The Shatzkin Files

This is the fourth of a series of posts on bookstores and their future. The previous posts have covered the challenges of buying (proposing VMI as a possible solution), explored what we should expect for the future of Barnes & Noble, and envisioned what the world of brick-and-mortar book retail might look like in the years to come. I promised previously to review the list of suggestions for publishers to help bookstores recently rounded up by Bookseller editor Philip Jones. He’s written more about this since, but the “original” list from Philip included:

1. Publishers offering books to retailers on consignment. That means the store pays when the book sells rather than on a date based on when it was shipped to them.

2. Publishers offering books to retailers with higher discounts. That means giving stores more margin between the price they pay and the price the publisher “suggests” as the retail price.

3. Bookstores taking advantage of Amazon’s “weaknesses” as an online bookseller. That would apparently be about localized curation as opposed to algorithmically-based suggestions.

4. Bookstores becoming something more (or less, but different) than bookstores. This suggestion may be inspired by B&N’s claim that they are creating new “prototype” stores.

5. Publishers creating special print editions for stores. This was done in Canada by the device of Random House creating Indigo-specific editions for Canada’s biggest bookstore chain.

And since then, in a radio interview, Harper UK MD Victoria Barnsley added a sixth suggestion:

6. That bookshops should charge “admission” to allow browsing (and perhaps credit the admission charge against a book purchase.)

We’re going to dismiss suggestions 3 through 6 pretty quickly. They either don’t scale or don’t help.

The notion that indie stores can beat Amazon at online selling is nothing short of preposterous. What indie stores can do, and should do, is offer an online sales capability to allow the customers they have who want to express their loyalty to do their online shopping with them. And they should do that in the simplest and easiest way possible. To the extent that the store has done curation work (store bestseller lists, recommendations from staff or customers), those should certainly be reflected online. But the notion that a single player can beat an online behemoth at the behemoth’s own game is a delusion and no great effort should be wasted on it.

The idea that bookstores become something other than bookstores, which is how I’d interpret suggestion number 4, is also not really much help. If not a “bookstore”, what, exactly? And if you can’t tell somebody “what, exactly”, then how is this advice anything more than a suggestion to keep throwing stuff at a wall until something sticks? That’s a strategy? Bookstores have already and always been “community gathering centers”. Playing up that piece of it is never a bad idea, but it hardly seems like an original one.

Similarly, the idea that publishers can save stores by offering them “unique” product is not really a solution at all. Yes, Random House (the biggest trade publisher) can do it for Indigo (a dominant retailer that owns the Canadian market). Even if it is adding value for Indigo, and we really don’t know if it is, there are precious few situations in the world where it could be applied.

And the suggestion that stores can save themselves by charging admission is one that can be very rapidly be disproven by any store that cares to try. It actually strikes me as a very good Candid Camera sequence. Put a toll booth at the front door of a retail store (any retail store, but a bookstore will do) and record the reaction of customers when they encounter something that makes absolutely no sense to them. I suspect wild enthusiasm for the idea will be rare.

However, the first two suggestions — to provide the stores inventory with more time to pay (consignment or extended payment terms) or more margin to work with — are worthy of more analysis and thought.

For publishers to consider easing the financial burden for bookstores based on their importance as a marketing component of the supply chain is a reasonable idea. But neither expanding retail discounts nor applying consignment is without complications.

Expanding margin needs to be done carefully, so that the margin expansion accomplishes the purpose that publishers seek: to increase the display of books in retail stores. Simply increasing discount is a difficult way to do that. What needs to be applied is an expansion of an existing principle.

In the book business, “coop” is the heading under which publishers purchase display for their books in prime locations. Coop was originally used for publishers to purchase space for their titles within a local bookstore’s newspaper ads. (Sometimes that “local bookstore” was a branch or group of branches of a chain.) But recently it has been applied to getting prime display locations, often near the cash register, as part of a promtion. The convention is for the payment for the space to be calculated as a percentage of a “supporting order”. This process imitates what happens in other classes of trade and is referred to outside the book business as RDA (retail display allowance) or MDF (marketing development funds). Another application of the same idea is for publishers to pay for “pockets” (sometimes called “slotting fees”). Under an arrangement like that a non-book retailer (like Michael’s, the craft store chain) can get an additional subsidy over and above what the discount schedule calls for on every title they carry.

But what we may be learning is that every book in a bookstore, or perhaps any retail location, has its discovery enhanced, not just the ones on promotional tables. So perhaps a publisher (followed by others, in time) might consider extending the idea to pay a “shelving fee” for every book in a “qualifying” bookstore. Consider a little math.

Let’s imagine a store that does $2 million in annual sales. If their average discount is 40% (which is a reasonable number; discount schedules would say it is higher than that, but it is reduced by freight costs, including for returns), the value of the inventory to make those sales is $1.2 million at cost. If they turn their stock three times a year, the average cost value of the inventory in the store is one-third of the total, or $400,000.

The two million in annual sales means shifting about 133,000 books (if the average retail price of the books is $15), and the average inventory is about 45,000 books. If publishers paid ten cents per book per month to be shelved, that would deliver an additional $4500 a month — $54,000 a year — to the store. If publishers paid 25 cents per book per month to be shelved, the store would get an additonal $135,000. Since a bookstore would be doing quite well to earn 10% on its sales, our notional $2 million store would be happy to earn $200,000 in profits now so, in either case, the “shelving fee” would be adding a meaningful increment. Certainly, for some stores it could make the difference between staying open or closing down. For others, it would encourage a bigger book inventory. In either case, that’s what publishers want to accomplish.

Publishers could, if they chose, make the “shelving fee” applicable whether the store bought the book directly from them or from a wholesaler. It actually makes it less tricky to apply if the wholesaler-supplied books are included. Invoicing now is done when publishers ship books, not when they arrive at the store so the time lag in between works in the publishers’ favor. For a “shelving fee”, publishers wouldn’t want to pay for time the book is not on the shelf: while it is in transit, or in a box waiting to be unpacked, or in a stockroom unavailable to a browsing customer.

In order to collect “shelving fees”, a store would have to deliver much more robust data than they now have to publishers about stocking and selling. But modern technology can make doing that not terribly difficult (systems don’t routinely do it now, but they surely could) and, in fact, stores should want to know about the efficiency of their shelving practices for their own reasons. And doing things this way would put publishers and stores on the same side around returns, because both would have good reason to get books that can’t sell off the shelves (and replace them with ones that have better odds).

Increasing the margin as a reward for a brick-and-mortar store being open and stocking books is doable and it is doable without cutting the wholesalers out of the picture. Consignment is definitely more complicated. And perhaps less helpful.

Sometimes the sale-and-return convention that has prevailed for nearly a century in the US book business is thought of as equivalent to consignment, but it isn’t. Although bookstores sometimes use returns as a tool to diminish the payments they have to make to publishers, they also “own” (and, in many cases, have paid for) a lot of books on their shelves at any particular time. And a non-trivial side effect of sale-and-return is that “shrinkage”, books that don’t sell but for whatever other reason may disappear from a store, are very much the store’s problem, not the publisher’s.

Under consignment, the payment from stores to publishers would be based on what passed through the cash register, not what was shipped from the publisher’s (or wholesaler’s) warehouse. “Shrinkage” would only be detected if a publisher called for a return of a book it had previously shipped and the store was unable to send it. Since even with the best of intentions, a store wouldn’t necessarily know a book was missing and certainly couldn’t pull a missing book for a return, the payments for those books would, at the very least, have to wait until some inventory check or returns protocol was invoked and discovered it.

The big question in consignment is when and how often a store pays. I recall having a discussion about consignment with a very large book retailer ten years ago. The top person there was thinking in terms of paying publishers every six months or so. It is safe to assume that no publisher would be excited about offering consignment on that basis. Allowing a store to “pay on sale” is one thing; allowing them to pay six months after sale is much more costly to the publisher.

For consignment to be workable, payments would have to be no less frequent than monthly, and would have to cover sales pretty much up to the moment of payment. What might make sense, for example, would be payments on the 5th of the month for sales made through the end of the preceeding month. That would be 35 days after sale for some books, 5 days after sale for others, and an average of about 15-20 days after sale. It wouldn’t be unreasonable for a publisher offering consignment to want payment more often than that, perhaps even as often as weekly.

The challenges of turning consignment into a workable commercial practice in our business include establishing a payment timing that makes sense and some method to catch shrinkage.

But the next problem is that the process of ordering would probably have to change. It is sometimes said that stores are now too easily tempted to over-order because, after all, they can return whatever they don’t sell. Imagine how much less restraint there would be on over-ordering if the store could hold books cost-free for as long as it took for them to sell! (There could still be the cost of freight in and out to discourage over-ordering, but that exists now.) Unlike the “shelving fee” concept, consignment puts the publisher and store in conflict around slow-moving inventory.

Let’s also take note of the fact that consignment is not all about paying later; sometimes consignment would require paying earlier. Bookstores get a boost when a bestseller comes in and flies off the shelves for the first week or two it is out. The revenue on those books is kept by the stores for 45 or 60 or 75 or 90 days (depending on how publishers enforce their collections) before they have to pay the publisher. Under a consignment arrangement, they’d have to turn over the publishers’ share much faster. (Of course, at the same time, they wouldn’t have to pay for some slower-moving books that might have come in the same shipment but hadn’t sold yet.)

There are other complications to consignment. The way things work now, publishers carry books in their warehouse on their balance sheet at inventory “cost” (something like manufacturing cost). When they sell them, they book the amount they sell to the store for, and keep some “reserve” for potential returns. On the store’s balance sheet, the books sit at the price the store paid, or will pay, the publisher for them.

But if the books are shipped to the stores on consignment, there has been no sale. So the publisher would have to continue to carry those consigned books on their balance sheet at the manufacturing cost and not credit themselves with the sale until the store reported it and paid them. What this would do to public reporting and bank covenants is a company-by-company proposition, and perhaps a knotty problem in some cases.

And sometimes there are state or local taxes based on “inventory”. IANAL (“I am not a lawyer”) but the taxing authority probably expects payment from the entity that ownsthe inventory. Under sale-and-returns, stores “own” it (whether or not they’ve paid the bill). Under consignment, the publisher certainly owns it. That would create complications, at the very least. Complications could also arise over insurance. (If a store had a flood or fire, would consigned inventory be covered by a store’s insurance?)

The bottom line is that publishers can help stores most by helping them carry their inventory less expensively and there are a great variety of ways to do that. The simplest way of all, of course, is just to extend the payment time from the current (as it often enforced) 60 days to something more. Thirty-five years ago, my father had me administer a program called “credit for overstock” where we gave stores 180-days extended billing for books left unsold after Christmas if they’d delay returning them. (Simple to do: issue a credit for what’s there dated today and an invoice for the same stock dated six months from now).

We’ve heard through the grapevine that at least one of the Big Six is experimenting with 180-day terms and that another might be a fast follower. That strategy is apparently offering competitive advantage (stores stock more of that publisher’s books, so they sell more of them too). That’s a way for a publisher to give benefits that are “like consignment” without the complications. From my perspective, it’s a shotgun, not a rifle, because it extends terms for everything equally. Credit-for-overstock targeted books that would very likely have been returned. The old “dated billing” plans targeted particular titles at particular times of year. Consignment requires that books that sell fast be paid for fast. A big across-the-board increase in time to pay is a far less targeted tool, but it still constitutes a big step in the right direction.

That’s because books on bookstore shelves are more valuable to publishers than books in their warehouse. Increasing recognition of that fact is occurring; more actions will certainly follow.

Worth mentioning — and inadvertently neglected by me in the VMI post — is that VMI does not need to be, and should not be, at odds with bookseller-management of curation. A publisher can certainly manage lists of titles that are designated “do not stock” or “always have on hand” that are designated by the store. The point to VMI is not to take tastemaking power away from the store. Of course a store should be able to exclude books they find offensive or that they think their customers will find offensive. And their decisions about categories or authors to stock out of proportion to how well they sell — higher or lower — can also be accommodated. And so can their inputs about local promotions that a publishers’ central office would have no way to know about. VMI offers two enormous benefits in any case. One is that the publisher knows things about individual book promotions, and recent performance, that might not be factored into each store’s calculations. And the other is that most stocking decisions are routine and  best made — particularly in the age when we’re discovering Big Data — by a system massaging the maximum amount of information.

There is a vision of online bookselling, which I share, which is that it will become increasingly atomized. Books (and, ultimately, other content too) will be merchandised in unique ways across countless web sites curating and presenting content choices for their own communities and audiences. One early prototype of how this might work is the Random House initiative powering “bookstores” for Politico and Publishers Lunch’s Bookateria.

This is not a new idea. I remember a meeting more than five years ago hosted by O’Reilly Media in New York City to plan the first Tools of Change conference at which Brian Murray of HarperCollins, not yet their CEO, talked about how a way should be found to merchandise books on current affairs topics around and adjacent to today’s news stories that were relevant. The Random House capability, among many other things it can do, readily enables just that.

This is not necessarily bad news for the biggest online retailers like Amazon, B&N, Apple, and Kobo. The Random House execution delivers “their” customers to one of the others to consummate the sale and they’re rewarded for having pushed the “discovery” by collecting referral fees from the etailer  which processes the sale. (How the revenue is split between Random House and the web site providing the screen real estate is not known to me, and presumably only one of a number of moving parts in the negotiations between them.) Doing things this way allows both Random House and their clients to avoid the two biggest (and closely-related) headaches of online bookselling: managing DRM and customer service. In addition, the costs for what is called “card and cart”  – handling credit cards and providing shopping cart technology — are also avoided by handing off the actual transactions.

Bookish, the new discovery engine and bookseller which was financed by three of the Big Six, also offers referrals in addition to their own fulfillment (which is provided by Baker & Taylor).

Peter Hildick-Smith of Codex, our go-to guy for understanding the concept of “discovery”, says that bookstores offer discovery combined with availability, a “twofer”. In effect, web sites offering ebooks (and possibly print too) alongside their information and conversation are doing the same thing.

In fact, the same approach makes sense in the brick-and-mortar world, but it is a lot harder to do.

Merchandising is the bottleneck for any retailer, online or in stores, trying to sell books. Which books do you offer? Which books do you feature? What do you discount? This is a challenge online, which is why Random House believes it can build a business helping web sites do it. But it is even more challenging in a physical environment, which requires actual printed books to be displayed, sometimes to be sold and sometimes to be returned.

But smaller and more targeted displays of print books in stores — whether a general selection or one targeted to store’s other customers — also make more sense than big book superstores in the digital era. Physical bookselling locations can offer consumers convenience and speed. If you’re shopping, you can see more titles faster than you can online and you can walk away with your purchase rather than waiting for delivery.

Publishers gain access to their audience through retailers. Non-book retailers, just like web sites, are specialized in some way and they both attract and serve customers if they offer appropriate books.

The challenge for non-book retailers who would like to carry books is stocking them. Almost no matter what a store sells, from clothes to hardware to specialty food, there would be a selection of books that would please their customers and perhaps increase their sales of core items. This is obvious in, say, a crafts store or hardware store where just about everything that’s sold is part of a project (selections of which and instructions for which are often found in books) and could require instruction about how to use it most effectively (also content well suited to books).

Picking the right books is hard work. If the retailer buys them from publishers (whose sales representatives would know their content and could actually guide one to the best title choices for one’s audience), it is a hopelessly fragmented challenge. In many areas, you might find 25 good books that could require you to buy from 10 or more different publishers. The publishers’ sales terms will be one problem (minimum order sizes) and the administrative costs would be far too big to justify considering the small sales the store would get from ancillary merchandise like this. Wholesalers have the books of many publishers, but their teams don’t have the kind of title-level knowledge the store needs to make the selections.

Meanwhile, bookstores labor under a similar constraint. We pointed out in our recent B&N analysis that the cost of their supply chain gets harder to bear as sales of books diminish. Independent bookstores have also always been constrained by the cost of buying, although they don’t really see it that way because it is part of the landscape.

The core point is this: the responsibility for getting the right books onto retail shelves is one that has always belonged to the retailer. That reality encouraged, even required, large book retailing operations: big independent stores and large chains could amortize that cost across far more sales than a small bookstore or a little book department in another retailer.

There is one established way to reduce those costs: vendor-managed inventory. With VMI, the cost of negotiation — of conversation between a “buyer” and a “sales rep” — plummets. In addition, it is actually easier to stock the right books at the right time. A key component of making better decisions is making more decisions that cover shorter prediction times. Ordering more frequently makes it much easier to avoid over-ordering as a protection against going out of stock. That increases stock turn (the key to bookstore profitability) and reduces the need for returns (leaving more margin for both the retailer and the publisher).

As I’ve written previously, a long-standing client of mine called West Broadway Book Distribution has been operating a VMI system in a small number of non-book retailers for a decade. They have a system which interprets the sales reporting and makes restocking decisions based on them automatically. They also have a system to test new titles in a sample of a chain’s outlets to decide whether or not to roll them out. Their automation has enabled them to manage a lot of granularity — thousands of potential titles in more than a thousand stores with the books coming from more than a hundred publishers — profitably and with workable margins for both the retailers and the book-providing publishers.

West Broadway started because its owner had a few books of their own that they wanted to sell to a couple of “women’s hobby” accounts where they already had relationships. We encouraged them to be more ambitious and they were willing to try. So they aggregated the books from many of their competitors, larger and smaller, to add to their own and invested in the VMI system (which they might not have needed to make sales of their own books alone).

That’s a path we should expect to see other specialty publishers taking in the future. Subject-specific knowledge is helpful in doing that (although it can be done successfully without it).

Stocking a general interest store with VMI is much more complicated and will take more time to evolve. But bookstores can take steps in the right direction by consolidating their buying to a smaller number of suppliers and pushing all their really small vendor ordering to a wholesaler (or two) to gain efficiencies from managing fewer vendors.

Remember that one of the keys to efficient stocking is frequent ordering. Bookstores mostly understand that and order from wholesalers every day. But they probably also order directly from dozens of publishers. They do that to gain a little bit of additional margin and, perhaps, to reward the sales rep that calls on them to present the list.

I’m going to say flatly that the margin differential is almost certainly not worth pursuing for what it costs in stock turn (capital tied up) and risk (returns because people buy more copies when they’re tempted by the higher margin order). My father made that clear in numerous examples in his monograph, The Mathematics of Bookselling.

The rep reward is a little more complicated but most publishers these days figure out how to pay their reps for sales that go through the wholesalers.

Any store routinely dealing directly with more than 20 publishers and distributors will almost certainly improve their financial performance by cutting that back and consolidating. They might  lose a little margin; they might miss a couple of smaller-potential titles (but not big ones), but their lives will be simplified and that will save a lot of money.

And with daily ordering from wholesalers, which just about all stores do, it becomes unnecessary to carry more than a copy or two of most books, except for the purpose of display prominence.

Once a bookstore has taken those steps, it is in a position to start demanding some VMI help, even if just from the sales reps. This was an idea that was pioneered in around 1980-81 by an indie in Shaker Heights, OH, called Under Cover Books in a project on which I consulted.

We were too far ahead of our time (the computers were too klunky), but the idea was that we gave the reps reports of how their titles were performing: on-hand, shipments in, and sales. Then they had an inventory ceiling stipulated and were free to order more books, of their choosing, up to the inventory ceiling. We then calculated the inventory’s performance (beyond the scope of this piece to get into that particular detail, but essentially combined the impacts of discount and turn) and raised the inventory level for the most profitable publishers and reduced it for the less profitable.

What defeated us was the complexity of administration. Part of that was because there were so many more smaller publishers then. Part of it was that the only way to communicate the inventory data was by shipping spreadsheets by snail mail (slow and not cheap).

This would be infinitely easier to do today, and the ease would be multiplied if you were only trying to do it with a handful of big suppliers.

I am only aware of one publisher today that has worked corporately on a VMI system for books, and that’s Random House. I believe they initially developed the capability and implemented it for chains: first for Barnes & Noble and more recently for Books-a-Million. But they also seem already to be prepared to offer the service to independents. Since, when the Penguin merger is complete in a few months, stores will be able to get damn near half the most commercial books from Penguin Random House, having “just” them operating VMI would constitute a sharp reduction of the store’s operational demands.

Whether or not this is what they’re thinking at the moment, the new Penguin Random House is bound to find it sensible to employ its VMI capabilities in self-defense to open retail print book outlets in places that are bereft of bookstores in the years to come. Those outlets will have space for shelves, customers and cash registers, but no ability to discern what books they ought to stock or what the timing should be of ordering. They’ll be sought out as necessary because bookstores, which are carrying the requirement of making these stocking decisions, will have increasingly become uneconomic (and therefore defunct).

This vision of the future is of books being sold mostly in stores that aren’t bookstores, enabled by VMI systems that largely don’t exist yet. It would be even better if the VMI vision took hold in time to save some of the bookstores that exist today to survive to that future time when the demands on them to manage inventory will have been ameliorated by necessity.

In my last post, I cited a bunch of suggestions pulled together by Philip Jones for how publishers could help bookstores survive and promised to review them. This post was intended to get to that, but I couldn’t get there within a reasonable number of words. Next time.

On Monday, the Wall Street Journal published a story by Jeffrey Trachtenberg quoting Barnes & Noble’s retail group CEO Mitch Klipper on the company’s plans for shrinking its store footprint over the next decade. Klipper suggested only a gentle acceleration of what has been the pace of contraction for the past couple of years far into the future.

Klipper was quoted as saying that “in 10 years”, the chain would have “450 to 500 stores”. Trachtenberg reports that the chain had 689 locations operating as of January 23.

In addition, the chain operates 674 college stores. The college stores are, along with the NOOK device, BN.com, and the ebook business, part of “NOOK Media” which took recent investment stakes from Microsoft and Pearson.

As usual, Cader’s overview is a helpful summation of the facts.

On Tuesday, I got a call from a reporter who started out by asking me, in effect, “how will publishers manage with 200 fewer B&N stores in 10 years?”

That question jumps past what I think are the first two questions the WSJ story begs.

The first one is to please tell me how much shelf space for books will diminish, not just how many stores will be closed. The piece reports that B&N peaked with 726 stores in 2008, which means a net reduction of 37 stores in the past five years. That’s a five percent reduction in locations. But publishers know that shelf space at B&N has contracted considerably more than that, as space in the stores that used to be devoted to books now merchandises NOOK devices and a variety of non-book items.

Trachtenberg reports that sales of print books (as reported by BookScan) have declined 22% since 2008. Anecdata and intuition suggest that sales of print in stores have fallen more than that. Every time a store closes, online purchasing becomes the more convenient option left for some of its customers. Even if BN.com keeps some of that business away from Amazon.com, it doesn’t help support a physical store of B&N’s or anybody else’s.

The second one is “how likely is Klipper’s forecast to be right?” They had a net reduction of 5% of the stores in the past five years and he’s suggesting a further 30% reduction over the next ten. That calculates to net closings at about triple the recent rate. Is that realistic?

Frankly, I’d be concerned that it isn’t.

Among the developments of the last five years has been the shuttering of Borders. That took something like 400 big competitor locations out of the market. There is no comparable subtraction of competition available in the future.

And while the migration to digital, as measured by what we can glean about what percentage of the publishers’ sales are ebooks, has slowed, we don’t know if that’s temporary. We also don’t know if the split we see between books of narrative reading and other books will continue. There is good news and bad news for stores if it does.

The good news is that stores will continue to be desperately needed for illustrated books. The bad news is that the readers of narrative books won’t be in the bookstores to have their eye caught by them anymore.

Forecasting of this kind is highly dependent on intuition and belief because there’s no data today on which to base a prediction for a product form that hasn’t evolved yet. There are still legions of techies and illustrated book publishers trying to find the formula that will enable the books which haven’t “converted” to digital to do so in the future. If somebody finds the way to make a digital rendition of illustrated books that consumers want, it might save the illustrated book publishers from their dependence on physical stores. But that would, at the same time, accelerate the reduction of stores.

I’m personally skeptical that there is an answer to this. I’m not expecting or predicting the demise of illustrated books anytime soon. To the extent that they are replaced by digital products, I expect something far from the 1-to-1 relationship between the print and digital iterations that has saved the publishers of narrative reading from far greater pain than they’ve felt so far. And if the digital products aren’t close to the books, then book publishers might have very little to do with making or selling them. Since we don’t even know what the replacement for books will be, I think we can assume all these questions will take a long time to answer.

It is clear that bookstores have an uphill battle in front of them even if we don’t know the steepness of the slope or how big the boulders rolling down on them will be. The questions that all publishers should be asking themselves now are “what are the bookstores really worth to us” and “what, if anything, can we do to bolster them financially”.

Michael Cader has made the point that B&N’s market cap (my app says it is $775 million at the moment) combined with B&N’s own valuation of its new business (nearly $1.8 billion based on the valuations of the Microsoft and Pearson investments) is worth pondering. One could interpret the numbers to mean that the stores are worth considerably less than nothing. Of course, that’s not true; the stores still generate more than $300 million in EBITDA annually (and that number was up slightly in 2012 over 2011). But it does suggest that having the legacy B&N store business in a common entity with the NOOK Media businesses (NOOK, the college stores, and dot com) is not making the investment community jump for joy.

So could somebody come along and do everybody a favor by buying the retail component of the B&N business? Would the market reward that move, or would it just reveal that the notional value of the new business is wildly inflated?

The businesses with the biggest strategic interest in keeping the stores alive, of course, are the publishers. So if publishers were to seriously ask themselves what they can do to help the B&N stores, buying them would have to be a recurring thought. One wonders whether the DoJ would like it better if one big publisher bought them or if a bunch of publishers got together to do it.

Cader has also made the point that the physical stores are being made the last line of defense for book pricing. It is a virtual certainty that if a book has three different prices: print in the store, print online, and ebook, the printed book in the store will cost the most. This is not a formula to assure bookstore survival.

Philip Jones of The Bookseller tried to sum up the ideas that have been offered from around the industry about how publishers could help booksellers be more profitable in an emailed post entitled “Books Need Bookshops”. What he covered were sales on consignment (the store doesn’t pay the publisher until they sell the book); higher discounts (more margin); a suggestion that bookstores could somehow exploit Amazon’s “weaknesses” in online selling (good luck with that one!); that bookstores themselves should change into something slightly different (based on B&N’s claim that they are creating new “prototype” stores); and creating special print editions of particularly high quality (which Random House has done for Indigo in Canada).

Examining whether any of these suggestions point the way for publishers to make stores more profitable will be the topic of another post, maybe even the next one.

 

One of the most underappreciated realities of the book business is how hard it is for a retailer to manage an inventory of trade books.

This is an existential problem for a bookstore. A bookstore’s inventory is its biggest investment. The performance of inventory — how many times it “turns” in a year and how successfully the store manages to buy what it needs without wasting investment (tying up cash) and incurring margin-destroying revenueless-costs (return freight, probably added to inbound freight, plus wasted labor shelving, removing, packing, and shipping) — is, by far, the single biggest determinant of whether a store succeeds commercially or fails.

The fact is that a single store, almost regardless of the quality of its systems and its management, has to guess at what will be the right books to order most of the time. All advance order purchases (placed by a store long before the book is published) are based on speculation and guesswork. The publisher through a rep or a catalog states expectations, sometimes based on “comparable” titles (which were, of course, published previously at what might not have been a comparable time!) and sometimes based on the publisher’s hopes, all of which are connected to the publisher’s promotional promises. Usually stores — independents and chains — will be guided by those expectations because any other evidence is non-existent.

After a book is published, of course, there is real sales data to guide stocking decisions. But except for the small percentage of the published books that are widespread bestsellers, stores depend primarily on their own sales data to decide what to reorder or keep as backlist. And the cold hard fact is that, for most stores, for most books, there is not sufficient data to tell anybody anything. A single store will have sales for a week or a month across its titles that show multiple copy sales for a small percentage of the titles they have in stock. The majority of the books they carry will sell zero in a week or a month. And, of those that do sell, the vast majority of those will sell one copy.

What’s a store trying to determine what to order next to make of that?

In the past decade or two, there have been a few tools developed to help the independent. The inventory management system Above the Treeline shares information among its stores so each one can get a picture of what is doing well in the aggregate. Stores can see what Ingram, in many cases the supplier from which they buy more than from any single publisher, is stocking and selling, which also provides clues for them.

But the best tool for more nuanced inventory management, for a long time, has been to have a bookstore chain. If you use it right.

This first became evident when the B. Dalton chain of mall stores hooked up computers to their cash registers in the 1970s. Although there were holes in the system, Dalton was then able — for the most part — to tally what they were selling across what was then about 300 stores (a number plucked from memory here, and this is in the neighborhood of 40 years ago, but I think this is right…) When I first started selling to Dalton in 1974, they had two lists of titles they considered worth tracking: a “hot” list and a “warm” list. On the “hot” list was every title that sold more than six copies in the chain in a week. The “warm” list was every title that sold more than six copies in the chain in a month. That’s one copy for every 50 stores to make these lists. And, of course, most titles didn’t make them. Learning those numbers did more to help me visualize how slowly books move than any other single piece of my education to that point.

In addition to those lists, Dalton introduced an automated backlist replenishment system based on “models”, or an ideal maximum inventory level and a reorder point. So the model for a title might be one copy in some stores, with a reorder when it sold, or it might be three copies with a reorder when sales took it down to one. Automating the reordering of “Romeo and Juliet” and “The Grapes of Wrath” enabled valuable buyer time to be freed to figure out what to reorder (or model) from the hot or warm list.

We had a very useful controlled experiment taking place in the 1970s because Dalton had a competitor chain called Waldenbooks, which had more stores and had been around longer but which, for several years, had no comparable computer-assistance for their inventory management. Reordering at Walden was primarily the responsibility of the store managers, and it will be no surprise to learn that some were a lot better at it than others. In the 1970s, it was clear to all publishers that Dalton bought more efficiently (fewer returns) and sold more books, particularly of the backlist.

In the 1990s, Dalton was absorbed by Barnes & Noble and Walden by Borders, the two superstore chains that effectively replaced the mall store presence of the previous decades. And, once again, the chains diverged in their inventory management capabilities. B&N invested heavily in what we were, by then, calling their “supply chain”. They built warehouses to serve as the resupply hubs for their stores and instituted systems by which stores got resupply from the distribution center(s) on a daily basis. They set up rigorous systems to manage models and to review each store’s performance annually. Whereas Borders had A, B, C, and D stores to denote a range of sizes and title counts, B&N had those gradings by store sections, enabling them to configure the stores much more granularly to their local demand pattern.

By the time the 21st century arrived, B&N had built a substantial advantage over Borders in its inventory management practices. Close observers of B&N’s financial reports would have seen that inventory efficiency — how much they could get in sales from their inventory investment — improved every year as they added more stores able to feed off the same central supply capability. Their inventory management cost — buyers to talk to all the publishers and the systems and physcial plant to administer all the stocking decisions and, if one were fair, the cost of returns — was consistently declining as a percentage of sales while Borders’s was not. Borders didn’t make comparable investments in plant and systems and their stores became less and less competitive.

This, even more than any failures in digital, is why Barnes & Noble thrived while Borders collapsed in the latter part of the last decade as sales shifted from stores to online.

The inventory management challenge is one that some publishers have tried to help bookstores with for years. My father, Leonard Shatzkin, instituted the Doubleday Merchandising Plan in 1957, by which the reps walked out of stores with physical inventory counts (there were no computerized inventory tracking systems back then) instead of purchase orders. Those were converted at headquarters into orders which the participating stores had agreed to accept. In the past decade, Random House has developed their own VMI (vendor-managed inventory) system (though my knowledge of details is sparse; this is proprietary information which has never been shared in any detail with me) which it has employed to help manage its books at B&N and is now, apparently, also using at Books-A-Million.

Even if a store knew, title by title, exactly what the right inventory level is (and they don’t, and it changes day to day, anyway), keeping the right books in stock is a challenge. The most sensible way for most stores is probably to order from Ingram (and/or other wholesalers) on a daily basis. Buying from publishers not only requires splitting up orders that will then arrive at different times in different packages, it also requires following ordering rules that are different for every supplier. A wholesaler can’t offer as much margin as a publisher, but the consolidation of the business both makes management cheaper and promotes faster stock turn, which almost always will more than compensate for slightly higher purchase prices.

(I have just made two books by my father available as ebooks. Both In Cold Type, his overall examination of the trade book business originally published in 1982, and The Mathematics of Bookselling, originally issued in the 1990s, contain extensive explanations of this fact with all the accompanying algebra.)

Independent bookstores generically resist vendor-managed inventory. Indeed, picking the books (also called curation) is both one of the great pleasures and great services that a bookstore offers its customers. It is understandably loath to delegate any aspect of that very important work to anybody else.

But the cost of buying is a real hurdle to running a successful bookstore or book department. Buying through what my father called “distribution by negotiation” is expensive for the store, expensive for the publisher, and, unfortunately, doesn’t result in the most productive possible decisions. Things can work much better if it is eliminated.

One example of this that I’ve been involved with is West Broadway Book Distribution. WBBD puts books into national chains that aren’t bookstores (JoAnn Stores and Hancock Fabrics have been their customers for years). WBBD makes all the stocking decisions, based on daily sales reporting it gets from the stores. The stocking decisions are highly automation-assisted, so that a couple thousand titles from over 100 publishers are managed in over 1000 stores with an extremely small staff at WBBD and virtually no buyer time required from the stores. And using a systematic approach means rules can be constantly improved. In fact, WBBD has improved the stock turn on the inventory it places virtually every year.

The cost of buying and maintaining the supply chain is going up steadily (as a percentage of sales) at B&N because they’re reducing their book inventory and closing stores. Soon what has been their competitive edge will turn into a competitive drain. Different supply strategies, such as having publishers ship more books directly to the stores, are already being employed and that will continue. But this a de-leveraging of the B&N core advantage. That’s one reason 2013 could be a difficult year for our last remaining truly national bookstore chain even if the sales of books in stores erodes more slowly than it has recently. A sales decline is very painful to an entity with high fixed costs and B&N’s supply chain is a big part of theirs. And if they were to suddenly close a substantial number of stores, climbing down from that infrastructure cost base might suddenly become much more urgent and very difficult.

As the shelf space for books being managed by retailers that accept the high cost of managing book inventory and commit to doing it effectively continues to decline, publishers need to understand that it will be really hard for non-book retailers to replace them.

Stats are often hard to interpret in our business. The reported data comes, of course, after the fact (you can’t report things before they happen) and is often aggregated in ways that don’t tell us what we really need to know. So I tried an exercise last week of asking a few agents for their impressions of the evolving ebook marketplace. I wanted to get a handle on two things: where we are now in terms of books sold in stores versus books sold other ways and whether the transition from print to digital consumption is slowing down.

The picture I got from nine smart and well-informed agents seems to confirm that:

* sales of ebooks for fiction more often than not top 50% of the total sales, in both the hardcover life and the paperback;

* sales of ebooks for immersive non-fiction are at something like half the percentage of fiction;

* illustrated books do a lot less in their digital editions, which usually struggle to reach 10% of the sale;

* while the marketplace data seems unambiguous, the agents have not formed a consensus that the print-to-ebook switchover is slowing down.

Perhaps we can attribute that to the fact that the data presentation which most shapes the agents’ impressions is provided in royalty reports. This past year, and especially this past season, have not yet been delivered in the data they study most intensively. But it was still useful to check with them, if only to confirm that fiction ebook penetration is double non-fiction and that illustrated books lag far behind.

If 50% of fiction is selling now as ebooks, it is likely that only about 35% of it is selling as print in stores (because 25-30 percent of the print sale is online). Considering that number was more like 90% ten years ago and 80% five years ago, that’s all the explanation anybody needs to understand the reduction of shelf space we’ve seen. Every year when stores are interviewed about traffic and sales, they cite the presence (or absence) of “big books” as a key driver. The “big books” are most often big fiction. This year, the Fifty Shades family of titles may have provided that lift, which may be why stores (other than B&N) are anecdotally reporting a strong Christmas.

But what the industry should be most interested in, which will be reflected in the next round of royalty statements agents see, is that ebook sales growth appears to have damn near stopped. As Michael Cader pointed out on Lunch, Random House UK indicated a 13% increase this year over last, which mirrors Barnes & Noble’s reported rise of 13% in ebook sales in December.

Thirteen percent is a big increase in a stable marketplace.

But if you consider the heavy activity in the device field — the new iPad mini, Kobo devices being sold by independent stores, and B&N turning progressively their stores into NOOK showrooms (and not to mention the always-growing ebook title base, still adding backlist and formerly out-of-print books and small press and self-published books) — the rise in ebook sales seems like no rise at all. So perhaps we really have hit the point of resistance from print readers and a new stability in division of sales across channels.

The consequences of only about a third of fiction being bought in stores — and not all in bookstores — are still to play out. If it is true that independents did better than B&N this past Christmas, could part of the reason (as I speculated in a prior piece) be B&N’s prior success selling their customers NOOKs? Is the indie store customer somewhat less likely to have bought a Kindle or NOOK previously and therefore disproportionately in the marketplace for printed books?

It is quite possible that the disappointing B&N results could be a more accurate indication of the world we’re now living in than the reported success of the indies.

Under the heading of data being ambiguous, note that the reported big rise in sales by independents in 2012 appears to have taken place in the first part of the year so that sales at Christmastime might not have been as much better than B&N’s as first impressions on the data could lead us to believe. (Once again, thanks to Cader for doing some in-depth analysis of the raw data to lead us to see that possibility.)

And at the same time that we’re seeing an increase in ebook sales of about 13%, PW reports that BookScan US numbers show print unit sales having declined by 9%. What is interesting there, though, is that deeper PW reporting about BookScan says that non-fiction declined by 13% while fiction fell only by 11% in unit sales. Since we think we know that ebook penetration for fiction is much greater than for non-fiction, perhaps the reported decline in non-fiction units reflects lower sales of illustrated books, not because they’re being cannibalized by ebooks, but because of the store traffic decline B&N reported.And that’s exactly what I’d be worrying about if I were an illustrated book publisher. Their business isn’t transitioning to digital as fast as novels, but it is possible their sales were more interdependent on novels and their power to bring traffic into the bookstores that sell the illustrated books than they might ever have thought.

The data reported by PW also says that mass-market paperbacks have suffered by far the biggest decline among the book formats. The ebook sales by independents (self-published) are apparently underreported. Could the very cheapest ebooks, which are largely the indies, be cutting into the sales of the cheapest print books. It would stand to reason, wouldn’t it?

Both our sold-out (really and truly, we will have to turn people away if they show up trying to buy a ticket at the door) Children’s Books Go Digital conference on this Tuesday (Jan 15) and Digital Book World on Wednesday and Thursday (Jan 16 and 17) feature as much worthy original data presentation and analysis as we could find.

On Tuesday, we have Carl Kulo and Kristin McLean presenting data from Bowker’s survey of the kids book market, Peter Hildick-Smith of Codex with fresh information about children’s book discovery, and both our case study of middle-grade marketing from Simon & Schuster and a presentation from Random House about driving word of mouth with a YA audience will undoubtedly deliver some objective information that will help other publishers make sound marketing decisions.

We have always featured original data presentations at Digital Book World. This year is no exception. We will kick off the event with Forrester’s snapshot based on interviewing executives; we’ll feature academic research from Carnegie-Mellon on the true impact of piracy; and Dan Lubart and Jeremy Greenfield will deliver a report based on close study of ebook bestseller data. That’s just on the first morning. We also will have insights from a survey F+W Media did to which more than five thousand authors responded; data about discovery in the general trade marketplace from Hildick-Smith; and a report from Bowker about book buyers and BISG about ebook buyers, based on regular surveying that has taken place over the past couple of years. Children’s Books Go Digital is sold out, but there are still tickets available for Digital Book World. 

I’m really proud of what we’ve put together for both events and I hope to see you there. If you can’t make it because of geographical separation, though, DBW is making live streaming available this year for the plenary sessions and some of the breakouts. If the plane won’t get you to New York on time, you should check that out.

Barnes & Noble announced some holiday sales results this morning and they were universally disappointing.

Overall sales are down. Same-store and online sales (the year-to-year comparables) are down 8.2%, while total sales are down 10.9% (because they have closed more stores than they’ve opened.)

NOOK sales were down 12.6% for the holiday period. Digital content sales were up 13.1%, but that’s alarming too. The company has sold a lot of devices since last Christmas (I don’t know, but one would expect the number of NOOK devices in the market has gone up by more than 13.1% in the past year) and last year they reported (according to Publishers Lunch) that NOOK business rose 43% during the holidays.

But what was most attention-grabbing (to me) was that the core sales decline was attributed to “lower bookstore traffic”.

Since the results were announced this morning, I had a conversation with a journalist who pointed out that the indies (anecdotally) seem to be reporting a very good Christmas. Why would the indies be up and B&N be down, this person wondered?

Thinking about that yields one piece of anecdata, one bit of conjecture (offered in yesterday’s forecast post), and one newly recalled (and somewhat frightening) insight.

The anecdata is that a Big Six CEO told me a couple of months ago that a very major book being published by that house (certainly one of the ten most anticipated releases of 2012) was not primarily promoted at B&N because they couldn’t get the bandwidth and cooperation on the B&N side to put something together. So the book was instead primarily launched through Walmart.

The conjecture in the last post was that the independents were more focused on selling printed books than B&N was. Indies are selling Kobo readers, but I’ll bet not one of them is devoting the prime sales space and portion of the paid staff to them that B&N does to the NOOKs. They’re focused on selling books, not devices, so they’re merchandising them better.

And the insight is that B&N has converted much of its store traffic to an online customer base because of their success at selling NOOKs. Those people may not be coming back, except virtually. These results may be the evidence of that.

B&N demonstrated with last week’s sale of NOOK equity to Pearson that what they have is of value to other companies. But that’s not particularly encouraging to the publishers and authors who are counting on them to sustain a bookselling presence.

B&N has a tough row to hoe building an international NOOK business without the store base they used to do it here. If the core US business declines faster than expected, that’s no help.

We always knew that the “old” Barnes & Noble was a fantastic US-based brick-and-mortar bookseller and that the “new” Barnes & Noble would be a global company based on devices and content. It always seemed tricky to get from one to the other and the challenge doesn’t appear to be getting any easier.

Although “digital change in publishing” has a year that lags the calendar year and this year won’t “end” until we have a read on how post-Christmas ebook sales were affected by the new devices consumers got for Christmas, the dropping of the ball in Times Square is the signal most of us respond to when timing our look ahead.

The signals about what to expect when the “digital year” ends are mixed, but not wildly encouraging. There are anecdotal reports of strong sales by US indies selling Kobo devices and Amazon has bragged about their Kindle Fire sales. On the other hand, B&N does not seem to be meeting its targets on the digital side and we’re learning that we don’t get the ebook sales surge from replacement devices that we get when a consumer first switches over from print. Most of the devices being sold now are replacements. And we’re also seeing tablet sales surging past ereaders. Prior analysis has told us that people spend more time reading books on ereaders than they do on tablets.

But quite aside from precisely where Digital Year 2012 ended up, there are five trends I think will be increasingly noticeable and important in trade publishing that are worth keeping an eye on in 2013.

1. Overall migration of sales from print to digital will continue to slow down.

We have already seen this clearly in data that has been reported throughout 2012. After ebook share growth that was in triple digit percentages for four years (2008-2011), this year we saw that switchover slow down considerably to substantially less than a 50% increase over last year.

Although the slowdown was pretty sudden, it shouldn’t really have been that surprising. Since the ebook era began in earnest with the arrival of Kindle in November, 2007 (5 years and a few weeks ago), it has been clear that heavy readers were early adopters. Both price and convenience were drivers that made the reader of a book a week much more interested in the new way of purchasing and consuming than the reader of a few books a year.

There appear to be those out there who believe this is a temporary lull and that the ebook switchover will shortly accelerate again. I really don’t think so. Although I don’t think the various surveys of reading habits have captured this, my hunch is that there are relatively few heavy readers left to make the change and those are, demonstrably, extremely resistant.

It is entirely possible that the death of Borders and changes at B&N reduced the amount of shelf space for books by as much as 50% in the two years that ended with 2011, a year ago. (That emphatically does not mean that print sales declined by that amount, or even that print sold in stores did.) That adjustment of shelf space to the reality of the purchasing shift consumers had made was a sudden over-correction, with the result that the remaining booksellers got a bit of wind at their backs. The data is hard to interpret, but it is possible that the indies benefited from that more than B&N did, perhaps as a result of B&N’s more intense focus on its NOOK business compared to the indies, who (despite the lift they got from selling Kobo devices this past Fall) are more focused on print.

This does not mean the digital switchover has ended. My gut (I don’t think there’s a great empirical substitute available here) tells me that store sales for books will continue to lose ground to online (print and digital) at a rate of 5-to-10 percent a year for some years to come. But that’s a much more manageable situation than the one bookstore owners had been dealing with for the several years leading up to 2012.

This is good news for big publishers. Their model is still built around putting print on shelves and managing a marketplace that works around a publication date focus and the synchronized consumer behavior that store merchandising really stimulates. It is good news for B&N too, if they can take advantage of it.

2. “Other-than-immersive” books will continue to lag in digital transition.

The commercial realities of ebooks and print are very different for immersive reading than they are for reference books, illustrated books, and picture books for kids. This difference is unfavorable for other-than-immersive books both in their creation and their sales appeal.

For immersive reading — books that are all text where you basically start on the first page and read through to the last — the “adjustment” to ebooks is both technically simple and uncomplicated for the consumer. Make it “reflowable” and it works. And the additional “labor” to make the two different versions (print and digital) is minimal.

But for books that aren’t consumed that way (reference) or which have important content that isn’t mere words, a single digital version might not work effectively (think of the difference in screen sizes and what that could do to a picture and caption or a chart). And compromises we make for a printed book — using six still pictures instead of a video or a flat chart instead of an animated one — can be downright disappointing in a digital context.

There are ongoing efforts to make creating good complex ebooks cheaper and easier, the most recent one coming from Inkling. Apple offers tools to do this, but then you can only sell the output through Apple. Vook was on this trail, although their most recent pivot seems to be away from reliance on illustrated books. The ebook pioneers at Open Road Digital Media have been making deals with illustrated book publishers — Abrams and Black Dog & Leventhal among them — and appear committed to solving this problem

But it seems to me that it might not be readily solvable. The inherent issue is that precisely the same intellectual output in both formats, which works fine for immersive reading, almost never does for complex books. So the core realities that have cushioned the digital transition for publishers of novels and biographies — that the cost of delivering to the digital customer is really very low and the appeal of the content is undiminished in digital form compared to print — don’t apply for illustrated books for adults or kids.

Will the how-to or art book in digital form ultimately be as close to its print version as has been the case for novels? Or will the how-to or art digital products in the future come from book publishers at all? Will there be any real synergy there? I don’t think we know that yet. As pressure grows in the retail marketplace, it gets increasingly urgent for illustrated book publishers to find out.

3. Mergers and consolidation among publishers are likely to become more common, after a long period when they haven’t been.

I have been a bit surprised about how little imagination has been evident from the kommentariat about the pending merger of Penguin and Random House. It seems like it is being viewed primarily for its cost-cutting potential (and that will be real), but I think it could actually be transformative.

I see two very big immediate wins for the combined company. They’ll be able to launch a credible general subscription, book-club-type offer using their own books exclusively (print and digital, although the big opportunity is digital). And they’ll be able to serve no-book-buyer retail accounts with a commercially-appealing selection of books working with a publisher’s full margin, not the thinner revenue available to a third party aggregator.

This is the two biggest of the Big Six joining forces. The other combination that is believed to be under discussion, putting together HarperCollins and Simon & Schuster, would be something like half the size of Penguin Random House and it wouldn’t have an equivalent reservoir and flow of highly commercial titles.

While Macmillan, according to the year-end letter from its CEO, John Sargent, remains determinedly independent, it is hard to see Hachette staying outside the merger tent as a stand-alone if Harper and S&S were to execute on the current rumor. The three of them together would present a competitive challenge to PRH and would have similar opportunities to open up new and proprietary distribution channels.

The merger activity will not be confined to the big general players. Both F+W Media (our partners in Digital Book World) and Osprey are building out the “vertical” model: providing centralized services to enable development of “audience-centric” publishing efforts for many and diverse communities. F+W has more than 20 vertical communities, most recently having acquired Interweave. Osprey, starting from a base in military history, has added science fiction (Angry Robot) and mind-body-spirit (Duncan Baird) to their list by acquisition.

The key in both cases is being able to add revenue channels to an acquisition as well as the time-honored objective of cutting costs through a combination. In different ways, all of the mergers we’re talking about here accomplish that.

4. Platforms for children’s books will become increasingly powerful gatekeepers.

Publishers discovered the power of platforms when Kindle showed them that they, not the publishers, controlled the customers and they, not the publishers, controlled the pricing. It took less than a year for Kindle to “own” enough customers that it would have been very difficult for any publisher to live without their sales, even without the leverage Amazon had as a significant customer for print.

Now we suddenly have a plethora of platforms that want to convince parents and teachers that they are where kids should be doing their reading. This is coming from the retailers: Amazon has a subscription offering for kids’ content and both Kindle and NOOK have parental control features. It is coming from the people who have been in this market all along: Storia from Scholastic and Reading Rainbow’s RRKidz. It is coming from outside enterpreneurs: Story Town and Ruckus.

And, before long, I think we’ll see branded digital subscription offers from the biggest publishers. (Why not?)

This suggests that a lot of shopping and purchasing decisions for young reading are going to take place outside of any environment that one could say now exists. And that’s going to be true pretty soon.

There are a lot of moving parts here. Sometimes the content has to be adjusted in some way for he platform, or can be enhanced for it. Sometimes the platform can facilitate a sale of stuff that is pretty much as it already was. Some of the platforms work on subscription models and others on discrete product sales models. But publishers (and agents) are going to be thinking about what those deals ought to look like. For now, platform owners are eager to engage the content so they have something to capture an audience with. When the audience is captured, the power shifts to the platform owner for anything but the most highly visible and branded content.

This will be an interesting arena. (And one that will be discussed at length at our conference, “Children’s Publishing Goes Digital” on January 15.)

5. Marketing for publishers will be a constant exercise in learning and reinvention, and increasingly difficult to separate from editorial.

I spent a post recently trying to describe an “audience-driven” rather than “title-driven” or, worse, “title-on-pub-date-driven” approach to marketing. When you get down to actually trying to use the biggest new tools publishers have in the digital world — the top two coming to my mind are using email permissions and social media for dirt-cheap communication and lots of data sources with more and more tools for analyzing big data — you very rapidly realize that it is very limiting to think about using them on a per-title basis.

Rick Joyce of Perseus presented some ground-breaking thinking at our Frankfurt event about using social listening data tools for publishing marketing; he learned that the tools were most effectively applied across categories rather than for titles. (Part of the reasoning here was that using the tools is time-consuming and therefore expensive; part of it is that you just get more actionable information categorically than you do title-by-title because you’re crunching more data.)

So when publishers start to conform their publishing and marketing to what the new tools can do best (we’re still in the stage where we’re mostly trying to make the tools do what we did before), it will mean an explosion in the number of marketing decisions that have to be made (because the age of the book will not be a central factor in the decision to include it in a marketing opportunity.) This is accompanied by the big increase in decisions required to respond to the near-instantaneous feedback marketing digital initiatives deliver.

All of this will continue to be very challenging to the structure and workflow practices in large companies.

I think the clearest indication that marketing is reaching its proper 21st century position in publishing will be its increasing importance in driving title selection. As publishers become more audience-centric, it is the people who are communicating with the audience (the marketers, but also the editors, and the line between them will get fuzzier, not that it hasn’t sometimes previously been blurred) who will see what’s needed that isn’t in the market yet. In a way, that’s always happened. But in another year or three, it will be a formal expectation in some structures, and will have a defined workflow.

One obvious trend I’m not discussing here is “globalization”. In fact, one analyst sees exploiting global opportunities as one of the big wins of the Penguin Random House merger. With all the retailers publishers know well (Amazon, B&N, Kobo, Google) expanding into new countries every month, there will be no shortage of reminders that publishers should clear rights and price books in all territories for which they possibly can. But the problem starts further upstream than that, with the licensing practices of agents, who still often maximize advances-against-royalties by selling books market by market. There is a long gestation time on deals, so even if the dealmaking changes, it will take a while for that to be reflected in more ebooks on sale in more places. That’s why I am not expecting globalization to have a major commercial impact in 2013 and it is also why I see it as a more distant opportunity for the new PRH business than the ones I suggested in this piece.

Two announcements made in the last two weeks caught our attention.

One was Simon & Schuster’s deal with Author Solutions, creating a new Archway Editions publishing imprint. This was the third such major deal with a publisher for ASI, following similar arrangements forged with romance publisher Harlequin and Christian publisher Thomas Nelson (now owned by HarperCollins).

The other was Publishers Lunch’s deal with Random House, creating the new online bookstore-lite, Bookateria. This was the second such major deal with a heavily-trafficked website for Random House, following a similar arrangement forged with the political site, Politico.

Of the two, the S&S-ASI connection offers less obvious benefits. ASI has apparently built a remarkably efficient engine to get a book delivered from a manuscript. And every publisher has many times more authors knocking at their door than they could possibly consider publishing. And many of them will never find a publisher so would be good candidates for self-publishing services.

But there are both ethical and practical commercial challenges to converting author aspirants who come looking for a deal to customers willing to buy self-publishing services. ASI seems to have persuaded publishers that the conversion works enough of the time to make the connection between publishers and ASI worth making. Let’s remember that the Harlequin and Nelson deals preceded both the acquisition of ASI by Pearson and the deal announced last week with S&S. Presumably, S&S and Pearson knew something about the results from those prior deals and were proceeding with some evidence that using a known publisher as a front door for self-publishers was an idea that works.

On the other hand, neither Nelson nor Harlequin has trumpeted the results of their ASI deal and authors may notice that the legions of successful self-publishers (John Locke, Amanda Hocking, Hugh Howey, Bella Andre, and more than a few others) seems bereft of ASI clients.

There are more questions than answers generated by these deals so far. It appears that the publishers really have nothing to do with their new customers aside from bringing them into the tent. (S&S says in the press release that they’ll be watching the sales of Archway books to see what authors it might want to sign for the house. But isn’t that what every big publisher should be doing across the self-publishing landscape right now?) Will the association with self-publishing damage the core publishing brands? Will the publishers feel some ownership of the self-publishers from whom they profit? Will real synergies develop between the publishers and their ASI connections, or will this remain largely a branding trick?

While all of that remains to be seen, if the ASI-publisher connections deliver revenue to publishers with little or no effort on their part, other publishers will be open to doing the same thing. The question is whether they do.

It is not difficult to discern the value delivered by the collaboration between Publishers Lunch and Random House to deliver Bookateria, a search-and-shopping experience with a Publishers Lunch perspective. It gives Lunch an easy way to deliver real convenience and value to its audience and modestly monetize it at the same time. And it further tests and proves the concept Random House first demonstrated with Politico. By delivering the tech around a pretty complete catalog of available books able to be monetized through affiliate relationships, Random House has created a “product” that any web site with substantial traffic can benefit from in the way Lunch now will.

Publishers Lunch, because it is constantly reporting book news, has more opportunities than the average site to link to purchase pages for a book it is mentioning. It regularly refers to various and sundry lists of award winners and top sellers and it makes nothing but great sense for them to make purchase of these books easy (and make a little money at the same time.)

It may be (and I’m not on the inside of any of these deals; aside from our partnership in Publishers Launch Conferences, Michael Cader of Publishers Lunch runs his businesses and I run mine) that Publishers Lunch is taking a more active role in merchandising books than Politico is. That would make sense. Books are PL’s business, and they have to both be thoughtful and appear thoughtful about how they present them. And since this capability is probably at least as much about providing utility to site visitors as it is about increasing revenue, the merchandising would want to reflect the site’s knowledge and point of view.

I have long believed that book and ebook distribution would ultimately follow the web’s innate tendency to verticalize audiences. Why wouldn’t you buy your political books or sports books or knitting books where you learn about them and be guided more by recommendations of “domain experts” than “book experts”?

I had visualized this verticalization working out from a publisher, which would use its content to attract audiences which it would then monetize many ways, including by selling them books and ebooks of its own and from other publishers. To varying degrees, this is what I saw unfolding with Hay House, F+W Media, Osprey, and Harlequin with the most highly-developed Big House example being Tor Books inside of Macmillan.

Some new propositions — notable among them being the still-promised book retailer Zola and the distributed sales “apps” from Impelsys and Ganxy — were built around the understanding that book curation was most effectively done by the experts and communities functioning in any domain and it made sense to deliver a way for them to enable their own ecommerce for the content they suggested or reported on to their audiences.

But it is in a trade publisher’s DNA to work with aggregators and intermediaries (which is what bookstores, mass merchants, libraries, wholesalers, and special sales outlets are). Random House applied the same vision of distributed and vertical curation but decided that they didn’t need to offer the entire ecommerce solution to execute on it.

So Politico and Publishers Lunch — and, one presumes, more to follow — use Random House to provide their catalog and metadata and some level of curation and they all rely on the existing retail network to complete the transactions and do the fulfillment. Random House and their partners (presumably) share affiliate revenues from the retailers, not the “full margin” on the content sales.

This could be viewed as a bit klunky from the customer’s perspective and it definitely will be for some. You wouldn’t be “shopping” and then “checking out” as two discrete and serial experiences. Each “buy” decision would take you to a retailer choice and then deep-link you to the purchase page for that book at the retailer you choose. Anybody who wants to purchase multiple titles would definitely find this less convenient than just shopping on a retailer’s site.

But if the retailer were delivering the curation and information that Politico or Publishers Lunch is offering in the area of vertical interest, then the customer would probably do their multiple-title shopping at the retailer anyway. The Random House-powered strategy is more opportunistic than that. It’s more about facilitating impulse purchasing than attracting a shopper.

And when you stop and think about it for just a minute, you realize that conversion is likely to be much higher by offering customers a choice of their favorite retailers than it would be if you were signing them up to a new account with a retailer (web site) they hadn’t purchased from before. This is true even in the case of Publishers Lunch, which has credit card numbers for a large number of its most regular visitors because they’re members of Publishers Marketplace. It would be even more of a barrier to making a purchase at Politico and other non-membership sites.

One veteran publishing marketer told me that conversion on clickthroughs to Amazon were very high in his experience, ranging from 8% to 17%. He really doubted whether any fledgling retailer could achieve anything like that rate of conversion.

That constitutes evidence that the revenue achievable as an affiliate could well be higher than what could be gained executing the sales and keeping “full margin”, which brings along with it full responsibility for maintaining an infrastructure and providing customer service. None of that is necessary working as an affiliate.

There is a superficial similarity to these two initiatives. Both involve a company offering tech at scale to help another company monetize its existing network in ways that it doesn’t now. How effective that monetization really will be is still an open question. But it would appear that the ASI service to publishers entirely depends on that: aside from whatever revenue it can yield, there’s no other real benefit to the publisher and, in fact, it could confuse or cheapen the perception of their core business.

The Random House offer to websites, on the other hand, has all sorts of “soft” value. The partnering web site unambiguously offers a service to its site visitors by enabling rapid purchase of relevant content encountered while pursuing their vertical interest. Selling content and earning revenue is only one way to win; they also benefit from more traffic and more stickiness, the inevitable by-products of improving the value being offered any site’s visitors.

What is also interesting to contemplate about the Random House-powered distributed curation is what its potential impact will be on the retail network. Enabling the content purchaser to choose her retailer would, one assumes, distribute the sales from their site in pretty much the same proportions as the market had already.

On the other hand, it might also make it easier for consumers to switch. It could dilute the advantage Amazon has built through their usually superior (compared to other retailers) curation and presentation. It would make it much easier for a supporter of independent bookstores to make the choice to buy from them. (The choices presented are obviously flexible. Politico offers “Politics and Prose” bookstore, an indie based in Washington that specializes in political books. Bookateria instead offers Indiebound, the ABA’s way of sending you to an independent retailer.)

One more observation. There have been two retailers expected to make their appearance anytime now for the last six months: the big publisher-created Bookish and the previously-mentioned Zola Books. The rumors about both of them say that they are having a really hard time making the metadata we have in our industry work well enough to execute on ecommerce. Obviously, Random House had to overcome that same problem to deliver their proposition (although perhaps the bar was a bit lower since they execute sales as an affiliate rather than transacting themselves). An informational page for Bookateria makes it clear that metadata improvement will be an ongoing work-in-progress.

As the other big publishers look at what Random House is doing and wonder if they should be doing the same, they might want to rethink the digital aphorism that anything, once done, can be replicated in half the time and for half the cost. Even if that’s true, starting now to replicate the Random House capability could take a year or more; this is not something that Random House dreamed up last week. In a year, Random House could pick off a number of very desirable large sites and improve their metadata organization even further. I don’t think any competitor who takes this concept seriously will be able to afford to wait for proven success or failure to start developing if they want to be in this game.

NPR did a great job of choosing four minutes of me to sound wise on All Things Considered as part of a publishing roundup. Or you can read a summary of my bit instead of listening to it. We start with the Random House and Penguin merger and meander a bit from there.

This is the last post for the fourth calendar year of The Shatzkin Files. Our annual rhythm is that our quietest week of the year (this one) is followed rapidly by our most intense: the 7-1/2 days of conference programming in four days on the calendar that comprise Digital Book World  2014 and the two Publishers Launch events that bookend it. 

Happy New Year to all my readers, and especially the many of you who take the time to add to the conversation here in the comment string. Double-especially to those of you who dispense your wisdom in concise doses.

Here’s a modest proposal about how marketers at big publishers should be organized.

By audience segment, or, to use my own favored terminology, by vertical.

Marketing demands it and entirely new business opportunities — beyond publishing — can arise from it.

A publisher — even the most general publisher — should figure out which audiences it targets again and again. Some of those are easy and neat and defined by genre, like “romance readers”. Some of them might be defined by demographics and might overlap with genre readers, like “single women under 30″. Some of them might be defined by interests, such as “passionate chefs”.

Each audience segment already has its own web sites, its own apps, its own nomenclature, its own influencers. And, of course, each audience segment wants to know about the books (and other content) that relate to its core interest.

Marketers have always asked about every title: “who is the audience?” Now to optimize their digital marketing efforts, publishers large and small are wanting to know about that audience: “where can I find them?”

Big publishers have always posed their marketing questions in a title-by-title context.

Rick Joyce, the Chief Marketing Officer at Perseus, came to the conclusion by using the social listening tools in the market (like Covercake and Radian 6) that the best approach with them was to use them categorically, rather than title-by-title. He spelled that out to the audience at our Publishers Launch Frankfurt conference last October.

Pete McCarthy of McCarthy Digital made a related point to me when he explained that it became very clear to him at Random House that the more data that he had to work with, the more effectively he could target an audience. So the rich get richer. It was a lot easier for Pete to structure a strong marketing outreach for Dan Brown than for a first novelist. And it is much easier for marketers to build up data around a category of readers than it is around any single title.

But, as far as I can tell, no publisher has (yet) taken the step of moving away from title-centric marketing structure to an audience-centric marketing organization.

It is bound to happen. There will be increasing pressure on the existing structure driven by two related realities: bookstore decline and Internet-based marketing opportunities.

Until a very short time ago, books not in a bookstore had very little chance of selling, regardless of how powerful a publicity break they could generate. Now we’re seeing an average (across titles and genres) of more than 30% of the book sales being made online. “In stock in stores” isn’t nearly the requirement to make sales that it used to be and it will be less important every month than it was the month before for a long time to come.

The understanding that books wouldn’t sell if they weren’t available at retail excused the savvy publisher from reacting to every marketing stimulus that came down the pike. Only the successful books remained widely available more than 90 days after publication date, so media breaks that occurred later than that in most books’ lives had to meet a very high threshold to be worth acting upon. If the publisher didn’t know about a break far enough in advance to get books in place — and if the break weren’t persuasive enough to make retailers cooperate with that effort, perhaps on a book they’d returned a month or a year ago — then it was just background noise.

In fact, relatively few real marketing breaks occurred for books post-publication in the past the way they do now. Sophisticated print and air media tended to be most interested in books when they were new. If you’re “book-centric”, you focus on the new and upcoming, not on the history.

But life isn’t like that anymore. Books can be discovered at any time because the metadata doesn’t disappear from the virtual shelves. And because so much of the media isn’t book-centric (very few blogs have a book review editor sifting though the new releases), if the book is new to them and relevant to their audience’s current concerns, they’ll be interested in it.

So while it used to be perfectly acceptable (even “highly professional”) to ignore an author’s call telling his or her editor that s/he has a radio interview scheduled for next Saturday (although you would always say “thanks for letting us know”), it isn’t anymore.

With more marketing breaks taking place that are independent of a book’s publication date and in a time when we can no longer call off the marketing efforts for each book when it is about a month old, the by-title approach to marketing is bound to become a workflow nightmare. The old stuff won’t move out of the way to make room for the new. And books remaining permanently in the marketplace combined with the proliferation of marketing outlets assures that the number of stimuli calling for a response will just continue to grow.

It will become less and less acceptable (and less and less wise) to simply ignore post-publication marketing breaks. And when publishers move away from a title-driven marketing structure to an audience-driven marketing structure, it won’t be necessary either.

This is how I imagine organizing the trade publisher’s marketing department in the future. I’m describing an idealized scenario to get there that is almost certainly not immediately practical for anybody, but I think makes it easier to visualize the desired state.

A publisher will build a list of target audiences, defined by interest or demographics. Probably this exercise is best started by looking at the company’s top 1000 titles (I’m imagining a Big Six-type house here; the exercise is actually easier for a smaller and nichier player.) We’ll call the individual audience segments being targeted “verticals.” Each vertical will be assigned a team (although a single team might work more than one vertical and any individual marketer could be on more than one team). Flexibility is key here; each audience has different value to the house and the person-hours allotted to the vertical has to bear some reasonable relationship to the revenue potential. So these teams are not “one size fits all”. That’s why marketers will be on more than one team; some will warrant a fraction of the time and effort of others.

For each vertical, the marketing team’s job is to make audiences aware of the house’s books on a timely basis (which does not mean “pub date”, but means “when a book is currently relevant and likely to be of interest to the audience” which is something that is, on some level, examined anew every single day), to get the audience to “talk” (tweet, blog, chat, comment) about the house’s books, to know enough about trends with the audience to suss out topics of future interest, and to conceive marketing programs — subscription services, establishing brands, selling non-content offerings — to both monetize and get closer to the market.

In some verticals, it might be possible to establish a community hub — a website or an app or a subscription offering or a sharing or annotation capability — that can serve as an anchor for ongoing communication with the vertical. But that won’t happen most of the time. What the marketing team is looking for are the hubs that already exist and the ways to get close to them, collaborate with them, identify the opportunities they present and take advantage of them.

Let’s imagine that there are 100 such audiences with teams assigned to them to start out. Any book might call for help from one of them or several of them. Only in very rare cases should it be necessary to coordinate efforts for a book across teams, because they’re working different audiences.

This approach will result in publishers learning a lot more than they know about the audiences for what they publish. For example, one would imagine (going in) that “literary fiction” has an audience that is common: that there are people that want to read the most “writerly” books. But it will only become evident over time whether “quality” (meaning “literary” or not) trumps genre categorically. I’d assume a priori there are books that would “work” for a romance or sci-fi vertical but also for a “literary” vertical. But perhaps the “literary” team will find that well-written romances don’t work with their audience, even though well-written science fiction does.

Working this way will deliver a publisher a much deeper understanding of the readers and what makes them respond. The most obvious drawback is that it will be more difficult to manage the marketing teams on a per-title basis. You will be putting titles into the hands of many different teams because it has many overlapping audiences when you define them by interests and demographics. And each of them will have timing and messages that are largely, if not primarily, influenced by the environment in their vertical.

Obviously, it will be much harder to coordinate a Big Bang on pub date using this approach. But the guess here is that the necessity for that is diminishing over time anyway and it will be compensated for by the improvement of marketing across the list, on smaller titles and on backlist. There’s room for a “big books coordination” function. It won’t interfere much with the work of the individual teams to have to be in corporate harness for a small number of titles.

With this sort of structure in place, all sorts of additional development not only becomes possible, it becomes inevitable. And the problem of knowing when and how to react to marketing breaks will largely be solved. Purely hypothetically, the “electoral politics” vertical team might find that an NPR break is worth a lot of effort to promote and the “gourmet eating” vertical team might learn it isn’t of much value at all. Niche subscription services, newsletters, first chapter distributions, and event development will flow naturally from the focus on audiences. Having a large number of teams, with many marketers working more than one of them, will encourage both experimentation and the spread of best practices.

This audience-centric way of thinking is pretty natural, or at least easier, for smaller publishers. They tend to specialize by subject or genre more than the bigger players do anyway. They don’t have new titles literally every day — every major house does more than 365 books a year and some are publishing closer to 10 titles every working day — to keep their marketers from having the time to think about anything else. (Yes, the big houses have more marketers than the smaller ones, but whether they have more headcount per title would be a different question.)

It has already happened that the vertical marketing efforts of smaller, more-focused houses have enabled them to be very competitive with big houses in certain niches. One agent told me several years ago that he had concluded that the mind-body-spirit specialist publisher Hay House could sell many times the number of copies of a book in their sweet spot than a Big Six house. Hay House has focused on its audience, collecting email names and running paid events, for years. They have the ability to promote to hundreds of thousands — perhaps millions — of their core audience without incremental cost. And, not to say that there isn’t plenty of imaginative marketing thinking in their shop, I’d maintain that the innovations that give them marketing power follow pretty naturally from publishing and marketing to the same audience repeatedly. They didn’t have to organize vertical teams for marketing; their entire company is a vertical team.

And Jane Friedman’s Open Road, much of whose list consists of established backlists for which the company was able to acquire the ebook rights, is not as “vertical” but they are similarly untethered from a publication-date-driven marketing strategy. Open Road works from a marketing calendar that looks at the events that will drive consumer behavior and they market to that. What have we got and how can we position it for Father’s Day? What have we got and how do we position it for Election Day? It isn’t exactly vertical, but it is audience-centric and thinking that way makes it natural for the marketers to promote the right backlist at the right time.

But it is structurally much more difficult for a major house to do this because it means blowing up — or at the very least diverting a lot of resources from — the existing title- and imprint-based marketing structure. Imprints in major houses were rarely if ever formed around audiences; they were formed around editorial units. In general houses, even the individual editoral units work tend to work across many topical areas. In the big houses, really it is only the genre fiction that gets an editorial unit, branding, and marketing teams dedicated to them.

That’s why many of the the most interesting innovations in the big houses, like Tor’s massive mailing lists and cross-publisher ebook store and Avon’s Facebook-centric initiative to sell non-DRMd titles through AllRomanceebooks.com, tend to come from the genre fiction units.

There is definitely full awareness in the major houses that “marketing at scale” must replace “we put books on shelves” as their defining value proposition. They are shifting more and more resources to marketing. They’re investing in and learning about SEO (search engine optimization) and SEM (search engine marketing).

Random House, showing one strategy that is consistent with this perspective, is developing a tool set to create bookstores for existing vertical sites, starting with Politico. If it works, that’s an extensible way to get the marketing benefits of niche community-building for your books without having to build the community yourself. And it fits with the point we make above that vertical marketing efforts don’t have to be about creating communities; it is more efficient to exploit those that have already been created.

But as far as I can tell, no house is close to accepting the reality that the title-driven and pubdate-driven marketing techniques that we all grew up with will shortly have outlived their usefulness. The increased demands on marketers created by new opportunities, particularly those arising for books past their pub date, are being met now by adding to staff and tinkering with the rules about what’s worth attention and what isn’t and, of course, trying to create tools and techniques that will enable the title-driven and pubdate-driven efforts to be more effective at scale.

Change will ultimately come in stages. (I can’t even imagine how one would quickly implement the plan as I describe it here in a massive publishing house.) Nobody will start with 100 vertical marketing teams and small remnants of the existing structure. But it is definitely time for every house to have three or six marketing teams focused on specific audiences.

When those have raised the sales on the relevant backlist, resuscitated some dormant titles into an active status, created a couple of surprise bestsellers a few months after they were published, and brought in a few great books that were never seen by an agent or any other house, it will make it much easier for management to see for themselves, and persuade all their colleagues, that this is the way to the future.

And, beyond that, when publishers become expert in targeted audiences and also have content reservoirs to attract them and learn more about them, entirely new commercial opportunities will emerge. But that’s imagineering on top of imagineering, so we’ll leave it for another day.

Blog posts have been scarcer for the past couple of months because I’ve been so engaged with a major responsibility: putting together what amounts to 7-1/2 days of conference programming that will be presented on four days next month in New York City.

As most readers of this blog probably know, we’re responsible for the programming of the two-day extravaganza that is Digital Book World. DBW 2013 — taking place on January 16 and 17 at the Hilton New York Hotel — will be the fourth iteration of the event, which aims to explore the commercial challenges facing trade publishing in the digital transition. DBW is not about technology per se; it is about the business problems publishers must cope with in an age of technological change.

DBW’s main two days are divided between morning plenary programming — all 1500+ people in one big room — and afternoon breakouts. We’ll have up to five simultaneous breakout sessions in each of three slots each day. So we have what amounts to 4-1/2 days of programming in the breakouts plus one on the main stage.

Because people really do come from all over the world to attend DBW, we were delighted to agree when they asked us at Publishers Launch Conferences (the conference business I own with Michael Cader) to add a show on each side of theirs to build out a week of programming. (The team at DBW itself are also putting together some pre-conference workshops that will run on Tuesday.)

So on Tuesday, January 15, we’ll do our second annual “Children’s Publishing Goes Digital” conference at the McGraw-Hill Auditorium (put together with the invaluable assistance of our Conference Chair and close friend, Lorraine Shanley of Market Partners). And on Friday, January 18, we’re presenting (in conjunction with the DBW team) a new program called “Authors Launch“, a full day of marketing advice for publisher-published authors. (Self-published authors are welcome and will learn a lot, but the program is framed for authors who are working with publishers, not looking for ways to avoid them.)

Programming the “Children’s Publishing Goes Digital” show revealed what we think will be the most important theme in the children’s book space for the next few years: the development of  digital “platforms” that, like subscription offerings (which some, but not all of them, clearly are), will “capture” consumers and make them much less likely to get ebooks and other digital media from outside of it. The list of platform aspirants in this space is long and varied: Storia from Scholastic; RRKidz from Reading Rainbow (the TV show brand); Poptropica from Pearson (which launched Wimpy Kid before it was a book); Magic Town; Disney; Capstone; and Brain Hive. All of them are presenting, as well as NOOK, which, like Amazon Kindle, has announced parental controls on its platform that encourage parents to manage their kids’ reading experience there.

There are other big issues in children’s publishing, particularly the creation of original IP by publishers so they can better exploit the licensing opportunities that follow in the wake of successful kids’ books. We’ll have data presentations from Bowker and from Peter Hildick-Smith of Codex to help our audience understand how kids books are found and selected outside the bookstore in today’s environment.

But we know that the digital discovery and purchase routines will be markedly affected by the platforms as they establish themselves. Publishers are faced with an interesting conundrum. They can’t reach the audiences that are loyal to a platform without going through the platform. But it is the presence of many publishers’ books that strengthens the attraction of the platform and, once it gains critical mass, the value of the content to it (and probably what it will be willing to pay for the content) is reduced. So publishers licensing content to these platforms may be strengthening beasts that will ultimately eat them. I think the roundtable conversation Lorraine and I will lead at the end of the day, which will include publishers Karen Lotz of Candlewick, Barbara Marcus of Random House, and Kate Wilson of Nosy Crow, will have interesting things to say about that paradox.

We’ve developed some “traditions” in the four years we’ve been doing Digital Book World. As we’ve done the past two years, the plenary sessions will open on Tuesday with the “CEOs’ view of the future” panel organized and moderated by David Nussbaum, the CEO of DBW’s owner F+W Media and the man who really dreamed up the idea of this conference. David will be joined this year by Marcus Leaver of Quarto, Karen Lotz of Candlewick, and Gary Gentel of Houghton Mifflin Harcourt. And Michael Cader and I will — as we have every year at DBW — moderate a panel to close the plenaries, “looking back and looking forward” with agent Simon Lipskar of Writers House; Harper’s new Chief Digital Officer, Chantal Restivo-Alessi, and Osprey CEO Rebecca Smart.

Among the presenters on the main stage who will be unlike what our audiences usually hear at a digital publishing conference will be Teddy Goff, the digital director for the Obama campaign, who will talk about targeting and marketing techniques that might serve us well in the publishing world; Ben Evans of Enders Analysis in London, who will tell us how publishing fits into the strategies of the big tech companies (Amazon, Apple, Facebook, Google, and Microsoft) that he tracks regularly*; ex-Macmillan president and now private equity investor Brian Napack, talking with Michael Cader about the investment climate in publishing; and Michael D. Smith, Professor of Information Technology and Marketing from Carnegie-Mellon, talking about a study he and his colleagues have done on the real commercial impact of piracy.

(We’ve also scheduled a breakout session for Teddy Goff so he can talk more about the Obama campaign for those in attendance who want to learn more of its lessons to apply.)

We’re also delighted to have gotten Robert Oeste, Senior Programmer and Analyst from Johns Hopkins University Press, to deliver his wonderfully insightful, entertaining, and informative presentation on XML, the subject so many of us in publishing need to understand better than we do. And we will after he’s done. (We’re also giving Oeste a break-out slot to talk about metadata which I’ll bet a lot of our audience will choose to attend after they’ve heard him on XML.)

Some authors have had remarkable success without help from publishers in the past year, but few or none more than Hugh Howey, the author of “Wool”, who has just signed a groundbreaking print-only deal for the US with Simon & Schuster. His dystopian futurist novel has sold hundreds of thousands of self-published ebook copies and rights all over the world and to Hollywood. We’ll have a chat with Howey about how he did it and we’ll be joined by his agent, Kristin Nelson, for that dialogue. Kristin will stick around to join a panel of other agents (Jay Mandel of William Morris Endeavor, Steve Axelrod, and Jane Dystel from Dystel & Goderich) to talk about “Straddling the Models”: authors who work with publishers but are also doing some things on their own.

We will have several panels addressing the challenges of discovery and discoverability from different angles. One called “Closing the New Book Discovery Gap” teams Patrick Brown of Goodreads with three publishing marketers — Matt Baldacci of Macmillan, Angela Tribelli of HarperCollins, and Rachel Chou of Open Road — and is chaired by Peter Hildick-Smith. That will focus on what publishers can do with metadata and digital marketing to make it more likely their titles will get “found”. Barbara Genco of Library Journal will share data on library patron behaviors and then helm a panel discussion with Baker & Taylor, 3M, Darien Public Library, and Random House exploring the role of libraries in driving book discovery and sales. Another session called “Making Content Searchable, Findable, and Shareable” introduces three new propositions from Matt MacInnis of Inkling, Linda Holliday of Citia, and Patricia Payton of Bowker, along with SEO expert Gary Price of INFODocket. Publishing veteran Neal Goff (who is also the proud father of Obama’s digital director) will moderate that one. MacInnis, Holliday, and Payton offer services that will help publishers improve the search for their books. Price will talk knowledgeably about how the search engines will react to these stimuli.

We’re covering new business model experimentation (with Evan Ratliff of The Atavist, Brendan Cahill of Nature Share, Todd McGarity of Hachette, and Chris Bauerle of Sourcebooks) where publishers discuss ways to generate revenue that are not the old-fashioned ones. We’ll underscore the point that we’re about changes caused by technology rather than being about technology with our “Changing Retail Marketplace” panel, featuring publishers and wholesalers talking about the growth of special sales (through retailers that aren’t bookstores and other non-retail channels).

The future for illustrated books will be discussed by a panel with a big stake in how it goes: John Donatich of Yale University Press, Michael Jacobs of Abrams, Marcus Leaver of Quarto, and JP Leventhal of Black Dog & Leventhal. Two publishers who have invested in Hollywood — Brendan Dineen of Macmillan and Pete Harris of Penguin — will talk about the synergies between publishing and the movies with consultant Swanna McNair of Creative Conduit.

We will have major US publishers and Ingram talking about exports: developments in the export market for books — print and digital. And we’ll have some non-US publishers joining Tina Pohlman of Open Road and Patricia Arancibia of Barnes & Noble talking about imports: non-US publishers using the digital transition to get a foothold in the US market.

One session I think has been needed but never done before is called “Clearing the Path” and it is about eliminating the obstacles to global ebook sales. That one will start with a presentation by Nathan Maharaj and Ashleigh Gardner of Kobo where they will enumerate all the contractual and procedural reasons why ebooks are just not available for sale in markets they could reach. And then Kobo will join a panel conversation with Joe Mangan of Perseus and agent Brian Defiore to talk about why those barriers exist and what might be done in the future to remove them.

Oh, yes, there’s much much more: audience-centric (what I call “vertical”) publishing; the changing role of editors; the evolving author-publisher relationship; and a conversation about the “gamification” of children’s books. David Houle, the futurist and Sourcebook author who wowed the DBW 2012 audience, will return with his Sourcebooks editor, Stephanie Bowen, to discuss their version of “agile” publishing: getting audience feedback to chunks before publishing a whole book.

We will also do some stuff that is more purely “tech”. We have a panel on “Evolving Standards and Formats” discussing the costs and benefits of EPUB3 adoption, which will be moderated by Bill McCoy of IDPF. Our frequent collaborator Ted Hill will lead a discussion about “The New Publishing IT Department”. Bill Kasdorf of Apex will moderate a discussion about “Cross-Platform Challenges and Opportunities” which is about delivering content to new channels.

But purely tech is the exception at Digital Book World, not the rule.

And purely tech won’t show up at all at Authors Launch on Friday, January 18, the day after Digital Book World.

Authors Launch is what we think is the first all-day marketing seminar aimed squarely at authors with a publisher, not authors trying to work without one. It is pretty universally taken as a given that authors can do more than they ever have before to promote themselves and their books and that publishers should expect and encourage them to do that. But, beyond that, there is very little consensus. What should the publisher do and what should the author do? That question is going to be addressed, in many different ways, throughout the day.

The Authors Launch program covers developing an author brand, author involvement and support for their book’s launch, basic information about keyword search and SEO, use of metrics and analysis, a primer on media training, when and how to hire a publicist or other help, and a special session on making the best use of Goodreads. We’ll cover “audience-centric” marketing, teaching authors to think about their “vertical” — their market — and understand it.

The faculty for Authors Launch includes the most talented marketers and publicists helping authors today: Dan Blank, co-authors MJ Rose and Randy Susan Meyers, journalist Porter Anderson, David Wilk, Meryl Moss, Lucinda Blumenfeld, agent Jason Allen Ashlock, and former Random House digital marketer Pete McCarthy.

We have assembled a group of publishers and an agent to discuss how an author should select the best places to invest their time from the staggering array of choices. (Facebook, Twitter, YouTube, Pinterest, etcetera.) That panel will include agent Jennifer Weltz of The Naggar Agency as well as Matt Baldacci of Macmillan, Rachel Chou of Open Road, Rick Joyce of Perseus, and Kate Stark of Penguin. Matt Schwartz, VP, Director of Digital Marketing and Strategy for the Random House Publishing Group, will conduct the session on metrics.

A feature of both our Kids show on Tuesday and the Author show on Friday are opportunities for the audience to interact with the presenters in smaller groups so each person can get his or her own questions answered. At Kids we’ll do that at lunchtime, seating many of our presenters at tables with a sign carrying their name so our attendees can sit with them and engage. At Authors Launch, we’ll be conducting rounds of workshops, crafted so that the authors can get help in their own vertical (genre fiction, literary fiction, topical non-fiction, juvies, and so forth), and on the topics of greatest need for them.

We are sure the week of January 15-18 will prove to be an energizing and stimulating one for all of us living in the book publishing world. We hope you’ll join us.

Digital Book World Week | January 15-18, 2013

Children’s Publishing Goes Digital | Tuesday, January 15, McGraw-Hill Auditorium
DBW Pre-Conference Workshops | Tuesday, January 15, Hilton New York Hotel
Digital Book World Conference + Expo | January 16-17, Hilton New York Hotel
Authors Launch | Friday, January 18, Hilton New York Hotel