Self-Publishing

As a result of spending my college days at UCLA, I had a handful of contacts in the Hollywood community when I came back East to live in 1969. When I started becoming familiar with New York publishing in the 1970s, I found myself, on occasion, shopping movie or TV tie-in projects. Armed with a script and a release plan, one could make the rounds of editors at the mass-market houses that had been assigned specific responsibility for this kind of acquisition.

At the time I was doing this kind of thing 30 or 35 years ago and more, the book business was growing wary of tie-ins to TV movies. They didn’t have the same promotional life as theatrical releases, even in those days when about one-third of the country was watching any network broadcast. Films that ran in movie theaters were definitely preferred as desirable book properties.

In the decades since then, the link between Hollywood and New York publishing has not exactly been severed, but it certainly hasn’t strengthened. One agent I spoke to told me that interest from Hollywood can definitely help raise the profile of a book project being peddled in New York, but the same agent agreed that the tie-in sale, where a script is novelized to just take advantage of the exposure the title and story will get through the movie, is all but dead.

Another agent, one with strong Hollywood connections through his office, had a slightly different point of view. He says it is still “humbling” to see how much being tied to a movie or TV show (“or even radio”) can “move the needle” on a book sale.

To the extent that the agent who believes in the power of Hollywood exposure to move books is right, the relative reduction in interest by New York publishers only increases the opportunity for Hollywood entities who exploit publishing through ebooks (and judicious and selective use of print) on their own.

(I recall two specific deals from my past relevant to this post. In around 1977 or 1978 I sold the book tie-in rights to a TV movie called “Cotton Candy”, which was produced by Ron Howard. In 1985, I sold the rights to two books to tie into the third “Nightmare on Elm Street” movie: one was a novelization of the first three films and the other a heavily-illustrated “making of…” book. I’d say the “Cotton Candy” deal today couldn’t possibly happen and “Nightmare”, which went to a major publisher, would be a real long shot.)

New York’s interest in Hollywood-originated content was, of course, centered on big properties. Hollywood’s enthusiasm about getting a book deal was often not very great. It didn’t add a ton of revenue (big publishing money for a big movie was small money to the movie producer) and the “promotion” done by publishers was trivial compared to what the movie studios did for the film.

In fact, there were often rights issues that got in the way. Even if the screenwriter had conceded the tie-in rights to sell the script, the studio might still be required to get clearances on the novelization, which would be a nuisance for a book project that often had annoyingly tight deadlines and not much benefit. If the screenwriter had held the tie-in rights and was the one selling to the publisher, it could become a bureaucratic nightmare to get art and logos from the film, which would be controlled by the studio, to promote the book.

New York’s incentives were often too limited to interest Hollywood. Hollywood’s unpredictability on things as basic as release dates, as well as the diminishing likelihood over time that any particular movie property would enjoy enough theatrical success to give real legs to the tie-in book, made systematic efforts unproductive for publishers. There haven’t been dedicated tie-in editors for decades.

But digital publishing changes many things. The relationship between Hollywood and the book business, because of the changes brought on by ebooks, will almost certainly be one of them.

In the digital age, what it takes to succeed as a publisher are access to commercial properties to publish and an ability to let an audience know an ebook of interest to them is available. Those are the core requirements. Everything else can be put together from services, and they can be put together one project at a time (although most people in Hollywood aren’t really aware of that yet.)

A Big Six CEO told me last week that the two core skills and competencies that publishers require are “editorial”, picking the books and developing them, and “marketing”, letting the interested public know the book is there. This CEO would be happy to outsource just about everything else. Starting where this executive wants to end up — with commercial properties in hand and an ability to tell an audience about them but with no overhead or organization to support — is essentially where Hollywood entities get the chance to begin.

Things have changed in Hollywood too. Digital tools make it cheaper and easier to make a movie, just like it is now cheaper and easier to make a book. But, just like book publishers, producers of Hollywood content find the growth in competition mushrooming. The corrolary to the fact that making movies can be cheaper is that promoting them is that much harder and, much more than decades ago, every revenue stream counts, even pretty small ones.

The change in both industries means that Hollywood has enormous opportunities through the digital publishing world, as soon as they figure it out (which we plan to help them do).

There are some early signs that this is beginning to happen.

The most ambitious project we’ve become aware of so far comes from Warner Brothers Digital Distribution. They’ve announced their Inside the Script series that will issue 300 classic scripts (think “Casablanca”) as ebooks, starting with a release of four titles. Doing an entire program enables them to take a templated approach to creating the ebooks, which will cut their costs of making really good products. Whether classic scripts will sell robustly is an open question, of course. But the cost of the experiment is low in a Hollywood context, and they gain the additional benefit that their classic films get a shot of recognition and reader-adrenalin which can only increase Netflix views and DVD sales.

NBC has established NBC Publishing to begin to exploit this opportunity. Michael Fabiano, the NBC VP who is the General Manager of this operation, says that “In general, text will come from titles already published, direct relationships with authors and, in some cases, from the staff of NBC News. We will also utilize a network of professionals as needed.” They make it clear that NBC will continue to work with established publishers. (Left unsaid, but I’d assume: they’ll work with established publishers for projects that have a big print component or where they can get substantial advances.)

ABC has a venture called ABC Video Books. This is being done in conjunction with the publisher they own, Hyperion. They position the initiative as “a new storytelling experience, enhanced with ABC video.”

Thinking about this has led me to believe that every network, every studio, every producer, every agent, and every screenwriter in Hollywood needs to have a digital publishing strategy. If fledgling novelists with no Hollywood presence can blog and tweet their way to commercial success, and some do, certainly a Hollywood-developed story would have an even better chance. Novelizing a screenplay (which is just one of a number of ways to do a Hollywood tie-in as an ebook) isn’t a trivial job, but it isn’t a massive one either. And publication as an ebook can be done for less than the cost of a few lunches. Even cheap lunches.

Broadly speaking, there are two categories of opportunity here. One is for legacy brands: all the stories (like “Casablanca”) that have been made famous over a century of film-making. Publishing scripts or novelizations are the simplest things that can be done. Why not publish all the Seinfeld or All in the Family scripts as ebooks? How would they sell? We don’t know, but the cost to find out is low and the availability of the book constitutes additional promotion, even of a long-established film or TV show.

The other category of opportunity is to build interest in a developing property. This will work better for projects that are about something substantial: a historical event or person or an issue (divorce, alcoholism, etc.) that people would search under looking for reading matter. If you’ve written a screenplay about Babe Ruth and Lou Gehrig and you’re trying to develop interest, you could do worse than publish the script or a novelization as an ebook. People searching their favorite ebook retailer for Babe Ruth or Lou Gehrig will find it (and this happens every day) and some will buy it. You can develop fans and a following. You can get revenue.

Of course, you can also get more creative. Characters can “write books” (an approach that has already been tried.)  And successfully.

Discussing these ideas with players in Hollywood today, I have learned that there is a growing awareness of the ease of ebook publication with another motivation as the catalyst. It is apparently easier for the owner of a screenplay to keep ebook rights out of their movie deal if they’ve already published the ebook. There would seem to be very little risk in that strategy. As we’ve seen, movie studios don’t much care about book tie-ins so they’re not likely to walk away from a deal because these rights have already been exploited. And book publishers are increasingly aware of self-published ebooks as a farm system. No book publisher would decline to buy rights to a book becoming a movie because an ebook had already been issued. (The owner would almost certainly have to pull the self-published ebook off sale, but that would be painless if a publishing deal made it worth it. That precise strategy has been executed by indie publishing star Amanda Hocking and her new full-service publisher, St. Martin’s.)

The first step for networks and channels and producers in Hollywood is to learn how to utilize their new revenue and marketing tool: ebooks. We’re going to jumpstart that effort with a Publishers Launch Conference at the Hollywood Renaissance Hotel on Monday, October 22 called “FILM/TV-TO-BOOK: How Digital Publishing Creates New Revenue and Marketing Opportunities for Hollywood”. We’ll be co-located withF+W Media’s Story World Conference. We think this could be the start of a long-running conversation.

Publishers Launch Hollywood will emphasize what the Tinseltown players can do on their own, which is the big opportunity presented by digital change. But we’ll also present players from the publishing world: both new entrants from the “ebook first” world and established players. None of them want to do every pr0ject Hollywood should do, but when they want to be involved, they’re still almost always the best path to the biggest market.

Share this post

It is hard to believe that we’re starting to plan the fourth annual Digital Book World conference, which will be held January 16-17, 2013 at the Hilton in New York City. But we are.

The first DBW was held in 2010. Planning for it began the June before when David Nussbaum and Sara Domville of F+W Media called me to say “we think there can be a better conference than any we’ve been to about digital change in publishing.” They challenged me to come up with an approach and to take on programming the event.

What I hit upon then as a differentiating proposition was to make Digital Book World focus on the business issues created by digital change in trade book publishing. We wouldn’t focus on tech, per se. We wouldn’t focus on how digital change would affect publishers who didn’t rely primarily on bookstores to reach their customers. It has long been my belief that general trade publishers would be the most challenged by the digital transition because their core proposition, their key value-add, was putting books into bookstores.

That’s worked for us very well. Not only have we had three very successful DBWs, I believe we have really helped focus the conversation about the digital transition. When we booked agents to speak at DBW 2010, it was the first time they had been featured at an industry event on digital change. Of course, the agents’ role — and the nature of their organizations — has changed as much as publishers and booksellers have in recent years. We’ve looked at the globalizing impact of the digital transition, how bookstores are coping with it, how publishers’ relationships with libraries are changing, and, repeatedly, how digital change is affecting trade publishers’ organizations, staffing, and workflows.

Then in 2012, Michael Cader and I formed Publishers Launch Conferences because, as big and sprawling and complete as DBW is (and with 30 different breakout sessions plus a ton of plenary programming, 150 or more speakers, and about 2000 attendees, it is definitely the biggest conversation about digital change for trade publishers held anywhere on the planet), we can’t cover everything there and we need interim conversations throughout the year.

As it happens, PLC is letting us focus on subsets of the broader conversation — one might call them “verticals” — that require a deeper dive. Last year we used that capability to deliver “eBooks for Everyone Else”, the primer for ebook publishing without an IT department, in New York and San Francisco and a half-day show dedicated to children’s book publishing in Frankfurt. Both of these ultimately enriched DBW itself; we made “eBEE” a breakout track and did our own full day Pub Launch standalone on children’s book publishing as a co-located event at DBW 2012.

We have two exciting vertical shows lined up for Pub Launch 2013 that will definitely spawn programming for DBW tracks.

“Publishing in the Cloud”, which we’ll stage on July 26 at Baruch on 25th and Lexington in Manhattan, is about SaaS (“Software as a Service”) for publishing. We think SaaS is starting to change publishing practices, workflows, and the IT departments themselves. SaaS will mean a totally different deployment of technology resources for big publishers and enable capabilities that were previously out of reach for smaller publishers.

Although almost all the from-stage presentations at “Cloud” will be by publishers who are using SaaS services, the suppliers will be there too. They’ll meet the delegates at their sponsor tables during breaks and will also participate in “speed-dating” sessions, where the attendees meet sponsors and the speakers in small groups that enable exchanges about the very specific challenges attendees come to the conference to have addressed.

“Publishers Launch Hollywood”, which will take place on October 22 at the Hollywood Renaisssance, will be the first conference event specifically designed to introduce the movie and TV communities to the new opportunities created by digital publishing. Networks, studios, producers, screenwriters, and agents in LA all control properties that would make books that can sell and can now be delivered at a nominal cost. We know of one major studio about to announce a program to sell 300 “classic” scripts as ebooks. NBC, the one major network not already affiliated with a publisher (CBS has S&S, ABC has Hyperion, and Fox has HarperCollins) has started its own ebook publishing operation. These initiatives are the tip of an opportunity iceberg and we plan to bring that message to Hollywood and deliver the information about all the new ways that exist for film and TV properties to generate more fame and more revenue that are now readily available.

Both SaaS and publishing’s Hollywood connection will find their way to the DBW program for next January. They join a list of topics we think are moving up on the agenda for publishers and that we’ll want to cover pretty thoroughly at DBW 2013..

Digital is making the world smaller. That creates opportunity for US publishers to sell more abroad and opportunity for foreign publishers to sell more here. We will feature more on export, more on import, and more conversation with international publishers in general next January. (There’s quite a bit of this on our PLC BEA show, which will take place on June 4.)

Pretty clearly, DRM (digital rights management) is an element in transition in our dymanic ebook world. We’d say that conversation began in earnest at DBW 2012 when Matteo Berlucchi, the CEO of ebookseller Anobii, made his plea to eliminate DRM as a way to combat Kindle lock-in. Now Pottermore is selling DRM-free ebooks, getting heretofore inconceivable concessions from Amazon and other ebook retailers as a result, and Macmillan has just announced that their Tor.com division will make the same switch in the next two months. The future of DRM, and, more to the point for us, the impact on piracy and on the overall marketplace, will be front and center at DBW 2013.

Discovery is a topic that has been on our minds for some time, but it is getting increasingly crucial as bookstores decline. Discovery is about metadata, of course, and that’s a subject we’ve covered at DBW before (and will again.) Many social reading and sharing options are being developed. Whether these give publishers and authors the tools they need to propel a book to the level of awareness necessary to get sales and word-of-mouth rolling is something we’ll definitely be trying to learn more about at DBW 2013.

The importance of brand and community is increasingly obvious. I’ve been thinking about a whole conference on verticals (which we’ll probably do as a Publishers Launch event in 2013), but we’ll start that process at DBW 2013. The best example we know of a multi-niche publisher is F+W Media, the owners of DBW. I think 2013 may be their time for a more featured role in the programming. Under the same heading, we take note of name-gathering efforts at several major houses. How names get gathered, how they get segmented and used, and what difference it is making to increase sales and reduce marketing costs will be a prime topic at DBW 2013, particularly now that Pottermore has shown us a whole new way name-gathering efforts might work.

As the traditional paths to market (bookstores) atrophy and sales of books prove more difficult to get, alternate revenue opportunities are going to grow in importance. We know of some. For one thing, international markets are more accessible. There are also new business propositions like Semi-Linear “citia” apps for high-concept non-fiction and Yummly for recipes and food content that offer publishers licensing revenues. And publishers may learn that some of their future dollars will come to them in pennies. Micro-transactions enabled by Copyright Clearance Center (a Publishers Launch global sponsor, but also the purveyors of Rightslink, a capability we think publishers will increasingly find indispensable as a rights marketing tool) and AcademicPub, among others, will likely deserve a real airing by DBW 2013.

We’re also seeing new models developing inside and outside of publishing houses and we’ll be putting examinations of them on the program too. Late last year, Penguin launched Book Country (a portal to help fledgling writers improve their work and get to market) and Sourcebooks is pioneering an “agile” publishing model with futurist David Houle (a hit with our DBW 2012 audience whom we’ll probably bring back in 2013.) Sourcebooks and F+W are also trying subscriptions, a model pioneered by O’Reilly with Safari a decade ago. To the extent that DRM fades, experimentation is further enabled. New models will be an important topic by next January.

We’ll also be gathering data from any source we can and as we have at all DBWs past. Self-publishing is a subject that is bound to get coverage beyond Book Country; I’d love to assemble a panel of self-publishing authors that have turned down major deals (and have really done it themselves instead, not signed with Amazon as their publishers!) And, of course, ebook pricing will be a topic we’ll figure out a way to cover even though most of the retailer and publisher players feel highly constrained talking about it.

The digital transition won’t last forever. Transitions don’t. At some point, the transition is over and we’re into a new world. But if one prediction for eight months from now is safe, I think it would be that we’ll still be in a state of flux next January, with a year away as hard to predict then as it was last January. Digital Book World every January and Publishers Launch Conferences throughout the year still have a lot more value to deliver.

What I want from writing this piece are suggestions for what we should cover at DBW. What do you think the burning issues will be in publishing’s digital transition by next January? We’ll be convening the DBW Conference Council at the end of June to discuss this question, but we’d love to be further informed by your thoughts by then. Comments are fine; sending us emails (to [email protected]) is fine; making suggestions to us when you see us at other shows is also fine. But please tell us what you think.

Share this post

The DoJ lawsuit and settlement, Amazon’s next giant step of growth in sales,  the Business Week article on Amazon pushing publishers to allow them to print slow-movers on demand, and then this morning’s New York Times story about a book driven down to a price of zero on Amazon (presumably by an algorithm), combine to raise again the questions of whether the traditional legacy publishing model is worth saving and whether it can be saved.

It really isn’t hard to appreciate the modernist, digitalist, Amazonian point of view. Trade publishing has historically been one of the least efficient businesses in existence. Most books don’t sell well; most authors are frustrated; and getting into the game requires jumping numerous hurdles to even get to the starting line.

The ebook model and online print distribution really are much more efficient than store distribution of printed books has been in reaching the part of the market that buys online. Returns really can be eliminated. In many cases, perhaps most cases, you really can just print the book when it is ordered, not on a wing and a prayer weeks or months before it is ordered.

If you start from the point that the manuscript is completed, it is easy to see why many aspiring authors would choose self-publishing, primarly through Amazon (because they reach the most customers), rather than take weeks or months to find an agent who will take weeks or months to put a proposal in shape to then take weeks or months to find a publisher. And the publisher will then take months, at least, to put a book into distribution. And that’s if you succeed. Most attempts even to secure an agent — just the first step — fail.

Failures overwhelmingly outnumber successes at every step. But, of course, they do in self-publishing as well.

You look at what the publisher will contribute, which is often described as making the book better and more saleable by copy-editing, putting on a decent cover, listing it for sale in places the industry and public can find it, and — for a while longer — putting print copies into stores. All of those things can be purchased, so theoretically you don’t have to give them up just because you self-publish, if you think they’re worth paying for.

And, of course, the author who goes the self-publishing route keeps a lot more of the consumer dollar than the one going through a publisher.

If you’ve got the manuscript in hand and you have a choice between going that route and having books to show your friends within days at just about no cost, why wouldn’t you seriously consider it? Why wouldn’t you do it? It seems like a no-brainer. That explains the conviction with which writers who have succeeded through this means, even those who didn’t quite do it themselves but instead just agreed to be published by Amazon, are so unsympathetic to the concern that Amazon’s business practices could cripple the legacy publishing business.

Inefficiency gets its just desserts.

But it isn’t yet that simple and it may never be that simple.

There are (at least) four serious qualifiers to the logic advocating self- or Amazon-centric-publishing. One is in these words: “if you start from the point that the manuscript is completed.” A second is the assumption, never explicitly stated but tacit in the recurring arguments from Barry Eisler and Joe Konrath (who are the proud poster boys for Amazon-instead-of-a-publisher), that the print-in-store component already doesn’t matter.

Third is that legacy publishing delivers an integrated business model that bundles all the services an author needs together and also includes a shift in risk from the author to the publisher. Self-publishing shifts the risk back.

And fourth, and not trivial, is that legacy publishers sell ebooks for higher prices than the self-published authors do. Expressing things in percentages might elide realities in dollars.

Requiring the whole manuscript before you start doesn’t change things for most unpublished novelists because most publishers won’t buy a first novel on an outline. And it might change little for the most established novelists because they’ll presumably make money on whatever they do, so they just keep writing.

But most other books published by the existing publishing establishment are financed from a point long before completion, unlike the situation for every self-published author. And that financing model is a risk-shifter that any author who can get it should be reluctant to relinquish.

(Yes, I know that Amazon is now publishing books and paying advances, including a substantial one to Eisler. But, remember, when they do that the royalty differential isn’t four times the legacy publisher ebook royalty rate [70% to 17.5%], it’s double, because Amazon pays 35% to the authors they sign, not 70% as they do for self-published. And there’s still no store distribution, which reduces revenue and marketing. The Amazon retail price will be lower. That may drive up units, but it also confounds the straight percentage comparison of the author’s take. A meaningful comparison between the marketing Amazon can do that nobody else can to the publisher-like marketing Amazon might do but hasn’t demonstrated yet is simply not possible until they publish a lot more books.)

Publishers actually weaken their own case when they articulate their value as “curators”. That makes it sound like they’re squeezing our cantaloupes for us. Who needs that, right? We can be our own judge of what’s ripe and what’s not!

They’re doing much more than that. Publishers aren’t squeezing the cantaloupes. They’re deciding which cantaloupes to invest in before the seeds are in the ground. They’re deciding based on the farmer and the climate and the soil and the weather forecast which cantaloupe growers get to participate in the market. And, if they don’t invest, those cantaloupes don’t get grown and they don’t get squeezed by anybody.

And although I’ve been as Cassandra-like as anyone fearing the creeping trivialization of the bookstore channel, it is definitely not dead yet. In-store sales of printed books still constitute most of the sales for most of them (although, admittedly perhaps less than half for a lot of fiction.) And experts like Peter Hildick-Smith of Codex believe that in-store discovery is still a critical driver of online sales, print and digital.

There is no doubt that a lot of what legacy publishing spends its money on will no longer be necessary in a few years. If the stores are mostly gone, or aren’t critical to discovery or sales, then printing expertise, warehouse and distribution capabilities, and all the investments and workflows required to maintain them won’t be necessary either. However, that day certainly hasn’t come yet (even if the digerati think it has!)

But, even more important, and so frequently elided in the discussions of the value of legacy publishing and whether it is worth an effort to preserve it, are the investments publishers make in books that would simply not be written if they didn’t.

If legacy publishing had been run by modern business principles, much would have changed years ago. For example, the trade would get smaller discounts on the biggest titles. After all, if part of the margin given to retailers is for “marketing” (i.e. “discovery”), they need a lot less of it for Harry Potter or the latest Patterson than they do for a first novel. With today’s computers and business acumen to work with, it would seem silly to offer the same margin across all titles on a list, when some clearly need less than others to get placed and sold.

It is partly the standard treatment across all books that is coming back to bite publishers now. Amazon doesn’t discount all titles equally; nor does any other bookseller. They give back the margin on those where it benefits them to do that, selectively. The publishers could have pre-empted that opportunity, or at least made it much more difficult, by varying the margin they offered by the sales appeal of the book. They adjust margins on the royalty side of the equation by paying advances that don’t earn out to big established names, effectively delivering them a higher percentage of the take. But they give the same margin on every title, regardless of cost or appeal, to the trade.

Sharing media attenton with the accounts of Amazon and DoJ recently have been stories about Robert Caro, who wrote The Power Broker about master builder Robert Moses 40 years ago and leveraged that success into a life’s work series of books about Lyndon Johnson. Caro was working on negative cash flow — selling his house and with his family being fed on his wife’s paycheck — until Knopf took over supporting him. If they’re printing 300,000 copies of his next book (which they say they are), that’s probably five million in billing on the first printing, plus ebook revenue, in the immediate offing. They’ll get their money back.

But they had to decide to risk it. Publishers do that every day. Sometimes they don’t get that money back.

Yes, there is Kickstarter as the new spec funding source. But how many publishers would fund projects if they couldn’t manage the creative process or understand and control the marketing and distribution that would take place when the project is finished? Even “finished’ is a complicated concept in the world of publishing. It brings to mind the saying I heard once, but can’t attribute, that “works of art are never completed; they are only abandoned.” Deciding when a manuscript is “ready for publication” is a judgment call that is essentially commercial: when will more work no longer lead to more sales?

Since Kickstarter funders won’t have that kind of control, believers in a rational market would also have to believe that projects that many publishers would fund won’t attract the investment they require through Kickstarter. Perhaps a private equity fund tied to authors would work better, but that would require margins to pay authors and acquiring editors and repay the investors. Even then, you wouldn’t necessarily have the integration of services combined with assumption of risk that makes the current system, which is so beneficial to so many authors, also work for the publisher/investor.

Publishers may never have unbundled the big books from the others in how they treat them commercially, but an Amazon-led marketplace is now doing that for them. The less help an author needs from a publisher, the more appealing the fatter margins of self-publishing look. The less value there is in the retail channel for print, the less lost by giving up the retail distribution in favor of an online-only sales outlet.

Despite that, few big authors  have gone for Amazon’s money. Tell the truth: wouldn’t you have expected that with Amazon’s power, deep pockets, and an experienced book acquirer at the helm, they’d have attracted some bigger “gets” by now? I’ll admit that I did.

Besides delivering widespread print distribution and funding projects speculatively within a system that bundles services and accepts risk, there is one other thing that separates publishers from Amazon as a route to the marketplace for authors. It might be the most important thing.

Amazon ultimately only cares about sales made through Amazon and, if they were candid, would admit that any sale not made through them or an affiliate is a target for future growth. Publishers want as diverse a distribution network as possible; it maximizes sales and exposure for the books they’re charged with and, not at all incidentally, gives them a reason to exist.

This difference in perspective has big implications. USA Today, for example, considers the breadth of a title’s sales across retailers as a component of its bestseller calculations. A book that sells through only one retailer (and that would mean Amazon) doesn’t get the same consideration as one that sells the same number in multiple channels. Similarly, how would the New York Times feel about reviewing a book that isn’t available in stores or in all ebook formats? They might legitimately balk at reviewing something that many, if not most, of its readers won’t encounter commercially.

The divergence in point-of-view is illustrated in the conflict over print-on-demand that is discussed in the WSJ piece. From where Amazon sits, it is simply more efficient to print what they need of slow-movers when they need them. They can probably make an offer to publishers that looks “margin-neutral” or even more favorable. But publishers know they have to print for everybody else, and taking the Amazon demand out of the print equation — particularly for slow-movers — would really disrupt the overall economics for any title that weren’t already printing on demand. These overall marketplace economics aren’t Amazon’s concern.

So as Amazon continues, as any commercial entity would, to set prices, seek margins, and adjust practices and workflows in ways that work for its own business, it drives the industry to “efficiencies” that take the margin that finances all publishing activities — those that will fade away like print distribution and those that are indispensible like funding and developing new projects — out of the commercial equation.

That can only really improve things for authors that don’t need or want those functions. Since the most reliable big authors with savvy and competent agents are already getting 60 to 80 percent of the revenue their books produce guaranteed to them, it is not clear that even the notionally higher ebook royalties deliver a better deal than the publishers do now for that group. But  the scads of authors who can’t get, or don’t think it is worth the effort to find, an advance-against-royalties publishing deal will be happy with Amazon. Indeed, they’re probably happy now.

As bookstores continue to diminish, though, it will get harder for the publishers to continue to compete for the big authors, particularly if Amazon is the one picking up the share the bookstores relinquish. That could change the status quo and Amazon might start to get big authors then. If and when enough of the big authors move on, the legacy model will break and we’ll be in a different world.

When that day comes, I’m sure Amazon will recognize it and change their margins and practices to suit. Perhaps the Department of Justice will want to reconsider its thinking then as well.

Remember, the DoJ wants to hear from us about the settlement unfortunately (in my opinion) agreed to by three major publishers. We still have several weeks to get those in. I hope this post contains useful thoughts for some people formulating their response, which I am still doing. Whenever you’re ready, send your letter to:

John Read, Chief, Litigation III Section, Antitrust Division, U.S. Department of Justice, 450 5th Street, NW, Suite 4000, Washington, DC 20530

Share this post

This post contains a batch of observations from this year’s London Book Fair. Some of it recalled an experience from about 20 years ago. We’ll begin there.

In the early 1990s, Microsoft was on a mission to get computer hardware manufacturers to install CD-Rom drives in new machines. Microsoft had a very simple motivation. Software then was sold as hard goods. One CD-Rom could hold the data that required many, many diskettes. So if the storage and transfer medium were changed, the cost of goods for Microsoft would drop sharply. Since the value customers were buying was the code, not the package, Microsoft figured (correctly) that they’d be able to keep the price of software the same and simply make more profit if their customers could handle the CD-Roms. (Please note this logic applies very nicely to any discussion of what ebooks should cost in relation to print.)

But, of course, most people don’t load that much software, so the CD-Rom argument would be strengthened if content were also available on them. That inspired Microsoft to stage a half-day conference to “educate” the trade publishing community about the “opportunity.” (Of course, areas of technical and professional publishing, which had opportunities in delivering very large amounts of data, had already started to move in that direction; the value of CD-Roms was real and obvious to them. They also had vertical audiences of professionals that were perfectly able to hook up a CD-Rom drive to their existing machines, and did.)

At the conference, Microsoft basically showed all the “cool” things the computer could do: delivering sound and images (not video so much in those days) and hyperlinks. They basically said, “we don’t know how you’re going to make money on this; you’re the content experts. But we’re giving you this great new canvas to create on. Create!!!”

The excitement Microsoft and others were able to generate led to a burst of activity by publishers to create CD-Roms. Very few people found this new packaging of content particularly appealing at any price, and they actually were listed at very high prices. In other words, the techies had no clue about the content business and their advice to it was self-serving.
——
Last Monday in London, Susan Danziger of Publishing Point hosted The Great Debate. The proposition being debated was that the new tech companies would ultimately deliver a “knockout blow” to the conventional publishing establishment. Michael Healy of Copyright Clearance Center moderated.

Speaking for the new tech companies were two stunningly successful new technology entrepreneurs: Bob Young of Lulu and Allen Lau of Wattpad, both of which take anybody’s content and put it into circulation. Lulu’s core mission is seamlessly turning content into printed books and Wattpad’s is about organizing it for crowd-sourced consumption and discussion.

Opposing them were two publishing veterans (and, I’m happy to reveal, good friends): Evan Schnittman and Fionnuala Duggan. Schnittman is about to move from a global sales and marketing position at Bloomsbury to become Hachette Book Group USA’s head of sales, marketing, and digital. Duggan came from the music business, spent several years heading up digital at Random House UK, and is now Managing Director for International Course Smart, the digital platform created by a consortium of college textbook companies.

There is no ambiguity about what happened in this “debate”. The format required each of the approximately 250 attendees to register their opinions as to which side they favored on the way in and then again after the speakers had presented. The “establishment” side — the Schittman and Duggan side — picked up about 100 votes with their arguments from where the audience was when it came in. The incoming audience favored the proposition that the knockout blow was coming by a wide margin. After the debate, the margin was as wide in the opposite direction. (Some were undecided; so don’t drive yourself nuts trying to work out the math.) It is hard to imagine a more decisive outcome.

Of course, Duggan and Schnittman know quite a bit about technology. But neither Young nor Lau seemed to know anything about the content business. That shouldn’t be a surprise. Both of them have gotten rich in businesses that are ostensibly content businesses, but they aren’t. Their financial success is not dependent on the quality of content, the skill in developing or marketing it, or its inherent appeal. In fact, Lau kept touting the volume of what he hosted and claiming that technology would handle the curation perfectly adequately in the future. This was “proof by assertion.” It was the ultimate declaration of faith. The audience didn’t buy it.
———————
On the day before, Schnittman had hosted the Digital Minds conference. One of the keynote speakers was an old friend of his, Andrew Steele, who is the creative director of the very successful web site, Funny or Die. Steele told us the story of that business, which is instructive.

The original concept of Funny or Die was to crowd-source user-generated content, like YouTube. They’d build up traffic and monetize it. But there was a problem. Most of the amateur stuff they got just wasn’t funny. As Steele points out, we go to YouTube when somebody sends us a link for something good. We don’t go to YouTube and browse all the amateur content. There’s a reason for that. Most of it is crap. And most of what Funny or Die was getting from the crowd was crap. They weren’t getting page views. They weren’t going to succeed.

So they tried something new. (That’s called pivoting, for those of you who don’t spend enough time talking to the tech-and-finance community.) They got professionals to create content. Things changed quickly. By allowing their professionally-produced content to go off the site while it maintained the “Funny or Die” branding, they soon built a large audience. It now keeps growing and growing. Success is assured. But the lesson Steele emphasized was that professionally-created and -curated content succeeds where amateurs fail. He sees no reason why it should be any different in our world.
————————
I got a chance to visit with Charlie Redmayne of Pottermore. He was a bit bleary-eyed at the Digital Minds event on Sunday because the site had opened to the public that weekend. When I saw him on the show floor during the week he had just benefited from a full seven hours of zzzs, and he was enjoying his status as a game-changer.

The key to Charlie’s disruption was his willingness to substitute watermarking for DRM. He said it definitely made him nervous to do it, but he couldn’t see any other way to achieve what he wanted for Pottermore. He had to be able to sell to any device; he wanted to be able to allow any purchaser complete interoperability. There was no way to do that and maintain DRM.

His technical infrastructure is awesome. It stood up even though the average length of engagement by each user was three or four times what they had projected and the traffic exceeded expectations as well. But the most startling early news was what he reported about piracy.

Apparently, Potter ebook files started showing up on file-sharing sites pretty much right away after they opened. But before they could serve any takedown notices, Charlie says the community of sharers reacted. They said “C’mon now. Here we have a publisher doing what we’ve been asking for: delivering content DRM-free, across devices, at a reasonable price. And, by the way, don’t you know your file up there on the sharing site is watermarked? They know who you are!” And then the pirated content started being taken down by the community, before Pottermore could react. And very quickly, there were fewer pirated copies out there than before.
————————
I heard a rumor from a very reliable source that two of the Big Six are considering going to DRM-free very soon. The rumor is from the UK side, but it is hard to see a global company doing this in a market silo. Another industry listener I know was hearing similar rumors from different sources.

Could we see another crack in this wall sometime soon, maybe this year?

This is one lecture the techies have been delivering to the content folks that might have been on the money. I’ve always been skeptical that DRM prevents piracy, but I’ll admit that I was more concerned in the past than I am now that it would cost sales.
————————–
At the Digital Minds conference, there was a panel on children’s content publishing. Sara Lloyd, head of digital for Pan Macmillan, moderated a group that included Belinda Rasmussen from her own company, Eric Huang from Penguin, Jeff Gomez of Starlight Runner Entertainment, and Kate Wilson of Nosy Crow, which is a new children’s “book publisher” that seems much more focused on apps.

I have trouble seeing a future for book publishers in the kids’ content world. Everybody seemed to agree about what the apps of the future required (interactivity, game elements, animation) and that the parents of five years from now will be much more likely to hand their kids in the back seat an iPad than a book. So I asked them, as books diminish, what will publishers have to offer here? Wouldn’t this business belong to people who know gaming and animation, not books?

Kate seized the question from the stage and answered in a way that seemed to confirm my conjecture. “We don’t hire people with book experience,” she said. When I checked in with her later, she agreed that books were a revenue-generating convenience to get her company started. She sees the day when they won’t be part of her business anymore. What excited her (and well it should) was that they’d just made their fifth app and had created all the software tools they needed to build it while making the first four. The cost of creating their apps is plummeting because they’ve built the toolkit.

———————-

The news about the DoJ’s charges against five publishers and Apple and their settlement with three publishers broke just before LBF. It was a topic of much discussion, of course. Most people in the industry are horrified by the lawsuit and the settlement and there is really widespread fear about the consequences of ending the agency model. (The settlement doesn’t do that, but having three big publishers pushed to allow discounting for the next two years at least certainly cripples it.)

On Publishers Lunch, Michael Cader rounded up an impressive set of links to media around the country who are just as horrified as publishers, retailers, and agents at LBF were. Here are the stories from the New York Times, the Wall Street Journal (behind a pay wall, unfortunately), Slate, and the Los Angeles Times.

We understand that an amendment to the Tunney Act obliges the DoJ to take note and report to the court any opinions expressed in writing by the citizenry about a settlement that takes place in a case still being litigated. Cader notes that the law has usually been used to expand a judge’s ability to exercise oversight when the court believes DoJ hasn’t been tough enough. In this case, we’ll be asking them to pare back a settlement, which is apparently a less common use of the law. But the law allows us 60 days from the settlement to get those letters in and it is what we in the community can do to help fight this battle.

As I wrote in my summary of the impact of this settlement, it is one where Amazon and the cost-conscious ebook consumer win, but everybody else (and that means authors, publishers, retailers, and the public that wants good books, as I explained on NPR) lose. The low-price side of this is easy to understand. The publishing business side isn’t. (If this were a GOP DoJ, I’ll admit that I would have inserted a snide remark here about what this shows about their IQ.)

One point to note here, which didn’t occur to me at first, is that the three settling publishers are about to game the two fighting publishers (and, perhaps, Random House) the same way Random House gamed them when they stayed out of agency at first. Whether or not they stick with agency, they are now enabling discounting, so they might get the same benefit of the retailer discounting their goods while they retain their revenue that Random House got for the first year of agency.

In other words, more weight on the shoulders of the two companies, Macmillan and Penguin, who are carrying the fight for the whole industry. And that means more reason for the rest of us to try to help.

I am working on my letter to DoJ now, and I’ll publish it in a future post. I hope all my readers who understand what’s at stake here will also write to Justice. Address your letters to

John Read
Chief Litigation III Section
Antitrust Division
U.S. Department of Justice
450 5th Street, NW, Suite 4000
Washington, DC 20530

Share this post

This post is the second that is contemplating two big questions facing the publishing industry:

When will the growth in Amazon’s share of the consumer book business stop?

Who will be left standing when it does?

Amazon applies pressure and generates angst among publishers from two directions. As they grow to be 30% or more of many publishers’ business, they are in a position to push to improve their margins at publishers’ expense. And they do, indeed, push.

At the same time, they are both offering authors attractive opportunities to self-publish and wielding a checkbook to build their own publishing program. Both threaten to constrict publishers’ access to the ultimate source of all their revenue, the output of authors looking for a path to readers. And even when Amazon doesn’t sign a book they go after, they could well be pushing up the price a publisher has to pay to get it.

This pincer maneuver is really unprecedented in its power, even though elements of it have existed before.

Joint ownership of publishing and book retailing is definitely not new; it has been a part of the industry for my entire 50 years in it. My first book publishing job was on the sales floor of Brentano’s Bookstore on 5th Avenue in 1962. My dad was a publisher. He was a vice-president of a company then called Crowell-Collier, which bought the first Macmillan in the early 1960s, eventually changed the corporate name to Macmillan, and was then purchased by Simon & Schuster in 1994. None of these entities have anything to do with the company now called Macmillan, which took its name from the British company the owning Holtzbrinck family had also acquired.

Anyhow, when Crowell-Collier bought Brentano’s, Leonard Shatzkin became the responsible corporate executive. He had gone to Crowell-Collier from Doubleday, which also owned bookstores. Across the street from Brentano’s was the Scribner Bookstore, owned by Charles Scribner’s Sons. They were the publishers of Hemingway and Fitzgerald, among others. (Scribners exists today as an imprint of Simon & Schuster.)

And, of course, it has only been about 10 years since book retailing giant Barnes & Noble expanded its proprietary publishing program by purchasing independent niche publisher Sterling. That doesn’t appear to have worked out particularly well for them; they are apparently having trouble selling Sterling today, even at a fraction of the price they paid for it.

And, in fact, Amazon’s publishing efforts haven’t been particularly disruptive to publishers so far. Their big “gets” to date are Tim Ferriss and Deepak Chopra, two big authors who are unusual because their pattern has been to write for different publishers rather than having a lengthy run at one particular house. The very biggest names, which would be fiction authors, have not yet been enticed to make the jump, although Jackie Collins created a stir last week with some self-publishing plans that don’t have entirely to do with Amazon. It has been nearly a year since Amazon signed former Time Warner Books head Larry Kirshbaum to lead their attempt to woo big trade authors. That was very concerning to the big houses but, so far, the sky has definitely not fallen.

Whether we will really see profound changes that justify the questions that head this series of pieces or whether this turns out to be a totally baseless bout of nervousness by the established players depends on what happens in the overall marketplace in the next few years.

The percentage of a publisher’s business that Amazon represents is largely channel-dependent. If ebook sales go up overall, then Amazon’s share will probably go up. If purchasing shifts from brick stores to online, then Amazon’s share will certainly go up. If print sales in brick stores hold their ground, then Amazon’s sales won’t rise.

I think you’d have to look hard to find a credible voice making the case that print sales in stores will hold their ground. To the extent there is a debate, it revolves around how fast those sales will decline.

AAP says we’ve seen double-digit declines of print sales in 2011 over what they were in 2010. They say print revenue was down 17.5% in adult hardcover and 15.6% in adult paperback.

Forrester’s survey of publishing executives finds few expecting such a big decline in the coming year, but then, few expected such a steep decline last year. Forrester’s own prediction is for sudden drops. I would agree that sales will tend to decline in “step-increments”, as players exit the game. Borders may be responsible for a lot of the loss we saw in 2011. There wouldn’t seem to be any shelf space loss that great on the immediate horizon, but we do see B&N reducing both the number of stores and the percentage of shelf space within them devoted to books and there are many predicting that books might lose their appeal to the mass merchants as well. They are fully capable of substituting other merchandise for books and making that switch very quickly whenever they decide it should happen.

My own expectation is that over the next five years we’ll see the share of sales that are ebooks more than double. (This should be seen as a startlingly conservative prediction, since that number has doubled annually for the past five years!) That would put ebook unit sales at about 65% for commercial immersive reading. (I’m grossing up the 20% of revenue number the big houses are reporting because ebooks produce less revenue than print hardcovers and because many titles in the print revenue base aren’t in the ebook revenue base.)

Of the remaining 35% allocated to print, I’d expect half of the sales, at least, to be online. If those numbers are right, then 17.5% of immersive book sales would be in brick stores.

If Amazon remains about 60% of ebook sales and 90% of print books sold online, that would put their share of immersive reading sales at about 50%. And were a book available in Kindle that people knew about and wanted to read and not available in other formats, Amazon could pick up a lot of the ebook sales they would otherwise miss. (Remember, anybody using a Nook or Kobo app as opposed to a Nook or Kobo device could just switch to the Kindle app to read that particular book.) All that is really hard for them to capture is the 17.5% allocated here for print sold in stores. And even the loss of that share wouldn’t be total, since, for any really big book, in-store buyers would buy online if they had to. So they’d be in a position to reach well more than 70%, perhaps even more than 80%, of the market for all books that are principally text. (And those are the books that lead the industry.)

Imagine what that will do for Kirshbaum’s ability to go get big authors. Today an author considering an Amazon publishing deal must figure that half or more of the market is unreachable through that arrangement. No matter how much money Amazon is willing to pay, no matter how much they increase the ebook royalty over the publishers’ offers (which they have ample margin to do), it is a pretty tough sell to get an author to write off more than half the marketplace, particularly the half most visible to the public.

In other words, overall trends are moving things increasingly in Amazon’s direction. Even if nothing changes in the deals offered or resources available to the competitors for author attention in the next five years, Amazon’s position will have grown considerably more powerful. And, in fact, Amazon’s share of publisher sales just about assures that any changes in deals and resources in the meantime will favor Amazon as well.

Of course, there is more to successful publishing than just signing up a book and managing an online audience. Editing and presentation count. A marketing plan that goes beyond just reaching online bookstore customers counts. Rights sales count. And pricing to maximize a particular title’s revenue, not a bookseller’s overall share and customer loyalty, also counts. None of these are things that Amazon’s experience naturally leads them to do. All of them require investment and development of infrastructure and team skills. Will Amazon invest in and perform these functions?

And the more books a publisher does, the more challenging it becomes to manage all these things. Title growth might also challenge Amazon’s marketing resources, such as they are. There are only so many slots on the home page for a category of books to use to feature your own titles. (And there’s a risk of alienating your customers if they think your featuring and recommendations are just shilling for your own books.) There are only so many emails you can send pushing your own books before you lose people’s attention (and perhaps their permission). The special sales and vertical marketing functions that will be increasingly important for publishers are not natural fits at Amazon. Will they do these things?

Of course, we need to remember that while Amazon signs up titles directly, they pressure competitive retailers as well as publishers. There are two approaches Amazon can take in that circumstance and one can imagine them choosing which approach to apply by title.

Either they are a supplier of titles to the rest of the trade, which gives them a different kind of power. Or they withhold what they’ve got from the rest of the trade, which means the Amazon title selection is advantaged over the competition.

You have to excuse publishers if it makes them nervous to think about living in a world where the company through which they get 50% of their sales is also competing with them to sign up titles directly. This is a situation where it is accurate to say that any other player in the ecosystem who is not at least mildly panicked probably doesn’t fully understand what’s going on.

The challenges faced by Amazon as they try to grow as a publisher are not trivial, but neither is the strength they bring to address them. The world five years from now where Amazon is stronger because they can reach 80% of the market rather than somewhat less than 50% is also one where the big players with whom they’re competing for authors are also weaker. In fact, if the number following “Big” isn’t smaller than “6″ by then, I’ll be one very surprised prognosticator.

It’s taken me two posts (here’s the first one) to lay out what I see as the dynamic forces tilting the trade book business toward Amazon. I have at least three more components of this story to consider: how these changes look from each spot in the value chain (author, agent, large and small publisher, retailer, reader); a discussion of the “cultural gap”, which can be traced as much to different objectives as to the lack of shared history, between Amazon and the legacy book business; and a discussion of the Amazon antidotes: what other players in the industry can do, within the constraints of the law and practicality, to slow down or reverse the Amazon share growth before it changes the nature of the industry, and its cast of characters, beyond recognition.

Share this post

A lot of people in publishing would pay a lot of money to get a reliable answer to these two questions:

When will the growth in Amazon’s share of the consumer book business stop?

Who will be left standing when it does?

I won’t attempt to answer those two questions in this post. In fact, the purpose here is to begin to generate agreement that those are, indeed, the way the industry’s existential strategic questions should be framed going forward. In my consulting work, it is often my role to provide “synthesis and articulation.” This post will begin to document the synthesis that led to articulating the questions, which are actually implicit statements, above. The catalyst for these ruminations was the news last week about Amazon’s dust-up with Independent Publishers Group (IPG), a demonstration of its power and willingness to exercise it that recalls an incident almost exactly two years ago when they were unsuccessful at bullying Macmillan (or the other big publishers) into giving up their notion of implementing agency pricing.

Amazon was not the first online bookseller. But they appear to have had several distinctions from all others from the beginning. One is that they always saw bookselling as a springboard to a much larger business. That meant that bookselling was, perhaps primarily, a customer acquisition tool, not an end in itself. A second is that they saw, long before it was accepted general wisdom, that perfecting the “customer experience” online was the core requirement for success. And the combination of those two things, in concert with the ubiquitious availability of capital for promising Internet propositions that characterized the late 1990s, fueled growth powered by aggressive pricing that has had their trading partners and competitors agape for nearly two decades.

Any discussion of Amazon’s success must acknowledge that the other key component, aside from the strategic components of long-term vision, smart use of capitalization, and customer-centricity, has been the quality of their execution. This has been true from the beginning and it is still true today. Some of this is subjective, but it still looks to me like they offer a better print searching-and-buying experience than BN.com and a better overall ebook ecosystem than Nook or Kobo. I read on an iPhone and use all the ebook purchasing systems from time to time, but I use Kindle the most because it is the best. I am close to somebody who prefers to buy from BN.com because (she says; I don’t do this research…) they give money to Democrats and Amazon gives money to Republicans, but she still does her searching at Amazon because it works better before she hops over to BN.com to make her purchase.

[An update on that last point since the original posting of this piece. I was challenged on the "Amazon is red" statement by a couple of people whose opinions I trust, so I asked my favorite Democrat for citations and I got two. You'll see (if you care and if you look) that both of the analyses that delivered this characterization are squarely within the Bush presidency, so they could constitute a company hedging bets rather than expressing political conviction. On the other hand, B&N was blue throughout the Bush Administration. And the point about the search engines, which was the one germane to this piece, remains true.]

Some of these advantages have become structural; having more customers means more having more customer reviews, more consumer knowledge, more product to sell, and, of course, higher rankings for many searches. There isn’t much their competitors can do about that. But they also keep innovating, most recently announcing an X-Ray feature for Kindle books that does outlining and annotating that could add value for readers of immersive fiction and non-fiction that it will take a while for other ebooks to match.

That’s the good news: good for consumers and good for producers of books that want consumers to buy and appreciate them.

This post is not all about good news.

Amazon’s relentless customer focus doesn’t prevent them from keeping a close eye on threats to their business, whether they come from obvious competitors or whether they are more tacit challenges that spring from trading partners.

This goes back to 1997. Ingram, well aware that Amazon had started its business by simply using Ingram to supply most of the books its customers wanted (Bezos put his business in Seattle because Ingram’s Roseburg, OR warehouse was within a day’s trucking distance), decided they could put many retailers in business the same way. So they announced the formation of I2S2: Ingram Internet Support Services. I2S2 would provide the tools to allow any bookstore to start selling online. Prominent industry thinkers saw I2S2 as the way all booksellers could start to reap the opportunities of the Internet as a sales channel.

Had Amazon not quickly reacted to this threat, they could have gone away so fast that we’d have trouble remembering their name now. But they did. They promptly cut their sale prices so deeply on most of what they sold that the other retailers, focused as they were on their stores, saw no point to expanding into unprofitable web business. Almost as quickly as I2S2 was announced, it was dead.

I2S2 was the first instance of Amazon successfully using price as a weapon but it has been an important part of their arsenal ever since. It has been a powerful one. It works for them commercially because they aren’t just a bookseller; they use book pricing to acquire customers and nurture their loyalty. They lock in that loyalty with their Prime program, by which the customer pays a fixed price annually for benefits that include expedited shipping, thereby making an investment which pays off in direct proportion to how much they buy from Amazon. The more they buy from Amazon, the better deal Prime is for them.

But using price as a weapon has another benefit; it puts the customer on your side. Even when Amazon’s lower prices are subsidized by their being excused from sales tax responsibilities that fund state and local governments and disadvantage local retailers who could be their friends and neighbors, consumers want it and defend it.

Amazon opened its virtual doors in 1995. Soon after they fended off the I2S2 challenge, they discouraged their first really well-financed competitor. They competed with BN.com (in which Bertelsmann, owner of Random House, bought a half-interest in 1998 to become partners with B&N) by extending their anti-I2S2 strategy and discounting so deeply that the online book channel hardly made any margin for the retailer. From Amazon’s perspective, acquiring customers for a long haul that was going to include selling many other things besides books, this made sense. From Bertelsmann’s, a company that made money selling content, owned book clubs that made money, and with no interest in being a multi-product online retailer, it made none. They sold back their half to Barnes & Noble in 2003.

And B&N faced the complications of not wanting to cannibalize their own store business with cheaper prices online. They also didn’t want to invest in the site and the search engine for it the way Amazon did. By the middle of the last decade, it was pretty clear that Amazon would be the dominant online bookseller for the foreseeable future and that those sales efforts would be subsidized by margins earned on other products.

Until the Kindle debuted in November 2007, however, publishers didn’t need to see Amazon as anything but their principal online channel and, for trade publishers, that was still ancillary to their principal channels to the consumer. Barnes & Noble was still growing its store presence. Borders was not doing as well (and still recovering from the mistake of handing Amazon its online business earlier in the decade), but was still a robust brick-and-mortar bookseller. The online share of total sales was rising, but even the bookstore component of sales was still a growing business. And expectations that ebooks would change any of that were limited to True Believers (like me) who had been predicting a change from paper- to screen-reading that had not yet gained any traction.

I recall in the late 1990s the suggestion was made by some pundits (but definitely not this one) that publishers should combine to compete with Amazon. If they had, they almost certainly would have failed as ignominiously as I2S2 and the Bertelsmann-B&N combination did. Publishers wouldn’t have gone into online bookselling to lose money and it would have taken vision and guts to use books the way Bezos did, as a springboard to create a global online Walmart. The point I want to emphasize is that it was not a failure on the publishers’ part to have “allowed” Amazon to grow their online hegemony. It was not in their power to have changed it. And, in the meantime, Amazon was making all their books available and selling much more than they would have if they had been trying to produce more margin on book sales. (Of course, store sales would have atrophied more slowly if the publishers had managed to keep online prices higher, but it wasn’t the publishers’ or booksellers’ choice to make even if they had full cognizance of what was to come.)

Of course, since 2007, ebook sales have doubled or more every year, print sales are declining, print sales in stores are declining even more rapidly, Borders has gone away and closed hundreds of stores, independents and small chains keep disappearing, and even B&N is drastically reducing the shelf space it devotes to books. eBooks have enabled commercially viable self-publishing in ways never before anticipated, giving authors leverage in their negotiations with publishers they never had before. And agents now have to share the concern of the publishers and retailers that Amazon could disintermediate them as well by providing their publishing and distribution services to authors directly.

Aside from the pricing pressure and the arm-twisting of Macmillan and now IPG, Amazon has shown in other situations that they will use power when they have it. A few years ago, they tried to pressure publishers who wanted to sell print-on-demand titles to do that printing for Amazon with CreateSpace, not with Lightning. Recently they have instituted charging publishers for posting supporting material for books online that a few years ago they would have begged them to make available at all. There are now reports that they are pressuring for more margin and more coop (Amazon has apparently recently “invented” ebook coop).

This kind of pressure is not surprising. Retailers who account for a large percentage of a manufacturer’s business apply it routinely. What is new and unprecedented is that Amazon sales now constitute 30% or more of many large publishers’ business, between print and digital, and that number is rising.

This would all be difficult enough if there weren’t a huge cultural gap between Amazon and the rest of the publishing industry. But there is. More and more, people who have been in publishing for years see Amazon as “in” the book business, but not “of” the book business. That attitude is exacerbated because the answer to the second question above (“who is left standing?”) for many is “perhaps not me.”

In fact, what we know is that Amazon’s share of the trade book business has done nothing but grow since the company began in 1995. And however direct or indirect the connection, we’ve lost a lot of players in the business since then, and we continue to.

(Of course, if Amazon had failed in 1997 and I2S2 had succeeded, we would have had a different online and digital history, but there still would have been a digital change and brick-and-mortar would still have declined over time.)

The cultural gap will be covered in an upcoming post that analyzes the impact of Amazon’s growth in each segment of the publishing value chain. Then we’ll start trying to tackle the questions at the top. I expect to get a lot of help with that from the comment strings of this post and the next one on the big questions. From what I can tell, every player thinking about their own future in a world where Amazon just gets more and more important is looking for some help answering those questions as well.

Share this post

This is the time of year for predictions. I’ve done mine in the spirit of the holiday season in years past, going back to the late 1980s when I did a “My Say” for Publishers Weekly. (I wasn’t able to find it — some sharp reader will — but I recall that one of my predictions was that publishers would strive to put out the audio of a title at the same time they released the printed book.)

In recent years, I’ve done the predictions for PW and I’ve done them right here. This year I contributed some thoughts to a nice roundup done by Jeremy Greenfield, the new editorial brain over at the Digital Book World site.

This year, I thought I’d try something different. Rather than predict the future for the industry’s biggest players, I am posing what I think are the biggest questions faced by each category of them. Some of the questions are within their power or responsibility to answer; some depend on outside circumstances; and some may never be answered at all. But any honest futurist (and I try to be one) has to admit that questions outnumber answers. (Note: there is a great Johnny Nash song called “There Are More Questions Than Answers” that’s about 50 years old and is just as correct today as it was then.) So this post focuses on the important questions we’ll be facing throughout the industry in 2012 and beyond.

The biggest publishers:

Can their use of tech at scale — SEO and pricing seem like top candidates — add demonstrable value, cost-effective for them and persuasive to authors?

How fast do sales of print in stores decline? And how efficiently can publishers de-scale to keep overheads under control?

Can they reorganize to take advantage of the opportunities offered to the quick and nimble in a digital world?

Can they extend the “protection” of agency pricing to distribution clients and, if so, can they charge a premium for that capability? (Could this be an unintended benefit to the Big Six of Amazon’s refusal, so far, to allow agency to any except the Big Six?)

What skills and capabilities does a publisher need now that they didn’t need a few years ago, and what’s the best way (acquiring a company, outsourcing, hiring in talent) to bring those talents into the fold?

Publishers bigger than small, but not Big Six:

Can these publishers fight their way out of the box that Amazon and Apple have them in, with Amazon insisting that ebooks be transacted on the wholesale model and Apple insisting on the agency model?

Can Amazon continue to be relied upon to discount from high publisher suggested retail prices (the basis of high wholesale prices for the retailer), or will Amazon sell more frequently at the publisher’s declared price to “encourage” publishers to cut their suggested retail priceas and therefore bring Amazon’s costs, and publishers margins, down?

Smaller publishers:

Can they keep up with the technological and contractual demands of digital publishing change?

Can they find niches that present opportunities they can seize to sell something other than “the book” (whether in print or digital)?

Can they create opportunities by being nimble, opportunistic, and vertical that make them more attractive than larger competitors as partners for knowledgeable agents, authors, and brands?

Amazon:

Can they marshall their considerable resources to sell individual titles so effectively within their network that they make up for what they miss outside their network?

Can they build any noticeable or sustainable advantage in having a repository of desireable content that is not available except through them?

Can they maintain their device and platform dominance as the competition moves far beyond the early adopter online book-reading audience?

Barnes & Noble:

Do books as gifts and objects deliver enough traffic to keep a bookstore chain successful as the sales of novels and biographies go away?

Can they create a profitable international strategy? They haven’t had one yet.

Like the publishers, can they manage down their physical plant and overhead base as the revenue it was built to serve diminishes? (We presume they can’t do it with Nook sales and services alone.)

Independent bookstores:

Will the lift they get from Borders closing and B&N cutting back on shelf space for books buy them time as print book sales in stores shift to ebooks and online purchasing?

Can they make something work with Google ebooks? Or will another solution arise that works to get indies into ebook commerce in a profitable way?

Will emphasizing the books-as-objects market (gifts and otherwise) work as the customers for narrative text find it less and less necessary to visit physical locations?

Authors:

How do they know that their agent understands the new range of publishing options and directs their business activity accordingly? (It’s as hard to be effective as your own agent as it is to be your own lawyer.)

How do they build their own online platform? (And every author who plans to make a living through writing and hasn’t yet built a platform has to think about having one.)

Will any author turn down a significant advance to self-publish in 2012? (So far, that behavior has been extraordinarily rare, with Tim Ferriss being the only one really close. Barry Eisler intended to, but he took an advance from Amazon instead.)

Will the number of successfully self-published mid-list authors continue to grow? Under what terms and royalty rates do these authors return to traditional publishers?

Agents:

How do they make sure the full range of knowledge about the digital publishing alternatives is within their grasp? (if not in their head…)

Do they know what they need to know to make a “profit-sharing” deal with a publisher?

Can they direct an author’s own online marketing efforts? And, if they do, is some adjustment to the standard practice of a 15% share of the author royalties going to be necessary, or possible?

Illustrated book publishers:

Is “fixed page layout” the answer? Or, more likely, is it the answer for some books and not for others? Which ones?

How do illustrated publishers cope with the plethora of native formats, file requirements, and screen sizes?

Do “illustrated books” delivered on good portable screens achieve the same consumer acceptance that straight text did making the same transition?

Are there new retail channels available to sell illustrated books as bookstores diminish?

Are new models, perhaps built on social or community but also possibly built on non-book commerce, possible to support and extend illustrated book publishing?

The industry:

As the global ebook infrastructure develops, does it show signs of staying diverse or does it tend to consolidate as Kindle?

Does the industry show signs it will trifurcate, with narrative text, adult illustrated, and children’s books becoming three largely different businesses?

With Amazon, B&N, Apple, and Kobo established as significant global ebook outlets, will any of the other players or fledglings — Google, Sony, Blio, Copia, Bookish, Anobii — start selling enough units to be an important contributor to ebook sales?

Will either white-label B2B or publisher-to-consumer sales grow markedly in significance as the time-honored sales, distribution, and monetization models atrophy?

This could well be the last Shatzkin Files post for 2011. It’s been a great year around here. We launched a new business, Publishers Launch Conferences, with our friend Michael Cader. We started the year with a great Digital Book World last January and are concluding this one putting the finishing touches on an even bigger and better one coming next month. An ebook and a print book edition of The Shatzkin Files, Volume One (the first two years, through last February) were published. We have some great new consulting clients about whom we think you’ll hear a lot in 2012. And, despite the reality that you can’t claim 50 years in the business (which I do) and remain a young person (which I’m not), good health and good cheer remain in abundance around here. Our view of publishing’s digital future seems to have been more confirmed than contradicted by the year’s events. So we’ll take a 2012 that largely resembles 2011 very happily if we can get it.

Best of the holiday season to all our readers. And may 2012 be as kind to you as 2011 was to us.

Share this post

The division of the consumer’s dollar across the publishing value chain has a history of change. When I came into the business 50 years ago, discounts from publishers to retailers often topped out at 44% and even wholesalers seldom got more than 48% off the retail price on hardcover books. Today discounts into the mid-50s for big retailers and for wholesalers are common.

The top royalty for authors was, as it is now, 15% of the retail price, but there were fewer exceptions allowing the royalty to be cut, contractually or in practice. Today “high discount” clauses, calling for a royalty of something less that 15% of retail (and sometimes a lot less than 15% of retail) will often apply to more than half of the sales the publisher makes. (It is also true that in those days the agent’s standard cut was 10%. The 50% increase they’ve achieved to 15% is the single biggest change in share in the past 50 years.)

Lower royalties subsidize higher discounts and higher discounts have subsidized price cuts to the consumer. Discounting off the publishers’ suggested price by the retailer was rare until the Crown Books chain, which had a meteoric tenure as a major retailer from the mid-1980s until the mid-1990s, made it a core component of their offering. The Barnes & Noble and Borders chains, which rose to prominence during the Crown decade, used the tactic, although less aggressively than Crown.

All of these numbers: the discount determining what the retailer will pay; the royalty calculated either as a percentage of the stated retail price (usually printed on the book) or of the net paid by the retailer on a high-discount sale; and the ultimate consumer price (whether what the publisher printed or lower if the retailer wants it lower) are based on the price the publisher sets and prints on the book in the first place. The informal internal formulas for setting the price have changed over the years too and, although it is a bit hard to really compare, it would appear that the markup over manufacturing cost has also risen steadily over the past 50 years.

So we had reached a point, somewhat before we had the Internet and Amazon.com, where, on big books at least, the publisher would charge a price higher than they expected the consumer to be charged, give the retailer a discount larger than many retailers would keep as margin, and state a percentage as the per-copy royalty in the main body of the contract that didn’t apply to most of the sales. One could say there was a “virtual” world in trade book publishing’s value chain before the term was applied to our new digital reality.

The core underlying point here — obvious but often ignored — is that the division of revenue across the value chain is never fixed. That’s important to remember as we consider how the ebook chain is shaping up. One hears authors and publishers arguing about what is the “fair” division of the ebook consumer’s dollar (as if “fair” had anything to do with it, which it doesn’t) and we have a very unsettled picture of what the retailer’s share of that dollar will be (even though Apple is doing its best to be definitive about it.)

Right now for ebooks we have two “standards” for the publisher-retailer division of revenue. For agency publishers across all retailers and for all publishers selling to (or perhaps we should, with respect for the agency logic, say “through”) Apple, the retailer share is 30% of the purchasing customer’s payment for the ebook, or the publisher’s “digital retail price”. For non-agency publishers selling to everybody else but Apple, the normal offer is 50% off the publishers “suggested retail price”. The DRP is set within boundaries basically set by Apple, primarily based on the price marked on the print version of the book. The SRP is the publisher’s own creation and has been at or close to the lowest-priced print version. The non-agency publishers who sell to Apple are obliged to have both: their DRP is the price Apple will charge (until and unless they’re undercut) and the SRP is the price that forms the basis of discounts to wholesale customers. I haven’t studied this but I think most publishers set SRPs higher than the break-even point because they want wholesale customers to go agency and would trade less revenue to achieve that, as they did when they switched over in the first place. (The publishers could set the SRP at a point where 50% of it equals 70% of the DRP, so their take is the same either way.) Theoretically, the publisher can count on the wholesale-purchasing retailer to discount the book to match the DRP, reducing their own margin and being competitive with the DRP in the consumer’s eyes.

This pricing strategy depends on the retailer discounting from the SRP to keep the pricing of the ebook from looking ridiculous. Not discounting is a way for the retailer to push the publisher to lower the SRP, which could start a cascade of price-cutting. That discounting has usually started with Amazon; others then follow suit. There are anecdotal claims that Amazon is starting to foil this strategy by letting publishers who set high prices live with the prices they set more often than they once did, but nobody but Amazon knows that for sure.

During the period when Random House stayed out of agency pricing, one thing they said was they thought the 30% agency standard was high and they didn’t want to memorialize a retailer cut that rich. Either other considerations prevailed or Random came to the conclusion that they couldn’t singlehandedly change that standard cut.

But if we maintain a competitive landscape of retailers, there is a way it could come down. What if one retailer (B&N? Kobo? Google?) were to offer publishers a deal where a discounted version of an ebook were offered through them on a temporary exclusive — say, the first 60 days the ebook was out — during which they would help subsidize the discount by taking a smaller percentage themselves during the promotion. Would publishers find it tempting to accept such an arrangement to poke a hole in the 30% standard? I think they might. (They would certanly enjoy the conversation with a competing retailer inquiring about how that happened, in which the publisher could offer a “matching” deal for some other equally appealing book and leave that retailer to think about whether to hold the line on the 30%.)

Another value chain segment the industry is still trying to value and price is the percentage a distributor can charge in the digital world. There’s wide variation here already, as there is in the print world, where the same bundle of services (sales, warehousing, shipping and returns processing, collecting receivables) can cost anywhere from around 20% to around 33% (fully loaded.) In ebook distribution, we see BookBaby willing to set up for a fixed fee (with no percentage deducted), BookMasters and Smashwords and some agent services like Knight charging about 15% of the revenue, and then offers from various publishers, distributors, and literary agents that go as high as 30% of the revenue.

Usually those offers are framed as “we pay 70% of revenue” which, I think, some hope will be confused with the 70% the agency retailer pays of the consumer dollar. Of course, if they are paying 70% of the revenue on a wholesale account buying at 50% off and the account doesn’t discount to the consumer, the distributor is actually paying 35% of the consumer dollar to its client.

The challenge for distributors is to offer services which don’t commoditize. Many authors already manage their own digital publishing affairs and sneer at the idea that a distributor or publisher has anything to offer that is worth even a token payment, let alone a substantial share. Over time, one can imagine information dashboards, metadata enhancement, dynamic pricing, and marketing assistance capabilities that will give ample justification for a distributor’s presence in the value chain for many authors and small publishers. It would be premature to predict how much value can be added and how much margin it could command. Most of these roads aren’t paved yet. What the distributors are offering at the moment is their ability to navigate unpaved roads and constant marketplace change which, despite the skeptics, is service many of us can see the need for.

What gets perhaps the most attention in the industry’s conversation about dividing the digital swag, but which is dependent on the upstream divisions of revenue, is the author’s royalty from the publisher. The majors have held the line for a year or two at 25% royalty, which means 25% of the 70% they get from the retailer, or 17.5% of the consumer’s dollar. That’s a quarter of what the author can get from Amazon or Kobo, and just a bit more than a quarter of what they can get from Barnes & Noble. Aside from publishers’ significant efforts to build marketing capabilities that will grow sales and their ability to charge a retail price often four times higher than an author would on his/her own, the publishers are offering guaranteed payments (advances against royalties) and a print revenue stream to sugar-coat the 25% digital royalty. Still, as the percentage of books sold digitally rises, it is likely to pull up the percentage of the sale authors will get along with it.

Everything happens faster with digital than it did with physical. And so it will be with changes in the revenue distribution along the value chain. My hunch (all hunch, no data) is that in the long run (5 or 10 years?) retailers will find it hard to keep 30% of the consumer’s dollar, publishers will find it nearly impossible to keep 75% of what the retailers pay, and that any author who wants to compete seriously will have a cost structure that will often make a royalty rate taking even as much as half of it away worth considering. Right now putting an ebook into Amazon and having them sell it on autopilot can get a lot more of the total market than will be the case over time as a more fully articulated and global ebook infrastructure builds out.

If I’m right, retailers should want longer contracts than publishers in their agreements; publishers should want longer contracts than authors, or at least longer terms for the stipulated ebook payout percentages; every author or publisher wants as short a contract as they can get with their distributor; and every author giving an ebook exclusive to a retail channel for longer than an introductory period should think twice about what that might cost in years to come.

Michael Cader did an absolutely fabulous reporting job on the distribution alternatives available today for our eBooks for Everyone Else conference in San Francisco. We’re doing an eBEE track at Digital Book World in January, and Michael’s doing a reprise of that presentation, with time for q&a, at a breakout session there. The distribution piece is by far the most complex of the three moving parts (the retail function and the royalty rate being much more straightforward components that don’t vary much in their definition) and a lot of DBW attendees will benefit from Michael’s reporting.

Share this post

As the shift from a print-centric book world to a digital one accelerates, more and more digital publishers are creating themselves.

The biggest publishers, with the resources of sophisticated IT departments to guide them, have been in the game for years now and paying serious attention since the Kindle was launched by Amazon late in 2007. But as the market has grown, so has the ecosystem. And while three years ago it was possible to reach the lion’s share of the ebook market through one retailer, Amazon, on a device that really could only handle books of straight narrative text, we now have a dizzying array of options to reach the consumer on a variety of devices and with product packages that are as complicated as you want to make them.

Free or very inexpensive service offerings through web interfaces suggest to every publisher of any size, every literary agent, and every aspiring author “you can do this” and, the implication is, “effectively and without too much help”. Indeed, services like Amazon’s KDP (Kindle Direct Publishing) service, Barnes & Noble’s PubIt!, and service providers Smashwords and BookBaby, offer the possibility of creating an ebook from your document and distributing it through most ebook retailers, enabled for almost all devices, for almost no cash commitment.

Is it really that simple? One suspects not, since literary agencies are creating ebook publishers (for example: The Scott Waxman Agency’s Diversion) and baskets of services (for example: The Knight Agency in Atlanta) and consulting to help their authors. And a bit further upstream, ebook distribution companies (for example: MintRight) and ebook-first publishers (for examples: Open Road, Rosetta, and the granddaddy of them all, Richard Curtis’s e-Reads) are creating more alternatives, sometimes propositions explicitly addressed to the agents. If publishing ebooks to all channels were really a simple matter of uploading a file, it would hardly seem necessary to build all this infrastructure.

We know that small publishers, literary agents, and authors are becoming publishers at an astounding rate. Two years ago when I was trying to organize a panel of literary agents to talk about working with authors on a charge-for-services basis instead of a share-the-royalties basis, it was hard to get volunteers to discuss new models. Two weeks ago, a major agent outside New York said to me, “we all have to think about it now; we have no choice.”

In short, it isn’t just the big publishers who are compelled to develop a digital strategy to adjust their businesses to changing times. Their smaller competitors, the agents they depend on to deliver their content, and even the authors that have always just depended on the publishers to handle the business of getting a book from a manuscript to a purchase, are all assessing the new landscape. They are considering what new approaches might reduce or eliminate their need for a publisher, or at least reduce the publisher’s share of the take.

Although the correct strategy for any entity would depend on the factors that prevail in each case, there are things it would seem that everybody entering this arena needs to know and understand.

First of all, what are all the things publishers do to get from manuscript to sale, are all the steps necessary, and what do they cost? Developmental editing, copy-editing, mark-up for design, creating metadata: these are all things publishers do routinely. Are they critical for every book? Would a purchaser-reader notice if a publishing newbie left any of them out? Will the services that promise to make and distribute an ebook without a cash investment do these things well?

The ebooks themselves have gotten increasingly complicated. The ebook standard epub (used for just about every ebook not intended for the Kindle ecosystem) has risen to the challenge posed by apps to be able to accommodate color and video and audio and software elements. Everybody who knows that “you get what you pay for” expects complicated ebooks to take more effort and money to create than ebooks of straight narrative text. But what constitutes “complex”? And how much more money does that additional effort cost the publisher that wants to deliver an ebook more complicated than just simple text?

Marketing ebooks also requires a whole new set of knowledge and skills. The key to all ebook marketing is the accompanying metadata: coding that travels along with the file specifying its core bibliographic information and price, but which can also tell a retailer or a search engine much more than that. Search engine optimization (SEO) is the art of delivering metadata that makes the book more likely to be found in response to various searches and queries; that’s yet another set of understandings new ebook publishers have to acquire.

That is just the beginning of what is possible (and therefore necessary) in ebook marketing. Sample chapters can be given away. Web sites can be invoked as partners.

And authors and publishers can, and therefore must, engage in “social network marketing”: using Twitter and Facebook and commenting in high-profile streams to catch attention and gain credibility with core audiences for the books. This is more knowledge to acquire.

Any new publisher will need to understand the paths to market. Yes, Amazon gets more than half of the US ebook sales and Barnes & Noble gets half of the rest. But it isn’t that way on every book, ignoring the others leaves a big chunk of the market unexploited, and things are changing quickly. Amazon’s market share has dropped by a huge percentage in the past two years.) OverDrive is the primary path to libraries. Ingram aggregates many independent stores. Baker & Taylor is opening up markets among mass merchants. Kobo is as important in Canada as B&N is in the US and works in markets all over the world. Google has the ebook ecosystem making the most serious penetration of independent book retailers. Sony is about to introduce new devices that could increase their importance. And Apple is doing its best to dominate sales to its own device holders, who constitute a large wedge of the ebook customer pie.

One can go to all of these channels directly but there are also a slew of services to handle what is the increasingly complex job of delivering to and administering the multiple channels. Perseus Constellation, Ingram Digital, INscribe Digital, LibreDigital (just bought by Donnelley), and Bookmasters as well as the automated services like Smashwords, BookBaby, and MintRight we mentioned above, and others offer service packages to do that and to help with the creation and marketing needs as well.

As we said at the top, nowhere is the change in publishing greater than in the agent community. What has been a stable business model for generations is now, suddenly, changing. There seem to be as many new models and approaches as there are literary agencies. That adds another thing that all of the fledging epublishers — some of which are agents, others being small publishers and authors — need to know about and understand. The relationships among authors, agents, and publishers are getting much more complicated and everybody needs to spend some time thinking that through and discussing what it means.

If all this strikes you as a set of topics worthy of a day’s discussion, we’re in agreement. We think it is too. And that’s why our new Publishers Launch Conferences partnership with Michael Cader is delivering a day-long event called “eBooks for Everyone Else” in New York (in conjunction with The Center for Publishing at New York University’s School of Continuing and Professional Studies) on Monday, September 26 and in San Francisco (co-located with F+W Media’s new StoryWorld conference) on Wednesday, November 2.

Not only do we have an expert-packed lineup to deliver the information, we’ve carved out time for our attendees to get their own specific questions answered by the experts and by the providers of many of the services that are part of the new ecosystem. If the business of ebook publishing is part of your future strategy, you’re bound to get the knowledge and make the connections you need at eBooks for Everyone Else.

Among the leading service providers who will participate in eBooks for Everyone Else in New York and be available for “speed-dating” conversations with attendees are our global sponsors Copyright Clearance Center, Constellation, and Bowker, as well as supporting sponsors Ingram Content Group, INscribe Digital, B&N’s PubIt!, Kobo, and BookBaby. (Kobo and PubIt! will be speaking from the main stage as well.)

Our New York show features an all-star lineup of literary agents including Jane Dystel, Robert Gottlieb, Sloan Harris, and Scott Waxman. We have a distinguished group of publishing veterans — including Jack Perry and David Wilk, Smashwords founder Mark Coker, Renee Register, Iris Blasi, Rich Fahle, Ron Martinez, and Joshua Tallent — who will present advice and insight to help you develop a comprehensive ebook strategy. Most of them will be available at the breaks and alongside the speed-dating sessions to lead small group discussions and answer your questions about creating, marketing, and distributing your ebooks. (The San Francisco roster is slightly different, but just as powerful.)

Michael Cader and I will be moderating all the day’s activities, asking questions, and helping to put an enormous volume of facts into a strategic context for an audience with a staggering array of choices as to how to proceed with ebook publishing.

Share this post

I hope it is a mistaken impression — it certainly isn’t scientifically arrived at — but I have the feeling that there is widespread sentiment among self-published writers opposing publishers’ attempts through the agency model to keep ebook prices up. I have said before that I think agency pricing has, in many ways, saved the ebook business from monopoly control by its strongest retailer. Today I want to posit another virtue of the model: that it boosts the revenue of all writers, whether they are published by an agency publisher or working entirely on their own.

When some workers are in a union and others who can do a similar job are not, bad feelings can arise. The union workers fight to keep wages and benefits up and they use the power of the union to express a workers’ point of view about conditions on the job. And they see workers who are willing to do the same job for less as “scabs”. Inherent in that view is the belief that agreeing to work for less undermines the objectives of the union (which the union workers pay for through dues, of course) and the opinions people hold readily take on the coloration of moral positions, not just commercially-motivated ones.

From the point of view of the non-union worker, of course, a job is a job and a wage is a wage. Union membership might not be open to them anyway, for any number of reasons, and, even if it were, the cost-benefit relationship between the union dues and the wages and working conditions might not look like an attractive bargain. For example, union benefits that deliver advantages through seniority might not be much of an attraction to somebody who doesn’t expect to stay in the job or the area for a long time.

Another aspect of this is that the unions’ ability to bargain for workers raises the costs of production for management which raises prices for everybody. The unionized workers, benefiting directly from the higher costs, may either not notice that point or not care. The workers outside the union, unemployed or less gainfully employed, might well care.

Unionized workers and union officials would argue, and I would generally agree, that the benefits the union achieves for its workers actually pull up the wages and working conditions for all workers. It might literally be more “democratic” for employers to be free to hire non-union labor and for workers to be free to take non-union jobs, but that doesn’t mean that it isn’t in the vested interest of all the workers for the unions to be pushing to improve wages and working conditions in those situations they can influence.

An analogous situation is now developing among writers of books, thanks to the democratization of access for authors created by the ebook revolution.

I think of the agented authors, published by the Big Six and other major publishers, as the unionized workers. Their union management is the agent community. The structure is different that it is for auto workers in a factory or miners in a pit, but the effect is very similar. Agents control the access that major publishers have to the labor they want: the writers who can deliver the books they can most readily sell. With that control comes the ability to drive up prices and improve working conditions.

The prices — which we call advances against royalties — that publishers have to pay for agented writers is part of the industrial cost structure of publishing. And the prices that publishers are charging consumers for ebooks through the agency model are necessary to maintain revenue levels that will support the industry as it has developed over the past century.

Agented writers pay “union dues”: 15% commission to the agents. And, like a union, the opportunity to get the privilege of paying those dues is limited, not democratically distributed. But those writers get the benefits of an environment negotiated between powerful industrial capability (the publishers) and controllers of a critical labor source.

This explains a longstanding anomaly in publishing, by which the big publishers have not only been the ones paying the big advances but have also generally paid higher royalties as a percentage of the sale price than smaller ones. Smaller publishers seldom pay 15% of retail royalties, as big publishers routinely do. They’ll often ask for (and get) 50% of foreign rights revenue, which big publishers very seldom do. So the players with the leverage and the checkbooks pay more than the players without it. That shows the power of controlling the labor supply, which agents do, coupled with professional negotiating skills, which agents have.

Of course, book consumers aren’t buying a “union label”; they’re buying an author’s name, perhaps sometimes undergirded by a known publisher’s branding, or the subject or the pass-along affects of branding (reviews and notices in credible places), or the recommendation of a friend (who bought the author’s name or subject or the endorsement.)

Thanks to agency, the most obvious way to for a consumer to distinguish between the “union” books and the “non-union” books is by price. The major publishers are (generally) maintaining prices of $9.99 to $14.99 for ebooks available in print as hardcovers for two or three times that amount and then, usually, at $7.99 and up when the printed book is in paperback. The non-union books — the self-published books by authors who (again, generally) couldn’t get into the “union” — are most often available for $2.99 or less, often for as little as $0.99.

This price differential, along with it being obvious to the purchaser that the unit cost of what the consumer receives when an ebook is purchased must have been trivial, has led to pretty widespread excoriation of the pricing levels of agency books.* This should not be confused with any apparent reluctance on the consumers’ part to buy them; the biggest books in print appear to also be the biggest ebook sellers, despite the fact that the print versions have far fewer direct competitors overall and none at the great price differentials that exist for ebooks.

That those consumers who are price-consciopus see it as a matter worth protesting that their favorite author’s book is $12.99 or $14.99 when there are many books available that are superficially comparable (same genre, same length) at a fifth or a tenth of that price, is not surprising. When you meet the consumer that says “I want to pay more”, you’ll have met a breed considerably rarer than the rich person who comes out for higher taxes. (Thank you, Warren Buffett.)

But I want to argue here that all authors, including those who self-publish for $0.99 or $2.99, should be applauding the big publishers’ efforts to keep the perception of value for branded books high by keeping prices high and stopping retailer discounting. Authors should be vocally supporting price maintenance and the agency model, even if they are not “in the union”. There are several reasons for this.

1. Although the standard big publisher split of ebook revenues (75-25 in favor of the publisher) allows a self-published author to gain comparable or even greater revenue at a lower price, those are just today’s transient conditions. It will be easier for authors (through agents) in the future to improve the split than it would be for the publishers to raise prices in the future to get authors more money. If the consumer is putting more money in the pot, then there’s more to divide. The division is something to fight over; keeping prices and value perception high benefits both sides.

2. If big publishers were to sharply reduce their ebook prices, print would die much faster. That would further reduce revenues in the pool for publishers and authors as well as accelerating the disappearance of bookstores, eliminating free visibility and marketing responsible for millions of book sales.

3. If big publishers reduced their prices sharply, the key marketing distinction that fostered the discovery of such writers as Amanda Hocking and John Locke would be eliminated. On the comment stream of a blogpost I read on this subject (can’t find it so can’t link it), one person posted a string of suggestions for major publisher survival strategies that included “cut all your prices to $2.99.” Why? Because it would eliminate all the competition from the self-published riff-raff that is using price as a marketing tool. So not only would the publishers and branded authors make less money, the aspirants would find their path to success cut off as well.

(This suggestion actually makes the point that self-publishers who scream  ”big publishers are stupid and they should cut their prices like us” should be very careful what they wish for.)

A cost-driven print book commercial model has created a legacy business which has made consumers willing to pay $25-30 for what is for many an 8-10 hour immersive reading experience. Millions of readers conditioned this way find paying around half that price to be a great bargain. The entire mechanism by which those printed books have been selected and delivered — the aggregation and curation of the major publishers’ offerings — is depended upon by the consumers who spend all that money.

No doubt, over time this will change. The print book infrastructure, which has inventory and supply chain costs that are responsible for the pricing conventions that have developed, will not last forever. Almost certainly, books will get cheaper and cheaper. But writers will also make less money when there is less to divide, not more. All writers, whether they’re among the fortunate ones that have a publisher pushing them or whether they’re trying to do it themselves, should be grateful that publishers are doing their damnedest to maintain prices and the perception of value for writers’ work. If that segment of consumers that complains about prices finds fault with agency pricing and the publishers’ insistence that the digital discount from the highest print price be limited to about 50% at the moment, that’s understandable.

But if writers join in that bashing, I think that’s a failure of understanding and, in effect, opposition to their own self-interest.

* It would be misleading not to mention that much of the “consumer” opposition to agency-priced books has been egged on by the self-interested. That’s one way it is in the (short-term) interest of the self-published author to be vocal in opposition to agency. If you sell that as a point of “principle” to a reader, you’ve steered them away from your competition.

Share this post