The Shatzkin Files


New ways to sell ebooks aren’t easy to implement


A simple and perfectly sensible suggestion emerged on the Brantley email list yesterday but the conversation around it showed that some stark realities about the book world have not yet been taken on board, even in very sophisticated circles (which this list is.)

The list discussed a suggestion from librarian Josh Greenberg  that publishers take note of the “rental” model built into the iTunes store as an alternative way to collect money from readers for ebooks.

Greenberg’s piece calls out a fact that many people in publishing have a great deal of difficulty with: that all ebook sales must be licensing deals. They can’t be anything else. Greenberg says:

“When we think about iTunes, we think about a basic fee-for-purchase model. We’ll just leave aside the fact that you never truly “own” a digital file, you’re just buying a particularly-structured license to use it…”

He’s right. When you deal in printed books, you have a tangible object. When you deal in ebooks, you only have “code”. The first sale doctrine says you can re-sell the book or lend it or share it. But copyright law says you can’t re-sell, lend, or share copyrighted “code.” Many digerati (and many librarians not named Josh Greenberg) refuse to acknowledge this distinction.

But that’s a legal point, one that can be debated until a court or a Congress makes a ruling (and then beyond, actually, since we continue to fight battles even after courts or Congress have rendered their conclusion.) The challenge to Greenberg’s idea of switching to a rental model is not so debatable. It’s practical.

Implementing new models for book sales requires herding cats. It can never be done fast and many business ideas relating to content have foundered because it couldn’t be done at all.

What should be clear to anybody who has been following developments since the days a decade or more ago whenRocketbook and Softbook and Sprout were trying to get publishers to give them rights for their content propositions is that it takes a very persuasive sales pitch to get publishers to do so. That sales pitch must be delivered publisher by publisher, and then the impressive ability of publishers to discuss a problem to death takes over, and the new proposition might itself die before its owner gets an answer. Or certainly before its owner gets enough answers to get the new idea off the ground.

What was further made clear by the participation of agents at Digital Book World, and particularly by the opinions expressed by superagent Robert Gottlieb on the ebook “timing” panel, is that the publishers don’t make this decision without consulting with their upstream gatekeepers. Gottlieb made clear that a) it takes a very small number of lost hardcover sales to make an author’s book slip notches on the New York Times Bestseller list, b) he and his authors believe that a much cheaper ebook, or perhaps any ebook at all not reported as a hardcover sale, can make that critical difference between being Number 1 or being much further down the list, and c) the difference in several places on that list is worth losing some sales over.

So just imagine how Gottlieb and his star clients (and all the other agents and star clients) would react to a rental model!

Let’s add one more point before the next great suggestion is made. The same thing will be true of an even better model than rental (which also has plenty of precedent in media even closer to publishers, audio books): subscription sales.

The switch that Apple has made to the “agency model” is not of equivalent complexity from a business perspective. There we’re still “selling the book” (although we’re really licensing access to a file) and the amount of money flowing to the publisher is comparable. But, even there, the switch will not be simple. Publishers have signed contracts governing almost all their ebook sales (which is a further demonstration that this is different from selling physical books, for which signed contracts between publishers and vendors is by far the exception, not the hard and fast rule) which one could imagine the purchasing party (Amazon, Ingram, Content Reserve, Barnes & Noble, Kobo) believes prevents the publisher from changing the rules in the middle of the game.

What Michael Cader reported last week which we expanded on in a blog post and a CNN interview is that publishers can use the new agency model to hold back books from channels where they can’t control the pricing. This very much underreported exchange between Steve Jobs and Walter Mossberg of the Wall Street Journal makes it very clear that Apple expects vendors who would undercut the pricing publishers set for them will be denied access to the content.

We can look forward to continued battles over pricing and over the terms of sale between publishers and the downstream players in the ebook supply chain. But I think it will be a while before real alternative distribution schemes to the public make any appearances. In fact, they’re likely to occur in vertical niches first, where the big agents are less involved and the number of publishers one needs to get on board is something less than “just about all of them.”

A quick thanks to everybody who attended Digital Book World (and there were a lot of you.) I am hoping that the fact that all I’ve heard is praise and enthusiasm for the two day event is not just a result of people being kind to the guy who put the program together. I think we really did generate discussion on some issues that had previously been neglected. But most of all I’m proud of the job we did selecting panelists; everyone I saw presenting was smart, well-prepared and entertaining. Some we had seen in front of audiences before; some we only knew through our interviews in person or on the phone. But picking them carefully and one by one certainly seemed to work and it is the same formula we’ll use putting together Digital Book World 2011. I hope we’ll see everybody again there next year.

  Back to blog

  • http://www.bradleyrobb.net Knownhuman

    I don't think the term “renting” would go over very well with consumers. In anti-DRM circles, “renting” is a derogatory term often used to described protected technology which can be crippled by the distributing party.

    When Amazon removed the Orwell books so many months ago, users and commenters were outraged that they were suddenly not buying their books from Amazon but rather renting access.

    Trying to convince consumers to “rent” books probably wouldn't fly anymore than convincing upstream gatekeepers to go along with it.

  • http://www.bookswim.com George Burke

    Bradley, I would have to disagree with the concept of consumer opposition to rental. As founder of BookSwim.com — a book rental service (of physical books) — we've had the most traction recently in this new industry than we've ever seen.

    While I regretfully couldn't attend the Digital Book World conference, I have to thank Mike for not only putting on a great show (from what I hear) but also for embracing a long overdue concept of digital distribution that BookSwim believes could fly…….(or swim).

    • /blog Mike Shatzkin

      George and Bradley, I personally tend to think that rental would “work” for
      books because most people only want to read them once and often see little
      need to own them. The challenge would be to make that model “work”
      (commercially) for publishers and authors because it simply means getting
      less revenue from each reader. This is less onerous for the publisher in the
      print world for the same reason library lending is less onerous; having to
      take possession of and then give back the physical object creates a bit of a
      nuisance problem that makes it less than automatic that everybody would do
      it. Rental would seem to serve everybody except the person who needs much
      more than the normal amount of time to read the book.

      Mike

      • Bryan

        Mike
        So you know where I am coming from, I am not very knowledgeable about how most of the publishing/commercial aspect works, but as an average consumer I have been looking for a way to rent ebooks for a while now. Wouldn't it make sense that it would work commercially because since people don't have to spend so much money on one book that they'll likely never read again, they will have more money to spend on a variety of books? It seems to me that it would even out for everyone involved.

      • /blog Mike Shatzkin

        The rental model has made its way to college texts through a company called
        Chegg. It hasn't happened for consumer books. It existed 50 and more years
        ago (Womrath stores did it.) I think the closest that exists now is that I
        recall that some airport bookstores will buy back the books you buy from
        them. Sale and buyback is close to rental. The costs aren't trivial to ship
        a book around the way they are for DVDs. If they were, maybe Netflix would
        do it. Because they're not, I think it would be very hard to make it work.

        Mike

  • babetteross

    First off, as your volunteer photographer, my experience at DBW was terrific, I've not felt so energized about my future in publishing for a long time.

    Secondly, the rental model is very attractive to me as a consumer, and instead of calling it rental what if it were termed subscription, and acted a bit more like Netflix. This absolutely not my area of expertise but perhaps something could be structured to be advantageous to publishers and consumers.

    Thirdly, the comments Steve Jobs made about publishers holding content back from vendors who undercut pricing, such as Amazon who are also doing a brisk business selling printed books, seems extraordinarily unlikely to me.

    • /blog Mike Shatzkin

      Babette, it was a pleasure to meet you at Digital Book World and I've seen a
      lot of your great pictures which, I guess, people can find through the Digital
      Book World <http://digitalbookworld.com> site. I'm really happy that it
      energized you; that's what happens when you get to hear a lot of smart
      people talk about what they're up to.

      I think the rental model and the subscription model will be very attractive
      to many customers, but I think it will take real time to work out what deal
      will work for channel-conscious publishers and agents. What might happen is
      that a successful content subscription model grows up with other content and
      then starts adding books later. That's why I suggested that it would start
      in the verticals. In fact, the genre publishers with large direct audiences
      probably do it now.

      And I don't think Jobs is talking through his hat. Remember that the big
      publishers have withheld books from ebook distribution and made it clear
      that their motivation to do that was to protect the hardcover sale and the
      value of the intellectual property. If you're publishing the next Dan Brown
      or James Patterson, you might reason that most of your audience will find
      the ebook if you make it available and any channel that doesn't want to meet
      the terms can wait or do without. That's really the main impact of the
      arrival of
      Apple and Google on the scene. They provide alternative paths to the
      consumer. Everybody that shops at Amazon today also knows how to get to
      iTunes and google.com.

      Mike

  • Max Alexander

    Seems like the solution to Gottlieb's complaint (about e-books cannibalizing bestseller list placement) is relatively simple: Throw the old hardcover/paperback list distinction overboard, and simply track all sales, in all media, to arrive at one grand number every week. I realize this would take coordination between Bookscan, Amazon, Apple and publishers (and as an author who is not involved in the daily business side of publishing, I'm sure I'm missing some other pieces of the puzzle), but it doesn't strike me as being all that difficult. The authors, agents and publishers will already know the breakdown (as will anyone who subscribes to Bookscan). Who in the public really cares how many copies of Three Cups of Tea that sold last week are hardcover vs. paperback vs. Kindle? The man on the street just wants to know how many people are buying and reading that book, and in that context the format just doesn't matter.

    • /blog Mike Shatzkin

      Max, the solution *is* simple to conceive; it just isn't to execute.

      The USA Today bestseller list does what you say (if is format agnostic;
      doesn't have separate cloth and paper lists) and even gets reporting from
      Amazon on Kindle to mix in with the print book sales. However they don't get
      any other ebook reporting (*nobody *gets any other ebook reporting.)

      The NY Times Bestseller List is the gold standard, but they have their own
      secret formula, Amazon doesn't report to them, and neither does Bookscan.

      As ebook sales grow, things will have to change. What we have is okay for
      now when ebook sales are usually single digits and top out at about 15%, but
      if ebook sales double or triple in the next year, it will be ridiculous to
      not tally them in somehow. (One can even imagine cloth, paper, and ebook
      bestseller lists with different titles on them.)

      Mike

      • Max Alexander

        Thanks for your reply, Mike. Sounds like the healthcare debate: so simple in theory, but as they say up here in New England, good luck to you and the Red Sox!

      • 1eleanorandrews

        “If ebook sales double or triple in the next year . . ..”

        Mike, your basing your logic on future expectations. What if ebook sales don't double or triple in the next year?

        “(One can even imagine cloth, paper, and ebook bestseller lists with different titles on them.)”

        However, the ebook bestsellers list would include “free” ebooks, thanks to Amazon!

        Eleanor Andrews

      • /blog Mike Shatzkin

        If ebook sales don't double or triple in the next year then the future is
        definitely postponed.

        Would you care to make a small wager on double? Any stakes you choose. I am
        presuming that I am not suggesting anything illegal with that proposal.

        Mike

      • 1eleanorandrews

        Mike, if I took that bet I'd last night it would have been a fair wager. Today, you may want to reconsider the offer due to this article in the New York Times.

        Amazon Removes Macmillan Books
        By BRAD STONE and MOTOKO RICH
        Published: January 30, 2010

        “Amazon.com has pulled books from Macmillan, one of the largest publishers in the United States, in a dispute over the pricing on e-books on the site. . ..”

        ” . . . It is not clear yet if publishers can withhold books from Amazon while giving them to other parties like Apple. Antitrust lawyers said it could raise legal issues . . ..”

        Amazon did this once before and it was short. However, doing it twice proves it's a punitive measure Amazon will use at will.

        A bad move on Amazon's part. A bad move for ebook sales (unless their free). And a bad move that denies their Kindle customers books.

        Eleanor Andrews

      • /blog Mike Shatzkin

        Eleanor, nothing's changed.

        Amazon is not at this moment selling Macmillan books, physical or digital.
        But no Kindle books have been “recalled.”

        I'm still good for the bet. Since ebook sales have been tripling year over
        year every month for the past year, I think doubling year over year is a
        pretty safe guess for the next 12 months. Unless there is some factor that
        will suddenly slow things down even though Apple and Google are about to
        jump into the game, along with a number of device manufacturers, trying to
        speed things up.

        Mike

      • 1eleanorandrews

        Mike, Publishers Marketplace posted a letter from John Sargent. In it he indicates Amazon was presented with their new “Agency Model” to be started in March. If Amazon, chooses to keep their wholesale model Amazon will deal with ebook delays.

        Direct quote from article: “We were able to reach a couple of agents for some of Macmillan's current bestselling authors. Co-head of the William Morris Endeavor books department Eric Simonoff, whose clients include Douglas Preston (author of the January Tor release Impact), told us: '”The current model of Amazon selling Kindle editions as a loss-leader is fair for publishers and authors in the short-term but as we have told Amazon we don't believe it is sustainable in the long term. Something had to give to prevent the ongoing devaluation of e-books. Macmillan is the first to draw a line in the sand but we expect not the last.”'

        Amazon has wiped out customer's wishlists and any downloaded samples of this publishers books. Customers are peeved. One author suggests breaking the links to Amazon on author websites in protest.

        In the article, an unnamed senior publishing executive said: '”This reaction proves what Amazon's true motives are. It is a signal to any other publishers not to change the model and weaken Amazon's pathway to a monopoly. I hope authors, agents and publishers see what these motives are and stand by Macmillan.”'

        I have a feeling it's gonna be a bumpy ride.

        As for the bet, the double of not much is still not much. Why not wager whether ebooks will represent 10% of the whole book market by the end of next year?

        Eleanor Andrews

      • /blog Mike Shatzkin

        I'll have a post about the Macmillan and Amazon brouhaha up shortly. I am
        aware of the Cader posts and they'll be included in my analysis. We
        absolutely agree on the “bumpy ride.”

        Ten percent of “the whole book market” is too ambiguous to measure. What
        would be the standard and authority? Working with an existing baseline and
        methodology makes a comprehensible wager. I'll go to 2.2 and I'll stick with
        triple if you give me 2 to 1.

        Mike

      • 1eleanorandrews

        Mike, At Digital Book World Tim McCall said e-books account for about 4% of industry sales.

        We could wager whether ebooks will account for 10% of industry sales by January 31, 2011.

        Tell me who or what would be the standard and authority of your wager suggestion?

        Also, did you know AmazonEncore, is publishing four original manuscripts making Amazon a publisher and bookseller.

        Eleanor Andrews

      • /blog Mike Shatzkin

        Eleanor, Tim McCall's number is a reasonable number but it is just Tim
        McCall's number. I am not sure what his methodology is or how you could get
        the number for Jan 31, 2011 except by asking Tim McCall.

        The standard I proposed using was the IDPF's total market number, which they
        report month by month with a consistent methodology, and have for many
        years.

        Yes, I know about Amazon Encore.

        Mike

      • 1eleanorandrews

        Mike, Tim's # is a fairly accurate depiction of the ebook market. Even the New York times said: With Kindle, the Best Sellers Don’t Need to Sell” By MOTOKO RICH Published: January 22, 2010

        ” . . . With e-books still representing about 5 percent of the total book market, data on the effect of digital giveaways is still inconclusive. Brian O’Leary, a principal at Magellan Media Consulting Partners, which advises publishers, said that while it appeared that free downloads led to an uptick in actual book buying, there was a risk that free reading could eventually '“supplant paid reading.”' “

        But as far as the accuracy of IDPF you have said on a previous post in reply to me: “I have to appeal to Michael Smith of IDPF to change the wording from “wholesale channels” to “at wholesale prices” to eliminate the inevitable confusion which, despite what you say, I believe has ensnared you.”

        I answered: “Mike, If I am unknowingly confused, I have company . . . ampressman stated: “Umm, IDPF sales figures and “300% increase” and all that are dollar volume of sales from a certain subset of wholesale outlets. So by definition it doesn't include any free books which don't generate any dollars of sales. See http://www.idpf.org/doc_library/industrystats.htm

        I'm not impressed with IDPF's accuracy and even you were going to inquire about their verbiage.

        P.S. Amazon made a statement. And ebook prices are moving up to $12.99 & $14.99 for new releases and HB. Also, Amazon says they know independent presses and self pubs will provide attractively priced ebooks. They doubt other major publishers will follow.

        However Publishers Lunch Special says this: “As reported previously here, other major publishers do in fact have plans for pursuing “the same route,” so this may be just the first chapter.”

        Looking forward to your post on this!

        Eleanor Andrews

      • /blog Mike Shatzkin

        I don't mean to be a wise guy, but when you say that you “are not impressed”
        with the “accuracy” of IDPF's numbers (which has nothing to do with the
        nomenclature issue which, it turns out, I HAVE sinced talked to their
        Executive Director about…), I sorta wonder, what are your credentials to
        tell me whether I should be impressed with the fact that you are not
        impressed? Are you a data analyst? It's kind of hard to respond to somebody
        speaking with presumed “authority” when one has no clue as to the source of
        their authority. I say that for myself and on behalf of the readers of this
        blog whom I want to read the comments and get value from them. I'm always
        prepared to learn something about how methodologies can be improved, but as
        far as I know, IDPF is the only game in town for measuring the size of the
        ebook market objectively with a consistent methodology. It sure beats the
        Hell out of one man's opinion, which is the standard you proposed.

        Mike

      • 1eleanorandrews

        Mike, This is obviously not a friendly wager!

        I'm an senior citizen who lives the in the USA. Does that help to know who I am?

        I've never presumed “authority” nor have I ever stated I had it. I've stated MY opinions. And in this case I'm not impressed. And more than one person presumed (your favorite word) that IDPF was speaking of a subset of wholesalers to which you claim they were not.

        And the one person's opinion I suggested for the wager was backed up by THE NEW YORK TIMES (only one percentage point off).

        And why do you respond so forcefully?

        Blogs are for opinions, correct? Do you know everything about everyone else who expresses an opinion on your blog? How interesting would a blog be if the comments were only in agreement with you?

        Eleanor Andrews

      • /blog Mike Shatzkin

        I beg your pardon, Eleanor. Most of the exchanges I have everyday — even on
        the blog — are with people professionally connected in some way with the
        topics we're talking about. So, yes, blogs are for opinions, but in order to
        even respond to them sensibly, I need to know where they're coming from. I
        now understand very clearly that you are a “civilian” — a non-combatant
        (except as a consumer.) And welcome, because I don't think there are very
        many of you.

        But take it from me: there is no better authority to the size of the ebook
        market than the IDPF numbers. If anybody tells you there is, ask them what
        it is and let me know. I will gratefully receive new information, but I
        think I'll be sending you back to your skeptic with an explanation of why
        it's not. I know there's plenty wrong and incomplete about IDPF numbers;
        they are just the best available by 100 miles.

        Mike

      • 1eleanorandrews

        Mike, my final opinion, “civilian” or not, is that I believe in the customer service approach with all people.

        If I was a peer, it's just bad business sense to go off the way you did. If I was a potential customer, it's just bad business sense to go off the way you did. If I'm a “fan” of the blog because I enjoyed the subject matter, it was just bad business sense to go off the way you did. If I'm a “civilian”, it's just bad business sense to go off the way you did. If I'm a competitor, it's just bad business sense to go off they way you did. If I'm in the world of publishing (in any facet), it's just bad business sense to go off they way you did. If I'm an every day Jane Doe, it's just bad business sense to go off the way you did.

        Eleanor Andrews

      • /blog Mike Shatzkin

        You're welcome to your opinion, but I am not trying to win a popularity
        contest. I'm too old to change in any essential way and when I meet an
        “opinion” I don't like, I challenge it. It's the way my Mama and Poppa
        raised me. If the way I engage displeases you, there is a very simple way to
        avoid it.

        Mike

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  • 1eleanorandrews

    Mike, rentals are an antiquated model that would prove to be ineffective for ebooks.

    i.e. Think of “little” video stores that closed in the dawn of the “large rental chains”. And think of all the large rental chains that disappeared since the dawn of NETFLIX.

    Now go to your local Wal-Mart and/supermarket chain where you can rent a limited selection at minimal price points in vendor style machines.

    Rentals are not viable, profitable, options for ebooks.

    Eleanor Andrews

    • /blog Mike Shatzkin

      Sorry, Eleanor, but the brick-and-mortar examples don't prove anything to me
      for the ebook world.

      I think rental has shortcomings as a model because reduces revenue for the
      rightsholder; you get less money for the same consumer behavior (reading the
      book within a week or two.) But I don't think you can compare what happens
      when rental or borrowing requires the physical transfer of an object to when
      it simply means the file you downloaded will disappear.

      And, that aside, I still have a Blockbuster in my neighborhood so even deep
      into the age of Netflix and digital downloading, at least a few of the
      dinosaurs are still breathing.

      Mike

      • 1eleanorandrews

        Mike,

        ***Netflix is not and never has been a brick-and-mortar store. Yes, now Netflix “downloads” rentals directly to your TV!***

        However, this recent change in their model was created as “rentals” of physical items dropped. Therefore netflix is now competing in the pay per-view market in an attempt to boost their profits in a sagging rental market.

        Only the future will let us know if it'll work!

        However, “Blockbuster” was awarded a spot on the top ten list of retailers to close in 2010. Breathing, yes. Alive, barely.

        Eleanor Andrews

      • /blog Mike Shatzkin

        Eleanor, I KNOW Netflix isn't and hasn't been brick and mortar. That was my
        point. Blockbuster lasted a long time into an era when there were much
        better alternatives. I wasn't suggesting that rental would be a model to
        last 200 years.

        Mike

      • 1eleanorandrews

        Mike, I am not suggesting the “rental” model won't work in the ebook market for the long haul.

        I'm stating the “rental” model won't work in the ebook market, at all!

        Blockbuster became a name because the array of alternatives existing today weren't actualized. Yes, some alternatives existed. These weren't numerable or easily accessible as today's competition.

        Even, Netflix is changing their model to gain relevance and extend their lifecyle.

        Eleanor Andrews

  • 1eleanorandrews

    Mike, expressing your dislike to an opinion is not what is bad business sense. Challenging ideas and opinions is not what is bad business sense.

    And why in the world, at your age, would you bring in your Mother and Father?

    However, to be overbearing while doing such things isn't good business sense. It's not the first time. And I'm sure it won't be the last.

    And I know exactly how to avoid it.

    Eleanor Andrews