The Shatzkin Files

The big guys don’t see the fundamental problem

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The rapid series of developments in the digital book space and my rising profile mean that I seem to be in an interview with a journalist just about every day. As I was yesterday. The focus of yesterday’s conversation was the Baker & Taylor“Blio” platform that I wrote about last week. How widespread did I think its uptake would be?

The interviewer and I covered a lot of ground, including ebook pricing and timing and whether publishers would be able to make enhanced ebooks work. Those are the topics of the moment (and they are all panel topics at Digital Book World.)

At one point we had a robust discussion about ebook pricing. My interviewer asked me about a pundit’s observation that hardcover books were just wildly overpriced. The implication is that publishers should consider themselves damn lucky that people would pay $9.99 for an ebook, which, after all, has far fewer bytes than a movie they can get for $1.99.

That’s an easy one to answer. What’s a “right” price? Well, from the publisher’s perspective, that’s a question with a clear mathematical answer. (The math wouldn’t yield the same answer for an author.) The right price is the one at which the total gross margin — revenues after all costs — is maximized. We all know more will buy if it is cheaper and fewer will buy if it is more expensive, but the “right” price is the one where customers times margin (margin being revenue minus costs) is the highest it can be.

There is no way in the world that a publisher would maximize margin cutting $28 print book prices to $9.99. So the author of this blogpost being quoted to me might be looking at the “right price” from a consumer perspective or a high-level industry observer perspective, but they sure aren’t looking at it from the perspective of the one who sets the price: the publisher.

At the conclusion of the interview, the journalist on the other end of the phone asked me whether, in effect, publishers would be able to save themselves. “Is there a model,” she said, “which assures that a publisher will profit selling their books in the future?”

Now, I must say before you read my answer, this expresses a long view, not an immediate one. But it sure isn’t comforting to people who sell content for a living.

Is there a model for success selling content? I think the answer to that question is “no.” I’ve spent my lifetime in book publishing and so did my Dad; I don’t like coming to this conclusion. But what I think I see is that selling content as a publisher is a business that is going to just get harder and harder until it won’t really be much of a business anymore.

This has nothing to do with piracy or DRM or Amazon’s promotional ebook pricing. It has to do with the most basic of economic laws: supply and demand.

Until the digital age, content was scarce. It wasn’t scarce because people didn’t create it; it was scarce because it required an investment to distribute it. That’s no longer true. Anybody with an Internet connection can make anything they write (or snap or video or sing) available to anybody else with an Internet connection. For just about free. That’s just one reason — among many — why the amount of content choices available to everybody has mushroomed in the past 15 years.

When the supply of something goes up faster than demand, the price of the something drops. Or, put another way, money flows to scarcity. And content is anything but scarce. That, in a nutshell, is the inexorable problem publishers face. And every day it gets worse. More backlist and out of print and public domain and orphan books get digitized and made available. More bloggers blog. More commercial operations put content online to satisfy their own stakeholders. More videos are uploaded to YouTube and more documents are uploaded to Scribd. All of it is processed and made discoverable by Google and other search engines. And the cumulative effect of all this content being created as something other than new publications for sale is cutting into the market for content that is being created with the expectation of sale.

What is the new scarce item that will attract the dollars if IP is so common that it becomes hard to sell? The answer is the attention of people: eyeballs. And the winning trick for publishers will be to use the content they control — which today does have value — as “bait” to attract the attention of people and then to keep that attention and build a business around it.

Note to some publishers who think they’re doing this: it is not the right answer to simply grab email names and web site registrations as a way to offer the same product catalog over and over again by email blasts. That doesn’t create value for a community and, before long, the community will lose interest and move on. You will lower your marketing costs temporarily with that strategy, but you’re still building a business of selling content and you’ll still, ultimately, deal with the problem that something roughly equivalent to much of what you want to sell will be available elsewhere for free.

I’m far enough ahead of the wave with this insight (if, indeed, time proves it to be an insight) that I can’t really point you to any examples yet from established publishers who followed Shatzkin’s formula to success (although I’m working on a couple that might be worthy of mention by a year from now.) So far, all that is clear is that publishers that stick to an audience fare better in the digital world than the ones who don’t. Their marketing costs are lower and their reach to the audience is both more effective and less dependent on intermediaries.

A stark illustration of this hit my radar screen last month.  A major agent told me that he sold a Mind, Body, Spirit author’s book to Random House, which sold 12,000 copies.  He sold the next book by the same author to niche publisher Hay House, which sold 200,000 copies! And Hay House, with over a million email addresses of people all interested in the same type of book, probably spent less on marketing to sell eight times as many.

There is one example that points the way for all of us in this business right under our noses every day. It is Publishers Marketplace, the creation of Michael Cader. He didn’t have book content to use as bait for the publishing community, so he created a free daily newsletter, Publishers Lunch about ten years ago. The formula he used — which was novel then and is now a commonplace — was to find the stories of interest to his community every morning and deliver the links to those stories, along with a little commentary, for free. That created an enormous number of sign-ups very quickly and a corresponding amount of grumbling from the established trade press, which would have a) never wanted to show anybody else’s story rather than their own and b) would have expected to sell any content they generated rather than giving it away as Cader did. After all, selling content was the model! (Sound familiar?)

I don’t think it took a year before Cader established his community, Publishers Marketplace, built from the eyeballs that were attracted by the free content in Lunch. Soon he made the “free Lunch” an abridged version, so the “full Lunch” became one of many benefits of “membership” in the community, which comes at a monthly subscription price for the unaffiliated and at site license prices for big companies. It is important to note that the full Lunch content alone wouldn’t keep and hold a community. Rather it is databases of information, many of them created by the contributions of the audience and additional tools and services (such as a free web page for every member) that keep people signing up and paying each month without dropping out.

Publishers have always focused primarily on the content. Survival in the future will require focusing on the market.

Publishers Marketplace and Hay House (and Harlequin and F+W and Interweave and Chelsea Green and all publishers who are dedicated to serving the same community over and over again) are on the right path, one that is very difficult for general publishers to tread. Taking steps to preserve the current marketplace for content — tinkering with DRM and fighting piracy; grappling with the timing and pricing of the content in various formats; even building out from the book as we’ve known it to take advantage of new ways to deliver information and entertainment — are, at best, holding actions. They don’t attack the fundamental problem that is developing for publishers which is this: if you don’t own the audience, the cost of reaching it for one book at a time will be prohibitive.

In the digital age it will make much more economic sense for the owner of the audience to find the content rather than the way we’ve always done it, which is the other way around.

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  • peterginna

    Mike, as usual you succeed in stepping back to see the bigger picture while most of us publishers are too busy scrabbling at the coalface to see further than a foot and a half. Having spent time in the university press world, which also thinks in terms of audiences–they speak of “disciplines” but it amounts to the same thing–I'm often surprised at the way most trade houses still behave as if the market were a big undifferentiated mass. Plenty of smart editors and publishers understand niche audiences but the business is not yet organized around them by and large.

    I still believe enough in the value of the content I publish that part of me resists your insight here, even though it is terrifyingly persuasive. That is, I want to believe that a deeply researched/reported, beautifully imagined, or brilliantly written book can provide value unique enough to be (ugh) monetized. But I think you're right that we have to recognize that the whole ecology, and economy, within which we operate has changed and we'll have to rethink how we extract that value.

    • Peter, I can't tell you how pleased I am to get this response. My “message”
      (vision?) is really a painful one for anybody deeply enmeshed in general
      trade publishing to accept. Most don't. Either I'm getting better at
      explaining it, or times are making my message more acceptable, or you're
      just a lot smarter than the Average Bear. I suspect all three are true.


      • And you are obviously a person of great discernment! I happened to watch a really interesting video last night in which NYU's Clay Shirky and Jay Rosen were talking about the newspaper business. Shirky remarked that people *outside* the news business had been talking about the structural problems it faced since the mid-90s, but newspapers were then still highly profitable and prophecies of transformation were ignored until a couple of years ago. The situation in big publishing is I think similar. It's really hard to think outside the box when you are in the box and it's all you can see. And for all the groaning about “the business model”–which people have complained about since I began in publishing–the big houses have been doing well enough to ignore how the larger environment is changing. Even after the last disastrous year, the market has come back enough to lull many of us into thinking the problem is “only” Amazon, or e-royalties, or whatever.

        As Clay Shirky observes, newspapers utterly, willfully failed to see how their market was changing until far too late. I think there's a danger the same will happen to book publishers. The video is at

      • Thanks, Peter. I'm a fan of Clay Shirky; he's a uniquely perceptive observer
        of the overall digital scene. His book “Here Comes Everybody” is very
        helpful in thinking about digital change.


  • munkdavis

    I agree with peterginna. The strategic view you provide is refreshingly forward looking and strategic. I love the example regarding Random House and Hay House, but I don't understand your statement that the book pricing equation for a publisher “wouldn't yield the same answer for an author”. Can you expand on your assumptions? Thank you,

    • Munk, happy to amplify on the difference in the calculation for the
      publisher and author. For simplicity, we'll deal with print books only.

      For the publisher, the “right price” is maximizing volume times margin.
      Margin is the difference between revenue in (receipts from wholesalers and
      retailers) and cost of sale (print and bind, author royalties and
      incremental cost of shipping and returns processing.) There's simplification
      here as well, because margin depends on print run, etc. but you get the
      point. If we raise the price, we lose sales but gain margin and vice-versa
      if we lower the price.

      For the author, the best price is to maximize volume times *royalty per copy
      *. Royalty is not the same as margin. If you cut the price by a dollar, say,
      you're probably cutting the royalty by a dime (or 15 cents) but you may be
      cutting the margin by more than double that (you're probably cutting revenue
      per copy by 50 cents on each dollar of royalty.)

      The two are closely related but not identical. The author would tend to
      benefit less per copy than the publisher on a price increase and be
      penalized less per copy for a price reduction.


      • Thanks Mike.
        You validated my assumption that in the current model royalties must be tied to volume rather than margin. Pricing models can change, but from your response am I to gather that toying with the publisher's margin is taboo? From the publisher's vantage point I can imagine that messing around with their margin equation would be very unsettling. For time's sake, unless my imaginings are way off base, you can treat the question above as rhetorical…
        Thanks again,


      • Munk, no author or agent would be comfortable with a deal tied to margin.
        Margin is a moving target and difficult to calculate. It could be
        contentious, as deals are in the movie business based on “profit
        participation.” The closest it gets is that many publishers today pay
        royalties based on “receipts” rather than “retail price.” Receipts are only
        part of the margin equation but they are unambiguous. Costs, which include
        pre-press (how much per copy depends on the number of copies), processing
        returns (different for every book), books printed but not used (different
        for every book), are much trickier to put into a royalty calculation.


      • Excellent. Got it. Thank you.

  • I agree with you 100% on this, but I think the other area that traditional publishers need to focus on is to enhance the value of the scarce products. There is a lot that can be done to make the physical book more profitable by reducing the supply and driving up the demand in a very small niche.

    In an article I posted last week, I pointed out that industrial rock band Nine Inch Nails gave away digital versions of an album, but sold several physical deluxe versions of that same album at various price ranges. The highest prices version was limited to a mere 2500 units and priced at $300. That edition sold out within the first 30 hours of being available.

    Granted, that type of model will only work for the larger names in publishing, but don't they frequently act as loss leaders anyway?

    • Brad, your idea is reasonable and is reflected in the thinking of
      entrepreneur Richard Nash and author Cory Doctorow. They both see the value
      of deluxe leather-bound and signed editions at premium prices. That's taking
      the hardcover premium to a whole new level. I think the idea is worth
      exploiting, but I see it as incremental help, not a game-changer.


  • I agree with your observations 100%. Attention will become increasingly scarce. If publishers don't focus on this—and continue to think of themselves as “content producers”—they will ultimately be out of business. Kudos to you for saying it out loud.

    • Thanks for the comments, Mike. It is bolstering to hear things like that
      from somebody in a position like yours. I often wonder whether anybody
      really in the game can stand to hear this stuff; obviously, a few of you


  • Mike, as usual, you take an important, difficult issue and nail the situation neatly.

    The future is not about “content” sale, but rather serving well defined communities. And that means offering some info for free, access for nearly free, networking galore, and high quality/more unique content for a fair price.

    As a vertical publisher, we have an advantage in that we serve markets that are already well defined — however, that is not enough/as you state. We need to ensure that we never take our communities for granted, and understand/nurture when sub-communities grow.

    • David, you enunciate the principles very well. I know F+W has been pursuing
      and investing in this strategy for a long time. You're quite right that you
      started with a substantial advantage rolling up already specialist
      companies. The big horizontal companies have a much more difficult path to
      the future.


  • As far as I can tell most of what you've been saying about enhanced e-books and their audiences applies more to non-fiction than to fiction. I believe what most readers of fiction value most is that feeling of getting swept up in a world–a sustained adventure that has been called the “ludic reading experience.” This type of reading would actually suffer from the greater interruptibility provided by the addition of links scattered through the text. I'm wondering if you have any thoughts on this, or if you have any observations on the future of digital books that are specifically applicable to fiction.

    • Katherine, you're right that most of the enhancements that occur to *me* have
      to do with non-fiction. And most of the enhancements that would apply to
      fiction would seem disruptive to the reading experience as we have always
      enjoyed it. We have a speaker at Digital Book World named Alison Norrington
      who is developing a trans-Atlantic romance story which has the lovers
      skyping each other, and she's putting the skyped conversations up online.
      Her concept is that you can “see” the story OR “read” the story or get
      something better by doing both. So she's using multiple media for fiction,
      but it is more than an enhancement, it's a different form altogether.

      It would also work for a author that writes multiple stories with the same
      characters to have fuller “bios” of them, or to pull together information
      from several books to create character-focused alternate narratives.

      But I'm not the guy to be inventing this stuff. As much as I write and
      always have, I can't imagine myself even conceiving a novel. let alone
      writing one. So it will have to be someone else's creativity applied to this
      question to really provide an answer, not mine.


  • christinakatz

    Pretty much what I was thinking after tuning in to a recent conference. Isn't the future of publishing going to be frictionless? And isn't that a far cry from where things are today? How much energy is being wasted on trying to preserve this “holding pattern” you've described so well, Mike? When it really seems like the future likely will belong to the experimenters, the darers, and the visionaries.
    Also thanks for mentioning Louise Hay. I was trying to point out her wisdom to someone we both know years ago but you've expressed it here perfectly. Looking forward to Digital Book World.

    • Christina, right now the “holding pattern” is paying all the bills; digital
      isn't. So publishers have to protect those legacy businesses if they have
      them, and publishers who don't have them really don't have a critical mass
      to build a business on. And when they do (when most people read digitally),
      we don't know yet exactly what they'll be reading or what they'll be willing
      to pay. So it's damn hard to lead the target.

      I think the solution for today is two-fold: a) do “conventional” publishing
      as efficiently as possible, to extract the greatest amount of margin you can
      and b) experiment with new ideas, but always within the context of building
      something “vertical” and reusable.


  • 1eleanorandrews


    You've nailed it with this one!

    “Publishers Marketplace and Hay House (and Harlequin and F+W and Interweave and Chelsea Green and all publishers who are dedicated to serving the same community over and over again) are on the right path, one that is very difficult for general publishers to tread.”

    Yes, it would be difficult and tricky for general publishers but not impossible since most general pubs have their own audience for each imprint/line.


    • Eleanor, unfortunately for major publishers, most of their imprints don't
      have any subject verticality; they're just smaller versions of a general
      trade house put together to give an editor some cachet or to create a unit
      that is manageable for marketing. Very few imprints as currently constituted
      solve the verticality problem for general trade houses.


      • 1eleanorandrews

        Mike, yes and no! S&S has Howard Books &Threshold Editions. Random house has Crown Business & Double day religion. Macmillian has St. Martins Press & Nature Publishing group. Penquin has ACE & NAL. (Just to name a few.)

        The imprint/pub (pub inside a pub) could do more to capture their own audience for each category they have and create an outreach for these . . . i.e Facebook fan pages for categories to shift focus off the house and onto content through Twitter, Facebook or others.

        The social media is a free marketing tool that these major pubs don't utilize correctly. Random/S&S/Penguin on Twitter & Facebook doesn't cut it.

        Readers don't want to go on a house Facebook page unless there is interest in something they know from this pub . . . author, politics, religion, suspense, romance, or academic, etc.

        I like mystery/suspense, it doesn't matter if the book comes from those mentioned above or Kensington! I like romance whether HQN, Pocket, or Penguin – the publisher in most cases doesn't matter to the reader. HQN doesn't have to have the lock on romance when Hachette has the Forever line.

        The old “house” mentality needs to change to find audiences. And these big guys can take a page from the ones you mention. No, the Major pubs can't service just one group but they can service many groups if they would use some of the same brush strokes by using free marketing venues.

        Yes, some imprints are a smaller versions of the general but not all. And if they are a smaller version of the general house then an imprint Tweet might capture more audience. Yes, some of these imprints/pubs could be and should be better aligned.

        If more than one imprint does politics, then a create a House politics twitter page to announce new releases.

        It's not an impossible task. It's difficult and tricky. And the hierarchy of the house needs to change to utilize these missed opportunities.


      • Eleanor, I take your point. Going in the direction you suggest and building
        on what is now there would really push the big boys in the right direction.
        But you're right that that it is tricky and the hierarchy of the house would
        have to be very much disrupted to make it happen. Thanks for the additional
        detail, which is enlightening.


      • 1eleanorandrews


        You're right. This would require major disruptions – tear down to construct.

        However, “major” disruptions are currently rippling throughout the House as they are merging imprints/pubs, losing imprints/pubs, tinkering with the discount matrix, consolidating distribution channels/warehouses, and slashing budgets.

        Even now, pubs still continue to shed employees and combine departments. They're “retiring” major pub heads and reshuffling personnel.

        They're already destructing . . . now it's time to rebuild.


      • Eleanor, we agree. All publishers need to do is recognize that avoiding
        disruption is not a choice to accept that controlled disruption is not such
        a bad thing.


  • Joe

    I'm not sure simple supply and demand fits here. We have to seperate the demand for professionally made goods and the demand for free goods. My demand for freebees has risen as the quality has risen, but I am simply demanding more than I used to, not replacing quality published books with free resources. My view is that people will simply have more content, not give up purchasing a best seller to read a free book online.

    • Joe, it ain't all about bestsellers, although I don't even agree with you
      there. When you're reading free content online, you're not reading a
      bestseller at the same time.

      But go with the kind of examples I delivered. Would you buy a travel guide
      to find a hotel room? Well, you would have 20 years ago. Examples like that
      are legion. If bookstores can't make money selling travel and gardening and
      knitting books because that content is available online, they can't pay the
      rent and the fiction section closes too.


  • todshuttleworth

    Michael – I simply could not agree more. The supply and demand argument is one of the clearest I have heard yet. No doubt that some of our historical value adds, such as capital and distribution networks, have been and will continue to erode. This is great stuff Michael. You are making us all think. See you at DBW.

    • Thanks, Tod. And we're all looking forward to DBW!


  • BruceNichols

    Two things: 1) I'm not sure the law of price and demand is the key dynamic here. Take bloggers: when there are millions of them, very few can get attention on their own. Most need an intermediary like HuffPo or Slate, et. al.

    Getting attention for a new book requires far more work than ever before. Established authors (a tiny fraction) can self-publish if they pay people to help them, but it's more work than ever to keep up with the ubiquitous supply chains, both digital and physical, publicity channels, rights management, etc.

    Second, the rise of e-books and the general downward pressure on prices is not necessarily shrinking the pie, it all depends on how many more books will be sold. We still serve a small fraction of the population. When pocket paperbacks were first published in the 30s and 40s, I wonder how many publishers fretted about price erosion? Instead, they sold a lot more units to a broader number of readers.

    I don't see a formula for the death of an industry here–just a tumultuous, accelerating series of changes ahead.

    • Bruce, point by point:

      1. The bloggers who can't get attention need “scale” to get marketing, hence
      the Huffington Post. That's precisely my point. The HuffPo model is that the
      marketer gets all the money and the content producers get just about none.
      That's why I'm saying that publishers need to be thinking of themselves as
      owning audiences, not as content developers. HuffPo doesn't develop content
      very much and they sure don't invest much in it. I think your example makes
      my point.

      2. I agree with your second point. But just because fledgling authors “need”
      publishers doesn't mean that publishers can make money doing the marketing
      for fledling authors!

      3. Obviously, whether revenues drop with prices *does* depend on whether
      “more” is sold. But your example of mass-market paperbacks isn't really that
      relevant. When they first arose as a force right after WWII, they were quite
      different from general trade. Mass-markets tended to be “category”
      publishing: “westerns” were bigger than “romance” in those days (do you
      remember Louis L'Amour, Bantam's biggest star author?) By the time
      mass-markets started doing paperback reprints heavily (into the 60s), the
      two businesses (trade and mass) were on the verge of merging. And the pie
      then wasn't growing because of formats, it was growing because of the huge
      US (and global) economic expansion that stretched from the Age of Roosevelt
      to the Age of Reagan.


      • BruceNichols

        Mike, HuffPo doesn't pay for content, but plenty of other web sites do. I still stand by the larger issue of my first point: in a world where everyone can produce content, publishers are more needed than ever to help find audiences.

        As for “owning” an audience, I agree up to a point. But there are concentric circles of potential readers for many books, and you can only “own” the innermost rings. How a book jumps from 10K loyal readers in cloth to ten times that number of book-group readers in paperback is a mysterious alchemy with many possible ingredients, all of which need to be applied in hopes of catalysis. Book groups will never be ownable.

      • Publishers are needed more than ever *to deliver audiences*. Yes. That was
        my point. But they aren't needed to pay for the development of content, as
        your statement makes clear.

        I think the number of titles that do multiples in paper of what they did in
        cloth has diminished sharply over time.

        And “reading groups” *will* be ownable (or at least very good-friendable),
        but only in a much more vertical world.


  • Pingback: The Fundamental Problem In Publishing: ‘You Don’t Own The Audience’ | The Moderate Voice()

  • sclptrjoel

    I agree it is:
    Attention scarcity in the face of a flood of content (look at the popularity of offering reading books in bite size emails that flow into many people's daily routine;
    Niche markets will provide good incomes to those that tend them well–but mass market will be VERY hard.
    Books and articles will become validators–calling cards–for those who want to do do public speaking, consulting, and so on. Modern rock bands do the same thing Twain and Dickins did more than a century ago –distributing their content free as promotion for people to come to their live performances;
    Delux editions are a small area of merchandising, not a major publisher's salvation;
    I am not a major publisher or writer–I'm a sculptor–and I got out of distributing lots of sculpture to 100 galleries across the country. I set up “free content” a Neighborhood Sculpture Walk. Several thousand people a year see it in my neighborhood and end up commissioning a piece for their own gardens. I don't make a Jeff Koons high amounts of money, but I serve my niche well, having moved from distribution to more people related custom work–they same thing as a public reading, live concert etc. (To see what I mean see )

    • Joel, we lost a helluva publisher when you became a sculptor.


  • Mike, I agree with much of what has been said here. I would also add that I think publishers have a huge opportunity to serve as content filters. True, there is a ton of free content everywhere on the net. However, Google has been gamed mercilessly by legit SEO folks using Google's own standards. Not to mention that search engines are not particularly intelligent and incapable of extrapolating the meaning of content. Thus, a search for the term “green living” could return eco friendly material as well as information about home decor and possibly Kermit the Frog. 🙂 Once a consumer follows a link, there is no guarantee the information is useful or accurate…or entertaining for that matter. Which means that researching a single subject can take some time and multiple subjects can take a whole lot of time.

    The reality is that we, as consumers, often pay for things that we are capable for doing ourselves or that are free but require some work. We are particularly fond of doing this if there is added benefit attached to that action. I am fully capable of making my own coffee, but I still go to Starbucks, particularly around the holidays, to buy their seasonal drinks. And, I have been known to pay someone to mow my lawn, despite the fact that I can do it myself.

    The key is establishing credibility and relationships with a base of consumers so that when they are seeking information (or entertainment), they know that for a reasonable price, they can come right to us.

    As far as I can tell, this problem will continue to exist, even if search engines are able to enter a new generation of search techniques. So while the process of selling content will change, I don't think it will disappear. We may move more towards a model of breaking down our content and selling portions of it (ie 2-3 chapters on a particular subject). But retailers have known for a very long time that selling components can actually result in a higher total profit for the same material.

    Excellent and thought provoking post, Mike…really enjoy reading your work.

    • JeanAnn, you describe the need for aggregation and curation which is,
      indeed, what publishers do. But it is also what bookstores do. Publishers
      have historically done it on a b2b basis and bookstores on a b2c, for the
      end user. What I'm arguing can turn into a semantic discussion and, over
      time, the roles and rules may change so that the semantics have to change
      too, but I'm suggesting that the power to decide what is published and what
      can be published profitably is moving closer to the consumer than the
      publisher has historically been. I'm suggesting how to get to that place
      that will work in the future from the publisher's position but the role I'm
      talking about is not exactly the same as any role being played today
      including, as you point out, by Google.


  • eriksherman

    I find myself agreeing with you in principle, disagreeing on some points, and thinking a bit more about yet others.

    1) You are right that a relationship with an audience is going to be key. This is an old direct marketing principle. And in that context, the “right” price may not the one that maximizes total gross margin. It is the one that balances total gross margin with total lifetime audience value. From a strictly mathematical business view, you want as much margin from every audience member as possible. Because the cost of maintaining a customer can be much less than acquiring a customer, the pricing math can change substantially. However, that's really hard to pull off through indirect channel sales, because you don't have the info on the ultimate buyer.

    2) In terms of your scarcity argument, I think you're making a classic mistake that the industry has made since Guttenberg. The value being offered to the customer is not distribution, but the content itself. If the equivalent of what you offer is freely available elsewhere, the value is less. If you offer content that is not easily duplicated (that is, there's a reason for someone to read what *you publish), then the value is more. If the value is only in distribution, might as well shoot yourself now, because that's a model depending on high cost of entry, copying, and delivery. In other words, if you're in publishing, you'd better be in it for some reason other than just making money. You need to have some strong interest in the material and want to make it as valuable to the audience as possible. That's why the WSJ and Financial Times can charge fairly stiffly for content – because what they offer is not readily available elsewhere.

    3) In keeping with the above, there is a model for selling content. Only, you have to do something that few others can do as well as you can. Otherwise, as has been true in business for many hundreds of years, you're in a purely commodity business and will be scrapping for pennies.

    4) You never own the audience. No one does. You can't. You can only entice the audience and make it worth their while to do business with you, and even to want to do business with you. That's why strong branding can work – because it's not about advertising and creating an impression. It's about a way of doing business that conveys itself to the audience. The former view requires huge resources of marketing and advertising because you're betting that you can make yourself the only name the consumer remembers. The latter can be done by much smaller companies because you're turning your business into one that the consumer *wants* to remember.

    5) Your answer to “Is there a model for success selling content?” was no. But that's *always* been the answer. There is no guarantee of success. There are business models that make it easier or harder, but the relationship to the customer is going to be key. When you have that, then you also need the mechanics that will let you do business profitably.

    I'd argue that the reason the old genteel publishing houses did well was not an automatic success model. It also wasn't having distribution, though that was important because it spoke to the mechanics. What made the success was the interest in what they were doing, the willingness to invest over the entire business so they had economic hits but also cultural and critical hits, and the desire to produce something that people really wanted. That's what has mainly gone out the window, from what I see of publishing today. It's become a business of too many spreadsheets and focus groups, and not enough love of literature and communication among the corporations that own the businesses.

    • Erik, great response post.

      1. I agree that lifetime customer value enters into the equation when you
      are selling direct and it doesn't when you are working through
      intermediaries and that would change the “right price” equation.

      2. I'll admit to an ironic chuckle at a paragraph that says publishers
      better be interested in more than just making money and then offers up the
      Wall Street Journal as an example. Only content that IS distributed is
      competitive; private content can be as wonderful as it wants to be, but if
      it isn't distributed, it doesn't compete. So distribution is the sine qua
      non of success and quality is a secondary consideration. What has happened
      is that a ton more content — good and bad — has entered distribution and
      therefore entered the competition. That's the problem publishers are facing
      maintaining value, regardless of the quality of their content. And the WSJ
      and FT are as subject to this problem as anybody else along the quality

      3. The model for selling content is based on a historical balance between
      supply and demand. That balance is in the process of changing radically and,
      therefore, so will the model.

      4. OK, maybe “own” the audience is a bit overstated, but securing the
      audience, maybe? Making switching cost painfully high for the audience?
      Publishers Marketplace may not “own” the audience of book agents and editors
      with its deal database (built by book agents and editors), but it comes damn
      close. Any player in the game not using that tool is at an extraordinary
      disadvantage. I mean, you could do the job without a computer too, but why
      would you try? And because PM provides that essential content, they do have
      a stranglehold on the audience, call it whatever you will.

      5. I think our semantic difference here is between a “model” for success and
      a “formula that *assures* success.” Obviously, the latter does not exist.
      But years-long careers in publishing attested to the fact that the former
      did, and that it worked reliably for many people until the past decade.
      Obviously, the “model” included a certain level of quality, due diligence,
      and marketplace understanding, and it wouldn't work every single time. But
      that is a long way from the disfunction we have now.

      And while I don't disagree with your negative characterization of today's
      big publisher culture, I really don't think that's the business's problem.
      The problem is that trade publishing was built on a structure of
      intermediaries that is breaking down and no return to old values can change
      that fact.


      • eriksherman

        1. I'm not saying that LTV has no place in an indirect distribution model. It's just a whole like harder to do – and still necessary, probably using statistical customer satisfaction methods.

        2. There is actually less irony about WSJ than you might think. It was family-owned for years and the editorial staff concentrating on doing great work. Distribution *used* to be the first step to success. Now it's relatively easy, so quality becomes even more important. The problem becomes finding the right audience and communicating the value so that it can be perceived. The problem facing much of publishing is that the distribution issue used to be what they'd most trade on (I'm thinking primarily newspapers and magazines). They could charge advertisers for maintaining the path to the consumer. Now there are many paths. Unfortunately, many are crap (to put it bluntly) but the advertisers want to keep pushing down the price because they want to think that every is equal. It's not. That's why publishers won't get the money they need and a good many will go out of business.

        3. The change in model is not supply and demand balance so much as a wholesale reconfiguration of how the process works. That has thrown everything out the window. Instead of finding a new equilibrium, publishers need to start from scratch to understand how to make things work.

        4. Even securing is wrong, I think, because it uses the old model of trying to control the consumer. The control is now in the consumer's hands because of the shift in distribution. So now publishing has to work more like other businesses, where you need to keep attracting the audience and creating the conditions under which they want to stay. It can become a form of identification — think brands like Apple and Harley Davidson. But I mean branding that comes from value (practical or emotional) perceived by the consumer. People use PM because it has become a place to go do business, and so has value – and content. The charge is for access to content that has value, where content is a broader concept than words on a page.

        5. I agree that there needs to be a new model because one of the foundations – the distribution mechanism – has changed overnight. I do disagree about a return to old values, in a way suited for the current times, because it will take exactly that to create a living brand that will attract customers.

      • Nice exchange, Erik..

        1. Sorry, but I think there are far too many variables and no way to get the
        necessary information to use LTV as a guide to pricing books in the current
        scenario. Actually, even pricing for maximum gross margin is very tricky,
        imprecise, and requires a level of forecasting that qualifies as a “guess.”
        And that retailers don't actually charge what publishers tell them to charge
        adds a serious complicating factor.

        2. We agree that distribution has become easy so it can't be the competitive
        advantage it used to be. I believe that it will take a lot more than the
        content one publisher would produce — in most cases — to hold an audience
        and probably more than content alone the majority of the time. The WSJ, like
        Pub Market, serves a professional need but I think they're going to find
        themselves competing with Bloomberg and FT to provide services along with
        the content; it will be too hard to be distinctive enough on content alone.

        3. Starting from scratch to figure out how to make things work? We can agree
        on that!

        4. We agree that you need an enduring value-proposition to keep the
        customer. I'm just suggesting the community can create that, largely (as
        Cader has demonstrated) through databases the community builds that nobody
        else can match.

        5. Where I think we part company is that you seem to be saying that “content
        quality” is the publisher's ticket to building enduring direct
        relationships. I would say to that: “necessary but far, far, far, from


  • At least with a print book you're protected in the event of an electromagnetic pulse, irrecoverable hard-drive crash or power outage. Fire, mold and physical damage aside, a print book is tactile and has a smell making it more real and intimate. Electronic-based crap, not so much.

    • Scott, the wonderful thing is that with print-on-demand technology, print
      books can remain an option for you and anybody who wants one far into the
      time when most people, who probably won't share your opinion, wonder why the
      hell you'd want to kill trees and pollute water to create something that has
      to be shipped around and then adds weight to your backpack that could be
      used for six apples or a can of beer.


      • Bill

        Fascinating and provocative piece from someone whose intelligence and tough insights I've long respected. I'll take issue though with two points:
        Your definition of “right price” explains the defensive posture of a trade publishing biz under seige (el-hi/college has different parapets to command, but is under a similar assault), but I think the more germane issue has to do with the fact that ultimately the “right price” is what the consumer is willing to spend–how they value the product–and not a penny more. That, to me, is the Darwinian new reality that is sweeping publishing (think music) and the biz is distracted by shoring up the pricing of its product against a business model that is increasingly irrelevant because the 'tribute' that the publisher was once entitled to will be very shortly eclipsed by the transformational nature of not merely ebooks but the whole digital age.
        The 'value add' which was once the critical role of the publisher will continue to diminish. Whereas authors and the thousands of independent bookstores once relied on publishers to edit/copyedit, compose, proof, market, publicize, sell, print, distribute to and accept returns from a notoriously inefficient marketplace, those functions are now completely replicable (or irrelevant) at better 'prices' and greater speed. Thirty years ago the biggest theater on Broadway couldn't hold as many buyers as represented 80% of a major house's business; today I could fit a representative from the 6-8 accounts that drive an even higher percentage into my modest sized office.
        I'm seeing a near term future where readers, authors who earn-out, and accounts will force a dramatic recalibration of the publishing model that will unmercifully squeeze-out the effective 'subsidy' that's long been in place for first time authors and new voices. These will continue to emerge because of passion, commitment and entreprenurial flair, but it wont be from the same-old-same-old.

      • Well, first, Bill, thanks for the compliment.

        I don't think there's any disagreement on “price.” When you're calculating
        what price delivers the highest total gross margin, then you have to take
        into account what people will pay and the elasticity of demand (how many
        people will pay *more!*) And I agree that the price people will pay is going
        south…that's my premise since content is getting less scarce.

        And I totally agree that the more concentrated the account base becomes, the
        less value the publisher is offering the author by “distributing” the book.

        And your premise that first-time authors will find it tougher and tougher
        also squares with my thinking.


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  • barbara fister

    Your “b2b” comment is interesting. I've long felt that publishers' planning does not take into account consumer (reader) preferences but only their own needs and the competition. And the relationships that readers build tend to be with authors, not publishers. Only when a publisher dedicates itself to a particular and recognizable kind of book (e.g. Hard Case Crime, Soho, Bitter Lemon in the case of the crime fiction genre) do readers give a damn who published a book or see any particular identity in the publisher. Readers can be frustrated that the “community” the publisher offers is crippled by fencing it with limits that appear arbitrary (limited to which authors they happen to publish this season). Until publishers really care about readers and readers have reason to care about publishers, I don't see this as the beginning of a beautiful relationship.

    The audience has no stake in belonging to something that offers nothing to belong to. And in the case of most trade publishers, there's no there there. There is only a movable feast of authors who go from one house to another, not always willingly. Publishers by and large seem to want to have a strong list – but it looks pretty much like other publisher's lists because they're competing for authors (and, at a remove, readers attached to the author) and having no identity that is clear to anyone but themselves.

    • Barbara, the way I see it, the big publishers are largely trapped. They have
      big overheads that have to be paid for, and the only way to do that is to
      publish “big books.” And if you're looking for big, it is hard to look for
      particular niches at the same time.

      What we can expect, I think, is that the Big 6 shrinks in number and shrinks
      in overall size as specialists pick off anything that can be handled by
      specialists: genres of fiction and all sorts of non-fiction subjects. In the
      medium term, it may be that what remains of the Big 6 (the Big X) teams up
      with niche players when the niche player has a really big book that belongs
      in widespread brick-and-mortar distribution.

      But you're right that they give very little reason to “join” their
      “community” now; with no subject coherence, you really have no community.


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  • I really love your website, it's so useful, i'm just baking a cake for my aunt!

  • it will make much more economic sense for the owner of the audience

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