Macmillan

Obviously my day job, consulting, informs a lot of what goes into The Shatzkin Files. I guess it is just as obvious that I can’t quote everybody who tells me something or attribute everything I want to write about to a specific company or individual. I don’t make a living writing this blog and I wouldn’t make a living at all if people in the industry couldn’t trust me to keep their confidences.

But once in a while people inside competitive companies tell me things that they want the world of publishing to know about what they’re doing. That’s happened twice this week and, in both cases, publishers were making it very clear that they are doing things that will add real value to authors’ marketing efforts, things that no self-publishing author could do for themselves. Self-publishing authors could be wrong, but a read through the comment string of a recent post here makes it clear that they don’t much believe publishers add value in marketing.

On Monday, I was talking to Fritz Foy, the senior VP for Digital Publishing and Strategic Technology at Macmillan. My mission was to recruit speakers from Macmillan for Digital Book World. The conversation turned to the question of “collecting names” for marketing purposes. I had learned previously that Macmillan really has a company-wide effort to do that. That’s something I have advocated. I thought it was so important that I went to the unusual (for me) effort of learning some fundamentals of direct contact management and writing about them on the blog 14 months ago. But Macmillan is the only company I’m aware of that makes email address capture an objective across the company, although we see pockets of name-gathering activity in other majors.

Fritz emphasized that collecting names wasn’t the only priority. Using them, using them well, and tracking what happened when they used them were the keys. (I was reminded, as I was again by the next conversation I’ll describe, of the adage “you can’t improve what you don’t measure”.) To demonstrate, he pulled some October numbers from tor.com, which one would assume, based on the relatively longstanding tor.com effort, probably constitutes the company’s biggest single pool of email addresses.

And they had a lot of them, enough to have sent over 650,000 emails to their lists in the month of October. That’s impressive. But what’s positively stunning is that more than 30% of those emails got opened (that’s more than 200,000) and more than 20% of those clicked through: took the action that Macmillan asked them to take in the email. That’s in the neighborhood of 40,000 actions.

Now the actions were, for the most part, to get free access to more content. (Only 15% of the mailings were purely “marketing”.) They weren’t selling anything. But what Fritz was demonstrating was the growth of what I call “investment marketing”: marketing that produces a result that makes subsequent marketing efforts cheaper or more productive. These tor.com numbers are going to grow, inexorably. Another indication of how solid Macmillan’s lists are is that only 0.1% unsubscribed!

If I were an author (or agent) looking for a sci-fi publisher, it would impress me that Macmillan has lists that get a 30% open rate. It would make me feel they could do things to promote my book that another publisher without those lists couldn’t do. I don’t know what the growth rate is on those lists, but most things (sales, device penetration, self-publishing) in the digital publishing world have been more than doubling each year and these could well be too.

The key point to take on board here is that tor.com is a flagship; Macmillan is doing this across their company. They are building other verticals as well. If other publishers aren’t systematically taking names, getting email permissions, and testing what can be done with them, Macmillan will build up marketing capabilities that it will get increasingly expensive to compete against.

There is little doubt that Amazon’s author-recruitment efforts for their imprints include the promise to mail to known buyers in the author’s genre. They almost certainly can send more than 600,000 emails in a month for many books and genres. But can they get a 30% open rate and a 20% clickthrough?

And Amazon, a retailer, can’t get trapped into just pushing the books it signs up when their consumer brand, and their sales, depend on offering full range of selection of available titles across publishers’ lists. That conflict is compounded as they sign up more and more titles as proprietary. (But it will also be ameliorated if the titles they sign are higher profile than they’ve been so far.)

The day may not be far off when agents are going to be asking publishers “how many emails can you send in support of this book on publication day?” If I were in Amazon’s shoes, I’d be pushing that question. It looks like Macmillan is methodically building the ability to provide an answer.

But not everybody with a modern view of marketing agrees with me (and Macmillan) about the importance of name-gathering, which brings us to the second conversation this week.

We got a call from Open Road Integrated Media asking us to come down to their shop and learn a bit about what they’re doing. Open Road is an ebook publishing company founded by former Harper CEO Jane Friedman which has been an annoyance to the big publishers. Jane has been in the business for more than four decades in high positions at major houses (at Random House before Harper). She knows the agents and she knows how the game of signing up content works.

So she moved against the establishment by offering a standard deal of a 50% share of ebook revenues, when the major publishers are holding the line at 25%. (Open Road’s deal includes the ability to recoup one-half the digitization cost before paying what we usually call royalties but which they call “profit share”. ORIM says that comes to less than $500 per title. Open Road pays no advances.) She used her understanding of the ambiguities in legacy publishing contracts to sign up backlists from both living authors and estates, including Willam Styron, Lawrence Block, Carl Hiaasen, Alice Walker, and others.

Those have been the headlines about Open Road and that was pretty much the extent of my knowledge of their proposition. Without any other knowledge of their economics — their ability to raise money, their burn rate, their sales — I was skeptical about the sustainability of their model, if it rested primarily on paying 50% for what others were paying 25% for and gathering high-quality backlist of titles not nailed down already for ebooks, which is a limited resource.

It turns out they have a lot more going for them than that. But they don’t gather names.

Open Road’s head marketer is Rachel Chou, who worked with Jane Friedman at Harper. Jane and Rachel, and former Scholastic CEO Barbara Marcus, who is an advisor to Open Road on children’s and YA acquisitions, made the point that Open Road is a marketing company. That’s what they do. And their bullpen with about a dozen people in cubicles working away is just about exclusively devoted to marketing. Except that, in their eyes, marketing and sales and author relations are all the same thing to them, and they see a workflow built around that perception as a key differentiator.

In fact, they see the consolidation of functions in their shop as a significant competitive advantage. In the ebook world, marketing and sales are so closely related that it is hard to see how to parse them. That’s partly because the promotions by ebook retailers could be the single most important marketing component (a point made emphatically by Diversion Books’ Scott Waxman at our eBooks for Everyone Else shows in New York and San Francisco), but it is also because all marketing efforts at Open Road are aimed at driving sales to the ebook retailers. (Their widgets all have buy buttons for the full range of retailer choices.)

But that’s not where the competitive advantage of their structure comes into play.

Rachel spelled that out. One of the major retailers came to them in the past few weeks with a big sales opportunity. They could place 15 Open Road titles in a major promotion that would sell a lot of books. One catch: they needed the titles cleared for the promotion within 24 hours.

Another catch that is characteristic of the ebook world: this was a price promotion that required clearing the participation of each book with its agent. That’s 15 agents. Rachel and her team of marketers, who have the agents of the Open Road ebooks on their own speed-dials, got the job done and got all 15 books into the promotion.

Moving that fast would be a non-starter in any significant publishing house. Whether the opportunity came in through sales or marketing, neither team would own the agent relationships. I believe in most houses it would be necessary to have the agent calls made by the editor who had signed the book. Certainly, the editor would have to be consulted before anybody from marketing or sales could make such a call. And that round of communication, which would include explaining the promotion opportunity to each of the affected editors, would never be attempted within a 24-hour window. Realistically, 24 days would be a challenge.

Open Road is organized differently than legacy publishers because there is so much they don’t have to do! There is very little in the way of a production department (there is a person who creates their covers and Pablo Defendini, who was a key player building Macmillan’s tor.com, is their “interactive producer”.) There is no sales department. There is no inventory management. Everybody works in a room that is dominated by a wall with a 2-month marketing calendar, listing all the events and anniversaries they might promote around. They have 75% or 80% of their company dedicated to marketing, which everybody — including all the big publishers who have expressed an opinion to me — agrees is the prime responsibility of the book publisher in the digital era.

But, even within that, Open Road is organized for efficiency and speed based on the realities of the value chain for ebooks. Their marketers are assigned books which “fit together”, so they are consistently going back to the same blogs and websites for promotion. They can develop relationships. They’re not really a “vertical” publisher (by genre or by topic) but they do have multiple titles from the same author, which helps.

To be fair, the other major publishers are reorganizing themselves constantly into more marketing-focused and less bureaucratic organizations. Just this past week, Simon & Schuster announced organizational changes which effectively shift resources from physical store sales to online marketing (which is admittedly an oversimplification.) The big companies all have great leadership and they’re well aware that they have to change. And I know for sure there are plenty of initiatives I haven’t heard about because the houses feel there’s competitive advantage to keeping them quiet. In fact, Rachel Chou told me about newsletters that are published readers at HarperCollins were getting open rates when she was there a couple of years ago that were even higher than Fritz’s tor.com numbers in October!

Open Road’s team would point to other distinctions between them and other publishers. (They not only claim to be different from the legacy print publishers, they don’t recognize any of the other ebook publishers as true competitors either.) They do extensive video interviews with every author (or a descendant in the case of a deceased author) which creates a rich library of video content. It’s a point of pride with ORIM that these are not fodder for video trailers, but give them real editorial material that can be made into solid programming, often combining video from several authors thematically into “mashups”. They distribute that video aggressively and claim they’ve now reached the point where they’re a recognized B2B brand by some digital media and bloggers who come to the Open Road website, unbidden, to pick up video. Of course, all the video is tagged so the Open Road marketers can track its placement, downloads, and any clickthroughs that result to the retailers.

And that leads us to metrics. Open Road is relentless about data and analytics. They make the point that they can test different covers or tag lines on Facebook or in other media and have answers within hours about what works best. The Open Road team believes that the big houses don’t give their marketers the kind of tools ORIM has to measure the impact of campaigns and that their competitors’ corporate structures don’t enable fast changes in the pitch or the artwork based on data.

These may not be sustainable advantages. Tools can be provided. Workflows can be changed to permit faster responses when that’s necessary. The established houses can raise their royalty rates. How fast things will change in the big houses is an open question (and the answer is different for every house), but it is undeniable that the decision-making structures that worked for print books readily accepted time lags that are a real handicap in the evolving ebook world.

Jane Friedman and her team claim that there is a marketing plan for every book for every quarter! (They admit there’s some ganging there; a bunch of different books might be part of the same Mother’s Day effort.) Whether that is scaleable and replicable when they are ten times their current size (approximately 1400 titles) is another question. But it is certainly a point of differentiation today.

Open Road doesn’t sell direct, only through intermediaries. And they eschew name and email address capture of end users, preferring to rely on the combination of the viral distribution of content and their always-developing relationships with bloggers and websites.

Both Macmillan and Open Road are doing things that no big trade house could have imagined five years ago. Macmillan is applying scale; Open Road is applying the speed and flexibility enabled by a smaller organization. But both of them are employing what I’d call “investment marketing”: doing things on behalf of their books that build their capabilities to do more on behalf of subsequent books. I think that’s the key for publishers who want to give authors and agents convincing reasons to publish with them in the future.

We’ll do a panel on “investment marketing” at Digital Book World in January. Of course, Open Road and Macmillan will be on it. So will F+W Media, a vertical publisher (investment marketing is much more natural for vertial publishers) and we expect to add one more Big Six house which is doing interesting things in this regard.

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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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Anybody who doesn’t find the publishing business interesting in its time of digital change is simply not paying close enough attention. No matter what story we’re focused on, scratch the surface (or scratch your head) and you find you are pondering something else. This was a week for the press to be asking me (and many others) about the lawsuit against Apple and the publishers surrounding the implementation of agency. I have little expertise to comment on the suit’s legal merits, but a week of thinking about agency has made me (and others) realize implications that hadn’t been evident to us previously.

As I was reviewing my last blog post before publishing it, I had the new thought (referred to in a brief postscript) that Amazon was actually doing the Big Six publishers a favor by denying agency terms to everybody else. Since big authors have a common interest with big publishers in maintaining retail prices for ebooks that don’t undercut print and which deliver a per-copy revenue flow comparable to print, there is reason for a big author to prefer a publisher that has the power to maintain the ebook price across the retail network. Full-fledged agency publishers have that capability; the others do not.

A moment of explanation might be required for any readers who might be lost in the details of the agency, wholesale, and hybrid models of ebook-selling. Agency is the term for “the publisher actually sells the ebooks to the consumer, not the retailer; the retailer gets a cut but cannot change the price from what the publisher has set.” Wholesale is the term for “the publisher sells the ebooks to the retailer, based on the notional retail price set by the publisher; the retailer can then set the consumer price keeping all, part, none, or less than none — selling as a loss-leader — of the margin that the publisher’s discount provided.” And hybrid is the term for “the publisher has to agree to giving Apple a fixed percentage of the selling price; Amazon insists on a wholesale arrangement by which they set the price; therefore, Apple’s standard arrangement by which it can lower prices (and the publisher’s share) to match any other retailer on the web makes the publisher vulnerable to having its revenue from Apple readjusted downwards based on discounts offered by somebody else.”

The short story is that only under a total agency model does the publisher control price. In any other case, the price is effectively controlled by the retailer willing to offer the lowest price. That would be the retailer willing to live with the least margin and, as was amply demonstrated by the discounting that took place before agency came to publishing, that might be a negative margin. Retailers in the US (although not in all countries) can sell below cost if they think it is to their advantage to do so.

All the actors are rational here. Amazon extends agency terms to the Big Six publishers because, after the Macmillan dust-up of January 2010, Amazon has been persuaded that they could lose the ebooks of those publishers from their shop if they don’t. Losing the ebooks from one of the major houses would damage what has been one of Amazon’s main strategic advantages since the Kindle was launched: the widest selection of commercially-attractive ebooks in the marketplace. They take the gamble, which appears to be a winner, that publishers smaller than the Big Six will not want to withhold product from the world’s biggest ebook retailer, the one that still accounts for substantially more than 50% of the ebook sales for many titles.

And, in some cases, publishers have avoided the discomfort of the hybrid model — which requires them to commit to Apple that Apple will have the lowest price on the Web when they can’t actually control everybody else’s price  – by not selling to the iBookstore because Apple won’t buy on wholesale terms. So Amazon yields where they think they must (to the Big Six) and continues to enjoy the advantages of price control with the rest, while at the same time discouraging some publishers from making their titles available through a competitor. This all makes sense to me as I understand their point of view.

What I noticed while writing the last piece is that there is an unintended consequence here for Amazon way upstream from the ebooks sale: the policy is strengthening the Big Six’s already powerful grip on the biggest titles from the biggest authors. Amazon wants to compete for those authors and can offer a better royalty on Amazon sales to entice them (when Amazon pays 70% to the author, the author keeps it all; when they pay 70% to the publisher, the author does not get it all, even if s/he succeeds in negotiating something better than the industry standard of a 25% ebook royalty share.) But Amazon reportedly wants ebook exclusivity, which cuts out a big chunk of the ebook market, and they are seriously handicapped getting a print sale through brick retailers.

(If you want a more thorough explanation of the way ebook revenues get split up, I wrote in detail about ebook royalties under the agency and wholesale models here and here.)

Because print sales in stores still matter (and for as long as they do) there is a risk and a sacrifice for any author giving exclusivity to Amazon, although there are also clearly compensating considerations as well.

At about the same time I was noticing this, my friend Eoin Purcell in Ireland was noticing something else. Apple’s new policy on apps, by which you can’t sell through an app without giving Apple its standard 30% cut, also offers up a sparkling new opportunity to agency publishers that would be accessible only at some risk to any but the Big Six.

The immediate consequence of Apple enforcing this policy of theirs was to drive the direct-to-our-store connection from the Kindle, Nook, Kobo, and Google apps. Because those retailers only get 30% margin from the publishers, they can’t afford to give 30% to Apple for the privilege of in-app selling.

But publishers don’t have that margin problem. They already pay 30% for their sales, and if they put their own apps up with sales enabled through them, they’d only be paying what they already are to a retailer for the privilege. So apps for authors or genres or series of any kind could be offered as free downloads through the App Store with direct-purchase buttons inside. These could send you to the iBookstore, if the right kind of landing environment could be created, or to the publisher’s own landing page where sales commissionable to Apple could be made.

Of course, the same thing could be done as a Nook app in the B&N ecosystem, and it would be smart for the publisher to offer one, as well as a web app that constituted an Amazon version (which wouldn’t be offered through the Apple App Store but would have to get to you another way), to keep relative peace among its customers. But a publisher can only do this if it is sure its prices won’t be undercut, which would force a further margin reduction under Apple’s rules.

Like Eoin, I have no idea whether any of the Big Six publishers are working on this idea or whether any of the major agents have suggested the possibility. But we’re talking about literally hundreds of smart people here, so it would be surprising if nobody’s exploring this possibility (except if Eoin and I are both missing something that makes it a non-starter.)

The transformation of publishing is rich with circumstances to amuse anybody who appreciates irony. Cheaper ebooks, which consumers love, are making bookstores, which consumers also love, gasp for the breath to survive. The closest thing to a monopoly threat in the business, Amazon and Kindle, work to drive consumer prices down. Apple’s great success with new devices coupled with their very slow start at retailing, generates agency pricing and sales opportunities for other retailers that probably benefited Barnes & Noble the most. B&N, the brick retailer most skilled at logistics but only newly-minted as any sort of tech company, finds not one but two unoccupied niches in the eink product suite: color and touch-screen.

And now, Amazon’s policy limiting the publishers that can fully implement agency, designed to isolate the Big Six and enable discounting of everybody else’s ebooks, may be spawning a new opportunity for big authors and big publishers to work together that other publishers can’t compete with. Perhaps denying this capability to other publishers actually helps Amazon be alone as a 7th competitor, but it certainly has its ironic aspects at a moment when Amazon is putting on a full-court press to persuade big authors to work directly with them!

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Amazon dropped a shoe last week when they announced their new mystery imprint, Thomas & Mercer Books, and started signing authors, including self-publishing evangelist, Joe Konrath.

Last night they dropped the other shoe, which turned out to be a very heavy boot. They signed former Time Warner Publishing (the company that is now Hachette Book Group) CEO Larry Kirshbaum to head up a new general trade imprint for them.

The next thing to drop will be a few pennies as the industry wakes up to a very new day.

Konrath complained in a blog post over the weekend that independent bookstores planned to boycott the Thomas & Mercer imprint. It would appear Konrath (who, in his pre-ebook-evangelist days worked hard to promote through independents) took very personally what was meant to be resistance to Amazon.

One would suspect that the books Kirshbaum is going to acquire will be very hard for any bookseller that wants to serve and keep her customers to avoid stocking. In other words, the Kirshbaum signing might have cured Konrath’s concern.

Where did this arise before? Many times, many places. Borders stopped buying Sterling books when the independent publishers was acquired by B&N. The relationship between Sterling and Amazon is more complicated, but it would be safe to say that sales of Sterling books were not Amazon’s highest priority and sales through B&N’s biggest competitor were not Sterling’s.

Amazon briefly (for a couple of days) turned off Macmillan’s buy buttons in January 2010 in an fleeting and unsuccessful attempt to persuade the big houses not to go to agency pricing.

When Barnes & Noble bought Sterling, they stated clearly that they did not intend to publish precisely the kind of books Kirshbaum is now going after: “non-fiction and literary fiction.” Although things have changed in what has been nearly a decade since that acquisition, Sterling was a “category” publisher when B&N acquired them and have never stepped aggressively into the high-advance, agented arena that is Kirshbaum’s natural milieu.

I’d say one of the pennies dropping might be at B&N, where they are probably reconsidering their title acquisition strategy. If their biggest retail competitor is going after the biggest authors directly, can they afford not to?

Five years ago we lived in a world where every book that mattered sold more copies at brick stores than it did online. Five years from now every book that matters will sell more copies online than it does in a brick store. The Amazon decision may mark the commercial turning point of that massive shift.

The edge in maximizing online sales revenues will go to the publisher that can manage online pricing and marketing most effectively. That not only means raising and lowering prices dynamically to get the most possible revenue, it might also mean experimenting with free sample sizes to see what delivers the best rate of conversion to a sale. It certainly also means having the best list of potential readers to alert to a book’s publication.

Publishers have a steep hill to climb to develop skills in that regard that Amazon has been honing for years. The announcement of Bookish, a community and information site for readers, seems like a weak counterweight to this Amazon announcement. I would imagine Kirshbaum will have signed away a few books the Big Six publishers wanted before Bookish even opens its doors.

Agents, who have just gotten a big new bidder to drive up the prices of everything valuable they have to sell, are having a very good day. Publishers, as they say: not so much.

I hope I’ll see you at either the memorial celebration of Ruth Cavin’s life tomorrow (Tuesday) afternoon at 5:30 at the Salmagundi Club at 5th Avenue and 11th Street or at our “eBooks Go Global” conference at Javits all day on Wednesday, where the topic of this blogpost will surely arise!

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

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

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

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

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

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

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

To a certain extent.

And then we had the events of last week.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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It was just about two years ago that I appeared on a panel at a meeting of agents with, among others, Macmillan CEO John Sargent and Sargent made the point that maintaining ebook pricing and margins was one of the critical challenges facing publishers. Ebook sales were still hovering around one percent of the business. Or maybe two. Nowhere near five. Sargent was prescient.

It was about six months ago that I did a couple of posts on direct marketing techniques. I engaged a publishing friend named Neal Goff, whose background is mostly outside of trade books, to help me with those. I had him walk me through some fundamentals because I didn’t know them and, I feared, neither did the trade houses that were now — because of agency — required to set prices on their own books without the requisite expertise.

It was only last week that Random House announced it was shifting to agency pricing and I said I hoped they would be more ambitious about experimentation with price than their competitors in the arena had been.

All of these thoughts came together for me when I read this post on CNET that has two real wake-up calls in it for the big publishers.

One they are increasingly aware of: very cheap ebooks are selling very well and, with at least two major bestseller lists (The New York Times and USA Today) now counting ebook sales in units for their rankings, there is a real threat that the established business at established price points could be chased from the biggest market-maker there is. (It is important to note that the Times and USA Today methodologies are still a bit opaque and it is not clear how lower-price books are weighted. Some clear successes in the low-price realm haven’t shown up yet.)

The other point is more subtle. Individuals and little publishers are fiddling with price in ways to maximize bestseller positioning and revenues. The rules are complicated. Both Amazon and Barnes & Noble have programs that reward pricing above $2.99 by paying higher royalties. But it would certainly appear that there are many consumers who are limiting their shopping for ebooks to those that cost 99 cents or below. So some authors have learned that cutting their price increases unit sales to put them on a bestseller list, then raising their price results in more revenue. Apparently one very useful strategy for revenue maximization is to shuttle between prices.

The point that “cutting price boosts sales” isn’t exactly surprising, and it also isn’t exactly news. J.A. Konrath, perhaps the first established author to really start raking in shekels self-publishing through Amazon, has been experimenting with pricing and proving this point for a long time. Konrath’s data was charted for clarity by blogger Dave Slusher a few months ago. Konrath’s work and Slusher’s analysis of it further emphasizes the central point Neal Goff made to us. Experimentation matters. (Neal called it “testing.”)

Another author has demonstrated that cutting price is important, and promoting lower prices is also important.

Although I have heard one major publishing CEO suggest that the house is doing some fiddling with pricing, there was no suggestion there of controlled and monitored experimentation. And I believe it is safe to say, without doing any research, that no major publisher is doing that on a consistent and persistent basis, let alone algorithmically-programmed price management such as the major ebook retailers almost certainly do.

There is another hugely ironic point buried in the CNET story. It is built around the work of an author named Christopher Smith, who has mastered the shuttle-pricing technique. Turns out Smith has a new fan named Stephen King. King, of course, has not only published successfully with major houses for decades, he was one of the first great ebook experimenters around the turn of the century when he tried to do author-direct publishing of ebooks before there was a market. King’s blurb for Smith has been very helpful to the lesser-known, lower-priced author.

Might Smith return the favor for King by teaching him the revenue-maximization techniques he’s developed so King can get back into the self-publishing experimentation game? I think that possibility encapsulates the major publishers’ biggest nightmare. Publishers are going to have a devil of a time defending their 25% royalty rate into the future, which just feels intuitively unfair to authors. They can get away with it for the time being because print sales still matter. But they won’t for long and if publishers don’t use their scale to do a better job managing dynamic pricing to extract the maximum revenue from ebook sales than an author might do on his or her own, the challenge of retaining their top talent will become even more difficult.

There is a reasonable suggestion that publishers should be making in a hurry about bestseller lists in the ebook era. In print, books are separated by format (hardcover, trade paperback, mass-market) by The Times and identified by format by USA Today  so that apples-to-apples comparisons are possible for consumers. It is really a stacked deck to rank on unit sales alone any book at 99 cents and Ken Follett’s bestseller “Fall of Giants”  at $19.99. Format in print creates a reasonable proxy for price. I think price-tiered bestseller lists would be a stretch, but going to the movie studio “box office” concept would not. Publishers, while they still have clout as advertisers in media that promote bestseller lists, should suggest a “units times price” ranking as one that provides a more useful comparison for many consumers.

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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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There’s a new Big Six in town. Or maybe not “in town.” But “on the planet.”

The Big Six is a term commonly used to collectively designate the behemoths of US trade publishing: Random House, Penguin, HarperCollins, Simon & Schuster, Hachette Book Group, and Macmillan. Although there are other large players, some of whom occasionally can compete with these companies for seven-figure authors, the lion’s share of the biggest author brands are published by one of these six houses.

But from the perspective of publishers or booksellers outside the United States, there is a new North American Big Six. These are the companies that have direct relationships with publishers — all of them that matter in the US (with one noteworthy exception) and, increasingly, those that matter overseas as well — to secure the rights to distribute ebook files wherever in the world the publishers have rights.

Why does this Big Six matter so much? Because as dedicated ereaders and tablets and smartphones that can effectively serve as ereaders gain increased market penetration anywhere, the appetite for ebook content will grow proportionately. In languages other than English, the number of published books currently in epub — and therefore deliverable as reflowable ebooks — is paltry compared to what we have. It will take a long time for the publishers in most countries to make enough content ready to satisfy that growing hunger in their local markets.

And the Big Six companies have the infrastructure, and, most importantly, the rights, to satisfy that appetite everywhere.

Three of the North American Big Six are well known and would be immediately identified just about anywhere. Although Amazon, Apple, and Google have not yet opened their ebook “stores” in every country in the world that can buy ebooks, it won’t be long before they will. These three global giants all derive more revenue from outside the book business than they do from ebooks (and only Amazon, of the three, has any commercial interest in selling books except for ebooks.) But they are past (Amazon), present (Apple), and future (Google) game-changers: companies that have such an enormous presence that their entry into any area, certanly including ebooks, causes every other player in the market to sit up and take notice.

There is a fourth player like them, relatively tiny Kobo,.Kobo is also an ebook retailer. Over the past two years, they have been extraordinarily successful at getting publishers to establish direct relationships with them. (I didn’t track this with great precision, but I believe Kobo was the only company besides Amazon to have all the agency publishers on board the day agency selling started last April.) Kobo has “white-labeled”, or powered, an ebook store for Borders in the US and Red Group in Australia (two booksellers who, coincidentally or not, have just filed for bankruptcy protection). Kobo also has, according to their executive, Michael Tamblyn, at Tools of Change, “more than two million registered users.”

All four of these companies will be competing as ebook retailers in every market in the world and in every language in the world. They all start out with a robust aggregation of US-published ebooks. Apple is the laggard here. They don’t carry Random House books yet — the “noteworthy exception” referred to in the third paragraph above — and they have fewer available titles than any of the other three. But Apple comes with its own significant advantages in the form of the wildly popular iPhone and iPad. These devices assure a certain minimum amount of traffic to their iBookstore, even if Apple doesn’t move ahead with in books with the power play they’ve just exercised over subscription sellers of magazines and newspapers. (And so far we have only rumors and stretched intepretations of what they’ve said and done to suggest that they will do that anytime soon.)

Because American hegemony is resented in much of the world, Kobo may have a built-in advantage in international competition against the other three. Kobo is a Canadian company. They are also not disrupting people’s lives or terrifying them by monopolizing online print sales in any market (like Amazon), or by delivering devices designed to capture audiences and wall them off from competitors (like Apple), or by digitizing first and asking permission later (like Google.) All three of the Biggest Three (of the Big Six) have enemies and detractors. Kobo doesn’t.

Kobo doesn’t have their effectively unlimited resourcces either.

There are already retailers active in every country in the world, operating in the local language, who want to be the ebook resellers of choice in their own countries. For them, the other two members of the North American Big Six are potentially critical resources: Ingram and Overdrive.

Ingram is well known throughout the book business worldwide (and is sometimes, and currently, a client of ours.) As the biggest and most innovative wholesaler in the US for four decades, they have built both a customer base and a supplier base all over the world. They’ve been the principal wholesaler of ebooks to US independent ebook retailers since the begining of ebook time. They have deep and strong relationships with every US publisher of any size, rooted in their wholesaling business. They can set any retailer up with a wide selection of US ebook titles.

Ingram’s competitor for the role of delivering English-language (and, ultimately, all non-local language) ebooks to resellers all over the world is Overdrive. Overdrive has been in the digital content business since the 1980s and pioneered ebook distribution to libraries from the dawn of the current ebook era in the late 1990s. They also have a very broad base of publisher suppliers and can, like Ingram, provide an ebook reseller local to any country with a robust selection of other-language ebooks to vend, with an emphasis on those provided by American publishers.

Could any upstarts join the Big Six as credible providers for local competitors to the four global ebook retailers? I see three possibilities.

Barnes & Noble certainly has the relationships with publishers globally to assemble an ebook title selection that can rival anyone’s (and they’ve done it.) They are already the number two ebook reseller in the US market, miles ahead of Apple and Google and Kobo. But, so far, they have continued their brick-and-mortar strategy of sticking to the US market. It seems to me that the economics of their successful Nook family of devices and the ebook store they run would benefit from extending to a global base. But every company has to make choices about resource allocation and focus, and it is hard to quarrel with the success B&N has had competing with Kindle and iPad considering their prior experience with hardware (none). They’ve leveraged their retail presence to do it and they don’t have that resource to employ outside the US.

Copia and Blio are upstart ebook platforms. The independently-owned Copia has its social component as a unique feature (although Kobo has some pretty cool social stuff and there’s an upstart called Rethink Books with some technology that provides social capabilities around books independent of the ebook platform.) When Blio started, they seemed to offer an opportunity for publishers to enhance their ebooks readily. But the tool set that would enable hasn’t been delivered. Both of these offerings have a distance to travel to catch up with the Big Six, all of which have been in the game a long time and built up a network of suppliers and customers that it is not a trivial challenge to duplicate.

If there’s going to be a Big Seven, my bet would be on B&N.

Right now, publishers and retailers seeing the book tsunami coming closer to their shores will want to focus on the North American Big Six. If I were a publisher in any language, I’d be sure they all had my books. If I were a retailer in any country, I’d be looking at them as possible competitors or collaborators. Understanding who these companies are, what they have to offer, and what they have in mind is going to be an important component of every publisher’s and retailer’s strategic thinking for the foreseeable future.

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I had breakfast last summer with one of the titans of 20th century publishing who is now in his senior years running his own smaller operation. He’s a notorious non-techie.

When we talked, he was trying to come to grips with what the problem for publishers was with this digital transition. From his perspective, publishing just gets cheaper (no books to print) and there should be room to lower prices, pay good author royalties, and still make a profit under something pretty close to the traditional model.

Well, I said, that would be true, but the problem is you’re going to face a lot more competition. Demand may go up and costs may go down but if supply in competition with publishers’ outputs rises too fast, there could still be a very difficult period in front of the industry’s legacy players.

That is: it could get increasingly difficult to get consumers to give you money.

Of course, increased competition from anonymous authors — many of whom would have been filtered out by the curation activities of agents and editors in the past — didn’t scare him. But, I pointed out, it won’t be limited to that. Do you think ESPN, for example, with all its content and all its market reach, will need a publisher to do a book or book-like thing? Or CBS News? Or The Museum of Modern Art?

When I shifted the conversation from stray authors he would have rejected as a big publisher to brands he sought deals with, the point had more impact.

Then, earlier this week at Digital Book World, David Nussbaum’s panel of publishing CEOs and presidents took up a related subject: ebooks being given away for free as a promotion. Brian Napack of Macmillan expressed a concern I’ve felt previously (and wrote about a year ago): that if there are enough free books around out there being distributed to promote an author or series, many readers will just choose from what’s free and stop buying books. Jane Friedman of Open Road declared on the same panel that “free is not a business model; it may be a marketing model, but it isn’t a business model.”

What the CEOs were focused on was what their company policies were and what they hoped others would be. Everybody’s learned that giving away a free book can serve as a promotion for other books by the same author, particularly if the book given away is the first in a series. But if enough people are promoting, that can generate a lot of free ebooks for any consumer to choose from any day of the year.

In a presentation of consumer data the following day, both the joint effort from BISG and Bowker (who were surveying the ebook consumer) and the research from iModerate (who were surveying readers who use multi-function devices) revealed findings that suggested that half or more of the ebooks being read these days are being obtained for free! How much of that is public domain material, how much of it is unknown authors promoting themselves, and how much is branded content from major houses is not yet known.

These two things — non-publisher brands and entities competing with publishers to deliver content and free content competing with content for sale — connect in a painful way at the publisher’s balance sheet. And there isn’t a lot publishers can do about them.

This morning comes the report that the New York Times is tackling the question: “How do you monetize the content when it is not news anymore?” Would you be surprised to learn that the answer is “publish an ebook”?

Their new ebook, “Open Secrets”, further amortizes the large volume of work they did to comb the wikileaks material. The ebook is available for $5.99 in most places ebooks are sold. Will there be more of this? You bet there will! Jim Schachter, the paper’s associate managing editor, is tasked with making sure there will.

The same approach is being tried by a newer brand with similar content, the independent journalism farm, ProPublica, which heretofore has teamed with various newspapers, including the Times, to deliver their investigative journalism to the public. Their entrant is “Pakistan and the Mumbai Attacks: The Untold Story” by Sebastian Rotella and it is available only from Amazon through their new singles (short works) program for $0.99.

Ten or fifteen years ago, “Open Secrets” would have been an “Instant Book” from a major publisher (if it were anything at all.) The Times could have an opportunity like this 10 or 20 or 30 times a year. They provide themselves with brand extension, revenue, an opportunity to give more exposure to their reporters and their reporting, and total flexibility without the need for the complexities, including contracts and corporate interactions, that arise when getting a book published by somebody else.

According to Richard Tofel of ProPublica, their goal is primarily dissemination of the information. After all, they’re a mission-driven organization to begin with. So they seem quite happy selling high-quality, curated content for 99 cents. Not free, but if you’re a publisher trying to sell content at prices that make commercial sense, not much better than free either.

These two unrelated realities — consumers being diverted from purchases by free ebooks and sources of content being diverted from publishing contracts by alternate paths to the market — make it clear that traditional publishing faces challenges both upstream and downstream from where they sit.

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