The Shatzkin Files


Publishers are reshaping themselves


It was reported last week that Hyperion plans to sell off its “backlist” to focus its attention on new titles it will develop in conjunction with its corporate cousins at Disney and ABC. This follows Wiley’s selling a lot of the most bookstore-dependent parts of its list, including the sale of Frommer’s Guides to Google, in 2012.

I believe these transactions are the front end of a trend I first anticipated in a post about four years ago. 

Publishers are going to find it increasingly compelling to reconfigure their inventory of title offerings around their most current thinking about their marketplace. Both Wiley and Hyperion are moving away from a “general” trade model. They’re moving away from publishing books for which their primary revenue dependence would be on bookstores and their primary marketing dependence on the book review media.

Wiley is actually returning to its professional roots. I did a lot of consulting at Wiley in the late 1980s when they were building out their trade presence. Although they were very disciplined about sticking to specific subjects where they had special marketing capabilities or subject expertise, they became increasingly “trade-y” over time. They built a powerful organization to sell to the book trade which reduced the need for them to be as focused on core subjects as they were when they were first building their trade capabilities. But the core of the company — its heart and soul and its DNA — always remained primarily professional. (Wiley also has a college textbook list, but it is a much smaller part of their business than professional books and journals.)

That means that Wiley would view the diminution of bookstore shelf space with more equanimity than a straight trade house, like one of the Big Six (soon to be Big Five) would. They would see themselves readily able to move away from a shrinking business segment that was never “core” for them anyway.

Hyperion is a straight trade house. Unlike Wiley, they don’t have a direct-to-user business or the big library revenue that a professional publisher does. But what Hyperion does have is a close relationship with sister companies Disney and ABC. Those relationships make possible partnerships which don’t change the sales and distribution challenge, but have a huge impact on the marketing opportunities. Hyperion is increasingly able to publish titles that have a strong public awareness component built on the back of TV or movies.

But Hyperion is a straight trade house without a lot of fixed overheads. They have outsourced the heavy requirements of sales and distribution, currently to Hachette. So they can sell off their backlist, even if it amounts to a substantial chunk of their sales, without having to worry about reorganizing their sales force or underutilizing their physical plant. They have apparently decided to become a different, more focused, kind of publishing house, not so much committed to “publishing books” that can make money from whatever source as they are to being the book publishing arm responsible for building out the brands and franchises their corporation invests in for movies and TV.

Both Hyperion and Wiley are showing us what the publisher of the near future is going to look like. They will be more focused. They will be shedding overheads so they can expand or shrink their offerings more readily to respond to opportunities and circumstances. They will be less dependant on the trade bookstore and book review trade networks. And Hyperion’s decision says something more about the future that Wiley’s doesn’t: book publishing will increasingly be an activity operating in tandem with or in service of other objectives of the owning organization. (There is a parallel here in retailing, where Amazon and Google and Apple fit this description, and Kobo and Barnes & Noble do not.)

There may also be a message here about the relative importance of backlist. When digital first started to happen, it seemed like the backlist might be the biggest beneficiary. After all, stores had limited shelf space and online merchants can “carry” all the books they want, particularly if there is no pre-purchased inventory required. (There isn’t for ebooks and there increasingly isn’t for printed books either, which can be purchased from wholesalers for next day delivery, even if they are printed on demand!)

But it turns out that the current state-of-the-art for merchandising and presentation of books online is not very helpful to backlist. Most retailers return a limited number of books (10 or 20) per screen to any query. Customers have limited patience for refreshing screens, so the number of titles an online purchaser “browses through” is far fewer than the number that would catch the same eyes in an equivalent amount of time in a store. This appears to be pushing sales more and more to newer books and books on bestseller lists.

This problem of concentration will probably just get worse as mobile devices become more ubiquitous and the shopping takes places on ever-smaller screens.

It isn’t clear yet to what extent publishers’ marketing practices could be responsible for the consumers’ bent to purchase from the top titles or whether changes in how publishers market could ameliorate it. But it does mean that marketing backlist is its own challenge and not sufficiently addressed, as it was in years past, by sales reps or store systems just keeping in stock what has been selling.

It is now necessary for publishers to communicate directly with consumer audiences to be effective marketers. At the same time, it is now possible for publishers to do the core work of reaching the trade without big fixed overheads. The combination of those two things will motivate changes in how publishers view the value of both their backlists and their publishing programs. What Wiley and Hyperion have done shows what kind of conclusions publishing today allows them to come to.

Should be great times coming for the small number of players in trade publishing’s M&A world.

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  • John Andrews

    I find your knowledge of publishing very interesting, partly because of its great depth and partly because it is so different from mine (as an author and small-time self-publisher). When I began writing (for the professional and serious amateur market) my publishers used to pay me a royalty which rose to 15% when enough copies had been sold. They had a substantial sales force and they sent me copies of all the reviews which were published. They did all the editorial work in-house. My original publishers have been bought time-and-again and are now on the list of the 20 largest publishers. They pay a fixed royalty of 5% and have hardly any sales force and hardly any editorial staff, because everything is outsourced. They do not keep track of reviews and they do not take me for lunch – in fact I no longer meet them face-to-face. Selling is done almost exclusively by putting up some information on Amazon. My impression is that the only way they have stayed in business is by cost-cutting. They are greatly in need of a new business model from the author’s perspective – and I hope they read your blog. But I think they are doing OK by their customers. The low cost-base lets them publish many more books in my subject area than formerly and they sell more copies overseas then formerly. Their editorial staff are amazingly ignorant of computer technology in general and web technology in particular. I won’t name the firm – but they are US-owned.

    • http://idealog.com/blog Mike Shatzkin

      Margins are being squeezed for book publishing, period. Publishers either figure out how to do more for less (applying scale) or they have to pinch elsewhere. The retailers (Amazon and B&N) are definitely pinching *them*.
      Mike

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  • Jack W Perry

    Mike – Another thought-provoking post. Thanks. I can see an industry where publishers will continue to focus on core categories and not try to be “general” publishers. The Big 5 (or Big 3 if/when it consolidates even more) will be general but within those walls, there are imprints devoted to specific categories.

    • http://idealog.com/blog Mike Shatzkin

      You’re describing verticalization, which has been my hobbyhorse for a long time. I think we’re going to have to rethink the Big Six (now Big Five). When the Random-Penguin merger is complete, it will be the Big One and the Following Four. With a big gap in between.

      Mike

  • Tom Woll

    Mike, good, provocative comments as usual. Let’s not forget HarperCollins, who’s ahead of Wiley and Hyperion when it comes to cutting fixed overheads and focusing on content creation and marketing. HC “literally” sold the building (or at least their 200,000 square feet of it) and has implemented large-scale third-party distribution/ fulfillment strategies. I totally agree that publishers need to deal directly with their consumer audiences if they are to succeed in today’s world. The real question is why it’s taken most so long to implement this strategy.

    • http://idealog.com/blog Mike Shatzkin

      Good point about HarperCollins. HC is doing just about the opposite of Random House. RH keeps building their core systems capabilities, building more and more scale through distribution and through the Penguin merger.
      It will be interesting to see when HC starts reshuffling their product offerings.

      Mike

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  • Zombeemom

    If publishers are reshaping their methods of communicating w/consumers, does that mean freelance marketing and marketing in general will take a hit?

    • http://idealog.com/blog Mike Shatzkin

      In general, I think publishers rethinking their configuration see “marketing” (along with “editorial”) as a core activity they want to keep in house. So that would argue for the idea you posit, that freelance marketing would have a smaller market. But there’s another side to the coin. Verticalization is necessary for real scale marketing, so it is possible that the marketers could be a point of consolidation among publishers who share a vertical. If you’re a freelance marketer, specialize in *audiences* and you’re more likely to survive would be my hunch.

      Mike

  • Sarit

    As a bookseller I see the need of the end line customers and there is no really one clear direction. While the elder one clearly like their hard copy the younger ones has a wide scale of preferences (e.g.from hard copy to e-book).
    In B&N you can hear a common complain that they are now a kind of display window, which has something into it. People still need to see and feel before they make their decisions. But and here is the big but….as usual the “big people” don’t listen to what going in the field….e.g. customer and booksellers.
    It is well known that us full ideas stay only ideas between the low levels employees, nothing move up. I think you are totally right about what a store can do maintaining customers/members – more event and in the the right hrs for the right customers…. (and I mean from interest groups to reading to signing by authors)…also somethings for the hard core members.
    Networking is also an excellent idea, not only from the side of the publishers/authors, there is also wide space for the retails themselves. And the “book review media” can be managed in more ways: from frontal discussions in store through the web and to the written media with the active involvement of the retails..
    B&N for example think that moving the display all the time around the store is creating a dynamic atmosphere that will influence that shopping disicions… wrong…. it is only contribute to confuse the customers and the employees altogether and it is waste of time…
    Guess what…. one of the more common ways this days o increase your margin is to cut in salaries expanses = less workers per store and people who will to work for less. But sadly it is costly in a way less people and the team busy most of the time doing routine (like: receivings, zonings, displays reorganized, recoveries, cashier service, lost preventions, frontal and online reservations and costumers service in store, all at the same time) . less professional booksellers and high rates of people leaving in the 1st chance of better salary/condition job offer.
    No one care! that the end line customer don’t get the service they deserve not in time and a quality one… so you lose a lot of potential trades and got very disappointment customers, and the expectations become low ans so the loyalties. All this has a viral way of spreading.

    I really don’t know how the publishers/authors can make any impact on big firms like B&N, but something is really wrong. Someone has to convince them about all these and at the same time, that there is also a place for traditions beside innovations, and a good combination of them can benefit all.

    • http://idealog.com/blog Mike Shatzkin

      I am really loath to join the criticism of B&N, partly because I think they’re really trying hard in difficult circumstances and partly because they’re all that stands between us and an America whose biggest national bookstore chain is Walmart.

      But it does seem as though they’re losing their way as brick-and-mortar booksellers. Perhaps that is an inevitable price to pay to convert themselves to a digital Nook Media organization. Or maybe things will get better in the stores if Len Riggio buys them back. But it sure does seem like this isn’t your older sibling’s B&N anymore.

      Mike

  • http://twitter.com/PeterTurner Peter Turner

    Really good, thought provoking, post, Mike. Thank you.

    While, it’s certain true that “the current state-of-the-art for merchandising and presentation of books online is not very helpful to backlist” and that the explosion of mobile will make it worse, I think this only really applies to browsing, doesn’t it?. Most eCommerce is either fulfillment of discovery that’s occurred elsewhere (that is, not on the eCommerce site) or via eMail promotions and eMail “newsletters.” (I say this not because social media isn’t important in driving interest but doesn’t very often in itself generate sales.)

    I think there’s also another interesting dynamic in the shift from in-store merchandising to direct marketing. Bookstores devote the best real estate in their stores to new titles because they believe that most people go to stores to find out what is new. This always struck me as a bit odd. (The exception to this are those special co-op promotions at the chains; the 3-for-2, etc.) I used to work in a wonderful bookstore called WordsWorth in Harvard Square, Cambridge. One thing we discovered was that many of the new titles on the display tables and shelves were dogs in terms of sales. (This was very early in the days of WordStock, when computerized sales and inventory systems were just coming on the scene). So we figured we were better off devoting some of this prime real estate to hot backlist titles where word-of-mouth was driving sales. This particular sort of backlist title almost always saw a nice bump in sales by being in the front of store.

    There’s a parallel oddity with a lot of direct marketing. Why devote your efforts so disproportionally to new titles? The customer doesn’t care if it’s new; they care if it’s of interest to them. By segmenting eMail lists by customer preference and using customer data to drill down to key interests and other motivating factors you can, as with backlist in front of store, drive up your return-on-effort.

    • http://idealog.com/blog Mike Shatzkin

      You have put your finger on a “convention” of publishing which will be re-thought, which is that the marketing effort is put behind the newest titles and almost nothing else.

      There is (of course) good reason for that. Publishers didn’t want to invest effort marketing books that weren’t readily available in stores for sale. Books that are more than 90 days old, and particularly more than 180 days old, are routinely in half or fewer of the stores they’re in on pub date. So publishers pushed books when they were at max distribution and then the books were on their own after that. A store like Wordsworth might have the flexibility to decide to push something other than the newest books. The chains, being paid for their prime display space, had to push what the publishers were willing to *pay *to push.

      There were rare exceptions. I remember my friend Charlie Nurnberg, when he was head of sales at Sterling more than a decade ago, telling me “I never buy end cap space from B&N for a *new *book, because I don’t know how well it will sell. I use those slots for backlist I can count on.” But Sterling was (then) a relatively small, privately-owned, very non-corporate place where unconventional things could be done. I told that story to a rep at a bigger house who covered major accounts and she said, “gee, I wish *I *could do that.”

      Mike

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