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The “Big Change” era in trade book publishing ended about four years ago


Book publishing is still very much in a time of changing conditions and circumstances. There are a host of unknowables about the next several years that affect the shape of the industry and the strategies of all the players in it. But as publishers, retailers, libraries, and their ecosystem partners prepare for whatever is next, it becomes increasingly evident that — from the perspective of trade publishing at least — we have already lived through the biggest period of transition. It took place from sometime in 2007 through 2012.

At the beginning of 2007, there was no Kindle. By the end of 2011, there was no Borders. And by the end of 2012, five of America’s biggest publishers were defending themselves from the US Department of Justice. The arrival of Kindle and the exit of Borders are the two most earthshaking events in the recent history of book publishing and its ecosystem. The Justice Department suit first distracted and then ultimately strait-jacketed the big publishers so it was both difficult to focus and then difficult to react to further marketplace changes.

Paying close attention to what we then called “electronic publishing” started for me in the early 1990s, with a conference other consulting colleagues and I organized for Publishers Weekly which we called “Electronic Publishing and Rights”. This was before Amazon existed. It was when the big transition taking place was from diskettes to CD-Roms as the means of storage. And it was even before Windows, so the only device on which you could view on a screen anything that looked at all like a book was a Macintosh computer, which had literally a sliver of the market. The most interesting ebook predecessor was the Voyager Expanded Book, and it could only be used on a Mac.

In this speech I gave in 1995, I put my finger on the fact that online would change all this and that publishers shouldn’t spend too much energy on CD-Roms.

The period from then until when it was clear Kindle was establishing itself — the awareness that it was for real slowly dawned on people throughout the year 2008 — was one where the inevitability of some big digital change was generally acknowledged. But dealing with it was the province of specialists operating alongside the “real business” and largely performing experiments, or getting ready for the day when it might matter. There was a slow (and inexorable) shift from store-purchasing to online purchasing. And the online purchasing almost all went to Amazon. But even that wasn’t seen as particularly disruptive. Neither ebooks nor online purchasing called for drastic changes in the way publishers saw their business or deployed their resources.

The first important new device for books in 2007 didn’t start out as one at all. It was the iPhone, first released in June of that year. Although Palm Pilots were the ebook reader of choice for a big chunk of the then-tiny ebook community, they lacked connectivity. The iPhone was not seen as an ereader when it came out — indeed, Apple head Steve Jobs still believed at that point that ebooks were not a market worth pursuing — but they could, and did, rapidly become one when it was demonstrated that there was a market. And they vastly expanded the universe of people routinely paying for downloaded content, in this case music from the iTunes store.

Then Kindle launched in November of 2007. A still unannounced number of Kindles sold out in a few hours and Amazon remained out of stock of them for several months! Because the original Kindle was $399, it was only a “good deal” for the consumer who read many books on which they could save money by buying electronic. What this meant was that Kindle owners bought ebooks in numbers much greater than the relatively small number of devices placed would have suggested. Throughout 2008, the awareness dawned on the industry that ebooks were going to be a significant business.

And that awareness rapidly shook loose a raft of competition. Barnes & Noble saw that they had to compete in this arena and started a crash program to deliver the Nook, which first appeared almost precisely two years after the first Kindle, in November 2009. Months earlier, Amazon had released the app that put Kindle on the iPhone. Meanwhile, Jobs had become persuaded to take ebooks seriously, and, anyway, he had a store selling content downloads to devices like crazy. Now, about to launch his new tablet format, the iPad, he had what looked like the perfect vehicle with which to launch ebooks. The iPad and the iBookstore debuted in April 2010. A month later, Kobo entered the market as a low-priced alternative with their first device. And by the end of the year, Google reorganized and rebranded what had been Google Editions into Google eBooks. The original concept was that they would populate the readers that were using epub, which meant Nook and Kobo at that time.

All of this change within three calendar years — 2008 through 2010 — created a blizzard of strategic decisions for the publishers. Remember, before all this, ebooks were an afterthought. Amazon had applied pressure to get publishers into the Kindle launch in 2007. Before that, no publisher that I can recall made any effort to have ebooks available at the time a book was initially launched. There were workflow and production changes (XML FIRST!) being contemplated that would make doing both print and digital editions a less onerous task, but they were seldom fast-tracked and doing ebooks meant taking on and managing a book-by-book conversion project.

During the period when Amazon was pretty much alone in the game (the pre-Amazon market leaders, Sony and Palm, faded very quickly), they started pricing Kindle titles aggressively, even willing to take losses on each sale to promote device sales and the ecosystem. This alarmed publishers, who were seeing small Kindle sales grow at what were frightening rates and raising the spectre of undermining their hardcovers. It didn’t hurt that the retailers with whom they (still, then, though not now) did most of their business were also alarmed. Nook arrived and Barnes & Noble would never have been as comfortable as Amazon with selling these new products at a loss. But B&N also worried about the impact that cheap ebooks might have on more expensive print book sales. Amazon didn’t.

So when Apple proposed in late 2009 and early 2010 that there could be a new way to sell called “agency” which would put retail pricing power for ebooks into the publishers’ hands, it met a very receptive audience of publishers.

And that, in turn, led to the Department of Justice’s lawsuit against the big publishers which was instituted in April of 2012.

Coinciding with and enabled by all of this was the huge growth in author-initiated publishing. Amazon had bought CreateSpace, which gave them the ability to offer print-on-demand as well as Kindle ebooks. The combination meant that a huge audience could be reached through them without any help from anybody else. When agency happened (2010), they started to offer indie authors what amounted to agency terms: 70 percent of the selling price for ebooks. This was a multiple of the percentage an author would get through a publisher.

Agency pricing fell right into Amazon’s and the self-published hands. Getting 70 percent on the ebook, the indie author got $2.10 pricing at $2.99 and $2.80 pricing at $3.99, royalties comparable to what they’d get from full-priced print. Many bestselling indie ebooks were priced at $0.99. The very cheap ebooks indie authors would offer juxtaposed against the publisher’s agency up-priced (many at $14.99) and undiscounted branded books created a market opening that allowed the Kindle audience to sample (aside from the free chapter that is standard in ebooks) cheap ebook authors for peanuts. Suddenly, names nobody had heard before were on the map, selling millions of ebooks, and taking mindshare away from the industry’s output. And it also handed the publishers’ authors an alternative path to market that could only have the effect of improving their negotiating position with the publishers.

Meanwhile, Borders sent the most persuasive possible signal that the shift in sales from stores to online, accelerated by the ebook phenomenon, was really damaging. They went out of business in 2011. That took the account that sold upwards of 10 percent of most publishers’ books, and a far greater percentage of the bookstore shelf space for backlist, off the board. Or, viewed another way, publishers went from two national retailers who could place a big order and put books in front of the core book-buying audience to one.

So the authors’ negotiating position was stronger and so was Barnes & Noble’s.

And all of those events — the devices, the ebook surge, the introduction of the agency business model, and the Department of Justice suing most of the big publishers, a very noticeable rise in successful independent publishing, and the increased leverage of the trading partners with whom publishers negotiate their revenues and their costs — were head and body blows to the titans of the industry. Every one of them threatened the legacy practices and challenged the legacy organizations and resource allocations.

During this period, Random House (the number one publisher) merged with Penguin (the number two publisher) and created a super-publisher that is not far from being as big as the four remaining members of what were called “The Big Six” in 2007. If you are viewing the world from the perspective of HarperCollins, Simon & Schuster, Hachette, or Macmillan, that might have been the biggest development of all.

Compared to the sweeping changes of that era, what has happened since and what is likely to happen in the next couple of years is small beer. There are certainly clear trends that will change things markedly over time.

Amazon continues to grow its share, and they are around 50 percent of the business or more for many publishers these days.

Barnes & Noble is troubled but in no immediate jeopardy and is still, by far, the number one brick-and-mortar account for publishers. But the optimistic view is that their book sales will remain flat in the near future.

Independent bookselling continues to grow, but even with their growth since Borders went down, they are less than 10 percent of the sales for most publishers. It is true that ebook sales for publishers have flattened (we don’t know the overall trend for sure because we don’t really know the indie sales at Amazon, and they’re substantial) and don’t seem likely to grow their share against print anytime soon.

These things seem likely to be as true two years from now as they are now. Nothing felt that way in from 2008-2012.

Digital marketing, including social network presence, is an important frontier. The industry has a successful digital catalog, called Edelweiss, which has obviated the need for printed catalogs, a cost saving many publishers have captured. And another start-up, NetGalley (owned by Firebrand), has organized the reviewer segment of the industry so that publishers can get them digital advance copies of books, which is cheaper and much more efficient for everybody.

Owning and mining email lists is a new skill set that can pay off more each year. Pricing in digital seems to offer great opportunity for improved revenue, if its effects can be better understood. International sales of American-originated books are more accessible than they’ve ever been as the global network created by Ingram creates sales growth opportunities for just about every publisher. That should continue and requires new thinking and processes. Special, or non-traditional, markets increase in importance, abetted by digital marketing. That will continue as well.

Audio, which has been one of the big beneficiaries of digital downloading, will continue to grow too. The problem from the publishers’ perspective is that Audible, owned by Amazon, owns most of that market. So they have a sophisticated and unsentimental trading partner with a lot of leverage controlling a market segment that is probably taking share from print and ebooks.

And with all of this, what will also continue to grow is relentless margin pressure from the publishers’ two biggest accounts: Amazon and Barnes & Noble.

But the challenges of today aren’t about change of the magnitude that was being coped with in the period that ended five years ago. They’re more about improving workflows and processes, learning to use new tools, and integrating new people with new skill sets into the publishing business. And there are a lot of new people with relevant skills up and down the trade publishing organizations now. That wasn’t so much the case when things were changing the fastest, 2007-2012.

It isn’t that there aren’t still many of new things to work on, new opportunities to explore, or long-term decisions to make. But the editor today can sign a book and expect a publishing environment when it comes out in a year or two roughly like the one we have today. The editor in 2010 couldn’t feel that confidence. The marketer can plan something when the book first comes up for consideration and find the plan will still make sense six months later. And while things still very much in flux in sales, a blow comparable to the loss of Borders isn’t on the

Of course, there could always be a black swan about to announce itself.

This post explains why, among other reasons, I will no longer be programming the Digital Book World Conference, as I did for seven years starting with its debut in 2010. At its best, DBW anticipated the changes that were coming in the industry and gave its attendees practical ways to think about and cope with them. Future vision was a key perspective to programming although we always strived to give the audience things they could “take back to the office and use”.

It has been harder and harder over the past couple of years to find the big strategic questions the industry needed answers to. The writing was on the wall last year when most of the publishers I talked to felt confident they understood where books were going; they wanted to hear from other segments of the digital world. That was a sign to me that the educational mission I had in mind for DBW since I started it was no longer in demand.

To their credit, the DBW management, as I understand it, is trying a new vision for the show, more focused on the immediately practical and the hands-on challenges of today. I wish them the best of luck with it.

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Full text examination by computer is very unlikely to predict bestsellers


PW currently has a story on a forthcoming St. Martin’s book called “The Bestseller Code: Anatomy of The Blockbuster Novel” in which authors Jodie Archer and Matthew L. Jockers “claim they created an algorithm that identifies the literary elements that guarantee a book a spot on the bestseller lists.” As readers of The Shatzkin Files know, I consider my Logical Marketing partner Pete McCarthy the industry expert on all things books-and-digital. Since we are knee deep in a new as-yet-not-announced project to build a SaaS capability for digital marketing, I have a few others with expertise to tap as well.

My team’s view is unanimous. The idea that the odds a book will make the bestseller list can be calculated from the content of the book alone, without regard to consumer analysis, branding, or the marketing effort to promote the book, is ridiculous.

This idea has arisen before. BookLamp was bought by Apple and they had a similar “full text analysis” proposition. Before they pivoted to being primarily a pathway for publishers to China, a company called Trajectory offered to generate the book marketing metadata from a full text search. Neither BookLamp nor Trajectory was so bold as to claim they could identify bestsellers from textual analysis. But even their more modest claims, to drive discovery from what they learned that way, failed to pass muster with us.

Trajectory did their demo on a Mayo Clinic Cookbook. To see how our methodology worked compared to theirs, we did what we do (audience analysis for a book’s potential customers) for the same title. We found everything useful that they did, plus a lot more.

As Pete has explained to us, repeatedly, the customers you’re looking for have not read the book. You capture them by appealing to their interests and their searches in ways that they find appealing and in language they understand.  He reminds us from time to time that the words “civil rights” “don’t appear in To Kill a Mockingbird”.

According to its Amazon page, “the Bestseller Code boldly claims that the New York Times bestsellers in fiction are predictable and that it’s possible to know with 97% certainty if a manuscript is likely to hit number one on the list as opposed to numbers two through fifteen.”

Our verdict on this: absolutely impossible.

And our hunch is that their publisher feels the same way. After all, if you had access to a capability like this, and you believed it, wouldn’t you do a few bestsellers on your own before you revealed any of it to the world?

And as a reality check and a basis for comparison, take this on board. Google now predicts the opening weekend’s box office for new movies. They look at all sorts of data: number of screens, box office results from previous movies by the headline actors, search volume for the movie itself, YouTube views of the trailer, genre, seasonality, franchise status, star power, competition, critic and audience ratings of any preview. They don’t try to read the script. They could semantically analyze the dialogue in the movie. (And Google has the most sophisticated capabilities in the world to analyze moving images or text!) But they don’t, because it wouldn’t be predictive.

Or, in book terms, it is much more predictive of bestsellers to look at the number of copies shipped and how many stores the book goes into. The Nora Roberts or James Patterson title that ships tens of thousands of copies with some going to every Barnes & Noble store will become a bestseller, regardless of the plot structure. And the greatest book in the world that ships 5,000 copies and only goes to a handful of B&N’s almost certainly won’t.

It isn’t just “books in stores”. Amazon orders printed books too. And there are ebook pre-orders (although damn few for any unknown author). From a publisher’s perspective, the book for which they can get an advance commitment from the supply chain (which today means “get it out in quantity”) will always have a better chance than the greatest book in the world for which they can’t.

The message for publishers is that audience research, with some of it specific to each title you publish, is the key to success in the digital age.

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Four players in the book business with the power to rewrite some of the rules


The news came last week that ReaderLink has purchased Anderson News. Those two companies have been the leading suppliers of books to the mass merchandisers: primarily Wal-mart, Target, and Sam’s Club. There are other players selling books in the space, including Ingram, Baker & Taylor, and smaller distributors like the less-well-known American West. But most of the books going to most of the mass merchant accounts have gotten there through what will now be one company supplying them: ReaderLink.

By my count, that puts four companies in the book business who have extraordinarily powerful holds on their space. They are ReaderLink in the supply of books to mass merchants, Amazon as an online retailer, Barnes & Noble as a bricks-and-mortar retailer, and Penguin Random House as a commercial trade publisher.

ReaderLink, Amazon, and Barnes & Noble now have extraordinarily powerful positions from which to demand better terms from their publisher-suppliers. In all three cases, they have customer bases which are extremely difficult, if not impossible, for a competitor to take away from them.

Amazon has pretty much owned the online book customer since the year they opened for business in 1995. There is a faint hope that fragmentation of the online marketplace and the placement of commerce in the social stream, such as is enabled by Ingram’s Aer.io technology, could wrest some of their share. Perhaps, over time, that will happen. But they keep pulling further ahead of their only real competition, BN.com, and I am not aware of even one single reporting period when Amazon’s share of the online book market hasn’t grown. It is simply not an option for a publisher who wants to sell to consumers to avoid Amazon. (The only way a publisher could conceivably do that is if their customer base is reached entirely by direct sales or through intermediaries outside the book business.)

Barnes & Noble may be losing brick-and-mortar market share to independents, but they remain by far the leading bookstore chain. If a publisher wants books in the retail marketplace, Barnes & Noble has been, since the demise of Borders five years ago, the only one-stop way to get national coverage. In fact, they almost certainly control the majority of bookstore shelf space in the country, and their single biggest competitor, Books-a-Million, has fewer than half as many stores. And B-a-M’s stores are smaller.

ReaderLink is now in a similar position vis a vis the mass merchants. These stores constitute the other big component of the store retailing system and they are critical for bestsellers, mass-market paperbacks, and “merchandise” like adult coloring books and kids books. In fact, ReaderLink and Anderson lived with what was a “managed competition” controlled by their accounts; they each had stores assigned to them by their mass merchant customers. Publishers have always had to deal with both of them in order to place their books in the mass accounts. And, indeed, it could be that there will be efficiencies to this consolidation that will be beneficial for the publishers. But, if there are, it is also quite likely that ReaderLink will find ways to adjust their terms to take at least some of the benefits back and they are likely to be successful persuading publishers to allow that. (They have also manifestly strengthened their negotiating position with those accounts that are committed to stocking books.)

There is a fourth powerful player: Penguin Random House. PRH is almost (but not quite) the size of the other four members of the Big Five combined. As such, they are in a position to do things in the marketplace that no other publisher could contemplate. Since the merger of Penguin and Random House, I’ve written about what they uniquely could do with their marketplace power. The two key suggestions, neither of which has drawn any evident interest from the management at PRH, were a program to supply non-bookstores with vendor-managed inventory (creating store retail accounts nobody else would have) and to create their own ebook subscription service. (That would also create unique distribution.)

The new combination in mass-merchant supply could suggest another such opportunity. Perhaps this one will be more compelling.

The supply of books to mass merchants, as to any account that is not primarily in the book business and comfortable with both the logistical challenges and relatively low profit potential in books, is complicated, expensive, and usually inefficient. The number of titles that actually make it into these stores is a paltry percentage of the industry’s output. Only the biggest publishers have enough of the right books to really play.

And then the publisher has to cover both the retail accounts that will ultimately sell their books and the distributor-intermediary that supplies them. It will be a bit easier for the big publishers selling books to Wal-mart and Target to manage the business through one big account rather than two (one fewer account to deal with), but it is still a frustratingly inefficient segment of the business. (The one fewer account aspect of this is bound to be causing some nervousness right now in the sales departments of some publishers.) Visibility into inventory status is, relative to the store-level view available at Barnes & Noble, klunky. Returns are high. Responsiveness to breaking events is slow. And the margins are worse than for any other part of the domestic business.

But part of the reason for that is that delivering on the service requirements for these accounts is expensive. One sales executive I spoke to estimated that ReaderLink has more than 2500 detail people calling on the outlets of the mass merchants: checking stock, tidying fixtures, and replacing sold books. No wonder these distributors need hefty margins to do this work. And this also explains why Ingram and Baker & Taylor, who, of course, carry all the titles these merchants would ever need, don’t appear to move aggressively to take this business away from the incumbent(s).

To picture the Penguin Random House options, I try to view this from the perspective of one publisher with about half the books that these mass merchant accounts need. I’m giving away margin to a middle player that adds a layer of inefficiency and cost in order to be an effective aggregator. Obviously, the accounts want that aggregator. They don’t want to deal with hundreds of publishers individually, or even with just each of the Big Five. It would be a non-starter for a publisher supplying five or ten or even twenty percent of their books to say: “can we work out a way to do this directly?” So just about everybody has to accept the inefficiency.

But what about if it were a supplier that provided half the books? And what if that supplier offered, as an opening gambit, to share some of the margin that now goes to the middle player directly with the account? And what if that effectively became the account’s only way to get those books, because the powerful publisher was no longer willing to play ball with the high discounts and high returns that the current system entails?

Only Penguin Random House is in a position to take this approach. And it wouldn’t be an easy thing to do. They’d have to create a VMI system. They’d have to organize a detailing army quite different from the sales force(s) they have created and managed historically. They’d have to either gear themselves up to execute more smaller shipments or form alliances that would make that possible. But the payoffs would also be substantial. And PRH has a much bigger margin share to support their efforts than ReaderLink, or any other wholesaler or distributor, would have.

Sales would go up. Returns would go down. Margins would improve. Their competitors would be weakened. In fact, it is conceivable that, over time, a PRH direct-supply operation could morph into a ReaderLink service that was available to other publishers as well. (All big publishers, including PRH, already offer their core distribution services to competitors. This would be a variation on that theme.)

Perhaps Penguin Random House will never behave in a qualitatively different way than the other Big Five houses, exercising power that they uniquely have. They certainly haven’t so far. On the other hand, it was pointed out to me recently that the integration of what were the two biggest publishers among the Big Six when Random House and Penguin combined four years ago is, even today, not yet complete. Rationalization has occurred in the “back end”, with the consequent job losses which are part of the payoff for the owners in any big merger of this kind. But more consolidation is still in front of them, and perhaps the radical paradigm-shifting initiatives need to wait until that job is really done.

And perhaps Amazon, Barnes & Noble, and now ReaderLink are wary of poking the bear, and are less demanding that PRH honor their primacy with margin than they are of PRH’s competitors. In fact, the CEO of one of their Big Five competitors told me a year or two ago that he liked having a competitor of PRH’s size on the publisher side because this executive felt it kept the overall industry terms under control. The belief on this CEO’s part was that PRH’s size restrained the big accounts to the benefit of all the big players.

But unlike Amazon or Barnes & Noble, whose businesses can not be efficiently replaced by any direct effort, the supply of mass merchant accounts is something PRH could conceivably do better on their own. Whether the acquisition of Anderson by ReaderLink provides the catalyst to get them to try it is something it will probably take a couple of years to find out.

Although Ingram occupies a unique position in the global book supply chain and, indeed, might be the single most important player, they aren’t in the position of these other four to exercise power. In wholesaling, they have always had a powerful national competitor, Baker & Taylor, which is now even more financially stable having itself been acquired last week by Follett. Even in smaller-publisher distribution, where Ingram grew dramatically by acquiring Perseus, they will always have all the big publishers and a host of smaller distributors as alternatives for those considering their services. Indeed, Ingram could try to compete with ReaderLink for the mass merchant accounts, but they’d have to support the substantial systems and staff investments on a distribution margin, which is a much more challenging proposition than it would be for PRH with the publisher’s margin.

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In an indie-dominant world, what happens to the high-cost non-fiction?


I first learned and wrote about Hugh Howey about four years ago. At the time, he was one of the first real breakthrough successes as an indie author, making tens of thousands of dollars a month exclusively through Amazon for his self-published futurist novel, “Wool”. As soon as I could track him down, I invited Hugh and his agent, Kristin Nelson, to speak at the next Digital Book World, which they did several months later, in January 2013.

In the years since, Hugh has had a very public profile as a champion of indie publishing and as a critic of big publishers. When I first encountered Howey, he and his agent had already turned down more than one six-figure publishing deal. Nelson ultimately did a print-only deal for “Wool” with Simon & Schuster, a deal consummated before the big publishers made the apparently-universal decision that they would not sign books for which they didn’t get electronic rights.

This week there was a lengthy interview with Howey done by DBW editor Daniel Berkowitz published on the DBW blog. In this piece, Howey reviews many of his complaints against publishers. According to him, their royalty rates are too low and they pay too infrequently and on too much of a delay. Their authors are excluded from Kindle’s subscription revenue at Kindle Unlimited. Their ebook prices to consumers are too high. And, on top of that, they pay too much rent to be in New York City and they pay their big advances to wealthy authors who don’t really need the money, while aspiring authors get token advance payments that aren’t enough to give them time off to write.

Howey’s observations are not particularly welcomed by publishers, but he has a deep interest in indie authors and, by his lights, is always trying to help them by encouraging them to indie-publish through Amazon rather than seeking a traditional deal through an agent. He has organized the AuthorEarnings website and data repository along with Data Guy, the games-business data analyst who has turned his analytical skills to the book business whom we featured at the most recent Digital Book World this past March.

Howey and I have had numerous private conversations over the years. He’s intelligent and sincere in his beliefs and truly devotes his energy to “industry education” motivated by his desire to help other authors. Yet there are holes in his analysis of the industry and where it is going that he doesn’t fill. Given his substantial following and obvious comfort level doing the marketing (such as it is, and it appears Howey’s success as an author hasn’t required much) for his own books as well as his commercial performance, it is easy to understand why he would never consider publishing any other way but as he has, as an indie author who is “all in” with Amazon. But he seems to think what worked well for him would work best for anybody.

In this interview, Howey says that any author would be better off self-publishing his or her first book than going the route of selling it to a publisher. And he actually dismisses the marketing effort required to do that. Howey says the best marketing is publishing your next book. He thinks the best strategy is for authors to write several books a year to gain success. In fact, he says taking time away from writing to do marketing is a bad choice. Expecting most writers, or even many writers, to do several books a year strikes me as a highly dubious proposition.

It is impossible to quarrel with the fact of Howey’s success. But he makes a big mistake assuming that what worked effectively for him makes self-publishing the right path for anybody else, let alone everybody else.

Howey also has an unrealistically limited view of the output of big publishing. If you read this interview (and I would encourage anybody interested in the book business to do so), you see that he thinks almost exclusively about fiction or, as he puts it, “storytelling”. Books come, like his did, out of an author’s imagination and all the author needs is the time to write. Exposure through Amazon does the rest.

He gives publishers credit for putting books into stores (although he would have them eliminate returns, which would cut down sharply on how effectively they accomplished that). But he thinks stores will be of diminishing importance. (We certainly agree on that.) He gives credit for the indie bookstore resurgence to Amazon, which would be true if you credit Amazon with the demise of Borders that wiped out over 400 big bookstores and created new opportunities for indies. But the idea that Amazon is allied with indie bookstores is contradicted by two realities. One is that the indie stores won’t stock Amazon-published books. The other is that Amazon, now in the process of opening its second retail store, may plan dozens, hundreds, or thousands more to come! We really don’t know. Certainly, very few indie bookstores would be applauding that.

Here’s how Howey sums up his advice to authors.

“Too few successful self-pubbed authors talk about the incredible hours and hard work they put in, so it all seems so easy and attainable. The truth is, you’ve got to outwork most other authors out there. You’ve got to think about writing a few novels a year for several years before you even know if you’ve got what it takes. Most authors give up before they give themselves a chance. It’s similar to how publishers give up on authors before they truly have a chance.”

This seems like sound advice, but it isn’t how it appeared to work for Howey. He published a novella which was the start of Wool and his Amazon audience asked for more. Three more novellas later, over a period of just a few months, and the four combined became his bestselling novel. Six months after he started, he was making $50,000 a month or more and had an agent selling his film rights. Then his agent started selling his book rights in non-US territories and in other languages. Meanwhile, Howey continued to earn 70 percent of the revenues from his ebooks, in a deal Amazon offered that matched what they paid to agency publishers, the biggest publishers. (Would Amazon be paying authors 70 percent if publishers hadn’t come up with that number for agency? Should big publishers get some of the credit for the very good deal indie authors are getting?)

The logic that Howey offers about how self-publishing stacks up against doing deals with a big house is very persuasive, but there are two pieces of reality that contradict it.

One is that, at this time, four years after Howey did “Wool” and eight years after the launch of Kindle, there are no noteworthy authors who have abandoned their publishing deals for self-publishing. (It appeared briefly that Barry Eisler was the first such author, except that it turned out he signed an Amazon Publishing deal after turning down a Big Six contract; he didn’t go indie. And, frankly, while he’s somewhat successful, he’s not a show-stopper author for any publisher.) In fact, Amazon’s own publishing strategy has apparently switched away from trying to persuade big commercial fiction authors to do that and is focused on the genre fiction that is the core of the self-publishing done through them. Howey has been offering the same analysis for quite a few years now but so far, the publishers have lost hardly anybody they care to keep to self-publishing. And we’re now in a period where the split of books sold online (ebooks and print) to books sold in stores (where publishers are beyond helpful; they’re necessary) appears to have stabilized — at least for the time being — after years of stores losing share.

The other is that Howey’s analysis totally leaves out one of the biggest categories of publishing: big non-fiction like history or biographies or industry analyses that take years of research and dedication to complete. Unlike a lot of fiction, those books not only take time, they require serious help and expense to research. In a imagined future world where all books are self-published, aspiring fiction writers give up very little (small advances) and successful fiction authors have the money to eat while they write the next book they can make even more money on doing it the Howey way (even though none have). But big non-fiction books like Jane Mayer’s “Dark Money” (or anything by David McCullough) took years of research to put together. “Dark Money” was undoubtedly financed at a very high level by the Doubleday imprint at Penguin Random House. How books like that will be funded in the future is not covered by Howey’s analysis.

Now, that’s not to say they must be. Economic realities do rule. Howey’s thesis that things are shifting in Amazon’s direction and away from the ecosystem that has sustained big book publishers is correct. He predicts that there will be three big publishers where once there were six and now there are five. I concur with that. As that happens, maybe the big fiction writers will take Howey’s advice.

But that solution is no solution for authors like Jane Mayer or David McCullough. A world without publishers where authors do the writing and the publishing might give us an output of fiction comparable to what we have now. But the biggest and best non-fiction would need another model if publishers weren’t able to take six-figure investment risks to support them. Amazon’s not offering it and neither is Howey. If the future unfolds as Howey imagines it, we’ll never know what books we’re missing.

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If the industry is changing, publishing house structures, processes, and budgets need to change too


A thought kept recurring — one I’ve written about before — while I was learning new stuff at Digital Book World last week. The structure of publishing houses and of the publishing process as it has developed over the past century make some of the challenges and opportunities of publishing in the emerging digital era very hard to address for publishers operating at any degree of scale.

One example arose from the incredibly insightful presentation from Author Earnings’ Data Guy. As most readers of this blog know, Data Guy is the pseudonym for an author-cum-analyst who scrapes the sites of book retailers, starting with Amazon, and breaks down the sales of ebooks (and now print books too) looking for insights. One of the most compelling Data Guy insights shown in what he presented at DBW is the importance of “introductory” pricing for debut authors. What DG’s data strongly suggests is that the odds of a debut author breaking through are increased dramatically by having very-low ebook pricing.

That’s quite a challenge for a conventional publisher who has a one-book-plus-option deal with a debut author. Making money becomes very much more difficult if ebook prices are lowered dramatically. Doing that would almost certainly also require that the print edition for the debut be a trade paperback, not a hardcover, or the stores would feel really disadvantaged by the edition they had to carry. So to adopt this as a strategy, publishers would have to sign all debut authors to contracts for two (or more) books, so the debut could be seen as a loss-leader with a later opportunity to cash in.

Otherwise, the publisher takes a loss on the debut book and then, even with an option, has to bid against other publishers if the debut is commercially successful (which does not mean it necessarily “made money”).

Here’s another way publishing as it is done now structurally precludes using modern techniques. One piece of wisdom from DBW workshops last week was repeated in Monday’s New York Times. Andrew Rhomberg’s Jellybooks enables publishers to track the ebook reading of a book across enough people to draw some interesting conclusions. The Jellybooks data is being used by some publishers, apparently right now mostly in Germany, to adjust marketing spending. Publishers can reduce what was planned to be spent on a book nobody’s finishing, or increase the budget for one which is getting a surprising level of traction. But there is clearly no time, or appetite, for addressing the fact that most people abandon midway through Chapter Five.

Now that there is a tool that enables publishers to understand how readers react to a book, wouldn’t they want a publishing structure that gave them time to use what they can learn to craft a more appealing piece of intellectual property?

Here’s another takeaway from DBW that requires structure changes at publishers. The “transforming” publishers often cited the need to create consumer-facing brands to work for them. Mary Ann Naples mentioned it as part of Rodale’s strategy. Dominique Raccah’s Sourcebooks has created “Put Me In the Story” and “Simple Truths” to appeal directly to consumers, while not trying to make Sourcebooks a consumer brand at all. Marcus Leaver is in the process of reorganizing Quarto around verticals and nesting them in the “Quarto Knows” rubric to create a public face that is logical for consumers.

Publishers need to come to grips with this. Publishing brands — house names and imprints — have always cultivated their B2B reputations. They are about impressing bookstore buyers, library collection developers, reviewers, and authors. They are not about selling to the public. Yet imprints that are not audience-centric are still being created, and most big houses have books for the same or similar audiences housed in different imprints. It certainly won’t always be possible to create new brands that are also new businesses, as Sourcebooks has done (once from a standing start and once by acquisition) and which Quarto may ultimately aspire to do with Quarto Knows. But all houses need to be rethinking their imprint and presentation structures, as well as tailoring their acquisition decisions to fit an audience-centric strategy.

Another point Mary Ann Naples made, citing a speech that Dominique Raccah made a couple of DBWs ago, is that experimentation and failure are a critical requirement for success. One wonders how many of our biggest publishers — which are, after all, corporations seeking profits and measuring their sales and margins quarter-by-quarter — have built that understanding into their internal scorecards. It seems doubtful that employees of big houses are encouraged to try things that might very well not work and then take the learnings on to a next experiment.

We’ve been experiencing the structural barriers to doing the right thing throughout the building of Logical Marketing Agency, the digital marketing enterprise I work on with Pete McCarthy and Jess Johns. One of our core tenets is that valuable market research is now pretty cheap, and it should be done to inform all acquisition decisions and as a first step preceding all other marketing decisions, including the writing of any copy.

Even getting publishers to accept the idea that research should be the first step built into the marketing workflow has been hard, although we’re making progress. We’ve worked with all the Big Five houses, and lots of others, and perhaps 100 bestselling authors. We now see a couple of big houses that are really beginning to see the light. What has been much harder to get across, even though it should become standard practice, is persuading publishers to do research into a topic or author they’re looking to acquire. Only in a couple of cases where publishers were preparing for a possible bidding war have we succeeded in getting publishers to make that investment.

Understanding “why” isn’t hard. There is simply no budget for editors to do research on a book not yet under contract. But there should be a research budget for editors. To not have it means we are requiring editors to invest the house’s money based on hunches and guesses when actual data and facts could be employed. Sometime in the future, we’ll look back at a time when editors had no budget to do research into big acquisitions and wonder what we were thinking. And the answer will be that big houses hadn’t yet matched their structures, processes, and workflows to the new digital realities.

It would be nice to think that big houses are indeed rethinking their imprint structures and acquisition-to-development-to-publishing workflows from end to end, but out of the public eye. The industry is transforming. Each house has to examine itself for how it too should change.

I was flattered that the folks at Bookbub, writing about the marketing takeaways from DBW, ranked my observations about how publishers need to work more effectively with authors on their digital footprints and branding number one. This also points to two really significant structural issues.

One is that publishers sell individual titles, not author careers. Many authors have books across houses, and houses are reluctant to invest in selling other publishers’ books. That creates a real barrier to thinking through and investing in the author’s branding in many cases.

The other problem is this. Even the marketing departments of publishing houses are challenged to keep up with all the opportunities in digital and to think about them across titles and verticals as well as authors. But the house’s normal “interface” with authors and agents is through editors, not marketers. And editors are often not as conversant with these digital issues as their marketing colleagues are.

Some things have to change. Probably most houses need to start schooling editors in digital marketing, at least so they know uniformly more about what authors ought to do to help themselves than the typical author or agent does. That kind of training should perhaps extend to authors as well. But that calls for marketers to be directly in touch with authors and agents, which at the very least complicates the “control” the editors have over those relationships.

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A first at this blog: walking back the assumptions that were the basis of the last post


In the few days since the last post here about Big Five publishers and agency pricing, I have been challenged on two specific points by comments sent privately. Both of these comments are right and therefore lead to this corrective post.

One powerful literary agent, who is inevitably informed by publishers about negotiations that affect the selling prices of ebooks (which, in turn, affect the author royalty), tells me that I have the whole motivation thing on agency backwards. It may have started six years ago as a way for publishers to control the prices of ebooks across the supply chain, so something they were “imposing” on Amazon. But that turned around. It became a way for Amazon to guarantee that they would get a full margin on all agency publishers’ ebook sales (because publishers could lower the ebook price, but the stipulated agency percentage would not be affected). So, in the recent negotiations, the big publishers had no choice about sticking with agency. Amazon insisted that they stick with agency.

The grapevine, although not this agent, also says that the original 70-30 split of revenues that agency began with has been revised in the recent contracts so that Amazon gets a wee bit more than 30 percent. I can’t verify that although, in time, agents should be able to see that picture clearly.

I have had no conversations with any friends in big houses during the recent agency negotiations. The sensitivity around those negotiations, given that they started because of the DoJ’s involvement, was very high. But now I’m being told by people in a position to know that four of the five big publishers think agency has been a big mistake. As one observer sees it, it has bled 25% out of digital sales that have been replaced by physical, resulting in an increased share for Amazon of the print portion of publishers’ businesses.

As it was put to me by one observer, agency in 2010 was a strategy; by 2015 it was a surrender.

The other challenge was a pushback against my claim that print book sales overall are rising. The commenter pointed out that more than the entire print book sales increase shown in industry stats can be accounted for by the rise in sales of adult coloring books, a category which has taken a big leap forward in the past 12 months. For one thing, it is impossible to predict with any accuracy whether or for how long those sales will sustain. But, more importantly, the sales of print that do not include adult coloring books, which have no ebook equivalents and are the good fortune of a few selected companies, are still declining.

So crediting “success” at arresting the print book sales decline to the rise in major publisher ebook prices is also a mistake.

It turns out that the real story of “agency pricing today” is that Amazon demonstrated dazzling marketplace power by keeping all the big publishers on agency terms. And all of the changes in the marketplace, including the degree by which the divison sales within Big Five houses between print and digital may have tilted in favor of print, probably work in Amazon’s favor.

This is the first time in seven years of writing this blog that I have walked back the thrust of a whole post. Ironically, the overall point to what I wrote, questioning whether agency pricing is a good thing for publishers, is correct. What I didn’t know is that most of the publishers have already figured that out but are helpless against a customer so powerful that it dictates the terms.

There is still useful insight in the original, particularly around what might or might not be worthy of anti-trust consideration. But the two core premises — that publishers forced Amazon to accept agency and that doing that had made their print sales go up — are definitely questionable.

The only thing worse than making a mistake is not correcting it.

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If Amazon pricing of ebooks is the problem, is agency actually the right solution?


In the past week, I’ve had conversations with leading executives at two of Amazon’s competitors in the ebook space. They had strikingly different takes on whether the agency pricing regime, which is now in place by contract with all five of the biggest trade publishers, helps keep competitive balance in the ebook marketplace or prevents it.

Agency pricing was promulgated by Apple for the opening of the iBookstore in 2010. What it meant was that publishers would set a price that was “enforced” across the retail network. Apple liked this because it meant both that they didn’t have to price-compete with Amazon and because they didn’t have to think about pricing hundreds of thousands of items on a daily basis. (And it fit the model Apple used to sell other media.) Publishers liked it because they feared the erosion of print sales that cheap ebooks might lead to and because it seemed that level prices might reduce what was then Amazon’s stranglehold on the ebook market.

As we know, the Department of Justice interceded because they saw the Apple-publisher agreements as collusive. The DoJ cares most about price; discounting is a good thing unless it is “predatory”. If companies get together to prevent low prices, that’s clearly bad. So the short-term remedy was to enable retailers to discount off agency prices. That pretty immediately stopped the decline in Amazon’s ebook market share, which started to grow again once discounting was reinstated.

Now the big publishers have replaced the original agency agreements with new ones that appear satisfactory to the court because they were obviously separately negotiated. And the new ones seem to allow at least some of them more flexibility to set and enforce higher prices than the numbers in the original Apple-promulgated deals. And all of that has led to a reconfigured marketplace.

The good news for the publishers is that print sales erosion — at least for the moment — seems to have been stopped. (Print sales started to grow even before “new Agency”; when higher prices hit the ebook market, print was immediately assisted.) A variety of industry and company sales statistics seem persuasive on that point. The percentage of revenues coming from ebooks for big publishers has declined and the sales of print have risen. And there is even some anecdotal evidence suggesting that bookstore retail shelf space is increasing again. Even if that is true, it is an open question whether it is sustainable, or whether it is a delayed and temporary marketplace response to the shuttering of 400 giant Borders stores, which occurred in 2011. Bookstores might also be helped by the diminishing book shelf space at mass merchants, a venue where print continues to lose ground.

But there is also some good news for Amazon in how all this has worked out. Their market share on the ebook side is rising. Their margins on the ebook side must have gone up even more, since they’re being “forced” to keep the margin they earn on Big Five ebook sales. (Wouldn’t it be ironic if Amazon’s internal calculations are that they can afford more losses on their Kindle Unlimited subscription program because of the margin they’re earning on the Big Five single-title sales? We can only guess…) And certainly Amazon benefits from the increased sales of print.

In fact, they could be partly responsible for it. All the searches on Amazon for Big Five books show an agency-priced ebook with a highly-discounted print book, often cheaper than the ebook, alongside of it. How much of the print book sales increase is due to the reaction of consumers being presented with that choice?

(Let’s remember how much of a “better deal” it is for the consumer to buy print if the prices are the same or close. The print book can decorate a bookshelf. It can be resold, which the ebook can’t be, or at least can’t be yet.)

Only Barnes & Noble can even attempt to meaningfully compete with Amazon in this environment. The price-sensitive book consumer needs to see both the ebook and the print book to make a wise purchasing decision. They won’t see that at Kobo, Google, or Apple’s iBookstore.

So competing with Amazon on price is confined to B&N on print and confined to non-agency titles — which means only a sliver of the bestseller list — for everybody else. So, is everybody happy? Publishers are selling more print, which they wanted. There’s growth in the indie store base, which publishers also wanted. But Amazon continues to grow market share in relation to Barnes & Noble and now threatens to open bookstores to compete with B&N and the indies. And that is most definitely not what publishers wanted.

Is there any way to achieve both robust competition for Amazon and also to protect print books from being cannibalized by much cheaper ebooks?

The conversations I had this past week with two of the competitors to Amazon surfaced diametrically opposite opinions about whether agency was helpful or not in that regard.

One ebook executive suggested that the Big Five publishers should stick to the agency pricing margin but should do it on wholesale pricing terms. That person encouraged me to think through this proposition: what if those ebooks were sold to the accounts at 70 percent of the publisher’s price (or even a bit more), but without any restrictions on discounting?

The other believes that price-competing with Amazon is a game that is impossible to win and that there is clear evidence from the experience in the UK market, where several ebook players tried to undercut Amazon on price, that it is not an effective strategy.

The advocate for the wholesale model, which would allow discounting by retailers up to whatever the authorities decide is “predatory” (and that definition is anything but clear), believes that Amazon is being given a free ride. Of their competitors, it would seem that only Google and Apple would have the deep pockets to fight Amazon by sacrificing margin, but either of them certainly could and it would certainly be, at the very least, a big nuisance to Amazon if they did.

This raises again the question of what discounting would be permissible before the discounting would be labeled “predatory”. There is no definitive answer. Some believe that retailers are not permitted to discount below their own cost (although, even then, it is not clear whether that means on a per-title basis or across all their ebook purchases and sales or some other basis). By that interpretation, if an ebook were listed at $15.99 and sold at a wholesale price of $11.19 (70 percent), there could be a legal risk that pricing below that point could be considered “predatory”. In fact, ebook pricing flexibility is such that publishers could make that same ebook $18.99 for the first month ($13.29 wholesale), when the print is fighting for bestseller status.

(It should be noted here that Amazon sold Kindle ebooks at well below cost in the days before they had competition, as a carrot to get customers to buy Kindle e-readers, which were originally priced at $400. By doing so, they made the reader-and-content equation attractive to the people who bought the most books. The DoJ and Judge Cote said that Amazon’s pricing at that time was not predatory, but the Supreme Court could, at least theoretically, change that understanding. And, in fact, Amazon has continued to behave as though the $9.99 price point is the “right” ceiling for ebooks, even as the device-and-content equation has changed with considerably lower Kindle device prices and a plethora of multi-function devices having changed the market.)

Big 5 players going to wholesale could change the ebook marketplace in two ways. One is that it would unleash Google and Apple — both of which have plenty of cash — to discount aggressively to compete with Amazon. At the very least, that would diminish Amazon’s margin as they compete on price and it might also reduce their unit sales. It could also lead to the smaller publishers now selling wholesale to attempt to reduce their discounts. And that could lead to Amazon using its market power to resist a reduction in margin. That could be construed as an abuse of marketplace power, which is another test for anti-trust.

An anti-trust lawyer explained it to me this way. The analysis is more nuanced than just looking at whether prices are lowered. Generally, the antitrust enforcers do look favorably on practices that result in lower prices.

That being said, the goal of antitrust is broader: it is to protect the competitive process. It can get complicated in two-sided or multi-sided markets where prices might be low on one side of the market, but the platform uses its power on the other side of the market to harm competition. In the case of Amazon, one side of the market faces the consumer and the other faces the publisher.

It’s particularly problematic if the conduct locks in participants, raises barriers to entry, or results in the platform extracting more than its fair share on the other side of the market.

By that measure, perhaps the most problematic aspect of Amazon’s commercial terms could be the requirement for exclusivity to be part of the Kindle Unlimited subscription program. That keeps titles away from competitors.

But going to wholesale is not viewed as a solution by all of Amazon’s competitors. One of them thinks having agency in the marketplace is a big boon to competition. That executive saw the UK market as a “test bed”, because over the last three years a number of companies have tried deep discounting to buy share. It was tried pre-agency and during the post DoJ “agency lite” period. From this executive’s perspective, the results of those efforts make discounting looks like a pretty futile competitive strategy.

Unlike the “wholesale” advocate who thought the agency publishers were helping Amazon by preventing price competition from the other deep-pocketed players, this executive presented a completely different analysis. By their lights, market share comes from two sources.

Access to cost-effective customer acquisition sources. Amazon and B&N have their own existing customer bases. Kobo has retail partners. Apple and Google have pre-loaded apps and registered customers for iTunes and Android. So everybody has a pool of customers to draw on. (We pegged this as an advantage Scribd had over Oyster when those two companies started selling ebook subscriptions.)

Then the trick is to retain customers and capitalize on lifetime value.

What this executive believes is that price-cutting as a way to recruit customers is a fool’s errand. The customers who come aboard for a cheap deal will abandon you just as fast for somebody else’s cheap deal. They don’t stick. On the other hand, offering pricing advantages based on customer loyalty is a better bet. This player thinks that having agency in the market makes it easier to hold onto customers once a platform has acquired them. As evidence, that person pointed to the loss of market share by Nook that occurred once the DoJ restored discounting under agency.

It has seemed to me from the very beginning that making ebook discounts mirror print book discounts was a major strategic mistake by publishers. The two products are not comparable from the standpoint of the store’s economics. Stores don’t have to buy ebooks in advance. There is no “shrinkage”; they don’t get lost or stolen. They don’t have to be handled. Rent doesn’t have to be paid on the space they occupy before they’re sold. With such a different commercial reality, aggressive discounting by retailers should have been a predicted outcome when they were given so much more margin than they needed to operate.

So the division of the customer’s dollar instituted by agency is more appropriate to ebook realities and probably takes things back to where they should have started.

The wholesale versus agency question is more complicated. But it does certainly seem like the time would be right for one of the Big Five publishers to break ranks, as Random House did when agency was originally instituted, in their own selfish interest. They’d achieve what Random House did then (before the Penguin merger): collecting the same or a higher price from the retailers and seeing them peddled to the public at a lower price. (Of course, nobody is doing this anytime soon. The current round of agency contracts which went into effect over the past two years still have some years to run.)

The same executive who analyzed the marketplace for me offered another observation that really matters. Less than half of the reading public has made the switch from reading print to reading digitally. There are a lot more future converts left in the pool. There is a lot of ebook growth left for retailers whether they’re attracting their competitors’ customers or not.

And so it would seem that the stability we now see in the ebook market is a temporary thing.

Thanks to Teleread for the Q&A with me they just posted.

And Digital Book World is just around the corner. I hope we’ll see you there.

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Now Kings of ebook subscription, what will impede the ebook share growth for Amazon?


With the news this morning that Scribd has thrown in the towel on unlimited ebook subscriptions, Amazon is the last player standing with an “all-you-can-eat” ebook subscription offer for a general audience. The juxtaposition of the publishers’ insistence on being paid full price for ebooks being lent once and the late Oyster’s and the now thrice-hobbled Scribd’s (they did a reduction of their romance offering last summer and then cut back on audiobooks to stem prior waves of over-consumption) pursuit of customers with an unlimited-use offer was always doomed. The only hope for the subscription services was that they would grow so fast that publishers wouldn’t be able to live without their eyeballs and would relent on the sale price.

That didn’t happen.

When Digital Reader reported the Scribd news this morning (the first place I learned of it, although I learned a lot more when I saw the Pub Lunch account an hour or two later), they also linked back to a story I’d missed in October explaining that Amazon was fiddling with what they put in their own unlimited sub offer, Kindle Unlimited.

Because Amazon couldn’t get cooperation from agency publishers (which, at a prohibitive and ultimately suicidal price, Oyster and Scribd did), they exploited their ability to deliver ebooks from the non-agency publishers to the max. Or, they did that at first. What Nate Hoffelder of Digital Reader uncovered last Fall was that Amazon was selectively removing those titles as they saw fit, which lowered their costs. (The information that led to this discovery was originally posted as a comment by Kensington’s CEO Steve Zacharius on this blog.)

A lot, if not most, of what Kindle Unlimited “lends” are ebooks compensated for by a “pool” of cash Amazon puts in each month. The size of that pool is solely determined by them and the per-page compensation for those books has inched downwards. Nonetheless, in the aggregate it amounts to a lot of money that is available only to ebook “publishers” (usually indie authors) who give Amazon an exclusive ebook license for the title. The publisher can sell print and audio elewhere, but if they want to share in the KU pool their ebook has to be Kindle only.

The disruptive news that I had missed last October is that a handful of smaller publishers — not just indie authors — are now seeing it as financially beneficial to be Kindle-only for ebooks.

This next bit is reporting what is still a rumor. But I have just been told by somebody who would know that Barnes & Noble will be withdrawing Nook from the UK market. That news is unrelated to the subscription business, but it is additional good news for Amazon.

For anybody concerned about a diverse ebook marketplace, these are ominous developments. With both the biggest ecosystem and the deepest pockets, Amazon can afford to continue to reward ebook copyright owners with increased compensation for exclusivity. As their share grows, it will be increasingly tempting for ebook publishers, be they indie authors or something a bit larger, to take the higher rewards for cutting out the other ebook vendors. And so Kindle progressively builds a better catalog than any of its ebook competitors. Which leads to more market share.

Etcetera. Or, in the modern parlance, “rinse and repeat”.

With Kindle Unlimited now the only “unlimited” ebook subscription play left (although Scribd can still claim a better selection of titles, at least for a while longer), presumably its market share will also continue to grow. As that happens, even big publishers may start to see financial benefits in putting some titles from their backlist into it. (Who knows? Authors, working on a percentage of the ebook revenues, might start insisting on it!) If and when that starts, the challenge for iBooks, Nook, Kobo, and Google to maintain a competitive ebook title offering will escalate.

Presumably, there is some percentage of the ebook market that Kindle could control that would lead to anti-trust concerns. Their share has been growing almost inexorably since the Department of Justice and Judge Cote put their thumbs on the scale a few years ago to punish the publishers and Apple for what they saw as price-fixing.

We will look for enlightenment on this subject from anti-trust attorney Jonathan Kanter at Digital Book World. Is there any percentage of the ebook market that if one entity controlled it would constitute a prima facie monopoly that calls for government action? Or even of the total book market, including print?

Even before we get to whether they plan 100 or 400 bookstores beyond the one they’ve got and the one more they are apparently planning, it is hard to see what will impede the growth of Amazon’s ebook market share. Inexorable growth by Amazon? That’s a topic we’ve been thinking about for years.

I was kicking this post around with Pete McCarthy before publishing it. I’m really struck by a point he made to me. Pete points out that buying and owning units of content has become anachronistic behavior for music and video. Kids today don’t stuff their own iTunes repository. They eventually move from streaming YouTube to subscribing to Spotify. (And that’s why Apple started Apple Music.) Nobody buys videos anymore; we just subscribe to Netflix or take temporary custody of content through an “on demand” service.

So book publishers are probably fighting a rearguard action trying to perpetuate the “own-this-content” model, particularly at relatively higher prices than they could command last year or five years ago.

Of course, that’s what Scribd and Oyster were thinking about when they built their repositories and committed themselves to invest to build a user base. Oyster ran out of time. Scribd has had to trim their sails. Subscriptions seemed like a natural business for Google, but they haven’t gotten into it. (Although they hired much of the Oyster staff, so perhaps that’s a chapter not yet written.)

But Amazon continues with Kindle Unlimited, able to shift their economics without disrupting their business. And, if Pete McCarthy’s insight about the direction of consumer behavior must inevitably extend to books — and renting access to a repository becomes the dominant model replacing owning-your-content — that’s another way they’re better positioned than anybody else to dominate the last mile of book distribution in the years to come. Publishers should always be aware that it’s a risky business to have a business model that contradicts the trends in consumer behavior.

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Agents who come to Digital Book World will learn a lot they can immediately apply


The mission of the Digital Book World conference is industry education around digital change. There is a plethora of programming for this year’s event that will serve that purpose particularly well for literary agents. Of all the people in the industry, it would seem to me that agents would get the fastest and surest “return on investment” for the time and expense of attending DBW.

At the top of the “definitely not to be missed” list for agents are two items: the main stage presentation and breakout Q&A by Data Guy, the stats guru of Hugh Howey’s “Author Earnings” website, and the panel discussion called “Finding Common Ground: How publishers and authors — regardless of what path they’re taking — are working together”.

Really necessary knowledge will also be delivered by Michael Cader, immediately preceeding Data Guy’s appearance, when he reviews the sources of industry data and clarifies what can realistically be discerned from them and what can’t. One more set of information no informed agent can be without will come from Rand Fishkin, the founder, former CEO, and Wizard of Moz, who knows more about Search Engine Optimization (SEO) and explains it better than anybody on the planet. Understanding SEO today is as important for everybody in our business as understanding “advance sale” or “coop advertising” was in years past.

And, speaking of “coop advertising”, DBW will also feature an appearance by Fred Argir, the new Chief Digital Officer at Barnes & Noble. In a conversation with me, he will be laying out some insights from the biggest bookstore chain on new ways they might collaborate on marketing with publishers in the future.

The Author Earnings website scrapes and interprets Amazon data, breaking down Amazon bestsellers by publisher type: Big Five, indie authors, and others. Then AE goes further, trying to calculate what share of the revenue went to authors. Recent enhancements to AE’s data collection have improved the precision of their sales and income estimates. They’re showing steady market share gains by indie authors with their lower-priced books, particularly since in their new contracts the publishers have “succeeded” in preventing discounting from their agency prices.

Any agent trying to advise an author curious about or tempted by self-publishing really must know what Data Guy is up to. This will be DG’s first public presentation. His breakout Q&A will be moderated by Michael Cader, so the most knowledgeable industry perspective will be present as DG delivers his compelling alternative view of our sales universe.

The “Common Ground” panel explores the new reality that author efforts constitute a critical component of all book marketing today. Jane Friedman, the leading indie author Sherpa in our business, will moderate a panel of two agents and two editors with extensive experience working with authors who have published both indie and through houses. Jane Dystel of Dystel & Goderich and Julie Trelstad of Writers House are the agents; Johanna Castillo of Atria (S&S) and Jaime Levine of Diversion Books are the publishers. These five people will draw on recent experience with dozens of authors to help us understand the current state-of-the-art for author and publisher collaboration around marketing.

The challenge of “discovery” or helping readers find their “next book” has been moving up the industry agenda since Digital Book World started in 2010. Rand Fishkin of Moz will be focusing on “choosing the right web marketing channels for your book”. Agents who might previously have pushed for an ad in New York Times Book Review or a 5-city author tour need to understand what is the most effective use of support dollars today. Fishkin’s talk is also expected to provoke a lot of questions so he, like Data Guy, will have a breakout session that will allow attendees to get him to address their personal cases.

There are two other whole categories of information agents need to know about that are big components of our DBW program.

The four additional sessions on marketing could also be considered “can’t miss” for the agent keeping up with the digitally-affected ecosystem: one on ebook pricing; one on tracking “the book buyer’s journey” from discovery to purchase; a third on inbound and content marketing; and a fourth on email marketing. Since authors are critical players on the content marketing front and many also possess substantial email lists , it’s obvious that any agent would benefit from these!

(And on the day before DBW officially opens, when we have a full slate of other programming including our Publishers Launch Kids conference, we have four “Mostly Marketing Masterclasses” — on SEO, audience research, managing paid digital media, and sales data analysis — which are a separate ticket but also worth considering for any agent that wants to do a deep dive into modern book marketing.)

The other big category is understanding the larger ecosystem in which publishing exists, mostly shaped by the biggest tech companies. For the past 20 years, publishing has been increasingly dependent on and has given up a great deal of control to the likes of Amazon, Apple, Facebook, and Google. Those “Four Horsemen” are the ongoing focus of NYU Stern School of Business Professor Scott Galloway, who will describe them and their strategies in a Main Stage talk. Two speakers with a skeptical view of tech’s impact on publishing economics are Jon Taplin of USC’s Annenberg School and anti-trust attorney Jonathan Kanter. Taplin will lay out his theory about how Silicon Valley has steadily devalued content in favor of tech and what the content industry can do to fight back. And Kanter will explore the near-term possibilities for anti-trust activity that could loosen the grip those companies, each bigger than the whole book industry, have on our ecosystem. In the same vein, Jessica Saenger of Germany’s Boersenverein will update us about anti-monopoly activity taking place in Europe that could affect those companies and, since every US company and author gets real revenue from Europe, is important to all of us.

There’s tons more: the company transformation talks (eight of them); author Virginia Heffernan on how the Internet is changing culture as well as how we buy and consume content; a session on sales reporting and analytics chaired by Hachette’s former CMO, Evan Schnittman. And what is actually a core topic for them, every agent needs to hear the panel discussing potential changes to copyright law being chaired by Roy Kaufman of Copyright Clearance Center.

It seems pretty certain that the agent who attends Digital Book World will be better prepared to do the jobs of advising authors about marketing and business, as well as negotiating their deals, than the agent who doesn’t.

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On Amazon stores and publishers accepting standardization; two unrelated commentaries


When the “Amazon-opening-400-stores” rumor landed a week ago, many people were gobsmacked. It took me a minute to get past that, which also required getting past my firm conviction when they opened the Seattle store last year that it was an information-gathering exercise, not the opening move of a bigger retail play.

But, when you think it through, it not only doesn’t seem crazy that Amazon would open stores, it seems like an obviously compelling move.

Other retailers that started strictly online have opened retail locations, most notably the eyeglasses shop Warby Parker. (This New Yorker story mentions that. It also has an interesting disclaimer at the end because “Amazon Studios is producing a New Yorker series in partnership with Condé Nast Entertainment”. Wow.)

“Omni-channel”, which is really a new-fangled fancy term for selling both online and through a brick store, is the buzzword du jour of retailing. Actually, the online piece of that is the harder part and Amazon already had that licked.

Barnes & Noble “beat” Borders largely because they had a network of distribution centers that made stocking their retail locations extremely efficient. Amazon’s network of distribution centers is complicated because it isn’t just books, but they have many times the number of points of inventory storage as B&N. In fact, they have many times the number of storage points as B&N and Ingram and Baker & Taylor combined!

Amazon has tons of information that nobody else does that would inform their stocking decisions if they harnessed it. They know where searches are coming from for particular book titles or for generic needs, both geographically and psychographically. And they probably can detect early lifts for particular books faster than anybody else, simply because they have more data.

It is possible that if B&N and the indies had responded differently to Amazon Publishing, agreeing to stock the books rather than boycotting them, this could have played out differently. (No stronger argument could be made for the efficacy of that strategy than this post arguing that stores should stock Amazon titles to punish them because the returns would make them unprofitable! You can’t beat logic like that.) If the stores had stocked their titles, Amazon might have chosen to use their distribution center advantage to start wholesaling, rather than to support their own retail locations (as they appear to be doing).

But the determination of the brick retailers to boycott Amazon was spelled out loudly and clearly. So opening Amazon retail locations — as it increasingly appears they have every intention to do — has two strategic payoffs for them. One is that it gives them access to at least some brick-and-mortar retail locations for their publishing output, which otherwise they can only sell online. And the other is that it capitalizes on their distribution centers, delivering additional sales and margin for investments already made.

In a recent post, I suggested one specific way Amazon could get very disruptive if they had more than a handful of stores. There’s another. They are a tech company that likes to have computers make decisions that in other companies and in other times have been made by humans. I suspect they’ll figure out pretty fast that they will want to have some sort of vendor-managed inventory system to streamline and optimize the stocking decisions for what will almost certainly be a growing network of retail locations. (The part of a trade book person’s DNA that is most out-of-step with the digital age is that we like to make decisions case-by-case, rather than living with decisions made by rules we create. That’s the key to the second half of this post.)

Sophisticated but automated stocking and restocking decisions are not part of the toolkit at B&N or of any other retailer or wholesaler we know. Could that be the next battleground that Amazon retail stores create? That would certainly be disruptive, but at least in this corner of the world it would not be a surprise.

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One mantra of the book publishing world is “every book is different”. We sometimes refer to that fact as reflecting the “granularity” of the book business compared to other kinds of consumer goods businesses or other media. Even if you think in terms of categories, there are just more of them in publishing than there are for other products or media.

Perhaps, then, it isn’t surprising that publishers are often inclined to encourage that uniqueness beyond where it is required. And, frankly, it is only required for editorial development and for targeting the marketing. The objective at every place in the value chain in between should be to standardize and, as much as possible, to treat many different books the same. That’s not a creative imperative; it is a commercial imperative.

My father first experienced the tension that this insight can create at Doubleday in the 1950s when he persuaded the company to standardize the trim sizes of their books for maximum printing efficiency. That didn’t require radical changes. It simply meant that books would be an eighth- or quarter-inch longer or shorter, wider or narrower. These were differences that were really not perceptible to most people, yet it was a real internal corporate battle to wrest control from designers who believed “every book is different” and that this mystery (or cookbook) had to be published as a 6 by 9 inch book while that one had to be 6-1/2 inches by 9.

In fact, the trivial differences in trim size were not important at all to the books’ chances of success. There were other decisions — the specific paper or type face among them — that also had no discernible commercial impact on each individual book but were, nonetheless, intentionally made book-by-book as though they did. In many houses, and (admittedly I’m saying this without any supporting data) probably more in smaller houses than larger ones, they still are. And that’s true even though whether the paper is 55 pound or 60 pound or the type face is Times Roman or Baskerville can’t be shown to have any impact at all on a book’s sales.

Now the University of North Carolina Press has been funded by the Mellon Foundation to put Dad’s theory to use in the university press and academic publishing world. They’ve created a service offering through their Longleaf distribution platform that takes the design, pre-press, production, and distribution burden off the hands of university press and academic publishers so they can focus on what makes them distinctive: the books they choose to publish and the skill with which they edit them.

This fits an industry reality I identified a couple of years ago that I called “unbundling”.

On one hand, UNC Press Director John Sherer reports real success, expecting to grow that part of their business by 50 percent in the coming year. But he also reports resistance by some presses who believe that making these design and production decisions adds so significantly to the “quality” of their output that they’re comfortable losing money doing it.

My own hunch is that many directors just don’t have the heart (or courage) to get rid of staff that, with all the best intentions and capabilities but without the advantages of technology and scale, provide them with no better than average quality at a much higher cost than they need to spend. This was a battle for Leonard Shatzkin when he fought it at Doubleday in the early 1950s and apparently it is still being fought hard six decades later.

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