iPad

I have made previous mention of my notion that what has been one very cohesive trade book industry would “trifurcate”: break into at least three distinct businesses: 1) books that are straight narrative text intended for immersive reading; 2) adult books that are not straight text, either very chunkable (like cookbooks or travel books) or highly illustrated; and 3) children’s books. Admittedly, even this is an oversimplification.

This conjecture is built on the reality that we’ve learned how to move immersive reading from paper to screen in a way that satisfies the consumer. A pretty simple technological trick — “reflowing” the text so that it adjusts to the screen size alloted to it — makes the text “work” across a wide range of devices and reader software. There are definitely differences among Kindle and Nook and Kobo and Google and iBooks and they don’t offer precisely the same outputs and features on their own devices or on iOS or Android, but the differences are subtle and apparently most people are comfortable with the various consumption experiences.

So relatively simple conversion from the version prepared for print, which can even be done through automated services like Smashwords or through tools now being offered by The Atavist and Vook (and others), and are handled within the workflows of many publishers at a trivial financial cost, delivers an alternative to the print version of a book that is commercially viable. It isn’t costly, it isn’t complicated, and the person who formerly read her favorite novelist or subject in print could switch to device reading with relatively little pain or friction.

And they have. Ebook consumption has been going up by double or more each year since the Kindle arrived a little over four years ago.  (And there is evidence that the growth will continue. Amazon just announced the best Kindle holiday season ever — with over a million Kindle devices sold each week in December and with the single biggest day ever for Kindle book downloads on Christmas Day. — Note “downloads” not “sales”.)

So far, this has worked to the benefit of established book publishers, their authors, and for fledgling new authors as well. Ebooks are generally cheaper than their print counterparts (and sometimes quite a bit cheaper, despite some propaganda to the contrary) but publishers’ margins haven’t suffered. Authors are getting a bit less on ebooks than they did on hardcovers in print, but they get a bit more than they did on paperbacks. There are vocal consumers who protest the agency pricing that keeps ebooks at $9.99 and up during their hardcover life, but Kobo, the only retailer to discuss these matters, reports more unit sales in the agency price bands than at the low end where the self-published authors are.

We would not suggest that stability of prices or royalties or consumer behavior going forward is to be expected; we’re still in a time of great change. But, so far, the publishers of fiction and non-fiction that is delivered as straight text have had a relatively painless switchover from selling 100% of their output in print to selling an average of more than 20% of it in digital form, with shares as high as 50% being reported on some titles in the first weeks after publication.

Until the arrival of the iPad in April of 2010 and then the NookColor and the tablets from Kindle, Nook, and Kobo which have become available more recently, the dedicated reading devices wouldn’t handle complex page layouts and the iPhone screen was far too small for illustrated material to be usefully displayed. Barnes & Noble made serious efforts to get children’s books available for their color screens about two years ago. Kobo seemed hopeful this Fall about what they’d see in ebook sales for graphic novels, but they only have 300 titles so far so I’m not sure what impact that can have. I have not seen any reports about how illustrated material is selling through either retailer.

Some research we did says that Kobo has 995 titles “just for Kobo Vox: 33 art and travel, 332 comics and graphic novels, 29 home and food, 539 illustrated kids, 57 illustrated non-fiction, and 58 read-along kids. The breakdown for Kindle Fire isn’t as clearly spelled out, but they do have 100 “comics for Kindle Fire” and 691 “children’s books for Kindle Fire”. One interesting note is that the audio-video only works on Kindle’s iOS app,, not on the Kindle Fire device itself!

Of course, the iPad started all this and might still be the best device for consuming color and illustrated material.

Nook has by far the most illustrated material listed: 1210 children’s picture books and 596 “enhanced Nook books”. They might have as many as 5000 comics, graphic novels, and manga titles, but deeper investigation makes us question that number. They list 7700 “Cooking, Food, & Wine” titles for the Nook, but we don’t know how many of those are highly illustrated.

I have been asking publishers about sales of their children’s and illustrated trade material. I haven’t found anybody yet that says they’re going well. On the children’s side, where there have been pockets of success, the one Big Six digital executive who expressed an opinion to me felt that price was killing sales for the ebook versions of successful franchises. Children’s apps from such distributors as Touchy Books are priced quite low, generally $2.99 and less. But many branded titles like Eloise are $9.99 and $12.99 and up! This executive points out that paying that price for a novel you will spend many hours with is much less painful than paying it for a children’s book your kid will work through in 15 minutes or less.

Undoubtedly, another large factor mitigating against converting illustrated print book sales to digital is that ebooks don’t make good gifts and illustrated print books do.

I recently spoke with CEOs of two companies that publish primarily illustrated books. Both of them report being stumped by the challenge of making their illustrated print output into something that will work commercially as an ebook. “Fixed page layout” is the solution du jour, delivering the book page as a unit but where the pinch-and-spread touchscreen technology enables the reader to expand type to make it readable or pictures to make them more visible. Of course, doing that means that the whole page no longer fits on the screen. And that means that the smooth experience devices offer for immersive reading, where page-turning is effortless and one can read the text without stopping to think about the form factor, is interrupted and not nearly as satisfactory for books delivered that way.

More complex page layouts are more expensive to convert, can present thorny rights issues for images, and the books haven’t sold well in digital form. On top of that, the retailers can (and often do) ask for their own specific customization of the files. These factors combine to create a very unattractive commercial equation. Until the Fall of 2011, one ebook retailer told me there were 10,000 or fewer illustrated ebooks in the marketplace, out of a total of many hundreds of thousands, perhaps more than a million, straight text titles. The plethora of larger-screen and color devices that hit the market this past fall created a burst of conversion activity of these titles, perhaps doubling the number in the marketplace during the last quarter. We await reporting on the impact of the new devices and the additional illustrated product in the market, but nobody’s reported any breakout successes yet.

This has to be frightening to anybody in the illustrated book business. Bookstores are disappearing. Sales are moving to digital. We’ve had an iPad in the marketplace for almost two years. And we have as yet discovered no formula for success to convert a successful illustrated print book to a successful illustrated ebook.

(We have reports coming at Digital Book World from Kindle, Nook, and Kobo. We’ve asked them all to report on how illustrated books did this past Christmas. Each of them limits their reporting to what they think they can tell us without compromising their competitive position with each other. We’ll see what we learn.)

While many children’s books share a commercial challenge with adult books that aren’t straight immersive reading, they have more differences than similarities. Once you get past the commonality of “more expensive to create for less of a demonstrated market”, things really diverge.

Books for digital presentation for little kids particularly will require skills that book publishers never had to have, particularly for animation and games. App technology is overkill for books of immersive reading; it is very useful for content intended to interest kids. Indeed, children’s book publishers are finding themselves competing with (or employing or acquiring or collaborating) design and animation studios that weren’t thinking much about the book business until the book business morphed into something akin to what they were doing. (A slew of these companies will be on stage for our “Publishers Launch Children’s Books at Digital Book World” conference on January 23, co-located with the big Digital Book World extravaganza.)

The adult book challenges are much more varied. There are, broadly speaking, two kinds of illustrated books: those illustrated for beauty and those illustrated to inform. The latter require tight control of the placement of illustrations and captions in relation to the text, just the kind of challenge that causes agita when readying content for different sized screens. And the beauty books, of course, have to be carefully designed for aesthetic satisfaction.

But it isn’t just illustrations that stamp a book as “not immersive reading.” Books of content chunks, like cookbooks or travel guides, are also not “optimized” merely by making them reflowable. There are some fabulous apps for both (“How to Cook Everything” by Mark Bittman and ones pulled from Rick Steves’ books like guides to the Louvre and Versailles), but these are not direct “lifts” from the books. They are separately constructed products. However well they sell, they don’t provide the same cost synergy with the book production that the publishers of novels and biographies are getting.

These very well-done apps underscore one of the problems with simple “conversion” of books other than straight text for immersive reading. If I get all the words in the novel, nothing inherently provokes the question of whether something more should have been done to make it better. But whereas a printed book requires a still picture, in a digital rendition that could just as well be a video or an animation. Remaking those choices is very expensive; ignoring them means delivering content the consumer can easily imagine being better than it is.

As less and less shelf space is allocated to books of immersive reading, there may be some temporary opportunity opened up for the publishers of other books. Books and Books, a chain begun in Miami which is catching attention for its survival strategies during what are generally tough times for bookstores, is famously emphasizing illustrated books. Not only do these not convert well to ebooks, they aren’t as well displayed in an online shopping environment.

At the same time, there are specialty retailers like JoAnn Stores and Michaels that continue to sell books related to their primary businesses selling crafts and hobby materials. These outlets become more important to publishers as bookstore shelf space disappears, but they also become more important to consumers. Since the content these consumers want does not convert as well to digital consumption, it stands to reason that they’ll still want the printed books for some time to come. Publishers of these books will be redoubling their efforts to cover these stores and enable them to substitute for the bookstores being lost.

The publishers I spoke to recently have already “verticalized”; they’ve been publishing in very specific non-fiction subject niches. They’ve been focusing efforts on building up their special sales departments, the part of a book publisher that looks for sales opportunities outside the bookstore and library channels which publishers usually call home.

As digital shifts continue to reduce bookstore shelf space and the readers of novels and biographies spend less time in bookstores where they might see the children’s books and art books and how-to books that don’t work as well on devices, more imagination and innovation will be required of publishers who formerly could make their living selling their wares through those stores. One example is what Workman has done with their soft-reference franchise “1000 Places to See Before You Die”, which they are trying to turn into a monetizable community. This is a good idea and nicely executed; whether it will turn into a profitable one remains to be seen. And, of course, it is not a template that can be broadly applied.

This much is clear. Publishers of immersive reading can, at least in the short run, largely count on keeping the sales from readers they’ve always had. The problem for these publishers will be keeping the big authors (at a sustainable royalty rate) if the business becomes largely digital and most readers can be accessed without the capabilities of a major company operating at scale.

The publishers of the rest of the book output who have depended on the bookstore network would appear to have a far more onerous challenge. They have to largely reinvent their product and perhaps their business models to get some digital revenue without any blueprint for success. In fact, there may not be a replicable template for how we satisfy consumers of much of the non-immersive content which for hundreds of years has been presented in books. But the publishers of those books have no choice except to look for one. With increasing urgency.

Of course, the Holy Grail is to monetize the content in other ways, made possible by XML workflows, taxonomies, and lots of intelligent tagging. There are instances where this works: Wiley and Random House both have robust b2b businesses with their travel content. But it is a significant incremental effort to go from being a book publisher, even a niche-y one, to creating a profitable business model around multiple uses of the content and the community the content attracts. It has been the mission of the company that is our partner in Digital Book World, F+W Media. Their scale enables them to spread the cost of investments across a substantial number of communities. This is not just about technology. For example, their crack events team, which makes the complex DBW event run like an atomic clock, is employed by a variety of the 20 or more F+W communities over the course of the year.  

One of the DBW sessions this year is “The Digital Future for the Illustrated Book” which will feature speakers from Kobo, Time Home Entertainment, Quarto Publishing, and Aptara.

One other trick being employed worth mentioning is a digital add-on to the print book. Melville House, an innovative publisher tied to a bookstore in Brooklyn, calls these web-based efforts “hybrid books” and they call the enhancements “illuminations.” A variation on the theme has been employed by the innovative publisher Black Dog & Leventhal; they add a CD-Rom with all the artwork in the Louvre to add to their Louvre book and all the cartoons in the history of New Yorker, which would never fit into a print book. It was a BDL book on The Elements which spawned the breakthrough iPad app. These are useful ideas, but I’m not sure they solve the existential problem publishers are facing.

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Almost two years ago, I wrote a post which continues to be one of the most-read in the history of this blog, the point of which was that the business model disruption (called “agency”) prompted by the iPad would have more impact on the ebook ecosystem than the device itself. I’m happy to repeat that statement today because I think events have proven that hunch to be correct.

This week Amazon announced their new tablet, the Kindle Fire. (Mine’s on order. I gave the original Kindle I had to my wife, who still uses it. I also own an iPad but never read books on it. As everybody who reads this blog regularly knows, my ebook consumption is all iPhone, largely purchased through the Kindle store, sometimes through Nook, Kobo, or Google, but never through iBookstore.)

The Kindle Fire announcement has unleashed a spate of stories in the tech press about the battle between Apple and Amazon. Who knows what Apple’s rejoinder will be, but it would seem that Fire offers much more than half of what an iPad delivers to a media consumer for much less than half the price and about two-thirds the weight. It appears it will fit in the hip pocket of a man’s suit jacket. That sounds like a competitive formula. It already was for Nook Color, and Amazon seems, at least for the moment, to have done them one better.

Books are not the central focus of this Amazon-Apple battle even from Amazon’s point of view and they are certainly are not from Apple’s. Apple is a device company and their content offerings, and their control of their content offerings, are intended to reinforce the unique experience their devices deliver. Amazon certainly knows from their Kindle experience that offering the right device can propel content sales and secure the content customers’ business (a lesson B&N has both learned and demonstrated quite successfully with Nook as well). The Fire is as much about video content as it is about books.

But in the book business, we look at these two titans in a different way because they force publishing into managing two completely different commercial models simultaneously. That’s not something most of the tech community has paid any attention to in the prolific “Amazon versus Apple” commentary following the Kindle Fire announcement. But it reinforces the point made in the post from two years ago: the fact that Amazon and Apple have different approaches to acquiring and pricing content offerngs is the most important aspect of the battle between them to the book publishing community. Who “wins”, as in “who sells the most devices?” (or even “who sells the most ebooks?”), is really quite secondary since both are significant and neither is going away.

Amazon wants to acquire its book content with the ability to control the selling price so they can continue to burnish their reputation as the lowest-cost provider and exploit other advantages that their huge customer base and extraordinarily deep pockets provide them. Apple wants a margin-guaranteed commercial model that also assures them that they won’t be embarrassed by having their customers see the same content for a lower price elsewhere.

Apple assumed they’d be able to move the most devices and, with price neutrality, create enough advantages to their device owners to shop in the device’s “home” store to satisfy their competitive requirements. That is, Apple’s content-selling strategy was to maximize their market share among their own device owners. They do nothing to move the content onto other companies’ devices.

But Amazon is a store first; the devices are in service to the store, not the other way around. Price competition is a key component of their competitive toolkit. And they are relentless at using their tools to take market share and margin away from their retailing competitors.

Publishers see their interests more closerly aligned with Apple’s strategy than with Amazon’s. After all, Apple is perfectly comfortable with the idea that others will need to provide content to whatever non-Apple devices are out there. Amazon wants to dominate content sales to all devices. Publishers want an ecosystem with as many contact points for consumers as possible to protect them from being disintermediated by somebody downstream (namely Amazon). And they like the necessity of managing a lot of resellers because it protects them from being disintermediated by somebody upstream (the agents or authors).

Amazon found out in a battle with Macmillan very shortly after I wrote the piece cited at the top that they couldn’t bully the Big Six publishers into abandoning agency pricing. So they gave up the effort to do that, and the Big Six now apply agency across the ebook supply chain, creating uniform prices through all outlets for most of the biggest commercial titles on offer.

But Amazon did not find it necessary to back down from their insistence on wholesale for everybody else. And that means that, except for the Big Six, all publishers that want to offer their ebooks through both Amazon and Apple are forced into the “hybrid” model: agency with Apple, wholesale with Amazon, and a choice between the two for everybody else.*

The models are ultimately incompatible and create anomalies (an example of which with a high-profile title not published by one of the Big Six we reported on recently.)

And that, not the device war itself, is the most important component of the Amazon versus Apple battle to the book publishing community. With the recent move by Apple to end direct-linking to their proprietary stores out of the apps of other ebook sellers, they are undoubtedly increasing the market share of iBookstore (even though their title selection still lags way behind their competitors.) There’s a price in lost sales to pay if an ebook isn’t available in all the places customers might shop for their next read.

But to make an ebook available through both Amazon and Apple, a publisher must set two retail prices: one to sell to consumers at through Apple and one to base a discount on for sales through Amazon. Publishers will continue to see titles flagged by Apple on a weekly basis because they were on sale somewhere (presumably Amazon) at a lower price than the publisher set for Apple, allowing Apple to lower the price (and to proportionately decrease their payment to publishers for sale of that ebook.)

The advantages of agency, including the ability to raise and lower prices to generate promotion or to take advantage of stronger demand, will continue to be reserved to the Big Six. So will the potential advantage (not yet realized, to our knowledge) for the Big Six of being able to sell from within apps or off their own web sites because they have the ability to do that without competing with their retailers on price. And so is the protection against the possibility that an agency reseller will lower the price to meet a wholesale reseller’s competition, thus cutting the revenue delivered to the publisher and, ultimately, to the author.

I have not yet explored the ramifications of agency versus wholesale or hybrid with an agent from the author’s commercial point of view, but it would seem to be an advantage for the Big Six publishers in signing up major authors that they alone can enforce agency. And with the device battle now joined and bound to be going on for many years to come, it would appear that the division between Apple and Amazon will perpetuate a division between the Big Six and all other publishers which will last for the foreseeable future.

* Writing that asterisked sentence (several grafs above) made me realize what I didn’t know. How do publishers set their two different retail prices, one of which is the basis fo 50 off and a retailer-set customer price and one of which is the basis of 30 off and that is the price? Who decides on which basis the other ebook retailers — B&N, Kobo, and the rest — do their purchasing? (I know they all benefit from agency, so presumably they buy agency with the same assurances of price-protection Apple takes, but do they have a choice?) And how many publishers just refuse to sell to Apple so they can put all publishers on wholesale and let the discounting occur as it will?

I know people to ask about all this, but not on a baseball playoff weekend. It will likely be the subject of a future post.

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One could say (and I would) that the ereading revolution is coming up to its 4th anniversary since it was late November 2007 when Amazon first released the Kindle. There had been dedicated ereading devices before then, including the Sony Reader — in the market when Kindle arrived and still here, if not wildly successful — and the already-defunct Rocket Book and Softbook devices that had debuted and disappeared some years before. And in the early 1990s we had the Sony Bookman, which showed only a few lines of text at one time and disappeared with barely a trace. The biggest-selling ebook format, before Kindle, put content on the Palm Pilot and the total ebook market was so far beneath a rounding error that any investment by a publisher in digitization was being made on faith, not on commercial evidence.

And many people in publishing believed that reading on a screen would take many years to take hold, if it ever would.

Now, less than four years later, we are living in a changed world, although not yet a transformed one. But transformed might be coming very soon.

As ebook sales in the US now appear to have reached the 20% of revenue threshhold at some publishers already (so it is there or will be for everybody very soon), there are some things we can say we know about the shape of the future, but some very important other things that we don’t know yet.

We know that most people will adjust pretty readily to reading straight text narrative books on a screen rather than paper.

We know that parents will hand their iPad, iPhone, or Nook Color device to a kid so that they can enjoy children’s books on the device.

We don’t know whether adult illustrated book content will be equally well accepted by book consumers on devices, even though there are more and more devices capable of displaying pretty much what publishers deliver on a printed page.

We don’t know what parents will pay for a brief illustrated children’s book delivered for a device, but it appears it might be much less than they’re willing to pay for paper.

We know that consumers will pay paperback prices and more for plain vanilla ebooks, or “verbatim” ebooks.

We don’t know whether consumers will accept paying higher prices for video, audio, or software enhancements to the verbatim ebooks.

In fact, we don’t know if consumers would pay paperback prices for ebooks if the paperback were not ubiquitously on sale as a benchmark for pricing.

We know that ebook uptake, as measured in sales or their percentage of publishers’ revenues, has doubled or more than doubled every year since 2007.

We know that rate of growth is mathematically prevented from continuing for even three more years (because it would put ebooks at 160% of publishers’ revenues if it did!)

We know from announcements about new devices and a recent Harris poll predicting increased device purchasing that there are no expectations for a slowdown in ebook adoption anytime soon.

We don’t know if we’re going to find a barrier of resistance, or perhaps we should call it the barrier of “paper-insistence”, at some sales level over the next two years (at the end of which ebooks would be 80% of publishers’ revenues at the growth rates we’ve seen over the past four years).

We know there’s a big and developing market for English language ebooks globally, as the ebook infrastructure builds out in markets around the world.

We don’t know how quickly those markets will develop or how big they can ultimately become.

We know that the number of bookstores suffered a sharp reduction in 2011 because of the Borders bankruptcy.

We don’t know if the remaining brick retail network, the bookstores led by B&N and including the independents as well as the shelf space devoted to books by the mass merchants, will get a second wind from the disappearance of the Borders competition, buying publishers some temporary stability in their store network, or if the erosion of shelf space will continue (or even accelerate).

We don’t know what the loss of brick store merchandising will mean to the ability of publishers and authors to introduce new talent to readers, or even just to introduce a new work by established talent.

We don’t know if improved book discovery and merchandising is amenable to the application of “scale” by publishers outside of vertical niches, be they topics or genres.

We know that agents and authors will accept an ebook royalty of 25% of net receipts in today’s environment, where 70% or more of the sales are still made in print.

We don’t know if the threat of the alternative publishing options will force that royalty rate up if sales fall below 50% print or 30% print.

We don’t know if sales falling below 50% print or 30% print is several years away or much less.

We know that the Epub 3 standard and HTML5 enable app-like features to be delivered as ebooks.

We don’t know if those features will make any commercial difference for the straight text content which is the only commercially-proven ebook type.

We know that content-creating brands that are not book publishers are using the relative ease of publication of ebooks to deliver their own content to the ebook marketplace.

We don’t know if book publishers will develop an ebook publishing expertise that will make them able to persuade those brands in time to go through them, the way they have in the print book world, rather than disintermediating them.

Since I have been expressing my concerns about the impact of the ebook revolution on general trade publishing, which I have been doing with dramatic intent since six months before the Kindle at the BEA in 2007, I have been saying the general trade houses have to get audience-centric (which means choosing content to fit vertical niches).

Today I will add another urgent suggestion to general trade publishers: reconsider your commitments to publish illustrated books in any time frame more extended than a year or two and think about sticking to straight text, unless you have paths to the customers for those books that do not go through bookstores. If we do end up in an 80% ebook world anytime soon, and we very well might, you’ll want to own the content you know works (for the consumer) in that format, not what you don’t know works any way other than in print.

For children’s books, the key is brand. There will be demand for Eloise and Madeline and Alice in Wonderland for years to come, but the product and pricing equations could be totally up for grabs.

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A big ebook shoe dropped on Sunday. It dropped on Kobo first. And it has nothing to do with Borders.

Kobo just delivered a new iOS (that’s Apple’s operating system for iPad and iPhone) app that no longer contains the direct link to the Kobo bookstore within it. That means that buying new Kobo books requires going to Kobo.com through the browser (not hard, but additional steps) rather than from a single click from within the app.

Later news on this developing story is that the Google app has been “pulled” and that the Nook Children’s app no longer has a link to the store. We have to expect that the Kindle and main Nook apps will undergo the same change very shortly. That will mean that the simplest and most seamless way to buy and read ebooks on the iPad or iPhone will be through Apple’s iBookstore. It will almost certainly mean a growth in iBookstore market share at the expense of all the other ebook retailers. It will also almost certainly mean that a lot of people who read their ebooks on an iOS device (I’m one of them) and prefer to use any of the other ebook retailers (and I’m one of those too) will be inconvenienced and annoyed.

However, it is also true that Apple will benefit from this move that many of their customers will resent.

The point most emphatically made by all of this is that the book business is a cork floating on a digital device stream. We don’t control our environment. We must keep adapting to what bigger players, some of which have pretty minimal bandwidth to engage us in a dialogue and pretty minimal interest in what’s best from our point of view, see as the best strategy for them.

I have been guilty of a publishing-centric view of the possibility that Apple would enforce the rule that leads to this change since it was first prominently rumored last February. That is: with wishful thinking, when I first heard about this possibility six months ago I thought they wouldn’t do it. I talked myself into believing that because Apple had benefited substantially from the presence of the book apps on their platform, and because there are millions of us who read ebooks on our Apple devices with a distinct preference for using other readers and other ebook stores, that Apple would not enforce the rules which, through a couple of iterations of clarification, say that the way these apps and stores operated was outside their rules.

I will try to remind myself not to be making that mistake again. One of the other big companies recently congratulated me on the ease with which I accept the idea that companies (and people) act in their own self-interest. That’s what Apple has done here.

What this means depends very much on where you sit.

Barnes & Noble (Nook), Google, and Kobo all benefited enormously from Apple’s arrival on the scene in April 2010 because they brought with them the “agency” sales model that leveled pricing across all outlets for the ebooks that come from the biggest publishers. Without agency, many believe (and I’m one of them) that Amazon Kindle’s aggressive loss-leader pricing policies on the biggest books would seriously have diminished the competition.

B&N needs every penny it can spare to invest in device development and marketing; they’d be seriously handicapped if they had to give away margin to compete for consumers.

Google has signed up about 300 independent stores in the US to be partners in its ebook program. They might not have 10% that many if the indies thought they had to compete with loss-leader pricing on the biggest books even to play. When Random House switched over to agency at the beginning of March this past year — 11 months after it began — one of the motivations they cited was to respond to the desire of independent stores to sell ebooks which they heard over and over again depended on agency pricing.

Kobo has always had a global strategy that could enable them to thrive even if they had also-ran status in the US market. But they were trying hard to compete with Amazon pricing in the pre-agency days and as the smallest of the big global ebook players, they would have to be considered the most vulnerable in an environment characterized by loss-leader price warfare.

This change must mean they’ll all lose sales. It is hard to see that it could mean anything else.

Amazon will lose sales too, but they may win overall just because life gets a bit harder for B&N, Kobo, and Google.

All of these retailers have gotten an enormous (but unquantified in data revealed to them) lift from the massive success of iPads and iPhones and the retailers’ ability to access all those devices pretty seamlessly and at no cost. Amazon and Barnes & Noble sold many Kindles and Nooks, of course (Kobo’s device has been a competitor and Google is about to have one), and they’d be selling lots of ebooks if there were no iOS devices. Publishers know that, of the 55-65 percent of their ebooks sales that go to Amazon and 20-30 percent of their ebooks to Barnes & Noble, some of those sales go to the dedicated devices and most of the rest to the iOS devices. But they have no idea what the split is. Now they will start to find out as they see those sales shift from the other retailers to the iBookstore. (Sales to iBookstore, Kobo, Google, and others constitute no more than 15-20 percent of sales and often far less.)

Anyhow, the unambiguous benefit that Apple and the iOS devices used to represent to the retailers is now reduced in value, but agency pricing remains (cheering everybody but Amazon), as does the ability of their customers to use iPads and iPhones to consume their content.

Some publishers will need to reconsider their strategies.

Because Amazon will only allow agency terms to the Big Six publishers (they have ways to offer a competitive 70% share of sales, but they won’t play ball with giving up control of pricing), because some publishers aren’t comfortable with the agency model, and because the iBookstore has not been as aggressive about sourcing content as their competitors (I don’t know this for sure, but it definitely feels like all of the other ebook players have much bigger teams chasing content than iBookstore does), there are publishers selling to the other players and not to Apple. I’d imagine those might be expecting a sudden drop in sales through iOS purchases, although they never actually knew how much of their sales were iOS purchases.

And this points out a big difference between the publishers and the retailers. The retailers know how much of their sales are coming through their app customers. They also know how much of the reading of their ebooks is done on iOS devices. Publishers have no idea. In the longer run, this shows how publishers can benefit if the new players they are creating — Anobii in the UK (who has told us they will share data with publishers) and Bookish in the US (which we have heard less directly will do the same) — get some market share and can provide visibility into consumption that publishers do not have now.

And that takes me back to the book business cork bobbing in the larger digital device stream. There was no ebook business to speak of until Amazon delivered the Kindle device, put massive muscle behind selling it, and used the ability they had then to sacrifice margin to create a powerful commercial proposition that was the catalyst to create the market. There was no serious competition for Amazon until Barnes & Noble’s new management delivered the Nook with an equally powerful commitment to establishing it, using their presence in stores to introduce ebook reading to new audiences and, with further innovation of the devices, contributing to the explosive growth of reading in digital formats.

There was no restraint on Amazon’s ability to use their deep pockets to discount publishers’ content in pursuit of their own market share growth until Apple’s new device, the iPad, created a whole new sales model that forced price stability in the marketplace and, at the same time, handed publishers a new capability to maximize revenue and to use price as a marketing tool.

There was no effective way to introduce book readers to the convenience of digital reading without the investment in a dedicated device until the iPad put the capability into millions of hands that didn’t know they wanted it.

There was no great motivation for ebook retailers to introduce interoperability across devices until many ebook device owners also became iPhone and iPad owners.

We note that all these changes in the marketplace were created by others, not by publishers. That’s not necessarily a bad thing, or even a new thing. Publishers also didn’t spring for the investment that created superstores and then Amazon in the 1990s, all of which increased their sales. A publisher’s role is to use the channels that are available to get books into the hands of readers.

From most publishers’ perspectives, this change might have very little impact. Any iPad or iPhone reader who wants a book can still find and buy one. If the Apple store is strengthened at the expense of Kindle and Nook, that constitutes marketplace diversification that is good for them. (If the impact somehow fell disproportionately on Nook, though, that might not be.)

But the happy symbiosis between the ebook retailers and Apple, by which the retailers got access to customers they would not otherwise have had and Apple was able to readily deliver their customers content they hadn’t otherwise aggregated, appears to have come to an end. And the iBookstore, which had been fighting others for the scraps after Amazon took half or more of the US ebook market and B&N took much more than half the rest, is about to be a much more significant competitor.

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Last year at this time, the people I know in the consumer electronics world were saying that Christmas 2010 would be the season of the ereader. That proved to be correct, resulting in both a sharp surge in ebook sales in early 2011 and, according to Pew data, a continued acceleration of ereader adoption in the first six months after Christmas.

This year is expected to be the year of the touch-screen tablet computer. With tens of millions of iPads already in consumer hands and a plethora of devices with Windows or Android operating systems coming on to the market this Fall, the shelf space in the consumer electronics stores is positioned to fulfill that expectation.

And somewhere between the monochrome eink ereader and the tablet we have the Nook Color, which has a color screen, some tablet-like capabilities, and more of an ereader-like (cheaper than a tablet by half) price.

I don’t know exactly how many of these devices are out there; it is hard to pin that down. But Apple has apparently sold around 45 million iPads and is on track to sell 100 million iPhones this year. Those are global numbers. They are reputed to have about 75% of the tablet market now, although that percentage will surely drop as competition proliferates. The tablet shipments for 2011 are estimated to be in the neighborhood of 53 million. Gartner says there will be nearly 100 million smartphones in use in the US by the end of this year.

That’s an awful lot of portable screens on which people can well view much more than type on a page.

It was becoming obvious a year ago that the children’s publishing business was being joined by digital competitors betting on the fact that the widespread distribution of color touchscreens would open up opportunities for children’s product that hadn’t existed before. And since publishers have tried to improve on simple book technology for young consumers for years — think about pop-ups, die-cuts, and computer chips that made the books talk and sing — it seems like a reasonable assumption that more and more parents will hand their kids the iPad to “read” in the car (or in bed) rather than a book.

When making book-like product for young people to be consumed on a color touch-screen device, employing many of the “tricks” of enhancement: audio, animation, and interactivity, is obviously called-for.

But as tablet use spreads, should we also expect to see expanded opportunity for illustrated books? My guess is that the answer to that is “yes”, but figuring out exactly what the cost-effective and reader-attractive solutions are to present illustrated books for the new display opportunities is far from self-evident. We’ve sold illustrated books to adults for years without the need to do anything except put ink on paper.

Last month, FutureBook held a conference in London about new product development. The takeaway seemed to be “nobody is making any money”. What was revealed about development costs and sales pointed to large losses. But if the number of devices which can effectively display these enhanced or enriched or app-like book-based products grows like Topsy, we should see the revenue potential go up.

At the same time, new players are developing tools to make the costs of development go down. Every day publishers have developers knocking at their door looking for content to test and develop their systems for new product construction. At this point, it appears that many of them are willing to work either of two ways: fee-for-services or development-for-a-share. For publishers, this adds organizational complexity to the deal-making since the arm of a publishing company that usually sells licenses (subsidiary rights) doesn’t often make publishing investment decisions (editors and publishers) and they could be choosing between the two models with any developer.

Illustrated books can hit the digital market through two paths: they can be an “enhanced ebook” or they can be an “app.” The distinction has largely been one of capabilities: apps are platforms that can support far more capabilities and interactivity than an ebook. But that’s changing. The developers of the epub standard (epub is the industry-approved format that makes books “reflowable”) are building in support for functions that used to be the exclusive domain of apps.

At least until now, apps have generally cost more to develop than ebooks, have been sold in an app store environment that is less search- and user-friendly than the various ebookstores are, and apps are generally much less expensive (for the consumer, not for the publisher) than ebooks. This has been an unattractive combination for a content-seller. App pricing is driven by many models that are independent of profit from the app sale itself. So far, the ebook business model is like books: the publisher makes money selling the content, not from any other activity.

When ebooks for narrative text were young, the term and concept we all had to learn was “reflow”. It is necessary to deliver text in a format that can be adjusted, or “reflowed”, to fit the screen size and font size selected. As we know, among the great advantages ebooks offer is that the user can change the type size, which changes the number of words in a line and the number of lines the screen can display. Another great advantage is the ability to read the book on multiple devices, which also requires the capability to “reflow” because the screen on your phone isn’t the same size as the screen on your Kindle or Nook and your iPad (which aren’t the same size as each other!)

The new term and concept we’ll need to learn in the illustrated ebook era is “fixed page layout.” That means delivering the page in a way that does not reflow, so that artwork and text maintain the same positions in relation to each other. Of course, that means that different size screens will require different fixed pages. You will have to actually design an illustrated book (or most of them anyway) for each form factor. In fact, you’ll frequently have to do it twice for each form factor to accommodate the page being viewed either portrait or landscape, a change the user can command with a flick of the wrist.

That’s time-consuming and expensive. And that’s just the beginning of the challenge. Here’s the really hard part. We have 500 years of experience figuring out what makes an illustrated book that the person holding it will find appealing and useful. Designers learned how to use spreads (placing content across two facing pages), which don’t exist on digital screens (unless they are artificially created there.) They learned how to use sidebars to hive off some content from the narrative flow. They understand how to approach things differently if they’re designing primarily for function, like a cookbook or a crafts book, than if they’re designing for beautiful pictorial presentation (your classic “coffee table book”).

When we get to the digital version, we have the opportunity, or perhaps we should say the temptation, to add much more, not just change the layout. There will be many situations, particularly in how-to illustrated books, when a video would be more useful than a still photo. One can add animation, sound, and functionality that can test or measure or calculate.

But, in fact, just the “fixed page layout” (different for the iPad than the iPhone, of course) along with the simple ability to put the pictures on their own page with pinch-and-spread capability, could add enormous value to the user (quite aside from the portability and reduction of weight that are inherent in moving from print to devices.) Whether you’re talking about a collection of beautiful pictures of Paris or of puppies, being able to blow up a picture to be able see a close-up of a part of it could be an enhancement that costs nothing to deliver.

And if that were all the value you needed to add, many books could be switched over for iPad viewing with a minimum of redesign. (But not all. One person I talked to last week talked about a book he was working on that had text on the left-hand pages referring to full-page photos on the right-hand pages. It has to be completely rethought for digital presentation.) What I’m thinking is that the beautiful pictorials — the coffee table books — might be the best and simplest things for publishers to move over to digital to start capturing revenue from those tens of millions of screens.

Best and simplest, of course, except for the rights issues.

This post is written with an admittedly short-term view. The interaction between content and users will sophisticate both iteratively and unevenly. My presumption (this is faith and intuition, not fact) is that those of us steeped in the habit of immersive reading will retain that desire so that the erosion of audience for that material will be very slow and probably mostly generational. Therefore, investments in enhancement of that kind of book will be hard to recover.

Illustrated books definitely are different. Digitally-enabled enhancement can add indisputable value in some cases, overcoming real limitations imposed by print. My guess is that books whose purpose is to feature fabulous art or photography can deliver added value with screen presentation with a minimum of additional investment or trial-and-error. At least for a while.

It has long been my contention that simpler digital products which are inexpensive to make are far more likely to make money than complex ones. Getting repaid for delivering everything the tech can do is very hard.

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The first Publishers Launch Conferences show outside the United States, “A Global Perspective on Digital Change”, will be at the Congress Centre in central London on June 21, with the Publishers Association serving as our partners in putting on the event. We also owe special thanks to the PA’s group of Digital Directors, who were extremely generous with their time and insight. If you can be in London that day, you couldn’t find a better way to spend it than with us.

We’re still putting the finishing touches on what will be a one-day conference packed with illuminating conversation, but we can tell you quite a bit about it already. We aim to deliver strategic, practical, and focused discussion of near-term issues and opportunities. This won’t be a showcase for cool products or a venue to debate what the future might look like some day. We’re examining essential issues — ebook “export” opportunities; what happens to territorial rights; hiring and retraining to meet today’s challenges; revamping publishing systems for a dual print and digital paradigm; getting “found” on digital shelves — that publishing professionals should focus on now to thrive in the days to come.

The UK market is in between the US and the rest of the world in its migration from print to digital reading. Kindle and iPad sales really took off last Christmas and, while ebook penetration may be a fourth or less of what it is in the US, it has grown enough to be disruptive and to generate a consensus acceptance that very substantial change in the industry is inevitable.

On the one hand, my PLC partner Michael Cader and I have followed the developments in the US very closely so we have some firsthand experience with some aspects of what the UK trade is going through. On the other hand, we know history won’t repeat itself precisely. There are important differences in the markets and there is a substantial group of companies with experience and capabilities developed in the North American market that can hit the ground running in Britain or anywhere else in the world. That alone will make everybody else’s experience different than what happened in the US.

In order to be sure we were talking with the UK industry, not at it, we took some preparatory steps. In February, we put a large number of ideas for panels and topics up on Survey Monkey and invited 70 players in the UK book trade to express their opinions on them. In five days, 40 of the people responded.

Then we followed up by spending three days in London meeting with about 50 people to discuss our ideas and theirs. Our partners at the PA provided invaluable assistance, hosting our conversations and inviting us to join a regular meeting of the Digital Directors to get the insights of the most knowledgable people in the UK market. Those conversations were crucial in helping us focus properly on topics and in locating some key sources of insight. Frankly, despite our long experience working with the British publishing community (I have visited London on business three or four times a year for 35 years), putting this conference together would have been impossible without the help we got.

But because of that help, I think we’ll be presenting the UK publishing community with a lot of very useful discussion that hasn’t taken place at the many prior gatherings that have discussed book publishers and digital change.

One topic that we identified very early is the opportunity we see for publishers in Britain and Ireland to sell into the US market now without payng for a distributor infrastructure or taking an inventory risk. When we started to explore this topic, we learned that, of course, people are definitely starting to plan for it. Some are starting to exploit it. This was something we thought should be happening below the radar, and it is.

This is a peculiar opportunity, because it might be more important for independent UK publishers large and small than it is for the biggest global players. We’re still filling out the panel for this one, but we have Helen Kogan of Kogan Page, an independent whose company was already working in the US market (and therefore has some helpful experience to pass along) but who is seeing the expanded opportunity presented by digital, and Jean Harrington of Maverick House Publishers in Dublin. Jean is also President of Publishing Ireland and we invited her to join this particular conversation for a reason. The Irish diaspora in the US has a particularly strong identity with the old country and we expect books of Irish history and Irish fiction will find a substantial additional market through ebook sales in America.

We’re working on adding another British publisher and an agent to that dialogue.

Another topic arose out of a conversation that longtime UK consultant Mark Bide and I had while we were at Tools of Change in New York in February. How long will it be, I wondered, before half of UK sales are digital? Mark said he wasn’t sure about the timing, but he was sure that the publishers’ systems, overhead allocations, staffing, and infrastructure would require a lot of adjustment to be ready for that day. That’s a good conference topic, we thought.

Then, in our conversations at the PA 10 weeks ago, Anthony Forbes Watson, the MD of Pan Macmillan, told us he had charged his team with thinking through the question exactly as we had defined it. Anthony wants to know “what does 50% ebooks look like? What do we have to do to be ready for it?” The next day we talked to James Long of Pan Mac who told us that, yes, he was actually the person in the company with the primary responsibility for thinking this question through.

We decided the best frame for this conversation was “thinking about the future.” James, as he will tell us on June 21, is largely focused on what Pan Mac needs to do in systems development and integration, workflow changes, and skills development to be ready for a 50% digital world.

But there are two other aspects of preparing for the future we felt could be illuminated by other panelists we recruited.

Perseus, a US company whose Constellation division that provides digital services to smaller publishers is a global sponsor of Publishers Launch Conferences, is one of several companies in the world (Ingram in the US is another; so might Random House be in the US and the UK) that are investing in warehouses and print book distribution capabilities at precisely the time many publishers are disinvesting in them, precisely because they know that most publishers will have to disinvest in them. They’re trying to be there for publishers who want to dispose of fixed cost overheads for the shrinking print book market. We put Rick Joyce of Perseus into this conversation to cover the sensitive topic of consolidation on the physical side (a subject that Dominic Myers, the MD of Waterstone’s, famously put on the UK publishing community’s agenda a couple of months ago.)

Copyright Clearance Center, the US RRO which is also a global sponsor of Publishers Launch Conferences, has steadily called our attention to another industry-wide challenge: the need to manage rights more effectively and on a more granular level to take advantage of emerging opportunities to license chunks and fragments for apps, ebooks, and web sites. We thought that the voice for this topic in London should be local, and we were pleased that Sara Faulder, head of the Publishers Licensing Society, agreed to join this conversation.

Mark Bide has agreed to moderate this group in what I think will be a dialogue about publishers and the digital future unlike any the audience will have heard before. (Except, that is, if they are at our Publishers Launch BEA show on May 25, where we’ll have a different version of this conversation, one more focused on export and rights sales than infrastructure, but also covering the change we’ll see to selling more and more fragments.)

We’re not above stealing our own ideas and giving them a local spin. One panel that was extraordinarily successful at Digital Book World last January was one we describe in shorthand as “new skill sets”. It’s about capabilities publishers need to get that they don’t have and it is about process and workflow changes and the use of cross-functional teams as well as hiring in or training people with new skills. Charlie Redmayne of HarperCollins did that panel for us in New York in January and is reprising it at our BEA show. In London, he’ll be joined by Juan Lopez-Valcarel of Pearson and Jacks Thomas, the CEO of Midas Public Relations, on a panel moderated by Jo Howard of Mosaic Search & Selection Ltd. One of the key elements in the New York discussion of this, which we expect will arise again in London, is “when is it best to hire in the skills and when is it better to retrain the people I already have?” This is a subject every publisher needs to be thinking about that isn’t discussed in public very often.

We’ll have three of the top digital leaders of UK houses — George Walkley of Hachette, David Roth-ey of HarperCollins, and Sara Lloyd of Pan Macmillan — joining Michael and me for a dialogue about the big companies who have cut their teeth on the US market and are now taking their capabilities worldwide, starting in the UK. We’ll be talking about Amazon, Apple, Google, Kobo, Ingram, and Overdrive (the six clearly-declared and clearly-capable global ebook players) as well as Sony, aspirants like Copia and Blio, and US titan Barnes & Noble (which has shown no clear signs of global interest yet.) It looks to us like there is only one UK player with a global perspective, still-tiny cell phone provider Mobcast, but we’ll be learning from our panelists whether there are others we should be considering. And our audience will learn more about the North American companies which are bound to be a big part of the local market’s ebook life in the years to come.

We’ve reached a time when “metadata” is an important subject to discuss, no matter how dry or back room it has seemed. We were fortunate to get Graham Bell of EDItEUR to moderate a dialogue about this for us. He’s recruited Jon Windus of Nielsen and Karina Luke of Penguin to discuss it with him. We’re now looking for a retailer to join them. The condition of metadata in the marketplace is not good enough in enough places yet. This is costing publishers sales. This panel will explain why that is and what every publisher should do to make sure this isn’t a huge hole in the side of their boat as online sales, print and digital, grow and the impact of metadata grows right along with them.

We are also going to have a discussion of the future of territorial rights. Richard Charkin of Bloomsbury, a well-known skeptic about them, and David Miller, an agent with Rogers, Coleridge and White Ltd., have agreed to participate. We’re looking for a full-throated defender of the current territorial regime to join them in what will be more of a conversation than a debate. We wonder whether territorial rights make as much sense in a 50% ebook world as they do in the 5% ebook world we might now be in. The agent’s voice in this conversation might be the most important one because, after all, they decide whether the deals are acceptable or not.

One thing that the territorial rights dialogue will certainly entertain is what we should expect to see in terms of author initiatives. That topic is bound to come up in two other discussions as well. There’s one we’re now calling “experiments, best practices, and out of the box thinking” which is really about innovation. But we are going to focus on innovation in business models and practices and innovation in marketing, not on product innovation. We are still working on putting this group together, but we were very impressed with our preliminary conversations with two of the panelists.

Marc Gascoigne is at Angry Robot, a sci-fi imprint started by HarperCollins and then bought by Osprey. Angry Robot’s better mousetrap is its community focus; Gascoigne will make the case that doing that right (which many publishers say they want to do) requires that everybody, and that means every editor and everybody else, communicate directly with the audience. It is hard to see putting that across in many established trade houses.

Richard Mollet of the PA will moderate the conversation with the innovators.

Also on that panel will be Peter Cox, an agent with Redhammer. Cox is changing his own business model (providing more in the way of services to his authors, but charging them more for it and looking to represent fewer authors, not more) but he’s effectively changing the author-publisher relationship as well by making the author an active marketer and community gatherer. He’ll have examples and he’ll have ideas that will challenge the thinking of many publishers and agents in the audience.

The last panel of our day is intended as a Grand Finale. Michael Cader and I will sit with Stephen Page of Faber, Rebecca Smart of Osprey, John Makinson of Penguin, and agent Jonny Geller of Curtis Brown. We’ll get their take on the speed of the ebook takeup and its consequences.

How will British publishers cope in a market that may soon have no full-line bookstore chain? How will the industry cope with the rise of self-publishing? Is there any real danger of a consolidated English-language world in which London becomes subsidiary to New York? Or, in some companies, might it be vice-versa? Will both agents and publishers be changing the core business models which have prevailed for the past century over the next few years?

What excites me about the last panel — aside from the sheer smarts and savvy of the people we got to join us — is the diversity of their perspectives. The publishers run companies of different sizes and with very different approaches to building their publishing lists. The agent joining us has gained a reputation as one of the most digitally savvy players in the UK market. Michael and I thrive on spirited conversations with very smart people; we think we’re going to finish the day very stimulated and with big smiles on our faces.

And we think our audience will too.

Of course, before we get to London, we’ll be running our “eBooks Go Global” show aimed at international visitors and their trading partners at BEA. At that show, we’re particularly excited about two panels we won’t be doing in London. One is with a few booksellers already working with the new Google Ebooks capability reporting on how it is functioning for them. The other takes a slightly different approach to the “selling in the US” opportunity. Patricia Arancibia of Barnes & Noble, which has aggregated about ten times as many ebooks in Spanish as most people in Spanish markets will tell you exists, will open a lot of foreign publishers’ eyes to the possibilities that exist for them in the US market. We’ll also have a chat with Barry Eisler, the author who turned down half-a-million bucks to self-publish. And that’s not all. Tickets still available… And tickets still available for London as well.

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The fact that Publishers Launch Conferences will stage half-a-dozen or more events before our next big multi-day Digital Book World blowout next January doesn’t change the DBW calendar. Now is the time of year when we have to start thinking about what the big issues will be at the turn of the year so we can start planning the program. As we did last year, we’ll be calling a meeting of our Conference Council (the 2012 group is currently in formation) at the end of June to brainstorm the topics and our approach to covering them.

It’s my job to anticipate now where we’ll be in nine months. What aspects of digital change will be most important to us when we convene again at the New York Sheraton and have a couple dozen sessions to explore the issues? This post exposes the current state of my thinking on the subject; I am shamelessly using the opportunity to engage the very smart audience gathered here to help me refine these thoughts and point out what I may have missed. I count 15 discrete subjects here (some of which can certainly be combined) which have made my list so far. (I’ve italicized them so you can count along with me; they don’t all get their own paragraph.)

The biggest subject of all, of course, is “global.” The reality that every publisher anywhere is now able to reach any reader everywhere with no local presence, no inventory barriers, and many of the same intermediaries that deliver content to local customers is an industry-changer that will take a long time to deliver its full effects. Territorial rights allocation is only one of the many long-time conventions of publishing that will be challenged by the reality of global. It looks like the biggest publishers — those with local organizations in many countries — have the biggest challenge to adjust to the new global reality. We see this now as we’re putting together panels for our BEA and London events on the first biggest opportunity of global: the new ease of selling books in any language and of any origin to the biggest ebook market developed so far: ours in the United States.

Perhaps the second biggest subject is one we’ve discussed in this space for a long time: “vertical.” Even the most avowedly “general” of the big “general trade” houses are beginning to recognize the urgency of direct contact with individual customers. Once that becomes an objective, it quickly becomes apparent that audiences cluster around subjects or genres: verticals. We anticipate some dramatic reorganizing of the imprint, publishing, and marketing structures of the major houses as they develop their audience-centricity. There might even be enough development along those lines to warrant conversation about it at DBW 2012.

Two more categories of change will be in the “sales models” and “product models” publishers will employ, neither of which have had anything but the most minor adjustments since the mass-market paperback became a force just after World War II. We’d expect somebody big to try a subscription model, a la O’Reilly’s Safari or what we get with cable TV, for the consumer market sometime soon, maybe before next January. (In fact, a James Patterson Book Club, which is a sort-of new subscription model, was announced just today!) And the new Amazon Singles program for shorter-than-book-length content is accelerating the awareness of publishers and authors that the length requirements for printed books do not extend to digital ones.

All of this will lead inexorably to more “ebook first” imprints, divisions, and initiatives. I’d guess that by January, several (if not all) of the major houses will have “programs” offering content for sale which is too brief to be delivered as a bound book. We first reported on a program of this kind from Harlequin at BISG’s Making Information Pay conference several years ago. It was an outlier then. It’s more of a pioneer now. This week we heard that Hachette has a short fiction program in its Orbit imprint. Last week in London we talked with friends at Pan Macmillan about a short ebook program they created at the end of last year to capitalize on the many Kindles and iPads that were delivered as presents for Christmas. (Of course, we’re putting that on the program for our London conference; the coordination challenges within an established operation to pull off something like this are not trivial.)

Part and parcel of verticality is direct audience contact and retention. When we wrote a couple of posts last summer about direct marketing techniques publishers had to make part of their standard operations, we were a bit early to get the true trade publishers’ attention. By next January, every publisher’s consumer emailing list will be a component of its marketing effort. A part of this work, of course, is effective use of social media, a subject publishers keep learning more about and which we’ll certainly try to cover — in our way, which is looking for scale and replicability — in January.

Metadata is a subject that just doesn’t go away. It is disappointing to hear from industry bodies and retailers that many publishers haven’t gotten the core metadata totally under control yet. We covered the basics at Digital Book World 2011; in 2012 I hope we’ll be talking about things like rationalizing the BIC (British) and BISG (US) subject codes, which have developed separately to address each market’s idiosyncrasies but which need to be harmonized to enable the full potential of globalization.

Over the next two years, I’m expecting the most disruptive change to take place in children’s book publishing and illustrated book publishing. When the catalyst for ereading was the Amazon Kindle, as it was starting in late 2007, straight text worked but not much else did. Now that Barnes & Noble’s Color Nook and the iPad are devices of choice for millions of people, illustrated material and rich color can be delivered as well as text. In the children’s book area, there have been a slew of new entrants, probably led by big publishing veteran Rick Richter’s Ruckus Media. The illustrated book business hasn’t really surfaced in a big way yet, but it almost certainly will by next January’s Digital Book World. I’d expect it to be a major topic of conversation since illustrated books are far more complex to “convert” and present the opportunity to enhance in ways that may soon become requirements.

The recent news from O’Reilly that they are using Ingram’s services to be able to deliver printed books without holding stock signals another new topic that will be of widespread interest: building a virtual inventory infrastructure. This topic also came up in a discussion at London Book Fair with Sara Lloyd and James Long of Pan Macmillan, one company we’ve found that is very consciously preparing for a 50% ebook world. Decentralizing their print production to reduce inventory and manufacture closer to the point of delivery is very much on their radar screen. (In fact, the whole question of how publishers have to adjust their organizations and overheads to cope with a 50% or more digital book marketplace is one we’re featuring at our Publishers Launch show in London.)

As I write this, it has been nearly a month since we’ve had a lot of conversation about authors doing their own publishing, but we got very familiar with the names Amanda Hocking, John Locke, and Barry Eisler in recent weeks because they’re doing just that. That trend can do nothing but accelerate between now and next January.

This is requiring agents to reconsider their own business models. We’re at the dawn of an era where agents will be publishers themselves and business advisors, not wholly dependent for their revenue on their ability to get advances and royalties from publishers. The first Digital Book World conference in 2010 was the first digital publishing conference to feature agents prominently in the conversation and we talked then about how business models might change. This January I expect we’ll be able to stage some conversation about how new models are working out for those who have tried them. (One of the agents we’ve put on the program at DBW is Scott Waxman, and his Diversion division doing ebooks has 20 books in the market and 10 more about to hit.)

And the last two subjects that we almost certainly should be discussing at DBW 2012 are the still-critical but diminishing segments of a publisher’s marketplace for printed books: brick-and-mortar retail locations, particularly bookstores and mass-merchants and the place so many people have discovered and acquired their reading material, the public library.

The decline of bookstores has been duly noted in The Shatzkin Files and, of course, the bankruptcy of Borders has everybody’s attention. Less well-publicized has been the decline of book sales in the mass merchants. (Tactics for arresting that slide will be the topic of a presentation by Tara Catogge of Charles Levy at BISG’s Making Information Pay conference, another one we get our hands dirty on, taking place on May 5.) As the brick channel for printed books continues its inevitable decline into insignificance, the state of play and the tactics to adjust to the loss of sales and, perhaps more important, merchandising exposure, will be a topic we’ll discuss again, as we did with independent bookstores and heads of sales departments last January.

And how to deal with libraries in the ebook world is a question vexing many publishers. Two of the Big Six just don’t sell them ebooks at all; one company has tried a number-of-loans limitation. We are intrigued by a solution pioneered by Bloomsbury in the UK — a “shelf” of books the library licenses a year at a time for online reading only. We aren’t covering it in our London show because we think most of the UK market is familiar with it but we’ll be putting it on the agenda for Digital Book World next January.

Next week I’ll give you a preview of the first two Publishers Launch Conferences programs: for international visitors to BEA and the Americans who work with them (on May 25) and, with the Publishers Association, our program for UK publishers (on June 21.)

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An ebook of the first two years of The Shatzkin Files is now available and will be linked for the forseeable future from our left nav bar. This post is the introduction to the ebook, which explains how it came about.

My friend, Joe Esposito, first told me about blogs in the early part of the first decade of the 21st century before just about anybody else I knew had heard of them. I am not sure why it took me many years to start one of my own.

I’ve been training for this gig for a lifetime. My Dad insisted that I learn to touch-type when I started fooling around with a typewriter at the age of 8. (As he said, “either we teach him the right way, or he’ll teach himself the wrong way.”) Three months of twice-weekly lessons got me up to 42 words a minute on a manual typewriter, but trained my fingers to do the right thing so that today on a computer I can do about 3 times that speed. By the time I was 11, I was filing copy on a weekly basis on the Little League games for our local newspaper. I got paid too: 15 cents a column inch. The newspaper job actually continued for the next several years as I moved on to covering high school sports.

In my junior year of college, I started writing a weekly column I called The View from Underneath for the UCLA Daily Bruin. I don’t know how good it was or how many people read it, but it got me a certain amount of notoriety. Because of the column, I networked my way into the Bobby Kennedy presidential campaign and, after his death, a slot as an assistant to Pierre Salinger on the 1968 McGovern effort at the National Democratic Convention. (That was the one in Chicago that featured police against protestors in the streets and which villainized Chicago’s first Mayor Richard Daley to that generation of young liberal activist Americans.)

Between the end of The View from Underneath and the commencement of The Shatzkin Files blog, 40 years passed. I did plenty of writing in the meantime: some books (mostly about baseball), a bunch of articles about publishing in trade publications in many countries, and, starting in the mid-1990s, speeches on publishing and digital change delivered at industry forums and then preserved on my website. The posted speeches were a great boon to my professional career, making it possible to build credibility (and “brand”) among people who never attended these live events.

Others I know had blogged daily, or almost daily. Richard Charkin, now Managing Director of Bloomsbury, wrote every day when he was head of Macmillan. My friend Gwyn Headley, Managing Director of the stock agency fotoLibra, told me that when he started blogging, he did so with a list of 365 topics in hand so he’d always have something to choose from on a day he wasn’t feeling creative. Richard gave up his blog when he changed jobs and I don’t think Gwyn kept up the daily habit very long either.

In my case, I blogged six times the first two or three weeks, then five times the next few weeks, and it diminished from there to what is now a one or twice weekly post. It seems like it usually takes me about 1500 words to get in and out, although some posts run a bit longer. I find that I need to review what I’ve written at least three times a few hours apart after I think I’m done to make sure I’m happy with it. Occasionally, a post gets to that point and gets scrapped.

As I think must be normal with these things, the audience for the blog just grew. As of this writing, The Shatzkin Files has about 1700 subscribers who get the blog delivered as an email to their inbox. A number generally ranging from half that to twice that (and occasionally, quite a bit more) reads the posts on the site. The comment strings keep getting longer.

Fortunately, one of my regular readers is Cameron Drew, who, like me, came into the book business through the most honorable possible path: working for his father. I knew David Drew, one of the great book sales reps of my generation, long before I ever met Cameron. Since Cameron has gone to work for Kobo, the global ebook retailer spawned by Canadian retailer Indigo, he and I have seen each other at conferences and trade shows. He told me from the very beginning that he was a loyal Shatzkin Files reader.

Early in 2011, Cameron told me he often found it useful to refer back to previous posts of The Shatzkin Files but that doing so through the website was clunky and difficult. “Your stuff should be collected into an ebook,” he said. “If we did it at Kobo, would you give us a 30-day exclusive?”

I was extremely flattered. “I’ll happily give you 60 days,” I said.

And thus we have this ebook.

If you live in the world of trade book publishing — the publishing that has reached its audience primarily through bookstores for about 100 years — you know we are all in a different world than we were in when I began The Shatzkin Files blog in February, 2009. One of the early posts speculated that it might be  harder for Amazon to hold onto their stranglehold on ebook sales than their hegemony on online print sales. At the time, Kindle was extending its dominance of the ebook marketplace by enabling the Kindle owners to access their ebook content through the iPhone and other devices. And Amazon’s pricing policy of selling below their cost was beginning to scare publishers.

Then, around the first anniversary of the blog, Apple’s iPad and the iBookstore arrived on the scene, offering publishers the opportunity to implement the so-called “agency model,” under which the discounting of ebooks is effectively stopped. I attribute to that tactic, along with the introduction of the iPad, the Nook, Kobo and Google Editions, the stabilization of ebook distribution in a multi-retailer market with evolving global competition. So, two years later, it looks like that early post was right.

We’re going to see a lot more change in trade publishing in the years to come. I expect the next two years to present even greater challenges and more drastic change than the last two years have. Since The Shatzkin Files began, the extremely challenging times we’ve expected for bookstores have become very evident. Over the next two years, the extremely challenging times it has seemed to me must follow for general trade publishers will probably become equally evident.

One thing worth using this introduction to say is that I take no pleasure in the big publishers’ pain. It is a matter of professional pride to me to not allow my preferences to color my predictions. I love bookstores and libraries and consider the top management of the big trade houses to be intelligent, ethical, and creative people. I consider many of them friends. The fact that the transition from reading and distributing print to largely reading on screens and distributing print online makes much of their skill sets and business models obsolete is not their fault. Nor is the fact that preserving their old business, and the cash flow it still yields, sometimes interferes with inventing the new one.

There are serious initiatives in the big houses to acknowledge the importance of verticalization (mostly in genres), to create direct contact with audiences, and to employ scale in search engine optimization and in locating customer clusters online that it is hoped will enable a new version of the horizontal, big book publisher model to leap the chasm of change. At the same time, the big publishers are figuring out how to step back from the enormous overheads associated with doing business the way they have for the past 100 years. How much change is sufficient, and how fast is fast enough, are questions we’ll only know the answers to with the passage of time.

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Now the Big Six are all selling ebooks on the agency model. Random House has joined their five competitors.

It is almost a year since Apple launched the iPad, opened the iBookstore, and delivered big publishers an opportunity to rewrite the rules of the ebook marketplace, at least for their books and at least for a while. As readers of this blog almost certainly know, five of the top publishers (Hachette, HarperCollins, Macmillan, Penguin, and Simon & Schuster) used the opportunity presented by Apple’s arrival on the scene to implement the change to agency for all their customers. Random House, for reasons that made sense to me at the time and almost certainly delivered some competitive advantages to them over the past year, judging by the open annoyance of many of their similar-sized competitors, stayed with the original wholesale model.

The competitive advantaged stemmed from the fact that all the agency publishers “forced” a 30% selling margin in to the ebook retail channel whereas Random House may actually have drawn margin out of the retail channel.

Here’s what I get out of this change.

1. Agency has been successful in cracking Amazon’s hegemony over the ebook market. A year ago, it seemed possible that Amazon could have an enduring 75% or 80% of the ebook market. While they’re still the biggest piece, and almost certainly have more twice as big a chunk as anybody else, agency has enabled real competition to develop from the iBookstore, B&N’s Nook, Kobo, and Google. And the independents served by Google, Ingram, and Overdrive all over the world offer a lot of potential marketing leverage, if they’re not driven out of the game by price competition. Amazon is still the behemoth, but they’re no longer the only game in town. Agency delivered competitive advantage to Random House, but also to Amazon. If they had continued to be 80% of the market, you might not be seeing this switch.

2. Google may not (yet) be selling a lot of ebooks (as in having a big market share), but they are opening the business up to more and more independents. Independents talk to sales reps, and Random House has more sales reps than anybody else. I would imagine the company began to feel some discomfort about the feedback they were getting from the retail network they very much want to keep alive.

3. So far, none of the major publishers has taken the step of aggressively selling ebooks direct to consumers online. But they’re ultimately going to have to. You may recall that Random House’s CEO, Markus Dohle, told me last summer that he realized publishers needed to become B2C. He wasn’t suggesting he’d sell books direct-to-consumers then; in fact he insisted that there were other ways to manifest that vision other than selling direct. But, if it ever enters your mind to sell direct and you think about it for fifteen minutes, you realize that you either have to do it under agency terms or face complicated and very troubling conversations with your retailers.

And here’s what I’m watching for.

So far, as near as I can tell, there has been very little use made by the big publishers of their ability to manage prices in the market. I am not aware of much experimentation. I am not aware of any direct-marketing or dynamic pricing expertise (both of which would be relevant) being brought on board by major houses to help them realize the potential of the opportunities. And I can only think of one senior executive I know who takes much of a personal interest in pricing dynamics.

Maybe Random House will be different. They’ve been the traditional industry leader in operations and analytics. They do vendor-managed inventory for retail accounts; I’m not aware of any other major publisher who does. They’ve done sophisticated supply chain management for years.

Now they’ve had the advantage of seeing what their competitors have done, and not done, over the first year of agency pricing. It will be worth watching to see whether they approach the pricing opportunity more energetically than the other publishers seem to have done so far.

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