Print-On-Demand

I did a panel yesterday at NYU as part of the summer publishing program on “New Visions” for publishing. The group was put together by Leslie Schnur. I shared the stage with four very articulate co-presenters who gave very diverse views of the future. Our audience was a full room of about 50-100 (I wasn’t counting; I didn’t know I’d be writing this piece) very attentive 20-somethings with a serious interest in publishing.

Dan Simon of Seven Stories Press spoke optimistically of a revival of book reading, as in printed ones, and he spoke passionately about the importance of editorial selection and advocacy as part of a social mission publishers have to bring good writing to readers.

Carol Hoenig, a writer and consultant who works with Author Solutions, told about her own experience successfully self-publishing a novel (she thinks selling 1500 copies is successful, and I agree with her) and explaining how Author Solutions helps aspiring writers “get past the gatekeepers.”

Brian O’Leary of Magellan explained the new business models enabled by print-on-demand and how to think about them. Brian pointed out that POD models make sense for books that sell as many as 500 or 1000 copies a year, and that caught Dan’s attention, because, as he put it, “a book that sells 500 or 1000 a year is solid backlist for us.” Dan has been comfortable printing a 3 year supply; Brian’s math suggests reconsidering that formula.

Will Schwalbe, who had a 21-year career as one of New York’s top commercial editors at Morrow and Hyperion, explained his new web business, Cookstr.com, which aggregates recipes from more than 300 of the top chefs and cookbook authors in the world. Since, as any reader of this blog knows without my having to report, I used my presentation time to talk about the shift from horizontal to vertical, Will’s presentation had the great virtue of reinforcing the message I had delivered three presentations before.

Will made good use of the audience. He asked, by a show of hands, how many people liked Italian food. Just about everybody. How many cooked? Almost everybody. How many people got recipes on the Internet? A lot. How many baked more than cooked? A good chunk. How many vegans? About none. How many vegetarians? A handful. How many would prefer a recipe with fewer than five ingredients? Quite a few.

He used that device to show how the tagging he invests in on his web site delivers a better user experience for somebody looking for precisely the right great recipe. What it triggered in my mind is “what an interesting way to collect information from an audience.”

After we all presented, there were lots of interested questions. What’s the business model of Cookstr? How does Seven Stories go about finding those great books Dan wants to publish? Does Author Solutions do publicity for books?

As the conversation evolved to a close, I realized I had a precious opportunity. Though I’m considered to be wildly (crazily?) forward-thinking in some circles, expecting print runs of books to nearly disappear in 20 years, for example, I am unabashedly conservative in others. For example, the idea of books as collaborative or social experiences leaves me cold and it really leaves me cold to think of interrupting good narrative reading to explore links and, particularly, to see video. Some people think storytelling will be reinvented to take advantage of things like this, which makes me scratch my head. But maybe it’s generational, I always think. Maybe today’s generation would find it boring not to have a video interlude interrupt unbroken text. Well, with all these very smart Born Digitals in one room, I’d use Schwalbe’s technique and ask!

So, with time running out, I got the indulgence of the organizers to ask the crowd a couple of questions. The first one was: “how many of you read ebooks.”

Two hands went up. Two.

The next question was not worth asking. But I sure got a dose of new information to ponder.

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The New York Times had a story on Tuesday morning about an advantage the Ford Motor Company had over its competitors at GM and Chrysler: it is still family-owned. As the Times explained, the family ownership was able to take a longer view than their competitors. In fact, we still don’t know whether the re-tooling the family has ordered up will work in the long run. But we do know that they have had a steadier and more far-sighted management because the family cared about the long-term health of the business, not just the next quarter’s profits.

This recalled to me a conversation that I had with Peter Wiley, currently the Chair of the Board of John Wiley & Sons, over dinner 15 or more years ago. Peter said then that he believed Wall Street undervalued family ownership. As Peter put it, “just about all our competitors are focused on quarter-to-quarter results. Mike, my family has owned this company since 1807. I am not thinking quarter-to-quarter.” Wiley’s financial results (even though they have suffered in this recession along with everybody else) over time have certainly vindicated Peter’s opinion.

Family-controlled businesses have been  been ubiquitous in publishing through my whole career. When I was young, there were Scribners at Scribners, Doubledays at Doubleday, sometimes two Roger Strauses at Farrar, Straus & Giroux. When family-controlled but publicly-traded Barnes & Noble acquired Sterling in 2002, they acquired it from the founding families: the Hobsons and the Boehms.

I have consulted with several family-owned or -controlled businesses. Wiley, Barnes & Noble, and Ingram are distinguished by how well managed and basically competent they are as organizations. They really do the “blocking and tackling” well. A big part of the competitive edge of all three companies is in the quality of their operations.

They make the investments, particularly in infrastructure, that are critical to the business. I once asked Peter Wiley why it was that his company’s travel web sites were so much more commercially successful than those of other publishers with equivalently-strong travel brands. “Constant, controlled experimentation,” he said. “What worked for us was on the third try. We didn’t get it right the first two times.” Family ownership — with belief — can make those kinds of investments and stay with them. And it can support a second and third attempt to make a good strategy that is tricky to execute succeed.

John Ingram, the member of the owning Ingram family who runs the book industry-related businesses, got a clear vision of the potential in print-on-demand a little over a decade ago. Very few other owners, and almost certainly no publicly-traded owner, would have made a bet of the scale, in relation to the size of the company, that he did with Lightning Print. But John could see that POD would become extremely important and that Ingram, because of its position in the supply chain, was in a great position to apply the technology. And although it took a few years for him to be proven right, the family had the commitment to see it through and, as a result, Lightning occupies an increasingly central place in the US supply chain and is the linchpin of Ingram’s plans for future growth as the traditional book wholesaling business contracts.

What most distinguishes the successful and still-profitable Barnes & Noble from its once equal and now reeling competitor, Borders, is the quality of B&N’s supply chain. That required investments in warehouses and systems that Borders, long ago sold by its founding family, didn’t have the long-view management to make.

Now I’m working with another family business called BookMasters, in Ashland, Ohio. BookMasters started out as a printer in the 1960s. Their operations have grown in both directions along the value chain from printing. They have a business, BookMasters Digital, that provides an XML workflow from concept to the press. And they have another division, BookMasters Distribution, that takes the output from the presses and provides warehousing, sales, fulfillment, and collection. The Wurster family that owns BookMasters has many business characteristics in common with the Wileys, Riggios, and Ingrams. They have a high degree of loyalty with many long-standing employees. They have a persistent commitment to operational excellence. And they have a high degree of strategic consistency: they are willing to build things over a long period of time.

John Ingram saw over a decade ago that the book wholesaling business Ingram was in was living on borrowed time. He saw Lightning as a bridge to the future. Dave Wurster knows that printing is not a growth industry and he’s building his bridge to sustainability with service offerings that expand his importance to his customer base. Over time, both of these family owners can see the possibility of a totally transformed businesses. Their focus primarily is on how to make sure their business survives a long time, not on immediate profit. In a time of great change, I believe it’s a competitive edge.

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The post from Thursday about the Google “windfall” provoked a lot of information sources to help me understand the settlement, large parts of which I clearly did not. We’ll go over the answers I got (as I understand them; my understanding seems to be a moving target…) to the questions Michael Cairns and I posed and then I have a few more thoughts about where this leaves us.

1. There are no “rules” about what BRR can keep for its own operations. The notion is that since the Board is composed of representatives of the net recipients, who will benefit from tight cost control, that there is incentive for the Board to manage expenses well. 

2. A share of the money from the Google licensing activity that goes unclaimed because it is attributable to orphan works is first available to pay “inclusion fees” for the opters-in work of $200 a title. (This is not to be confused with the $60 per title scanned before this May 5 which is paid as part of the settlement.) Beyond that, the licensing money is divided among the opters-in on some to-be-determined formula based on usage.

3. The allocation of money to c/r holders is a little bit by volume of material (the up to $200 per book mentioned above) and then thereafter by a to-be-determined measurement of use.

4. The “costs” Google incurs, including sales costs, are all included in the 37% deduction. That 37% is actually arrived at because the split is 70-30 after a 10% expense allocation. There is a provision in the settlement to enable rightsholders to claw back their share of that 10% out of unclaimed revenues. So Google keeps 37% of the total it processes, but declared rightsholders could still get 70% of the revenue attributable to their books with the difference coming out of orphan revenues (before additional payments that could occur out of additional unclaimed revenue.)

The answers to the rest of our questions would be purely speculative. Whether new models are clearly contemplated (like print-on-demand or downloadable ebooks) or not (like licensing orphans for press runs), deals for orphan books can only occur by mutual agreement of Google and the BRR.

And therein lies one big rub. We must assume that each of the three entities with decision-making power: Google, the Authors Guild, and the Association of American Publishers, will act in the best interests of its principal stakeholders. For Google that would be its shareholders; for the others it would mean their author and publisher constituents.

For those (like me) whose primary interest in the settlement is the liberation of all this stranded (orphan) IP, this is discouraging. I don’t believe Google would have reason to object to seeing old books published again, although, for those few that would be, their search “exclusive” could conceivably be compromised. In the overall scheme of things, that would be small beer.

And publishers would also have an interest in allowing those books to be relicensed and published again because, after all, publishers will be the ones relicensing.

Authors, on the other hand, would have no interest in seeing thousands of books come back to active promotional life. If you’re working on a new biography of Franklin Roosevelt, do you really want to see 25 of them published over the last 70 years and long since buried suddenly come back to compete with yours? I see no upside for today’s author in liberating the orphans and I would expect that to be an important consideration for Authors Guild representatives on the BRR board.

What that means is that this settlement does not eliminate the need for legislation to further break up the logjam blocking complete access to the orphans. It makes it important that Google be sincere in its statements that it still supports orphan legislation. My understanding is that it is representatives of non-book IP that have a lot to do with blocking such legislation. Publishers would have reason to favor it. Would authors?

And will approval of this settlement or its rejection make new and constructive orphan legislation more likely? It’s only a guess, and I know more about politics than I do about orphan works legislation, but I’d imagine that the game-changer of this settlement would be a spur to action and rejection of it would leave the matter in the courts.

In the conversations I had yesterday bringing me up to whatever speed I’ve been able to attain, it was pointed out to me that the number of orphans may be large but the usage would be greater of those where copyright is claimed. The books in the database that will get the most use will be those academic publications which don’t even have reversion clauses so the copyright owner is not obscure. Think: you’re doing a book or paper on paranoia and you need to read what people thought in 1937 and 1951 and 1986. It will be situations like that which drive the page views.

Trying to estimate how many titles are involved (the $60 fees will be paid only on those that have been scanned until May 5, though many more will be scanned thereafter) is almost impossible. But even if 25-to-50 percent are claimed, and they amount to a somewhat higher percentage of the usage, the “windfall” is likely to be in the low eight figures annually. A big number.

As to the big question we posed: what happens with that windfall, the answer is that, primarily, it goes to the opters-in and primarily based on usage. How many of them will there be? A million? Several million? Cairns and I have to go back to our economic model in light of what we’ve learned, but we know those books will be sharing windfall revenues of some tens of millions of dollars annually. Assuming some sort of Pareto distribution of the revenues, that could result in some significant found money for select publishers — likely ones that are academic, sci-tech, professional, and have a very lengthy backlist. We’re likely to be talking about a handful of multi-million dollar windfalls.

The brand new position of the BRR will be as a licensor of the opt-in titles for whatever uses it can persuade the copyright owners to allow. BRR will be trying to demonstrate value here, both to copyright owners (so they keep putting new books into the system) and to potential licensors, based on BRR’s position as an aggregator of a massive number of copyrights (imagine if it is a million or more: that’s a lot in one place!) 

From what we see here, the two most important questions (about which reasonable people can certainly disagree, and nobody can really know yet):

Can BRR, given its assets and revenue by fiat and its restrictions by structure, serve a significant function beyond maintaining the database and adjudicating book rights disputes? (Or will it simply serve a 1-time clearance function and then process checks?)

Would acceptance of this settlement be a spur to get more far-reaching stranded IP liberation through legislation? Or would stopping it make it more likely that the politicians would act?

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Michael Cairns and I have both been frustrated with most of the conversation surrounding the Google Book Search settlement. The principal concerns of most of the participants in the dialogue seem to be: 

1. Has Google unfairly captured a monopoly on some content?

2. Has the “class” of “orphan authors” been dealt with fairly, since they aren’t really “represented” in the negotiations?

3. If this case doesn’t adjudicate questions of “fair use”, does that ipso facto mean that a settlement is a bad idea?

4. Can any settlement of broad public-interest questions about copyright and use be legitimately resolved in any way other than through legislation, since, after all, copyright rules are created through legislation?

We believe it is unfortunate that the attention has been focused there because there are some very real commercial questions that we think need answers to fully appreciate the practical implications of the settlement. We’ve been doing our best to build a model of what revenue will be and where it will go. Trying to do that makes it very clear how much important detail has been omitted from the debate we’ve heard so far (and we’ve both heard a lot of it.) Here’s a starter list of questions that need answers to forecast this business which we hope that people more familiar with the terms of the settlement than we are might be able to answer for us.

By far the most significant questions we have concern how the revenues are divided,  and these are significant questions because the preliminary financial projections we have done indicate that this database of content will produce hundreds of millions of dollars for Google and BRR.

1. We understand that revenue flows from the books in the database to Google and then 63% of that to the BRR.  Are there any rules set yet about what BRR can keep of these revenues for its own operations before it passes on the remainder to rightsholders? We might logically assume that BRR would require a diminishing percentage as revenues rise, but we wonder how those controls will be established.

2. We understand that future orphan claims can be compensated going back five years from the time of the claim. That suggests that the BRR has to hold the orphans’ money in escrow going back five years. The key question we have not heard discussed is: what happens with the money older than five years? We’ll expand on that below.

3. How is the allocation of revenue determined for the copyright owners in the database? Are they paid by the amount of content in the database? Or by the number of pages viewed of their work in the databases licensed? Or on some other basis? Or is that something still to be determined by the BRR?

4. We believe that any sales costs Google incurs, such as hiring another organization to help them sell licenses, would come out of Google’s 37%. Is that correct, or can Google deduct sales costs before dividing the money?

And we have a bunch of questions to which the answer might be, Book Rights Registry (BRR: the entity with a Board of eight — four from the AAP and four from the Writers Guild — that can therefore deadlock) just decides. We want to know if there are any barriers or constraints on any of the following within the terms of the settlement.

5. We know that the database will have greater value and greater use if it is curated and merchandised. Is there a plan for this? Is there even a concept for how a third party could be compensated for doing this curation and merchandising? 

6. We see opportunities for services & solutions providers such as SharedBook and to add value by providing the ability for customization, personalization, and annotation of the IP and then perhaps to have the end product  sold both as a book and as an ebook. Is this a deal that BRR would just be free to make on whatever terms they deemed appropriate?

7. Does BRR get to retain a larger percentage of revenues for ‘home-grown’ product initiatives such as the ones we are describing?  This revenue doesn’t come from Google like the institutional licensing and ebook sales money does, so does Google still get its full 37%?

8. To leverage non-database (non-Google) revenue opportunities we see three primary functions that need building: a storefront, an assembly technology (which could be much simpler than SharedBook: what if you wanted to put five Dickens novels together and print them?), and actual printing and delivery. Do we assume that BRR is free to put these capabilities together however it likes? Could it grant this as a sublicensed monopoly to Amazon or Ingram or Barnes & Noble? 

9. We puzzle over the pricing of POD. May we assume that BRR would be free to pursue any model? We can see two immediately: one is that BRR gets a percentage of the book’s retail (or wholesale) price and the other is that BRR charges a flat rate for the book content and the packager-reseller then charges whatever they want for the resulting book. Is BRR free to make these deals as it likes?

At the core of the important discussion about the settlement which has not occurred is  the question “what happens to the money the orphan books earn?” If it is divided among all the opters-in, which seems at least as reasonable as letting BRR just keep it, then there is a huge potential windfall to the copyright holders who stay in this database. That has not been mentioned by anybody (as far as we know). By consensus, 5 million of the 7 million books that are going to earn many tens, if not hundreds, of millions of dollars annually are orphans so, by definition, they have no copyright owner to pay! Either BRR keeps the money or they give it to the contributors to the database.

Not to have discussed this strikes us as a startling omission. Somebody gets a windfall much larger than the one going to Google. Who is it?

This post is an intellectual joint effort with Michael Cairns, who did a very helpful editing job on the first draft as well.

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Michael Cairns blogged yesterday about a deal SharedBook has just made with ourenergypolicy.org to use an annotation technology SharedBook has. SharedBook is a client and I spent some time this morning getting updated by CEO Caroline Vanderlip about this new technology.

This is wikipedia-type capability with a spin that publishers and authors will really like. With wikipedia, the edits and annotations from “the crowd” (or from whomever is allowed to mess with the wiki) actually change and revise the content itself. With SharedBook’s annotation technology, the original published content remains locked, and the changes are appended as footnotes! The footnotes can be associated to a chunk, a paragraph, a word, a symbol, a diagram, a picture. Whatever you like. And using the capability to manipulate content into a one-off book that SharedBook is known for, a reader can order up a printed book with whichever of the footnotes the reader wants in their own copy of the book. They’re then numbered consecutively and gathered at the back of the book.

The possibilities here are endless. A professor could pepper a textbook with his or her own annotations. Or the class could use the technology to add their own annotations. A professional organization can (as ourenergypolicy.org will) restrict annotations to approved experts; then the “reader” can select which of those to include in their own unique version of the book. A mystery writer or sci fi writer could use this technology to capture thoughts from other writers or fans. 

The “platform book” concept described by Joe Esposito might be handled differently using this technology, but perhaps that would be for the better. Certainly any author who believes in his or her own rendition, but also believes in the value of crowd-sourced input, would be more comfortable with SharedBook’s annotation technology than with a wiki.

Caroline told me today that it was this annotation technology that first attracted her to the company five years ago. At the time, she found it impossible to explain the benefits to any publisher. Thanks to wikipedia, that’s no longer a problem.

It is easy to imagine this annotation technology becoming an important tool in moving us toward a much more dynamic concept of what a book can be.

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Day before yesterday (Tuesday), the University of Michigan Press announced that it was no longer doing press runs of scholarly monographs. Henceforth, says the announcement, 50 of the 60 monographs published annually will be done “only as digital editions.”

What a retro way to position a progressive decision!

Publishing with no offset press run (or with one short offset press run) is a totally sensible way to deliver niche books, which scholarly monographs certainly are. But why make a big deal out of the fact that none are being printed in advance of orders?

The reason Michigan is going to this strategy is that so few of these books get sold. So why say you’re stopping anything? There should be no change in Michigan’s publishing and launch strategy (except possibly to go to a no-returns policy on monographs, or on certain parts of their list including monographs.) Why make an announcement that makes some people believe that the “book” they want might not be available to them anymore? Or that it might be available, but in something called a “print on demand” edition which, although they wouldn’t be able to tell the difference, suggests the possibility that it somehow isn’t as good as what they would have gotten before?

The end user doesn’t need to know how many copies were printed and bound along with the one s/he bought. There is no reason to confuse the consumer, or the supply chain, with irrelevant information. Do you tell them what size press you printed on? What size roll of paper?

Smart digitally-based publishing, where most sales are made of an all-digital product and marginal add-on sales are of a printed (on demand) version, is going to be the most common model in a very short time. Nobody suffers. Everybody still gets exactly what they want. An announcement positioning this as some kind of a “cutback”  is totally unnecessary and actually is probably counterproductive.

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The question asked on an email list of digerati-types was:

“On the trade side of the business, what are some of the unmet challenges, the unsolved conundrums, at the intersection of books & technology? If you could fix something, what would you fix?”

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