Publishing

One of the key building blocks of my career was the six years I spent working on a program called “Publishing in the 21st Century” with Mark Bide and a team at Vista Computer Services (now Publishing Technologies) led by then-Chairman Denis Bennett, John Wicker (now at Tata Consulting Services), and Martyn Daniels (now at Value-Chain International). Every year we picked a digital change theme: organizational structure, content to context, etc., and did some research around it. Then we’d present our findings in a White Paper and conferences.

I think it was Martyn who observed that our exercise was like “looking into the same house through different windows.” That is, the subject was really always the same — digital change in publishing — but taking a different slant on it each time would deliver different observations and insights.

And so it continues. The subject of digital change in publishing continues to prove an endlessly fascinating one for observation, analysis, and speculation. And each time you think about it from a different point of view, you learn something new seeing what you have seen before.

This entire experience was critical to my own intellectual development for two reasons: it gave me subsidized (paid-for) time explicitly devoted to thinking about the future and it gave me a lot of smart people, inside Vista and among publishers and other stakeholders whom we interviewed in our research, to discuss with and learn from.

The topic of digital change outside the English-speaking world was placed on my radar in 2008 when I was invited to speak in Copenhagen to Danish booksellers and publishers. It was already the case that a large percentage of the books sold in Denmark were in English. (I have recently heard it said anecdotally that sales of English-language books in Denmark have climbed to 25% of the total!) I observed at the time that digital disruption, which would make books more ubiquitously available outside their home territories, would result in increased intrusion by books in English. It seemed to me, at first, that booksellers would be better able to adapt to this change than publishers because booksellers are not nearly as tethered to their language as publishers are.

I got another chance to focus on how things look outside the US and the English-speaking world when I spoke at the Sao Paolo Book Fair last August. What slapped me in the face there (a sort of “d’uh, I shoulda known that” moment) was the paucity of titles available in epub format in Portuguese. That meant that Portuguese-language ebooks were PDFs, which are not reflowable and very clumsy to read on a device. What is obvious immediately is that holds back the ebook market in Brazil. What is obvious on second thought is that those Brazilians who want to read on devices and who can read in English will find much more of what they want to read in our language than in their own.

Now, with the US having reached a point that ebook sales are substantial, providing meaningful revenue, threatening mortal damage to the print book distribution infrastructure, and upsetting the publishing value chain we’ve known for a century, more or less, the rest of the world knows it is going to follow suit. The UK, frankly as much because they operate in English as for any other reason, is beginning to catch up noticeably. The rest of the world isn’t so noticeably yet, but we all expect they will begin to very soon. And that means disruptive change is coming to the book businesses of the world and they’re looking to the US experience to understand the nature of that change and what to do to prepare for it.

It is clear already that 2011 is going to be a year for me to be discussing the US experience and trying to discern its global implications with publishers and booksellers and agents all over the world. Some of the plans in that regard aren’t quite ready to be announced (although they will be very shortly) but the first such opportunity will be at the IfBookThen conference in Milan where I’ll be speaking on February 3.

I got an insight (another “d’uh” moment) talking to a French sales executive about the local French ebook market a couple of months ago. He said he’d be urging French ebook retailers to make sure to carry titles in English. Why? Because Amazon, Apple, and Google (and he didn’t mention Kobo, but he could have) would all be serving titles in all languages to French consumers. If the local retailers don’t compete that way, they’ll quickly be bypassed by consumers.

So the reality that everybody in the world has to deal with is that English-language title availability in epub dwarfs that of all other languages and that we’re also exporting a developed infrastructure that can make those titles available everywhere and very quickly.

All of these players (and Kobo, Canada-based with a worldwide base of investors) are sourcing titles in all languages, have multi-device platforms, and are each developing a separate and siloed content-focused app market. Standing on the sidelines (internationally; they’re a US-only play at the moment) with many of the same capabilities is Barnes & Noble, who could decide at any moment to be a global player and would have a big infrastructure and title base from which to do it. Copia, which has been our client, Baker & Taylor’s Blio, and Sony also have many of the necessary components in place.

And all of them have designs on getting some content exclusively if they can.

What I’ll tell the conference-goers at IfBookThen in Milan is what the local booksellers and publishers should be thinking about as digital change in their neck of the woods accelerates.

The local retailers must, as the French sales executive said, endeavor to carry titles in all languages, particularly English. (There are tools from the US infrastructure available to enable that too, particularly from our clients at Ingram and our longtime friends at Overdrive.) They have to deliver multi-device functionality: an easy ability to shop and consume ebook product on all of the most popular devices. They have to keep up with features like lending and notes and internal dictionaries. They have to deliver impeccable customer service. And for those retailers that have brick-and-mortar stores, they should learn the lesson from Barnes & Noble’s delivery of Nook that retail locations are very effective places to introduce readers to ereading devices.

Retailers based locally have some other advantages to employ against the global players. They can provide local propositions for content and marketing of use to libraries and institutions. They can be better partners for local authors and local brands. They can maximize their knowledge of local content silos, such as IP that is developed by governments and local corporations and not-for-profits. And, presuming they are more successful than the global players at harvesting content in their local language, they can garner important revenue by selling to their own-language customers globally.

The challenges and opportunites are somewhat different for publishers. I am looking forward to discussing those, as well as going into more detail about the American experience and what lessons can be drawn from it, when I get to Milan in ten days.

In the meantime, next Tuesday and Wednesday we’ll be looking at this from the other end of the telescope at Digital Book World. We’ll have a conversation with a European member of the IDPF board, Cristina Mussinelli, about the emerging market for English-language ebooks in Europe. We’ll have a session moderated by agent Cullen Stanley with an American, a French, and a British publisher talking about how rights carve-ups might be changing going forward. We’ll have presentations from both Amazon and Google. And, perhaps most important of all, we’ll have separate sessions on core and enhanced metadata moderated by Scott Lubeck of BISG, along with a conversation between Lubeck and consultant Michael Cairns about ebook identifiers. Metadata that is accurate and robust is the key foundation for publishers with digital ambitions anywhere in the world.

All publishers are global now. All book retailers are global now. The publishers and retailers who embrace that reality soonest will have the best chance to be around the longest.

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There is a lot of disagreement about piracy and DRM (digital rights management) among thinkers in the publishing space. This post will express a few thoughts about both but, mainly, this post is a plea not to conflate the two into the same discussion. In fact, whether they are part of the same discussion appears to be as contentious a point as whether piracy is a threat to publishers and whether DRM should be employed at all.

First, let’s define some terms. I make a distinction (which is not universally accepted) between piracy — which I would define as making a copyrighted file available for free access to anybody who comes along — and “casual sharing”. Casual sharing takes place between people who know each other; piracy takes place among strangers.

It has been observed by many for a long time that DRM does very little to prevent piracy, which is usually executed through web sites that host unprotected versions of content. It has been frequently demonstrated that DRM can readily be “broken” (I have two friends who routinely break it for sport: one in the US who isn’t in the publishing business and one in Brazil who is. Neither of them ever sell or transfer the jailbroken files, but they peel off the protection just to prove they can. And they say they always can.) In fact, books which had never existed in digital editions, like the Harry Potter series, are served up on pirate web sites.

You can scan a printed book and create a digital file pretty readily. There’s recently been a gadget introduced that provides a little automation for that capability. But you can buy content conversion commercially that will give you an ebook file from a printed book for low hundreds of dollars per title. So I would emphatically agree that DRM would do little or nothing to deter a pirate who has a minimum of determination to deliver a pirated ebook file, whether there was DRM or not; whether there was an ebook at all or not!

But casual sharing is another matter, or so it seems to me. People share published material all the time through email, usually by forwarding a link to something they want somebody else to see but sometimes by attaching a file or embedding text or images in the body of an email. Some people (my wife among them) maintain mailing lists of people whom they alert about one thing or another. This kind of person-to-person curation is the new automation-assisted word-of-mouth, and it is a critical component of modern communication.

So here’s what I think. I have no idea whether piracy helps sales or hurts them but, whatever it does, I can’t see how DRM prevents it. But I do think DRM prevents “casual sharing” (it sure stops me; and I think most people are more like me than they are like my friends who break DRM for sport) and I believe — based on faith, not on data — that enabling casual sharing would do real damage to ebook sales with the greatest damage to the biggest books.

Big general publishers survive based on the performance of their biggest books. Agents survive based on the sales of their biggest authors. So the biggest publishers and the biggest agents, if they see it the way I do, would be in favor of DRM even if does nothing at all to prevent the kind of piracy they attempt to cure with take-down notices.

There are a lot of good reasons to dislike DRM. It can make purchasing or consuming something harder. It is apparently responsible for the lion’s share of customer service costs for all ebook vendors. It can foil legitimate use by a legitimate purchaser. And it costs money and adds complications. In general, the more comfortable you are with technology, the more likely you are to be annoyed by DRM.

But it drives me a bit nuts when people attribute the belief that DRM protects against piracy to everybody who accepts the sense of using it.

So with this as background, I picked up a link earlier this week to an interview on O’Reilly Radar with my office-mate (but a man who very much runs his own business) Brian O’Leary entitled “What’s the current impact of piracy on the book publishing industry?” Brian has been trying for almost three years to measure the real effect of pirated editions (not casual sharing) on sales. His method is to watch the pirate sites for the appearance of books and then to measure the sales for the weeks before the pirated edition appears and the weeks after. If piracy is cannibalizing sales, one would expect to see a decline following the appearance of the pirate edition. If piracy is stimulating sales through additional word of mouth, one would expect to see sales rise.

Of course, the data to do this analysis can only come from the publishers and publishers, despite their often-professed concern about piracy (and their apparent willingness to spend a lot of money to track and combat it), have mostly not been willing to participate in Brian’s efforts to measure its impact. But what Brian did see (mostly through O’Reilly data, and O’Reilly is a DRM-free publisher) suggested that piracy might lift sales more often than it hurts them.

In the interview, Brian makes some very good points but then I get to this:

“I’m pretty adamant on DRM: It has no impact whatsoever on piracy. Any good pirate can strip DRM in a matter of seconds to minutes. A pirate can scan a print copy easily as well.” (I agree about the “good pirates”, but is the “no impact” statement data-driven? I doubt it.) But then:

“DRM is really only useful for keeping people who otherwise might have shared a copy of a book from doing so.” So, he’s against DRM even though he agrees it prevents casual sharing. And I’m not aware that anybody, including Brian, has ever attempted to measure the impact of casual sharing.

This is interesting, because he and I have exactly the same opinion about what DRM can and can’t do, but we don’t have the same opinion about whether it should be applied or not!

The point that Brian makes which I take to heart, though, is about trying to base opinions on data whenever possible rather than on conjecture. Many of his colleagues-in-arms against DRM attribute its continuance with ignorant and wrong-headed thinking: publishers and agents who somehow are deluded into thinking that by using DRM they restrain piracy. At the same time, concern about casual sharing is either ignored or elided.

And while gathering data about the true effect of piracy is difficult and gathering data about the potential true effect of unfettered sharing of commercial books is impossible, I am in a good position to gather data about what senior publishing executives and powerful agents believe about piracy, casual sharing, and DRM. So I created an informal survey to find out.

I asked three questions.

1. Do you think DRM is necessary to protect the sales of ebooks for popular titles?

2. Do you think DRM is an effective check against piracy?

3. Do you think the main benefit of DRM is that it prevents casual sharing?

I asked top executives in major houses and agents who handle major authors.

Nine executives and four agents (more than half the number I asked) were kind enough to come back to me with answers (so far). I’ll report on the findings in my next post.

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The necessity for publishers to reduce their hard-copy operating costs, the reality that smaller as well as fewer bookstores are inevitable, and the overall question of shrinking shelf space are topics we have explored before.  But it is intrinsically difficult for those of us who have been in the book business for decades to envision life without a robust bookstore channel. The current unfortunate news about Borders suggests that it won’t require a great imagination for very much longer.

One thing that has changed considerably in the last 20 years is the huge increase in information available to publishers about what is going on in the supply chain: that is, they can track the books between their own warehouse and the end consumer purchase. The Big Kahuna of information, of course, is provided by BookScan, based on cash register capture of data as books are sold at outlets all over the country. BookScan not only lets its subscribers see the activity on their own books; it gives everybody a view of every book in the industry.

But as valuable as the BookScan data can be to discern trends and the performance of competiton and potential competion in the marketplace, it has real limitations as well. Knowing the sales without knowing the inventory is like knowing the number of hits a batter had without knowing how many times the batter came to the plate or knowing how many games a team won but not knowing how many games they played. Some books that are scoring low in BookScan’s data never had a chance: there weren’t enough copies in stores to enable a robust sale. And some books that are scoring high in Bookscan’s data are not going to be profitable because the number of distributed copies that won’t sell (and which will end up back in the publisher’s possession) is higher than the number that do.

Over a decade ago, pioneered by Barnes & Noble and Ingram, the biggest retailers and wholesalers started to provide publishers with data about how their inventory was performing for that trading partner. This data had the advantage of being far more complete and analyzable, but a publisher could only look at their own books’ performance. Because BookScan presented summary global sales numbers and everybody’s books, the BookScan reporting was what tended to be of interest across a company: to editors and marketers and top executives. But the more granular view of a company’s own inventory provided by the individual account reports was pure gold for the sales department and for the then-emerging supply chain management function.

When we first started helping publishers mine these reports in the early part of the decade, the practice at most publishing houses was for somebody in the sales department to look at the weekly spreadsheets, extract whatever insight they could, and then throw them out when the next week’s reports arrived. We were handed an assignment by our friend Charlie Nurnberg, then VP and Director of Sales at then-independent publisher Sterling. (It is a pure coincidence that Charlie’s name never appeared in the blog until my last post and now he’s in two consecutive ones!)

Charlie said, “for years we had 1000 titles on our backlist. I got the B&N green bar report (there was a time when all computer reports were green bar reports) each week and went over it with a fine-tooth comb and I knew everything that was going on. Now we have 5000 titles on the backlist, I have delegated the coverage of B&N to two people, and I know things are falling between cracks. Can you help me get a handle on it?”

To respond to this request, we did two simple things. First we databased the reports, so we could look at data across a longer period than one week at a time. (For fast-moving titles, a week in a chain can tell you a lot, although it certainly can’t give you trending insight that multiple weeks give. For slower-moving titles, a week’s sales might tell you almost nothing at all.)

The second thing we did was to contruct some simple metrics, so we could sort the reports by something other than the total inventory and total sales for stores and distribution centers that B&N provided. There were two key things we looked at right off the bat: the percentage of the week’s store-on-sale inventory that had sold and the percentage of the book’s stock that was kept in the distribution center. The first trick was to look for books that had a high percentage sellthrough but a relatively low number of copies on sale in stores. Presumably putting more copies out in stores would increase sales to everybody’s advantage. The second trick was to find the books which had a high percentage of inventory in the distribution center. Those books, we felt, were in greater danger of being returned. In general, publishers prefer to keep excess inventory in their warehouse.

These weekly Flash Reports quickly proved to be very valuable. The first day I showed them to Charlie and his team, we sorted the warehouse percentage in descending order. The two books at the top had 5000 copies each in stock, all of them in the warehouse! It turns out those books had been there for three months. There was a flaw in the B&N system — repaired almost immediately as a result of this discovery — that allowed a bulk purchase to be made by a buyer but didn’t require a distribution plan for the books. Sales management at the publishers, focused on looking at books in descending order of sales (which is what Sterling and just about everybody else did with those reports), might never notice that books sitting in the warehouse and not distributed to stores were also reported in the same spreadsheet.

This tool for discovery was well-received by Sterling, but it was also well-received by B&N. Their very enlightened inventory management team understood that having publishers doing sound analysis of the data they provided could be helpful to them. After all, the books sitting in the warehouse were painful to B&N as well to Sterling; that inventory investment was on their balance sheet (and, as it turned out, these particular books had been purchased on a “no returns” basis!)

In time, the business of doing sales data analysis grew for us. In addition to the weekly Flash Reports, we designed Stock Turn Reports to enable meaningful analysis of slower-moving backlist. We started computing the overall stock turn for a publishers’ books by store section, which was necessary to really decide whether a title’s stock turn was good or bad. Turning 1.3 might be nowhere good enough in fiction, but it might be heroic in philosophy or poetry. All of this analysis began to demonstrate the realities of bookstore economics to the sales reps and it got them thinking the way the store buyers do, where stock turn is a critical metric.

It wasn’t long before other publishers were using what we called the Supply Chain Tracker service and asking us to provide the same insight from the data provided by other accounts. Soon we were doing similar analysis for data from Borders, Books-A-Million, Ingram, Baker & Taylor, and Amazon. For publishers using us across accounts, we were also able to provide a much wider view of how their inventory was performing. We built spreadsheets showing what the percentage sellthrough was across retailers and across wholesalers and distribution centers. This information helped our clients match the growth and shrinkage of inventory across all accounts to respond to rising, and then usually declining, sales of a title.

We discovered a great opportunity in cross-account exception reporting. We’d look for the books that sold well in Borders but were under-represented at B&N and, of course, the larger number of titles that were the opposite: selling well in B&N but not well represented at Borders. That, and the stark differences in stock turn and percentage sellthrough between the two chains, would have told a perceptive sales director many years ago to expect the problems the Borders chain faces today.

At its peak, about four or five years ago, we were delivering Supply Chain Tracker reports to quite a few publishers, including Hachette, Harcourt, Chronicle, and Motorbooks. We did tutorials on our techniques for several major publishers, among them S&S, HarperCollins, Penguin, Perseus, and Scholastic. And B&N supported our efforts to teach the analytical techniques to university presses, including Harvard, Yale, California, and Chicago.

David Young learned what we were doing when he was running Little Brown UK and soon we found ourselves applying our techniques to data provided to them by Waterstone’s. When TimeWarner was sold to Hachette, our efforts were spread further around the Hachette UK companies and, at one time, we were doing Waterstone’s reports for four different Hachette divisions in London.

But, over time, big companies saw the importance of this kind of supply chain analysis and they brought it inhouse and, in many cases, extended it. That wasn’t good for Supply Chain Tracker, but it was the right thing for those companies to do for themselves. We stopped doing this work for US clients two years ago; we’ve just had our last two British clients take the function in-house. So for the first time in eight years, sales data analysis is no longer part of what we do.

The level of sophistication of inventory management in the supply chain by big publishers has taken a huge leap in the time since we started doing this work. I think we provided some impetus for that leap. This analysis will, paradoxically, be of increasing commercial value as brick-and-mortar sales decline in the years to come. Getting inventory levels right in years of relatively stable print sales was a key to profitability. Getting inventories and printings right in the period of print sales decline we face for the forseeable future will be a key to survival.

I wear with pride the fact that nobody else programming a conference on “digital change in publishing” has chosen to feature agents — both their challenges and their opinions —  the way we do on the program at Digital Book World. But we’re also covering the topic of this post. We’ve put together a panel of very experienced sales executives (Jaci Updike from Random House, Michael Selleck from Simon & Schuster, Alison Lazarus from Macmillan, and Rich Freese from National Book Network and moderated by David Wilk, who has years of trade sales experience) to talk about the evolution of the sales department. Find that on somebody else’s digital change program! And good luck to the trade publisher who rides into the future without agents and managing down the print and physical supply chain top of mind.

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It’s a pre-holiday week and a busy one following a busy one last week. So time for blogging is limited and, besides, all you readers have presents to wrap.

But there is one subject to ruminate on just a little bit that came up repeatedly during last week’s business. Constance Sayre of Market Partners and I are doing a joint exploration of ebook royalty rates for a presentation at the Digital Book World conference in January. We created a survey to allow agents to tell us anonymously what kind of deals they were striking and we got about 130 responses. (Market Partners’ newsletter, Publishing Trends, has a report in their current issue, released today, on what the agents said and the full data will be released for our attendees at Digital Book World on January 26.) We decided to balance our presentation by giving publishers an opportunity to give their side of the story, also anonymously (except, since we interviewed them, we know who they are. The agents, having responded online and in privacy, can’t be tied back to their answers. Connie and I are good at keeping confidences.)

We spoke to seven CEOs last week, a couple of whom were joined by colleagues who actually do the contract negotiating. What they told us about ebook contracts is what we’ll talk about at Digital Book World.

But just about all of them made an ancillary point and that’s our subject today. The point they made is that the main task ahead of them in the next few years is to completely reinvent book marketing. There was clear acknowledgment across the board of something that has concerned us for some time: that inevitably declining retail shelf space means a commensurate decline in critical merchandising capability.

Changes are definitely occurring. The big publishers are undeniably SEO-conscious, investing real effort thinking about what search terms apply to each book they publish. They’re all experimenting with Facebook and Twitter and other social networking sites as well. Various community-building tools, including the very ambitious Copia platform that launched a few weeks ago and the John Ingram-funded start-up Rethink Books and its new Social Book capability, are now being tried out. The established ebook vendors, notably Kobo and Kindle (on my radar screen; I’m sure Nook and Google too), are building social capabilities into their platforms. And the established book discussion networks like Goodreads and LibraryThing are continuing to add participants, books, metadata, and conversation that constitute raw material for marketing the next book from any publisher.

There are two questions big publishers need to be asking about all of this. One is “does it scale?” The other is “does it adequately replace the stack on the front table of a highly-trafficked bookstore as a way to generate attention for a new publication?”

If marketing efforts don’t scale, then a newcomer or a smaller press isn’t handicapped competing against a major. And if the new techniques don’t compensate for the lost front table spaces, then publishers are going to need something more. And effort that doesn’t scale takes time, which costs money. Publishing margins have never been robust enough to allow publishers to increase the percentage of revenue allocated to marketing and remain profitable.

Of course, book retailers share in the difficulty. As much as publishers have depended on retailers to sort the books out into sections and featured areas and to bring the customers into contact with them, the retailers have depended on the publishers to make the public aware that a book exists.

This is a big problem with many aspects to it and this is supposed to be a relatively short pre-holiday post, so I want to drop just two conceptual thoughts on it: one a principle and one a suggestion.

The principle is that “investment marketing” must replace “expensed marketing”. “Expensed marketing” is what publishers have always done: promotion for a single title that has no lasting payoff or value. That’s an ad in the paper or online, a press release that gets picked up and run immediately and has no value next week, or a free copy of the book that might result in a review of that book or, most of the time, result in nothing at all. (Thank goodness that, at least, those review copies can be far less costly to distribute in digital form and for that it is worth mentioning another relatively new service called NetGalley that facilitates distribution of electronic copies for promotional purposes.)

What I’d call “investment marketing” is an effort that yields a result of ongoing value: a batch of email addresses that can be pinged at no cost to promote a future book or a relationship with a web site or a blogger that adds to the promotional arsenal available in the future. This concept is particulary important on the social marketing side, which is labor-intensive.

I was glad to have the concept validated in a conversation with a leading digital marketer that we recruited as a speaker for Digital Book World. She agreed that in order for digital campaigns to make sense, they should be on behalf of a block of books — by an author or on a subject — rather than pushing one title.

This is a sea change for publishers who have always marketed one title at a time. It is particularly important to implement as the distinction between backlist and frontlist for promotion — which was always partly rooted in the reality that backlist might not be available at retail months or years after its initial publication — makes less and less sense.

The suggestion is to attack the search and discovery problem, the browsing problem, the serendipity problem, the substitute for the stack of books problem. Or, maybe we’re better off envisioning this as the “replacing the marketing clout of the book clubs” problem.

Introducing a simple concept: the book shopping or book marketing app.

I would happily pay a subscription fee to somebody who would put into app or ebook form a periodically curated catalog of recently published books on baseball history. I want to see the title, author, precis, table of contents, sample material, publisher selling copy of all kinds, and reviews. I don’t care if the purchase is “in app” or if I can click my way to the landing page for the book at my favorite ebook retailer (and I’m easy: I have four of them!)

I am sure regular fans of romance, sci-fi, historical fiction, business books, popular science, and many other subjects share the same frustrations I do with shopping for ebooks now. Any search you do returns more dirt than diamonds, more chaff than wheat, more noise than signal and, for the subjects nearest and dearest to me, far more books I have either already read or already rejected than that are new and of interest. It would be ever so much easier to have all this information presented in an app or an ebook that I could peruse at my leisure, online or off, and which would have proper navigation rather than a constant struggle with pointless links and back buttons.

I think we’ll see publishers and retailers delivering this, or something like it, before the end of 2011.

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No new facts today, just some perspective.

Google has launched and Copia has launched. Kindles and Nooks are on sale in consumer electronics stores far and wide. iPads continue to roll out by the millions and recent evidence suggests that consumers are very happy reading ebooks on them.

I’ve made the point on the blog before that every book purchased online is another nail in the coffin of brick-and-mortar bookselling. All ebooks are purchased online (despite some charming, but futile, fantasies to the contrary.) Even with the Google proposition enabling all stores to participate in the ebook marketplace, which may motivate Amazon to try a similar proposition (and, considering the hostility of competing book retailers toward Amazon, good luck with that), it all adds up to less support for brick-and-mortar. Google ebooks might help some bookstore owners generate some margin, but that doesn’t mean it will keep more stores open.

(Look at it this way. If you ran a bookstore and found that through Google you were able to sell more and more virtual goods while your brick-and-mortar sales were declining, would you invest what you were earning through the new and growing channel in the old and declining one?)

This is not the moment for chewing over stats. We’re in the middle of a huge acceleration in digital reading. I have seen it suggested that this year might mark the first when Christmas will be the book business’s biggest sales day, because all those ereader recipients unwrap their presents and immediately go online to load up their machines.

There will be lots of opportunities for statistics-based observation after the turn of the year and we’ll be doing a lot of it at Digital Book World. (We just got some early data from iModerate, which is looking at ebook consumption on multi-function devices for us, and it is provocative.)

I’m expecting that what brick-and-mortar booksellers will experience in the first six months of 2011 will be the most difficult time they’ve ever seen, with challenges escalating beyond what most of them are now imagining or budgeting for. If I were programming a show for six months from now for the book industry, I’d plan for that to be Topic A.

Things happen “gradually, then suddenly.” I think the next six months will make what we’ve been experiencing for the past year look very gradual. I know smart people who have thought for the past year that there would be some flattening coming soon in the ebook switchover. It doesn’t feel that way to me.

I linked immediately above to a post of mine from last Spring in which I got something pretty damn wrong: figuring that iBookstore’s early success would be sustained and that Random House would find it “necessary” to switch to Agency, even though I saw the logic in their initial decision to stay out. As it has turned out, iBookstore’s share appears to have declined, even as the use of iPads and iPhones as ereaders has grown. Many more ebook titles are available for those devices through other sources which now, emphatically and ironically, include Google. Because Google is delivering a lot more illustrated and complex-page ebooks to the market than there were before, it will make the iPad even more valuable. So as Google Ebooks succeed, iBookstore doesn’t benefit but Apple very well may.

I’m a baseball fan and I think both hitters and future predictors should be happy if they bat .300. I’m not embarrassed to be pointing out one of the times that I made an out.

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Ed Nawotka, the editor of the Frankfurt Book Fair’s online publication “Publishing Perspectives”, is running a series of pieces responding to his question “what was the most dramatic event in publishing in 2010?” Here’s the answer from The Shatzkin Files.

The most dramatic event in publishing in 2010? That’s easy. It was the face-down between five of the six biggest publishers in the US and Amazon over trading terms in the ebook marketplace: the shift from wholesale pricing to agency.

Even in theory, the shift was complicated. Publishers’ established prices went from near-print to about half-print. Margin offered to the channel was reduced from 50% of the established price to 30%. Control of pricing shifted from the retailer, who could charge whatever it wanted in the wholesale scenario, to the publisher who required the same price across all consumer touchpoints under agency.

But in practice it was even more complex than it was in theory. Shift of pricing control meant shift of responsibility at the point of sale and that meant publishers were now responsible for sales taxes, not the retailer. (Oddly enough, and the lack of public discussion of this point is a dog that didn’t bark, it did not result in the publisher, now seller-of-record, being told exactly who the customer is: the name and email address are still only known to the retailer.) Lawyers advised (at least some) publishers that agency required a contractual relationship between the publisher and each point of distribution, resulting in deal-making complexity that leaves some retailers without a full shelf of agency publisher books more than six months after the shift.

And literary agents representing the top authors required a lot of handholding. Ebook royalties are a raw point in negotiations these days between agents and publishers, and the agency model reduced the royalty per copy on all books, at least during their hardcover life. Of course, the publishers’ take per copy also was reduced, a point the publishers no doubt made as they prevailed on the agents to accept a change they believed was necessary to prevent a potential perpetual monopoly on ebook sales by Amazon.

Adding to the drama surrounding the shift to agency was the fact that the biggest of the Big Six trade houses, Random House, sidestepped it. This put them in a position where they a) sell their books for more per unit, b) see their books offered to the consumer for less per unit, c) can tell agents their royalties are higher per unit, d) are not offered in Apple’s iBookstore (but are available on all Apple devices through Kindle, Nook, and Kobo, at least), and e) have earned the enmity of the other publishers in the Big Six.

The Agency 5 see themselves, not without reason, as having sacrificed revenue at a difficult time for the industry’s long run good while Random House takes tactical advantage of the shift (and, in the words of one CEO, are “gloating” about it.)

(My editorial comment: this may all be true, but isn’t it the job of a company’s management to take tactical advantage of changing industry conditions? The overall point to this piece, of course, is that I applaud the move to agency. But it is hard to see exactly why, from Random House’s point of view, you’d voluntarily give up an advantage that makes all your competitors grind their teeth. As some analysis I did looking at royalties shows, the tactical advantages of wholesale are distinctly greater for hardcover and it may even be disadvantageous for paperbacks, but that’s a balance Random House is very capable of calculating.)

The most dramatic single moment of this long-playing dramatic event was last January when Amazon made a brief, and vain, effort to stop the whole agency movement in its tracks by pulling the buy buttons for Macmillan, apparently because they were the first publisher to officially notify Amazon of the forthcoming change. The giant retailer retreated in about 48 hours marking the first time in anybody’s memory that the publishers had forced them to back down.

Although the Nook and iPad devices certainly have something to do with it as well, agency seems to have accomplished its purpose of preventing Amazon from maintaining a stranglehold Kindle share through their deep-pocketed ability to forgo margin for a pricing advantage. The other retailers in the ebook market have their margin protected. With Google Editions still to join the fray, there is reason to believe that there can be a truly broad-based ebook marketplace for the next few years. What the Agency 5 publishers did was politically and logistically difficult and, because it involved reducing unit margins, somewhat counterintuitive. It would appear more than six months later that the tactic has achieved its most desired result.

Control of pricing immediately challenges publishers to get sophisticated, modern, and scientific at how they approach pricing. That would require, in a formulation I first heard from Peter Wiley (Board Chair of John Wiley & Sons), “constant, controlled experimentation.” Surely, that is taking place on a daily basis at Amazon.

So far, of course, the sales agent is controlling all the customer contact. Sooner or later that is likely to become a point of contention between publishers and their “sales agents.” It might be pushing things to expect that dispute to begin with the next round of agency contract negotiations in 2011, but expect that issue to make its way to the table in 2012 or 2013.

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A few things worthy of a pre-Thanksgiving comment have passed in front of my eyeballs in the past few days.

1. Sainsbury’s, one of the big supermarket chains in Britain, has announced that it will open a digital download store before Christmas. They’re starting with movies and music, but plan to expand to ebooks before long.

The working assumption has been that Amazon, Apple, and Google (even though Google Editions hasn’t launched yet) would be the major global players for ebook distribution. Barnes & Noble has taken significant market share in the US, putting them second in sales to Amazon at the moment. There are rumors that B&N is going to start competing globally before long; it would certain make sense for them to do that. (Perhaps B&N’s aggregation of books in Spanish is a step in that direction.) Sony and Kobo are already active all over the world; Copia intends to be and they have just opened for business.

But if Sainsbury’s wants to be in this business, so might mass merchants in every other corner of the globe. We had already had our eyes opened by a French publisher who expressed his fervent hope that local French book retailers would carry English-language ebooks. His reasoning was very simple. Since Amazon, Apple, and Google would be carrying ebooks in French as well as English, the local merchants won’t be competitive unless they carry English as well as French.

There is a tendency in some quarters to declare the ebook wars over and that somebody (usually Amazon or Apple is the one annointed) has “won.” It is important to remember that ebooks have about 10% pentration in the US and less than 1% everywhere else (except, as we’ll see below, China). Many more players will be competing for the ninety-something-percent of the 2015 world’s ebook readers that haven’t tried it yet.

2. A story in China Daily puts the Chinese digital publishing business at $12 billion and at more than half of the Chinese book business. I have some immediate skepticism about these numbers since the US book business (all in: trade plus school plus college plus professional plus anything else you can think of) is only $30 billion and the US ebook business was just estimated by Forrester to be $1 billion. For China’s book business to be 80% or more of ours in total and for China’s digital publishing business to be 12 times ours seems very unlikely, if not impossible. Who knows what errors of methodology or currency conversion could explain these numbers? (I surely don’t.) But half digital is a powerful statement, even if the comparison with the US can’t be right.

The fact that China has moved so fast to digital opens up another line of thought to me: how translation might work in the future. Google Translate doesn’t deliver you a publishable version of anything. But it does deliver an intelligible version that a good writer or editor can turn into something publishable pretty quickly. How long can it be before a combination of Google Translate and a single literate person is delivering a perfectly acceptable translation of anything to anybody who can afford the single literate person?

(Added after publication: you’ll see a comment below pointing out that the statistics in the China Daily article referred to all publishing in China, not just book publishing. That makes the figures make more sense. It also means that much of what appears in the two paragraphs above has been mooted, except that Google Translate plus one good editor can deliver a readable version of anything in any language.)

3. Sarah Weinman, who is one of the more acute analysts of the commercial realities of digital publishing, just wrote a piece wondering whether the iBookstore is actually working. She suggests that iBookstore is trailing both Amazon Kindle and B&N Nook by a considerable amount in sales. She has data from one particular book for which the ebook sales were about 60% Amazon, 26% B&N, and only 6% iBookstore. When I asked a few publishers how those percentages broke down about four months ago, they put Amazon closer to 50% than 60% and put B&N and iBookstore pretty close to each other. The iBookstore, which I call the Walden or B. Dalton mall store of ebooks, has been a head-scratcher for me. They have far fewer titles than their competitors: Amazon, B&N, and Kobo. While they do a nice job of title presentation for the bestsellers, their lack of breadth is evident if you do any kind of subject or genre search. Meanwhile, Amazon’s very tough position (so far) resisting agency for any but the biggest publishers makes it very difficult for smaller publishers to put books in the iBookstore without exposing themselves to the danger of conflicting contracts and a downward spiral of revenue if Amazon decides to discount their books. (I have been told lately by two small entities that they’re going to get agency terms from Amazon; one actually wonders why Amazon would permit that right now since their current strategy seems to be working to keep the iBookstore uncompetitive on title breadth.)

On the other hand, it has been pointed out by others that iBookstore is going to develop a big offshore following. The iPad is making inroads abroad faster than Kindle and Apple’s iBookstore is the only book purchasing experience that comes already loaded on the iPad device.

I would never expect iBookstore to go away, but I do wonder whether it will be a significant force in ebook retailing, ever in the US and, in the long run, anywhere, unless they are willing to back off on requiring agency terms from smaller publishers. Or unless Amazon will back off on requiring wholesale to that same cohort.

4. PW reported yesterday that HarperCollins is shutting down its ebookstore. While there could be any number of factors at play, one has to assume that sales were not robust. The guess from here is that the problem of not enough traffic from consumers is going to be a generic problem for general trade publishers. You can only get traffic as a horizontal aggregator if you are a complete horizontal aggregator. iBookstore can’t do it with a fraction of the titles that Amazon and Barnes & Noble have and neither can a publisher.

With our good friends at Market Partners International, we’ve just launched a questionnaire on Survey Monkey to learn from agents what ebook deals they’re making with publishers. We’ll balance our inputs by interviewing publishers on the same subject before Connie Sayre of MPI and I deliver what we’ve learned at Digital Book World in January. If you’re an agent and you haven’t received an invitation to participate in this effort, contact Jess Johns at Idea Logical (jjohns@idealog.com) and she’ll get you included.

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One of the functions of this blog is to predict important changes in the business just a bit before they happen. We think we were a bit ahead of the curve in seeing the ebook acceleration and in seeing the likely pressure on bookstore shelf space. Today it would seem that the next great pressure point in publishing houses is going to be the sales departments. In the next couple of years they will probably change more than they have in the last half-century.

When I first became aware of how the publishing business worked in the 1960s, the field reps (referred to frequently then as “the men”) were the key connection between the publishers and the market. The closest thing there were to national chains in the early 1960s were department store buying groups who seemed to all be clustered in tiny little offices on 42nd Street in the block just west of 5th Avenue. The local department stores — Marshall Fields in Chicago, Rich’s in Atlanta, Halle Brothers in Cleveland, were big and important accounts.

Because the reps were the key to getting books into the hands of readers, everything revolved around passing information and excitement to them and through them. Thus were publishing “seasons” necessary to group the books, organize them into catalogs, and to prepare sales materials (tip sheets, jackets, blads for illustrated books) in an orderly way. This pretty much required that publishing lists be frozen some weeks before the sales conferences which themselves were a couple of months before the first books on the list would ship.

Today the field reps are probably responsible for anywhere from 5-to-15 percent of a house’s sales. The major accounts: Amazon, Baker & Taylor, Barnes & Noble, Borders, and Ingram for everybody (and the mass merchants like Costco, Target, and Wal-mart for the biggest players) are now at least 70% of the business, often more. These customers are almost always covered by national account staffs, not by field reps.

National account sales almost never work with catalogs or seasons; they work by months. Each national account has its own rules and regulations governing when they need to know about a particular month’s books. Whether sales calls occur monthly or less frequently, the structure of the presentation is around each month’s deliveries, not around seasonal catalogs.

It seems transparent that the shift in sales resources has not kept pace with the shift in sales channels. The ratio of national account business versus field business has gone from what was probably about 50-50 20 years ago to 80-20 now. But field forces haven’t shrunk by anything like that proportion. The fact that 80% of the business is now season- and catalog-free hasn’t changed the procedure in most houses of building marketing around seasons and catalogs.

I checked in with a couple of veteran salespeople to confirm my notion that the structure of publishers’ sales organizations hasn’t changed as much as the structure of the account base. One of them made a couple of important points. He posited that field sales force reductions had been slow to happen because the field reps are highly visible in the industry. Outspoken independent stores, which have a public profile larger than their sales, want to be called on and complain if they’re not. Publishers in the houses who are fighting for attention for their books don’t like to see fewer reps selling more and more titles.

This same sales veteran also underscored that both marketing and publicity are living in a similarly restructured world and haven’t changed as much as they should either. He points out that Amazon coverage really calls for marketing talent and thinking, not sales talent and thinking. Sales, as this person sees it, is often about talking an account into taking a chance on stocking a book. Amazon works by algorithms and you can’t talk them into anything. (Furthermore, it doesn’t really cost you any sales if Amazon is out of stock; they’ll source the book from a wholesaler to satisfy the customer. If you’re not on the bookstore shelf, on the other hand, you aren’t going to make a sale.) So the Amazon coverage needs to be about keywords, marketing programs, and metadata. It isn’t about salesmanship, as it is in an independent account, or about navigating a complex supply chain, as it is at a chain or mass merchant.

Experiments have been tried. Ten years ago, Random House tried putting reps into the field specifically to call on the branches of bookstore chains. That has always seemed like a good idea to me: store managers and clerks affect sales; being faced out affects sales; and there’s a lot of display opportunity that is locally controlled. Only a rep calling on a chain branch can affect those things and good merchandising of the books in the store will mean fewer returns. Different chain managements (and some chains have changed their managements the way some people change their shoes) have different attitudes about those calls. Very few actually see the benefit and encourage it. Some quietly discourage it; some try to forbid it. Whether or not Random House continued that effort, it certainly didn’t become widespread.

But as independent bookstores continue to diminish in size and number, publishers need to come up with other things for reps to do to keep them in the field. Calling on chain stores would be one productive thing. Calling on local newspapers to push books or calling on special market (non-bookstore) accounts would be two others. We know of one major publisher that was trying things like that three or four years ago but it apparently didn’t work for them. That same publisher fired a bunch of reps a couple of years ago and shifted a lot of sales coverage to telemarketers.

Catalogs are slowly moving to electronic. Harper started the movement with their own initiative a couple of years ago; now Edelweiss from Above the Treeline is providing an industry solution. But seasonal list planning is still the predominant go-to-market mechanism in our industry.

I just don’t believe the status quo can hold a lot longer. Selling by seasons in the digital age is nutty. Preparing printed catalogs that are out of date before the ink on them dries in the digital age is nutty. And making the entire publishing house’s marketing staff work around sales conferences and list preparation when most of its customers don’t buy that way is beyond nutty. There needs to be a complete re-think of how publishers put books into the marketplace. The divisions of responsibility among national account reps, field reps, telesales reps, marketers, and publicists need to be rethought.

With a new step-increment drop in print book sales almost certain following what we all expect to be an ereader Christmas (and our new biggest sales day: December 25), I think we can expect some very hard thinking around this subject at many publishing houses in the first six months of 2011.

I belatedly realized that this was a very important topic that hadn’t been covered at Digital Book World. It is now. We have a great panel: Rich Freese of National Book Network, Alison Lazarus of Macmillan, and Michael Selleck of Simon & Schuster will discuss the changing role of the publishers’ sales department on a panel moderated by David Wilk, a veteran of trade book sales and distribution. I consider this a prime example of what I’ve tried to make DBW’s distinguishing proposition: discussion of business challenges caused by technology even if the topic itself isn’t primarily about technology.

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