The Shatzkin Files


Libraries and publishers don’t have symmetrical interest in a conversation


Because libraries are, at most 5% of a general trade publisher’s business and far less of the ebook business, and because the market is changing so rapidly and because every retailer except Amazon can be said to be struggling to carve out a sustainable position in the global ebook marketplace, there are many legitimate reasons for the biggest publishers to take a wait-and-see attitude about libraries and ebooks. The fear is of a “shopping and consuming” experience at the libraries which is comparable to what the retailers can offer. That potential is largely mitigated now because most of the big books don’t go to them. But, if they did, publishers fear the market could shift away from retail.

That fear is not just about a “lost sale”. It is also about a “lost channel” of sales, or a pipe to the consumer that runs entirely through Amazon.

Of course, libraries view this differently because the big books from the big publishers are a lot more than 5% of their patrons’ interest. This is an imbalance that would explain the difference in attitude of the parties, for anybody who cares to accept the reality of it. That is, the atavistic “instinct of self-preservation” leads libraries and publishers to somewhat different conclusions about what the best outcome would be and how quickly the industry should move to it.

Saying this within a list conversation provoked a question from somebody from a library-centric point of view. Was I saying that the principle fear is that Amazon could “own” the lending experience, and that the traditional library channel and whatever sales it might secondarily bring would be lost? Or was I saying something else?

Now, I actually hadn’t thought about that, although the way that the libraries collaborated with OverDrive to structure the deal for Amazon lending, that possibility became far more likely than it had been before.

What I meant was that we already face the possibility that we’re headed for a single retailer for ebooks and print online called Amazon. Every other channel to the consumer, libraries and retailers both (whether they know it or not) are ultimately fighting for their digital lives. Publishers don’t want to do anything that weakens Kobo, Google, Barnes & Noble, or anybody offering a commercial channel to customers. It is perceived (intuitively, without data, although I would actually argue that there are great limitations to the value of data because we’re talking about the consequences as the ecosystem changes over time, not the situation at the moment) that giving ebook consumers ways to get what they want without paying for it weakens the other retailers.

And, wouldn’t you say by Amazon’s behavior encouraging lending through libraries and outside them, that maybe they see that possibility too?

I always expect an entity to act in its own self-interest, particularly when survival could be involved. (And Amazon, trading at 135 times earnings and facing the likelihood that their sales tax advantage in the United States is on the verge of being eliminated, is entitled to think that way too.) I think we should all understand that intelligent people on all sides feel that they are fighting for their survival. That includes Amazon, the publishers, the competing retailers, and the libraries. Our problem is that the interests don’t align and what I think people sometimes have trouble accepting is that it is possible they never will.

The library fan was trying to understand “my argument” and attempted to summarize it. In the summary, the innocent conflation was made that I was suggesting that each library loan could translate to a sale lost and that even if they were divided propotionately, I was suggesting that Amazon’s competition would be hurt more than they would.

But I really wasn’t trying to take sides or endorse any particular position in this dispute at all. I’m personally not sure whether library loans would spur sales or cannibalize them at the moment and, even if I thought I knew that, it would be another big leap to assume that today’s situation would persist into a different future. And I don’t think the publishers who are concerned are thinking about sale-for-sale; what they’re thinking about is the overall eco-system that is developing.

I am glad I am not a big publisher who has to make these decisions. I only decide when I have to and I’m actually deliberating now on behalf of a bunch of books I control, without having made decisions. But whatever I do, I wouldn’t assume that Simon & Schuster should do the same thing. (Sometime in the next few weeks I’ll have to decide about DRM and about library lending across a range of ebook titles for which I inherited rights, and POD files, from my Dad.)

There are a number of paths, from what OverDrive is already doing to the Bloomsbury shelf idea to the 3M “lend a device” idea to Recorded Books’ subscription concept to withholding completely that are all reasonable tactics in the current marketplace. People don’t lose too much by staying out at the moment nor do they risk too much going in (when the technology is still pretty klunky and most of the big books aren’t in anyway.) Random House is taking advantage of the situation very adroitly, and no doubt causing their Big Six competitors to grind their teeth, just as they did when they delayed agency. (They’re continuing to supply libraries without limitation, but they’ve raised the prices on the “library editions” of their ebooks.)

I’m really not inclined to make judgments because there are too many things I don’t know about each company’s situation, where they are balancing agent relationships and, in the case of the three publishers that are investing in Bookish over here and two others investing in Anobii in the UK, plans to develop the channel themselves. But I think most of us agree that the price-per-read major publishers will be able to capture is very likely to go down. (Some optimists would argue that the number of reads will go up, but, of course, that’s of questionable comfort if the number of authored books available also goes up, and it will.) So publishers are highly conscious of that in ways they never had to think about when the price of what they sold was bounded by physical realities.

These aren’t moral decisions, they’re commercial ones (even when they’re being made by not-for-profit entities.) I would expect smaller publishers to take advantage of most of the Big Six not being in the libraries by getting more sales and discovery for themselves (maybe the same way Random House is, at premium prices!) If the sales turn out to outweigh any risks or negative consequences, then the Big Six will come back in and that piece of the market will change again to the detriment of the upstarts. Meanwhile, some authors will have been discovered that wouldn’t have been if the Big Six had been there all along.

It’s a very long multi-player chess game, not the Super Bowl. I tend to watch and scratch my head, not cheer for any particular team.

I noticed in the most recent report about B&N’s results that their sales of print books through dot com is declining. A trusted resource who follows these things more closely than I do says that has been the case for a while. This looks to me to be a real negative for both B&N and the publishers going forward.

The right way to think about how the future is shaping up is not to watch the split between ebooks and print books. That’s misleading. What matters is the split between books purchased in stores and books purchased online. Books purchased online are both print and ebooks.

Intuitively, it would seem certain that print sales through online channels are rising. Certainly some of the former Borders store business went that way, and the trend should be in that direction regardless of any particular store or chain closing. If B&N’s print sales online are down in absolute dollars, then they’re getting really clobbered in share. When the history of Amazon’s growing dominance in the life of the book business is written, their dominance in online print will be an important part of the story.

When Amazon bought The Book Depository, the UK Competition Commission made what feels to me like a massive logical error by looking at the book business as a whole, rather than recognizing that the growing online piece and the shrinking brick-and-mortar piece were really two different businesses. Although BD’s sales were mostly outside of the UK and their share of the UK online print business was miniscule compared to Amazon’s, they were a working platform that could have been a springboard to global competition for somebody; now they’re consolidated into the Amazon world. As I wrote recently, we’re headed to a time where most of our sales will occur online. Growth in Amazon’s share of online print adds to their potential industry dominance just as surely as Kindle growth does.

And it is a post for another day, but we’ve just gotten a clear reminder that Amazon can adjust its trading terms as its position strengthens. I wonder if the voices that celebrate the consolidation of the business under Amazon are taking into account that the same thing could happen to them someday.

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  • Tom Peters

    Mike, these may not be moral questions, but there are long-term social and cultural implications to the commercial decisions being made in the epublishing ecosystem.  

    • /blog Mike Shatzkin

      Oh, you bet there are! Access by many to content is one of them and I’ll bet that is one you were thinking of. So is how many people will be able to make a living writing. And, what I think is the most important of all, the fate of the book business as a beacon of democracy and diversity where many voices find access to audiences. We have never had a situation where one company threatened to control a substantial portion of media the way that Amazon might eventually control books.

      Mike

  • Clare Wheeler-Brandt

    I am left dizzy with confusion.

  • EricWelch

    Just a couple of comments.  I was an academic librarian for more than thirty years before I retired, so perhaps my bias is in a different direction than general trade books, but while libraries represent perhaps 5% of the publisher’s market for trade books, I suspect they are closer to 80-90% for literary fiction for which the hardcover market to individuals is really low. The creative use of ebook pricing could turn that around for publishers and authors.  If — a huge if — they priced esoteric ebooks books like literary fiction much lower, I suspect sales would be much higher volume-wise creating a larger reading base for the authors who make absolutely nothing –after the initial sale — from both the library and used book market. I think the used book market (and libraries) stands to lose a great deal if the prices of ebooks falls to say $3.99 which would undercut even books priced at $.01 on Amazon when you include shipping, not to mention you have it immediately.  And why would I go to the library to wait for a book when I can have it immediately for less than a gallon of gas? Wouldn’t authors and publishers rather sell 20 books at $3.99 than 1 at $25 or $30?  I think the impact of Audible on Recorded Books and Books-on-Tape is illustrative.  By pricing their audiobooks at $9.99 (through advance purchasing) they are driving people to individual accounts and away from libraries.  My daughter (another librarian)  had a very arcane book related to libraries published two years ago that’s priced at $39.95 (paper) and $35.55 (kindle). I’m betting ALL of those sales are to libraries. If they had priced the Kindle version at $10, I’d bet good money she’d sell more to individual librarians.

    • /blog Mike Shatzkin

      I will admit to not knowing much about the literary fiction vertical, but I will certainly agree that any publisher that finds it has a cluster of books that sell 90% of their copies to libraries should be thinking about that market differently than the Big Six. And price experimentation in the digital era is a must.

      Mike

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  • http://twitter.com/DaleCopps Dale Copps

    Libraries and publishers are both going the way of the
    dinosaur if the latter don’t begin to understand what is happening to them and
    take steps to preserve their important place in publishing by aligning
    themselves with the former.`

    Please look at Bilbary, an Amazon killer on the horizon. Even if it succeeds in
    mounting a commercial alternative to Amazon sales and lending, it is still a
    commercial entity, and a further threat to the continued value and viability of
    public libraries.

    This was a good piece, addressing important issues we should be discussing much
    more than we are.

    The End of Libraries
    http://alltogethernow.org/showtag.php?currid=85

    • /blog Mike Shatzkin

      Of course, publishers will support *any* platform that threatens to compete with Amazon in the short run.

      But “lending” of big books won’t happen anytime soon. Agents would revolt. I don’t know *any *details, but I’d be stunned and amazed if “deals with Big Six publishers” included the right to lend, or rent, agency titles. That would certainly be big news (and Amazon would take very careful notice of it, as would Apple!)

      I think it is a pretty aggressive prediction to call Bilbary an “Amazon-killer.” Let’s see them get a store open and move past Kobo and B&N first. I personally think they can pass the first hurdle (getting the store open) but I’ll have to see a lot more to believe they can get past the others.

      Mike

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  • http://www.summertimepublications.com/ Summertime Publications

    It would be interesting to examine how interests of big and small publishers might differ on ebook library lending and other issues. Our eonomics are not the same…
    Thanks for a thoughtful article.

    • /blog Mike Shatzkin

      You’re absolutely right that the interests of big general publishers, * particularly* the Big Six who are privileged to do agency terms with Amazon, sometimes do not align with smaller publisher, particularly those that have audiences of their own because they’re vertical. If there is a real problem with library lending, both on the individual title level and on the level this piece contemplates (the entire distribution ecosystem), it may start and end with the biggest books: Patterson, Evanovich, Connelley, etc. The ever-wise Tim O’Reilly once said “piracy is progressive taxation”, by which he meant that the biggest revenue producers would be the ones that suffer financial loss (while all others get more discovery and ultimately more income). That seems right to me.

      Mike

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