Sterling

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.

Share this post

Amazon dropped a shoe last week when they announced their new mystery imprint, Thomas & Mercer Books, and started signing authors, including self-publishing evangelist, Joe Konrath.

Last night they dropped the other shoe, which turned out to be a very heavy boot. They signed former Time Warner Publishing (the company that is now Hachette Book Group) CEO Larry Kirshbaum to head up a new general trade imprint for them.

The next thing to drop will be a few pennies as the industry wakes up to a very new day.

Konrath complained in a blog post over the weekend that independent bookstores planned to boycott the Thomas & Mercer imprint. It would appear Konrath (who, in his pre-ebook-evangelist days worked hard to promote through independents) took very personally what was meant to be resistance to Amazon.

One would suspect that the books Kirshbaum is going to acquire will be very hard for any bookseller that wants to serve and keep her customers to avoid stocking. In other words, the Kirshbaum signing might have cured Konrath’s concern.

Where did this arise before? Many times, many places. Borders stopped buying Sterling books when the independent publishers was acquired by B&N. The relationship between Sterling and Amazon is more complicated, but it would be safe to say that sales of Sterling books were not Amazon’s highest priority and sales through B&N’s biggest competitor were not Sterling’s.

Amazon briefly (for a couple of days) turned off Macmillan’s buy buttons in January 2010 in an fleeting and unsuccessful attempt to persuade the big houses not to go to agency pricing.

When Barnes & Noble bought Sterling, they stated clearly that they did not intend to publish precisely the kind of books Kirshbaum is now going after: “non-fiction and literary fiction.” Although things have changed in what has been nearly a decade since that acquisition, Sterling was a “category” publisher when B&N acquired them and have never stepped aggressively into the high-advance, agented arena that is Kirshbaum’s natural milieu.

I’d say one of the pennies dropping might be at B&N, where they are probably reconsidering their title acquisition strategy. If their biggest retail competitor is going after the biggest authors directly, can they afford not to?

Five years ago we lived in a world where every book that mattered sold more copies at brick stores than it did online. Five years from now every book that matters will sell more copies online than it does in a brick store. The Amazon decision may mark the commercial turning point of that massive shift.

The edge in maximizing online sales revenues will go to the publisher that can manage online pricing and marketing most effectively. That not only means raising and lowering prices dynamically to get the most possible revenue, it might also mean experimenting with free sample sizes to see what delivers the best rate of conversion to a sale. It certainly also means having the best list of potential readers to alert to a book’s publication.

Publishers have a steep hill to climb to develop skills in that regard that Amazon has been honing for years. The announcement of Bookish, a community and information site for readers, seems like a weak counterweight to this Amazon announcement. I would imagine Kirshbaum will have signed away a few books the Big Six publishers wanted before Bookish even opens its doors.

Agents, who have just gotten a big new bidder to drive up the prices of everything valuable they have to sell, are having a very good day. Publishers, as they say: not so much.

I hope I’ll see you at either the memorial celebration of Ruth Cavin’s life tomorrow (Tuesday) afternoon at 5:30 at the Salmagundi Club at 5th Avenue and 11th Street or at our “eBooks Go Global” conference at Javits all day on Wednesday, where the topic of this blogpost will surely arise!

Share this post

Although the value chain in trade publishing for the last century has, for the most part, kept retailers between publishers and consumers and kept publishers between retailers and authors, that has never been 100% true. Doubleday covered the whole value chain in the 1950s, when it not only owned the Doubleday Book Shops and the Literary Guild book clubs, it also owned printing plants. In the early 1960s, the Crowell-Collier Publishing Company bought (and eventually renamed itself) Macmillan (and that’s the old Macmillan that became part of Simon & Schuster in the 1980s, not the new Macmillan which was what the renamed Holtzbrinck group became a few years ago) and they also bought the Brentano’s bookstore chain.

I sold books to both Brentano’s and Doubleday in the 1970s and I don’t recall it ever being an issue that they had publisher ownership. Of course, that was before trade publishing consolidated into anything remotely resembling a Big Six.

After those two chains were sold in the 1980s (and I’m going to admit that I forget whether Walden which became Borders or Dalton which became Barnes & Noble bought each of them), in a period of two decades when publishers and book retailers grew enormously, the neatness of the division between the publisher’s role and the retailer’s was mostly respected. A number of retailers — notably B&N and Borders, but suppliers to the mass merchants as well — bought bargain books directly from packagers during that period, but joint ownership of significant publishing and retailing capabilities was, temporarily, suspended.

But Barnes & Noble was particularly aggressive at direct sourcing of book content and around the turn of the century announced the goal that 10% of their volume should come from directly-sourced product. To further that objective, in late 2002, B&N outbid several other companies (including at least one very large publisher) for the independent niche publisher, Sterling. Immediately, Borders stopped buying Sterling books and Barnes & Noble started stocking a lot more of them than they had in the past.

Meanwhile, the Internet was forcing everybody to rethink the paradigm. Even before the Kindle was launched in November, 2007, Amazon was encouraging authors to “publish” with them directly. All they could offer was the connection to the vast majority of online consumers — no print runs, no presence in any brick stores — but this could still be attractive and productive for some authors. My friend and client, David Houle, a futurist who blogs at Evolution Shift, published his “Shift Age” book with Amazon before Kindle and has sold thousands of copies, many of them at his own speeches. He’s very happy earning about $7 on every sale of a $17 book. No publisher was going to offer him as much as a third of that per copy.

As online sales grew, and then were further fueled by ebook sales starting in late 2007, it became increasingly obvious to many that publishers would have to start selling direct themselves. Some did. Harlequin has done so for years. F+W Media, one of the most aggressive publishers employing a vertical community strategy, announced a year ago that they would use Ingram to sell their books as well as those of their competitors to their direct audiences. Macmillan announced a similar plan for science fiction through Tor.com, although that idea has apparently never been implemented.

Part of what has discouraged the big publishers from selling direct is the threat of retaliation by Amazon and Barnes & Noble, both of which are much happier if the customer contact for big books is through them, thank you very much. Since both companies really exercise direct influence on many consumers, big publishers are inclined to respect their concerns.

To a certain extent.

And then we had the events of last week.

Amazon, which had previously established imprints for author-direct publishing and for translations of foreign works and had created a relationship with Houghton Harcourt to address their prior inability to get brick store distribution for books they owned, announced a new romance imprint called Montlake Romances. (Personally, I thought it was a bit strange that they announced it with just one book coming this Fall, rather than 10 books coming next week!) That put them squarely into the publishing business in a new way, and one could only imagine that the mystery shoe and thriller shoe and sci-fi shoe will be soon to drop.

In the same vein, Barnes & Noble has a program called Pub It! to enable authors to by-pass publishers and earn bigger royalties. They also still own Sterling, which gives them in-house the distribution capabilities that Amazon had to team with Houghton Harcourt to get. And with Sterling they also have the entire infrastructure in place to deal with authors and their care and feeding which could constitute competitive advantage when the gloves come off chasing brand-name authors.

So both of the giant retailers are looking more and more like publishers.

But it turns out the publishers were cooking something up too. On Friday, we learned about a new business called Bookish, which will be the “new digital destination for readers.” In its announcement release, Bookish promises to use content and software tools to promote discussion and discovery around books and to answer the reader’s question: “what book should I read next?”

What was most eye-catching about Bookish was its backing by three of the Big Six: Hachette, Penguin, and Simon & Schuster, who have apparently been planning this move for quite some time.

What was downplayed, but perhaps most significant, is that Bookish is trying to straddle the same fence that Google, and, to a lesser extent, Kobo are: being an ally of existing retailers while selling direct to consumers itself.

It really is impossible to speculate intelligently about Bookish’s potential for success. What they’re suggesting they’ll do is reminiscent of Copia and Goodreads and Library Thing, and none of them have yet replaced the marketing power of the brick store, a fact which is front and center in the minds of the trade publishers who depend on that merchandising.

But it will certainly accomplish one thing: giving the big publishers a direct path to the consumer. The hunch here is that if any one of these three big publishers had gone aggressively into direct sales, they would have risked serious retaliation from both of their two biggest customers: Amazon and Barnes & Noble. But it will be hard for them to retaliate against three publishers who, among them, deliver about half the biggest commercial books in the marketplace.

Let’s remember a year ago January when Amazon briefly sought to block agency terms for ebooks by removing buy buttons from Macmillan books when they briefly thought they could stop the plan from being implemented. As quickly as it became clear that the five publishers determined to implement agency would not be deterred from doing so, Amazon retreated. (In fact, they graciously joined Macmillan in compensating authors who might have lost sales during the brief period the buy buttons were inactive.)

And that brings up another important point about Bookish: what it says about the common interests among fierce adversaries, which the trade publishers certainly are. The times call for collaboration among competitors in trade publishing. It is a little bit nuts that several of them are building competing romance, mystery, and science-fiction “communities”, which only leaves the field wide open for a third party to be the biggest aggregator in each of the verticals and also allows much smaller competitors to look comparable on the web. But collaboration models have to withstand anti-trust concerns. Presumably three of the biggest publishers jointly investing in this web venture will.

Whether or not the Bookish team can invent the general book marketing future, or, through competition, spur Amazon and BN.com to be more creative about online merchandising, remains to be seen. But this past week certainly gave us further indications that the publishing value chain is being drastically reshaped and that the neat roles we’ve been used to for 100 years have less and less applicability to publishing’s future.

I chuckle when I think about a very smart person from a major house who was telling me just about a year ago, right after agency was implemented, “whew, now I think things can settle down for a while.” Actually, “things” are just getting moved over to the fast track so they can really change. Montlake and Bookish within a day of each other; Barry Eisler (who’s speaking at our “eBooks Go Global” show at BEA on May 25) and Amanda Hocking going in opposite directions within a week or so of each other a couple of months ago; these are significant events but they’re also signs of accelerating change.

Share this post

I have found a way to describe the difference between the Digital Book World conference we organize for F+W Media and the O’Reilly conference Tools of Change which I believe is accurate and is certainly not intended to be a pejorative description of  Tools of Change. I go to TOC and I find it very valuable, but different from what we’re trying to do.

Tools of Change explores developments in technology that have impact or can have impact on publishing (in general) and helps publishers (of all kinds) understand how to apply them. Digital Book World explores business challenges to trade publishing (defined as book publishers who work primarily through the retail network, or “the trade”) generated by digital change and helps publishers address them. So if I were organizing Tools of Change, I’d want to scan the horizon for technologies that could have an impact and ask “how?” Because I’m organizing Digital Book World, I’m looking at trade publishing’s commercial environment and operations for the impact of technology and asking “what should we do?”

The next Digital Book World Conference is set for January 25-26, 2011. That obliges us to ask: what will the hot digital change questions be eight months from now? What should we be planning to discuss then that will be immediate and relevant to the attendees we’re targeting: the editorial, marketing, sales, and digital strategy people in trade book publishing houses?

To help us figure that out, we’re in the process of recruiting the DBW 2011 Conference Council. That group of about 30 people — CEOs, digital strategists, and marketers from publishing houses large and small, agents, retailers, and independent industry thought leaders — will help us define the panels and choose the speakers that can enlighten and inspire. I’ll introduce you to that group in a future post; the team is in formation at the moment.

Today’s blog is to recruit the readers of The Shatzkin Files to help too. I hope you will.

Here are 15 topics, or speculations, we’ve identified to start building an agenda for discussion next January. Do you have any thoughts on any of these to refine our thinking? Some of these are ideas looking for examples: do you know particular people or companies doing things suggested here (or not suggested here) we should be highlighting? And, most important, what are we missing?

1. What’s going to be in an ebook? We’re definitely moving past the stage where the ebook is a “straight lift” from the print: half-titles, blank pages, and all. As ebook sales are rising, publishers are paying more attention to presentation and quality control. And there have been a few experiments with “enhanced ebooks” that contain added content and features, some of which are presenting books as “apps” to increase the functionality that can be offered. Where will we be drawing the line between “standard” new ebook features — dictionaries and linked notes, for example — and enhancements that might be worth extra money? And what enhancements will we see working in the sense that consumers see them to be worth paying for?

2. What will ebook sales channels look like eight months from now? In addition to the main ones we have today — Kindle, iBooks and the App Store, Nook and B&N, Sony, Ingram Digital and Content Reserve — will we be seeing substantial sales through Google and the Android marketplace, B&T’s Blio, and Copia as well? Will the mobile phone service providers be creating retail outlets that matter too? Will the retailers newly in the ereader game — Walmart and Costco and Best Buy — also be motivated to create a branded outlet of their own to sell ebooks?

3. To what extent will publishers view single-title marketing as a practical endeavor? We’ve maintained that title-by-title marketing is the Achilles heel of general trade publishing and that the steady erosion of book-format-oriented marketing opportunities (book review pages in newspapers, radio and TV talk shows) and verticalization call for different marketing strategies. Where will publishers’ thinking be next January on the challenge of launching each new title into the marketplace?

4. How much progress will publishers be making on establishing direct-to-customer contact? What has characterized trade publishing is its dependence on intermediaries to reach the market. And what has made trade publishing possible is the leverage provided by those intermediaries, allowing publishers to reach millions of readers through mere thousands of touch points. But all publishers today acknowledge that the intermediary structure is breaking down and direct contact with end users is necessary. How is that working out? We may need two panels to answer that question: one of niche publishers that will find it pretty natural to do and one of general trade publishers who will undoubtedly find it very hard and complicated.

5. How important is the mobile phone market? How fast is it growing? What kind of books work best on it? And what do publishers have to do differently to please that market than what they do for larger-screen PCs, tablets, and ereaders?

6. How are publishers tackling the shrinking marketplace for printed books? Are they shedding warehouse space or considering consolidation with other players? Are they renegotiating printing contracts, reconsidering what constitutes a “minimum run” or acceptable print book margins? Are they developing new short-run and POD models to complement their prior pressrun models? Are they launching any new books with a no-pressrun strategy?

7. How much progress are publishers making toward changing their workflow, so that we have “ebook first” editorial processes? Since the beginning of ebooks over a decade ago, the standard technique has been to make them after the print book has been completed, and for the editor and author to focus their efforts on making the best possible print product. There is an increasingly widespread belief that this is backwards, and more complex ebooks help make a compelling argument for reversing the order of things. How far will we have moved in that direction by next January?

8. Does the growth of ebook sales change the thinking of publishers and agents about the efficacy of dividing up the territories for single languages? Do publishers start to see a growth in offshore sales facilitated by ebooks? Anecdotal reporting by O’Reilly, which owns global rights in all its titles, suggests that they’re seeing big sales growth in digital from markets that are hard-to-reach with print.

9. Do non-US publishers start to establish more of a sales presence in the US exclusively through virtual means? We’ve been suggesting on this blog that the growth of online sales — print books and digital books — will soon enable reaching a majority of the US sales potential without inventory, which means without the need for a warehouse or a distributor. That should lead to greater penetration of our market by offshore publishers, in all languages. Will we see enough signs of this by January 2011 to build a discussion around it?

10. How does the future look for the brick-and-mortar bookstore marketplace? On this blog (and elsewhere), concerns have been expressed about the impact on bookstores of the increasing shift to online purchasing for both print and ebooks. Christmas 2010 is being viewed in the consumer electronics industry as the “ebook Christmas”. When we’ve had a chance to digest the sales numbers of new devices and we combine that with what we know about the impact devices have on a consumer’s print book purchases, how do we see the future of bookstores when next January rolls around?

11. Is “profitable self-publishing” an idea gaining credibility or is it a pipedream? In 2009, author J.A. Konrath made a bit of a splash when he blogged about the substantial revenues he was earning putting his short stories and out-of-print backlist on Kindle without a publisher. Will there be more stories like this by January? Will this look like a viable option for established authors?

12. What’s the best approach to ebook distribution for small and mid-sized publishers? Will the original DADs (digital asset distributors) like Ingram Digital and LibreDigital provide the full service suite and sales effort that smaller publishers need? Or will the publishers-as-distributors model — notably including O’Reilly, who went into the business last February, as well as trade publishers and trade distributors like Perseus and NBN and Ingram Publisher Services, be the better option? How much is effective ebook distribution dependent on technical competence and how much of it requires sales competence?

13. After many years of discussion, are we yet beginning to see some new revenue models with any impact, like subscriptions (Disney has tried it now, in addition to O’Reilly’s Safari), selling books by the slice, or new models to compensate for library lending? We know that publishers need metadata-labeled fragments of their books for marketing purposes, but, for trade publishers, is there yet any indication that there’s a real payoff for that kind of tagging in sales revenue?

14. How much of the print backlist is still locked up by rights issues and what impact can different royalty offers have in clearing it up?Jane Friedman’s Open Road has had some success signing up established backlist for higher ebook royalties than the majors want to pay. Is the reservoir of candidates for this treatment substantial? How are agents and big publishers going to resolve these issues?

15. Is the notion of publishers building vertical presences on the web, so often expressed and promoted on this blog, gaining any significant traction in the real world? How are Poetry Speaks and Oxford Bibliographies Online and the forthcoming Pixiq from Sterling doing at establishing a new publishing model? What other examples are emerging or will emerge of publishers using delivering vertical solutions to create new business models?

At the Digital Book World conference, we want to be strategic and we want to be practical. And we want to be focused on the real-world problems digital change is forcing trade publishers to face. Have we left out any of yours?

I have finished this but not posted it yet and am already thinking of things I left out. A substantial publisher I spoke to last week learned from having his trip to the London Book Fair cancelled that he doesn’t need to go there anymore. This company has already given up its BEA floor space in favor of a meeting room. And this CEO himself is no longer going to go to Frankfurt and can see the day not far off when his company will no longer take space there either. Are trade shows  an anachronism in the age of digital communication? I have a feeling you readers and the Conference Council will think of a lot more.

Share this post

The New York Times had a story on Tuesday morning about an advantage the Ford Motor Company had over its competitors at GM and Chrysler: it is still family-owned. As the Times explained, the family ownership was able to take a longer view than their competitors. In fact, we still don’t know whether the re-tooling the family has ordered up will work in the long run. But we do know that they have had a steadier and more far-sighted management because the family cared about the long-term health of the business, not just the next quarter’s profits.

This recalled to me a conversation that I had with Peter Wiley, currently the Chair of the Board of John Wiley & Sons, over dinner 15 or more years ago. Peter said then that he believed Wall Street undervalued family ownership. As Peter put it, “just about all our competitors are focused on quarter-to-quarter results. Mike, my family has owned this company since 1807. I am not thinking quarter-to-quarter.” Wiley’s financial results (even though they have suffered in this recession along with everybody else) over time have certainly vindicated Peter’s opinion.

Family-controlled businesses have been  been ubiquitous in publishing through my whole career. When I was young, there were Scribners at Scribners, Doubledays at Doubleday, sometimes two Roger Strauses at Farrar, Straus & Giroux. When family-controlled but publicly-traded Barnes & Noble acquired Sterling in 2002, they acquired it from the founding families: the Hobsons and the Boehms.

I have consulted with several family-owned or -controlled businesses. Wiley, Barnes & Noble, and Ingram are distinguished by how well managed and basically competent they are as organizations. They really do the “blocking and tackling” well. A big part of the competitive edge of all three companies is in the quality of their operations.

They make the investments, particularly in infrastructure, that are critical to the business. I once asked Peter Wiley why it was that his company’s travel web sites were so much more commercially successful than those of other publishers with equivalently-strong travel brands. “Constant, controlled experimentation,” he said. “What worked for us was on the third try. We didn’t get it right the first two times.” Family ownership — with belief — can make those kinds of investments and stay with them. And it can support a second and third attempt to make a good strategy that is tricky to execute succeed.

John Ingram, the member of the owning Ingram family who runs the book industry-related businesses, got a clear vision of the potential in print-on-demand a little over a decade ago. Very few other owners, and almost certainly no publicly-traded owner, would have made a bet of the scale, in relation to the size of the company, that he did with Lightning Print. But John could see that POD would become extremely important and that Ingram, because of its position in the supply chain, was in a great position to apply the technology. And although it took a few years for him to be proven right, the family had the commitment to see it through and, as a result, Lightning occupies an increasingly central place in the US supply chain and is the linchpin of Ingram’s plans for future growth as the traditional book wholesaling business contracts.

What most distinguishes the successful and still-profitable Barnes & Noble from its once equal and now reeling competitor, Borders, is the quality of B&N’s supply chain. That required investments in warehouses and systems that Borders, long ago sold by its founding family, didn’t have the long-view management to make.

Now I’m working with another family business called BookMasters, in Ashland, Ohio. BookMasters started out as a printer in the 1960s. Their operations have grown in both directions along the value chain from printing. They have a business, BookMasters Digital, that provides an XML workflow from concept to the press. And they have another division, BookMasters Distribution, that takes the output from the presses and provides warehousing, sales, fulfillment, and collection. The Wurster family that owns BookMasters has many business characteristics in common with the Wileys, Riggios, and Ingrams. They have a high degree of loyalty with many long-standing employees. They have a persistent commitment to operational excellence. And they have a high degree of strategic consistency: they are willing to build things over a long period of time.

John Ingram saw over a decade ago that the book wholesaling business Ingram was in was living on borrowed time. He saw Lightning as a bridge to the future. Dave Wurster knows that printing is not a growth industry and he’s building his bridge to sustainability with service offerings that expand his importance to his customer base. Over time, both of these family owners can see the possibility of a totally transformed businesses. Their focus primarily is on how to make sure their business survives a long time, not on immediate profit. In a time of great change, I believe it’s a competitive edge.

Share this post