The Shatzkin Files


Extending the life of bookstores is critical, but devilishly difficult


I’ll admit that I would have thought a few years ago that by the time we got to the point when more than a third of unit sales for major houses had gone digital — and perhaps more than half for fiction — that the future shape of the book business would be discernible. But, at least according to what I learned from one Big Six house last week, we have reached that level of ebook uptake and despite that, the business still looks very much as it has. It seems impossible to me that it will stay that way.

Here are a few bits of information that came onto my radar last week.

One Big Six executive told me that ebook sales in their shop had reached the mid-30s as a percentage of units sold. That broke down to about 50% of fiction units and 25% of non-fiction.

Nonetheless, that same executive noted a real slowdown in the rate of ebook growth. This is to be expected as the base of sales grows, of course, but it slowed down faster than this house expected. They had seen a 120% increase in ebook units in 2010 and figured they’d see an 80% growth in 2011; it came in at 60%. In short, the rate of increase was cut in half.

These numbers gave this particular executive reason to believe that print demand was begining to stabilize and that it was reasonable to assume that 50% print units might persist into the future, with commensurate new stability for brick-and-mortar stores. I have since been told that a leading executive at another of the Big Six houses shares the same expectation, or hope. Perhaps they all do.

On the other hand…

Another publisher, substantial but not Big Six, has seen much more explosive growth continuing in ebooks and, for that publisher, unit sales for fiction have already gone to well beyond 50% digital.

A paper by the accountants-consultants at Deloitte in the UK, reported in the Guardian, predicts a decline of 40% in all brick-and-mortar stores over the next five years. That’s because books are not the only item for which sales are migrating from brick stores to online. We’ve already learned that books are among the items most susceptible to online purchasing for a myriad of obvious and well-established reasons. We also know that buying public in the US is at least as receptive to online purchasing as the British.

I’ve written time after time after time about the diminishing retail network for books and its potential impact. I have always seen this as existential for big trade houses, whose distinguishing value proposition for authors remains their ability to put books on retail shelves. (There are other things that matter, but I’d argue that all of them put together don’t equal that.) Publishing printed books is a complex endeavor best done by a large organization that can perform its various functions — warehousing, shipping, billing, commissioning the manufacturing, sales representation, and contact with marketing megaphones — at scale.

A proliferation of online marketing channels with real influence could once again challenge the under-resourced (authors working alone or smaller publishers) or otherwise-preoccupied (Amazon) who are trying to substitute for what the big publishers do. So far, the platforms that matter (to the extent they do…more on that below) have been limited in number, Facebook being the most prominent one. (One sales executive said to me yesterday, “Facebook isn’t a platform. It’s a requirement.”) If Tumblr becomes really important and Pinterest really were the next Facebook and, over time,  online influencers become as dispersed as our 20th century media world was, it opens up opportunity for big organizations to add value that smaller ones can’t.

So even if the Big Six optimists are wrong that their business proposition will be preserved by a slowing switch from print to digital (and, with no more knowledge than they have, my intuition against their intuition, I wouldn’t bet a dime that they’re right), perhaps we’re heading for a world where any author in her right mind would want a publisher to cover all the digital marketing bases, with the help of technology and dedicated staff, rather than trying to do it herself.

Nobody’s predicted that yet that I’m aware of, but let me be the first on the block to acknowledge the possibility.

The future of bookstores and the future of publishers if the bookstores diminish much futher in importance should be one of the most important topics on the minds of all stakeholders in the book business. We’re going to try two different ways to explore it at our next Publishers Launch Conference, taking place at BookExpo on June 4. Both of them involve one of the distinguishing features of our events: delivering insightful data about our industry that is not delivered by other industry conferences.

All of the current industry data reporting, including the recent effort called BookStats put together by the AAP, BISG, and Bowker, are unable to isolate sales and inventory in stores by type of book. To plan future publishing programs (and to sign up books this month and next), publishers need to understand with some level of granularity whether it is true that stores are shifting their buying (and selling) from immersive reading to illustrated books and, if so, which illustrated books. Among the reasons that the industry stats fail to capture this properly is that they don’t look beyond the sales publishers make to wholesalers to find out what happened with the books the wholesalers bought.

But the wholesalers know whether the book they just sold went to a brick store, a library, an online store, or an individual. We’ve been fortunate to get Phil Ollila of the Ingram Content Group to examine his company’s records to give us a more detailed and granular understanding of what is really happening in the retail marketplace. Are bookstores really stocking fewer novels and more illustrated books? Is the proportion of sales made online versus in stores changing at different speeds for straight immersive books and illustrated books? Ingram is mining its data to come up with answers to those questions. Ollila will report some findings at our conference.

We will also have a data-rich and sobering presentation from Peter Hildick-Smith of the Codex Group. Hildick-Smith and his team have been surveying book consumers on a quarterly basis for nearly a decade. Their work is high-level and expensive and is normally only available to the big companies that can afford to subscribe. But Hildick-Smith sees a crisis ahead for the industry in his data, and he cares enough about our collective future to want to sound an alarm. He’ll be doing that our June 4 event.

And what he sees and documents is the critical role bookstores play in consumer discovery of new books and authors. He demonstrates with data and logic that SEO and social media are totally inadequate substitutes. Hildick-Smith thinks a future without bookstores will be very different than the present. He makes the case that author brands established in the bookstore era will be largely unchallenged when the bookstore ladder gets pulled up and future authors can’t climb it. And he believes that publishers don’t appreciate that all measures, even desperate measures, are called for to preserve the brick store base as long as possible.

When you start trying to figure out how publishers could do that, you appreciate very quickly that you’re tackling a very challenging problem.

Six decades ago, long before there was any bookstore crisis, my father, Leonard Shatzkin, then at Doubleday, recognized that bookstores were the publishers’ lifeblood. He didn’t see the logic in giving bigger discounts to wholesalers than to retailers. After all, wholesalers primarily put their books in warehouses waiting for orders that publishers’ marketing efforts and a book’s inherent appeal create while retailers put them on shelves in front of customers, stimulating demand. His solution, implemented ever-so-briefly, was to eliminate the wholesalers’ discount differential and offer them the same terms as retailers.

Unfortunately, this is a story about which I didn’t capture all the details while Dad was around to give them to me. I know that the wholesalers went ballistic and demanded meetings with Doubleday management (presumably including Dad, who implemented policies like this from the relative safety of the “Research Department”, not from the front lines of the Sales Department.) The policy was reversed and the wholesale discount was restored.

But I can personally attest to the enduring bad feelings this initiative engendered. In 1974, around two decades after the failed experiment, I was working for Dad selling books for Two Continents. As the top sales guy, it was my role to introduce the company to Bookazine, a wholesaler that then occupied a warehouse on West 10th Street in Greenwich Village. Bill Epstein was the owner of Bookazine and, when he met me, all of the anger from that Doubleday discount change came to the surface, as if he’d been waiting 20 years to complain about it again.

The day has perhaps come again when publishers will want to consider offering the highest discount incentive for placing a book on a retail store shelf. (The idea exists in the world of commerce: it is called a “retail display allowance”, although the concept would need to be extended to favor all retail display, not just favored positioning.) This would be a devilishly difficult policy to design and implement to avoid alienating the wholesalers the way my Dad did. (There is no way a policy like this would be well-received by Amazon.) But after publishers hear Peter Hildick-Smith at Pub Launch BEA, it is bound to strike some, at least, as an idea well worth considering.

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  • Faeparsons

    I think what bothers me about this is the apparent assumption that the Big Six aren’t engaging in practices that slow down the transition to their eBooks. That is, that the slow down is across all publishers – Big 6 or not. But I don’t think that’s a safe assumption.  What if the Big 6 are seeing this slow down because more and more readers are buying eBooks from non-Big 6 publishers because policies that make other eBooks more attractive?

    • /blog Mike Shatzkin

      Well, actually, there’s some evidence for that in the citation I did in the post of the non Big Six executive who is *not* seeing that slowdown. But what I think the Big Six execs also focus on is whether the total sale of print and e is meeting expectations; that’s how they interpret whether they are seeing substitution or erosion.

      But the bottom line is: your point is well-taken.

      Mike

  • http://carmenspage.blogspot.com/ Carmen Webster Buxton

    I think Faeparsons is right. Other publishers make their ebooks cheaper than the Big 6, and ergo, they sell more ebooks. What the Box 6 needs to determine is, do the folks who don’t buy their ebooks because of price buy their books in other formats, or do they buy different ebooks? 

  • http://twitter.com/garethcuddy Gareth Cuddy

    It strikes me that many independent publishers may see the demise of B&M giants, especially those with strangleholds in specific geographic markets as a liberation of sorts. Their strategic position has given these retailers massive control over discounting and product placement in the past.
    However, diversification and a multitude of outlets is key for the publishing industry as a whole – both physical and digital. In the UK we are hearing a lot of success stories about independent bookshops that are engaged with their customers and local communities, promoting discovery of great stories – not just the best-sellers. 

    Perhaps this is the sign of a return to the fine old art of book selling, not just pushing mass-appeal product? Large retailers take note.

    • http://twitter.com/emmittc emmittc

      “Fine old art of bookselling”  – here here gareth….

       there is no substitute for booksellers matching books with readers….and indie bookstores have done it masterfully (because of passion mainly and not “business model” – survivors managed to have at least a modest business skillset) for umpteen years……many indies are thriving – esp with the exit of Borders and the downsizing of book inventory of BN…..print books continue to fly out the doors of many indies….how long it will last is a fair question but a healthy demand is there today……

    • /blog Mike Shatzkin

      So far, I haven’t seen persuasive evidence that smaller indie bookshops are generally advantaged in the changeover. In the US, it is more likely that stores that were near a Borders or near B&Ns that have sharply reduced their inventory are being helped. And indies are still going out of business. Any one entrepreneur has a chance, of course, at least for a while. But when people switch to buying ebooks or buying their books online, the chances are overwhelming that they’re lost to a print bookstore. Any print bookstore.

      Mike

  • http://twitter.com/Books4Spain Rod Younger

    Hi Mike, a great post as usual which addresses a number of key issues facing the book publishing and retail sector.
     
    However, I was surprised that you don’t address of the growing importance of online independent bookstores – if more and more people are buying
    books online then surely independents need a strong online presence and
    they also need to be supported by publishers in order to compete cost
    effectively with Amazon.

    Your comments re the role of wholesalers and the discounts retailers get from them is spot on.  Many publishers are keen
    to give us bigger discounts and even offer free shipping in the UK –
    which makes a huge difference to how we can compete with Amazon BUT
    most of the distributors are not geared up for drop shipment to end
    consumers or, if they are, they charge a minimum fee which makes it
    uneconomical in most cases.  As a result we, and many leading
    publishers, are struggling to find a way to effectively compete
    against Amazon.

    In
    short, I believe the supply chain for books needs rationalising – which will happen as a natural consequence of falling volumes of physical books in the medium-long term, and the idea of a retail display allowance is one that has legs, equally for bricks & mortar independents as for online independents.

    For example, our
    software platform is very flexible, both in terms of how we can
    “display” titles: Our Favourites; Recommended; Featured Authors, Popular etc. and
    also how we can price books, the shipping options offered and promotional codes etc.  It also enables us to create separate areas for publishers and their books.  This I believe is a way forward for publishers and independent retailers alike if they are going to try and slow, and hopefully stop, Amazons growing hegemony.

    • /blog Mike Shatzkin

      I’m not sure how Book Depository did it before Amazon took them out of the game, but somehow they managed to supply all the books cost-effectively without holding much, if any, inventory. Getting publishers to drop ship is a very difficult solution to implement and could lead to more customer service costs than efficiency gains.

      Mike

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  • William Ockham

    They had seen a 120% increase in ebook units in 2010 and figured they’d see an 80% growth in 2011; it came in at 60%.

    and

    Another publisher, substantial but not Big Six, has seen much more explosive growth continuing in ebooks and, for that publisher, unit sales for fiction have already gone to well beyond 50% digital.

    Hmm… I wonder what the difference could be. Oh, maybe the first publisher did something that artificially slowed their sales of ebooks. What could that be? Maybe, agency pricing? And these fools see this as a good thing.

    • /blog Mike Shatzkin

      William, before you call them “fools”, remember that they’re trying to maximize revenue per title, not units per title. Many of the houses (although perhaps not the one I talked to, I don’t know) are experimenting aggressively to find those right price points. And they’re trying to keep the print book business alive in stores, for reasons I hope are clear.
      It is a lot simpler to be an ebook-only publisher with no legacy revenue and cost structure.

      And I suspect, although I don’t know for sure, that the publisher that is non-agency that I spoke with would wish they were agency. They might price things differently from the majors, but very few publishers of any size are happy about their inability to control pricing in the marketplace. For one thing, it makes it a lot harder to build a direct business when your resellers are competing on price.

      Mike

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  • http://www.facebook.com/people/Al-Norman/100003378409262 Al Norman

    Slowdown, huh?

    Let’s see: If you go from 120% growth in one year to 60% growth the next and we fairly assume you had some installed base before the 120% growth year, then the 60% year actually added more users than the 120% year.

    The percentages may have dropped, but there’s not an infinite number of potential buyers here. A percentage drop was inevitable, i.e., remember the old would you rather have a million dollars now or a dollar today, two tomorrow, four the next, etc?

    • /blog Mike Shatzkin

      Of course.

      I’m not the one predicting any kind of plateauing. And let’s remember that the publisher that told me this story had already planned for a reduced ebook growth percentage. But if it went to 30% and then to 15% and then 7.5%, etcetera, and if it is at about 35-37% now, then it *would* feel like a plateau at about 50%.

      It’s going to really slow down to a crawl at some point, but I think that point is more like 80% digital books than 50%. The last 15 or 20 percent of print book market share may take 15 or 20 years to disappear. And, even then, it will never get to zero.

      Mike

  • http://www.facebook.com/JRTomlin Jeanne Tomlin

    I find your contention (unbacked at least here with any data) that online “author brand” building is impossible fairly astonishing, not to mention that it totally goes against my experience and what I am seeing with other authors who are largely online. Can you back that up with something?  

    • /blog Mike Shatzkin

      I don’t think I said “author brand-building” is impossible. If I did, I was wrong. It isn’t. Author brands are much more important than publisher brands.

      I think there are limits to how much an author brand can do on its own, if it isn’t Harry Potter. And I’ll have a post on THAT going up very shortly.
      Mike

  • Kevins O. McLaughlin

    I think I’d enjoy an opportunity to debate and present additional data to the Codex team. They’ve drawn a book conclusion (bookstore made author brands will dominate and new authors will be unable to compete in a post brick-bookstore world) that runs congratulations to every scrap of data I’ve collected, collated, and analyzed over the last year.

    I’m sure, since he’s done extensive data collection of his own, that he is aware of half of the top hundred best-selling ebooks in every genre are now self published. And that the overwhelming majority of those writers have never had a book in a brick and mortar bookstore.

    Given the large and growing market share held by self published writers today, I find it difficult to credit his conclusions. If discoverability for new authors was so difficult in online stores, surely they would not control 51% of the top hundred romance ebooks? Or 53% of the top hundred fantasy ebooks? Or 62% of the top hundred science fiction ebooks?

    Yet they do.

    Mike, I think you need somebody on that panel with the other side if the story. ;)

    • Kevin O. McLaughlin

      Apologies for the text above. Typed on a tablet that thinks it knows what I am trying to say better than I do. Obviously it needs to be beaten into submission (or at least have auto correct turned off).

      Should have read “drawn a conclusion…that runs contrary to every scrap of data….”

      Again, apologies for any confusion. The offending software has been eliminated with extreme prejudice. ;)

    • /blog Mike Shatzkin

      We’re not presenting a debate. But I think by posting here you can be sure Codex will be aware of your notion.

      I’d say two things. One is that what you’re saying is only true in fiction * genres*. And the other is that the key tool for discoverability for the self-published is the price differential. That is: people shop the low-priced books and select from them. That’s a playing field where the brands aren’t playing.

      If the bestseller rankings were, as they should be, done by dollars rather than by units, it would be a different story.

      Mike

      • http://profiles.google.com/kevins.studio Kevin McLaughlin

        Actually, it’s true in many nonfiction categories as well. The percentage of top-10 by genre/category tend to be slanted slightly more toward traditional publishing – these are the “big name” writers, the Nora Roberts, Stephen King, George Martin type books. So the overall bestselling top 100 ebook list is only 35-45% self published, instead of over 50% like the genre/category lists are.
        I think a by price breakdown would be fascinating. I’d like to see three tests:1) Have every publisher drop all consumer ebooks down to $2.99 for a month. Study the change in market share. Would readers prefer traditionally published books by midlist writers, if they were less expensive? Or have the indie brands grown strong enough to continue thriving when matched on price?

        2) Bestseller breakdown by gross income of sales.

        3) Bestseller breakdown by author income from sales.

        I am completely unsure what the results would be for the first test, but would be very curious. I think that the #2 list would be dominated much more by large publishers. I think the #3 list would have virtually no traditionally published books on it at all.

        And that’s important. Because it is not enough for publishers to continue maintaining their bottom line. Traditional publishing must remain the best financial route for writers (suppliers!) to take, as well. For ebooks, that isn’t so at the moment, for most writers.

        Which means there IS something pertinent to Hildick-Smith’s conclusions: as things stand, *traditionally published* writers will have a very difficult time surviving in a post b&m bookstore world, except for those who have built major brands through bookstores.

      • /blog Mike Shatzkin

        Kevin,

        You’re not going to see publishers cutting all their books to $2.99 as an experiment, but it *is* happening that they’re experimenting with prices like that.

        I think we agree that the bestsellers by value (dollars) belong to the established brands.

        But your third criterion, author revenue, is not a comparable. Most advances don’t earn out, and, indeed, advances to the *biggest* authors aren’t even *intended* to earn out. So the contractual ebook royalty is actually irrelevant to most of these authors.

        In fact, nobody knows what the odds are of a self-published author becoming successful, or what the odds are that a self-published author might actually make a living. We’ve been scouring for them for speakers for the past year, and we find that most of the “success stories” come from people (like Bob Mayer and Joe Konrath) who got their start with established publishers and, indeed, had books to start with that they had been paid decent fees to write, had gotten some exposure in the marketplace, and on which they had reclaimed the rights.

        The “brand” of independent authors *is* the price differential. That’s one
        of the distinguishing characteristics of the brand. Neither of us can prove
        a theory about how the indies would do compared to the big brands if the
        price differential didn’t exist, but I think it takes a lot more faith to
        believe, as you seem to, that it wouldn’t make much difference in the sales
        than to believe, as I do, that it would really cripple the sales of
        “established” indies and totally crush the ability of new ones to be
        discovered.

        Mike

      • Hugh Howey

        I’d be happy to speak anywhere you like about making a living as a self-published author. I’ve had zero promotional help from major publishers but recently had my books reviewed on Boing Boing and Wired.com’s GeekDad blog. I have several film and TV deals on the table, and have had to turn down quite a few agents who called me to offer representation. Foreign language offers are coming in now from a half dozen territories, and I heard whispers just yesterday that Publishers Weekly might be working on a mention.

        So, it is possible. It took me four years of writing on the side while I worked low-wage jobs, but now I’m making a considerable wage from my sales. I can’t answer for how likely my story is or what the odds are for others, but I can share my experiences. In fact, I conducted a Reddit IAmA a few weeks ago that was wildly successful, so the interest in these trends is strong among readers and aspiring writers.

        Great article, btw. Great comments from readers, too. I especially enjoyed hearing the link between your father’s work and your own. It sounds like he was decades ahead of his time. As someone who supported his writing by shelving books in an independent store, I hope a publisher or two implements some of these ideas. That hope, sadly, is a slim one.

      • /blog Mike Shatzkin

        Well, best of luck getting that PW mention!

        We’ll reach out to you separately to talk more.

        Mike

      • http://profiles.google.com/kevins.studio Kevin McLaughlin

        The #1 experiment was a thought experiment. I agree, we’d never see publishers all level the playing field all at once like that. It would be very interesting to see the data that would come from it though, you have to admit! =)

        Bestsellers by value do, I believe (as best I can determine from limited numbers) belong to major publishers, as a function of releasing books which are on average about 3-4x as expensive. So even though self publishers (likely) sell more total unit sales, they’d have to control 75-80% of the ebook market to match higher priced publishers on revenue. And the data I have gathered does NOT support that level of market share.

        When you talk about Konrath and Mayers, you’re talking about outliers. *Many* of the outliers were first trad pub, like Mayers and Konrath. Many were not, like Hocking,  Locke, Wallace, James, Ness, and many others.

        But those aren’t the norm. Most of the top 100 ebooks in every category I have researched are self published. Most of those writers never had a book in bookstores before publishing their own ebooks.

        And we agree, completely, that the window major publishers have given for pricing is a HUGE factor in the success of self published ebooks. However, that window has allowed those writers to begin *generating* their own brand based on quality of writing and enjoyment of storytelling. Every day which passes with indie writers selling more units than major publishers is another day those writers are generating more brand recognition around their names.

        Price matching indies could be very difficult for publishers. Providing competitive income for authors if they do so would be almost impossible. It’s an interesting pickle.

        Nobody knows the odds of a self published author becoming successful, no. Nobody knows the odds of someone submitting a novel to agents and publishers becoming successful, either. Either route, the odds are exceptionally slim. I haven’t seen anything which clearly shows the odds of one path are any better than the other at this point.

      • /blog Mike Shatzkin

        We’re generally on the same wavelength here.

        Mike

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  • Chris Morrow

    Here are three ways to start supporting bookstores (all of which are being experimented with by major publishers):
    1. Give bookstores longer to pay
    2. Give bookstores higher margin
    3. Stop making coop so cumbersome (for everyone)

    • /blog Mike Shatzkin

      Thanks, Chris. The “higher margin” for bookstores translates into the RDA, as far as I’m concerned.

      Since Amazon lives in an entirely different coop world than the brick store, that might be a good area for creative thinking about support.

      Mike

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