Richard Curtis

There are lessons that can be taught or learned in one segment of publishing that can then apply to another. Well over a decade ago, Mark Bide and I were discussing the business model for journals. The way it works is that the university pays the professors a salary and rewards them with promotions and tenure for writing publishable material for the journals. Then the journal publisher pays nothing for the article (although they spend lots of money managing peer review and doing other things associated with editing, curating, and delivering the content.) Then the university pays for the IP all over again by buying (now licensing) the journal.

From our earliest understanding of the Internet and its potential for disintermediation, this seemed like a very vulnerable model. “How will we know when there’s a problem developing with the model?” I asked Mark. “When the publishers are having trouble getting submissions,” he said. “The problem will become obvious on the supply side before it becomes obvious on the demand side.

One of the challenges for a retail player trying to be a publisher is the difficulty of getting other retailers to play along. Even the most dominant US retailers, Amazon in the online world and Barnes & Noble in brick stores, don’t have a total monopoly on the customer base. People buy books online through outlets other than Amazon and people buy books in stores that aren’t owned by Barnes & Noble. And, of course, either of the two delivers grossly incomplete access to the total customer base without the other.

Barnes & Noble has been acquiring content directly for a long time. They’re very aware of the dichotomy between having a monopoly on content for your stores’ benefit versus making it more broadly available in the content’s best interests. Almost from the minute B&N acquired Sterling, Borders stopped stocking Sterling books (a problem that matters much less today than it did a few years ago.) And Sterling had a real sales force, retailer-friendly sales policies, and all of the systems necessary to support moving their books through intermediaries. Amazon does not.

Amazon took the first steps to fill that gap by making a deal with Houghton Mifflin Harcourt a few months ago, giving HMH a right of first refusal (apparently) to purchase paperback rights (excluding Amazon, we’d assume) to the books Amazon was publishing through their proprietary imprints. I have no inside information, but I would assume that one of the things Larry Kirshbaum will figure out early in his new role there will be how to get real print book distribution for the books he will be acquiring.

Amazon’s strategy appears to be that they’ll use their checkbook, the offer of 70% ebook royalties from the most powerful ebook platform, and their close connection to the online consumer, to get the books they want on the terms they want. And what they seem to want most for the books they pay for is “Kindle exclusive”: the ability to build up an inventory of titles available through Kindle but not through Nook, iBookstore, Google, or Kobo, let alone the stores here and abroad served by Ingram and OverDrive.

Barnes & Noble is familiar with that idea. They wouldn’t let other stores sell their Sparknotes study guide line. They never made it generally available through Sterling’s organization because they perceived value in having it be uniquely available through their stores and online channels.

But they didn’t avoid that dichotomy. The value they perceived is to the retailing entity, not to the content holder. Since their retail business was something like 50 times bigger than Sterling, it might not have been seen as a terribly difficult decision even though the content holder is always better off if the book is sold in as many places, online or offline, as possible.

Last week, PW did a story introducing Amazon’s “summer list”: ostensibly the books being published by them in the next few weeks. Obviously, these books were signed up before Kirshbaum’s arrival.

I’m not a bookseller. I have no expertise to apply to look at a list of books and decide what should be in any particular bookstore. But nothing on this list looked like a “must have” for an independent bookseller. To make sure, I reached out to a smart one I know and asked her to look at the PW list. “Would you stock these books?” was my question.

Her answer was interesting. “I don’t know about any of these,” she said. “For the most part, I learn about books by sales reps visiting our store and telling us about them. Nobody has ever told us about these.”

I had my staff do a little bit of searching. We couldn’t find a consolidated list of Amazon’s summer offerings online. What we found was the press release announcing 32 titles that PW referred to, but that release only listed 19 of the 32. We couldn’t find anything on any of these books at the Houghton Harcourt web site. We were able to find 14 more titles by looking under the various Amazon imprints (including Seth Godin’s Domino partnership with them) for a total of 33 coming or having been released from last March through November. Is this the “summer list”? Maybe, with global warming…

We found nothing about any of the titles on the Houghton site. Oddly enough, they did publish a prior title by one of the Amazon authors, Max Allen Collins, but they haven’t listed the current one, a collection of short stories.

(Here’s an ironic thought. You think Amazon will place an ad in the PW Announcement Issue to get this all straight?)

So, as far as we can tell, the Amazon summer list contains very few books that the old publishing guard, publishers or booksellers, will suffer much for having missed.

Except, of course, that maybe Amazon can create demand among the millions of online customers they have for books and ebooks. If they do, and the word of mouth grows to a point that independent booksellers find they must stock these books, Amazon will really have created a new publishing paradigm. That certainly seems to be what Godin is counting on.

Nobody — or at least very few — outside Amazon knows what new capabilities will be put in place to support the publishing programs Kirshbaum will build. Barry Eisler indicated at our Publishers Launch BEA conference that he had received a six figure advance for the book he just signed directly with Amazon to publish. He seemed to expect, or at least had hopes for, a robust bricks-and-print strategy along with his high ebook royalty. But he’ll have the same problem with Barnes & Noble and independents that Sterling had with Borders: it will take the perception of a very high level of demand to compel them to stock a book from a company they think is taking the bread right off their table.

A related development is that Arthur Klebanoff, one of the original ebook publishers founded on the idea that the big publisher standard of 25% ebook royalties creates opportunity for entrepreneurs, told the British AAA (the agents) this past week that he’d be delighted to publish their backlists and pay a 50% royalty. To agents who are already planning to do this themselves (and quite a discussion has broken out in the UK about whether that is a legitimate thing for agents to do; the AAA has decided it is) Klebanoff points out that things can go wrong with ebook publication (it might not sell, for one thing) and agents would be wise not to jeopardize their relationship with an author client when there are alternative ways to get a high royalty.

Klebanoff seems here to be jumping squarely into competition with Jane Friedman’s Open Road, which has been signing up content with very much the same pitch. (Open Road also has other attributes to tout, primarily some very talented digital marketers and a focus on developing tools and techniques to do that work effectively.)

Meanwhile, other agents are setting up their own digital publishing capabilities and service offerings continue to mushroom. Agents tell me — two were in the office this week talking about this — that their authors are frequently asking about self-publishing.

Does the insight Bide offered to me late in the last century about scholarly journals end up applying to trade publishers? Will the most obvious sign of a challenged model become the resistance of authors to their blandishments and their advances? There seem to be a lot of entities betting on the idea that it will.

It is worth noting here that there’s one dog that hasn’t barked. Richard Curtis was the first ebook publishing agent. He set up his E-Reads business over a decade ago. He also pays 50% royalties. Richard did not create E-Reads to compete with publishers on royalties but because when he did publishers just wouldn’t do the ebooks. He has built his enterprise since that time to nearly a $1 million annual business (meaning that he’s delivering half-a-million a year to authors for properties that, at least until very recently and perhaps still, would never have been put into ebooks by a publisher.) But his name is noticeably absent from the chorus using higher ebook royalties as a public prod to bedevil publishers.

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It looks like we’re going to have a bit of an unintended debate stretching across several of our panels at the Publishers Launch show in London. Since I’m the guy who put the show together, I can speak with authority to the fact that it was really unintended. But I consider it serendipitous and proof of Branch Rickey’s axiom that “luck is the residue of design”.

I first started probing the question of new business models for agents two years ago when I was organizing the first Digital Book World conference. I had been asked by F+W Media to create a program that would be (in their words) “more practical” than they found Tools of Change to be. I was in partnership with O’Reilly at that time working on a “StartWithXML” show to take place in London. I wasn’t really looking for a reason to compete with them; we were collaborators.

But as I thought about what they did (which I like) and what I might do, I realized that our approaches would be different and our shows would be different. In my mind, the clearest delineation of the difference was that I put agents squarely into the middle of our show planning. This move is a bit counterintuitive in the conference business since agents have never been big ticket-buyers for the industry’s digital education events. But I thought then — and events have subsequently confirmed — that agents were key actors in the digital transition. You can explore the tech challenges of digital change without them, but you can’t really think about the changing economics of trade publishing without bringing them into the conversation.

What seemed logical then — also confirmed by subsequent events — is that agents might become ebook publishers. This had actually happened a decade before, when agent Richard Curtis set up his E-Reads business at a time when most publishers just wouldn’t do ebooks for most titles, if at all. Richard had run into political problems with the agents’ association (AAR) which I believe he headed at the time. They have a code of ethics which could be interpreted to prohibit an agent-publisher such as he had become. In fact, I was a bit surprised (but definitely sensitized and enlightened) when a good friend of mine who is a successful and highly ethical agent told me she couldn’t possibly participate in a conversation that might be seen to endorse the idea of agents becoming publishers.

We put together a panel on “new models” for agents at DBW 2010. We repeated it last year (even though there’s a natural reluctance to repeat things year to year), and we surely are going to include the topic at DBW 2012 next January.

And that brings us to what is going to happen in London on June 21.

We have four prominent agents speaking on different panels on the program. At least three of them are likely to renew the conversation about whether an agent can become a publisher and still be a credible representative for an author.

One of the panels I’m most looking forward to on that day is called “An Emerging Opportunity: Selling into the US”. Charlie Campbell, an agent at Ed Victor Ltd., will participate on that one. We wanted Charlie on the panel based on a conversation we had with him a few months ago about the possibilities he saw for his office’s clients to capture sales in the US through ebooks. When Victor’s office announced the creation of a new publishing operation to handle their own authors’ books, our interest heightened. So Charlie will be explaining how that publishing operation will work and how it benefits the authors in their stable within the context of capturing US sales from a UK or Ireland base. His fellow panelists will be publishers.

Our last panel of the day has Michael Cader and me interviewing four leading luminaries of UK publishing. Three of them are publishers, but the fourth is the agent Jonny Geller of Curtis Brown. Curtis Brown is frequently rumored to be about to start an operation similar to what Victor has announced. (In the US, by the way, agent Scott Waxman — a member of the DBW Conference Council and one of the original participants in our conversations about this — has created a publishing adjunct to his business called Diversion.) Our focus in that panel was not intended to be on the ethics of agents starting publishing companies, but now I think the topic is likely to arise.

Why? Because a third agent on the program that day, Peter Cox of Redhammer, has placed it front and center with a post he published yesterday called “Your Agent Should Not Be Your Publisher”. Peter is on a panel about “Innovation in Marketing and Business Practice.” He caught our attention because he’s been training his authors in digital marketing for years and because he told us he was thinking that the agent’s model had to change to handle fewer clients for a higher-than-standard percentage of the revenue. We didn’t ask Peter at the time how he felt about agents becoming publishers.

It turns out he is very firmly against it and is very clear and articulate about why he thinks that. The moderator of that panel is Richard Mollet of the Publishers Association. I’m sure his membership will very much want him to invite Cox to expand on his ideas. Cox’s panel takes place after Campbell’s but before Geller’s. The juxtaposition of the commentary across the panels will probably be of great interest to the audience and should make for some very interesting tweeting. Maybe we’ll need a special hashtag just for #agentsaspubs!

It was the fourth agent on the program that we thought was going to have the trickiest assignment. David Miller of Rogers, Coleridge and White Ltd. will be discussing “Territorial Rights and Open Markets” with Richard Charkin and Toby Mundy. Since the future of both practices depends very largely on what agents will agree to as the publishing landscape changes, I had thought David had the most politically challenging conversation of the group. It turns out that he’s excused from what will certainly be one of the most controversial aspects of the day’s discussions, although in our very open format, everybody’s free to say pretty much what they want. Perhaps Philip Jones, the moderator of that panel, will want to touch on this question with his panel as well.

It might be that at Publishers Launch Frankfurt we’ll stage this more directly as a debate (but that’s a crowded program and it might be hard to fit it in). You can bet it will be aired thoroughly at Digital Book World next January. And you can be pretty damn sure we’ll be generating some news on this topic (and others too, I’m sure) out of “A Global View of Digital Change”. If you’re in (London) town on June 21, you ought to be there.

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Sometimes expressing your opinion can have unintended consequences.

In a post last week, I observed that the explosive growth of ebooks made it likely, in my opinion (shared by others, some of whom are in high places), that as many as half the book purchases could be online purchases by the end of 2012. I see many consequences of that change, but one of them is likely to be a complete reconsideration of the long-standing industry policy of accepting returns from retailers and wholesalers of unsold inventory.

My reasoning was that once returns only help you reach half the potential market, viable publishing becomes possible without them. And with perhaps more than half of the brick-and-mortar outlets (by that time) for most books (excluding bestsellers, which are sold in mass merchants) being accessed through a single retailer (Barnes & Noble) that has its own distribution centers and a managed supply chain, returns would start to fade away. (With their robust supply chain capabilities, B&N will be able to work the new marketplace, which will undoubtedly feature a higher discount no-returns option, to their competitive advantage.)

I didn’t deal with my feelings about that (mixed) or the impact on sales I would expect (damaging), but I’m moved to do so today because my prediction has led to a celebration in anticipation of that turn of events, a 2-part series (Part 1 is here and Part 2 is there) called “Publishing 3.0: A World Without Inventory” by agent, ebook publisher, and digital thinker Richard Curtis. He casts preprinted inventory distributed with returns as “the speculative model” and a no-returns marketplace supplied largely with books printed on demand as “the prepaid model.”

Richard characterizes returns as “a bargain with the devil” and “an addiction”. He cites return rates in the neighborhood of 50% (which they are — and even higher — on some books but which they are not for any publisher across their list) as the killer of publishing profits. But I think Richard leaves two very important realities out of his analysis:

1. Inventory creates sales that would not take place without the inventory placement.

2. Publishers (and Richard’s clients: authors) have a great deal to gain from the publisher’s practice of selling returnable.

In fact, this piece effectively argues that a responsible agent will prefer a publisher that allows returns to one that does not for their client, if the royalty rates are the same (and often if they are not.)

Before making the two arguments promised above, let me deal with three realities that are often elided when returns are discussed.

First of all, book publishing is not the only business with returns, despite frequent claims by returns skeptics that it is. Newspapers and magazines have returns, of course. But, apparently, so does technology hardware! I learned this hearing our client Copia present itself and its parent company, DMC, to publishers. DMC is very deep-pocketed. They make the point that putting out six ereader devices (which they are doing) requires the financing to put tens of millions of dollars of inventory onto retail shelves, and taking them back, eating the cost of producing them if they don’t sell. That’s one reason why there are few upstart manufacturers of consumer electronics. Even if you could get in the door at Walmart and get an order for your gadget, the financing required to fill the order would be beyond anything but a large and well-established company. So the principle that the manufacturer insures the retailer who stocks speculative inventory is not applied to books alone.

Second: publishers are customarily asking retailers to put books on their shelves before there has been any public exposure to the title. It hasn’t been reviewed (except possibly by the diminishing industry sources for pre-publication reviews); it hasn’t been sampled by the public; it hasn’t been read by the sales rep pushing it or by the buyer deciding about investing in it. The promotion plans are promises that are sometimes not kept. It is a competitive requirement to offer returns in that situation if the publisher wants the books in place at retail on publication date. I have never heard a clear narrative about the introduction and spread of returns in publishing. Curtis’s account, which confirms my understanding, is that the practice began in the 1930s. This was before my Dad’s time in the business; he thought it was Viking Press that began the practice. But the practice apparently spread so quickly that nobody got clear credit for starting it. And we all got a lesson about the competitive requirement when Harcourt Brace Jovanovich tried to eliminate returns (in favor of much higher discounts) in 1981 and rescinded the policy in about 90 days because the trade just wouldn’t stock their books.

And third, publishers’ practices affect returns. Most returns from major retailers to publishers are on big books for which the publisher wants to force out a quantity that creates a noticeable presence in the stores. There are occasions when the over-ordering is due to retailers being zealous or concerned that they’ll have trouble getting replenishment inventory. But, more often, they are due to publishers pushing out bigger quantities because they know that bigger stacks in the store make the book move faster. Or because the rep wants credit for a bigger sale. Or because the publisher’s discount schedule rewards a larger buy with a better price.

(It is commonly suggested by no-returns advocates that publishers at least eliminate returns on backlist. It would be a dumb publisher that did that. The way you entice the trade to buy without returns is by increasing the discount, shifting margin from the publisher to the retailer. But backlist returns are already low for most publishers. So following this suggestion would lead to a publisher giving away margin to reduce returns on the segment of the list on which there aren’t many returns. It is worth noting that no publisher that I know of has taken the bait to eliminate returns on backlist.)

And all that leads to me making the first point: that inventory creates sales that wouldn’t otherwise occur. The point is made over and over again, most recently by Bowker PubTrack data (click that link and take a look; it’s quite startling) that what happens in the store — how books are displayed and what clerks say (which is also affected by how books are displayed) — influences a lot of purchases. If we don’t have retail locations with books merchandised to entice people to buy, I believe overall book sales will go down. And as long as we do have stores (which we will for quite some time, even after the end of 2012), then the books well displayed in them will have a competitive advantage over the books that are not.

And the first point leads to the second point. The author, in effect, “hires” the publisher to maximize the sales of the author’s book. Pushing out inventory and taking the returns that enable pushing out inventory are part of what a publisher does for an author that the author can’t do for herself. While I believe that publishers will move to no-returns and no-inventory models for many books, and that will enable the publication of  books that would have been too risky the conventional way, the sales expectations for these books will definitely be lower than for those published with inventory and risk. And let’s remember that the cost of each book produced is substantially higher printing one at a time compared to a press run. Press runs are distinctly more profitable if returns aren’t astronomical and very few books are published with the expectation of astronomical returns.

So the days of returns may be numbered, just as the days of brick-and-mortar bookstores likely are numbered, but that’s not a good thing for overall book sales or even for the profits of publishers. For the books with highly-targetable audiences the effects will be less damaging but for the books that sell the most — the kind that agents represent to publishers — it will mean a great reduction in the chances that the book will take off and reach big numbers. And for the publishers that step down from returns by managing them before they eliminate them, there will be a real competitive advantage.

I didn’t make it to London. I’m in good company. My friends who are in London are wondering exactly how and when they’ll get home. Of course, there are far worse places to be stuck.

I see in today’s Shelf Awareness that The Bookseller in the UK has been sold by its corporate owner to an entrepreneur (its publisher, Nigel Roby) just a week after Publishers Weekly in the US was sold by its corporate owner to an entrepreneur (its long-ago former publisher, George Slowik.) There are powerful structural and institutional forces that have weakened the inherent position of a trade magazine for trade publishing in both markets and making a success of them will be a real challenge. We wish the bold new owners luck with their ventures.

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The New York Times published two apparently unrelated articles over the weekend which address questions raised by the rise of digital content creation and distribution. One was an op-ed piece in the Saturday paper by author Mark Aronson about the challenge of collecting the permissions necessary to include copyrighted material in enhanced ebooks. On Sunday, the Magazine published a piece by Randy Cohen, “The Ethicist”, about the rights and wrongs of downloading a pirated book file in a situation where the file’s acquirer had already bought and paid for a copy of the book presented in the file.

These are both thoughtful pieces to which I hope to add some useful observations.

Aronson’s piece elaborates on the challenge facing authors and publishers who want to include useful material in enhanced ebooks, particularly for non-fiction. He is an experienced non-fiction writer who knows about the challenge of collecting permissions for material in his books. He’s right when he says that the problem really escalates for enhanced ebooks. Aronson’s focus is on material from the “archives of the world’s art (now managed by gimlet-eyed venture capitalists” and other material controlled by museums and academic libraries.

We have lived for a long time with a very cumbersome permissions world. To use a picture of a great painting or a museum’s invention or artifact requires painstaking individual requests for permission and negotiations (usually) by the author, who is charged by contract with delivering this material with permissions already secured to the publisher. The usage matrix has been pretty well defined for print: what kind of book; what size printing; what langagues or territories affected; what number of copies to be printed, but each licensor converts that data into its own pricing policy.

The amounts of money charged are collectively of great value to the licensors. Viewed on an individual project basis, though, they are sometimes painfully high for the author or publisher but small enough for the licensor that lengthy negotiation that could lead to concessions based on mutual self-interest occurs relatively seldom.

Along come ebooks and enhanced ebooks (and, for that matter, web presentations of material in books which might be for promotional purposes.) In many cases, publishers have simply foregone the illustrated material for the digital presentation because securing the rights is either too painful or too expensive a process. The process that publishing has lived with in the print world needs to be fixed, says Aronson, and then we can move on to do something about how this can work better for digital content delivery as well.

So, far, I agree with him. It is the specifics of his remedy with which I’d suggest some modification.

Aronson’s suggeston for print is that the Author’s Guild and Association of American Publishers combined (coincidentally or not, the two entities who are the plaintiffs and negotiators of the Google Books settlement currently pending) establish a “grid of standard rates” and then “compel rights holders to confirm to industry norms.”

Two problems with that. One is that the AG and AAP are really not in the business of securing licenses for publishers. The entity that is in that business is Copyright Clearance Center, the CCC (and, full disclosure: our client.) What Aronson is suggesting is actually a hybrid of two kinds of licensing that CCC enables: “collective” licensing, such as is done for photocopying where companies agree to allow their material to be copied, CCC collects annual licensing fees from corporations and other entities, and shares them based on surveys of actual usage; and individual licenses granted by a copyright-owner for use on the c/r owner’s terms. In the latter case, CCC facilitates many of the transactions but doesn’t tell the rightsholder what to charge (or conversely, tell the licensor what to pay.)

CCC is positioned better than any other entity to attack this problem, but it’s much harder to implement such a simple solution for printed books. The differences in value of different copyrighted material can be vast and the rightsholders know that. The owners of the most valuable material are going to be reluctant to license it for an “average” fee and there is nothing the AG or AAP or CCC could do to compel or persuade them to act against their own interests.

Rightsholders know that when a book is created and printed, many tens, perhaps hundreds, of thousands of dollars of investment are involved. They want their fair share which, from their perspective, would be “what the traffic would bear”, not an arbitrary, standard amount.

But the enhanced ebook problem that triggered Aronson’s piece, and for which he offers the additional “solution” of payments based on actual sales (i.e. downloads), might actually be amenable to a collective-based licensing solution (but still a hybrid.)

In the case of enhanced ebooks, the marketplace is going to be much more challenging. There will be many more rights requests because relief from the minimum investments in printing will put far more creative works into play. And at the same time, the pool of potential licensors is growing by leaps and bounds as we move toward a digital camera in the hands of every cell phone user. Because the barriers to entry for ebooks, enhanced or otherwise, are so much lower than for press-run books, these will reach a point (if they haven’t already) where the cost of the transaction — reaching the right person, connecting with them, describing the potential licensed use and negotiating the price — is going to be more than it is worth, regardless of the licensing fee. And these costs will effectively be driving down the licensing fee.

Imagine if each bar had to negotiate with each songwriter to put their tune in the jukebox. That’s a considerably less complicated problem than the one we’ll have with images and text licenses for ebooks, and still it can only be solved with a collective licensing solution from BMI or ASCAP, which deliver a service close to what CCC does for photocopying.

So we see applying a hybrid similar to what Aronson describes, but with some nuanced differences. The future we’d imagine is for CCC to start gathering rights for a reservoir of content that can be licensed on a standardized basis for ebooks and web use, with the understanding that the fee for each individual use is going to be low enough that it wouldn’t have been worth the transaction cost on both sides to have negotiated it. The most valuable material would remain outside that reservoir (because the rightsholders wouldn’t agree to put it in) and would, therefore, be bypassed by most licensors when they put their products together. So if you hold your stuff out you can sell it for more each time, but you’re likely to sell it less often.

Aronson’s explicit concern is that only the “most popular subjects” will be covered in enhanced ebooks under the present regime. The solution suggested here would probably appeal to the owners of material on the least popular subjects; those that are rarely licensed now and where anything that would encourage more widespread use would be attractive.

It is also important to remember that digital presentations have a capability print doesn’t: they can deliver the reader directly to the digital doorstep of the licensor with a link. If you run an obscure museum with an obscure collection of art and artifacts, a linked licensed image could deliver you traffic and customers very effectively. A program such as what we’re envisioning here could make the link a standard component of the licensing arrangement.

The bottom line on this story is that I agree with Aronson that we need a new model for permissions in the digital world or important creativity and commerce will be choked. But we have to start with the pool of material that is of the least individual value in order to start at all. As that pool grows and is used increasingly, the incentive will grow for rightsholders to place more and more of their material in it.

As for the Ethicist…

The question arose because somebody who bought the 1,074-page new Stephen King novel didn’t want to carry it around on a trip and found the publisher had not yet issued an ebook. This person, who says they “generally disapprove of illegal downloads” felt they were okay in this case because they had previously bought the book and the publisher wasn’t facilitating their need for a digital copy.

The Ethicist agreed.

This position outraged my friend, the literary agent Richard Curtis who, on his eReads blog, takes strong exception. Quoting Richard’s two most emphatic paragraphs:

These dirtbags now have a champion in Randy Cohen. Go on, help yourself. The author and publisher have been paid once and don’t need to be paid for another edition of the same book.  While you’re at it, rip off the book club and the mass market paperback editions.

Cohen’s exculpation of this morally challenged idiot buying an e-book from a pirate site is the equivalent of condoning the purchase of black market goods from a fence. Does anybody know what Talmudic tractate he consulted to justify stealing – to describe it as “illegal” but not “immoral?” If so, we invite you to submit chapter and verse.

Personally, I find the characterization “stealing” overblown (obvious to me, but I might well be provoked to explain more by commenters to this post) and the distinction between “ethical” and “legal” perfectly comprehensible.

The Ethicist’s piece already acknowledged Richard’s point of view. Cohen interviewed and quoted his own friend, Jamie Raab of Grand Central Publishing (Hachette) who said:

“Anyone who downloads a pirated e-book has, in effect, stolen the intellectual property of an author and publisher. To condone this is to condone theft.”

I see this as a digital transition problem (it won’t be long before an ebook edition is available for every book for which a print book is available) and, if the author is suffering in this case (and I’m not sure there’s any demonstration here that the author is), it is partly the fault of the publisher whose policies haven’t matured sufficiently to deliver a cash customer what they want to buy.

Would Raab or Curtis have taken a different position if the King book purchaser in question had scanned his or her own copy to make a digital file to carry in their ereader? Or would they consider that a legitimate “first sale” right? (And what would a court say?) It is hard for me to understand how the King reader who, after all, paid more for the print copy than they would have for an ebook if the publisher had made an ebook available should be characterized as a “thief” (Raab) or a “dirtbag” (Curtis.)

Joe Esposito and I wrote a piece almost four years ago strongly suggesting that publishers should declare a clear policy about the digital rights conveyed with the purchase of a print book. We wrote the piece in the earliest period of contention about what Google was doing scanning books, so our point was made from a library-centric perspective. But we anticipated problems like this one and we concluded our piece this way:

Developed, articulated policies about digital licensing are a much better way to protect publishers’ interests than lawsuits against marketing channels. The next decade or two will see the relationship between digital and printed content dramatically recast. Publishers can embrace that relationship, or watch it—and themselves—fall apart.

I’d say that the publisher and author would be standing on much firmer ground to complain if there were a stated policy about the digital rights that are conferred with a print purchase. The mere act of creating this policy would force a publisher to think through situations exactly like this one, which I really don’t think many have.

Where we stand now is that laws and policies written before any of these issues were contemplated (or possible) are transparently inadequate and insensitive to current reality. As a guy who accepts the necessity of DRM specifically to discourage casual sharing that could seriously undermine the commercial basis of publishing, I’m on board with the idea that we in the industry want to steer people away from piracy. But I don’t think we’re going to win many friends, or many arguments, putting no policy in place to cover these situations and then villifying paying customers who try to address their own legitimate needs.

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I had a lunch conversation this week with three successful literary agents, who will remain anonymous for this post. They wanted to talk about the panel we’re having at Digital Book World called “The Changing Author-Agent Relationship: How Will It Affect the Business Model?”

That panel was born when I engaged an agent last summer with my observations about digital change and tried to recruit her to join a panel discussion about it. “Suppose you work with an author to develop her manuscript so your creative input becomes part of the work. Then you can’t sell it, or you get only a token offer for it, and the author wants to self-publish. Shouldn’t you, or any agent in that spot, be entitled to something in that case?”

The agent, sensing quickly that I was going to a model of “author pays agent for consulting help” said, “I can’t participate in a conversation like that. We have a canon of ethics in the AAR, and that might well run afoul of it.”

As it turns out, the canon of ethics of the AAR only explicitly prohibits agents from charging “reading fees” to prospective clients. Other charges are explictly permitted, such as for xeroxing and messengers. And others, such as consulting on self-publishing options, aren’t mentioned.

But, still, the question of whether the business model needs to change remains. The kind of book advances that agents have made a living on for years are diminishing in number. And now that self-publishing is legitimately part of the commercial continuum, authors have a right to expect that their career business manager, which an agent is, will employ it, or suggest that they do, when it makes sense. And agents will have a right to expect to be paid for that.

Of course, that’s not what these three successful working agents do. Their business assets are their personal knowledge of and relationships with acquiring editors; their ability to shape a writer’s concept and proposal into a commercial book; their knowledge of the ins and outs of book contracts and publishers’ accounting procedures. Exploring and keeping up with the various print and electronic self-publishing options: starting with Author Solutions and Smashwords, but including many others including our client Bookmasters, lulu.com, and many others, is a fulltime job in itself. (There’s a string started on Brantley’s list today by Joe Esposito who noticed announcements for four new self-publishing startups in his email in the past few days.) And searching out the authors with the money to self-publish, let alone to pay for advice on how to do it effectively, is also not what the successful agent in the current marketplace does.

I had spoken at a Writer’s Digest conference two months ago and told aspiring writers “get an agent” but also, “make sure the agent knows about the self-publishing options.” These very professional and desirable agents did not. But they agreed that when ten or thirty or fifty times a year a project they’d developed goes off for self-publishing, they’ll want to have a way to monetize that. We agreed that the likely solution will be an alliance with somebody who perhaps positioned themselves more as a “consultant” to aspiring authors. There is no shortage of such people.

The conversation turned to contract terms, particularly regarding ebooks. The agents asked me: “don’t the big trade publishers see that the strategy of paying authors half or less of what many ebook publishers will pay on digital book royalties isn’t sustainable? that we’ll end up splitting those deals?” I told them that I had raised this point with Big Six CEOs and they all said, “we won’t buy print-only; never happen.” The big publishers are counting on the authors’ (and agents’) desire for the advance to keep them locked into the current model. (Richard Curtis made this same point in a recent eReads post.) It is clear that the idea of splitting off ebooks from print contracts is one that these agents have been thinking about for a while. The relative attraction of the advance goes down as the level of ebook sales on which you’re taking half or less of what you could get goes up.

We also spent a little time discussing “verticals” and my theory that power is moving from “control of IP to control of eyeballs.” In the past week, I’ve had two conversations with Hay House executives (they’re on the Digital Book World program too) about their business. To somebody with a trade orientation, it’s pretty phenomenal. They run between 30 and 100 live events a year for their community. They have over 1 million email addresses that drive the sales of all their books. One of the agents said he had an author for whom he sold a book to one of the Big Six houses and they sold twelve thousand copies. He sold the next title to Hay House and they sold two hundred thousand. How long will the Big Six houses be able to compete for big-potential books in Hay House’s sweet spot (mind-body-spirit), advances or no advances?

One of the agents at lunch does a lot with juveniles. “Do I have to worry about this ebook thing much?” that agent asked. Soon you will, I said. After lunch I was working with my frequent collaborator Ted Hill on a proposal we’re making for another conference on digital tipping points. One we were talking about is “when does the publishing house have editors shift their focus from developing a print book with an author, with the ebook as afterthought, to developing the best possible digital product, with the print book coming out of it?” That gave me an answer for that agent: you better have somebody on your team now who can see the digital book possibilities in every idea before you peddle it. Now that you’ve made me think about it, I realize that if you’re not fully exploring the creative possibilities for digital products for every kids book you develop, you’re already missing the boat.

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The Wall Street Journal was the first to announce, on Monday, (behind a pay wall, but Google “Publisher Delays E-book Amid Debate On Pricing” and you’ll get it) that Sourcebooks CEO Dominique Raccah was holding back the ebook publication of a new hardcover YA novel, Bran Hambric, scheduled for release this September. Raccah’s explanation to the Journal was that she was trying to preserve the perception that the $27 hardcover price was reasonable. Since she knew that any ebook would hit the street at just under $10 (the Kindle promotional price is $9.99 and B&N has suggested that their promotional price will be $9.95), Raccah felt that sales of the hardcover would be undermined.

What was left unsaid in the Journal piece was that Raccah might have been leaving money on the table with this decision. After all, the publisher still sells ebooks on roughly equivalent terms to printed books and has lower costs. So, depending on the royalties Raccah is paying the author, she is (most likely) realizing more margin for Sourcebooks on the ebook sale than on the printed book sale, regardless of how the retailer prices it.

Even more startling (in this day and age) is the possibility that the author’s royalty is higher per copy on the hardcover, so Raccah might be protecting author royalties, to the extent that withholding the ebook restrained cannibalization and resulted in more hardcover sales. I mention that possibility because the agent for author Kaleb Nation is Richard Curtis, one of the most ebook-friendly agents in town (and, indeed, the owner of an ebook publisher called EReads), who was quoted in the Journal supporting Raccah’s decision.

On Wednesday, Motoko Rich and Brad Stone published a piece in the Times on the same story (in which I was very briefly quoted.) Rich and Stone added some nuance to the story. The Journal said that agent Robert Gottlieb resisted simultaneous ebook publication “when he can prevent it.” In the same graf, they said that only one book of the Times’s Top 15 fiction bestsellers was not available in the Kindle store. Of course, that doesn’t mean that the Kindle editions were available at any particular time in relation to the first release of the hardcover, just that they are available now.

The Times reporting went further than the Journal, speaking to several publishers of upcoming major books about their ebook timing plans. Doubleday hasn’t decided yet about Dan Brown’s book but acknowledges that the impact of ebook sales on the hardcover was a consideration. S&S won’t reveal their ebook release plan for Stephen King’s November novel, Under the Dome. Ditto from Hachette imprint “Twelve” on the Ted Kennedy autobiography, True Compass, coming on October 6.

So the fact that everybody is thinking hard about this is confirmed by the Times’s reporting.

But Cader, who as an industry expert and blogger has more scope and credibility to report unattributed information than reporters at WSJ or the Times, went further in Publishers Lunch on Thursday. He ridiculed the notion that Doubleday was (according to a spokesperson)  ”[more] worried about…security…than particular vendors” and he sees the motivation from publishers being to control the behemoth, Amazon. As Cader reports it, Kindle sales surged when the new device(s) came out, becoming as much as 50% or even 70% of Amazon’s sales of many important books.

Everybody (in the industry, but maybe not outside of it) knows that Amazon pays a standard discount for ebooks, which is about 50% off publisher suggested retail, and that Amazon actually takes a loss on a $25 or $27 hardcover book it sells through Kindle at $9.99 (as B&N will do if they follow through to sell books like this as ebooks for $9.95.) Nobody expects Amazon to do this forever although, as Cader points out, they are temporarily subsidized by the profit they make selling the Kindle devices. The widespread fear among the big publishers is that Amazon will soon demand lower prices for the books they put on Kindle so they can keep the $9.99 price point profitably.  As the Kindle unit sales grow, of course, the muscle behind such a potential demand would grow right along with it.

Cader makes the very important point that sales migrating to ebooks, and particularly to Kindle, weaken the brick-and-mortar channel that publishers depend on for most of their sales and profits. The Times reported that publishers could well be making bigger unit profits on each Kindle sale than on each printed book sale (a fact that I explained to them when I was interviewed and which appeared not to be clear to them before I did). Cader (who of course knew that without needing to be told by me or by the Times) makes the point that publishers do this because they are “looking out for what they believe to be their long-term interests — and are trying to protect the entire system of physical book retailing which supports the whole industry.”

While this was happening, Dominique Raccah posted her thoughts to Peter Brantley‘s Amazing List and Kassia Krozser, on that list and proprietor of the Booksquare blog, turned her space over to Dominique for a version of that post. Dominique made it clear that she considered what she was doing with Bran Hambric to be an experiment. Her focus was on a “sustainable author/publisher model”. She made the point (again, clear to most people in publishing but perhaps not to those outside) that the music business continues to present inapplicable analogies, but one of the most egregious is that authors should give it away like musicians to get performance bookings: in publishing, there are no performance bookings (and few t-shirt sales…)

Raccah made it clear that she supports early ebook releases and her house is going to a workflow that will enable that. But then she gets to what is really the heart of the matter. “Etailers are suggesting that the ‘right’ price point for an ebook is maximally $9.99.  And they are proselytizing the price $9.99.  We can’t control what retailers charge for books or ebooks.” The publisher’s choices are whether and when to make it available and whether to sell to any particular retailer.

From there she explains that exploiting formats with “windows” is an old book business strategy (hardcover, trade paperback, mass-market paperback) and a common film strategy (theatrical precedes DVD release, with TV licensing once part of that picture as well, but not anymore.) And she concludes by saying that publishers need to make these decisions on a book-by-book basis (“strategically”, she says, although I’d call that “tactically.”)

My quote, by the way, was to the effect that ebook readers and print book readers are increasingly separate markets, which I believe to be true but cannot prove. A C-level friend at a large house disagrees with me, as I’m sure many others do, and my evidence on this is highly anecdotal (including myself: I have read one printed book of the 50 or so I’ve read in the past 18 months.) But my friend would have no more evidence than I to support his contrary position, so publishers will have to make decisions without really knowing, for now, whether they can push a Kindle or Shortcovers or Ereader consumer back to paper by denying or delaying a book.

That concludes the summary. I have a few thoughts of my own to add on this. I’ll be posting those shortly, probably over the weekend. I hate going much over 1000 words on any single day, and I’m already past 1200.

An  earlier version of this post had a couple of errors misconneting agents and authors which have been repaired. So if somebody tells you about a mistake they saw that you can’t find, that’s what it’s all about. Thanks to Michael Cader for setting me straight.

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Because of a couple of panels I spoke on last spring and because of the development of FiledBy, I have had more and more conversations lately with agents. They are part of the General Trade Publishing ecosystem. So their lives are getting more difficult and more complicated, like everybody else’s in Book Valley.

The agents’ concern is frequently expressed as “what do I tell my authors?”  Publishers are increasingly insistent that a prospective author have an internet platform to build on before they sign a book. Editors always wanted credentials to back up a writer’s authority on any subject; now they’d like to see that the writer has a following on that subject as well.

But agents are also concerned about themselves. The two most innovative imprint initiatives in recent memory — Bob Miller’s HarperStudio inside HarperCollins and Roger Cooper’s Vanguard inside Perseus — are built on the idea of reducing risk, paying the author a lower advance. Yes, they also promise a higher reward (higher royalty), but experienced agents know most books don’t earn anything beyond the advance.

Miller and Cooper are smart guys and it could well be that their imprints will have a higher percentage of earnouts than most. But, as smart guys, they wouldn’t be willing to pay more on the high side if they didn’t believe they were saving at least that much on the risk side.

The advance pool is probably shrinking. John Sargent, Macmillan’s CEO, said as much at a gathering of agents a couple of months ago when he explained that the de-leveraging that is taking place throughout the economy is also taking place in publishing. Big houses just won’t have the cash available to them that they used to, and that means less money for advances, less money for printing, and less money for promoting.

But in addition to shrinking, publishing advances are taking on much more of a power law configuration, with concentration at the top and a long tail of books getting less and less (and extended by mushrooming self-publishing where the “advance” is actually negative; it’s a cost!)

This is already having an effect. I have heard from people who know that larger agencies are now shopping among the smaller ones to buy them out. It takes more agents working to pay the same rent than it used to. And the smaller agents are finding it harder and harder to make a living so they’re ready to sell out a bit of their upside to get some stability. The small number of agents that have clients at the power end of a power law distribution are doing great; those who have traditionally made a living on making lots of second level deals are really suffering.

Compounding the problem for agents is the changing nature of publishing opportunity. While the sales and royalty potential of the book through the publisher is declining, other opportunities are opening up. There is a multiplicity of ebook channels that in the aggregate do not replace the revenue that print used to provide and doesn’t anymore. Chunks of books and material too short to be published as a book can be sold through them. Agents have for years been trying to split off audio rights to sell to Audible or Brilliance or Tantor Media. The opportunity to sell content to web sites seems to be emerging. But all of these deals require conceiving, pitching, closing, negotiating, and contract reviewing. For fifteen percent of what?

And further comlicating things is the ubiquitous self-publishing option. As self-publishing becomes part of the strategic approach to getting a “real” publisher (and it is), it adds a further complication to the business relationship between agent and writer. Is it fair for an agent to work with a writer on developing a proposal or a manuscript and then, when it fails to sell to a publisher, see that writer self-publish what amounts to a collaborative effort without owing anything to the agent? I think most agents would say, “NO!”

An agent for a book writer carries the same title as the agent for an actor or the agent for a performing musician but that’s a bit misleading. A book writer’s agent is really a business partner, more like the managerof an actor or musician. I see the writer and agent as two halves of a business: the writer creates the product and the agent handles the B2B relationships necessary to turn it into money.

When the book agent’s job, most of the time, was to find the biggest possible up-front payment for an author’s work, a straight commission deal made complete sense. With writer-pays options becoming not only more common and accessible, but more sensible as a commercial choice and, indeed, becoming part of the step-ladder to commercial success, it increasingly will not.

At a conference on “Giving It Away” in Toronto at which I spoke two weeks ago, Carolyn Pittis of HarperCollins was explicit that the publisher buying content and making money by selling it was “one model”, and she pointed out that there is a “fee for services” model as well. The inference I drew was “that’s not what we’re doing today, but every option is on the table for tomorrow.” Why not? Don’t we have to believe that one of the exit strategies for the investors in Author Solutions, the biggest rollup of self-publishing service companies, might be to sell to one of the Big Six who, despairing of the future of their publishing model, tries to buy their way into a new one?

I am old enough to remember that agent’s fees, now standard at 15% of revenue, once were 10% (like the agents in other businesses I referred to at the top.) When that change happened — was Scott Meredith the first? — many of the 10 percenters sneered at the change as exploitation. But eventually they all went that way. About 10 years ago, agent Richard Curtis started EReads, an ebook publishing company which gave his authors, and others, another choice besides throwing the ebook rights in for print publishers who, at that time, seldom exploited them. Curtis was also excoriated in some circles for generating a conflict of interest, which, indeed, it would have been if he steered his authors away from better ebook options with their publishers. (He doesn’t do that.) It would be like a doctor owning a medical testing business, for crying out loud! (And they do do that…)

A friend of mine in the financial business wrote a book 20 years ago and wanted to get an agent to sell it. He knew the advance would be low, but he also knew the book would add credibility to his business. He wanted it sold. An agent told him that the agency only handled books on which they thought the advance would be $25,000 or more, yielding a commission of $3,750 at the normal 15%. This friend told the agent, take the first $3,750. The agent took the book, sold it for $6,000, and everybody was happy. This kind of arrangement, as well as others where the agent actually charges a fee for helping an author manage self-publishing options, are going to have to become more common in the future. Let’s not be too judgmental about the pioneering agents who change the paradigm.

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