Michael Cairns

The last post I did got more attention than anything on the blog in quite some time, but for somewhat different reasons than I intended. My central point about what increasingly common ebook growth predictions would mean for brick-and-mortar sales (that they’d decline sharply over the next five years) was that it diluted the core value proposition of the major publishers. Most of my comment traffic wanted to talk about the fate of bookstores, not the fate of general trade publishers.

Then yesterday, my friend Michael Cairns had on Persona Non Data a post which really delves into the point I was concerned about: what are the competitive advantages of big publishers? As Cairns points out, it is those things that can scale; the aspects of the operation where size presents a big advantage.

I learned long ago in a talk by industry legend Martin Levin that an acquiring publishing company looks primarily at an acquisition target’s revenue, not its cost structure. The cost structure that counts is the acquirer’s own cost structure; the revenues from the target would be ported over, but the costs would mostly be left behind. True marginal costs, like the cost of picking a title off a warehouse shelf, might remain. But the costs of collecting the order, processing the order, and shipping the box out the door with another book in it (not including actual postage) would not rise at all. Nor would the costs of accounting or negotiating the printing contract or (unless there was a step increment that required a warehouse addition) the cost of storage.

So, as Cairns demonstrates in his piece, most of the scaleable overheads and operational costs publishers have are related to print book operations. It is very difficult to scale the parts of the operation publishers can focus on in a digital delivery world, which would be title acquisition, development, and marketing. Those functions require person-power, and if you want to do more of it you have to hire more people. That’s the definition of something that doesn’t scale. And what doesn’t scale is what doesn’t offer advantage to a large player.

The only way we can think of to apply scale to marketing is to market repeatedly to the same audience. That implies “vertical.” Have you read that anywhere before?

A friend from Amazon was in the office this morning making a different point, which, on reflection, is also about scale. Amazon uses algorithms that have been 15 years in the making to set prices for their books. Publishers under the agency model are setting their own prices but without those years of experience, without algorithms, and without adding expertise — or even personpower — to their staffs. Pricing knowledge is also scalable (what you learn pricing the first ten books makes you more effective on the 11th). If publishers believe in the future of the agency model, perhaps pricing expertise would be a tool they could use to persuade authors to stick with them five years from now if brick-and-mortar sales go the way I fear they will (dragging the publishers’ main value proposition down along with them.) But pricing expertise won’t happen by accident; it will have to be developed rigorously and iteratively over time.

In one more post-script, I dug up an old post from back in the early days of the blog when it had far fewer readers than it does now. It tells the story of Ingram’s creation of the microfiche reader and their subsequent growth, which I called the first big supply chain tech disruption. If you like these posts and never read this one, it may be worth the click.

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We had a very successful debut annual conference for Digital Book World last January, even though we didn’t conceive the idea until June, put together a group of helpers (which we now call our Conference Council) until July, or draft the initial program until August. This year we’re way ahead of that schedule. We’ve put together a fabulous Council to advise us this year and we’re having a meeting of many of them next week to discuss the agenda and to start getting suggestions for speakers.

The Council gives us wide exposure and connections to the trade publishing industry. That way we make sure we don’t miss any ideas and we don’t miss knowing about any talented people whom our audience would want to hear.

We have several publishing company presidents and CEOs (Sara Domville of F+W, Marcus Leaver of Sterling, Maureen McMahon of Kaplan, Brian Napack of Macmillan, Dominique Raccah of Sourcebooks) and some presidents and CEOs from other companies and support organizations in the industry (Kristen McLean of the Association of Booksellers for Children, Tracey Armstrong of Copyright Clearance Center, Peter Clifton of Filedby, David Cully of Baker & Taylor, Joe Esposito of GiantChair, John Ingram of Ingram Content Companies, Scott Lubeck of The Book Industry Study Group, and Steve Potash of Overdrive Systems.)

We have other senior level executives, many with specific digital responsibilities (Peter Balis of Wiley, Ken Brooks of Cengage, Mark Gompertz of Simon & Schuster, Madeline McIntosh of Random House, Thomas Minkus of the Frankfurt Book Fair, Larry Norton of Borders, Kate Rados of F+W Media, Charlie Redmayne of HarperCollins, Adam Salomone of Harvard Common Press, John Schline of Penguin, Evan Schnittman of Oxford University Press, Michael Tamblyn of Kobo, Maja Thomas of Hachette, and Tom Turvey of Google.)

We have agents (Sloan Harris of ICM, Simon Lipskar of Writer’s House, and Scott Waxman of the Waxman Agency) and industry consultants and commentators (Michael Cairns of Persona Non Data, Ted Hill of THA Consulting, and Lorraine Shanley of Market Partners International.) And because he is our media partner, we have help from Michael Cader of Publishers Marketplace as well. And we also get great input from others on the F+W team: David Nussbaum, David Blansfield, Cory Smith, Guy Gonzalez, and Matt Mullin.

So we have all the Big Six represented, as well as small publishers, industry-wide associations and service providers, wholesalers, digital distribution partners, retailers, and agents. All of these people have real input into the topic list and speakers. Many of them are joining us for a meeting next week to review our ideas for the program, which we previewed on this blog about a month ago.

Because Digital Book World tries to be at the cutting edge of trade publishing and digital change, we often face one or both of two challenges. Sometimes we believe something should be happening, or be about to happen, but we may not know where or whether the publishers leading the charge will talk about it. Several topics come to mind that fit that description: vertical efforts inside general trade houses; what houses are doing to adjust to reduced expectations for print sales in bookstores; how houses are gearing up or changing their sales efforts to compete in and serve a growing list of digital intermediaries; how enhanced ebook and ebook first creation change the traditional order of things in product development.

The other challenge we have to work around is when people can say things privately but not publicly. One topic that is very tough to talk about is ebook royalties, which is a major point of contention between publishers and leading agents at the moment. The big houses are pretty adamantly trying to hold the line (publicly) at a royalty of 25% of net receipts. But upstart publishers like Jane Friedman’s Open Road appear to be willing to pay 50%; publishing through Smashwords yields 85% (but sells the books without DRM, which would frequently scare the copyright owners of valuable properties); and self-publishing through a distributor would deliver a yield somewhere in between. (Remember: self-publishing ebooks carries no inventory risk.) In that environment, some agents are able to wring some concessions from some publishers. But the agent can’t talk about that without jeopardizing her ability to get concessions for her clients and no publisher will volunteer to reveal the isolated concession and start turning that into a policy.

Some things are just hard to discuss. Do booksellers, or even the publishers and wholesalers who supply them, want to talk about the possibility of their impending demise? But how can one plan for the future and ignore that elephant in the room? If a publisher suddenly sees the necessity of developing direct selling relationships with end users, after years of telling booksellers he was against it, does that publisher want to talk about those efforts in public?

When competitors participate in industry education initiatives, they must draw lines around what they will reveal and what they won’t. One ebook-responsible executive we know at a major house is persistently reluctant to reveal what he’s doing or what he’s thinking. But he has a boss, one who is proud of what he does and what their house does, who pushes him forward as a speaker.

Frankly, I think these challenges are greater for us than they are for other conferences on digital change that focus more on technology than they do on business practices. Very few publishers are masters of tech; usually they’re working with outside suppliers who are happy to share best practices. But business practices are different; they’re more sensitive. Sometimes the reluctance to share them is sound. Sometimes constraints are even legally required. Since our job is to focus on business practices, we’re glad to have relationships with very knowledgable players who will candidly engage with us on these challenges so we can figure out the best way to protect true proprietary knowledge but still disseminate valuable information.

We’re really proud of the illustrious group we have gotten to advise our efforts, and we get great value from them even though their first responsibility is to the company they work for. We feel confident that this group helps us cast a net that is wide and broad enough to assure us that any major development in the trade book world will hit our radar screen and that we’ll know if there are informed people willing to talk about it.

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Dinner Saturday night. 12 of us. Three spouses who had no particular interest in the BEA. Eight of us with one interest or another in the book business, but no possibility of personally being an exhibitor. And one publishing company CEO with a stand.

Of course, I got my money’s worth. I got in free as a speaker and live in Manhattan. I had several meetings with publishers and distributors on stands they were paying for that could result in assignments. I had other meetings with a bookstore chain and some technologists that came because of the publishers too that also could result in work.

An ROI of pretty much infinity. We all felt that way. Except for the exhibitor.

“No way it is worth it,” he reported. He even had to plan on having four people at the show on Sunday, just to cover the booth when he knew in advance there’d be hardly any productive business conversation. (BEA is fixing this next year by shifting to a mid-week schedule.)

I am always skeptical of any individual’s ability to characterize a show like this based on their own experience. After all, there were considerably more than 20,000 people there. There were dozens of panels going on that had great impact that I didn’t even know were happening, because I was engaged doing something on the floor. But, speaking for me, it was a great show. Lots of fun and lots of business.

Martin Levin, whose first ABA was in 1950 and who commented on my previous BEA post, argued with me about my prediction that BEA would soon come to an end. I had to remind him not to confuse what I say I think will happen from what I would hope would happen. It is work to keep those things separate.

Martin said, “being fat is no reason to commit suicide. This show is fat. It needs to go on a diet!” Another trade show veteran from one of the supporting technology companies said very much the same thing.

But wait, there’s another point of view. Make it bigger! Richard Nash and Michael Cairns (two smart guys I agree with a lot, but not this time) both suggest “open the show up to the public.” Frankfurt does! Book festivals in Los Angeles and Miami attract huge crowds! 

Sorry, public participation is not the “solution” for this show. What ails this industry is horizontality! What ails this industry is dedication to the book as a form! Publishers need to understand niches better; they don’t need to try to replicate the horizontal world that is disappearing in newspapers and bookstores through trade shows!

What made BEA such a fabulous experience for those of us for whom it was that was the aggregating of all of the industry players from around the world. And not just publishers! What do Bowker, Bookmasters, and Klopotek (just to name three exhibitors who were important to me at this past weekend’s show) have to gain by having the public come in? The smartest publishers who are beginning to understand verticality — like Wiley or F+W or  Taunton — need to meet the public in verticals. They don’t need to spend a beautiful Sunday fending off people looking for a free novel or a free children’s book. (And, of course, the German model isn’t “free books for the public”. Exhibitors sell the books to the public off the stands! I wonder what the sales tax authorities in New York would say to that…)

I’d love it if Reed would keep BEA going for years and years, particularly when they bring the mountain to me on my very own home island. But I’m still having trouble seeing why publishers will keep paying and, if they don’t, no more show. I’m afraid that what will work for publishers is smaller and more focused, not larger and more horizontal. That may very well not work for Reed. I expect very shortly it won’t work for Reed. I think the rights-trading piece can be revived in a much cheaper form. The retailer-facing piece — horizontally — is a dinosaur. And all the PR opportunities occur because of the size and glitz. Like most horizontal PR opportunities for books, that won’t get replaced either.

My message of verticality is clearly not getting through! The Washington Post was kind enough to feature me on the front page of today’s Style section with a lengthy and, as far as it went, accurate summary of my Shift speech from last Thursday. But, you know what? Not one mention of the central theme: verticality!

These are twilight times for the good old days.

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Michael Cairns has a really good post today that distills a lot of thoughts I have had over the last several years into a clear formulation: that the publisher needs to serve as a “digital concierge” for its author.

Three years ago, Brian O’Leary, Ted Hill, and I did a study of marketing spend for a mid-sized trade house. At that time we articulated the notion of a “new marketing partnership” between publishers and authors. We urged then that publishers do what is necessary to make it easy for authors to promote themselves on the web because, in the modern world, that marketing energy would be indispensible.

What was a fairly forward-thinking suggestion in 2006 has become a common understanding by 2009. Harper has launched several author-centric initiatives. Sourcebooks just unveiled a suite of tools and advice for authors to promote themselves effectively. And, of course, I’m a co-founder of Filedby, Inc., and the filedby web site is all about delivering web promotion capabilities to book authors, photographers, and illustrators at scale.

I guess it won’t surprise any frequent readers to hear that I believe that the success of this concept depends on…verticalization!

The swingeing volume of detail that Michael points out is impossible for authors to navigate (Twitter, Facebook, and Friendfeed are just the start, really) is also really impossible for publishers to navigate as well. I believe that is becoming increasingly obvious in many houses. The web worlds of knitting and beading are quite distinct, even if books on either subject would go into the crafts section at Barnes & Noble. The web world of parenting is one thing; the web world of parenting an autistic child would be quite another. Publishers who don’t specialize, focus their specialization, and learn the web world for the fields they are in are trapped in marketing that is massively labor-intensive and yielding no advantages of scale.

Publishers (anybody, really…) gains expertise by repeated use, involvement, familiarity. Publishers have had credibility telling authors what will work with a B&N buyer, a NY Times book critic, or the booker for Oprah or Today. They’ve worked with these outlets many times before and the author hasn’t. The digital concierge, in order to really help me, has to be able to tell me which of the sites for my book on summer night stargazing will take my posts, link to my blog, generate followers on Twitter. Otherwise they’re just giving me general advice a bit more easily, but no more personalized, than I could get from a web site dispensing advice. Or a book.

This is very much a transitional need. Ten years from now, most authors will have arisen from the ranks of the digital community for their subject. We’re very much in a transitional time (one very important point that will be made in my “Stay Ahead of the Shift” talk next Thursday), and the concierge will be characteristic of the transition.

I’m working hard at BEA. Please join me. “Stay Ahead of the Shift”: Thursday 5/28 at Javits Center at 11. “StartWithXML for Editors”: Thursday at 3. And “Digital Debut Tool Time” Friday morning 5/29 at 9:30.

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The acquisition of Lexcycle by Amazon sure got all the digerati’s creative juices flowing. What is becoming increasingly clear is that general trade publishers have a card to play here that the niche publishers can only join in on: creating a collectively-owned ebook “store” that can provide an economic baseline for the emerging ebook marketplace.

Michael Cairns suggests this possibility in his piece this morning. But his focus is on epub and interoperability standards. Mine is, and I believe the publishers’ will be, on pricing throughout the supply chain.

Through laziness, thoughtlessness, carelessness, or inertia (or whatever combination thereof), the ebook supply chain has adopted discount structures that imitate the physical book supply chain. This is daft. There is no comparison between the retailers’ costs and risks associated with physical books and those associated with ebooks. There is no economic justification to providing the same level of discounts. But that’s where we are. Amazon may be arm-twisting to enforce this discount equivalence, but they didn’t think it up. It’s pretty much universal and it came from the publishers in the first place.

As I suggested in my ebook post from London last week, now is the time to change this, before ebook revenues become too great. The college publishers with CourseSmart have mapped out the way to do something about this legally, but the play is pretty obvious. The publishers need to jointly fund and substantially own a virtual retailer whose mission would be to deliver all conceivable ebook formats (whether epub or not!) The store should be competitive with other offerings as to interoperability, lightness of DRM (I favor social only), and customer service.

Establishing such a business would force publishers to figure out how much discount off retail is required to enable the retailer to be profitable. I suspect that number is about 20% and, at that level, would allow modest discounting (5% or 10%) on some titles to the consumer. To stay on the right side of the law, publishers would sell to the new entity on the same terms they sold to everybody else. But the objective here is to limit the ability of retailers to force higher discounts through boycotting publishers or titles with impunity. That is what his happening now. Sometimes the book you’re looking for now on Kindle isn’t there because the publisher won’t agree to Amazon’s discount schedule. I know specifically of one medium-sized trade house for which that is true and, if there’s one, there are probably more.

If publishers don’t do this, the excessive discounts they offer retailers will turn into high standard discounts for consumers that will create inexorable downward price pressure. Amazon may be subsidizing that $9.99 price point they like, but the publishers are subsidizing it too.

This idea can work because six publishers control the lion’s share of bestsellers, which is a big chunk of ebook sales in the short run. Bestsellers is the one “niche” in which the general trade houses have critical mass.

And if this idea can work, another one waits in the wings.

It has been bemoaned that Google and Amazon are on a path to control both discovery and delivery of books in the future. This isn’t even a particularly competitive situation between the two of them, since Google is much more interested in discovery and Amazon is much more interested in delivery.

Because Google is more interested in discovery, they are also not particularly interested in books. They are about “all the world’s information”, not “all the world’s books.” So as robust as Google Book Search is, the company is not focused on making it a competitive book discovery tool compared to Amazon. They are about incorporating the book information to make a superior information discoverytool.

That leaves another opening for publishers where the Big Six have a strong collective position: the metadataassociated with the biggest books.

What if the Big Six also jointly owned a book discovery site: Allaboutthebookyouwant.com. The play there would definitely not be to act as a retailer, but rather to help consumers find the book and the retailer that is best for them. All retailers that “play” would have their inventory and pricing made transparent on the site which would contain a publisher-assisted best possible aggregate of enriched metadata (excerpts, stories behind the book, video support, etc.) 

This initiative could solve a number of problems for the big publishers. It would create a “Switzerland” for enriched metadata: a place to make it available which would help all the online booksellers. To the extent that it grew in consumer acceptance, it would reduce the danger of being being buried or victimized by bad data on a retailer site (think of the recent brouhaha about the “adult” books on Amazon). It would enable the consumer to shop across many book retailers at the same time. And the referral fees the site could earn would reduce the degree to which it needed to be subsidized as a marketing expense.

The current effort by several general trade publishers to drive traffic to their own house-branded web sites is misguided and doomed. But Amazon (and Shelfari, GoodReads, LibraryThing, and our new entrant, Filedby.com) have demonstrated that sites with information across the trade book spectrum have real consumer appeal. With the support of the big publishers from the earliest possible moment to make the high-profile general trade books visible, at least a large portion of the discovery traffic could be liberated from being captive to Amazon, Google, or anybody else. And the consumer could be assured that the information she is getting on purchasing was being offered in her best interest, not based on what a retailer is trying to push.

Worth noting: the ebook site Smashwords already sells ebooks at 15% margin, returning 85% of the publisher- or author-set retail price to the content owner. Up until now, Smashwords has been about author-generated ebooks; it has not pushed out an offer to publishers. And there are elements of Smashwords’s solution — DRM free, working from PDFs and doc files — that might not be exactly what publishers would want . But they might be the ebook solution, and it might be close to being in place. Smashwords may be the game-changer but the publishers and public haven’t discovered it yet.

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The post from Thursday about the Google “windfall” provoked a lot of information sources to help me understand the settlement, large parts of which I clearly did not. We’ll go over the answers I got (as I understand them; my understanding seems to be a moving target…) to the questions Michael Cairns and I posed and then I have a few more thoughts about where this leaves us.

1. There are no “rules” about what BRR can keep for its own operations. The notion is that since the Board is composed of representatives of the net recipients, who will benefit from tight cost control, that there is incentive for the Board to manage expenses well. 

2. A share of the money from the Google licensing activity that goes unclaimed because it is attributable to orphan works is first available to pay “inclusion fees” for the opters-in work of $200 a title. (This is not to be confused with the $60 per title scanned before this May 5 which is paid as part of the settlement.) Beyond that, the licensing money is divided among the opters-in on some to-be-determined formula based on usage.

3. The allocation of money to c/r holders is a little bit by volume of material (the up to $200 per book mentioned above) and then thereafter by a to-be-determined measurement of use.

4. The “costs” Google incurs, including sales costs, are all included in the 37% deduction. That 37% is actually arrived at because the split is 70-30 after a 10% expense allocation. There is a provision in the settlement to enable rightsholders to claw back their share of that 10% out of unclaimed revenues. So Google keeps 37% of the total it processes, but declared rightsholders could still get 70% of the revenue attributable to their books with the difference coming out of orphan revenues (before additional payments that could occur out of additional unclaimed revenue.)

The answers to the rest of our questions would be purely speculative. Whether new models are clearly contemplated (like print-on-demand or downloadable ebooks) or not (like licensing orphans for press runs), deals for orphan books can only occur by mutual agreement of Google and the BRR.

And therein lies one big rub. We must assume that each of the three entities with decision-making power: Google, the Authors Guild, and the Association of American Publishers, will act in the best interests of its principal stakeholders. For Google that would be its shareholders; for the others it would mean their author and publisher constituents.

For those (like me) whose primary interest in the settlement is the liberation of all this stranded (orphan) IP, this is discouraging. I don’t believe Google would have reason to object to seeing old books published again, although, for those few that would be, their search “exclusive” could conceivably be compromised. In the overall scheme of things, that would be small beer.

And publishers would also have an interest in allowing those books to be relicensed and published again because, after all, publishers will be the ones relicensing.

Authors, on the other hand, would have no interest in seeing thousands of books come back to active promotional life. If you’re working on a new biography of Franklin Roosevelt, do you really want to see 25 of them published over the last 70 years and long since buried suddenly come back to compete with yours? I see no upside for today’s author in liberating the orphans and I would expect that to be an important consideration for Authors Guild representatives on the BRR board.

What that means is that this settlement does not eliminate the need for legislation to further break up the logjam blocking complete access to the orphans. It makes it important that Google be sincere in its statements that it still supports orphan legislation. My understanding is that it is representatives of non-book IP that have a lot to do with blocking such legislation. Publishers would have reason to favor it. Would authors?

And will approval of this settlement or its rejection make new and constructive orphan legislation more likely? It’s only a guess, and I know more about politics than I do about orphan works legislation, but I’d imagine that the game-changer of this settlement would be a spur to action and rejection of it would leave the matter in the courts.

In the conversations I had yesterday bringing me up to whatever speed I’ve been able to attain, it was pointed out to me that the number of orphans may be large but the usage would be greater of those where copyright is claimed. The books in the database that will get the most use will be those academic publications which don’t even have reversion clauses so the copyright owner is not obscure. Think: you’re doing a book or paper on paranoia and you need to read what people thought in 1937 and 1951 and 1986. It will be situations like that which drive the page views.

Trying to estimate how many titles are involved (the $60 fees will be paid only on those that have been scanned until May 5, though many more will be scanned thereafter) is almost impossible. But even if 25-to-50 percent are claimed, and they amount to a somewhat higher percentage of the usage, the “windfall” is likely to be in the low eight figures annually. A big number.

As to the big question we posed: what happens with that windfall, the answer is that, primarily, it goes to the opters-in and primarily based on usage. How many of them will there be? A million? Several million? Cairns and I have to go back to our economic model in light of what we’ve learned, but we know those books will be sharing windfall revenues of some tens of millions of dollars annually. Assuming some sort of Pareto distribution of the revenues, that could result in some significant found money for select publishers — likely ones that are academic, sci-tech, professional, and have a very lengthy backlist. We’re likely to be talking about a handful of multi-million dollar windfalls.

The brand new position of the BRR will be as a licensor of the opt-in titles for whatever uses it can persuade the copyright owners to allow. BRR will be trying to demonstrate value here, both to copyright owners (so they keep putting new books into the system) and to potential licensors, based on BRR’s position as an aggregator of a massive number of copyrights (imagine if it is a million or more: that’s a lot in one place!) 

From what we see here, the two most important questions (about which reasonable people can certainly disagree, and nobody can really know yet):

Can BRR, given its assets and revenue by fiat and its restrictions by structure, serve a significant function beyond maintaining the database and adjudicating book rights disputes? (Or will it simply serve a 1-time clearance function and then process checks?)

Would acceptance of this settlement be a spur to get more far-reaching stranded IP liberation through legislation? Or would stopping it make it more likely that the politicians would act?

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Michael Cairns and I have both been frustrated with most of the conversation surrounding the Google Book Search settlement. The principal concerns of most of the participants in the dialogue seem to be: 

1. Has Google unfairly captured a monopoly on some content?

2. Has the “class” of “orphan authors” been dealt with fairly, since they aren’t really “represented” in the negotiations?

3. If this case doesn’t adjudicate questions of “fair use”, does that ipso facto mean that a settlement is a bad idea?

4. Can any settlement of broad public-interest questions about copyright and use be legitimately resolved in any way other than through legislation, since, after all, copyright rules are created through legislation?

We believe it is unfortunate that the attention has been focused there because there are some very real commercial questions that we think need answers to fully appreciate the practical implications of the settlement. We’ve been doing our best to build a model of what revenue will be and where it will go. Trying to do that makes it very clear how much important detail has been omitted from the debate we’ve heard so far (and we’ve both heard a lot of it.) Here’s a starter list of questions that need answers to forecast this business which we hope that people more familiar with the terms of the settlement than we are might be able to answer for us.

By far the most significant questions we have concern how the revenues are divided,  and these are significant questions because the preliminary financial projections we have done indicate that this database of content will produce hundreds of millions of dollars for Google and BRR.

1. We understand that revenue flows from the books in the database to Google and then 63% of that to the BRR.  Are there any rules set yet about what BRR can keep of these revenues for its own operations before it passes on the remainder to rightsholders? We might logically assume that BRR would require a diminishing percentage as revenues rise, but we wonder how those controls will be established.

2. We understand that future orphan claims can be compensated going back five years from the time of the claim. That suggests that the BRR has to hold the orphans’ money in escrow going back five years. The key question we have not heard discussed is: what happens with the money older than five years? We’ll expand on that below.

3. How is the allocation of revenue determined for the copyright owners in the database? Are they paid by the amount of content in the database? Or by the number of pages viewed of their work in the databases licensed? Or on some other basis? Or is that something still to be determined by the BRR?

4. We believe that any sales costs Google incurs, such as hiring another organization to help them sell licenses, would come out of Google’s 37%. Is that correct, or can Google deduct sales costs before dividing the money?

And we have a bunch of questions to which the answer might be, Book Rights Registry (BRR: the entity with a Board of eight — four from the AAP and four from the Writers Guild — that can therefore deadlock) just decides. We want to know if there are any barriers or constraints on any of the following within the terms of the settlement.

5. We know that the database will have greater value and greater use if it is curated and merchandised. Is there a plan for this? Is there even a concept for how a third party could be compensated for doing this curation and merchandising? 

6. We see opportunities for services & solutions providers such as SharedBook and to add value by providing the ability for customization, personalization, and annotation of the IP and then perhaps to have the end product  sold both as a book and as an ebook. Is this a deal that BRR would just be free to make on whatever terms they deemed appropriate?

7. Does BRR get to retain a larger percentage of revenues for ‘home-grown’ product initiatives such as the ones we are describing?  This revenue doesn’t come from Google like the institutional licensing and ebook sales money does, so does Google still get its full 37%?

8. To leverage non-database (non-Google) revenue opportunities we see three primary functions that need building: a storefront, an assembly technology (which could be much simpler than SharedBook: what if you wanted to put five Dickens novels together and print them?), and actual printing and delivery. Do we assume that BRR is free to put these capabilities together however it likes? Could it grant this as a sublicensed monopoly to Amazon or Ingram or Barnes & Noble? 

9. We puzzle over the pricing of POD. May we assume that BRR would be free to pursue any model? We can see two immediately: one is that BRR gets a percentage of the book’s retail (or wholesale) price and the other is that BRR charges a flat rate for the book content and the packager-reseller then charges whatever they want for the resulting book. Is BRR free to make these deals as it likes?

At the core of the important discussion about the settlement which has not occurred is  the question “what happens to the money the orphan books earn?” If it is divided among all the opters-in, which seems at least as reasonable as letting BRR just keep it, then there is a huge potential windfall to the copyright holders who stay in this database. That has not been mentioned by anybody (as far as we know). By consensus, 5 million of the 7 million books that are going to earn many tens, if not hundreds, of millions of dollars annually are orphans so, by definition, they have no copyright owner to pay! Either BRR keeps the money or they give it to the contributors to the database.

Not to have discussed this strikes us as a startling omission. Somebody gets a windfall much larger than the one going to Google. Who is it?

This post is an intellectual joint effort with Michael Cairns, who did a very helpful editing job on the first draft as well.

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Michael Cairns blogged yesterday about a deal SharedBook has just made with ourenergypolicy.org to use an annotation technology SharedBook has. SharedBook is a client and I spent some time this morning getting updated by CEO Caroline Vanderlip about this new technology.

This is wikipedia-type capability with a spin that publishers and authors will really like. With wikipedia, the edits and annotations from “the crowd” (or from whomever is allowed to mess with the wiki) actually change and revise the content itself. With SharedBook’s annotation technology, the original published content remains locked, and the changes are appended as footnotes! The footnotes can be associated to a chunk, a paragraph, a word, a symbol, a diagram, a picture. Whatever you like. And using the capability to manipulate content into a one-off book that SharedBook is known for, a reader can order up a printed book with whichever of the footnotes the reader wants in their own copy of the book. They’re then numbered consecutively and gathered at the back of the book.

The possibilities here are endless. A professor could pepper a textbook with his or her own annotations. Or the class could use the technology to add their own annotations. A professional organization can (as ourenergypolicy.org will) restrict annotations to approved experts; then the “reader” can select which of those to include in their own unique version of the book. A mystery writer or sci fi writer could use this technology to capture thoughts from other writers or fans. 

The “platform book” concept described by Joe Esposito might be handled differently using this technology, but perhaps that would be for the better. Certainly any author who believes in his or her own rendition, but also believes in the value of crowd-sourced input, would be more comfortable with SharedBook’s annotation technology than with a wiki.

Caroline told me today that it was this annotation technology that first attracted her to the company five years ago. At the time, she found it impossible to explain the benefits to any publisher. Thanks to wikipedia, that’s no longer a problem.

It is easy to imagine this annotation technology becoming an important tool in moving us toward a much more dynamic concept of what a book can be.

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I have read and listened to a lot of dialogue about the Google settlement. I’m not a lawyer and I’m not a librarian or archivist and I’m not a scholar who would be interested in those “non-consumptive uses” I didn’t know about before this all happened. To the extent that I had a horse in the race, it was about liberating orphan books. I worked with a current executive who was inside a different big company 10 years ago. We were analyzing the whole world of out of print and the opportunities therein. We figured out pretty quickly that a lot of the good stuff we’d find would present devilish problems trying to locate somebody to pay royalties to, and determining definitively that something post-1923 was not under copyright was not an airtight propositon either. 

A few years ago, at the Frankfurt Book Fair before the Google Library project was announced, Michael Holdsworth, then at Cambridge University Press, related an observation from somebody he’d talked to who said “when we come back 30 or 50 years from now, most of the IP from the 20th century will have vanished. We’ll reach a point where if Google doesn’t report it, it doesn’t exist. Everything from before 1923 will have been scanned by somebody and everything post 2000 was born digital. Just about everything in between will be missing.”

That was very fresh in my mind when Google began to scan all those orphan works, breaking a logjam (one way or another; it now appears by this settlement) that the Congress had not resolved. In fact, legislation since the 1970s extending terms of copyright had actually made the problem worse. Under the laws I grew up under, I believe anything older than 56 years would have been in the public domain. That law today would liberate anything born before 1953. I would personally be out of copyright.

As a responsible member of the community, and a consultant who wants to help clients think through the implications of change, of course the Google settlement becomes a tennis tournament where I have to attend every match.

The part that interests me most is the potential revenue beyond the settlement. Where is the revenue for this going to come from? Who will buy what from the material Google has digitized and what will the revenue opportunities really be for those who “opt in”? And what will Google really have to sell?

I went to Michael Cairns, former CEO of Bowker with this question and he and I are starting to think it through.

All the focus on revenues in the conversations I’ve heard, including a very stimulating seminar at Columbia ten days ago, has been about digital revenue. And that’s what Cairns and I were thinking about too. What, besides the pre-1923 PD stuff do they have in the databases they can license to libraries? So how much can they charge? We saw Google’s pricing idea for ebooks. What will copyright owners do about pricing? And will copyright owners give Google books under this program, or under the Google Partnership Program? These are complicated questions.

Distracting, even.

Because that’s not where the money is. (This next part is purely a hunch; we haven’t done any numbers yet.)

Let’s remember that 99% of the consumer book business is still in print.

Think about how many orphan books would be worth a printing of 5000 copies or more. Start with this as a list from which to find probable candidates:

Any book that was made into a significant Hollywood movie.

Any book about FDR, Babe Ruth, Dwight Eisenhower, John Kennedy, Winston Churchill, etc.

Books about movie stars, TV stars, TV shows, pop musicians.

The number 1 fiction or non-fiction bestseller of any year (this could be a set used as birthday presents for special birthdays: 60, 65, 70, etc.)

My hunch is that the biggest revenue generator across the entire load of copyrights that the settlement will liberate for at least the next ten years will be books printed in press-run quantities. Who ever thought that the biggest beneficiaries of the Google settlement in the medium term could be agents and packagers? If somebody has previously mentioned the possibility, I hadn’t noticed. It only occurred to me day before yesterday.

Cairns reminds me that our friend (and fellow Michael) Cader thinks that the chances of any real “gems” being found in this orphan pile are remote. Of course, things that are remote possibilities happen from time to time over enough occurrences, and there will be a lot of books liberated. Surely there are many, in the categories mentioned above and others, that will warrant a first printing of  3,000 or 5,000 or 10,000, or with the right packaging and promotion, even more than that. Even in these troubled times, there might be some additions to staff at packagers or publishers to sift through these opportunities. Assuming these deals are to be made by the Book Rights Registry, let’s hope they have an agent on the staff along with the database sales manager.

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When Joe Esposito first told me about blogs in about 2001 or so, there were very few. Michael Cader had PublishersLunch, but if Michael knew that it was an emailed blog, he didn’t tell me. And then blogs “happened”, as things do: gradually, then suddenly. And now I’m late to have one of my own. Really late.

I’ll admit that I fiddled with this a couple of times before. I started up at least twice, maybe it was three times. I decided I’d try it for a while, see if I could get into the pattern of writing regularly, and then reveal it to the world when I’d piled up a month or two of posts. But I never GOT to a month or two of posts. And because I was keeping what I was doing a secret, I had no traffic, no comments, and none of the rewards of interaction which provide the motivation to keep going. So I didn’t keep going.

I admired my friends Gwyn Headley and Michael Cairns for starting their blogs and sticking with them. Gwyn started by making a list of 365 things he could blog about, so he could refer to his list every morning if he needed to. It would take me five years to make a list of 365 things I could blog about.

But I’ve been getting some signs that “now’s the time.”

One follows from having been on Peter Brantley’s mailing list for a couple of years. Twenty, thirty times a week, Peter sends us a link to something he’s found about publishing and digital change and invites comment. The posts and comments have increasingly sparked a response from me that amounts to a blog post. Once in a while Peter would ask me to extend a comment as a post to one of his blogs, PubFrontier. Then last week David Rothman flattered me by turning another Brantley list comment into a post on his Teleread.

Then, thanks to my friend Laura Dawson, I hired a really smart woman named Tess Strand Alipour and her partner Hamid Alipour to help me optimize traffic to idealog.com. They rebuilt the site so the speeches can accept comments, which was never the case before. They did other things that have boosted our traffic by a gazillion percent in the past two months. And they’ve told me that traffic will get even better if I post whatever I have to say to my OWN site rather than always to other people’s.

And then two weeks ago I started using Twitter. I was a bit slow to get it, but Tools of Change accelerated the process for me. The complementarity of Twitter and a blog seem pretty apparent.

On top of that, I’m involved with a large number of exciting new initiatives even in these troubling times. Filedbyauthor, a new venture I’m co-founder of being headed by my longtime friend and colleague, Peter Clifton, will be live with a web page for every author with an active ISBN in another month or so. FotoLibra, an open-source photo stock agency based in the UK that I’ve been involved with since its founding a few years ago, has achieved orbital velocity. We’re working out details, to be announced shortly, to take our StartWithXML project to London soon. We’re doing a research project on “Shifting Sales Channels” with BISG that has an online survey component and will culminate with the Making Information Pay conference on May 9.

So there should be plenty to write about.

Please write back.

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