The Shatzkin Files


The old publishing value chain got twisted a bit last week


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.

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  • Philip Downer

    “…
    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…”. Fair enough. But a pity that Borders was driving so much traffic to Amazon by that time…

    • /blog Mike Shatzkin

      I don't think Amazon was falling over themselves to buy Sterling books when

      they were owned by B&N either, although there's a difference between an

      online store not featuring you and a brick store chain not featuring you.

      You're right, though. Partnering with Amazon for online sales was one of the

      many *many* mistakes made by Borders over the past 10 or 15 years.

      Mike

  • Philip Downer

    “…
    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…”. Fair enough. But a pity that Borders was driving so much traffic to Amazon by that time…

  • http://www.anobii.com Matteo Berlucchi

    Mike, while this is happening on the other side of the pond, it bears some relevance as it's not too dissimilar from Bookish in spirit but it also includes the largest book retailer in the UK (Waterstone's) as the lead shareholder along side 3 of the Big Six (but different from the US mix!). Here's the press release from a couple of months ago http://static.anobii.com/anobi

    • /blog Mike Shatzkin

      Thank you. Missed that over here! Interesting to note that Penguin is the

      one big company playing in both ventures.

      Mike

  • http://www.thesalmonagency.com Hugh Salmon

    It looks to me like Bookish are trying to do exactly what http://www.Lovereading.co.uk has pioneered in the UK……

    • /blog Mike Shatzkin

      Yup. Definitely another one!

      The question is whether any of these sites — Love Reading, Anobii, or

      Bookish (or Copia or Goodreads…) can capture enough attention from people

      to real drive book marketing.

      So far, nobody seems to be tackling the problem of “how do I show a

      potential book buyer as many choices in ten minutes as s/he would see in a

      store?”

      Mike

  • Jennyfrost

    Going into competition against Amazon and iTunes as well as the existing social media sites is a tall order. Can publishers, even joined together become an effective destination site? I wouldn't put money on it, but I give them huge kudos for recognizing the need and going for it.

    • /blog Mike Shatzkin

      Our sentiments and expectations are in line. I really applaud the effort but

      I think it is a very steep mountain to climb. Of course, we really don't

      know anything about Bookish yet. When they say they're going to support

      existing retailers but also sell themselves, they outline a very difficult

      challenge. It will be very interesting to see the specifics.

      Mike

  • Bruce Batche

    EXCELLENT summary and analysis, Mike!

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  • C.G.

    At this point, I think it's Amazon's game to lose.
    This was really driven home to me a couple of weeks ago I was looking at the new books on a publisher's site. Without realizing it, I had clicked over to Amazon.com to check out the reviews for one the books. There I was, on Amazon's page, reading their reviews, looking at their options for new, used, and ebook editions, with their order button right in front of me.

    I haven't heard you mention this Mike, but one thing I've noticed is that most publishers do a terrible job of shipping books for individual orders. I used to order direct to give the publisher a bigger cut of the profits, but I've had problems with nearly every publisher I've ordered from. Lost orders, wrong prices, double orders, wrong books, and most commonly, they'd be so slow to get the books in the mail. I usually go with Amazon now because they never cause these kinds of hassles.

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  • rohmorgon

    Great analysis! I'm so glad I found your blog!

    My first thought when I read the Bookish press release last week was “Three of the Big Six? Oh, this is huge.”

    My second was that they are trying to position Bookish as “Amazon meets Facebook.”

    It's getting to be a pretty wild ride.

    Great blog, BTW. I included links to this post as well as another on my blog today.

    • /blog Mike Shatzkin

      Thanks a lot. And welcome.

      Mike

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  • Pturner108

    Totally off topic, but I'm wondering about your views on the consignment model that's kicking around the majors (certainly Random House, who's been toying with this for a several years). What do you think, is consignment good for booksellers, publishers, the future of the industry or no, and how does the consignment dynamic work for bricks-and-mortars retailers vs. on-line?

    • /blog Mike Shatzkin

      That's too good a question to give a complete answer to. It would probably

      make more sense for me to write a post about it someday. I've thought about

      it for years and am actually the Godfather (or Dutch Uncle) to a book

      distribution business that works on consignment, and has for more than 10

      years.

      But the short answer is that consignment makes a lot of sense but it really

      changes the real responsibility for inventory management from the bookseller

      to the publisher (in a way that sale-and-return *should* have more than it

      actually has.)

      Mike