The Shatzkin Files


The three forces that are shaping 21st century book publishing: scale, verticalization, and atomization


There are three overarching realities that are determining the future course of book publishing. They are clear and they are inexorable:

Scale, and its close cousin “critical mass”, is the ability to use size as a competitive advantage in any endeavor;

Verticalization, or being in sync with the inherent capability of the Internet to deliver anything of interest in an audience-specific way; and

Atomization, or the ability for any person or entity to perform the most critical component of publishing — making content available and accessible to anybody anywhere — without capital and without an organization dedicated to distribution.

Scale

In the 20th century, scale in publishing was really an internal concept. Big publishers had more resources to sign books, get to bookstores, and roll out marketing than smaller ones. Barnes & Noble and Borders had supply chain and cost advantages over independent bookstores, except that Ingram and other wholesalers lent their scale to provide partial compensation. Bigger literary agencies had negotiated more boilerplate agreements than smaller ones and often had helpful relationships that went beyond publishing, but a single operator could still cultivate enough editors to make a legitimate case that he or she could place a book as effectively as the giants.

But that’s changed entirely in the past 10 years. Now publishing operates in a world increasingly controlled by Amazon, Apple, and Google, all companies that make far more money outside of books than through books. One Big Six CEO observed to me about five years ago that the time had passed when s/he could call all the biggest trading partners of their company and reach the CEO instantly. Penguin Random House has merged into a publishing company that will control about half the most commercial titles in the marketplace, but any suggestion that their size will enable them to dictate much to Amazon, Apple, or Google is deluded.

What Random House can do is apply scale against other publisher competitors. And they will.

Critical mass is a scale-related concept but it is also a component of verticalization. When a publisher, or any aggregator, has enough material to allow it to ignore competition in a consumer offer, it has achieved the effective barrier to entry that scale also provides. For example: subscription models for general books are a very difficult commercial proposition because the biggest agents for the biggest authors wouldn’t want their titles included. But Amazon might just have so many titles they can make available through a subscription offering that they can do it successfully even without the top of the bestseller list. The new Penguin Random House combination might also be able to do something here, if the avoidance of a 3rd party could generate enough revenue for the authors to change the minds of the agents, even though they’d be doing it with just their books. After all, Spotify was able to aggregate enough music to sell subscriptions even before they brought The Beatles into their catalog.

Another smart and relevant application of scale is by F+W Media (our partners in Digital Book World conferences), which publishes across a range of communities. They are able to offer each one the advantages of a direct retailing operation, because they maintain that capability through the scale of their entire operation. Some of the verticals in which they apply it wouldn’t be able to support such a capability on their own. F+W applies scale to their niches with their web and event teams as well.

Verticalization

In the 20th century, most trade books reached their customers through bookstores. That liberated publishers to be largely audience-agnostic in their choices about what to publish. They could stick a memoir, a novel, a knitting book, a travel guide, and a kid’s pop-up book into the same box and the bookstore would sort it out for the consumer, putting it on the appropriately-labeled shelf for the shopper.

In those days, the devotee of any subject from baseball to cookbooks would think nothing of browsing the shelves of several different bookstores to find all the offerings relevant to their interests.

Those days are gone. Twice.

Thanks to Google and its competitors, the entire universe of offerings around any topic of interest are aggregated and surfaced very quickly. And bookstores and the staff and shelf space publishers used to sort things out are disappearing.

All of this is driving publishers to be audience-centric in their thinking in ways that were never required before. If the Internet is how customers are reached, not bookstores, it becomes evident pretty quickly that it makes for highly inefficient marketing to be all over the lot with your subject matter or genres. It didn’t used to matter to publishers if they had the “next book” for the person who bought the last book. But it surely does when you’ve spent good marketing money and effort to find and reach that person, and when you can often stay in touch with them in a cost-free (or at least very low-cost) way going forward.

It is in audience-centric marketing that scale can be applied successfully today, using size and resources to improve the ability to reach out rather than to lower the unit cost of some internal mechanistic function. Understanding the reality of verticalization should also prompt publishers to rethink the way they define and build brands. Imprints are brands within a publishing house meant to communicate to their trading partners: bookstore buyers and reviewers in one direction and authors and agents in the other. In a vertical world, brand-building should be much more audience-centric. This particular requirement to think differently seems to be very challenging for publishers.

Atomization

In the 20th century, it took capital and an organization to publish a book. While you always had to provide your own capital to be a publisher, ways evolved to “rent” the organization, specifically the distribution services offered by most publishers and some specialist organizations.

The barrier to entry for book publishing was always relatively low compared to other media: magazines, newspapers, radio, TV, and movies would all require much more of a financial and organizational commitment than was required to publish a book. But there definitely was a fence around the book publishing world, and the position of “gatekeeper” was both well-earned and well-rewarded.

But those days are gone too.

As of this writing in April 2013, sales of any book of narrative reading will, depending on topic or genre, be 20% to 60% in ebooks, which requires no inventory investment and minimal distribution infrastructure. Sales of the printed books — the other 40% to 80% — will be anywhere from 25% to 50% through online channels. Those sales can also be achieved (largely through Amazon) without an investment in inventory, printed at the moment they’re ordered.

The first flood of opportunists exploiting this new reality were authors who self-published. Some, like Bob Mayer and Joe Konrath, took the brands they’d built through traditional publishing (and sometimes even the very books themselves) and created a new commercial model where the majority share of margin taken by the publisher was divided between them and the retailer, usually Amazon. Others, like Amanda Hocking and John Locke in the early days  and hundreds of others since, built publishing brands on their own. These authors were driven by the desire for recognition of their writing and, in some cases, by the conviction that they could make money. Their existence in large numbers fueled the creation of an “author services” industry. The biggest and most profitable of the companies in that business, Author Solutions, was bought by Penguin a year ago. Amazon built a business called CreateSpace to serve this market; Barnes & Noble and Kobo and Apple all offered varieties of the same set of capabilities.

Recently, we have seen a rush of other content creators — newspapers, magazines, web sites, and new companies dedicated to exploiting the book opportunity — building their presence as book publishers, or at least as ebook publishers. There are experiments with content types (short form, author-centric) and business models (subscription being a frequently-tried one on which the jury is still definitely out).

But all of this is a precursor to the next wave, when every law firm, accounting firm, consulting firm, department of a college or university, retailer, service provider, and manufacturer will see the benefits to them of building the function of book publishing into their marketing mix. This will truly constitute an existential threat to book publishing as a business, because these entities will not be building their publishing programs with profits primarily in mind. That will make it exceedingly difficult for the companies that do — the book publishing business we’ve always known — to compete. The quality they deliver costs money. The prices they need to charge are based on their costs.

Their books will be in a marketplace competing with titles supported by other rewards and priced with considerations other than profit in mind.

Scale, verticalization, atomization. Examine any new proposition you hear about against the filter of those concepts and I think you’ll have a pretty fair sense of whether it has much chance for success. Hitting two of those three marks is no guarantee of prospering, but failing to hit any would be a pretty fair assurance of failure.

Our Publishers Launch conference at BEA on May 29 has several presentations focused on the theme of scale. We’ll have presentations from Random House, Hachette, and F+W Media about how they’re applying it for competitive advantage. We’ll have a panel of agents discussing how scale affects their role in publishing. And in a discussion my PLC partner Michael Cader and I will be having, trying to talk about the things people in publishing jobs are constrained to discuss, it will certainly be a core topic.

Our regular readers may notice a relative lack of links in this post. Because this synthesizes and re-articulates many thoughts we’ve expressed over the years, we thought it might be more helpful to gather the relevant internal links here at the bottom of the post rather than placing some of them throughout. The links from speeches and posts here are presented chronologically to document the evolution in thinking that led to today’s post.

End of General Trade Publishing Houses: Death or Rebirth in a Niche-by-Niche World – 5/31/2007

Stay Ahead of the Shift: What Publishers Can Do to Flourish in a Community-Centric Web World – 5/29/2009

The Emerging Opportunity for Today’s Publishers – 6/17/2009

The Need for Critical Mass is Why Verticalization is a Process – 6/22/2009

Verticalization in Action – 7/2/2009

Why Publishers Need to Understand Brand – 9/23/2009 

My Advice is Not Always Easy to Follow, But Sometimes It Proves Right Anyway – 3/29/2010

Cool Springs Press, a Gardening Publisher that Really Understands “Vertical” – 6/23/2010

Publishing is Living in a World Not of Its Own Making – 7/24/2011 

Will Book Publishers Be Able to Maintain Primacy as Ebook Publishers? – 10/9/2011 

True “Do-It-Yourself” Publishing Success Stories Will Probably Become Rare – 11/6/2011 

Publishers Adding Value on the Marketing Side – 11/17/2011 

Two Questions That Loom Over the Trade Publishing Business – 2/28/2012 

Amazon’s Growth and Its Lengthening Shadow – 4/30/2012 

Everybody in Hollywood Needs an Ebook Strategy – 5/14/2012 

Subscription Models Seem to Me to Be for Ebook Niches, Not a General Offer – 7/16/2012 

Explaining My Skepticism about the Likelihood of Success for a General Subscription Model for Ebooks – 7/22/2012 

Going Where the Customers Are Might Be an Alternative to Selling Direct – 8/9/2012 

Full-Service Publishers Are Rethinking What They Can Offer – 9/4/2012 

New Publishing Companies Are Starting That Are Much Leaner Than Their Established Competitors – 9/24/2012 

Peering Into the Future and Seeing More Value in the Random Penguin Merger – 11/26/2012 

Business Models Are Changing; Trial and Error Will Ensue – 12/3/2012 

Rethinking Book Marketing and Its Organization in the Big Houses – 12/17/2012 

Buying Is a Hard Thing for Bookstores to Do Effectively, and That Becomes an Increasingly Important Reality for Publishers – 1/23/2013 

Ideas about the Future of Bookselling – 2/7/2013 

Publishers Are Reshaping Themselves – 3/12/2013 

Atomization: Publishing as a Function Rather than an Industry – 3/19/2013 

More on Atomization: Why the New Publishers Are Coming – 3/26/2013 

  Back to blog

15 Responses to “The three forces that are shaping 21st century book publishing: scale, verticalization, and atomization”

  1. John Andrews says:

    The picture you paint of the Big Six reminds me ever more of paintings of Little Bighorn about 15 minutes before the end. I know they could not and will not do it but I recommend an impregnable redoubt in the form of a plan to sell online direct through a Big Six Consortium, refusing trade prices to electronic and physical retailers alike!

    • John, they simply can’t do it. First of all, they have huge investments in the books they publish which simply can’t be covered on the sales they’d make that way. The friction would be too great, even with the loyalty the biggest writers would have. But, secondly, they’d be committing suicide because it would be such a breach of faith with those authors that they’d never sign with them again.

      Which is part of the reason they’d never join forces to do it. The Tragedy of the Commons would be such that it would be very much in the interests of one or two to hold out.

      Aside from the collusion problem…

      A publishers’s JOB is to maximize the sale and reach of an author’s work. That means maximizing sales through Amazon and B&N and everybody else they can. The biggest argument that publishers have against an author signing with Amazon is that they are both not-really-interested and not able (because of B&N and indie boycotting) to deliver on the publisher’s core responsibility. This would be the fastest way to relinquish that high ground and, at the same time, actually make Amazon the most powerful publisher on the planet.

      Mike

      • John Andrews says:

        I do not doubt that you are right – and the Tragedy of the Commons is an excellent explanation for those things which are about to happen. If any of the Big Six survive as firms they will not be in the business Stanley Unwin described in The Truth About Publishing..

      • One of them will. For a while. But the end of the business model for all is not far over the horizon.

        Mike

      • Peter Turner says:

        Having read your blogs for years now, it strikes me that this post is particularly dark, somehow, in terms of the future of large house general trade publishing. Am I right in this? What’s contributed to this increasingly pessimistic view–that is if I’m reading you right. Thank you.

      • I’m really not sure my view has changed much. I said and thought five or ten years ago that we’d come down to 1 or 2 general trade publishers. (I’m far from always right; at one point I speculated that one of them might be Barnes & Noble.) I think two recent developments: the Justice Department’s destruction of agency pricing and the Random House-Penguin merger, have accelerated the progress to an “end game”. It’s about scale. With verticalization and atomization as realities, it will require massive scale to compete for that part of the market that is “general interest”, which is a big chunk. Amazon and Random House apply it in different ways, and they both apply it very intelligently. A bit part of what both companies have accomplished is attributable to just plain “execution”: blocking and tackling. I don’t envy anybody competing with either of them, and I think they will ultimately be — much more obviously than now — competing with each other.

        But there are lots of times I thought we’d have reached this point sooner. And it will still take five or ten more years to demonstrate that what I think I see is real. But, if five, it will be obvious in two or three. It seems obvious to me now.

        And, by the way, there are lots of places to stand that don’t have anything to do with general trade publishing. There just are a lot fewer bestsellers there.

        Mike

      • Little space left here! Just wanted to add a point that seems to have been overlooked in this discussion: the problem of book discovery.

        This is where Random House has the upper hand (so far) on Amazon. Big publishers are linked to the literary critic scene (if I may so describe it: it ranges from literary magazines like Granta or the New Yorker to newspapers like the NYT to prizes like the Pulitzer and Man Booker). This is where Amazon does not do as well as trad publishers and Random House in particular. But Amazon just got its hands on Goodreads and that could change the game somewhat…Still my point is that having a handle on book discovery is a card that could trump the game and “save” trad publishers for a longer time than one might think given their “flawed” business model.

  2. Terri Herman-Ponce says:

    What’s interesting is how authors and publishers can view the industry with different standards and sets of eyes. Though not every author will agree or buy into the thinking that the Big 6 (or any publisher, perhaps) aren’t the way to go, it’s still not an easy industry to navigate. So many questions and unresolved issues still exist that even the most experienced and educated authors will tell you that they don’t have all the answers. The more and more I learn about this industry, the more and more I realize that authors can no longer sign their life away in the form of bad contracts or even not-so-bad contracts. But until the masses force the pendulum to swing the other way, we will always be under thumb. For all its good and bad, having options with Amazon and the like certainly makes for more control and options. It just makes you wonder how long it’ll take the archaic publishing environment to finally open its eyes. By then it could be too late. And would any of us really be missing anything for it?

  3. This is an impressive overview of where the publishing industry is going thanks to the Internet and other technological advances and as mentioned here by one of the commentators, it does strike a rather dark note: after all, it implies the demise of bookstores as we’ve known them and enjoyed in the 20th century and the decline in the literary taste “gatekeeping” role of major book publishers. As you so powerfully depict here, we’re headed towards an atomized world of cacophony, where everyone will be free to express anything, anytime and in any way they please and still reach an audience of more than two people!

    In short, the slush pile for the masses!

    I wish your predictions were wrong but they are very convincing and I fear they will all take place in the near future, though exactly when is impossible to say. You have focused on rising phenomena rather than on the strength of the diminishing ones, in particular the bookstores (shutting down) and role of literary journals and literary critics (less visible in an atomized world). These could take much longer than expected to disappear, assuming that they will disappear which I doubt very much. For example, book stores have a way to re-invent themselves and branch out in local community activities which help them survive.

    Also there is an important link somewhat overlooked in this analysis (or perhaps downplayed) and that is the one between literature and the movie industry. A large proportion of movies are based on books and in any case, all movies require script writers. Screen writing is fast becoming a major component of literature…

    So I think that to predict where the industry is headed, we also need to look at the strength of these other agents on the publishing scene: bookstores, literary actors (from literary critics to award givers like the Pulitzer Prize, the Man Booker Prize etc) and the film-making industry. I know, with so many agents to consider, the analysis becomes difficult, perhaps almost impossible to carry out, but all these aspects do ultimately have an impact on the future of publishing…

    • I fear for the resilience of bookstores. When the customers for bestselling novels are purchasing them as ebooks and no longer visiting the bookstores, will they have the traffic to sell the other books? I see the future of bookstores as a boutique network, selling used and new together, and not enough outlets to constitute anything more than an ancillary channel for publishers.

      You make an important point about movies, though. It leads to another thought I didn’t express in the piece. I think there’s a good chance that the locus of fiction publishing will shift to Hollywood over the next couple of decades. They spend more money on scripts that never get produced than NY publishers do on all fiction below the top sellers. And they’re experts in story.

      I try hard to not let what I hope for get in the way of what I think will happen. It can only confuse things.

      Mike

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