The Shatzkin Files


No predictions this year; just questions


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This is the time of year for predictions. I’ve done mine in the spirit of the holiday season in years past, going back to the late 1980s when I did a “My Say” for Publishers Weekly. (I wasn’t able to find it — some sharp reader will — but I recall that one of my predictions was that publishers would strive to put out the audio of a title at the same time they released the printed book.)

In recent years, I’ve done the predictions for PW and I’ve done them right here. This year I contributed some thoughts to a nice roundup done by Jeremy Greenfield, the new editorial brain over at the Digital Book World site.

This year, I thought I’d try something different. Rather than predict the future for the industry’s biggest players, I am posing what I think are the biggest questions faced by each category of them. Some of the questions are within their power or responsibility to answer; some depend on outside circumstances; and some may never be answered at all. But any honest futurist (and I try to be one) has to admit that questions outnumber answers. (Note: there is a great Johnny Nash song called “There Are More Questions Than Answers” that’s about 50 years old and is just as correct today as it was then.) So this post focuses on the important questions we’ll be facing throughout the industry in 2012 and beyond.

The biggest publishers:

Can their use of tech at scale — SEO and pricing seem like top candidates — add demonstrable value, cost-effective for them and persuasive to authors?

How fast do sales of print in stores decline? And how efficiently can publishers de-scale to keep overheads under control?

Can they reorganize to take advantage of the opportunities offered to the quick and nimble in a digital world?

Can they extend the “protection” of agency pricing to distribution clients and, if so, can they charge a premium for that capability? (Could this be an unintended benefit to the Big Six of Amazon’s refusal, so far, to allow agency to any except the Big Six?)

What skills and capabilities does a publisher need now that they didn’t need a few years ago, and what’s the best way (acquiring a company, outsourcing, hiring in talent) to bring those talents into the fold?

Publishers bigger than small, but not Big Six:

Can these publishers fight their way out of the box that Amazon and Apple have them in, with Amazon insisting that ebooks be transacted on the wholesale model and Apple insisting on the agency model?

Can Amazon continue to be relied upon to discount from high publisher suggested retail prices (the basis of high wholesale prices for the retailer), or will Amazon sell more frequently at the publisher’s declared price to “encourage” publishers to cut their suggested retail priceas and therefore bring Amazon’s costs, and publishers margins, down?

Smaller publishers:

Can they keep up with the technological and contractual demands of digital publishing change?

Can they find niches that present opportunities they can seize to sell something other than “the book” (whether in print or digital)?

Can they create opportunities by being nimble, opportunistic, and vertical that make them more attractive than larger competitors as partners for knowledgeable agents, authors, and brands?

Amazon:

Can they marshall their considerable resources to sell individual titles so effectively within their network that they make up for what they miss outside their network?

Can they build any noticeable or sustainable advantage in having a repository of desireable content that is not available except through them?

Can they maintain their device and platform dominance as the competition moves far beyond the early adopter online book-reading audience?

Barnes & Noble:

Do books as gifts and objects deliver enough traffic to keep a bookstore chain successful as the sales of novels and biographies go away?

Can they create a profitable international strategy? They haven’t had one yet.

Like the publishers, can they manage down their physical plant and overhead base as the revenue it was built to serve diminishes? (We presume they can’t do it with Nook sales and services alone.)

Independent bookstores:

Will the lift they get from Borders closing and B&N cutting back on shelf space for books buy them time as print book sales in stores shift to ebooks and online purchasing?

Can they make something work with Google ebooks? Or will another solution arise that works to get indies into ebook commerce in a profitable way?

Will emphasizing the books-as-objects market (gifts and otherwise) work as the customers for narrative text find it less and less necessary to visit physical locations?

Authors:

How do they know that their agent understands the new range of publishing options and directs their business activity accordingly? (It’s as hard to be effective as your own agent as it is to be your own lawyer.)

How do they build their own online platform? (And every author who plans to make a living through writing and hasn’t yet built a platform has to think about having one.)

Will any author turn down a significant advance to self-publish in 2012? (So far, that behavior has been extraordinarily rare, with Tim Ferriss being the only one really close. Barry Eisler intended to, but he took an advance from Amazon instead.)

Will the number of successfully self-published mid-list authors continue to grow? Under what terms and royalty rates do these authors return to traditional publishers?

Agents:

How do they make sure the full range of knowledge about the digital publishing alternatives is within their grasp? (if not in their head…)

Do they know what they need to know to make a “profit-sharing” deal with a publisher?

Can they direct an author’s own online marketing efforts? And, if they do, is some adjustment to the standard practice of a 15% share of the author royalties going to be necessary, or possible?

Illustrated book publishers:

Is “fixed page layout” the answer? Or, more likely, is it the answer for some books and not for others? Which ones?

How do illustrated publishers cope with the plethora of native formats, file requirements, and screen sizes?

Do “illustrated books” delivered on good portable screens achieve the same consumer acceptance that straight text did making the same transition?

Are there new retail channels available to sell illustrated books as bookstores diminish?

Are new models, perhaps built on social or community but also possibly built on non-book commerce, possible to support and extend illustrated book publishing?

The industry:

As the global ebook infrastructure develops, does it show signs of staying diverse or does it tend to consolidate as Kindle?

Does the industry show signs it will trifurcate, with narrative text, adult illustrated, and children’s books becoming three largely different businesses?

With Amazon, B&N, Apple, and Kobo established as significant global ebook outlets, will any of the other players or fledglings — Google, Sony, Blio, Copia, Bookish, Anobii — start selling enough units to be an important contributor to ebook sales?

Will either white-label B2B or publisher-to-consumer sales grow markedly in significance as the time-honored sales, distribution, and monetization models atrophy?

This could well be the last Shatzkin Files post for 2011. It’s been a great year around here. We launched a new business, Publishers Launch Conferences, with our friend Michael Cader. We started the year with a great Digital Book World last January and are concluding this one putting the finishing touches on an even bigger and better one coming next month. An ebook and a print book edition of The Shatzkin Files, Volume One (the first two years, through last February) were published. We have some great new consulting clients about whom we think you’ll hear a lot in 2012. And, despite the reality that you can’t claim 50 years in the business (which I do) and remain a young person (which I’m not), good health and good cheer remain in abundance around here. Our view of publishing’s digital future seems to have been more confirmed than contradicted by the year’s events. So we’ll take a 2012 that largely resembles 2011 very happily if we can get it.

Best of the holiday season to all our readers. And may 2012 be as kind to you as 2011 was to us.

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  • Philipsturner

    Nice round-up, Mike. Thanks for putting it all in one place.

    • I have a feeling if you check back on this comment string in a day or two, you’ll find out that it isn’t “all”. I expect not only to get a few additions, I think I’ll get some that I will really be a bit red-faced to have missed. But thanks; I’m glad it is useful.

      Mike

  • Come to think of it, I’ll add a question of my own: how long will major publishers continue refusing to improve their ebook royalties from the 25% of net that Michael Chabon denounced in his interview with the AP’s Hillel Italie. I’ve blogged about the interview here:
    http://www.philipsturner.com/2011/12/20/chabons-hyperbole-undermines-his-fair-critique/

  • I see what you mean. I posted my addendum just before I saw your remark below my thanks. Didn’t take long.

  • Along with the issue of higher royalty rates for ebook authors, I would add a couple of other issues that I think publishers of all sizes are going to face due to author demands.

    One large one is the question of sales information transparency and timeliness. Once writers have found that Amazon and B&N can provide up-to-date sales information on a daily basis, the kind of random, slow sales info most publishers provide today isn’t going to cut it. And I’ll add to that, once authors get used to getting royalties from Amazon/B&N directly every month with only a 60-day delay, the way publisher pay authors today isn’t going to last, either.

    I also think there’s going to be some author push-back against “all rights for all time” kind of contracts, which publishers are pushing hard on now. A lot of authors are getting an education in IP rights at the moment, whether they wanted it or not. I have no idea where that will settle out, but with even traditionally published authors making good money self-publishing their backlists, it becomes very clear that those rights are worth a lot of money.

    • On the first question — sales reporting — you are right but I think all the big publishers are working in the direction of providing that to authors, online. Simon & Schuster was the first to actually launch something, but you’ll be hearing more about that in the months to come. If I had done a “predictions” post, that could have been one of them because I know how hard some houses are working on it.

      As to the other — the rights grant — I think you’re right in the biggest sense (in general, it will change in the author’s favor) but only as the importance of the advance fades. As long as publishing houses are putting down substantial dollars in advances and guarantees to the author, they will have the power to command certain rights. And keeping the book for as long as it is selling (which is, effectively, what they get now if an author is awake) is going to be something anybody paying a significant advance for an unpublished manuscript is likely to be quite insistent on.
      Mike

      • That’s a very good point, Michael, about advances. It seems between advances vs. long-term rights there’s a lot of room for both publishers and authors to maneuver, if they are willing to.

  • Thanks for a year of interesting and provocative columns.  I’m looking forward to another year.  Happy holidays to you and your family.

  • Mike McNamara

    An interesting column as always. I was particularly taken with your comment about Small Publishers and the question of “Can they keep up with the technological and contractual demands of digital publishing change?”.

    The technical demands facing smaller publishers is something that is holding many back from making the ‘jump’ to Digital Workflows. Do they outsource everything and give up partial control of their workflow, or do they ‘buy-in’ the technology and face the retraining costs/time, do they look to use any of the new ‘Cloud’ based services for their Digital production? Many are taking too long to make that decision.

    Another dilemma that many face is in ‘digitising’ their legacy ‘back-catalogue’ content, where many ‘paper’ books are still ‘trapped’ in film (to use a phase I coined recently). Dealing technically with this content is always possible – at a cost. But as smaller publishers struggle to find their place in new markets and to determine if they will make money with new digital products, it is possible that a number of them will fall way behind their larger cousins, which will be a sad loss for publishing in general.

    • Thanks for the added detail about the challenge the smaller publishers face. Capital resources to digitize backlist is a definite constraint.
      Mike

  • Bob Mayer

    Good questions.  Many people and companies are trying various things.  Some work; some don’t.  The biggest thing will be a blurring of roles all around.  Amazon is not only a distributor, but also a publisher.  Authors not only write, they can publish.  Agents are also becoming publishers.  So perhaps the big question is, how will publishers face all these encroachments?  Will they make deals with agents, authors and distributors with a more equitable distribution of royalties? 
    One thing many aren’t talking about it audio.  My first titles are showing up via Audible and sales are solid.  It was an amazingly simply process and the royalty rate starts at 50% and can go up to 90%.  Why?  Because it appears Audible ACX understands they are just distributors, not producers.  Authors have the content, the talent processes it, and Audible distributes it.

    • Thanks for bringing audio into the discussion. It is not a huge slug of publishers’ income and, for that reason and because I personally don’t use audio books, I tend to give them shorter shrift than they deserve. Audible ACX exchange for the necessary services is a big step forward to enable just about anybody to deliver a quality audiobook. And Audible really dominates the digital download market, which is where a self-publisher wants to be.

      Mike

  • William Ockham

    Here’s a potential pattern for the publishing industry: Valve Software’s Steam (a digital distribution system for PC games). They are more or less equivalent to Amazon in the book industry. Steam has around 70% of their market. They distribute most of the big publisher titles (although EA has decided to compete with them). Steam is also the only real entrypoint in to the market for indie developers. Steam has a whole bunch of features, but the big difference is the royalties they give to the game developer (up to 70% compared to 15 – 25% for the brick and mortar publishers).

    • Gee, this sounds familiar…

      Mike

      • William Ockham

        I thought that might sound a little like the strategy you’ve been recommending for book publishers. Valve made some interesting choices with Steam. They don’t demand exclusivity. They’ve developed a DRM system that doesn’t annoy users. They’ve built up a lot of added value features for their platform (social features, etc.). They’ve created new markets for old stuff. Steam is essentially the only reputable way to buy old PC games (you know, like making an author’s backlist available). And they can do all sorts of sales. One day sales, buy a game studio’s entire ouvre for less than a $100, etc. Largely because of this, nobody seems to mind that the newest releases cost 80-100% of store retail. Valve is making money hand over fist with Steam while helping out its competitors in the PC game market. They do it by improving the gaming experience for their customers. I wish the book publishers would take that idea a little more seriously

      • William Ockham

        Oh, and for game developers, they provide a real-time dashboard that shows you sales figures and how many people are playing your games. I don’t think Amazon tells you how many people are actively reading your book. I would think authors would be interested in that information.

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  • Max Alexander

    Thanks for a great year of insight and conversation, Mike. Just went on to my library’s e-book website, hoping to beat the Xmas rush and grab a few freebies for the holiday week, but virtually everything is taken. (We’re talking about the entire state of Maine’s unified library e-lending system–a small state granted, but still a whole state!) I use this service a lot, and I’ve never seen it this busy–and before the new Xmas e-books have even been opened. I think it’s  gonna be an interesting year…

    • Max, four of the Big Six publishers will not provide books at all to your library’s ebook website. You will not be able to find most of the most popular books there. If you want the top stuff to read on your Kindle or Nook or other device, you’ll have to pay for it.

      As an author, you should appreciate this.

      Mike

      • Max Alexander

        I am aware of that, and know titles not to even bother looking for at the library. But I’ve also found plenty of treasures in the e- stacks, including scientists Hawking and Dawkins, plus Hitchens and many other great contempo writers. And at least for me it leads to purchases. Because two of his books happen to be in my e-library I’ve now developed a keen intrest in the journalist Simon Winchester; now reading the second book. After that I will gladly buy his next book.

      • A nice summary of the argument *against* publishers withholding ebooks from the library. There is an explanatory article about this in today’s NY Times Business section. The question, of course, is what the balance will be between lost sales and gained sales. And the further question is what would your overall habits be if everything you wanted were available from the library.

        Mike

      • Max Alexander

        I can answer your second question easily: If every e-book I wanted to read was available through the library, when I wanted to read it, I would never buy another e-book. But in the real world that would never happen, for at least three reasons:

        1. The library’s purchase of e-books is selective, and their selection only overlaps my reading list by perhaps 10 percent.

        2. Even when the library has an e-book I want to read, there is often a long waiting list.

        3. The borrowing period (three weeks at my library) is often inconvenient as I tend to read several books at a time, over long periods. And some e-books I just want to own, and be able to refer to again and again.

        You’ll notice all three of these issues could just as well apply to print books. So I don’t really get publishers’ concern with library e-books specifically–other than the issue of no physical obsolescence, which is easily dealt with by limiting the number of loans per rights purchase.

        The bottom line is that I spend hundreds of dollars a year on e-books–more than I previously spent on print books, in part because of the instant gratification (nothing like buying a book in bed, and reading it before morning)–and I also borrow from my library. Am I different from the average library e-book borrower? Maybe, I don’t know. But my instinct is that an abundance of e-books, in libraries and in “stores,” will ultimately be good for the business.

      • There are all sorts of solutions proposed for libraries. One, called Patron-Driven Acquisition, would list all the books in publishers’ catalogs and then purchase the ones patrons wanted. (Right now, many books libraries buy for ebooks or print are not ever loaned or loaned very few times.) And the question for publishers (and authors) is “will more purchases be * stimulated* by library availability than are *lost* through library availability?” Nobody knows, any more than anybody knows whether one’s own behavior is typical of few or many others.

        Mike

      • Max Alexander

        I wonder if another part of the equation is the fact that there are tons of free e-books, including vast tracts of the literary canon, with more public domain books being digitized by volunteers every day. This is a new dynamic, because previously you had to pay SOMETHING for an old book, even if only 50 cents at a flea market. So now, for the first time, publishers are competing against a price point of “free” as opposed to just “cheap.”

        Hold that thought and then consider that there must be lots of budget-concscious e-reader owners who will rarely if ever pay $12.99 for an e-book, but who love to read; they are going to search through the huge offerings of free e-books or borrow from the library. Given that, it would seem to make sense for publishers to at least monetize those price-sensitive readers indirectly, through sales to a library, rather than completely abandon them to Project Gutenberg.

      • No doubt that anybody with a computer and an internet connection can read good books for the rest of their life without paying a cent, or by paying no more than three bucks a book. They would have all public domain to choose from, lots of fledgling indie writers, and major books that go on sale from time to time. And we should expect that the price publishers and authors will be able to command for “branded” books will erode over time as a result. Whether making big books available at libraries is a good defensive strategy or just hastens that erosion is the difficult question.
        Mike

  • Numan Salati

    Great post – love the socratic approach of this blog post. 

    You didn’t have much to say about textbooks. What’s your take on the textbook market outlook for 2012?

    • I’m afraid I don’t know that much about textbooks. There has been resistance so far from students who seem to prefer books they can write in. But the increase in tablets has to make a difference. At some point, digital will take hold in the text market but I don’t have any idea when.
      Mike

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