Publishing

An aphorism that I picked up years ago that crosses my mind frequently in my professional life is that “a six-foot tall man drowns walking across a river that’s an average of three feet deep.”

The point is that aggregates and averages might mask important truths.

I thought of this when I read the news from the Forrester study of ebook take-up announced earlier this week. NB: Forrester is in partnership with my colleagues at Digital Book World and will present data — although not on this ebook study, but on another project — at the DBW conference in January. I haven’t been involved in those discussions and, like most of the readers of this blog, only know about the ebook study what I read in the releases and commentary.

Kat Meyer on O’Reilly Radar expressed her doubts about the Forrester data, and data just announced by Bain Consultants in France. Kat’s concerns go to methodology. Although I don’t know if we’re in a position to evaluate the methodology because I’m not aware that much has been revealed about it, I’d say her point is well-taken but it isn’t what really concerns me.

(My own first take on the headline numbers is 1) $1 billion in ebook sales now? If this trade only  – and there are some indications enumerated below that it might not be — then it is out of $15 billion which seems reasonable. If the number includes non-trade, which is $30 billion, then it is shocking for being low, not high.  2) Forecasting growth to $3 billion by 2015 from either base seems very conservative and the reduction in the growth rate over the next five years over what it has been the last two years is the story. I don’t think I’ve seen any accounts of the report that have characterized it that way. Being alone with this analysis makes me wonder whether I am missing something and don’t know enough to comment yet. That’s why this paragraph is in parentheses. It makes me feel better.)

The Forrester presentation of an industry study is one of several rooted in serious research that we’re planning for the conference. Last year we had reports from Verso Media about book readers, tracking their switch from print to electronic. Guy Gonzalez and his Digital Book World team have taken over that study and will update it for us with Verso. We also had a presentation last year from Bowker and BISG, who were just starting their study of ebook readers. They have done four fieldings since and will also be able to give us an update.

In both these cases, as long as the methodology of the studies has remained consistent, we’ll get important trending information, whether or not the precise percentages reported for various behaviors are accurate or not.

We got an opportunity to do another study when the team at iModerate, which has an online “chat” methodology to personalize research, volunteered to demonstrate what they do for our audience. We got to choose the topic and we decided to study the ereading habits on portable multi-function devices (smartphones and tablets). We chose that topic for two reasons: it is a new and rapidly-growing group of ebook readers and the color touchscreens and connectivity of the devices makes enhanced ebooks that might be hobbled on the Kindle or first-generation Nook fully accessible.

We will also debut work Bowker has done on the children’s book market supported by several publishers and organized with the Association of Booksellers for Children.

The headlines from the Forrester reporting were that ebook sales are approaching $1 billion and they expect that number to triple in five years. Also eye-catching was the fact that, three years into the Kindle era and more than six months after the iPad introduction, more ebooks are read on full-function personal computers than any other way. I say that was eye-catching; it goes to the heart of my concern about the data. It’s about the six-foot tall man.

It is my strong hunch that the content that is read on PCs is qualitatively different than what is read on portable and mobile devices. I am fully aware of the dangers of generalizing from one’s own experience, but I have never met a person who reads trade books on a PC. I know people who read on Kindles, Nooks, smartphones, and iPads. I am aware from having talked to people in the romance ebook business that people in offices reputedly read romances on their office machines (at lunch, of course).

But my intuition tells me that big chunks of that PC reading is professional and informational, not recreational and that this is where PDF sales are most likely. If 30+% of ebook readers consume content on regular computers, I’ll bet the percentages for O’Reilly’s Safari (whether reading a chunk of an ebook from that service is counted here is a good methodology question, but my intuition about interpreting the device data tells me it must be) are much higher.

So ebook reading is the river that’s an average of three feet deep. But it is only a foot or two deep near the shore (where the trade ebooks are read) and it is 15 feet deep in the middle (where the professional ebooks are read.) And the important point is that publishers who do one or the other are not usefully enlightened by data that puts those two distinctly different markets and environments together as if they were one.

This is not to suggest that nothing can be learned from Forrester’s research nor that any other study has a firm grip on this granularity. I asked a data-driven colleague who’s done a bunch of work in this area whether he shared my hunch about who’s reading those PDFs on PCs. He went into his files and ultimately agreed that the market parsing I was looking for was not evident in the extensive research he had done.

Obviously, there are people who know this. Amazon and B&N and Kobo know what devices the books they sell are read on. O’Reilly knows what devices the books they sell and the ones used in their Safari library are read on. When I interviewed the publisher of Ellora’s Cave at Digital Book World last year, she was quite conscious of the fact that many of her books were still sold as PDFs, implying a computer reader. The fact that this data has not been made ubiquitously available and parsed suggests that it is seen as having proprietary value by the people who possess it.

Trying to understand a strand of the market that might be distinct was behind our thinking when we decided to have iModerate focus on portable multi-function devices. We figured that those readers might use and value enriched ebook features more than Kindle or Nook readers and we also see them as the market segment of ebook readers likely to grow fastest. So understanding that market segment in some more detail might help publishers lead the target a bit on product development.

We have written many times before that the book business is not one business. The professional ebooks read on a laptop by a programmer in the middle of an assignment don’t tell you much about what format you should publish a romance novel in. The big change in the ebook world that hasn’t really happened yet but will in the next couple of years is greater adaptation and consumption of illustrated books in digital form. Anything heavily illustrated now pretty much has to be delivered as PDF to a laptop; that won’t be true anymore at the outer edge of the current forecast window, which is 2015.

On the day I’m writing this, new ebook sales data was announced and Cader analyzed it in a post that is behind his paywall. He calculated that ebook sales comprise 9.5% of adult trade sales but only 1.7% of children’s. That’s really charting the river bottom in a useful way.

So we’d say give us data, let us try to understand its limitations and gain insight from it at the same time, and let’s remember that the world of digital change in publishing is simultaneously dynamic and diverse and that no single body of data is likely to give us the answers to what we should do next or what we should expect in the years to come.

It is precisely because data needs to be interpreted that we set the Verso-DBW, BISG-Bowker, and iModerate sessions at Digital Book World back-to-back-to-back and will follow their presentations with a panel discussion meant to shine some light on what we can conclude from what they say.

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People of a certain age — mine — probably first encountered the world of rights as a content consumer with pop music in the 1960s. British albums, which came in sleeves that were flimsier cardboard than American album sleeves, routinely had 15 songs. American albums had 12. And the British would put songs out as singles that didn’t make their way into albums more often than Americans did.

So we teenage afficionados of the Beatles and the Rolling Stones, of which there were many in my time, learned pretty quickly that there wasn’t a one-to-one relationship between the music available to the Brits and what was available to us. Their Rubber Soul and Help albums had more songs than our Rubber Soul and Help albums. Beatles for Sale was a British album which never came out over here. We had Something New pulling together songs that they had released as singles or on other albums.

It’s damn near 50 years later, but rights are still getting in my way in a different medium: sports. Even though the technology would make it very easy to make it available, I couldn’t watch the football games the Giants played while I was in Europe for Frankfurt. There would be money in this, of course. I’d pay and so would lots of others. But the deals haven’t been struck. Undoubtedly larger deals (some NFL games are televised in Europe and I’m sure those rights acquirers are happier if I can’t pull in the game I want on my computer) get in the way of this smaller one.

In the past several months, readers of this blog from around the world have commented on the unavailability of ebook titles in their territories even though publishers would have the right to sell them. As near as we can tell, this problem often tracks back to big publishers that have gone to agency pricing. (That’s where the publisher sets the price to the end consumer and becomes the seller-of-record rather than the retailer intermediary being the seller.) It would appear that many (if not all) agency publishers have withheld their titles in territories outside the United States, even if they would have the rights to sell in those territories.

That particular cause of the problem of unavailability is probably temporary. In fact, some publishers are just now announcing the availability of agency books in Australia. The agency model was a complicated challenge taken up in great haste by the US publishers to meet the hard deadline imposed by iPad’s introduction into the market and Apple’s iBookstore opening to serve it. Non-US consumers weren’t the only ones to suffer. It is now more than six months since agency began, and one large domestic independent ebook retailer, Diesel Ebooks, just blogged about how few retailers had, six months out, been able to secure the titles from all five of those publishers. The publishers are finding that the need to do lawyered-up deals with each particular point of transaction for their books is no trivial barrier to distribution. But it isn’t a permanent one; the deals get made eventually.

Here’s another complication I learned about this week. Amazon.co.uk, the British arm, sells only in the UK. It is Amazon.com, the US site, that sells globally. So if the rights to, let’s say Switzerland, are owned by the UK publisher, that publisher would have to have the ebook available through the US branch of Amazon or it wouldn’t be available to the Amazon customer in Switzerland!

This piece of information comes to me because of a discussion last week on the Brantley list triggered by the launch of a website by agent Jane Litte attempting to track lost sales. The site simply asks readers who wanted to buy a book (print or digital) and either couldn’t or didn’t why they didn’t.

One publisher on the list immediately looked up the complaints against his house, which the web site makes very easy to do. Among the first books he saw was one where his company had US rights only. The complaint was from a person who couldn’t get the book in a territory controlled by the UK publisher. Yet the US publisher was listed as the “culprit” failing to make the book available.

A long series of comments failed to get to the bottom of the problem. For one thing, we didn’t know whether the unavailability complaint applied to print or digital (which resulted in an improvement to the site that will enable the complainant to make that clear in the future.) But then we also don’t know how hard or efficiently the complainant looked for the book.

In other words, the site does the job of aggregating complaints about book unavailability, but does not adequately curate them. And it turns out that not all the “lost book sales” were due to unavailability; some were simply due to the consumer wanting a lower price. That is, perhaps, useful information but it is of an entirely different sort.

(Quite aside from the point to this post, every publisher should be harvesting and analyzing data from Jane’s site as, I’m sure, Amazon, Barnes & Noble, Kobo, and The Book Depository will! If you accept the responsibility seriously for being in touch with the people who read your books or are interested in them, you will want all the data points you can get and if this site gets a lot of traffic, it will provide unique data. “Harvesting and analyzing” does not mean “over-reacting”, by the way.)

It is clear — from this site’s data but even more from the complaints in comments on this blog and Cader’s reporting on Publishers Lunch — that ebook availability is frequently being blocked by rights controls. It has seemed to many of us that having a single global publisher would make that problem go away.

But that solution offers little comfort since global publishers are or were (at least temporarily) blocking sales from happening in territories where they actually have rights, because they hadn’t worked out all the logistics of agency selling in all territories yet.

The failure of availability of ebooks due to territorial restrictions is, to many, confirmation that the time-developed system of rights allocation, compounded by DRM in the digital world, is simply broken. This is another point of conflict between people whose highest value is ubiquitous availability of content (some without regard to the content consumer’s ability or willingness to pay) and those who value even more the right of the content creator or owner to maximize the revenue from that content’s use.

Just about the first rule any agent or publisher engaged in rights dealing learns is “acquire rights broadly, license rights narrowly.” Any agent who is a competent professional holds back any rights they can in any deal they make. And most agents trying to maximize an author’s English-language revenue starts with the assumption that they accomplish that by making separate deals in New York and London. Those deals are still primarily about print books. Ebook rights and various other territories, like Europe, are still pawns in the bigger game.

I am one who believes that digital change will lead us to a world where there is one global publisher for most books depending on a network of alliances to execute some aspects of marketing and to maximize distribution everywhere. But I also think our wait for that change to be widespread is going to be a long one; it is many years away. In the meantime, consumers of books will find — as music consumers did in the 60s and sports fans still do today — that what appear to be nonsensical barriers block them from purchasing and consuming content that technology could easily deliver to them and for which they’d be happy to pay a fair price.

But the barriers placed by rights to digital distribution are far less onerous than the barriers placed by practical realities have been to physical distribution. And they’ll come down faster. The agents who carve up the rights to maximize the author’s financial return (and their own) will be thinking about the implications of consumers blocked from purchasing them and one wouldn’t be surprised to see future deals require publishers to make ebooks available in all the territories for which they demand ebook rights. They will have author clients bugging them to do that. Unfortunately, nobody playing football for the New York Giants cares whether I can watch them in Frankfurt or not.

On another topic, but my favorite topic, I have come across this post by Andrew Davies, the MD of a tech company called Idio in the UK. I had the pleasure of meeting Andrew for an hour’s chat in London last month. But I call your attention to his post because it states the case I’ve been trying to make for years – that publishers need to get into community leadership while they can because the business of selling content must inevitably decline — incredibly succinctly and eloquently. I don’t know enough about Idio’s technology to recommend it, but I can sure recommend this piece as an example of clear and cogent thinking about the future today’s publishers face.

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This post will discuss a realization I had even before this morning’s news about the developing e-products scene. I’ve always been a skeptic about enhanced ebooks, based on seeing my hunch that they wouldn’t work come true 15 years ago with CD-Roms. But it is increasingly obvious that CD-Rom type thinking will work very well for kids’ books. In fact, I’m beginning to think that enhanced ebook or app-type delivery could overwhelm books as a container-of-choice in a pretty short time. Single digit years.

The reasons that I’m skeptical about enhanced (or enriched, a recent term I’ve heard that might be better) ebooks is because most adult books are written as narrative reading experiences not intended to be interrupted and now being read by people who value the immersive experience. (Not all. But most of the kind we think of as bestsellers or literature.) My guess is that it is going to be hard to shift many of the hours of consumption now devoted to immersive reading to something quite different. And I see that as a qualitatively different challenge than moving immersive reading itself from one delivery mechanism (paper) to another (screens.)

The reason that kids’ material didn’t survive the CD-Rom period 15 years ago was the complexity of the delivery mechanism. You had to be at a computer, which usually meant a desktop computer. You had to load the CD-Rom, which on most computers (because few then were Macs) required additional navigation before they would play. These products just weren’t really accessible to kids, even if the programming they contained was designed for them.

But those reservations just don’t hold for kids’ “books” (if that’s what you call them) migrated to the iPad, a smartphone or, now, the NOOKcolor (which, I think, is how its owners would like us to spell it.)

The degree to which you can immerse yourself in a book is directly proportional to the fluency with which you read. That means that the younger you are, the more likely you are to accept the interrupted reading experience .

And as the devices get cheaper and more ubiquitous, parents and kids will learn fast how entertaining, instructive, and accessible interactive experiences can be.

I started writing this post over the weekend because we knew about several entrepreneurial ventures that were focused on developing kids’ material in this way. Then this morning’s Publishers Lunch told us the story of the developments at Callaway, which only underscore that some serious money is betting on this direction.

In short, I have come to the point of view that the juvie book business is going to migrate to enhanced digital products much faster than adult narrative text and that, as a result, the origination and publishing for the various kids’ book marketplaces will be increasingly the province of new companies and less and less the business of book publishers.

The Callaway Digital Arts story as Publishers Lunch reported it today is stunning. Not only did they secure $6 million in financing led by Kleiner Perkins Caufield & Byers’s iFund, they have won a $30 million “Ready to Learn” grant from the Department of Education. With this wind at their backs, Callaway says they plan to be producing 150 apps a year by two years from now. They’re being seen by Apple as a “strategic partner” helping the iPad to “transform education.”

While the Callaway start-up is the most dramatic, they’re hardly alone in focusing on the market for enhanced kids’ content built on books .

Oceanhouse Media is building what seems like a comparable business a completely different way. Rather than going to investors for capital, Oceanhouse managed to self-capitalize by building a network of developers willing to work for a piece of the projects they are developing. They’ve got deals with Hay House (that’s not for kids, primarily), their neighbors in San Diego. And they’ve secured rights to Dr. Seuss and Berenstain Bears. In a conversation with them, it sounded like they’d be delivering new products at the rate Callaway projects even sooner than two years from now.

Trilogy Studios has partners who have run game studios at Electronic Arts, Fox Interactive and Vivendi Universal Games and recently launched their most successful children’s product to date, a casual MMO (that’s a “Massive Multiplayer Online” game) based on a very successful animated feature film. They’ve expanded their portfolio to include interactive storybooks and social games and hired publishing veteran Marc Jaffe (recently of Rodale) to secure rights to some of the most recognizable entertainment and publishing brands for further digital development.

Rick Richter, recently the head of children’s publishing at Simon & Schuster, has his own new entrant in the field called Ruckus Media Group. They’re doing Apple and Android apps, have acquired rights to the Rabbit Ears Library (children’s classics read by celebrities) and are signing authors for original content.

Smashing Ideas is a website, game, and app studio that has been in business for 14 years. They’ve worked with youth-focused brands like Hasbro, Nickelodeon, and Disney for many years. Now they have a deal to develop projects with Random House and they’re also going to town on public domain books with apps out or coming soon for War of the Worlds, The Jungle Book, and The Wizard of Oz. This shouldn’t be a big surprise because Ben Roberts, who now leads their ebook division, helped create Alice for the iPad.

All of this investment and all of this development must be seeing the same thing I’m seeing. Kids are going to be a big market for this kind of product. Straight narrative reading can be immersive to the extent that the act of reading itself is easy and effortless. You can’t lose yourself in the story if you’re looking up words or frequently re-reading sentences to get the meaning.

That means it is a lot harder for a younger person to get immersed in just words on paper. That’s why kids’ books offer so much more than that: pictures, of course, but also pop-ups and various other entertaining three-dimensional devices, to the extent they can be delivered in something which is fundamentally bound paper.

You could say kids have been getting “enhanced books” forever!

The new devices have much better capabilities than CD-Roms did to engage in ways other than with words — ways which those of us who love immersive reading might find distracting or annoying but which kids love. Intuitive touchscreen navigation, a relatively recent development, makes it even easier to engage and interact with an active mind that hasn’t yet learned enough language to work comfortably with written cues.

I don’t live in a child-centric atmosphere, but I’ve been aware for the past couple of years that parents who thought their kids were too young for the connectivity expense of an iPhone would buy them an iPod Touch, which does what an iPhone does except make and receive calls (and, therefore, has no monthly connection fee associated with it.) A friend of mine who is pretty determinedly “old media” was recently asking me what I thought about a Touch for his 7-year old, who wanted to keep up with his friends by having one. These kids aren’t using Google for their homework; they’re playing games that are the leading edge of the new kids’ book business.

The iPad drew these new players into the explicit business of making enhanced ebooks of kids’ books. The NOOKcolor only adds fuel to the fire.

And because the NOOKcolor is half the price or less of an iPad, parents will be more relaxed about having their kids playing with it.

There is anecdotal testimony that kids can become more interested in a paper book after they’ve been exposed to the character and story through an enhanced ebook or app. We’re finding that out because the enhanced ebooks being made today are starting out from books that already exist. This is a totally sensible way into the business. Why add to the creative challenge by starting from scratch when there is a wealth of established brands and characters to license? And as the first great success in this enhanced kids genre, Alice for the iPad, demonstrated and Smashing Ideas has picked up, even the requirement of licensing can be sidestepped by using a public domain text as its basis.

The guess from here is that publishers — or whoever owns the rights — will have a nice business for a while licensing books and characters to enhanced ebook developers called “digital studios” who will make very successful products. In time — and not too much time — those studios will become the originators of the new characters and franchises and the book will become the “subsidiary right.” How soon? Not long. Three to five years?

Any publisher that wants to be serving the kids’ market in the middle of this decade better buy one of those studios, or start one.

This idea jumped into my head about a month ago; it had to get past my prejudice against annoying interruptions which is how I view most enhanced ebooks meant for grown-ups. So of course, we started to put together a panel on the subject for the Digital Book World Conference immediately. That got me talking to a lot of these companies. We haven’t made the final call on which three or four will be discussing what they’re up to at the show on January 25-26, but it will certainly be a conversation about juvie publishing’s near-term future.

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In a conversation earlier this week I learned that the big Hollywood talent agencies have come to the recognition that “audience aggregation”, a component of what I have been calling a “vertical” strategy, needs to be incorporated into their thinking going forward. This was signaled very strongly recently when longtime publisher Steve Ross took his fledgling business offering self-publishing advice to authors with him to the Abrams Artists Agency where he set up a new department for them to represent authors rights to publishers.

What does that mean? It means that the celebrities will start increasingly try to “own” their audiences: to gather them in networks, bind them with various content offers like newsletters or other material from the person they “know”, and sell them stuff. The people managing the careers of movie stars are seeing the writing on the wall. The intermediary structure that connected the stars to their public — studios, producers, theatrical distribution — is suffering the pain of all media: declining prices for content because of the increase in supply and consumption habits changing because of more and more quality screens and digital delivery.

Many authors, of course, are trying to do the same thing. They have web pages; they collect the names of those who want to keep in touch with them; and they are, increasingly, selling them stuff. Sometimes the stuff is content (with a way blazed by Joe Konrath and his successful conversion from published author to self-publishing author, so far almost exclusively through Amazon) and now, thanks to Open Sky, they could be selling anything at all.

So the authors and the movie stars are getting ready for the day when they have to bring real live customer contact to the party if they want to be invited. But the big publishers are lagging behind here. Why? One reason is that the big accounts appear to have intimidated them from selling direct to consumers.

This is the kind of thing you don’t know for sure from the outside. Conversations between publishers and their top accounts, like conversations between publishers and the agents for their top authors, are private and closely guarded. But it has been anecdotally reported in the past that Barnes & Noble is not happy if publishers sell to consumers. And I’ve also heard that Amazon has told publishers that if they charge any price lower than the suggested retail in a direct sale, Amazon will consider that lower price to be the basis of their discounts, not the suggested retail.

That threat effectively prevents any publisher from selling direct unless they operate on the agency model and have eliminated price competition in the marketplace. (Of course, under the agency model, all sales are considered sales by the publisher, except, of course, that they don’t have the names or the customer relationship!)

In a business that is built on the leverage of intermediary trading partners who aggregate customers, which trade publishing is, very few are in a position to gratuitously annoy the two most powerful levers they have.

So the publishers have been reluctant to be seen to be selling direct. This concern also applies, for the same reason, to the wholesalers Ingram and Baker & Taylor. Both depend on bookstore business for their survival and it is, perhaps, an enlightened position not to compete with their core customers so neither company sells directly. But it is very constraining. Baker & Taylor really needs a full-line store to sell their BLIO ebook platform, but they can’t do it themselves. And Ingram — our client but we have not discussed this question with them at all — serves publisher clients as a DAD and as an ebook wholesaler who could use a retailing capability; but it is a very longstanding Ingram policy not to compete with their bookseller customers.

That’s the context in which LibreDigital announced their new SkyShelf service last week. SkyShelf is a direct-to-consumer ebook sales capability for the publishers LibreDigital serves as a digital distributor, but it gives them a certain amount of “deniability” or distance from it.

In my opinion, the big publishers must face some very critical questions fraught with customer relationship management challenges.

On the one hand, publishers — all publishers — must start forming direct relationships with end users. They have no choice. Authors are doing it. The retailers are doing it. The Hollywood stars and politicians and ballplayers they want to write books for them are doing it. Part of what the publisher wants to get paid for is marketing. When the most important marketing asset for any book is the number of likely-interested people who can be emailed about its publication, publishers without any names to offer will have a harder time selling their value.

Publishers who do have names on file — from Digital Book World owners F+W Media to Hay House to Harlequin and including others that grow in number every day — are already benefiting. They’re selling more copies expending less marketing money and they’ve got something important to offer authors looking for a publisher.

But it is hard to collect names and build a relationship with an audience if you don’t sell things to them. That’s one place that big publishers are really stuck at the moment. That’s why LibreDigital built SkyShelf to help them out. At the same time they put their competitor Ingram in a ticklish spot because it is hard for them to offer a similar service for the same reason that publishers need the help!

At the same time, the big retailers are pushing their way up the value chain into the publishers’ territory. Amazon has had self-publishing capability that is aimed at authors for a long time. Barnes & Noble invested in iUniverse, one of the first self-publishing start-ups (now part of Author Solutions), over a decade ago. Now B&N has delivered a suite of services called “PubIt” to compete with Amazon’s offering for authors.

Amazon has such a large share of the online print and ebook businesses that, with the publisher disintermediated and the author able to take a much larger share, they can credibly make the argument that a branded author — or one that otherwise does her own promotion and marketing — can make as much money through them alone as through a publisher serving the entire market.

It is more difficult and expensive for Barnes & Noble to leverage their store shelves for self-published authors but, to the extent they can, it will be a very attractive lure. I’d be very surprised if they’re not thinking about how to do that. Borders did a deal with self-publisher Lulu a couple of years and a couple of management changes ago. How long will it be before they revitalize that arrangement and add more competition for the authors’ attention?

The names of people potentially interested in a book who can be contacted for free will be the most important coin of the publishing realm in a short time; in some cases, it is already. There are publishers who are emailing to millions of names every month right now, but none of them are the biggest publishers. If gathering names is not a major priority at any publishing house, it surely should be. It’s mission-critical; it’s about survival. Seen in that light, it must certainly be worth some tough negotiating with major accounts if that’s what publishers have to do to make it happen.

This post was provoked by new information, about what the Hollywood agents are doing and about the launch of SkyShelf. But we’ve been pounding this drum of direct contact for some time. We did a pair of posts (here and here) with the help of direct response expert Neal Goff a few weeks ago trying to push publishers in this same direction. Those posts were about how. This one is about why.

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Amazon announced on Friday that the Kindle will make a “lending” feature available, allowing “owners” of a Kindle file to enable somebody else to read the book or magazine or newspaper for 14 days. Each purchaser of each ebook will be allowed to make only one such loan one time. They will not have access to the file themselves during the time it is “on loan.”

When Barnes & Noble announced exactly the same feature with the same limitations for their ereader about a year ago, in advance of the Nook’s arrival, many ridiculed the limitations. Among those who thought the offering was laughable was Jeff Bezos of Amazon.

I think this decision by Amazon makes some key points.

1. Whatever we call it, the “purchase” of an ebook is not a purchase in the way we buy a print book or a light bulb or a box of chocolates. It is a “license” more akin to what we buy when we purchase software online.

2. The corollary to the first point is to reinforce, once again, that publishing is a rights business and that all the thinking publishers do about commercial reality needs to take that point into account.

3. It is more difficult to introduce innovation successfully from a secondary market position. In this case, that’s true for two important reasons.

4. Behavior that has its analog in the non-connected world we used to live in will have entirely different applications with the capabilities that exist in a connected world.

Buying an ebook is a license, not a purchase

There has been high dudgeon in parts of the digerati world over the fact that people don’t “own” their ebooks the way they own print books. This often takes the form of opposition to DRM and pleas for open and standard formats that will allow anybody who acquires an ebook to treat it the way they treat a print book (sharing and lending and re-selling) with the exception, of course, that the person making the original purchase gets to do all these things without giving up possession of the item they bought.

That’s a pretty substantial exception.

Many publishers and many authors have seen allowing just about the same first use rights as ultimately untenable, although there are major exceptions concerning the application of DRM. O’Reilly Media and the new Harlequin imprint, Carina Press, for example, offer all their books DRM-free. They believe, and they are not alone, that enabling some open sharing induces far more sales than it cannibalizes.

Neither of these publishers put software barriers up to prevent behavior that would be commercially damaging, but you can bet if a marketplace developed for the files they sold for an individual user, they would find ways to at least attempt to prevent it. I asked, and Carina has told me explicitly that they still insist on protecting copyright, even though they don’t do so with software barriers.

We’re vending rights

The fact that publishers in the ebook realm are actually vending rights rather than making an outright sale has enormous implications. It means that the relationship with the end user is never done, quite a change from the 20th century paradigm where the end user is never even known! (Of course, publishers’ end users are often not known now because the retailers don’t share that information, but over time, despite some enormous complications because of regulations and entrenched positions, I still believe that is bound to change.)

Publishers run up against the rights question all the time. Enthusiasts for the emerging practice of “social reading”, which is built on the sharing of annotations of various readers, may not be thinking through all of the rights implications. If I write a book advocating gun control, for example, do I have the right to insist that my work not be “sold” with annotations by a member of the NRA taking issue with everything I write? Or, turning the question around, am I happy to have my account of the 1963 World Series turned into a more robust piece of IP with thoughts added by three old sportswriters, assuming I got a royalty on the new product they create?

Agents and authors are going to have to get into this to decide what works for them and what doesn’t. And, no doubt, they will come to a variety of different opinions, which will mean that different books will come with different rights offers. This increases the complexity of managing rights metadata across the supply chain and beyond the supply chain to the consumption chain.

Kindle’s move will increase the uptake for lending on the Nook, but will introduce some competitive disadvantage

The “lending” question was a pretty easy one for publishers to ignore when only B&N offered it. It could require going back to the agent in some cases and, in any case, it seemed to offer no real competitive advantage for any particular book title. I am told (I don’t have a Nook so I’m not sure there is any way for me to check) that B&N had something over 100,000 titles available for sharing, but they offer over a million titles on their site.

Now Amazon will bring their muscle to bear — the same muscle that enabled them to deliver more than twice as many titles on Kindle as had been available on Palm and an even higher multiple of what had been available on Sony when they introduced the Kindle device — to get publishers to agree to license the lending. And publishers will see no reason to discriminate against B&N in this case, so Kindle’s efforts will result in Nook having far more titles available for lending in a pretty short time.

An ebook market share for Kindle that I’d guess is at minimum between three and six times Nook’s will make publishers more likely to enable sharing. But a universe of device holders that much larger also means the sharing feature has that much more actual value. So Kindle’s participation makes the B&N feature more useful, on the one hand, by putting more books into it but disadvantages it competitively, on the other hand, by the same capability being enabled in an ecosystem with so many more participants. Overall, this isn’t necessarily helpful to the Nook, but I think headlines suggesting it will kill the B&N device like this one are, to say the least, a bit overwrought.

Lending isn’t just between you and your friends anymore!

Googling doesn’t eliminate serendipity! While doing some research for this post I was directed to this post on GoodReads where somebody is organizing around the Nook lending feature to enable sharing among complete strangers. This isn’t surprising but it demonstrates the creation of crowd-sourced infrastructure that converts the replication of the physical ownership experience into something that will systematically, without question, convert paid readers into free readers.

Of course, the current offerings from Kindle and Nook where each purchase can, at most, turn into one free rider, is controlled and manageable. But this demonstration of the ability of people to communicate and collaborate in networks should give some credibility to the notion that absolutely free and unfettered sharing, such as would occur in a world totally without DRM, will result in an acceleration of free-riding (or freeloading) replacing purchases.

I do believe we’re going there in the long run. I’ve said repeatedly that the price of content will be pushed inexorably downward and that over the coming decade or two it will be harder and harder to have a business built on selling content alone. But authors, publishers, and all those profiting by today’s content-selling paradigm need as much time as they can get to convert to completely different models. Some may manage to get there through my notion of “verticals” and garnering and then monetizing eyeballs. Others see a path through enhanced content and social sharing that could lead to different monetization opportunities (and social sharing, of course, is a component of verticalization as well.) But almost nobody is “there” (wherever “there” is) yet, and very few people even have an idea of what a future profitable world looks like.

I have mentioned more than once that I haven’t read a print book in three years. And although there are fewer doubters than I used to have, my expectation that the world of books becomes predominantly screen-based over the next decade still raises a lot of eyebrows. But I want to report that we’ve found a book that can not be replicated on a screen or in any app. It’s a great kids book from Workman called “Beautiful Oops” by Barney Saltzberg. The use of die cuts and foldouts and telescoping paper to change what you first see into someting else just wouldn’t have the same impact in an app. Congratulations to Peter Workman and his team for demonstrating that, sometimes, you can’t do better than you can do with print!

We bought “Beautiful Oops” for our 5-year old niece and I will admit that I read it (16 pages, maybe?) before we sent it off. I will continue to say I haven’t read a print book in three years; I’m admitting here that I’ll claim a short kids’ book doesn’t count. But everybody who read to the end of this particular post will know the truth.

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I had a chance this week to chat with a very smart person who works for a company that does a lot of business with book publishers. Some things articulated themselves in that conversation — one of my favorite collaborators, Mark Bide, has often observed that we “learn a lot by talking” — that seemed worth repeating for public consumption (while preserving the anonymity of my fellow conversationalist.)

What we talked about is the current situation with ebook distribution: agency model, wholesale model, and what is being called the “hybrid” model, but which I would simply call “a mess that won’t be sustained.” (It should be noted that this a pre-Google Editions conversation and analysis; when GE comes it will be disruptive and change many things, but, not knowing if it is coming next week, next month, or next year, this analysis is about where things stand now.)

Our conversation articulated five things worth repeating:

1. The “hybrid” model for ebook distribution, by which some publishers are selling to Apple on agency terms and Amazon on wholesale, is risky and likely won’t last.

2. Amazon is pursuing enlightened self-interest by forcing some publishers to the hybrid model.

3. The iBookstore could be in real trouble, and is going to find it difficult to build a title base that gives it a sustainable retail position.

4. Big publishers are forced into being disingenuous about their strategy, or what should be their strategy: keeping print sales through brick-and-mortar as robust as possible for as long as possible.

5. Amazon is also forced into being disingenuous about its strategy, or what should be its strategy: getting as many readers as they can hooked on the Kindle device because, as things stand, the only easy way to put a book on a Kindle is by buying it from Amazon.

The hybrid model

When Apple opened the iBookstore, they “insisted” on the agency model, in which publishers set the retail price across all accounts and pay a fixed percentage (reported to be 30%) from the “agent” whose web site brokered the sale. This differed from the wholesale model, in which the publisher “sells” the book to the web retailer who then re-sells it at whatever price it likes to the consumer.

Because Amazon has deep pockets and had the first successful ebook reader on the market, they were comfortable deep-discounting major bestsellers below their cost to build market share. (One should note that Amazon always claimed that they made up that margin on other books and always ran their Kindle file sales at a profit. What they told me once, not under NDA, was that 4% of the titles were deep-discounted below cost and they accounted for 25% of the sales. This data was from before iBooks and agency reduced the number of deep-discounted titles.)

When five of the Big Six publishers presented Amazon with their decision to switch to agency, Amazon agreed to the switch (after initially balking, famously pulling Macmillan’s buy buttons very temporarily), but only for the Agency Five. All other publishers had to remain on wholesale terms, allowing them to continue discounting.

A few publishers have responded by trying to execute on both models. This requires some pretty fancy gyrations, because the price the publisher establishes for an agency book (which is what the public will be required to pay) is considerably less — half or less than half — of the price a publisher establishes to base their discount if they’re selling wholesale. So a $30 print book might become a $30 retail price ebook for wholesale, with the store paying $15 and perhaps charging $9.99. That same book would have a $12.99 or $14.99 retail price in agency, with the publisher getting 70% of that (or about $9.09 or $10.49.) But that’s not what makes the model unsustainable.

The agency deal with Apple reportedly (I have never seen a contract) allows Apple to meet any price somebody else charges on the web. So if Amazon really does sell the book above for $9.99, and Apple matched it, they’d only owe the publisher $6.99! How long do you think Amazon would sit still for paying more than twice as much as a competitor matching their price? How long would you sit still for that?

I checked with one hybrid model publisher who had not faced this problem yet in any unmanageable way. Apple does let them know about books on which price adjustments are required, but so far the number of them has been very small and there have been no major bestsellers that would be very disruptive. But that publisher, and any other trying to execute on both models, must feel very vulnerable and, in a way, dread the runaway bestseller that could start a spiral of price-cutting.

Amazon’s self-interest

Amazon’s objective here is to discourage publishers from putting their books into the Apple store. In this, they appear to be having success. The iBooks store has become the mall store of ebook retailing: they have most of the bestsellers (not all, because they don’t have Random House) and not much else. Meanwhile, Amazon and Barnes & Noble (and Kobo, despite some bad press about their dealings with small publishers) are building larger and larger title selections. With price parity at the very least and a much larger title selection, and the fact that anybody who might use iBooks (an iPad or iPhone book reader) can just as easily buy their ebooks from any of the three other big resellers, Amazon’s tough stance is making many smaller or medium-sized publishers question whether they need to be in the Apple store.

What happens to iBooks?

It is hard for me to see much future for iBooks unless they soften their stance about buying only on agency or, even less likely, unless Amazon softens its stance about taking books from publishers smaller than the Agency Five only on wholesale terms. The gap between what they have to sell and what the other major retailers have will continue to grow. All three of the others (and Copia, for that matter, when they go live) can be read on many devices. Purchases from iBooks can only be read on an iPad or iPhone. Over time, the only reason I can think of for somebody to buy at iBooks would be to get the two-page spread reader capability on their iPad. If there is any other proposition that would attract a purchaser, I don’t know what it is.

Furthermore, Apple has not devoted nearly the resources that its competitors have to publisher contact to get more books. They have fewer people and less interaction with publishers. It’s as if they don’t really care if iBooks lives or dies. And maybe they don’t, since anybody who has one of their devices can read books to their heart’s content from Amazon, B&N, or Kobo on their Apple hardware.

What publishers can’t, or won’t, say

I have written and said many times, going back to 2007 and before, that big general trade publishers depend on a bookstore network for their survival. Their core proposition is “we put books on shelves”; that’s what requires the scale and expertise that they have and that nobody else can compete against. When retail shelf space goes away, there’s little a big publisher can do that can’t be duplicated by anybody with the cash to put together an ad hoc team of freelancers and graft them to some service providers.

But as the response to my “why are you for killing bookstores” post some months ago made clear, “defending the old model” is a very unpopular position that mainly just opens up an advocate to ridicule. No big publisher will say that it is their strategy to restrain ebook uptake to save print at brick-and-mortar, but they’d be pretty dumb not to be thinking it.

What Amazon can’t, or won’t, say

But if Amazon likes to ridicule publishers for price-setting without expertise (which they’re doing in an attempt to keep ebook prices up and restrain the movement from print to digital), they also don’t talk about their core strategy: converting as many readers as possible to the Kindle device. While you can buy from anybody if you read on an iPad, as a practical matter you can only buy from Amazon if you read on a Kindle. Every Kindle convert is a lost customer to every other retailer and etailer.

So while publishers say anything but “we need to slow down the switch to digital” when they talk about “maintaining the perception of value” or “the costs we incur for ebooks” as justification for their agency and pricing policies, Amazon is similarly disingenuous when they talk about pricing their Kindle editions. “Offering great value to the consumers” and “pricing according to scientific algorithms” are much more palatable explanations than “we’re trying to own as much of the market going forward as we can”.

I have a friend in one of the big houses who just analyzes the business and thinks about strategy all day long, one of the few jobs in a publishing house that I could possibly even do! He’s very smart. He tells me that he’s not persuaded that pricing ebooks higher deters people from switching over from print. I can believe that he sees that in the data, but I can’t believe that is true regardless of the price differential. Keeping ebook prices up is also about preserving revenue as the market shifts to digital, but from here the hunch is that it is also, perhaps only in a very small way, keeping some people with print longer than they would if the price attraction to switching were stronger.

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A dispute broke out on Brantley’s list this morning and I’m in a distinct minority. Maybe a minority of only a bit more than one.

The brouhaha started with observations about ebook pricing, with some very disdainful remarks about Agency pricing in principle and the big publishers’ execution of it in particular. The complaint was “ebook prices are too high” and there was support for Amazon’s protest to the ebook consumers in the UK and even a statement that one should choose what to read based on whether it was priced by Agency rather than wholesale.

Of course, I’m in the camp that believes Agency pricing has, at least (and probably) temporarily, slowed the (still) inexorable downward spiral of ebook prices for branded (big author) books. It has also contributed to breaking Kindle’s hegemony over the ebook market which is not solely a function of deep discounting (it is a great device and a great shopping experience!) As of the last time I checked (two months ago), two Big Six publishers reported to me that the Kindle share for their titles had dropped from the mid-80s to the mid-50s. They no longer dread “the call”, which is the metaphor for the message they feared would come one day from their biggest account saying “I can’t pay $15 for what I sell for $10 anymore; I’m going to give you $5.”

Now, it is possible that the Nook and the iPad would have created a lot of this market erosion under any pricing regimen, but I doubt it. I have heard that Barnes & Noble told publishers last year that Amazon’s ebook pricing was going to kill them and reduce their ability to keep bookstores open if they had to compete with loss leaders in the ebook arena. And Apple still gives a good imitation of an outlet that won’t play except on their Agency terms.

But what really caused the thinkers on the list to take issue was me was my contention that it is logical for the major trade houses to try to keep ebook prices higher in defense of print. From my perspective, the core value proposition of the major houses is “putting books on shelves.” That is the function that requires scale, capital, and a legacy organization with a lot of know-how. If that’s right, the fate of the big publishers is inextricably linked to the fate of brick-and-mortar stores. So of course, they would try to preserve them.

Not all publishers are in the same boat. O’Reilly Media, for example, has told the world that its second largest account is its own aggregated ebook platform, Safari. Print is still important to them, but they’re not nearly as dependent on bookstores as the major trade houses are; they probably sell a higher percentage of even their print online than the big houses do. (They say that Amazon is the one account bigger for them than Safari.) Perhaps it will even be to O’Reilly’s competitive advantage as bookstores diminish, raising the relative value of the customers they can reach directly. O’Reilly is an outstanding example, but not a unique one.

But without bookstore shelves to fill, I fear the major publishers have very little to offer. In their own defense, they tend to fall back on “curation” as their strong suit, but I’m afraid their curation is B2B and the B they curate for is the book trade! They have very little curation “brand” with consumers. I know there are efforts to build marketing capabilities that benefit from scale, but nobody has ever made a convincing case to me that they can do that. Generating robust metadata could benefit from scale if there were real verticality — tagging around the same subject matter again and again — but big trade houses don’t have that.

Another digital head at a big house, responding to my quest for power in scale, pointed out that they’ve been spending scads of money on tax compliance and lawyers. Of course, part of the reason they spend that money is because they have a lot to lose. But it is also true that the tax compliance issues can be offered at scale by third parties. In the US, at least, an outfit called RoyaltyShare is doing just that for publishers trying to live up to the requirements of Agency selling.

We really have at least two trade publishing businesses at the moment, the big houses and everybody else. The big houses pay almost all the substantial advances; they pay the highest royalty rates (which is actually, when you think about it, more than a little bit odd); and they generally get the best terms from their intermediaries. Their executives probably put their pants on one leg at a time (to quote an old baseball line) but, otherwise, they don’t have much in common with everybody else.

When one studies the industry and tries to analyze behavior, it is critical to keep that distinction in mind. It is appropriate that Random House and HarperCollins have a different strategy than O’Reilly or F+W Media for ebook and print pricing and for marketing. They really have different businesses.

All of this recalls the old cliche: where you stand depends on where you sit. If you’re a big publisher, every move you make should consider the fate of brick-and-mortar bookstores and you should be doing everything you can to preserve them for as long as possible. That’s the first element of a survival strategy. The second element could be to try to be “last one standing”. Our client Ingram has demonstrated with two recent deals (with Macmillan and with Springer) how publishers can pull back from their massive bookstore-supporting infrastructures but, even so, a diminution in bookstore shelf space is going to force consolidation. Maybe big houses will merge their back offices (which is, in effect, what Ingram is offering as a third party) but I think it is more likely that we’ll see a lot of mergers in the next ten years.

The most important metric for big publishers to watch over the next few years is “total shelf space available for books in retail stores.” (I’ve even come up with a pretty simple way to track that and suggested it to one of the companies that could provide it.) That’s almost certainly not the most important metric for upstart and vertical publishers.

It is often said that the big mistake railroads made was not realizing they were in the transportation business, or they wouldn’t have let airlines pass them by. I don’t buy that; running a railroad in no way qualifies you to run an airline, let alone to invent one. One listmember in the discussion in which I appeared to convince nobody suggested that the big publishers should focus on how to be more upstart and more vertical. I am afraid that trying to be something that you’ve never been is a very hard path to follow.

All this means that you need to think about which publishers you’re talking to and about when you frame conversations. At Digital Book World, for example, we’ll have a panel on ebook distribution for small and midsized publishers. But we’ll also have some unique research about the ebook royalty deals being made which focuses on agents and big publishers. The experience of smaller publishers, who almost always pay higher royalties, would almost certainly just confuse the issue. Any “industry data” that doesn’t separate the bigs from the smalls has to be parsed very carefully or it could lead to wildly erroneous conclusions.

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At the conclusion of another Frankfurt Book Fair — my thirty-somethingth — here is something I actually knew before but have taken on board in a whole new way: there is an enormous gap between the US and everyplace else in the Western world (at least) in consumer ebook takeup and acceptance.

Here is what I think: it can’t stay that way forever.

Here is what I deduce: the rest of the world is in for what will be, for many, a vertigo-inducing ride while they catch up.

It seems pretty obvious why the US is so far ahead: 300 million people in a single developed economy with a single currency and a single language. Those same factors also largely explain why the US is also so far ahead in Internet print book purchasing. (There is another big cause at play there: the service infrastructure provided by our national wholesalers, Ingram and Baker & Taylor, without which it would have taken a multiple of the initial investment to get Amazon.com off the ground 15 years ago.)

One thing leads to another. Because Amazon had, by the end of 2007 when it introduced the Kindle, built a loyal customer base of tens of millions of book buyers, they had the pillars in place to roll out an ereading device. That really required two things nobody else in any other country has even today: a big enough customer base to reach a critical mass of consumers without any assistance or partnerships and enough leverage with the publishers to get them to put their books into the ecosystem that supported their device.

One thing leads to another. Amazon’s Kindle, with a much larger selection of titles and a smoother path from file server to device than had previously been offered by other ereading platforms (which were, before Kindle, the Sony Reader device for some and reading on PCs or handhelds such as Palm Pilots for others, with me in the handhelds group), gained pretty rapid uptake. That led Barnes & Noble, which also had leverage with the publishers to get titles into their store and access to and brand credibility with millions of book readers, to follow on with their Kindle-like device, the Nook, almost exactly two years after the Kindle. As most of us know, the iPad followed the Nook shortly thereafter, coming onto the US market in April 2010.

All of this has resulted in getting the US to the point as of Frankfurt 2010 where a US publisher launching a book of straight text can expect ebook sales to be a mid-teens percentage of the book’s total sale, with occasional reports that are even more dramatic (such as the anecdote that the first wave of Jonathan Franzen’s “Freedom” was one-third ebooks!)

One thing leads to another. As has been written on this blog many times, all these Internet-based sales put enormous pressure on brick-and-mortar stores. We see shelf space diminishing and there are those among us who believe that over the next ten years it could pretty much disappear.

The Kindle hasn’t had nearly as dramatic an impact abroad as it has in the US for a host of reasons. Amazon doesn’t have the same audience share. They don’t have the same huge number of titles available as they do in the US. And they haven’t had two other big and influential companies (B&N and Apple) pushing the device-reading experience into the public consciousness. It seems Nook and iPad’s arrival have only served as catalysts for Amazon to sell even more Kindles and for the ebook uptake in the whole US market to accelerate further.

So we find ourselves today with this massive gap between the penetration of ebooks in the American market and the penetration in any other country’s market outside of Asia (I didn’t talk to any Asian publishers at the Fair, and I don’t know the situation there.) Certainly (assumption alert: a priori argument not based on any data) this is a situation that cannot last forever. In five or ten or fifteen years the percentage of book sales that are digital and the percentage of print book sales that are transacted online will be pretty much the same in all developed countries.

If that assumption is right, then other countries — starting with the English-speaking ones and then moving on from there — are going to experience the changes we’ve felt in America in a much more compressed period of time.

There are legal and institutional barriers to change which have already been “effective.” The world’s largest natural moat has protected the Australian book market, keeping print book prices high and the retail book trade healthy. It was evident from conversations I had with some Australian booksellers at last May’s BookExpo that they are feeling the winds of change beginning to blow a gale, fanned by the arrival of Kobo ebooks in the market. (Kobo is a sleeper from the US perspective: a small almost-an-afterthought ebook platform in our country but painstakingly building a presence around the globe and some impressive OEM relationships everywhere, including in the US.) Ingram’s POD setup in Australia will surely introduce a lot more titles into the print marketplace. That’s important because POD drives consumers to online purchasing by offering more titles than any bookstore could ever stock.

All of this is frightening to any sentient Australian bookseller.

Retail price maintenance, territorial and language rights restrictions, and variable rules about applying VAT (sales tax to us Americans) to books seriously complicate the development of the ebook marketplaces in Europe.

But the biggest complication of all, in the short run, will be the paucity of titles available in the epub format in languages other than English. Epub enables reflowing of text, which is essential to deliver a reader-friendly ebook experience to a multiplicity of screen sizes. We have hundreds of thousands of titles in epub in English; no other Western language is close. This is a subject that first surfaced for me in Brazil when I was there in August.

One thing leads to another. The epub gap spawns another serious issue for the European book trade as it catches up with the US. Most educated people in most European countries are comfortable reading English. A publisher in tiny Slovenia (formerly part of Yugoslavia) told me that one-sixth of the books sold through the largest chain of bookstores and the largest online bookseller are already in English. Somebody else told me that 25% of the books sold in Denmark are in English. In Holland, I was told, there has been recent legislation requiring “windowing” of English ebooks on titles that have a Dutch edition, holding back the English edition until the Dutch edition has had a minimum time of availability.

The biggest adjustments even for the players in the US book trade are still ahead of them. As far as I can tell, big publishers have not really taken on board that bookstores are pretty much going away in the next ten years and, one thing leading to another, taking the big publishers’ major value proposition with them. There is almost no visible acknowledgment of the shift from IP to eyeballs that I believe is coming. But the change we’ve had and the change we’re facing in the US publishing world is dwarfed by what will be seen and felt by our friends and trading partners in Europe and elsewhere in the next decade.

Some of what this post is about had already been anticipated as we prepared the program for the Digital Book World conference taking place January 25-26. We had already planned a panel on how territorial and language rights trading will be affected as ebook uptake spreads. Now I think I’ve found somebody who can lay out the European landscape as US publishers and agents should be thinking about it. I’m working with her to prepare what I think will be a significant addition to our program covering a topic that is, as it should be, increasingly important to American rightsholders.

Another topic for another day is that the world is getting smaller and publishers in every country will need to understand what’s going on in their foreign markets better. We’ll be delivering just one compressed seminar and a panel or two at Digital Book World because that’s what bandwidth we think conference attendees this January will be comfortable investing in the topic, relative to a lot of other things that need to be discussed. By a year from January, I think understanding how the ebook markets work in countries around the world will be a top-of-mind concern for every publisher and agent in America.

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One thing I’ve heard often and dismissed is that we need print to preserve intellectual property. I figure that digital files are less destructible than paper and that, with any care at all, it should be possible to create more reliable preservation of bits than of atoms.

I still think that. However…

A month ago I was helping my sister clean out some of the old files of my father’s (now gone over eight years, but it takes a while to get around to this stuff.) Among his papers, I found the hard copy of a speech I had delivered at a VISTA Conference (VISTA is now a company called Publishing Technology) in November of 1995. As I started to read it, I realized I hadn’t seen it in a long time. I checked and it wasn’t on my web site. I checked further and it wasn’t in my hard drive.

So if Dad hadn’t saved this printed copy, I wouldn’t have had it to show you. I’m glad he did. Ironically, the speech was titled “How Quickly Things Change”.

The speech is too long (I’ve learned a thing or two about brevity in the past 15 years), for which I apologize. It is on the site without edits or corrections or updates (both because I’m honest and because I’m lazy). But I think many people of my generation and close to it will enjoy the refresher course about what the world of digital change looked like to book publishers in November of 1995. And the many people now thoroughly engaged in the issues that concern this blog and our industry who were still in school or in short pants at the time might be amazed at how little we knew at what was, at least for trade, the dawn of the digital publishing era.

At the time I made this speech, the obsession of most book publishers was to take advantage of the seemingly-vast amounts of data that could be packed on a CD-Rom. Several major publishers had formed “new media” divisions or departments to start creating what were, in effect, enhanced ebooks or apps out of their intellectual content. The industry was only on the verge of consciousness about how important connectivity was. In the speech’s opening sentences, I say “last year at this time, very few of us had heard of the World Wide Web” and I myself had been online since before the 1992 election. But “online” then meant, for most people, being connected within the walled gardens of America Online, Prodigy, and Compuserve.

I was happy to be reminded that I got a number of things pretty damn right at that early stage.

1. When most people in publishing didn’t believe it, I said that getting online was much more important than making fancy new products on CD-Roms.

2. I suggested resisting the trend to “new media divisions” because online communication was the key going forward and the move to exploit it should not be siloed.

3. I identified cell phones as (arguably) the fifth big new technology adoption of the past 20 years (the previous four being the VCR, the audio CD, the fax machine, and the personal computer.) But it is a time-capsule moment to recognize that the cell phone wasn’t ubiquitous yet.

4. I saw that professional publishing would shortly become mostly electronic, particularly directories.

5. I didn’t name it Wikipedia, but I did envision an encyclopedia online that is “dynamic, interactive, and perpetually being updated by organizing on-line tools to solve an age-old need.”

6. I said that we’d reach “universal connectivity”, defined as the point when just about everybody above the poverty line would be online, by the year 2000. At the time 16.6% of adults had internet access and only 10% had used the internet in the last month. By the way, those numbers constitute a reasonable approximation of where ebook uptake is today.

7. I said newspapers would be crushed first, magazines second, and that we’d be glad we’re in the book business as internet use grew.

8. At the time of the speech, there were 100,000 active domains and under a million home pages. In what I remember was an audience-gasp moment, I said that the small merchant on the corner would also have a presence on the Web. As I put it, Time Warner and MCI would be “joined, literally, by the butcher, the baker, the candlestick maker, and the local real estate agent.”

9. At a time when “several hundred” American publishers had web sites (“plus 38 British, 31 Canadian, and a handful of Australian”), I cautioned publishers against thinking that having web sites would substitute for having booksellers. Some people thought they might.

10. I said there should be a web page for every book, although I was somewhat over-ambitious in how I saw it developing organically and being part of the development and early marketing process.

11. When publishers were thinking of digital products almost exclusively as CD-Roms, which were “enhanced ebooks”, I saw the value of just delivering the text file to be read on a screen. (Of course, I thought we’d deliver them on diskettes, and I was wildy wrong about that!)

12. I concluded with a summary of all the ways online could be involved in our business, from agent submissions to marketing to make the case again that “new media divisions” were not the answer for publishers as they entered the digital age.

Of course, there’s a lot I didn’t see coming. No mention of iPods and iTunes and disaggregating the album into songs. (But I did see the impact of disaggregation on newspapers.) No mention of piracy or DRM. And although it had existed for a few months at that point, no mention of Amazon. (I did say that “it will be some time” before we’d be selling substantial numbers of books online, which turned out to be true. Amazon was still two or three years away from having a significant sales impact for most publishers.)

My job in these VISTA conferences was to deliver a message which was “way out there.” I was supposed to throw caution to the wind, to be the guy who could say things that most people wouldn’t say even if they believed it. In some ways, the greatest utility of the speech today is to show people where “way out there” was 15 years ago, in November of 1995.

So a belated thanks to my wonderful Dad for saving a hard copy of this speech. But I’m not changing my mind about the fact that usually, digital files will be more enduring than paper.

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Sometimes you hear of an idea or a new business that seems so right-on-the-money that you wish you had invested in it and figure it is just a matter of time before it grows into something very powerful and important.

Here are three of those — all of which should be of interest to publishers  and which everybody who is interested in the content on this blog should know about — that are unrelated and similar only in one way. If they execute and deliver on their promise, which in the last of these three cases is really beyond question, they should have very bright futures.

One is a new business that was dreamed up without publishing as we know it in mind at all. It’s called Open Sky, and it enables any web site to sell any thing. Open Sky aggregates wholesale pricing arrangements from suppliers of anything at all and enables any website (or blog) to sell the goods at a profit. And they provide the web site with whatever technology or functionality they need plus a social commerce platform to enable harvesting and use of customer information.

So from the manufacturer’s perspective, they are the front end to a lot of distributed eyeballs and resellers. From the website or blogger’s perspective, they provide both the commercial relationship and the web tools necessary to “stock” and sell items relevant to the site’s audience. They’re brokering business arrangements that are useful on both ends and enabling sales that would simply not exist if they did not exist.

Former book editor and agent Mary Ann Naples saw the potential for Open Sky with clients of hers who were book authors and bloggers. Imagine being a blogger who writes about cooking and wants to tout and sell her favorite pots and pans. Mary Ann represented people like that and she’s been taking Open Sky into the book business.

From the perspective of a guy who has been telling publishers to use their content as bait to attract and aggregate eyeballs because they’re bound to have remunerative value, Open Sky provides an answer to the question I face the most when I lay out my thinking. (“Great, Mike, but how am I going to make money?”)

The second is a publishing business you’ve probably heard of (or should have) called Flat World Knowledge. Flat World creates college textbooks, doing the creation more-or less the old-fashioned way, although somewhat faster and cheaper than the big players. What’s different about Flat World is their commercial model. All their content is available free on the web in HTML, but you can buy it (printed or digitally-delivered) if you need to possess it or mark it up.

Wrapped into the Flat World model is the capability for professors to add other material, theirs or somebody else’s, to the Flat World text. That material becomes part of the offering to the student and soon Flat World will add the optional capability to make the material available to professors in other schools to offer to their students (with a royalty, of course). Flat World has had books in the marketplace for about 18 months; they’ve learned enough to know about how much the free HTML exposure drives profitable sales. And “how much” is apparently “enough.”

In a world where the price-and-margin pressure on the textbook model just gets increasingly difficult for publishers and students, Flat World’s new approach looks very likely to succeed. It is worth noting that Macmillan is now delivering the professor customization part of the Flat World model, but it is extremely difficult for an established publisher with a legacy cost structure to compete with their free-on-the-web commercial model. This will becoming a growing threat to the established players in the college textbook space.

The third initiative comes from two giants in the trade world: Macmillan and Ingram. (I always tell you when this is the case: Ingram is, at the moment, our client.) They have just signed a deal by which Ingram’s print-on-demand, warehouse space, and shipping capability becomes an extension of Macmillan’s own operation. Books can be seamlessly shifted from a pressrun model to POD (and back). Macmillan is alleviating warehouse space pressure, keeping books generating revenue past when they would otherwise have been out of print, and anticipating the inevitable future reduction of infrastructure that will be mandated by the shift from print to digital.

In a recent blogosphere conversation sparked by Evan Schnittman’s observation that the impact of the ebook shift could be an expansion of the market, Eoin Purcell wrote about the commercial impact of readers shifting from ebooks to print. Purcell fears that publishers might be forced to give up the print book revenues if printings were eroded too much by ebook uptake. What he sees is that as press runs go down, printing costs go up, and if that forces book prices up, it will exacerbate the decline of print and could diminish it to the extent that it just isn’t worth doing.

Certainly that’s a challenge publishers face, and they know it. The Sales Director of a Big Six house with a lot of bestsellers, anticipating that his ebook sales could pass 20% of the total for most of his books as soon as next year, said “I hope we’ll be smart enought to manage down our printings and distributions.” Hitching Ingram’s capabilities to the publisher in the way Macmillan just did helps ameliorate that problem and a myriad of others. It’s a way for publishers to reduce overheads and increase operational capabilities at the same time. I’d be surprised if we don’t see many, if not most, other publishers going for this solution in the months to come.

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