Random House

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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It took me a couple of days of pondering this to come to my current understanding of it, but I now think that Carolyn Reidy of Simon & Schuster and David Young of Hachette Book Group, since joined by Brian Murray of HarperCollins, are not really fighting a battle to rescue hardcover books from price perception issues caused by inexpensive ebooks. What this is really about is wresting control of their ebook destinies back from Amazon.

I first — mistakenly — focused on the economics of the decision announced by Reidy and Young through the Wall Street Journal to withhold ebook editions from the market for a few months on major new releases. I was not the only blogger or analyst to see it that way. The purpose stated explicitly by Reidy to the Wall Street Journal was to protect the hardcover sales from being cannibalized by very inexpensive ebooks. This sounded like a very dubious calculation to me; I just couldn’t see very many people saying to themselves, “I’d have bought the ebook right now if it were available right now, particularly for those cheap ebook prices, but I just can’t wait to read this new book, so I’ll pay extra to read it sooner in a format which isn’t the one I prefer.”

But, reflecting on this, I realized: “I know Carolyn and David are smart people. They wouldn’t flub this math!”

So I thought a little harder. The subtext should have been more obvious.

The penny dropped for me when HarperCollins announced a similar policy. That’s three of the Big Six, three of the publishers that deliver all the high-profile big books to the industry. Publishers Lunch reports today that Macmillan has delayed some books and will continue to look at that strategy, that Penguin might do it from time to time but “not systematically” and, so far, no word from Random House. Random House is particularly interesting since their new key executive decision-maker, Madeline McIntosh, just returned to them from Amazon.

We know something else that matters: agents must, for the most part, be supporting this. The three houses that already announced are (like the others) agent-sensitive and in touch with them all the time. And no agent has stood up yet and protested. There’s an easy answer for any that do; no publisher has announced this as a policy covering all their books. “You don’t want a delay on your author, Ms Agent? If it’s what you’d like, we’ll put that ebook out simultaneously.”

In fact, Reidy hinted at this. She said there was one S&S author who asked to not be included in the list of withheld titles. She didn’t say how they handled it, but big houses don’t generally fight with big authors.

If all of the Big Six, or even just those who have announced this delay policy, stick to their guns then the ebook world may have lost a driver of converts from print. It may be that Amazon has, at least temporarily, lost an important sales tool to move Kindle devices. And, regardless of how this plays out from here, the power of the major author brands — through their publishers today and through their agents forever — to influence the course of development of the ebook market has been so clearly established that I (and other analysts as well) are not likely to miss the point again anytime soon.

So this is really about the agents and publishers trying to take control of ebook pricing, and value perception, back from Amazon. Some further evidence of that comes from the reaction of Len Riggio, Chairman of Amazon competitor Barnes & Noble (vendors of Kindle competitor Nook) who is reported in the Journal piece to be quite comfortable with this tactic, which the Journal characterizes as “in keeping with the long-held practice of issuing paperback editions after the initial hardcover.”

If the other biggest bookseller, which also has a dedicated ereader and an aggressive attitude toward consumer pricing, seems okay with this idea, it strengthens my belief that it is about controlling Amazon, not about controlling ebook pricing. The desirability of restraining Amazon is certainly something the big publishers and Barnes & Noble can agree on.

If the big houses can do this, they can do much more than this. They can sell ebooks direct off their own web sites. (That’s not doable for Kindle at the moment, but they’re eschewing Kindle sales for a time with this strategy anyway.) They can put ebooks into some channels (let’s say ScrollMotion, or the new Baker & Taylor Blio platform) and not others. They can’t tell a retailer what to charge for what they sell them (until somebody figures out how Apple and Bose manage to enforce price maintenance, apparently legally, but without the added complication of a wholesale-supply network), but they can deny a retailer whose policies about anything they don’t like direct access to their content.

How will Amazon respond to this? That is the big question. Their first reaction is to cut the price of the Sarah Palin book, which had been withheld, from their $9.99 point to $7.99. That’s not a conciliatory gesture, but it is a costly one!

Therein lies the irony that is scaring the hell out of the publishers. Amazon pays (approximately, I am not privy to the actual deals) half of the publisher’s suggested retail for these ebooks and then is selling the $9.99 or cheaper ones at a loss on every unit. From Amazon’s perspective, that makes complete sense. They build market share for the Kindle and they build a lot of customer loyalty. And they could even be doing this and still be making a positive margin contribution across all the content they sell for Kindle, even with the losses on the biggest books selling the most units.

So the publishers (and authors) actually benefit from Amazon’s policy; they sell more units and have more margin to share between them on each than they do on the print book.

But publishers don’t trust Amazon to keep things that way. From their perspective, Amazon is building a consumer expectation of an under-$10 price point while they are building up their audience of captive Kindle consumers. How long can it be, publishers figure, before Amazon says “sorry, now you have to sell me these for under ten dollars”?

The most-frequently ridiculed quote in the Journal article from Reidy points to that irony. The Journal quotes her saying, “with new [electronic] readers coming and sales booming, we need to do this now, before the installed base of e-book reading devices gets to a size where doing it would be impossible.” Taken literally, this remark leads to the ridicule that she’s shafting a market where sales are booming. But the subtext is that if publishers can slow down the growth of the Kindle installed base, it will give time for other technologies to catch up and create a more diverse marketplace, which is better for publishers.

There are two important aspects of this that will play out later. One is that what the publishers can do to Amazon today, the authors can do to the publishers tomorrow. If the publishers could sell the ebooks of big books successfully from their sites, then the big authors could also sell them directly without a publisher. The other is that this is a “last gasp” of a “static product” publishing economy. Big moneymakers ten years from now won’t often come from just selling the same content over and over again, but will more often come from content that triggers a more extended interaction. The most future-oriented thinkers are already past this battle, although there’s still a lot of fighting left to be done.

Does the war escalate from here? Do the publishers take their displeasure at Kindle pricing policies and Amazon’s apparent determination to promulgate cheap books to the next level, putting ebooks out in other formats and not Kindle?

And does Amazon, which has shown its willingness in the past to suppress the sale of print books, using its power to control the “buy” button”  to retaliate against policies it doesn’t like, fight back even harder than the Palin pricing decision indicates?

And if Amazon does fight back, do the publishers who aren’t executing this policy (Penguin is tentative and Random House is silent) benefit at the expense of those who are creating this window?

Will authors and agents (and let’s recall that a dozen agents were guests of Amazon out in Seattle a couple of weeks ago; one wonders that have been in any way a prelude to all of this) support the publishers in this policy which, after all, is costing both publishers and authors sales in the short run?

It is hard to imagine this battle ending peacefully anytime soon.

I am so glad that we have some panels at Digital Book World with agents on them and two panels on ebooks — one on pricing and one on windowing — that have both agents and publishers on them. This is one of those conversations about publishing’s future that makes no sense if you don’t include agents in the conversation and DBW is the first major conference on digital change in publishing to do that.

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The “ebook tipping point” has recently been a frequent subject of discussion for me. I started out thinking about the business implications and that’s the main focus of the panel discussion on the subject at Digital Book World.

As I mentioned briefly in my last post, I have lately been turning my thinking to a huge shift I think might just be around the corner: that editors and authors will have to start thinking “ebook first”. When we get to that point, it will cause huge upheaval. And personnel changes.

The way things work today is that the author and editor work together to create the best possible print book. That involves figuring out what to cut more often than it is about what to add. (My wife is a freelance project editor; she announced this morning that she and her authors had just successfully completed cutting tens of thousands of words and over a hundred images from a book manuscript in order to skinny down to the publisher’s desired page count. This is not the least bit unusual.)

The ultimate result of that work is a “clean” manuscript which will make the right number of pages and a lot of material that didn’t make the book. Then that manuscript might go into an XML workflow that will tag it for structure and that will allow it to be rendered as a print PDF and an ebook in various forms. Or it might simply be made into designed pages in InDesign, after which an exported file will be turned into ebooks.

If you want video or links or extra editorial material in your ebook — an “enhanced” ebook — that becomes a new creative project that begins when the development of the print version ends.

If you actually want to end up with more than one final “product”: (presumably) one print version and (perhaps) more than one digital version, this is not the most sensible way to do it. It is far easier to look at a complex ebook and figure out what can be held static to create a print version than it is to go the other way around.

Up until what seems like five minutes ago, the static print version was where all the money was. But with the IDPF reporting industry-wide year-on-year gains of 300% of ebook sales through August and Crain’s saying Random House had an 700% year-on-year increase of Kindle sales through September, the day when ebook sales are financially significant has apparently arrived and the point when those revenues could be more important than print revenues is in sight. So it may be time to change the objective of the author and editor from “how do we create the best possible print book” to “how do we create the best possible ebook?”

This will require some radical changes in thinking.

1. “Space” will no longer be scarce. That means that nothing of value should be discarded; the question becomes how to best employ any thoughts, writing, or images, not whether to include them. (Warning of a likely unintended consequence: putting mediocre material in the finished product can become a temptation and that does not achieve desired effects.)

2. Background material of any kind will become useful. For fiction, that might mean more in-depth character descriptions or “biographies”. For non-fiction, that might mean source material.

3. Multiple media are desireable. Anything that is relevant to the book in video or audio form or art of any kind should be included. If rights and permissions are a problem, then linking out to the material wherever it is on the web becomes an option.

4. Linking is essential. The author should be recording deeplink information for every useful resource tapped during the book’s creation.

5. New editorial decisions abound. Should the reader be given the option to turn links off (to avoid the distractions)? Does it “work” if linked or multiple-media elements become essential to the narrative of the book? And, if that becomes the case, what are the work-arounds for the static print edition? Should “summary” material be added, such as a precis of every chapter than can be a substitute for reading the whole chapter? (That could help somebody skip and dive their way through a non-fiction book, particularly.)

6. How should all of this complexity flow? Books are pretty straightforward: you start at the beginning and turn pages until you get to the end. But ebooks can allow different sequencing if that becomes useful. Can we have beginner, intermediary, and expert material all in one ebook that “selects” what you see by what you tell the book you are?

7. When is the book “finished”? An ebook that is continually being enhanced and updated by the author, perhaps even by the addition of relevant blog posts (to imagine a situation which would be very easy to execute) is a great antidote to digital piracy. But it would surely separate the ebook from the print, which couldn’t keep up with that kind of change. As ebook consumption becomes more common, though, authors won’t want their books to be out of date and they will recognize how easy it is to add new material. O’Reilly Media already includes free “updates” in the ebook purchase price of their books. How long will it be before a trade publisher makes a similar offer? Or before an author requires it as a condition of doing their next deal?

I can’t imagine any veteran editor reading this and not gnashing their teeth, at least a bit. But I also can’t imagine these questions being postponed forever. If I were a 20-something employee in a publishing house, I’d be thinking about this very hard and watching for my opportunity to volunteer.

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Daniel Menaker was not long ago the Executive Editor-in-Chief at Random House and writes knowledgeably about the state of play and state of mind inside Big Publishing today. His piece Redactor Agonistes is a psychological snapshot of a declining industry, a catalog of the frustrations that are increasingly common in an environment where, as hard as everybody tries, the numbers just keep getting harder and harder to hit.

The first point to make about Menaker’s article is that is published by review, barnesandnoble.com’s online magazine. I knew that B&N was working hard on online content, but (not being much of a book review reader) I hadn’t actually looked at it until this article. Of course, it shows the magic of the web; I was directed to the Menaker piece by a number of online referrals and now I’ve discovered a whole new source of interesting content. This kind of intellectual article is not what I previously would have expected to see in a free publication created by a retailer! And it shows that BN.com is thinking about the value of a community of readers who think about the book business.

Menaker makes the overall point — familiar to anyone in the business — that publishing is about saying “no” far more often than it is about saying “yes.” Most submissions don’t get an offer. Most of the books that are published don’t get much attention. Most of the books that are published don’t earn out their advance (although that is not saying the same thing as “most books don’t make money”, which Menaker comes dangerously close to conflating. And if you use the benchmark of “make money”, you get drawn into a conversation about how charges for overheads are handled, which is a conversation we love having but we’ll save it for another day.)

I have said for years that “publishing a book presents the temptation to make an infinite number of decisions, which must be resisted.” Menaker notes this aspect too when he points that out that editors have to deal with nitpicking about the jacket, the design, the flap copy, all of which can be labored over forever if every thoughtful comment is responded to.

Menaker also notes the disconnect between the editors, who acquire the product, and the sales team that has to turn the investment back into revenue. Despite some years in the business at a reasonably senior level, Menaker admits “you don’t know what sales reps say about [the] book when they make sales calls.” He admits to a suspicion “that salespeople’s and buyer’s biases and preferences play a greater part in a book’s fortunes than most editorial people want to allow themselves to understand”. While I can quantify his benchmark about the editorial people, I can tell him from years of experience with sales that rep and buyer prejudices — which they would call either “tastes” or “instincts” — are, indeed, a significant component of the success of all books below the very top echelon.

Menaker notes that success in frontlist publishing is “very often random.” This is a level of humility and honesty that probably would be very hard for top management to accept from anything but a former executive editor-in-chief.

Of course, all these things — and many other things Menaker says in this piece — not only are true of trade publishing, they have always been true! In fact, with the consolidation of accounts, it is probably easier today for an editor to talk to buyers constituting a significant portion of a book’s potential than it was 20 or 40 years ago. (The sales department would hate the idea, but three or four conversations could cover more than 50% of the potential for most books.) The randomness he notes in frontlist success was probably greater when the account base was more decentralized. Publishers have always turned a lot of books down. Publishers have always done very little for most of the books on their list (besides putting them in a catalog, printing them rightside up, and sending them on their way.)

But I think Menaker is right when he suggests that publishing houses aren’t as happy places to be as they used to be. I just don’t think he has put his finger on the reason why.

He comes closest at the end when he talks about the creative acquirers’ need to feel that they have the “knack” of recognizing raw intellectual property that ends up making a lot of money. That’s really the problem; it is getting so hard to make money.

But that’s not because of the time-honored problems; it is because of the changes in the environment around publishing.

Each new book today is competing with millions of other book choices quite accessible to the consumer; 20 years ago it competed with about 100,000 other books. Forty years ago it competed with fewer than 50,000. Used books are offered right alongside the new ones online — a development of the past 10 years — and will increasingly be in the stores over the next 10 years. The amount of shelf space available for books at retail is shrinking for the first time in our lifetimes, while the number of titles competing for space is mushrooming. Menaker says 150,000 titles are being published annually; counting by the new ISBNs each year, the number is actually two or three times that large. Industry output was about 10,000 titles annually in the 1960s.

And all of that is before we take into account the information you would have gone to a book for 20 years ago that you go to the Internet for today: to choose a hotel in Paris, to figure out how to tend to a sick geranium, to find a great recipe to turn leftover ham hocks into soup.

It’s not just in people’s imagination that the business is getting harder and it is also becoming more depressed. People in books are not as happy as they used to be, because success, as measured by dollars in over dollars out, is not as ubiquitous as it used to be. The change Menaker takes note of is not attributable to the changes in the way we do business; the changes in the way we do business are a response to a changing environment all around us. It is characteristic of an industry that is getting smaller after several hundred years of only getting bigger.

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The transition from print to digital is going to be a continual lesson in branding for publishers and in merchandising for retailers. I got a dose of that trying to make use of modern technology to deal with an old common problem last week.

I knew two or three weeks before that I was going to Boscobel to see Much Ado About Nothing on Friday night. If you’ve never been there to see Shakespeare, I recommend you put it on your calendar for next summer (this season being about over.) Boscobel is a beautiful site above the Hudson on the eastern shore opposite West Point, with beautifully manicured gardens leading to a stunning river overlook.

They put on Shakespeare under a big tent. The direction is uniformly excellent and imaginative; the performances often very good. (I am not an expert in theater, but I did have the good fortune to act in several Shakespeare plays in my youth, including a turn as Tybalt in a Romeo and Juliet that had subsequently famous actor Peter Strauss playing Benvolio. Our duel in the first scene is a story I’ll save for another time.)

I didn’t think I had ever read Much Ado, and it turned out I hadn’t. But I was both busy and dilatory. So it was only last Thursday, the day before the show, when I got back from London, that I finally went on BN.com to buy a copy of the play to put in my iPhone so I could get it read over the next 24 hours.

And that’s where I encountered some branding lessons.

What you get on the first screen from BN.com when you search ebooks for “Much Ado About Nothing”, in order, is the SparkNotes Guide for $4.95 (that’s a dormant Barnes & Noble-owned brand, and I’m sure the notes are good, but at that point I wanted the play); a “Digital” (that’s presumably a brand) eBook for $2.99 on which I could get a free sample; then 8 free versions each labeled “from Google Books.”

I should have loaded the “Digital” sample (but didn’t at the time; I am not familiar with the brand) and I would have seen it was well worth the $2.99 to buy it. I tried 3 from Google; they all turned out to be from Princeton’s “William Seymour Theater Collection” and they were, to put it gently, unsuitable. The typography, design, and editing were old and impractical.

So I changed my search criteria to “Shakespeare’s Comedies” and bought a Modern Library volume by that name that came up on the first page of the search. It came equipped with a Table of Contents and it is quite readable. Only twenty bucks. I paid it. I needed it and in my disappointment over what I got from Google I had forgotten the much-cheaper “Digital” edition of the single play above all the Google-branded ones.

But then on Friday afternoon, I had hardly cracked the play and I was running out of time. I remembered that last year at Boscobel time I had bought a copy of Lamb’s Tales from Shakespeare for my Kindle. I found it stashed at Amazon online and downloaded it to my iPhone. When I looked at it, I remembered what was wrong with it: no Table of Contents. Last time I had to scroll through the entire book page by page to find the play I wanted to read. I remembered that what I had done was make the font on the Kindle the smallest possible size to make that laborious process go faster.

Then I remembered that I had figured out after the fact that I could search on the Kindle for the play title and find it! Great. But the Kindle for iPhone doesn’t have the search function! So I retrieved the Kindle from my wife (who got it as a hand-me-down when decided I could do all my reading on the iPhone), searched for “Much Ado About Nothing” and was taken to the opening page of that story. I noted the Kindle text chunk number, found that chunk on the iPhone and, bingo, I was in business.

That wasn’t easy. It uncovers a number of points worth noting as we enter the digital book age.

1. Google’s books will be acceptable if they are the only choice available for the title. They will almost certainly not be the version of choice if something really prepared as a digital version in a modern way is available. Their “brand” will rapidly be seen as “last choice” if you have a choice. This is not good.  And if they intend, as they suggest, to sell new books as well as giving away PD books, they better do something about it. Imprint branding may not be the most highly developed skill set at Google (but don’t get advice from a publisher!)

2. And the retailers shouldn’t interpret downloads as popularity when they present choices. It wasn’t good merchandising for BN.com to show me all those identical Google editions for Much Ado so near the top, which one might assumes might have happened because they are free.  B&N should note, if they’re keeping score, that I downloaded them because they were free. If they’re looking into my ereader for useful information (in ways that will give many people the creeps, of course), they will see that they’re already deleted.

1A and 2A. Both Google and any retailer selling their books would be very well-served if they tagged (”branded”) the books which are uniquely available in Google editions.

1B and 2B. Both Google and any retailer selling their books would be very well-served if they refrained from displaying multiple copies of what is effectively exactly the same thing, particularly since they do so without making that clear.

3. Random House’s Modern Library brand sold me a $20 book of Shakespeare’s comedies because I wanted to read this play and didn’t have time to fiddle around once I’d found that a presumably competent commercial publisher had an edition available. This undercuts my supposition that publisher brands are meaningless. I still think that’s true for most purposes, but in this case it wasn’t and the brand was worth a high-priced, high-margin sale to them.

4. Kindle for iPhone isn’t as functional as Kindle on the device. There’s no text search capability. There is such a capability in BN.com’s ereader, however. That’s a reason I’ll be buying and reading from BN, not from Amazon.

5. Non-functional (unlinked) Tables of Contents are a real no-no in an ebook.

Having found the right spot in Lamb’s, my wife and I were both reading the story of the play in our seats during the ten minutes before it began, she on the Kindle and I on my iPhone. This attracted a great deal of interest around us and no small amount of envy. I think it is highly likely that we inspired some of our neighbors to be doing this themselves next summer. By then there’s hope they will have a smoother shopping experience than I just did.

Two codas to this piece.

Right after I finished it, I got a note from Ami Greko of Macmillan to tell me that Tor is making its Wheel of Time series available on Kindle for the first time and, to do it, the full text of the books has been retypeset to better accommodate the ebook format and all original illustrations and maps will be retained in these new releases. Tor appears to be the industry leader in establishing a 21st century sci-fi brand and taking this kind of care with a flagship series is good for their readers and good for the brand.

On another front, a great discussion broke out on Brantley’s list about publishers trying to squeeze textbooks onto iPhones. A number of us made the point that books originally intended for 150 square inch presentation need to be rethought to be effective within 6 square inches. Andrew Savikas of O’Reilly was the most articulate and compelling on the point when he said:

The bigger issue I see is that thinking of the problem as “how do we get a textbook onto an iPhone” is framing it wrong. The challenge is “how do we use a medium that already shares 3 of our 5 senses — sight, speech, and hearing — along with geolocation, color video, and a nearly always on Web connection to accomplish the “job” of educating a student.” That’s a much more interesting problem to me than “how do we port 2-page book layouts to a small screen.”

Even when all a publisher is doing is presenting the same text in an ebook, the way Andrew suggests we be thinking is the right approach. And almost every publisher has a long way to go to cover even the basics on a consistent and competent basis. Defining what “competent” ebook-making consists of in 2010 will be a topic at Digital Book World.

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The news about trade ebook sales growth continues apace. The IDPF has just said that sales in June 2009 were up 136% over June a year ago. Calendar year sales to date are up about 150% over 2008.

Anecdotal information from big trade houses suggests that ebook sales are approaching 3% of total sales. But not all the books big houses sell are “ebookable” with current technology: much of the juvie list, most illustrated books, and books where tabular or graphic material is important might well not have been made into ebooks. So the number is larger, maybe 5% or 6%, of the straight narrative books. And because not all of everybody’s backlist is yet available in ebooks, sometimes because of rights issues and sometimes because it just hasn’t been digitized yet, the number is higher for straight narrative new titles. So maybe that’s at 8%. Now!

And the chart of the sales trend that IDPF shows would certainly suggest we’re still seeing accelerating growth. There’s no reason to think that will stop; in fact, there is every reason to think the growth will gain additional impetus. New reading devices are coming and new features are coming for existing devices. Growth in ebook uptake to now was achieved with no help from the biggest purveyor of consumer books: Barnes & Noble. Now they’re jumping in to the pool with both feet. They have announced a partnership with Plastic Logic on one new reader and there is a rumor they will have another one of their own.

And the Apple tablet is going to be a reality, which many people think could be a Kindle killer. It won’t be, but it will surely be a Kindle challenger and it will grow the market in various ways, including making good ebooks from a lot of books that weren’t good candidates with the previously available screens.

The market is still dominated by Amazon and by Kindle, which may be selling 70% of the trade ebooks at the moment. Publishers are saying that seeing 50% of Amazon sales on a title in Kindle is not unusual. On most big books it is 30 or 40 percent and rising.

It has been reported that this is going to be a big Fall for big books: the late Michael Crichton, Pat Conroy, Jon Krakauer, Dan Brown, E.L. Doctorow, Margaret Attwood, John Irving, Philip Roth, Barbara Kingsolver and many others will have books hitting the shelves between now and Christmas.

If that has any effect on ebook reading, it should be a spur. Of the 90+% of book readers who do not (yet) read ebooks, some know they will, but they just haven’t started yet. Since ebooks are cheaper than their hardcover counterpart, sometimes — given the price wars taking place among retailers — a lot cheaper, the plethora of hot new books should be a merchandising tool to sell devices and to get people who already have ereadable devices like iPhones to try this new way of consuming print content.

And then we have another piece of news: that Sony is pushing its partnership with Content Reserve to boost use of Sony Readers by libraries.

When we get to the point that the ebook share of a new book is consistently 25% or more, we will start to see real strain on many aspects of today’s business model. And we can expect to reach that point before Obama runs for reelection, perhaps in the next 18 months. I don’t want to try to get into answers in this post; it’s enough to just think about the questions. Consider…

1. Bestseller lists. Right now ebook sales don’t get added into bestseller list numbers. With Kindle sales (by our informal estimate) constituting about 70% of ebook sales and no apparent inclination by Amazon to report those sales, that’s a hole that will exist for a while. With all the big books coming this Fall, publishers will have a chance to see how ebook sales vary by author, genre, pricing, and ebook release strategy. Will authors whose audiences switch to ebooks faster be punished on the bestseller list as a result?

2. Library sales. From the beginning, Content Reserve — the principal provider of ebooks to libraries, the power behind Baker & Taylor’s ebook provision and now in partnership with Sony Reader — has attempted to replicate the printed book world with a model that requires libraries to buy the number of copies they want to lend simultaneously. So if a library wants to lend 100 copies of the new Dan Brown at the same time (assuming it is available as an ebook), they’ll have to buy 100 ebooks. But what is not factored into the current model is that print books wear out. A library can only lend a print book X number of times before pages start to fall out. Replacement stock wouldn’t be part of the (current) ebook model. (In fact, with the new Sony deal for readers in libraries, it is the hardware that will wear out, so Sony, not the publishers, will get the replacement stock business.)

3. Library sales again. In the print book world, you have to go to the library to get a book and then go back to the library to return it. In the ebook world, you go to one web site to download the book for free and another one to download it and pay. Consumers are bound to notice. How will publishers that are spending a lot of money and time chasing down pirate copies respond to that?

4. Market fragmentation. Amazon is 15 to 30 percent of a book’s sale; somewhat less when the book has big distribution through mass merchants and somewhat more if a book is long tail and hardly available except on the Internet. That number is rising. They are perhaps 70% of ebook sales. How long will it be before an author says to publishers “I’ve handled Amazon. Would you like to offer me a contract for the rest of the market?” And with another big chunk at another single retailer, Barnes & Noble, an author’s agent could make two deals and get half the potential market. Won’t that be an enormous temptation?

5. Health of the brick-and-mortar channel. As ebook sales climb, many of those sales will be cannibalizing print book sales (although our friends at O’Reilly say that isn’t happening yet; at least not for computer books.) That would suggest we will see declining sales through stores in the years to come. But stores are the publishers’ most important marketing and merchandising tool. If we do start to see narrative books selling 20% or more as ebooks, what can publishers do to help save brick-and-mortar shelf space? What can the stores do?

6. Pricing and timing. There is uneasiness among publishers about simultaneous ebook release, based on the the bestseller list problem, the bookstore preservation challenge, and the intense ebook pricing competition that is driving prices to the consumer far below wherever the publisher tries to set them. At least one publisher has held back the ebook of an important title for several months as a result. The view from here is that the right strategy is the opposite: get the ebook out as fast as possible to get word of mouth going before the print books hit the stores. (We’re not advocating holding back the print book here; just acknowledging the reality that printing, binding, and shipping take time and the book is “finished” when the PDF is finished.) What’s the right practice? Or does it, like so much in the trade business, “depend on the book?”

7. Ebook royalties. The author can get 85% from Smashwords (OK: no DRM, no merchandising, and not really a big league player…yet; but will it stay that way?); 80% from Scribd; 35% of sale price from Kindle. There are bound to be models also paying much higher than publisher royalties coming from B&N and from Indigo’s Shortcovers. How long will publishers be able to hold the line at 15% of retail or 25% of net, where ebook royalties are now. (Random House UK is trying to hold the line at lower numbers than that!)

8. New publishing models. When ebooks can routinely be 20% or more of a book’s sale, they can be 40% or 50% on many titles. The capital risk of publishing an ebook is a fraction of what is required to publish a print book. New entities are forming built around that reality; how long will it be before conventional publishers try an ebook-only, or ebook-first, approach on some titles? (Random House US is already publishing a number of Kurt Vonnegut short stories as ebooks only, where shorter content at a low price can be practical.)

The strategic thinkers at the big publishing houses, retailers, and literary agencies certainly have a lot on their plate.

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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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Random House came in for some ridicule last week because they have apparently disenabled TTS on ebooks they are giving away for free. I see this piece as nothing more than a cheap shot. Random House responded to the Authors Guild position opposing TTS by attempting to disenable it for the Kindle 2, as, we believe, other publishers will if it can actually be done.  If they are concerned about the authors’ wrath when the capability is on ebooks that were sold and on which the authors earned royalties, of course they’ll disenable it on the ones they give away too. What confirms this piece as a cheap shot is that there is no evidence presented that any other publisher takes a different position. Why single out Random House?

The author of another piece on the same subject is very gentle about the efforts “on behalf of authors” to block text-to-speech technology for ebooks, and in the Kindle 2 in particular. The authors’ position (to the extent that the Authors Guild and those literary agents who are opposing TTS actually represent the authors’ position) is just wrong. There is no evidence that any significant number of consumers buy books in multiple forms (the three main choices being printed, e-text, and audio). Even people who do both read and listen don’t tend to buy the book in two forms to enable that; they read some books and listen to others. Similarly, people who read both print and digital don’t try to do both with the same book. (What’s my evidence? Observation. But nobody has offered the least bit of evidence to the contrary and I haven’t met anybody yet who says “you aren’t talking about me.”)

So, in fact, enabling a digital file to serve two purposes would only increase sales by offering extra value. If that’s right (and it has at least as much chance of being right as the notion that there is cannibalization), blocking TTS is costing publishers sales and costing authors royalties.

I made the argument when this first came around three months ago that the TTS capability will be ubiquitously available so that people will be able to take any text they have and apply that capability against it. All Kindle 2 does is make it a bit more convenient. So this position is a fail on several counts. The fact that it is handicapping the handicapped is contemptible. The fact that it is denying authors and publishers revenue when it is supposed to be protecting them is just dumb. And standing in the way of applying developing technology to the benefit of all writers and readers can’t possibly be a sustainable position.

We did a quick check in this office for TTS apps. I think the Authors Guild and the agents should check these out.

• Adobe’s Read Aloud (for PDFs)
• SpeakText (for Windows)
• Last month, a Text-to-Speech Open-source API was announced by Android
• And there is a TTS iPhone App called “Acapela”

Are they planning to sue the consumers who acquire and use these apps? Are they really going to add to the burden of ebook publishing the need to find ways to lock up the text against all these technologies?

Thanks to all of you who viewed the Shift speech over the past weekend. It is disappearing from our site but is replaced by a link to a new annotation platform from our client SharedBook. If you have thoughts on the speech, that’s the place to express them. There are browser limitations to that platform which are posted with the link.

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I got a call today from Laura Sydell of NPR in San Francisco to have a conversation about DRM. I found myself telling the story this way.

From the beginning, there were multiple ebook formats, the leading ones being Adobe, Palm, and Microsoft Dot Lit for a time, with Mobi originally intended to be the format that bridged the gap (at that time) between devices. Then Amazon smartly took Mobi out of play, blocking anybody else from peddling a device-agnostic solution. And now we have e-readers…

From the beginning, there has been a reluctance of people to read BOOKS (goodness knows they read many other things) on screens, or at least on the screens that were presented to them for the purpose. This distinctly separates the book business from the music business, which I know I wrote about last week, but which also applies here. Your ears don’t care whether the speakers or headphones got the sound from a download or a record. It all works the same to you. But, as we all know, reading a screen for most people is a sufficiently different experience than reading on paper that they’re likely to have an opinion about it (often whether they’ve actually tried it or not).

From the beginning, some people in the book business (mostly, I suspect, agents for very big authors and their publishers, who have the most at stake) have been concerned that there would be a spread of unauthorized digital copies if they didn’t “protect” them. They were apparentely learning a lesson from the music business. But the music business was “stuck.” The format they sold music in was a “gold master.” They distributed digital copies.

From the beginning, there has been a romantic notion called “interoperability”, which says it is a wonderful thing if the same file can work on lots of different devices. So you should be able to  read the book on your PC, or on your Sony- or Kindle-like device, and on your iPhone and/or Blackberry and your Sony Play Station, for that matter. Believe it or not, there are not only quite a few of the publishing digerati who think this is very important, there are many who actually blame the slow growth of the ebook market on the fact that the industry hasn’t accomplished the ability to deliver it. (Seems preposterous to me.)

The multitude of formats presented costs and hassles to the publishers. They had to do more work to put each book in shape for each format, and they had to do pretty meticulous quality control because a lot could go wrong. With ebooks not selling much at all, the difference between spending $250 to convert to one format, say (starting with a PDF print file), and then adding $50 or $100 more for additional formats created a whole decision-making cascade. This all choked off books from the ebook stream, on one format or another or at all, as publishers needed to “decide” to publish each book in one or more formats.

The multiple systems also prevented interoperability and restrained piracy. The DRM was actually a bit of window dressing; even unprotected files wouldn’t have traveled very far.

But then the industry, through the IDPF (International Digital Publishing Forum) developed the epub standard, which was code that could be read by many different systems and/or converted inexpensively to other systems. So the publishers could provide just one file, the epub file, and the distribution channels could do the conversion to different formats. A giant step toward interoperability (and efficiency.)

So now DRM is the one barrier to interoperability and so the drumbeat to get rid of it gets louder and louder.

Also from the beginning, people have noticed that, in most cases, the more of a book you give away digitally, the more you sell. This would almost certainly not be the right strategy with high-value scientific reference, or a directory, but it is the experience of many people over a long period of time. Tim O’Reilly has famously pointed out that obscurity is a much more prevelant problem for books and authors than theft through piracy. Cory Doctorow is certainly the most vociferous and among the most eloquent expressing contempt for the whole idea of DRM, the insult it constitutes to the audience of book readers, and its self-defeating nature. He has given away huge amounts of digital content and he credits doing so with growing his sales as a novelist.

My officemate and colleague Brian O’Leary of Magellan Media has been doing Brian O’Leary of Magellan Media has been doing an ongoing study of the effects of free distribution with O’Reilly Media and Random House. They are documenting both the fact that there is no significant piracy of ebooks and that free distribution, even the limited piracy, seems to have a stimulative effect on sales.

We are at a moment where publishers are noticing this and taking it on board. O’Reilly and Thomas Nelson are the first I’ve noticed to start offering ebooks in multiple formats, with Nelson doing so to any buyer of a print book who registers on their site for it. (A nice way to capture names, too.) Others, noteably Hachette’s unit Orbit, and Random House, have started giving away ebooks (for free or, in Orbit’s case, a buck or near-free)  to promote books and authors. The ROI on these is close to infinity if it sells one more book!

I hope that this is an accurate summary of events so far, except that I left out the Kindle (on purpose). Now I’d like to offer some forward-thinking and observe an enormous irony.

1. Forward-thinking. This notion of giving away ebooks has a tragedy of the commons built into it. It’s free and it works. So everybody’s going to do it. The choice of ebooks you can legitimately download for free or under a buck will grow by leaps and bounds (it already has.) At just the moment that the ebook market is growing, and lots of new people are coming into it, many people will be able to form the habit of choosing from what is free or near-free. Ultimately, this will have two negative effects. One is that it will depress the pricing across all titles. And the other is that the giveaways will lose their stimulative effect.

I would not suggest that anybody voluntarily try to save the commons. It would not be in their own best interests to do that and they would not succeed. 

2. Because there is going to be a culture of free or almost-free, piracy might well become an issue for the most popular ebooks as takeup of ebooks grows. It clearly has never been a problem, but that doesn’t mean it never will. Things change. (See number 1.)

3. The Kindle. Amazon not only steered clear of the epub collaboration, they are aggressively blocking people from selling content that would be compatible with the Kindle. Everything about what they do is closed. The problem is that they’re defying history so far: growing faster with a closed system than all their competitors for ebook eyeballs combined.

That’s ironic.

But it’s not what’s most ironic.

I personally never got the thing about interoperability until now, when I am reading the great new biography of Abraham Lincoln by by Ronald White on both my Kindle and my iPhone. Whenever I switch over from one to the other, it knows my place and asks me if I want to advance to it. This is great! I love interoperability. I have no use for it between any other two devices, but between my Kindle and my iPhone? Terrific!

Of course, Amazon is probably able to deliver this functionality so seamlessly partially thanks to the fact that they have a closed system and more control.

That’s really ironic.

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