Content Reserve

A year ago — even six months ago — it seemed like Amazon and its Kindle device had an insurmountable advantage in the ebook device and platform competition. Despite our admonition that Amazon’s dominance of ebooks was much more fragile than their dominance in online print bookselling, even we were impressed and sometimes daunted by the enormous percentage of ebook sales that were being made through the Kindle ecosystem.

Then Barnes & Noble introduced the Nook through their 700 stores last December and Apple brought the iPad to market in April. Nearly overnight, it seems, Amazon has gone from the dominant player to the leading player with a share that was often in the 80s for many titles having fallen to the 50s.

Three entirely new ebook platforms are now poised to make their debut. Each of them has an angle, or a USP, that the others don’t and that the vendors, devices, and platforms that preceded them — notably Kindle, iBooks, Kobo, and Sony — don’t. The three new platforms are Google Editions, Blio, and Copia.

Google’s special proposition is ubiquity; Blio’s special proposition is enhanced feature sets; and Copia’s special proposition is building social networking right into the content consumption platform.

The new entrant that is subject to the greatest anticipation, of course, is Google Editions. Whenever they go live (which they say they “hope” will be sometime this summer, which has another 6 weeks or so to run), they are likely to be offering the largest selection of ebooks from any single source. Google has a staggering number — millions — of public domain books but they will also have professional and scientific books not published on most of the prior ebook platforms. Their well-promoted proposition is their cloud model, which will allow their ebooks to be read on any device that can support a browser.

Google is also offering a wholesaling service to enable any bookstore or any web site to sell their ebooks. (What that means, of course, is that their “largest single source” claim could be usurped by their own resellers, who might have added other titles from other places.) Their arrival adds another option for potential ebook sellers who had previously been served by Ingram’s wholesaling operation or their competitor, Content Reserve, which has also reached the book trade through Baker & Taylor.

Google is working the OEM channel as well and not limiting themselves to Android-powered devices in doing so. They’ll have apps available in multiple marketplaces, including Apple. And they are offering to power sales on publishers’ own sites. We’ve seen no announcement of publishers who have accepted this proposition, but it would seem likely that some, particularly smaller ones, will find it attractive.

Baker & Taylor has been developing its own ebook platform, Blio, in concert with futurist Ray Kurzweil and the National Federation of the Blind. We were first shown Blio last December and were really impressed with its crisp presentation of integrated text-and-pictures pages. They showed us a tool kit that made it pretty easy for publishers to enhance their print books for electronic delivery with sound and video, and even to fiddle with the design in the Blio platform. Because of Blio’s roots as a tool to bring reading to the sight-impaired, the ability to adjust font sizes, a capability which all ebooks offer, had to be integrated into their delivery of complex page layouts.

We have been expecting Blio’s debut in the market for some time, and we’ve been expecting to see many highly-illustrated books, like college texts, that have not previously been in the offerings of Kindle, Nook, and Kobo. Highly illustrated books would work fine on the iPad, of course, but they were not a priority for initial inclusion for iBooks (the dedicated Apple ebookstore) and they were not what publishers would put into the eink-reader platforms that didn’t handle that material well.

Blio has announced that it will power the store Toshiba is creating to support its tablet release. Since that is expected in the next month or so, Toshiba’s offering of Blio titles will probably be their debut in the marketplace.

The tool set for Blio was what really captivated us when we saw it last December. When we saw it at the time, Blio was delivering a Blio-ready ebook from the publishers’ print PDF, and then, within Blio, the publisher could enhance the ebook. At the Untethered conference in June, Blio announced a partnership with Quark by which Blio files could be created directly from Quark. Blio says they expect the Quark release to be in beta later this Fall. Blio plans to integrate its tools into other creation software in the months to follow.

Blio introduces another format into the ebook world: rather than epub or PDF, they are using Microsoft’s XPS platform. Right now, Blio itself is handling the conversion of titles from either PDF or epub into XPS, but the Quark arrangement and the others that will take place will allow publishers to deliver XPS-ready files to Blio, cutting past the conversion queue that now exists.

The open questions have been: when will Blio arrive and what will be the retailing environment for it when it arrives? They say they have 200,000 titles committed to their platform. (They can’t just pick up the ebooks of others; they’re not vanilla epub.) The Toshiba store won’t contain them all because titles are coming in faster than the conversion process can ramp up. Blio, like Google and Copia, expects lots of OEM installation. They project that Blio could be on more than 50 million devices by the end of 2011 and that they will be working with “traditional retail partners” in 2011 as well.

Copia made a splash last week when they announced their line of ereaders, including a larger-than-a-phone-screen color model which will be $99 when it comes out in September. Since Copia is a creation of DMC, and DMC is historically a hardware company, using their own hardware to launch the platform makes great sense. But OEM relationships, and an ability to deliver their platform to any device through client apps as well as through web browsers, are part of the strategy too.

The Copia platform’s unique proposition is that they combine social networking right into the platform in which content purchasing and consumption take place. Amazon’s announcement of an integration with Facebook moves them in a similar direction, but Copia would seem to be going much further than Amazon: enabling the sharing of the content consumption experience itself among friends or a personal network. This could be critical for reading groups, areas of common (vertical) interest, or for educational applications. Inside the Copia network, users can readily share their notes and annotations. And to make it easy for people to get started on their platform, Copia enables the import of existing contacts from Facebook, Twitter, and LinkedIn.

Other ebook platforms have demonstrated the power of syncing the reading experience across platforms; you can pick up your book on one device and it will tell you where you left off on the last device. Copia takes that a step further, syncing the social experience, including the sharing of notes and recommendations as well as the reading itself, across all the devices you want: smartphones, tablets, computers, or ereaders. We saw this demonstrated on their forthcoming iPad app.

What also impressed us about the last Copia demo we saw is that they have apparently licked the problem of allowing an epub file using Adobe DRM to move painlessly into their platform, regardless of from what ebook store it was purchased.

In addition to the hardware plans they revealed last week, Copia has also announced that they will be a launch partner for Windows Phone 7, the mobile operating system Microsoft is putting forth to compete with iPhone and Android. [Maybe we know a bit more about Copia than others do because they are our client, but like all the players in this very competitive market, they're not tipping their cards before they play their hand any more than their competitors. Even to us.]

All three of these operating systems come from substantial players. Blio is being delivered by one of the two book wholesalers in America with true national and international reach and relationships with every publisher in the country. Copia is being delivered by a company with long hardware development experience and a long history of partnership with consumer electronics retailers and phone companies. And Google Editions, of course, is coming from a tech company that has had deep involvement with virtually every book publisher in the world as it has developed Google Book Search over the last seven years.

Of all the current players, Sony would seem to be the most challenged. They have the weakest device, the weakest store, and the weakest strategic position with the industry and with the public. All of the rest either have something important and unique for the developing ebook marketplace and, in many cases, they also have an outside proposition that will keep them in the ebook game regardless of how well they do in it. Whether Google’s ebooks sell 10% of their projections or 10 times their projections, they won’t be going away. Same with Apple. Same with Amazon. So I think we can expect a multi-player ebook market, with some incompatible formats and a lot of incompatible DRM for some years to come. And the players currently in the game can expect their sales to go up but their market share to go down when the three new entrants join the fray this fall. That much seems certain, but very little else does.

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I have found a way to describe the difference between the Digital Book World conference we organize for F+W Media and the O’Reilly conference Tools of Change which I believe is accurate and is certainly not intended to be a pejorative description of  Tools of Change. I go to TOC and I find it very valuable, but different from what we’re trying to do.

Tools of Change explores developments in technology that have impact or can have impact on publishing (in general) and helps publishers (of all kinds) understand how to apply them. Digital Book World explores business challenges to trade publishing (defined as book publishers who work primarily through the retail network, or “the trade”) generated by digital change and helps publishers address them. So if I were organizing Tools of Change, I’d want to scan the horizon for technologies that could have an impact and ask “how?” Because I’m organizing Digital Book World, I’m looking at trade publishing’s commercial environment and operations for the impact of technology and asking “what should we do?”

The next Digital Book World Conference is set for January 25-26, 2011. That obliges us to ask: what will the hot digital change questions be eight months from now? What should we be planning to discuss then that will be immediate and relevant to the attendees we’re targeting: the editorial, marketing, sales, and digital strategy people in trade book publishing houses?

To help us figure that out, we’re in the process of recruiting the DBW 2011 Conference Council. That group of about 30 people — CEOs, digital strategists, and marketers from publishing houses large and small, agents, retailers, and independent industry thought leaders — will help us define the panels and choose the speakers that can enlighten and inspire. I’ll introduce you to that group in a future post; the team is in formation at the moment.

Today’s blog is to recruit the readers of The Shatzkin Files to help too. I hope you will.

Here are 15 topics, or speculations, we’ve identified to start building an agenda for discussion next January. Do you have any thoughts on any of these to refine our thinking? Some of these are ideas looking for examples: do you know particular people or companies doing things suggested here (or not suggested here) we should be highlighting? And, most important, what are we missing?

1. What’s going to be in an ebook? We’re definitely moving past the stage where the ebook is a “straight lift” from the print: half-titles, blank pages, and all. As ebook sales are rising, publishers are paying more attention to presentation and quality control. And there have been a few experiments with “enhanced ebooks” that contain added content and features, some of which are presenting books as “apps” to increase the functionality that can be offered. Where will we be drawing the line between “standard” new ebook features — dictionaries and linked notes, for example — and enhancements that might be worth extra money? And what enhancements will we see working in the sense that consumers see them to be worth paying for?

2. What will ebook sales channels look like eight months from now? In addition to the main ones we have today — Kindle, iBooks and the App Store, Nook and B&N, Sony, Ingram Digital and Content Reserve — will we be seeing substantial sales through Google and the Android marketplace, B&T’s Blio, and Copia as well? Will the mobile phone service providers be creating retail outlets that matter too? Will the retailers newly in the ereader game — Walmart and Costco and Best Buy — also be motivated to create a branded outlet of their own to sell ebooks?

3. To what extent will publishers view single-title marketing as a practical endeavor? We’ve maintained that title-by-title marketing is the Achilles heel of general trade publishing and that the steady erosion of book-format-oriented marketing opportunities (book review pages in newspapers, radio and TV talk shows) and verticalization call for different marketing strategies. Where will publishers’ thinking be next January on the challenge of launching each new title into the marketplace?

4. How much progress will publishers be making on establishing direct-to-customer contact? What has characterized trade publishing is its dependence on intermediaries to reach the market. And what has made trade publishing possible is the leverage provided by those intermediaries, allowing publishers to reach millions of readers through mere thousands of touch points. But all publishers today acknowledge that the intermediary structure is breaking down and direct contact with end users is necessary. How is that working out? We may need two panels to answer that question: one of niche publishers that will find it pretty natural to do and one of general trade publishers who will undoubtedly find it very hard and complicated.

5. How important is the mobile phone market? How fast is it growing? What kind of books work best on it? And what do publishers have to do differently to please that market than what they do for larger-screen PCs, tablets, and ereaders?

6. How are publishers tackling the shrinking marketplace for printed books? Are they shedding warehouse space or considering consolidation with other players? Are they renegotiating printing contracts, reconsidering what constitutes a “minimum run” or acceptable print book margins? Are they developing new short-run and POD models to complement their prior pressrun models? Are they launching any new books with a no-pressrun strategy?

7. How much progress are publishers making toward changing their workflow, so that we have “ebook first” editorial processes? Since the beginning of ebooks over a decade ago, the standard technique has been to make them after the print book has been completed, and for the editor and author to focus their efforts on making the best possible print product. There is an increasingly widespread belief that this is backwards, and more complex ebooks help make a compelling argument for reversing the order of things. How far will we have moved in that direction by next January?

8. Does the growth of ebook sales change the thinking of publishers and agents about the efficacy of dividing up the territories for single languages? Do publishers start to see a growth in offshore sales facilitated by ebooks? Anecdotal reporting by O’Reilly, which owns global rights in all its titles, suggests that they’re seeing big sales growth in digital from markets that are hard-to-reach with print.

9. Do non-US publishers start to establish more of a sales presence in the US exclusively through virtual means? We’ve been suggesting on this blog that the growth of online sales — print books and digital books — will soon enable reaching a majority of the US sales potential without inventory, which means without the need for a warehouse or a distributor. That should lead to greater penetration of our market by offshore publishers, in all languages. Will we see enough signs of this by January 2011 to build a discussion around it?

10. How does the future look for the brick-and-mortar bookstore marketplace? On this blog (and elsewhere), concerns have been expressed about the impact on bookstores of the increasing shift to online purchasing for both print and ebooks. Christmas 2010 is being viewed in the consumer electronics industry as the “ebook Christmas”. When we’ve had a chance to digest the sales numbers of new devices and we combine that with what we know about the impact devices have on a consumer’s print book purchases, how do we see the future of bookstores when next January rolls around?

11. Is “profitable self-publishing” an idea gaining credibility or is it a pipedream? In 2009, author J.A. Konrath made a bit of a splash when he blogged about the substantial revenues he was earning putting his short stories and out-of-print backlist on Kindle without a publisher. Will there be more stories like this by January? Will this look like a viable option for established authors?

12. What’s the best approach to ebook distribution for small and mid-sized publishers? Will the original DADs (digital asset distributors) like Ingram Digital and LibreDigital provide the full service suite and sales effort that smaller publishers need? Or will the publishers-as-distributors model — notably including O’Reilly, who went into the business last February, as well as trade publishers and trade distributors like Perseus and NBN and Ingram Publisher Services, be the better option? How much is effective ebook distribution dependent on technical competence and how much of it requires sales competence?

13. After many years of discussion, are we yet beginning to see some new revenue models with any impact, like subscriptions (Disney has tried it now, in addition to O’Reilly’s Safari), selling books by the slice, or new models to compensate for library lending? We know that publishers need metadata-labeled fragments of their books for marketing purposes, but, for trade publishers, is there yet any indication that there’s a real payoff for that kind of tagging in sales revenue?

14. How much of the print backlist is still locked up by rights issues and what impact can different royalty offers have in clearing it up?Jane Friedman’s Open Road has had some success signing up established backlist for higher ebook royalties than the majors want to pay. Is the reservoir of candidates for this treatment substantial? How are agents and big publishers going to resolve these issues?

15. Is the notion of publishers building vertical presences on the web, so often expressed and promoted on this blog, gaining any significant traction in the real world? How are Poetry Speaks and Oxford Bibliographies Online and the forthcoming Pixiq from Sterling doing at establishing a new publishing model? What other examples are emerging or will emerge of publishers using delivering vertical solutions to create new business models?

At the Digital Book World conference, we want to be strategic and we want to be practical. And we want to be focused on the real-world problems digital change is forcing trade publishers to face. Have we left out any of yours?

I have finished this but not posted it yet and am already thinking of things I left out. A substantial publisher I spoke to last week learned from having his trip to the London Book Fair cancelled that he doesn’t need to go there anymore. This company has already given up its BEA floor space in favor of a meeting room. And this CEO himself is no longer going to go to Frankfurt and can see the day not far off when his company will no longer take space there either. Are trade shows  an anachronism in the age of digital communication? I have a feeling you readers and the Conference Council will think of a lot more.

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One of the most significant pieces of news to come out of Tools of Change is that O’Reilly is going into the distribution business for ebooks. This is indeed, a “tool” of change. It is also a harbinger of times to come that threaten a lot of big companies: major publishers; the big distributors like Perseus, NBN, and IPG; the digital asset distributors including Ingram, LibreDigital, North Point codeMantra, and the fledgling operation at Bookmasters; as well as the digital wholesaling operations at Ingram, Content Reserve, and Baker & Taylor.

The O’Reilly offer is to do whatever conversion is necessary to deliver files to a wide range of ebook channels for free and then to make the ebooks available through that retailing network for a charge of 25% of the dollars received. One prospective client told me that O’Reilly is willing to do a one-year contract.

This both an object lesson and a serious shot across the bow of the legacy giants of the print book business.

We’ve made the point here before that big publishers have a competitive advantage built on print-world capabilities, among them being the ability to get fast printings and reprints; the ability to quickly move books in and out of a distribution center; the ability to ship books according to the receiving requirements of many intermediaries, large and small; and a strong sales network with accounts, mostly brick-and-mortar, that sell printed books. All of these things require pretty massive scale. You couldn’t consider doing them well yourself for a $1 million (in sales) company or a $10 million company and it would be challenging to be competitive doing them with a $50 million company.

The scale required to do effective print book distribution affects both the supply and the demand in the distribution business. It means there are a lot of companies too small to do it well for themselves (creating lots of demand) and very few companies with the scale to do it well (creating a limited supply of providers.) Even so, as the need for scale along with declining overall sales have driven the big publishers deeper and deeper into the distribution business (pushing up the supply of distributors), prices for distribution have fallen steadily for at least the past decade.

Of course, anything that requires expertise benefits from some scale to develop it. And that’s what O’Reilly has in digital distribution. Partly because of the nature of the company’s audience, but largely because they have been aggressive and innovative about exploring every conceivable avenue for ebook distribution and developing a tool set that makes it possible for them to try new channels and opportunities quickly, O’Reilly has more scale, and therefore more expertise, than anybody else in consumer ebook distribution (except, arguably, some publishers in the romance space.) It is quite believeable that they can put ebooks into more channels with more efficiency than anybody else. And that’s an expertise that is largely (but not completely) topic-agnostic.

So we have a real Man Bites Dog story here. In the print world, O’Reilly is distributed by Ingram, which has invested heavily in ebook distribution. But not only does Ingram not get to be the distributor of their client’s ebooks, O’Reilly is issuing what amounts to an open invitation for all other publishers, including their fellow distributees at Ingram, to use them for ebook distribution.

(In his wrap-up talk at Tools of Change, Tim O’Reilly referenced a remark John Ingram had made to him at dinner the night before. On reflection, one wonders how the part of the the dinner conversation about ebook distribution went.)

This new challenge is playing itself out all across the distribution landscape. In the past week I have had two conversations with smaller publishers who have distributors on the print side. One is repped by one of the big independent distributors and the other by one of the Big Six. Both are planning their ebook distribution strategies, and neither of them intends to use their print distributor to help in any way.

The one distributed by an indie distributor is seriously tempted by the O’Reilly offer. This well-established company is quite comfortable taking responsibility for its own sales if they don’t need scale to handle it, so they have already pulled Amazon out of their print distribution deal. They planned to do digital on their own. They’ve had a digital workflow for a while, so their current books are in XML documents that make ebook conversion pretty straightforward. (If the offer of totally free content conversion is correct, then O’Reilly may have developed some tools helping them automate the way to from PDF or epub to XML. And they solve the problem of getting from XML to anything else that comes along for all their books.) But this publisher still have an extensive backlist that needs conversion to XML. This company sees a 1-year contract with O’Reilly as a possible way to get the conversion done and to get a line on a large number of points of ebook merchandising that they might otherwise not have known. In any case, the big print book distributor — with all its sunk costs and infrastructure and years of performance and relationship — isn’t even getting consideration.

The other company, distributed by a Big Six publisher, has also decided that digital distribution through its print distributor is a non-starter. They have been looking at the many Digital Asset Distributors to handle their conversion and distribution and have been close to settling on one. This company also has a legacy conversion challenge. Might they now want to put the deal they’re close to on hold and explore O’Reilly?

I would if I were in their shoes.

Cader wrote Wednesday (behind his pay wall) about the smaller trade publishers who have been slow to enter the ebook marketplace. He springboards from the results of a survey Perseus did of its clients and which formed the basis of a presentation they did at Tools of Change. Cader observes that 2/3 of Perseus’s 300 clients don’t use their Constellation service, their digital publishing assistance program (book distributor as DAD), at all. And, of those that do, he says:

Making ebooks available at all though looks to remain the biggest challenge for the survey group. The largest segment, 33 percent, said that fewer than 10 percent of their titles would be available as ebooks in 2010. Another 26 percent said half or fewer would be available, with just 30 percent expecting to have 75 percent to 100 percent of their titles available.

As ebook sales climb to very desireable levels, publishers of all sizes will pursue the revenue opportunities they represent. Trade book distributors have always lived on the reality that they provide the necessary scale to enable publishers to do what they do well that needs no scale: pick, develop, and deliver books people want. What requires a bit more scale but less to the publisher that specializes, and most small publishers do, is marketing. Distributors have never been much help there, frankly.

This perspective of the distributor was made very clear by the best-delivered presentation at Tools of Change, the one from Skip Prichard, the CEO of the Ingram Content Group. Skip was basically saying to the publishers: you do the content, we’ll do the rest. I know that Ingram’s perspective on a problem I’ve written about before — that publishers will have increasing trouble supporting the big infrastructures they have built for print — is that the publishers’ challenge creates opportunity for them.

And on the print side — the diminishing side — that is definitely true. What is not nearly as clear is whether on the ebook side — the growing side — they will face new, smaller competitors who have built a strongly competitive infrastructure without needing to be nearly as big. If that’s also true, then, one suspects, O’Reilly is not the only relative upstart that will be taking real business away from established players in the very near future.

There is actually a nice extension to this post that ties in nicely with my prior one on title P&Ls and the Motoko Rich piece in the Times about ebook pricing, but I’m going to leave that as a teaser for another one I may write someday because I’ve gone on long enough for now.

While I’m in Florida watching baseball games, as I am now and will be for the next few days, take a few minutes to respond the BISG survey supporting the “Points of No Return” Making Information Pay conference we’re organizing for May 6.

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Now I swear all this is true. As everybody knows, a very serious food fight broke out between Amazon and Macmillan late Friday night. All weekend Michael Cader led the way in ferreting out additional useful information and I spent most of today (Sunday) trying to write an analytical blogpost. I got it just about finished in the early afternoon, and the bottom line to what I’d written was “Amazon will not be able to sustain this.”

I decided to hold the post until after going to see Crazy Heart this afternoon and, when I came home, Amazon had already folded. But I had written a post that provided a lot of useful information, even if events had stolen my punchline.

So I’m giving it the once-over to edit it for the reality that Amazon has already announced that they will not continue to boycott Macmillan books.

It is received wisdom in Washington that when you have news you have to release but would prefer to have minimum impact, you release it on Friday afternoon. The latest tiff in the Amazon versus Big Publisher brouhaha went that idea one better; it appears to have broken in the middle of the Friday-to-Saturday night.

About midnight that evening, David Wilk alerted the Brantley list to a VentureBeat post that indicated that Macmillan titles were no longer available at Amazon.

By noon the following day, Brad Stone had posted a further explanation to the NY Times blog.

The VentureBeat post had no clue as to what was going on and even carried a link to a post from author John Scalzi suspecting a “glitch.” But Stone pinned down that the disappearance of the Macmillan titles was, indeed, retaliation for Macmillan’s move to the agency pricing model, first revealed by Michael Cader in Publishers Lunch and discussed on this blog last week.

Sometime late Saturday afternoon, Lunch posted a narrative explaining what was going on and including a paid insertion from Macmillan: a letter from Chairman and CEO John Sargent giving Macmillan’s account of what had transpired.

Which, as many people who care know by now (as I write this on Sunday morning and afternoon) is that Macmillan told Amazon about the new agency model, by which Amazon would actually get ebooks at lower prices than now but also by which Macmillan would set the prices to consumers. Amazon retaliated with what is, more or less, a “nuclear option.” Macmillan books are no longer on sale except through third party vendors (extending the ban to those dealers would open up yet another big can of worms for Amazon and they hardly need any more) and that includes Kindle. Most of the third party vendors are selling used books and no Macmillan books are being transacted directly by Amazon at all.

We have said on this blog, repeatedly, that publishers’ discounts to retailers would have to come down and that the windowing tactic (delaying ebooks from being available when the hardcover first comes out) was all about pricing control and nothing else.

What I want to accomplish in this post is to lay out clearly what is happening and then enumerate some key points about what’s going on: paradoxes and prospects.

Before the Agency Model (like “now”), publishers sell ebooks at about 50 off an often ridiculously high established price (”parity” is common; same price as a hardcover on a new book) to retailers who were setting the prices to the consumer themselves and, following Amazon’s lead, always discounting. The publishers are paying the authors royalties that are frequently 25% of net, which amounts to 12.5% of publisher declared retail. Some publishers pay 15% of retail; Sargent, in a previous letter to agents, indicated a desire to move from 25% of net to 20% of net, which would be 10% of retail.

The proposed Agency Model will have publishers setting a price lower than the established retail they had before but higher than the deep discounts Amazon led retailers to sell at. The publisher intends to  pay 30% of that established price to the retailer and 25% of either the full consumer price or of the 70% “net” (still to be determined) to the author. This means that the retailer will get a higher price from the consumer and a better margin than they realize now (even though a lower percentage of the “established” price). The author’s cut per copy could actually be reduced!

The wholesalers, Ingram and Content Reserve, often get the same discount as publishers. They handle the stores and libraries publishers serve don’t want to deal with directly. So those stores and libraries get less margin than the big ones publishers handle without an intermediary. One thing that was new to me that came out on the Ebook Supply Chain panel at Digital Book World is that publishers insisted on vetting the accounts that would be selling their books to make sure they didn’t violate territorial restrictions. So Ingram (and presumably Content Reserve) has to manage a granular control by title by publisher by account.

It is not at all clear how the Agency and price maintenance protocols get applied through wholesalers. Perhaps this means that smaller accounts and libraries just won’t have the newer titles that will only be released on the Agency basis (assuming that the scenario Sargent describes is what is also followed by other big publishers.)

This is a bizarre paradox, really. Macmillan actually proposed to sell Amazon the ebooks at what is, in effect, a lower wholesale price than Amazon gets now and their enforcement of a retail price puts more margin into Amazon’s pocket on every sale made than they earn now! And Amazon is fighting it.

Sargent’s note makes clear that the discount-off-retail pricing that has existed all along will still be offered, but that newer books wouldn’t be included in that offering. Those would be available only on Agency terms. What is not clear is whether Macmillan intends to continue the Agency terms past the nine-month “window” for new books. We’d guess they will for some accounts.

But that leads to another paradox because publishers unambiguously benefit if retailers sacrifice their own margin and discount when hardcover price maintenance and NY Times Bestseller list rankings are not at stake. Lower prices to consumers sell more copies. Presumably retailers will continue to want to compete on price and will do so when sales terms allow. But what does that do to the publishers’ challenge of “setting” prices for those accounts that want that done across the entire list?

Yet another paradox is the position of the agents. On the one hand, we have seen that many of those representing big authors see the same danger the big publishers do of inexpensive ebooks undercutting valuable hardcover sales and Times Bestseller rankings. On the other hand, publishers lowering established ebook prices and reducing their take from their intermediaries could often mean lower royalties for authors. But not necessarily.

If publishers are paying on “net receipts” (and many are) and if a) retail prices aren’t cut by as much as half (which they often won’t be) and b) if the publisher doesn’t deduct the Agency “commission” from its computation of net (sure to be debated), then the basis of the author’s royalty wouldn’t go down.

Quick summary: if you have a $25 list price ebook on which the author’s royalty is 25% of net, the author is now getting 25% of $12.50, or $3.125. If that book becomes a $15 ebook with a 30% commission, the author would get $3.75 (a nice increase) if the commission is not deducted first and $2.625 if it is (a sharp cut.) Of course, the $25 and $15 prices described here are notional and with different prices (as they say) “your results will vary.” If that notional book had been priced at $30 in hardcover, the author’s share would have been $4.50 and the ebook price change would clearly cost them something on every copy.

Author Charles Stross had a very insightful post on his blog, speaking from the perspective a gored ox (he has books published by Macmillan which have been taken down.) Stross makes clear that Amazon is miffed because their competitive strategy of driving away ebook competition through aggressive discounting will be foiled by publisher price-setting. Stross says:

Amazon are going to fight this one ruthlessly because if the publishers win, it destroys the profitability of their business and pushes prices down.

I’m not sure it “pushes prices down”; I think it actually pushes (ebook) prices up, at least temporarily. But the points Stross makes about Amazon wanting to achieve ebook hegemony and the Agency model being part of the publishers’ plan to beat that back and strengthen other players seem right to me.

We had a lot of this conversation last Spring before Sourcebooks’s windowing move with Bran Hambric, followed by Hachette with True Compass and HarperCollins with Going Rogue, pushed this tussle between Amazon and publishers to the forefront. In his analysis at that time, Cader made the point that publishers were actually helping Amazon undercut other retailers with their “parity” pricing; making the ebook retail the same price as the hardcover print retail. His logic was that the high prices increased Amazon’s advantage over other retailers because they could better afford to sell high-profile titles at a loss than their competition. Meanwhile, the publishers (and authors working on “net”) continue to get higher ebook revenues than the consumer spending would really entitle them to.

My first question when all this arose overnight on Friday was “why Macmillan?” Sargent’s note may have answered that question: because John was in Seattle on Thursday officially delivering Amazon the Agency Model news that we only assume is going to come to them from other publishers as well. One presumes that Amazon thinks that taking such drastic action as this might discourage the other publishers thinking about doing the same thing (and the iPad announcement on Wednesday would lead us to think that four of the remaining five Big Six players are indeed working out the details of a similar consumer-price-controlling sales model.)

And Amazon apparently figured out, as I was writing these words, that the only brand blown to smithereens by the nuclear option would be theirs. It is hard to imagine how extensive the brand damage could have been if Amazon delisted even one more major publisher along with Macmillan for even a couple of weeks. For a brand whose principal attributes are dependability and dedication to the consumer, it would have been catastrophic.

Amazon says now that the boycott is temporary and they were candid about the fact that they have no choice but to yield. They take a swipe at the publishers’ copyright-based “monopoly” on titles. But this was a really bungled response on every level. Amazon deserves credit for being smart enough to walk this thing back within 48 hours. Amazon may have to learn something new for them in the ebook space: how to be one of a number of players, not the only game in town.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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In the words of Emily Litella, the Saturday Night Live character of the 1970s invented by Gilda Radner, “never mind.”

I’m referring to my post about “debut pricing” from earlier this week. It can’t be done; at least not easily and at least not immediately.

The challenges we face require a continuing conversation and crowds really help. The collective wisdom and knowledge of the growing crowd reading this blog helped me find and face this hole in my own thinking. (It was also a bit of a comfort to be told in the course of previewing this post that other smart and informed people didn’t know what I missed either!)

What I should have known and factored in, but didn’t, is that ebooks aren’t sold like regular books, with a published discount schedule and no contract. Rather, ebook sales between publishers and their customers, whether intermediaries like Content Reserve and Ingram Digital or retailers like Amazon and Barnes & Noble and the Shortcovers business run by the Canadian chain, Indigo, are transacted under contractually defined and mandated terms. What those contracts say is both confidential and variable from publisher to publisher and customer to customer.

So the suggestion I made — that publishers adjust their ebook pricing by changing the discount schedule for newer books — can’t be achieved by unilateral decision of the publisher under most of the contracts that exist today. Any publisher that wants to implement my suggestion would have to wait for their contracts to expire and then negotiate new ones that would allow them to manage their terms of trade in ways that they can’t do now.

I am also told by publishers in the wake of my piece that Amazon has terms in place that very much anticipate the move that I suggested. At least some publishers have terms that tie the pricing of the ebook to the pricing of the print book (the ebook can’t have a higher suggested retail) and that tie the discounting of the ebook to the discounting of the print book. So the publisher couldn’t reduce the discount for the ebook without reducing the discount for the print book at the same time (and one suspects even that flexibility wouldn’t extend to all publishers and all contracts.)

Apparently some contracts go further than locking in the publisher to print book prices and discounts but also require the publisher to subsidize Amazon’s discounting. In one case I was told about, there is a maximum discount Amazon can require to be subsidized based on the publisher set retail price.

On top of their problems with Amazon, a publisher told me that they had contractually given Fictionwise the right to discount their ebooks and commensurately reduce the payment to publishers. For years, the Fictionwise policy was to do very little discounting and usually the discounts were about 10%. According to one publisher, new owner Barnes & Noble saw the opportunity in those terms to cut prices to the consumer dramatically.

So when Dominque Raccah said her choices with Bran Hambric were limited to when and whether to issue an ebook and not much else, she was absolutely right.

What this means is that publishers have largely dealt away control of their businesses, at least for the time being. All they can do right now to defend themselves is to set the retail prices high and let the marketplace do what it will. With competition fierce among the retailers to cut prices to the consumers, the prices at retail will not be as high as the publisher sets them.

A similar contractual situation exists between publishers and the wholesalers Ingram and Content Reserve, where discounts have been negotiated and are in place until multi-year contracts expire. The same situation exists with Sony which would be the next largest account for ebook sales for most commercial publishers.

So at what is really the dawn of the ebook era, publishers have very little leverage to manage the ebook pricing and distribution in the marketplace.

The way that ebooks transactions differ from print books could also argue that ebooks aren’t “sold”, they are “licensed.” That could present another problem for publishers because licensing revenue is often split 50-50; ebook revenues seldom are. Agents are sure to become increasingly aware of the distinction, just as they will be aware that almost all the sales right now can be achieved by making half-a-dozen deals. That’s not very tempting when ebook sales are 5% or 10% of a book’s total. But what about when they reach 25% or more?

There is one big new entrant coming to the ebook game and that’s Google. With the industry (including Google) other than Amazon coalescing around the epub standard, one can see another change in the wind coming. Google has already created a huge challenge to Amazon by making a million titles available in the epub format which Amazon would have to convert to their proprietary code in order to offer on Kindle. (These titles are public domain and the free epub code offered by Google should minimize that conversion cost, but a million times anything amounts to a lot and, whatever it costs, it won’t happen instantaneously.)

Setting up new arrangements with Google presents the next opportunity for publishers to “get it right” and to take back some semblance of control over the products they publish and sell. But Google won’t want to be buying at lower discounts than everybody else and they won’t want to be selling at higher prices than everybody else either.

There are some hard negotiations ahead on the ebook front.

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The news about trade ebook sales growth continues apace. The IDPF has just said that sales in June 2009 were up 136% over June a year ago. Calendar year sales to date are up about 150% over 2008.

Anecdotal information from big trade houses suggests that ebook sales are approaching 3% of total sales. But not all the books big houses sell are “ebookable” with current technology: much of the juvie list, most illustrated books, and books where tabular or graphic material is important might well not have been made into ebooks. So the number is larger, maybe 5% or 6%, of the straight narrative books. And because not all of everybody’s backlist is yet available in ebooks, sometimes because of rights issues and sometimes because it just hasn’t been digitized yet, the number is higher for straight narrative new titles. So maybe that’s at 8%. Now!

And the chart of the sales trend that IDPF shows would certainly suggest we’re still seeing accelerating growth. There’s no reason to think that will stop; in fact, there is every reason to think the growth will gain additional impetus. New reading devices are coming and new features are coming for existing devices. Growth in ebook uptake to now was achieved with no help from the biggest purveyor of consumer books: Barnes & Noble. Now they’re jumping in to the pool with both feet. They have announced a partnership with Plastic Logic on one new reader and there is a rumor they will have another one of their own.

And the Apple tablet is going to be a reality, which many people think could be a Kindle killer. It won’t be, but it will surely be a Kindle challenger and it will grow the market in various ways, including making good ebooks from a lot of books that weren’t good candidates with the previously available screens.

The market is still dominated by Amazon and by Kindle, which may be selling 70% of the trade ebooks at the moment. Publishers are saying that seeing 50% of Amazon sales on a title in Kindle is not unusual. On most big books it is 30 or 40 percent and rising.

It has been reported that this is going to be a big Fall for big books: the late Michael Crichton, Pat Conroy, Jon Krakauer, Dan Brown, E.L. Doctorow, Margaret Attwood, John Irving, Philip Roth, Barbara Kingsolver and many others will have books hitting the shelves between now and Christmas.

If that has any effect on ebook reading, it should be a spur. Of the 90+% of book readers who do not (yet) read ebooks, some know they will, but they just haven’t started yet. Since ebooks are cheaper than their hardcover counterpart, sometimes — given the price wars taking place among retailers — a lot cheaper, the plethora of hot new books should be a merchandising tool to sell devices and to get people who already have ereadable devices like iPhones to try this new way of consuming print content.

And then we have another piece of news: that Sony is pushing its partnership with Content Reserve to boost use of Sony Readers by libraries.

When we get to the point that the ebook share of a new book is consistently 25% or more, we will start to see real strain on many aspects of today’s business model. And we can expect to reach that point before Obama runs for reelection, perhaps in the next 18 months. I don’t want to try to get into answers in this post; it’s enough to just think about the questions. Consider…

1. Bestseller lists. Right now ebook sales don’t get added into bestseller list numbers. With Kindle sales (by our informal estimate) constituting about 70% of ebook sales and no apparent inclination by Amazon to report those sales, that’s a hole that will exist for a while. With all the big books coming this Fall, publishers will have a chance to see how ebook sales vary by author, genre, pricing, and ebook release strategy. Will authors whose audiences switch to ebooks faster be punished on the bestseller list as a result?

2. Library sales. From the beginning, Content Reserve — the principal provider of ebooks to libraries, the power behind Baker & Taylor’s ebook provision and now in partnership with Sony Reader — has attempted to replicate the printed book world with a model that requires libraries to buy the number of copies they want to lend simultaneously. So if a library wants to lend 100 copies of the new Dan Brown at the same time (assuming it is available as an ebook), they’ll have to buy 100 ebooks. But what is not factored into the current model is that print books wear out. A library can only lend a print book X number of times before pages start to fall out. Replacement stock wouldn’t be part of the (current) ebook model. (In fact, with the new Sony deal for readers in libraries, it is the hardware that will wear out, so Sony, not the publishers, will get the replacement stock business.)

3. Library sales again. In the print book world, you have to go to the library to get a book and then go back to the library to return it. In the ebook world, you go to one web site to download the book for free and another one to download it and pay. Consumers are bound to notice. How will publishers that are spending a lot of money and time chasing down pirate copies respond to that?

4. Market fragmentation. Amazon is 15 to 30 percent of a book’s sale; somewhat less when the book has big distribution through mass merchants and somewhat more if a book is long tail and hardly available except on the Internet. That number is rising. They are perhaps 70% of ebook sales. How long will it be before an author says to publishers “I’ve handled Amazon. Would you like to offer me a contract for the rest of the market?” And with another big chunk at another single retailer, Barnes & Noble, an author’s agent could make two deals and get half the potential market. Won’t that be an enormous temptation?

5. Health of the brick-and-mortar channel. As ebook sales climb, many of those sales will be cannibalizing print book sales (although our friends at O’Reilly say that isn’t happening yet; at least not for computer books.) That would suggest we will see declining sales through stores in the years to come. But stores are the publishers’ most important marketing and merchandising tool. If we do start to see narrative books selling 20% or more as ebooks, what can publishers do to help save brick-and-mortar shelf space? What can the stores do?

6. Pricing and timing. There is uneasiness among publishers about simultaneous ebook release, based on the the bestseller list problem, the bookstore preservation challenge, and the intense ebook pricing competition that is driving prices to the consumer far below wherever the publisher tries to set them. At least one publisher has held back the ebook of an important title for several months as a result. The view from here is that the right strategy is the opposite: get the ebook out as fast as possible to get word of mouth going before the print books hit the stores. (We’re not advocating holding back the print book here; just acknowledging the reality that printing, binding, and shipping take time and the book is “finished” when the PDF is finished.) What’s the right practice? Or does it, like so much in the trade business, “depend on the book?”

7. Ebook royalties. The author can get 85% from Smashwords (OK: no DRM, no merchandising, and not really a big league player…yet; but will it stay that way?); 80% from Scribd; 35% of sale price from Kindle. There are bound to be models also paying much higher than publisher royalties coming from B&N and from Indigo’s Shortcovers. How long will publishers be able to hold the line at 15% of retail or 25% of net, where ebook royalties are now. (Random House UK is trying to hold the line at lower numbers than that!)

8. New publishing models. When ebooks can routinely be 20% or more of a book’s sale, they can be 40% or 50% on many titles. The capital risk of publishing an ebook is a fraction of what is required to publish a print book. New entities are forming built around that reality; how long will it be before conventional publishers try an ebook-only, or ebook-first, approach on some titles? (Random House US is already publishing a number of Kurt Vonnegut short stories as ebooks only, where shorter content at a low price can be practical.)

The strategic thinkers at the big publishing houses, retailers, and literary agencies certainly have a lot on their plate.

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In three prior posts, we’ve explored the initial conversation that surrounded the announcement that Sourcebooks would delay the ebook release of Bran Hambric; sketched out what we think are the four stages of ebook adoption; and looked at how publishers see the early “establishment” stage, which is where we are now.

This post is about the other stakeholders: authors, retailers, distributors, and, of course, readers.

In the “vision” stage of ebook adoption, which ended with the launch of the Kindle in November 2007, authors were virtually powerless. With ebook sales even for established books struggling to make triple digits, publishers were gunshy about accepting digitization costs for books other than the biggest sellers and it hardly made sense for authors to make the investment on their own. With the exception of genre fiction, particularly romance and sci-fi, where vertical audiences were able to cluster early, the ebook world was inhospitable to the author working on her (or his) own.

That has changed dramatically. Today Amazon Kindle as well as web services Scribd and Smashwords make it easy for an author to upload a pdf or doc file and publish an ebook. While Amazon appears to be paying authors only about 35% of the selling price to access its army of device users, Scribd (80%) and Smashwords (85%) pay much more. Barnes & Noble’s ebook announcement yesterday didn’t mention author-generated ebook content, but with their goal being clearly to offer as many titles as they can, one must assume they’ll figure out a way to get at it too. So there is a clear path to the public developing for anybody with ebookable content; the challenge will be driving audiences to the content.

At each end of the bell curve, the publisher doesn’t contribute much to that equation. Small books and unknown authors often get little or no support from a publisher; big books and big authors often don’t need help to alert the public to their content. So after several years of publishers driving down ebook royalties to the current Major League standards of 15% of retail or 25% of net, we can expect to see the pendulum swing back to the author. Big authors will negotiate far higher ebook royalty rates; small authors will turn down small advances in favor of self-publishing as the ebook market grows (and the physical books, remember, can be delivered through a variety of POD self-publishing options.)

The biggest book retailers basically stayed out of the ebook game during the vision stage. Both Barnes & Noble and Amazon made a pass at the ebook business, but gave up on it pretty quickly (although Amazon first bought the Mobipocket format, which became the foundation for the Kindle software.) That made sense; there was too small a market early in this decade to occupy the attention of corporations doing billions in sales on printed books.

There were other complications which ultimately left ebook retailing to the smaller players. Early in the vision stage, the two big formats for handhelds were Palm, which displayed on Palm Pilots, and Microsoft’s dot lit, which displayed on handhelds that used the Windows operating system. Adobe Reader software, which was installed on PCs, began back then and has been used continuously to this day. Early in the decade, Palm’s model was to keep control of the sale of Palm ebooks, first through “Peanut Press” and then through the “Palm Digital” store. That meant no other ebook retailer could sell Palm books. When Palm became, by far, the preferred format for handheld ebook reading, they left the general ebook retailers, including B&N, without access to the heaviest users of ebooks on devices.

Mobipocket was created as a cross-platform ebook reader that would work on both Windows and Palm software. The first indication that Amazon would look for a path to ebook hegemony was when they bought Mobipocket in 2005 (they bought BookSurge, the print-on-demand capability, at about the same time.) But even though Mobi ebooks would play on multiple platforms, the market was apparently too small to interest Amazon.

The Palm Digital store became Ereader in 2007 and the Ereader platform, just bought by Barnes & Noble, will work on almost all devices (except Kindle and Sony Reader) now. In the final years of the vision stage, before Kindle, ebooks were sold by independent bookstores (Powells being the most successful) and dedicated ebooksellers like Diesel ebooks. Discounts off publishers’ established prices were only offered in targeted and time-limited promotions and seldom offered even as much as 10% reductions. The stores were “powered” primarily by Ingram Digital, which replicates its print-world role as a digital wholesaler. Competing with Ingram was an upstart company in Cleveland called OverDrive, whose wholesaling operation is called Content Reserve. Content Reserve became the primary supplier of ebooks to libraries.

When Sony Reader came on the scene in September 2006, publishers had four formats to convert their ebooks to: Palm, Microsoft dot lit, Adobe, and Sony. Adobe, which played on PCs, was at that time by far the market leader in titles available and sales. But publishers, still seeing very little market, would not necessarily convert each ebook into all formats. At a time when Adobe had over 100,000 titles available, there were perhaps 40,000 on Palm and fewer than that on Microsoft or Sony.

Amazon’s arrival with the Kindle changed everything: title availability jumped, prices were slashed, delivery was vastly simplified, and the biggest online book-buying audience in the world was constantly pushed to think about ebook reading. That signaled the shift from the vision stage to the establishment stage.

Another critical development that enabled the movement from the vision stage to establishment was the development of the epub format by the International Digital Publishing Forum, the ebook trade association, facilitating use of ebook content across platforms.

Now in the establishment stage, the big book retailers — Amazon, Barnes & Noble, and Canada’s Indigo — are in, competing in every possible way: price, selection, and merchandising. B&N and Indigo are trying to appeal to ebook readers regardless of the device they want to use. Amazon has suggested they’ll go that way, but so far are only pushing the Kindle format for Kindle or iPhone. Prices at Amazon and at B&N are clearly being subsidized in pursuit of a larger customer base. That is going to make things very difficult for the independents or any new entrants to make a go of ebook retailing.

As we proceed in the establishment stage, we can expect publishers to start selling digital downloads and we can expect most web sites to offer vertically-curated offerings. The big horizontal aggregators will thrive for the next few years as the market grows, but the verticalization of consumer attention will eventually chip away at their sales.

The distributors are, or have been, Ingram and Content Reserve. (I say “have been” because Barnes & Noble’s just-announced deal to power the Plastic Logic content offering  positions them as a competitor to Ingram as a digital wholesaler, although there is no suggestion as to how far they want to go and, as of now, several days after the announcement, nobody else to my knowledge has raised this point.) CR has recently done a deal to provide service through Ingram’s print-world competitor, Baker & Taylor. The subsidized discounting taking place at Amazon and B&N is going to make it very difficult for the distributors’ horizontal customers. Ingram may recognize this problem as being similar to what they faced when they tried to launch ebook wholesaling the first time in the late 1990s and Amazon responded with deep discounting.

The distributors have to find new opportunities through web sites that don’t think of themselves as content-centric or content-sellers now (they’re communities.) The trick will be to curate the set of offerings in a very granular way, but there is a marketplace that will develop there that will be served by aggregators.

For ebook readers, it is definitely the best of times, so far. Because of the epub standard developed by the IDPF, most ebooks can be offered for use on multiple devices without high conversion costs (which, in any case, are easier to bear now that there are real sales.) More and more titles are available and, despite the Sourcebooks experiment that triggered this series of posts, we are moving to a standard of ebook release when the book first comes out. I believe we’ll start to see ebook releases ahead of the book before long. The competitors have prices of the content to the consumer plunging. The choice of devices is proliferating and, of course, that means the devices will cost less in the future too. The deployment of smartphones that can also be used as book readers continues to increase. The pieces are in place for evolution to turn to revolution and, when it has, a few years from now, we will move from the establishment stage to “transition”. That’s when the printed-book world as we have known it for about the last century will change into something completely different.

Due to a little programming change we did, I haven’t been alerted to comments and I haven’t been answering them for a little while. I will clean this up on Friday (and then this message will disappear…)

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We are working on a project in this office to “grid” the ebook world. We’ll have a hard time doing it in fewer than four dimensions. What we see as “major headings” are: 1) hardware/readingdevices, 2) software/platforms, 3) file formats, and 4) ebook retailers. And after we get that sorted out, we’ll start thinking about the various commercial terms. I surprised a reporter this morning (who is probably less well-informed than most readers of this blog) when I told her that Apple gets paid for what goes on an iPhone out of the App Store, but not on what goes on an iPhone from the Kindle store. (And that’s just an example…)

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