We have a program packed with information which we always strive for here at Making Information Pay. This conference, as usual, is about what’s changing in our publishing world right now and how we should address it. Before I walk us through this morning’s program, I want to give you two snapshots of the future, first as I see it and then as it was reflected in the answers you and others gave to the survey that tied into this year’s event.
Indeed, in trade at least, we are headed for a large Point of No Return that will require many smaller ones. The sales trend for ebooks shown month after month by the IDPF combined what we know anecdotally about ebook sales of narrative books today suggests strongly that ebooks will constitute 25% of the sales for new straight-text books published by the end of 2012.
When you combine those ebook sales — all of which are made online, of course — with the sales of print books through internet transactions, we see that more than half the sales of new narrative consumer books being published 2-1/2 years from now will be virtual transactions.
Or, put another way, fewer than half of the new novels and biographies and memoirs sold will be through brick-and-mortar channels.
This is a big effing deal, as our Vice-President would say. It certainly qualifies as a Point of No Return. Bricks-and-mortar will not be coming back. And publishers which have thrived in a world where controlling shelf space was their key value add and their key competitive advantage will be gasping for oxygen. Their biggest competitive edge will be vanishing and the infrastructure that used to propel them will increasingly be seen as an albatross.
Many smaller and niche publishers will find it very tempting to focus on the half of the market that is growing — the online half — and largely dismiss the brick-and-mortar opportunities. For one thing, many of the half sold in brick-and-mortar are sold in accounts many small publishers hardly ever get into anyway, the mass merchants.
Working the online market alone enables entirely new business models. Print book sales made online don’t require pre-printed inventory; they can be printed on demand. If you don’t have inventory, you don’t need a warehouse. Or a distributor. You don’t need to finance inventory that might not sell and, in the worst cases of misplaced expectations and high returns, can actually cost the publisher cash to have produced.
Disintermediation of trade book distributors by smaller niche publishers becomes a major threat. But so does disintermediation of all publishers by authors, and here the threat isn’t limited to trade. Author Solutions, Bookmasters, Lulu, Scribd, and Smashwords — just to name five of many players in the space — are developing increasingly fine-tuned programs to allow an author to go straight to the market. The publishers who are today increasingly encouraging the author to shoulder the marketing are implicitly saying “our value is that we get your book out there.” That might be putting them out on a limb that will look more and more like a slender reed.
If this analysis is right, and, frankly, I think it is far more likely to be too conservative than too aggressive in when it predicts the 50-50 point arriving, then the biggest mission for many publishers over the next few years will be shrinking physical operations that are just too large and too expensive for the business they actually serve.
And given that, here are some other “points of no return” we should expect to see by the end of 2012.
I doubt that any major consumer publisher, and very few smaller or non-trade ones, have approached new title development as an “ebook first” exercise for any title, let alone many titles. But when a quarter of sales are ebook sales, and that’s seen to be clearly rising, the quality of the ebook will be increasingly important as well. By three years from now it will be quite obvious that the more sensible development path is ebook first, print book as an outgrowth of ebook, and not the other way around, as we do it now. That’s certainly a Point of No Return.
So far, the reduction of bookstore shelf space has been a slow drip, as independents disappear and the major chains make adjustments to their array of stores and inventory mix. Both the big chains have disposed of almost all their small mall stores, but those were a small percentage of their shelf space and sales for the past decade anyway. Barnes & Noble has worked hard for the past few years to develop their own titles, primarily for highly substitutable backlist, and that has undoubtedly been felt by some publishers. But, so far, Borders has hung in there without a bankruptcy and none of the three big chains, the third being Books-A-Million, have closed a lot of stores. It is hard to see how this good fortune for publishers can continue.
How will publishers adjust their sales and operations investments if they see the closing of hundreds of retail stores? That’s a Point of No Return that we will probably face pretty soon.
One topic that did not come up in any of our survey feedback is the subject of the book royalties paid by major publishers, which they are trying now to cap at 25% of publisher’s recipts. With upstart publishers like Jane Friedman’s Open Road offering 50% royalties and Smashwords enabling an author to collect eighty-five percent of the selling price, it is hard to see how the majors can hold the line at 25%. As ebook royalty rates rise while ebook prices probably keep shrinking, the margin hit to publishers is another Point of No Return.
Single title marketing efforts are just too costly to be sustained for any but the very biggest titles. Publisher behavior, shunting more and more of the marketing work to authors, is a tacit admission of that. Publishers will continue to do it for the biggest books but, by the end of 2012, it will be transparent and above-board that publishers do big book marketing and certain subject-based marketing, but, for everything else, the author is on her own. That’s another Point of No Return.
We have had more than 10 years without consolidation among the Big Six. The last big transaction was Bertelsmann’s purchase of Random House in 1999. There are barriers to a sale by the owner of all the big houses: balance sheet issues in some cases, integration with other businesses in others, and high-level corporate ambitions in some. Something will have to give eventually, but what we might see by 2012 will be list reshuffling, one house getting out of romance, another out of sci-fi. That would also be a Point of No Return.
In the runup to this conference, as we have for the past three years, we ran an industry survey capture what people are thinking about the subject which is our conference theme. We have prepared a summary of the survey response, including a fairly lengthy analysis, which will be available on the “Discussion Papers” section of the BISG web site, both as a PDF for convenient download and in HTML as a “discussion version”. The “discussion version” will have some questions raised by the responses we got. I want to touch on a few of the high points that the analysis covers.
Of course, we’ve been living through a period of profound change in publishing for the past decade and more. More than three-quarters of the survey respondents report that fundamental change has taken place in their job or functional area or is taking place now. We won’t conclude that the 31% of the people who think the change “has happened” are saying they aren’t expecting any more change, but we certainly expect that the 25% who think change hasn’t happened yet won’t have very much longer to wait!
One of the things you will hear about today is that the changes to process and workflow driven by technology and the marketplace can profoundly change the nature of the work. Later this morning, Maureen McMahon will hit that subject very squarely, but it is clearly going to be true across all publishing activities. Despite this, our respondents feel more than 3-to-1 that their skills will be in demand in the publishing world of the future. I think this is one piece of evidence — and there are others in these results — that our respondents are inclined to optimism.
Another sign of optimism is that half of the respondents believe that the changes in publishing are going to make the industry more profitable. Whether this is really likely to happen is probably segment-specific. The shift to digital, much more advanced in professional publishing than it is in college or trade, has increased profitability for some players, both eliminating some costs and enabling new opportunities to add value and charge for it. One can also see how new models could make both college publishing and trade publishing more profitable too. But, for many of today’s largest publishers, making the transition from legacy models to “more profitable” future models could be extremely difficult.
In addition to profitability, we asked about the sheer number of jobs publishers will provide. I was personally surprised here that half the people who had an opinion believe the industry will produce more jobs as a result of change. I guess I’d be in the other half.
We note that nearly half of the survey respondents think their companies need to provide “more education” than they do. We’re certainly inclined to agree with that!
One thing that was a bit of a surprise was how few respondents see profound changes coming for editorial, even among editors themselves. We’d say that certainly doesn’t anticipate an ebook-first workflow developing, which we think is inevitable over the next couple of years. And, in fact, that might explain the relatively low number who are pessimistic about whether their skills will still be in demand as things change.
You’ll be amused and spend a lot of time looking over the responses we got on our survey to questions we asked about buzzwords. I was personally a bit gobsmacked that Twitter is seen as a fad, soon to pass, although it was the one thing that everybody had heard of. Of course, it is possible that quick messages on Facebook and elsewhere eventually will squeeze Twitter out. Maybe that’s what the 62% are thinking!
I’d bet that the 28% who think crowd-sourcing is a fad soon to pass will be proven wrong.
This morning’s program has two parts with a break in between.
First up this morning will be Kelly Gallagher of Bowker. He will dig into the Bowker consumer survey data to tell us what Points of No Return are indicated by how the book customers are discovering, purchasing and consuming books these data.
Then we’ll have David Guenette of the Gilbane Group. Gilbane is working on a project with BISG on the seven essential systems publishers must keep current to cope with digital change. David will define those systems and tell us how a publisher who doesn’t keep them up to date will suffer added costs or lost revenue as our industry changes.
Jabin White of Wolters Kluwer has a focus on how change affects people, but he also has some very important lessons about the importance of top management support and about the value that can be gained even if change is attempted prematurely.
George Lossius of Publishing Technology, the longest-standing provider of enterprise systems for book publishing, will tackle a particularly knotty problem: how do publishers decide to commit to systems investments when the world around them keeps changing. George will make it clear that some of what we know is stable and that there is a cost to postponing decisions that can sensibly be made. Somebody told me when I was young, “not to decide is to decide.”
Our last presentation of the program’s first half is our first sponsor presentation from Steve Walker of SBS Worldwide, who will be showing us all how to save some serious dough in the supply chain, particularly for books being shipped across oceans.
Then we break.
After the break, we’ll start with our second sponsor presentation, from John Konczal of Sterling Commerce who will talk about some new tools that enable emerging business models.
After that, we’ll have publishers reporting from the trenches about change in each important functional area.
Bruce Shaw and Adam Salomone of Harvard Common Press, a successful several-decades old niche publisher, will talk about how editorial acquisition strategy and practice change dramatically when the publisher is conscious of a content portfolio, not just a series of individual book publishing decisions.
Then Phil Madans of Hachette, a large publisher in the midst of building a digital production workflow, will explain what it means to shift from an “assembly line” that puts books together to a “collaboration” model.
Phil will be followed by Matt Baldacci of Macmillan whose subject is marketing. Matt will describe the change in where dollars are spent and the changes in skills required to execute on marketing in the digital age.
And our last speaker today will be Maureen McMahon of Kaplan. Maureen’s experience includes directing sales at Random House; she is uniquely qualified to talk about the changes in what skill sets are required for success in sales. As she sees it, we’re going from “closing” to “connecting”, and I think her presentation makes it clear that the required skill sets are changing.
The intention every year of Making Information Pay is to give our audience information and insight in the morning that can be put to work in the office that afternoon. I think we’ll deliver on that intention today. Enjoy the show.
Shown above are the slides which articulate the major points and ideas in the speech. Below are some video clips and the transcript of the speech. The transcript is also available in an “annotatable” form, to be marked up with reader comments, thanks to SharedBook’s Annotation platform, which allows comments to be linked to specific sections of the speech. Please note that this platform is only available to IE & Firefox users. If you are having difficulty reading the justified text, we have found it is easier if you reduce the width of your browser.
Special thanks to Christina Katz for providing us with the following clips.
Michael Friedman and I were having lunch and he said to me, “You know Mike, the word is “evolve”.” And that’s the word. So in fact it’s not going to be about how you flourish, it’s going to be about how you evolve. How publishers who create products can evolve into a world that’s going to be about community.
There are a few fundamental premises that really ground this speech that we want to start with, and the first one is Things Will Change, and I don’t think we’re going to have a lot of disagreement about that. So, we can move on to the fact that It Is necessary to have a view of the future to anticipate change. Think, for example, that people in the future are going to look up publishers on the web, and search those publishers for the books they want. Well then you would do things differently to what I’m going to suggest to you, because I don’t really think that’s what the future is. But you have to have a view of the future in order to know what to do in the present. Another premise that I believe is true is that the market is going to shift in some ways, from now on, between the time you acquire a book and the time you publish it. Every book that is being published now was acquired before anybody had heard of Twitter. And every book that is being published now depends on something that is in Twitter. So that’s going to be normal. And because that’s normal, you’re going to be constantly trying new things. You’re not going to have any choice but to try new things! Because Twitter is a new thing, and things become new, and you don’t have the chance to sit on the sideline and watch how it works and analyze it. You have to be opportunistic, you have to see what opportunities are out there and you have to try new things all the time, and you have to do that within some sort of framework, within some sort of understanding of the future because we know that there are so many new things going on. We can barely remember them all from the last two weeks, let alone try them all. So if you don’t have some sort of an idea of where you’re going, and where the world is going, it gets very very hard to distinguish between the opportunities.
A Lot Happens in 20 Years
Now, before I describe what I think will be the world of content and publishing in 20 years, I want to make the point that a lot happens in 20 years, because I’m going to describe a world that is pretty different from the one that we’re in, and that would raise a lot of skepticism. Think about this:
In 1968, there were about three broadcast networks that had about 95% market-share. There was nothing else to do with your TV, and there weren’t a lot of things to do other than watch TV. So, half the country or 60% of the country, could watch The Beatles on The Ed Sullivan Show, that kind of thing doesn’t happen anymore. By 1988, half the homes in America had cable, and half the homes in America had VCRs. There were five broadcast networks, not three. And there were 40, 50 , 60, 70 channels on the cable. And the broadcast networks knew that that day they had, 20 years before, was never coming back.
I picked 1980 for the record companies because that was just before a huge boom. As a matter of fact it was before two huge booms, because the Walkman 2 was invented in 1980. So between 1980 and 1983, the record companies got to sell me all the records I bought until that time, as cassettes. And then in 1983 or 84, they invented the CD, and they got to sell me all the records they sold me as cassettes again as CDs. And that made the record companies a lot of money. And things looked great for them. And the future was booming. And we know where the record companies were by 2000. 2000 was before the invention of the iPod, but not before the invention of Napster.
Newspapers. Well 1989 was a peak year for newspaper ad revenue. It went down a bit after that, but you know what saved them? In the mid-1990s, classified advertising saved them. But you know what classified advertising is now? Craigs list. It’s not on the newspapers anymore. You know where newspapers are now. They’re threatened. So in 1989 they had a peak year, and in 2009, they’re facing extinction. That happened in 20 years.
Mass-market paperbacks. Now this is something where you have to be as old as I am to remember when book publishers made a lot of money selling mass market paperback rights, and the fact that that was the jackpot. You published that title in hardcover, and then you could sell the mass market rights for a lot of money. I’ve picked 1975 as a starting year there, because the record sale for mass market paperback didn’t occur until 1979. That was Princess Daisy. Remember Princess Daisy? Pretty forgettable book. 3.1 Million dollar sale from Crown to Bantam. That number has never been topped. By 1999, mass market paper backs were where they are now, which is that they are category books. 95% of mass market paperbacks fall into a fiction category. So in 20 years, it went from a business that meant, that mass market books were bookseller, to a business where it doesn’t anymore.
Online Access in 20 years. Well, in 1989, the World Wide Web was in the process of being invented. But you could go online. To Prodigy. Through a dial-up. And now, 20 years later, you carry the internet in your pocket. So, that’s changed a lot in 20 years!
Books. Well, 1989 was before two great booms, sort of like the music business in 1980. Because in 1989 the owners of Borders, and the owners of Barnes & Noble were headed down to Wall St. to get a lot of money, to open up superstores. And all those superstores stocked a lot of backlist. So in the early 90s, publishers were printing a lot of backlist to put into all those superstores. And then Amazon came along. And that, as a matter of fact, got the backlist for the guys who didn’t have enough sales clout to get into the Barnes & Noble and Borders. Their backlist is sold on Amazon. So everybody was moving up. But you know what? The last 10 years, unit sales on books are flat. And bookstore shelf space is now sinking, where it was really expanding. We have gone from a business that was expanding, to a business that is contracting in 20 years.
The World of Content 20 Years From Now
So a lot happens in 20 years! And that’s what we are going to talk about now. What might happen to the business we call “the book business” over the next 20 years? This is purely invention here. This is totally out of my head, but that’s what you have to do because you can’t drive with your rear view mirror, you have to think about how things are going to change.
The first thing that’s going to happen, or the thing that we’re evolving to, where we’re going to be in 20 years, is that we’re not really going to have hard drives. We’re not going to really have much information cached, or able to hold in our hands. Everything is going to be in the cloud. And that means that DRM is no longer a problem really, because you’re not authorized to get the material from the cloud, you won’t have a copy, people won’t be circulating copies. So almost all file access of any kind will be tethered. Now you will know we’re getting there when you can use your iPhone in the subway. You will be able to use your iphone in the subway. You’ll be able to use it anyplace, but until we’ve built that infrastructure, we’re not in the cloud. You’ll know we are when that happens.
We are Licensors and Licensees
What that means is that we’re all licensors and licensees. In that day, when you don’t have a hard drive on your computer and you’re saving the thing you just wrote into the cloud, you’re going to have to license it. You’re going to have to say “I can have this and no one else can have this” or “I can have this and my assistant can have this” or “Anybody who pays $100 can have this”. So you’re going to have to set the licensing terms for everything that you save in a sense. There will be defaults, you won’t have to fill out a form every time you save something, but in effect, that will be the case. Where is this happening now? On Scribd. Right now. People put documents up there, and they license them in way that they think is right for that document. One of the reasons we’re going this way is because it’s really very inconvenient to have your files in your computer, because if you don’t have your computer, you won’t have your files. Now that’s fine if you have an office network and you can tap into it from any place, but many of us don’t have office networks.
Everything is in the Cloud
Well we’re going to have a cloud network, and we’re going to access that material through screens and devices. Screens and devices will be the same thing. A screen is a device that will get you to the cloud, and let you read it on a screen. And we’re going to have all kinds of screens. We’ll have a screen on the wall that you can watch the football game, it will have a Picasso in it when you don’t have the football game on. You’ll have screens that you’ll roll up and put in your pocket. You’ll have screens of various sizes for various functions. And, by the way, if you want to get at your material using my screen, you’ll be able to do that. You’ll have your iris scan, or your fingerprint, or six passwords, or however you felt you had to lock up that material. But you won’t be locked to any particular device, you’ll be able to use any device.
Niches & Nuggets
I want to introduce the idea here of a nugget. I know the niche I something that we’re beginning to understand, but I wanted to also introduce the idea of a nugget, which is more granular than a niche, which might give you a picture of how I think this world is evolving. Imagine this as a nugget: there is a single person in Richmond, VA, or Tuscaloosa, AL, or Omaha, NE, who is obsessed with Civil War uniforms, and collects them, and collects information about them, and links to everybody who is interested in them. But of course, Civil War uniforms need to be found by the Civil War community, they need to be found by the military history community, they need to be found by the history of fabric community. So that nugget is going to end up in many niches. And most nuggets are going to end up in many niches, and that will be the composition of the world that we’re going to live in 20 years from now.
Inside the niche, everything is going to exist. That is to say that it’s a sort of a combination or Wikipedia, and Facebook, and Google. It has the taxonomy. It has the bookshelf. The Safari Bookshelf, great idea, makes a lot of money for O’Reilly. It won’t make a lot of money in every context, but the idea of a searchable bookshelf? It should exist in every vertical. And it will exist in every vertical 20 years from now. All of these things are going to be combined and there will be gateways to every niche, and what’s going to happen when that happens, is that format-specific publishing is going to give way to format-agnostic publishing. Because when your relationship to the consumer is that you can deliver them a file, you are no longer captive to any particular format. Your file could have something to be read, it could have something to be looked at, it could have animation, could have software, could have games, could have anything at all because when the transaction takes place on the level of the file, then we break out of this notion of format, which has really been the way publishing and all media has been in the 20th century.
So you’re going to have these community gateways, and these portals, and this upstream aggregate’s idea is that the guy who is interested in the Civil War uniforms, he’s not really thinking that he’s part of the world of the history of fashion, or the world of the history of fabric. Somebody else who has decided to construct a portal on the history of fabrics says “ha! This belongs here, this should be part of this, the discovery of this should be enabled here” And that’s going to be another kind of opportunity, which is aggregating things, and creating the logical front door to a lot of nuggets that go together in ways that perhaps the people who created those nuggets didn’t even think about.
The crowd is going to be doing a lot of work. The crowd is already doing a lot of work. We’re going to get here because the crowd is going to look at all the material we have created over the last many many hundreds of years, thousands of years in some ways, and digitize. They’re going to be editing it, and they’re going to be curating it, and somebody’s going to be deciding that that Civil War uniform thing belongs somewhere.
We’re also going to have professional and personal superediting and super-curating. A business that is already starting is Louis Border’s MyWire and Michael Cairns has a piece of that which he’s calling “Week’s Best” and this is exactly about professional super-curation. It’s about bringing an expert on to look through all the material that has been generated across the web about a particular subject, and selecting those things which are most important. Yes, it can be done by the semantic web, but it still can be done better by a person, and I think it’s going to be a long time before that changes. We’re seeing the front edges of that now.
The Subscription Model
I believe that the subscription model is going to be the common model, and the idea of selling individual items is probably going to largely go away. Now of course these things are not mutually exclusive. The phone company charges you a flat rate for your local calls and then you pay someone else more for long distance. You can buy a cable television subscription that has more free channels, or fewer free channels, or you can get additional channel subscription, but then you can also get pay-per-view. There is pay-per-view but there’s much less pay-per-view than there is subscription, and I think that’s probably where we’re going with content in general.
Since everything’s happening in the niches, it’s going to take another element of discovery to find things that are really of broad general interest. That is essentially already happening. Publishers are already looking at bloggers and niche content creators for their next books, and that is going to be where anything mass-market arises 20 years from now.
Something that I don’t think we pay enough attention to is – anybody with a website is a publisher. Because after all, if you’re putting content together, or you’re putting information together, and expecting people to come to it or buy it, you’re a publisher. But not all publishers are content creators. Most people who have websites are not expert content creators, but they need content. And that is the big unfolding opportunity for publishing and the people in it over the course of the next 20 or 30 years.
Perhaps: One General Trade Publisher?
When this day comes, 20 years from now, that the world is as I described it, there might be one general trade publisher, and that one general trade publisher will sort of scope the internet and they’ll deliver books, or whatever books are by then. Books will not be exactly as they are now, we have ebooks, we have multimedia… A lot of people, not a lot of people in the commercial sense, but a lot of people in the digerati sense who are thinking about how to enable group creation of books and of intellectual property. Probably to the extent to which these things are printed, they’ll be PODs. The problem with press runs 20 years from now is going to be, where are you going to sell them? It’s going to get harder and harder for the bookstore to stand as things move to the net, and so where the books get sold 20 years from now at retail, is going to be an interesting question. But that doesn’t mean that people with publishing skills have nothing to do, because inside the niches and the nuggets, there’s going to be a lot of publishing going on.
I say that publishers are going to be people who own, manage, administer or lead a nugget or a niche, or they work for somebody who does. I’ll make the case in a few minutes about why the power is going to be in the niche owner, not in the content creator. Within those niches and nuggets, you’re going to generate, that is create new content, you’re going to curate, that is look at what’s there, select, and edit, and you’re going to aggregate content of any kind for the people who are in the niche.
I might add, this is a little bit like a university press. You’re reporting to the niche owner, the niche is kind of like the university, and you’re serving the community with what you’re doing with your publishing, which is a little bit like a university press. And as I say, I think that B2B is going to be where the money is going to be 20 years from now.
What About Books?
Now, because this is BookExpo America, I know that there are people in the audience who want to know “but what about books?” Well, they’re never going to go away, I don’t know how many billions of them we have on the planet, we’re not going to suddenly burn them all. The books are going to be here, and because of print on demand, pretty much as long as anybody wants a book, they’ll be able to have a book. We have to keep a shift running, like lightning, so it can’t be down to one person wanting one book, it has to be a little bit broader than that. But for the most part, anything can be made into a book, and books will be delivered as most people want them. We’re going to reach a time, if we haven’t reached it already, and we may have, where the number of titles that are created by the readers is larger than the number of titles created by the publishers. So, for example, a person creates a book about their wedding, or a person that creates a book about their kid’s little league season, which is the world of author house or the world of LuLu. It could be, though the data has not been carefully analyzed, it could be that we already have more of those than we have books by publishers. If we don’t, we will next year or the year after. Press run titles, in those days far off, they’re going to be the exception, not the rule. They will happen occasionally, if there are presses to run.
There is no question in my mind that if, 20 years from now, you read a book on paper, you’re going to be definitely stamped as retro. This is not going to be a fashionable thing to do. We’re headed to a world which is quite different from the one we’re in, and that’s never comfortable, but what’s really uncomfortable is one little letter change from N to X. This is a title that I have ripped off from a paper I worked on eleven years ago for Vista Computer Services called “From N to X” and from N to X means from content to context.
From ConteNt to ConteXt
We are all in the content business, and we are going to have to move into the content business. The ownership in the future of eyeballs will be more important than the ownership of IP, because value moves to scarcity. This is immutable, you cannot change this. Content creation and distribution are no longer scarce. Anybody can do them. Distribution is not an issue. I can type something on my computer today, I can flip it to my website, it is distributed. Any body in the world, on the web, can get it. The problem is, will they know about it? That’s the problem. Marketing is the problem. Distribution is no longer the problem. And you’re going to do your marketing niche by niche, and nugget by nugget, and it does require scale. If you don’t have enough content, or clout in a community, you won’t be heard. If you don’t pay enough attention or put enough labor into a community, you won’t be able to command the attention of that community.
So if the community development requires scale, and the content development doesn’t require scale, and you’re a big company with a lot of money, where are you going to make your investments? Where are you going to look for your advantage? You’re not going to look for it in owning content. What we’ve come to is a point, where where we create value today is not going to create value tomorrow. You win today because you own valuable content and have the ability to put it on a shelf, but tomorrow what you need to own is the attention and the bandwidth of human beings.
Today vs. Tomorrow
The historical revenue model was very clear. We printed things for less than we sold them for, and when we sold enough of them, we paid for the cost of originating them, and when we sold enough of that, we paid for our overhead, and then we had a profit. I’m not completely sure I can tell you what the next revenue model is, and that is part of why this is all so scary. Because we have to do something new, and different, that we’ve never done before, and we don’t actually know how it will work. I believe in the model of value moving to scarcity, and I believe that when you have something scarce you can figure out how to get paid for it, but I’m not exactly sure how that’s going to happen.
So in the next 20 years, what we get from wherever we are today, to where we’re going, and I hope something resembling what I’m talking about. We’re in a transitional decade, and unfortunately these transitional decades are going to be categorized by two things: costs are going to go up and revenues are going to go down. Why are costs going to go up and revenues are going to go down? Well first of all, because you’re supporting multiple models. We have to support this whole print model that I say is going to be gone in 20 years. You can’t dispense with it, it’s not gone yet, it’s yielding the revenue that runs the business today. Ebooks – we don’t even know exactly what they are yet, right now most people think that an ebook is the print book in a digitally delivered form. That’s ok with me. It’s not ok with a lot of people. People are trying to invent new forms, and that takes money. Legacy content is being digitized, that costs money. The legacy content is being tagged and organized, all these things that the community is doing.
That means two things. First of all, the community is occupied, doing this tagging and organizing, and secondly, we’re not getting the benefits of it yet. It’s not organized yet. So in fact, we’re not really prepared to get revenue out of it. This is a big one. This is a big one that people are just beginning to come to grips with. It is going to cost more for the big publishers to digitize their rights databases than it costs them to digitize their content. And because those rights databases today are paper contracts in file drawers, and the file drawers aren’t even in the publisher’s office, they’re off-campus somewhere, where space is cheap. Not only that, but not all the information needed to build those rights databases are in those files, because when you bought the photographs that went into that book, you did it in a separate contract with the photo supplier, and that’s in another file cabinet somewhere else. Pulling all of this information together and having it in a digital form is going to be a severe challenge, and most challenging for the biggest publishers.
During this transitional period, everyday, as we’re well aware, because I can’t keep up with it and I don’t know anyone who can, we get new screens, new platforms, we get new channels. Every single one of these things costs publishers money, because you have to know what it’s all about. You have a learning curve. Sometimes that new screen is going to force you to do something with the content, to make it look good on the screen, and that’s going to cost you more money. But even if you could just give them the ePub file, you’re going to need to understand the commercial realities, you’re going to need to understand how to promote through that channel. All of these things are a learning curve, all of these things cut in to current margins.
Meanwhile, the digital natives, who are not us, in the publishing business, are inventing a new future, and we have to keep up with that future, which is also time consuming and expensive. We have to respond to it, and we have to use it, initially for marketing, but it’s also going to change product creation in the long run, and all of that makes things more difficult for us during this transitional period.
Here are some things that I think are going to happen during the course of that transition. First of all, the distinctions between 20th century media are going to begin to go away. We’re already seeing that the newspapers and the magazines are printing less often. Do you notice that? And they’re going to have the content on the web. They’ll have the content on the web four weeks a month, but they’ll print the magazine one week a month, or the newspaper won’t print three days, and so-forth. We’re going to go the other way in the book business. We’re going to update our ebooks. We never did that before, particularly. The lines are going to blur. I don’t really want to get into games, because we could do a whole hour on games, but I think games are going to find their way into a lot of the content we do in he digital world.
Content is actually going to find the markets and the pricing models. Scribd is a very good example of that. Scribd gives 80% of the revenue to the content creator. As the ebook sales grow, an author is going to realize, “well, if the publisher sells my ebook for $15, maybe I make a dollar. And if I want to make a dollar on Scribd, I can sell my ebook for a dollar and a quarter, or $1.20, and make a dollar. I don’t have the marketing and a publisher and all this other help, but that’s certainly going to catch my attention, and it’s going to make things harder for the publisher in two ways, because, one, they just lost a good author that they were able to make money on, and two, that author’s out there selling stuff for a buck and a half, instead of $15, which is going to put pressure on everything else.” When I say that the markets are going to find the content, I mean the niche is full of people who are knowledgeable about subjects who are going to find content and surface it in ways that we don’t have now.
I wanted this slide to make a point that access to audiences is always a key. New York Times and Barnes & Noble 20 years ago had a stranglehold on access to audiences, and then Google and Amazon came along and everybody in the publishing business got really nervous. And about two or three years ago, or maybe up until now, everybody is worried about if Google and Amazon are going to steal this business from us. Are the going to be the ones to control everything? But then, wait a minute, Facebook and Twitter. Twitter is making Google nervous, because Twitter is the place to search for the stuff that happened in the last 10 minutes, which Google doesn’t really have. In fact, I don’t think Facebook and Twitter are going to be here in 10, 20 years, because they are horizontal. They’re not vertical. What Facebook and Twitter do is going to be broken into every niche, and it will be there for you. You’ll be able to tweet, but you won’t have to go to Twitter to tweet, you’ll be doing your tweets within the community that you’re interested in. By the way, where everybody will be more interested in your tweets.
Darwinian processes are driving a lot of this, if you don’t know Ning, you must. I’m not going to get into a long explanation of it now, but I’m going to tell you this: Ning lets anybody set up a community. I was talking to a publisher who I believe has an opportunity to aggregate teachers. It’s not the company you’re thinking of, it’s another one, but there is an opportunity to create a teach community. Somebody in that company said, “well, you know Mike, it’s really hopeless. They’ve self-organized.” I said, “You mean with Ning?” “Yes!” he said, “the teacher communities, they’re all over the web. They’ve just self-organized.” That’s an opportunity for an upstream aggregate. If they’ve self-organized, that means there are 14 different places in the country where people are sharing their Shakespeare lesson plans. They would like to know about each other. So there is an opportunity for more self-organizations, for someone to organize around the self-organizations to make a super organization.
This is not to say that the old models are completely broken yet, it still works. The problem is, it works for fewer books every year. It works for fewer bookstores every year. And it works for fewer publishers every year. That’s why everybody’s got to change, and that’s why I’m trying to give you an idea of a target to move toward, as you change. These are changes that we can feel right now. We can see the day coming when we’re likely to have one dominant bookstore chain the in the United States. When that happens, we’re going to have a serious critical mass issue, because publishers can’t market a book if they can’t print it, and they’re not going to be able to print it if there’s one bookstore chain and that store turns the book down. So you’re suddenly going to be faced with one “No” and you can’t publish the book.
What We Will See During, and After, the Transition
We have six major publishers. We’re not going to have six major publishers for a long time. I’d be very surprised if we have more than four, four years from now, and as I said, maybe we’ll have one major trade publisher. And by the way, this is about trade. I have a rule I call the “Wiley-O’Reilly Rule.” The “Wiley-O’Reilly Rule” is that Wiley and O’Reilly do just about everything smarter than every one else, but it’s almost impossible for any one to copy them, because of the nature of their business, the nature of their markets and the nature of their companies. But I’m not talking about O’Reilly, and McGraw-Hill, and Taylor & Francis, I’m talking about Hachette, and Random House, and HarperCollins. That kind of publishing can’t exist a lot longer.
Another thing that we’re going to see, and I think we’re already seeing, is that mass-market events happen very quickly. This is a product of Twitter, and Facebook, and viral spreading of the word. There won’t be as many mass-market events as we get niche-ier and niche-ier, but the ones that happen are going to rise and fall very quickly, which, by the way, is not particularly good news for book publishers.
We are already seeing that the niche in the self-publishing blog world is a farm system. We are already seeing that many more books are either short-run or POD. Bloomsbury has just announced a program, and I know there are others, where they are putting their academic list online in the UK for free, and if you want to buy a book, you buy a book, and they print it on demand. I think we’re going to see, as ebooks happen more and more, we are going to see a lot more of that.
The other thing we’re going to see is that ebooks are increasingly going to have a content edge. Authors will force this on publishers. It’s very uncomfortable for a publisher, because I published a book in January, a major even happened in April which changes something. The author says, “I need to add six sentences! Or six paragraphs! It’s important. I know I can do this in and ebook, but my printed books are in the store, and they are out of date. And the ebook isn’t out of date.” That’s a real problem, but it’s a problem we’re going to be facing, because the authors are not going to live with their ebooks being out of date when they don’t need to be out of date.
We know that it’s already more difficult to launch new titles than it ever was before. The amount of time they get, your ability to pre-market them, get pre-pub reviews. All of that is harder than it used to be, and we also know it’s harder to sustain backlists. Those slopes will continue to get steeper.
Another point that I’m not sure has really been taken on board, and this goes back to the idea that scale is in the marketing. The marketing vehicles are changing all the time. For most of my career in publishing, the press list was the press list in the publicity department. Sure, things got added, names got changed, but it didn’t change wholesale in six months or a year. Well, that’s happening now. All new sites, all new bloggers, all new influences. And because the social networks have become an indispensible word of mouth vehicle, this is another thing that’s going to drive publishers to the niche, because you know what? The followers you need on Twitter are different if the book subjects are different.
So what’s pushing, I gave you a hint, but what’s pushing the book publishers to vertical? Necessity. Of course, because the horizontal marketing and sales channels are going away. There was a piece in The Nation by Elizabeth Sifton last week, a very thoughtful piece. I didn’t agree with all of it, but it was very helpful on a lot of useful history. One of the points Elizabeth made, and I believe she has a lot more authority to make these points than I do, is that newspapers dying is killing book review media in print, and all of the social networking sites around books are not replacing that book review media in print. Publishers are losing valuable marketing capabilities. What’s happening is, the old ways we used to market are going away, and the new marketing opportunities are on the web. The web is organized by niche. What publishers will start to find is that the cost skyrocketed when they do marketing outside of the known niche.
I was talking to a publisher the other day who has an extensive crafts list. Now crafts lists used to be about presenting to the craft club, or the book of the month club, or the craft buyer at Barnes & Noble or Borders, and so crafts meant needlework, and it meant beading, and it meant papermaking, and it meant glassmaking, and it meant just about anything that you could call a craft. Well you know what? On the web, it ain’t gonna be like that. If the last six books you promoted were knitting books, and somebody hands you a beading book, and you’ve been promoting on the web, you don’t have a head start at all. You have to start all over again. This is something that publishers are going to begin to take on board, is that what they used to think of as vertical organization ain’t vertical enough anymore.
What happens when you market in a niche is that you start to develop relationships, and those relationships can be leveraged, and they stay inside the niche. They can’t be leveraged if you move outside the niche.
This business for websites being a market for content is also going to force publishers to rethink, because you’re going to find, when you start to talk to the website that wants content on rock gardens, that your three books on rock gardens just aren’t enough. You need 40 books on rock gardens. There are going to have to be 11 publishers to come up with 40 books on rock gardens to have enough content to help the guy who is trying to sell the rocks and the fertilizer and whatever he needs to attract the audience. So this is going to be a different kind of verticalization, sort of outside the boundaries of the publisher.
What does a publisher do?
So as we face all these changes, I thought it would be helpful to get back in touch with what do publishers do? What is the value proposition of being a publisher? Well, what I always used to say when I started speaking 20 years ago, “publishing is the business of contents and markets.” And then around 1999 we figured out, “you know what, it’s not just about content and markets anymore, it’s databases and networks.” What publishers are doing is creating databases, which is lots of content, in an arranged, structured way, not to markets which are vague, but to networks which are specific. That’s really what we do in the 21st century. I’m very proud of the fact that if you Google the words “publishing is databases and networks,” well you Google those words and you’ll see what you get.
What a publisher also does is they understand communities of content. This is more obvious outside trade than it is inside trade. Outside trade, if you publish mathematics books, you go to conventions of mathematicians. You know mathematicians. To a certain extent that’s true in trade too, editors don’t do just anything, they specialize, and they specialize so they can understand the communities of content.
Publishers also recognize creative possibilities and ideas that aren’t fully developed. As a matter of fact, publishers usually buy projects based on ideas that are not fully developed, and participate in the development of ideas. That is a very important skillset. That doesn’t go away. And the publisher is coordinating the whole range of disparate activities that are necessary to connect the creator to an audience. You know what that is, it’s putting the art in the book, it’s deciding what typeface, it’s deciding what price, it’s deciding how to market, but sometimes it’s finding a co-author for the book, or sometimes it’s finding an illustrator. So sometimes you’re actually connecting the creators with each other, as well as providing the detailed management that the creator needs. Actually, I believe, is the most important skill set of publishers is that they manage a massive amount of detail. Which the authors would very rapidly table themselves up in knots if they managed for themselves. That is the scale opportunity that publishers present, and that is not going to change. It’s actually going to be even more necessary in the web.
The Pros & Cons of What a Publisher Does
I wanted to also talk a little bit, before I give you the prescriptive stuff, about what the pros and cons are to what publishers have going into this world. You know there are going to be a lot of people competing for that civil war niche, or that baseball niche, or that baseball history niche, or that baseball uniforms niche. It’s not just going to be publishers. It’s going to be all different. It’s certainly not going to be just book publishers.
So what do book publishers have going for them or against them in relation to other media or other businesses? Books are the ultimate niche product. The first thing I remember learning about books that was significant when I went into the business was, and this is no longer true because technology has changed it, but in the 1970s if you had a message for 5,000 people, you could deliver it profitably in a book. You couldn’t deliver it profitably through any other medium. Only a book. So going back to the beginning of time, is that books have a focus, targeted audience. That means that publishers, and particularly general trade publishers, are the most skilled, experienced, and trained niche marketers that exist on the planet. Because every single book requires them to think about a unique audience, and how they’re going to get to their unique audience. As I said before, the publisher has skills in content creation and development.
Here’s an important one, that fourth bullet, this is good for you for the next five or 10 years, it’s not going to last forever. When you go out in that niche and you talk to somebody who is not a book publisher, you can do them a big favor. You can put their content, or their brand, in a book, and you can put that book on shelves, where people are going to see it. And across the internet, where people are going to see it. They don’t know how to do that. That has value.
The last point is that publishers can target distribute URLs. That 5,000 books can carry as many URLs as you want. May I suggest that the URL, which is the front door to the publishing house, is not useful. The URL to the author’s website, where the author is never going to make a change to it, and never going to do anything about it, that’s not useful. What is useful is to engage some number of the people who buy that book, who will check out that URL, in an ongoing conversation. If you don’t have a URL that will log in to an ongoing conversation, you are losing one of the principle values in publishing the book. That is another thing that is going to drive your niche, because you’re not going to create a unique website, meaningfully, for every book.
Here are things that work against us. We’re product and book central. That is a real problem. Communities don’t care about your book or your product. As a matter of fact I was on a panel about a month and a half ago with an author who has published a novel and worked the internet, and then got a deal with Hachette for his novel. He did a very good job of promoting his book and then now he’s got a company, I think it’s called Author’s Gumbo. He’s got a company that’s helping authors promote on the web, very very sharp. So somebody from the audience is talking about Facebook and he says “Yes, definitely you want to work Facebook, but don’t mention your book!” and the authors in the audience were stunned. People on Facebook aren’t interested in you, they are interested in themselves. You need to engage them about the things they are interested in, which is not your book. I’m seeing this in a publishing company I don’t want to name, because I think they’re really smart and I like what they’re doing, but here’s the problem. They are organized by vertical, and they’re working those verticals, but from the standpoint of the product development people, those vertical websites are their marketing budget. They don’t want to see a front page that doesn’t have a book ad on it. But you know what? People in a community don’t want to see a front page that does have a book ad on it.
Publishers are not continuous. The web is continuous. We’re event driven. We’re going to start to get more continuous, but that’s going to be a real problem for us because there will be others. Most of general trade publishing is not vertically focused. The first thing to do is going to be to get vertically focused. Most publishers lack the resources to experiment. And as I suggested, we are not headed into a time where we’re going to have a lot more resources, and that is a serious challenge. It is a challenge that can be overcome with the right kinds of partnerships.
Publishers generally lack a culture of technology, or culture of experimentation. Tim O’Reilly said a lot of smart things, almost every time he gets on a platform I want to take notes. One of the things he said at Tools of Change that really resonated with me, although I wouldn’t know how to do it, it’s really important. You’ve got to have an IT department where you throw them an idea in the afternoon, and they come back with a sketch for you the next morning. It can’t be that everything has to require a business plan and a complete set of specs and all of this preparation to decide whether you’re going to go forward or not. You have to be much more nimble than that. I think that’s not where publishers have been. We don’t have the skills to hire that, we don’t have the skills to find that, we don’t have the skills to direct it, but we need it. This is something that is going to be a drawback for publishers moving forward.
When we started this conversation, one-way conversation, we said we are in an era of rapid change, we have to experiment and reinvent, we don’t have any choice about that, and we should do it in a framework molded by our view of the future.
Shatzkin just said that the future means vertical and community. I’m going forward with that because I haven’t heard a better idea from anybody. I’m going to go forward and say, if the future is vertical and community, how do you adapt to the future? Remembering, of course, that you have to continue publishing what you’re publishing because it’s going to make money. You have to publish what you’re publishing and move to the future at the same time.
What a Publisher CAN Do
What’s the action plan for the 21st century?
The first thing, is you’ve got to understand yourself vertically. You’ve never enquired that way. Most general trade publishers haven’t thought about that. There is no master plan about subject matter to most general trade publisher’s lists, they have to understand what those lists are.
The two shortcuts I can suggest are: The BISAC codes and the special sales department. In big trade publishers, the special sales departments are a big island of rationality. They organize the material that is helter skelter and across all niches into logical buckets, because they’re thinking about customers. Customers need things in logical buckets. Once company, Thomas Nelson, has moved to the BISAC code, a concept of organization. It’s another way of getting at the problem. You need to start thinking about how does your list stack up by vertical. Once you know what your verticals are, you can start to research your vertical web world, which you have to do. Who else is in there? Obviously there are other publishers in there. Those other publishers could be potential collaborators for you, they could be people to sell parts of your list to. They could be people who sell you parts of their list, but you need to know who they are. You need to know who the non book publishers are in there too, because if it’s a newspaper or a magazine publisher, you might be able to offer them a souvenir on a shelf. But if they’re a bank, or if they’re a company that manufactures sustainable living brick to build houses, you might be able to create some sort of a partnership with them. You have to look at the world of your verticals and understand all the people in it before you can do anything further.
Next: you have to have a sensible web strategy. There are almost none. The publisher’s name is a B2B thing. It is not a B2C thing. The community needs to get things in verticals that make sense. The names Random House, Simon and Schuster, Penguin, mean very very little to most consumers. It is not the way to sell to them. And in fact, one of the things that we checked for in my office yesterday because it suddenly occurred to me and I didn’t want to cast without checking. It’s true. Not one major publisher have different product descriptions for the trade than they do for the consumer. Not one. When you’re talking about a book to a consumer what you want to say is “you need this book because…” When you’re talking about a book to a bookstore you need to say, “X number of people need this book because…” It’s a different pitch, but we’re using the same content for each. The web strategies of authors need to be rethought from the bottom up.
You need to be monitoring your business by vertical. One of the blog posts that I wrote that has gotten the most attention in the last four months since I’ve been doing this is one I wrote about what imprints should be in the 21st century. I think that publishers should stop tracking their profitability by imprint, and start tracking their profitability by BISAC code. The would have a much much better guide as to how to run their businesses.
You also need other metrics. You need better metrics. You need to know how many email names you’re collecting, you need to know how many links you’re creating, you need to know whether promotions are being put through or not. You need to come up with new metrics for the future. You need to be tracking your metrics and your financials by the verticals.
You need a complete email list strategy. This is another thing that I really don’t see that anybody has. It’s not good enough just to collect a lot of names and then spam them every once in a while. You need to be vertically sensitive in the way that you collect names. You need to understand – what is this person interested in? You need an author-facing component to your email strategy because the author has names they could be sharing with you, and you have names you could be sharing with them. You need rules of the road to do that. You need clear understandings with your email listees to do that. This is something that will be built over time but you have to start by having rules and having an engagement with authors around those rules.
Once you’ve done all those things, other things start to be possible. We will be reshuffling our publishing portfolios, because we’re not going to really know what the niches are until the publishers start going out on the web and looking at themselves in that way. You start finding out that, let’s say, maybe knitting and crocheting do go together, even though knitting and beading don’t. I don’t know enough about the web to know whether that’s true or not, within those communities, but neither do the publishers publishing, but they will over time. Over time, you’re going to see – here are areas where we’re strong, and you want to make an investment, and here are areas where we’re weak, and we either have to build ourselves up or we have to get out, and if we get out, we can see who the logical person to sell to is, and we’re going to see that coming over time.
You are going to maximize over time by looking at your verticals, the cumulative effect of your web marketing efforts. We did a project a couple of years ago about marketing where I raised the notion of investment marketing vs. spent marketing. Spent marketing is what we’ve already done, and always done. You put an ad in the NY times and it has a life span of a day, a week, a month, that’s it, it’s gone. When you market on the web, and you develop a relationship with a website, you’re posting to them and they’re posting to you, and you’re linking back and forth to each other, well that’s there for the next book, and it’s there for the next book. That’s the kind of change that is possible, and that’s what is necessary, because remember, we’re headed into a period where we’ve got to bring marketing costs down because margins are suffering. Over time, and this is the important part, you’re going to construct alliance that are going to enable new businesses and the new business models, because the new business models are not going to be about selling content, they’re going to be about selling other things, and they’re going to be about community, but they’re not going to be about primarily selling content. Everybody needs content to sell the other things. Everybody needs content as bait to attract a community. The publisher has a position of power, but the power is gained and exploited through linking up other people that can make that power have value in a vertical world.
I’ve just described what makes sense to me as a future. It might not make sense to you. But you have to have a view of the future of some kind in order to proceed in the present, and give context to the experiments that you’re going to be forced to try.
If anybody’s not too stunned to ask a question, I’d be glad to take some.
Posted by Mike Shatzkin on May 29, 2008 at 12:00 am
Good afternoon. And thank you for the opportunity to give a version of my “End of General Trade Publishing Houses” speech to a room with no big general trade publishing houses in it, unless they sneaked in. That actually allows us to get more practical because this audience starts in a place that is more practical.
The basic premise under which we’re operating here, I’ll summarize for those of you have never heard or read my work before, is that horizontal, format-specific media entities are oh, so 20th century, and won’t work very deep into the 21st. The reason for that is the web, which almost forces vertical organization. Horizontal presentations across subject matter — like CBS, Random House, or The New York Times — were the products of a capital-intensive, limited-distribution universe. CBS came out of an era when there were three national TV networks: they all tried to appeal to the broadest possible audience. Daily newspapers, to support their printing and distribution infrastructure, also had to appeal to just about everybody; the Times could get away without a comic strip page, but that was its only concession to verticality — a more intellectual audience. And book publishers were relying primarily on promotional media — newspapers, radio, and TV — and distribution outlets — bookstores — that were also appealing to people across the board. It didn’t matter what subjects Random House or Harper or Simon & Schuster published; what mattered is that each book have a large enough audience to be worth employing the powerful machine they controlled.
But all that is changing now. The newspaper and network TV audiences are shrinking. Bookstore shelf space is shrinking. Mass appeal is harder to achieve and lasts a shorter amount of time when it is achieved.
What the net is also doing is making “event” publishing, and books and magazines are definitely “events”, instantly outdated and feeling stodgy. Publishing on the web is continuous now. Bloggers write and update all day and all night. RSS feeds keep pinging people’s consciousness regularly. You know everything that is in the morning paper before you read it, probably before they even printed it.
Bookstores are also horizontal, and they are also highly challenged. Estimates of how much of the book business has gone to the Web vary from 15% on up, but that’s not spread evenly across the range of titles. One publisher I know thinks that as much as 50% of non-fiction may be sold through Amazon. The brick-and-mortar bookstore is still a magical place; it is a wonderful thing to be in a large room with 100,000 different book titles displayed in it. But now that bookstore is dealing with the fact that every book of great interest a customer heard and read about since their last visit was probably ordered online and already delivered. And customers can walk in with little hand-held devices that can point at a book’s bar code and instantly tell them what it would cost to get that book at an online bookstore. It might be cheaper. Maybe ordering that way will also save them some sales tax. It will certainly save them from carrying the book home.
And the rise of print-on-demand and the long tail, combined with internet-based retailing, probably means that the proportion of books sold that will have been printed and distributed in advance will decline.
In other words, our whole historical model is declining before our eyes. It isn’t collapsing yet, but it certainly is shrinking.
We know– despite some hysteria — that reading and quests for information and entertainment are not declining. So our audiences have moved. Where have they gone?
To the net, of course. And what’s replacing the horizontal print media of the past are vertically niched web communities in formation. It is early stages on this now, and there is still a lot of opportunity to establish a presence in verticals. But we can see from what happened in professional publishing, where law, financial information, construction information, medical information, and others have consolidated into one or very few web communities, that the web likes to mix content and commerce for the like-minded. And interest groups tend to cluster in a relatively small number of web locations.
The web also has changed information and entertainment exchanges from passive delivery from one (the publisher) to many (the audience), to many-to-many and one-to-one interactions, both of which are on the rise. The brilliant Clay Shirky, who is also present at this BEA, talks about reading, writing, and sharing. I think of it as reading, writing, and rating. There are more writers than ever before but, as Shirky points out, there is also a substantial amount of human bandwidth available with only a slight reduction of historical TV-watching patterns. The audiences are active now; this is part of what makes publishing a continuous exercise, not a series of isolated events.
The idea of somebody packaging something complete up for you in advance is certainly still prevalent: movies and TV shows still do it, along with magazines and books. But the web is beginning to make that idea seem a bit quaint. The record business has felt this in a big way because people can now buy songs rather than albums. In the pop music business, albums were created 50 years ago to make the artist and the record company more money when they had a hit single. The analog in publishing is the book of recipes or knitting patterns or house plans. These aggregates will get harder and harder to sell in the Internet world where I expect to purchase exactly what I want without a lot I didn’t want surrounding it. Or maybe not purchase it; maybe just get it free.
As the content offerings become more granular, the functions of aggregation and filtering, which used to be what the readers depended on the publishers to do for them, become new opportunities for web entrepreneurs. We don’t know how that will work yet; probably lots of different ways. The current vogue is for aggregation and filtering to be “crowd-sourced”; you get your site visitors to point to or upload content, and you also get them to rate it for the next site visitor. Over time, as niches become more defined, it is likely that new trusted brands can become both aggregators and filterers, giving you something more directed to your taste or interest than Google does. Of course, Google is always garnering information to allow them to do that better for you too, but they’re ultimately horizontal. And Google does not offer the social networking component integrated with the content and links that are what a vertical will require. Or at least they don’t do that yet!
The Long Tail has gotten a lot of attention since Chris Anderson introduced the book business to the term a few years ago in a Wired article that, with a lot of web participation, he turned into a bestselling book. Anderson saw that the Web eliminated the constraints of shelf space. Before the web, the biggest bookstores carried about 100,000 titles. Any title that wasn’t on their shelves had big barriers to both discovery and purchase.
But Amazon almost instantly knocked down both those barriers when they launched in July of 1995. They used a database that went beyond books in print, including many books that were OUT of print. So it was possible to discover a multiple of the titles you could find in a bookstore, and with fulfillment from the broad warehouse inventories of Ingram and Baker & Taylor, suddenly many times the 100,000 titles previously “available” could now be purchased.
But it didn’t stop there. Soon the used book networks were wired into another database, and then Ingram started Lightning in 1997. Every day, more and more titles were added to the choice available to any consumer, not just by the publication of new books anymore, but from the addition back into the mix of old ones.
And now everything published remains alive approximately forever.
The data we’ve seen on book sales says they’re flat and revenue increases have resulted from price increases. I have my doubt about that because the Net has tended to drive prices down, but the flat units ring true considering all the new competition from the Net for the reading time of the American public.
What Anderson documented in The Long Tail is that everything has a little market; the number of titles that sell something, even if very little, is just about all of them. And because there are so many of them — literally millions now, not the 100,000 from before — the cumulative effect of those sales is substantial.
So, who wins and who loses? Well, if overall units are flat and sales of books that would formerly have been dead are rising like a cemetary full of zombies, it is pretty obvious that the share of market left for new books is diminishing. But it is worse than that for legacy publishers, because the number of new titles competing for that shrinking market is growing by leaps and bounds as outfits like AuthorHouse and lulu.com, offering an ebook and POD model, obliterate the cash barriers to entry.
So it is not just the imagination of longtime book veterans that the business is getting progressively more difficult. It really is. Every day, the competition for a new book being published is greater than it was for those that came out the day before. And if there’s a way this progression ends, I haven’t been able to figure out what it is.
If that’s the challenge, what can publishers do? If the treadmill moves faster and gets more steeply inclined to the floor every day, and there’s no relief in sight, what’s the new model?
Let’s remember why we have publishers in the first place. The main thing they offer authors that authors can’t get anywhere else is access to the market: distribution, primarily, and marketing. Yes, publishers also shepherd the content development and project-manage the book’s creation, but those services are getting more ubiquitously available for hire. What the author wants from the publisher is the publisher’s ability to get that book on Barnes & Noble’s and Borders’s and every independent store’s front table and on the shelf at the public library. As long as those places occupy relative importance in relation to Amazon sales, and they still do, the author has a reason, aside from financial support. to have a publisher.
But those horizontal mechanisms are diminishing in relative importance. What comes next?
In the future, the eyeballs and audience bandwidth will be reached through rising vertical channels, in a variety of online ways: web sites, social networks, and more exotic communications devices like Twitter and others not yet invented.
Publishers have to learn to live in the vertical world. They have to establish their brands — probably new ones that don’t exist yet — and their presence and their market knowledge in spaces that are still in formation. This will require great changes in the way they think: about their audiences, about how hard to sell, about how they think about competition, and about where and when products must emulate services.
The short summary is this: the opportunity for today’s publisher is to use content as bait to attract communities. And communities, once formed and paying attention to new brands that have credibility in their niche, will be the monetizable asset of the future. And they will be the only means a publisher will have to really deliver distribution of an author’s work.
If making the move to vertical is the answer, and it is the only longterm strategy I can think of that might work, then let’s think about how today’s format-specific book publishers, born and raised in the 20th century, are positioned for the future.
The most challenged are today’s most powerful: the big general trade publishers. All of them have lists assembled with very little attention to niche. Their clout has been used to build a great physical supply chain, from printing contracts that give them speedy service and good prices, to warehouses that ship fast and can manage the requirements of major supply chain partners, and by establishing productive relationships with the biggest intermediaries between them and the book-reading public. Their infustracture machine demands volume because it’s built for scale. So they are attempting a feat akin to changing planes in mid-air. They must keep the old model robust while they figure out what the new model is.
The companies best positioned to move to vertical and format-agnostic publishing are those who have already done it. Companies like Wiley and McGraw-Hill and, of course, O’Reilly, and bigger university presses have been in professional and academic markets that have already gone both vertical and to digital publishing. They have had the opportunity to build and monetize community. They have been forced to develop “StartwithXML” workflows where their editors develop taxonomies and learn to tag content in development to aid future discovery. And they have experimented with new business models like rental and subscription and even advertising-based in their non-trade divisions. Porting the lessons over from one side of the company to consumer trade books isn’t a trivial undertaking, but at least a lot of the knowledge exists in-house. And these are big companies, so they can support the investments that new businesses require.
Small companies that are dedicated to niches have the basic tools to make the transition. In some ways, not having big pots of money to finance change can deliver an unintended advantage, because it will require them to partner with other players in the niches they choose. Partnership, particularly with non-publishers and non-BOOK-publishers, will be an important feature of successful community building anyway. Having slender financial resources can compel a company to do the right thing.
What simply is not going to work anymore is the small general trade publisher. With all due respect to the founder’s brilliance, I can’t see a company like Workman being built today the way it was 30 or so years ago. Small companies always had a better chance if they stuck to their knitting, once they figured out what their knitting was. Trying to be a small general publisher not only doesn’t enable modern community-building on the web, it also frustrates special sales efforts. It is hard to imagine a small publisher being successful today on the book trade alone
I’ve been explaining the switch from horizontal format-specific to vertical format-agnostic for well over a year now, much longer than that in a less clearly-articulated way. And a common response, particularly from big general trade houses and those others who, for one reason or another, are attached to traditional publishing, has been “what about fiction and poetry and belles lettres?” In other words, what about the stuff we make our money on?
I used to respond by saying poetry is a niche and fiction has many niches. And we all know there are web communities like LibraryThing and Shelfari and many others trying to get big readers of narrative writing to talk to each other about it. But that’s putting lipstick on a pig, as they say on Wall Street. I think the important thing to understand is this: it’s a pig! Here’s why.
The book business we’ve always known is a “critical mass” business. If you can’t sell enough, you can’t print the book economically. If you don’t run enough volume through your operation, you can’t support your sales rep or your warehouse or your office rent. And, most important to remember, if the bookstore can’t drive enough volume, it can’t stay open. Store volume may go down 10% because of market erosion, but then drop to zero because the store has to close.
The “writerly” books we all love to talk about and read are not the sole support of any brick-and-mortar retailer. The store keeps its doors open selling many other things: reference, compendia of various information, how-to books, kids’ books, joke books, travel books, and gardening books. If sales of those books, even just sales of those books through brick-and-mortar locations, suffer a severe decline, that will cause stores to close. The publisher of fiction and poetry may not like to think about it this way, but there won’t be much of a bookstore infrastructure for fiction and poetry alone. That is, we may not have a choice about whether to find additional ways to get those books to their market.
There was a recent article in The New York Times about Hay House. They don’t do fiction: the mind, body, spirit books they do are not so dissimilar. They are books to be read and discussed, for the most part. Some of them will “chunk” and some of them won’t. Hay House has learned how to build a coherent community from their audience, sticking to a niche that is comprehensible to them and to their readers. And, having built the community, they have learned to monetize it through events which become profit-generating marketing for their list. That’s the right idea, and a poetry publisher could learn from it.
Some of the outlines of the future world of publishing are taking shape.
Ebooks, after years of high expectations from people like me that were not met, are finally getting some traction. Amazon’s Kindle was a catalyst, but the anecdotal evidence is that sales in all formats are growing. Most ebooks to date have been sold in Adobe format and probably were read on laptop or desktop computers. We’ll be watching for handheld devices to start taking much more of the business, which will more fully capitalize on one of the big advantages of ebooks: easier portability for what would be heavy stacks of paper.
As ebooks grow in importance, it gives publishers and their authors a chance to start becoming more continuous. It’s much easier to add a chapter or a new forward or even an updating paragraph to an ebook than it is to a printed book.
The big social networks — namely MySpace and Facebook — defy this analysis because they are horizontal. They niche internally by subject, but they built themselves on social connections, not niche presentations. It wouldn’t surprise me if they start to yield ground now to more vertical plays. There’s a site called ning.com which allows entities to create their own social network. Social networks actually integrated into the verticals is where things are likely to go.
In fact, social networking “tools” — for tagging, sharing, rating, posting — are now being integrated into all sorts of sites. And tools are also developing to pull contacts and posts from across horizontal networks on an individual or subject-niche basis. There is obvious reluctance on the part of the current crop of winners to poke holes in the walls surrounding their gardens, but they recognize that they have to so they do. In time, this will allow new, more logical and more granular, aggregates to grow out of the old.
A new technology called “Twitter” has popped up in the past few months. It enables its users to send out “tweets” — very short bursts of information. If I sent one now it would be “I’m talking to an audience at PMA Academy.” And that would, presumeably, be of interest to somebody somewhere and they’d then know it.
I’ll admit that the attraction of something like this takes a while to dawn on a 60-year old like me, who is hardly looking for more detailed information about the daily lives of my friends and acquaintances. But the magic of the net, we keep learning, is that a very large database can generate small pieces that have great value to some people. Twitter was recently used to help “cover” the North Carolina Democratic primary. Tweets from polling places all over the state presented a useful picture in the aggregate. If enough people start sending tweets and enough people start monitoring them, it creates a whole new always-on monitoring of the world. And it is easy enough to grab attention outside the immediate network if something important, like an earthquake or a terrorist attack or a major traffic accident, is first covered by tweets.
One other trend that is becoming clear is a move away from laptops and desktops as the principal means of accessing the net. The iPhone and Blackberry are the game-changers here. A world where most people have internet access most of the time is going to be almost as different from what we’ve known as what we’ve known is to the pre-internet world. And we can see now that the iPhone internet world is upon us and that ubiquity is just around the corner.
It was recently pointed out to me that Asia, and to a lesser extent, Europe, developed a cell phone based internet culture because expensive PCs were not as ubiquitous in homes and neither were broadband connections. That might be a clue about where to look for future leadership we become untethered from our big screens and all-finger keyboards.
We’ll turn now from the historical, analytical, and theoretical and try to get practical. Exactly what should you DO?
First of all, you have to understand how your publishing program fits in the web world.
Map YOUR web. Title by title, figure out what sites and community subsets — groups within social networks, for example — are important to you. Ideally, you would perform the exercise of making that list for every title whose content you control, in or out of print. (And why, in the age of POD, would you let anything be out of print?)
After you’ve done that exercise by title, you will have created points of reference to roll it up by niche. Where the important communities overlap, a niche is certainly suggested.
You will probably see by what works for each title that the name of your publishing house or imprints or even your series don’t necessarily resonate across the same web communities. That’s a hint to you that the branding you’ve been using to navigate the B2B brick-and-mortar horizontal media world is not going to deliver for you in the evolving niche world. As this analysis starts letting you see the niches and your places in them, it should also start telling you where there are new branding opportunities. Being highly relevant to smaller audiences will serve you better in the long run than being known generally to larger ones.
Once you’ve done this exercise, you are ready to start thinking in niches that will be relevant going forward, at least for a while. Change will be more common than permanence. With the niches defined, they should become a critical organizing principle for your business. You have the opportunity to think in terms of them as you decide on each title you publish. You should try to stay within them, making sure that you’re building content with common markets that will ultimately build brand and reduce per-title marketing expense. You should be thinking about your investment and your profit by niche, as well as by title and by old-style measures like imprint.
What you should also be mapping is the other entities — publishers and non-publishers — that are in your niches. The book publishers particularly might be your competitors, but they also might be important collaborators. The community-building exercise is a long haul; as the recent emergence of Twitter makes clear, we don’t have nearly all the tools in place yet. You must at least entertain collaborating with book publisher competitors to work in this new vertical way. If you’re trying to be of service to a community, it’s a bad start to try to cut them off from content they’d care about. This is a touchy area that will require a lot of rethinking.
If publishers don’t find ways to collaborate, the niches will necessarily be built by third parties who will get upstream beyond all the publishers. Rather than being an aggregator, you will become aggregated.
The non-publishers in your spaces — like merchants of goods and services, academic entities, and hard-blogging interested citizens — are potential critical partners. For a while longer, at least, they are susceptible to seduction by book publishers. Whether you buy web sites or communities or whether you just ally with them, there is still a window for you to trade what you do anyway for what they do anyway in ways that are mutually productive and which raise barriers to entry for your competitors.
The suggestions we?e just talked about are long-term. These are “right now.”
First of all, you need to dedicate some of your marketing budget to community development. I was impressed to learn that one niche publisher, Berrett-Koehler, has already appointed somebody with that charge in their job title. What this means to me is responding to the right blog posts, being a good and public citizen of the right communities, and contributing content to the communities’ conversations. It also means not spamming with your press releases or making every post or remark a commercial for somebody to buy a book.
You also want to start capturing what are vast amounts of intellectual property that publishers routinely throw away. When editors compare one book they’re considering buying to two others in the marketplace in a memo, archive it! When you cut good material out of a book because it disrupts the narrative flow or is not quite worth printing additional pages for, don’t throw it away! Encourage your authors to give you 10-page bios if they have them; they can live online and in ebooks. Don’t lose any testimonials or critiques that come in at any stage. All of this constitutes content that can be useful when you aren’t paying by the sheet of paper to deliver it.
Start finding ways to be “continuous.” That’s about blogging, of course. It is also about adding material from time to time to ebooks. It is about creating a web page for every book that has updated information on it from the author or publisher. THAT is the URL that should go on a book’s jacket, not the one for the publisher’s generic home page.
Start finding ways to use community content. That could be within a web context yet to be developed, of course. But it also makes a lot of sense to think creatively about how community content could be turned into books, or parts of books. You’ll flatter your community and get commercial intellectual property at the same time.
We haven’t dwelt on the fact that “format-agnostic” is another big part of the vertical 21st century publisher. Once you’re distributing files rather than printed paper, you can just as easily be distributing audio, video, animation, games, or software as material meant to be read or looked at. It is going to become routine that the author videos go on YouTube before the book comes out. The long tail that is going to crowd audiobook sales is going to be author- and publisher-generated podcasts that people listen to on their way to work instead of the radio or instead of the latest novel. You need to be in that flow; you need to possess those skills. If you haven’t started already, don’t wait any longer.
The last item on this list is certainly the hardest. Until the most recent times, publishers did their production secure in the knowledge that there was one end product: a book. Sometimes it was slightly more complicated because they’d want to plan for a paperback in a slightly different, or even radically different, format. But now we don’t know WHAT format is next: some kind of ebook, or an iPhone, or a widget? The cost of content agility, which will certainly be a requirement for successful publishers very soon if it isn’t already, drops sharply if the publisher has the discipline of a digital workflow that starts with XML-structured documents from the very begining. And that kind of workflow also enables the author’s and editor’s inputs, such as those we mentioned earlier, and the attendant rights information, to “travel with” the content as it changes forms in development and in its commercial life.
Creating a “StartwithXML” workflow is a difficult process change. Taking advantage of it requires all kinds of work: creating design templates, agreeing on the taxonomies of different niches you publish in, and deciding what to tag and how to tag it consistently. Perhaps this challenge is so large that it belongs on the “strategy” page rather than the “tactics” page, but, either way, it is not too soon to start learning all you can about what it means to your company.
We know the world is changing, but we don’t know how fast change will come. The checklists of strategic and tactical items are important for you to start working on now while you can still make profits on old models.
Books are still very important. They are useful, ubiquitous, and revered. We are still in a world where distributing them requires organization, relationships, and knowhow. You have it; others don’t. That’s leverage now.
But the leverage diminishes as online sales grow. Online sales don’t eliminate the value of publishers; the sales are still driven to Amazon by the efforts of publishers. Even the sales coming to Amazon from affiliate web sites could have been influenced by publishers who called the attention of those web sites to their books. But when the day comes — not next year, but maybe ten years from now — when online sales are the dog and brick-and-mortar sales are the tail, owners of content will think very hard about whether they need the help of a publisher to get what they have to the public.
There’s an opportunity for the people in this room with verticals because the biggest players in today’s world are horizontal. You can out-compete the big guys in their niches, even if they have more content than you do; even if they have better content than you do. In fact, you will probably find them happy to help you own a niche with their content if you help them sell their book. They are product-centric and that’s your opportunity. Remember that the owner of the community is the winner in the end.
Ebooks and POD are tools you should use as well. They allow continuous publishing; they allow involvement with the community. They allow you to start businesses in new niches at lower risk. Harlequin, a very big niche publisher, has built a whole new list of short erotic fiction by starting as ebook only. They’re selling stories shorter than what would make sense in print for prices lower than would make sense in print. And they’re finding new audiences and new authors at the same time. What Harlequin has done there is a replicable example.
Thanks very much for your generous attention today. This slide shows you how to fine me. If I can give you a quick answer to a quick question, I’m always happy to do it. Best of luck navigating to success in the inevitable future.
Posted by Mike Shatzkin on May 7, 2008 at 12:00 am
Good day. I want to start out by thanking Olaf Winslow and the Danish booksellers for inviting me to your lovely city to talk to you today about the future of books for publishers and booksellers. You are going to get what is, admittedly, an English language-centric and US-centric perspective of the world from me; the unavoidable consequence of my being a lifelong New Yorker. But I believe you will find insights here you can apply to your own businesses; that is certainly my intention.
There is a big picture and a long arc within which our day-to-day activities are taking place. The 20th century consumer media were horizontal in their subject matter — that is, very broad — and format-specific. In the States, that means entities like CBS or NBC in television, The New York Times, or Random House. All of these companies provide content across the full range of human subject interests, but they pretty much stick to their formats: broadcast, newspapers, and books, respectively.
But the Internet naturally tends to vertical organization, subject-specific organization. It naturally facilitates clustering around subjects. And as communities and information sources form around specific interests, they undercut the value of what is more general and superficial information within horizontal media. At the same time, format-specialization makes less and less sense. Twentieth century broadcasting, newspapers, and books had special requirements that demanded scale, sometimes related to production but more often driven by the requirements of distribution. On the Internet, distribution is by files, and files can contain material to be read on screen or printed and read; it can contain words or pictures; it can contain audio or video or animation or pieces of art. When the file become the medium of exchange, not a book or a newspaper or a magazine or a broadcast delivered over a network with very limited capacity, it eliminates the barriers that kept old media locked in their formats.
The biggest, most successful trade publishers who do the novels, biographies, celebrity books, and all the other material that we think of as the most commercial offerings of our industry, have also been highly dependent on other horizontal media for promotion and marketing. When you might do a novel today, a memoir tomorrow, and a cookbook next week, you want similarly horizontal institutions through which to promote and sell your books. For years in the US, daily newspapers were a big part of the trade publisher’s promotional toolkit, followed by television and radio talk shows that were “variety” shows. They would very comfortably promote a novel author today, a biography author tomorrow, and a cookbook author next week.
But now those media are suffering attrition from the competition of the Internet. So there are fewer book review pages in newspapers, fewer talk shows that will put on authors to promote their books. And, of course, there are also fewer bookstores that will carry all the titles across all the subjects that trade publishers want to get to the public.
The first requirement to be a publisher, of course, is to be able to get what you publish known and purchased by potential readers. If the horizontal paths to market will be replaced by vertical communities which become the new paths to market, it is going to require that publishers be vertical as well. As the online vertical communities grow, the entities that have the attention of those communities will control what is published to them. But they will be able to “publish” whatever they want, not limited or defined by format. After all, it’s just a file…
We have already seen that the net also facilitates a big increase in the amount of publishing as well. There has been a big surge in the number of titles being published in the US, largely driven by small publishers and self-publishers. The market for books may be getting tougher, but the cost of entry is going down even faster. Widely available tools make it easy to go from a Word file to a printable PDF, and there are online services — Lulu is the best known and most successful — that will do this for you quickly and easily. And you don’t even have to bear the cost of inventory anymore. With ebooks and print-on-demand as a substitute for a print run, which used to create both physical and financial hurdles that kept books out of the market, more and more titles are being published.
That’s not making it any easier for the legacy publishers.
So that’s the long view. What’s happening now? I can tell you from the perspective of a guy who tries to keep up with new developments that it is a challenge to do so at the moment. There have been some very significant strides forward over the past year or so.
First of all, ebooks finally seem to be edging toward the mainstream. The release of Amazon’s Kindle last November, while probably adding only a few thousand new ereading devices to the marketplace so far — nobody outside of Amazon knows because nobody inside of Amazon is telling — has been catalytic. At current count, three major publishers — Hachette, Random House, and Simon & Schuster — have bought large numbers of Sony Ereaders, the Kindle’s most direct competitor, as working tools for their staff. The readers will be used to reduce the intra-company use of printed galleys and to make it easier for editors to carry around manuscripts.
Many years ago, before the cell phone and iPod became exceptions to this rule, I observed that technology adoptions tended to start at work. The fax machine, the personal computer, email, word processing programs, and spreadsheet programs, and even the World Wide Web were all things that people learned to use on the job and then “brought home”. Ten years ago, I thought ebook uptake would start the same way.
It didn’t, and although the cell phone and the iPod didn’t need the boost, technology introduced at work becomes a “must learn.” Once learned, it becomes a part of people’s personal lives as well. The fact that people who read narrative writing for a living will increasingly be doing it on handheld devices suggests that their use will spread much faster in the months to come. Anecdotal reports from ebook retailers and publishers say that sales in all formats have increased sharply since the Kindle launch and the widespread publicity it generated.
The digital revolution is also proceeding at a rapid pace in “search”. The Google BookSearch program and Amazon’s “Search Inside the Book” were the pioneers, but they are no longer alone. Barnes & Noble has started its own competitive See Inside program, scanning more books beyond the estimated 100,000-150,000 available for this purpose from publishers. And publishers are rapidly increasing that number, as a number of them have started to offer the capability on their own web site, and in widgets that can be spread all over the net.
The spread of discovery results has accelerated because of the rise of DADs, or “digital asset distributors.” These companies, led in the US by Ingram Digital and LibreDigital, relieve publishers of the burden of developing all the technology for digital distribution. Of course, the DADs, with the repositories, format conversion capabilities, and fast reaction to new opportunities, such as cell phone distribution, will be needed by all publishers in all languages. One of the questions I would think comes before the Danish book trade — and we have already seen this arise in Canada — is whether you should create your own DAD or, more likely, facilitate the interaction between a DAD and the various players in your market.
Audiobooks have been a growing segment of the US trade market for some time. That market has been expanded by the growth of digital downloads. Audible was the pioneer in this field, and they have an exclusive arrangement to provide audiobooks for iTunes. This channel to market became part of the iTunes monopoly. Now that Audible has been bought by Amazon, the future of that distribution agreement is open to question. The best hope for publishers might be that Amazon kills the iTunes deal when it expires and takes over Audible distribution through Amazon. Then publishers can go direct to iTunes to fill the gap, and then they might have two robust channels to market. In the Internet era, which tends to favor monopoly, that would be a welcome departure from historical norms.
Audiobooks are expensive to create. Unlike ebooks, which require only changing the form of content already created, audiobooks require creation of content. The technology for converting text to audio keeps improving; if acceptable quality audiobooks could be created through automation, it would be a huge boon to publishers. That kind of technology development would almost certainly be language-specific, but it will certainly be easier for small languages when they can build on what is done elsewhere.
Print-on-demand is another important component of the new digital world and it is another area where technology keeps marching us forward. It has been a bit over 10 years since Ingram started Lightning Print, now Lightning Source Industries, or LSI. Lightning was probably the first industrial-scale print-on-demand operation and certainly the first one that was really plugged into the book distribution system. A few years ago, Amazon bought BookSurge, a competitor to Lightning that took a different strategic path.
The key to Lightning was aggregating as much POD work as possible at a single location. That enabled Ingram to keep delivering improvements in the technology: better quality, more trim sizes, hardcover lines, and then all-color books. To build the biggest repository of files for POD delivery, Ingram used its leverage as the world’s biggest wholesaler. They had contact with all the publishers, they knew their lists and what sold, and they connected Lightning’s quick manufacture of a single copy to Ingram’s quick delivery throughout the supply chain.
Ingram did open a Lightning UK operation early in this century. It took them a long time to get the scale they needed to make that operation successful, but they’ve achieved it. Now they’re looking to expand the Lightning capabilities to other markets. The repository of files they can print is a major asset for them, decreasing the time it will take each new operation to become profitable.
Amazon is now attempting to use its leverage as the world’s biggest online retailer to claw back some of that POD business from Ingram for their BookSurge operation. But the initial strength of BookSurge, that they worked with printers around the world who were already in place, spawned its weakness. Reports from publishers I have spoken to say BookSurge’s quality and flexibility don’t compare to Lightning’s. And apparently their printing charges are higher. But since Amazon sells so many of the books that are printed on demand, their threats to make those books less available if they are printed outside of BookSurge carry tremendous weight.
But neither BookSurge nor a much-expanded Lightning are the last word in decentralized print-on-demand. The next step has been taken by On Demand Books, and their Espresso machine. The Espresso prints and binds one book at a time — one-color and paperback only, although with a full-color cover — and is intended for in-store use. There are only a handful of them in place, but they offer the entrepreneurial bookstore some very intriguing opportunities to expand their business. We have encountered a very entrepreneurial bookseller at the University of Alberta in Canada who has made one work profitably in his store within months.
Last month, Espresso announced a deal with Ingram by which the Lightning repository of files will be made available for delivery on Espresso. That suddenly makes the Espresso proposition a lot more likely to succeed. Espresso is worth exploring in any place where English-language books are in demand, that is remote from the sources of English books, and where prices for those books are high. In other words, the Danish book trade should look into it.
And Espresso is only the most recent “last word”. Technology companies like HP are looking hard at how even less expensive and smaller print-and-bind machines might be made available for home or office use. Those capabilities will happen. In the long run, the biggest value of Lightning may be in the database of print-ready books it has available, linked to commercial arrangements with the copyright owners. Putting something like that together is not something technology can make simple or easy; you still have to get the attention of somebody to get their agreement and automation can help only so much.
One other new development just coming into sight on the horizon are books assembled by customers. This is an idea that has existed for a while, particularly in the college and university markets where “coursepacks” of material from different sources are assembled into a single publication. But a US company called SharedBook has mastered and simplified this technology for consumer content. SharedBook puts its technology on AllRecipes.com, for example. and enables consumers to create their own cookbooks, using both recipes housed on the site and ones they create and upload themselves. Most of SharedBooks’ early clients have been content-generating web sites, not publishers.
But that is changing. Random House has announced an initiative working with SharedBook to enable customized and personalized books, and another major house is apparently close to a deal.
Among the more successful phenomena of the past few years are the social networks that have changed the nature of interaction among the young and have had impact across all ages. I’m talking about MySpace and Facebook, but also more specialized sites like LinkedIn, which is a social networking site for businesspeople.
These sites are basically horizontal, not vertical, even though MySpace started as a site for teens and Facebook as a site for college students. But they become vertical pretty fast, as members start creating communities of interest within them. See them as “AOL for Web 2.0″. The analogy is that AOL — and CompuServe and Prodigy and MSN — were successful initially because they simplified the online world and then the early days of the Internet. They made email and navigation and the basic capabilities of the net easy and intuitive and safe for technophobic people to use. What the social network sites do is to make the Internet 2.0 capabilities of networking, content generation, posting, and file-sharing simple for the technophobic or neophyte user.
But, over time, the technology gets simpler and the users get smarter and the importance of vertical never goes away. And a number of applications, including one from Google called “Open Social”, are now making it easier for communities of the interested to find each other across the silos of different social networks.
Tagging, which makes content easier to find and characterize according to how it is regarded by any particular user, is also proliferating. Sites like Digg and Deli.cio.us enable anybody to call additional attention to anything they find on the net and to label it. More and more sites like LibraryThing offer this kind of highlighting and identifying capability specifically for books.
In this way, the content on the net is being sifted and labeled. This is a process that the vast body of already-published material from the history of mankind will undergo. One concern often expressed in a world where user-generated content is proliferating is how an ordinary person is going to sort through all this stuff. But even on the net, there are more readers and raters than there are writers; there are just a lot more writers than there were before we had an Internet and, with all the legacy material out there to be read as well as new material, it will take a while for the readers and raters to catch up!
Another change on the verge of great prominence is the net connection untethered from the less-than-totally-portable computer. Smart phones with improving screens are making the net something you carry in your pocket and connect to all the time. Particularly since the two-thumbs keyboard is always going to be less user-friendly than one for all your fingers, that trend should increase the ratio of reading and rating to writing.
Publishers are also going to be adding much more to the metadata describing content as more and more of them adopt digital workflows. Going to what can be called an “start with XML” workflow is a looming issue for publishers. On the one hand, it requires painful process changes going all the way upstream to when the editor takes in a manuscript, and even to the author’s creation. On the other hand, it enables all content to be tagged with structure, content, and rights information that makes for more flexibility, discovery, and revenue downstream. This is another item that all publishers in the world need to be thinking about.
If the forces we see in place now keep developing, augmented by things we haven’t talked about like the semantic web which will only accelerate our ability to find and organize information, what will see in the decades to come?
My hunch is that we’ll see vertical “portals” for every conceivable subject: an overall organization that serves as a guide to every topic of interest. Think of wikipedia entries turned into entire web worlds.
All the content, legacy content and newly-generated content from all sources, will be tagged and rated by the community, having gone to the community more thoroughly tagged and organized than we can imagine now in 2008.
The aggregator brands we know today will have largely disappeared. They will have been replaced with brands that are much more granular, much more subject- or niche-specific. These brands will have grown up out of these communities.
The taxonomies by which information is organized in each niche will be constantly evolving. The standards experts of the future will be much more concerned with reconciling taxonomies across niches. Some obvious ones will need to be rationalized, like farming and gardening, cooking and dining, business travel and pleasure travel and adventure travel.
Leaving the horizontal media of the 20th century behind will mean that multi-niche successes, what today we call mass market successes, will become relatively rare. As people find it easier and easier to delve deeply into what interests them most, they will spend less and less time exposed to things that interest large numbers of people. Word-of-mouth requires that people be speaking to each other to work.
On the other hand, what can spread virally will spread much faster. Mass market phenomena will be less common, but those that occur will both rise and fade much more suddenly than they do now.
I want to spend a few minutes talking about a much-discussed aspect of the Internet, the “Long Tail”, a term popularized by Wired Editor Chris Anderson in an article and then a book by that name.
The concept is simple. In the days before the Internet, the choice of products available — let’s say, books — was pretty much limited by retail shelf space. If a book wasn’t in a store, the barriers to discovery and purchase were very high and the book essentially left the field of commerce.
Amazon.com, of course, changed that overnight. On the net, shelf space is unlimited. By using Ingram and Baker & Taylor, America’s two large wholesalers, to start, Amazon offered many times more books than any terrestrial bookstore. Pretty quickly, Lightning Print and then used books added even more titles to those a consumer could easily discover and obtain.
Anderson documented two very important things. First, the number of items that had some market, often a very tiny one, was very large. If you make a book title available, over time, somebody will buy it. And the second thing follows from the first. The cumulative sales of all the books — millions of books — beyond the 100,000 or so at one time that were really available in the pre-internet world was substantial. There is considerable debate about whether the titles past 100,000 on Amazon sell 25% of the total or 50% of the total or what (and Amazon, true to form, isn’t telling), but, cumulatively, it is a substantial number.
Some of those long tail sales represent growth in the market; they are sales that wouldn’t occur if that particular book in that particular edition weren’t available. But many of them are not. Many of those sales just substitute for the sale of one of the books that would have been available in the prior model, but without the competition of the long tail books.
What this says to me is that the long tail Anderson has identified is great for consumers and great for the retailers that can sell the long tail books, which primarily means Amazon. It’s great for Lightning. But the long tail is not a good thing for publishers or authors. From their perspective, the primary impact of the long tail is to bring them competition that 10 or 20 years ago would not have been on the field with them.
And herein lies a very important point. The competitive slope for each new book published is steeper than for the one before. Today’s senior management in publishing grew up in a world where the market was expanding as the numbers, wealth, and available time of the literate population grew and the landscape included the feature that old competitors died away. For a variety of reasons, it is likely — although not proven — that the Euros and hours available for book purchase and reading have declined. But it is incontestable that the feature of “dying competition” has been eliminated. Now every book published remains available to compete for sales approximately forever.
If the world of content changes in the way I’m postulating, publishing will, of course, change with it. In the largest sense, it means that the consumer content world will become more like the academic and professional worlds, which have always been highly cognizant of their communities and have always had “rating”, called “peer review”, as a part of their environment.
So the publishers who are already serving academic and professional markets are best positioned. They have already evolved with their markets to some degree: recognizing the critical role of niches as opposed to more general approaches to the market, evolving from print-only to print-and-digital or digital-only products, building marketable databases with user-generated participation, and exploring and understanding new business models beyond the “make it and sell it” models we knew prior to the 21st century.
It is the general trade publishers that are most challenged. Their competitive edge is in their ability to cost-effectively execute the format , the access to the marketing levers, and, usually through intermediaries, their access to the buying public.
All of these advantages are now highly challenged. The format-specific capabilities diminish in importance every day, with pressure coming from two directions. First of all, as we have observed, when the transaction takes place by file exchange, format-specificity is meaningless. But second, it is getting easier and easier for the rank amateur to get a competently-made book delivered at a reasonable price.
The trade publishers who are most niche-oriented to start with will be most able to adapt to the developing future. Last month I spent some time with two relatively small but focused US publishers. They’re not randomly selected; they came to see me because they see the future compatibly to the way I’ve been describing it. But one of them — Berrett-Koehler — has already appointed somebody to the newly created position of “Community Manager”. And the other one — Chelsea Green — is developing a new web presence organized specifically around niches such as “Green Building” and “Renewable Energy”. These are steps no major trade house has taken yet, to my knowledge, but they will all have to.
It’s not an accident that the biggest trade publishers have been slow to move in the direction of change. The speedboats can zip around the harbor; the supertanker has a devil of a time trying to turn around. That’s a generalization which masks the very specific reasons big publishers remain stuck in old models.
First of all, the horizontality of their history leaves them a legacy list that reflects the randomness of mind by which it was acquired: there are few niches with any critical mass of content. One of the sharpest digital strategy people I know at a major house in the UK was explaining the futility of trying to build a niche strategy with her house’s vast backlist. She just found no areas where their content gave her enough to really build on. Of course, Lesson Number 101 here might be that these niches will never be built on one house’s content alone.
The second big problem of the big houses is that their brands, which were built over a long time and are perceived to have great value, have only business-to-business, or what we call B2B, value. Consumers don’t know who published the last book they read, and they pretty much don’t care. With some rare exceptions, like Harlequin for romances, publishers’ brands have very little equity with consumers. It is a publisher’s instinct to promote the brand they have when they market on the web. For Chelsea Green, that might make sense. For Random House or HarperCollins, it doesn’t.
The third challenge for big companies is the requirement to keep making money with their current models, which are horizontal and which are book-specific. Smaller, owner-managed companies can more nimbly make decisions about experimentation with their future direction than big companies that report to investors about the value of their holdings.
The fourth challenge for big companies is that they are, of necessity, more highly structured than smaller ones. In the Internet age, when editorial, marketing, and sales functions get harder to divide neatly, structure and hierarchy can be the enemy of constructive change. If you look at the variety of interactions a publisher might have with Amazon.com, or with a content-generating web site whose community the publisher wants to reach, it is easy to see that a smaller company, where functions can come together in a single person, can function more effectively.
Also vexing larger companies more than smaller ones is their product-centricity. Book publishing companies live by creating new books, marketing them, and then selling them. It really taxes the models and the systems when a book could lead to a web site which could lead to a new business completely. One of the great examples of this in the past few years was with the a book called The South Beach Diet, which was an extraordinarily successful book that also spawned a series of businesses in newsletters and diet plans that followed it. It is no accident that the ancillary businesses were not built by South Beach’s publisher, Rodale, but by an entrepreneurial internet company called Waterfront Media.
Big companies, much more than smaller ones, also have to deal with the concerns of big authors and literary agents. If big publishers are stuck on old business models, authors and agents can be even more so. I had a recent experience where a major publisher asked me how to make best use of an encyclopedia of science fiction they were going to publish. It sounded to me like the perfect community-builder for a science fiction portal. But that possibility wasn’t open to them; the contract with the author required some sort of subscription model that would produce attributable revenue they could share. Indeed, there is a potential for competing interests here: a book could be used as a tool to build a community where the payoff isn’t necessarily reflected in that book’s revenue or royalties. Smaller publishers, because they tend to have less-connected and less-agented authors, also often find it easier to negotiate deals that allow flexibility in how they use the content.
And because of all of these reasons, big horizontal trade publishers don’t see the world in terms of communities. They see a hierarchy of authors and books: big ones that pay the rent, others that might backlist, others that fill out the list, preferably with low risk. They see a hierarchy of customers and a hierarchy of promotional media. But they see them horizontally, in terms of size and importance, not vertically in terms of niche or community. There has never really been much reason for them to think this way. It’s hard to superimpose a whole new way of looking at the world on a large organization.
Amazon dot com began not quite 13 years ago, in July of 1995. In its early days, I was a lonely voice saying that the first impact of the internet revolution on our business was going to be that it would be used to sell more paper books. Today the internet is responsible for perhaps 20% of US book sales and Amazon is most of that, perhaps 90% of that or more. But that 20% is an average, almost certainly higher in non-fiction than fiction, perhaps much higher. It is also certainly higher on smaller books than on very big books, perhaps much higher. One major university press told me four years ago that Amazon was larger for them than all other US retail combined! One can only imagine how much of their consumer sales are through Amazon today. There are certainly books that could be, and are, published successfully on the Amazon sales they make alone.
Amazon has built the customer base that enables this sales record on two major pillars: it is the first place to look for a book — great database and great search capabilities — and it provides a nearly flawless customer experience. Amazon’s search and navigation, including its famous “1-click” purchase; its pricing; its speed and reliability; all are best of breed. Some stores beat an Amazon price sometimes. Barnes & Noble has a delivery option in Manhattan that is unbeatable: you order in the morning and the book arrives at your doorstep in the afternoon. But these are exceptions. As a rule, Amazon rules.
The monopoly position that Amazon occupies is making publishers increasingly uncomfortable because there have been several recent signs that Amazon is quite willing to use their market leading position to grab margin from publishers. There is a growing threat as Amazon sharpens the propositions it offers directly to authors. Why not, if it is true that many books are viable on Amazon sales alone? So publishers would prefer to see some competition in the online channel. There are no great threats to Amazon, but there are a few small vulnerabilities.
The first thing to weaken may be Amazon’s position as “the first place to look” for information about a book. If Amazon has a weakness, it is that they won’t link “off” their site. Once they get a web visitor, they don’t want to let them go without making a sale. So they won’t send you the author’s web page, or refer you to a review they don’t host, or show you pages of the book that might be viewable at Google at Microsoft, but which isn’t within their proprietary control.
Not only are Google and Microsoft, with their own scanning and viewing programs, working hard to become the first place to look for books, sites such as LibraryThing are aggregating large amounts of reader-generated reviews and information that a book browser would want to see. In time, as the content on these domains becomes more robust, any of them could become the database of choice for some people, ahead of Amazon.
If the Internet does organize into useful verticals the way we’ve discussed today, then those verticals will probably control unique content not necessarily available through Amazon. Some of it might surround the book; some of it might even be offered as a digital download as a value-add when a book is purchased. Amazon’s proposition of “completeness” in the offering has been a foundation since it began. If the vertical web sites start to control vertical content that never makes it into the horizontal book world, Amazon won’t be complete anymore.
Of course, Amazon is threatening everybody else with that same proposition right now, signing up authors for Kindle and BookSurge publishing that will make them essentially unavailable anyplace else.
And the last possible point of vulnerability is if the online-and-offline combination can be made to work for the consumer. If that happens, then in America, it is a game only Barnes & Noble can play. Amazon has no stores, Borders has no money to invest, and no other retailer has a true nationwide presence to exploit. If the online-and-offline combination is going to deliver consumer value, it will have to be invented. Indigo in Canada has the scale to do it in that country.
Can a combination of Danish stores, working together somehow, invent this part of the future?
Most of what we’ve discussed today, while my experience is US-based, is true the world over. Now I want to talk about something that we don’t think much about in the US, but which I think is of great importance from your perspective: the ever-increasing impact of English.
Just as English has become the Lingua Franca for business, it is increasingly also the Lingua Franca for the Internet. With so much of the world’s content, and therefore the internet’s content, generated in English, it is pretty natural that much of the net’s conversation and chatter, which becomes the next wave of content, is in English as well.
As ebooks become increasingly popular, they will also tend — at least for a while — to increase the growth of English usage. Although in the long run, ebooks and print-on-demand enable smaller market content to be delivered efficiently — and that can certainly include smaller-demand languages — that won’t be the immediate effect. A great deal of English content is set up and ready to go in ebook and POD formats; the content that is ready for delivery in these ways will be spreading across the globe while content in Danish and Welsh and even Spanish and French is still being digitized, translated, and converted.
Decentralized print-on-demand — BookSurge-style, Ingram-style, Espresso-style, or in forms yet to be invented by HP or others — will also, at least in the beginning, propel the spread of English.
You are no doubt aware that US and UK publishers have recently been battling over the rights to sell their editions in Europe. That battle is a consequence of increasingly challenging markets at home. The London-based market has been diminishing for almost four decades, as parts of the UK commonwealth are no longer dependent on the UK for their book supply. Both markets have been challenged by increasing consolidation in the book trade; the number of outlets is actually diminishing and the concentration of what remains hurts publishers’ margins. The net effect of this is to make growth markets increasingly important, and Europe is a growth market for English-language books.
And the Internet is making it easier and easier for B2B, business-to-business, relationships to be conducted with less expense. Reps are useful, but not critical anymore. Free or almost-free Internet telephone, combined with web-based presentation materials, make possible effective sales coverage without travel. These capabilities will be increasingly employed in the future.
So what does all this mean for you? In the very long run, a small country provides a coherent niche. So, a decade or three from now, when the mass world has really been splintered, and “Denmark” is a functioning online community as well as a country — certainly including Danes the world over — this might all be different. But, as John Maynard Keynes famously said, “in the long run, we’re all dead.”
The first observation I would make is that the challenges for publishers are quite different than the challenges for booksellers. Publishers in Denmark are tethered to the Danish language; booksellers are not. All of the intrusion of English we expect can be adapted to by the trade, which can sell English books. But Danish publishers can’t realistically acquire English-language rights for Denmark.
I have been given to understand that even major bookstores in Denmark carry not much more than ten thousand titles. I have also had it explained to me that internet ordering has been discouraged by flaws in your systems for home delivery, which require you to pick up packages at central locations if you’re not home when the mail or FedEx delivery arrives. If that’s true, it would constitute an opportunity for bookstores to be your point of pickup. That might give you a head start on the online-and-offline combination, which is called colloquially called bricks-and-clicks in English.
The Danish language market is itself a small-market niche and you can perhaps take some hints from what the American university presses have done. Pioneered by the University of Chicago, which put a print-on-demand capability inside its warehouse, many university presses are going to a one print-run strategy. Each book gets an initial press run and everything after that is print-on-demand. That eliminates wasted inventory and keeps books available forever, or as long as there is any demand. I am sure that Danish publishers frequently face the problem of a second printing that carries extraordinary risk of wiping out the profits from a success. It no longer has to be that way.
I know you have a central national warehouse, which makes a lot of sense. You also need consolidated national capability to compile your metadata in a way that will allow computers all over the world to identify and transact for your content. That means you need to be compatible with global standards, particularly ONIX. If you don’t take those steps, any digitization efforts you undertake will have only a very localized effect.
As I implied earlier, a national effort to organize print-on-demand could make a lot of sense as well. I am sure Ingram would find it much easier and less expensive to load Danish-language titles into the Lightning database if there were a central authority in your country pulling together the books, getting publishers to agree the terms, and providing the accompanying data. If this were coupled with some kind of in-country POD capability, whether you owned it or they did, it could increase availability of your output all over the world and cut your costs at home.
Ebook distribution is something else that suggests a national effort. One ebook store back end with a view of the product database available through each individual bookshop would be the most efficient way to sell ebooks countrywide. It doesn’t make sense to create multiple ebook distribution structures, but you also want the benefits and opportunities of the market to help all the retailers in your market, not to be part of a winnowing process over time.
The coming decades will be challenging for publishers and booksellers who built businesses before the communication technology of the 21st century was put into place. There will be a lot of change, and there will certainly be some pain mixed with the opportunity. I hope you will find it comforting to know that you are not alone in the challenges you will face and that being small and unique will sometimes be to your advantage. Thank you for your attention, and it is my sincere hope that some of these insights will be useful as you chart your path to the future.
Posted by Mike Shatzkin on April 16, 2008 at 12:00 am
Good morning. I have accepted the challenge of trying to update you in 15 minutes on how digital technology is affecting book sales and marketing in the US. That means I’ll be talking fast, leaving a lot out, and asking your indulgence in advance if I steal a few minutes from the question time.
Although most publishers and observers of the scene measure digital change against where we’ve been — like: how are we doing selling digital books and will people pass them around if we don’t encrypt them and thereby reduce the number of units we can sell? — I think it is more useful to measure change against where we’re going. To do that, we have to an idea of where we’re going. Those of you who have heard me before have possibly heard this before, but we need to take a few minutes to talk about the overall arc of change.
In the 20th century, successful consumer media enterprises almost always shared two characteristics: they were horizontal in their content coverage and format-specific. In the US, that means companies like Random House, CBS, and The New York Times. They all embraced a very wide span of subject interest, but very seldom strayed from books, broadcast, or newspapers, respectively.
But in the 21st century, the net is flipping this on us. The net tends to self-organize us by subject niche, so the eyeballs and human bandwidth are linked to the niches, which are vertical, not horizontal. And because web interaction is about file exchanges, format specificity is meaningless. The file can hold text, art or photographs or other graphics, animation, moving images, sound, games, or code that helps us combine, sort, or tag things.
So we’d expect the successful 21st century consumer media entity will be vertical in subject interest and format-agnostic. When the 21st century world gets more fully articulated, it will be obvious that the customers for a book about knitting, political conventions, or deforestation are reached through specific vertical channels, notthrough CBS or The New York Times. That alone will force today’s publishers to focus on niches if they want to be tomorrow’s publishers. But they will also be driven to find the niches because the horizontal outlets for promotion and sale are getting weaker and less numerous.
Once you accept this paradigm, you see it playing out in many places. Last month, Nike announced that it would no longer organize around the product (shoes, sporting equipment, clothing) but around the sport. This is not only an example of going from horizontal to vertical, it also obviously makes Nike a much more coherent customer for content. And last week the publisher of the Las Vegas Sun, Hank Greenspan, announced that an intensely local-focus web initiative he is piloting in Las Vegas will move to New York and other cities. He’s creating a template for intensely local verticals that he intends to roll out across the country. (Of course, the newly format-agnostic New York Times might have something to say about this when they get to New York.)
In the context of the change we’re going to see, everything that has happened so far — and what will happen over the next several years – is a mere prelude. The horizontal format-specific media have hardly disappeared; they are still the dominant media. But what has happened is putting in place building blocks for much more substantial change to come.
First of all, we’re getting files we can use. Just about all books today are printed from digital files which are fairly readily converted to a version of XML. Most of the major publishers in the US are far along in programs to create useful digital files of their backlists.
The DADs — digital asset distributors — are quickly signing up all publishers of a certain size to facilitate all kinds of digital distribution, from search inside at retailers to content on cell phones to widgets that can bring content to any web site. Last year we did a project of presenting the DADs and what they do; in the year since then, it looks like Ingram Digital and LibreDigital are the market leaders on our side of the Atlantic.
There is ebook growth that even the most hardened skeptics and defenders of the primacy of paper books must admit is real. The Kindle was introduced by Amazon and is apparently a great success; the Sony reader is rapidly becoming a ubiquitous professional working tool. The new epub standard is going to make it easier and easier for books to find their way into any conforming ebook format.
The rating and tagging for books, which is particularly important for fiction and memoirs and belle-lettres in the digital world, is being facilitated by both book-specific sites like LibraryThing, Shelfari, and Bookreads and by general sites like Deli.cio.us.
And in a development that’s outside the book business but will be critical to the future, the silos of the 2.0 social networking sites — most prominently MySpace and Facebook — are being broken down by initiatives like the OpenSocial Foundation. We have always seen the first generation of social networking sites as horizontals, and therefore not likely to survive long as the vertical communities form. Expect to see the vertical areas of interest be organized across the social networks. And, in the future, expect social networking to be a component — like reference material and a job board — of every major vertical.
I’ve always believed that there would be a tipping point for ebooks. We may still be a long way from it, but at least now the progress is visible.
When research I did earlier this year demonstrated pretty convincingly that most ebooks sold in the US are not read on devices, but are Adobe files that are most likely read on PCs, I was surprised. Only about a third of sales are of Palm, Mobi, or Microsoft dot lit formats that we’d expect to be read on a handheld. The emergence of the Kindle and the vitality of Sony Reader may change that balance soon, but that’s what it has been.
Ebook retailers we checked with say that only Harlequin puts all their new releases into all ebook formats as a routine matter. Now that other publishers seem about to join instant adaptor Hachette Book Group USA in embracing the new epub format for ebooks, which should make conversion to different formats just about free, we’d expect to see more titles in more formats in the future. A survey by Market Partners in March 2008 suggests that far less than half of the total title offerings from the majors are available as ebooks. What will also drive more widespread ebook availability is the excitement around the Kindle and Amazon’s efforts to get more digital files from publishers.
Two signficant web retailers I asked said that sales doubled from January 2007 to January 2008. The International Digital Publishing Forum, the industry association for ebooks, says sales in 2007 had increased by about three times since 2005 and six times 2002. The growth rate is very impressive; the overall sales levels still are not. No publisher I am aware of reports digital sales of as much as 1% of their total business. Yet.
The Kindle has only been available since December 2007, and Amazon is tightlipped about how many readers they’ve sold, let alone how many books for it, but anecdotal reports say that ebook sales have surged across all formats since the Kindle came out.
In the past couple of weeks, Random House joined Hachette and Simon & Schuster in announcing that it is distributing Sony Readers to its sales reps and editors to make it easier for them to carry around and read advance galleys and manuscripts. This is a significant step, turning the ebook reader into a professional tool for our industry. Getting people within the publishing business familiar with the capabilities of ebooks is a critical step toward a more widespread consumer takeup. And it will help our industry create better ebook products.
In that vein, Penguin has just announced that it will be creating very much enhanced ebooks of classics, including contemporary reviews and commentary. We’d hope this would be the first step toward more robust ebook product. It shouldn’t take a lot of imagination to come up with content that could “ride free” in an ebook that would add value for readers and for the author’s attempts to establish relationships with readers.
Aside from ebooks, the biggest investments the biggest publishers seem to be making don’t suggest that the transition to “format-agnostic vertical” is taking hold. Nor is there much evidence that publishers recognize their existing brands as B2B, not B2C.
There have been obvious investments in corporate branded websites by all the majors with a great expansion of bells and whistles: author features, browse- or see-inside functionality, and, increasingly, offers to sell physical or digital product.
There is also a growing use of podcasts and vodcasts and video trailers, but universally these are marketing devices, not product plays.
The big publisher sites are almost bereft of vertical consciousness or community activity. They sign people up for “alerts” about books and authors, but, since these sites are mostly about promoting general trade lists for sale, there is no logical opportunity to promote discussion, user generated content, or the kind of features that would encourage repeated visits. And, similarly, these branded sites offer little opportunity for partnership with non-publishing brands that are in the same space, but are not part of some publishing deal.
Since Amazon controls the vast majority of book sales on the net, it is not surprising that Amazon’s initiatives are the most closely watched and highest impact in the online retail world. All three of the moves enumerated here are signs of a monopoly player strengthening its already dominant market position.
About three weeks ago, Amazon declared a new policy that they would no longer ship as Amazon-sold product books printed on demand by another supplier. If you want your POD book listed for sale by Amazon, as opposed to one of the “marketplace” vendors who use the site’s capabilities, you would have to set it up to print at Amazon’s POD operation, BookSurge. The legality of this approach is not yet clear, but many of the marketplace implications certainly are. Amazon has a commanding position among online book purchasers and they can use that as leverage to compel publishers to conform to their desires. Until now, that has meant getting vendors to give discounts Amazon requests and participate in coop programs. This latest policy is a shot across Ingram’s bow — at the very least; maybe it is a missile into the wheelhouse — but it is also a sober reminder to publishers that their now second-largest vendor has a whip hand and will use it.
Audible has been a boon to the publishers’ audio download business. Through Audible directly and through Audible’s relationship with iTunes, they control a greater percentage of it than Amazon does of online book sales. One publisher characterized this to us as “99.9” percent.
The purchase means that Amazon can now port the biggest collection of digital audio titles available over to their massive customer base and, perhaps, stop Audible from working through iTunes when the current deal expires. Of course, publishers would probably rush to fill the iTunes vaccuum themselves, and thereby create some competition for the Audible-Amazon combination.
Amazon’s Kindle has apparently sparked a surge in the ebook business. It has also broken new ground in the business. It is tethered to the retailer, which makes purchasing simple and quick, but also makes the purchaser a captive of Amazon. It started out with more than 90,000 titles available, a number comparable to Adobe and several times larger than what is available for any other handheld reading device. It offers non-book material: blogs and newspapers and magazines. And it also allows you to go to the web and, with a crude and clunky keyboard, even do email.
Barnes & Noble dot com is the second place book web site, but they are way behind. Estimates of Barnes & Noble’s share of the web book market are around ten percent. But they are investing heavily in beefing up the site. They are creating content “channels”; rich data organized by vertical subjects to make the site more attractive and sticky. And Barnes & Noble has a new business called Quamut, which like their established SparkNotes line, sells PDFs of content for the same price as a printed form, which for Quamut is laminated cards.
B&N is also building a “look inside” capability some yeas after Amazon lead, but still at a time when publishers have not yet fully cooperated with Amazon’s program and when many are putting this capability on their own sites.
The growing ebook and downloadable audio phenomena could result in a great dispersal of retailing on the web. Lightning Source and Content Reserve already white label this function for anybody who needs it. As web communities by subject grow in importance, it will make sense for them to sell this kind of content directly, rather than refer sales off their site as affiliates, the way they do for physical product. This is good news for publishers looking for additional outlets to sell their product in the short run; it could also weaken Amazon’s grip on the marketplace. In the long run, according to our overarching vision, these vertical sites become publishers, not just retailers.
I’d add a word here about libraries. They “lend” ebooks and digital audio already. Since ebooks and audiobooks tend to be read once, as opposed to music that might be listened to many times over many years, “borrowing” an ebook or audiobook is about as good as buying one. This has already led some publishers to think about some sort of per-use charging in this marketplace, which would certainly be a challenge to implement. On the other hand, as the download customers become savvier, one would expect more and more of this business to shift from “buy” to “borrow” with a dampening effect on sales.
Now, just a few predictions of what we might see in the next year or two.
The view from there is that the Kindle challenge has to be taken up by Barnes & Noble somehow. Borders has teamed with Sony on the Reader, but Sony’s proposition is lacking enough titles and the direct connection to the net they need to compete. And Borders is loaded with troubles of their own. I keep thinking that B&N will find a partnership possible with Apple, but that’s an outsider talking and I have no idea if they talk to each other. But I’d expect something!
We will start to see a decline in the horizontal social media like MySpace and Facebook; I saw one stray stat somewhere that suggested that Facebook has already suffered some losses in the UK. These horizontal sites are like AOL was; their raison d’etre is to make tech easier for people. As people learn the tech, the vertical sites offer social tools, and the various initiatives like Open Social start cutting across the horizontal silos, the utility to the stadium-sized social sites will diminish as compared to homier collections of more like-minded people.
Also in the next year or so, I’d expect to see a vertical content-and-community site driving new print publishing economics. When you have the attention of the people you need to sell to already in hand, marketing costs drop dramatically. This is at the core of our argument about the overall change in publishing; we ought to have a “case study” or two developing soon.
There is a new company called SharedBook which provides software to allow book assembly from various components, including some supplied by the customer. SharedBook is powering book creation on a few dozen vertical websites, including cookbooks being created at AllRecipes.com. This idea is not new: the academic community has been assembling digital coursepacks for years. But we’re about to see an explosion in “create your own book” opportunities for consumers and, by a couple of years from now, it will be pinching some established businesses. Travel publishing and cookbooks would seem to be early targets.
One other outcome of all this digital change, we believe, will be mushrooming availability of large print books. If a book is tagged properly in XML, setting up large print in POD is almost cost-free and, once set up, certainly cash flow positive. With the baby boom generation many years past their first pair of bi-focals or reading glasses, a large market for large print is about to be one of our next significant revenue opportunities.
Posted by Mike Shatzkin on March 10, 2008 at 12:00 am
This is what’s happening now. Almost all successful consumer media companies in the 20th century had two characteristics: they were horizontal in their content reach — that is, they were broad — and they were format-specific in their delivery. Think New York Times, CBS, HarperCollins.
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.
But in the 21st century, the net is reorganizing us into vertical communities. Something in the news seems to confirm that shift on almost a daily basis. You might have seen in yesterday’s Times that new ad networks are forming to aggregate cable TV opportunities by subject niche, to offer advertisers more eyeballs. I have a baseball web site and we’ve just been signed up by two different aggregators pulling together baseball sites, or sports sites, to do the same thing.
And on the net, format doesn’t matter. A file doesn’t care if it is words, pictures, sound, video, or a game. Web publishing is about delivering files. We are seeing a pronounced impact of this change already. Publishers have been producing more and more podcasts and vodcasts and last week BN.com announced an aggressive program to put more and more non-reading content on their site to sell books.
New tools are being created to allow communities to sort, tag, rate, aggregate — let alone slice and dice — all content. Crowd-sourcing for information has gotten a lot of attention in an age where the video from your cell phone could end up being seen by millions if you happen to capture a news event. Crowd-sourcing is being put to use by established media in new ways. Two weeks ago the Dallas Morning News mounted a slew of content related to November 22, 1963 to enlist their readers’ help to go through it and find things that might be significant.
It isn’t just content purveyers who are driving vertical organization. Nike announced last month that they would henceforth organize their company and their marketing efforts around the sport, not around the product. This is eminently sensible: after all, when you’ve sold somebody a tennis shoe, you are next more likely to sell them a tennis shirt than a basketball shoe. But it also means that Nike is suddenly able to really USE content for their communities because they are making their site visitors organize in ways where non-product content can really be relevant.
The horizontal media are atrophying and dying. It used to be necessary to be horizontal to have a successful newspaper or magazine. It helped aggregate audience — remember that NY Times TV ad where the husband went straight for the Week in Review while the wife grabbed Arts and Leisure? Different sections sell each print publication to different people, and very few people read any of these things cover to cover. But that foils any attempts at targeting by advertisers and, in this day and age, forces people to buy, carry, and dispose of lots of paper that has no particular use to them. Before the net, that idea sold. It sells less and less today.
The flight from horizontal even affects the net. AOL — as horizontal as any 20th century media — is a dead man staggering. And the most recent report from the UK says that Facebook suffered its first reduction in page views last quarter. Facebook is horizontal too.
The fact that Nike is reorganizing in a way that makes using content both more possible and more likely is a good thing for publishers, because the horizontal media they relied on in the 21st century is disappearing. The reduction in book review pages in daily newspapers is a focus of our industry, but it is just one of many signs that local daily newspapers are disappearing. Local TV talk shows preceeded them; those author promotional opportunities have already dried up.
Horizontal retail — general trade bookstores — have been the key to the trade book business. But we know the big independents are gone or endangered. And how confident can we feel about Borders, which has unveiled a new “concept” store that might work (or might not), but would cost a fortune to roll out across hundreds of outlets. Unlike Borders, B&N is on very solid financial footing, but we all saw the impact on their stock price last month when they announced that 2008 would be a tough year.
Another factor making life tougher for publishers is that competition is coming from places it didn’t ten or twenty years ago. The Long Tail is great for retailers and great for consumers — we can get books we couldn’t imagine finding ten or twenty years ago and some retailer gets to make the sale — but it is not such a good thing for publishers. Many long tail books come from used books, for one thing. Or they come from publishers who couldn’t otherwise compete for the consumer, because they don’t have a big sales infrastructure. All that just makes it harder for the publisher putting a new book out today.
And we have that nagging concern about the texting and Manga generation: will they be sitting still to read a long book when we need them to replace their parents and grandparents in the market ten or twenty years from now?
All of these challenges really compel today’s book publishers, but most emphatically today’s GENERAL publishers, to re-think their businesses. Here’s a starter list of approaches to do that.
First of all, think beyond the book. A book is both part of a larger conversation that includes other books and other non-book content and it is made up of many discrete bits that could stand alone, which in the modern parlance we call “chunks.” This is even true of fiction; it is more clearly true of non-fiction. Publishers need to start thinking of their content in those contexts.
Second, if you haven’t already started playing with audio and video, get going.
Third, it doesn’t work anymore to deal with your audience entirely through media and retail intermediaries. If you’re really big in a subject niche, you might be able to build your own communities. But if you’re not, you better be looking at the communities out there that are suitable and be thinking about how to be a respected member of them. They are increasingly going to be the key to your marketing success.
Fourth, use your authors. We could spend a whole conference on that topic alone but just take on board that the royalty relationship — where an author might work for free today in hopes of a payday already built into a contract — is a unique strength of a book publisher’s economics that other media do not share.
Fifth, you must have an online marketing infrastructure. That means you have to know the web sites that matter to your niches, but it also means you have to offer your content in ways that allow tagging and viral activity by your audiences.
And last, you should be using all possible sales channels for your intellectual property. That means every book should be an ebook, and just about every book should be loaded for print-on-demand. POD is not JUST for end of life; for many books, it can be critical during mid-life.
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:
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.
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.
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.
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.
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.
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.
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.
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).
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.
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.
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.
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.
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.
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.
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.