Hay House

This post will discuss a realization I had even before this morning’s news about the developing e-products scene. I’ve always been a skeptic about enhanced ebooks, based on seeing my hunch that they wouldn’t work come true 15 years ago with CD-Roms. But it is increasingly obvious that CD-Rom type thinking will work very well for kids’ books. In fact, I’m beginning to think that enhanced ebook or app-type delivery could overwhelm books as a container-of-choice in a pretty short time. Single digit years.

The reasons that I’m skeptical about enhanced (or enriched, a recent term I’ve heard that might be better) ebooks is because most adult books are written as narrative reading experiences not intended to be interrupted and now being read by people who value the immersive experience. (Not all. But most of the kind we think of as bestsellers or literature.) My guess is that it is going to be hard to shift many of the hours of consumption now devoted to immersive reading to something quite different. And I see that as a qualitatively different challenge than moving immersive reading itself from one delivery mechanism (paper) to another (screens.)

The reason that kids’ material didn’t survive the CD-Rom period 15 years ago was the complexity of the delivery mechanism. You had to be at a computer, which usually meant a desktop computer. You had to load the CD-Rom, which on most computers (because few then were Macs) required additional navigation before they would play. These products just weren’t really accessible to kids, even if the programming they contained was designed for them.

But those reservations just don’t hold for kids’ “books” (if that’s what you call them) migrated to the iPad, a smartphone or, now, the NOOKcolor (which, I think, is how its owners would like us to spell it.)

The degree to which you can immerse yourself in a book is directly proportional to the fluency with which you read. That means that the younger you are, the more likely you are to accept the interrupted reading experience .

And as the devices get cheaper and more ubiquitous, parents and kids will learn fast how entertaining, instructive, and accessible interactive experiences can be.

I started writing this post over the weekend because we knew about several entrepreneurial ventures that were focused on developing kids’ material in this way. Then this morning’s Publishers Lunch told us the story of the developments at Callaway, which only underscore that some serious money is betting on this direction.

In short, I have come to the point of view that the juvie book business is going to migrate to enhanced digital products much faster than adult narrative text and that, as a result, the origination and publishing for the various kids’ book marketplaces will be increasingly the province of new companies and less and less the business of book publishers.

The Callaway Digital Arts story as Publishers Lunch reported it today is stunning. Not only did they secure $6 million in financing led by Kleiner Perkins Caufield & Byers’s iFund, they have won a $30 million “Ready to Learn” grant from the Department of Education. With this wind at their backs, Callaway says they plan to be producing 150 apps a year by two years from now. They’re being seen by Apple as a “strategic partner” helping the iPad to “transform education.”

While the Callaway start-up is the most dramatic, they’re hardly alone in focusing on the market for enhanced kids’ content built on books .

Oceanhouse Media is building what seems like a comparable business a completely different way. Rather than going to investors for capital, Oceanhouse managed to self-capitalize by building a network of developers willing to work for a piece of the projects they are developing. They’ve got deals with Hay House (that’s not for kids, primarily), their neighbors in San Diego. And they’ve secured rights to Dr. Seuss and Berenstain Bears. In a conversation with them, it sounded like they’d be delivering new products at the rate Callaway projects even sooner than two years from now.

Trilogy Studios has partners who have run game studios at Electronic Arts, Fox Interactive and Vivendi Universal Games and recently launched their most successful children’s product to date, a casual MMO (that’s a “Massive Multiplayer Online” game) based on a very successful animated feature film. They’ve expanded their portfolio to include interactive storybooks and social games and hired publishing veteran Marc Jaffe (recently of Rodale) to secure rights to some of the most recognizable entertainment and publishing brands for further digital development.

Rick Richter, recently the head of children’s publishing at Simon & Schuster, has his own new entrant in the field called Ruckus Media Group. They’re doing Apple and Android apps, have acquired rights to the Rabbit Ears Library (children’s classics read by celebrities) and are signing authors for original content.

Smashing Ideas is a website, game, and app studio that has been in business for 14 years. They’ve worked with youth-focused brands like Hasbro, Nickelodeon, and Disney for many years. Now they have a deal to develop projects with Random House and they’re also going to town on public domain books with apps out or coming soon for War of the Worlds, The Jungle Book, and The Wizard of Oz. This shouldn’t be a big surprise because Ben Roberts, who now leads their ebook division, helped create Alice for the iPad.

All of this investment and all of this development must be seeing the same thing I’m seeing. Kids are going to be a big market for this kind of product. Straight narrative reading can be immersive to the extent that the act of reading itself is easy and effortless. You can’t lose yourself in the story if you’re looking up words or frequently re-reading sentences to get the meaning.

That means it is a lot harder for a younger person to get immersed in just words on paper. That’s why kids’ books offer so much more than that: pictures, of course, but also pop-ups and various other entertaining three-dimensional devices, to the extent they can be delivered in something which is fundamentally bound paper.

You could say kids have been getting “enhanced books” forever!

The new devices have much better capabilities than CD-Roms did to engage in ways other than with words — ways which those of us who love immersive reading might find distracting or annoying but which kids love. Intuitive touchscreen navigation, a relatively recent development, makes it even easier to engage and interact with an active mind that hasn’t yet learned enough language to work comfortably with written cues.

I don’t live in a child-centric atmosphere, but I’ve been aware for the past couple of years that parents who thought their kids were too young for the connectivity expense of an iPhone would buy them an iPod Touch, which does what an iPhone does except make and receive calls (and, therefore, has no monthly connection fee associated with it.) A friend of mine who is pretty determinedly “old media” was recently asking me what I thought about a Touch for his 7-year old, who wanted to keep up with his friends by having one. These kids aren’t using Google for their homework; they’re playing games that are the leading edge of the new kids’ book business.

The iPad drew these new players into the explicit business of making enhanced ebooks of kids’ books. The NOOKcolor only adds fuel to the fire.

And because the NOOKcolor is half the price or less of an iPad, parents will be more relaxed about having their kids playing with it.

There is anecdotal testimony that kids can become more interested in a paper book after they’ve been exposed to the character and story through an enhanced ebook or app. We’re finding that out because the enhanced ebooks being made today are starting out from books that already exist. This is a totally sensible way into the business. Why add to the creative challenge by starting from scratch when there is a wealth of established brands and characters to license? And as the first great success in this enhanced kids genre, Alice for the iPad, demonstrated and Smashing Ideas has picked up, even the requirement of licensing can be sidestepped by using a public domain text as its basis.

The guess from here is that publishers — or whoever owns the rights — will have a nice business for a while licensing books and characters to enhanced ebook developers called “digital studios” who will make very successful products. In time — and not too much time — those studios will become the originators of the new characters and franchises and the book will become the “subsidiary right.” How soon? Not long. Three to five years?

Any publisher that wants to be serving the kids’ market in the middle of this decade better buy one of those studios, or start one.

This idea jumped into my head about a month ago; it had to get past my prejudice against annoying interruptions which is how I view most enhanced ebooks meant for grown-ups. So of course, we started to put together a panel on the subject for the Digital Book World Conference immediately. That got me talking to a lot of these companies. We haven’t made the final call on which three or four will be discussing what they’re up to at the show on January 25-26, but it will certainly be a conversation about juvie publishing’s near-term future.

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In a conversation earlier this week I learned that the big Hollywood talent agencies have come to the recognition that “audience aggregation”, a component of what I have been calling a “vertical” strategy, needs to be incorporated into their thinking going forward. This was signaled very strongly recently when longtime publisher Steve Ross took his fledgling business offering self-publishing advice to authors with him to the Abrams Artists Agency where he set up a new department for them to represent authors rights to publishers.

What does that mean? It means that the celebrities will start increasingly try to “own” their audiences: to gather them in networks, bind them with various content offers like newsletters or other material from the person they “know”, and sell them stuff. The people managing the careers of movie stars are seeing the writing on the wall. The intermediary structure that connected the stars to their public — studios, producers, theatrical distribution — is suffering the pain of all media: declining prices for content because of the increase in supply and consumption habits changing because of more and more quality screens and digital delivery.

Many authors, of course, are trying to do the same thing. They have web pages; they collect the names of those who want to keep in touch with them; and they are, increasingly, selling them stuff. Sometimes the stuff is content (with a way blazed by Joe Konrath and his successful conversion from published author to self-publishing author, so far almost exclusively through Amazon) and now, thanks to Open Sky, they could be selling anything at all.

So the authors and the movie stars are getting ready for the day when they have to bring real live customer contact to the party if they want to be invited. But the big publishers are lagging behind here. Why? One reason is that the big accounts appear to have intimidated them from selling direct to consumers.

This is the kind of thing you don’t know for sure from the outside. Conversations between publishers and their top accounts, like conversations between publishers and the agents for their top authors, are private and closely guarded. But it has been anecdotally reported in the past that Barnes & Noble is not happy if publishers sell to consumers. And I’ve also heard that Amazon has told publishers that if they charge any price lower than the suggested retail in a direct sale, Amazon will consider that lower price to be the basis of their discounts, not the suggested retail.

That threat effectively prevents any publisher from selling direct unless they operate on the agency model and have eliminated price competition in the marketplace. (Of course, under the agency model, all sales are considered sales by the publisher, except, of course, that they don’t have the names or the customer relationship!)

In a business that is built on the leverage of intermediary trading partners who aggregate customers, which trade publishing is, very few are in a position to gratuitously annoy the two most powerful levers they have.

So the publishers have been reluctant to be seen to be selling direct. This concern also applies, for the same reason, to the wholesalers Ingram and Baker & Taylor. Both depend on bookstore business for their survival and it is, perhaps, an enlightened position not to compete with their core customers so neither company sells directly. But it is very constraining. Baker & Taylor really needs a full-line store to sell their BLIO ebook platform, but they can’t do it themselves. And Ingram — our client but we have not discussed this question with them at all — serves publisher clients as a DAD and as an ebook wholesaler who could use a retailing capability; but it is a very longstanding Ingram policy not to compete with their bookseller customers.

That’s the context in which LibreDigital announced their new SkyShelf service last week. SkyShelf is a direct-to-consumer ebook sales capability for the publishers LibreDigital serves as a digital distributor, but it gives them a certain amount of “deniability” or distance from it.

In my opinion, the big publishers must face some very critical questions fraught with customer relationship management challenges.

On the one hand, publishers — all publishers — must start forming direct relationships with end users. They have no choice. Authors are doing it. The retailers are doing it. The Hollywood stars and politicians and ballplayers they want to write books for them are doing it. Part of what the publisher wants to get paid for is marketing. When the most important marketing asset for any book is the number of likely-interested people who can be emailed about its publication, publishers without any names to offer will have a harder time selling their value.

Publishers who do have names on file — from Digital Book World owners F+W Media to Hay House to Harlequin and including others that grow in number every day — are already benefiting. They’re selling more copies expending less marketing money and they’ve got something important to offer authors looking for a publisher.

But it is hard to collect names and build a relationship with an audience if you don’t sell things to them. That’s one place that big publishers are really stuck at the moment. That’s why LibreDigital built SkyShelf to help them out. At the same time they put their competitor Ingram in a ticklish spot because it is hard for them to offer a similar service for the same reason that publishers need the help!

At the same time, the big retailers are pushing their way up the value chain into the publishers’ territory. Amazon has had self-publishing capability that is aimed at authors for a long time. Barnes & Noble invested in iUniverse, one of the first self-publishing start-ups (now part of Author Solutions), over a decade ago. Now B&N has delivered a suite of services called “PubIt” to compete with Amazon’s offering for authors.

Amazon has such a large share of the online print and ebook businesses that, with the publisher disintermediated and the author able to take a much larger share, they can credibly make the argument that a branded author — or one that otherwise does her own promotion and marketing — can make as much money through them alone as through a publisher serving the entire market.

It is more difficult and expensive for Barnes & Noble to leverage their store shelves for self-published authors but, to the extent they can, it will be a very attractive lure. I’d be very surprised if they’re not thinking about how to do that. Borders did a deal with self-publisher Lulu a couple of years and a couple of management changes ago. How long will it be before they revitalize that arrangement and add more competition for the authors’ attention?

The names of people potentially interested in a book who can be contacted for free will be the most important coin of the publishing realm in a short time; in some cases, it is already. There are publishers who are emailing to millions of names every month right now, but none of them are the biggest publishers. If gathering names is not a major priority at any publishing house, it surely should be. It’s mission-critical; it’s about survival. Seen in that light, it must certainly be worth some tough negotiating with major accounts if that’s what publishers have to do to make it happen.

This post was provoked by new information, about what the Hollywood agents are doing and about the launch of SkyShelf. But we’ve been pounding this drum of direct contact for some time. We did a pair of posts (here and here) with the help of direct response expert Neal Goff a few weeks ago trying to push publishers in this same direction. Those posts were about how. This one is about why.

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As readers of this blog know, I’ve been on the “vertical” trail for a long time and I try to stay abreast of book publishers’ efforts to realize the advantages of subject specialization and community building. I wrote a whole post about the Sourcebooks initiative, Poetry Speaks, when it launched last Fall. I have often referred to the vertical efforts of Hay House and Harvard Common Press. And I’m proud to have had a small role in Sterling’s creation of Lark Crafts and their forthcoming Pixiq site for photography.

But of all the efforts I’ve seen so far, the book publisher who seems to have taken the vertical vision we espouse the furthest — one that elevates community-building above content-selling as the first priority — is Cool Springs Press in Nashville, Tennessee. We spent some time earlier this week talking to Roger Waynick, their founder and CEO, to learn more about what they do, looking for lessons that other publishers can apply.

The thing that was most striking about our conversation with Roger was the frequency with which he referred to “our industry”, by which he did not mean the book business! He meant the lawn and garden business, which is the vertical that Cool Springs Press serves. This is a nuanced but massive differentiator. If a company thinks of itself as a “book publisher”, it is already off on the wrong track. If it thinks of itself as a content- and information-provider for an industry or a community, its self-image will lead to it doing the right thing much more often. And the very first right thing a book publisher with community aspirations has to do is to create a site that has very little reference to books, which they have.

Waynick knew nothing at all about publishing when he started Cool Springs Press in 1994. He was looking for a book about gardening and he started from the highly logical presumption that what he needed was local information, since gardening has to match the geography. A visit to a large and well-stocked local bookstore yielded nothing except confirmation that what he wanted didn’t exist.

So he created it and he created a formula. He found a local gardening advisor with a media presence and created a “Tennessee Gardening” book. Waynick had intuitively done the right thing. Finding content knowledge and promotional capability combined meant that he had recruited what the smartest publisher with experience would have called the best possible author. Before long, he was extending his franchise, creating gardening books by state, one after another. (At this point, Cool Springs has state-specific gardening books for 48 states.)

In 2003, large Nashville publisher Thomas Nelson embarked on a strategy to expand out of their religious publishing niche. (They didn’t ask me…) They acquired a few smaller publishers with non-controversial publishing programs and Waynick took the opportunity to sell his business. For the next few years, until Nelson management changed and the strategy changed to re-focus on their core business, he consulted to them and stayed somewhat in touch with the business he’d created.

But when the strategy at Nelson changed, Waynick was ready to buy his company back and turn it into a real content vertical. In 2007, he regained control of Cool Springs Press, set up trade distribution through Ingram Publisher Services, and started to invest seriously in the capabilities he needed to be more than just a book publisher.

Waynick’s key insight was that the lawn and garden customer was looking for solutions. And solutions, to be practical, had to be local. So he constructed a taxonomy around plants (roses, gardenias) and around actions (planting, weeding) to tag the content in his state-specific books. Waynick estimates that, since reacquiring Cool Springs in 2007, he’s spent a dollar on upgrading, tagging, and curating old content for every four dollars he has spent creating new books. And he invested that money upgrading his content repository with faith, but no clear plan about how he’d get it back.

In a formulation that echoes what we’ve heard earlier from Harvard Common Press talking about cookbooks and recipes, Waynick said he needed to see his content as a database of information, not as a collection of books. And just like Harvard Common, he looks at his database for “what’s missing” to direct him about what new content he needs to acquire.

He continued to build on his special retailing network. (Ingram handles Cool Springs’s trade sales, but Waynick maintains the relationships with the lawn and garden trade directly.) He recalls that, when he started, it seemed wildly counterintuitive to a national chain to put a Tennessee book in only the Tennessee stores, and so forth. But his sales were so robust that the skepticism quickly melted away. He built closer relationships with those special retailers by custom publishing: putting together books especially for a particular retailer. His path was smoothed in all these things by his author relationships; many of them were, like his first author, local gardening experts with radio shows popular with the core audience.

This year, for the first time, substantial revenue has flowed to Cool Spring from content licensing. About 10% of Cool Springs’s revenue will come from licensing content to web sites and creating apps for other players in the lawn and garden space. About 25% will come from the book trade, 35% from home center book sales, 15% from individual lawn and garden centers, and the balance from other special outlets like hardware stores.

The way Waynick sees it, the licensing side of the business has just begun to work. Next year will be far larger than this. He expects licensing sales to surpass book sales for his company in 2012.

Cool Springs has an online bookstore at gardenbookstore.net. In his retailing capacity, he sells the books of all his competitors. The day we spoke, Waynick pointed out that only two of the 15 books on his retailing front page were his publications; the rest came from other publishers. Perhaps because he’s a “customer”, he says that more and more of his competitors seems receptive to collaboration, allowing him access to their material for his efforts to provide content to retailers and wholesalers in the lawn and garden industry.

Waynick is not terribly concerned about competitors. Having been the first to act on the insight that gardening is local and that content has to be developed with a highly local point of view, and then having invested to put his content into shape for re-use, he really sees no other player that can deliver the variety of relevant content that he can. And now he’s moving on to a new opportunity that he is uniquely positioned to exploit.

Reflecting the initiative by First Lady Michelle Obama, school gardens are springing up all over the country. Waynick says that over 3000 new ones were created last year. Working with school administrators, Waynick is developing curriculum for the schools from his content. This also puts him in a position to help his retailers and his authors find additional opportunities. And how convenient is it for him that education in this country is organized the same way his book program is: state-by-state!

Waynick also recognizes the value of his author base. He does his best to keep his authors working, and not just on books. They blog for him and create content for his licensing clients as well.

One point that Waynick made in our conversation is an important one for all publishers to take on board: the presentation of content needs to be sensitive to the audience. Too often, he says (and he’s right), publishers end up with catalog copy meant to sell a book to a store buyer being presented on a web site to an end user customer. The copy is wrong for the purpose. He credits his distributor, Ingram, with having a system that helps him deliver the right metadata to the right places.

The future for Cool Springs Press looks very bright. Waynick is already providing content for a number of national retailers, including one of the brand leaders, which is what has jump-started his licensing revenues. These players see good content as a critical competitive requirement. They represent a growth market for web content, apps, and custom books and the growth opportunities they will offer will far exceed the rate of shrinkage in the traditional book market.

What we think will be interesting to watch going forward is how much Cool Springs moves into the business of selling things other than content to the audiences they keep growing and nurturing. They’re certainly positioned to do that.

But the important thing is that they can readily withstand shrinkage in the book trade or even in the printed book business. They’re bound to become an increasingly important marketing mechanism for all their competitors, who will become increasingly dependent on them for exposure to the consumer audience. And they’re in that position because they’re vertical and because they were willing to invest in their long run value to their community.

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I had occasion during this past week to speak at the global strategic meeting of Harlequin. Often when I am asked to speak, even internally to publishers, I am explicit told “we want you to scare the hell out of them.” Since I think of myself as a pretty unthreatening guy, I’m always a bit disconcerted by the reality that I’m doing that. But, of course, my core message is not very comforting to most people in the legacy publishing business. (And, I hasten to say, Harlequin never made that suggestion, nor, as this post should make clear, is it really relevant in their case.)

The message is scary for most because the essence of what I’m saying is that publishers over the next decade or two will have to change the way they think about how they deliver value. Their core asset base will shift from being the intellectual property they own or develop to the audiences they command. Publishers with vertical content offerings have a big head start to making that adjustment and general trade publishers hardly know what to make of the message at all.

I think my argument is pretty simple. It has two principal components.

I posit that the price of content must go down because of the laws of supply and demand. Even though digital delivery does actually increase “demand” (because people can consume more media if they have the means to do so always at hand), it increases supply much more. You used to need a publisher to spend some money and to commit an organization to get content into “supply”. Now you just need an internet connection. So I see downward pressure on the selling price of content going far into the future. This does not mean that eventually all content will be free, but it does mean that everybody will consume more and more free content and, therefore, be generally less willing to pay money for content to augment what is free.

The second component of my argument is that audiences for content will be (mostly)  aligned around interests. I call that “vertical”. The most successful legacy consumer media, including all of the biggest book publishers, tried to satisfy a wide range of interests, which I call “horizontal”.

I put those two things together and I say that getting from today (selling content) to tomorrow (selling audiences) depends on using today’s asset to build tomorrow’s. This might sound like something close to insanity if you’re Random House or Simon & Schuster or Penguin. It can make a lot of sense to you if you’re F+W Media or Hay House or Chelsea Green or Cool Springs Press. It seemed to make total sense to the people at Harlequin.

To prepare for the Harlequin conversation, I made a list of “most important things to think about” for them going forward. Here it is. If you’re really a vertical publisher, it should be a useful road map. To the extent that makes no sense at all, it indicates that your company is locked into competition for a pool of revenue and sales opportunity that will shrink, slowly for a while, but only for a while.

1. Use content as bait. When you make the leap that the eyeballs you own are the key to future monetization, not the copyrights you own, then you readily see the value of exploiting the content to attract eyeballs. This means many different things in different contexts, and, of course, the content-selling model still provides most of the cash and will for quite a while, but this is a key principle to apply. The free and freemium strategies you use will be different if your objective is to build a loyal community than if  you have the more immediate objective of selling something on the back of the giveaway.

2. Be sensitive to low-overhead competition and be prepared to imitate their new models. We’re heading for the day — actually we’re already in it — when it won’t take a big organization to reach a lot of book readers. (We’ll be transacting half our book purchases online in the next couple of years.) When companies smaller than yours are offering cheaper products with different delivery models — subscription, print-on-demand, whatever — watch them closely and try what they’re doing so you understand it. (Of course, Harlequin was already very much onto this idea. They just launched their own low-price imprint, Carina Press.)

3. Grow! Acquire competitors, or coopt them. Once you’ve defined the audiences you are going after, you have defined the way in which you will seek “scale”. If somebody else is going for the same audience you are, you want first to hope they don’t see it as an audience-acquisition play (and most publishers don’t yet.) While you’re fortunate enough to have competitors who are still focused primarily on monetizing IP, they’ll want to work with you if you have access to an audience that might buy their IP. Then you can use their content as bait to attract eyeballs for your community.

4. Find multiple ways to engage your audience. For community-building, it is not nearly sufficient to deliver product offers online. You have to figure out ways to make your community come to you; you have to figure out ways that members of the community can create value for each other. A key metric for you is how frequently you touch each member of your audience (or, even better, how frequently they touch you). The number of people absolutely guaranteed to open an email you send them will be an important measure of the health of your asset base.

5. Sell everybody else’s ebooks (the recent F+W and Ingram proposition). Almost nobody in your community gives a damn about which books are yours and which are somebody else’s. They want entertainment or information or to solve a problem; if you’re serving them as a community you don’t win by cutting them off from what they want because somebody else published it. A complete (but curated) ebook offering is a first step in the right direction. Ultimately, of course, you want to offer all the print books and all the other “stuff” that is relevant to the community, information-based or just plain products. That’s part of your monetization potential.

6. Build multiple brands with meaning. There are a very small number of companies whose name itself has true consumer meaning as a brand. (In fact, Harlequin is the leading one.) But if you can appeal to a community, you have an oppotunity to build a brand. Brands are shortcuts for consumers; they orient us as to what to expect in products or services, including social cred, quality, and  price. For as long as we have robust print delivery (and I think that might be as little as another five years), we have an opportunity to deliver URLs to people offline. That’s not as “efficient” as delivering them online (where the recipient can immediately click through) but it offers the chance to reach a lot of people who might not be online explorers. (I don’t want to give away Harlequin’s trade secrets here, but I was taken aback to hear how many senior citizens are in their audience; people who might well not be available to be pinged online.) But don’t use a book to push people to promote a generic web site where they’ll arrive and say “why am I here?” Deliver them to something relevant, something that will entice them to come back; a site you can, in good faith, urge the reader of a book to visit with the expectation that it will extend the engagement between you and your reader, to your mutual benefit.

When I deliver this message to the general trade community: publishers, authors, agents, retailers, the reaction is often a blank stare. That’s understandable; getting from a horizontal trade publisher to becoming one that “owns audiences” is a long and winding road. It is a totally rational decision to say, “that’s not the business I’m in; I’ll stick with what I’m doing until I’m the last one standing.” But there were no blank stares from the people at Harlequin. They know they have a large and loyal audience that cares about their brand. Even if the game changes from IP to eyeballs, they can readily see how they can still play.

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I was interviewed a couple of weeks ago by a journalist who was working on a story about publishers and digital change. He was building something around my “Stay Ahead of the Shift” speech from last year’s Book Expo.

“I was impressed by that speech,” he said. “You were very prescriptive about what publishers should do. So my first question for you is whether anything has changed since that speech?”

“No,” I said.

“Well then, would you say that trade publishers are doing any of the things you suggested? Have they taken your suggestions on board?”

“No,” I said.

“What would they say, then, about the assessment you offered? If I put you and a major trade player on a stage together to discuss the content of that speech, where would they say you went wrong?”

“They wouldn’t,” I said. “They’d probably say I was right and that they’re doing what I suggested. But they’re not.”

We moved along and talked about how the world is indeed, as I said, moving to vertical. We talked about publishers like Hay House and F+W and others that have extensive email lists of book purchasers that they can target directly, and inexpensively, every time they publish a new book. These are advantages and marketing capabilities that the big general publishers don’t have.

After we’d been talking for a while, the journalist had a last question. “Can you suggest any top executives you think I should talk to for this story?”

I suggested one that I thought was interested in pushing out the company point of view. Didn’t work. “I’ve been trying to get to that person for a week and my calls aren’t being returned,” said the journalist.

Then I mentioned another. “Oh, yes,” I was told. “I talk to that person very regularly.”

“A very smart person,” I said. The journalist agreed.

“So take this on board,” I said. “We’re talking about somebody who is a friend of mine. We’re talking about somebody who understands everything I say very well, but who isn’t implementing it. What does that tell you?”

It tells me that big companies are in the business of acquiring rights, creating products called books, and selling them. They have numbers to meet every quarter. They can’t start switching over their businesses from a model based on selling products to a model based on owning communities just because Mike Shatzkin says that’s the future.

I thought back to two pieces of advice I dispensed over a decade ago. In about 1999, executives at Book-of-the-Month Club paid me a modest sum for a quick-and-dirty strategic assessment. My advice anticipated my later thinking, even before I had learned to articulate the concept of “vertical.” What I told them is “book clubs don’t map into the 21st century. Communities of interest do. So you have to take your hunting and fishing book club and turn it into a hunting and fishing community.”

“How would we monetize that?” they asked.

“I don’t know,” I said. “We’ll have to figure that out.”

So they said “thank you very much” and moved on. They apparently made the (perfectly rational) decision to keep extracting cash from the book clubs until they couldn’t anymore and then sell them, if they could. If you owned a blacksmith shop in 1910, you might not want to invest in developing an auto mechanic’s capabilities just because you could see it coming. You might want to just pull out your blacksmith profits and go into another line of work. Or put the money in a bank.

At about the same time, the owners of the Atlantic Monthly magazine asked me for thoughts about a web strategy. “What are you most known for?” I asked.

“Publishing great writing,” they said.

“And who are your top competitors?” I asked.

“The New Yorker and Harper’s,” they replied.

“Then my advice would be to partner with the two of them and create a web community dedicated to great writing.” That advice also went no further.

Looking back on both of those recommendations, I recognize how hard it would have been to follow them. But imagine there were a Hunting and Fishing community that had been built on the backs of the hundreds of thousands of names BOMC had a decade ago. Think you could sell some red checkered jackets and fishing tackle through it now?

And in this age of diminishing reviewers and proliferating content requiring evaluation for consumers of quality literature, do you think my Atlantic-New Yorker-Harper combo community would have some real power today that could be turned into money? I do.

I see the big publishers developing vertical presences in the few areas where they have enough of a content flow to attempt it: books for kids and teens and the genres, particularly romance and science fiction. And they’re leaving just about all the others to upstarts who are slowly and methodically building their presences in cooking (book publisher Harvard Common Press and web sites like Cookstr and Serious Eats), mind body spirit (Hay House), sustainable living (Chelsea Green), crafts (F+W and C & T, among others) and the list will just continue to get longer.

General trade publishers will soon find themselves handicapped trying to sell anything except the most challenging books: the sure-to-be-big ones that cost a fortune to sign and the fiction, memoirs, hot current topics, and other writing that is the most expensive to promote book by book. And they’re remaining dependent on a very fragile chain of intermediaries.

Just as BOMC pursued a strategy that eschewed converting book clubs to communities in favor of squeezing every penny out of the old model, it is also rational for today’s big publishers to pursue a “last man standing” strategy. It will be a very long time before major authors don’t sell lots of print books and they’re going to need a strong organization to print those books and put them on the shelves that are out there. They need a strong organization. But do they need six?

Aside from “last standing”, the other alternative to my “multi-niche development” suggestion is to convert from a rights-acquiring publisher to a service organization. HarperCollins seems to be at least exploring the development of that alternative.

We have had remarkable stability among big publishers since Bertelsmann acquired Random House in 1999. There are reasons for the owners of every one of today’s players to sustain their present operations for the greater good of the larger organization. But would a 10% reduction in the number of bookstores in the US change their mind? How about a 25% reduction? How many years do you think it will be before we find out?

I’d say no more than five, and it could be two.

I am addressing UK publishers at the Annual General Meeting of the Publishers Association at the end of April. I’m taking another look at the Shift speech to try to re-cast the advice for trade publishers to make it more “followable.” One thing for them is to start thinking about the day when they can sell ebooks globally and, in effect, get distribution in the US market without going through a US publisher. On the one hand, why should they care, since they’re all global companies anyway? On the other hand, we know they do care because the UK publishers have been on a pretty successful crusade to convert Europe from an open market where US and UK editions compete to one that is closed to US entries. I suspect that as ebooks grow to and past a quarter of sales over the next few years, UK publishers will be able to see the virtue in a less rigid territorial regime.

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This blog and my speeches contain frequent references to what we see as the big shifts the book publishing industry, and some publishers more than others, are feeling. The horizontal and format-specific product-centric media of the 20th century are inexorably yielding to the vertical and format-agnostic community-centric delivery environment for content that will soon predominate.

In that context, we’ve observed that the most general publishers are the most challenged. The distinction between publisher and retailer is blurring; in a decade or two it will be a distinction without much difference. What has always been the source of competitive advantage to trade publishers is leverage; they could reach thousands, tens of thousands, or even millions of customers for their wares through retail channels that aggregated audiences for content creators and curated content for consumers.

The non-trade components of the book business: publishers of textbooks, professional information, databases, and academic content already tended to specialize by subject so the challenge of being audience-specific, a prerequesite to creating community, had already been met. Non-trade publishers had never depended much on horizontal intermediaries. Even in college textbook publishing, which depended (and still largely does) on the college bookstore to actually deliver the product and collect the consumer’s money, the marketing component of the bookstore’s contribution was and is minimal. The publisher works vertically through a network of professors to drive adoptions, and adoptions are what drive the sales.

Trade publishers, which are called trade publishers because they reach consumers through “the trade” network of bookstores, libraries, and the wholesalers that serve them, have been generally alert since the 1970s to the importance of what are generically called “special sales”. Those are sales that come from outside the book trade, often from retailers in other channels. Special sales experts learned pretty quickly that you did better when you had a selection of books for an audience. If you had one book of Jewish interest, you couldn’t do much with it. If you had a dozen, it could make sense to buy a mailing lists of rabbis. If you had one home repair book, you couldn’t afford the cost of setting up relationships with retailers of hardware or construction materials (particularly thinking back to days before those outlets had consolidated into giant retailers like Home Depot and Loew’s.) But if you had a list, then the mutual interest in a relationship was obvious to both sides.

Some publishers specialized. When I was consulting with Wiley in the 1980s as they were developing their fledgling trade program, they brought their philosophy of really covering the needs of a vertical market from sci-tech to trade. They didn’t want just one resume book for job-hunters: they wanted one at every sensible price point and different ones for different kinds of jobs. One day a sales rep called in from the road to suggest that they deliver a book on the cover letters that should go out with resumes. They already knew they had a market through specialized customers of all kinds and through their direct mail efforts. The lists that worked for resume books would also work for cover letter books.

The most “general” of the general trade publishers tended not to develop the same depth of specialized lists. When Wiley considered that cover letter book, they knew they’d be able to sell it very efficiently and they knew it would enhance their relationship with individuals and channel partners through and to which they were already selling a lot of books. Would the cover letter book be big? Possibly not, but it didn’t have to be to make it clearly worth doing.

But the big trade houses were not built that way. And the biggest books, the sexiest books, the most exciting books, don’t tend to be in niches. In fact, niche identification can dampen sales in a general trade market. The CEO of a major house told me a couple of years ago that he didn’t want to label a book that could become a betseller a “mystery” title. Mystery was a “category” (read: “niche”) and, while those books tended to meet theshhold expectations more readily, he perceived them as harder to break out to the sales levels they could achieve if they were perceived as unique.

We are now seeing the early signs of what will soon be a tendency, then a trend, and then a stark reality: you just can’t sell as many copies of most books if you don’t have a proprietary position with a vertical audience. The early signs are evident through companies like O’Reilly Media (computer programming and technology), Hay House (mind body spirit), Chelsea Green (sustainable living), Harvard Common Press (cookbooks and pregnancy-childbirth), and F+W Media (several niches, including writers and crafts), which have special retail channels and huge email lists of individual customers that the big houses simply don’t. Niche by niche, the big houses will find it impractical to publish in areas that were once productive for them. Their need for each book to be “big” individually — for the single title to provide its own critical mass — works against what you must do to be “big” in a niche. To do that requires a more across-the-list kind of thinking that is counterintuitive to a company that makes the lion’s share of its sales through trade channels.

So for just about all the books that aren’t novels, memoirs, celebrity-driven, or epic works of popular history or politics, trade publishers are increasingly handicapped. Unfortunately for them, things are going to get worse.

The obvious problem is that the capacity of the general trade market to merchandise and move product is diminishing. I hate to invoke the old wisdom that many things happen “gradually, then suddenly”, but it is often true and we have been gradually losing bookstores for the past decade. What happens to the economics of the big publishers if we lose a big chunk of superstores pretty suddenly?

I recall a dinner conversation with the Chairman  of a large diversified multi-niche publisher two years ago. Even back then, we were speculating about the possible sudden demise of Borders. (Hey! It hasn’t happened; maybe we were wrong!) My dinner companion said, “you know, Mike, we’re as diversified as a publisher can be, but if Borders went out, we’d definitely feel it. It would really hurt us.”

“Temporarily,” I said. He needed me to explain.

“Sure, you’ll suffer a bad debt if they go out. That hurts right now. But over the next couple of years, you’ll get a lot of cheap and useful assets from competitors of yours that couldn’t withstand the blow. By a couple of years from now, you’ll be ahead.”

“You may be right,” he said.

So even with the obvious problem, a multi-niche publisher has a big advantage over a general publisher, just as it does over smaller niche players. But the ground for the general publishers is about to shift in ways that will be even more challenging.

Because “book publishing” in an increasingly vertical world is less and less about content sales in the unit of “books” (although that will be the lion’s share of revenue for a long time) and more and more about sales bigger than the book (databases that stretch across many books and other things too) or smaller than the book (chapters or fragments that naturally stand alone or which address a particular content need.) The iPhone app as a unit of delivery is accelerating the latter trend. The value of a database across titles has long been demonstrated by O’Reilly’s “Safari” offering, which generates more revenue for them than all but one trade account.

As the percentage of a publisher’s revenue that is generated by fragments and aggregations rises, so does the value of being vertical and, especially, so does the value of a direct relationship with the end users. The fragments piece is especially important, especially challenging, and requires new ways of thinking (and perhaps new contracts.) For example, Dominique Raccah, the visionary leader of Sourcebooks, whose Poetry Speaks is building a model for vertical community building, has found that many publishers of poetry aren’t sure they have the rights to license her vertical to sell individual poems! Does that mean she has to go directly to the poets for those rights? And how long will it be before it is more important to a poet to have their individual poems available for sale on Poetry Speaks than to have them available in a publisher’s collection bound as a book?

Bruce Shaw, the longtime empresario of Harvard Common Press, is demonstrating another aspect of this thinking that we’ve expected for a long time but hadn’t seen in practice before. He told us about a macaroni and cheese cookbook his house was considering for publication. Normally, Bruce reports, that’s a subject they’d skip because it just isn’t distinctive enough to make the ambitous sales targets he normally sets for print publications. But, in this case, he’s doing the book because his overall recipe database (all the thousands of recipes HCP has published in over 30 years in business) is light on mac and cheese recipes. So he’s willing to publish the book, knowing he’s going to make less profit than he normally requires, because it is a subsidized way to improve the value of his overall database of recipes.

The question of selling fragments opens up a host of other challenges: figuring out what is a saleable fragment, tagging it with an identifier and metadata, managing transaction costs for a much higher volume or low-value transactions, and retro-fitting accounting systems to process author royalties that will require increasingly complex analysis of smaller amounts of money.

In fact, there is opportunity on what might be viewed as a micro- or nano-level of transaction, too small for even a niche publisher to manage the customer relationship and the transaction. That is going to present new opportunities for our client, Copyright Clearance Center, which we’ll elaborate on in future posts.

There’s a great deal of new opportunity out there but a lot of it is in pennies, not hundred dollar bills.

Let’s hear it for Wifi in the air! This is the first post for The Shatzkin Files filed from an airplane. Boy, did I have fun at Spring Training!

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The rapid series of developments in the digital book space and my rising profile mean that I seem to be in an interview with a journalist just about every day. As I was yesterday. The focus of yesterday’s conversation was the Baker & Taylor“Blio” platform that I wrote about last week. How widespread did I think its uptake would be?

The interviewer and I covered a lot of ground, including ebook pricing and timing and whether publishers would be able to make enhanced ebooks work. Those are the topics of the moment (and they are all panel topics at Digital Book World.)

At one point we had a robust discussion about ebook pricing. My interviewer asked me about a pundit’s observation that hardcover books were just wildly overpriced. The implication is that publishers should consider themselves damn lucky that people would pay $9.99 for an ebook, which, after all, has far fewer bytes than a movie they can get for $1.99.

That’s an easy one to answer. What’s a “right” price? Well, from the publisher’s perspective, that’s a question with a clear mathematical answer. (The math wouldn’t yield the same answer for an author.) The right price is the one at which the total gross margin — revenues after all costs — is maximized. We all know more will buy if it is cheaper and fewer will buy if it is more expensive, but the “right” price is the one where customers times margin (margin being revenue minus costs) is the highest it can be.

There is no way in the world that a publisher would maximize margin cutting $28 print book prices to $9.99. So the author of this blogpost being quoted to me might be looking at the “right price” from a consumer perspective or a high-level industry observer perspective, but they sure aren’t looking at it from the perspective of the one who sets the price: the publisher.

At the conclusion of the interview, the journalist on the other end of the phone asked me whether, in effect, publishers would be able to save themselves. “Is there a model,” she said, “which assures that a publisher will profit selling their books in the future?”

Now, I must say before you read my answer, this expresses a long view, not an immediate one. But it sure isn’t comforting to people who sell content for a living.

Is there a model for success selling content? I think the answer to that question is “no.” I’ve spent my lifetime in book publishing and so did my Dad; I don’t like coming to this conclusion. But what I think I see is that selling content as a publisher is a business that is going to just get harder and harder until it won’t really be much of a business anymore.

This has nothing to do with piracy or DRM or Amazon’s promotional ebook pricing. It has to do with the most basic of economic laws: supply and demand.

Until the digital age, content was scarce. It wasn’t scarce because people didn’t create it; it was scarce because it required an investment to distribute it. That’s no longer true. Anybody with an Internet connection can make anything they write (or snap or video or sing) available to anybody else with an Internet connection. For just about free. That’s just one reason — among many — why the amount of content choices available to everybody has mushroomed in the past 15 years.

When the supply of something goes up faster than demand, the price of the something drops. Or, put another way, money flows to scarcity. And content is anything but scarce. That, in a nutshell, is the inexorable problem publishers face. And every day it gets worse. More backlist and out of print and public domain and orphan books get digitized and made available. More bloggers blog. More commercial operations put content online to satisfy their own stakeholders. More videos are uploaded to YouTube and more documents are uploaded to Scribd. All of it is processed and made discoverable by Google and other search engines. And the cumulative effect of all this content being created as something other than new publications for sale is cutting into the market for content that is being created with the expectation of sale.

What is the new scarce item that will attract the dollars if IP is so common that it becomes hard to sell? The answer is the attention of people: eyeballs. And the winning trick for publishers will be to use the content they control — which today does have value — as “bait” to attract the attention of people and then to keep that attention and build a business around it.

Note to some publishers who think they’re doing this: it is not the right answer to simply grab email names and web site registrations as a way to offer the same product catalog over and over again by email blasts. That doesn’t create value for a community and, before long, the community will lose interest and move on. You will lower your marketing costs temporarily with that strategy, but you’re still building a business of selling content and you’ll still, ultimately, deal with the problem that something roughly equivalent to much of what you want to sell will be available elsewhere for free.

I’m far enough ahead of the wave with this insight (if, indeed, time proves it to be an insight) that I can’t really point you to any examples yet from established publishers who followed Shatzkin’s formula to success (although I’m working on a couple that might be worthy of mention by a year from now.) So far, all that is clear is that publishers that stick to an audience fare better in the digital world than the ones who don’t. Their marketing costs are lower and their reach to the audience is both more effective and less dependent on intermediaries.

A stark illustration of this hit my radar screen last month.  A major agent told me that he sold a Mind, Body, Spirit author’s book to Random House, which sold 12,000 copies.  He sold the next book by the same author to niche publisher Hay House, which sold 200,000 copies! And Hay House, with over a million email addresses of people all interested in the same type of book, probably spent less on marketing to sell eight times as many.

There is one example that points the way for all of us in this business right under our noses every day. It is Publishers Marketplace, the creation of Michael Cader. He didn’t have book content to use as bait for the publishing community, so he created a free daily newsletter, Publishers Lunch about ten years ago. The formula he used — which was novel then and is now a commonplace — was to find the stories of interest to his community every morning and deliver the links to those stories, along with a little commentary, for free. That created an enormous number of sign-ups very quickly and a corresponding amount of grumbling from the established trade press, which would have a) never wanted to show anybody else’s story rather than their own and b) would have expected to sell any content they generated rather than giving it away as Cader did. After all, selling content was the model! (Sound familiar?)

I don’t think it took a year before Cader established his community, Publishers Marketplace, built from the eyeballs that were attracted by the free content in Lunch. Soon he made the “free Lunch” an abridged version, so the “full Lunch” became one of many benefits of “membership” in the community, which comes at a monthly subscription price for the unaffiliated and at site license prices for big companies. It is important to note that the full Lunch content alone wouldn’t keep and hold a community. Rather it is databases of information, many of them created by the contributions of the audience and additional tools and services (such as a free web page for every member) that keep people signing up and paying each month without dropping out.

Publishers have always focused primarily on the content. Survival in the future will require focusing on the market.

Publishers Marketplace and Hay House (and Harlequin and F+W and Interweave and Chelsea Green and all publishers who are dedicated to serving the same community over and over again) are on the right path, one that is very difficult for general publishers to tread. Taking steps to preserve the current marketplace for content — tinkering with DRM and fighting piracy; grappling with the timing and pricing of the content in various formats; even building out from the book as we’ve known it to take advantage of new ways to deliver information and entertainment — are, at best, holding actions. They don’t attack the fundamental problem that is developing for publishers which is this: if you don’t own the audience, the cost of reaching it for one book at a time will be prohibitive.

In the digital age it will make much more economic sense for the owner of the audience to find the content rather than the way we’ve always done it, which is the other way around.

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I had a lunch conversation this week with three successful literary agents, who will remain anonymous for this post. They wanted to talk about the panel we’re having at Digital Book World called “The Changing Author-Agent Relationship: How Will It Affect the Business Model?”

That panel was born when I engaged an agent last summer with my observations about digital change and tried to recruit her to join a panel discussion about it. “Suppose you work with an author to develop her manuscript so your creative input becomes part of the work. Then you can’t sell it, or you get only a token offer for it, and the author wants to self-publish. Shouldn’t you, or any agent in that spot, be entitled to something in that case?”

The agent, sensing quickly that I was going to a model of “author pays agent for consulting help” said, “I can’t participate in a conversation like that. We have a canon of ethics in the AAR, and that might well run afoul of it.”

As it turns out, the canon of ethics of the AAR only explicitly prohibits agents from charging “reading fees” to prospective clients. Other charges are explictly permitted, such as for xeroxing and messengers. And others, such as consulting on self-publishing options, aren’t mentioned.

But, still, the question of whether the business model needs to change remains. The kind of book advances that agents have made a living on for years are diminishing in number. And now that self-publishing is legitimately part of the commercial continuum, authors have a right to expect that their career business manager, which an agent is, will employ it, or suggest that they do, when it makes sense. And agents will have a right to expect to be paid for that.

Of course, that’s not what these three successful working agents do. Their business assets are their personal knowledge of and relationships with acquiring editors; their ability to shape a writer’s concept and proposal into a commercial book; their knowledge of the ins and outs of book contracts and publishers’ accounting procedures. Exploring and keeping up with the various print and electronic self-publishing options: starting with Author Solutions and Smashwords, but including many others including our client Bookmasters, lulu.com, and many others, is a fulltime job in itself. (There’s a string started on Brantley’s list today by Joe Esposito who noticed announcements for four new self-publishing startups in his email in the past few days.) And searching out the authors with the money to self-publish, let alone to pay for advice on how to do it effectively, is also not what the successful agent in the current marketplace does.

I had spoken at a Writer’s Digest conference two months ago and told aspiring writers “get an agent” but also, “make sure the agent knows about the self-publishing options.” These very professional and desirable agents did not. But they agreed that when ten or thirty or fifty times a year a project they’d developed goes off for self-publishing, they’ll want to have a way to monetize that. We agreed that the likely solution will be an alliance with somebody who perhaps positioned themselves more as a “consultant” to aspiring authors. There is no shortage of such people.

The conversation turned to contract terms, particularly regarding ebooks. The agents asked me: “don’t the big trade publishers see that the strategy of paying authors half or less of what many ebook publishers will pay on digital book royalties isn’t sustainable? that we’ll end up splitting those deals?” I told them that I had raised this point with Big Six CEOs and they all said, “we won’t buy print-only; never happen.” The big publishers are counting on the authors’ (and agents’) desire for the advance to keep them locked into the current model. (Richard Curtis made this same point in a recent eReads post.) It is clear that the idea of splitting off ebooks from print contracts is one that these agents have been thinking about for a while. The relative attraction of the advance goes down as the level of ebook sales on which you’re taking half or less of what you could get goes up.

We also spent a little time discussing “verticals” and my theory that power is moving from “control of IP to control of eyeballs.” In the past week, I’ve had two conversations with Hay House executives (they’re on the Digital Book World program too) about their business. To somebody with a trade orientation, it’s pretty phenomenal. They run between 30 and 100 live events a year for their community. They have over 1 million email addresses that drive the sales of all their books. One of the agents said he had an author for whom he sold a book to one of the Big Six houses and they sold twelve thousand copies. He sold the next title to Hay House and they sold two hundred thousand. How long will the Big Six houses be able to compete for big-potential books in Hay House’s sweet spot (mind-body-spirit), advances or no advances?

One of the agents at lunch does a lot with juveniles. “Do I have to worry about this ebook thing much?” that agent asked. Soon you will, I said. After lunch I was working with my frequent collaborator Ted Hill on a proposal we’re making for another conference on digital tipping points. One we were talking about is “when does the publishing house have editors shift their focus from developing a print book with an author, with the ebook as afterthought, to developing the best possible digital product, with the print book coming out of it?” That gave me an answer for that agent: you better have somebody on your team now who can see the digital book possibilities in every idea before you peddle it. Now that you’ve made me think about it, I realize that if you’re not fully exploring the creative possibilities for digital products for every kids book you develop, you’re already missing the boat.

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In the 1990s, Mark Bide and I used to chair a program for VISTA Computer Services called “Publishing in the 21st Century.” We’d do a “white paper” every year and run conferences twice a year each in New York and London. The subject was digital change in publishing and the purpose was, simply, to think it through.

The conferences developed a pattern. Mark would open the show with a summary of our research. He’d be followed by a couple of outside speakers and then I’d wrap up with what we took to calling a “walk on water” speech. I got a lot of practice doing big vision stuff.

Part of the pattern was that Mark would start each conference by reiterating that book publishing is not one business, but many. The procedures and business metrics for a publisher of directories bore no resemblance to that of a college textbook publisher; a sci-tech publisher had a different business and, in many ways, a different business model from a trade publisher; and so forth.

General trade publishers are, in my opinion, the most challenged of all by digital change. They have the superficial advantage of having their marketplace “go digital” later than all the others, so there would seem to be an opportunity to learn from the mistakes and the successes of others. But that advantage is illusory because of unique aspects to trade.

Recently, for a new project I’m working on that will become public in the next couple of weeks, I was challenged to enumerate what distinguishes trade publishers’ 21st century problems from everybody else’s. I think all of these things are challenges unique to trade publishing or they have substantially more impact on trade publishers than on any others:

* their channels to get printed books to the customer are consolidating and shrinking which means a loss in margin to intermediaries with more clout, a compressed sales window that leads to more risk-taking with initial placements of inventory and higher returns, and, as volumes shrink and returns increase, actual distribution costs per unit sold will rise as well;

* their principal marketing channels are atrophying, and the new emerging ones are more granular and transient, increasing per-title marketing costs;

* the biggest authors have increased clout for many reasons, increasing title acquisition costs;

* the new technologies both lower barriers to entry for additional competing titles and keep old and even used books alive forever in the marketplace, increasing competition;

* they have unique legacy issues: the backlist rights tangles and undigitized backlists that still sell robustly in print require additional investments now to forestall ultimate sales erosion.  As the overall sales shift to digital some titles on those backlists, depending on rights, might not be able to go (and perversely, could have the copyright licensed for print but effectively orphaned for a digital version);

* they have agents, who have their own challenges (unless they represent one or more of the biggest authors and even that model might be threatened as more digital change evolves) while they add complications for publishers trying to find their way to new models with uncertain costs and revenues.

Trade publishers, much more than their counterparts in school, college, academic, and professional, are bound to the format of “the book”. That is partly because the “value adds” that other publishers can use to justify different (higher) pricing are not natural adjuncts to trade books. Trade publishers can’t boost prices and margins by adding homework helpers as is done for school books, self-testing as is done for college texts, and value-added aggregation, searching, and productivity tools as is done for academic and professional publishing. So the lessons being learned by other publishers just don’t port to trade, any more than the new paradigm for music (give away the content to sell concert tickets) can transfer to books.

Even within trade publishing, there are distinctions that matter. The business of the Big Six general trade houses is quite different than the niche (sometimes called “enthusiast”) businesses run by publishers like F+W Media, Chelsea Green, or Hay House. Niche publishers who have depth of content in verticals can do things that the general trade houses just can’t.

For example, F+W Media has refocused its company around verticals. They used to see magazines and books as the businesses they were in with titles related to crafts and writing; now they see crafts and “writing” as the businesses they’re in with books and magazines in each. That enables them to share marketing costs across many books and magazines and it enables them to market much more effectively to the markets they serve. F+W’s book business is challenged by all the same factors as everybody else’s, but reinforcing their vertical organization creates alternatives, sometimes allowing them to convert essentially consumer audiences to professional audiences so that tricks from other publishing businesses can apply.

Here’s a recent anecdote that, for me, sums up the uniqueness of our challenge.  In a recent conversation with a very sharp and Senior Marketing Person at a major house, I raised a pet question of  mine these days. “What’s the new ‘standard treatment’ for a trade book?” Used to be galleys to selected pre-pub review media, a press release with and without review copies to lists of varying sizes and care of curation, size of the catalog page, and then things we can do for all mysteries, all cookbooks, etc. What should it be now?

So SMP says back to me, “there isn’t one.” But there has to be one, I said. Because only 10% of the books are going to get any unique marketing effort, so 90% have to get something standard. What should it be? If PW and The NY Times and the list of review editors at the various papers and the “usual suspects” aren’t the right thing to do anymore, what is? Or do the 90% get nothing?

What that captured for me is that the Achilles heel of trade publishing has always been that publishers have to reach audiences as numerous as the books they publish and they have mostly marketed books one-by-one, book-by-book. That’s what no other branch of publishing would even attempt. Marketing effort per title is the real point of scarcity in this business — more than quality product and more than shelf space. People outside the trade don’t think about that because, frankly, it’s a problem that doesn’t occur anywhere else. But it’s in our industry’s DNA. And we’re going to have to create some unique answers.

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