales in April, it wouldn’t suggest that iBooks constitute that portion of overall ebook sales. Yet.

But, at the same time, these numbers also understate the impact of the iPad because iPad owners also buy and consume books on the device from the Kindle and Kobo and B&N readers which wouldn’t be reflected in Cader’s survey numbers. One ebook retailer who shares information told me that sales for his company were very strong in April. I had asked that question to probe whether sales were adversely affected by the price increases mandated by the Agency model. Were they reducing business? No, definitely not. (This is a very big sub-point, but we’ll leave it for another day.) So while one must assume that some of the sales being made from iBooks would otherwise have been made by Kindle or Kobo or another existing retailer, the market is apparently growing fast enough to mask the impact of any cannibalization.

With five of the Big Six and most of the big titles in the iBooks store, it would seem reasonable to assume that 65% of the sales potential is reflected in those books. Applying that assumption to the average of the reported 12-to-15 percent market share (13.5%) would suggest that the overall share of iBooks sales is just a tad under nine percent.

But it would seem to me that number will more than double in May. The installed base will be more than twice as high and the 3G model, from which publishers are reporting much more activity, will constitute a significant portion of the May base after having been non-existent in April. In fact, it seems at least as likely that the number could triple! So by June, we could well be seeing a quarter or more of all ebook sales occurring through iBooks. The rise will probably be slower after that (May sales will reflect the huge installed base increases generated by initial sales in April of the wifi model and in May of the 3G) but Apple climbing into a solid second place behind Kindle in 60 days is pretty dramatic.

Even more exciting for publishers is the evidence that the iBooks sales are expanding the ebook market. Cader reported that many strong titles skewed to a younger and male demographic and that iBooks sales boosted the performance of some nonfiction titles. Most people figured that the iPad would appeal to an audience of not-as-heavy book buyers compared to Kindle, which was part of the reasoning behind my own flawed expectation that sales would be modest at first. But what we may be seeing is that people who get a decent reader in their hands might consume more books digitally than they had in print. If that proves to be true, it would be very good for publishers and authors.

Meanwhile, even before this analysis was delivered, we got news last week from two publishers that increased ebook sales were their best financial news. Both Simon & Schuster and Harlequin reported that print results were disappointing, but digital sales were stronger than expected.

It was only about six weeks ago that I looked at the IDPF’s most recent numbers, applied them to what I’d heard in my own anecdotal conversations with major publishers and agents, and had an epiphanic moment realizing how close we were to what we called at BISG’s Making Information Pay conference last week a “point of no return.” I wrote in my London posts and then repeated at the conference last week that I saw ebook sales to be 25% of a narrative book’s unit sales expectation by the end of 2012. With print book sales made online thrown in, I saw virtual cash registers ringing up half the units for narrative books by then. Two Big Six CEOs privately agreed with me as did a retailer knowledgable about both print and ebook sales. Then I spoke to a Big Six digital strategist who said I was being conservative.

This view is not universally accepted. An executive at a trade book distributor last week told me (nicely, he’s a nice person) that he thought I was nuts. He still sees ebook sales as trivial and not likely to reach the levels I expect by the end of 2012 by even the end of 2016.

Well, I intended to be conservative because I was so surprised at my own realization at the beginning of April. But I remind myself (and all of you) that things happen “gradually, then suddenly.” It now looks to me like the iPad — joined as it will be by a flood of new ereaders and tablets and even whole new platforms like Blio and Copia — may be the catalyst for the transition encapsuled in those three words.

When I examined the Random House tactic of staying out of the iBook store initially, I said it made sense but that it constituted a bet that iBooks sales wouldn’t be robust right out of the box. Now that sales results seem to have proven that conjecture (which I shared) wrong, I’d expect that Random House will join the other big publishers in moving to the Agency model to enable them to join the iBook offering. The numbers we discuss in this piece would suggest they’re losing sales and the agents representing the authors not in the iBooks store are bound to be pointing that out. In the meantime, Random House has gained some benefits from having less expensive ebooks in the marketplace in other storefronts, but it would be surprising if that compensated for not having an outlet selling 12% or more of the ebook units.

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I contributed to a long-standing industry argument I usually try to avoid when I speculated that ebook growth could lead to a situation which threatened the returnability model for book inventory shipped to retailers and wholesalers. I should have been more emphatic that what I was actually suggesting was that the model of using speculatively-printed inventory to sell books was threatened, and that returnability, which is a subset of that model, would go along with it.

Coincidentally, Ken Auletta wrote a New Yorker piece at the same time in which he demonstrated that lots of smart people, he among them, don’t actually understand the economic impact of returns, let alone the promotional impact of the practice of using books as posters and display props, which is responsible for most of them.

Misunderstanding the economic implications of returns, failing to grasp how it is most useful to think about and analyze them, and various misinterpretations of them are very common up and down the ranks in publishing, in big companies and small.

I recall in the early 1980s I had a small publisher client that was distributed by a larger one. I used to go into the big publisher’s office every couple of weeks and leaf through the sales rep orders, trying to figure out which reps were best selling my client’s books effectively and which ones perhaps needed to get a refresher course on the sales handles.

The sales director in this shop, who ran sales departments for several large publishers in his career and who was both a nice guy and thought of as a “numbers man”, kept tabs on the returns percentage from the two national chains: at that time, Walden and Dalton. He calculated those percentages meticulously at the end of each month, based on that month’s shipments out and returns processed.

Well, you could count on the fact, every year, that returns percentages for both chains were astronomical in February, when few new big books shipped and every excess of optimism going into Christmas was punished. And you could also be sure that both chains had low returns in November and December, when retailers are much too busy building up stock for holiday sales to send anything back.

In other words, the calculation produced a result that was, literally, useless. It simply confirmed the obvious. I bring up this straw horse because it demonstrates an important fact that is just as true when analyzing returns for an account for any period of time, even a year.

The returns in any period of time are at least partly driven by purchases made in a previous period of time. So if sales in a prior period were high, the returns percentage in a subsequent period of lower sales will also be high, and that’s regardless of the appeal of the books being shipped in either period.

So as sales fluctuate, as they inevitably do, publishers will find that all weak sales years have apparently high returns and strong sales years have low returns. This isn’t cause and effect; it is more like a tautology: the inevitable consequence of the fact that returns are based on the sales made three months ago, six months ago, and sometimes a year ago, not on the sales being made right now.

One way a publisher might try to analyze their way around the timing problem is to look at returns by title which, if the calculation were done when an edition’s life was completed (perhaps on the hardcover after it has been remaindered deep into the paperback’s life), would seem to be a valid number to analyze on a stable base: the shipment of one particular book.

But even calculating things that way is not very useful as an analytical device. Returns come from the inventory in the pipeline when the book declines or dies. If the book has already sold for years in that edition, the base for the returns calculation (all books shipped) includes those from many printings long past. The copies in the pipeline at that point might only be 10% or 5% of the total the book has shipped in its lifetime, so the returns will, of course, come in under those percentages.

A publisher trying to manage inventory efficiency needs to be concerned with the books in her own warehouse and the books currently in the supply chain and subject to return. Those sold long ago are not part of that inventory. Taking 100,000 copies back on a book that sold a million or two million and calculating the returns percentage won’t produce any flashing caution lights, whereas taking back 25,000 of 35,000 pushed out on a new “make” book will produce a lot more internal scrutiny and hand-wringing in most houses. But a tighter focus on how to to manage the inventory actually in the supply chain in the face of declining sales would be much productive than an “analysis” that produces nothing but a historical observation. A publishing company can realistically make a lot more progress and save a lot more money figuring out how to reduce the 100,000 than the 25,000.

One factor that affects returns percentages and is not often considered by a publisher is the frequency with which an account orders. I’ve never had the opportunity to do the analysis, but I’d bet there is a very strong inverse relationship between the frequency with which an account orders a publisher’s books (whether direct or from wholesalers) and returns percentage. There are two interrelated reasons for this.

The obvious one is that the store that reorders is signaling that they’ve sold books, meaning that what is available to be returned as a total of what they’ve ordered is less, the effect we’ve noted above. But the other is that an account that orders less frequently is raising returns as a percentage in one of two other ways (depending on the book): they’re either over-ordering to prevent going out of stock or they’re failing to reorder when they are out and losing sales, which means that whatever is returned (of other titles, in this case) is calculated against a smaller sales base than should have been the case.

And all of this is very important to take on board right now because publishers are likely to be entering a sustained period of declining brick-and-mortar sales (which is the part of the inventory pipeline most likely to generate returns), caused in part by declining brick-and-mortar shelf space. That means that advance sales on new titles are going to be lower than before and the number of backlist titles being stocked is going to steadily decline at the same time. And that adds up to a higher returns percentage on a declining sales base.

It doesn’t take a rocket scientist to understand that if stores close or cut back their shelf space, they’ll be sending books back that will increase returns rates. But it will not be simple to separate out how the current strategies for inventory placement are working and to avoid having the “noise” of returns made because of contraction cloud those judgments.

The “good news” is that the old measurements (total returns in a year against total shipments out in a year) will deliver an exaggerated picture of how much current new title sales are declining (although they will be delivering a true picture of a very sad fiscal reality.) The bad news is that we’re going to start hearing about companies whose overall returns percentages have gone from the 20s to the 30s and then higher.

I wrote in the piece that I referred at the top that it looks like sales registered online — whether print or electronic — will be half the sales of new narrative text books published by 2012. When that number gets to 90%, there won’t be much of a premium on a publisher’s ability to understand, and thus to be able to manage, their returns with sensitivity and sound analysis. But between now we will be living through several years when it will be one of the critical skill sets for all publishers fighting to survive sea changes in the business.

For a few years earlier in the decade, we had a thriving little business called “Supply Chain Tracker” in which we took the sales and inventory data provided by major accounts and delivered publishers reports in Excel to help with analysis. We created what we believe were some critical metrics to watch: percentage of stock on hand sold, week by week in each account; percentage of each book’s stock in an account’s Distribution Center (if they had one); total inventory in the retail pipelines we could see and what percentage was selling through in a week (by title), and then the same for wholesale and distribution centers. Most of a publisher’s supply chain inventory is really visible today, if a publisher takes the time and care to look. Just glancing at each spreadsheet an account delivers for how things are going on top sellers was never sufficient; the price to be paid for such inattention in the future will only escalate.

Bookmark It:

This is the last of a 4-part series describing what I was intending to say to a live audience at the Publishers Association in London on April 28. In Part 1, I tried to make clear that a lot can happen in 20 years, which is the prediction arc for the first three posts. In Part 2, I described what I think is the world of information that will include publishing in 20 years. In Part 3, I suggest what I think publishers will evolve to and make some suggestions about how to get from where we are to where we’re going. And now, in Part 4, I take a shorter view, looking at the changes we can expect to see in the next two or three years.

Now let’s think about the pretty immediate future.

The year-on-year growth of ebook sales as charted by the IDPF shows overall sales volume growing by more than 2 or 3 times over the same period in the previous year and accelerating. Squinting at the chart, it looks to me like wholesale volume in the fourth quarter of 2007 was about $7 million, in the fourth quarter of 2008 the sales were about $16 million (2+x over last year), and in the fourth quarter of 2009 they were about $55 million (3+x over last year, about 8x over two years ago).

Anecdotal reports say that for new narrative books, ebook sales are already in high single or low double digit percentages of the total number of units the book sells.

You have to figure that the percentage growth on a per-title basis is less than the overall number for industry growth. The overall sales growth is partly attributable to more and more titles being made available as ebooks, so the expectations for unit growth for an individual title wouldn’t be quite as fast.

If ebook sales for new titles now are 7.5%, which seems like a low-but-reasonable estimate, and if that number doubles annually, which also seems conservative, we’d expect the ebook percentage to be 15% a year from now and 30% two years from now. In that light, a forecast of 25% ebook sales for new narrative books published by the end of 2012 (a bit over two-and-a-half years from now, and not to be confused with saying 25% of dollar sales volume will be produced by ebooks by then) is actually pretty restrained.

The volume of print book units sold online is likely to be a similar number to the number of ebooks by then. That means that by the end of 2012, the expectation would be that fully half of the unit sales in the US for a new narrative title will be rung up online. Online sales not only require almost no sales force, no warehouse, and no complex support apparatus to achieve (that is: the services normally offered as “sales and distribution”), they also really require no inventory. Print books ordered online can be printed on demand.

Making this forecast even more likely to be valid is the trend of diminishing sales in brick-and-mortar stores. Both major chains have reported substantially lower same store sales, year on year, for the past two years. Like the growth in ebook sales, this is a trend which it is hard to see changing over the next few years. Or ever, if the 20 year view we contemplated in an earlier piece in this series pans out.

There are a number of obvious implications of the situation we see unfolding if this fairly short term analysis proves correct. Authors will be more inclined to self-publish, particulary their out-of print backlist and any title a publisher doesn’t offer an advance reflecting high expectations. That means that, on average, desireable books will be harder and more expensive for publishers to sign. The pressure for publishers to give more than a 25% ebook royalty will intensify. There will be excess capacity throughout the print supply chain: printing, warehousing, and sales operations, and the price of distribution services on offer will go down because the overhead cost of maintaining it, as a percentage of the sales it supports, will have gone up for those with fixed operations.

Because the whole motivation for this lengthy multi-part post was to address the publishers in London, I want to close with a thought about a re-think that should be taking place among British publishers and agents over the next few years.

In general, it is true that the Web diminishes the value of “local”. Part of the reason that bookstores are so challenged is that the customer around the corner from them who wants to shop online finds Amazon.com or BN.com just as “close” as their local store. On the other hand, the Web opens up a potential global market to anybody connected with it.

For the past decade or more, the UK publishers have, in the stated interests of defending their territorial rights in their own home market, tried to bring English-language rights for Europe, which for years was ceded as “open” to books from the US or UK, into their exclusive grant of rights. The stated justification for this has been that the rules of the European Union allow any wholesaler in Holland or France to ship books into Britain and, if they bought from US sources, US editions could find their way onto UK bookstore shelves. Ignoring for the moment the number of ocean miles, warehouse handlings, and individual company profits a book taking that route to the UK would have to pay for (making one wonder, “you can’t compete with that?”), the wisdom of building high territorial walls might very shortly be called into question.

For if a British publisher has an inside track to a British writer or a British-told story that has global appeal; and if the marketing for that book is mainly going to take place online through niche communities on the Web that are often geo-neutral but are certainly accessible from anywhere at no particular cost whether they are or not; then a British publisher can reach half the US market for that author with no inventory risk at all. Furthermore, territorial disputes between English-language publishers about ebook rights are making total global sales coverage increasingly problematical. The blogosphere is full of stories about people who can’t download an English-language book in Peru or Greece because the rights situation is ambiguous. Having one global publisher will assure total worldwide availability in a way that rights-dealing is making increasingly difficult. Agents will understand that.

So I’d bet that a number of British publishers will, over the next few years, find the defense of territoriality a rear-guard and retrograde reaction to the new realities. In fact, aggressively selling the books you publish throughout the world, is not only possible but the most profitable and author-friendly way to navigate the next, and (from the long historical perspective) one of the last, twists of the book market.

Bookmark It:

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

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

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

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

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

1. He did it with no money.

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

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

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

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

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

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

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

Bookmark It:

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

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

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

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

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

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

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

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

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

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

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

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

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

And they are building the publishing brands of 2030.

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

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

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

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

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

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

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

Bookmark It:

This is the third year in a row that we’ve put together the Making Information Pay conference for the Book Industry Study Group, in conjunction with Ted Hill of THA Consulting. We’ve repeated the formula we’ve applied for the past two years, doing an industry survey on the conference theme to provide some additional insight.

This year’s conference is called “Points of No Return.” It looks at things from the perspective of publishing’s employees and seeks to discover when the markets, technologies, and process changes make things so different that old skills don’t map, old organizational structures have to be completely revamped, and people really have to develop new capabilities, accept new roles, or be forced to move on.

Our survey this year tried to gauge the feelings of publishing’s labor force about the changes they’re seeing in their company and throughout the industry. We also asked for a reaction to a number of industry “buzzwords” (like “Twitter” and “vertical”.) A report on the survey results will be distributed at the conference, but here are three little nuggets:

1. The preponderant majority of workers in all parts of publishing — editorial, marketing, sales, IT, distribution — believe that significant changes caused by technology either have occurred or are occurring now. No surprise there, but the surprise will be that there is one function people think is changing much less than everything else. And wouldn’t you know it is one that I think will likely change more than any other over the next few years?

2. Half of our respondents think publishing will become a more profitable business in the future, but they split down the middle as to whether the business will be smaller and more profitable or larger and more profitable. There’s a similar split on expectations about whether there will be more jobs or fewer. (Half of those expressing an opinion think there will be more jobs! Stop the presses!!)

3. What I found to be a startling percentage of our respondents think Twitter is a fad, soon to fade away.

Making Information Pay delivers a concise program: two 90-minute sessions surrounding a 30-minute networking break that starts at 9 and concludes at 12:30. We designed the program so that the first 90 minutes delivers facts and insights about the industry and the second half features reports from the front lines of change.

After BISG Executive Director Scott Lubeck opens the program and I deliver a very short keynote, Kelly Gallagher of Bowker will begin the morning segment talking about what Bowker PubTrack Consumer has discovered consumers are saying that is relevant to publishers thinking about points of no return. PubTrack has delivered some great insights over the past year, from demonstrating how important in-store display is to book sales to quantifying consumer attitudes about ebooks in a special study done jointly with BISG. He will highlight the Bowker findings most relevant to our program’s theme.

The Gilbane Group is also working with BISG, doing research on the seven “essential processes” (which I still call “systems”) that publishers need to keep up to date in order to stay viable as their businesses change. Do your production processes support tagging chunks of content that you might want to sell separately from the whole book? If not, you will lose revenue as the market for fragments develops. Does your royalty accounting process enable you to report to authors on sales of this kind and divide revenues appropriately? If not, then you’ll have a different set of problems exploiting those new opportunities. David Guenette of Gilbane will tell the MIP audience what the seven essential processes are, why they’re critical, and what pitfalls await if they are not ready for what’s coming.

George Lossius of Publishing Technology will tackle one of the paralyzing challenges of our current environment: how can publishers make substantial investments in technology when the business climate is changing so quickly around them? Lossius maintains that there are things we do know that can guide us; he’ll be helping publishers see what truths are stable and reliable to guide their investment decisions, even when a lot is not.

Jabin White of Wolters Kluwer has worked through some major process changes within his own company. We’ve asked him to focus on the people-centered challenges of those changes. How do you bring people along when change might be making them uncomfortable or unhappy? And how does an organization deal with the changes in job skills required, which could mean changes in the particular people required, in the least disruptive way?

The second half of the program will start with Bruce Shaw and Adam Salamone of Harvard Common Press who will present an eye-opening view of how the strategy for new title acquisition changes when a publisher becomes sensitive to its role as a vertical player. They demonstrate convincingly that decisions change when an editor sees they are acquiring content for a database rather than simply publishing a book.

Phil Madans is deeply involved in Hachette’s move to a digital workflow for book development. This requires a shift from an “assembly line” way of working to a “collaborative” one. Editors no longer finish their work before they engage with design and production; there’s a lot more being done simultaneously rather than consecutively. Hachette is well along in building this new process; Madans will offer insights that will be very useful to other publishers still contemplating this switch

Matt Baldacci of Macmillan, who oversees all the marketing spending at his company, is covering the challenge of changes in where marketing dollars are allocated, and the processes and skill sets necessary to do successful marketing in today’s marketplace.

Maureen McMahon of Kaplan draws on her prior experience directing sales at Random House to analyze the changes in sales, which she sees as having moved from requring “closing” to requiring “connecting”, all of which leads to different hiring criteria than she would have applied only a few years ago.

And on top of that, BISG has two sponsors with useful messages. Steve Walker of SBS Worldwide offers his Electronic Distribution Center, which gives publishers completely new supply chain capabilities and a web-based tracking mechanism that cuts administration and communication costs at the same time. And John Konczal of Sterling Commerce has tools to enable new business models, such as those that the Gilbane analysis points out as requirements earlier in the conference.

We’re very excited about this program; we think people at every publishing house will have something to take home and apply that very afternoon, which is always our objective. As readers of this blog well know, I’ve been speaking at, running, and going to digital change conferences for almost two full decades. To my knowledge, there has never been one before that focused on people in their jobs. How will mine change? Will I still be able to do it? Will it still be here for me? And what do I have to do to make sure I can stay employed in publishing?

We think these are questions a lot of people are thinking about. If you’re one of them, join us at Making Information Pay on May 6!

I am interrupting the “What I Would Have Said in London” series to bring you this time-sensitive post. We’ll resume WIWHSIL with Part 2 tomorrow.

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I have gotten some requests, in comments and off-the-blog, to write what I was going to say to the AGM of the PA in an appearance I was supposed to make there on Wednesday, April 28. I felt terrible about having to cancel an engagement that was booked many months ago but it was tied into a trip to the London Book Fair which was cancelled due to the Iceland volcano. Since I was really prepared for the talk, updating the “Stay Ahead of the Shift” speech from last year’s Book Expo and adding some thoughts about the immediate future in the US market that I think British publishers should take on board, the suggestion is one I can readily respond to.

The premise underlying this piece (and really much of my work) is that all of us, to function, must have a view of how we think things in publishing will change. Change has been a constant in publishing forever, of course. In my lifetime, in the US, mass-market paperbacks and mall stores have risen and fallen; wholesalers have gone from local warehouses that replenish bestsellers to national operations that can provide hundreds of thousands, if not millions, of titles to any store in 24 hours; general trade publishing has consolidated from tens of real competitors to a Big Six; and, in the past 20 years or so, the superstore, usually run by a chain, with over 100,000 titles has became about the only brick-and-mortar formula that seemed sustainable. (NB: On that last point, I think more focused, smaller stores would actually work better, but it would take a large player with a real supply chain to try them to find out.) When I started in the 1970s, the big national accounts were less than 20% of a publisher’s sales and the field reps were responsible for much more than half the business. It would be inflating the importance of the field now to say that those numbers have reversed.

But the changes we’ve been experiencing in the last ten years have been much more dramatic. The combination of used books and the Long Tail enabled by print-on-demand, all delivered by Internet retailing, has eaten relentlessly, if invisibly, into the market for publishers’ new offerings and estabished backlist. The growth of Internet ordering has sapped the viability of the brick-and-mortar network and in the past decade we’ve seen shelf space shrink following relentless growth since the end of World War II.

And, at the same time, even before the recent growth in ebook sales provoked a new digital consciousness, marketing opportunities have been shifting from the print and broadcast world to online.

Publishers have adapted to these changes by changing their sales force deployments, discovering the virtues of social network marketing, and, more recently, going to XML-based origination procedures that make it easier to deliver a book’s content in a variety of ways (the principal ones being as a book, as an ebook, and as a web page.) Publishers who saw the future coming were able to prepare for it. Cambridge University Press, for example, had tens of thousands of old backlist titles set up for print-on-demand long before other publishers did and they reaped a harvest of sales and profits in the past decade as a result. Last year, Simon & Schuster shifted resources from field reps to telemarketers. In an age when Skype allows free face-to-face phone calls and gas prices do nothing but rise, one can’t help feeling they are also getting ahead of a curve by doing that.

Changes of this kind make it clear that a publisher is required to have a view about where things are likely to be going  to plan their business intelligently. It is our purpose to explore that: first with a long view, looking perhaps 20 to 25 years out, and then with a more immediate one thinking about changes that are literally “coming right up.” Because it’s what I know best, this view is US-centric, but because the US is the largest English-speaking market in the world and the view from where I sit (intellectually, not geographically) is that the world is now any and every publisher’s market, these thoughts should be relevant to a UK publisher even if they aren’t primarily centered on the UK market.

I hope we can agree on two things before we start, though. One is that increasingly profound change is inevitable. And the other is that all future planning, just as inevitably, depends on one’s view of what that change will be.

So, with that as preamble, I want to try to envision two futures: one long-term — which we will call “the next 20 years” — and one short-term, looking ahead just two or three years.

Before tackling the 20 year vision, which will be disturbingly dissimilar to where we are now, I want to remind you from recent history how much can change in 20 years. Once again, I cite US-based examples, but I think these will probably be reminiscent of some aspect of local history for every market in the world.

In 1968, television in the United States was dominated by three over-the-air networks that divided pretty much 100% of the national audience, approximately in thirds on average, but it was not uncommon for a single show to have half the national audience. Major cities had a few local stations available in addition; most of the country did not.

By 1988, cable television penetration had reached well over half US households, delivering a choice of many dozens of channels and network TV’s share of the audience had plunged. Today there are five national TV networks in the US and they share substantially less than half the total audience. Top-rated shows fight for the attention of 15% of the country, not fifty.

In 1982, record companies were on the verge of explosive growth. The Sony Walkman and other portable cassette players were joining cassette players in cars, creating an incentive for maturing boomers to re-buy music they’d purchased 10 or 20 years before on records. A very few years later, the same phenomenon repeated with CDs. Back catalog in new formats became a gold mine for established companies.

But by 2002, the CD sales had turned into a curse. They were gold masters, easily ripped by any computer into the new digital formats which ultimately meant iTunes and iPod for the most part. The transition from analog to digital, which stripped the record companies of the power they had which was based on their ability to put product on store shelves, was accelerated by the CDs that all consumers had by then. The fuel for the final burst of record company profitability in the 1990s resulted in the fire that burned them up.

Newspapers in the US had their biggest year yet for advertising sales in 1989. Things got even better in the early 1990s, with growth in classified ads leading the way.

But then along came the Web. Classified advertising moved to Craig’s List, in some ways to eBay, and to many niche sites for camera buffs and auto aficionados and a host of online real estate communities. Google and Yahoo and the web itself disaggregated and reaggregated the content newspapers produced. Both the advertising model and the circulation that drove the advertising were challenged. Twenty years later, many newspapers have died and those that survive are hanging on by their fingernails and desperately grasping for a formula that will allow them to sustain their business online.

In 1975, the mass market paperback business in the United States was the tail wagging the hardcover dog. Agents and authors were balking at the idea that the hardcover house would get 50% of the subsequent paperback income, even though it had always been that way. In 1979, Crown Publishing sold the paperback rights for the long-forgotten novel “Princess Daisy” to Bantam for $3.1 million, a number that still stands as the record for a mass market licensing deal. As my father predicted in his seminal book, In Cold Type, published in 1982, the distribution model for mass markets was inherently inefficient and couldn’t last for trade-type books. It didn’t. By 1995, mass market publishing was a genre business, which was how it started after World War II and what it is, for the most part, today.

Twenty years ago, we went online through very slow modems to very limited and klunky online portals: Prodigy, Compuserve, and the seemingly-modern America Online. The World Wide Web hadn’t yet been invented!

Today we carry the world’s information in the palm of our hand and we’re annoyed if we can’t get a connection, 24/7/365.

And twenty years ago, the book business was on the verge of its last great boom. In the US, Wall Street was just discovering that very large free-standing bookstores, offering consumers 100,000 titles or more under one roof, were cash-generating machines. They opened the vaults for Barnes & Noble and Borders to open hundreds of such stores across the United States. In the mid-1990s, Amazon.com was founded, enabling sales even deeper into the backlist.

But, although it wasn’t as dramatic as the record companies’ distribution of CDs, there were the seeds of old publishing’s destruction sown. Amazon also enabled the sales of used books and the Long Tail, books that had — before Amazon and Ingram’s Lightning Print made the idea of “out of print” an anachronism — stopped competing with the new offerings of publishers. Now they were alive again. That alone would have made things much more difficult. In addition, the impact of growing online sales steadily weaken bookstores and consequently undermine the primary USP  publishers always had: that they could put books on retail shelves. These factors have made establishment publishing an increasingly difficult proposition every day of the past decade.

This admitted stage-setter is the first of what will be a four-part post. The next installment will spell out a vision of the world of communication into which publishing will fit 20 years from now. The third piece will suggest what a publisher will look like then. And the fourth will cover some changes we can expect over the next three years which, among other things, might call for some recalibration of the competition between UK-based publishers and US-based ones. I’ll publish one each day that I don’t have something else until all four are up. And I’ll have added links to the subsequent pieces in this postscript as they’re made available.

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