Industry Events

One of the most significant pieces of news to come out of Tools of Change is that O’Reilly is going into the distribution business for ebooks. This is indeed, a “tool” of change. It is also a harbinger of times to come that threaten a lot of big companies: major publishers; the big distributors like Perseus, NBN, and IPG; the digital asset distributors including Ingram, LibreDigital, North Point codeMantra, and the fledgling operation at Bookmasters; as well as the digital wholesaling operations at Ingram, Content Reserve, and Baker & Taylor.

The O’Reilly offer is to do whatever conversion is necessary to deliver files to a wide range of ebook channels for free and then to make the ebooks available through that retailing network for a charge of 25% of the dollars received. One prospective client told me that O’Reilly is willing to do a one-year contract.

This both an object lesson and a serious shot across the bow of the legacy giants of the print book business.

We’ve made the point here before that big publishers have a competitive advantage built on print-world capabilities, among them being the ability to get fast printings and reprints; the ability to quickly move books in and out of a distribution center; the ability to ship books according to the receiving requirements of many intermediaries, large and small; and a strong sales network with accounts, mostly brick-and-mortar, that sell printed books. All of these things require pretty massive scale. You couldn’t consider doing them well yourself for a $1 million (in sales) company or a $10 million company and it would be challenging to be competitive doing them with a $50 million company.

The scale required to do effective print book distribution affects both the supply and the demand in the distribution business. It means there are a lot of companies too small to do it well for themselves (creating lots of demand) and very few companies with the scale to do it well (creating a limited supply of providers.) Even so, as the need for scale along with declining overall sales have driven the big publishers deeper and deeper into the distribution business (pushing up the supply of distributors), prices for distribution have fallen steadily for at least the past decade.

Of course, anything that requires expertise benefits from some scale to develop it. And that’s what O’Reilly has in digital distribution. Partly because of the nature of the company’s audience, but largely because they have been aggressive and innovative about exploring every conceivable avenue for ebook distribution and developing a tool set that makes it possible for them to try new channels and opportunities quickly, O’Reilly has more scale, and therefore more expertise, than anybody else in consumer ebook distribution (except, arguably, some publishers in the romance space.) It is quite believeable that they can put ebooks into more channels with more efficiency than anybody else. And that’s an expertise that is largely (but not completely) topic-agnostic.

So we have a real Man Bites Dog story here. In the print world, O’Reilly is distributed by Ingram, which has invested heavily in ebook distribution. But not only does Ingram not get to be the distributor of their client’s ebooks, O’Reilly is issuing what amounts to an open invitation for all other publishers, including their fellow distributees at Ingram, to use them for ebook distribution.

(In his wrap-up talk at Tools of Change, Tim O’Reilly referenced a remark John Ingram had made to him at dinner the night before. On reflection, one wonders how the part of the the dinner conversation about ebook distribution went.)

This new challenge is playing itself out all across the distribution landscape. In the past week I have had two conversations with smaller publishers who have distributors on the print side. One is repped by one of the big independent distributors and the other by one of the Big Six. Both are planning their ebook distribution strategies, and neither of them intends to use their print distributor to help in any way.

The one distributed by an indie distributor is seriously tempted by the O’Reilly offer. This well-established company is quite comfortable taking responsibility for its own sales if they don’t need scale to handle it, so they have already pulled Amazon out of their print distribution deal. They planned to do digital on their own. They’ve had a digital workflow for a while, so their current books are in XML documents that make ebook conversion pretty straightforward. (If the offer of totally free content conversion is correct, then O’Reilly may have developed some tools helping them automate the way to from PDF or epub to XML. And they solve the problem of getting from XML to anything else that comes along for all their books.) But this publisher still have an extensive backlist that needs conversion to XML. This company sees a 1-year contract with O’Reilly as a possible way to get the conversion done and to get a line on a large number of points of ebook merchandising that they might otherwise not have known. In any case, the big print book distributor — with all its sunk costs and infrastructure and years of performance and relationship — isn’t even getting consideration.

The other company, distributed by a Big Six publisher, has also decided that digital distribution through its print distributor is a non-starter. They have been looking at the many Digital Asset Distributors to handle their conversion and distribution and have been close to settling on one. This company also has a legacy conversion challenge. Might they now want to put the deal they’re close to on hold and explore O’Reilly?

I would if I were in their shoes.

Cader wrote Wednesday (behind his pay wall) about the smaller trade publishers who have been slow to enter the ebook marketplace. He springboards from the results of a survey Perseus did of its clients and which formed the basis of a presentation they did at Tools of Change. Cader observes that 2/3 of Perseus’s 300 clients don’t use their Constellation service, their digital publishing assistance program (book distributor as DAD), at all. And, of those that do, he says:

Making ebooks available at all though looks to remain the biggest challenge for the survey group. The largest segment, 33 percent, said that fewer than 10 percent of their titles would be available as ebooks in 2010. Another 26 percent said half or fewer would be available, with just 30 percent expecting to have 75 percent to 100 percent of their titles available.

As ebook sales climb to very desireable levels, publishers of all sizes will pursue the revenue opportunities they represent. Trade book distributors have always lived on the reality that they provide the necessary scale to enable publishers to do what they do well that needs no scale: pick, develop, and deliver books people want. What requires a bit more scale but less to the publisher that specializes, and most small publishers do, is marketing. Distributors have never been much help there, frankly.

This perspective of the distributor was made very clear by the best-delivered presentation at Tools of Change, the one from Skip Prichard, the CEO of the Ingram Content Group. Skip was basically saying to the publishers: you do the content, we’ll do the rest. I know that Ingram’s perspective on a problem I’ve written about before — that publishers will have increasing trouble supporting the big infrastructures they have built for print — is that the publishers’ challenge creates opportunity for them.

And on the print side — the diminishing side — that is definitely true. What is not nearly as clear is whether on the ebook side — the growing side — they will face new, smaller competitors who have built a strongly competitive infrastructure without needing to be nearly as big. If that’s also true, then, one suspects, O’Reilly is not the only relative upstart that will be taking real business away from established players in the very near future.

There is actually a nice extension to this post that ties in nicely with my prior one on title P&Ls and the Motoko Rich piece in the Times about ebook pricing, but I’m going to leave that as a teaser for another one I may write someday because I’ve gone on long enough for now.

While I’m in Florida watching baseball games, as I am now and will be for the next few days, take a few minutes to respond the BISG survey supporting the “Points of No Return” Making Information Pay conference we’re organizing for May 6.

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This post contains a reference to our next conference effort: this year’s Making Information Pay for the Book Industry Study Group. There is a survey associated with this conference about how processes and job descriptions are changing that we really hope everybody employed in a publishing house — particularly those people involved in editorial, production, marketing, and sales — will take. If you’re employed by a publisher, please respond to the survey!

Even though I personally have concerns about the precious money that could be wasted on “enhanced ebooks”, I know that we’re going to see an explosion of interest in them and a huge escalation of investment in them in the next couple of years. That’s why I’m working on a new project called Enhanced Ebook University (EEBU) about which there will be much more to say in the next few weeks.

The idea behind EEBU is, to twist a quote from Mark Twain, “everybody’s talking about enhanced ebooks but nobody is quite sure what they are.” The first task of EEBU will be to survey the possibilities of what can be done and how it can be done. The process of building the outline for the White Paper that will be part of this project has uncovered a lot of great ideas that give me some renewed hope that enhanced ebooks can be more useful, and more supportive of the immersive reading experience, than were the CD-Roms we created 15 years ago.

One thing we’re hearing often enough now so that it is becoming a new cliche is that making enhanced ebooks is “like producing a movie.” The point is that there are many creative efforts that need to be integrated. This all makes me nervous for publishers. This is not their skill set. This is CD-Rom land. This is an invitation to spend enormous sums of money creating products that will never earn back their costs.

Now what I’m wondering is whether the enhanced ebook could lead to the resurgence of a diminishing breed: the (enhanced e)book packager. It may be already happening.

Starting in the 1960s and famously led by Paul Hamlyn, who consecutively created and then sold packagers Hamlyn and then Octopus, the UK-based packagers of heavily-illustrated books intended to be delivered in multiple languages became a critical component of commercial book production worldwide. The “packaged” book had a number of requirements that challenged publishers. They were illustration- and design-intensive; they required large amounts of subject and photo research that then needed to be rendered in a consistent and (for each title) formulaic way; and they required an understanding of design and language requirements so that they could be printed for different language markets with just a black plate change. (Some languages consistently take more characters to express the same thought than others and knowledge of those details was a component of the packagers’ expertise.)

Packaging evolved over the years. Some packagers, like Dorling Kindersley and Octopus, went for the greater margins of being publishers. With the greater margins, of course, also came greater risk as they invested in books, rather than being hired hands creating them on the back of a publisher’s firm order for copies. (One major packager — Quarto — evolved into a bifurcated company that is half-packager and half-publisher.) As the bookstore chains and other large customers like the mass merchants grew, they sometimes went directly to the packagers at Frankfurt, rather than waiting for a publisher to buy the book and offer it to them. That disintermediation reduced cover prices for the packaged books in those outlets which put further pressure on any attempts by publishers to sell the books in the remaining parts of the market.

Packagers existed for a reason: they added value. They organized themselves differently from publishers, focusing on complex project management challenges that publishers didn’t want. They set up important relationships, with Asian printers and with photo stock houses, and developed skill sets, for templated design and efficient assembly of books from multiple component parts, that publishers didn’t have.

So today we have ScrollMotion (which acts, in many ways, like a publisher), Brad Inman’s Vook in the United States and Peter Collingridge’s Enhanced Editions in the UK and, according to Peter Meyers — a veritable font of knowledge on this subject that I just tapped for EEBU — literally hundreds of others that now call themselves “app developers” offering up the equivalent of book packaging services for enhanced ebooks. These entities probably have a bright immediate future; they can do things that publishers will find themselves highly challenged to do for themselves.

In these still early days of developing the EEBU idea, it had already occurred to me that agents were going to be playing in this sandbox. When I first looked at Blio, it seemed immediately to me that authors had a key role to play and Blio’s very intuitive toolkit made it possible for them to do that. I included an agent in my initial round of readers for the EEBU White Paper outline because I believe that  before very long big agents will be hiring staff to help their authors execute enhanced ebooks. Meyers, who seems seems to have done more thinking about this subject than anybody else I’ve met (I’m meeting Collingridge next week at Tools of Change), also posited that agents could become the new packagers in the emerging enhanced ebook landscape.

One other point has arisen repeatedly in our early research for EEBU and also touches on another upcoming project of ours: the next BISG Making Information Pay conference that we’re organizing which, this year, is on “Points of No Return.” (That’s the one I want publishing company employees to take the survey on.) PONR is trying to assess how much the workflows and jobs will change in editorial, production, marketing, and sales as the digital revolution takes hold. That project intersects this discussion: when we make ebooks first or enhanced ebooks often, will the required skill sets change so much for editorial and production people that the current incumbents will be unqualified?

At least one expert I’ve talked to thinks they will be. A friend who has worked in trade publishing but who is now oveseeing vast programs that create college textbooks says that the editorial skill sets that work for print alone don’t seem to port to multi-media. I have heard this before. When we were doing research for the BISG conference in 2008, a digital operator at Wiley made a very similar observation.

The use of outside packagers for ebooks might not work as well as it did for illustrated books twenty and thirty years ago. Packaged books, generally, did not have single authors or, if they did, the author was secondary to the idea and to the package. In fact, the author was usually hired by the packager that had the idea rather than the author developing and pitching the idea, which is how the agented-author book usually works with publishers. That argues for the agent-as-packager model.

Or it argues that some kinds of enhanced ebooks — the movie-like ones — won’t be the purview of publishers at all. I saw somebody suggesting an enhanced ebook of Avatar. Good idea. I had the same idea. But the way I’ve been thinking about it is that it will come from the film producer. It would be a lot easier for somebody working for James Cameron to pull five minutes of movie clips and 100 stills and hire somebody to turn the script into a ten thousand word narrative than it would be for somebody working for a book publisher to do this. Why would anybody think a book publisher would be needed for a tie-in of this kind in an app and enhanced ebook world? The publisher was needed for thebook tie-in because the publisher put the product on store shelves. Publishers have no advantage over movie studios for access to the App or Kindle stores.

On the other hand, there are a lot of enhancements to ebooks that aren’t so movie-like and which would be more like what an author or publisher could provide expertise to do better: character description capsules; background material about a person, place or thing; back story narratives that would interrupt the flow for most people; links to sources or further information. It could be that the Baker & Taylor Blio tool, and other things like it that are coming along, will enable an author and editor to accomplish a lot of that. They can even mix in the video. But it wouldn’t make them qualified to shoot it or even curate it, let alone negotiate for any rights.

That’s the kind of thing we’ll be exploring in the EEBU project.

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Kindle is certainly engendering a lot of confusion by billboarding the downloads of free ebooks as “sales.” That paradoxical scorekeeping was the lead for an article by Motoko Rich in The New York Times on Saturday that quoted a lot of people, some apparently disagreeing with each other, but none of them necessarily wrong.

There really are three separate questions to consider, which get elided in these conversations.

1. What is the impact of giving away ebooks as a promotional device, either to boost the word of mouth on the book being given away or to promote an author’s other titles?

2. What is the potential impact on the industry overall of ubiquitous giveaways of ebooks that would apparently have commercial value?

3. When ebooks are given away, how should that sale be “scored” in any measurement of the book’s popularity?

The answer to the first question appears, anecdotally but just about universally, to be that giving ebooks away boosts sales of that title and related titles. Rich’s piece sites numerous publishers attesting to that. She apparently found no publisher that is skeptical about whether giveaway promotions work or has seen the tactic fail. And that would confirm my experience: I don’t know of one.

But as we’ve noted before, this effect could change over time. We’re still in a period where ebooks are not an acceptable format to most book readers. That means the benefits of giving them away is not confined to the word-of-mouth from the recipients, it can result in a print book purchase by the very person you gave it to! As ebook reading becomes more popular, particularly if we go to a DRM-free universe, the impact of cannibalization from giveaways could grow dramatically from what it is now.

The second question is what is apparently paramount to David Young of Hachette (as quoted in the Rich piece) and is influencing the policies described at Penguin. As more and more ebooks are given away, it offers a wider array of choice to people who prefer to select from the free offerings and just never pay. For the last 15 years of his life, my father, Len Shatzkin, refused to buy anything except remainders. He shopped from several mail order catalogs and, if he was in a bookstore, shopped at the bargain tables. His position was that if publishers were going to be dumb enough to reliably give the books away six months or a year later, he’d just wait and choose his reading from among what had been marked down. With free ebook marketing the way it is today, sometimes you don’t even have to wait!

And that’s obviously what was on Young’s mind when he said the tactic was “illogical.” It is illogical if you take a long-term, industry-health view of the situation. It is totally logical if you’re trying for short-term advantage to break a new book or build a particular author, as most of the other authors and publishers were trying to say.

There was a long comment string on the HarperStudio blog about this question six or eight months ago. I said at the time that I figured that if these giveaways kept spreading, one of our more industrious web entrepreneurs would create an ebooksforfree.com site which would be a consumer directory to “free” offers at various publishers and web retailers, title by title.

It’s a classic Tragedy of the Commons. Each person giving away ebooks succeeds in their intentions to boost their sales, but everybody will pay for the overgrazing in the end.

The third question is a tricky one. It is worth noting that the App Store makes it very easy to for the consumer to decide whether to shop the free apps or the priced apps. I think Amazon is hurting themselves by not at least sorting their bestseller pages that way. And they don’t. Amazon says the Kindle bestseller listings change every hour: I just checked the Top 10 and found one 25 cent book, one book at a substantial price (higher than $9.99), and eight free. Some of the eight free were self-promoters like the lead in Rich’s story; some were public domain; some were multi-book authors from established publishers. But only one of the Top 10 was elected with votes paid for with dollars from the Kindle clientele, which is what I think most people looking at “best sellers” would be looking for.

This raises a question I don’t know the answer to and my way to do the research will be to see if somebody with knowledge posts a comment. Kindle reports to the USA Today Bestseller List. This is, as far as I know, the only reflection of ebook popularity in the public domain. It would be interesting to know if USA Today has a standard for that reporting. Of course, most of the “weight” of the USA Today list, quite properly, would be print sales so whatever Kindle reports might not move the needle much. Most sales today are still print sales. But we’re headed for a crazy world if the concept of what “sold best” is expanded to include what people were willing to take for free.

On the other hand, if you try to separate free from paid, you will still face the question of where to draw the line. If publishers sell a $20 hardcover as a $5 ebook, should those units count equally in determining bestseller status? How about a dollar? How about a penny?

A tip of the hat here to my sometimes colleague Brian O’Leary of Magellan Media, who hinted at what I have said at length in this piece in his brief turn in Rich’s article. Brian has done extensive research that tends to confirm what Rich’s interviews and my anecdotal information suggest: that giving away ebooks boost sales in the present marketplace. But Brian managed to bridge the enthusiasm of the giveaway marketers and the incredulity expressed by David Young with his observation that there was a risk that free reading could eventually “supplant paid reading.”

And that wouldn’t really be good for anybody.

This is absolutely the last post you will see promoting Digital Book World 2010, which is on this Tuesday and Wednesday at the New York Sheraton and which is turning out to exceed my fondest hopes when we started out planning it this summer. But we have a panel on the very subject of this post called “Ebook challenges: competing with free and getting the timing right.” Brian O’Leary is moderating, and the panelists include agent Robert Gottlieb of the Trident Group; marketing director Mindy Stockfield of Hyperion (which published Chris Anderson’s book “Free”); ebook retailer Kobo’s VP Michael Tamblyn, and Steve Ross, who has been a publisher at both Random House and HarperCollins. There’s another panel on “Ebook pricing: what should they cost and why?” which includes the head of Penguin’s ebook publishing efforts, Tim McCall.  I enjoy having The New York Times stamp the topics we selected last August as “current” 72 hours before our show begins, even if just implicitly.

If you like this blog, I know you’ll enjoy Digital Book World. I hope to see you there.

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The idea of an “Ebook Tipping Point” panel for Digital Book World arose when I wrote a blogpost last August on the occasion of the regular monthly release of the IDPF’s ebook sales figures. It was clear then that very substantial percentages of the sale of new narrative fiction and non-fiction were going to move through ebook channels and this post raised the point that this would be disruptive right after Dominque Raccah and Sourcebooks started last Fall’s cascade of strategic moves by publishers to try to slow things down, at least for Kindle.

In October, really writing about the same situation I predicted that major publishers would be challenged to cope with the problem of de-scaling.

When I wrote the August post, I was in the early stages of organizing the program for Digital Book World and I decided to put together the “Ebook Tipping Point” panel. I knew that current C-level executives, focused as they must be on making numbers for this quarter and this year, not to mention always having to be aware of the impact their statements could have on their companies, wouldn’t be the right panelists. So I just decided to recruit the four savviest people I knew — about ebook publishing, about the finances of publishing houses, and about the ecosystem publishers live in — to discuss the topic with me on stage.

Yesterday that panel — Ken Brooks of Cengage; Michael Cader of Publishers Lunch; Larry Kirshbaum, ex-TimeWarner Books CEO and currently a literary agent; and Evan Schnittman of Oxford University Press — met in my office for a preliminary conversation to help me formulate the questions that will trigger the discussions.

Ken Brooks is my go-to person for all things related to ebooks and digital production. He the SVP, Global Production & Manufacturing Services at Cengage Learning. Before that, Ken created and sold a company called Publishing Dimensions that did digital format conversions in the early ebook days. He’s run warehouses and other operations for Bantam and Simon & Schuster and he even had a brief stint setting up an early attempt at ebook distribution for BN.com ten years ago.

Michael Cader is the creator Publishers Lunch and Publishers Marketplace, the new nexus for conversation and information about the publishing business, which he developed from scratch starting with a free email newsletter less than ten years ago. Before that, he was a book packager. Cader is the single person who knows more about book publishing — the people, the deals, the business practices, the view of the business from the standpoint of the investment community — than anybody else I’ve ever met.

Larry Kirshbaum turned over the reins at TimeWarner Publishing to David Young three years ago, just before the company was sold to Hachette. He was known for his eye for bestsellers and his ability to make them work. Since then, he’s been a literary agent. Kirshbaum knows exactly what it is like to run a big publishing company; he did it for more than two decades.

Evan Schnittman is Vice President, Business Development & Rights at Oxford University Press. In that role, Evan combines the zeal and focus of a sales executive with targets to hit with the vision of a strategic digital thinker, a very unusual combination. Oxford is a university press, of course, not a trade house, but they have a trade list big enough to make them real players in that sandbox. Evan knows and understands trade, but he has the objectivity and vision of somebody who is not entirely dependent on that business. He’s also a really entertaining and insightful blogger.

One scorecard worth keeping is this: Brooks, Kirshbaum, and I were all sure ten years ago that ebooks would happen much faster than they did. Cader was sure they wouldn’t. Michael has been the hardest among us to persuade that ebooks would substantially displace print anytime soon.

We had a rollicking two hour conversation that would have entertained anybody who could have heard it. I am not going to steal the panel’s thunder by revealing much about it except to say that there was a strong consensus that big publisher overheads are going to have to shrink dramatically, and soon. Michael Cader is particularly articulate — and particularly experienced — about the point that legacy businesses carry legacy cost structures that handicap them making a transition to a new paradigm. He lived that advantage as the David that slew the Goliath of PW.

So I awoke this morning to get the news in my mailbox that Simon & Schuster has redesigned its sales coverage to be “more phone”. Cheaper. Less overhead. But also (likely) less effective and (certainly) less differentiated from what any small publisher based anywhere can do.

So what distinguishes the big publishers from their competition are the capabilities of “scale.” And the albatross for big publishers going forward is the cost of “scale.” This is a tough box to get out of.

I think some eyes are going to be opened when this panel takes the stage on Wednesday, January 27.

I am getting increasingly excited about the 2-day Digital Book World conference coming up January 26-27. Now that the work of recruiting nearly 100 speakers and moderators (and, boy, do we have GREAT moderators!) is done, I am able to take some satisfaction from the body of work. (Take a look.) I am also really appreciative of the great marketing job that has been done by our partners in this endeavor, F+W Media. Just about everybody really is going to be there. Are you?

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As part of the program-creation process for Digital Book World, I had a round of conversations with the top executives of the Big Six companies to discuss the agenda, mostly with the CEOs. The purpose of the check-ins was to find out what topics the CEOs wanted their companies to speak about and, of course, which they wanted to avoid for reasons of diplomacy, commercial politics, or legality.

One topic I had left out of our program initially was “piracy”. Some of the executives I met with found this a very troubling omission. My first reaction was “what’s there to discuss? We’re all against piracy and there isn’t much we can do about it. So what else do we say?” Although there are two of the big houses where that view is, to some extent, shared, most of the others disagree, some vehemently. In fact, Macmillan has a “seven point program” to confront and combat piracy, which will now be the topic of a presentation by Macmillan president Brian Napack on the first morning of Digital Book World.

The topic of piracy is a part of the conversation about “digital rights management”, software that manages how a file can be used. DRM is a pretty standard aspect of software and DVD distribution but it comes in for a lot of complaint and criticism from very knowledgeable observers and participants in the ebook scene.

There is a “first sale” doctrine in copyright law that gives the purchaser of a book (or sound recording or DVD) the right to give away or re-sell that good. It does not give the right to sell or give away a copy, but it does allow you to “share” your book or CD or DVD with your mother, your sister, and your aunt and then to sell the used copy on eBay. Those rights have never really extended to software, which often knows if you’re trying to load it onto a second computer and won’t let you. Attempts to control sharing of music through DRM are commonly blamed for the piracy that became rampant in that sphere (although I don’t buy that; there are other explanations I find more compelling.)

The question of DRM-or-not in the ebook world is a very complicated one, although opponents of DRM often paint it as very simple. O’Reilly Media sells its ebooks “DRM-free”, as do some upstart ebook first publishers. The ebook self-publishing site, Smashwords, also sells only DRM free from their own site, although Smashwords-originated files might have DRM added by intermediary resellers, with which it is making more and more deals.

The opponents of DRM point to the incontrovertible fact that its existence does not stamp out piracy, which is transparent at a time when you can type just about any book title into Google with the word “file” after it and be directed to sites that offer you a free pirated download. In fact, even not publishing the book digitally is insufficent DRM to keep it from pirate distribution.

Mark Coker of Smashwords, despite the fact that he sells onlyDRM-free ebooks from his site, is an avowed opponent of piracy, and even of sharing. He suggests a boilerplate notice in his ebooks that tell you that you should go buy another copy of this book you’re about to read if you didn’t buy this one, or else you’re cheating the author. Mark believes the key to combating piracy is education; he admits to an unusually strong faith in consumer integrity.

But despite the lengthy introduction, this post is not about DRM; it’s to propose what is the ultimate defense against piracy: ebooks that aren’t static; ebooks that change.

The secret sauce behind O’Reilly’s DRM-free policy is that when you buy an ebook from them, you are entitled to the updates to that ebook…forever. The implicit message there is there will be updates.

There is no better antidote to piracy than this. If the pirated or peer-to-peer edition of a book is yesterday’s, or last week’s, and the book is changing, then it’s yesterday’s paper (which the Rolling Stones noted long ago, “nobody in the world” wants.)

This is beyond wrenching to publishers; it completely changes the workflow and it completely changes the business model. The rhythm of a publishing house is based on the fact that books are, at some point, finished. There is a Henry Ford assembly line aspect to how things have always worked. Whether you’re an editor, a marketer, or a sales person, new books have a pretty reliable “cycle” for you: their existence in your life has a beginning, a middle, and an end. The conveyor belt moves the book away from you so you can’t spend too much time on it and can move on to the next one. Having authors not stop adding to or changing a book, even after it’s published, is totally disruptive. And what would we do about the ISBN numbers?

Yet, the possibility for ebooks to be totally up-to-date is one publishers can’t ignore. The Little, Brown division at Hachette has just announced that on December 1 it is publishing a 2,000 word update on the H1N1 (swine flu) virus in the ebook edition of “The Vaccine Book”, which was originally published in 2007. If something startling happened that should change that text on February 1, wouldn’t it make sense for them to update the book again? In October, Wiley published, as an ebook only, “The Swine Flu: The New Pandemic” because they wanted to get the most up-to-date information out quickly. By that logic, wouldn’t they also want to update their ebook if what was up-to-date in October isn’t in March?

And if they did that, what possible value would a pirated edition of yesterday’s ebook have?

Of course, swine flu is a dynamic subject. It isn’t a novel; it isn’t history. It isn’t even programming or software development or technology, the subjects O’Reilly publishes (and often updates.) But every editor knows plenty of authors of non-fiction books that wanted to keep writing and changing and adding past every deadline the house presented. Let the new process start with those; there will be plenty of candidates.

Furthermore, the biggest threat from pirated ebooks is to the most established franchise authors. I believe Tim O’Reilly is responsible for two cogent and pithy observations about piracy: that obscurity is a greater threat to most authors than piracy, and that piracy is “progressive taxation.” Both express the reality that the marketing for most books fails to reach most of the book’s potential audience. That Henry Ford assembly line conveys the book away from the marketers before the task of informing the entire potentially-interested public is anywhere near complete. So piracy, or file-sharing that may fall short of actual piracy, can serve the purpose of spreading the word about a book and triggering more sales. Except there are some authors, and those are the ones that sell the most books for the biggest publishers, who don’t need marketing to inform their audience; their audience, in effect, informs their audience! And those are the ones who would surely lose sales if there were no DRM and books could be freely shared or are made available through illicit channels.

But those authors are also the ones who have the biggest personal followings. They are the most capable of adding material: notes about what they’re working on, correspondence with fans or critics, even observations about other people’s books, that would add some value for many of the readers of their stories. In fact, a regular “update to my readers” from a top-flight author that is available only in their ebooks, or to purchasers of their ebooks, would be an attraction to many and could serve as a constant reminder that downloading their books from illegitimate sources is cheating them.

I’m not against DRM in principle and I’m all for combating piracy any way we can (and I have a couple of thoughts on that subject I’ll save for a subsequent post.) But I am far from certain that piracy represents the same existential threat to book publishers that it did to record companies, although we have others: the music business isn’t nearly so threatened by the shift to vertical.

One of my favorite people in the digital book business, who once worked in the music business said to me: “I don’t worry about piracy. I did in the music business because music was bought by kids. My customers are 53-year old ladies. They don’t go to pirate sites. They’d be afraid of getting a virus!” She’s right about that, at least for today. But for those who are concerned about piracy, I am not sure this problem can be attacked with toughness and muscle as effectively as it would be with creativity and delivering to the market something the pirates just can’t keep up with.

We have observed previously that the day will likely come when Big Authors will go straight to electronic distribution for some ebooks, bypassing the publishers to collect bigger royalties. What could be the first shot of that battle, and a reflection of the ideas in this post as well, may have been fired in the UK where Sony has announced a special edition James Patterson ebook which will contain the new book, “Cross Country”, a month before its general release plus other excerpts and a special letter from James Patterson. Of course, that deal was probably made by the publisher with Patterson’s cooperation, but it points to possibilities that should make publishers nervous.

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The “ebook tipping point” has recently been a frequent subject of discussion for me. I started out thinking about the business implications and that’s the main focus of the panel discussion on the subject at Digital Book World.

As I mentioned briefly in my last post, I have lately been turning my thinking to a huge shift I think might just be around the corner: that editors and authors will have to start thinking “ebook first”. When we get to that point, it will cause huge upheaval. And personnel changes.

The way things work today is that the author and editor work together to create the best possible print book. That involves figuring out what to cut more often than it is about what to add. (My wife is a freelance project editor; she announced this morning that she and her authors had just successfully completed cutting tens of thousands of words and over a hundred images from a book manuscript in order to skinny down to the publisher’s desired page count. This is not the least bit unusual.)

The ultimate result of that work is a “clean” manuscript which will make the right number of pages and a lot of material that didn’t make the book. Then that manuscript might go into an XML workflow that will tag it for structure and that will allow it to be rendered as a print PDF and an ebook in various forms. Or it might simply be made into designed pages in InDesign, after which an exported file will be turned into ebooks.

If you want video or links or extra editorial material in your ebook — an “enhanced” ebook — that becomes a new creative project that begins when the development of the print version ends.

If you actually want to end up with more than one final “product”: (presumably) one print version and (perhaps) more than one digital version, this is not the most sensible way to do it. It is far easier to look at a complex ebook and figure out what can be held static to create a print version than it is to go the other way around.

Up until what seems like five minutes ago, the static print version was where all the money was. But with the IDPF reporting industry-wide year-on-year gains of 300% of ebook sales through August and Crain’s saying Random House had an 700% year-on-year increase of Kindle sales through September, the day when ebook sales are financially significant has apparently arrived and the point when those revenues could be more important than print revenues is in sight. So it may be time to change the objective of the author and editor from “how do we create the best possible print book” to “how do we create the best possible ebook?”

This will require some radical changes in thinking.

1. “Space” will no longer be scarce. That means that nothing of value should be discarded; the question becomes how to best employ any thoughts, writing, or images, not whether to include them. (Warning of a likely unintended consequence: putting mediocre material in the finished product can become a temptation and that does not achieve desired effects.)

2. Background material of any kind will become useful. For fiction, that might mean more in-depth character descriptions or “biographies”. For non-fiction, that might mean source material.

3. Multiple media are desireable. Anything that is relevant to the book in video or audio form or art of any kind should be included. If rights and permissions are a problem, then linking out to the material wherever it is on the web becomes an option.

4. Linking is essential. The author should be recording deeplink information for every useful resource tapped during the book’s creation.

5. New editorial decisions abound. Should the reader be given the option to turn links off (to avoid the distractions)? Does it “work” if linked or multiple-media elements become essential to the narrative of the book? And, if that becomes the case, what are the work-arounds for the static print edition? Should “summary” material be added, such as a precis of every chapter than can be a substitute for reading the whole chapter? (That could help somebody skip and dive their way through a non-fiction book, particularly.)

6. How should all of this complexity flow? Books are pretty straightforward: you start at the beginning and turn pages until you get to the end. But ebooks can allow different sequencing if that becomes useful. Can we have beginner, intermediary, and expert material all in one ebook that “selects” what you see by what you tell the book you are?

7. When is the book “finished”? An ebook that is continually being enhanced and updated by the author, perhaps even by the addition of relevant blog posts (to imagine a situation which would be very easy to execute) is a great antidote to digital piracy. But it would surely separate the ebook from the print, which couldn’t keep up with that kind of change. As ebook consumption becomes more common, though, authors won’t want their books to be out of date and they will recognize how easy it is to add new material. O’Reilly Media already includes free “updates” in the ebook purchase price of their books. How long will it be before a trade publisher makes a similar offer? Or before an author requires it as a condition of doing their next deal?

I can’t imagine any veteran editor reading this and not gnashing their teeth, at least a bit. But I also can’t imagine these questions being postponed forever. If I were a 20-something employee in a publishing house, I’d be thinking about this very hard and watching for my opportunity to volunteer.

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I had a lunch conversation this week with three successful literary agents, who will remain anonymous for this post. They wanted to talk about the panel we’re having at Digital Book World called “The Changing Author-Agent Relationship: How Will It Affect the Business Model?”

That panel was born when I engaged an agent last summer with my observations about digital change and tried to recruit her to join a panel discussion about it. “Suppose you work with an author to develop her manuscript so your creative input becomes part of the work. Then you can’t sell it, or you get only a token offer for it, and the author wants to self-publish. Shouldn’t you, or any agent in that spot, be entitled to something in that case?”

The agent, sensing quickly that I was going to a model of “author pays agent for consulting help” said, “I can’t participate in a conversation like that. We have a canon of ethics in the AAR, and that might well run afoul of it.”

As it turns out, the canon of ethics of the AAR only explicitly prohibits agents from charging “reading fees” to prospective clients. Other charges are explictly permitted, such as for xeroxing and messengers. And others, such as consulting on self-publishing options, aren’t mentioned.

But, still, the question of whether the business model needs to change remains. The kind of book advances that agents have made a living on for years are diminishing in number. And now that self-publishing is legitimately part of the commercial continuum, authors have a right to expect that their career business manager, which an agent is, will employ it, or suggest that they do, when it makes sense. And agents will have a right to expect to be paid for that.

Of course, that’s not what these three successful working agents do. Their business assets are their personal knowledge of and relationships with acquiring editors; their ability to shape a writer’s concept and proposal into a commercial book; their knowledge of the ins and outs of book contracts and publishers’ accounting procedures. Exploring and keeping up with the various print and electronic self-publishing options: starting with Author Solutions and Smashwords, but including many others including our client Bookmasters, lulu.com, and many others, is a fulltime job in itself. (There’s a string started on Brantley’s list today by Joe Esposito who noticed announcements for four new self-publishing startups in his email in the past few days.) And searching out the authors with the money to self-publish, let alone to pay for advice on how to do it effectively, is also not what the successful agent in the current marketplace does.

I had spoken at a Writer’s Digest conference two months ago and told aspiring writers “get an agent” but also, “make sure the agent knows about the self-publishing options.” These very professional and desirable agents did not. But they agreed that when ten or thirty or fifty times a year a project they’d developed goes off for self-publishing, they’ll want to have a way to monetize that. We agreed that the likely solution will be an alliance with somebody who perhaps positioned themselves more as a “consultant” to aspiring authors. There is no shortage of such people.

The conversation turned to contract terms, particularly regarding ebooks. The agents asked me: “don’t the big trade publishers see that the strategy of paying authors half or less of what many ebook publishers will pay on digital book royalties isn’t sustainable? that we’ll end up splitting those deals?” I told them that I had raised this point with Big Six CEOs and they all said, “we won’t buy print-only; never happen.” The big publishers are counting on the authors’ (and agents’) desire for the advance to keep them locked into the current model. (Richard Curtis made this same point in a recent eReads post.) It is clear that the idea of splitting off ebooks from print contracts is one that these agents have been thinking about for a while. The relative attraction of the advance goes down as the level of ebook sales on which you’re taking half or less of what you could get goes up.

We also spent a little time discussing “verticals” and my theory that power is moving from “control of IP to control of eyeballs.” In the past week, I’ve had two conversations with Hay House executives (they’re on the Digital Book World program too) about their business. To somebody with a trade orientation, it’s pretty phenomenal. They run between 30 and 100 live events a year for their community. They have over 1 million email addresses that drive the sales of all their books. One of the agents said he had an author for whom he sold a book to one of the Big Six houses and they sold twelve thousand copies. He sold the next title to Hay House and they sold two hundred thousand. How long will the Big Six houses be able to compete for big-potential books in Hay House’s sweet spot (mind-body-spirit), advances or no advances?

One of the agents at lunch does a lot with juveniles. “Do I have to worry about this ebook thing much?” that agent asked. Soon you will, I said. After lunch I was working with my frequent collaborator Ted Hill on a proposal we’re making for another conference on digital tipping points. One we were talking about is “when does the publishing house have editors shift their focus from developing a print book with an author, with the ebook as afterthought, to developing the best possible digital product, with the print book coming out of it?” That gave me an answer for that agent: you better have somebody on your team now who can see the digital book possibilities in every idea before you peddle it. Now that you’ve made me think about it, I realize that if you’re not fully exploring the creative possibilities for digital products for every kids book you develop, you’re already missing the boat.

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I have been imagining “verticals” for more than ten years. My BEA speech earlier this year postulated that publishing power would shift from controlling “IP” to controlling “eyeballs.”

Lots of publishers have complimented me on my insights and have told me “we’re thinking along the same lines.” But what I see are mostly product catalogs organized vertically. Or some other variation of “we provide the content, you provide the audience.” That’s a start, but it isn’t a vertical that will lead to control of eyeballs.

Now, everybody’s got a model to follow. Dominique Raccah, the empresario of Sourcebooks, unveiled PoetrySpeaks.com today. THIS is the beginning of a real vertical portal!

Sourcebooks has already made the major breakthrough of creating poetry bestsellers (are they the first since Rod McKuen 30 or 40 years ago?) They did it by adding CDs with sound to the printed word and they did it with a printed book, not an online combination. So they already have demonstrated a commercial sense for the poetry market that is unique.

But PoetrySpeaks gets past the product and goes to the heart of community: they provide service. They give every poet a reason to come to them and use them. They provide tools to post poetry, critique poetry, share poetry, speak poetry, and sell poetry. They thought through the business models so that other poetry publishers can play and make money, and you can bet that, later if not sooner or immediately, they all will.

They’ve thought it through from the perspective of many stakeholders: poets, of course; but also poetry publishers, poetry professors, poetry fans, poetry devotees. Another way of saying “vortal” is “all things…” and PoetrySpeaks is on its way to being “all things Poetry.”

The revenue models, to start, all are based on selling poetry content and tickets to slams, readings, and online performances. That’s fine. But I’ll bet that within two years there’s another one: selling memberships to a premium level of access to other poets, teachers, critics, and workshops (a la the model of PublishersMarketplace.) And I’ll bet there will be databases of people and poetry and tools and ideas that will have been crowd-sourced, have extraordinary value, and effectively head off anybody else from competing for what it will have become. (As Publishers Marketplace has done.)

PoetrySpeaks is a vertical site that doesn’t lean on trying to sell you something; it presents itself as a service to the community. Hats off to a publisher that is still selling books by the boatload, even poetry books, but that also recognizes that future success requires an entirely different model.

Yes, there are thing missing. I didn’t see a blogroll (although there is a blog) and the site doesn’t appear to acknowledge whatever other poetry activity now exists on the web. I’m sure eventually it will. There’s room for a history of poetry, and a bunch of poetry bookshelves. They need more content about poetry. If there’s an FAQ there that explains iambic pentameter, I missed it. But their community will create these things over time. PoetrySpeaks has the bait that will make it “the online place the poets hang out.” All else will follow.

One observation by Michael Cader in his write-up on this that I want to echo and stress. He observes that you do not have to be a market leader in a vertical to take a leadership position. Undoubtedly, there are many publishers who, despite Sourcebooks’s poetry bestsellers consider themselves to be much more committed to poetry publishing than Sourcebooks has been. But anybody committed to poetry publishing will be saying one thing to Sourcebooks: thank you very much.

Dominique showed PoetrySpeaks to me and to Guy Gonzalez of F+W at the Frankfurt Book Fair under a strict NDA. We were sworn to secrecy and revealed nothing, but persuaded our colleagues to carve out a feature spot for Dominique to deliver our audience an update on this project as part of our first morning session on January 26. One more reason to sign up for Digital Book World.

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Here’s a prediction that has almost no chance of being wrong. Every major player in the trade book industry is about to develop a new obsession: how must our business model change when we reach a level of ebook sales that is dynamically disruptive to the print book ecosystem?

This might not be exactly a “tipping point”, since that implies a point at which growth accelerates from some people to most people, or nearly all people. But print publishing will be seriously disrupted long before ebooks are used by “most people.” That’s because print publishing is a “critical mass” business: we need to sell enough to make a sensible print run, to keep the bookstore open, to support the sales organization and the warehouse. Our bestseller lists (with one exception) capture exclusively print sales, our author-publisher contracts and sales terms with accounts are based on the notion that we’re selling a physical object, and the biggest publishers in the land use their scale to perform capital-intensive functions that are, as much as any editorial or marketing expertise, what the authors need them for.

This presents a problem to all the incumbent players. Every powerful company in the print book supply chain: the big publishers, the big retailers (including Amazon!), the wholesalers, and certainly the independent retailers have a huge investment in competencies that revolve around print books. They can design them, jacket them, price them, print them, ship them hither and yon and keep track of each separate ISBN in the package, put them on shelves so customers will find them when they arrive and calculate when to take them off the shelves to send them back. Although there are other skills that these companies have that might port to an all-ebook or ebook-dominant world, none of these do.

Whether the challenges get acute when 20% of the sales of a narrative title are predictably e, or whether the number is 25% or 30%, the day is coming faster and faster. Growth in sales of the simplest kind of ebook — a direct lift of what is published in print — are exceeding the most aggressive predictions. The IDPF just announced that year-over-year ebook sales for August are triple what they were a year ago! Michael Pietsch, Publisher of Little, Brown, reports that 15% of total sales is the level many of their top authors are reaching now.

(Ruminative interlude: it has been my surmise that big authors will have their ebook sales “capped” at a lower level than smaller authors, just because their print books are on sale in so many more places. However, ebook sales are also very sensitive to “brand”; you don’t and can’t “browse” as many titles when you shop electronically, particularly on a device. I know that smaller publishers with less effective total distribution report Amazon sales of 60% and 80% of sales, so their ebook sales proportions are also bound to be much higher. But how the midlist authors of big publishers fare on overall ebook sales relative to the big ones is a question I haven’t asked. I will. Or, I am…)

Meanwhile, ereaders keep improving and proliferating; there have been several announcements of new devices in the past week, including the forthcoming “Nook” from B&N, which will really raise the stakes for Kindle. It will “see” Kindle’s e-ink screen and “raise” one LCD panel for link viewing, plus a 3G connection and Wifi use in B&N stores, all at the same price. B&N has the same power Amazon does to amass a robust list of titles (they have deep contacts with all the publishers) and they have at least as good a skill set for curation and merchandising to make a great shopping experience. And they’re putting their reader front and center in their bookstores (with the free wifi and some special in-store content features) which will expose the concept of the device to many people who don’t shop at Amazon and did not get blasted with a sales pitch every time they bought books.

Barnes & Noble had entertained being the ebook market leader a decade ago, losing interest when the Palm format became the early format frontrunner and wasn’t made available for intermediary distribution (one of the first in a string of futile attempts to install an iTunes device-capture model for book content, and before the iPod, at that.) Then B&N let Amazon get the jump on them in the ebook world with the Kindle; their Nook will be following more than two years later. In the meantime, B&N may have realized what all the big publishers know: that when the customer shifts to ebooks, it threatens all their business models, sunk investments, and longtime marketplace advantages. That, along with the sour experience of trying to lead on ebooks and being frustrated by what was actually a self-destructive policy by Palm, may have fed their apparent disinterest in ebooks until recently.

But it was clear to everybody that the first round of ebook growth shifted power dramatically to Amazon. Publishers have been frustrated and humbled by the Kindle’s rock-bottom, loss-leading pricing of the hottest new titles. And Barnes & Noble had to figure that, recession aside, some of those same-store sales they were missing were from shoppers who stopped coming to them because they had bought a Kindle and were now locked into the Kindle store for their purchasing to use the device.

Incidentally, the sales levels that the IDPF and Michael Pietsch are revealing are for legitimate ebook sales. Nobody knows the size of the pirate ebook market. There are some who guess it is rather small despite the robust number of files available in various hard-to-quell locations on the Internet, but if it includes any significant number of current or recent print-book customers, it only magnifies the impact on the legacy businesses.

There are a multitude of questions facing the industry about the expanding ebook market: how (some, including some highly credible voices, would say “whether”) to use digital rights management (DRM), how to price ebooks, what enhancements or updating can make commercial sense and how to manage them in the marketplace, when they should be made available, and, most important of all in the long run, what the “deal” is for the consumer (and then, based on that, for the author) who is actually licensing something rather than taking possession of something. But the questions about the declining print side are just as acute.

The brick-and-mortar bookstores, led by Barnes & Noble, are going to have to figure out how to keep their stores enticing with might be a smaller selection of print books. Nothing can grow the market for print books in the years to come, but keeping the number of points of purchase as high as possible and the traffic as high as possible are in the industry’s interests. It will require some real creativity to figure out what other activities or product offerings are compatible to keep people coming and how to drive traffic with online activity.

Amazon is not unaffected by this shift, either. Their big early lead in the ebook world was really built on the back of their superior print-book supply chain. From the very beginning, when they put out a database that had out-of-print books in it and then gave the customer a reliable delivery date for what they could sell, they created an unmatched print book shopping experience, provided a) you knew pretty much what you wanted and b) you didn’t have to have it right this minute. Their logistical capabilities are nonpareil but don’t do them nearly as much good with an electronic customer as a physical one. Their grasp on the ebook market really depends on the Kindle remaining a favored device and I think you could get good odds if you wanted to bet on that. Making hardware is not a core competency for them.

As the print business declines, Amazon continues to win if real print book demand falls more slowly than brick-and-mortar availability. But their hammerlock on the ebook market will probably not last; there will be too many better devices and they have to make a concessionary shift to selling the epub format before they can even begin to compete for those customers. They’ll do it someday, and probably soon, but they loosen the grip they have on the Kindle owners the day they do.

Publishers have an interest in continuing to support bookstore survival because the display they get there is great promotion and because being seen by a browser who put themselves at a bookstore section is still a great way to be discovered and bought. And there will still be, for some time, books which are not narrative reading which are simply better in print than in any electronic rendition. Publishers still sell a lot of these books (many of them juveniles) and bookstores, or some appropriate retail setting, are essential to them.

But publishers are going to have to rethink their operations. Sales staffs will probably contract; warehouse space will become redundant; investments in IT systems for the print operation will have to be more rigorously controlled. Publishers will likely combine, of course; the big houses now all gladly take competing publishers into their back office operations to help support them. But downward shifts in scale are not only inevitable, they will probably happen in more dramatic lurches than we’ve known in the past.

Wholesalers and distributors will both win and lose in this shift, but the shape of their business will certainly change. On the one hand, they, like everybody else, will lose sales that they have today because accounts go under and publishers they distribute cease operating. On the other hand, they are in the business of converting fixed operating costs to variable ones, and the number of customers for that proposition will grow as the apparent costs of operations (as a percentage of sales) get out of control at many companies.

Agents and the top 500 authors (an arbitrary number) are most likely to be the biggest beneficiaries of these changes in the short term. Because they themselves are powerful, searchable brands, they could actually sell ebooks themselves off their own websites, keep all the money, and make considerably more than their contracts would give them for ebook sales today even with sales of a quarter or less than the publisher and retailer get for them. (And the sales might not be that low.) I have talked to big publishers about the threat that top authors might just make their ebook deals first (you can cover the market in 4 or 5 stops and branded authors would have their own websites to sell from as well) and offer publishers print-only. Without exception, the big publishers tell me “no way we do the deal on that basis.” But if what is contended in this post is true — that keeping the print business viable is going to depend on amassing volume for it any way you can — they might not actually feel that way when presented with the problem. I think they will be getting the opportunity to make the choice.

I’ve posted on variations of this thought before. I had already decided it needed to be the topic of a keynote panel at Digital Book World. I’ve recruited Ken Brooks, Michael Cader, Larry Kirshbaum, and Evan Schnittman to join me on stage there to discuss it. Continually rebalancing the business between print and electronic, and maintaining the scale to run still-vital print operations, will be a topic of interest for just about all of us in the months and years to come.

Apologies for the paucity of posts lately. I’ve had a lot of work, been traveling, and had a bout of food poisoning. The food poisoning’s about gone, but the work and travel schedule remain robust for the rest of the month. I should become a more reliable correspondent again in a couple of weeks.

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The tactic of keeping the ebook off the market to “protect” hardcover sales, first executed by Sourcebooks this month on behalf of Bran Hambric, is becoming more widespread. At the same time that Dan Brown’s The Lost Symbol was released simultaneously in cloth and digital, Ted Kennedy’s posthumous True Compass was released in print with the ebook withheld. Now Harper has announced that the new Sarah Palin biography will come out in cloth in November, but the ebook will be held back until the day after Christmas.

The Kennedy case is a bit different because the book contained color pictures that would not render on the most popular ebook platform (the Kindle), but in all these cases the primary motivation of the publisher seemed to be to avoid having a low-priced ebook competing with its hardcover sales.

Kassia Kroszer has written a nice little rant about the counterproductiveness of this strategy, with which on purely economic and marketing grounds, I substantially agree. She points out that there is no evidence that ebook sales come at the expense of hardcover sales (of course; there’s also no evidence that they don’t…) She also posits that the ebook reader and print reader are often different people. If that’s true (and it is a general notion I’m inclined to share), then holding back the ebook is bound to just lose sales because the title won’t be available as an ebook during “maximum buzz.”

If a publisher’s concern is that reckless ebook pricing bleeds sales away from the hardcover, there is another solution. (One that can work; I have proposed solutions that can’t work.)  The publisher could just sell the ebook exclusively at its own site and price it any way they want. It would be like the publisher download is the ebook “hardcover” (i.e. expensive) which is replaced by the ebook “paperback” (i.e. sold at retailers and priced more aggressively) with whatever timetable for that the publisher wanted.

If publishers maintain their retail prices and their discounts, then the aggressively-priced ebooks aren’t costing them any margin. In that case, they’d be making more money per unit on the ebook than on the print books. There’s a degree to which the retailers’ aggressive pricing constitutes a gift to publishers and authors, even if none of them seem to be seeing it that way.

But there are also two other elements  major publishers have to  considere when they make ebook decisions: their relationship with Amazon.com and the health — even the existence — of a brick-and-mortar retail book trade.

Amazon is the driving force behind cheap ebooks, and they’re doing it to herd more and more people into their closed market with the Kindle. That’s a perfectly reasonable objective from their point of view, but it is very threatening to everybody else in the industry, all of whom would prefer a more diversified ebook market for their own reasons. That’s part of why I think selling direct off the web site at the higher price is something you might see happen. It’s a polite way to stick a finger in Amazon’s eye.

The retail book trade is important for many reasons, but the under-appreciated one is that bookstore shelf space, at 45 to 50% discount off retail, is the cheapest marketing investment publishers can make. It sorts their books out and puts them on display (hey! sometimes even in shop windows!) in front of people who want to buy a book. There isn’t any better product placement than that. Every ebook sold weakens the trade, accelerates the reduction of opportunities to put books in front of readers in the most efficient possible way. Publishers have a real interest in preserving that asset.

Earlier today we interviewed Raelene Gorlinsky of Ellora’s Cave as part of our preparation for Digital Book World. (They will be on the program!) I was aware that Ellora’s Cave existed and vaguely aware that they were an ebook-first publisher, but, not being a romance reader I was not as clued in to them as I should have been. They’re nine years old and the company is quite a story.

I’ll save the story for another time but I want to pass along one piece of wisdom from this morning’s conversation that is relevant to this post. Ellora’s Cave publishes printed-on-demand editions of those books of theirs that they can (many are too short to be print books and are only put into print as part of anthologies.) Raelene explained to us that they generally hold the print book back for 18 months after the ebook is published (and they publish about 10 new titles a week!)

Why does Ellora’s Cave hold back the print book? Because they make more money on the ebooks, of course, even though the print books cost somewhat more! (They have to pay for that paper, presswork, and binding somehow…)

Of course, I’d tell them to just raise the price of the print book for the first 18 months rather than withhold it. They’re making a close cousin to the mistake I’m accusing the conventional publishers of. But at least they’re preserving the higher margin sale, not the lower margin one.

Sometimes being in publishing makes you feel like Alice in Wonderland.

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