Diesel Ebooks

People of a certain age — mine — probably first encountered the world of rights as a content consumer with pop music in the 1960s. British albums, which came in sleeves that were flimsier cardboard than American album sleeves, routinely had 15 songs. American albums had 12. And the British would put songs out as singles that didn’t make their way into albums more often than Americans did.

So we teenage afficionados of the Beatles and the Rolling Stones, of which there were many in my time, learned pretty quickly that there wasn’t a one-to-one relationship between the music available to the Brits and what was available to us. Their Rubber Soul and Help albums had more songs than our Rubber Soul and Help albums. Beatles for Sale was a British album which never came out over here. We had Something New pulling together songs that they had released as singles or on other albums.

It’s damn near 50 years later, but rights are still getting in my way in a different medium: sports. Even though the technology would make it very easy to make it available, I couldn’t watch the football games the Giants played while I was in Europe for Frankfurt. There would be money in this, of course. I’d pay and so would lots of others. But the deals haven’t been struck. Undoubtedly larger deals (some NFL games are televised in Europe and I’m sure those rights acquirers are happier if I can’t pull in the game I want on my computer) get in the way of this smaller one.

In the past several months, readers of this blog from around the world have commented on the unavailability of ebook titles in their territories even though publishers would have the right to sell them. As near as we can tell, this problem often tracks back to big publishers that have gone to agency pricing. (That’s where the publisher sets the price to the end consumer and becomes the seller-of-record rather than the retailer intermediary being the seller.) It would appear that many (if not all) agency publishers have withheld their titles in territories outside the United States, even if they would have the rights to sell in those territories.

That particular cause of the problem of unavailability is probably temporary. In fact, some publishers are just now announcing the availability of agency books in Australia. The agency model was a complicated challenge taken up in great haste by the US publishers to meet the hard deadline imposed by iPad’s introduction into the market and Apple’s iBookstore opening to serve it. Non-US consumers weren’t the only ones to suffer. It is now more than six months since agency began, and one large domestic independent ebook retailer, Diesel Ebooks, just blogged about how few retailers had, six months out, been able to secure the titles from all five of those publishers. The publishers are finding that the need to do lawyered-up deals with each particular point of transaction for their books is no trivial barrier to distribution. But it isn’t a permanent one; the deals get made eventually.

Here’s another complication I learned about this week. Amazon.co.uk, the British arm, sells only in the UK. It is Amazon.com, the US site, that sells globally. So if the rights to, let’s say Switzerland, are owned by the UK publisher, that publisher would have to have the ebook available through the US branch of Amazon or it wouldn’t be available to the Amazon customer in Switzerland!

This piece of information comes to me because of a discussion last week on the Brantley list triggered by the launch of a website by agent Jane Litte attempting to track lost sales. The site simply asks readers who wanted to buy a book (print or digital) and either couldn’t or didn’t why they didn’t.

One publisher on the list immediately looked up the complaints against his house, which the web site makes very easy to do. Among the first books he saw was one where his company had US rights only. The complaint was from a person who couldn’t get the book in a territory controlled by the UK publisher. Yet the US publisher was listed as the “culprit” failing to make the book available.

A long series of comments failed to get to the bottom of the problem. For one thing, we didn’t know whether the unavailability complaint applied to print or digital (which resulted in an improvement to the site that will enable the complainant to make that clear in the future.) But then we also don’t know how hard or efficiently the complainant looked for the book.

In other words, the site does the job of aggregating complaints about book unavailability, but does not adequately curate them. And it turns out that not all the “lost book sales” were due to unavailability; some were simply due to the consumer wanting a lower price. That is, perhaps, useful information but it is of an entirely different sort.

(Quite aside from the point to this post, every publisher should be harvesting and analyzing data from Jane’s site as, I’m sure, Amazon, Barnes & Noble, Kobo, and The Book Depository will! If you accept the responsibility seriously for being in touch with the people who read your books or are interested in them, you will want all the data points you can get and if this site gets a lot of traffic, it will provide unique data. “Harvesting and analyzing” does not mean “over-reacting”, by the way.)

It is clear — from this site’s data but even more from the complaints in comments on this blog and Cader’s reporting on Publishers Lunch — that ebook availability is frequently being blocked by rights controls. It has seemed to many of us that having a single global publisher would make that problem go away.

But that solution offers little comfort since global publishers are or were (at least temporarily) blocking sales from happening in territories where they actually have rights, because they hadn’t worked out all the logistics of agency selling in all territories yet.

The failure of availability of ebooks due to territorial restrictions is, to many, confirmation that the time-developed system of rights allocation, compounded by DRM in the digital world, is simply broken. This is another point of conflict between people whose highest value is ubiquitous availability of content (some without regard to the content consumer’s ability or willingness to pay) and those who value even more the right of the content creator or owner to maximize the revenue from that content’s use.

Just about the first rule any agent or publisher engaged in rights dealing learns is “acquire rights broadly, license rights narrowly.” Any agent who is a competent professional holds back any rights they can in any deal they make. And most agents trying to maximize an author’s English-language revenue starts with the assumption that they accomplish that by making separate deals in New York and London. Those deals are still primarily about print books. Ebook rights and various other territories, like Europe, are still pawns in the bigger game.

I am one who believes that digital change will lead us to a world where there is one global publisher for most books depending on a network of alliances to execute some aspects of marketing and to maximize distribution everywhere. But I also think our wait for that change to be widespread is going to be a long one; it is many years away. In the meantime, consumers of books will find — as music consumers did in the 60s and sports fans still do today — that what appear to be nonsensical barriers block them from purchasing and consuming content that technology could easily deliver to them and for which they’d be happy to pay a fair price.

But the barriers placed by rights to digital distribution are far less onerous than the barriers placed by practical realities have been to physical distribution. And they’ll come down faster. The agents who carve up the rights to maximize the author’s financial return (and their own) will be thinking about the implications of consumers blocked from purchasing them and one wouldn’t be surprised to see future deals require publishers to make ebooks available in all the territories for which they demand ebook rights. They will have author clients bugging them to do that. Unfortunately, nobody playing football for the New York Giants cares whether I can watch them in Frankfurt or not.

On another topic, but my favorite topic, I have come across this post by Andrew Davies, the MD of a tech company called Idio in the UK. I had the pleasure of meeting Andrew for an hour’s chat in London last month. But I call your attention to his post because it states the case I’ve been trying to make for years – that publishers need to get into community leadership while they can because the business of selling content must inevitably decline — incredibly succinctly and eloquently. I don’t know enough about Idio’s technology to recommend it, but I can sure recommend this piece as an example of clear and cogent thinking about the future today’s publishers face.

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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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Adam Hodgkin at the Exact Editions blog posted a piece that explains the ebook strategies of Apple, Amazon, and Google in simple terms. Hodgkin’s piece really helps think things through, but I think his analysis is a bit oversimplified (which is part of why it helps think things through.)

Hodgkin sees brilliance in Apple’s move not to enter the proprietary ebook wars, but simply to be a facilitator of sales to iPhone users (iPhones being, at least currently, the most widely-distributed handheld device deemed suitable for ebook reading.) He takes special note of Amazon’s 30% “market maker” fee, which he posits might help drive down the accepted price for middle services in the ebook supply chain.

And, as Hodgkin sees it, Google and Apple are pursuing directly opposite strategies to bring the ebook business to themselves. Google is betting that the future is licensing whole libraries in the cloud and Amazon is betting that it is buying ebooks one at a time to download to your device.

Hodgkin also notes that Apple’s 30% fee makes the 37% share Google will take before paying Book Rights Registry and the 55-65% discounts Amazon takes on Kindle ebooks (I actually doubt the discounts are quite that high on the vast majority of the Kindle books sold and Amazon discounting practices sharply reduce the percentage they are taking of actual selling price, which is, presumably, what Apple’s 30% would be based on) look very aggressive.  By this move, he says,  ”Apple will thus appear to most publishers and authors as a reasonable partner, a less monopolistic partner, than either of the other West coast web giants.”

Hodgkin concludes the piece by seeing ebooks as a 3-company race (these three) and says he is “tempted to call it for Apple” although “there are quite a few laps to go.”

That last sentence is the absolute truth.

This piece took no note of Sony, Stanza, or the potential impact of broadly-distributed epub files. Perhaps Sony is considered part of the Google strategy, except that the 500,000 public domain books Google has made available for the Sony reader are free (aren’t they? I am happy to be corrected if I have that wrong) and they are downloaded, not left in the cloud (unlike the PD books that can be read directly on the iPhone, with the toggling between the OCRd version and the original print, which Google announced two weeks ago, and which do remain in the cloud.)

It also took no note of Barnes & Noble’s recent purchase of Fictionwise or the fact that Waterstone’s has teamed with Sony Reader for distribution in the UK.

And if Apple’s strategy is to capture 30% of the ebook revenue for everything that goes to an iPhone, they have a big hole in it already. One buys Kindle ebooks from the Amazon store, not the App Store. They download directly into the iPhone from the net (no intermediating PC necessary). I don’t see how Apple gets any of that revenue. (I am not sure about the “why” of this from Apple’s POV, except that some smarter people have told me that it will be much harder for Kindle to repeat this trick on other phones, so it could be a competitive move by Apple against Nokia and RIM.)

But I think, most of all, this analysis omits full consideration of the discrete functions served by the retailer in the supply chain. 

The online book retailer needs to do these things: 1) secure a customer’s attention 2) aggregate titles to choose from, 3) merchandise, which is enabling discovery through “shopping” 4) provide search, which is enabling discovery through “asking”,  5) transact, which includes delivering the file and accepting the money, and 6) provide customer service.

If a publisher or retailer or ebook platform provider sets up to sell through the App Store, Apple gives them a head start on number 1, nothing on number 2, nothing on number 3, nothing on number 4, presumably all of number 5, and probably nothing on number 6.

Amazon provides it all. I am still trying to understand what Google provides; I don’t think we have all the answers on that yet, except that we know they’re providing a ton of free econtent that will make selling other ebooks at substantial retail prices that much more difficult for everybody. This should not surprise anybody and it is not a knock on Google. They are primarily in the free content business. They are not in the “merchandising” business. And they don’t have the most saleable titles to sell; they actually, title for title, have the least saleable titles. The value of what Google has is in the aggregate and was always intended to be. 

It is also critical to keep in mind that the ebook market for consumers has not happened yet! Publishers are seeing sales of about 1% of their revenue. I am a bit abashed about how over-optimistic I have been about ebooks for the past ten years (a by-product of having personally read more books on devices than on paper, by a factor of about 4 to 1, in the 21st century, and about 40 to 1 since I got my Kindle.) I can see ebooks getting to 7-10% of the units sold for consumer books in the next 3-to-5 years and I’m the optimist.

And with 85% of even that incipient market having not happened yet, most of which will be read on devices that haven’t been delivered yet (including future versions of Kindle, Sony Reader, iPhone, etc.) and, further with whole business models (subscriptions, book-of-the-month plans, bundling of titles together, offers by publishers to give ebooks away with print or audio books) which have hardly surfaced yet, we can only imagine what more changes we might see between now and then.

When there is a real ebook market, there will have to be real ebook merchandising. That means complete metadata on the titles, including reader reviews and information about the printed book publication. (Amazon, because they have it for their regular store, has it for Kindle books. Nobody else comes close, although one presumes Fictionwise will get that printed book metadata once they’re integrated with Barnes & Noble.)

Michael Tamblyn pointed out in his widely-circulated “6 things” address that book merchandising on the web hasn’t really made much progress since Amazon invented it in the mid 1990s. What Kindle has got, what Stanza has built for the iPhone, and even what Fictionwise has,which might be the best presentation of ebooks even before being enhanced by B&N (and even without the book information as mentioned above), are not really well suited for presentation on the smaller screen of a device.

Apple is not providing the full suite of retail services. If you assume that somebody has to be the bookseller here: pull the titles together, curate them, group them, put the right stuff out “in the window” or on the virtual “front table” on a daily basis (or, on the web, a more sophisticated basis than “daily” suggests) and handhold the customer through any further questions (I’ve gotten great customer service attention for ebook problems in the past from both Powell’s and Diesel Ebooks), then there will be a lot of costs to pile on top of Apple’s 30% take for providing the venue and ringing up the sale. Apple is providing the real-world equivalents of “rent” and “shipping”. Looked at that way, 30% doesn’t seem so cheap, even if it is a very high-traffic location.

This is going to get a lot more complicated before it gets simpler. I didn’t mention Scrollmotion, another ebook format that can handle illustrated material better than any of the others so far. I didn’t mention publishers selling direct, which they are definitely going to be doing more and more. I didn’t mention that every phone manufacturer and cell phone network is going to go all out to compete with Apple and AT&T and their devices will handle ebooks too and they’ll have app stores too. I didn’t mention that directing you to your choice of format — any ebook or a printed book which could be in different formats — is (one of) the real end game(s) here. Neither of us mentioned Adobe Reader format, which is still the market leader in ebook units sold.

It isn’t just too early to predict a winner; it is too early to declare the finalists.

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