Doubleday

Back when my father, Leonard Shatzkin, was active with significant publishers — the quarter century following World War II — he observed that very few books actually took in less cash than they required. That is not to say that publishers saw most books as “profitable”. Indeed, they didn’t. They placed an overhead charge of 25% or 30% or more on each book so most looked unprofitable. But that didn’t change the fact that the cash expended to publish just about every book was less than the cash it brought back in.

The exceptions were usually attributable to a large commercial error, most commonly paying too much of an advance to the author or printing far more copies than were needed. But, absent that kind of mistake, just about every book brought back somewhat more revenue than it required to publish it.

This led Len to the conclusion that the best strategy for a publisher was to issue as many titles as the organizational structure would allow. That was a lesson he passed along to the next generation of publishing leadership that came under his influence. And the leading proponent of that business philosophy was Tom McCormack, who worked for Len at Doubleday in the late 1950s, then went on to Harper & Row before he ascended to the presidency of then-tiny St. Martin’s Press in 1969. Tom often credited the insight that publishing more books was the path to commercial success as a key component of the enormous growth he piloted at St. Martin’s over three decades.

(I checked in with Tom, who is long-retired as a publishing executive but a very active playwright, about how many books didn’t claw back the cash expended. He told me that his “non-confirmable recollection” is that the percentage that did at least get their money back ranged from 85% to 92%. He recalls “incredulity” from his counterparts in other houses, whom he believes simply couldn’t “wrap their minds around the meaning of the statistic: revenues minus disbursements.” He went on to tell me that this number “seemed effectively irrelevant to them. They had an overriding and deeply flawed notion of something they called title-profitability. They thought they were analyzing the profitability of a title with their ‘p&l’.”)

Despite the apparent immutability of the fact at the time that most titles brought in incremental margin, many publishers who were losing money would come to the opposite conclusion. They would decide they should cut their lists, pay more attention to the titles they published, and create more profits that way. I remember discussing the futility of that approach in the 1980s with my friend and client, Dick McCullough, who was at that time the head of sales at Wiley. When I observed that the publishing graveyard was littered with the bones of publishers who pursued cutting their lists as the path to profits, Dick said of their efforts to cut “yes, and very successfully too”.

I got another lesson about this reality in the late 1980s when a company I consulted to (Proteus Books) sued its distributor (Cherry Lane Music) for a failure of “due skill and competence” in the sales efforts for Proteus Books. One of Proteus’s expert witnesses was Arthur Stiles, who had been Sales Director at several companies, including Doubleday, Lippincott, and Harper & Row. Stiles confirmed that big and competent publishers routinely put out thousands of copies of titles in advance of publication, with extremely few failures in terms of getting the initial placements. He was testifying in a time that was still like what my father experienced: the industry’s title counts were growing, but so were the the number of bookstores in which they could be placed.

Those days are over. And, coupled with the ebook revolution, the implications of that are profound.

A few things happened to change the environment so that it became no longer true that even big publishers could get all the distribution they needed on every title to assure a positive return of cash.

1. The title output of the industry has grown enormously. In the 1960s, the total output of the industry was in the neighborhood of 10,000 titles a year. Now it is something more than 30 times that number published traditionally, with a multiple of that number being self-published. Each new book is competing against more new titles every two weeks than a book fifty years ago would have competed against in a year!

2. Nothing published ever dies. Fifty years ago, stores were smaller and, while there’s no easy way for me to measure this, I’d guess that the active backlist across publishers was probably no more than 25,000 titles. Superstore growth in the 1980s, the efficiency of Ingram as a national wholesaler, and computer systems that helped stores track their inventory and sales fueled backlist expansion. Even in the early 1990s, the total of truly competitive titles was probably in the low six figures. But then came Amazon’s unlimited shelf space and Ingram’s Lightning Print to deliver one copy at a time, and, even before ebooks, the competitive set of available titles had probably jumped to seven figures.

3. Bookstore shelf space is declining. Nobody who has been reading this blog needs much elaboration on that point.

What that means is that a list-cutting therapy that McCullough and I saw in the 1980s as suicidal and which McCormack explained repeatedly was folly is no longer crazy. (Oh, how I wish my dear departed Dad was around to discuss this with!) And the new conjecture in this blogpost is that the day might come when a publisher with an extensive backlist might decide that the most profitable path would be to hardly publish any new titles at all!

The portfolio of any longstanding publisher today contains a lot of backlist which is pure profitable gold in the ebook era. Contracts often give publishers the rights to a book for the life of copyright if they continue to sell it. (I’ll confess here that there is a caveat to this point coming up in an italicized postscript below.) So a major publisher doing $600 million and up (of which there are six), almost certainly has triple-digit millions of sales in its backlist, which is increasingly shifting to digital. Even the most sober industry observers are seeing revenues exceeding 50% from ebooks in the next two or three years, which would mean that substantially more than half the units of these books are selling electronically.

So, let’s say you’ve got a company doing a billion dollars in annual revenue and barely eeking out a profit or perhaps even losing money. With a strategy of continuing to publish what you own as ebooks, you can see digital backlist revenue of $150 million, decaying by 10% a year, with gross margins giving you $100 million or more in cash flow. Offloading all the print operations for which you own rights to a distributor or competitor will provide incremental revenue as well. (You only need help for the offline print sales. Getting the online sales requires no operational capability.) You’d then need a minimal organization to do some marketing (not a lot), sign up and put out some additional titles that would be chosen for being risk-free (not a lot), and to handle the administration and royalty processing for your thousands of contracts. Five or ten million ought to cover those costs very handily.

Of course, the other thing you could do is sell your rights to that backlist. But I think it would require somebody to overpay in relation to your net discounted cash flow to make that attractive because the costs of keeping it all for yourself would be so minimal.

One hopes that today’s publishers are looking at the simple statistic Len and Tom authored: revenues minus disbursements by title. No doubt today’s biggest publishers are looking carefully at the performance of their copyrights in a way that sorts the new titles from the backlist. But doing so is only useful if they’re apportioning their costs properly across the title base. If they are, what is described in this post will be evident if and when it is true. In the meantime, careful focus on new title acquisitions and accepting that the healthiest way to manage for the future might be to reduce the commitment to new title development will have to replace the clear truths that guided smart publishing strategy for previous generations.

The history and analysis are all valid, but there is one big monkey wrench in this scenario I’ve sketched. There is a provision in the 1978 copyright law that allows authors to reclaim rights to their books after 35 years. Titles published in 1978 become eligible for reversion, called “recapture” apparently, starting in 2013. (With logic that is ironically typical of what Congress does when it touches copyright law, older titles are on a slower track for liberation.) Agents are planning for this; publishers will have to deal with it. I am given to understand that publishers can only retain these books for life of copyright by, in effect, reacquiring them. (Should be lots of fun!)

So, in fact, the backlist attrition might be faster than 10% (but it might not, because ebooks may create more readers for backlist than we had before as well.)

It is also true that many publishers have already been moving in the direction I suggest: pruning their new title counts and being particularly cautious with midlist. Of course, there was a conviction by many that list-pruning was a good strategy even before it actually was a good strategy, but the execution of it has been much more rigorous over the past decade.

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My new buddy and client over at iobyte, Dan Lubart, inspired a post last week about Amazon’s new Sunshine promotion because he documented its impact on their bestseller list.

Since then he’s put up two new posts that are only worth reading if you care at all about the effect of price on today’s ebook market. I think that includes most of us.

There is legitimate debate about how bestseller lists should be organized in the ebook age. I pointed out last winter that it really wasn’t tenable for ebook lists to keep score on unit sales only when the price range extended from 99 cents to $19.99. And, in fact, that kind of price variation has already led to clever authors and publishers gaming the system: lowering prices to get on bestseller lists and then raising them to capitalize on the additional discovery that takes place once they’re on. My suggestion was that the grading be on “price times units”.

Those who like that idea quickly see that this is similar to how movies work; they report the box office receipts, not the number of tickets sold. Those who don’t like the idea say that what a bestseller list is supposed to communicate is what books are being read by the most people.

Dan’s two most recent posts illuminate how this question plays out in the real marketplace.

In the first, he appears to have discovered that Barnes & Noble may have arbitrarily decided that an ebook priced at $2.99 or less won’t be placed in the top 125 of their bestsellers. This conclusion is based on convincing circumstantial evidence. What Dan first noticed was that only one book in the Sunshine promotion, and then two, had hit the Nook bestseller list. Watching those books, he saw one, “My Horizontal Life”, fall from rank number 1 to rank number 127 in one day.

That’s beyond a statistical anomaly. That’s damn near an impossibility, unless the rules of the game were changed.

So Dan checked further and found that all the inexpensive ebooks had dropped below rank 125, but that they were dominant from 126 to 200.

Since I’m the guy who pointed out a few months ago that lumping 99 cent ebooks with $19.99 ebooks was mixing apples and broccoli, I think it is fine that Barnes & Noble has taken this additional curatorial step. The New York Times makes it clear that its ebook bestseller list does not “actively track” a variety of titles including those that are self-published. I think it is fair to say that neither has a “transparent” methodology. But putting their thumb on the scale might be delivering a more useful result for the users of their lists.

I found Dan’s next post even more revealing about the nature of the ebook marketplace, particularly at Amazon.

What he showed, through analysis of the price of the titles and their rankings, was that the disruptive effect on the bestseller list of the Sunshine promotion was very brief. It lasted about a week. Seeing this recalled a story my Dad once told me and therein lies the explanation.

In the 1950s, Doubleday tried an experiment of putting books into supermarkets. What they found, repeatedly, was that the books sold well the first week and then sales collapsed.

The explanation for this was very simple. Bookstores see their customers — even most of their best customers — relatively infrequently. But supermarkets see their customers weekly or even more often. So a display of books is quickly seen by just about all who might be interested. They either buy something or they don’t. But after a week, everybody who visits that store has seen it and, unless the choice of books the next time they pass it is very obviously different, they will have no need to shop from it again. (By the way, this is a reason to create automatic title rotation by not assigning one title per pocket, but that’s a different subject than we’re discussing in this post.)

What Dan’s Amazon data would suggest is that the low-priced shopping cohort is a herd that responds quickly. When Amazon announced their Sunshine promotion, the most avid low-price buyers shopped it immediately and made their purchases. That created the spike in low-priced bestsellers which we acknowledged in our prior post.

But in the second week, with the same selection of books in the Sunshine promotion, that effect virtually disappeared. The low-price shoppers had done their purchasing from that selection. The normal buying patterns on the site reasserted themselves on the list. What one can see from Dan’s data is that the highest-priced band of ebooks took a real hit in ranking during the first week of the Sunshine promotion but in the second week the impact was much reduced and the lowest-priced books were apparently taking share only from the next band up. The highest-priced band had totally regained its pre-promotion share of the list.

Dan always reminds me that “ranking” and “sales” are not the same thing. It is possible that the Sunshine promotion elevated the spotlighted inexpensive books without reducing the sales of the books knocked down or off the list. In fact, I am one who believes that the purchasers of low-priced books are really a different group of people, for the most part, than those who buy the higher-priced books.

But since those bestsellers definitely lost the discoverability created by their presence on or high up on the list, it would open up a whole new set of questions if they got the same sales without what most of us assume is the important lift to discovery provided by bestseller ranking.

The ebook world is rapidly shifting and changing. With the pool of ebook consumers continuing to grow quickly, the buying patterns are bound to be temporary. The next batch of ebook customers might be more price-sensitive or less; they might respond to a price promotion as quickly as the Kindle customers did to Sunshine in the future or they might get slower. But what Dan Lubart is making clear is that the impact of price promotion is visible, if you have the right tools to look.

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I stumbled across a Sarah Weinman post from a few months ago that posits the notion that the chain bookstore (by which it would appear she means the superstores of the past 20 years, not the chain bookstores in malls that grew up in the prior 20 years) perhaps had a natural life cycle which is now coming to an end. She points out that the investment by Wall Street in the concept of massive destination bookstores enabled their creation, but ultimately resulted in great excess: too many stores with too many square feet to fill and too many books in them that don’t sell.

This is a really good and thoughtful post and I think the observation that the availability of capital built the excess which is now partly responsible for dragging down the structure is correct. But it triggered some additional thoughts that make me want to again trace the history (which I believe has called for smaller bookstores for several years) from before the 1990s when Sarah’s post picks it up and to look at bookstore history through the lens of tech development, which I think both enabled the massive bookstores and is now bringing about their demise.

The core challenge of bookselling — in the past, present, and future, online and in stores, for printed books or digital ones — is curation. How does the bookseller help the reader sort through all of the possible reading choices, of which there are, literally, millions, to find the reader’s next purchase?

In a shop, that curation begins with with what the store management puts on the shop shelves. The overwheming majority of customers in a brick bookstore who buy something choose from what is in the store.

The second line of curation in a shop is in the details of the shelving itself. Is the book face out or spined? Is it at eye-level or ankle-level? Is it on a front table in a stack? Is it displayed in more than one section of the store, which would increase the likelihood it will be seen?

And the third line of curation in a brick bookstore is what the sales personnel know and tell the customers.

In the period right after World War II, there was virtually no technology to help booksellers with curation at all. Sales reps would call (or not) and show catalogs of forthcoming books from which the bookseller would order. There were hundreds of publishers any full-line bookstore would have to do business with. But there weren’t very many full-line bookstores then. Departments stores and small regional chains (Burrows Brothers in Cleveland, Kroch’s & Brentano’s in Chicago) were the principal accounts.

Frankly, what was stocked in most stores then had a huge randomness component. This was the world my father, Leonard Shazkin, encountered when he became Director of Research at Doubleday in 1954 and, a few years later, created the Doubleday Merchandising Plan. By offering the service of tracking the sales in stores, using reps to take physical inventories in the days before computers could track it, Doubleday took the order book out of the bookstore’s hands for the reordering of Doubleday backlist titles. That solved the problem of breaching the first line of curation. And the reps, now freed of the enormously time-consuming task of selling the buyer on backlist reorders title by title, had more time to affect the second and third lines of curation: the display of the books in the stores and the knowledge the store personnel had about Doubleday books. Sales of Doubleday books exploded, approximately quadrupling for the backlist.

In the early 1960s, Len saw the impact of increased selection from the bookstore’s side of the table. He had moved from Doubleday to Crowell-Collier/Macmillan, which owned the Brentano’s chain. He was put in charge. At first, Brentano’s weakest store was its outlet in Short Hills, New Jersey. They doubled the selection of books and, almost instantly, Short Hills became the best-performing store in the chain.

It took until the late 1960s, when shopping centers were springing up across the country, for the first two national book chains, Walden and B. Dalton, to develop and become a serious force in the industry. And in the early 1970s, Ingram and Baker & Taylor became the first national book wholesalers to cover the country with a wide selection of titles. Dalton and Ingram became industry leaders and both were boosted by technology breakthroughs.

Dalton installed smart cash registers that enabled them to key in a number for each book, telling them what had sold. They didn’t use ISBNs, which were in their infancy; Dalton assigned their own SKU (stock-keeping unit) numbers which were stickered onto the books. The system was far from perfect, but it was revolutionary. For the first time, a bookseller and its publisher suppliers knew some real sales data in a timely fashion (Dalton’s numbers were tallied weekly). And the system also enabled Dalton to keep books that were selling in stock through automated means as well.

Ingram was the first wholesaler to employ microfiche technology to tell booksellers what was available right now in their warehouse. The weekly microfiches were, of course, primitive signals of availability compared to today’s instantaneous online capabilities, but this was also a revolutionary breakthrough. It enabled rapid resupply for all stores, including the chains, of the books they sold each day..

In the late 1970s, scanning technology had developed so that the Dalton key-in-the-SKU system could be leapfrogged by Walden using ISBNs at the register, which could often be scanned into the computer record. Also being developed at that time were various methods for automated order processing between publishers and their customers. By the middle of the 1980s, just before the period when Sarah’s narrative begins, bookstores were growing rapidly. The cost of putting the books on the shelves was dropping in relation to sales and the ability to put the right books on the shelves at the right time was enhanced for everybody. Good curation became much cheaper and much easier and, not surprisingly, sales of books grew dramatically.

Paradoxically, the decline of mass-market paperback distribution created new opportunities for the biggest publishers in hardcover. Mass-market grew on the illusory efficiency of forced distribution. For the first two decades after World War II, the rack-sized paperbacks would show up in the pockets at your local drug store or five and dime without a local buyer having to make a selection. That, combined with a much smaller share of margin going to the retailer, paid for the inherent inefficiencies of ham-handed curation. (And, let’s remember, only the covers had to be sent back for “returns”.)

But as paperbacks became more important and more mainstream, the biggest customers of the local wholesalers who racked them wanted better margins and more control. And the sales volumes had built to the point that many of them could now afford a buyer to deal directly with a number of mass market publishers, so the best accounts started shifting to direct. This weakened the original distribution network, but it opened up the opportunity for publishers to put books other than the rack-sized paperbacks into what had been rack-only accounts.

The first probes with larger trade paperbacks were with romance authors like Rosemary Rogers. The mass channels were more comfortable trying an experiment with format and price with authors they already knew.

The first great exploitation of mass distribution for what was really a trade book was by Peter Mayer (the boss) and Bill Shinker (the marketer) at Avon with the book “The People’s Pharmacy” in about 1975. Avon, a paperback house that published a lot of romance titles, had been one of the pioneers putting the larger books into the mass channel.

Bantam then used the technique for hardcovers, again starting with authors the mass channel already knew like Louis L’Amour and Clive Cussler, before hitting a massive all-channels mass-market home run with “Iacocca” in 1985. (And thanks to Jack Romanos, who was running things there then, for helping me get my recollections straight.)

The increased efficiency of distribution through technology and disintermediation in turn enabled discounting. Crown Books built a chain in the 1980s which mostly sold remainders and bargain books but carried a good selection of current titles with bestsellers deeply discounted. This fueled a further increase in unit sales.

Meanwhile, independent bookstores beginning to use primitive computerized inventory management systems were proving repeatedly what Brentano’s had demonstrated to Len Shatzkin in 1963: a big selection of books attracts a very substantial clientele. So technologically-driven efficiency lent a hand to delivering a more attractive selection (curation) by making it a bigger selection.

And in the late 1980s, these two things — the Crown discounting attraction and the independents large selection attraction — were combined by entrepreneurs in Austin, Texas, who created a store called Bookstop that provided both. Bookstop became the prototype “super” bookstore and, before long, Wall Street money was financing Barnes & Noble (which had bought Dalton) and Borders (which had bought Walden) to roll out these bookselling behemoths nationwide.

Which is where Sarah’s post kicks in. But in the context of what came before, I’d add one element she didn’t to the analytical mix. It created a paradigm shift in curation using technology. It’s called Amazon dot com.

While even the largest bookstore had shelf space limiting its title selection, Amazon did not. Through good luck (licensing the Baker & Taylor database which contained a lot of out-of-print titles), good thinking (providing a clear “promise date” for the available books and assisting people’s search efforts by telling them explicitly if a book was not available), and brilliant execution (Amazon’s hallmark from its first moment until the present day), Amazon completely shifted the psychology of book shopping.

Until Amazon, if you wanted any particular book or if you didn’t know exactly what you wanted, your best strategy was to go to the shop with the biggest selection to try to find it. Once Amazon happened, the magnet of in-store selection lost its power for many customers. If you knew what you wanted and you didn’t need it right this minute, the most efficient way to buy it would be to go to Amazon and order it. Customers who would have been browsing store aisles and, if necessary, placing special orders with their bookstore, now just shopped online.

I first saw what is clearly the impact of this through some work I did with Barnes & Noble sales data for university presses about a decade ago. In the recent years before that work, starting in the late 1990s, Barnes & Noble had tried to expand its selection of university press titles. This was applying a time-honored understanding of curation to improve the store selection.

But the results were beyond disappointing. Sales were not rising for the university presses; returns were. What became increasingly clear was that professors, the biggest market for university press books, were a leading edge demographic shifting their buying online. Makes sense, really, considering that they were often finding out about the books they wanted to order through something that had occurred online!

It was at that time — about 2002 or 2003 — that the late Steve Clark, then sales rep for Cambridge University Press and one of the publishers I was working with, told me that Amazon was a bigger account for his company than all other US retailers combined.

This was a big “aha” for me. I had grown up with the Brentano’s “selection” story and had seen it demonstrated over and over again throughout my career that increasing the title selection in a location increased the traffic and increased the sales. Technology had changed the reality. The magnetic power of a physical space full of books to bring in shoppers had been weakened. The surest way to find something that wasn’t as ubiquitous as a current bestseller remained a visit the store with the most selection. But that store was no longer in a building. It was in your computer.

And, ultimately, that is the single most powerful force bringing the era of the super bookstore to an end.

Of course, massive selection is only the first aspect of curation and the other parts are not nearly so well done online. Or, at least, they haven’t been yet. This is a major conundrum for the industry as bookstores fade and it’s the reason three big publishers have financed the startup Bookish. The stores depend on the publishers’ metadata to do this work and the publishers’ depend on the stores’ systems and merchandising creativity. Perhaps partly because the necessary collaboration hasn’t occurred, an effective online equivalent to in-store browsing hasn’t yet been developed.

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Although the value chain in trade publishing for the last century has, for the most part, kept retailers between publishers and consumers and kept publishers between retailers and authors, that has never been 100% true. Doubleday covered the whole value chain in the 1950s, when it not only owned the Doubleday Book Shops and the Literary Guild book clubs, it also owned printing plants. In the early 1960s, the Crowell-Collier Publishing Company bought (and eventually renamed itself) Macmillan (and that’s the old Macmillan that became part of Simon & Schuster in the 1980s, not the new Macmillan which was what the renamed Holtzbrinck group became a few years ago) and they also bought the Brentano’s bookstore chain.

I sold books to both Brentano’s and Doubleday in the 1970s and I don’t recall it ever being an issue that they had publisher ownership. Of course, that was before trade publishing consolidated into anything remotely resembling a Big Six.

After those two chains were sold in the 1980s (and I’m going to admit that I forget whether Walden which became Borders or Dalton which became Barnes & Noble bought each of them), in a period of two decades when publishers and book retailers grew enormously, the neatness of the division between the publisher’s role and the retailer’s was mostly respected. A number of retailers — notably B&N and Borders, but suppliers to the mass merchants as well — bought bargain books directly from packagers during that period, but joint ownership of significant publishing and retailing capabilities was, temporarily, suspended.

But Barnes & Noble was particularly aggressive at direct sourcing of book content and around the turn of the century announced the goal that 10% of their volume should come from directly-sourced product. To further that objective, in late 2002, B&N outbid several other companies (including at least one very large publisher) for the independent niche publisher, Sterling. Immediately, Borders stopped buying Sterling books and Barnes & Noble started stocking a lot more of them than they had in the past.

Meanwhile, the Internet was forcing everybody to rethink the paradigm. Even before the Kindle was launched in November, 2007, Amazon was encouraging authors to “publish” with them directly. All they could offer was the connection to the vast majority of online consumers — no print runs, no presence in any brick stores — but this could still be attractive and productive for some authors. My friend and client, David Houle, a futurist who blogs at Evolution Shift, published his “Shift Age” book with Amazon before Kindle and has sold thousands of copies, many of them at his own speeches. He’s very happy earning about $7 on every sale of a $17 book. No publisher was going to offer him as much as a third of that per copy.

As online sales grew, and then were further fueled by ebook sales starting in late 2007, it became increasingly obvious to many that publishers would have to start selling direct themselves. Some did. Harlequin has done so for years. F+W Media, one of the most aggressive publishers employing a vertical community strategy, announced a year ago that they would use Ingram to sell their books as well as those of their competitors to their direct audiences. Macmillan announced a similar plan for science fiction through Tor.com, although that idea has apparently never been implemented.

Part of what has discouraged the big publishers from selling direct is the threat of retaliation by Amazon and Barnes & Noble, both of which are much happier if the customer contact for big books is through them, thank you very much. Since both companies really exercise direct influence on many consumers, big publishers are inclined to respect their concerns.

To a certain extent.

And then we had the events of last week.

Amazon, which had previously established imprints for author-direct publishing and for translations of foreign works and had created a relationship with Houghton Harcourt to address their prior inability to get brick store distribution for books they owned, announced a new romance imprint called Montlake Romances. (Personally, I thought it was a bit strange that they announced it with just one book coming this Fall, rather than 10 books coming next week!) That put them squarely into the publishing business in a new way, and one could only imagine that the mystery shoe and thriller shoe and sci-fi shoe will be soon to drop.

In the same vein, Barnes & Noble has a program called Pub It! to enable authors to by-pass publishers and earn bigger royalties. They also still own Sterling, which gives them in-house the distribution capabilities that Amazon had to team with Houghton Harcourt to get. And with Sterling they also have the entire infrastructure in place to deal with authors and their care and feeding which could constitute competitive advantage when the gloves come off chasing brand-name authors.

So both of the giant retailers are looking more and more like publishers.

But it turns out the publishers were cooking something up too. On Friday, we learned about a new business called Bookish, which will be the “new digital destination for readers.” In its announcement release, Bookish promises to use content and software tools to promote discussion and discovery around books and to answer the reader’s question: “what book should I read next?”

What was most eye-catching about Bookish was its backing by three of the Big Six: Hachette, Penguin, and Simon & Schuster, who have apparently been planning this move for quite some time.

What was downplayed, but perhaps most significant, is that Bookish is trying to straddle the same fence that Google, and, to a lesser extent, Kobo are: being an ally of existing retailers while selling direct to consumers itself.

It really is impossible to speculate intelligently about Bookish’s potential for success. What they’re suggesting they’ll do is reminiscent of Copia and Goodreads and Library Thing, and none of them have yet replaced the marketing power of the brick store, a fact which is front and center in the minds of the trade publishers who depend on that merchandising.

But it will certainly accomplish one thing: giving the big publishers a direct path to the consumer. The hunch here is that if any one of these three big publishers had gone aggressively into direct sales, they would have risked serious retaliation from both of their two biggest customers: Amazon and Barnes & Noble. But it will be hard for them to retaliate against three publishers who, among them, deliver about half the biggest commercial books in the marketplace.

Let’s remember a year ago January when Amazon briefly sought to block agency terms for ebooks by removing buy buttons from Macmillan books when they briefly thought they could stop the plan from being implemented. As quickly as it became clear that the five publishers determined to implement agency would not be deterred from doing so, Amazon retreated. (In fact, they graciously joined Macmillan in compensating authors who might have lost sales during the brief period the buy buttons were inactive.)

And that brings up another important point about Bookish: what it says about the common interests among fierce adversaries, which the trade publishers certainly are. The times call for collaboration among competitors in trade publishing. It is a little bit nuts that several of them are building competing romance, mystery, and science-fiction “communities”, which only leaves the field wide open for a third party to be the biggest aggregator in each of the verticals and also allows much smaller competitors to look comparable on the web. But collaboration models have to withstand anti-trust concerns. Presumably three of the biggest publishers jointly investing in this web venture will.

Whether or not the Bookish team can invent the general book marketing future, or, through competition, spur Amazon and BN.com to be more creative about online merchandising, remains to be seen. But this past week certainly gave us further indications that the publishing value chain is being drastically reshaped and that the neat roles we’ve been used to for 100 years have less and less applicability to publishing’s future.

I chuckle when I think about a very smart person from a major house who was telling me just about a year ago, right after agency was implemented, “whew, now I think things can settle down for a while.” Actually, “things” are just getting moved over to the fast track so they can really change. Montlake and Bookish within a day of each other; Barry Eisler (who’s speaking at our “eBooks Go Global” show at BEA on May 25) and Amanda Hocking going in opposite directions within a week or so of each other a couple of months ago; these are significant events but they’re also signs of accelerating change.

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The ebook revolution is really beginning to remind me of the mass-market papeback revolution.

The mass paperback was really “invented” by Sir Allan Lane when he created Penguin in Britain before World War II. (Wikipedia credits a German publisher with the first cheap paperbacks a few years earlier, but Lane was certainly the first in English and deserving of some extra credit because the company he started continues in the same business to the present day.) Pocket Books in the US was also born just before the war. During World War II, historian and polymath Philip Van Doren Stern (who wrote, among other things, the New Yorker short story on which the movie classic  “It’s A Wonderful Life” was based) ran a program for the US military by which inexpensive paperbacks were made available to the troops.

After the war ended, mass market publishing really grew. Many houses — Ballantine, Bantam, Signet, Avon — were launched immediately following the war. The key to mass-market publishing was that it achieved distribution through the network of wholesalers that put magazines on newsstands and in local stores (often drugstroes) nationwide. Unlike trade books, which required an agreement between publisher and bookseller to get a copy of any book on a retail shelf, mass markets were “allocated” by the publisher to the wholesaler and in turn pushed out by the wholesaler to the racks they controlled.

The advantage of this distribution technique was that it enabled lots of copies to be pushed out to lots of places with much lower sales and distribution costs. The disadvantage was that it really only worked if books were treated like magazines, with “on sale dates” when they went out and “off sale dates” when they were pulled back and, like magazines, had their guts pulped while only the covers were returned for credit.

The paperbacks were typically priced at 25 cents when hardcover books were $2 or $3. (Compare that 8-to-1 or 12-to-1 pricing ratio to what exists today. It doesn’t.) And mass-markets were available in tens of thousands of locations nationwide, perhaps more than a hundred thousand, when bookstores were few, department stores tended to have only one location, and trade books were typically available in hundreds of locations, or at most a couple of thousand.

The much more widespread availability of these titles combined with their much lower prices created legions of new readers. And, in the beginning, most mass-markets titles tended to fit into “genres”. Westerns were a really big one fifty years ago. Bantam’s perennial bestselling author of westerns, Louis L’Amour, may still be the biggest-selling author in unit sales in (what is now) Random House history. Crime and science fiction lines were also popular as were raunchy books. I’m not sure that romance lines existed in the way they do now (although I’ll bet that among the readers of this blog are people who will tell me that answer); at that time there were lots of magazines peddling romance stories (as there were for other genres.)

If this is ringing some bells for an observer of the ebook transition who didn’t know paperback history, it is entirely intended to. Let’s ring a few more.

The hardcover publishers were very snobby about the paperback houses. Over time it developed that the mass-marketers were able to create enormous additional revenues from books previously published as hardcovers. (This did require the mass-market publishers to keep some titles on sale for longer than a normal cycle, which was not simple, but worth the trouble for books that sold really well.)

The name recognition of successful books, along with the ability to put words which said “established bestseller” on the cover, could be converted into huge sales given the much lower prices and much wider distribution mass-market could achieve. Over time this led to rapidly rising paperback license payments from paperback publishers to hardcover publishers. These were, by traditional contract, shared 50-50 with the authors. They provided a substantial, if temporary, bonanza for the trade houses in the 1950s, 1960s, and 1970s.

But the new marketplace also led to the growth of genre authors whose audiences were established for low-priced paperbacks. It was often difficult for those authors to move “up” to more expensive hardcover publication. Their audiences didn’t want to pay the higher prices, but they also didn’t necessarily shop in the bookstores and book departments where those books were found; they were used to buying their books at newsstands and in drugstores.

When I was first coming into New York from the suburbs as a kid in the late 1950s and early 1960s, there was a fabulous selection of paperbacks at a drug store that occupied the corner location in the Grand Central building at 42nd Street and Vanderbilt Avenue. I found a series of baseball biographies there published by Sport Magazine. I remember a book about 1001 things you could get for free by writing away for them. And, of course, the public domain classics were all there. And I got some great trash like “I Sell Love” and a book about airline stewardesses whose title now escapes me but which was great naughty reading for an early teenager.

Then in the summer of 1962, when I was 15, I worked a 2-month stint at the very classy Brentano’s Bookstore on 5th Avenue and 47th Street. My assignment was downstairs in the brand new, just-opened, paperback department. The center of the basement contained the “trade” paperbacks, mostly academic, on shelves. Around the outside were the mass-markets in racks. The mass-markets were on racks arranged by publisher, because the publishers’ reps serviced them on a weekly basis.

Scribners Bookstore, across the street, didn’t deign to stock paperbacks for some years thereafter.

My dad, Leonard Shatzkin, told a story about the legendary Jason Epstein’s Anchor line of paperbacks at Doubleday (perhaps the first line of quality, or trade, paperbacks, but almost certainly the first such line to come from a mainstream trade house). Dad’s responsibilities as Director of Research extended to the sales force and he ran the sales conferences. At one such conference when Anchor Books (and Jason) were very young, Dad told me that Sid Gross, the head of merchandise for the company’s Doubleday Book Stores, tore into the whole concept of the cheap paperback. He hated them. From his perspective, it was bad for a book retailer to be selling 25 cent items instead of $3 items! Many other booksellers back then felt the same way.

My father’s reaction, pretty typical for him, was to support the contrarian and revolutionary view. He pushed the reps to make Anchor Books a success and, a few years later when Epstein had moved on to Random House, Dad created the Dolphin Books line of quality paperbacks to complement Anchor, whose title selection was pretty highbrow, with public domain and more popular current titles.

That anti-paperback snobbery was widespread and the separation between trade and mass-market publishing persisted for a long time. For at least a couple of decades, paperback houses didn’t do hardcovers and didn’t try to put their titles directly into bookstores (as bookstores started to carry mass-markets, at first they bought them from the wholesalers who racked them) and the trade publishers didn’t try to access the mass-market distribution system. This changed in the 1970s. First Peter Mayer and Bill Shinker pioneered the use of mass-market techniques for oversized trade paperbacks published by a mass-market house (Avon). Then a few years later, Bantam starting publishing hardcovers with distribution to mass accounts.

In the end, mass-market distribution was dismantled by a number of forces. The best retail accounts started buying direct from publishers rather than through the local wholesalers. The number of titles grew so that the “allocation” methods wouldn’t work anymore; there were too many publishers and too many titles for a diminishing number of pockets to handle, so the more expensive negotation method became required.

Patterns are being replicated now with inexpensive and widely-available ebooks. New authors are being spawned. Genre fiction works best. Books that were previously successful in more expensive formats can find new audiences as their prices come down and they go where new customers are shopping. And traditional publishers are sure that their “quality” protects them from low-brow competition, even while that competition is taking millions of customer dollars and countless hours of customer mindshare off the table.

But here’s how that old story ended. Mostly, the mass-market publishers won. Penguin bought Viking. Bantam bought Doubleday and then Random House. Simon & Schuster survived largely because they merged very early with Pocket Books. What is now Hachette is largely called Little, Brown, which was a hardcover house, but it really developed over the last two decades of the 20th century as Warner Books, a mass-market house. Really, only HarperCollins and Macmillan of the current Big Six are true descendents of the trade publishers that were dominant when mass-market publishing arose.

There are a slew of differences between the transitions; ebook publishing has a title glut to deal with just like mass-market did, but the challenges are not the same when you don’t have printed books to manufacture and ship around and your distribution isn’t limited by shelf space or pockets to display them. And authors couldn’t do it themselves in the mass-market era the way they can today. But there is a very basic lesson I think publishers better take on board from this history.

Much-less-expensive editions, combined with access to audiences for authors that couldn’t get past the gatekeepers in the established houses, can create millions of new readers that weren’t available to the legacy products at the legacy prices.

And that can lead to economic power that can ultimately swallow up large chunks of the legacy publishing establishment.

I posted more than six months ago that I had read my first self-published ebook, a history of the 1962 New York Mets called “A Year in Mudville”. Then I had an exchange in the comments string of my last post with Joe Konrath, who used to be published by NY publishers but is now finding it much more lucrative to do it himself, and a reader named Chris. They urged me to read a self-published ebook bestseller, “Wish List” by John Locke. It was fabulous, sort of a cross between contemporary bestselling author Carl Hiaasen and a relic of the early mass-market days, Jim Thompson: bold, caustic, and funny with characters you like who suddenly do outrageously anti-social things. Locke has apparently come out of nowhere with just his talent to help him and is selling shedloads of ebooks. (He’ll certainly sell another one or two to me!) I am not price-sensitive about my reading and I haven’t ever shopped the 99 cent pile, but Locke is certainly evidence that there is stuff in there that is the equal of anything the big publishers are doing at major multiples of that price point. It will be an interesting challenge to see if any major publisher can deliver enough added value to make a deal with Locke or Amanda Hocking, another writer who has found a huge market without any help from the establishment.

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The title of “nicest person on the planet” is now open. The longtime incumbent, Ruth Cavin — also a veteran book editor who was known to many as the doyenne of mysteries — died early Sunday morning at the age of 92. She was still holding down a full time position as an editor with the Thomas Dunne Books imprint at St. Martin’s at her death.

What is unique about Ruth’s career is that she didn’t become an editor until she was past her 60th birthday and didn’t start her more than two decades at St. Martin’s until she was 70. She was sort of the Grandma Moses of mystery editors.

I had the very good fortune to have known Ruth all my life.

Ruth Brodie grew up in Pittsburgh where she first met my mother, Eleanor Oshry, when they went to kindergarten together. They were active together as schoolchildren in the YPSLs (Young People’s Socialist League, the youth arm of the political party that was led by Norman Thomas) and they both attended college locally at Carnegie Tech (now Carnegie-Mellon).

The story in the family is that when my father, Leonard Shatzkin, went out to Tech in 1938 to get his degree in printing, he had the phone number of two girls in his pocket: my Mom and Ruth. He called Mom first. She said she knew he had both numbers, so she kept him too busy from that point on to have time to call Ruth.

But they all became friends and worked together on the Carnegic Tartan, the school paper, on which Ruth was a columnist, Dad eventually the editor, and Mom the managing editor.

I realize as I write this that I never asked Ruth exactly how she ended up in New York after college. What I do know is that between when the war ended, during which my Dad had been exempted from service because he was working on the Manhattan Project, and when my arrival could be anticipated (which would have been late in 1946), they thought he would be drafted. My parents organized a going-away party for him for which the guests were all married couples except for two single friends: Ruth and a young Business Week writer named Bram Cavin.

The families remained close, personally and professionally. When Dad started the Dolphin Books imprint at Doubleday, he was able to hire Bram as an editor. In the early 1960s, the Cavins with their young children, son Tony and twin daughters Emily and Nora, moved to Pleasantville near where we lived in Croton and we saw them increasingly often. They moved to Cleveland in about 1964 when Bram took a job as an editor with World Publishing and Ruth’s home was my stop the first night I was driving across the country to go to UCLA in 1965.

Ruth was not working full time then but was active in anti-war politics. She was also interested in whatever you were interested in. I remember in the late 60s when bands starting putting out “concept” albums sitting with her for an hour with the Moody Blues’ “Days of Future Passed”, talking about what was “different” about all this, or whether anything really was.

In the early 1970s, my father started The Two Continents Publishing Group, setting up a trade book distributor on what is now the PGW-NBN model before there really any prototypes. Dad hired Ruth as his first employee to do the publicity. She also sold the subsidiary rights. I got the entirely-too-inflated title of Director of Marketing which meant that I got credit for a lot of what Ruth did.

Her output was prodigious. She wrote all the catalog copy, edited or wrote press releases, flap copy, and rep information for what grew into many dozens of books a year. She called on all the book clubs and all the senior book reviewers. Meanwhile, she had written a couple of books. One was called “Dinners for Beginners”. Another was on inter-urban rail transportation, mostly in the midwest, called “Trolleys.”

And, I must stress, it would be an understatement to say she had a smile on her face every day. Ruth had a smile on her face every minute. Nothing flustered or annoyed her. When you knew her well, you knew she had smiled her way through some pretty significant annoyances. She had a mastectomy in 1941. (She told me about two years ago that she now thinks she didn’t have cancer; that the diagnosis was a mistake.) She had a pacemaker installed in the late 1960s. I’ll bet that very few people who knew her had any idea about either of these things.

When the Shatzkins sold out of Two Continents in 1979, Ruth was 61 but definitely not done working. She was looking for new worlds to conquer. She managed to get a job at Walker and Company, a family-owned independent publisher that did a lot of mysteries. And thus did Ruth become a mystery editor.

Among the people she worked with at Walker were Philip Turner, who went on to work at Random House, Kodansha, and Sterling, and David Sobel, later at Wiley and Holt. I had an exchange with David yesterday in which he said, tongue only partly in cheek, that Ruth taught him everything he knows.

Ruth would teach you without it feeling like teaching. Every conversation was with an equal; every relationship was collegial. Her respect for other people was universal and deep and entirely genuine.

Tom Dunne was the man who “discovered” Ruth (when she was 70) for his imprint but he had support for the idea from then-CEO Tom McCormack. McCormack (another Doubleday alumnus originally recruited by my father) told me that he had a previous good experience with Joan Kahn, a mystery editor who had been retired by Harper at age 65 and then gave St. Martin’s ten great years.

Ruth started five years older and gave them more than 20!

The enormous productivity that my family and I saw in Ruth at Two Continents continued to be her reputation at St. Martin’s. I heard over the years that she routinely acquired, edited, and put into production more books than anybody. Since I pitched a few and sold her a couple over that time, I can tell you that she did all that without stinting on any part of the job from first contact through contract and editing and launch. Working with her was a positive experience for every author I know who did it.

With greater diligence since my Mom died in 2007, I’d see Ruth every few months outside the holiday season. We’d have lunch. She’d come along to see my nephew A.J. Shively in a play. I took her downtown a couple of times to get new hearing aids. I could see her decline. The scoliosis in her spine had her bent over so her back was nearly parallel to the ground. That meant she couldn’t breathe. We’d have to stop 3 times on the one block walk from her office to the restaurant she frequented.

Her memory, which, for names, had been sliding for years, started showing other lapses. I’d always ask her about her job. She always had a determination to keep it; the time she spent in the office with her colleagues was precious to her. A couple of years ago, she told me a bit abashedly that her company had insisted she stop taking the bus down from Grand Central to the office and provided her with a cab and then a car to take her back at the end of the day. (This was at the time that Bram was in a home near the White Plains train station, and Ruth stopped and saw him every evening on the way home.) A year or so ago, she said there was a plan afoot to have her work at home sometimes because the travel to the office was exhausting her. But she loved being with her colleagues. And she revered her boss, Tom Dunne, who really was the one who gave her this magnificent post-retirement-age career.

I had a conversation with St. Martin’s Publisher Sally Richardson (Dunne’s boss) about Ruth at a party for Al Silverman’s book three years ago. Sally was saying that she was working on making sure Ruth got a decent winter coat; she was so frugal and unconcerned with her own comfort that Sally had to, more or less, do it for her.

I told a few people at Macmillan that I wanted to acknowledge them publicly on Ruth’s behalf for the extraordinary sensitivity and generosity they showed her over the last months, perhaps even years, of her life. Although Tom McCormack made the point that they had learned that a “no age limit” policy made sense through their experience decades ago with Joan Kahn, that policy would not have obliged them to give her the extra support and reduced expectations that she must have required in the recent past.

They did that because they loved her, which was an inevitable consequence of knowing her well, so that isn’t extraordinary. But the fact that the company, particularly a company of the size of Macmillan, treated her better than many families would, is both rare and worthy of commendation. From this lifelong friend of Ruth’s, thanks very much.

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I am finding an eerie similarity between the disastrous Gulf oil spill and the parlous state of America’s bookstores. In both cases, the forces are in place for a disaster that will play out over the coming months and years. And while the tragedy of what is happening in the Gulf is far more consequential to everybody on the planet than what is happening to our bookstores, we are appoximately as powerless to prevent an eco-system disaster of the first magnitude in both cases.

Of course, the causes of the problems are quite different. British Petroleum, it would seem from here, could have operated differently and the blowout might not have happened. If the US government had the same offshore drilling rules as the Canadian government, requiring the relief well to be dug at the same time as the main drilling well, the disaster might have been averted.

Just like the shrimpers on the Gulf Coast, we are entering the highly visible stages of what will be a painful and accelerating change in the circumstances for general trade publishing. In an exchange in the comments of a post here from last November called “Why are you for killing bookstores?”, I was told by a resident of Orange County, California, that he didn’t even know where his nearest bookstore was. Now there is news that Laredo, Texas, is aware of its status as the largest city in America without a bookstore because its local B. Dalton outlet has been closed. Unfortunately, I don’t think Laredo will retain that status for very long. Much larger cities will be joining Laredo. These are like ships not bothering to leave the harbor because there is nothing out there worth catching.

Bookstores in the US are being pushed aside by the forces of what in the larger sense is definitely progress. The four biggest villains are the switch by consumers to Internet shopping (which affects all brick-and-mortar retail; Walmart’s sales are down too) and three aspects of that switch that amplify the problem: the ubiquitous availability of used books sold alongside the new, competition from long tail books that would have disappeared from commercial view in years past, and the rise of ebooks. All three of these effects reduce print sales in terrestrial stores, crippling retailers and damaging publishers as well.

The trend is impossible to ignore. Borders, just rescued by the latest White Knight that believes the business can be saved, announced that same store sales were down over 11% in the first quarter compared to a year ago. Barnes & Noble’s reduction in same-store sales was put at “2 to 4 percent” in its most recent reporting. [Late add: B&N actually reported same store sales down 5.5% in the most recent quarter.] Borders is a financially challenged operation with an inadequate supply chain, which could have led to not having the books they need to get all the sales that might have been available to them. But, if that’s true, the well-financed and well-operated B&N would be benefiting from their rival’s problems. (They probably are; sales would have been down more if they weren’t.)

I first worked in a bookstore almost 50 years ago, in the summer of 1962 in Brentano’s flagship store on Fifth Avenue. I’m going to guess that there were about 25,000 titles in that store: 10,000 hardcovers upstairs on the main floor and about 15,000 paperbacks downstairs in the brand new paperback department where I worked. Maybe there were more, but not a lot more. And this was one of the best bookstores in America at that time.

There just weren’t a lot of bookstores in America in 1962. Mass-market paperbacks were on sale in many drugstores and on many newsstands, and were in somewhat limited supply in bookstores. Paperback distribution then was just about exclusively through rack-jobbing local wholesalers and offered lower margins than trade books. Even Brentano’s, which was one of the few stores served direct by mass-market publishers, displayed the mass-market paperbacks by publisher rather than by subject to make it easier for the publishers’ reps to check their stock and fill in empty pockets every week.

Department stores were critical outlets for publishers. They provided what amounted to local chains in each city which were, at that time, just beginning to expand into suburban locations through a nascent shopping center industry. Reps for Dolphin Books (Doubleday) and Collier Books (Crowell-Collier, later Macmillan), two trade paperback lines begun by my father, were putting racks of their books into barber shops and motel lobbies in many parts of the country which had virtually no bookstores at all.

Running a bookstore was very hard. Publishers were numerous, title acquisition was fragmented. The only national wholesaler, Baker & Taylor, was really a provider for the libraries, which were willing to wait for B&T to go get the book after they ordered it from them. Local wholesalers, sometimes the same operations that rack-jobbed the mass paperbacks, didn’t attempt to stock much more than the bestsellers, the resupply for which was their real profit center.

In the late 1960s, as shopping center construction heated up, this started to change. Two national chains, Waldenbooks and B. Dalton Booksellers, grew on the back of that expansion. Shopping center developers preferred a national chain to a local independent as a tenant; they were more “bankable” when the developer was borrowing money to build. So these two chains started to grow as fast as suburban mall development would let them, which was pretty damn fast. When I went into publishing sales in 1974, each of the chains had about 300 stores nationally.

Dalton revolutionized backlist sales. Before scanning technology existed, Dalton instituted unique SKU numbers for every title which the cashier would punch into the register when each sale was made. (The SKU number was on a sticker on the book.) That enabled an automated reordering system to bring core backlist (designated “model stock quantities”) back in as they sold it.

Dalton had a “hot list” and a “warm list” of titles. The “hot” titles sold 10 copies a week across the chain. The “warm” list sold 10 copies a month across the chain. That was in a chain of about 300 stores and gave me my first real understanding of how few titles sold very much in a bookstore! Those lists were very important. If your book wasn’t on the hot list, it wasn’t going to get noticed by a buyer for re-ordering. And if it wasn’t on the warm list, the title was likely to be returned.

At about the same time, the early 1970s, the Ingram Book Company introduced technology that changed life for the independent bookseller: the microfiche reader that allowed every retailer to know, before they ordered, what Ingram was carrying. All of a sudden, just as Dalton was demonstrating how important a broader selection and in-stock backlist could be to a store’s economics, independent stores could imitate that strategy by ordering regularly through Ingram. Although computerized inventory management help was still a few years in the future, just being able to get the books from a single reliable supplier enabled independents to begin to compete and grow. (Of course, independents still didn’t have the advantage of 300 locations providing data so they could detect a “hot” book or “warm” book that might not be evident in a single store.)

There were two newer operations spawning stores with robust backlists in the 1970s: Paperback Booksmith and Little Professor. Both jump-started new independent stores with their branding, their inventory, and systems to support both new title buying and keeping key backlist alive. The Doubleday and Brentano’s chains had fewer stores, but bigger and richer ones.

From the publishers’ perspective, this was all providing more and more opportunity: more stores, more efficient stores, more backlist-conscious stores. So general trade publishers grew. Title outputs grew. Dalton and Walden grew. Independents and various smaller chains grew. Ingram grew. Baker & Taylor grew.

In the 1980s, the growth continued, fueled by increased efficiencies. Machine-readable fonts enabled Walden to imitate Dalton’s point-of-sale monitoring without having to sticker every book. Computerized inventory tracking systems improved efficiency at stores far and wide and at the wholesalers as well. New retailer Crown Books pioneered a new idea: a more limited selection of new books, combined with a lot of remainders and bargain books, and aggressive discounting of bestsellers. Even while the chains grew, the independents grew and became more powerful. A newly-energized American Booksellers Association became an aggressive advocate. They sued major publishers, ultimately forcing changes in sales policies that were deemed too chain-friendly.

Throughout the 1980s, the independents were the ones building the big category-killer stores. Good independents were confident that they beat the chain stores on title selection. They were even competing pretty much at full price against Crown’s deep discounting simply by being the place you could find the books you wanted. In the late 1980s, Borders and Barnes & Noble, along with Wall Street, saw the opportunity. Borders acquired Waldenbooks and B&N acquired B. Dalton to give them operational scale, and then they started to open very large 100,000+ title stores (under their own brands, not the acquired ones) in a model that had been developed by a Texas operation called BookStop (which was acquired by Barnes & Noble.) This just meant more growth for publishers; more backlist being stocked in more places. This might have been when the big indies first started feeling a pinch; I recall Andy Ross of Cody’s expressing concern about a big Barnes & Noble opening in Berkeley about that time. But the indies and the chains had a much bigger problem just over the horizon.

In the summer of 1995, Amazon.com opened for business. And, probably since Day One, but certainly increasingly and increasingly obviously, Amazon has been damaging the ecosystem which spawned a robust bookstore network and, which, in turn, fostered large and powerful general trade publishers. That was when the wall protecting the water that fed bookstores and trade publishers was breeched by the oil of digital distribution.

The analogy is not precise. Amazon is not a villain like BP. They aren’t just destroying an old eco-system; they are building a new one. To the consumer that is finding shopping easier than it ever was before, finding books they could never find before, being presented with cheaper choices of used books and electronic books that were not available before, there is no crisis here. In fact, there is no problem.

But to bookstores that depended on customers that had little other choice but to come to them for the books they wanted, shop from what was available under the store’s roof or wait for something to be brought in from outside, and who were effectively restrained by geography from shopping around for price or selection, the waters have become toxic. And to publishers that built a business whose principal competitive advantage is their ability to take intellectual property and put it onto bookstore shelves, the imminent prospect of reduced revenue, increased costs, more difficult title acquisition, and competition from old IP long-sold or long-dead, are now fouling the drink for them as well.

All of the eco-destroying forces that have so far hit the  bookstores, like the oil coming onshore in the Gulf, are just harbingers of much bigger waves of challenge to come. More and more people buy ereaders and cut print consumption drastically; more and more books get digitized; the long tail only gets longer as more and the more digitized stuff meets increasingly efficient print-on-demand. And more and more competitive material enters the supply chain with some appeal to the public but with no participation in the structure that makes bookstore stocking easy. The bookstores’ problem is not just about demand, it is also about supply. That’s competitive advantage for trade publishers in getting their books on bookstore shelves, but it is competitive disadvantage for bookstores competing against a universe of content a click away from more and more eyeballs and mindshare.

In an exchange in front of a large audience at BookExpo last week, one prominent publishing executive took relative comfort in the fact that “more than 90% of our business is still print.” That’s (still barely) true, but only about 70% of the business is still occurring through brick-and-mortar outlets. That number will be under 50% in 12 to 18 months, and the slide will still be accelerating. Big publishing grew in an eco-system of expanding retail shelf space. It has been challenged in the past 15 years as all that growth was stopped by the new forces unleashed online. Now that shelf space is going to start to shrink faster and faster, it is hard to see how big trade publishing can avoid doing the same.

Another aspect of this problem was raised this morning on a mailing list I’m on. Public libraries are losing the funding they need to stay open. Public libraries buy a lot of books from trade publishers, although most of those sales go through wholesalers and not all publishers are managing library sales discretely the way they should. Library purchases have tended to act like ballast in previous recessions; public funding wasn’t usually as volatile as consumer spending. Unfortunately and somewhat coincidentally, the erosion of the bookstore infrastructure is occurring when we’re also facing what is likely to be a longterm crisis in public funding as well.

Two Australian booksellers were in my office last week. The trauma they face is even worse than it will be here. Geography has protected Australia from competition so books are priced 50-to-100 percent higher than they are here. That’s been great for bookshops. Their trade looks like ours did 15 or 20 years ago.  With the arrival of ebooks and POD, they’re probably facing the changes we’ve seen since then in the next two or three years.

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I was extremely fortunate in my “choice” of parents. I had both admiration and affection for them, and I always had a great time just shooting the bull with my dad, Leonard Shatzkin. He was a real visionary about the publishing business and was also very witty and cogent. A great deal of what passes for my insight is really just a recycling of his.

He died in May of 2002. Until the last six months or so of his life when the heart failure that killed him so weakened him that he couldn’t really think anymore, he was still working hard on what he always considered to be the most important commercial challenge for book publishers: how to manage the inventory in retail locations. In fact, he was developing a system he hoped to commercialize as a solution for independent stores. I didn’t want to say “what independent stores?” to him back then, even though it was already obvious to me that their existence was seriously threatened. Dad had shaped his view of publishing during the 1950s, when the industry was near the front end of what was nearly half-a-century of unfettered growth.

That period of growth was over by 2000, and those of us who were trying to measure the trajectory of digital change in the early 2000s couldn’t avoid seeing it. Dad might have seen it 10 or 20 years earlier, but he was intellectually and emotionally incapable of accepting it in the last few years of his life. In fact, while taking control of the inventory in independent bookstores had been the key to the growth Dad fostered at Doubleday in the 1950s and in building the Collier Books imprint, which he created, for what we now call Macmillan I in the 1960s, it didn’t present the same level of opportunity in the 2000s. He had been right for many years about this, but he wasn’t anymore.

Another immutable truth in my father’s picture of book publishing which also turned out not to be permanent was his belief that book publishers should just keep expanding their lists, pretty much without limits. When Dad launched Collier Books by doing 600 titles a year in 1962, the entire industry only produced about 10,000 titles. In Dad’s time, it was probably true that most books big houses did contributed to profits, so the more titles you did, the more profits you made. Tom McCormack, who was a protege of Dad’s in the late 1950s and then went on to a long and successful career as CEO of St. Martin’s Press (now part of Macmillan II), attributed much of his success and St. Martin’s to Tom’s own recycling of Dad’s insight.

There is this beast in publishing known as the “title P&L.” The “title P&L” proceeds from the mistaken premise that titles, standing alone, deliver profits or make losses. In fact, that’s not true, because a substantial chunk of a publishing house’s costs are not title-specific; some costs are not really attributable in any sensible way.

The way “title P&L”s normally work is that “overhead” — rent, salaries, etc. — is figured as a percentage of sales (which, if you look back to last year, is, indeed, a calculable number across any company.) By “distributing” the unattributable costs that way, the logic says, you make sure that each book covers its “share” of the costs of keeping the doors open. But, as McCormack pointed out many times over his career, the rent didn’t go up because he signed a new title and it was nonsensical to charge each title, let alone each sale, for the rent.

Dad had a very succinct and persuasive way to explain the folly of the “title P&L” logic. What he suggested is that every house do a recalculation of their overall P&L at the end of each year. To do it, they should take out every title that failed to earn back the overhead charge (usually somewhere between 35% and 45%) because those had, by the internal logic, “lost money.” Surely, if you take out all the titles that lost money, you would see your overall calculation of profits rise. Right?

But it never does, it always falls. Why is that? Because most of the titles deemed to have lost money by “title P&L” logic actually made a contribution to overhead. That is, the direct revenues attributable to that title were greater than the direct expenses charged to it; they just weren’t sufficient to be scored as profitable when the overhead tax was deducted. But if you subtract all the books that earned 6% or 10% or 19% or 34% margin on sales, you subtract actual dollar contributions to overhead and profit.

Important point: overhead and profit are both produced by gross margin on sales. When enough margin has been generated to cover all the overheads, the margin becomes profit. So titles don’t earn profits or losses, they contribute more money or less to overhead and, in some cases, actually don’t recover their direct costs. The titles that don’t recover their costs clearly have lost money; all other titles contribute to overhead and, if it is covered, to profits, but they aren’t, strictly speaking, profitable in and of themselves.

All that was true in Dad’s day and is still true today. What has changed (I think; I haven’t actually done the analysis with a real house’s numbers) is that the percentage of titles that don’t even recover their direct costs is rising. It is actually getting harder and harder to publish new titles successfully, even if the standard of success is lowered to “recovered all costs” from “delivered its pro rata contribution to overhead.”

That’s because each title published today is facing a much more challenging commercial environment than each title published two, three, four, or five decades ago. Each title competes with more titles in the marketplace and more new titles coming into the marketplace: print-on-demand and online used books have snared a great deal of market share that used to be available only to new titles and backlist kept alive in print-run quantities by publishers. And, for the past 10 years, each new title is coming into a marketplace that has less shelf space available for books overall than it had for the last title.

So the “keep publishing more and more” paradigm that Dad believed in and that McCormack credited with St. Martin’s growth may not actually work anymore. In fact, any sentient publisher today would have to look at their output regularly to recalibrate what new title publishing is actually profitable. I expect that analysts in every major house are slicing and dicing their lists, trying to figure out whether they can discern — by level of advance or subject matter or by imprint or editor or agent — which bets will return the cash invested and bring profit to the house.

We can assume those analyses are being done, but can we assume they’re being done right? Without any inside view of the details (and I don’t have one), we’ll assume (hope) that the crude application of a single overhead percentage to each title is not the standard for analysis. If it is, the house doing that will almost certainly be led to erroneous conclusions, just as Dad and Tom pointed out they were if they saw a book that contributed 30% margin as “unprofitable” and would think they’d be better off not publishing it.

The big publisher of 2010 has another problem besides the reality that new titles are harder and harder to launch to any standard of acceptable return. They also have to feed a machine built to handle a certain volume of printed books when the decline of print book sales is being accelerated by the shift to digital. The additional margins in digital (which are being produced as long as prices can be maintained) are not very helpful if they need to be diverted to pay for warehouse space, field sales forces, and higher unit printing costs because there is less print “throughput” to support them.

Big publishing management is aware of this challenge; it is part of what drives up the value (and prices) of big brand franchise authors. The big authors are still the fastest way to guarantee the volume of print output and sales necessary to fill those volume-guarantee contracts with the printers, absorb the warehouse space, and cover the cost of calling on accounts that sell print only. And look at the irony. With less volume, unit costs per book go up, which reduces total gross margin. And if warehouse and sales organization costs are fixed (they aren’t but it is hard to adjust them quickly, the way you can cut a press run or a marketing spend), then the percentage of sales they will consume will go up. So much for calculations of overhead as a percentage!

The big variable publishers have to deal with today is marketing cost. The most common rationale for list-cutting is that it will allow a greater amount of marketing attention to the books that are published. But that articulation actually begs the question, because marketing resources are variable. If you add more, you increase the overhead nut you have to cover before you get to profits. And if you reduce those resources, then you’ll be chasing your tail trying to put more marketing effort behind each title.

The analysis of how to cut has to be done; it is pure insanity for publishers to keep cranking out new titles if they are losing on many of them. Some of the ones they lose on have the potential to be big but just don’t make it; some aren’t even seen to have that potential. But the ultimate answer is not in how or how much a publisher can reduce title output, but in how they focus it. That’s the secret to reducing marketing costs and it is something we will certainly explore in another post someday.

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The Wall Street Journal was the first to announce, on Monday, (behind a pay wall, but Google “Publisher Delays E-book Amid Debate On Pricing” and you’ll get it) that Sourcebooks CEO Dominique Raccah was holding back the ebook publication of a new hardcover YA novel, Bran Hambric, scheduled for release this September. Raccah’s explanation to the Journal was that she was trying to preserve the perception that the $27 hardcover price was reasonable. Since she knew that any ebook would hit the street at just under $10 (the Kindle promotional price is $9.99 and B&N has suggested that their promotional price will be $9.95), Raccah felt that sales of the hardcover would be undermined.

What was left unsaid in the Journal piece was that Raccah might have been leaving money on the table with this decision. After all, the publisher still sells ebooks on roughly equivalent terms to printed books and has lower costs. So, depending on the royalties Raccah is paying the author, she is (most likely) realizing more margin for Sourcebooks on the ebook sale than on the printed book sale, regardless of how the retailer prices it.

Even more startling (in this day and age) is the possibility that the author’s royalty is higher per copy on the hardcover, so Raccah might be protecting author royalties, to the extent that withholding the ebook restrained cannibalization and resulted in more hardcover sales. I mention that possibility because the agent for author Kaleb Nation is Richard Curtis, one of the most ebook-friendly agents in town (and, indeed, the owner of an ebook publisher called EReads), who was quoted in the Journal supporting Raccah’s decision.

On Wednesday, Motoko Rich and Brad Stone published a piece in the Times on the same story (in which I was very briefly quoted.) Rich and Stone added some nuance to the story. The Journal said that agent Robert Gottlieb resisted simultaneous ebook publication “when he can prevent it.” In the same graf, they said that only one book of the Times’s Top 15 fiction bestsellers was not available in the Kindle store. Of course, that doesn’t mean that the Kindle editions were available at any particular time in relation to the first release of the hardcover, just that they are available now.

The Times reporting went further than the Journal, speaking to several publishers of upcoming major books about their ebook timing plans. Doubleday hasn’t decided yet about Dan Brown’s book but acknowledges that the impact of ebook sales on the hardcover was a consideration. S&S won’t reveal their ebook release plan for Stephen King’s November novel, Under the Dome. Ditto from Hachette imprint “Twelve” on the Ted Kennedy autobiography, True Compass, coming on October 6.

So the fact that everybody is thinking hard about this is confirmed by the Times’s reporting.

But Cader, who as an industry expert and blogger has more scope and credibility to report unattributed information than reporters at WSJ or the Times, went further in Publishers Lunch on Thursday. He ridiculed the notion that Doubleday was (according to a spokesperson)  ”[more] worried about…security…than particular vendors” and he sees the motivation from publishers being to control the behemoth, Amazon. As Cader reports it, Kindle sales surged when the new device(s) came out, becoming as much as 50% or even 70% of Amazon’s sales of many important books.

Everybody (in the industry, but maybe not outside of it) knows that Amazon pays a standard discount for ebooks, which is about 50% off publisher suggested retail, and that Amazon actually takes a loss on a $25 or $27 hardcover book it sells through Kindle at $9.99 (as B&N will do if they follow through to sell books like this as ebooks for $9.95.) Nobody expects Amazon to do this forever although, as Cader points out, they are temporarily subsidized by the profit they make selling the Kindle devices. The widespread fear among the big publishers is that Amazon will soon demand lower prices for the books they put on Kindle so they can keep the $9.99 price point profitably.  As the Kindle unit sales grow, of course, the muscle behind such a potential demand would grow right along with it.

Cader makes the very important point that sales migrating to ebooks, and particularly to Kindle, weaken the brick-and-mortar channel that publishers depend on for most of their sales and profits. The Times reported that publishers could well be making bigger unit profits on each Kindle sale than on each printed book sale (a fact that I explained to them when I was interviewed and which appeared not to be clear to them before I did). Cader (who of course knew that without needing to be told by me or by the Times) makes the point that publishers do this because they are “looking out for what they believe to be their long-term interests — and are trying to protect the entire system of physical book retailing which supports the whole industry.”

While this was happening, Dominique Raccah posted her thoughts to Peter Brantley‘s Amazing List and Kassia Krozser, on that list and proprietor of the Booksquare blog, turned her space over to Dominique for a version of that post. Dominique made it clear that she considered what she was doing with Bran Hambric to be an experiment. Her focus was on a “sustainable author/publisher model”. She made the point (again, clear to most people in publishing but perhaps not to those outside) that the music business continues to present inapplicable analogies, but one of the most egregious is that authors should give it away like musicians to get performance bookings: in publishing, there are no performance bookings (and few t-shirt sales…)

Raccah made it clear that she supports early ebook releases and her house is going to a workflow that will enable that. But then she gets to what is really the heart of the matter. “Etailers are suggesting that the ‘right’ price point for an ebook is maximally $9.99.  And they are proselytizing the price $9.99.  We can’t control what retailers charge for books or ebooks.” The publisher’s choices are whether and when to make it available and whether to sell to any particular retailer.

From there she explains that exploiting formats with “windows” is an old book business strategy (hardcover, trade paperback, mass-market paperback) and a common film strategy (theatrical precedes DVD release, with TV licensing once part of that picture as well, but not anymore.) And she concludes by saying that publishers need to make these decisions on a book-by-book basis (“strategically”, she says, although I’d call that “tactically.”)

My quote, by the way, was to the effect that ebook readers and print book readers are increasingly separate markets, which I believe to be true but cannot prove. A C-level friend at a large house disagrees with me, as I’m sure many others do, and my evidence on this is highly anecdotal (including myself: I have read one printed book of the 50 or so I’ve read in the past 18 months.) But my friend would have no more evidence than I to support his contrary position, so publishers will have to make decisions without really knowing, for now, whether they can push a Kindle or Shortcovers or Ereader consumer back to paper by denying or delaying a book.

That concludes the summary. I have a few thoughts of my own to add on this. I’ll be posting those shortly, probably over the weekend. I hate going much over 1000 words on any single day, and I’m already past 1200.

An  earlier version of this post had a couple of errors misconneting agents and authors which have been repaired. So if somebody tells you about a mistake they saw that you can’t find, that’s what it’s all about. Thanks to Michael Cader for setting me straight.

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The New York Times had a story on Tuesday morning about an advantage the Ford Motor Company had over its competitors at GM and Chrysler: it is still family-owned. As the Times explained, the family ownership was able to take a longer view than their competitors. In fact, we still don’t know whether the re-tooling the family has ordered up will work in the long run. But we do know that they have had a steadier and more far-sighted management because the family cared about the long-term health of the business, not just the next quarter’s profits.

This recalled to me a conversation that I had with Peter Wiley, currently the Chair of the Board of John Wiley & Sons, over dinner 15 or more years ago. Peter said then that he believed Wall Street undervalued family ownership. As Peter put it, “just about all our competitors are focused on quarter-to-quarter results. Mike, my family has owned this company since 1807. I am not thinking quarter-to-quarter.” Wiley’s financial results (even though they have suffered in this recession along with everybody else) over time have certainly vindicated Peter’s opinion.

Family-controlled businesses have been  been ubiquitous in publishing through my whole career. When I was young, there were Scribners at Scribners, Doubledays at Doubleday, sometimes two Roger Strauses at Farrar, Straus & Giroux. When family-controlled but publicly-traded Barnes & Noble acquired Sterling in 2002, they acquired it from the founding families: the Hobsons and the Boehms.

I have consulted with several family-owned or -controlled businesses. Wiley, Barnes & Noble, and Ingram are distinguished by how well managed and basically competent they are as organizations. They really do the “blocking and tackling” well. A big part of the competitive edge of all three companies is in the quality of their operations.

They make the investments, particularly in infrastructure, that are critical to the business. I once asked Peter Wiley why it was that his company’s travel web sites were so much more commercially successful than those of other publishers with equivalently-strong travel brands. “Constant, controlled experimentation,” he said. “What worked for us was on the third try. We didn’t get it right the first two times.” Family ownership — with belief — can make those kinds of investments and stay with them. And it can support a second and third attempt to make a good strategy that is tricky to execute succeed.

John Ingram, the member of the owning Ingram family who runs the book industry-related businesses, got a clear vision of the potential in print-on-demand a little over a decade ago. Very few other owners, and almost certainly no publicly-traded owner, would have made a bet of the scale, in relation to the size of the company, that he did with Lightning Print. But John could see that POD would become extremely important and that Ingram, because of its position in the supply chain, was in a great position to apply the technology. And although it took a few years for him to be proven right, the family had the commitment to see it through and, as a result, Lightning occupies an increasingly central place in the US supply chain and is the linchpin of Ingram’s plans for future growth as the traditional book wholesaling business contracts.

What most distinguishes the successful and still-profitable Barnes & Noble from its once equal and now reeling competitor, Borders, is the quality of B&N’s supply chain. That required investments in warehouses and systems that Borders, long ago sold by its founding family, didn’t have the long-view management to make.

Now I’m working with another family business called BookMasters, in Ashland, Ohio. BookMasters started out as a printer in the 1960s. Their operations have grown in both directions along the value chain from printing. They have a business, BookMasters Digital, that provides an XML workflow from concept to the press. And they have another division, BookMasters Distribution, that takes the output from the presses and provides warehousing, sales, fulfillment, and collection. The Wurster family that owns BookMasters has many business characteristics in common with the Wileys, Riggios, and Ingrams. They have a high degree of loyalty with many long-standing employees. They have a persistent commitment to operational excellence. And they have a high degree of strategic consistency: they are willing to build things over a long period of time.

John Ingram saw over a decade ago that the book wholesaling business Ingram was in was living on borrowed time. He saw Lightning as a bridge to the future. Dave Wurster knows that printing is not a growth industry and he’s building his bridge to sustainability with service offerings that expand his importance to his customer base. Over time, both of these family owners can see the possibility of a totally transformed businesses. Their focus primarily is on how to make sure their business survives a long time, not on immediate profit. In a time of great change, I believe it’s a competitive edge.

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