Penguin

Kindle is certainly engendering a lot of confusion by billboarding the downloads of free ebooks as “sales.” That paradoxical scorekeeping was the lead for an article by Motoko Rich in The New York Times on Saturday that quoted a lot of people, some apparently disagreeing with each other, but none of them necessarily wrong.

There really are three separate questions to consider, which get elided in these conversations.

1. What is the impact of giving away ebooks as a promotional device, either to boost the word of mouth on the book being given away or to promote an author’s other titles?

2. What is the potential impact on the industry overall of ubiquitous giveaways of ebooks that would apparently have commercial value?

3. When ebooks are given away, how should that sale be “scored” in any measurement of the book’s popularity?

The answer to the first question appears, anecdotally but just about universally, to be that giving ebooks away boosts sales of that title and related titles. Rich’s piece sites numerous publishers attesting to that. She apparently found no publisher that is skeptical about whether giveaway promotions work or has seen the tactic fail. And that would confirm my experience: I don’t know of one.

But as we’ve noted before, this effect could change over time. We’re still in a period where ebooks are not an acceptable format to most book readers. That means the benefits of giving them away is not confined to the word-of-mouth from the recipients, it can result in a print book purchase by the very person you gave it to! As ebook reading becomes more popular, particularly if we go to a DRM-free universe, the impact of cannibalization from giveaways could grow dramatically from what it is now.

The second question is what is apparently paramount to David Young of Hachette (as quoted in the Rich piece) and is influencing the policies described at Penguin. As more and more ebooks are given away, it offers a wider array of choice to people who prefer to select from the free offerings and just never pay. For the last 15 years of his life, my father, Len Shatzkin, refused to buy anything except remainders. He shopped from several mail order catalogs and, if he was in a bookstore, shopped at the bargain tables. His position was that if publishers were going to be dumb enough to reliably give the books away six months or a year later, he’d just wait and choose his reading from among what had been marked down. With free ebook marketing the way it is today, sometimes you don’t even have to wait!

And that’s obviously what was on Young’s mind when he said the tactic was “illogical.” It is illogical if you take a long-term, industry-health view of the situation. It is totally logical if you’re trying for short-term advantage to break a new book or build a particular author, as most of the other authors and publishers were trying to say.

There was a long comment string on the HarperStudio blog about this question six or eight months ago. I said at the time that I figured that if these giveaways kept spreading, one of our more industrious web entrepreneurs would create an ebooksforfree.com site which would be a consumer directory to “free” offers at various publishers and web retailers, title by title.

It’s a classic Tragedy of the Commons. Each person giving away ebooks succeeds in their intentions to boost their sales, but everybody will pay for the overgrazing in the end.

The third question is a tricky one. It is worth noting that the App Store makes it very easy to for the consumer to decide whether to shop the free apps or the priced apps. I think Amazon is hurting themselves by not at least sorting their bestseller pages that way. And they don’t. Amazon says the Kindle bestseller listings change every hour: I just checked the Top 10 and found one 25 cent book, one book at a substantial price (higher than $9.99), and eight free. Some of the eight free were self-promoters like the lead in Rich’s story; some were public domain; some were multi-book authors from established publishers. But only one of the Top 10 was elected with votes paid for with dollars from the Kindle clientele, which is what I think most people looking at “best sellers” would be looking for.

This raises a question I don’t know the answer to and my way to do the research will be to see if somebody with knowledge posts a comment. Kindle reports to the USA Today Bestseller List. This is, as far as I know, the only reflection of ebook popularity in the public domain. It would be interesting to know if USA Today has a standard for that reporting. Of course, most of the “weight” of the USA Today list, quite properly, would be print sales so whatever Kindle reports might not move the needle much. Most sales today are still print sales. But we’re headed for a crazy world if the concept of what “sold best” is expanded to include what people were willing to take for free.

On the other hand, if you try to separate free from paid, you will still face the question of where to draw the line. If publishers sell a $20 hardcover as a $5 ebook, should those units count equally in determining bestseller status? How about a dollar? How about a penny?

A tip of the hat here to my sometimes colleague Brian O’Leary of Magellan Media, who hinted at what I have said at length in this piece in his brief turn in Rich’s article. Brian has done extensive research that tends to confirm what Rich’s interviews and my anecdotal information suggest: that giving away ebooks boost sales in the present marketplace. But Brian managed to bridge the enthusiasm of the giveaway marketers and the incredulity expressed by David Young with his observation that there was a risk that free reading could eventually “supplant paid reading.”

And that wouldn’t really be good for anybody.

This is absolutely the last post you will see promoting Digital Book World 2010, which is on this Tuesday and Wednesday at the New York Sheraton and which is turning out to exceed my fondest hopes when we started out planning it this summer. But we have a panel on the very subject of this post called “Ebook challenges: competing with free and getting the timing right.” Brian O’Leary is moderating, and the panelists include agent Robert Gottlieb of the Trident Group; marketing director Mindy Stockfield of Hyperion (which published Chris Anderson’s book “Free”); ebook retailer Kobo’s VP Michael Tamblyn, and Steve Ross, who has been a publisher at both Random House and HarperCollins. There’s another panel on “Ebook pricing: what should they cost and why?” which includes the head of Penguin’s ebook publishing efforts, Tim McCall.  I enjoy having The New York Times stamp the topics we selected last August as “current” 72 hours before our show begins, even if just implicitly.

If you like this blog, I know you’ll enjoy Digital Book World. I hope to see you there.

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As the reality of the shrinking marketing opportunities for general trade books and the continuing verticalization of audiences through the Internet takes hold, we can expect to see some unusual changes (by historical standards) in trade publishing over the next few years.

It seems inevitable that retail shelf space for books is going to be diminishing. This, in and of itself, doesn’t have to mean a reduction in title exposure to the public; Indigo in Canada has said that they’ve cut store inventory but increased title selection by going to more frequent replenishment. That’s a good strategy. The problem in this country is that Barnes & Noble has already been employing it for years, so they don’t have the same opportunity to create further improvement by doing it going forward. They already replenish every store from their DCs every day! And since B&N’s share of the retail book shelf space is likely to be growing since their competition is more challenged than they are, in the US we must expect a declining opportunity to promote books through bookstores.

This is a major problem for the Big Six (in alpha order: Hachette, HarperCollins, Macmillan, Penguin, Random House, and Simon & Schuster) because they require, and plan for, continued sales growth. If overall industry sales of books in stores is going to go down, and it is, then all of the Big Six can’t see their sales go up.

That signals consolidation going forward. We should expect to see at least one get sold to another in the next two or three years. But the traditional method of consolidation — one company acquiring another — will probably not be the only way these companies respond to the increasingly difficult market conditions they’ll face.

Two types of commercial transaction that have been almost unknown in consumer publishing will be pretty common by the middle of the next decade, both of them coming under the overall heading of “publishing portfolio rationalization” which I think all the big houses will engage in.

These changes I’m expecting will start when trade publishers recognize that marketing effectiveness and controlling marketing costs are both dependent on niche focus. Costs which have been traditionally associated with “imprints” will increasingly be seen to be sensitive to subject niches. As marketing activity shifts increasingly to the web, it becomes more and more expensive to market a book that is directed to a different audience than previous books the company has published.

So what happens then? Publishers figure out how to “trade lists.” Look at the situation now with a number of players in the sci-fi arena. Macmillan (Tor) and Hachette (Orbit) are trying hard to build online communities; Macmillan just took the heretofore unusual step of setting up to sell the sci-fi books of all publishers to its audience.

The history of the online world suggests that one of these communities will “win”. In fact, the likelihood is that we’ll see the day when the leading sci-fi site has twice as much traffic as the one in second place, which will in turn have twice as much traffic as the one in third place. Why would the one in third or fourth place keep trying then? Their books would sell better and be marketed more effectively through a competitor’s site. So why wouldn’t they sell off their list to the competitor in that case? I think they would.

Perhaps there will be symmetry and the publisher in first place with sci-fi will be in third place with romance, so they’ll be a buyer in one genre and a seller in the other.

The bottom line is that we can expect to see reshuffling as publishers trade off areas they can’t afford to market to for others where they’re going to expend the marketing effort and want to have the most possible content to dominate the niche and from which to extract a payoff for their efforts.

The second kind of reshuffle we’ll see will involve smaller publishers or third party aggregators taking content off the Big Six’s hands. Each of the big publishers has a few titles in niches such as interior design, health and nutrition, or gardening that they don’t have the critical mass or bandwidth to do anything significant with. Many will be in niche areas that others, often smaller publishers, are developing aggressively. Since the Big Six are going to be financially challenged in the new environment and looking for ways to become more “focused”, selling off clusters of a dozen or two dozen titles will seem sensible. And from the niche players’ point of view, they’ll see the opportunity to sell copies to their growing web communities, or to use the content to make those communities grow even faster.

Horizontal lists that were built for the 20th century publishing ecosystem will not prove to be the right mix for the marketing machines for content that will be evolving in the 21st.

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Last week I went to a “brown bag lunch” session organized by Daily Lit featuring Gail Glickman Horwood, head of digital strategy for Martha Stewart Living and a veteran of nearly 15 years in the web business for magazines and for AOL. Gail was an engaging and knowledgeable presenter and she stressed two points, one that will be familiar to readers of this blog and another that we will explore a bit further today.

The familiar one is “vertical.” Among Gail’s examples were that Martha Stewart has found a real nugget in “cupcakes” which is, literally, a slice of a slice of what the overall brand connotes. But she cited some eye-popping numbers (which I didn’t write down and have already forgotten) for the page views they got with cupcake features on their site. And Martha Stewart’s web operations reflect the understanding that even her very focused brand covers multiple niches: they separate gardening from cooking from fitness.

The less familiar one is that “everybody is a publisher.” Gail brought it up in the context of “know your competition.” This is a variation of our suggestion that you must “know your web world”. But the point Gail wanted to make is that competition is “not who you think it is.” It is, she made clear, every web site and every blogger who is talking to the same audience you are about the same subjects you are.

This is at the heart of the publisher’s challenge today. It used to be that meaningful competition could come only from somebody with roughly equivalent capital resources: the ability to publish “at scale.” This is no longer the case. A hundred different bloggers can each be peeling away small fractions of the audience but the cumulative impact is extremely corrosive and, for the publication that relies on critical mass to support scale it can be devastating.

But could what is so threatening today be tomorrow’s opportunity for publishers?

At the heart of Horwood’s presentation and a key to my “shift” argument is that the “act” of publishing — putting content out in a way that anybody can gain access to it — has become trivially simple and cheap. So for any subject, including cupcakes, the amount of “published” material available has exploded. The content is no longer scarce. And while the well-funded legacy publisher with a brand and an audience still has significant advantages, it also has significant overheads.

But let’s look at the problem from the non-traditional publisher’s point of view. Some of these, and the ones that Horwood has focused on, are, essentially, content creators without a publishing business model. Bloggers (like me) write because they have something to say and are willing to build a non-paying audience by saying it. In my case, the blogging fits into a larger business strategy of brand-building that is rewarded with consulting and speaking assignments.

But think about the “publishers” who are not content creators? Who are they? Every brand purveying a product or a service that is not about content creation! Every bank, every insurance company, every manufacturer, every retailer, every accounting or architecture firm, every contractor, every lawyer has a web site. Brands are learning that they should have Facebook pages and Twitter accounts.

But they don’t know anything about content creation, content monetization, or rights. Big companies can be spending many millions a year acting as publishers without knowing these things. That’s the opportunity for today’s experienced publishers.

Exploiting this opportunity depends entirely on vertical content: depth of content intended for a coherent community. The architecture firm, contractor, and lawyer need focused content. Meanwhile, the major publishers continue to focus their attention on horizontal development. The latest example is Penguin’s new web initiative announced today. There is a lot to compliment them on, especially being willing to experiment with new content in new formats. There are things to complain about such as the rendering of really cool technology they have for showing the books, which they got from Issuu. It looks great but on my laptop and my browser (Chrome) the type was a bit uncomfortably small and there was no obvious way to enlarge it.

The main shortcoming of the initiative, from this seat, is that it does nothing to move a horizontal house toward verticality.

Horwood, in her talk, made it clear that non-publishers are frequently asking the Martha Stewart organization for content. Her response to that is cautious, perhaps excessively so from our perspective. But the central point is that the potential for partnership between content-creating legacy publishers and the new crop of web publishers who don’t know about content-creation is an emerging opportunity. Publishers with a depth of content in verticals will be able to benefit; those without it will not.

In the next few years, we are going to see massive reshuffling of the portfolios of copyrights held by the biggest houses when the inevitability of verticals become clear. What’s probably going to happen is that the biggest general trade houses will become sellers and the niche players like Martha Stewart and many others will be the buyers, taking what look like the least attractive and least profitable IP off the majors’ hands. Since the biggest houses will have to shrink, this will look like an opportunity to turn lead weights into gold bars.

But just as department stores found that the business model doesn’t work if all they sell is ready-to-wear, big publishers are going to find that most of them can’t live on fiction and celebrity bios alone. The books that sell most of their copies to horizontal (i.e. mass) audiences through horizontal channels (i.e. general bookstores) are the ones with the least potential for secondary revenue generation in the emerging vertical world. They are the ones that are hardest to convert to loyal niche audiences. We’ll need a big publisher to handle that business, but pretty soon we’ll find we can get along with a lot fewer than six.

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