Publishing

My professional background —  indeed, most of my life that isn’t family, friends, baseball, and politics — is trade publishing: the publishing that is intended for consumers and which got its name becaiuse it has been transacted primarily through “the trade”: bookstores.

But this past week I spent two full days with the Publisher Advisory Group for my client Copyright Clearance Center where trade is a small part of the total picture. In addition to the program, I had conversations there to prepare for a talk I’ve been asked to give at the IFRRO (International Federation of Reproduction Rights Organizations) meeting CCC is hosting at the end of October. So, while I always think about trade publishing, this week I’ve been doing it within the context of other publishing — indeed, in the context of the whole world of intellectual property, one that goes well beyond publishing and includes music and art and photography. These are businesses that don’t think about bookstores at all.

There was a point at the CCC meeting (at which people who work at The New York Times, the Chicago Tribune, and Associated Press were among the participants) where it was useful to offer my own articulation of why the problems caused by digital change for newspapers and magazines and record companies were so much more grave than they were for book publishers (so far.) It is simply stated.

For those businesses, the unit of appreciation does not match the unit of sale.

By that I mean that record companies sold us albums when what we wanted were songs. That’s what their economics were built on. The minute we could buy songs, it blew up their business model. Newspapers sell us the weather when what we want are the box scores, or the horoscopes when what we want are the comics. There are many books which will be read cover to cover. Newspapers and magazines are rarely read cover to cover. It was never thought of as wasteful or uneconomic that most people actually consumed a small percentage of every newspaper and magazine they bought. But it gets harder and harder to make that sale in a digital environment.

Of course, we have felt some impact of this effect in the book business. When you get beyond fiction and certain components of non-fiction (memoir, biography, some history and science), the books aren’t read cover to cover either. You usually use (what we now call) chunks of travel books, gardening books, cookbooks, computer books, crafts books. Even in the bookstore environment, sales of these books are suffering because a more granular offering is available online.

Grasping the significance of the “unit of appreciation, unit of sale” paradigm makes me believe that the “album” (do we still call it that?) of music, the newspaper, and the magazine are ultimately doomed as organizing principles. They were built to meet the requirements for content distribution in a world where physical practicalities had to be addressed. The Times couldn’t drop sports and economics on my doorstep and world affairs and theater reviews on yours. And The New Yorker couldn’t deliver Talk of the Town to me and the cartoons to you. The units of appreciation were far too granular to be delivered as units of sale.

It would be a reasonable guess that about half the units that bookstores sell are cover-to-cover reads, where the unit of sale equals the unit of appreciation.

Brainstorming with publishing colleagues about what I need to say at IFRRO gave me a new realization about what’s likely to happen with the half that’s not.

Exploring non-trade publishing — academic, professional, sci-tech, college texts, and schoolbook publishing — makes you realize everybody else is headed in the same direction. They’re anticipating that the “unit of appreciation” for their content will always be defined by the context of either (depending on the customer base) a “learning system” or a “workflow.” The content won’t be the point. Learning something or accomplishing something will be the point and content will be delivered within a framework designed to deliver on the objective.

Pretty much without exception, smart publishers in these non-trade areas see the day coming where controlling the platform is the key and the controller of the platform will be the gatekeeper for, if not the creator of, the content. Since that tracks pretty closely to my notions about “verticals”, it all seems very logical.

But if you think about it a little harder, peel back one more layer of the onion, you realize that much of the rest of our non cover-to-cover publishing — much of what we now call trade — will also be housed within platforms. There will be platforms providing workflow, and content in context, for chefs and knitters and gardeners. They too will be buying “solutions”, not “information”, and the material we now put in the books will be served up, as needed, inside the workflow. It won’t be so much about “units of appreciation” as “units of need” or “units of purpose” for the content because the entire system will be the unit of appreciation and the unit of sale.

That is: the instruction as to how to do a particular knitting stitch will pop up or be linked to the place in the “pattern” (or whatever digital delivery has made the pattern become). The explanation of how to broil or baste something will be linked to the direction to broil or baste something. It won’t be housed in a different physical volume; it won’t even be housed in a different program or file! The beginnings of this are already evident in some apps and enhanced ebooks.

The world in which we will be living this way and routinely getting content this way is not around the corner; it is a few years off. Not twenty, I don’t think; but maybe ten. We’ll be solidly in a cloud world by then with just about all the content we consume — music, movies, TV, and what we get from newspapers, magazines, and books — and all the software we use coming to our devices from remote servers rather than from a hard drive.

In that kind of a world, I think the idea of “owning” content will be nonsensical. Everything will be licensed. “Owning” is really a tangible object-based concept. We discover the reality of that whenever we try to apply the principles of first use — like lending and resale — to the digital things we “sell” today. And, when you think about it, purchasing access to whatever you want or need whenever you want or need it is the perfect matching of the unit of appreciation to the unit of sale.

If you’ll be at Frankfurt next week and you like talking about what I write about, please come by stand 8.0 L916 and if you can catch me when I’m not in a meeting (about half the time), please say hello. I am speaking twice at the Book Fair. On Wednesday, October 6 at 10:30 am, Mark Dressler will interview me about the 2011 Digital Book World Conference program.You’ll find us at the Sparks Stage, 8.0 P923. On Friday, October 8 at 12:30, I’ll be participating in a panel discussion on “The Ebook Business – Who’s in Control” which will take place in the “Entente” room in hall 4.C. I understand Victoria Barnsley of HarperCollins UK and Ronald Schild of the German ebook-selling consortium will be my partners for the conversation whose focus will apparently be on the big companies in the ebook space: Amazon, Apple, and Google. Maybe I’ll be a lonely voice saying “don’t forget that B&N and Kobo are very much here — which Google isn’t yet — that Blio and Copia are coming and that the collective power of yet-unaggregated sites and communities, which could be harnessed by yet another player, will be considerable.”

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There is certainly more than one way to build a conference program. I have been putting them together since long before I learned about the concept of “crowd-sourcing”. I’m a bit of a plowhorse about some things so the Digital Book World conference program comes together pretty much the same way as the first digital book conference aimed at trade publishers I organized, Electronic Publishing & Rights, back in 1993. I put together a list of topics for panels or presentations and a roster of people who could either speak or lead me to speakers. Then I engender a lot of conversations between the conference-creation team and the potential speakers and audience to craft the topics, the framing, and the ultimate presentation.

Two other important conferences which appeal to an audience that overlaps Digital Book World, O’Reilly’s Tools of Change in February and SXSW in Austin in March — seem to take a different approach. As near as I can tell, they do crowd-source a lot of their programming. It appears to me that Tools of Change throws out suggested topics and requests that panels and speakers put themselves forward as components of the show. Then, presumably, the people in charge at O’Reilly (the heads of the conference are Andrew Savikas and Kat Meyer, and both of them are smart, knowledgeable, and discerning) choose what will comprise the show. At SXSW it appears that the candidates are selected by an online vote. It seems to me that you therefore guarantee that you’ll get the panels sponsored by the best campaigners, but not necessarily what would give your ultimate audience the best show. But I guess it works for them.

I should declare myself here. I am a fan of Tools of Change. I participated in a day-long brainstorming session several years ago which O’Reilly Media organized to plan the first conference. I missed that one, which was in California in the summer of 2007, but I’ve attended the three annual February conferences in New York, 2008-2010. It’s a great show and a great rendezvous for people thinking about technology and publishing. As this piece makes clear, we can’t handle every worthy subject in two full days of conference programming at Digital Book World; there’s room for lots of other conversation and TOC is a useful one. On the other hand, I have never attended SXSW. The program didn’t look like it had much relevance to commercial trade publishing (although it covered a lot of other things that neither TOC nor DBW does.) Plus it comes in the same month that has a chunk taken out of if for me by baseball spring training. There are things in life besides digital change…

As I think through what we do and how it all works, it is hard for me to see how we could produce nearly as good a show without the conversations. We are helped considerably in our work by a Conference Council of more than 30 top players in the industry from across houses large and small, agents, members of industry bodies like BISG, Association of Booksellers for Children, and the Frankfurt Book Fair, and some other consultants. We talk to literally dozens of other people as we put the show together, getting advice about whom to contact to speak and shaping and re-shaping our formulation of the panels and presentations.

This does, indeed, start in my head. I wrote a post in May outlining what I thought might be the major topics. We got comments on the blog and then we pushed the list out to the Conference Council in formation to get more input.

Once the Council was formed, we put the topic list up on Survey Monkey for them to give us feedback. What we were mainly looking for is “of what we postulated might be on the program, what’s essential and what’s a yawn?”, but we also got thoughts about things that could be combined or reframed. Then at the end of June, we had an exciting and rigorous 2-hour meeting with many of the Council and a number of our F+W colleagues at which we solicited even more ideas and honed our thinking further.

This process eliminated a number of topics that were on my initial list. Some of them were dropped because the group thought interest would be low (usually because they were too narrow or specialized); for others we couldn’t see who could speak to them effectively. But among those we knocked out were:

* Will non-US publishers start to establish a virtual sales presence in the US as ebook sales grow?

* How do publishers deal with image rights for old titles becoming new ebooks?

* What changes are on the horizon for publishers’ relationships with the library market?

* Are trade shows becoming an anachronism in the age of digital communication?

* How much of the solid print backlist is still locked up by rights issues?

* To what extent do publishers view single-title marketing as a practical endeavor?

All of these topics are “worthy” but, against very stiff competition, they didn’t make the cut.

The survey and Council conversation also helped us refine how we’ll approach a number of subjects.

Author royalties for ebooks will be handled as a survey and presentation, not, as first occurred to me, primarily through a panel of agents.

Our Council felt that how publishers make the business decisions to acquire content not necessarily intended for first use in a book was worthy of discussion. A subsequent conversation with potential speakers convinced us that “making books out of content that started another way” would be a relevant extension and should be in that same discussion.

Marketing and metadata were identified as topics that I should have included but hadn’t. As a result, we will have two metadata panels (one on core, one on enhanced) and we’re getting great help from BISG Executive Director Scott Lubeck (on the Conference Council, of course) putting these together. Although we have several panels that touch on marketing, I’m still thinking about the best way to tackle how single-title promotion has changed (which it has: profoundly).

What I had imagined as “The Tools Every Publisher Must Have in 2011″ morphed into a conversation about “industry solutions” — such things as Edelweiss and NetGalley and Filedby. A further refinement from our first idea is that we’ll have a panel of publisher-users discuss these, rather than go with my initial idea of inviting the companies themselves to present their solutions.

We knew we needed to discuss the future of bookstores. Our Conference Council meeting yielded the suggestion that we have analysts who follow industry stocks discuss that topic (and a hat tip to Michael Cader for that idea.) We’ve recruited Marianne Wolk, a market analyst who follows Amazon and Google, to speak, and she’s helping us look for other analysts or investors to join that discussion. And we’re also putting together a panel of independent bookstores; we’ve already talked to more than half-a-dozen and will talk to several more to pick the three or four that can deliver the freshest, most relevant, and most articulate content for our conference. (I would hate to leave this to self-selection.)

A panel I’d thought we needed on “ebook first” was dismissed as old news and too narrow.

We lean heavily on expertise that we know and trust.

Apparently, sometimes our technique gives us the same result as our counterparts’ crowd-sourcing. Liza Daly is the most compelling thinker I’ve encountered on ebooks. Last year we had her do 20 minutes on “ebook basics” which was one of the most-praised components of our program. I knew we had to have her back and a fast conversation with Liza quickly yielded the subject. She’s going to talk about “cost-effective development of enhanced content: how to display on multiple platforms without multiple headaches.” I’ll bet many attendees will find this the most useful 20 minutes at the show. I see that O’Reilly has her on their Frankfurt TOC program. That’s a good decision no matter how they arrived at it. (And I’d advise SXSW to make sure the ballot box is properly stuffed for Liza if she’s a candidate for their event next March.)

We had outlined three different research projects we wanted to present. Two are follow-ons from last year. Verso Media has a panel of “book” consumers and Bowker, working with BISG, has a panel of “ebook” consumers. This year, Digital Book World is sponsoring a follow-up effort with Verso and so the reports from both of those groups of consumers will be updated. (The BISG-Bowker effort was already ongoing.)

But then we discovered a new data-gathering opportunity with a company called iModerate, which does both surveys and online qualitative research, and we put them on an assignment of studying in depth a particular subset of ebook readers: those that read on multi-function devices like iPads and smartphones. Michael Cader suggested some ways to help the audience get maximum value from the data. As a result, we put those presentations together on the program, will distribute some data to the audience in advance, and have the presenters join in a panel after they say their own pieces. We thought that was a great idea; we’re doing it.

Maria Campbell, the veteran scout who has been on the foreign rights scene for decades, knows the players trading international rights better than anybody. So we drafted her to help us find the right person to lead a discussion of how the growth of ebooks will affect territorial rights. That right person is Cullen Stanley of the Janklow and Nesbit Agency, with whom we’re now working to craft the right combination of agents and publishers, American and foreign, to make this a balanced and informed discussion. The inclusion of agents is a key point of differentiation between Digital Book World and just about every discussion about the digital future I’m aware of. There are many aspects of the conversation about the digital future that simply can’t be sensibly conducted without the involvement of agents.

Lorraine Shanley, a member of our Council, is not only a consultant but also one of the leading executive recruiters in publishing. We wanted to examine how skill sets are changing in publishing. I thought I’d put together a panel of recruiters. Lorraine suggested that it made more sense to create a panel of executives who came to publishing from other industries. We liked her idea better and we now have Charlie Redmayne of HarperCollins as the first of the executives who will join Lorraine for that conversation.

I don’t mean to suggest we’re unique in doing things the way we do. Mark Dressler, who puts together programs for BookExpo America and for the Frankfurt Book Fair (and who will interview me about the Digital Book World program at a Halle 8 stage on Frankfurt Wednesday), is also a micro-programmer and very highly consultative and interactive in his program creation. I am sure some of what you see at TOC and SXSW resulted from interaction, too. I just can’t help thinking when I hear “calls” for programming how much the conversations we have inform and improve what we offer. Although I’m the proud Conference Chair who gets credit for putting together the Digital Book World program, it’s consultation with the most knowledgeable players in town that makes it what it is. Perhaps it is “crowd-sourcing” of a different kind.

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I’ve been in the book business for a long time, more than 48 years since my first job on the sales floor of Brentano’s bookstore. For over 37 years it has been my fulltime occupation. My father started his career in books just before I was born, so I have been meeting publishing people more or less since I was in the cradle. And it isn’t that big a business. So, over the years, I’ve gotten to know many people in the industry.

But I hadn’t met Markus Dohle, the relatively new CEO of Random House, until we had lunch last month. He proved to be a very sharp, informal, and relaxed companion, very open with his opinions and observations and very straightforward. And since his prior experience was outside trade publishing (the reason I’d never previously met him), he brings a completely fresh personal perspective to the business.

One thing Markus said really struck me because I agree with it so wholeheartedly and because I hadn’t ever heard it said so explicitly by any of his counterparts. “We have to change from being a b2b company to b2c over the coming years,” he said. He expanded on this when I asked him whether I could attribute the quote for this piece. (I don’t want to disappoint my readers, but I make a living as a consultant, not a blogger, and my career would be crippled if I couldn’t have a conversation with an executive without a looming fear that whatever s/he said would end up in print. If some readers wonder why the sources of some comments remain anonymous, that’s your answer.)

Markus replied that he was fine being quoted because he was “convinced that publishers have to become more reader oriented in a marketing and trend finding/setting way rather than in a direct to consumer selling way.” I welcome the clarification and believe it is right in its emphasis on marketing over sales even though I think that sales, inevitably, becomes part of what a publisher has to do too. And direct contact with and tracking of individual consumers both seem absolutely essential.

(The politics of this are worth a digression to spell out. For several more years at least, big trade publishers will continue to depend primarily on a retail network to reach readers. Despite the fact that all the big retailers, in their way, compete with publishers to control content at its source, they are universally resentful if publishers compete with them to serve consumers. On the other hand, it is increasingly apparent that the retail network is reducing its size and scope and, unless publishers develop alternate channels to consumers, they’ll be reduced in size and scope as well.)

Although Markus was the first CEO whom I ever heard say explicitly that the shift to b2c was in any way a priority, there is evidence in other houses that the importance of direct consumer contact is on the radar. A senior digital officer at another large house is directing a wide-scale effort to organize their consumer contact names — which he found, as he would have in every other house — to be scattered, unorganized, and largely unusable. Pulling names together is one of a number of “first steps” the big publishers must take to act on Markus’s insight.

But there are other “first steps” that are just as important as rationalizing the contact database for consumers. Two of them are related. One is being committing to owning specific groups (or, in the current parlance: communities) of interest. This is what I refer to as “verticalization” and I have written and spoken about it exhaustively. But the commitment to verticalization, in order to be captured and turned into real equity going forward, must be expressed in branding.

The names of publishing houses and the imprints they create are their brands today. (Authors are brands for consumer marketing purposes, but publishers don’t own those brands: the authors do.) What publishers own really do work in a b2b context. Bookstore buyers, book review editors, and collection developers at libraries can discern meaning from company names and imprints. They work the way brands are supposed to work: as shortcuts to establish expectations. Brand tells an informed buyer to expect high-quality writing in a Knopf book and high-quality reproductions in an Abrams book. Brands will also signal them, before they see a finished package, whether a book is likely to feel overpriced or underpriced, and whether the publisher’s claims for promotion and media are likely to be fulfilled.

But most of these brands mean nothing to consumers. And mere knowledge of a brand doesn’t necessarily tell you what to expect if you buy it. Nor would knowledge necessarily provide you with a motivation to get “closer” to it.

The one consumer brand in publishing that means the most and provides the most equity to its owner is Harlequin. Consumers recognize it and have understandings about quality and price based on it. But because they also know that the Harlequin name means the “romance” genre, and because many romance readers buy and consume dozens, even hundreds, of titles in the genre every year, they have logical reasons to visit Harlequin’s web site repeatedly and to request and open email reminders of new publications from them.

In fact, Harlequin’s brand is so clear and so powerful that they can get people to subscribe to their books. When you think about alternative revenue sources, that might be the Holy Grail. It will certainly help publishers stay on the right track if they focus on creating brands and clusters of books around them that could conceivably deliver customers for a subscription proposition.

The Penguin brand is perhaps equally well-known, but it isn’t nearly as well defined. Penguin Classics certainly have a collective meaning, but many books are published under the Penguin imprint that aren’t classics. And while it is likely that sometimes the purchasing choice between one edition of Robinson Crusoe or Hamlet and another might be influenced by familiarity with the imprint, it is not clear that the “quality” signal is important there (because, after all, the words were set down long before Penguin or its competitors existed) as it is for a new romance novel. And it certainly would be harder for Penguin to attract regular web traffic with its brand or to make sales through an email list of brand adherents.

A brand that is in between these two is “Dummies.” It definitely creates a meaningful shortcut for a consumer; they recognize it and it tells them “this book explains the basics on the subject in a way that requires you to bring almost no knowledge to it for it to be useful.” But because Dummies covers many subjects under the sun, it would be difficult to make use of it for audience-gathering or direct marketing the way Harlequin is employed.

You wouldn’t “subscribe” to new offerings, sight unseen, from either Penguin or Dummies. That means that, in at least one very important way, those brands aren’t as useful as Harlequin. Why? They’re too broad. General Motors wouldn’t ever have sold nearly as many cars if they called all the cars “GMs” to create a megabrand and had lost the distinction between Chevrolet and Cadillac. Trying to create “one big brand” if it captures unrelated content or unrelated audiences could be “one big mistake.”

My own theory is that publishers have to completely re-think their imprints in light of the need to move from b2b to b2c. Imprints at big houses are almost always silos with no discernible b2c meaning. In fact, the names of smaller houses, because smaller houses tend to focus on subject areas, can more readily have meaning to consumers.

In fact, Random House just faced a branding question of exactly this nature and got it right. They had acquired a smaller, subject-dedicated company, Watson Guptill, a couple of years ago and had some overlap between what WG published and what Random House already did within their Clarkson Potter imprint. RH executives engineered a solution by which they preserved the venerable Watson Guptill name for “hardworking” instructional books on art and photography —  WG’s strongest historical categories — and made made Potter Crafts a subimprint of WG. They invested in building the crafts list to triple the previous output of WG. The two thirds to three quarters of the WG list that is not crafts will still be WG imprint books. By making Potter Crafts, which they owned before, a part of Watson Guptill (joining Amphoto, the well-known photo line, and WG’s other subimprints), they might get the best of all branding worlds.

And it is further worth noting that tripling down on title output to become a serious player in a niche is probably a move very few Big Six companies would be making these days, but it is necessary to think that way if you’re serious about making substantial b2c marketing efforts. Building a subscription business would almost certainly imply a growth in title output in any vertical.

Random House’s clarity on how publishers should structure brands to have content-specific meaning is still unusual. (There are other examples: Hachette’s invention of “Springboard”, a brand to do books for baby boomers, is a nod in the same direction.) Publishing Perspectives, the thoughtful online publication operated by the Frankfurt Book Fair, offered a piece on the subject six months ago that was locked into what is still publishing’s more normal b2b way of thinking. The catalyst for the post you are now reading, actually, was their editor Ed Nowatka’s piece with the provocative headline asking “Does a Publisher’s Brand Equity Translate to the Digital Age?” which (with all due respect, of which I have plenty, to Ed) I thought really didn’t address the question. But at least he asked it. I don’t recall ever reading a single piece on the subject of this one: how do what have always been b2b publishers create b2c brands?

This is a subject that has been on my mind for a long time. I wrote a post 18 months ago about an imprint started at another house that I considered to be, similarly, the product of the same b2b thinking that characterizes the Publishing Perspectives piece. And about a year ago, I stressed the importance for publishers of building b2c brands going forward.

I believe Markus’s insight is the necessary first step that others haven’t yet taken and, whether or not it started with Markus, the awareness of the need for consumer focus certainly helped Random House make sensible decisions to exploit the brand equity in the WG name they had acquired. Once publishers accept that being consumer-focused is essential to their long-term survival, it follows logically (although not automatically or instantaneously) that they need to think about discrete audiences on more than a book-by-book basis; that they need to gather those audiences on web sites and in mailing lists; that they need to publish books that satisfy them repeatedly, not occasionally; and that all these efforts will make more sense if each separate audience has a brand facing them with real meaning. We’re seeing that from the big publishers right now in genres; they are trying to build science fiction and romance communities and branding them. Random House built a vertical in travel earlier in the decade, developing business models out of a critical mass of content that went beyond simply selling books. That, and the efforts at Random and other big houses to build communities around genres, is a start. But a lot more development of this kind is going to be needed to replace the marketing clout being lost as the old channels to consumers wither in the months and years to come.

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My last post tried to lay out a comparison of royalties paid by big publishers to agented authors on ebooks against what they pay on print books. What it showed is that the authors suffer a bit on ebook sales that substitute for hardcover print sales, but that they do pretty well selling an ebook instead of a paperback. And the numbers also showed that a publisher selling ebooks under a wholesale arrangement pays the author a higher royalty than an agency publisher when the print is in its hardcover life, but that the agency publisher is actually paying more royalties if the printed edition is a mass-market paperback.

But this comparison has its limits. It helps an author or agent compare their economic prospects with an agency publisher as opposed to a wholesale one. But it doesn’t help an author understand the next comparison she’ll want to make, between doing her book with a publisher and doing it herself without a publisher at all

Fortunately for authors and agents, the benchmark for self-publishing revenue is clearly established by the ebook platform Smashwords, which I first wrote about at the end of a post 16 months ago. There are certainly alternatives to Smashwords: web-based solutions like Scribd, full-service offerings like our clients at Bookmasters, and things in between like Author Solutions. But Smashwords is the most automated, least expensive, and, at this point, most heavily used self-publishing solution for ebooks.

Smashwords pays authors 85% of the sales price for ebooks sold on its own site, and about 85% of the receipts for sales made through iBooks (Apple), Sony, B&N, Kobo, and the Diesel eBook Store. In other words, an author would get more than three times the “old” standard 25% ebook royalty offered by the big publishers and double the “new” possible 40% royalty implied as the new ceiling by the Random-Wylie agreement announced last week.

It is worth noting that Mark Coker of Smashwords says that all their deals will be agency going forward because control of the retail price is very important to their authors and publishers. The net to the author or publisher through their existing deals is 42.5% for sales made through Sony or B&N, 46.75% for sales made through Kobo, and 60% on their agency deals with Apple and the Diesel eBook Store.

And although Smashwords does not (yet) have an agreement to distribute through Kindle (though they’re working on it), the authors and publishers that use Smashwords would be free to make a separate deal with Kindle, giving them a possible 70% of their retail price if they can keep the potential discounters in line (that would be B&N, Kobo, and Sony.)

One thing very much in Smashwords’ favor is that the barriers to use them are very low. All you need is a doc file and a bright person to pay attention to quality control as you work through your conversion. They make metadata management simple.

What might give big authors pause about using Smashwords is that they distribute DRM-free (although the retailers listed above will be adding their own unless the publisher tells them not to) and that they depend on trust. Each retailer selling Smashwords titles has the content file and the metadata file in their possession and the sales reporting cannot effectively be audited.

But whether or not Smashwords is everybody’s solution, they certainly are establishing that pure automated ebook conversion and distribution services are worth 15% of what is collected from the consumer or from the intermediary selling to the consumer.

Smashwords is already pretty big and growing fast. They have 18,000 titles on offer from 8,000 different authors and publishers at the moment and Coker says they’ve added 2,500 titles in the past 30 days!

And I can personally attest to the fact that Smashwords has some books people will want. I found a title on iBooks called “A Year in Mudville” about the Mets first season — baseball history being a subject I know well and read broadly — which is terrific. It is well-researched, well-written, and well-edited. I found some presentation glitches (type fonts changing for no apparent reason) and pointed them out to Coker. He showed them to the author who then corrected the file. (The glitches didn’t interfere with reading the book at all.) And that book was priced at $8.99 on iBooks, which means the author was getting $5.40 from the sale! Look at that against the chart in my prior post! On a $9 list-price ebook, the author would be getting $1.125 from a wholesale publisher and $1.575 from an agency publisher at 25% royalty; $1.80 and $2.52 at 40%. (And, assuming they did an Amazon deal separately and could meet the restrictions required for the 70% royalty, that author would be getting $6.30 for each sale on Kindle!)

At per-unit revenues from ebook sales anywhere from 2.5-to-6 times what they could get from a publisher, and ebook sales rising inexorably as a percentage of total sales, authors and their agents are ultimately going to be doing their math against this option for each new book they have to offer. Some may be doing it already.

There are a few things publishers can tell authors to try to keep them from jumping.

1. “Don’t forget: we give you an advance!” That is the first, and for many authors the most powerful, argument. Agents like advances too, so they’re likely to be sympathetic to the publishers’ point here. But, of course, with that advance comes the publisher’s claim to more than half of what would otherwise be the author’s ebook profits.

2. “Don’t forget: print books are still 90% of your market!” This is really the reason established authors will be reluctant to jump to Smashwords. And as long as print is 90%, or even 80% (and it is falling to that level on many immersive reading books now), getting a multiple on the ebook sales still leaves a shortfall of revenue to the author unless they figure out how to also have the book available in print. The big publishers won’t be doing print-only deals for quite a while, but smaller publishers will certainly be available to work with brand-name authors on that basis. And when the print share falls to 50% of the total sales, which many of us believe it will over the next few years, this argument won’t be effective anymore. (There are many ways for the author to self-publish print too, but only the print-on-demand solutions don’t require big investment or risk, and you aren’t going to get what a publisher would deliver with POD alone.)

3. “You’ll have to do your own publicity and marketing.” This is true, but it is also true that publishers have wanted authors to do a lot of their own publicity and marketing already. From here, it would seem that the author’s marketing efforts will be critical either way. If the author is already big and branded (likely due at least in part to the prior efforts of a publisher, but that’s not necessarily relevant here), it’s less of a barrier than if they’re not. It might be no barrier at all. This is an uncomfortable point for publishers because the authors who need the least help are the ones they want to publish the most.

4. “If we publish you, you’re legitimatized.” I think this point carries almost no weight with any author who has had a bestseller already or has already had more than a couple of books published by established houses. I think it will carry less and less weight with everybody else. I just found my first great book by an unknown author on Smashwords. Sooner or later, you will too.

5. “We’ve built email lists and other direct contact with the consumers you want to sell to, plus we have relationships with the book retailers to get you more attractive placement and promotion through them than you can get without us.” Now, that would be attractive. Can any big publisher justify that claim?

6. “We will pay you 70% of receipts on ebooks to keep you in our stable. It isn’t the 85% you get from Smashwords, but with our advance, our print book sales, and taking all the admin and management off your hands, it’s a better deal for you.” That will probably work, but no publisher wants to let it get to that point.

Publishers better work on number five.

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What shoved other news aside this morning was the word from Seth Godin that he won’t be publishing books with publishers anymore. This is another early indication that it is going to get harder and harder for trade publishers to sign up books.

It is not the first one. Thriller writer J.A. Konrath discovered the virtues of publishing through Kindle about 16 months ago. With the help of audience-building through his own blog, plus completed manuscripts that the New York publishers didn’t buy, he was pushed into learning how to monetize his own work without a publisher.

Last December, the news was that S&S author Stephen Covey had taken his backlist to ebook publisher Rosetta which had, in turn, made a temporary exclusive deal with Amazon. The motivations, apparently, were a bigger share of the ebook pie and the unique marketing capability Amazon has to really push something direct to appropriate consumers. That deal seemed to be with the original publisher’s explicit consent. (Agent Andrew Wylie recently formed an imprint to do the same thing with a batch of his clients’ backlist apparently without prearranging consent, although no lawsuits have been filed to date.)

At the last BookExpo, one of the leading agents in New York told me he is working hard to learn about self-publishing options because his authors are asking him about it.

Last week, one of the leading publishing consultants to “brands” told me that the 25% standard ebook royalty was pushing her company’s clients to think harder about self-publishing.

And it happens that right now I’m reading a book about my favorite subject (baseball history) called “A Year in Mudville” (about the Mets inaugural season) that was self-published through Smashwords but which, in editorial quality, exceeds many titles I’ve read from established houses. I don’t know whether author David Bagdade didn’t want to bother with the bureaucracy of pitching trade publishers, was rejected by them, or just chose the control and better margins of Smashwords, but Smashwords rather than one of the established players is dividing with the author 70% of the nine bucks I gave iBooks for the purchase

This way lies destruction.

Many years ago, my friend and sometimes colleague Mark Bide and I were talking about threats to the scholarly journal paradigm. For those not familiar with how journals work, it might be an eyebrow-lifter. Universities pay professors’ salaries and encourage them to write peer-reviewed articles. The journals get the articles for free, operate the peer-review and publication process, and then sell the collection of articles back to the university’s library. So the university both pays for the content’s creation and purchases it in its published form. Since the beginning of the web awareness, it has been predicted that disintermediation of journal publishers would occur.

What Mark told me was “watch the level of submissions.” That is, he believes the first sign that journal publishing is in trouble will be if the professors stop sending in their articles. So far, that hasn’t happened (that I’m aware of.)

But it’s going to be happening in trade.

On an email list I read, you can detect the annoyance of publishers who point out that neither Konrath nor Godin would be where they are today if publishers hadn’t invested in them and built their fame. There’s some resentment that neither Konrath nor Godin emphasize this point and, by not doing so, seem to suggest “anybody can do this.” I’m not sure that they’re saying “anybody can”, but it isn’t necessary to push that idea to do real damage to publishers’ futures, because the authors who can do this are among the the ones publishers need the most.

Starting in the 1990s, publishers started to ask “what’s the author’s platform” when they signed up books. In those days, they were asking whether the author had a radio show, a newspaper column, a speaking circuit, or extensive media contacts that could give them a leg up to promote the author’s book. But with the turn of the century and the development of inexpensive websites and blogs, authors were able to build their own platforms. And, lo and behold, they were able to build them faster and better if they had legitimately published books in the marketplace.

Publishers should have remembered the axiom that you should be careful what you wish for. This was, perhaps, the beginning of the unbundling of the publisher’s suite of services to the author. It used to be that the publication of a book was the platform and the publishers’ publicity and marketing efforts worked to capitalize on it. This was all part and parcel of the package: paying an advance; editing and shaping the book; putting it into a distributable (printed and bound) form; getting it known; and, of course, getting it into a store where a customer could buy it.

Publishers still pay advances although they’re doing their best to scale them back. Many don’t provide the same level of editing services that they used to; they often expect more books to be delivered by each of their editors and they also lean to agents they can trust to do a lot of the work of putting a book in shape. Putting it into distributable form isn’t nearly as hard as it used to be and doesn’t require inventory investment if the form is digital. Getting it known is something that Godin very articulately and accurately suggests he can do better himself. He is not alone and authors who can do this are explicitly what publishers are seeking. And getting the content into the customer’s hands is a drastically different proposition in a digital context than it was in the pure print world of 20 years ago, and digital distribution can be done with far less investment and far less organizational muscle.

So there’s less for a publisher to do for an author than there once was. And the publishers sent that signal when they started to focus on the author’s own ability to promote and then, over time, turned that ability into a frequent requirement for publication. If the publisher is going to do less, the author wants to pay less for it. Joe Konrath is very clear about the advantages he sees in getting the lion’s share of the revenue his books generate, rather than a mere author’s royalty.

But, somewhat more ominously, making more money through disintermediation does not appear to be the primary driver for Seth Godin. What Seth seems to be saying is “I want flexibility. I want to use what I write in whatever is the best way to build my overall career, revenues, and audience. I don’t want to be locked into publishers’ schedules and bureaucracy.”

That’s a massive challenge for big trade houses but it will be of increasing importance to big authors, particularly big non-fiction authors. It is much easier for a publisher to provide real value if they’re vertical. On the same mailing list I mentioned above, we got a comment from a biggish independent publisher who claims that the house is finding more and better ways to work with authors and really investing in them. But, we are told, they are all in verticals.

Godin may be a unique case. There are unique aspects to Covey and Konrath too. But it is not comforting for trade publishers to see that authors have alternatives, that as ebook sales rise the viability of the alternatives grows, and that the authors most likely to strike out on their own or look for new partners are those with the strongest existing connections to audiences.

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The “death” of the printed book has been under discussion for a long time. (I gave a speech with that subject as the title to publishers in Spain in 1997 — with a question mark after it and predicting correctly that the most immediate impact of digital change would be that we’d sell more printed books online and that the then-current interest in expensive-to-produce CD-Roms was a distraction.)

Nicholas Negroponte made headlines last week when he was quoted as saying that the printed book would be “dead” within five years. A deeper dive into what Negroponte actually said clarifies that he doesn’t mean there wouldn’t be any paper books anymore after 2015, but that the ebook would become the “dominant” form by then. I think even that might be going too far.

It seems reasonable to me (although not to every forward-thinking observer of the march of digital events) that by five years from now half of immersive reading — straight text novels and non-fiction — could have moved from paper to devices.

But for those who question the idea that the switch from paper to screens will ultimately be just about total, let me offer a way to think about it.

The critical thing to remember is that, indeed, the book was more-or-less perfected hundreds of years ago. There have been improvements in printing, binding, typography, and paper quality that are not trivial, but that also represent no quantum leap in user benefit. Indeed, defenders of the paper book and advocates suggesting it has a permanent role, point to that fact as support for their belief.

I think it argues the opposite.

The ebook, unlike the paper book, advances every month, if not every day. Screens and the reading platforms they run just keep improving: they get cheaper, lighter, more flexible, more capabilities-rich and there are ever more choices of them. Battery life gets longer. They develop the ability to take your notes, keyed in or handwritten. They develop the ability to share your notes or organize your notes automatically. They’ve had built-in dictionaries for a long time (a feature of the very first Kindle nearly three years ago) and now they often offer the ability to get to Wikipedia or a Google search in a click as well.

If facing pages or pages that are flexible and “turn” are your requirement, the beginnings of that have already appeared. Facing pages is a feature of the iPad’s iBooks app and just about every reader now offers a choice of “effects” for page turns. The challenge of delivering highly designed pages with pictures and captions and call-outs and on-page footnotes is being tackled, notably by Blio but they’re not alone. One of the reasons I restrict my predictions about ebook penetration in 2015 to narrative books is that it is harder to see yet how fast the development of that presentation capability and the corollary ability to make and reflow those pages for different screen sizes will be. But it will come.

Indeed, the insistence by some people that they will “never” give up the printed book — which leads to rather ludicrous glorification of the smell of the paper, ink, and glue and the nonsensical objections that the screen would be unsuitable for the beach (depends on the screen) or the bathtub (I can’t even imagine what the presumed advantage of the printed book is there) — must ignore the fundamental dynamic. Print books aren’t getting better. Ebooks are.

The biggest tipping point mechanisms for ebooks so far have been the advocacy by the three most important retailers of books (Amazon, B&N, and, less significantly so far but still important, Borders) for dedicated ereading devices; the ability of consumers to download books just about anytime directly into those devices; and, to my mind most important of all, the availability of just about all the most popular straight text books as ebooks at about the same time the content is available in print.

I started reading on a Palm Pilot in 1999 or so. Until 2008, when the Kindle’s launch began to have a real impact on publishers’ digitization practices, I was compelled to read some print books because much of what I wanted to read just wasn’t available as an ebook. When Kindle took hold, that problem went away. I can’t remember the last time I looked for an ebook I wanted and didn’t find it available. That’s why I haven’t read a print book since late 2007; if publishers had moved faster, that date could have been as early as 2000 or 2001 for me.

Now, of course, we have the news (long expected in these quarters) that the availability question is being turned on its head. The announcement last week by Hachette that their Little Brown imprint will be publishing a short non-fiction title by Pete Hamill about immigration only as an ebook now means the print reader is denied. (It will be interesting to see what, if any, print-on-demand option evolves for this experiment.) Of course, this makes complete sense. Genre publishing, particularly romance fiction, has had ebook only publications for years. Maybe that’s why romance readers — which one would not expect are necessarily more advanced technologically or economically than most of the rest of us — have apparently made the switch to digital reading more quickly than book consumers at large.

Romance publishers were not the only precursors to the forthcoming Hamill publication. Simon and Schuster announced last November that they’d be selling books by the chapter for digital purchase, an option not being offered to consumers of print. And Perseus has a deal with the web site Daily Beast which pushes the ebooks out first in the interests of timeliness.

It is very hard for me to grasp why anybody would prefer a printed book 30 or 40 years from now. I’m sure by then screen technology will be able to simulate any aspect of the printed book that could possibly be of interest (except, perhaps, for the smell of the paper, ink, and glue, but, then maybe a companion air-wick would do the trick. I wonder if you can use the same aromas for all titles, or whether some customization will be required.)

This Hamill-Little Brown experiment will be repeated with increasing frequency. (And so will what Perseus and Simon & Schuster are doing!) The screens will get better and cheaper. The platforms will deliver more and more features. The opportunities to find and buy printed books in physical locations will diminish. However one sees the balance today between printed books and ebooks, it will need to be reassessed next month. And the month after that. Maybe it will take the waterproof ereader with pages that turn to drag some of the holdouts across the paper-to-digital line, but even that can’t be as much as a decade away.

The printed book will not “die” in our lifetimes: there are too many of them already around for that. And I don’t even think the ebook will be “the dominant commercial form” (Negroponte’s position) in as short a time as five years. But it almost surely will in ten and I’d say that in no more than twenty the person choosing to read a printed book will not be unheard of or unknown, but will definitely qualify as “eccentric.”

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I was struck when I visited Australia three years ago at how the protection of thousands of miles of ocean had kept their book trade looking like ours did three decades ago. Prices of books were very high in stores and there were lots of stores and lots of independent stores. But the biggest moat in the world couldn’t keep the forces of digital change at bay forever. All of the forces of online bookselling, discounting, and ebooks are now hitting Oz, and booksellers are feeling a dramatic impact. When an old publishing salt brought two Australian booksellers in to visit me last May and I was pretty apocalyptic describing what they should expect, they didn’t disagree with me. They were feeling it.

So a purely anecdotal report of the difficulties of one specialist independent in Australia resonates, even though I generally don’t put much truck in one person’s opinion about one entity’s fate.

This week I am in Brazil. My new friend Ricardo Costa, who runs Publish News, a local operation reminiscent of our Publishers Lunch (and who has been translating a post from The Shatzkin Files into Portuguese for his audience weekly for several months) gathered a group of publishers and a bookseller to join me for dinner on Monday night so I could learn a bit about the state of the Brazilian book trade. Because they were not joining us to be put on the record, I’m keeping my dinner companions anonymous.

For many reasons, the situation on the ground in Brazil is much more like Australia three years ago than it is like the US today. There has been very little take up of ebooks. One major reason for that is that there is a paucity of devices. Brazil charges punitive taxes on electronics assembled outside the country, which all ereaders are. The only device that got any play in the market previously was the Cool-er Reader, and that company has gone bust. One of our dinner companions is a bookstore owner (a small but very important chain) that started selling a new ereader yesterday. This e-ink device with no wifi or 3G, requiring (like Sony) that you import to your computer and then transfer to the device, will sell for the equivalent of just under $400. That’s about triple what Kindle is charging US consumers for its new wifi-enabled device.

I got to handle the device. It’s smaller and lighter than a Kindle, with touch-screen capability and a built-in dictionary, and a more solid feel. But at its high price and without the direct connectivity to enable acquiring new books directly into the machine, it is no more than a step on the path to widespread ebook uptake.

Discounting through online resellers has entered the market. (The retailer in the crowd, which has a very successful web operation, refuses to discount his online sales below his store prices. “That would be telling my customers not to visit my stores!”) My dinner companions were concerned about the effects of the discounting. The online resellers get books from publishers totally on consignment (no inventory carrying cost) and are selling at very deep discounts. This inevitably will have negative consequences for brick-and-mortar stores.

As one of my dinner companions, who runs a large publisher, said, “we want to know what happens in the US because it is what will happen in Brazil five or ten years later.” Both he and the bookstore owner could see that the future for stores will get increasingly difficult.

The entire table agreed that retail price maintenance, such as exists in France and Germany but which is almost universally sneered at by the Americans and British, would be a boon to the entire book trade.

One of the party, a children’s book publisher, reported that Mexico had just introduced retail price maintenance. As a result, her company was renegotiating all their terms with retailers and wholesalers in Mexico to take discounts down. And, at the same time, they will be lowering the prices of their books. From her perspective, the prices to the consumer will remain pretty much the same as they were with discounting, her take will remain pretty much the same as it was with the lower prices and lower discounts, and the effective margin to the retailers will also be pretty much unchanged. But the market will be more stable and less subject to control by the biggest players who can afford to be the most aggressive discounters.

This is not the picture that is painted by most powers-that-be and economic experts in the US and the UK.

One thing that became abundantly clear here in Brazil is that epub conversion in smaller languages is going to be a bottleneck. Most of the ebooks available in this market are PDFs because the market is too small to encourage publishers to invest in the conversions. Of course, PDFs don’t deliver nearly as attractive a reading experience. But there aren’t the same resources available for epub conversions in Portuguese that there are in English (and, presumably, in Spanish or French). That is going to slow down adoption of ereading in many parts of the world and, furthermore, tilt those who do use ebooks to read in English rather than their local language so they can get the benefits of reflowed delivery. I’ve seen ebooks as a potential boon to publishers in smaller languages, enabling them to reach a scattered diaspora, but it isn’t going be as effective if putting Welsh or Danish into epub is expensive.

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There are two questions about the impact of digital change on publishing that are just about impossible to answer.

One is: how much of the sale of ebooks is incremental business and how much of it is cannibalization of prior print sales?

The other is: what will be the fate of independent bookstores?

The two are connected.

As we watch the (long-term) inexorable but (short- and medium-term) unpredictable growth in ebook sales, it is really not possible to tell to what extent we’re just selling established customers the same purchases in a different form (certainly some of it and my personal guess would be the lion’s share of it) and to what extent we’re finding new customers (also certainly some of it and, to my way of thinking, more likely to the user of a multi-function device than a dedicated book reader like Kindle or Nook) or making incremental sales to established customers.

(We plan to address the whether the multi-function device users have a different consumption profile at the Digital Book World conference in January. It’s a knotty question but we think we have a way to get at it.)

The measurements of industry sales have been far too imprecise and muddied to address a sophisticated question like that. (The AAP and BISG are making a serious joint effort to remedy that situation; I have seen some of the great work in building a new data model that has been led by Tina Jordan of AAP and Scott Lubeck of BISG. More on that very promising initiative some other day.) The aggregate industry numbers that we’re used to probably won’t be sufficient to change any closely-held opinions any time soon.

Individual publishers might see data worth intepreting in the total unit sales of major authors that  have established clear sales patterns over time, if they can analyze their way past the fluctuations that must inevitably occur in the sales of each new major release by an established bestseller writer. One place one might expect to see an uptick is in the prior titles in a series (but, even then, you don’t know if the extra sales of four prior Carl Hiaasson titles weren’t instead of sales of four other books, do you?)

My own analysis has been simplistic, assuming pretty much flat sales into the digital future because that has been the case in our overwhelmingly non-digital recent past. When I do the calculations that lead me to think that the sales available to brick-and-mortar stores will decline drastically over the next five years, I’m assuming that the rise of digital sales results in a pretty much equivalent decline in print sales. I also assume that the increase in ebook sales and the reduction in retail shelf space allocated to books accelerates the movement of print book sales to online. If ebook sales aren’t largely cannibalizing, and they don’t themselves reduce the sales available to be made in stores as much as their growth would suggest, then shelf space might not disappear as fast.

My back-of-the-envelope calculations (which have been endorsed in a series of private conversations with publishers, booksellers, and analysts but also strongly resisted in a private conversation by at least one person whose judgment I really trust and also apparently contradicted by the expectations expressed by Random House CEO Markus Dohle in his recent interview) are that brick-and-mortar’s share of total trade book sales will reduce from around 80% today (some say it is higher) to about 30% five years from now. That would be a reduction of more than 60%. Let’s say the share is still 50% in five years (which I speculated might be the number in 2-1/2 years). That would still constitute a 35-40% reduction from where we are today. That’s drastic.

But it still doesn’t tell us “who fails?” Shelf space reductions can come in a variety of ways. Stores can be closed, chain and independent. Dedicated bookstores of all kinds can become less dedicated and turn over shelf space to other items. And mass merchants can decide to reduce the space they gave books or to eliminate them. All three things will happen to varying degrees.

This is a bit like trying to do a weather forecast based on one’s confident knowledge of climate change. The two are related but there are local factors in addition to global ones. Each time a store closes or reduces its shelf space (or, for that matter, in the rarer cases where a new store opens or one increases its shelf space), it affects the fate of the other stores in its vicinity.

On Tuesday night, I came home from a late meeting with a former Cabinet official who was thinking about buying an independent bookstore and seeking my advice, which, based on no specific knowledge, was “don’t.” I walked in to receive a call from a reporter who asked me for my comment on the Barnes & Noble “news.” “What was that?” I asked. “They’re putting themselves up for sale,” he said. “What has happened recently that would motivate that?”

Without having read the press release, which would have signaled to me that they weren’t actually putting themselves up for sale so much as beginning the process of taking themselves private, I strived to answer the question. I thought the acceleration of ebook uptake, some of it fueled by B&N’s Nook device, was recent news that didn’t bode well for physical bookstores. I thought the recent rescue of Borders, which could postpone their demise or shrinking, wasn’t happy news for Barnes & Noble. And I wondered whether the Ron Burkle lawsuit might make the Riggios less interested in owning the business.

Of course, all of those things are true but none of them apply because the premise was wrong. The Riggios are probably not trying to sell the business; they’re more likely trying to buy the business.

Then I checked with a commission rep friend of mine about the bookstore the former politician I met earlier that evening wanted to buy. It turns out to be an independent with a relatively solid future, with knowledgeable staff underneath its owners and a great reputation with the publishers which assures a continuing flow of traffic-building author appearances. In other words, “don’t” might not be the right advice in this particular case.

Whether the brick-and-mortar share of the business falls by 25%, 50%, or 75% over the next five years from what it is now (and all are possible), the reduction in shelf space depends on whether that reduction is against a rising base of total sales or a stable one. And how it affects any one particular store depends on what has happened to the shelf space allocations by others in that store’s immediate vicinity. That will be very hard for anybody to track.

I am still extremely skeptical of recent celebrations of the successes of independent stores, which we’ve seen coming out of New York City and Pittsburgh in the past couple of weeks. Anecdotal information is not projectable data; it is often misleading data. Nobody seems to be making the claim that bookstore shelf space is increasing in New York or Pittsburgh or anyplace else. Any one bookstore might still, for a while, be a reasonable bet. But this is a case where the usual laws of investment (diversify as much as you can) would likely not apply. It is hard to imagine bets on five or ten or twenty independent stores paying off in the aggregate in the years to come. Unless you were making those bets with knowledge about exactly where Barnes & Noble, Borders, Books-a-Million,Walmart, Target, and Costco were reducing their shelf space the odds will be against you, and I’m pretty sure there won’t be anybody who knows all those facts in a timely way.

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A year ago — even six months ago — it seemed like Amazon and its Kindle device had an insurmountable advantage in the ebook device and platform competition. Despite our admonition that Amazon’s dominance of ebooks was much more fragile than their dominance in online print bookselling, even we were impressed and sometimes daunted by the enormous percentage of ebook sales that were being made through the Kindle ecosystem.

Then Barnes & Noble introduced the Nook through their 700 stores last December and Apple brought the iPad to market in April. Nearly overnight, it seems, Amazon has gone from the dominant player to the leading player with a share that was often in the 80s for many titles having fallen to the 50s.

Three entirely new ebook platforms are now poised to make their debut. Each of them has an angle, or a USP, that the others don’t and that the vendors, devices, and platforms that preceded them — notably Kindle, iBooks, Kobo, and Sony — don’t. The three new platforms are Google Editions, Blio, and Copia.

Google’s special proposition is ubiquity; Blio’s special proposition is enhanced feature sets; and Copia’s special proposition is building social networking right into the content consumption platform.

The new entrant that is subject to the greatest anticipation, of course, is Google Editions. Whenever they go live (which they say they “hope” will be sometime this summer, which has another 6 weeks or so to run), they are likely to be offering the largest selection of ebooks from any single source. Google has a staggering number — millions — of public domain books but they will also have professional and scientific books not published on most of the prior ebook platforms. Their well-promoted proposition is their cloud model, which will allow their ebooks to be read on any device that can support a browser.

Google is also offering a wholesaling service to enable any bookstore or any web site to sell their ebooks. (What that means, of course, is that their “largest single source” claim could be usurped by their own resellers, who might have added other titles from other places.) Their arrival adds another option for potential ebook sellers who had previously been served by Ingram’s wholesaling operation or their competitor, Content Reserve, which has also reached the book trade through Baker & Taylor.

Google is working the OEM channel as well and not limiting themselves to Android-powered devices in doing so. They’ll have apps available in multiple marketplaces, including Apple. And they are offering to power sales on publishers’ own sites. We’ve seen no announcement of publishers who have accepted this proposition, but it would seem likely that some, particularly smaller ones, will find it attractive.

Baker & Taylor has been developing its own ebook platform, Blio, in concert with futurist Ray Kurzweil and the National Federation of the Blind. We were first shown Blio last December and were really impressed with its crisp presentation of integrated text-and-pictures pages. They showed us a tool kit that made it pretty easy for publishers to enhance their print books for electronic delivery with sound and video, and even to fiddle with the design in the Blio platform. Because of Blio’s roots as a tool to bring reading to the sight-impaired, the ability to adjust font sizes, a capability which all ebooks offer, had to be integrated into their delivery of complex page layouts.

We have been expecting Blio’s debut in the market for some time, and we’ve been expecting to see many highly-illustrated books, like college texts, that have not previously been in the offerings of Kindle, Nook, and Kobo. Highly illustrated books would work fine on the iPad, of course, but they were not a priority for initial inclusion for iBooks (the dedicated Apple ebookstore) and they were not what publishers would put into the eink-reader platforms that didn’t handle that material well.

Blio has announced that it will power the store Toshiba is creating to support its tablet release. Since that is expected in the next month or so, Toshiba’s offering of Blio titles will probably be their debut in the marketplace.

The tool set for Blio was what really captivated us when we saw it last December. When we saw it at the time, Blio was delivering a Blio-ready ebook from the publishers’ print PDF, and then, within Blio, the publisher could enhance the ebook. At the Untethered conference in June, Blio announced a partnership with Quark by which Blio files could be created directly from Quark. Blio says they expect the Quark release to be in beta later this Fall. Blio plans to integrate its tools into other creation software in the months to follow.

Blio introduces another format into the ebook world: rather than epub or PDF, they are using Microsoft’s XPS platform. Right now, Blio itself is handling the conversion of titles from either PDF or epub into XPS, but the Quark arrangement and the others that will take place will allow publishers to deliver XPS-ready files to Blio, cutting past the conversion queue that now exists.

The open questions have been: when will Blio arrive and what will be the retailing environment for it when it arrives? They say they have 200,000 titles committed to their platform. (They can’t just pick up the ebooks of others; they’re not vanilla epub.) The Toshiba store won’t contain them all because titles are coming in faster than the conversion process can ramp up. Blio, like Google and Copia, expects lots of OEM installation. They project that Blio could be on more than 50 million devices by the end of 2011 and that they will be working with “traditional retail partners” in 2011 as well.

Copia made a splash last week when they announced their line of ereaders, including a larger-than-a-phone-screen color model which will be $99 when it comes out in September. Since Copia is a creation of DMC, and DMC is historically a hardware company, using their own hardware to launch the platform makes great sense. But OEM relationships, and an ability to deliver their platform to any device through client apps as well as through web browsers, are part of the strategy too.

The Copia platform’s unique proposition is that they combine social networking right into the platform in which content purchasing and consumption take place. Amazon’s announcement of an integration with Facebook moves them in a similar direction, but Copia would seem to be going much further than Amazon: enabling the sharing of the content consumption experience itself among friends or a personal network. This could be critical for reading groups, areas of common (vertical) interest, or for educational applications. Inside the Copia network, users can readily share their notes and annotations. And to make it easy for people to get started on their platform, Copia enables the import of existing contacts from Facebook, Twitter, and LinkedIn.

Other ebook platforms have demonstrated the power of syncing the reading experience across platforms; you can pick up your book on one device and it will tell you where you left off on the last device. Copia takes that a step further, syncing the social experience, including the sharing of notes and recommendations as well as the reading itself, across all the devices you want: smartphones, tablets, computers, or ereaders. We saw this demonstrated on their forthcoming iPad app.

What also impressed us about the last Copia demo we saw is that they have apparently licked the problem of allowing an epub file using Adobe DRM to move painlessly into their platform, regardless of from what ebook store it was purchased.

In addition to the hardware plans they revealed last week, Copia has also announced that they will be a launch partner for Windows Phone 7, the mobile operating system Microsoft is putting forth to compete with iPhone and Android. [Maybe we know a bit more about Copia than others do because they are our client, but like all the players in this very competitive market, they're not tipping their cards before they play their hand any more than their competitors. Even to us.]

All three of these operating systems come from substantial players. Blio is being delivered by one of the two book wholesalers in America with true national and international reach and relationships with every publisher in the country. Copia is being delivered by a company with long hardware development experience and a long history of partnership with consumer electronics retailers and phone companies. And Google Editions, of course, is coming from a tech company that has had deep involvement with virtually every book publisher in the world as it has developed Google Book Search over the last seven years.

Of all the current players, Sony would seem to be the most challenged. They have the weakest device, the weakest store, and the weakest strategic position with the industry and with the public. All of the rest either have something important and unique for the developing ebook marketplace and, in many cases, they also have an outside proposition that will keep them in the ebook game regardless of how well they do in it. Whether Google’s ebooks sell 10% of their projections or 10 times their projections, they won’t be going away. Same with Apple. Same with Amazon. So I think we can expect a multi-player ebook market, with some incompatible formats and a lot of incompatible DRM for some years to come. And the players currently in the game can expect their sales to go up but their market share to go down when the three new entrants join the fray this fall. That much seems certain, but very little else does.

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Apologies in advance for a much-longer-than-usual post.

It is not like the publishers haven’t seen the ebook royalty fight coming. On a panel he and I were on together in March of 2009, John Sargent, the Chairman and CEO of Macmillan, identified ebook margins as the critical issue for publishers going forward. Even though ebook sales at that point were financially insignificant and the growth surge that we’ve seen in the past 15 months wasn’t yet evident, Sargent expressed the belief that ebooks would be the future and that publishers had to be diligent to preserve their margins in the digital environment.

There are three moving parts to the publishers’ margin equation for ebooks.

The one that I think Sargent was thinking most of at that time is ebook pricing. If “misguided” publishers or market forces drive down prices a great deal, that could threaten publishers as sales migrate to digital.

The second one, which was then and remains today a focus of publishers, is the potential consolidation of sales channels so that power moves from a multitude of publishers to a small number of, or perhaps a single dominant, point of contact with the customer. Until the Nook came along from B&N last winter and the iPad from Apple in the spring, Amazon and Kindle looked dangerously close to being able to dictate both pricing and margin in the ebook supply chain.

And third, of course, is the amount of the consumer spend that is taken by the authors: the royalty.

The ebook pricing and channel consolidation issues have been front and center for the past year, ever since Dominique Raccah of Sourcebooks put “windowing”, which had been tried before for ebooks, in the spotlight as her solution to the perceived damage deeply discounted ebooks could do to print book sales, particularly of the hardcover edition. After she announced that she was holding back the ebook for Bran Hambric, similar announcements came from other publishing houses. At that time, only a year ago, Amazon was the dominant ebook vendor with Kindle sales amounting to 80% or more of the ebook sales for narrative trade books.

But the introduction of Barnes & Noble’s Nook device began to eat into Amazon’s hegemony last winter as 700 B&N stores started pushing a Kindle-type experience on their millions of customers. Then, in April, Apple introduced the iPad and changed the game two ways.

First of all, their tablet computing device, which can serve as a larger-than-a-cellphone screen for an ebook reader, started adding tens of thousands of new device-equipped potential book customers every day!

But along with the device competition, the iPad and its iBooks platform added a new business model called Agency. And, under Agency, the pricing of ebooks at retail theoretically becomes standardized across the web, not subject to discounting by individual retailers. This visibly upset Amazon, which appeared to pick a fight with Macmillan over the terms. It looked to those of us with no inside knowledge of their conversations to be an attempt to bully publishers to give up the Agency idea. In retrospect, this was perhaps a bad fight to have picked. Amazon’s threat was to stop selling the print editions of titles from those publishers who sold ebooks on Agency terms. Since five of the top six publishers were moving in that direction, and none of them blinked, Amazon had to, in their own words, “capitulate.” (On the other hand, we are not aware of any other publisher, beyond the Big Five, to whom they also capitulated, so the final score on this fight isn’t in yet.)

So it would seem that the big publishers have solidified two of the major components of their ebook margin. With their help, consolidation in the ebook channel has been reversed and they’ve taken critical steps to control prices to the consumer, while ebook sales have continued to rise at an accelerating pace.

But there remains this tricky question of royalties.

Agency pricing compounded the 25% problem from the authors’ and agents’ point of view because the base price for Agency books is 25% to 40% lower than it is for the old model, wholesale, so the authors’ share is commensurately reduced. Most agents liked the principle of getting uniform pricing, likely to create a healthier ebook marketplace, but were understandably miffed that their per-copy take could be reduced without any agreement required on their part. The publishers would no doubt point out that their take per ebook unit was going down as well. And Random House, still selling at wholesale, is no doubt making the point that their 25% amounts to substantially more per unit than the other guys’ 25%.

There had already been signs for a while that a lot of legacy backlist wasn’t being enticed by the royalty offers of its current publisher. Jane Friedman, formerly the CEO of HarperCollins and an important player on the New York publishing scene for four decades with a lot of very solid relationships, started a new publishing company called Open Road. Among her propositions was to secure ebook rights to some very well established backlist titles by offering a royalty of 50% of receipts while many of the big publishers were apparently holding the line at 25%. The early headline “get” for Open Road were novels by William Styron.

Then in December, S&S bestselling author Stephen Covey announced that he was putting some of his backlist into ebooks for a deal calling for more than 50% of receipts through Rosetta Books, which had litigated inconclusively with Random House about these matters a few years ago. Through Rosetta, Covey’s books were going to be exclusively offered for a time through Kindle. At the time that announcement was made, Nook hadn’t taken hold and iPad hadn’t come out and Kindle was the dominant platform in the market. A time-limited exclusive with them at that moment didn’t seem crazy.

Last week, the plot really thickened.

In retrospect, one could say that there were two preliminaries to the big news about the intentions of the agent Andrew Wylie.

On Tuesday Teleread carried the story that Knopf was pushing ahead to digitize more backlist. There appears never to have been a formal announcement of this, and it seemed a bit curious on a couple of counts. One is that Random House, of which Knopf is a part, has already digitized backlist for years. What could they have missed in their prior efforts? The other is that it always seemed that Random House’s digital efforts were corporate, not imprint-specific. Why would there be news about Knopf on its own?

Then my good friend Evan Schnittman published a post on his Black Plastic Glasses blog called “Pass the Gestalt, Please.” Evan’s point was simple and forcefully made. Ebooks don’t exist in a vacuum; they can’t be evaluated with stand-alone economics. Publishers acquire intellectual property and they monetize it every way they can. They make more from some formats and channels than they do from other formats and channels. But what matters in the end is how much total money they produce, for themselves and for their authors.

I have a problem jumping from the math Schnittman lays out to the characterization that agents are being unreasonable when they ask for a higher percentage of ebook receipts than they get of hardcover receipts. Schnittman argues that margin is irrelevant because the parties aren’t negotiating a profit-sharing deal. I’d say the receipts comparison that he draws is irrelevant. Hardcover receipts are offset by printing costs, handling costs, and spending for excess inventory that receipts on ebooks are not.

Schnittman’s post, which was debated as soon as it hit, turned out to be prologue to the events which then dominated conversation for the rest of the week.

By all public appearances, big publishers were being very stubborn about their 25% ebook royalty, even on very important backlist and more or less daring authors to do something about it.

On Wednesday morning, the plans of the Wylie office were dropped like a bomb, apparently by Amazon. (I am told by a source I trust that Amazon revealed the news and that Andrew Wylie himself was, and is, away on vacation. The Times, as you can see, didn’t report it that way.) It was announced that Wylie that had formed a new publishing company called Odyssey to handle some significant backlist  and — in an apparent middle finger to the entire publishing community — were putting the books into Amazon for a 2-year exclusive. Left unrevealed were what Wylie was paying the authors, what splits Amazon offered Wylie’s authors, and whether any money changed hands between Amazon and the new Odyssey entity. The announcement of Odyssey followed a long period where Wylie had complained publicly about publishers’ reluctance to pay what he (and many other agents) thought were reasonable ebook royalties for legacy backlist.

Response was quick. John Sargent, tongue deeply in cheek, welcomed Wylie to the community of publishers and suggested he should perhaps be paying AAP dues. Random House announced they would not be buying any books from the Wylie agency until this issue was resolved. And many people observed that signing an exclusive deal with Amazon when they’re losing market share quickly and are likely to lose more soon was questionable, not to mention whether there was a conflict of interest for an agent publishing his own clients’ books.

Without knowing what incentives Wylie got for his authors from Amazon in return for the exclusive, it is hard to be sure that it is a mistake (although it seems likely, given the current growth pattern of the ebook suppy chain.) But the conflict of interest for an agent charged with looking for the best possible deal for an author and then self-publishing, in the face of potential litigation, is transparent. And even if Random House is the only house that openly boycotts the agency, there’s an impact on all Wylie clients in return for a theoretical advantage for the ones being he will publish through Odyssey. One must imagine there are more than a few current authors with that office who are scratching their heads about what this might mean for them.

From my perspective, there’s plenty of justification on all sides of this argument. Although I didn’t like his math, Evan Schnittman is entirely correct to say that a publisher making a deal for a copyright plans to exploit it through all channels. In words I’ve heard often from John Schline of Penguin, “you don’t do a P&L on a format; you do a P&L on a title.” They’re right that the author negotiating a deal with them accepts a basket of compensation schemes for different channels in return for an advance. Logical fallacies can creep in when you take one element of it in isolation and say it “isn’t fair” (although, in practice, that’s exactly how contracts are negotiated.)

But the controllers of old copyrights — the Styron estate and Stephen Covey, among others, and apparently several other estates and authors represented by Andrew Wylie — are also right to believe that the ebook rights weren’t contemplated in the contracts for the books in question and that a publisher starting today to publish those books electronically will have a tiny cost base and relatively astronomical margins.

Certainly not all publishers are being stubborn about the 25% number in all negotiations. And agents usually feel they can’t talk about concessions they get publishers to make. One made it very clear to me that s/he was getting concessions from publishers on ebook royalty terms in the form of escalators, but would never say so out loud for fear of angering the customers of s/he’d wangled those concessions from.

(On the other hand, things might be changing fast. In a story I saw just as I was finishing this post, the Financial Times wonders if the Wylie plans don’t signal the conclusion of publishing as we have known it. In that story, superagent Amanda (Binky) Urban is quoted saying her ICM office is getting significant royalty concessions from major publishers, including Random House. Perhaps the Wylie story has changed the dynamic so that now publishers want all the agents to know they’re ready to be reasonable. I’m not aware of an agent having been quoted to that effect before, and it would seem highly unlikely that Urban said what she said without having consulted any house she would name in advance. All of that would anticipate the suggestion I’m making below.)

All public statements are, by definition, posturing.

But the arguments publishers have made publicly to this point have elided the fact that their negotiating position is not the same for these books as they are for a new book. When a new proposal is put in front of them for purchase today, whether they are offering $10,000, $100,000 or $1 million for the rights, they’re in a position to say “if you want my check, it comes attached to these royalty terms.” But they didn’t stipulate those terms when they published books 40 or 30 or 20 years ago, or even 10 years ago. At a minimum, they require agreement from the author on a royalty rate to publish the ebook today; they may need agreement from the author to publish the ebook at all.

Why would the publishers expect an author whose book has earned out long ago, who has no requirement to allow the publisher to publish the ebook and (at the very least) a case to make that they’re free to sell ebook rights elsewhere, to accept the same terms that are offered to authors not in that position?

Publishers may have trapped themselves by not articulating that distinction. Their public position seems to be that they can’t make a competitive deal on this backlist because it would create precedents for the new titles they’re negotiating for today. But it doesn’t have to. There’s a very simple, clear policy they could declare that would make this whole issue go away. Maybe there are one or two already acting this way, but it would be nice if even one publisher would just say this:

“Our policy for all new titles we sign up in the context of all our other standard terms is that we pay 25% royalty on ebooks. But for those books on our backlist which a) have earned out their advance and b) have ambiguity in their original contracts making it unclear what the royalty rate for an ebook should be, we will negotiate a higher royalty in recognition that a contractual element is being negotiated after the value of the copyright has been demonstrated in the marketplace and the risk profile has changed.”

Life is very complicated here. Every deal is different. There are costs and risks for authors and publishers trying to set up these separate ebook deals while a print backlist remains with a legacy publisher. The publisher might sue (although that opens up, for them, the danger that they’d lose, and the consequences of that could be dire.) At the very least, the author annoys the guys with the big checkbooks who are still the custodians of their print sales.

Although it is certainly possible that some authors or estates would want a publisher as talented as Jane Friedman remarketing their backlist, I still believe that if Open Road and others are offering 50%, publishers would find many authors receptive to avoiding the conflict if the publishers were offering 40%. But even if they had to pay 50% to some authors, the publishers would be doing themselves a favor by stating the position articulated above.

Each publisher has to do its own math about how many books of theirs would be affected and what openly paying 60-to-100 percent higher royalties on those books would cost them. Undoubtedly, it would also require them to make concessions to authors they’d roped in for the 25% royalty; certainly many of those have re-openers or most favored nation clauses of some kind in their contracts. That’s the downside. But there is a lot of upside. For one thing, Open Road and Rosetta and Wylie’s new imprint would be seriously weakened; except for Open Road, which has strong cachet with Jane Friedman at the helm, they might just disappear. For another, lots of great titles that could be selling robustly as ebooks if only they were available as ebooks would be producing revenue for the publishers (as well as the authors.) Significant legal costs and liabilities would evaporate. And they’d gain enormously in trust and goodwill with the agents, who are spending far too much time trying to figure out how to go around publishers for the best backlist they control, rather than how to work with them. The conversations I have had make me believe that most agents do not believe that most big publishers are willing to deal on the basis I’m outlining here, (although a lot of them will be calling the publishers tomorrow after they read Binky Urban’s quotes.)

Aside from the reduced per-copy royalties agents and authors are seeing from the Agency pricing, they are also afraid that robust ebook sales at the hardcover price are postponing the issuance of trade paperback editions, on which the 25% Agency royalty does exceed the normal 7% of retail paid on print. That makes them feel like they’re losing again.

It is a paradox that traditional contracts have legacy publishers — the ones who write the large advance checks — paying higher per-copy print royalties than many little publishers pay on hardcovers, even with the various high-discount clawbacks that have been built in over the years. The ebook-first publishers who do print will almost certainly pay lower print royalties than print-first publishers have, if they do hardcovers at all. Publishers will need a foundation of good will, but over time should be able to negotiate lower hardcover royalties in return for higher ebook royalties on new contracts. And that will make sense, because, ultimately, print sales are more expensive for publishers to deliver than ebook sales.

Even if the publishers pushing back manage to win this round with Wylie, and they well might, I don’t think the 25% royalty can hold for very long. As more and more of the business shifts to ebooks, companies without the legacy costs that big publishers have will find it easy to pay higher royalties than that and agents will keep doing the math about how many sales they can afford to lose and still end up ahead in dollars with a higher ebook royalty. As Amazon should have learned in their fight with Macmillan in January, it isn’t smart business to draw a line in the sand marking a position you ultimately can’t defend. I hope every big publisher in town will take that lesson on board, or, even better, that Urban’s remarks tell us that they already have.

In a dialogue with a couple of smart people in my “kitchen cabinet” between writing this piece and posting it, I was asked whether I thought the ebook should have a royalty “greater than the hardcover or less than the paperback.” My response was:

I don’t have an ideology about this. Applying logic alone, I would think a Harlequin or O’Reilly ebook author should get a lower percentage than a Big Six ebook author because the Harlequin and O’Reilly brands add to the online ebook sales power in ways the Big Six publisher brand does not. The same author and the same book wouldn’t sell as well if it were under another imprint. Fully applied, that approach would mean that every deal would be different, which is utterly impractical. I don’t like to advocate things that are impractical.

Publishers should try to make standard the lowest royalty that they can apply in the marketplace without making enemies of their trading partners. It just isn’t realistic to offer a brand name with a choice of where to go 25% in this day and age. It’s just bullheaded. My sense is that any house that offered a standard 25% to earnout and 35% thereafter would be fine for now, except with the biggest authors with whom they’ll have to negotiate escalators (or change the basis on which the not-intended-to-be-earned-out advance is calculated.) But all solutions here are temporary. The line won’t hold. When ebook sales get to 50% of the total (2014-15), even 50% is not going to cut it.

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