We have a program packed with information which we always strive for here at Making Information Pay. This conference, as usual, is about what’s changing in our publishing world right now and how we should address it. Before I walk us through this morning’s program, I want to give you two snapshots of the future, first as I see it and then as it was reflected in the answers you and others gave to the survey that tied into this year’s event.
Indeed, in trade at least, we are headed for a large Point of No Return that will require many smaller ones. The sales trend for ebooks shown month after month by the IDPF combined what we know anecdotally about ebook sales of narrative books today suggests strongly that ebooks will constitute 25% of the sales for new straight-text books published by the end of 2012.
When you combine those ebook sales — all of which are made online, of course — with the sales of print books through internet transactions, we see that more than half the sales of new narrative consumer books being published 2-1/2 years from now will be virtual transactions.
Or, put another way, fewer than half of the new novels and biographies and memoirs sold will be through brick-and-mortar channels.
This is a big effing deal, as our Vice-President would say. It certainly qualifies as a Point of No Return. Bricks-and-mortar will not be coming back. And publishers which have thrived in a world where controlling shelf space was their key value add and their key competitive advantage will be gasping for oxygen. Their biggest competitive edge will be vanishing and the infrastructure that used to propel them will increasingly be seen as an albatross.
Many smaller and niche publishers will find it very tempting to focus on the half of the market that is growing — the online half — and largely dismiss the brick-and-mortar opportunities. For one thing, many of the half sold in brick-and-mortar are sold in accounts many small publishers hardly ever get into anyway, the mass merchants.
Working the online market alone enables entirely new business models. Print book sales made online don’t require pre-printed inventory; they can be printed on demand. If you don’t have inventory, you don’t need a warehouse. Or a distributor. You don’t need to finance inventory that might not sell and, in the worst cases of misplaced expectations and high returns, can actually cost the publisher cash to have produced.
Disintermediation of trade book distributors by smaller niche publishers becomes a major threat. But so does disintermediation of all publishers by authors, and here the threat isn’t limited to trade. Author Solutions, Bookmasters, Lulu, Scribd, and Smashwords — just to name five of many players in the space — are developing increasingly fine-tuned programs to allow an author to go straight to the market. The publishers who are today increasingly encouraging the author to shoulder the marketing are implicitly saying “our value is that we get your book out there.” That might be putting them out on a limb that will look more and more like a slender reed.
If this analysis is right, and, frankly, I think it is far more likely to be too conservative than too aggressive in when it predicts the 50-50 point arriving, then the biggest mission for many publishers over the next few years will be shrinking physical operations that are just too large and too expensive for the business they actually serve.
And given that, here are some other “points of no return” we should expect to see by the end of 2012.
I doubt that any major consumer publisher, and very few smaller or non-trade ones, have approached new title development as an “ebook first” exercise for any title, let alone many titles. But when a quarter of sales are ebook sales, and that’s seen to be clearly rising, the quality of the ebook will be increasingly important as well. By three years from now it will be quite obvious that the more sensible development path is ebook first, print book as an outgrowth of ebook, and not the other way around, as we do it now. That’s certainly a Point of No Return.
So far, the reduction of bookstore shelf space has been a slow drip, as independents disappear and the major chains make adjustments to their array of stores and inventory mix. Both the big chains have disposed of almost all their small mall stores, but those were a small percentage of their shelf space and sales for the past decade anyway. Barnes & Noble has worked hard for the past few years to develop their own titles, primarily for highly substitutable backlist, and that has undoubtedly been felt by some publishers. But, so far, Borders has hung in there without a bankruptcy and none of the three big chains, the third being Books-A-Million, have closed a lot of stores. It is hard to see how this good fortune for publishers can continue.
How will publishers adjust their sales and operations investments if they see the closing of hundreds of retail stores? That’s a Point of No Return that we will probably face pretty soon.
One topic that did not come up in any of our survey feedback is the subject of the book royalties paid by major publishers, which they are trying now to cap at 25% of publisher’s recipts. With upstart publishers like Jane Friedman’s Open Road offering 50% royalties and Smashwords enabling an author to collect eighty-five percent of the selling price, it is hard to see how the majors can hold the line at 25%. As ebook royalty rates rise while ebook prices probably keep shrinking, the margin hit to publishers is another Point of No Return.
Single title marketing efforts are just too costly to be sustained for any but the very biggest titles. Publisher behavior, shunting more and more of the marketing work to authors, is a tacit admission of that. Publishers will continue to do it for the biggest books but, by the end of 2012, it will be transparent and above-board that publishers do big book marketing and certain subject-based marketing, but, for everything else, the author is on her own. That’s another Point of No Return.
We have had more than 10 years without consolidation among the Big Six. The last big transaction was Bertelsmann’s purchase of Random House in 1999. There are barriers to a sale by the owner of all the big houses: balance sheet issues in some cases, integration with other businesses in others, and high-level corporate ambitions in some. Something will have to give eventually, but what we might see by 2012 will be list reshuffling, one house getting out of romance, another out of sci-fi. That would also be a Point of No Return.
In the runup to this conference, as we have for the past three years, we ran an industry survey capture what people are thinking about the subject which is our conference theme. We have prepared a summary of the survey response, including a fairly lengthy analysis, which will be available on the “Discussion Papers” section of the BISG web site, both as a PDF for convenient download and in HTML as a “discussion version”. The “discussion version” will have some questions raised by the responses we got. I want to touch on a few of the high points that the analysis covers.
Of course, we’ve been living through a period of profound change in publishing for the past decade and more. More than three-quarters of the survey respondents report that fundamental change has taken place in their job or functional area or is taking place now. We won’t conclude that the 31% of the people who think the change “has happened” are saying they aren’t expecting any more change, but we certainly expect that the 25% who think change hasn’t happened yet won’t have very much longer to wait!
One of the things you will hear about today is that the changes to process and workflow driven by technology and the marketplace can profoundly change the nature of the work. Later this morning, Maureen McMahon will hit that subject very squarely, but it is clearly going to be true across all publishing activities. Despite this, our respondents feel more than 3-to-1 that their skills will be in demand in the publishing world of the future. I think this is one piece of evidence — and there are others in these results — that our respondents are inclined to optimism.
Another sign of optimism is that half of the respondents believe that the changes in publishing are going to make the industry more profitable. Whether this is really likely to happen is probably segment-specific. The shift to digital, much more advanced in professional publishing than it is in college or trade, has increased profitability for some players, both eliminating some costs and enabling new opportunities to add value and charge for it. One can also see how new models could make both college publishing and trade publishing more profitable too. But, for many of today’s largest publishers, making the transition from legacy models to “more profitable” future models could be extremely difficult.
In addition to profitability, we asked about the sheer number of jobs publishers will provide. I was personally surprised here that half the people who had an opinion believe the industry will produce more jobs as a result of change. I guess I’d be in the other half.
We note that nearly half of the survey respondents think their companies need to provide “more education” than they do. We’re certainly inclined to agree with that!
One thing that was a bit of a surprise was how few respondents see profound changes coming for editorial, even among editors themselves. We’d say that certainly doesn’t anticipate an ebook-first workflow developing, which we think is inevitable over the next couple of years. And, in fact, that might explain the relatively low number who are pessimistic about whether their skills will still be in demand as things change.
You’ll be amused and spend a lot of time looking over the responses we got on our survey to questions we asked about buzzwords. I was personally a bit gobsmacked that Twitter is seen as a fad, soon to pass, although it was the one thing that everybody had heard of. Of course, it is possible that quick messages on Facebook and elsewhere eventually will squeeze Twitter out. Maybe that’s what the 62% are thinking!
I’d bet that the 28% who think crowd-sourcing is a fad soon to pass will be proven wrong.
This morning’s program has two parts with a break in between.
First up this morning will be Kelly Gallagher of Bowker. He will dig into the Bowker consumer survey data to tell us what Points of No Return are indicated by how the book customers are discovering, purchasing and consuming books these data.
Then we’ll have David Guenette of the Gilbane Group. Gilbane is working on a project with BISG on the seven essential systems publishers must keep current to cope with digital change. David will define those systems and tell us how a publisher who doesn’t keep them up to date will suffer added costs or lost revenue as our industry changes.
Jabin White of Wolters Kluwer has a focus on how change affects people, but he also has some very important lessons about the importance of top management support and about the value that can be gained even if change is attempted prematurely.
George Lossius of Publishing Technology, the longest-standing provider of enterprise systems for book publishing, will tackle a particularly knotty problem: how do publishers decide to commit to systems investments when the world around them keeps changing. George will make it clear that some of what we know is stable and that there is a cost to postponing decisions that can sensibly be made. Somebody told me when I was young, “not to decide is to decide.”
Our last presentation of the program’s first half is our first sponsor presentation from Steve Walker of SBS Worldwide, who will be showing us all how to save some serious dough in the supply chain, particularly for books being shipped across oceans.
Then we break.
After the break, we’ll start with our second sponsor presentation, from John Konczal of Sterling Commerce who will talk about some new tools that enable emerging business models.
After that, we’ll have publishers reporting from the trenches about change in each important functional area.
Bruce Shaw and Adam Salomone of Harvard Common Press, a successful several-decades old niche publisher, will talk about how editorial acquisition strategy and practice change dramatically when the publisher is conscious of a content portfolio, not just a series of individual book publishing decisions.
Then Phil Madans of Hachette, a large publisher in the midst of building a digital production workflow, will explain what it means to shift from an “assembly line” that puts books together to a “collaboration” model.
Phil will be followed by Matt Baldacci of Macmillan whose subject is marketing. Matt will describe the change in where dollars are spent and the changes in skills required to execute on marketing in the digital age.
And our last speaker today will be Maureen McMahon of Kaplan. Maureen’s experience includes directing sales at Random House; she is uniquely qualified to talk about the changes in what skill sets are required for success in sales. As she sees it, we’re going from “closing” to “connecting”, and I think her presentation makes it clear that the required skill sets are changing.
The intention every year of Making Information Pay is to give our audience information and insight in the morning that can be put to work in the office that afternoon. I think we’ll deliver on that intention today. Enjoy the show.