The Shatzkin Files


Children’s books: the new value chain is a work-in-progress


It occurred to us about a year ago that the children’s book business was wide open for disruption from new players outside the publishing business. Already, two of the companies we mentioned in a post back then about the new entrants that might be the actual instruments of disruption have linked up with established publishers. That suggests that the legacy publishers and the new ones need some help from each other to deliver profitable children’s book publishing going forward.

Even though I’ve been a skeptic about the commercial viability of “enhanced” ebooks and content-based apps, my reservations are inversely proportional to the age of the intended reader. For the past 18 months or so, it has become clear that tablets and color ereaders would become ubiquitous. Roger McNamee of Elevation Partners, one of the visionary investors in Silicon Valley, has been making the pitch that tablets will be replacing PCs and that the opportunity for content creators is to figure out what will work best in the tablet form factor. (To be fair to Roger, I vastly oversimplify: his analysis, which includes the decline of Microsoft and Google and the rise of HTML5, is much more sophisticated than that.) That’s more or less what the companies cited in the post from last November were already working on a year ago, focused on children’s books.

That focus is totally logical. While enhancement for adult books, particularly for books of immersive reading like novels or narratives of history, has required creators to figure out ways to change established behavior that immersive readers will accept (with a stark lack of success so far, I’d say), we’ve been delivering “enhanced” children’s books for years. Die-cuts, pop-ups, and computer chips to make books talk, sing, squeal, and be responsive to touch commands have been implemented for a long time.

And allowing a book to deliver on another established behavior — reading aloud to a child — is a trivial technical problem in the digital context. Touchy Books has an app that will deliver a wide selection of books that with a “read aloud” option for 99 cents and up. Every household with a digital device with color and touchscreen capabilities can give these to a kid for far less than the cost of books.

The companies we talked about in that post — Oceanhouse Media, Ruckus Media, Smashing Ideas, and Trilogy Studios — were focusing on that opportunity. It struck me at the time that these digital content packages could rapidly overtake the appeal of books for these younger audiences and their gatekeepers. I concluded the piece by saying that publishers who wanted to stay in the kids’ books game in the next few years would have to buy one of these studios or start one.

Regular readers of this blog know I’m comfortable acknowledging that predictions made here can be wrong. This one is already being proven right.

Last May, Random House bought the digital developer Smashing Ideas. Smashing Ideas was actually not a newbie formed around the tablet opportunity; it was a digital developer with a decade of experience working with a variety of big non-publishing brands. But they had the tech chops to pursue the tablet opportunity and had been developing children’s apps for Random House for several months before the acquisition. Random House saw the opportunity to accelerate their own development of digital product creation skills by cross-pollinating the SI team with their own. And their stated intention, at least so far, is to allow SI to sustain its third-party development business, even for competing publishers.

Last week, Ruckus Media formed a new partnership, described by Ruckus CEO and experienced book publishing veteran Rich Richter as like a music business “label deal”, with Scholastic. (In a “label deal”, a small record company develops the content and then turns it over to a large record company for manufacturing and distribution, sort of like an “imprint deal” — rare these days — in publishing. There is the implication there that Scholastic also invests and shares ownership in the product. If it were described as a “distribution deal”, that would not be implied. )

There are some interesting wrinkles here. Ruckus is developing original digital content for Scholastic to sell and market. Projects that are starting from scratch are in the pipeline, but Ruckus is also looking for out-of-print children’s books that deliver some brand recognition and can be built more quickly into interesting digital products to jumpstart the list. They’re paying advances for those and it would seem likely that agents will give them a lot to choose from.

What is made very clear by the Ruckus-Scholastic deal that wasn’t as obvious in the link between Random House and Smashing Ideas is that digital developers can use help from publishers, not just the other way around. Although there have definitely been commercial successes delivered by these non-publishers, most of them appear to be from licensing brands already established elsewhere or leveraging public domain titles. Those are thin reeds for a sustainable business model. The licenses will get harder to obtain as publishers figure out how to make these products themselves and the field could get very crowded with multiple digital versions of public domain classics.

Ruckus is doing a smart thing jumping in to mine the world of “out-of-print”. With their visibility, early start, and willingness to pay advances, they have a good chance to harvest the best low-hanging fruit before others get into the game. But this strategy also has a shelf life; a few years from now there won’t be many opportunities of this kind left to be exploited.

And when you can’t get properties that already give you a branding head start, the ability publishers have to introduce books into the marketplace — knowing the influencers and, at least for a while, having the additional marketing and revenue opportunities delivered by print — can provide crucial help that is necessary no matter how clever the new digital products are.

Scholastic, of course, has a very special marketing platform. They are in direct touch with an enormous number of teachers, probably more than a million, who are the gatekeepers for many times that number of kids. (It should be noted that while Scholastic’s position there is dominant, it is not unique. There’s a division of Readers Digest called Weekly Reader that delivers a similar mindshare opportunity to a smaller number of teachers, probably about 200,000. One must wonder how that marketing capability will become part of this picture. Who will acquire whom?)

But the other big players in children’s publishing, even if they don’t have frequent email exchanges with hundreds of thousands of teachers, also have a great deal to offer. Even the newbies who have started successfully (Oceanhouse Media began with a unique partnership business model for its developers which, combined with its license of Dr. Seuss product, has apparently enabled it to be profitable without needing outside capital) will probably find that what big companies like Random House and Scholastic can deliver will be useful, if not essential, before very long.

And, conversely, the big publishers will find it hard to muster the dedicated focus on original digital products (as Richter said to me last week, “that’s all I think about from the time I get up in the morning”) that these new studios do. Alliances, whether by acquisition or some other means, are natural. We should expect to see more combinations like this developing in the months to come.

Both Ruckus Media and Scholastic are on the program for our half-day Publishers Launch Conference in Frankfurt “Children’s Publishing Goes Digital”. (Thanks to our esteemed Chair for that event, Lorraine Shanley of Market Partners, for that!)

That event shouldn’t be confused with our all-day Publishers Launch Conference in Frankfurt “eBooks Around the World”. Follow the links to learn more or register for both. 

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  • Bob Mayer

     I still think publishers need to radically change their outlook from distribution to the actual reader.  Also, the bottom line is that the best sales person for a book is the author, yet my take is publishers still don’t value authors unless they are one of the top ten percent.  Enhanced book might work with a younger audience since they are used to video.  I can’t even stand the scroll bar on the bottom of CNN.

    • /blog Mike Shatzkin

      I agree about adult books. It ain’t my cup of tea either.

      I can tell you that there is definitely consciousness at the big publishers about both the things you mention. They know they’re going to be judged by authors on how well they can deliver readers. And they’re keenly aware that authors have some choices they didn’t have before. I think you’ll see some very visible signs of this, like “author portals” that let authors track sales between royalty periods for example, pretty soon.

      Mike

  • http://twitter.com/michaelpinto Michael Pinto

    The advantage that big publishers have in the space is that they have well known brands which just based upon the value of the brand will sell interactive books. However I would say that this is the time for a new generation of publishers to rise up a result of the medium who will introduce new brands by taking advantage of the medium rather than just adapting what’s out there. In the last wave of CD-ROMs Rodney Alan Greenblat started to do this with the Dazzeloids and later took that magic to videogames with PaRappa the Rapper. You can also look back to Disney launching Mickey Mouse as a brand when sound films broke in the late 20s. Traditional publishers who think of the new medium as shovelware will make profits in the short term, but those who really create for the medium will be rewarded over the long term. 

    • /blog Mike Shatzkin

      Absolutely agree that the print book publishers’ virtual monopoly on brand creation is about over. (Of course, as you point out, TV and movies could also do it before.) Aren’t there going to be Angry Birds books too? Yes, you can create a brand for an app or any digital product and that is the more profitable course if you can pursue it successfully.

      Mike

  • Monica Shaughnessy

    This post is timely. My child’s school district just approved grades 2 through 5 to bring electronic reading devices to class. A harbinger of things to come…

    At this point, symbiotic relationships between publishers and developers are probably necessary because of lower sales volumes. But as more kids begin to own (not borrow) e-readers, sales will shift dramatically. And when money shifts, business models shift as people jockey for a bigger piece of the profits. We can expect a lot more change in this area in the next two years.

    As for adult books, I’m not much for ambient sounds, video clips, etc. But, I’ve long been toying with the idea of writing an adult book using non-linear storytelling. THIS, I think, is an intriguing idea for the adult market and one tailor-made for the digital format.

    • /blog Mike Shatzkin

      The allowing or encouraging of devices in school is a tricky problem in any district that has wide income disparity (which I know is fewer and fewer districts…) when some kids can afford them and some can’t. We have to get to universal use of devices sooner or later, but it is hard to get there sooner in a time of public austerity where it is hard to provide devices with public funds for kids who need them.

      While I agree that digital will become more and more prevalent, I also think that the publishers’ advantage in marketing will sustain itself for quite a while. Publishers still have the experience and contacts to persuade teachers what content to use more than a fledgling company or one coming from technology will.

      As for non-linear and trans-media storytelling, I think they will have their place. And they are also very much works-in-progress. But I also think the day when they rival the plain ole novel for market share or public acceptance is years down the road, if ever.

      Mike

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  • Dave Bricker

    I still like paper books, but my six-year-old daughter can’t keep her hands off my wife’s iPhone. We’re pushing actual reading of text, but many parents aren’t. In my college classroom, most of my students are either staring at a computer or a portable screen a great deal of the time. Creating “enhanced” books is a logical way to extend the relevancy of publishing to a new, visual, digital generation.

    Textbook publishers have traditionally sold high-priced books to a captive audience. Granted, many have been constrained by relatively fixed, low reader volume, but POD eliminates much of the up-front printing investment. Why print thousands of copies of a not-yet-established book, when books can be manufactured to order and delivered quickly? Ebooks have also eroded some of the profits traditionally enjoyed by educational publishers; the excuses for high prices are seen by more and more students as hollow.

    But instead of losing margin to e-publishing, educational publishers can bundle their content with free hardware for students. We already see Amazon’s plan to release a forked version of the (free) Android OS for their tablet. Publishers can supply “dedicated” hardware “at no cost” with purchases of their electronic libraries of written and interactive content. As eReader prices come down, I won’t be surprised to see more and more publishers offering hardware as a loss leader to entice readers to marry their platforms. This takes the burden off schools to provide hardware to students. Schools curry favor with students by distributing the devices. It doesn’t necessarily get the best books (whatever a book is these days) in the hands of students, but it could be a way for educational publishers to steal back their advantage.

    • /blog Mike Shatzkin

      I think you’re right that the hardware could get so cheap in relation to what publishers want to charge for content that it will make sense to give it away. I heard a rumor (totally unconfirmed) that we’re on the verge of Amazon offering a “free” Kindle. I think it could work if it were done with a “commitment” to buy $100 or so worth of ebooks. (Otherwise, it could be dangerous.)

      Among the issues on the college textbook side apparently has been the ability of students to make margin notes, which they value highly. It has been interesting that students have been resistant to ebooks for texts. Of course, professors really make these decisions and I’d imagine it is only a matter of time before undergrads do the switchover.

      The challenge with POD for texts has been that POD has been quite expensive for color. But those prices come down inexorably. I think your thoughts are on the right track.

      Mike

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