David Young

The necessity for publishers to reduce their hard-copy operating costs, the reality that smaller as well as fewer bookstores are inevitable, and the overall question of shrinking shelf space are topics we have explored before.  But it is intrinsically difficult for those of us who have been in the book business for decades to envision life without a robust bookstore channel. The current unfortunate news about Borders suggests that it won’t require a great imagination for very much longer.

One thing that has changed considerably in the last 20 years is the huge increase in information available to publishers about what is going on in the supply chain: that is, they can track the books between their own warehouse and the end consumer purchase. The Big Kahuna of information, of course, is provided by BookScan, based on cash register capture of data as books are sold at outlets all over the country. BookScan not only lets its subscribers see the activity on their own books; it gives everybody a view of every book in the industry.

But as valuable as the BookScan data can be to discern trends and the performance of competiton and potential competion in the marketplace, it has real limitations as well. Knowing the sales without knowing the inventory is like knowing the number of hits a batter had without knowing how many times the batter came to the plate or knowing how many games a team won but not knowing how many games they played. Some books that are scoring low in BookScan’s data never had a chance: there weren’t enough copies in stores to enable a robust sale. And some books that are scoring high in Bookscan’s data are not going to be profitable because the number of distributed copies that won’t sell (and which will end up back in the publisher’s possession) is higher than the number that do.

Over a decade ago, pioneered by Barnes & Noble and Ingram, the biggest retailers and wholesalers started to provide publishers with data about how their inventory was performing for that trading partner. This data had the advantage of being far more complete and analyzable, but a publisher could only look at their own books’ performance. Because BookScan presented summary global sales numbers and everybody’s books, the BookScan reporting was what tended to be of interest across a company: to editors and marketers and top executives. But the more granular view of a company’s own inventory provided by the individual account reports was pure gold for the sales department and for the then-emerging supply chain management function.

When we first started helping publishers mine these reports in the early part of the decade, the practice at most publishing houses was for somebody in the sales department to look at the weekly spreadsheets, extract whatever insight they could, and then throw them out when the next week’s reports arrived. We were handed an assignment by our friend Charlie Nurnberg, then VP and Director of Sales at then-independent publisher Sterling. (It is a pure coincidence that Charlie’s name never appeared in the blog until my last post and now he’s in two consecutive ones!)

Charlie said, “for years we had 1000 titles on our backlist. I got the B&N green bar report (there was a time when all computer reports were green bar reports) each week and went over it with a fine-tooth comb and I knew everything that was going on. Now we have 5000 titles on the backlist, I have delegated the coverage of B&N to two people, and I know things are falling between cracks. Can you help me get a handle on it?”

To respond to this request, we did two simple things. First we databased the reports, so we could look at data across a longer period than one week at a time. (For fast-moving titles, a week in a chain can tell you a lot, although it certainly can’t give you trending insight that multiple weeks give. For slower-moving titles, a week’s sales might tell you almost nothing at all.)

The second thing we did was to contruct some simple metrics, so we could sort the reports by something other than the total inventory and total sales for stores and distribution centers that B&N provided. There were two key things we looked at right off the bat: the percentage of the week’s store-on-sale inventory that had sold and the percentage of the book’s stock that was kept in the distribution center. The first trick was to look for books that had a high percentage sellthrough but a relatively low number of copies on sale in stores. Presumably putting more copies out in stores would increase sales to everybody’s advantage. The second trick was to find the books which had a high percentage of inventory in the distribution center. Those books, we felt, were in greater danger of being returned. In general, publishers prefer to keep excess inventory in their warehouse.

These weekly Flash Reports quickly proved to be very valuable. The first day I showed them to Charlie and his team, we sorted the warehouse percentage in descending order. The two books at the top had 5000 copies each in stock, all of them in the warehouse! It turns out those books had been there for three months. There was a flaw in the B&N system — repaired almost immediately as a result of this discovery — that allowed a bulk purchase to be made by a buyer but didn’t require a distribution plan for the books. Sales management at the publishers, focused on looking at books in descending order of sales (which is what Sterling and just about everybody else did with those reports), might never notice that books sitting in the warehouse and not distributed to stores were also reported in the same spreadsheet.

This tool for discovery was well-received by Sterling, but it was also well-received by B&N. Their very enlightened inventory management team understood that having publishers doing sound analysis of the data they provided could be helpful to them. After all, the books sitting in the warehouse were painful to B&N as well to Sterling; that inventory investment was on their balance sheet (and, as it turned out, these particular books had been purchased on a “no returns” basis!)

In time, the business of doing sales data analysis grew for us. In addition to the weekly Flash Reports, we designed Stock Turn Reports to enable meaningful analysis of slower-moving backlist. We started computing the overall stock turn for a publishers’ books by store section, which was necessary to really decide whether a title’s stock turn was good or bad. Turning 1.3 might be nowhere good enough in fiction, but it might be heroic in philosophy or poetry. All of this analysis began to demonstrate the realities of bookstore economics to the sales reps and it got them thinking the way the store buyers do, where stock turn is a critical metric.

It wasn’t long before other publishers were using what we called the Supply Chain Tracker service and asking us to provide the same insight from the data provided by other accounts. Soon we were doing similar analysis for data from Borders, Books-A-Million, Ingram, Baker & Taylor, and Amazon. For publishers using us across accounts, we were also able to provide a much wider view of how their inventory was performing. We built spreadsheets showing what the percentage sellthrough was across retailers and across wholesalers and distribution centers. This information helped our clients match the growth and shrinkage of inventory across all accounts to respond to rising, and then usually declining, sales of a title.

We discovered a great opportunity in cross-account exception reporting. We’d look for the books that sold well in Borders but were under-represented at B&N and, of course, the larger number of titles that were the opposite: selling well in B&N but not well represented at Borders. That, and the stark differences in stock turn and percentage sellthrough between the two chains, would have told a perceptive sales director many years ago to expect the problems the Borders chain faces today.

At its peak, about four or five years ago, we were delivering Supply Chain Tracker reports to quite a few publishers, including Hachette, Harcourt, Chronicle, and Motorbooks. We did tutorials on our techniques for several major publishers, among them S&S, HarperCollins, Penguin, Perseus, and Scholastic. And B&N supported our efforts to teach the analytical techniques to university presses, including Harvard, Yale, California, and Chicago.

David Young learned what we were doing when he was running Little Brown UK and soon we found ourselves applying our techniques to data provided to them by Waterstone’s. When TimeWarner was sold to Hachette, our efforts were spread further around the Hachette UK companies and, at one time, we were doing Waterstone’s reports for four different Hachette divisions in London.

But, over time, big companies saw the importance of this kind of supply chain analysis and they brought it inhouse and, in many cases, extended it. That wasn’t good for Supply Chain Tracker, but it was the right thing for those companies to do for themselves. We stopped doing this work for US clients two years ago; we’ve just had our last two British clients take the function in-house. So for the first time in eight years, sales data analysis is no longer part of what we do.

The level of sophistication of inventory management in the supply chain by big publishers has taken a huge leap in the time since we started doing this work. I think we provided some impetus for that leap. This analysis will, paradoxically, be of increasing commercial value as brick-and-mortar sales decline in the years to come. Getting inventory levels right in years of relatively stable print sales was a key to profitability. Getting inventories and printings right in the period of print sales decline we face for the forseeable future will be a key to survival.

I wear with pride the fact that nobody else programming a conference on “digital change in publishing” has chosen to feature agents — both their challenges and their opinions —  the way we do on the program at Digital Book World. But we’re also covering the topic of this post. We’ve put together a panel of very experienced sales executives (Jaci Updike from Random House, Michael Selleck from Simon & Schuster, Alison Lazarus from Macmillan, and Rich Freese from National Book Network and moderated by David Wilk, who has years of trade sales experience) to talk about the evolution of the sales department. Find that on somebody else’s digital change program! And good luck to the trade publisher who rides into the future without agents and managing down the print and physical supply chain top of mind.

Share this post

I showed up Tuesday morning at the gorgeous Cipriani restaurant and ballroom on 42nd Street for The Future of Publishing Summit, not knowing what to expect. I had been invited to attend this in an email last month which promised an interesting program (lots of big tech companies plus a book publishing “track” led by the always-interesting Carolyn Pittis of HarperCollins) at an all-day conference. I was invited because of my status as a “thought leader”; an all-day event like this with no fee is not unheard of, but it also isn’t common. I accepted.

Then when I heard from my friend Evan Schnittman of OUP over the weekend that he’d be going, I decided I should look at “what is this” more carefully. So I went to the web site for it and I found it almost impossible to figure out who was staging this thing and what they hoped to get out of it. My prior experience with free events — many I helped organize that were run by VISTA Computer Services (now renamed Publishing Technology) in the 1990s and several since hosted by MarkLogic — tended to have the organizer highly branded and visible. This one was opaque. “About us” on the “The Future of Publishing” web site described the conference, the agenda, and the goal of “setting the agenda for publishing’s new business model amid digital disruption”, and it led to a link listing the sponsoring companies. But nowhere did it say, “I’m the organizer of this event and this is why I want you there.”

When I got to Cipriani in the morning, I started to see some people I knew: Evan, David Young and Maja Thomas from Hachette, Peter Balis from Wiley, Dominique Raccah from Sourcebooks. “What is this about?”, I asked them. “Who is behind this?” Nobody really seemed to know.

As the day developed, it seemed that the two parties in charge were Tim Bajarin, President of Creative Strategies and Colin Crawford, former EVP Digital at IDG Communications, Inc. Bajarin kicked off the session recalling a critical meeting at UCLA in 1990 that really charted the course for CD-Rom development.

Uh oh, I thought. I wonder if these guys know what “CD-Rom” calls up in the mind of anybody in the room who was in trade publishing the 1990s.

What I had walked into took me back to the early 1990s when I went to a conference sponsored very openly sponsored by Microsoft for book publishers. The message then was, “here are the amazing things we are going to be able to do with CD-Roms in the very near future. To realize the true value of this technology, we need content. We’re not sure exactly how you make money from the content, but, hey, guys, get creative.” And, in fact, that was the message that the five key sponsors of this Summit — Sony, Adobe, Marvell, Qualcomm, and HP — had for their publishing audience.

This was the takeaway. Consumers are going to be navigating their content on faster, smarter, lighter, and cheaper devices that will open up more flexible and robust content delivery and consumption models. Publishers should take advantage of this! But “taking advantage” in this case often meant “more sound, more pictures, more video”. And that recalls the veritable disaster of CD-Rom development for book publishers: largely uncontrolled spending in development of new kinds of products, ostensibly but loosely rooted in books, that had no established market and never found one. The iPad had already unleashed several sparks of enthusiasm for enhanced ebooks; this conference wanted to pour fuel on those sparks and start a real fire burning.

The format of the day was that each of the primary sponsors got a half-hour to present their technology, following 30 minutes from Tom Turvey of Google on the forthcoming Google Editions. (Turvey joked about the fact that he had given the presentation to just about everybody in the room before in their office or his.) I’d say that most of the 30 minute presentations packed at least 5 minutes of useful information into them. There were definitely people buzzing about the fact that Adobe has a workaround to enable Flash-like content on the iPhone, which doesn’t support Flash. We all got the message that connectivity will be more robust and more routine; that both LCD color and e-ink (and before long, color e-ink) will be available in a staggering number of devices (or “form factors.”)

With all that capability in your hand, you can pull up just about any content you want. “Why would you read a plain old book” was certainly part of the message.

Then after a really terrific lunch, about half to two-thirds of the audience (I’d reckon; couldn’t really see because we were broken into three groups in different rooms for books, magazines, and newspapers and no more than a fourth of the audience was there for the final part of the program after the breakouts) remained to hear the content-based presentations. The intention here was “the tech guys will explain what’s coming in the morning; the publishing guys will explain where they are in the early afternoon; and then our experts will ‘pull it all together’ at the end of the day, allowing us to leave with a new plan for publishing.” The “experts”were additional sponsors, of course, and creators of tools or platforms for products or presentation: Zinio, Notion Ink, ScrollMotion, Vook, and Skiff. These are all very worthy companies with substantial propositions that have made real inroads working with established media.

But are they qualified to chart a commercial course forward for complex publishing enterprises? Frankly, I don’t think so.

Cader said privately on Monday that he had joined Conferences Anonymous. He wasn’t going. Admittedly, these guys had a rough row to hoe trying to tell people something new following on the heels of Digital Book World in January, Tools of Change in February, Pub Business Conference and Expo earlier in March, and an ABA meeting on digital change in between. People who are really junkies for this stuff were out at SXSW, which apparently also didn’t seem as revelatory to some savvy book practioners as it did last year (or so said my buddy from the Microsoft conference two decades ago, Lorraine Shanley.)

My sense of this one was “nice try”, but it didn’t work. The superficial logic of putting the tech and publishing people together, laying out the picture from each side and then coming up with “answers” within a single stimulating day is appealing, but it is ultimately impractical. Book publishers (and, I suspect, other publishers as well) aren’t going to do much today based on what they see tech might deliver two or four years from now. And book publishing isn’t one business anyhow. As Turvey of Google, who understands the publishing business better than any other tech company representative I know and, frankly, better than most publishers, spelled out in the beginning: “book publishing is about five different businesses that don’t have much to do with each other.” We in publishing know that very well. Tech companies that want to get our attention need to make clear that they know that too.

Share this post

I really enjoyed listening to David Young and Maja Thomas, Hachette’s Chairman/CEO and top digital strategist, respectively, chat with industry veteran and blogger Charlotte Abbott on Blogtalk radio. All three are friends and people for whom I have a lot of respect. I generally prefer reading to listening as a way to take in information, but this was a crisp and informative conversation that is engaging from start to finish. I recommend it.

Some of what they said triggered some thoughts and observations.

Abbott observed that ebook sales are now reported as 3% of Hachette’s sales. All parties agreed that there are factors in place that should accelerate that growth, particularly new devices coming online bringing with them the ability to move ebooks beyond straight text to include juveniles, photo books, and how-tos that have heretofore been left out of the conversation. There was a brief acknowledgment that some observers expect ebook sales to triple in 2010 (data was cited to suggest that Hachette’s December over December ebook sales did much more than that). That could take ebooks to 10% of the business in 2010 and into the high 20s in 2011, unless it slows down.

What would make it slow down? What would the business look like if ebook sales were in the mid-20s before Obama runs for reelection? Neither of those questions were touched. Perhaps that’s just as well; it might have taken the whole show if they were.

Abbott challenged the contention by Young and Thomas that the agency model, by which discounting of ebooks would, effectively, be stopped (or extremely curtailed) would result in lots more ebook retailers on the web. Abbott may share my skepticism that there is much of a place for ebook vending for independents and, although I wrote about this before the agency model was introduced, I still think it is true.

But Thomas expressed a lot of confidence that new white label solutions for independents, combined with level pricing, will result in a much greater proliferation of purchase points on the web, and she thinks we’ll see that this year. While I do agree that price equality will enable much more diversity in points of availability, I think it will be monopolized by platforms. They will continue to include Amazon, B&N, the iPhone App Store, and Kobo (from the big retailers and Apple) for sure, as well as the new Apple iStore, Google Editions, and the platforms from Blio (from Baker & Taylor) and our current client Copia (an upstart, but an extremely well-funded upstart with six ereading devices and ubiquitous OEM relationships with major hardware manufacturers giving them a tenable foundation). All these will be around for quite a while. Considering that for the past couple of years, 80 or 90 percent of consumer ebook sales have been driven by Kindle, that’s great marketplace diversity by comparison. And independents can sell Google Editions and, possibly, Blio. But only time will tell if Thomas’s optimism or Abbott’s skepticism (and mine) will be borne out.

Abbott’s questions about the ebook backlist elicited some very useful new information. Young and Thomas explained that just about all of the straight text backlist at Hachette is now available as “straight” ebooks. There has been the impression promulgated by readers, and reported by Abbott, that a lot of backlist from big houses is not available. Not true from Hachette, they say. Young says there are only “a handful of authors” whose contracts were unclear enough to require further negotiation and he admits there it does rarely happen that an author who didn’t previously grant those rights just doesn’t want to be in that format. “In that case, their wishes must be respected.”

Thomas said that the iPublish experiment — a failed attempt by the Group (then the TimeWarner Book Group, some years before the Hachette acquisition) to create a digital-first publishing company — provoked them to change their boilerplate before other publishers did. That reduced the number of problems they had when they wanted to go to ebooks.

Good point, I thought. And it shows the benefits of early digital awareness, even if the overall iPublish effort failed.

Thomas also suggested that we might see quite a few experiments in enhanced ebooks coming from the house in the next few months. She said they were looking first to the authors they considered their “digital pioneers” to do the enhanced projects. But when asked to name them, she gave us pretty much a who’s who of the top of the Hachette list: Meyer, Patterson, Baldacci, Connelly, Meltzer. Thomas also made the point that they look at books to see what would work “in enhanced form or app form; they’re different.” That’s a distinction we’re all going to get to understand better in the weeks to come.

Both Young and Thomas made it clear that the enhanced ebook creation was still in its experimental stage. Young emphasized the fact that “we hear from our readers” as he noted was not possible previously in the history of publishing. It was the reader reaction, Young declared, that would tell them what was working and what wasn’t with the ebook enhancement experiments. The topic that this introduces which must be followed up on another time is, “how do big trade publishers make the best use of the direct consumer contact they get in the digital age?”

For me, the most poignant moments came at the end. Abbott asked an open-ended question about the industry’s future, and Young launched into an entirely true but painfully ironic tribute to the virtues of the brick-and-mortar bookstore. He said his biggest concern was that “we need bookshops, which are the heart of supporting new writers. We need these showcases and professional and enthused booksellers” to help people find what they didn’t know they’d want. Recent industry data from Bowker PubTrack underscores the point that many book purchasing decisions are made in retail stores or because of the merchandising that took place in retail stores.

Unfortunately, retail stores are increasingly threatened. They have been disappearing pretty steadily for about 10 years now with the pressure created by online and used book sales, with only minimal erosion (thus far) due to ebooks. This conversation made it clear that ebook growth will continue to be substantial and that bookstores are critical. Both are right. But the combination of the two is more than most of the big players can comfortably wrap their brains around. And it is the skill in navigating the continuing erosion of retail shelf space that is going to separate the survivors from the roadkill over the next few years.

Dominique Raccah of Sourcebooks gave a presentation about “running two companies” (the one in the old business and the one creating the new business) at TOC which I was sorry to miss. (I can’t remember what I thought was more important at that moment.) However, Book Business magazine has an article by James Sturdivant on that same topic which quotes me heavily. Are you surprised that I agree with a lot of it? (I hope Dominique does too.)

Share this post

Kindle is certainly engendering a lot of confusion by billboarding the downloads of free ebooks as “sales.” That paradoxical scorekeeping was the lead for an article by Motoko Rich in The New York Times on Saturday that quoted a lot of people, some apparently disagreeing with each other, but none of them necessarily wrong.

There really are three separate questions to consider, which get elided in these conversations.

1. What is the impact of giving away ebooks as a promotional device, either to boost the word of mouth on the book being given away or to promote an author’s other titles?

2. What is the potential impact on the industry overall of ubiquitous giveaways of ebooks that would apparently have commercial value?

3. When ebooks are given away, how should that sale be “scored” in any measurement of the book’s popularity?

The answer to the first question appears, anecdotally but just about universally, to be that giving ebooks away boosts sales of that title and related titles. Rich’s piece sites numerous publishers attesting to that. She apparently found no publisher that is skeptical about whether giveaway promotions work or has seen the tactic fail. And that would confirm my experience: I don’t know of one.

But as we’ve noted before, this effect could change over time. We’re still in a period where ebooks are not an acceptable format to most book readers. That means the benefits of giving them away is not confined to the word-of-mouth from the recipients, it can result in a print book purchase by the very person you gave it to! As ebook reading becomes more popular, particularly if we go to a DRM-free universe, the impact of cannibalization from giveaways could grow dramatically from what it is now.

The second question is what is apparently paramount to David Young of Hachette (as quoted in the Rich piece) and is influencing the policies described at Penguin. As more and more ebooks are given away, it offers a wider array of choice to people who prefer to select from the free offerings and just never pay. For the last 15 years of his life, my father, Len Shatzkin, refused to buy anything except remainders. He shopped from several mail order catalogs and, if he was in a bookstore, shopped at the bargain tables. His position was that if publishers were going to be dumb enough to reliably give the books away six months or a year later, he’d just wait and choose his reading from among what had been marked down. With free ebook marketing the way it is today, sometimes you don’t even have to wait!

And that’s obviously what was on Young’s mind when he said the tactic was “illogical.” It is illogical if you take a long-term, industry-health view of the situation. It is totally logical if you’re trying for short-term advantage to break a new book or build a particular author, as most of the other authors and publishers were trying to say.

There was a long comment string on the HarperStudio blog about this question six or eight months ago. I said at the time that I figured that if these giveaways kept spreading, one of our more industrious web entrepreneurs would create an ebooksforfree.com site which would be a consumer directory to “free” offers at various publishers and web retailers, title by title.

It’s a classic Tragedy of the Commons. Each person giving away ebooks succeeds in their intentions to boost their sales, but everybody will pay for the overgrazing in the end.

The third question is a tricky one. It is worth noting that the App Store makes it very easy to for the consumer to decide whether to shop the free apps or the priced apps. I think Amazon is hurting themselves by not at least sorting their bestseller pages that way. And they don’t. Amazon says the Kindle bestseller listings change every hour: I just checked the Top 10 and found one 25 cent book, one book at a substantial price (higher than $9.99), and eight free. Some of the eight free were self-promoters like the lead in Rich’s story; some were public domain; some were multi-book authors from established publishers. But only one of the Top 10 was elected with votes paid for with dollars from the Kindle clientele, which is what I think most people looking at “best sellers” would be looking for.

This raises a question I don’t know the answer to and my way to do the research will be to see if somebody with knowledge posts a comment. Kindle reports to the USA Today Bestseller List. This is, as far as I know, the only reflection of ebook popularity in the public domain. It would be interesting to know if USA Today has a standard for that reporting. Of course, most of the “weight” of the USA Today list, quite properly, would be print sales so whatever Kindle reports might not move the needle much. Most sales today are still print sales. But we’re headed for a crazy world if the concept of what “sold best” is expanded to include what people were willing to take for free.

On the other hand, if you try to separate free from paid, you will still face the question of where to draw the line. If publishers sell a $20 hardcover as a $5 ebook, should those units count equally in determining bestseller status? How about a dollar? How about a penny?

A tip of the hat here to my sometimes colleague Brian O’Leary of Magellan Media, who hinted at what I have said at length in this piece in his brief turn in Rich’s article. Brian has done extensive research that tends to confirm what Rich’s interviews and my anecdotal information suggest: that giving away ebooks boost sales in the present marketplace. But Brian managed to bridge the enthusiasm of the giveaway marketers and the incredulity expressed by David Young with his observation that there was a risk that free reading could eventually “supplant paid reading.”

And that wouldn’t really be good for anybody.

This is absolutely the last post you will see promoting Digital Book World 2010, which is on this Tuesday and Wednesday at the New York Sheraton and which is turning out to exceed my fondest hopes when we started out planning it this summer. But we have a panel on the very subject of this post called “Ebook challenges: competing with free and getting the timing right.” Brian O’Leary is moderating, and the panelists include agent Robert Gottlieb of the Trident Group; marketing director Mindy Stockfield of Hyperion (which published Chris Anderson’s book “Free”); ebook retailer Kobo’s VP Michael Tamblyn, and Steve Ross, who has been a publisher at both Random House and HarperCollins. There’s another panel on “Ebook pricing: what should they cost and why?” which includes the head of Penguin’s ebook publishing efforts, Tim McCall.  I enjoy having The New York Times stamp the topics we selected last August as “current” 72 hours before our show begins, even if just implicitly.

If you like this blog, I know you’ll enjoy Digital Book World. I hope to see you there.

Share this post

The idea of an “Ebook Tipping Point” panel for Digital Book World arose when I wrote a blogpost last August on the occasion of the regular monthly release of the IDPF’s ebook sales figures. It was clear then that very substantial percentages of the sale of new narrative fiction and non-fiction were going to move through ebook channels and this post raised the point that this would be disruptive right after Dominque Raccah and Sourcebooks started last Fall’s cascade of strategic moves by publishers to try to slow things down, at least for Kindle.

In October, really writing about the same situation I predicted that major publishers would be challenged to cope with the problem of de-scaling.

When I wrote the August post, I was in the early stages of organizing the program for Digital Book World and I decided to put together the “Ebook Tipping Point” panel. I knew that current C-level executives, focused as they must be on making numbers for this quarter and this year, not to mention always having to be aware of the impact their statements could have on their companies, wouldn’t be the right panelists. So I just decided to recruit the four savviest people I knew — about ebook publishing, about the finances of publishing houses, and about the ecosystem publishers live in — to discuss the topic with me on stage.

Yesterday that panel — Ken Brooks of Cengage; Michael Cader of Publishers Lunch; Larry Kirshbaum, ex-TimeWarner Books CEO and currently a literary agent; and Evan Schnittman of Oxford University Press — met in my office for a preliminary conversation to help me formulate the questions that will trigger the discussions.

Ken Brooks is my go-to person for all things related to ebooks and digital production. He the SVP, Global Production & Manufacturing Services at Cengage Learning. Before that, Ken created and sold a company called Publishing Dimensions that did digital format conversions in the early ebook days. He’s run warehouses and other operations for Bantam and Simon & Schuster and he even had a brief stint setting up an early attempt at ebook distribution for BN.com ten years ago.

Michael Cader is the creator Publishers Lunch and Publishers Marketplace, the new nexus for conversation and information about the publishing business, which he developed from scratch starting with a free email newsletter less than ten years ago. Before that, he was a book packager. Cader is the single person who knows more about book publishing — the people, the deals, the business practices, the view of the business from the standpoint of the investment community — than anybody else I’ve ever met.

Larry Kirshbaum turned over the reins at TimeWarner Publishing to David Young three years ago, just before the company was sold to Hachette. He was known for his eye for bestsellers and his ability to make them work. Since then, he’s been a literary agent. Kirshbaum knows exactly what it is like to run a big publishing company; he did it for more than two decades.

Evan Schnittman is Vice President, Business Development & Rights at Oxford University Press. In that role, Evan combines the zeal and focus of a sales executive with targets to hit with the vision of a strategic digital thinker, a very unusual combination. Oxford is a university press, of course, not a trade house, but they have a trade list big enough to make them real players in that sandbox. Evan knows and understands trade, but he has the objectivity and vision of somebody who is not entirely dependent on that business. He’s also a really entertaining and insightful blogger.

One scorecard worth keeping is this: Brooks, Kirshbaum, and I were all sure ten years ago that ebooks would happen much faster than they did. Cader was sure they wouldn’t. Michael has been the hardest among us to persuade that ebooks would substantially displace print anytime soon.

We had a rollicking two hour conversation that would have entertained anybody who could have heard it. I am not going to steal the panel’s thunder by revealing much about it except to say that there was a strong consensus that big publisher overheads are going to have to shrink dramatically, and soon. Michael Cader is particularly articulate — and particularly experienced — about the point that legacy businesses carry legacy cost structures that handicap them making a transition to a new paradigm. He lived that advantage as the David that slew the Goliath of PW.

So I awoke this morning to get the news in my mailbox that Simon & Schuster has redesigned its sales coverage to be “more phone”. Cheaper. Less overhead. But also (likely) less effective and (certainly) less differentiated from what any small publisher based anywhere can do.

So what distinguishes the big publishers from their competition are the capabilities of “scale.” And the albatross for big publishers going forward is the cost of “scale.” This is a tough box to get out of.

I think some eyes are going to be opened when this panel takes the stage on Wednesday, January 27.

I am getting increasingly excited about the 2-day Digital Book World conference coming up January 26-27. Now that the work of recruiting nearly 100 speakers and moderators (and, boy, do we have GREAT moderators!) is done, I am able to take some satisfaction from the body of work. (Take a look.) I am also really appreciative of the great marketing job that has been done by our partners in this endeavor, F+W Media. Just about everybody really is going to be there. Are you?

Share this post

It took me a couple of days of pondering this to come to my current understanding of it, but I now think that Carolyn Reidy of Simon & Schuster and David Young of Hachette Book Group, since joined by Brian Murray of HarperCollins, are not really fighting a battle to rescue hardcover books from price perception issues caused by inexpensive ebooks. What this is really about is wresting control of their ebook destinies back from Amazon.

I first — mistakenly — focused on the economics of the decision announced by Reidy and Young through the Wall Street Journal to withhold ebook editions from the market for a few months on major new releases. I was not the only blogger or analyst to see it that way. The purpose stated explicitly by Reidy to the Wall Street Journal was to protect the hardcover sales from being cannibalized by very inexpensive ebooks. This sounded like a very dubious calculation to me; I just couldn’t see very many people saying to themselves, “I’d have bought the ebook right now if it were available right now, particularly for those cheap ebook prices, but I just can’t wait to read this new book, so I’ll pay extra to read it sooner in a format which isn’t the one I prefer.”

But, reflecting on this, I realized: “I know Carolyn and David are smart people. They wouldn’t flub this math!”

So I thought a little harder. The subtext should have been more obvious.

The penny dropped for me when HarperCollins announced a similar policy. That’s three of the Big Six, three of the publishers that deliver all the high-profile big books to the industry. Publishers Lunch reports today that Macmillan has delayed some books and will continue to look at that strategy, that Penguin might do it from time to time but “not systematically” and, so far, no word from Random House. Random House is particularly interesting since their new key executive decision-maker, Madeline McIntosh, just returned to them from Amazon.

We know something else that matters: agents must, for the most part, be supporting this. The three houses that already announced are (like the others) agent-sensitive and in touch with them all the time. And no agent has stood up yet and protested. There’s an easy answer for any that do; no publisher has announced this as a policy covering all their books. “You don’t want a delay on your author, Ms Agent? If it’s what you’d like, we’ll put that ebook out simultaneously.”

In fact, Reidy hinted at this. She said there was one S&S author who asked to not be included in the list of withheld titles. She didn’t say how they handled it, but big houses don’t generally fight with big authors.

If all of the Big Six, or even just those who have announced this delay policy, stick to their guns then the ebook world may have lost a driver of converts from print. It may be that Amazon has, at least temporarily, lost an important sales tool to move Kindle devices. And, regardless of how this plays out from here, the power of the major author brands — through their publishers today and through their agents forever — to influence the course of development of the ebook market has been so clearly established that I (and other analysts as well) are not likely to miss the point again anytime soon.

So this is really about the agents and publishers trying to take control of ebook pricing, and value perception, back from Amazon. Some further evidence of that comes from the reaction of Len Riggio, Chairman of Amazon competitor Barnes & Noble (vendors of Kindle competitor Nook) who is reported in the Journal piece to be quite comfortable with this tactic, which the Journal characterizes as “in keeping with the long-held practice of issuing paperback editions after the initial hardcover.”

If the other biggest bookseller, which also has a dedicated ereader and an aggressive attitude toward consumer pricing, seems okay with this idea, it strengthens my belief that it is about controlling Amazon, not about controlling ebook pricing. The desirability of restraining Amazon is certainly something the big publishers and Barnes & Noble can agree on.

If the big houses can do this, they can do much more than this. They can sell ebooks direct off their own web sites. (That’s not doable for Kindle at the moment, but they’re eschewing Kindle sales for a time with this strategy anyway.) They can put ebooks into some channels (let’s say ScrollMotion, or the new Baker & Taylor Blio platform) and not others. They can’t tell a retailer what to charge for what they sell them (until somebody figures out how Apple and Bose manage to enforce price maintenance, apparently legally, but without the added complication of a wholesale-supply network), but they can deny a retailer whose policies about anything they don’t like direct access to their content.

How will Amazon respond to this? That is the big question. Their first reaction is to cut the price of the Sarah Palin book, which had been withheld, from their $9.99 point to $7.99. That’s not a conciliatory gesture, but it is a costly one!

Therein lies the irony that is scaring the hell out of the publishers. Amazon pays (approximately, I am not privy to the actual deals) half of the publisher’s suggested retail for these ebooks and then is selling the $9.99 or cheaper ones at a loss on every unit. From Amazon’s perspective, that makes complete sense. They build market share for the Kindle and they build a lot of customer loyalty. And they could even be doing this and still be making a positive margin contribution across all the content they sell for Kindle, even with the losses on the biggest books selling the most units.

So the publishers (and authors) actually benefit from Amazon’s policy; they sell more units and have more margin to share between them on each than they do on the print book.

But publishers don’t trust Amazon to keep things that way. From their perspective, Amazon is building a consumer expectation of an under-$10 price point while they are building up their audience of captive Kindle consumers. How long can it be, publishers figure, before Amazon says “sorry, now you have to sell me these for under ten dollars”?

The most-frequently ridiculed quote in the Journal article from Reidy points to that irony. The Journal quotes her saying, “with new [electronic] readers coming and sales booming, we need to do this now, before the installed base of e-book reading devices gets to a size where doing it would be impossible.” Taken literally, this remark leads to the ridicule that she’s shafting a market where sales are booming. But the subtext is that if publishers can slow down the growth of the Kindle installed base, it will give time for other technologies to catch up and create a more diverse marketplace, which is better for publishers.

There are two important aspects of this that will play out later. One is that what the publishers can do to Amazon today, the authors can do to the publishers tomorrow. If the publishers could sell the ebooks of big books successfully from their sites, then the big authors could also sell them directly without a publisher. The other is that this is a “last gasp” of a “static product” publishing economy. Big moneymakers ten years from now won’t often come from just selling the same content over and over again, but will more often come from content that triggers a more extended interaction. The most future-oriented thinkers are already past this battle, although there’s still a lot of fighting left to be done.

Does the war escalate from here? Do the publishers take their displeasure at Kindle pricing policies and Amazon’s apparent determination to promulgate cheap books to the next level, putting ebooks out in other formats and not Kindle?

And does Amazon, which has shown its willingness in the past to suppress the sale of print books, using its power to control the “buy” button”  to retaliate against policies it doesn’t like, fight back even harder than the Palin pricing decision indicates?

And if Amazon does fight back, do the publishers who aren’t executing this policy (Penguin is tentative and Random House is silent) benefit at the expense of those who are creating this window?

Will authors and agents (and let’s recall that a dozen agents were guests of Amazon out in Seattle a couple of weeks ago; one wonders that have been in any way a prelude to all of this) support the publishers in this policy which, after all, is costing both publishers and authors sales in the short run?

It is hard to imagine this battle ending peacefully anytime soon.

I am so glad that we have some panels at Digital Book World with agents on them and two panels on ebooks — one on pricing and one on windowing — that have both agents and publishers on them. This is one of those conversations about publishing’s future that makes no sense if you don’t include agents in the conversation and DBW is the first major conference on digital change in publishing to do that.

Share this post