Speeches

At BEA last June, I unveiled a formulation I am going to reprise for you today, which is that General Trade Publishing Houses don’t “map” into the world we’re going to see develop in the 21st century.

We’re going to start with a view of what digital technology could mean to the overall world of communication over the next decade or two. What the history of the Internet seems to be telling us so far is that we will see a growth in niche organization — what people like to call “community” on the web — and a corresponding decline in horizontal media, which is much more threatening to magazines, newspapers, and broadcast than it is to us in the book business. But it will change us too.

I want to make the case to you today that the world is going to change in ways that are becoming increasingly clear. Media entities in the 20th century — particularly consumer media — were characterized by being horizontal in reach and format-specific. What’s horizontal? Random House. The New York Times. CBS. All three entities deliver content that satisfies the consumer across lines of interest. And all three have pretty much stuck to their formats with very limited exceptions.

The 21st century will see media entities which are the opposite: highly vertical in what they explore but format-agnostic in how they deliver information. If that’s true, and I hope by the end of today’s session I’ll have proved it to you, then general trade publishers don’t map into this future.

Because this is an emotional subject for those of us in the business, I want to enumerate a few things at the outset that I am not saying when I say General Trade Publishing Houses will decline.

I am not predicting the end of bookstores. There may be fewer of them, but they’ll still be here in a couple of decades.

I am not predicting that everybody will read on screens. You probably know that I’m a fan of the Kindle and perhaps you know that I’ve been an avid ebook reader on a Palm for almost 10 years. But I’ve learned that other people’s attachment to paper is greater than mine. And anyway, it would be a good thing for general trade publishers if there were more screen takeup; it would mean keeping the readers for their content and not necessarily any loss in margin.

I am not predicting that novels will be replaced by completely different forms, although I don? think any of us know how today? youth will feel about reading 100,000 words in a single work 20 years from now. To the extent that games and interactive pursuits increase, it probably comes more from disposable time not now spent reading. And while it is totally logical to assume that the text-messaging generation has less patience for a long form, we don? know that. Maybe in an attention-deficited world such as we are creating, the opportunity to escape into a long book will be even more welcomed. It doesn? change my view about general trade houses whichever way that comes out.

There? not a lot of mystery about what? happening right now. Every day a new device comes out that allows people to make more use of the Internet. The Kindle is just the latest, alongside the refrigerator that sends you an email when it sees you need more milk. The content just keeps piling up and the ways to access it only get more numerous.

At the same time, there are more and more tools for crowd-organizing of the content. Any of us can tag it, link it, edit it, or tout it. Wikipedia is the ultimate in ?verybody? a writer; everybody? an editor? but it is not alone. And you don? have to stop at being an author or editor; you can be a publisher, an aggregator, a reviewer. Anybody can play any role at any time.

In fact, the delivery of these capabilities puts us in a transitional period. The readers, the retailers, and the content forms are all adapting to these new realities. Right now, the tools are about finding, organizing, and annotating information. As the mass of information that has been reviewed and tagged by the various communities grows, we?l get to an entirely new place where we are making new products and learning in new ways because all that work was done. That? a few years off yet.

Here? a very important fact to take on board that I learned at the Google Unbound conference in New York just about a year ago. Experts forecast that the iPod of 2020 will be able to hold every book ever written, every movie or TV show ever produced, and every piece of recorded music that exists. That? what you? be able to have in the palm of your hand without connectivity to the net in a dozen years. That? what a book, which would actually be a bit bigger and heavier, will have to compete with.

The tools of today will, by then, have enabled the formation of communities of the interested for any imaginable subject. Think of Wikipedia entries as the top of the file. Add to the entry all of the interaction — conversation, teaching, participating in any way — mixed in with all of the content on the subject, largely tagged and rated by the community.

Every possible human obsession will be covered. In depth. And this deep choice across all subjects will take place alongside an erosion of what we have called ?ass media? Mass media are challenged by the great depth in the niches, but also because the mass media models — all horizontal and format-specific and, aside from books, most advertising driven — will have their own difficulties to overcome.

And an important additional effect here is that brand credibility becomes much more granular. When you can get your Washington news from one specialist and your financial news from another, those brands will matter more than ?he New York Times. There may be still be a horizontal aggregation for you to start your day with, but it will more likely be your uniquely-crafted one, not one chosen for you the way it is today.

So when we get to the point where this unfathomable amount of content of all kinds is organized according to community divisions and tagged and annotated by community “crowds”, the respected subject expertise will be within the community as well. The power of brands will move to “niche”. And the communities that have organized around citrus farming or baseball history or hip-hop will have respected members — that is: brands — that will attempt to extend their reach by generating information and products across all media. After all, a digital download doesn’t care if it is text, sound, pictures, animation, or a game.

What will secure the position of these niche brands will be the extent to which they really do satisfy communities, and that will be measured by how successfully they get user-generated content and user-generated tagging and organization. They will ward off threats by providing as much “completeness” as possible within the niche. We have an example of this evolving in our own industry. Publishers Marketplace is vying with legacy entities like Publishers Weekly and Bowker and Neilsen to be the central gathering point for our community in book publishing. Publishers Marketplace is an upstart, challenging long-established niche entities. Why? Because Publishers Marketplace has generated databases of information from the community that are critical to doing business. Once they became the aggregator of deal information volunteered by agents and editors, it became difficult even for established organizations to challenge them, and both Publishers Weekly and Neilsen tried.

Another thing that is very hard to imagine is how taxonomies will work. How will a community of interest in, say, “military uniforms” aggregate across other communities: those interested in a particular war, a particular country’s military, the fashion of various times, the history of fabric or clothing? How will the farming and gardening communities, which obviously have very different interests, pool relevant information about pest control?

The answers will develop in an evolutionary way. Individuals and entities, acting as interested volunteers or as entrepreneurs, will cull, tag, and edit. Some aggregations will catch on in a big way and others won’t. Whether crochet is a sub-set of knitting or is its own community alongside of knitting will be determined over time by the people who know about these things and do them.

None of this has to mean the end of books. Of course, we’ll always have them, or at least we will well beyond the lifetime of anybody living today. For one thing, even if we stopped making books tomorrow, we’d have the many millions of them that already exist around for hundreds of years. But print-on-demand technology assures that books will continue to be made even if society shifted so radically that the industry that we have now were no longer possible. POD assures that anybody who wants one can have material presented to them in a book, even if everybody else is getting the same content in a file for a screen. Or for a brain implant.

Nonetheless, book people are wise to consider the facts about other format-specific media.

The “album” — or the concept of selling music in blocks of 10 or 15 songs, usually by the same artist — is nearly dead.

Television networks, which shared 95% of the vieweing audience among three leading players forty years ago, now shares far fewer than half the viewers among five or six players. The concept of the mass TV audience is nearly gone, except for shows like the Super Bowl or the Academy Awards.

Newspapers are the most obviously desperate of the 20th century media. Their classified advertising is a fraction of what it was 10 years ago and, as rapidly as they are moving their audiences to net versions of their content, they are finding that the revenue on the net isn’t sufficient to replace what they’re losing in print.

The movie business is being transformed by changed delivery. As the number of 50 inch high def screens in people’s living rooms go up, the attendance in movie theaters almost certainly will go down even further. And that weakens the advantage of the big players who can do the biggest budget, most mass market kind of movies.

Disruptive technologies have gotten almost common. The iPod and YouTube have shown that things can change overnight. We didn’t have either of them at the turn of the current century.

I saw an article last year in Advertising Age called “Change 2.0″ by Robert Garfield. In it, he posits that mass advertising — what fuels TV and newspapers and magazines — is a dead man walking. Garfield foresees a massive shift to Internet advertising, which, by its nature, is much more targeted. Although more recent punditry from others is anticipating that the growth of new Internet businesses dependent on advertising has been so great that the shift won’t be rapid enough to avoid a new dotcom crash this year, there is still no good news for legacy media in this, because it suggests a surplus of Internet ad opportunities, which will drive down prices and accelerate the flight from old media.

In fact, Garfield, writing a year ago, thought there wouldn’t be enough page views to absorb all the demand that advertisers would want to shift over from mass media.

In fact, mass media has always depended on very high production values to attract and please the enormous audiences the advertisers require. Reductions in revenue threaten a downward spiral for the whole proposition. This is evident among many media. Newspapers are shrinking their newsrooms and the newspapers themselves. Network TV can’t afford to do many original comedies and dramas anymore; they’re too expensive compared to “reality” programming.

Now, of course, it is possible that the forces that have levelled newspapers, challenged magazines, shrunk TV, changed the economics of radio, and generated a constant increase in screen-reading by the public worldwide, won’t have much impact on the book business. But how foolhardy would it be to count on that?

If we accept as a given that the change in media consumption habits and the arrival of community organization must change the landscape for all media, we want to try to predict what that change looks like to book publishers. To do that, we need to think about what we know about the world of the future and look at how that “maps” against what we know about book publishing.

As we’ve seen, the world of the future will make a vast amount of content on every subject available to everybody through various devices that can be held in your hand. The day will come when almost all this legacy content will have been sorted through, evaluated, aggregated, and tagged by the community of the interested. Internet 2.0 (let alone 3.0) makes it easy for the communities to do all these things and organize themselves along whatever lines make sense to the members of the community themselves. And, while all this is happening, the mass media is getting less and less attractive.

So expecting a world where the most powerful media has its roots in niches and is highly dependent on a community of users to generate content, aggregation, and value, is consistent with the direction we have seen things moving for the entire Net era of more than a decade. And you could say it is longer than that if you date it to the proliferation of Cable TV channels more than two decades ago, which is really where the niching of consumer content first became evident.

Let’s de-construct what book publishing is all about so we can look with some specificity at how what we’re doing now is likely to work in a changed world.

A book publisher has always been a sentient member of a community. No publisher, and especially no editor, will publish a book on any subject. They need to know what a community of readers wants to read or have collected or archived for them in book form.

They need to know who can write it and who will be accepted by the potential market of readers as a trustworthy source on the subject.

They need to know how to manage the process of editorial development and then the conversion of the raw intellectual property into a deliverable form, which, for us in the 20th century, has meant a printable form.

Of course, the key to success for the book publisher is its skill at reaching the potential audience with the work, which are the functions of marketing and sales.

And the most effective and forward-thinking book publishers also see themselves as organizations “in service to” authors.

Since we’re most concerned here — in this speech and in this room — with general trade publishers, let’s consider how those publishers particularly stack up against these functions.

The subject-specific discipline of a trade publisher is the most relaxed of all book publishers. Academic, professional, and educational publishers all have market-imposed boundaries around what might work for them that are much more rigorous than for trade. Generally speaking, if a bookstore or public library would stock it, a general trade publisher would feel they could do it.

The primary author recruitment tool for trade publishers is literary agents. Whereas a math editor in a professional house or college publisher would likely find their authors by networking at conclaves of mathematicians, trade publishers have authors they may not even know of presented to them by agents whom they do business with regularly.

In fact, this kind of leverage is characteristic of trade publishing. Agents consolidate the huge author base into fewer points of contact. The marketing and sales efforts have similar leverage. Promotion has, historically, depended heavily on book review pages in daily newspapers or, in recently bygone days, promotional appearances on local radio and TV talk shows. Note that these channels are very 20th century: they are “horizontal.” They can handle a biography today, a novel tomorrow, and a memoir the day after. So can the primary sales channel publishers have depended on for about 100 years: the general trade bookstore. All of these have given the trade publisher ways to touch many customers through relatively efficient mechanisms. It has allowed their publicity departments and sales organizations to focus their efforts without it being necessary for the house to focus its list.

In fact, “vertical” thinking in general trade publishing houses has been pretty much confined to the special sales department. I don’t know how Random House functions at a fine level of detail, but if I’m right that your pubicists and marketers would find it hard to work across imprints on behalf of all your knitting books or all your business books at the same time, then your special sales department may be the only in-house entity which is thinking about your total content opportunities in the ways that will be increasingly important in the years to come.

So the general trade publisher lives in a community, but it is not a subject niche community. It’s a community of trading partners, not of individuals chosen by specific topic interests. It gives the general trade publisher critical leverage to compete in the horizontal format-specific world it has developed in.

The publisher reaches great masses of readers, but reaches them for marketing largely through mass media and reaches them for sales through bookstores and, increasingly, other retailers. The publisher doesn’t “know” these customers in any personal way, nor do they know the publisher.

The publisher keeps in touch with a very large writer community through aggregators known as “agents”. The publisher gets to know the writers it publishes, but it typically doesn’t find and develop them itself. The agents provide that service.

The publisher creates, produces, and delivers physical goods, leveraging both capital and expertise. Both the capital- and expertise-requirements have served as effective barriers to entry to competition. So has the capital-intensive physical distribution system, which is why smaller publishers have gone to larger ones or distributors to handle that challenge for them.

And that leads us to consider the value of publishing brands. The payoff to a “brand” is that it is a shortcut by which the customer knows something about the offer before the offer is even made. The brand conjures up an expectation, based on the customer’s understanding, and the most successful brands are trusted to deliver a consistent experience.

The way general trade publishing has always worked, the brand was really a B2B tool. All those intermediaries: agents, the book press, and the trade customers, understand very well that Random House isn’t Sourcebooks and that Abrams isn’t Workman. They would interpret a book’s title and format and price in the context of the meaning of the house’s brand.

But to the consumer, these brands are mostly meaningless. Of course, the author isn’t; that’s a brand consumers really understand. And they understand certain series — like “Dummies”, say. But the value of house brands and imprint brands is really lost on them, as valuable as they may have been for the intermediaries that get publishers to the consumers.

We have seen that the Web world confers enormous power to brands like Amazon and Google, among many others. This is something publishers need to take on board. The branding that was the key to success in the 20th century may be almost meaningless in a few short years. Publishers should be thinking about how to rebrand their businesses, into niches of course, while they still have the power to do so.

OK, back to a description of our future world, the one we’ll see in 2020 when the iPod puts the whole history of IP creation in your hand, subject to rights availability, of course.

Every subject worth considering — probably not as numerous as Wikipedia entries but on a highly granular level — will have its community: largely self-organized and with brands that are local to the community. And the brands and community will really know each other.

The readers that publishers will be looking for mostly exist within the community. And the writers will also, and they already know the brands because they’re all in the community.

Because technology has simplified making books and because POD and ebooks have very much lightened the capital requirements, those advantages for today’s publishers will be gone. And since the web community is where the readers will be, it is members of that community who will be able to reach them. Since much of this activity will be in the form of digital downloads, whether the file has material to be read, listened to, looked at, or watched — or some combination of the four — won’t make a lot of difference to the “publisher.”

Within the market niche, the brands will have the capability to reach the audience very inexpensively. Only in those cases where the content needs to reach many niches will more widespread distribution, such as what trade publishers know how to do, be of great value.

I’d consider what we’ve covered on the previous slide to be pretty certain. But there are some crucial questions that are much harder to answer.

First of all, how confident can we be that today’s youngsters will want physical books ten years or more from now. Author Cory Doctorow, who is a seminal thinker about these digital matters, notes that many people are “pervy for paper.” I love the term and see what he’s talking about all around me. But will we see it all around us ten or twenty years from now?

The second challenge that is critical for publishers to consider is whether a proliferation of print-on-demand capabilities will change the game. Today’s publishing economy is built on pre-printed books distributed through brick and mortar stores. Other things happen, but that’s the backbone of the business. Quite aside from the growth of online bookselling at the expense of brick and mortar, will pre-printed books lose market share to printed on demand ones? If not now, when POD is mostly a centralized game, how about when every Kinko’s does books? How about if the day comes when a print-and-bind machine can be in an office or home?

Third, we must wonder whether today’s youth — growing up with texting and blogging and all sorts of bursts of communication — will have the patience for or interest in long-form reading.

And last, how pronounced will be the shift away from mass, or cross-niche, markets? Will it be sudden and apocalyptic, which seemed possible to a reader of Chaos 2.0? If Oprah and The New York Times can’t garner mass markets anymore, and Garfield posits that they won’t, how will mass audiences be gathered? It is not a trivial question.

Nobody knows these answers, but we’ll all have to guess. Here are mine.

Although the book is a fabulous form — I loved Michael Cader’s recent formulation that it “comes with” its own “reader” — it isn’t the best for everything. It is easier to Google “define this word” than it is to pull a dictionary off a shelf and look it up. There is nobody in this room — or any other room — who isn’t using the net today for things they would have used a book for 10 or 15 years ago. And we’re talking about what will have happened by 10 or 15 years from now. We really have to expect continued erosion.

A big illustrated book provides an experience that isn’t yet replicable digitally, though screen technology keeps improving and that will continue to change. For a while, at least, we’ll certainly need those books.

And physical books are sometimes needed for their value as a “token”, like a birthday card. That won’t change. But in the digital future, aren’t you more likely to want to give a uniquely-created customized book than a mass-produced one, as a personal token? I’d think so.

There will ultimately be room for a middle-function here: somebody who assembles that personalized gift book for you: promising you it is unique and probably letting you tweak the concept yourself for an additional fee.

The Amazon Kindle, Sony Reader, and digital readers of many stripes to come, also threaten the pre-printed book model. The sales base for brick and mortar will keep shrinking. Some consumers will go to ebooks. Some will go to online shopping. And some will go for personalized compilations they create themselves and order printed-on-demand. But in the next 10 or 15 years, we’ll still have a large base of 20th century people — like all of us in this room — who might still prefer to read ink on paper. And who are still getting their information about books from horizontal media. And who still like the feeling of being in a large enclosed space jammed with books.

So while there is bound to be great consolidation among bookstores, there will still be a demand for them over the next 10 or 15 years. But the financial pressure and the infrastructure demands of dealing with print-on-demand, used books, and customization, will probably mean they’ll all be part of one large chain.

I keep asking parents the question about kids reading long form and I can’t get a consensus on an answer. Some parents — even of little 21st century toddlers — think their kids just love books and will want them forever. Some say the opposite. But what we know is that one? heavy book-buying days are later in life. My cohort — the baby boomers — is headed into peak book-buying age now. That should carry the industry for some time while we wait to find out whether the kids will read novels.

My hunch is that they will, but at a reduced level compared to us. Aside from the conditioning they?e getting being so different than ours, so is the competition. We never had the choice of watching a movie or reading a book while we waited for a plane. They do.

But whatever we?e reading ten or fifteen years from now, I don? think we will cluster around big titles as frequently as we do now. Mass audiences depend on mass media. It is hard to see how we can all gather around something unless we all hear about it and, if we?e not ?istening to the same sources, that becomes much less likely.

What should today? general trade publisher do to meet the challenges of the digital future. Assuming that the picture we’re painting is right, the imperatives become pretty clear. We’ll go into each of these in some detail.

First, General Trade Publishers must begin to see themselves as “Multi-niche Trade Publishers.”

And, in what will be a byproduct of the same sort of thinking, publishers need to see what they’re doing in aggregates, not just book-by-book.

There is also a big opportunity to move from what we’d call “expensed marketing” to what can be termed “investment marketing.”

When the publisher’s content and market identity becomes defined by the communities they are in, rather than the book format, many things become possible.

And when the publisher becomes “audience-centric” rather than “product-centric” the shift to a sustainable 21st century model becomes complete.

Book publishers today — indeed, along with the whole world of information in which publishing exists — are very much in a transitional stage. There are a host of changes taking place now that are necessary prerequisites to the digital future and even the most forward-thinking publishers will find it hard to move the needle on change alone.

First of all, XML-tagged content, which is just beginning to be implemented by trade publishers, enables a lot of change, and the lack of it makes some incremental opportunities marginally too expensive to initiate. When you have it, doing large-print or recombinant books, for example, become easy and practically free.

I hasten to add here that we’re only in the first stage of XML: tagging books to enable simpler production and rights clearance. Tagging for editorial value, so that you can find all the material for a Halloween book or aggregate the content you have on American presidential elections, is much more difficult. We’re going to have to get there, but I don’t think any general trade publishers have even started on that task yet.

SharedBook is the first easily commercializable application for online book assembly. We’ll be living in a different world when many publishers have harnessed this capability within their own lists and we can start looking across publishers’ content with this application.

In the general trade world, the first communities to be recognized have been horizontal ones: Facebook and MySpace and even LibraryThing are no more niched than AOL. In fact, they’re pretty similar conceptually: AOL was Internet 1.0 for Dummies and these new sites are Internet 2.0 for Dummies. But they’re already niching themselves; LibraryThing is one of a number of book sites that are inviting the community to help with the niching. As Wikipedia has demonstrated, give the crowd some time and they can do a massive job of content-organizing. The crowds are also organizing the communities.

And the ebook world is showing some signs of coming to life too. It will be a very different environment if the ebook readership gets to 10 to 15 percent of the total. How long will that take? I don’t know, but I believe we’ll get there within the 10 or 15 year time frame being contemplated today.

If you imagine these changes in place, along with the handheld device that holds the entire history of content, you’re in the right frame of mind to imagine the land grab we’re going to see take place, subject by subject.. We’ve observed earlier that, because of network effects, the Internet favors one or two “winners” for any category. We believe that will be true of each niche. If that’s true, the contest for media primacy in the middle of the 21st century is being fought, niche-by-niche, starting right now.

Of course, book publishers will not be competing in these niches alone. Everybody will be there: specialist magazines, newspapers, product and service companies, and content-originating web sites. But book publishers have some very important advantages over all these looming competitors.

Publishers own content. Newspapers often do too, but magazines often don’t own much.

Publishers have a unique commercial relationship with authors: a royalty relationship. We will see why that is an enormous advantage over the staff or work-for-hire arrangements in other media.

Publishers, through the many books they publish, can also distribute URLs to drive niche customers to niche websites.

Book publishers have products to sell to their internet community. Their competitors usually don’t.

Book publishers understand niches; they have a “taxonomic” feel. They understand the subsets that make up many markets.

And publishers have long been spotters of trends. Historically, they have been forced to “lead the target” with that capability, seeing what markets will be there for books that will come out 12 or 18 months after they’re signed. In the Internet world, that capability can be leveraged more effectively.

So now that we’ve ticked off the objectives and the tools, here are what I hope are practical suggestions about how to think about them and create a plan for migrating from the spectacularly successful format-specific subject-agnostic publisher Random House has been to one that will meet the challenges of a niche-specific and content-agnostic entity that will characterize the successful media company over the next two decades.

Moving from “horizontal” to “vertical”, or niche, is a process. But it must begin by visualizing, and then organizing, your company around the market niches you occupy already, but don’t think of that way. Thomas Nelson’s announcement last spring that they were eliminating imprints and reorganizing around BISAC codes sounds like a logical way to begin.

But it isn’t the only way to begin. You might look at how your special sales department organizes your lists as another way. But since the ultimate objective is to make your publishing activity map to the way the world is organizing itself online, probably the best way is to map the content you control to the way the internet is in some way. Since the premise is that web communities will drive publishing activity in the future, the sooner you think about both at the same time, the easier the transition will be.

When you do map what you publish against human activity on the Web, you’ll see your books either as living in clusters or as outliers. You’ll naturally start applying the concept of “critical mass”, which you’ve always used in other contexts, to the communities you’ll want to be important to on the Web.

This will be an iterative process. Houses like O’Reilly, Wiley, and McGraw-Hill have a natural advantage in this kind of exercise; they focused their program by subject matter long before the Web. They were already vertical. As you and the other big horizontal houses take the need to “verticalize” seriously, you’ll discover places you’re deep and places you’re shallow. And where you’re shallow, you’ll have to decide whether you want go deeper or get out. You’ll see that choice pretty quickly; you’ll know you can’t stay shallow, particularly as you start cultivating the advantages of being deep.

Once you have a niche-logical framework through which to view your content, you need to USE it. Think in terms of it. In the new world, strength in a subject area adds marketing clout to every book and cuts marketing cost for every book. Ask the publishers who do it that way.

Next, you need to employ the techniques you use today to manage imprints to manage niches. Look at your revenues and costs that way. Organize your marketing efforts around the niche, with the title-by-title aspect being a “layer.”

You’ll naturally start to see potential alliances with other stakeholders in the various communities. The chances are your special sales department is already developing opportunities like this. But if you have an overall niche-recognition strategy in the company, and fewer barriers created by imprint silos, the opportunities will come thicker and faster. And alliances with non-publishers is likely to be one of the revenue growth areas in the new media economy.

You’ll be doing two things for your marketing at the same time when you think about your content in aggregates for niches rather than book-by-book. First of all, you’ll be trading the “here today, gone today” aspect of most marketing done now with a series of more permanent marketing assets. And the second is that you’ll be building a replacement infrastructure, which you’re going to need as the old horizontal ones — the talk shows and book review pages you’ve relied on for years — continue to disappear.

When your focus is on using your content — frontlist and backlist — to continually build your presence in a niche community, you build relationships that will help you over and over again.

Activities you already undertake now, like acquiring email names or developing relationships with web sites and bloggers will become much more powerful within a niche context. You need to tally those email names and those web addresses and recognize them as the assets they are. As you use them, you will unlock the value of nearly-free marketing being built on the back of previous efforts.

You want to keep track of how many emails you get people to open, whether it was “selling” them something or not. You want to keep track of whether you get them to click through to you for any reason, whether you’re making a sale in the process or not.

One of my predictions in PW two weeks ago was that publishers will start acquiring web sites in 2008. Recognizing which ones are important marketing partners for clusters of your content is a good way to start prospecting. And, by the way, think about the possibility that the web site you don’t acquire might end up in the hands of a competitor.

All of this activity takes you in the direction of being a community leader. You take a subject, any subject, and start to use your tools to the benefit of a community. Give chunks of useful content to relevant web sites.

Some of those will be retailers or service-providers who can use your content to the benefit of their site visitors. Anybody but a book publisher trying to create a web presence finds content creation to be the biggest challenge. They don’t have it, and they’re not experts at creating it. Or contracting for it.

This is old news to a niche publisher already living in a 21st century paradigm. General trade publishers are thrown off the track by the book-by-book nature of their business. Seeing your content in aggregate — all the material you have on knitting, say, across imprints and including both juvenile and adult — will give you material to sell or barter across manufacturers, retailers, and blogs and personal-interest web pages that cumulatively have your core audience.

I touched earlier on the danger that you’d see a competitive book publisher acquire sites that are important to you. Actually, if I were advising one that did, I’d tell them that shutting you out would be a bad strategy. If you’re operating in the interests of a community, you don’t block content that they would want to have access to. On the other hand, the site owner collects the best benefits, the rest usually pay tolls.

As you interact with more and more sites and bloggers, new opportunities will open up: for customized books, for user-generated content, for useful databases you can construct that will drive more traffic or even give you something for a book.

In the niche-centric world of 15 years from now, the community itself, not content, will probably be the primary instrument of monetization. Having the attention of groups of people with similar interests is always monetizable. There are many lessons about the future to be drawn from Michael Cader’s PublishersLunch and PublishersMarketplace businesses, but a critical one is that you must focus first on creating a community, and then on monetizing it.

This is one of the hardest parts about the transition for a commercial publisher. The instinct — trained into all your marketers — is that the point is to sell books! But that can’t be the central focus if you’re going to build communities. The central focus must be to understand and satisfy the community’s needs, which could lead to publishing something you learned was needed, but it won’t work if all your outreach is about selling what you’re publishing anyway.

Of course, it makes you very popular with a community if you publish what the community creates. Figuring out good “crowd-source” projects — some variation of the old “Day in the Life” photographic series — might serve multiple purposes: engaging the community, developing a publishable project, and laying a marketing groundwork for it.

What is essential is to avoid the temptation to spam or to oversell. If you think first about your audience, you’ll make the transition. If every interaction you have with your web communities is to sell them a book, you’re still a 20th century book publisher.

We talked earlier about some advantages general trade publishers bring to the evolving contest to compete in niches of interest. Before we stop for any points you’d like to raise, let’s entertain how to apply them. The only practical way to think about this, of course, is niche-by-niche. Otherwise, many of these ideas will seem too vast to even contemplate.

Using your content requires taking inventory of it in a completely new way: by chunks. The most useful ones are stand-alones. They tend to be most common and easy to identify in reference books, how-to books, compilations. But general narrative can work too. Let’s say you had a few great reference books on the Civil War that you could build around. That would make it worth looking for biographical material on Civil War military and political leaders throughout your other books, even in fiction.

Or you might have several series or brands in some areas, like games or travel, that would permit you to mount an overall web presence that provided great utility. If you have content that solves a practical problem for people — and there are chunks in books on gardening and retirement and gambling, to name three examples, that do just that — you have the discoverable content that can draw traffic to a site.

Wiki-ing appropriate content can also be a tool to generate community. Material on subjects where experts abound — let’s say a Who’s Who in Film — can be the foundation to attract a lot of traffic which can be leveraged. And setting up a Wiki can be a good excuse to ask for registration, adding a new database of value to your asset base.

Of course, the straightest path to monetization of content on the net is to license it. Here again, you’ll be much more successful if you’ve analyzed your content on a level both more granular and more aggregated than “the book.”

Of all advantages publishers bring to the niche land grab, their relationship with authors is the most significant. In fact, now is the time that publishers who have royalty relationships with authors gain a distinct advantage over any publisher or packager whose model is “work for hire.”

We recognized in a project we did for a general trade house two years ago that “teaching authors to fish” was the key to a “new marketing partnership” between authors and publishers. That point of view has been acknowledged in some recent initiatives, particularly your speakers bureau and Harper’s recently debuted author tool set.

As part of the work for that same project, we collaborated with Market Partners on a survey of agents about author web activity. What we found two years ago was real cynicism about how helpful publishers were, but real conviction that authors needed to spend a great deal of time and effort promoting themselves online.

The vision I’ve had for a couple of years, as yet unrealized, is that a publisher could create a “vortal” — that’s a vertical portal — using legacy content and links out to all the other sites of interest to the community. Then you set your authors to blogging on the subject, on their own sites or on the vortal itself. Either way, RSS feeds from the authors could provide fresh content on a daily basis, a sine qua non for a site that wants a lot of regular traffic.

Of course, some, if not most, of these authors are already blogging or maintaining their own sites. That doesn’t change the concept. Publishers can add traffic to their authors’ sites by adding links: linking the authors to each other and linking them all back and forth from the publisher’s sites. As you know, legitimate links drive up Google search rankings. That’s a real reason for an author to join your site family, if you’re niched in a way that will drive the right traffic to them.

Back in the days when the idea of a “web site for every book” or a “web site for every author” was a very radical idea, publishers would often say to me, “but how we will we get any traffic for the site.” I hope I’m not insulting anybody here by saying this, but I always thought that was a remarkably lame question, coming from an entity that distributed hundreds of thousands, if not millions, of books a year — plus press releases and collateral — all of which have plenty of extra room to carry a URL.

As publishers have discovered.

But pushing a URL that is for a publisher’s web site is a waste of an opportunity. If somebody buys a book about retirement or Switzerland, they want a web reference with more information about retirement or Switzerland, not a book catalog.

That mistake isn’t made as often as it used to be, but it is almost as bad to send readers to an author web site, unless the site is maintained and has constantly refreshed content. In fact, that could be part of the negotiation with authors: sure, we’ll put your web link on your book jacket, IF you commit to posting new material on your site on a regular basis.

The right answer becomes obvious if a publisher has vortal sites and thinks in aggregates; you drive traffic from niche books to appropriate niche sites. A similar strategy is employed by some publishers with “newsletters.” If you publish regular newsletters by subject niche — and perhaps have some excerpts from your authors’ blogs to power that — you can drive sign-ups with the relevant books you publish.

Every book cover and every press release and every ad should contain a useful URL, which means one the consumer will find worth bookmarking and returning to. As you become a 21st century niche publisher, it will be obvious to you that if you don’t have such a URL to put on the cover, you probably shouldn’t be publishing the book!

When publishers compete for the niche-future, their non-book competitors will fall into two categories. Some will have products but no content; others will have content and no products. Book publishers are really the only ones with both.

There are two great benefits here. One is that being a publisher adds credibility; if you hire authors, edit books, and market them to a niche community, you must necessarily have knowledge the community wants to share. But the other is more straightforward: book sales can produce revenue.

I want to emphasize the positioning here. Until now, most of your web activity has probably been for the express purpose of selling books. We’re advocating a web effort that is about community building, not necessarily book sales. Book sales should be used judiciously as part of that community building effort.

Direct sales by trade publishers are bound to increase, but care should be employed not to overuse the tactic. Doing it for margin enhancement is probably the least good justification. The additional margin isn’t necessarily that great, once you factor in the “referral fee” you’d get from most retailer sites. And your site visitors already have accounts with Amazon, BN.com, and Powell’s; they don’t with you. So offering youself as the only option, even with attractive pricing, is likely to reduce unit sales.

Of course, direct selling can also enable bundling (book and audio, book and ebook, this book and that book) experiments, which is a good reason to do it. And direct selling also gives you direct customer contact: names and credit cards. There’s value there too.

I know everybody who publishes fiction listening to this description of the future says, “yeah, but what about my niche?” Fiction is, of course, already in many niches, and they are each developing their own online communities.

Beyond that, sites like LibraryThing and Shelfari are pulling together communities of readers to tag books their own way. These tags will lead to easier niche-discovery in the future.

Obviously, poetry creates its own community, and a highly interactive one. Literary fiction is carving out its own world too.

And the niching of the subject world means that subject-oriented fiction can attach to its community more readily. How much easier would the launch of John Grisham have been through the lawyers that were his first core audience if there had been an online world to use when he started?

We all know that Word of Mouth sells books, and particularly fiction. Word of Mouth today is largely done through instant messaging or cell phone texting. Or Facebook or MySpace. Or Twitter or deli.cio.us.

Obviously, there will always be some books — many books — meant to reach across niches. It isn’t that those books will disappear that should concern us, but that the horizontal book-specific review, promotion, and sales mechanisms will atrophy. And that the attention of the public will be increasingly consumed by each individual’s niche interests.

When books can cross many niche lines, there will be the need for the services of an organization that looks like today’s General Trade Publisher. But how many such opportunities will there be? Enough to support one or two, maybe? Not many.

Bookstores will find cross- or multi-niche books by data mining the net, part of the expensive infrastructure we think bookstores of the future will require. And that’s why we think bookstores will all boil down to one chain in the decade or two to come.

There is logic behind the idea that the still-standing bookstore chain, which viewed from today certainly looks like it would be Barnes & Noble, is a competitor to be one of the general trade players. They’ll control the primary outlets for what are general trade books by then.

Bestsellers will not entirely disappear. The top echelon of what is sold in B&N in 2020 may well also be sold in the Costcos and Sam’s Clubs that are around then too. But the combination of output and audience won’t generate anything like the number of mega-sellers we’re used to now.

On the other hand, the total title output will be way up. By multiples.

There is only way to avoid the future, and none of us is volunteering to take it.

The web is going to be more content-rich than we have ever imagined; much of the content will be free and all of it that you want will be held in your hand.

The support system for general trade, particularly the horizontal media that have allowed us to promote books just because they were books, is disappearing.

The self-organization of the web into niches is inexorable. That’s not an open question. What are open questions are how to monetize it, and how to get to a position of strength in it from a position of strength in general trade publishing today.

But we all have to tackle these questions. I’m likely to be the oldest guy in this room, but I expect to be consulting to publishers, such as they are, when they are operating in this changed world. Those of you much younger than I am will have a career that stretches beyond the life our current business models. It is in all our interests to figure out workable answers.

Thanks very much for your attention. The previous version of this speech, the one given at BEA, last year, is at the URL on this slide. So is my email address: I’d be happy to extend this conversation with anybody here who wants to. It’s been my pleasure to join you today.

Read this article on Publisher’s Weekly.

Playing this game for the past 15 years or so has taught me that, like hitters in baseball, forecasters of publishing’s future are doing well if they get a hit 30% of the time. This crystal-ball gazing is an uncertain business–and the bolder the prediction, the greater the chance to be spectacularly wrong. Remember the now-infamous turn-of-the-millennium Arthur Anderson report predicting a “$1 billion e-book business in four years”?

You won’t catch me climbing out onto any billion-dollar limbs as I offer my forecast for book publishing in 2008, but some of the changes I envision do call for fundamental changes in how the business operates. There is an overarching theme to the changes already taking place. Consumer media in the 20th century tended to be horizontal and format-specific. The New York Times and Random House define “horizontal”: they publish across all interests and markets. The Internet will drive 21st-century publishing enterprises to be more like what professional publishing has always been: highly vertical and format-agnostic.

As we look to 2008, here’s what to expect in publishing:

1

The popularity of e-books will increase, with titles formatted for Amazon’s Kindle leading the way. Content for the Sony Reader will sell faster than ever, but by this time next year, Kindle-compatible books will be outselling them by more than 2 to 1. And Palm, which has historically been the bestselling format, will have had its best year-on-year increase as well. By year end, nearly every straight-text title published with commercial intent will be available for Kindle; the trick for the other formats will be to make sure they’re included, too. And Kindle pricing will drive the market. But despite the fast growth, e-books will still make up a tiny share of the market–no more than 2% of sales for most titles–and will contribute only a minimal amount to publishers’ bottom lines.

2

Sales of books in electronic form to public libraries will continue to grow: Ingram’s MyiLibrary, Follett, NetLibrary and Overdrive are already deep into this business. This opportunity will present a challenge as publishers discover that some older contracts don’t give them the right to make that kind of sale.

3

This will be the Year of the Author. Initiatives like the speakers bureaus at HarperCollins and Random House, the Authonomy Web site now being developed by HarperCollins UK and Google’s Knols initiative to create an “authored” Wikipedia all reflect the growing understanding of what publishing “brands” really matter (and they aren’t HarperCollins or Random House). Look for a self-publishing effort by a major author; it’s been too long–eight years–since Stephen King’s Riding the Bullet project.

4

Publishers will start acquiring specialized Web sites to get content for their books and to target niche audiences. By year-end, every major publisher will need to have an understanding of how to put a value on Web sites, because the old measures–namely, sales and profits–won’t necessarily be relevant and because the acquisitions will be smaller than what the companies would normally consider. The process will be similar to acquiring books, requiring a bit of imagination to see how the deals will pay off.

5

Christmas 2008 will be the first one in which sales of customized books, enabled by the Internet and print-on-demand, will become substantial. Apple has made it easy to produce one-off picture books and author-services sites like lulu.com have enabled author-generated books for some time. Travel book publishers have played with the concept. What is new is that technologies like SharedBook are moving make-your-own and assemble-your-own into consumer areas like food and sports.

6

XML will no longer be considered optional. Increasing sales of customized books will make publishers turn to their backlists for “repurposing.” When they do, they will find the cost of retro-tagging XML is often, particularly for illustrated books, prohibitive. They’ll also learn that with a little discipline and an improved process, doing XML tagging while creating content is almost free.

7

Apple, seeing the growth in use of Kindle and Sony Reader, will move to turn the iPhone and iPod into e-book readers. But they will recognize that the problems of loading in content and merchandising books are far more complicated and challenging than doing the same for music. They will solve the problem by teaming up with Ingram’s Lightning Source (for content) and BN.com (for merchandising and to reach the book-buying audience). This combination will enable Apple to challenge the Sony/Borders combination and the Kindle, though Amazon’s device still promises to take significant market share away from print and other e-book formats over time.

8

B&N will continue to leverage the book trade’s most sophisticated supply chain to lengthen its lead over Borders and all other bricks-and-mortar retailers. (I should disclose that I have consulted with B&N on supply-chain matters; I’ve never worked for Borders. I have no inside sales or financial information about either company).

9

The lack of a competitive supply-chain infrastructure will continue to handicap Borders, hurting both sales and profits. This will lead to a change of ownership control and yet another new plan to revitalize the nation’s number-two bookseller.

10

Although overall sales will remain paltry, increased activity by publishers selling direct to consumers from their Web sites, particularly digital downloads, will lead to “read and listen” bundles of e-books and digital audio and other pricing experiments (it is worth noting that the Sony Reader and the Kindle can deliver both text and sound). Other combinations, including book-and-audio and book-and-digital file (the latter tried by Amazon), and even combos of multiple titles, will be offered.

11

Literary agents will begin to experience the same kind of consolidation that has hit other parts of the book business, as the shrinking of advances below the very top tier of authors and the growing need for agents to provide editing, marketing and increasingly detailed rights management make it hard for smaller agencies to bring in enough money to cover their overhead costs.

12

Publishers will rethink the traditional sales conference and begin to move toward a continuous publishing model. This will be a belated recognition of two key facts: national accounts are mostly covered by staff, and the rest of the accounts can be reached quickly and efficiently by e-mail.

13

Some publishers will begin producing a hardcover edition of every paperback and a large-print edition of every title. This will be possible by harnessing print-on-demand and using an XML workflow (see prediction #6), which makes it easy and inexpensive to put content into other print and electronic formats. The increasing number of large-print titles offered will lead to large-print subsections for many categories in some bookstores.

14

Publishers will push harder to publicize books through the Internet channels as print and broadcast media continue to lose audience to the Web, in particular subject-specific sites.

15

In addition to being the Year of the Author, 2008 will be the Year of the Experiment. Initiatives like the widgets used by HarperCollins and Random House, the video trailers produced by Simon & Schuster, the publishing to cell phones being enabled by Mobifusion and tried by several publishers, and Macmillan’s call to employees for ideas for the company to bankroll show a growing awareness that publishing companies need to create a culture of experimentation. What’s an experiment? We’ll define it as a commercial effort undertaken without any real conviction as to how it will work out, and with the expectation that learning from failure is a more likely benefit than success.

Good morning. I hope to give you a few things to think about today. And maybe even  things to act on without much further thought.

We’re going to start with a view of what digital technology could mean to the overall world of communication over the next decade or two. What the history of the Internet seems to be telling us so far is that we will see a growth in niche organization — what people like to call “community” on the web — and a corresponding decline in horizontal media, which is much more threatening to magazines, newspapers, and broadcast than it is to us in the book business. But it will change us too.

I have some real skepticism about how general trade publishing maps into this future world which I’ll also elaborate on.

The two together will beg the question, but “what do we do?” And we’ll tackle that question too. Some of the answers are to simply “get more efficient” and nobody can really argue with that, but other answers require a change in thinking that I think plenty of people will argue with.

And, before the end, I want to introduce you to a new model for publishing books to small audiences that is already being used by many American university presses, and which I think might well apply to the publishing primarily intended for your home market as well.

Since I have now been in your hemisphere for 36 hours, I am quite sure my ignorance of your local perspective will show. I am going to deliver you what is, admittedly, a set of facts and opinions formed by extensive experience with the publishing communities in New York and London. You will recognize what I don’t know and, I hope, over the next couple of days, educate me a bit about that.

But I DO know you’re different in many ways.

For one thing, a big chunk of the books sold in Australian shops were written and commissioned half a world away. Although data from 2004 says that sales of non-fiction books in Australia are 75% of domestic origin, more than half of your fiction and children’s books originate abroad.

And I know that, whatever copyright law says or corporate practices require, your territorial rights are protected by vast oceans between you and most potential commercial violators. Of course, consumers going to Amazon, even without a local operation here, create increased buying around that can’t effectively be stopped.

But you’re not completely insulated even commercially, because most of your biggest publishers are branches of multi-nationals. Their overall economic health, a big chunk of their output, their employment practices; all are at least somewhat dependent on the performance of their parent companies in the US and UK. That means that the health of your book trade is tied to theirs.

And if most of the books sold in your shops come from those companies, that means the locally produced books are living in an ecosystem that depends on books from elsewhere as well.

So if anything I say sounds strange or alien, indeed, it might be. But it should still be of interest for two reasons. One is that it is affecting big parts of your biggest publishing enterprises. And the other is that what we’re feeling across the world today might hit here tomorrow, even if it hasn’t been evident yet. You know the story: the bomb may have exploded a while ago, but the radiation could still be travelling through the atmosphere. You can’t imagine what I had to fly through to get here!

If anybody came to today’s sessions thinking book publishers don’t have to change in the decade or two to come, that we can just keep doing things about as we have for the past 100 years or so, I would ask them, “why should books be different from EVERYthing else?”

Where I come from, newspapers are desperately changing their models, even though they are still throwing off cash profits. They can see that they’re being squeezed from all sides. The big national stories are all reported, absorbed, and discussed by the most alert parts of their audience before they can get print into the hands of a consumer. The classified ads have just about completely deserted them, for general sites like Craig’s List or eBay or for specialist sites that sell real estate and cars. The most local of the information they provide, about community school boards or local town governments, has become the material of blogs and bulletin boards. So the smartest newspapers are trying all manner of new models, including “crowd-sourcing”, where the site visitors become the reporters and the professional organization provides the editors. That’s radical, but it is being pioneered by Gannett in the US, which is has always been a pretty conventional organization. They are also the publishers of the only intentionally national general newspaper in the US: USA Today.

Magazines are also struggling with their models. Major companies like Hachette and Time Inc are shuffling their portfolios, and trying experiments where they go web-only with some publications to avoid the costs of physical production and distribution.

Both newspapers and magazines are generating real revenues on the web; the problem is that those revenues aren’t sufficient to replace what they are losing in print. So they’re running hard on a treadmill that moves a little faster and gets pitched a little steeper every day. It will get hard to stay on when that treadmill is perpendicular to the floor.

Movies and TV have also seen their business models turned upside down. This was happening even before YouTube turned the digital download from a phenomenon into a common event. But as we approach the day when the Net, through downloading or streaming, is the primary distribution mechanism for visual entertainment, all of the structural advantages of the big companies are being erased. Movie studios used to control distribution. TV networks used to dominate audiences. And not long ago, either.

And music? We ALL know what THEY are going through. Similar story in its way. Digital downloads are selling like crazy, but they aren’t selling fast enough to replace the decline in CD sales. The whole concept of an “album”; 8 or 10 or 12 or 15 songs by one artist sold in a bundle, is headed for extinction. In the very first speech I gave about digital change, at a book convention in the US in 1994 or 1995, I said “thank goodness we’re not in the music business.” That’s one prediction that turned out to be correct.

But even though we’ve seen our business get tougher in many ways, some of the predictions made at the turn of the century for big changes in this decade, such as disruptive ebook takeup, just haven’t come true. The book business has, arguably, been less affected than any of the other major media by digital change. Or maybe I shouldn’t say “arguably.” Maybe I should say “apparently.” And CERTAINLY I should say “so far.”

But it is true that books are different, as we in the business frequently explain to others to defend practices — like, say, returns or the lack of test-marketing or the dearth of space advertising — that seem strange to people from other industries.

First of all, books are — again I’d say, so far — not advertising-supported. Many of the problems of newspapers, magazines, and television have to do with the flight of advertising dollars to the web, and the desire of advertisers for better targeting and more interactivity, which the old media forms can’t supply.

And books have also been insulated from digital change by the “user experience.” Your ears don’t care whether the music got to the speakers or headphones via a CD played through a stereo system or by a digital download into your iPod. When you watch a movie on a screen of any size, you see the same movie made larger or smaller to fit the screen you’ve chosen for the purpose.

But an ebook is qualitatively different from a paper book. It feels different. And your interaction with it — and page-turning doesn’t really have an equivalent for music or video; nor does underlining or dog-earing a page — is distinctly different. Of course, while we’ve been telling each other in the book business that “people don’t want to read on a screen”, people ARE reading on a screen. Most people in this room read on a screen for many hours every day. Most of us just don’t read BOOKS. But just about all of us read emails and articles and reports and spreadsheets. That books are not among what we read is not something the book business should be proud of.

So it appears that the book, as a form, locks in users in ways that a Walkman and a movie screen and a daily broadsheet didn’t.

One thing the web does very well is disaggregate and reaggregate content. All newspapers and almost all magazines are content aggregations, collections of content “nuggets” that can each stand without the rest of the aggregation. That characteristic immediately confers an advantage on electronic delivery.

And those books which are aggregates of nuggets of information have been the first to be negatively affected by the electronic delivery of information. There has been much more turmoil lately in the market for gardening books, or computer instruction books, or travel books than in fiction or biography. Some books “chunk” very easily. If people want chunks of content, not long narratives, the barriers to electronic consumption fall very fast.

Still, in many ways, the media story of the last 15 or 20 years could be the resilience of the book form. Book publishers, particularly consumer book publishers, have managed to keep their product and their business practices pretty close to what they’ve been for a century. I don’t think the next 15 or 20 years will be quite as change-free.

Let’s start with this fact. The progress being made at expanding storage capacity for digital information will lead us to an iPod in 2020 that would hold every movie, every TV show, every sound recording, and every book ever created in the history of man. That’s what you would be able to hold in your hand, unconnected to the Internet, and read or view with a couple of clicks. That’s competition the book never had before.

There will also be new screens abounding. You may be aware of the Sony reader and other devices like the iRex now using what is called e-ink. These screens will be flexible and foldable; they’ll be able to be read under the same light conditions in which ink on paper can be read. You’ll also be able to “throw” the content from your iPod containing everything — or everything on which rights have cleared — to larger screens mounted on walls or placed on desktops.

In fact, you’ll likely be able to throw content to your own home print-and-bind machine, if you remain pervy for paper. That preserves the paper book “experience”, but it doesn’t do much for the paper book supply chain.

As we’ve touched on and will elaborate on shortly, today’s mass audiences will be fragmenting into niches. That will certainly create niche publishing opportunities, but it will make it increasingly difficult to pull audiences across niches. The horizontal — cross-niche — media we have been used to, particularly newspapers and TV, will find the niche-interest world increasingly difficult to navigate.

Because the net will create niche communities, within which the costs of marketing and distribution will drop to near zero and with each containing many potential content creators, the capital and organizational barriers to competition for publishers will also come down. Publishers will find more and more frequently that the book they’ve planned has been beaten to the market by something not quite as good and not quite as professional, but “good enough” to spoil their commercial prospects.

And book publishers can’t be helped by the dying off of the population that formed all its media consumption habits in a simpler world with less competition and less choice. Can anybody really doubt that today’s kids will be more comfortable reading something other than bound paper when they are adults 15 or 20 years from now?

So change from where we’ve been and where we are now is inevitable. People will be consuming information differently and that includes much information which has, historically, been found in books. Markets will also be organized and reached differently. Since publishers are about bringing content to markets, and both components of that equation are undergoing a transformation, publishers can’t expect to just continue historical practices if they want to survive.

Let’s take a look at publishing’s position in the bigger world, the ecosystem in which book publishing lives.

Up until what seems like about 15 minutes ago, people got their information more or less the same way for about a century. The fresh news came to them through daily newspapers, radio, and, for the last 50 years, television. Although different countries have different patterns and combinations of local and national print and broadcast media, those choices were certainly limited. And until the 1980s and the proliferation of TV choices engendered by cable TV, almost all news was at least hours old and vetted by professionals before it was delivered. We need to remember that this was our routine for nearly 100 years.

It may need to be emphasized that the information we are talking about here includes information about books: reviews or author profiles or interviews. After all, we learn about books through the same media forms, and often from the same media, that tell us about everything else.

For greater depth of information than newspapers or broadcast media delivered, or to aggregate information about a specific subject, people turned to magazines and to — books.

Further depth could be found in libraries, where archives of old books and magazines sit side-by-side with new issues, and with librarians to help with navigation and, increasingly in the last quarter of the 20th century, electronic databases and archives augmenting the offering as well.

And, of course, we in the book business have always been aware of the importance of personal recommendations, which we call “word of mouth.” Until very recently, of course, “word of mouth” could only be delivered by telephone, snail mail, or face-to-face. That created inherent limitations on how much information flowed, or what we would call today “limited bandwidth.”

One more time: included in this information flow was the information about books, not just the information in books.

Now let’s consider how people seek and get infomation today, which are various ways to use the Internet.

The first thing anybody looking for information does is “search” for it, which more than half the time means “Google” it.

Most people sign up for email alerts from a variety of sources; slightly more sophisticated Internet users get RSS feeds straight to their browser instead of email.

Increasingly, information travels to people through personal networking sites, such as MySpace, where telling your “friends”, a word in the process of redefinition, is part and parcel of the experience.

And people exchange information among each other by a proliferating array of tools: email, of course, but also instant-messaging on the computer, text-messaging on the phone, and by tagging content, posting to sites like deli.cio.us, and blogging.

And all of these new means of getting information are making the old means less and less relevant. You know what is in the newspaper before you read it and what is on the evening news before you see it. You’ve been told about a book or a movie or a joke by your friends or a trusted web resource — or by your friends forwarding something to you from a trusted web resource –  before any of the “old media” can deliver it to you.

This is all part of the shift from “horizontal” to “vertical”. When you choose your information sources from the Net, you get just what you want without the rest. It would be as though your newspaper skipped the funnies, beefing up on the financial news and mine skipped the TV listings, beefing up on the sports reporting. What we used to call the “Daily Me” ten years ago — a customized newspaper we imagined would be the new vehicle of choice on the net — has happened piecemeal.

Now, pardon a US-based example, but I’m sure it replicates elsewhere. Until the 1970s, three national TV networks shared the entire national audience, undiluted by many distractions, some of which compete for the TV screen itself, which exist today. This is horizontal programming writ large; every show had to be tolerable, if not satisfying, to about a third of a very large country. Now there are five networks competing for about a third of the national audience — two-thirds having switched their TV watching to one of hundreds of smaller channels, or to DVDs, or to nothing at all.

When TV was truly mass, the budgets for the TV shows themselves reflected it. With the attention of many tens of millions of American viewers to pay for it, they could afford to spend a lot for talent and production values. With those audiences reduced by half and half again, the production budgets must be slashed to suit. That further reduces the audiences for mass, or horizontal, or cross-niche programming. Meanwhile, every niche is getting more and more robust on the web: more content, easier navigation, more community participation.

In the world of 20th century media, books were the tool to provide content to niche audiences. You could barely do a TV show on a subject as narrow as “gardening.” But you could do a book on “vegetable gardens” or “house plants.” The bigger the audience you need to support the content form, the harder it is to get granular with the information you deliver.

In the world of 21st century media, books need a lot more audience to be viable than a web site does.

As a result of the changes in media we’ve talked about, and some others, there are a number of global realities that I believe the book business will face in the next two decades.

Last month, at BookExpo America in New York, I delivered a talk called The End of General Trade Publishing Houses. It’s on the web at www.idealog.com/speeches/endoftrade.htm. That speech was as long as this one, so I won’t try to repeat it here now. But the gist is this: the niche world that we’re heading toward and the drying up of horizontal media will make it increasingly difficult for a format-specific play, regardless of market, to be commercially viable. We’re going to find publishers — even the biggest ones — obliged to specialize so that their marketing efforts build on each other in the niche world we’re all going to be living in. Since the biggest providers of product to the Australian book trade are general trade houses based in New York and London, this change will certainly be felt here.

We are also bound to see a diminution of publishers’ territorial control. Online bookselling, spearheaded by Amazon, is already making sure of that. If the price differential between the locally-sold edition and one available in another market is large enough, and the consumer is patient enough, ordering from another market becomes a desirable option and it is easy to do. The British territory is under threat from American-origin books coming in through Europe, if not directly from American wholesalers. American wholesalers Ingram and Baker & Taylor serve Canada like a home market. They are much more disruptive to local rights than they are here in Australia, and I know your book trade heavily depends on them already. Saying how close we’ll be to a laissez-faire market in two decades can only be conjecture, but it is pretty clear that territorial protections are getting weaker as time passes.

This is a good point at which to mention another problem the internet has delivered to today’s publishers: the ubiquitous availability of used books. This is a headache, and it isn’t going away. Amazon very cheekily runs their used book marketplace right alongside their new book offers; you search for a book and they really don’t care which way you buy it. So used books are out of the low-rent neighborhood on the other side of the tracks; they’re being displayed right alongside the pristine new copies. We don’t know how much this is costing in sales, but it is certainly costing something.

I asked a couple of experts I know how used books fit into the picture of protected territories. The answer I got was that they don’t fit in at all; they don’t count. So Norton in the US may not be allowed to sell a book for which they only have US rights in Australia, but if my sister buys a copy in the US, she can then sell that book to somebody in Australia without breaking any laws. So even if you could get Amazon.com to perform perfectly within your borders on the sale of new books on which they don’t have rights, they could still sell the used books, which are even more troublesome from a price-competition point of view.

Internet retailing and print-on-demand each are playing their part in reconfiguring the supply chain. The more we go “direct to consumer” by internet ordering and common carrier delivery, the more we enable used books to compete with new; printed-on-demand books to compete with press runs; and customized books to compete with standardized publishers’ editions.

We will also increasingly see rich media tied to books. At O’Reilly’s “Tools of Change” conference in San Jose last month, the show-stopper was a technology called bLink by which digital content gets linked right into physical books by printing “links” in conductive ink on the same page as the text. Of course, you need to be reading the book nearby a computer to make use of this feature, but it underscores the fact that text, or text and pictures, need not be “stand-alones” anymore.

As we know, material that will be read on a screen can readily contain audio or video or hyperlinked text or databases. As more and more original content is created for online consumption, text being supported by rich media will become a pretty routine experience for many readers. That’s a challenge for publishers who have traditionally worked in print, but it is a challenge that is already being met in ways we will elaborate on in a few minutes.

Publishing is also transitioning from being driven by deadlines and editions to becoming continuous. This is clearly a much more relevant concern to The New York Times than it is to Random House, or even to Wiley or McGraw-Hill more than it is to Random House. Publishing in non-fiction areas, particularly fast-changing ones like politics or science, will require constant updating. The market will expect it. But this can be as much an opportunity as a problem.

For example, one client of ours publishes many books on crafts. For years, they would publish “resource directories” in the backs of their books: lists of the retailers that would sell you the yarn or the buttons, or which offered the classes in a particular technique introduced in the book. This created a problem for them in the old days: these resource directories would be out of date by the time the book came out and would be more trouble to update on future printings than the effort was worth.

So, some years ago, the publisher moved the resource directories for each book to the web, with a URL provided in the book. That solved the problem, and now is creating an opportunity.

The directories were created book-by-book, and offered in book-defined silos on the web. They can now be easily reorganized into one big database of crafts resources. When it is reorganized and launched, it will be both a branding tool and an independent revenue center on the web. It takes the requirement of perpetual publishing — because you can’t do resource directories without updating them continuously — and turns it into a revenue center.

So we can project a bit, understanding the changes that have already taken place over the past couple of decades in how people get information and how communities cluster together on the web, and see the outline of our future niche information world.

Niche communities will exist — if they don’t already — for every imaginable subject. Over time, aggregators will pull together diverse web efforts, blogs, and commentary. Members of the community will review the information, tag it, rate it, append to it.

Over time, preferred channels will develop for each niche and become established. Whoever controls those channels, which are web sites, will, in effect, “own” the audiences to which they lead.

The audiences themselves are “players”. They create content, their rating and appending and tagging are, in effect, huge components of both the editorial and marketing functions in the 21st century.

Because information searches, content creation, and, ultimately, the community conversation move to these web niches, so does the power of “brand.” These web communities will be influenced locally, not globally, in an informational, not geographical, sense. Whether the discussion is about knitting stitches or surfing or literary translations, the community that forms around the information and discussion leadership will be the first stop for any marketer promoting an idea or a product to this niche. And that community will know whom it trusts, and it will confer credibility based at least partly on familiarity. The brand identity will have to be established niche by niche.

Of course, the niches ultimately interact. The niche for “military uniforms” will exist within the niches for each country’s military or within the niches for particular wars. Marketers of the future will need to understand the taxonomies of their interests as they evolve, which they will constantly do.

So these niches are organizing, tagging, and rating various nuggets of information in any conceivable media form and, to the extent that rights issues don’t interfere, making all those nuggets available to be read, viewed, or listened to, always with the ability to add one’s own comment or rating, and all of it deliverable to a device no larger than today’s iPod that can be carried in a pocket.

Quite aside from how the systems of information distribution will reconfigure, and how people learn about what they want to read will change, there are the questions about reading on paper and reading long narratives in any form. Everybody in this room grew up in a world where we had no choice about paper and with very clear expectations about long forms. Today’s youth are already in a completely changed information environment. Texting and instant-messaging and emailing and blog posting all exist without paper and place a premium on brevity. What impact will this have on reading habits?

Well, truthfully, nobody knows. Nobody can know. Can a generation that grew up reading more on screens than anywhere else develop the affection we have — the addiction we have — to reading on paper?

Whether we are reading on paper or screens, will the text-message generation have the patience and interest to read 50,000 or 100,000 or more words on a single subject or constituting a single narrative? Perhaps not, if attention spans are truncated. But perhaps with greater enthusiasm than ever, to get a dose of sustained thinking in an increasingly attention-deficited world.

We know that the music-listeners are moving away from albums to songs. But that doesn’t necessarily prove anything, since the unit of appreciation was always the song. Album length was just a unit of transfer, which is different. Only if almost all books were collections of short stories would the comparison be valid.

We can expect that technology will drive us to different business and distribution models in the future, though. Wouldn’t it make more sense for publishers to license you the file for a book for one price, but charge you something more if you want it printed on paper and bound? After all, the physical book comes at an additional cost, so why shouldn’t it bear an additional price?

The NY Public Library last month became home to an Expresso Machine, a new technology that delivers a printed and bound paperback book from a file. This is the next new entrant in our changing supply chain: a distributed print-on-demand technology that can sit in any library, bookstore, or copy shop. How far away can we be from an equivalent technology that could be put in offices and homes? What are the implications to today’s commercial models for publishing, or to the competitive advantages of today’s publishers, when this capability becomes widespread, as it must almost surely in the next 15 or 20 years?

Let’s take a few moments to discuss ebooks. Since the explosion of digital downloading that has transpired since the iPod came on the scene, many people who expected ebooks to become popular have been looking for what can trigger the “iPod moment” for ebooks. Although increased digital downloading of music and video does have the potential to have impact on the ebook market, the parallels are very imprecise. We shouldn’t be expecting the music experience to tell us what the book experience will be. The differences in user experience and the unit of appreciation make the music and video experiences so different that they don’t tell us much about books.

I have an admittedly biased view about ebooks, because I have been reading them on my PDA since 2000. In the past seven years, I’d say my personal consumption has been about three or four ebooks to every paper book. I don’t find the small screen the least bit of a problem for immersive reading. The ratio of consumption partly reflects the ratio of opportunity; I have my PDA with me almost all the time. But it also reflects a preference for the small-screen form.

When I first started thinking about and writing about ebook takeup around the turn of the century, I thought it would take the form of many other technology adoptions, beginning at work and migrating to home. I figured that ebooks would be used in many professional situations where they would constitute a big functional improvement. Think about something like aircraft repair manuals where updating and version control are at a premium. Many tech introductions occurred this way: personal computers, spreadsheet programs, word processing, fax machines, even email and the internet. All of these were tech that people had to learn to do their jobs but which easily ported over to personal use once the learning curve was conquered. But that didn’t happen; whatever use of ebooks has occurred in professional spaces — and reading on PDAs has apparently only caught on with doctors in emergency rooms among potential professional users — it has not had much impact on people’s personal reading habits.

Because ebooks seem so obvious, there has been a great deal of speculation as to what holds them back. The most commonly cited constraints are consumer-unfriendly DRM (digital rights management), inadequate devices for reading, unimaginative non-interactive products, and pricing, as in not low enough in relation to the physical book price.

I find all of these unconvincing and, certainly, none of them deterred me.

But what has deterred me is the fragmentation of the product offerings: not enough books are offered as ebooks, and the number of new titles on offer has actually diminished over the past few years. Until Powells.com started offering ebooks recently, the major internet booksellers seemed actively discouraging about ebook sales. Amazon has ghettoized them; you can see the used books available for any title you look for, right alongside the new copy you thought you’d buy. You can even pre-order a paperback that isn’t coming out for many months. But their ebook offer is buried and uncharacteristically chaotic. Barnes & Noble doesn’t sell ebooks at all.

The ebook only site that I have frequented because, until recently, it was the only place to buy in the Palm format, is ereader.com. This site is one of the user-unfriendly sites on the web: slow, clunky, and virtually unsearchable.

The other problem with ebook takeup is format. Microsoft tried hard for a little while, but their dot lit format just didn’t make it. Right now we have Adobe, Palm, and Amazon-owned Mobipocket, as well as Sony Reader’s proprietary format. The digital rights management element is a nuisance, but the wide variety of formats and the fact that not all of them are sold wherever you might find ebooks for sale — Sony, of course, is only available from them — is another large barrier to adoption.

One presumes that Amazon will get better at this when they start selling their long-awaited new reader, Kindle, and when they have a large number of titles available in their owned Mobipocket format. Mobi has the advantage of being readable by both Palm and dot lit readers. Kindle is just one of a number of new developments that will propel ebooks forward. The new iPhone, which has a very large device-sized screen is another new entrant expected shortly. There is a new iRex reader which uses the e-ink technology in the Sony Reader. And a new operation called NetGalley, which aims to cut review copy costs and increase review copy distribution by employing digital technology, could also add participants in the ebook marketplace.

Some stats I got recently from the International Digital Publishing Forum, the US-based trade association for ebooks, suggests that, after a sluggish period earlier in the decade, growth in the market is now 50-75% a year and is expected to continue at that pace. So the market is expanding, and it would be foolish for any publisher of narrative writing to ignore it, because it promises far more incremental income than incremental cost. There are a few things to think about as you get into this business.

First of all, it might be that expensive and restrictive DRM — “protecting” the ebook from being circulated by a user to somebody else — might not be necessary. Another approach is called “social DRM”. You simply get the purchaser to agree before purchase that what they’re getting is a “license” that allows them to use it — restricted however the seller wants to do that. Then you “watermark” the purchaser’s name and email address throughout the product. Now, watermarks can be removed by hackers, but so can DRM. This kind of restriction will really slow down the distribution by just plain folks; maybe that would be enough and it would certainly solve the problem of my needing to move something from one computer of mine to another, or letting my wife read it.

If ebooks do start to really happen, they open up a big opportunity for “living” books, books that don’t stop developing after they are first printed. Customization, updating, and localizing would become very simple and non-disruptive to the production process. It would seem that would create opportunities for Australian publishers to add local value to many books that come from abroad much more readily than you could in print.

Ebooks are a nightmare for controlling territorial rights. Although one could imagine ways to do it — say, by restricting what domains could order a digital download based on the publisher’s territorial rights — nobody has seemed to want to try. So the growth in the ebook marketplace just punches another hole in the increasingly porous wall protecting territorial rights.

It is worth taking note of the fact that Amazon is building a nice little publishing platform with proprietary capabilities. Once they roll out their Kindle reader — which, by the way, they officially deny they are developing — and, presumably, start to make a much more aggressive play to get titles loaded into Mobipocket format, they will be able to team this up with their unparalleled market reach and their BookSurge print-on-demand capability to offer a complete service for somebody that wants to take a manuscript to market. This puts them into a directly competitive position to Ingram, which has Lightning for print-on-demand and for ebook distribution. Amazon takes you direct to millions of end users and Ingram takes you to every intermediary in the world. Ingram has always been very cautious about “channel conflict”, taking care not to be seen as competitive to either publishers or retailers. Amazon is clearly already in direct competition with retailers the world over. There have been indications over the past few years that they’re going to be no less concerned about competing with publishers for relationships with authors.

The linking of ebooks and POD has been very spotty. I think we’ll see the two much more closely tied in the future, in ways I’ll suggest in a couple of minutes.

All of this says that circumstances march us to three significant changes over the coming two decades.

The old marketing techniques for publishers, which were based on book-centric marketing mostly through what we can call “horizontal” media most interested in the book as a form, rather than in the subject the book is about, aren’t going to work anymore. Most of the horizontal media will no longer be there and will have been replaced by vertical niche media, centered in communities which are mostly found through the web.

Second, the companies providing most of the product to the Australian book trade, by which I mean the big global general trade publishers, will be forced to change their business model. So will the local publishers which are not already niche-centric.

Third, we are moving from an era where information purveyors have been defined by form: publishers of books weren’t publishers of magazines and TV producers were not print product producers, to one where information purveyors will be defined by the niche they serve, and the owners of information and audience will move their content to their markets in whatever form makes the most sense.

This is not going to happen overnight. It is actually already beginning. Professional publishing shows the way. In every market niche, the number of players controlling the lion’s share of the audience is shrinking. The Internet demands aggregation of content and interaction prefers larger numbers of potential participants for better network effects. And once the interaction with the customer base is online, delivery of audio and video becomes as easy as delivery of words or data. The journal “Nature” now has an audio recording studio on the premises; they wouldn’t have needed one prior to the coming of the digital download world we live in today.

We are seeing this in the consumer publishing world as well. Digital downloads have really fueled growth of the already robust consumer audiobook business. In fact, audio has become a sort-of placeholder for ebooks, particularly in public libraries in the US. Libraries set up mechanisms to distribute ebooks, but their patrons didn’t bite. The infrastructure might have atrophied or been abandoned, but the iPod and the explosion in podcasting created a market very happy to download audiobooks from libraries and what was set up for ebooks works just fine.

At the same time, the publishers are encouraging their authors to make podcasts and are themselves making more and more video “trailers” to promote books. As publishers get more and more comfortable with rich media — sound and video — it will start making its way into electronic products as well. It’s inevitable.

So the requirement I envision that the publisher of the future not be limited to one media form — books — won’t be a problem by the time it really is a requirement. And today’s book publishers have some significant advantages as they compete for their places of prominence in the niched world that is evolving.

When book publishers start to compete for community presence, they come to the contest with certain advantages over all the other players, including those who are publishers of newspapers, magazines, journals, or web sites.

The book publishers’ royalty relationship with authors is a key strength. It means that authors will collaborate by blogging or posting articles without necessarily demanding compensation, because they are already partners with the publisher in an effort to sell books. In fact, what we have dubbed a “new marketing partnership” is a key aspect of the internet and the book publishing world; the new technology makes author-based promotion much more productive and enables it to be much more enduring than it ever was before. We did a consulting job in 2006 about marketing in the new digital world and as part of it arranged for a survey of agents about their expectations for authors regarding online marketing. A preponderence of agents felt that author websites were essential, that they didn’t need to cost very much, and that authors should be spending 2-to-10 hours a week promoting themselves online. A publisher who does the math on how much free publicity can be generated if the house’s authors actually do work an average of, say, five hours a week promoting would see that the effect could be the same as substantially adding to staff. It is harnessing those efforts and making them productive which is one of the new challenges for publishers that they need to tackle right away.

Another advantage book publishers have over non-publishers is an ability to distribute URLs, or web addresses. We have reached the point that every book should be carrying at least one. But it is a bit of a waste to use that opportunity to drive traffic to a publisher’s own branded site, which should in most cases be a B2B site for the trade, not one aimed at consumers. This is where the need for a niche strategy becomes more apparent. Where on the Net do you send the customers for a book? An author web site is fine, if it is dynamic and changing and involving. But many aren’t. A publisher who does not have a good place to send a reader is actually wasting an asset.

Assuming a publisher already has some kind of niche publishing strategy, there is content from the backlist that could help build an attractive niche web site. The things which are hardest to publish these days: “nuggets” of standalone information, constitute the best content for this purpose. This is something almost everybody else does not have, even magazines and newspapers, whose old content is likely to be more dated than book content — since book content had to live with a year-long creation cycle to begin with and then was often expected to survive in the marketplace for years. In the case of magazines, sometimes they don’t even have the online rights to material they published in print.

And publishers have one other natural advantage: something to sell. If the objective is to build an enduring community, selling books should not be front and center of a web site, but something conveyed with more subtlety and nuance. But if you have a site on “buying a home” and one of your little features is a calculator for “how much mortgage can you afford” that comes from a book, of course you should attribute the calculator to its source and offer a “buy the book” link when you deliver it.

A very important rule here is that you must build your community first, and then monetize it. If everything you do looks like a commercial and if your attempt at community is just a catalog of books you offer, you will neither create a community nor sell very many books.

The things we’re saying here apply quite differently to different publishers in this room. Obviously, an Australian publisher using Australian authors to publish Australian-based information is going to be positioned best to apply these insights. A publisher here whose books mostly originate abroad, particularly if it is fiction or belles-lettres from abroad, is going to find it difficult to leverage the authors or even to come up with a unifying principle that will form a community on the web. But if you believe the world is headed in this direction, it does suggest some new tactics no matter where on the spectrum you fit.

Even if you’re buying a novel from a New York publisher written by an Omaha-based writer, you should find out about the author’s web presence and whether you can get the author to give some marketing time to interact with an Australian audience. If you’re publishing a local book on a subject of worldwide interest — surfing or wine or coral reefs — there is an international web community you need to tap into. Many of your readers here already have.

And an idea that should not be lost is that all the new technology really can help you export much more than you ever have. You can get your local books seen by an international core audience through the web. For the right books, you can even generate fast and sure delivery in the United States and Europe without a complex distribution relationship by using POD installations associated with Ingram and Amazon. Even the Australian ex-pat community constitutes a market that is now in reach and that should not be ignored.

I want to turn now to a completely different kind of opportunity made possible by digital change and one which my admittedly inadequate knowledge suggests is not being exploited here. It will take cooperation from retailers and publishers to make it work, but it would be to everybody’s benefit if you could.

While BookScan is here, I know, the supply chain data you get through BookScan really only scratches the surface of an enormous opportunity to improve efficiency. Major accounts in the US, UK, and Canada augment what is available through a national point-of-sale aggregator with much richer and deeper data delivered by each account to each publisher only for that publisher’s books. What data is offered varies by account; as does its quality, frankly. But a weekly feed from any account holding significant inventory telling the publisher what’s on hand, what’s on order, and what sold in the prior week enables a publisher to build a database that has two big payoffs. It helps spot over- and under-distributed books, in relation to sales, so that opportunities otherwise missed can be exploited. And it allows a view of what is in the supply chain to inform every reprint or reorder decision.

Because you currently appear not to have this kind of data, I will save elaborating on exactly how to use it for my next trip, when I hope you will. But publishers should start now lobbying the major accounts to make this kind of data available. It is in their interests as well as the publishers’, as retailers such as Barnes & Noble, Indigo in Canada, and Waterstone’s could tell them. Delivering this kind of information allows a publisher’s rep to be an additional set of eyes for opportunity and also helps assure that the publisher can order reprints with confidence that they won’t be meeting returns at the warehouse door.

The June 2007 issue of Bookseller + Publisher had an article by Scribe publisher Henry Rosenbloom about how futile it was to make reprint decisions from BookScan data, which lacked the inventory component as well as any clear picture of what sales might have been missed in the reporting. Having a picture of the titles across the industry is perhaps helpful in making publishing decisions that require knowledge of books published by others. But for controlling your own inventory and making informed printing decisions, the kind of data you can and should get from your major accounts about only your own books would be much more helpful.

We will touch on it a bit more in a minute, but short-run printing and print-on-demand also should be an integral part of every publisher’s print-and-inventory strategy.

It’s a bit further away, you also want to start informing yourself about RFID, “radio frequency identification” chips. This technology — which has come into widespread use as a way to collect highway tolls from cars moving through a collection point where trying to “read” a bar code would be just about impossible — is getting cheap enough to individually identify every copy of every book. A bookseller in Holland has become the pioneer, starting about a year ago to put their own RFID chip in every book they stock. Soon, the chips will be printed into the books or their jackets.

RFID allows a bookstore to take inventory by putting a reader near a shelf, not needing to “see” each book. It allows a bookstore or library to “check out” a customer with all the books inside a bag. It stymies theft. And it even allows a retailer to see which of multiple locations in a store displaying a book is the one from which the copy being bought right now came.

Although RFID is a bit futuristic, supply chain data and digital printing technology are not. And they are already enabling publishers in the US, Canada, and Britain to come much closer to matching the creation of inventory to its need, freeing up capital and improving cash flow. Up to this point in our conversation, we’ve been exploring changes publishers must make that will require cash investment. Increasing supply chain efficiency is where some of that cash can come from.

The University of Chicago has been distributing the books of other university presses for some time. About five years ago, they got Edwards Brothers, an American printer, to put a print-on-demand installation right into their warehouse and started to get all of their books and those of their distributed publishers into a POD program. Their arrangement isn’t actually “pure” POD, because they print each book in multiples of 2, not 1. That wouldn’t work if you didn’t already have a place to store the second copy when you’re printing two because you need one; with POD right in the warehouse it presents no problem at all.

This capability has enabled the evolution of a new publishing model, which I would encourage Australian publishers, particularly those serving small audiences, to study very closely. The standard routine now for the university presses working from this distribution capability is that there is one real press run, the first printing. After that, everything is printed to meet confirmed demand. There are exceptions, of course; occasionally even a University press book shows “legs” in the consumer marketplace and a second or later press run is warranted. But that’s rare.

Since university presses exist primarily to support scholarship, and place a high premium on making intellectual content available in book form, another model is bound to emerge as well. If you don’t even need to do the first press run, the cost of putting a book into the marketplace drops to a fraction of what we got used to in the 20th century. The number of titles that can be published this way on the savings from eliminating even one print run can be substantial. We would expect to see an ebook-and-POD combination ultimately become the norm for university press publishing with the press run becoming the exception, rather than a requirement. Remember that all these titles are as available to the consumer as they would have been if they’d printed 2,000, or 5,000, or even 50,000. Waste is eliminated. Cash isn’t tied up. In fact, once the book is rendered as a printable PDF, publishing each title becomes very close to a cash-neutral exercise.

In fact, if you are serving small audiences, a strategy like this becomes essential. You will not be able to compete effectively any other way. A commitment to small audiences means you have to do more than books. You will need the full arsenal of 21st century communication tools: blogs, ways for your audience to tag and comment, ways for them to interact with each other and, in fact, to substitute their filtering and recommendations for your own.

The smaller the audience, the more the marketing leverage provided by a web community is essential; there is simply no other way to reach the people you want to sell to that is remotely cost-effective.

And, as we suggested earlier, adopting this strategy extends your audience beyond geographical boundaries. Publishers serving niches and who restrict themselves to the customer base which is geographically convenient will also find it difficult to compete against publishers who are reaching out to the world. If you were an author, based anywhere, you’d see the difference pretty clearly and it would matter to you a lot.

I want to cover one more development from the worldwide stage before we close. A new infrastructure is developing for the distribution of digital assets which parallels what we’ve seen in the physical world. My company has been doing a lot of work in this space and, in fact, has coined some nomenclature for it which I think will become widespread. So I want to introduce you to the world of DADs, DAPs, and DARs.

DADs are “digital asset distributors”. What DADs do is work for publishers, taking their content into a repository in whatever form it can be delivered, which can be books to be scanned, printer PDFs, or something in between. The DAD converts, or arranges for conversion, of the content into any form necessary to deliver ebooks in any format or materials for print or web pages. We count about 10 companies in the world competing to be the industry’s DADs; although their numbers may grow in the short run, we think they will probably consolidate in the long run. The companies competing in this space now include publishers — Random House, HarperCollins and Holtzbrinck — as well as digital conversion houses like codeMantra and Value Chain International, a new venture called Ingram Digital Services, and a few others.

DARs are “digital asset recipients”. This category includes search engines like Google, online retailers like Amazon, web sites, ebook vendors, and, of course, printers, who work from digital files. Many DARs are in the distribution business; certainly Amazon is, Google might be thought of that way, ebook vendors are. What defines a DAD, though, is that they are in service to publishers; DARs may distribute, but they do it in service to their own business model and customer base.

DAPs are “digital asset producers”. These are the publishers who choose not to build their own digital infrastructure.

The cost and continuous tech challenge of handling digital asset distribution will, we believe, continue to drive consolidation of this function. It just doesn’t make sense for 1000 publishers around the world to figure out how to solve the conversion problem to put files into the form required by a new ebook reader or to imitate the book widget: a little app that permits book content to easily be displayed on anybody’s web site for promotion purposes. In fact, the widget is the first battleground of the DADs. Random House and HarperCollins announced their own versions of them within a week of each other a few months ago. Now all the DADs are planning a similar offer because publishers have gotten excited about the widgets’ utility as a marketing device. Kids are beginning to decorate their MySpace pages with them; they’re quickly becoming an important viral marketing tool.

The rise of the DADs is a significant development. They are not expensive to use and putting a book file into their hands suddenly multiplies the ways a publisher can promote it or draw revenue from it. We’ve been saying that 2007 is the year every publisher needs to find a DAD; it certainly is the year every publisher needs to start looking for one.

I want to conclude with a manageable checklist of next steps. But any “to do” list for a roomful of people is hard. Each publisher is in a different place today in terms of workflows and opportunities. And some things really have to be done by the industry; they can’t be left to an individual publisher.

At the risk that I am leaving something important out, which, if I have, I hope we’ll discover in conversations later today and this week, here’s what I suggest you put top of mind.

First of all, as an industry, try to create useful data flows in your supply chain. Any retailer capturing POS information at the cash register can, without extravagant effort, give publishers weekly reporting of inventory, orders, and sales. Publishers are, in my opinion, really entitled to visibility of any inventory that could come back to them. The positive financial impact of organizing these data streams will be signficant for all publishers and all retailers. It needs to be a priority. One good early step might be to contact your counterparts at BookNet Canada, which has organized this kind of reporting in the past two years for a market very much the same size as yours.

Second, you need a robust in-country POD capability and perhaps an Australasian DAD. The DAD function might work fine with the offshore choices; after all, one great virtue of digital is that it removes the need for geographic proximity. But a robust POD capability is essential precisely because of your geographical isolation. This is something else that is beyond the reach of any single publisher or retailer to provide. You need to go after it as an industry.

Turning to publishers, you must develop digital workflows, so that your content is properly archived, tagged, and accessible to you. A DAD can be a band-aid for this problem, taking a book and turning it back into digital files. But the book won’t tell you what rights you have to the picture on page 37, and, unless you are archiving that kind of information, you really constrain your ability to use the intellectual property for marketing, or to sell it.

Publishers also need to start thinking about how they make the leap to the niche world. That starts by mapping your content to web niches. That is a continuous process, because new web sites of interest in any niche spring up all the time. But there is a big initial task understanding what niches your backlist can vault you into.

And last, for now, is that each publisher needs to understand the world of digital asset distribution. One way to start is to go to www.klopotek.com and get ahold of the White Paper we’ve created on the subject in the project I referred to earlier. Contact the DADs and get them to pitch their services to you. Getting your intellectual property into their databases can produce positive results for you very quickly.

The world we know and the industry we’ve grown up in are undergoing dramatic change. I hope these remarks have given you some useable suggestions for navigating it. I’ll be happy to field questions to the extent that time today allows; please feel free to email me with anything we don’t have time for today or which occurs to you later. As I hope is clear, most of what we need to know about the future isn’t really figured out yet; the questions provoked by each discussion light the way to the answers we all seek.

Thanks very much for your attention.

Good morning. And welcome to a cheerful start to this year’s annual celebration of the trade book business. This speech is called “The End of General Trade Publishing Houses: Death or Rebirth in a Niche-by-Niche World.”

I want to start with a jump to the bottom line, just to make clear what we are saying today and just as much to emphasize what we are not saying.

What I hope to make clear is that the world of information and entertainment which constitute the ecosystem in which trade books live is changing in already defined ways. Even though we can only see a hundred feet in front of us an the journey is bound to be many miles, we know that many of the business forms and commercial models that succeeded in the 20th century will not make it far into the 21st. No big news there; we’ve watched media models come and go so often that we’re actually getting used to it.

We can see that format-specific as opposed to audience-specific is not the right strategy for media going forward. And that leads us to conclude that the general trade publishing model — by which we mean publishing across subjects on very much a title-by-title basis and with the organizing principle being that books are produced for general audiences — will, mostly, not survive the changes of the next 15 or 20 years.

We are not saying that general trade bookstores will disappear, although we think there will be fewer of them and the consolidation in that sector will continue.

We are not saying that everybody will read on screens and paper books will disappear, although we already know that certain kinds of information formerly best housed in books is now better delivered through electronic media.

We are not saying that novels will be replaced by multi-media interactive adventures, although we think those will continue to grow and thrive. They are more likely to cut into movies and games than they are into books.

And we are definitely not saying that long form reading is doomed over the next two decades, although we don’t think anybody really knows how much it will be reduced by changes in attention spans and information absorption habits of the generations that are kids today and those that will follow them. We don’t see any indications that long form reading will increase, but, given the unpredictable ways that change works on the human psyche, we wouldn’t rule it out.

But we are definitely saying that every general trade publisher of 2007 must have a plan to change over the next decade or two if they want to survive. And we will make some concrete suggestions about what that change must entail.

We all see what’s happening in today’s increasingly online an gadgetized world. People are spending more and more of their time interacting with the internet through more and more different means: desktops, laptops, cell phones, and PDAs. Internet 2.0 tools are making it easier and easier for each of us to contribute our experience and insight into collective knowledge. Things are easier to find, to tag, to collect in logical piles, to link. Nothing ever is truly lost —  the relevant commentary for any subject is increasingly easy to both aggregate and to filter, and members of the community are increasingly able to stay in touch with each other.

The lines between author and editor and aggregator and audience are blurring, with people shifting roles as they like, or as is convenient or useful in any particular conversation. All sorts of formerly free-standing intellectual creations are now being wikied, sliced and diced, and mashed up with IP that came from somewhere else. It’s sometimes hard to tell who owns what or how people are getting paid. Rules about copyright and fair use that were formerly almost exclusively the province of professionals are now being flouted through ignorance or disdain by the masses.

It seems intuitively that the explosion of reading on screens — which has happened — will ultimately result in ebook reading on screens, but exactly how is not evident yet. Ebook take up has been minimal. Relatively scarce product offerings — counterintuitively, even production of new titles in the trade area has slowed in recent years — combined with a consumer-unfriendly combination of formats, proprietary offerings cut off from normal book retailing channels, klunky merchandising, and anti-viral DRM have prevented book reading from being among the first things besides email to be read on devices.

In fact, books will be among the last. That’s not something for us to be proud of as an industry.

We are being propelled into a future of accelerating digital change. The single most eye-opening thing I learned at Google’s Unbound conference in January was that the equivalent of Moore’s Law related to digital storage capacity translates into an iPod in 2020 that would hold every movie, every TV show, every sound recording, and every book ever created in the history of man. That’s what somebody could carry around in their pocket, without being connected to the Internet. Add to that what’s going to happen with wireless connectivity, and we can see that the paper books of today will have absolutely unimaginable competition for what you could hold in your hand and read. Or look at.

While the engineers will be building storage capacity and bandwidth faster than we can create intellectual property, our audiences are going to be organizing what we do create, and organizing themselves to discuss it, add to it, and mash it up in various ways. That’s the other thing that we can already see that is a critical change dynamic challenging general trade publishing: people moving from the horizontal media we’ve always known to niche communities of the interested.

Every obsession, no matter what it is, will be ultimately indulged. All of the books and movies and songs and more– many articles from periodicals and journals and people’s private notes and amateur and professional commentary on all of the above — will have been sorted through, or will be being sorted through by the community. It will be gathered, rated, graded and hyperlinked. And it will all exist in such a way so that your own observations and insights can become part of the wealth of knowledge anytime you want them to be.

And, of course, it will all be delivererable in book form if you want it that way. The announcement last week that Dorling Kindersley will now enable customized travel information to be delivered in book form is both an echo of premature startups from a few years ago and a harbinger of what’s to come.

All of this has profound implications for brands.  Credibility is a critical component of brand. In a niched world, credibility, and therefore brand, will move to an increasingly granular level.

There are people trusted in the left- and rightwing blogosphere that aren’t at all known in the mainstream media. That’s true for every subject. We’re close to a tipping point, or maybe we’re past it — nichiest subjects first — where web-based branding will have more credibility than print, because print, needing more horizontal reach to be viable, won’t deliver the attention of the real experts and megaphones in each field.

As brands become established, of course, they try to transact more business with those who embrace the brand. The political bloggers will charge for speaking engagements or organize seminars. They’re already selling some books. They’re going to sell a lot more.

What creates lock-in for a brand in a niche is a real community and, on the web, user-generated value adds — like Publishers Lunch’s deal database, a truly classic example — and, also look at PublishersMarketplace here — the completeness of the offering within a niche. If you establish a brand and bring in the community, can you satisfy the breadth of the community’s needs, or do you have to share the niche? Will there ultimately be one central Civil War site or three or six? One central site to find recipes or will that market niche by nationality, difficulty, or other audience division?

These questions will be answered, thank you Charles Darwin, by a version of natural selection. Twenty years from now we’ll be talking about why gardening branding ended up being organized around the flower but farming branding ended up being organized by the size of the farm. These taxonomies will evolve, they will not be determined by fiat, although they will be amenable to better or worse strategies and executions thereof by the competitors in the years to come.

The take-away point, for the purposes of the point of today’s presentation, is that this is the way that most of us will be getting our information and finding our cohorts for the things we’re most interested in. This is how most of the information about most of our reading choices will come.

It has only been about 12 years since the emergence of the Web enabled a number of enterprises that have changed media businesses and even the forms of media themselves. Since the era of network TV dominance, there is really a 35-year history of change, going back to the beginning of cable TV. Think about the changes we have seen.

The record album, a form that came in with the Long-Playing Record, has just about been undone by iPods, a form of consuming music that breaks away from centralized formatting.

The TV networks, which 40 years ago shared about 95% of a US viewing audience among three networks undistracted by other home video capabilities, now shares a bit more than a third of it among four or five networks, and many of the viewers have technology to make skipping the commercials really easy.

The shrinking of the newspaper business has reached the point where the only questions about change are ‘how much?’ and ‘how fast?’  The flight is to the web, to crowd-sourcing, to intensely local, to anywhere but where the papers have been for the past 125 years.

The movie distribution business is in constant transformation. Blockbuster was replaced by NetFlicks, and both of them replaced network TV revenues, all while theatrical play becomes a harder and harder business. When we get to digital downloads as the primary revenue source, it will sharply diminish the advantage of the major studios in distribution; then it will just be about who has the money to make the movie.

We have seen in the past five years that a disruptive technology can turn an industry upside down overnight. IPods, YouTube, TIVO, and CraigsList — for what it has done to newspaper classifieds — have demonstrated that in the current decade.

I don’t really know much about the advertising business but I was struck by an article in Advertising Age in March of this year by Bob Garfield called ‘Chaos 2.0′. Garfield posits an imminent flight from horizontal advertising — think network TV — to vertical — think web sites, even though there isn’t really enough inventory — that is, available page views — to absorb all the dollars now being spent on TV.

One tale in the article is particularly intriguing. OgilvyInteractive North America got an assignment from its client, Six Flags amusement park, to give away 45,000 tickets for opening day to drive traffic. They could do whatever they wanted: ads, microsites, whatever they could dream up. But they just posted the opportunity on Craigslist and five hours later, 45,000 tickets were spoken for. All very easy, but, as the executive creative director remarked afterwards, “Now, the trick is, how do you get paid??”

Chaos 2.0 also posits a new breed of aggregator, not of content but of vertical channels, demonstrated by such sites as magnify.net and ning.com. These are MySpace, Facebook type community organizing sites with tools making things easy for people to participate, but the emphasis from the outset is on niche. MySpace and Facebook and Second Life promote a more horizontal appeal, and the niching comes later.

So, summing up where the world is going — forgetting for a moment about the book business, here is a short summary of the future:

* There will be vast amounts of content available to everybody.

* It will be highly organized — tagged and rated — by communities that will form around it.

* The communities will self-create and mix and merge and re-form as people participate.

* And the mass media that has been competing with them that has been advertising supported and mass-audience supported will become progressively less competitive, as its economic base erodes.

And, while we feel intuitively that there is still a place for books in all of this — printed or screen-delivered — we know that place is changing, and very likely getting smaller.

Now, let’s consider book publishers and deconstruct what they do.

Their first role has always been to be a sentient member of a community, although many didn’t necessarily see it that way in trade as obviously as in college or school or academic or professional publishing. But just as the editor of math books for a college list would have to go to conventions of math professors and probably read their journals, a trade editor who acquires and publishes mysteries would attend meetings of mystery writers or even mystery fans; a trade editor who acquired a lot of literary fiction would get to know the important reviewers. You can’t publish to a community you know nothing about, and that was true before there was an internet. The tradier the editor, the more informal this community membership function has been, but it has always been there.

Editors mix with their communities both to know what to publish and to know who might write it, or where the pictures might be obtained.

Then, of course, a publisher has to manage the processes of creation and delivery, which has always been the tricky part, requiring knowledge, capital, and organization. The objective is to reach the potential audience with an author’s work which implies a symbiotic relationship with authors which the wisest publishers see as part of a covenant to be of service to authors. Author care was an unspoken priority for the gentlemen trade publishers of the early 20th century; it has crept back up in consciousness among the big corporate trade publishers recently. As examples, look at HarperCollins’s and then Random House’s creation of speaker bureaus for their authors, which have occurred in the past few years.

This description of a publisher’s functions applies to all publishing, but what characteristics distinguish general trade publishing?

First of all, the right product is much more a question of format and audience size than specific topic. It has to be a book. It usually needs to be a book that can sell for no more than a certain price: that is, not too thick, and not too demanding of color, paper, or size.

Trade publishers are also distinguished by the fact that they find authors through agents. The math editor in a college house finds his own professors to write textbooks. Trade editors don’t usually work that way. They develop a network of agents who understand to one degree or another what that editor will publish and count on the agents to deliver the right authors.

Although trade publishers have, through necessity, worked to discover special sales channels with increasing energy in the past couple of decades, most sales trade publishers make are to trade channels: bookstores and libraries. What distinguishes these customers is that they are horizontal: they buy books, not books on particular subjects. And the best bookstores and the best libraries might well buy every single title on the best publishers lists. It is now the case that the true vertical thinking necessary for the future exists only in the special sales department at general trade houses.

Marketing for trade publishers has also historically been a stardardized, horizontal exercise. When I came into the business in the late 1960s, every newspaper had a book editor and did some reviews of their own. Every city in the country had local news in the morning and at noon and local talk shows on their radio stations, all of which were ready outlets for book authors on tour. It didn’t matter what the book was about; what mattered was that the publisher expended the resources to send the author out and had the wit to solicit the local media when they did. In fact, in those largely pre-chain days of many independent stores, the most common shortcoming of author tours was not having the books in place for the publicity, not the getting of the publicity.

When we stack up what publishers do against the trade world, we see that the community is really one of trading partners who are intermediaries, not individuals. In fact, this has always been the great strength of trade publishing: all of the relationships provide leverage.

The knowledge of the readers in a community is very general and vicarious, not built on direct contact. There are usually so many readers a publisher couldn’t possibly know them all.

The search for new writers takes place through the intermediary literary agents, also not based on direct contact. And the knowledge of photo or art sources is just as likely to be through an aggregator.

The functions of creation and delivery certainly are required, although the capital and expertise requirements for both are changing and, for many books, are neither as difficult nor as expensive as they used to be.

And reaching the audiences, for general trade publishers, is still about using intermediaries to reach big markets of people who are otherwise unconnected. Increasingly unconnected as mass audiences get harder and harder to aggregate.

How does brand play into this? Brand communicates something to an audience that knows it. It generates an expectation, a context, and a level of trust.

General trade brands, which are houses and imprints, have — with very rare exceptions — been meant to communicate to the publisher’s community: the trade. The horizontal intermediaries. Authors, of course, are brands with meaning beyond the intermediaries. And even the most one-book-at-a-time general trade publisher understands the leverage of series, or of continuing characters, all of which are ways to create and exploit brand.

But the web is changing the game in regards to brands. We have already seen that it favors one or two winners in any established niche: think of Amazon, Google, Craigs List, eBay. The same will be true as the next stage of the web moves brand power to vertical, to being more granular. And it is organizing audiences by subject; publisher house names and imprint brands are artifacts of another age as brands. Since brand management is a critical 21st century skill for all of us in the communication business, there are many implications to not getting this right going forward.

So now let’s map the publisher functions we talked about earlier to the world we expect to see in 2020.

In 2020, the communities exist online. Whatever you are interested in, you will be getting your messaging through niche communication. And you are going to know brands in your community that people who aren’t in it just won’t know. If you’re a writer, you’ll know who are the editors you trust, because you’ll have exchanged information with them on blogs or bulletin boards or video hookups or however it is we’re doing things in 2020.

Meanwhile, technology for getting books made has gotten xerox-copy simple — already evident today through such sites as lulu.com. So mini-publishing businesses will have grown up in every market niche, with books among the offerings. Now, what these mini-publishers won’t be able to do, without some sort of distributor-type help, is manage delivery outside their niche channels, if a publication wants to go beyond the community and its adjacent lateral reach.

The publishers in this niche will be members of the community. Marketing will be through them. In a digital world, much of the distribution will be through them. You either own the tollgate or you pay at it.

That doesn’t leave no room for today’s general trade publisher, but it doesn’t leave much.

Now the good news is that all book publishers — even general trade publishers — have great tools to get to an advantageous position in this future, if they start to use them. Which we’ll get to in a minute.

And the even better news is that the prescriptions we will discuss this morning are the right ones even if you don’t buy the idea that general trade publishing is a dead man walking.

There are some very big questions that influence the future for book publishers that only a soothsayer could know the answer to. But we’re bound to consider them.

One that seems to arouse more heat than it’s worth, since today’s publishers could adjust and perhaps benefit from this particular big change, is the one about physical books: will screens make them obsolete, particularly after the current adult generations are gone? We love author-futurist Cory Doctorow’s characterization that some people are pervy for paper. But, ‘will enough of us stay that way?’ is the question.

And then, even if many of us still want books, will we still want pre-printed ones that we can buy in brick-and-mortar stores as opposed to customized ones that we get printed on demand? Perhaps even at home?

And will there still be interest in what we call book-length narratives today? Or will our attention spans have become so compressed that the kids of today will have largely abandoned the novel and lengthy narrative non-fiction by two decades from now?

And will the turn away from mass markets, which in the future may be better thought of as gross-niche markets, be so pronounced that the phenomenon becomes rare? Or only so it is just less frequent?

Although we can agree that nobody really knows these answers, the questions are too important to be ignored. We’re obliged to speculate.

As for the survival of the book, I’ll take both sides. The book is a fabulous form and hard to beat for many presentations, but not all. We’ve already seen that the books that hold and deliver aggregates of short-form information — from dictionaries to cookbooks — have been seriously challenged by the web. If you’re already online it’s much easier to type ‘define X’ into a Google searchbox than it is to pull a dictionary off a shelf to look up a word. Or to look up most other isolated and well-defined searches for a pieces of knowledge.

But other books are not so easily substituted for by the internet. Some books are, effectively, large pieces of art. The bigger and better-rendered the art in a book, the less able the net and the devices we know today are to substitute for it.

And books are also used like objects in the way birthday cards are; they are tokens one person can give to another. Their tangibility is important in these circumstances (although, admittedly, a customized print-on-demand book, when they are widely available, might become better gift currency than a standard pre-printed one.)

We think the bookstore will still be here, partly because it will offer print-on-demand capabilities as well as pre-printed books, new and used. But it’s going to get much harder for stores when a print-and-bind capability is in many homes and offices, and by 10 or 20 years from now it almost surely will be.

Will today’s kids read books 20 or 30 years from now the way we do today?  For every parent that tells me their kids have no attention span for books or interest in them, another one tells me exactly the opposite. It is easy to imagine that having all those movies and TV shows available at a click of an iPod, not to mention reading habits fostered by blogs and posts, would undermine the habit of reading many tens of thousands of words in a single work. But it is also easy to imagine that the opportunity to immerse oneself in something large and long will become even more attractive to some people in an increasingly attention-deficited world. We all well know the wonderful feeling of reading a long book we wish would never end. That’s not an inherent desire for length speaking; it’s just good writing and a compelling story. They don’t go away.

In Chaos 2.0, Garfield explains that mass media do not exist in a vacuum. The mass media are supported by mass advertising, which supports the high quality mass content which pulls the mass audience for the mass advertising. Garfield sees the combination of audience fragmentation through niche offerings combined with ad-avoidance technology destroying that virtuous circle. If the commanders of mass audiences: the networks, the national newspapers, Oprah, no longer talk simultaneously to millions of people every day, will they coalesce around the same book or movie less frequently? How could they not?

One last thing before we get prescriptive for publishers. We have already mentioned that the Internet prefers few winners. Network effects — the more people involved in a community the more valuable the community is to its users — drive us to one dominant internet bookstore, one dominant auction site, one dominant search engine.

At the moment, network effects are fostering horizontal social networking as well: MySpace, Facebook, and Second Life being the most prominent among them. We see these sites as anomalies, as way-stations on the path to a mature internet. They are, in their way, like more sophisticated versions of AOL 10 or 15 years on. They make Internet 2.0 simple, just as AOL did for Internet 1.0. And they make interaction among strangers a little easier and the make it feel a little safer. But they are gathering people in a general trade kind of way, based only on the broadest definition of niche: teens for MySpace, college students for Facebook, and virtual world explorers for Second Life.

Within those communities, though, the niched future is definitely being seen. Once inside the doors of a horizontal community, individuals interest in sports or music or sex or anything else drives them to find like-minded others. We would contend that the real land-grab — the one that will matter more in the long run — is not in these social network sites writ large, but in the niche communities within them. It is only a matter of time before the communities for any niche in all three sites need to find each other. And they will.

You really won’t want to be a general trade publisher in the world we’re heading toward. Even if people are still reading long forms in book packages, it will no longer be possible to push book after book through a similar drill and achieve financial success. General trade publishers have to change.

They need to move from general to niche. Multiple niches, of course, but niche.

The need to stop thinking about publishing one book at a time and think about the aggregate value of their intellectual property to their niche audiences.

They need to move from expensed marketing, which is what we’ve always done, to investment marketing, which builds capabilities for repeated use.

They need to move beyond the identity of book publisher and make that part of what they do as a community leader.

And that is part of the biggest move of all — from product centric to audience centric businesses.

Publishers will not be alone trying to grab brand share — by which we mean fame, credibility, and trust — within subject niches. Everybody will be there: magazines, manufacturers, service providers, radio and TV stations, entrepreneurial bloggers. But today’s publishers have some significant advantages over today’s other competitors.

First of all, anybody trying to do something on the web needs content. Publishers have copious amounts of content and know how to find and get more.

Publishers also have a unique commercial relationship with their authors: a royalty relationship. If a magazine or newspaper wants to get some promotional writing done, they have to pay for it. If a book publisher wants to enlist an author to promote his or her book, they likely have an eager and cooperative collaborator.

And publishers push lots of print to interested market niches, so they can distribute promotional URLs to drive traffic to a web address or get sign-ups for an email newsletter.

Publishers have relevant products to sell their interested audiences. That means that their efforts to build a presence in niche communities is, in effect, uniquely subsidized compared to their competition.

These are hard, tangible advantages. Publishers also have a couple of softer advantages, based on the way they’re trained to think. Publishers instinctively understand the taxonomy of niches. They think about beginners and experts, geography-specific markets, and age- or wealth-driven distinctions in interest.

And successful trade publishers have always been spotters of trends, able to move fast on opportunities where they see public interest. Of course, the whole definition of moving fast is changed in a web world, but greater speed makes that skill set more valuable, not less.

The summary picture is that the ecosystem of general trade books — enabled by literary agents, general book review media, general trade bookstores, and widespread book distribution through public libraries — is disappearing. A world of niched internet communities is springing up. For today’s general trade publisher the question is: what’s the migration path? How can the business assets of today be turned into an organization that will succeed in the world of tomorrow?

The general trade publishing business developed an infrastructure suited to the societal ecosystem that existed. Society is changing; the way people learn about and consume information is changing. Publishers will need a new infrastructure in the new ecosystem and, unfortunately, a general trade publishing business can’t create a compatible one.

Moving from general to niche is, of course, the sine qua non of this entire exercise. I would hope everybody is aware of a recent reorganization announced by perhaps the most general trade of the religious publishers, Thomas Nelson, whereby they have ditched all their previous imprints in favor of organizing around BISAC codes.

CEO Mike Hyatt of Nelson, who instituted the change, blogged two weeks ago about the benefits he has seen already, and it has been mere weeks since the step was taken. Three of the four benefits he enumerates — a simplified business model, better internal collaboration, and more market visibility — really speak to the cost of maintaining the current imprint silos and the value of eliminating artificial internal divisions within the company. The fourth — greater consumer focus — will, I believe, become increasingly evident and increasingly valuable over time. I think Hyatt and his Nelson team have taken the first big step to becoming compatible with the way society and information are reorganizing. But, now, having broken apart the artificial divisions in their organization, they have to exploit the more natural divisions of niche. No doubt, that will come. At least, the elimination of the irrelevant silos makes it possible.

Nelson has demonstrated the first point general trade publishers need to take on board: the imprints are company infrastructure that are built around a dying ecosystem. Everybody’s are.

After a publisher has organized all their offerings by audience — and BISAC codes are as good a way as any to start — the next step is to map those audiences against existing internet activity. How many web sites and bloggers are suitable targets for each group of books you can identify? How does the inventory of web activity change your thinking about what constitutes a niche, or what books might belong in multiple niches? The guess here is that the real world of the net won’t line up perfectly with the conjured world of BISAC; a publisher wants to make their map of offerings conform to the net, not to a theory.

EVERY trade publisher who does this exercise will, we’re sure, find themselves spread too thin. They will find many niches for which they have two books or six across their backlist, or one on their current list. That’s not tenable. To succeed in the future, you will have to make commitments to communities: commitments to publish a critical mass of content and commitments to be a presence in the communities conversations. This will require choices that were never contemplated when the interested parties were PW, The New York Times, and the buyers at major trade customers.

After a publisher has assessed how its roster of product offerings maps against the evolving digital community structure, the next step is, to the extent possible, reorganize the business around the future, rather than around the past.

First of all, the publisher needs to exercise discipline to stick to the niches to which a commitment is being made. Any book published in those niches can add future value, regardless of how much money the book might lose. Andy any book published outside those niches adds nothing to future survivability, regardless of how much money the book might make.

Revenue and expense, particularly marketing expense, need now to be recognized by niche, not just by title. The niche must become the main unit of management attention. Marketing efforts, similarly, should be conceived, directed, and measured by niche, not just by title.

And recognition of the niches helps identify the other stakeholders in the niche, most of which will not be publishers and will not be competing with publishers. In fact, they will often be potential partners for publishers, able to forge a symbiotic relationship with them. You need to get your company partnered with those other stakeholders before your competitors do. You remember the Oklahoma Sooners, right? The people who got in and squatted on the land in the Oklahoma territory before it was officially opened for settlement. Publishers need to be Internet Niche Sooners to survive in the 21st century.

This will enable a conceptual shift in marketing: from expensed marketing to investment marketing.

Expensed marketing is what we have always done. Whether it is an ad in the newspaper or in broadcast media, an author tour or in-store appearance, it is here and then it is gone. You spend it and probably get almost no residual benefit beyond the day or week in which it appears.

But the opportunity is now here for investment marketing. If your activity captures email addresses, they can be available to use on the next book or the one after that. If somebody signs up for your free newsletter, you can promote to them until they ask you to stop. If you find a blog or web site that will carry an excerpt of a book as a promotion, staying in the niche will almost certainly enable you to work with that site again and again. Investment marketing is about building marketing assets, not just about promoting a particular book at a particular time.

Measuring the effectiveness of investment marketing efforts requires new metrics. It’s not a CPM game. Some of the things a publisher might start to watch over time are the new email permissions acquired, site or blog relationships developed, the aggregate of emails you get consumers to open each month, and the aggregate click-throughs for more information or for sale you are able to provoke.

Of course, you’ll also be able to count some directly-attributable book sales. That’s not a bad metric to track either.

The point is that you want to spend today’s marketing money to grow assets that reduce future marketing expenses, or leverage them.

Indeed, what publishers need to do is migrate to a new role. Just being a book publisher just isn’t enough, or won’t be as we move deeper into the 21st century. The successful publisher’s base will be as a recognized community leader in a niche. Identifying the niches to which a commitment will be made becomes critical here, because no publisher will be able to spread-eagle the entire world of consumer interest.

Succeeding in a community will never be about a single title. It will require using all the assets a publisher can bring to bear — all the content, all the contextual understanding, and all the contacts, including authors — to brand the publisher as a real force in the niche.

There will be opportunities, using extant content and the ability to create customized content as powerful levers, to form alliances with other stakeholders in the niche.

There are many content creators out there who are not book publishers. Many high-profile web sites in niches can be extremely revenue-challenged operations, particularly now, before all the monetization opportunities of the net have been realized. We believe we’ll see niche plays by publishers bolstered by acquiring web sites in the niche; publishers would be wise to be pursuing that strategy to grab content and niche presence in the same motion.

An important point to be made here is that niche leadership implies a new relationship to competitors. Romance readers are interested in romance publishing, not just one publisher’s list of titles. The niche player that tries to ignore competitors, rather than embracing them, is only assuring fragmentation in the niche and, in effect, nurturing competition. You will build a community faster if you offer the community more of what it wants, and your competitors have some of what the community wants. Figuring out how the deals will work is part of the creative effort that this evolution will require. But I could certainly see publisher X pursuing romance and embracing — so to speak — publisher Y’s titles, while publisher Y develops a presence in the sci-fi niche and includes Publisher X’s titles.

As the content and communities aggregate, there will be the opportunity to create new publishing models like subscriptions, free samples, leveraging site visitor generated content and many we can’t imagine yet. Be inventive, but also be alert to other people’s inventiveness. If you watch what goes on, you can be the first mover in your niche with an idea invented in another one.

All of this imples another shift for publishers, moving from being product centric, which is the DNA of a general trade publisher, to audience centric, which a niche strategy requires. Here is an extraordinarily important concept to take on board: in the future, you will not montetize content — you will use content as a tool to monetize community.

If you want to be recognized as a good community citizen, let alone a leader, you must always have the community’s interests foremost in mind. The product promotion has to be secondary to community service; in fact, the most effective product promotion will be community service.

Among the best ways for publishers to ingratiate themselves to a community is by publishing the content the community creates. Particularly in the transitional period of the next 10 or 15 years when horizontal interest and brick-and-mortar exposure is still highly desirable and access-limited, the fact that book publishers can provide it gives them a great ability to be useful to a niche community.

And a final point on being audience-centric: Don’t spam and don’t oversell. Don’t be a junk mailer or a shill. Nobody likes either and it is worth remembering Willy Loman here: your job is to be well-liked; very well-liked.

Ownership of content is a big advantage book publishers have moving into the digital future.

First of all, you have to start thinking about your books the way your publicity or sub rights department thinks about them for serialization: in chunks. The most valuable chunks on the web are those that give real value as a stand-alone. Non-fiction books which are aggregates of information or advice are loaded with these.

When you feature a chunk on the web, on your site or somebody else’s, first highlight the utility of the information, not the book. Let the discovery that there is a book be a secondary element of the user experience. Most people encountering a chunk of content on the web were looking for that chunk, particularly if they found it through search. It is perfectly okay to reveal that it comes from a book and to offer a buy the book link, but it’s not the point to lead with.

Content can also attract audience and participation if it is a wiki. I think we all know what that means: making the content open for addition, modification, or linking. This technique could add enormous value to lots of content: how-to or travel information or restaurant reviews could all benefit from additional perspectives and information.

Web sites run by other-than-publishers will often be content-starved. Participation in a community-of-the-interested can also result in opportunities to license content for other people’s web sites for the currency we all like best: money.

The most valuable asset that publishers have to springboard into the new niched content world is their commercial relationship with their authors. Other media that employ writers — magazines, newspapers, and ad agencies — pay them by the project. Only book publishers have a royalty relationship with their authors that can tempt the author to do original work for no cash payment based on the prospect of a mutually beneficial boost in book sales.

The author comes to the party with knowledge of the book’s content and knowledge of the community. And authors can express themselves. So all the author needs to really help sales efforts is an understanding of how to use the web: how best to set up a MySpace page or a Second Life atavar; how to blog most effectively; how to approach web sites for guest blogging opportunities. It is the publisher’s job to create a new marketing partnership with authors, to be the experts that teach the authors how to turn their efforts into fame and sales.

We know from a survey we arranged last year that agents are pushing their authors to be web-active. The preponderence of agents believe that authors should spend 2 to 10 hours a week promoting themselves online. Multiply that by the number of active authors a house has and it gives a glimpse of how much untapped power exists within the publishers web of author relationships.

Harnessing all of this can multiply the power. A publisher can set up a web site for the interested community and, if they have enough active authors, have daily content to bring people back regularly. And linking everybody to everybody else and back and forth to the publisher creates higher search rankings for everybody.

It is worth mentioning here that at one imprint of a major trade house, the associate publisher told me that she routinely has author sites set up nine months before the book comes out. Why? Because she’s collecting email names to notify on publication day. She routinely has between seven hundred and several thousand names, even for relatively little-known authors, by using this technique.

We have often heard publishers, when we talk to them about setting up web sites, ask us where the traffic is going to come from. And that brings us to another advantage publishers have over non-publishers: the ability to distribute URLs. Most publishers today waste this opportunity, often posting the URL for the publisher’s general web site. Aside from the fact that most of these are really set up to be B2B, not consumer-oriented, they also suffer from the generic trade publishing problem: they are horizontal, not vertical. They are broadly general, not niched.

The second most common use of the URL-distribution opportunity most publishers have is at the other extreme of no value. Sending traffic to an author website which is static, unchanging, and offering little opportunity for involvement doesn’t get you much either.

The trick here is in aggregation. When I bought How to Read a Financial Report, published by John Wiley, I was invited on the book cover to sign up for a free personal investment newsletter. One can assume that offer is made across many books, and the traffic it produces can be used to promote many titles in the future.

In fact, every book cover and every press release and every ad should contain at least one useful URL: a web site that will be involving and appeals to the niche of interest, not just to the readers of a single title. In the niche-by-niche world we’re trying to survive our way in to, if you can’t do that, you probably shouldn’t be publishing the book!

Having books of interest to a community delivers more than free content, it delivers revenue opportunities. Having something to sell, even if you don’t sell it aggressively and even if you don’t sell it to nearly all your traffic, gives you a revenue-creating tool. And, at the same time, it adds to your credibility that you have such product.

It is important to note here that selling direct is not always the best strategy. First of all, most of your customers who would buy books already have accounts with booksellers, so buying from them is easier than buying from you. When you consider that online booksellers often discount, deliver spectacular service, and will pay you for referring a sale to them, the margin advantages of direct sale are not as great as they might seem. What is of value is knowledge of the buying customers. I would look for negotiation in the future between publishers with substantial web presences and the online retailers about sharing names. There are almost certainly ways to grow the pie here for everybody by sharing information.

The sales opportunity need not be limited to the publisher’s catalog of books. In the near future, we expect user-assembled print-on-demand books, sort of like course packs for the general public, to become part of the arsenal for publishers on community-based websites. O’Reilly Media, the most advanced publisher in the industry in the ways we are discussing today, already offers this. And, as we mentioned near the top, now DK is introducing this idea to a consumer travel audience.

As we said earlier, we do envision the survival of general trade bookstores, even though general trade publishers will, for the most part, disappear. There is a certain magic created by a big place full of books that we don’t think will go away, even when we boomers do.

But we also think that the days of the new-books-only store are already numbered. And we think that one big retail chain will probably own all the bookstores because the infrastructure requirements to do the job will be so demanding.

Libraries will likely evolve into that bookstore chain’s biggest competitors. Forward thinkers in the library community worry about their future: of what value is a repository of printed content in a world where everything is discovered and available through the computer? The answer is, not nearly as much as today, and not a fraction of what it was twenty years ago. Libraries will be selling books — they actually are already — and they are already comfortable places to hang out with plenty of reading and multimedia material for the whole family.

The biggest future threat to Barnes & Noble is that the market for pre-printed books will decline.

The biggest future threat to Amazon.com is that an improved and diversified search-and-referral infrastructure will displace them as the first stop for any book-oriented quest.

The biggest threats to all other dedicated book retailers are the extremely well-run operations at Barnes & Noble and Amazon.

There is no doubt that the most challenged parts of general trade publishing as we migrate to the new digital world are fiction and belle-lettres, the tradiest trade books of all. But, unfortunately, they require an infrastructure that is supported by a lot of other books to be promoted and merchandised the way they are today. And it won’t be there.

It is useful to note, though, that fiction niches too: mystery, romance, sci-fi, chick-lit, thrillers all have their own audiences and online communities. A mystery editor I spoke to recently believes that even within her market, readers stick to their sub-niches: cozies, police procedurals, and so forth. So the niche community strategy still applies.

Great reads will also have online communities. In fact, they already do. And they will niche in ways we may not envision yet, but which the successful fiction publisher of 2020 will understand. Poetry is a niche; what we call literary fiction is also a niche.

Subject-oriented fiction has its chance to attach to subject niches. We all know that John Grisham first built his following among lawyers. He did it before the internet. It would have been even easier to do with the internet.

We all know that word of mouth sells books. Word of mouth is, increasingly, becoming word of fingers: IMing or texting.

Of course, no matter how intensely the world is niched, there will be titles and subjects that work across niches. The cross-niche relationships will be part of the developing and always-evolving infrastructure. When those opportunities arise to sell something to so many niches that it begins to look like a general audience, it will require a specialist to handle them, and that is what the general trade publisher of the future will become: the specialist for multi-niche, general interest books. But how many of them will we need?

In fact, the bookstores of the future will have the greatest interest in finding those books, which will be doable by data mining across millions of web sites and thousands of publishers. That’s part of why we’re positing a significant infrastructure associated to the surviving general trade stores.

But if we’re right about that, wouldn’t Barnes & Noble just morph into the one — or at least the leading — general trade publisher? They’ll certainly be in the best position if they have the only remaining nationwide cross-niche, general trade, bookselling infrastructure.

Of course, even in a niche-by-niche world largely devoid of mass media, bestsellers will happen. But there will not be much of an industry surrounding them; certainly not what we saw 20 years ago with general interest book clubs or what we see today with mass merchants cherry-picking the output of a general trade industry for the top 50 titles at any one time.

Change is seldom sought; it is usually forced. But in the media world, more than in most others, we are living in an era of blistering change. The future web — and even unconnected digital devices enabled by the web — are going to be more content-rich than we have ever imagined, and much of the content will be free.

The roots of general trade are sunk in a societal ecosystem that is disappearing.

The fact that the future of content and web community is a niched environment is absolutely certain. The details of it aren’t certain; how to get to it isn’t certain; and how to monetize it is something we’re a long way from figuring out.

But the shelf life of the industry we all grew up in is growing short. Anybody who wants to be in this business five years or more from now is going to be coping with painful withdrawal from the industry as we’ve known it for about 100 years. The good news is that we have at least the material for ramps to carry us across the chasm, if we have the sense to recognize that continuing the status quo will not be an option for very much longer.

Good morning.

We’re going to discuss a subject this morning that was on hardly any radar screens a year ago; it would not have been a compelling subject for presentation at last year’s Making Information Pay. But today, Digital Asset Distribution is on a lot of minds. What happened?

After all, book content has been going out on the web for quite a while. My company did a digital marketing program for a book called “Longitude” in late 1995 which centered around offering a free chapter through relevant web sites. For several years, Amazon has had a program showing interior book pages, starting out as “Look Inside” and now “Search Inside the Book”. Lots of publishers participated, but didn’t instantly express a need to manage their own digital distribution.

Then Google offered their Google Print program in 2005. Again, many publishers happily sent their books to Google for digitization, knowing that the resultant scans would be available through Google and only through Google. Very few publishers saw Google Print as a sign that they needed to accelerate their own digitization efforts.

Those were opportunities that seemed unthreatening. But then Google and Amazon made announcements that were perceived as less benign: Google’s Library program made some publishers wonder, rightly or wrongly, whether their IP was safe in Google’s hands. And Amazon’s Upgrade program, by which they offer unlimited viewing of an online copy of a book for an extra charge with the book’s purchase, also galvanized some publishers who didn’t like Amazon’s pricing structure for the digital book add-on. When the pricing model was announced by Amazon, Random House publicly said, in effect, “we think we’d rather serve our stuff ourselves and determine the pricing models ourselves.”

Now opportunities to use digital content are and will be proliferating. Since the iPod’s success became widespread, it has been observed that it can handle PDFs already and that the screen could be made twice as big if Apple wanted to do so. MySpace, particularly, has ratcheted up publishers’ appreciation for the opportunities in web marketing. And, although no revenue model

for e-content has caught on in the consumer space, nobody wants to be caught trying to change from their print outfit to their digital outfit after the party has already begun!

What the “Longitude” experience showed us in late 1995, and which is becoming more and more prevalent thinking now in 2007, is that distributing content on the web promotes sales. One of the big publishers digitizing their backlist said to us, “of course we want our books to be seen on Google. But we also want them seen on thousands of other web sites. Google is not going to do that for us; we have to do it for ourselves.”

And with more and more public libraries buying and lending electronic books, and rental and subscription, if not page-view, models working in other contexts, it does seem that a party with revenue might start at any time. E-ink creates excitement, even if none of the devices offered so far, including the Sony Reader, seem to be catching on. We know more reader devices are coming; and the long-heard rumors that Google and Amazon will each unveil one are getting louder and more persistent.

Every new reading device can potentially generate a new format or a new digital rights management challenge. All of this impacts digital distribution. It is as though every new bookstore account you signed up required its own trucking company, or pallet configuration. These demands make consolidation of the distribution function very compelling.

It costs a lot of money to maintain a digital infrastructure. The bandwidth and server demands to serve 1000 files to printers in a year, as many publishers do, are quite different than what’s required to serve many thousands, or tens of thousands, or even more, files to individuals in a day. Or an hour.

On the other hand, once committed to a robust digital distribution solution, it is actually easier to “scale” it than it is a physical plant. It is much easier to add servers than it is to add buildings. If the physical requirements alone were the concern, perhaps it would be worth it for many publishers to make the investment to keep the control.

But so much of what is required is actually intellectual: each point of distribution might require some serious thinking and some code-writing to address. When Apple unleashes an iPhone that can display books, do we really need thousands of individual publishers figuring out how best to configure their content to deliver to it?

And just as adding volume in a physical warehouse enables investments in technology that cut costs, and negotiated agreements with truckers that cut costs, so will the increased technical capabilities that come with digital volume. Obscure platform-driven use cases can become supportable if you’ll do business with them across a large enough number of titles.

One advantage to aggregation that is not yet apparent, but will ultimately be, is increased knowledge of developing digital sales channels and what content they can monetize.

Because we already believed these things to be true many months ago, we were alert to the fact that the some companies were already positioning themselves to build this infrastructure with the whole industry in mind during the course of 2006. At Frankfurt, I met with my longtime London-based colleague, Mark Bide, and we put the idea of a research project on this subject in front of John Wicker of Klopotek, who agreed to fund what has become several months of interviewing and analysis.

From the first moment, we needed a nomenclature to help define this new world. We dubbed these Digital Asset Distributors the DADs, which seemed appropriate. Publishers who were not going to become DADs themselves became the DAPs, or Digital Asset Producers. And the targets of all this activity are the DARs, or Digital Asset Recipients.

In order to qualify as a DAD in our nomenclature, a company has to be attempting to provide a wide-scale, tending toward a complete, digital distribution solution. After all, Google and netLibrary, in their way, distribute content. But they aren’t DADs, because they do not offer a multi-faceted distribution “solution” for publishers. So we see Google and netLibrary — as well as Donnelley and Amazon, to pick quite different other examples — as DARs. They depend on DADs to get them the files they need.

Depending on the truth of some rumors we can’t confirm, there are between 10 and 12 companies trying to be DADs. Eight of them are participants in our research and will speak at Klopotek’s conferences. We also interviewed 3 DAPs — publishers who do not plan to build their own solution — and 4 DARs. We’re pleased that Google will also speak at both of

the conferences. And when Adobe agreed to sponsor the London conference, it made us realize that they fall outside this whole circle, in front and in back. They provide tools for DAPs to create e-content and for ultimate consumers to consume it. They depend on all three — DAPs, DADs, and DARs — in between to make their tools productive.

A recent example of the value of this nomenclature arose when Gardner’s, the UK wholesaler, announced their digital asset service. Was their offering a real “DAD”, or were they just being a DAR, offering ebook distribution to their own customer list? Turns out, they are a DAD, but really as a sales arm for one of the DADs we’re working with, Value Chain International. A VCI executive explained to me, “why should we mount a sales effort to publishers when Gardner’s is already talking to all of them anyway?” Gardner’s is really VCI in a White Label version.

Here is a list of all the DADs we can reasonably confirm are serious players. Of this group, Accenture and Donnelley are the only ones who did not participate in the research effort with us. Accenture didn’t seem to have the bandwidth for the conversation and, frankly, we gave up trying after several attempts to find the right person at Donnelley to speak to all this. One person in that company said “they’ve decentralized digital asset work so much here that I’m not sure whom to send you to.” We’ve still not found out.

Most of the others will be familiar to you. BiblioVault is the storage archive part of University of Chicago’s distribution program that provides print-on-demand in their warehouse. They serve only the US university press market.

codeMantra is a conversion house that sees the opportunity to help publishers with distribution of the files they create.

CPI is a European printer, a conglomerate recently formed by acquisition.

HarperCollins has bought into NewsStand, which created LibreDigital as their DAD. Their offer is actually bifurcated; if you want help with your digital process going from manuscript to printer’s file, you go in through Harper. If you want just DAD help, you go straight to LibreDigital.

Holtzbrinck’s BookStore is a UK-based operation.

Ingram Digital has been developing from the world’s largest book wholesaler for over a year.

Random House is a company you will hear more from today that I think we can safely say needs no further introduction.

And Value Chain International is a business process company that is moving from its existing digital conversion relationships to become a DAD, like codeMantra.

We have heard rumors, which I won’t repeat because we can’t confirm them, about other potential aspirants for the role of DAD.

We believe that, ultimately, all the DADs will have to offer a pretty complete service: storing publishers’ assets, converting them to different formats, providing DRM as required, and successfully delivering them to platforms and web sites of every description. Although some large publishers with pretty substantial capabilities of their own might pick one DAD for one digital service and another for a different one, most publishers who need a DAD will want one to handle everything for them. We have already seen cooperation between the DADs to enable this; CPI and BookStore have a relationship somewhat analogous to Harper and LibreDigital, for example. But each starts with its own view of what is most important. For example: Harper starts out with a primary interest in marketing books on the Web; Ingram has been aggressive in pursuing what they see as real revenue opportunities for publishers’ content.

It is our contention that consolidation of digital distribution will be inexorable.

Here is a real-life story that supports that contention. A few years ago, a large retailer had its own print-on-demand operation. Because the volumes were not deemed robust enough to reach the scale needed for cost-effectiveness, they folded the POD operation into Lightning. The agreement was not longterm; the retailer saw the possibility that volume would grow and, at some future point, they could take the function back in-house.

But were are we a few years later? Lightning, building its volume in many ways, has added new trim sizes to their line; they’ve added color capability; they’ve added a hardcover casing line. All of these additional options can be employed by the retailer. So the retailer’s

volume has grown, but so have the capabilities Lightning has added that the retailer has exploited. And the retailer’s volume alone wouldn’t allow them to have all the trim sizes and the color and the hardbacks. Of course, without the retailer’s volume, Lightning might not have them either.

Consolidation of technical functions helps everybody. That’s why we’ve been seeing it accelerate in physical distribution for the past 25 years, if not longer.

It is worth mentioning here the concept of “parity functions”, of which distribution is one, whether physical or digital. Parity functions are those from which you can’t gain much competitive advantage by doing it better than the next guy, but you can really hurt your business if you screw it up. Printing is a really good example. How much better or cheaper could a publisher print his own books by doing them in-house? Not much. But how badly could they hurt their business if they attempted to do it in-house and made a mess of it? Completely! It makes total sense for parity functions to be consolidated and outsourced.

But the biggest drivers for consolidation will ultimately be the DARs themselves. The big publishers who are becoming DADs are highly motivated to eliminate archiving of multiple copies of their books on the web. In the ideal world of Harper or Random House, Google or Amazon or any other site that wants their content would “come get it” from them, as needed, rather than keep their own copy.

If their content is to be served, publishers instinctively want to be the ones doing the serving so they can exercise whatever controls — through recognition of the recipient or DRM mechanisms — they see fit. But serving content for Google and Amazon and Microsoft so they need no archived copy, if it becomes possible at all (and I don’t believe it is possible yet), will require the highest service standards. It is safe to assume that if any of the big web sites allow any publisher to serve content to its site visitors, rigorous controls will be enforced. It will not be something open to hundreds, or even tens, of players.

These web business have set high expectations for the speed with which they return a response to any query or click. Can publishers meet those service levels? Well, perhaps some can. But certainly not EVERYBODY can. So this path leads to some sort of “certification” of the capable and that will drive consolidation to those certified as capable.

Each new device — phones, PDAs, ebook readers — requires IT bandwidth and collaboration. That also drives consolidation. And if we’re right that certain b2b content shoppers will want customized IP across a range of publishers’ offerings, that will also drive consolidation.

Clearly, each new use case — a new web technology or ebook format, say — will require focus from IT to accommodate. The fewer DADs there are, the easier it will be to spread new opportunities across the publishing marketplace.

It could even be that uses will arise that make a brand new DAR with a brand new idea want to work with a single DAD on a pilot basis. Wouldn’t they choose the one that had the largest aggregation of relevant content?

Once you have DADs holding files and serving them, particularly when many of the DADs see the value of getting further upstream into helping publishers with their own content management, it raises the question about whether DADs get involved in functions that most publishers have already taken on, often quite successfully.

Of course, content management itself is largely new territory. Many publishers have gone to digital tools that make technological agility, like being able to convert between different digital formats, possible if not exactly automatic. In fact, one of the big questions today is how nimble these publisher files will actually be and how well all the reputedly automated conversion being built by the DADs is going to work without manual assistance. But, even if it does, contextual tagging of content is still in its very early days. Most publishers haven’t even contemplated the “use cases” for this yet. DADs may become very important to help them think about it.

Most publishers now deliver digital files to their printers, although this is the simplest of all digital delivery: a “picture” of each page. Publishers have been forced to manage their metadata and distribute it throughout the supply chain. Might either of these functions ultimately fall to the DADs? It seems logical, but delivery to the printers is pretty simple and it is not yet clear that the DADs will have the ability to handle robust metadata demands.

In fact, it may be that next year we’ll be here talking about the need for MUMs — Managers of Unlimited Metadata — to work with the DADs to round out the solution.

All of this adds up to “process reengineering” and it makes us believe that doing the DAD homework is a step publishers should take before they make substantial content management investments.

Quite aside from the potential to sell digital content, publishers have some important shifts to make to sell books through the channels they reach customers through now.

Marketing needs to shift from large-scale to niche-scale. That’s where the audiences are going. That means 50 web sites might be needed to reach the audience that one TV show or newspaper reached in the past.

Marketing needs to shift from “expensed” to “investment”. That is, marketing needs to be about building connections to the community, and those connections can be used repeatedly. If the money spent on a newspaper ad is spent instead online trying to gather email names and permissions, the expense becomes an investment that will pay off over many books.

And, as has been eloquently explained over and over by Seth Godin, marketing has to be less about pontificating and more about conversing. Cost-effective conversation can only happen online. And the content of the books has to be available and flexible to enable that change.

We believe 2007 is the year when every publisher will find they need a DAD. Publishers will tire of sending books to multiple DARs for them to create their own files. As they contemplate the cost and challenges of digitizing their backlist, they will realize the urgency of having a digital workflow for their new titles, so they don’t dig a deeper hole of content that will have to be addressed again at great expense. And as opportunities to expose content online proliferate, the ability to address those opportunities with some measure of control and protection of copyrighted material will feel increasingly urgent.

Working without robust digital distribution capabilities will be an obvious handicap — the absence of a critical parity function — and creating one’s own will be a non-starter for most publishers. And that’s why 2007 is the year that publishers will really be looking for DAD.

The research we have done will help any publisher with the task of finding one. The Research Paper version of our work is being made available as a PDF FREE to everybody who paid to attend THIS conference. To get it, just send an email to Anna Roe at Klopotek; she’s at [email protected].The final White Paper, with conclusions and updated information, can be ordered, with or without admission to the conferences, at Klopotek.com.

In March, 2006, the Book Industry Study Group published the first study of the used book market. Somewhat miraculously, BISG got data from the major players in the used book marketplace. Because the study is so detailed and broad, The Idea Logical Company prepared a precis of the high points. That summary follows; it is, of course, much more useful reading if you have the study in hand, which is available from www.Bisg.org. The material below refers to tables which are contained in the original report.

The BISG’s report on “Used-Book Sales” contains a huge amount of information. How helpful it will all be depends somewhat on whether the data gathering and mining efforts continue. The data used in the survey was from 2003 and 2004 and it already feels like some of it might have been overtaken by events.

If the efforts are going to continue, it might make sense to focus them a bit more. This survey looked at used book sales across the spectrum: in new book and used book brick-and-mortar outlets, through online channels, and even in more esoteric settings like yard sales! It also looked at used books universally, including the college textbook market.

But the study makes clear what we all know: that the dynamic growth is online and in the trade book area. The used book market for college textbooks has been organizing and developing for many decades and it benefits from a geographical concentration of used book buyers and sellers that does not exist for trade books. And the online market is where the used book action is growing by leaps and bounds, not in shops of any kind. Focusing on the action for used trade books online will produce a much more useful study and probably would reduce the cost.

If the college textbook piece is removed, it also enables eliminating the distinction between “students” and “non-students” which this report makes (and, with college texts included, needs to make.)

It seems likely that what publishers really want to know is how the burgeoning used book market will affect the market for new books over time. Fortunately, the very last of the 94 tables makes that calculable and the chart is for trade only, which makes it more useful.

The projection of an annual growth rate of 1% for new general trade and 25% for used general trade between 2004 and 2010 works out to a climb in the used book percentage of total sales from 2.9% in 2004 to 10.4% in 2010. And that’s in dollars; clearly the percentage of used units would be even higher. Although other parts of the study make clear that not all those used book sales are of books currently in print and the effect on new book sales is complex, this is a shift in the business that every publisher of new books needs to understand in granular detail. The report was a very good start in that direction; we hope that the snippets of analysis that follow add to that understanding.

First, the “good” news (to the extent that we can believe it).

1. The online specialists currently sell nearly as many units of “collectible” as they do of fiction and non-fiction trade. (Table 16)

2. It is a bit hard to believe, but the report says that 81.5% of the used book units sold were for titles “out of print”. (Table 18) A possible contradiction elsewhere in the report is that only 36% of non-students bought a used book because the new book was not available, so 64% of the time a new book WAS available. And even more of the time, presumably, it wasn’t “available” but it wasn’t “out of print.” Publishers are interested in the size of the total market, but even more interested in the size of the market in books they’re still trying to sell in the marketplace.

3. New books are (still) nearly a “must have” when a book is being bought as a gift. (Table 62)

4. About 70% of online sellers say that used books are neither affecting the unit sales nor the price of a new book of the same title! (Table 26)

5. Only 37% of non-students have NOT purchased a used book in the past 12 months, which suggests that most of the players are already in the game. Of those who haven’t purchased, 65% haven’t considered it. (Tables 41, 78)

But there is much more news that is concerning.

1. Overall used book sales are up 11%; new book sales are down 1.9%. Is this cause and effect? (Table 1)

2. Used book sales are up 33% online, but only 1% in brick-and-mortar. That suggests the used book phenomenon will drive more book purchasing to online in the future; which is not good for publishers. (Table 2)

2a. Online sellers believe customers know what they want and don’t browse. (Table 23) That’s WHY moving customers to online isn’t good for publishers; it will reduce “impulse” sales.

3. The study finds that the “average” price of the used book is 50% of new. It is hard to interpret that figure. Education and antiquarian seem prices seem to be rising. The study says education prices are LOWER online than b-and-m, but online prices for trade and antiquarian are HIGHER than b-and-m. People will pay more when they get exactly what they want. The local markets for textbooks, with the same profs teaching the same classes with the same books, provides that. But in the trade world finding what one wants is much more likely through an online network. (Tables 6, 92)

4. The speed of availability of a used book after publication is directly related to print run; titles with bigger print runs show up as used books faster. (Tables 24, 25) No surprise there, but it useful to see intuitive judgments confirmed. They aren’t always.

5. 91% of online specialists have NO buy-back program in place. (Table 28) That leaves a good deal of room for growth of supply and a big lure to pull people into the game (money for the book they’ve already read!)

5a. More than half of non-students have never SOLD a used book. (Table 74) This is an opportunity for entrepreneurs; the tricky part is to get the seller to do the data entry, which is an important component of the growth of the online market.

6. In the same vein: the study reports small participation so far from consumers creating used book supply. Most books come from libraries, other booksellers (who got them from consumers, perhaps), and estates. (Table 29) This suggests more room for growth in supply.

7. Booksellers are benefiting from used book sales, reporting a bit of growth in units, a larger growth in customer base, and much bigger growth in revenue and profit. (Table 30) This is another driver for growth in the marketplace.

8. Used books are already NOT primarily about the young (and budget-challenged.) About 60% of purchasers are over 35. (Table 32)

9. Many (hard to determine an aggregate number because of the way the answers were collected) of those who haven’t sold used just aren’t familiar with or comfortable with the process. 40% say they want to keep their books, but that can NOT be true for ALL the books all of those people own. (Table 79)

10. Online prices seem to be coming down, for trade books. Basic economics suggest that, at the moment at least, supply is growing faster than demand. (Table 93)

And there is a bit in here that is just confusing. Or incomplete. Or just not believable.

1. Oddly enough, 25% of the non-student non-buyers say the title was not available as “used.” (Table 45) Maybe that’s because the data is from 2004? Or maybe it is because the purchaser looked in brick-and-mortar only and not online.

2. Totally counterintuitive: 25% of students say they are buying more used and less new and 25% say more new and less used! For non-students, 20% say more new and only 15% say more used. (Table 46) Just does not square either with observation or the rest of the data. It is hard to believe that anybody in this era is buying fewer used books, relative to their new book purchases, than they did before.

3. Non-students say that almost 60% of the time they buy a used book, they buy 2 or more new books by the same author. (Table 52) This statistic fails the smell test on a number of levels.

4. The data say that 10% of “national bookstores” and 9% of “general retailers have a used version of a book the consumer was looking for. (Table 55) Since we can’t think of one entity in that category that actually sells used books, it seems likely that the consumers answering this question either have faulty memories or didn’t understand what they were being asked.

The used book marketplace online is clearly growing and will increasingly impinge on new book sales, with adverse consequences for publishers and authors. That is unavoidable. How well each publisher understands what will surely be the very uneven impact of this new force will surely be a key factor determining the publisher’s success in the future. The BISG study definitely constitutes a good start at understanding this nascent phenomenon. But it is just a start.

In the late 1990s, ending sometime in the year 2000, the apparent pace of change in publishing was breathtaking. Many propositions we can barely remember: Ebrary, Questia, eRights, eContent, Hungry Minds, Softbook, Rocket Book, and so many others, competed for publishers’ attention, for publishers’ content, and, a bit painfully, for publishers’ staffs. We had barely heard of Google then, Microsoft seemed like a force that would dominate the rest of our lives, and Apple was barely breathing. The idea that Publishers Lunch might become more important than Publishers Weekly would have seemed laughable to almost anybody except Michael Cader. A whole host of things that really matter today – iPods, blogs, and podcasts among them – had not yet arrived on the scene.

People, including some I think are pretty smart like yours truly, thought an ebook revolution for immersive reading of narrative text might be right around the corner. It wasn’t.

That time around, in many ways, the less cyber-minded the publisher, the more money they didn’t waste. TimeWarner showed great faith in their vision of the future by starting iPublish, a web publishing effort I still can’t explain coherently, and lost double-digit millions. Louis Baum, the former Editor of The Bookseller, and Richard Joseph, who sold his Books Etc. chain in the UK to Borders, started a similar venture that went nowhere. And the many publishers who did very little investing in fancy web sites or ebook conversions saved themselves a bunch of money.

The 1995-2000 experience was instructive, but it does not mean that continuing to do all the same old things in the same old ways will work forever. It does mean that the world of book publishing – the oldest living business that is about content and markets – lives in a larger world of content and market equations. We can’t control the future and the larger forces; we have to accommodate to change.

And that starts by attempting to understand the change taking place around us.

College and professional publishing have lived in the new digital world far more than trade or consumer publishing. This is not because they’re smarter. It is because the world they live in has driven the change. Because the web is organized in niches of interest, and facilitates that kind of grouping, their audiences have both demanded and accommodated change far more readily than consumers. Driving consumers to change recalls the problem of “herding cats.”

Ironically, consumer publishing may have benefited the most so far from the Internet because of Amazon.com, which has driven huge sales of legacy product. But, as we will see, that is a benefit that both has its limits and extracts its own penalties.

Last month, Dominic Knight, who is head of college publishing for Holtzbrinck in the UK, predicted, without being specific about the timetable, that we’re on the cusp of a world where “all educational material will be online, and a lot of core material such as big textbook packages will be available only in an online form.” That makes a lot of intuitive sense: college students are all wired and they are all basically tech-capable. Moving all the content online would apparently solve the college publishers’ huge and persistent used book problem and, theoretically, saving all those trees would translate into saving money for students as well.

In the US, Pearson, Thomson, McGraw-Hill, Wiley, Houghton Mifflin, and Holtzbrinck – which comprise 85% of the US market – are organizing a consortium “to generate efficiencies and promote electronic demand for electronic content within higher education institutions.” In other words, they’re sharing the cost of creating the infrastructure for what they expect will be an explosion of digital delivery. Oh, and by inference, they’ll control that infrastructure so the newer or smaller publishers trying to reach this market will have to gain access to their road. Real anti-trust concerns will limit abuse, but one has to believe that this step will consolidate power for the existing market leaders.

At the same time that college publishers might be collaborating to deliver digitally, they are also aggressively competing to deliver digitally-enabled printed books. The Holy Grail at the moment is custom publishing for textbooks: professor-assembled aggregations that can then be delivered as books by short-run printing. O’Reilly has pioneered this concept with a business called SafariU.

Each company, of course, sets up its own system to sell its own content. O’Reilly conceived SafariU as a pan-industry solution; so far it isn’t working out that way. There are entrepreneurial plays to deliver the essential suite of services – locating the content in any format, bringing it in to a common document, designing it all so it looks good, and, one hopes, delivering citations and indexing as well in a custom product – across publishers by clearing rights at Copyright Clearance Center. One of the new third-party solutions – a company to watch – is Lulu.com, which offers automated design and layout as well as print-on-demand at sharply lower prices than the marketplace has previously seen.

It almost seems anachronistic to worry about printing the information into books, but the conversion to e-content is apparently not a sure thing. Abebooks.com polled 5,000 US college students online and found that 49% “were not prepared” to use digital texts at all. It has been said that the failure of many initiatives the first time around was that they were centered on what was good for publishers (selling books without manufacturing them, for example), not for the audience. The first objective has to be to satisfy the market, although, in the case of college reading material, it is a bit ambiguous to what extent the “market” is the students, and to what extent it is the professors. And it is similarly ambiguous whether the students or the professors are the main barriers to switching over to electronic media.

The current profit model has another challenge fostered by the Net. For decades, college publishers have priced their product differentially by market. They just couldn’t get the dollars per copy in Bangalore that they could in Berkeley, so they charged less in Bangalore and more in Berkeley. It will get increasingly difficult to make that work for the same book in two places. The same Abebooks.com poll found that, while only 3.6% of the respondents are currently buying international edition texts, about 60% are now considering that channel. College kids the world over will figure out how to buy at the cheapest possible point. The day when there will need to be one global price is coming and it will almost certainly arrive before there are no physical books to apply it to. Digital delivery could preserve market-based pricing. Requiring the kid in California or Ontario to get an internet address in India adds a barrier not present just to order a book from there.

Of course, one additional zigzag available to the publisher is to use custom publishing technology to deliver a different edition in Bangalore than they do in Berkeley.

This brings us to ebooks, which we will define as digital content meant for downloading onto some device more limited and more portable than a PC, although certainly an ebook could be read on a PC. I am trying to differentiate it from a web page, which is temporary and best viewed on a real computer screen, notebook or desktop.

It may be wrong to suggest that the takeup of used books by college students has anything to do with the explosion of used books in the consumer sector – there really are other reasons it is happening now which we will talk about shortly – but it is certainly true that the threat from used books really began in the college textbook market decades ago. If Dominic Knight is right about textbooks, more and more college kids are now about to get very comfortable absorbing information from computer screens or electronic readers.

This ebook thing has been fooling me for years, although I am stubborn enough to believe I’m right on the substance, just not on the timing. I believe in the ultimate inevitability of ebooks for many reasons, but one of the important ones is that I am totally hooked on them myself. I read ebooks on my PDA and have done so for the entire 21st century. I PREFER ebooks to paper books for immersive reading of narrative text. I mean I prefer them when they’d be an equal choice, such as in my own living room where both would be at hand.

What first hooked me personally on reading on my PDA, though, was portability. I always have my PDA, and therefore my book, with me: in a cab or the subway, in the reception area waiting for an appointment, or, if I may be indelicate, when I visit the loo in somebody else’s house. I found reading this way added a large increment to my book-reading time. Because of that, I started reading on it regularly and, before too long, found I actually preferred it, although I’ll save enumerating the reasons for that until somebody actually asks.

A friend recently told me he had come to immersive reading on his Blackberry with a different portability attraction. He’s British, now working in New York, and started out reading his UK newspapers on the Web. Then he found it was fine reading them on his Blackberry. So then he cancelled his daily subscription to The New York Times and now reads that, as well, on his Blackberry.

In a speech somewhat like this one a few years ago, I said that nobody needed to explain the advantage of ebooks to somebody who carried a PDA and, in fact, that there were no real advantages to ebooks if you did NOT already carry a PDA. Now, in early 2006, the world seems intent on proving me wrong on both counts.

When I thought about the “how” of ebook adoption at the turn of the current century, I figured it would happen the way many technology adoptions happen: through the workplace. It seemed logical that certain professional information tools – like repair manuals for aircraft engines, say – would be switched over to ebook readers. There are lots of good reasons to do that, because keeping those suckers up to date in a looseleaf or whatever for thousands of mechanics can’t be an easy job. So I imagined all these mechanics getting Softbook Readers (they were superior to Rocket for the purpose, and those were the two contenders at the time). As people got comfortable using them on the job, it seemed logical that personal reading matter – for lunchtime or the bus ride home, say – would follow. In this way, ebooks would get adopted the way spreadsheets, word processing programs, and email did. People were required to use them at work, found the value and overcame the learning curve, and then were happy to use them away from work.

But none of this has happened. There has been no widespread takeup of these readers in such circumstances, with the single stark exception of emergency room medicine, where doctors do look up medical info on PDAs. And there has been hardly any takeup of ebooks by consumers at all.

The ebook business has actually been somewhat in retreat for the past few years. A few years ago, there were actually six formats competing for viability. Softbook and Rocket Book had the hardware, dedicated readers, and they had proprietary formats for them. Adobe was hoping to provide a ubiquitous standard. Palm created a format proprietary to their PDA operating system and Microsoft, hoping to compete with them in the PDA space, created Microsoft Reader – to much fanfare – for Windows-operated handhelds. And then Mobipocket created a format that would work on both Palm and Microsoft handhelds. A seventh format, Glassbook, didn’t make much of a dent as it came and went.

Of course, Softbook and Rocket failed because they didn’t sell enough machines to constitute a market. Adobe, despite having a “reader” that could install on both Windows and Palm devices, got little traction. The early versions of Adobe’s product were just not as good as Palm. The Palm and Microsoft strategies recalled earlier format wars – VHS versus Betamax, Windows versus Mac – with different results. Microsoft Reader was made available through multiple retailers and the software was on hardware created by multiple manufacturers. Palm always limited the distribution and ultimately insisted on being its own exclusive retailer. Except for a legacy deal with the niche ebook site fictionwise.com, the only place to buy most Palm-format ebooks was at Palm’s own online store. Anybody who knew the history of VHS clobbering the superior Betamax format or Windows dominating the superior Mac operating system could predict what would happen based on that experience.

And they would have been wrong. The Microsoft Reader format failed, and failed quickly. Palm was soon, and for a period of time that may soon end but hasn’t yet, the dominant game in town. Mobipocket came on the scene as an alternative. If MS Reader had won converts, perhaps an agnostic format that could play on both PDA operating systems would have been needed; as it was, Mobipocket really just became another way to read ebooks on a Palm.

Microsoft Reader was defeated by Palm for two reasons. One is that the Palm format for PDAs won. This is a battle Microsoft is still fighting, but the Palm operating system is still favored by many for the PDA devices.

The other reason is that MS Reader was best used to read ebooks on a PC; it wasn’t as good as Palm on a PDA. MS Reader was literally shut out of monochrome devices because it required color to work and they launched the reader when few MS-ready PDAs were in consumer hands. Since the ebook sells portability, this was a mortal problem for the Microsoft format.

So, for the past several years, the only choice has been to buy a Palm ebook from the source that controls the format, which was sold by Palm Digital to a company called Motricity a couple of years ago. Those books are available at ereader.com.

The leading book retailers on the Web are, of course, Amazon.com and BN.com. Amazon seems to offer mostly Adobe ebooks, which have improved but still not caught on. Amazon bought Mobipocket last year. There are no apparent synergies operating between them yet but we know some are being planned. This week, Jeff Bezos expressed bullishness on the future of digital downloading. B&N, frustrated several years ago because they could sell MS Reader ebooks, which nobody wanted, but couldn’t get a workable deal to sell Palm – the only format that people bought in any numbers – dumped ebooks from their web site. So far, they haven’t missed much in the way of revenue or satisfying their customers. The guess here is that the omission will be noticed if it goes on much longer.

Because I’ve been so personally “sold” on ebooks while watching them march backwards for this entire decade, I have asked people repeatedly “why doesn’t this catch on?” I haven’t been happy with the answers. Most people offer two: “not a good enough reader yet” or “the ebook, to succeed, has to offer interactivity or something that the printed book doesn’t.”

Since I’m hooked on the portability and the other advantages you will have to ask me to hear about, both of these answers leave me cold. I don’t want a “dedicated device;” I’ve got a device. And I don’t want some interactive experience; I want to read the book! I gnash my teeth at the marketing opportunities that have been missed: why doesn’t every PDA come with three books on it? These have a cost of zero. Authors would clamor to be included, particularly if the first chapter of their next book was included as a sales come-on as well. And the merchandising of these books online? Horrendous!

Why are we spending all this time on ebooks? Because they are about to hit our radar screen again in 2006 in a big way. As we learned in 1999 and 2000, noise does not assure acceptance. But there are a number of promising things going on:

1. Sony has announced a new e-Reader device that will make its debut, it is said, in April. Sony is planning to sell the content for their reader in a proprietary format on their own site in a “blades and razors” business approach. They are readying 10,000 titles, which is a big number in this space.

2. A Philips-incubated company has announced a screen for an e-reader that will “roll up,” like paper. Perhaps no reader will come out with it this year, but it is right on the cusp.

3. Mobipocket has announced a deal for their format with RIM for Blackberry. Blackberry’s big competition is the Treo, which started out in life as a Palm operating system device, although it is now available as a Windows machine as well. It could be that Blackberry has the largest installed base of potential narrative book readers of any hand-held device.

4. Many people expect some initiative from Amazon. They bought a print-on-demand operation called BookSurge as well as Mobipocket. Some sort of offering using both capabilities in a new publishing platform just seems inevitable. If that happens, Amazon has a real reason to push ebooks that they never had before.

5. iPods for music and video have been such a wild success that we could be seeing a paradigm shift for the purchase and use of protected content on portable readers. Universities have recognized the value of iPods for a couple of years as digital storage devices for text. And the screens of iPods keep growing; they could become ebook devices very soon as well.

6. The blogosphere is already loaded with speculation that the PlayStation Portable, another Sony device intended primarily for games, can be a great ebook device.

All of this adds up to a lot of wind at the back of the ebook business, for the first time in at least five years. Publishers have expressed and shown great enthusiasm for the Sony reader. Many are stepping up their conversion efforts – putting more of their books into ebook files – after having reduced them for the past several years.

The ebook business is still so small, maybe not even double-digit millions of dollars annually, that it has a lot of doubling to do before it matters much to anybody. But since the marketing of a number of new devices is about to raise consumer awareness, the number of available titles is about to grow more rapidly than in recent years, leaders of the book industry and the hardware people are pushing it, and the leading internet retailer has reason to get in the game, maybe 2006 will be the turning point year.

There are certainly no guarantees. The one Mobi-on-Blackberry book I saw had justified (even length) lines. This is a significant deterrent to readability, because you get those even lines by varying the word spacing. Some lines have as much space between words as the words take up between spaces. Apparently this design faux pas was committed by the publisher (in this case: Random House) and it isn’t inherent to the technology. But justified lines were built into the first Sony attempt at a reader; let’s just hope that they and the publishers don’t repeat this mistake.

All the new device activity may result in very little net change. I am a skeptic about dedicated devices for this purpose. Making mistakes like presenting narrow justified lines will retard progress. And merchandising ebooks separately from books themselves is no way to maximize ebook sales. And nobody should get carried away to think that this is really like the iPod and music, which lets you carry around all the audio CDs you listen to all the time in a device that fits in your pocket. There is no parallel paradigm for books. Even carrying every book you own wouldn’t be as much of an advantage. You’d need to be carrying all the ones you want next, which is an entirely different proposition.

The actual sales and marketing impact of Google Print, so far, is probably about the same as ebooks. Negligible, with the exception, perhaps, of certain areas of scholarly publishing. But the impact on many publishers’ thought processes has been major.

As the people in this room well know, Google is creating the card catalog of the future, attempting to get every book listed and searchable by its engine. This initiative began with asking publishers to put their books in; for doing that, they earn ad revenue, get to decide what links they’d like to create sales, and they are assured of a specified limit on the amount of the book’s content Google will show.

What caused a huge stir was the subsequent announcement of a program to get books from libraries, including that Google would return a copy of the digital file they create of the books to the libraries themselves. Since Google does not intend to restrict its efforts to pre-1923 books, all of which are in the public domain in the US, they will inevitably sweep up copyrighted content in this effort. Google’s offer to publishers to remove books if publishers with a valid copyright claim just ask them to do so failed to satisfy a lot of publishers; lawsuits on this point are now active, although they certainly won’t be resolved for a very long time.

The Google initiative, along with a similar content-serving proposal by Amazon – this one complete with micropayments to be shared worked into the schema – and another rival card catalog-type effort spearheaded by Yahoo and internet visionary Brewster Kahle, have motivated publishers to recognize that serving their content via the web is part of distribution in the future. Random House announced it would serve its own books, making them searchable by Google but ultimately maintaining control of the content itself being served. At the same time, Random put a stake in the ground for a per-page charge for viewing content. HarperCollins announced a similar digitizing initiative. Holtzbrinck did the same in the UK – they call their facility “Book Store” – and they have offered to act as a service bureau for other publishers as well, hosting and serving digital content.

The Holtzbrinck Book Store project is working with a number of what they call “Foundation Clients” now. Effectively, these are development partners who will reap a long-term benefit of discounted services. As of late January, the people running this initiative indicated that they still had room for more Foundation Clients. We can provide contact information there for anybody who is interested in pursuing it.

This is the next big investment conundrum for publishers. Google is offering to digitize books for free, for their purposes. Digitizing from hard copy will cost publishers only a few dollars a book for “page snapshots,” suitable for searching and for showing page copies, but it will cost low hundreds of dollars for ebook-ready files which are accurate character-by-character. Over a list, that can constitute a big investment with a very uncertain return.

On the other hand, Google is not the only place that needs the digital file to search and return, and publishers are understandably reluctant to put their digital fate in somebody else’s hands. It feels to some publishers like letting Google hold the publishers’ IP on their servers is giving away the store. If they’re going to need a digital file for each book for many uses going forward, goes the thinking, then the publisher might as well bite the bullet, do the digitizing, and serve the pages as needed themselves.

These strategies are not mutually exclusive. A publisher might choose to serve its own electronic files of books it has already in digital form, because the conversion cost is much less on those, and let Google scan the books that exist only in hard copy. Since the Google Print contract allows publishers to “pull” books from the Google system in the future, presumeably without limitation, a publisher could move to a strategy of controlling all its content sometime in the future.

All books are not threatened equally by these developments. Limiting the number of viewable pages, or the number of consecutive viewable pages – which all these schemes do in one way or another – pretty effectively protects a novel or a narrative that is to be read from beginning to end. But what about books which are aggregations: of recipes, of crafts projects, or of travel information to various cities and regions in France? In those cases, a handful of pages might deliver all the information the customer would have bought the book for. A free “sample,” or in Google’s word, a free “snippet,” might deliver all the value the consumer was seeking and the book sale would then be lost. This frightens some publishers.

While it is not clear that the sales lost on books like this through snippets that satisfy will be greater than the sales gained through exposure to them, and it probably never will be, the publishers who are concerned about this need to consider what will transpire if they withhold their veal parmesan recipe or listing of the best hotels in Paris. What will happen is that the Google (or Yahoo or Amazon) searcher will just find OTHER veal parmesan recipes and Paris hotel listings from other books or sources. The customer will still be satisfied, and the publisher who withheld the content will still lose the potential sale. But they will a) also lose the sale from the searchers who would have been converted to book buyers and b) they will suffer erosion of awareness for their brand at an accelerating rate over time as more and more people discover what they want on the web.

Publishers need to understand the concept of fungible content, which most reference material is, and most narrative content is not. Fungible content is much more threatened on the web.

It is worth mentioning a Barnes & Noble company called SparkNotes here. Spark is a more modern version of Cliff’s Notes; basically, they publish study guides. Their market is students. Every single word that Spark publishes is available free on their Web site on screens that will neither copy nor print. If you want a file to copy or print, you can buy a PDF version of the book for exactly the same price as the book itself. This is a good deal for Spark, of course, because they don’t have to pay to create and deliver a physical book.

Despite the fact that their content is viewable for free and their market is so notoriously averse to paying for things that college publishers spend most of their time trying to dance around the used book market, this content available free has not slowed SparkNotes down. Barnes & Noble does a big business in their books.

Much more threatening to the current publishing model than Google, in my opinion, are some other developments taking place because of the Internet.

The most immediate of these threats is the recycling of books, particularly as it is being enabled by Amazon.com. Everybody who buys books online is now aware of this. You call up a book and you are offered the chance to buy used copies for a discount, sometimes a hefty discount, off the price of a fresh copy of the publisher’s edition. There are many other used booksellers, but this mixing of the used with the new on what is, by far, the leading book information and sales site on the web, is particularly insidious.

A recent study sponsored by Book Industry Study Group of the used book phenomenon underscores the frightening reality of the problem. They found that sales of used books were up 33% in the consumer segment from 2003 to 2004. And they found very high consumer satisfaction with their used book purchasing; the preponderant majority would “recommend it to a friend.”

Magazines have always loved “pass-along” because it boosts ad rates. Book publishers in the US have eschewed ads for years, though it existed in books in Britain years ago. (I don’t think it is the practice anymore.) US publishers have avoided ads at least partly for a historical reason: the US Postal Service bans advertising from books traveling “special 4th class book rate.” But that reason is an artifact: few books in commercial distribution are sent that way anymore.

Is one economic antidote to used books to place advertising in them? Maybe that’s a way to replace some of the revenue that is bound to be lost.

Advertising is very difficult for publishers to consider, let alone execute. There are a million reasons why it won’t work, starting with bookstore resistance and author resistance, two forces publishers want least to oppose.

On the other hand, we see a quantum shift in marketing, not just for books, taking place as the mass markets disappear. Network TV everywhere in the world delivers a fraction of the audiences it once did as channels proliferate and compete with the Web. Even big consumer package goods companies now recognize that they have to aggregate mass audiences by appealing differentially to niche audiences. Books don’t just appeal to niche audiences, they deliver niche audiences. As the eyeballs delivered through books gain in value and revenues and margins per new title continue to decline, the equation for advertising will change.

This used book issue is a massive one and is bound to get bigger. So far, only 10-15% of the book business is online and the used book infrastructure is most compelling online. Only a small fraction of book purchasers have yet taken this opportunity, although more do every day. And, most important, the supply side of this equation hasn’t gotten organized yet the way it inevitably will be. Libraries are bound to add many used books to the marketplace as they see the opportunity to recover some of the costs for books they don’t need anymore. Often those will be bestsellers on the downslope. How many copies of the new Harry Potter did a library need last July compared to what it needs now?

We don’t have good quantification of this problem so far. We don’t really understand how many copies per title are moving in this way. We suggested a “bestseller list” to the BISG used book study people but we haven’t seen one yet. And the year-on-year growth snapshot is helpful, but not sufficient. If BISG continues to gather this data and analyze it, we’ll learn a lot more in another year.

It was reported last month that Abebooks.com, a used books specialist site, said that 19 of the top 20 titles for them last year were published prior to 2005. We can’t leap to the conclusion that Amazon, which still primarily attracts people looking for new books, would have the same profile. Because BISG, for understandable reasons, can’t reveal data that allows us to learn about an individual retailer, we may need divining skills to parse this further, but the threat to backlist is crystal clear.

The used book phenomenon punches publishers in the gut by enabling the copies they sold last month to satisfy consumer demand next month. But that may not even be the most damaging aspect of the problem.

Let’s recall that used books have always been with us, but they only became a problem for books currently in the marketplace with the advent of the web. That’s no accident. The model that Amazon and others use to handle used books online is far less costly than it would be in a brick and mortar setting. Amazon and their online competitors, including eBay, have this all automated. You, the seller, load in your title information and, when the order comes, you ship the book. Amazon keeps track of whether you are a vendor who satisfies the customers and, by the way, has the money in hand as leverage in case you don’t. They never have to touch the book; they never have to store the book; they never have to invest in the book; and they don’t have to key in any data to find it, sell it, and deliver it.

The additional costs of conducting this kind of business in brick and mortar are substantial. Just the data entry costs alone would change the whole equation. But, also, the consignment arrangement couldn’t be made to work; a brick and mortar used bookseller would have to buy the inventory and hold it before they sell it. And they wouldn’t sell everything they buy. All of this changes the commercial proposition considerably. What it says to me is that used books will, for the most part, remain an online marketplace. They could, perhaps, hang on longer in college towns, where there could be a lot of local supply and demand for the same kind of books and a greater consumption of books in general. But in most places, the economics seem to say that the brick-and-mortar stores could stock used copies of the books that sell the best, but going beyond that will be very difficult for them.

And that’s not good for publishers. I think this is a critical point.

Brick and mortar stores are always going to be more effective at generating many book sales than any online mechanism can be. The effect of being in a place surrounded by tens of thousands of books, the impact of the covers and the organization by sections and on promotional tables and display units and with real live clerks to help you; all of this just is not replicated online and won’t be for the foreseeable future. Anything that shifts sales away from brick and mortar, in the long run, will generally reduce sales. Obviously, there are exceptions, based on specific customers – let’s say somebody in a wheelchair, for example – and for sales of books on the “long tail” that wouldn’t be in most bookstores.

We’ve observed before that the challenge for brick and mortar book retailers gets steeper and steeper. They are losing the top bestseller business to mass merchants who work on the thinnest of markups and offer the books at prices full line bookstores can’t match. And they’re losing the “hard to find” business to the internet. With sales bleeding at both ends, supporting the costs of brick and mortar, particularly more than 100,000 titles in inventory in superstores, gets increasingly difficult. If the used book business becomes substantial, and it seems bound to, this is just going to increase the pressure on the publishers’ most important sales channel.

The corrosive effect of mass merchants and internet merchants on full line brick and mortar stores may be more apparent in the UK than it is, so far, in the US and Canada. The biggest UK chains – certainly Smiths, Waterstone’s, and Ottakar’s – are not performing well. Discounts to consumers, fueled in part by deals that publishers keep agreeing to, keep eroding margins in the marketplace for everybody and, with recent contracts containing “high-discount” clauses, are now cutting into authors’ incomes as well, even as unit sales rise for bestsellers.

We just briefly touched on the “long tail.” The term was the title of an article by Chris Anderson in Wired; the article is now being turned into a book with the help of a blog. The concept is that the books that each hardly sell when viewed cumulatively sell quite a lot. Estimates vary, but people are calculating and guessing that the sales at Amazon of books below the top 100,000 titles are anywhere from 20% to as much as 40% of the total number of units they sell. Those are sales of books that the smartest brick and mortar retailer would probably not have in the store.

The good news about the long tail for publishers is that they get sales out of their deep backlist. The bad news is that all those long tail books are competing with today’s books for consumers, so today’s books get harder and harder to establish in the marketplace. And the further bad news is that the long tail weakens brick and mortar retailing relative to the Net.

There is a complementary phenomenon that I first saw explained by net visionary Clay Shirky called the “power law distribution.” Power law says that the top titles get a bigger and bigger share of the total sales. The power law concept is not a book-centric concept; Shirky was looking at how bloggers in a subject area stratify so that a few blogs get most of the traffic. But it definitely applies to books and mass merchants have a lot to do with it. After all, they only stock the top sellers; they offer them in high traffic locations at rock bottom prices, so they get an unbeatable competitive advantage over all the other books that aren’t there.

The power law effect may have slowed down or just had a bad year; BookScan reported that the top 200 bestsellers got 10.5% of the total scans in 2005, down fractionally from 10.9% in 2004. Maybe the difference is a fluke, or maybe it reflects a change in the panel of stores being polled, although BookScan says that is not the case. Regardless, that is still an eye-popping market share for the Top 200 titles in a marketplace that has a million or more titles in it.

The combination of long tail and power law says that each new book published has a smaller potential audience than it once did, in the days when old books were allowed to die and when many titles were available almost everywhere the bestsellers were.

Another channel that is important to publishers for sales is also about to be adding to their headaches, and that channel is “libraries.” They are also becoming more of a mixed blessing because of the Net. Online reserving and net-facilitated sharing of inventory is making it easier for consumers to borrow the books they want and for libraries to satisfy more demand with fewer copies purchased. As we said earlier, libraries are also likely to be adding to the used book problem by scooping up what they no longer need and making the copies available for purchase.

But perhaps even more serious, particularly if the ebook world starts to grow, is that libraries are lending ebooks. You still have to go to the library to get the physical book; none we know offers mailing them back and forth yet as an option. But the ebook “borrowing” takes place online. The “disadvantage” of borrowing rather than buying is that the file evaporates in your computer or handheld after a period of time. But that’s hardly a disadvantage at all for most books, which you read once and then don’t use again anyway. The current schema for libraries and ebooks is that their “lending” at any one time is limited to the number of copies they are willing to pay for. “Necessary, but not sufficient” is the phrase that comes to mind here. EBook and audio downloads from libraries just add another way to get more readers out of each sale the publisher makes. And that is not good for publishers.

Many libraries are in the “digital downloads” business for all content – not just books – because of a company that started them with books: OverDrive Systems in Cleveland. OverDrive has been in the digital book business for about two decades. When ebooks looked “hot” in the late 1990s, they set up a capability to deliver a turnkey ebook store to the retailers who would want it. As it happened, almost none did. But the same capabilities were converted to a library offering. When iPods and audible.com happened, OverDrive was perfectly positioned to convert “ebook downloads” into “content downloads.” It is almost certainly the case that audiobook and music downloads are, at least for the moment, attracting more action than ebook downloads.

As a result, libraries are also going to cut into the one part of the trade business that’s really growing, audio books. The immediate threat there is greater than it is for ebooks, because audible.com, a great revenue producer for publishers, has already taught iPod users how to use such a facility. How many will migrate from audible subscriptions that cost, and pay royalties to the publisher and author, to their local library for free audiobook loans that pay publishers and authors nothing additional? One has to assume there will be a migration from paid to free.

The part of a publisher’s business that is unambiguously helped by network technology is their improved ability to manage inventory in the supply chain. The idea of getting on hands and knees to check stock in a bookstore, which was just one of the job requirements for a sales rep twenty years ago, is a complete anachronism. Now the accounts are bigger, the sales are recorded at the point of sale, and data feeds telling a publisher what’s selling and where most of the unsold books sit are ubiquitous. Overall market data is aggregated in most English-language countries by BookScan, and is now being supplied in Canada by BookNet Canada.

BookNet Canada’s reporting is unique because it gives publishers both sales through the registers and on-hand inventory from its reporting network. Everybody trying to make money in the book business – publisher or retailer or wholesaler – knows that what sells is only part of the profit equation. What ties up cash and has to be shipped back and forth and does not sell creates costs which have to be reckoned. Knowing all about sales and nothing about inventory can lead to many wrong conclusions.

The total market rollups are particularly useful for competitive purposes and showing all industry data, not just showing each publisher its own. That is an important element of the value proposition for BNC and for BookScan in its markets. But perhaps an even bigger opportunity for publishers is in the data on their own books which many large accounts will provide.

On behalf of publisher clients, we take feeds from retail and wholesale accounts all over the world: B&N, Borders, a US Christian retailer called Family, Ingram, Baker & Taylor, Amazon.com, Waterstone’s and WH Smith in the UK, and, of course, Indigo. Through some calculating, mostly of sellthru rates but of other things too, and some filtering for important exceptions, we’re able to show publishers where the account needs more books, books they’re likely to return, when they’re ordering stock they don’t need, and, particularly with retailers, where opportunities are being missed on the backlist. We’re now in the process of rolling up that information to give clients a view of their supply chain exposure: unsold books that might come back. This is critical outside Canada, where the sales data aggregator doesn’t poll for inventory. And we think it will help some Canadian publishers who sell direct to major US accounts in addition to selling domestically.

This kind of information helps publishers get more sales from less sales representation and leaves them printing fewer books that are not needed yet or which will never be needed at all. In a declining market, which will be the case for many publishers and for many titles for all the reasons we’ve touched on, the way to profit can only be greater efficiency.

Barnes & Noble is a prime example of a company that is prospering through increased efficiency much more than through increased sales. Although they have managed to drive “same store” sales increases, their profit picture is mostly improved by managing to sell more books with less stock. They have built an infrastructure for resupply in the US which, along with rigorous buying and sales monitoring practices, keeps improving their situation. Random House and HarperCollins have done the same among publishers. Supply chain departments, which seek to reduce the pain from returns and the manufacturing of unneeded inventory, are being established across the top tier of US publishers.

Which leads to what we might call the “punch line” on all this: what, exactly should publishers expect to change in their practices as things change in their environment? How do publishers respond to give themselves the best chance to prosper as things change? A good way to think about that is by publishing function.

Acquiring editors must be conscious of all these new circumstances. Often they are offering a contract today for a book that won’t even be written until a year or two from now and not published until a year or so from then. With all this change taking place in the marketplace, paying advances on current assumptions might leave a house wondering what they were thinking by the time the book comes out.

The biggest threats to publishers – particularly the threat from used books and increased library borrowing – are most likely to be felt soonest and hardest on the biggest titles. The more hardcovers a publisher sells, the more used books will be competing with the paperback edition when it comes out. So an acquiring editor needs to really be watching the house’s sales trends for the author and the category whenever a big contract is being considered.

Big authors have the most leverage. If publishers decide to stop overpaying them for their projects, they can, literally, afford to “do it themselves.” Every significant sales force in the industry is available “for rent” through distribution deals. If publishers respond to changing circumstances sensibly – and cutting advances from current levels could well be very sensible – then we can expect a few big authors to take matters into their own hands in the next few years.

Acquiring editors will also be increasingly in a world where “the book” is just part of the author’s entire commercial package. Authors with visibility – in recent years called “platform” – have always been desirable. In our times, more and more content will be acquired because it was created for the Web, or the author’s fame was created on the Web. This will complicate acquisition, publishing, marketing, and rights.

The world is also changing quickly for rights people. One casualty of our shrinking world is territorial rights integrity. The European Union makes it hard for the British publishers to keep US editions out of the UK. Amazon and other online booksellers make it easy for consumers anywhere to order editions from anywhere else. Squeals are beginning to get louder from the London-based publishers, and that is likely to continue. So English-language rights trading is going to get harder to do.

Of course, Canadian publishers have lived with this problem at the forefront for many years, inundated as you are with editions from the US, the UK, and sometimes Australia as well that may compete with a theoretically protected Canadian edition.

Historically, the “big” rights were book clubs and paperback. Paperback has been a diminished market for more than ten years, for reasons that have more to do with consolidation and the breakdown of the local jobber distribution system and competition for space from videos and now DVDs than with new technology. But the book club business is very much a victim of new technology and it is marching relentlessly toward oblivion.

As the potential for revenue from the Web grows, digital rights will become more important. Will there be a market for serialization on the Web? Probably. Audible is an important new rights player for audio publishers. Perhaps in the future we’ll see distinctions among the audio that is digitally downloaded for temporary use, digitally downloaded for permanent ownership, and streamed (not actually “downloaded” at all.) Developments like these could change the environment for libraries; it could be that publishers will stop selling audios or ebooks for “loan” along the model of physical books, but will make sales for “personal use only.” DVDs already have a model by which Netflix or Blockbuster pays per rental, not a fixed “sales price.”

Life will be changing in the publishers’ production departments as well. Content management systems will require “tagging” of all the components of many books that are not simply straight narratives so that content can be sliced, diced, and repurposed. Printings will be shorter, reprintings will be more frequent, and the pressure will be on to do them faster. Short run printing capability, particularly for one-color narrative books, will be built into many books’ lifecycle plan as a standard matter.

Short run printing – even print on demand – is getting increasingly sophisticated. Even full color can be delivered at startling quality now. Costs are generally coming down. Publishers will need to stay abreast of developments in this area; the life extension plan for a book that simply won’t work today might be economically viable tomorrow.

The most sophisticated application of short-run printing technology we have encountered is offered by University of Chicago’s Distribution Center to 50 academic presses that they distribute. They arranged for Edwards Brothers printers to set up a short-run operation right in the Distribution Center warehouse. With financial assistance from the Mellon Foundation, they set up a digital storage center called BiblioVault, which holds print files for all the books.

Then they link their inventory records and order activity to Bibliovault. If they get an order for a book that is out of stock, the system triggers a “printing” of two copies or any multiple of two copies. The publisher can set the printing to be whatever they want – there is no price break until they print more than 75 copies – and they can set the printing to be triggered by an order with inventory at zero or at some earlier point when one or more copies still are in stock. Since printing and delivery to a pick location occurs in a matter of hours, all books in Bibliovault are, effectively, in print and available whether there is copy on hand or not. That allows these academic publishers to fulfill their mission of keeping their books in print and, no less important, means they retain their rights for lucrative course-pack business that might use a chunk of a book that would otherwise have gone out of print, and on which the publisher might then have relinquished their rights.

Used properly, this capability can eliminate both the lost sales through stock outs and the capital wasted through overprinting. It is literally creating a new model for publishing, making up for any reduction in margin by a huge reduction in waste. The Bibliovault model is compelling for books that have a long lifecycle, even at a very low sales level, and a high retail price. One can imagine virtually all academic and professional books being handled this way before long.

Our understanding is that both Lulu.com and Amazon.com will have offerings to help publishers profit from short-run printing in the next few months.

Because of account consolidation, which will certainly continue, and data feeds, sales departments will benefit from constant monitoring for resource allocation. The past 15 years have seen the rise of the “national accounts” in relation to the “field.” Office staffs that cover the top trade accounts are now sometimes as large as field forces covering the country. As growth in the trade has stagnated, or disappeared, publishers have found sales at non-book retailers to replace them. What are called “special” sales are now also handled by growing sales departments housed in the home office.

Book marketing isn’t standing still either. As internet conversation grows, it replaces offline communication. Magazine and newspaper owners know that and worry about their own survival. Inexorably, traditional media reaches less of the audience; online reaches more. So the standard “drill” of 10 years ago: review copies to a list of X potential press contacts, a press release to a list of 5X more, and an unchanging list of key media that included PW, Kirkus Reviews, and The New York Times, is in a cocked hat.

Book-dedicated blogs abound. Every subject that could be covered in a non-fiction book or be part of the world of the story in a novel has its own web communities. Keeping up with what’s important for books in general and finding how to promote in each new subject area will be a continuing challenge. And the tools of the trade have grown; it’s no longer just a “press release” anymore. Books need audio plugs for podcasts and can deliver video plugs to desktops as well. Free chapters for promotion can be delivered as downloads or even be embedded in emails. Authors want dedicated web sites and publishers want to “own” authors. A new program called Amazon Connects, which invites authors to set up their permanent web residence at the online retailer, should not only alarm Barnes & Noble and Indigo, it could loosen the bonds between publishers and their authors as well. Publishers’ marketers need to figure out how to build marketing that creates a “switching cost” for an author to leave the house. The big authors will be too smart and savvy to permit that to happen but the small ones won’t. And small ones become big ones over time.

Marketers need to reconsider where they should spend their money, and they are. I noticed that the first issue of Publishers Weekly of 2006 had exactly ONE full-page ad from a publisher in it. Publishers have to decide now whether the few grand they might spend in PW, or The NY Times Book Review, would be better sent on Google Adwords which, by the way, you only pay for if there is “clickthru,” so all the impressions of people just looking which is, after all, all you get from PW or the Times, are actually free!

This example further demonstrates what we touched on earlier: the collapse of mass markets and the need for publishers to reach audiences one niche at a time. Publishers are going to have to learn how to reach audiences through blogs and niche web sites, even when those audiences aggregate up to something very large, suggesting it will take many little granular pieces to reach them all.

There is some debate about the efficacy of publishers actually selling direct to consumers. For very general trade publishers who will, until their dying day, depend heavily on the sales clout of bookstores online and off, the hunch here is that it is an unwise move. Yes, the publisher and, by extension, the author, should have direct contact with the market through the Web. Email addresses and permissions should be collected; an interactive dialogue should be attempted and, where possible, maintained. But capturing the final sale is not necessarily productive.

For one thing, there is no substantial margin “bump” gained by selling direct. A publisher that sets up as an “affiliate” to online retailers can get an additional chunk of the book’s sale for referring it, from 4% to 10% of the selling price at Amazon and comparable shares from others. Add that back in to the revenue after the discount, eliminate all the handling cost – including dealing with returns from consumers – and the margin just hasn’t changed very much unless the publisher charges much more than the retailer including postage and handling.

And referring those sales to retailers gives a publisher the right to ask for something in return: a window in a physical store, better placement in the online environment. Maybe the retailer would see value in discounting a book on which the publisher is sending many referrals, because doing so constitutes an opportunity for the retailer to win over some customers.

A problem arises for publishers executing this strategy when they sell multiple formats and an online retailer doesn’t carry them all; I am thinking particularly of downloadable audio or ebooks here. The same logic that tells publishers to control their digital book files, rather than turning them over to Amazon or Google, should also tell them to serve their own digital downloads of ebooks and audio. None of the retailers offer full service for this business right now. In fact, the opportunity exists for publishers to really help retailers out by setting up the distribution capability for this business and then “reverse-affiliating:” letting the stores send business that they could otherwise not process to the publisher in return for a commission.

A valid point to be raised against the strategy of referring physical book sales is that the publisher loses the sales relationship, the credit card on file, and perhaps the customer’s name. For a publisher whose output is repeatedly aimed at the same niche audience, the cost of routine referral may be too high.

In the next few years, the proliferation of publishing startups and the consolidation of companies will continue. Web content developers will become book publishers, or partner with them. Consolidation is inevitable because the critical mass requirements, many of them systems-driven, will drive it. The number of titles being made available each year will inexorably rise and the sales per new title published will inexorably fall. A great deal of the consolidation will be through distribution deals, so the number of warehouses from which books are shipped will decline even as the number of publishers creating them increases.

Because I write talks like these over a period of several weeks – this one started about the first of the year – new information or late-breaking events can force a bit of re-writing. I am going to take the easy way out here, tacking on a couple of things that were first reported last Monday that, you’ll see, can’t be ignored within this conversation.

First of all, BMW recruited four authors from Random House to create 45-minute audio books that feature BMW cars. The audiobooks are available free as digital downloads; the first one is called “The Beautiful Ride” by Don Winslow. The report I saw didn’t mention whether Random House Audio will sell shrink-wrapped versions for people who don’t do digital downloads yet.

Secondly, HarperCollins announced an experiment by which a backlist book, Bruce Judson’s business book “Go It Alone,” will now be available free, in its entirety, on his web site with ads appearing on the margins of the page. Ads, hunh? What a great idea! But how much you want to bet the sales of the book go UP as a result! What would that do to a case of Google paranoia?

We have been living in a world of change in publishing. That will continue. As has been predicted for a long time, media are converging and the impact of change in one medium affects others. Computers and televisions are getting harder to distinguish from each other. iPod conquered the music world, and now it seems like it will change a lot of TV watching habits as well. eBooks are available in many libraries because iPods popularized digital audio. Books like South Beach Diet turn into web businesses and, increasingly, web sites and blogs spawn authors. And the entire process, and almost every part of it except the actual writing and the actual reading, keeps speeding up. Resistance to change is futile, even suicidal. Constantly looking at the landscape, trying to understand what is changing, and adjusting to suit, is essential.

Reading won’t stop. Writing won’t stop. Stories won’t stop. Information won’t stop. Form will follow function in the 21st century as it always has before. It’s just a little more complicated because function might change a bit between now and next week. And, as the years since 2000 have demonstrated, today’s hot new thing may change our life, or become a name we won’t even remember in a year or two.

With the exception of a handful of companies worldwide that chase big books with big advances, most of the money publishers spend is spent on printing. Even though many publishers write off overenthusiastic author advances, most of the money publishers lose is lost printing books that were never needed. And another chunk of it is lost financing inventory that is printed well before its necessary time. With the pressure on publishers to be more efficient growing daily, getting the printing decisions right — or at least getting them better — should be a priority for every publisher.

Fortunately, two of the biggest barriers publishers face to making more profitable printing decisions are of their own making. I say “fortunately” because barriers of one’s own making can readily be removed by those who see the light and choose to remove them. The third biggest barrier can now be lowered considerably, if not removed, by the use of data readily available to anybody who will systematically capture and organize it.

The three barriers are:

1. Unit cost accounting, which makes publishers misread the financial impact of their own decisions.

2. Printing too many seeking to avoid a “too-small” reprint, which is at least partly due to an underappreciation of what short-run and print-on-demand technologies can do to recover sales that publishers fear will be lost if their first printings are too small.

3. Inadequate information on which to base a sales forecast, which might even better be called an “inventory needs forecast”, and without such a forecast, no method of determining a printing quantity can make any sense.

Let’s take them one at a time.

“Unit cost accounting”, where a publishing enterprise’s finances are managed at the granular level of the individual copy, calculating a cost basis for each one, has been a standard of our industry for a long time. Its origins are reasonable. Accountants require a unit cost for each book as it is sold to keep proper track of a company’s financials to pay taxes and inform shareholders. There’s no problem with that. The problem comes when management starts to use that unit cost number to manage the business, particularly to determine the printing quantity.

The inherently misleading aspect of the unit cost is often compounded by publishers adding in some unit assessment for the book’s plant cost and another one for overhead. This elevates a small logical error to the level of an absurdity. There are a number of reasons why:

• It tempts publishers to think that the cost of printing is incurred when the book is sold. That isn’t true; it is incurred when the book is printed. And this is true from two critical standpoints: first, the timing of the expenditure and second, the irrevocability of the expenditure.
• It takes plant costs and operating overheads that will be recovered over an unknown number of books sold and assigns them somewhat arbitrarily to the books in the printing being contemplated.
• It ultimately assumes that the cost of books printed equals the cost of books sold, which is only true if all the books which are printed are sold. If that happened every time, we would have fewer concerns about the technique. But it doesn’t.
• It completely ignores the use and value of cash, which is not only the most limited resource for most publishers, but also the one resource which, when depleted, threatens imminent doom.
• It suggests that costs and risks go down with a larger printing when, of course, they actually go up.

Unit cost analysis is usually rolled into another fallacy, the “title P&L.” The “title P&L”, unlike the fictional “unit cost”, is not driven by the accountant’s need to figure profits or taxes. Rather, it is used as part of the publisher’s attempt to assess the worthiness of a project under consideration for purchase. In fact, it is almost never used to assess a project after it is published. Publishing companies make and lose money and need to be seen that way, but it actually fosters misunderstanding to see individual projects as having a profit or loss. The world makes more sense, and you are being more precise, if you see them either contributing to overhead and profit or failing to.

The alternative to “unit cost” analysis and the “title P&L”, is what we would call, with apologies to most of the world’s currencies, “whole dollar accounting” with a focus on each title’s contribution toward covering overhead and producing profit.

The technique is pretty simple. You figure how many you’re sure you can sell and how much revenue those sales would produce. You then figure how many you’re going to print and subtract that entire cost, plus the other expenditures directly attributable to the book — advance, additional royalty if applicable, plant costs, and, perhaps, title-specific editorial development and marketing expenditures — and see where that simple subtraction leaves you. If the result is negative, the book is probably a bad risk. If the number is positive, the project is contributing to overhead and profit.

And, of course, if you decide to increase the number of books you print without increasing the number of books you budget to sell, your subtraction will leave you with less, which is accurate reflection of what would happen to your company’s profits under the revised scenario.

Unit cost is not the only consideration that drives overprinting. So let’s look at the second barrier to good printing decisions: the fear of facing a too-short, too-uneconomic next printing. Since we have been doing more and more supply chain work, we have been stunned by the number of publishers who do printings for 2- or even 3-year sales expectations. We even have found one publisher that prints for seven years!

How long should a publisher print for? There are two answers.

For those books which are highly predictable and in no danger of sudden demise — the most stable, long-term backlist — it is best to do an EOQ, “economic order quantity” calculation. This calculates the balance between the unit-cost savings associated with larger quantities and the interest-related (and, if necessary, space-related) cost of holding inventory for a longer period of time. When there is no danger that the books being printed will become “obsolescent” inventory — books not needed at all because of a drop in demand for the title — the EOQ is the path to the most profitable printing decision.

But most books are not so reliably forecastable. The biggest risk with most books — demonstrated on every remainder table — is that the copies we are rushing to print today will never be needed at all.

That fact argues for a strategy of printing only as many as the publisher is quite certain will be needed to fill orders. For a first printing, that would have to be enough to cover the initial distribution, plus an overage to allow time to watch sellthrough and fill reorders before it becomes necessary to print again. Knowing what that overage needs to be is certainly the tricky part and, in fact, it is always a bit of a guess. The guess needs to account for how much time is required from ordering a reprint to receiving one as well as how volatile a publisher thinks, or hopes, the demand for the title can be.

Let’s explore why a “needs-based” rather than “cost-based” approach to the question makes the most sense. And we’ll demonstrate why overprinting today to avoid possibly not needing enough for a reprint tomorrow is a bad tactic.

Consider the publisher who can see a need for 6,000 copies to cover an advance and figures that the first 1,500 copies of additional demand will allow her to gauge whether the book will “work” or not. She wants another 1,000 copies to cover the time it will take from ordering a reprint to getting it delivered. So, by our advice, the correct printing would be 8,500 copies.

But her production manager says that printings of fewer than 3,000 copies will fail to “make margin” according to company rules. What if the evidence seen in the first 1,500 additional demand suggest that the aggregate total need will be 10,000? So, the argument goes, wouldn’t it make more sense to print 10,000 in the first printing, get the benefit of a better unit cost on a single printing, and not risk needing an uneconomic printing and going out of stock while waiting for the reprint?

Of course, all of these decisions were based on scenarios constructed by guesswork. So let’s consider two more, which are just as likely. What if they do print the 10,000, but the total aggregate demand turns out to be 11,500, or 12,000? Now, because you printed the initial 10,000, you don’t have demand of 3,000 for the second printing! And you would have if you’d printed 8,500! And, on top of that, the publisher took a greater than necessary risk on the first printing!

Or another alternative: what if aggregate demand tops out at the 6,000 that was sold to customers as advance orders? If that happens, printing 10,000 increases your obsolescence from 2,500 copies to 4,000, which is a 60% increase in waste!

Of course, both the danger of a temporary out-of-stock and the problem of the need for additional copies that would be uneconomic to print can be solved for one-color books, particularly those with high markups like professional books, by using digital technology. In the earlier example we discussed, a publisher might just accept lower margins, printing 1500 instead of 3000. But there is a point below which that wouldn’t work. If an additional 200 copies were needed, or 100, or 50, then no offset printing strategy could work except consistent overprinting the first time which we have demonstrated only changes the point of peril, it doesn’t eliminate the possibility of needing an additional quantity that would be seen as uneconomic to print.

Digital printing for short runs, even print-on-demand runs of one copy, is a compelling tool, probably a mandatory component of the title lifecycle for all 1-color professional books. Those are the books where sales lost to out-of-stocks are most costly. For 4-color books, there are questions of quality control that make using POD less automatic. And operating on trade book margins usually would require a different royalty structure than for a normal print run to make the proposition work economically and, even then, a price increase might also be required.

Because digital printing for POD or short run works from the same PDF files as the offset printers do, “setting up” books for POD should already be routine for one-color professional books.

Whether you follow our advice, which is to print only what you are confident you will need, subject to the limitations of an EOQ decision, or whether you follow some other rule like printing for a year, or two years, or even seven, you still need to forecast needs to know what to print. So now let’s turn to the data that supports the guesswork that underlies every printing decision made by any rational technique: the inventory-needs forecast.

For first printings, the key is to get the orders in! As the account base in most markets has consolidated, much of the advance sale on many books is coming from a smaller and smaller group of accounts. Those accounts tend to be very diligent at getting orders in on big books from big publishers, where promotional space is allocated and there is a clear perception that sales can be lost if books aren’t in place from Day One. In fact, a big danger for publishers here is that being late with new books can result in advance orders being cancelled and, on the smaller books, they might not be reinstated. This can be a cause of inventory obsolescence as well.

For smaller publishers and smaller books, though, time pressure on the buyers may result in the order being delayed, sometimes past first shipment date and often past the date when the printing needs to be ordered. I am a bit surprised that no publisher has yet offered an incentive to its customers for timely delivery of those initial orders, although the scheme would have to somehow exclude the big books that the big accounts order on time anyway. No doubt, the account needs adequate time to make their decision, so the publisher making that offer would also have to provide information in time for the account to be able to take advantage of it. But a deadline for getting the order in that had some extra discount or a payment extension attached to it would seem to be a sensible and mutually margin-enhancing proposition.

For subsequent printings, the key is to know inventory status in the supply chain! At most publishers, this is done by doing a lot of individual title research when a reprint is needed. The technique employed by most publishers to do it is so labor-intensive and time-consuming that it is only done for the biggest books. Building what we call a Supply Chain Tracker takes some time and some effort if it is done in-house, but the payoff in reprints postponed, reduced, or avoided can be substantial.

What a publisher needs to build a Supply Chain Tracker is regular, preferably weekly, data feeds from the accounts holding the most inventory. The key data points to capture for each ISBN are the current quantity on-hand, the current quantity on-order, and sales or demand for the past 52 weeks and for the past 4 weeks.

With the demand data, a rep who knows the book and the account should be able to do a pretty reliable estimate of the account’s need for the next 52 weeks. With the inventory data, management can see quickly whether more copies will be needed soon, or ever, and whether there is excess stock that might be called back. Depending on the publisher, between 5 and 10 feeds should provide the needed information for more than 80% of the inventory on more than 80% of the titles.

Most (but not all) of the biggest US trade publishers have created “Supply Chain Departments” which are gathering data across the supply chain as we suggest here. Taking these feeds and archiving them creates a tool that enables any publisher to better control printings and reduce the manufacturing of books that will never be needed. Doing that creates profit from money that was going down the drain. No publisher today can afford not to.

“The future of distribution” is simply too big a subject to be covered in an hour, even by a fast-talking New Yorker like me. So we’re going to focus our attention on “distribution” as defined by the companies that call themselves “distributors” and by publishers who offer “distribution services” to other publishers. That is, we’re going to talk about how it works when a publisher hands off important distribution functions to another entity.

One might say that this is a subject of universal and growing importance. Almost every publisher today is either a distributor of others or a distributee of another. More than a handful are both. The chances are good that, whatever publisher one works for, a distribution relationship will be part of the landscape.

And right this minute is a pretty active time in the world of distribution. Competition has heated up; distribution deals are where a lot of the consolidation of the trade book publishing industry in the US is taking place.

Let’s start by defining the distribution functions. What is covered by the term “distribution”? Here’s the complete list:

* Warehousing (and related services)

* Receiving orders

* Picking, packing, and shipping the orders

* Managing data associated with maintaining inventory and filling orders

* Collecting accounts-receivable

* Sales representation to the trade channel (usually exclusive)

* Sales representation to special markets (usually non-exclusive)

* International sales representation and fulfillment

* Sale of subsidiary rights

* Sales representation to non-trade, special sales, or export channels

* “Basic” publicity

* Additional title-specific marketing

Distribution arrangements usually cover most, but not all, of these functions.

So why do publishers collaborate for distribution? What’s in it for the distributing publisher? And what’s in it for the distributee?

Publishers take on other publishers for distribution to reduce their own costs. “Scale” is an advantage for virtually all aspects of distribution. If you’ve got a warehouse, you want to fill it, because you pay the same for empty space as you do for utilized space. More volume gives you more leverage to collect money and makes it easier to support a sales force. And we live in times where systems costs keep rising; several of the largest publishers have spent double-, or even triple-digit millions in the past few years putting in new “enterprise” systems to manage their business. That’s one of the factors driving the growth in distribution activity now. It is helpful to amortize those costs over more books than publishers care to invest to create.

Another factor driving distributing publishers to seek clients is that launching new titles successfully and maintaining sales on backlist are both getting harder and harder in the current marketplace. So volume increases are most easily achieved by getting more books to sell from somebody else’s investment. That means getting distribution clients.

The distributed publisher also seeks the value of “scale” that may be beyond its means. Only a handful of publishers can afford to invest in an S.A.P. enterprise system. Selling today requires knowledge of standards for data transmission, for example, that all big publishers and distributors have and that would be expensive and draining for small or new publishers to gain.

Going to a larger entity for distribution also has the effect of making large costs “variable” rather than “fixed.” You pay for the warehouse space you use, not the whole warehouse. You pay for the pick and pack activity associated with your actual sales; you don’t have a payroll to meet regardless of whether anything is selling this week. In the ideal world for a distributee, sometimes achieved, distribution costs can be set as a percentage of net sales, creating a high degree of predictability of expenses in relation to sales.

What also becomes more predictable for the distributee is the pace of collecting their money. Little publishers, particularly, may find themselves stretched out well past 90 days waiting for payments. Bigger publishers and distributors usually have more reliable collection times, so that they can “guarantee” payment of receivables on a contractual schedule timed to the sales. This certainty of when cash will arrive can literally be of life-or-death value to a small publisher.

Distribution relationships are complicated and cover a lot of ground, which is reflected in the great variation that exists in the deals that govern them.

Of course, the first question is: what is covered? Historically, distribution usually covered sales and fulfillment as a bundled service at an overall, percentage of sales, price. When I first got involved in distribution more than 30 years ago, just about the time current industry leader PGW began in business, most deals covered virtually all the services we enumerated earlier and the charges were usually a fixed percentage of net sales. Some publishers, like Harper at that time, offered a sliding scale of charges that were reduced as volume increased. One publisher at that time, Scribner’s, charged based on gross sales — what they shipped out rather than what was sold net of returns received. Scribner’s percentage charges were lower, but they transferred some of the “risk” of returns to their client publisher. A publisher with high returns would end up paying a greater percentage of “net sales” for distribution. This is fair and logical, but less attractive to a smaller publisher seeking cost certainty.

The two biggest dedicated distribution companies — PGW (for Publishers Group West) and NBN (for National Book Network) — have standard arrangements that illustrate this distinction. PGW’s contracts, usually, call for them to collect a fixed percentage of the “net sales”, which means “value of shipments minus the value of returns.” NBN’s standard contracts enumerate two different percentages. They charge a percentage of “gross sales”, which means “value of shipments” for the fulfillment portion of their responsibility and a percentage of “net sales” for their sales efforts.

“Sales only” distribution relationships are rare but there have long been “fulfillment only” relationships. For an example involving very large players, HarperCollins has been handling the trade fulfillment for Scholastic for many years, although Scholastic handles its own sales efforts. For years, Hyperion has been distributed and sold by TimeWarner. Hyperion has just taken back the sales component, but continues to use TimeWarner for fulfillment.

There are other charges by distributors to distributees. Some of these are for ancillary warehouse services a distributor might perform, such as stickering inventory or putting books into promotional display cartons. But sometimes extras are for core services. Distribution contracts might call for “in and out” charges: a fee by the distributor for “receiving” inventory or for shipping books on behalf of the distributee when the distributor doesn’t share in the revenue, to a foreign distributor, for example. Some contracts charge for warehousing based on the volume of books being stored. More and more contracts call for “returns processing” fees.

Another variable in distribution contracts is how the distributee is paid. It is normal for there to be a contractually-defined payout based on when billings are achieved, and the payout is designed to pass money along to a distributee only after it is collected from the accounts. Most contracts call for all money to be paid within 120 days of billing, but, beyond that, there is a wide variation in the speed of payment.

A major concern for many publishers arranging to be distributed is their “identity” as publishers. This starts with the control of “metadata”; the information about each book that is put into the supply chain by the publisher or the distributor acting for the publisher. This basic information — title, author, retail price, type of binding, subject matter of the book expressed in standard ways using BISAC codes — includes the name of the publisher or distributor. It is not uncommon for a distributor be listed as the publisher, rather than the publisher itself. This has even happened on books on a Bestseller List.

This confusion of identities is almost inevitable. The distributee’s books are often presented from the distributor’s catalog. The review copies may go out in the distributor’s box. Because bookstores and wholesalers order the distributee’s books from the distributor, the distributor may be listed as the “publisher” in many of the customers’ internal systems. The distributed publisher faces an ongoing conflict between pushing its own identity forward out of pride or pushing its distributor’s identify forward out of practicality.

But perhaps even more important than what imprint name appears on the bestseller list is a distributed publisher’s lack of direct contact with major accounts. Majors have opportunities, and new ones arise daily, to promote titles in exchange for payments from publishers. Whether these opportunities are “cost-effective” can be questionable. But the sheer logistics of capturing these offers and referring them to another publisher’s organization for a decision can lead a distributor’s rep to turn down these proposals without even submitting them. This can result from an honest difference in perspective. I have seen more than one case where a distributor, usually a larger and more powerful company, thinks that a customer’s deal for a promotion is not good value but the smaller distributed publisher would have jumped at the opportunity to buy into it.

The market for distribution services in the US right now is in greater flux than it has ever been. The number of players among publishers has been growing, as has the size and number of dedicated distributors, for at least two decades. But a pair of recent re-entrants into the market, Random House and Ingram Book Company, are accelerating the movement of lines from one distributor to another.

Ingram tried for years, with less than great success, to set up distribution services for publishers, shutting down the effort a few years ago. Random House disposed of its distribution business when the company was bought by Bertelsmann from Advance in 1999. Bertelsmann’s thinking at that time was that they didn’t want lower-margin distribution business using their state-of-the-art capabilities; they saw their distribution operations as a competitive advantage they would prefer not to share.

But then Random House spent an enormous amount of money improving their capabilities even further, particularly on an S.A.P. enterprise system. Ingram saw their primary business — book wholesaling — under assault as independent bookstores died off and big ones, like Barnes & Noble, Amazon, and now Borders, created their own distribution centers to supply back-up stock. The allure of being able to use existing facilities to serve distribution business became too compelling to resist.

It is coincidental, but at the same time, the biggest dedicated distributor, PGW, lost several key clients, which made distribution’s biggest player suddenly aggressively pursue more distributees while, at the same time, redoubling their efforts to keep the ones they have. PGW’s parent company, a wholesaler called Advance Marketing whose business was primarily in mass merchants and price clubs, suffered a criminal investigation centered around sales to publishers of ads in circulars which weren’t printed in the promised quantities. This hurt PGW because distributees feared a possible negative impact from the parent corporation’s troubles. It increased the urgency for PGW to leverage their global sales and marketing capabilities across more publishers. PGW executives maintain that they have added over 25 new distribution clients, including several with sales in the millions of dollars annually, even in the face of their difficulties.

Both Random House and Ingram have great operations and they brought them to the market at rock-bottom prices. PGW’s principal competitors among dedicated distributors — NBN, IPG, Consortium, and Midpoint Trade plus other major players among the publishers — Simon & Schuster, Holtzbrinck, TimeWarner, Norton, and Chronicle — all have responded by getting increasingly active pursuing additional lines while they’re scrambling to hold onto what they’ve got. Prices for distribution services appear to be falling and unbundling — buying specific distribution services rather than an all-inclusive deal — has become common. A recent distribution deal was announced for one publisher who will use Ingram for fulfillment and Midpoint Trade for sales.

When a publisher shops for distribution services, which all but the largest publishers will do every few years in the current environment, the biggest decision is how to handle sales. Comparing the quality of fulfillment services is relatively straightforward. How efficient each distributor is can be learned from their customers, the stores and wholesalers. But how effective the sales effort will be depends not just on the skill of the selling organization, but also on the effectiveness of the communication between the distributor and distributee. And that’s a variable within every stable of distributed publishers.

By my observation, the experienced dedicated distributors tend to have better procedures to absorb product information and project it through the sales organization than publishers who distribute. And they also tend to have established mechanisms to manage coop offers and marketing opportunities through many publishers at one time. Distribution clients are, inevitably, more important to the top management of dedicated distributors than they are to big publishing houses. Every client relationship is different, of course, but the generalization still holds and, in many cases, really matters.

But, while consolidation on the customer side has really made it essential to have a larger operation with “critical mass” to warehouse, bill, collect, and to make bookstores and wholesalers feel comfortable buying the books, the paradox is that sales can still be done by a small company. If your books come in a box from a company they already do business with, most large accounts will make some time for a small company to see a buyer. If a small company has enough titles in a niche, it can even establish real relationships with major accounts. And there are still commission rep groups in every corner of the country looking for lines to pitch to the smaller bookstore and specialty accounts in their territories.

The challenge for the distributed here is that increased “control” only comes with increased management responsibility and expense. Yes, you can cover major accounts yourself and handle the rest with commission reps, but you have to manage the big relationships and support the reps with costly selling materials and management attention. None of these is a trivial task.

Although distributors will often offer “basic” publicity — getting to key pre-publication review channels, listing the title in various databases and sending out an initial press release — and will broker marketing opportunities with retailers, which more and more is about in-store price and position promotion — the marketing direction has to be provided by the distributed publisher. Some rights activity takes place as a by-product of marketing, such as serial sales. But even keeping those rights to save commissions might be a mistake, because the administration of these things can often be done better by a larger department.

Some special — that is, non-book-trade — sales activity arises naturally out of marketing, as well, particularly for a niche non-fiction publisher. An important element of special sales success is “critical mass”; a body of titles in a subject area is necessary to serve the accounts. Publishers who have it often have already cultivated key sales relationships before they arrive at a distributor. In many trade book distribution deals, the special markets are carved out and treated separately, or not included at all.

So the choices and combinations of choices for distribution, if not limitless, are so plentiful that very few publishers have the time, energy, or resources to explore and consider them all.

The best strategy for any distributed publisher, which most are and will be, is to keep contracts and commitments as short as possible because competitive pressure is likely to keep prices falling for some time to come. When looking for a distributor, a publisher should try to shop the market as broadly as possible and maintain touch with the ones they like but don’t pick, because they’ll still be there when the next contract is up. And all publishers should do their best to own as many buyer relationships as possible, even if a distributor has primary responsibility for sales.

Book publishing everywhere is bound to have more publishers using fewer warehouses to supply an increasingly consolidated general account base in the years to come. That means that getting the most out of their distribution relationships is bound to be one of the core concerns for publishers over the next decade or longer.

Yesterday we took a “view from space” look at publishing. Today I want to spend some time on something we talked about yesterday: making sure your own metrics are not leading you to bad business decisions. Many publishers have scorecards that do.

There are three big decisions that publishers often sharpen their pencils to make.

1. Whether or not to commit to publishing a book in the first place.

2. Where to set the retail price.

3. How many copies to print.

Most publishers’ accounting, like that for most businesses, is constructed primarily to enable bookkeeping that conforms to government regulations, particularly for public companies that are reporting their results, and to enable paying taxes. So, for example, it is not at all odd that each copy manufactured carries a “unit cost” on the books, because, when it is sold, there has to be a charge for the cost of goods and the unit cost is it. It is not the purpose of this conversation to challenge how accountants calculate the “unit cost” in order to satisfy tax and securities regulations.

But scorecards that influence executive conduct should reflect the way the business really works. And costs are not actually incurred for each unit as it is sold; most of the cost is incurred when each book is printed.

Similarly, accounting management knows that the business’s overheads will amount to, let’s say, 40% of sales. Unit cost accounting tries to assign that 40% to each sale. That may be convenient for accounting, but it isn’t how the business actually works. Most overhead is entirely independent of what books are published, manufactured, or sold.

For the purpose of management, this is how I’d suggest seeing the business.

Overhead is, mostly, fixed. You don’t pay more rent because signed up one more title, and you usually can’t reduce your warehouse space just because you printed fewer books than you thought you would.

Advance and pre-press investments in each book are “sunk” costs to enable a title to be published; it is meaningless to see them as “unit” costs. You can know to the penny what the sunk costs really are, but you have no clue (until it is all over) how many copies will ultimately share those costs.

PP&B — paper, presswork, and binding — can at least be accurately presented as unit costs, which vary by the size of the printing, even though they aren’t actually incurred that way. But because the expenditure for an entire printing is, indeed, a sunk cost from the time of the printing, whether or not the number of books manufactured is close to the number sold is almost certainly more critical to a title’s economic success than what the unit cost of manufacture is, even though accounting focuses attention on the unit cost.

The way it actually works is that a contribution is earned on each copy sold, which is the selling price of the book (the revenue the publisher receives) minus actual direct costs. The printing has already been charged, so those direct costs might include sales commission on that book and the actual expense of shipping that book. Since advance was sunk, just like the printing cost, “royalty” does not kick in to reduce contribution until the advance has earned out.

And although we ignore a discussion of it here for simplicity, “contribution” comes from the house’s share of rights sales as well as the revenue from book sales, of course.

At any time that the “contribution” from all the copies sold of any particular book has exceeded the advance, pre-press, and sunk printing investments — paid back all the direct costs of publishing that particular book — then the contribution addresses overhead. When enough books have made enough contribution to cover all overheads, all additional contribution is “profit.”

This view of the economics, which I believe reflects reality much better than the metrics in almost universal use, demonstrates that a new printing can pull a book back from making a positive contribution into being an investment again, although one would hope that condition would be temporary. Indeed, one would not order the additional printing unless one believed the condition would be temporary!

All of this means two important things, which may not be profound, but are surely not generally accepted.

One: in judging the value of any title to the house, overhead and profit are exactly the same thing. Each dollar of contribution in any month or year goes to cover overhead until it is covered, and then each dollar of contribution is profit. When evaluating any given title, it is actually meaningless, and can be deceptive, to separate the overhead and profit or to define them as different. Where the line between the two is drawn is a function of the house’s overall economics, and can’t be meaningfully calculated for any one title.

Two: all books which recover their direct costs have contributed to the profit if there is any profit! Even if the house calculates overhead — perhaps quite accurately — as 43.6% of sales this year, the books which brought in 5%, 10%, or 32% put dollars in the kitty that covered overhead and got the house to profit. If all those books, which are often seen as unprofitable, had not been published, some or all of the profits the house earned would have disappeared; profits would not have gone up!

This should tell us all something. If the scorecard says a title is “unprofitable”, then my profits should go UP if I eliminate it. If, in fact, eliminating it makes overall profit go down, then it’s fair to question whether this is a helpful scorecard.

The “title P&L”, so-called, calculates this overhead requirement as a standard matter. From my perspective, the words “title P&L” are meaningless. Titles either contribute to overhead and profit or they don’t. They can’t make “profits” or “losses” because those exist within a larger context than any individual title. It is a mistake — and potentially a very misleading one — to view titles as making profits or losses. In fact, the way it is now done, a house could have all profitable books and lose money; and a house could have all unprofitable books and make money!

Similar logical errors are invited by the way most houses calculate the retail price for a book.

Obviously, the publisher’s retail price must cover the actual direct costs of manufacturing, selling, and shipping the book in question. If you’re paying $3 for pp&b, you can’t set a retail price of $2.50 and do anything but lose on every copy. There must be a “positive contribution” from each copy of each book sold.

But how much of the book’s “sunk” cost and how much of the house’s overhead must be recovered by each copy sold is a much harder call. In fact, it is a nearly impossible call and it is the wrong way to look at the problem. A publisher who tries to put those elements into the price calculation starts off on the wrong foot, because the title investments — particularly author advances — and overheads are effectively invisible to the consumer. What the consumer sees is the pp&b and on that basis, and only on that basis, decides whether or not the book constitutes good value.

It is easy to see how calculating unit costs for the first printing that include plant costs leads houses astray. Particularly in conjunction with another widely-accepted axiom, it leads to systematic overpricing and underprofiting.

The other axiom I have in mind, which I believe you will find most big trade houses live by, is “a book must be profitable on its first printing.” Although this rule is broken once in a while by most publishers out of necessity, it is also generally accepted wisdom. Years of experience has demonstrated to most executives that most books don’t have a second printing so, chances are, if you don’t print enough the first time to make a profit, the book will never get there. But let’s remember here that the “profit” we’re striving for includes the 40% or 50% overhead calculation that standard practice requires every sale to cover. So those printing, pricing, and marketing factors which are within the publisher’s control are generally manipulated to “predict” a profit based on the first printing.

Now you put all of this together, and two things are bound to happen. And at least one of them, if not both of them, do on many big books. One is that you’re going to print more than you might realistically expect to sell. And the second is that you are encouraged — tempted is too polite a word — to set a price higher than many consumers will want to pay. And unrealistic pricing means that even realistic sales expectations may not be met!

Most houses have a rule something like this: the desireable retail price is five times the unit cost, including royalty and plant, of the first printing. If your house has a rule of thumb like that, try to ignore it.

It is a virtual certainty that every major trade publisher could increase their profits if the people setting the price and print order had no idea how much the house paid for the book or what the total sunk costs are. Of course, it is valid to know things about market expectations today: how big a market, how much promotion are we doing, and what are the sales of recent comparable books? All of those things tell us important things to consider for the pricing and printing. But what somebody thought — rightly or wrongly — two or three years ago is moot and potentially misleading.

So, how should these decisions be made?

Obviously, the hardest decision for any house is the acquisition decision. It is usually made without a finished manuscript in hand, so the number of variables is enormous. Will it be delivered on time, or a year late? Will it end up being the 288-page book we’re expecting, or half as long or twice as long? Will the editor have to spend 30 hours working with the writer, or 100? Will the market for the book look the same as it does now a year or two or three from now when we’re ready to publish?

What the editor should try to calculate is how likely is the book to make a contribution to overhead and profit? The simple rule would be: if it is questionable whether a book will recover its direct costs, then it is probably an unacceptable risk.

How do you do that? It is not very complicated. First you total the costs you must sink — advance and plant and pp&b for the first printing — which are usually pretty accurately predictable, although if the total word count, which will affect the total page count, is a big question, you might have to do more than one calculation.

Then, working with what seems to be a reasonable retail price, based on competitive books in the marketplace, you can calculate the expectation of contribution per copy. Add to your sunk costs something additional for title marketing, and then divide that total by the contribution per copy. That’s the number you need to sell to get a contribution to overhead and profit. If it doesn’t look like a totally likely sales number, the book is probably a bad risk.

What an editor should also be looking at is how much of her time will be burned dealing with this book. If an editor is earning $75,000 a year and expects to do about 15 books a year, that’s about $5,000 a title for editorial cost. A book which will take three books worth of her time, preventing her from doing two others, could logically be “charged” an additional $10,000 “sunk cost” to account for that.

It is also perfectly reasonable to say that an editor should produce a certain amount of contribution from her list each year. It would even be reasonable to add a fixed dollar contribution requirement for each title, based on the editor’s time and, in some cases, extraordinary demands on the rest of the house.

The entire approach becomes much more reality-based when one deals with total dollars expended and earned, rather than percentages, and when the question becomes: “what are the odds that this book will return a contribution?” rather than “how much profit will it make?”

As we noted earlier when we talked about the impact of reprints, using the total dollars approach means that the breakeven point — in number of copies — for a book moves up if you print more or distribute more copies. That’s a reality which unit cost accounting completely obscures. In fact, unit cost accounting suggests that your costs have gone down when you print more, while your cash expended and risked has actually gone up!

We maintain that the right way to determine retail price is by value as the consumer will see it, not by cost (although you have to be sure your price covers your costs!) Although some books have more price elasticity than others, price-setting has to include a consciousness that every penny of increase costs sales.

What the publisher is trying to find is the price that will maximize total dollars in margin; that is, the price where the contribution per copy times the number of copies sold yields the greatest total dollars for overhead and profit. Doing this right would require a publisher to accurately forecast sales at different price points, or alternatively, to predict in advance by what percentage a rise in price would cut sales, or a cut in price would boost sales. I don’t know any way to assure accuracy in such forecasting.

But it is not hard to find comparable books — the ones a consumer will consider comparable — and make sure your pricing is not a deterrent. The more the book’s audience must have it — usually a condition that applies to professional books, not consumer books — the more room the publisher has to increase price and perhaps boost total margin.

There are many complex ways to approach “how many to print”. The most sophisticated is by application of an EOQ — economic order quantity — calculation. An EOQ balances the savings from larger printings against the costs of tying up money longer. But EOQ is really only valid to calculate when you have a relatively stable backlist title whose sales over time is pretty dependable. Most printing decisions don’t have that platform of stability. So I have a simpler rule.

Print what you know you need to carry you until you know more and can print again. Stretch your view of what constitutes an “economic” printing quantity in order to follow that rule. Books that you print, but don’t sell, to make the unit price of a printing “work” usually will cost you money; they won’t save you money. So every printing decision should start with a sales forecast! If you don’t have a sales forecast, you can’t really make a sensible printing decision.

First printings can be the hardest, but don’t have to be. If your sales efforts are organized so that the biggest buyers of a title’s advance have their orders in before you print, then you know what you need to cover those orders. You need to print enough additional copies so that you can watch sellthrough before you print again and that component of the decision is a “guess”. But that’s all you need on the first printing. And anything over that constitutes a risk which can be seen live and in color on every remainder table.

After the first printing, publishers today have advantages that never existed before in the data feeds they can get from the supply chain worldwide. It is possible to know where most of your books are in the supply chain, and will be particularly so in Canada where the weekly sales data reporting will include inventory as well as what passes through the registers. Databasing that information so that every reprint decision is made with knowledge of what’s in the pipeline and how fast it is moving should become a standard practice. And except for knowing what the minimum number is that is required to make a printing viable, need, much more than price, should determine the quantity.

It is an old axiom of publishing that the profit on a book can be lost on the last, unneeded printing. That’s one axiom that is actually correct, and the current availability of supply chain inventory data means those are profits that publishers can start keeping instead of losing.

Because we are in a business where we create new products weekly, if not daily, we are always forced to make acquisition, pricing, and printing decisions largely a priori, without reliable historical data to guide us. The past is prologue, except when it isn’t. But that’s no excuse for procedures and formulas which make no sense.

You can’t calculate the cost of what you sell by calculating the cost of what you print.

You can’t calculate the true financial impact of a publishing decision on your business if you include charges against that decision that have nothing to do with that decision.

And you can’t forecast sales with any accuracy by working backwards from what you paid to what you need to make what you paid look smart.

Changing internal scorecards so that they reflect the true economics of book publishing is the simplest, most accessible, first step to improving the financial performance of any publishing house. Think about it over the weekend, but start doing it on Monday!