Robert Gottlieb

A simple and perfectly sensible suggestion emerged on the Brantley email list yesterday but the conversation around it showed that some stark realities about the book world have not yet been taken on board, even in very sophisticated circles (which this list is.)

The list discussed a suggestion from librarian Josh Greenberg  that publishers take note of the “rental” model built into the iTunes store as an alternative way to collect money from readers for ebooks.

Greenberg’s piece calls out a fact that many people in publishing have a great deal of difficulty with: that all ebook sales must be licensing deals. They can’t be anything else. Greenberg says:

“When we think about iTunes, we think about a basic fee-for-purchase model. We’ll just leave aside the fact that you never truly “own” a digital file, you’re just buying a particularly-structured license to use it…”

He’s right. When you deal in printed books, you have a tangible object. When you deal in ebooks, you only have “code”. The first sale doctrine says you can re-sell the book or lend it or share it. But copyright law says you can’t re-sell, lend, or share copyrighted “code.” Many digerati (and many librarians not named Josh Greenberg) refuse to acknowledge this distinction.

But that’s a legal point, one that can be debated until a court or a Congress makes a ruling (and then beyond, actually, since we continue to fight battles even after courts or Congress have rendered their conclusion.) The challenge to Greenberg’s idea of switching to a rental model is not so debatable. It’s practical.

Implementing new models for book sales requires herding cats. It can never be done fast and many business ideas relating to content have foundered because it couldn’t be done at all.

What should be clear to anybody who has been following developments since the days a decade or more ago whenRocketbook and Softbook and Sprout were trying to get publishers to give them rights for their content propositions is that it takes a very persuasive sales pitch to get publishers to do so. That sales pitch must be delivered publisher by publisher, and then the impressive ability of publishers to discuss a problem to death takes over, and the new proposition might itself die before its owner gets an answer. Or certainly before its owner gets enough answers to get the new idea off the ground.

What was further made clear by the participation of agents at Digital Book World, and particularly by the opinions expressed by superagent Robert Gottlieb on the ebook “timing” panel, is that the publishers don’t make this decision without consulting with their upstream gatekeepers. Gottlieb made clear that a) it takes a very small number of lost hardcover sales to make an author’s book slip notches on the New York Times Bestseller list, b) he and his authors believe that a much cheaper ebook, or perhaps any ebook at all not reported as a hardcover sale, can make that critical difference between being Number 1 or being much further down the list, and c) the difference in several places on that list is worth losing some sales over.

So just imagine how Gottlieb and his star clients (and all the other agents and star clients) would react to a rental model!

Let’s add one more point before the next great suggestion is made. The same thing will be true of an even better model than rental (which also has plenty of precedent in media even closer to publishers, audio books): subscription sales.

The switch that Apple has made to the “agency model” is not of equivalent complexity from a business perspective. There we’re still “selling the book” (although we’re really licensing access to a file) and the amount of money flowing to the publisher is comparable. But, even there, the switch will not be simple. Publishers have signed contracts governing almost all their ebook sales (which is a further demonstration that this is different from selling physical books, for which signed contracts between publishers and vendors is by far the exception, not the hard and fast rule) which one could imagine the purchasing party (Amazon, Ingram, Content Reserve, Barnes & Noble, Kobo) believes prevents the publisher from changing the rules in the middle of the game.

What Michael Cader reported last week which we expanded on in a blog post and a CNN interview is that publishers can use the new agency model to hold back books from channels where they can’t control the pricing. This very much underreported exchange between Steve Jobs and Walter Mossberg of the Wall Street Journal makes it very clear that Apple expects vendors who would undercut the pricing publishers set for them will be denied access to the content.

We can look forward to continued battles over pricing and over the terms of sale between publishers and the downstream players in the ebook supply chain. But I think it will be a while before real alternative distribution schemes to the public make any appearances. In fact, they’re likely to occur in vertical niches first, where the big agents are less involved and the number of publishers one needs to get on board is something less than “just about all of them.”

A quick thanks to everybody who attended Digital Book World (and there were a lot of you.) I am hoping that the fact that all I’ve heard is praise and enthusiasm for the two day event is not just a result of people being kind to the guy who put the program together. I think we really did generate discussion on some issues that had previously been neglected. But most of all I’m proud of the job we did selecting panelists; everyone I saw presenting was smart, well-prepared and entertaining. Some we had seen in front of audiences before; some we only knew through our interviews in person or on the phone. But picking them carefully and one by one certainly seemed to work and it is the same formula we’ll use putting together Digital Book World 2011. I hope we’ll see everybody again there next year.

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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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