Barnes & Noble

A few weeks ago, I wrote that there are three big forces driving the future of publishing: scale, verticalization, and atomization.

I was wrong. I had forgotten my own blogpost from last September when I identified another trend that belongs with the first three: “unbundling”. The book business, in the trade segment I follow most closely but in every other segment as well, is seeing its value proposition becoming unbundled in a number of ways.

Up until very recently, a trade publisher controlled just about every aspect of a book’s publication. The indispensible parts of the value publishers offered were two: the advance against royalties that often provided essential financing to enable the writer to create the manuscript and the network of relationships and infrastructure that put books on shelves for consumers to find and buy them.

Because the publisher was taking both a capital and reputational risk with every book published, it was natural that it would handle all the supporting steps: developmental and copy-editing, marketing and publicity, design and manufacturing. The publisher would commission the artwork for the book’s cover and determine what was the best foot forward on flap copy.

Until the turn of the 21st century, it was the exceptional author who had any kind of “platform” that could be employed for the book’s marketing: something like a TV show or newspaper column or fame achieved some other way that could be a springboard for promoting the book. In the cases where those opportunities existed, publishers recognized that the book was being “piggybacked” onto something that had its own commercial purpose and was not subject to the wishes or timetables of a book’s publisher.

What changed before the publishing business changed is that many of us have some sort of platform now, as in “a way to reach an audience”. And, although my platform isn’t comparable to Rush Limbaugh’s or Jay Leno’s, it is, indeed, mine all mine and I can do what I want with it. Many other people have platforms of their own that are far more powerful than mine.

It could be said that publishers themselves began the unbundling process as they got authors to use their platforms to market their books. With the advent of ebooks and driven by the CreateSpace services offered by Amazon, it became possible for any author to publish his or her own book and those with a platform, or even just building one, no longer had to get the assent of a publisher to put their book into the market.

My friend, futurist David Houle (whose new book “Entering the Shift Age” has been published by Sourcebooks), was frustrated in 2007 with his inability to connect with a publisher for his predictive thinking. He was just starting his blog, “Evolution Shift” and it didn’t have enough history or audience to persuade any publisher he found to put out his companion book, “The Shift Age”. So he did it himself, through Amazon, even before there was a Kindle. Over the years, David has sold about 7,000 copies of his book, many through Amazon but many more through his own public appearances as a speaker. (And what he’s made per copy is far more than what he’d have made in a publishing deal.)

Since Houle published “The Shift Age” several years ago, an industry has grown around offering services for publishing. This is referred to as the “author services” business. The core offerings are to take the creator’s file (in Word or InDesign) and make it accessible in various ebook formats at the front end and then to interact with ebook retailers (delivering the file and capturing the sales information and the revenue) at the other end. The services offered by the retailers themselves (and you can get this help from Amazon, Apple, Barnes & Noble, and Kobo) don’t push the ebook out to other ebook retailers. Amazon is the only one to offer a companion print option.

The first mover on these services in the ebook age outside the retailers was Smashwords. They’ve been joined by a host of others. Author Solutions, acquired about a year ago by Penguin, rolled up a number of companies that offered these services in the print-only world that existed before Kindle. They have all come to recognize that publishers provide more than the essential services at each end of the publishing process; they also provide editing and packaging and marketing services in the middle. So these have popped up as discrete offerings — “unbundled” — both through the complete service providers and as stand-alones.

Now there’s an aggregator of the stand-alone service providers, BiblioCrunch, which features a host of freelancers that any author can access. Another fledgling, NetMinds, which has made some news lately by publishing Nolan Bushnell’s book, makes provision of expert services in many categories a part of its model.

This unbundling effect plays out in interesting ways. When Hugh Howey sold the rights to his smash success “Wool” to Random House UK (before he had a US publisher), they worked with Howey and did some editing, including creating an additional chapter, for their edition. Howey took that component of Random House’s work and was able to make it available for the print edition he licensed in the US to Simon & Schuster and then incorporated it into the ebook version he sold himself.

All of this evidence that the publishers’ proposition is being unbundled leads to two strategic observations.

As the services game shifts from “authors” to “entities” (what I call atomization and of which there are new examples just about every single day), there is a critical job description missing from the service offerings. That job is “publisher”. The publisher makes the overall decisions about the editorial, production, and marketing resources that are committed to each book.

In the author services environment, this role can often be useful but would not be missed in many circumstances. There is no “what to publish” decision; the author has a book. There are very limited “resource allocation” decisions because the available resources to allocate are the author’s own.

But as entities of all kind take over from authors as the primary providers of books outside the industry itself, the role of publisher becomes critical. Decisions will need to be made.

There are 26 categories of helper available in BiblioCrunch. “Publisher” is not one of them.

I met last week in Los Angeles with a team of producers and development executives who are acting on an idea I have pushed: that Hollywood can become an important center for fiction book publishing. They have a core resource of thousands of great stories developed in the hopes that they will become a movie that ultimately doesn’t get funded, or as they say out there, “green-lighted”. This team has over 100 projects that are candidates for their book publishing efforts, but they can’t just “do them all”. They have to set up a company, pay to turn scripts into novels (or, at least, narrative stories), and put them into ebook and probably also print book formats. So, they asked me, which ones would you do first?

I said, “I wouldn’t ask me. I’d ask a publisher.” I named two very good and experienced ones immediately who are currently unemployed. These people have vast experience with all the decisions that are required: which stories are most saleable as books, what length the books should be, what style they should be written in, and how they should be titled, packaged, and promoted.

This necessity is even more evident when one thinks about non-fiction entities that might become publishers. If every museum, library, and department of a university is “a publisher waiting to happen” (and I believe all of them are), how could any of them proceed without a publisher?

If you were trying to get a museum started on becoming a book publisher, you’d begin with a discovery process that asked key questions. Who comes to the museum and what do you know about them? Who comes to the museum’s web site and what do you know about them? What IP do you already own that could be publishable as books? What good IP could you lay your hands on if you would publish it as a book? What is your relationship to sources of IP and marketing, like academic institutions, not-for-profits, or other museums? If you asked supporters of your museum for money to fund a publishing program, would they give it to you?

What the publishing program should be in response to the answers to those questions is something only a publisher has real experience figuring out. The publisher is the first service the entity needs. Renting a publisher takes precedence over renting an editor or a cover artist.

Ingram Publisher Services had a great success with a wildly expensive ($625) cookbook series (Modernist Cuisine: The Art and Science of Cooking) created by Nathan Myhrvold, the former Microsoft executive. Perhaps lost in the reporting of that story is the fact that Myhrvold’s first stop was to engage Bruce Harris, the former Publisher of Harmony Books and a former Random House sales executive. Harris has “publisher” in his DNA, and he undoubtedly shaped key decisions, probably including engaging Ingram in the first place, let alone directing their activites, that were instrumental to the success of the project.

So the first strategic point is that hiring all the services without hiring a publisher is like having a football team without a quarterback.

The second strategic observation is that the industry itself, but particularly the trade component of it, is also being unbundled. Disparate efforts that bookstores aggregated and welded together are now coming apart.

Here I’m not thinking about the value chain for each book, which is overseen by the publisher, but the value chain for the industry, which includes the supply chain. Although there have always been some vertical bookstores — in New York City until a few years ago they ranged from specialists in architecture to specialists in mysteries — most books were sold in general bookstores that sold everything. As publishers are forced to reach readers in different ways than they used to, the subject of a book, and the consistency of audience appeal within a publisher’s list, becomes a key to its marketing in ways it never was.

But ebooks are creating another distinction, between books that are meant to be read from start to finish and all other books: art books, illustrated instruction, references, and compendia. Narrative writing, particularly fiction, works as ebooks. The others don’t. That increasingly encourages publishers who depend primarily on narrative reading to stick to it and to not publish books of other kinds.

It is also creating a differentiated distribution problem for publishers, depending on their output. Publishers of novels and narrative non-fiction are seeing the decline in their print book sales compensated for by increases in their ebook sales. They have a new challenge reaching the audiences and making them aware of their books, but their problem isn’t exacerbated by the format change. Many of their readers simply switch over from print to digital on whatever device they want to use and one-color straight text printing enables reducing the print runs without costs getting completely out of line.

But that’s not true for publishers of other books. As bookstores close and readers switch to digital formats, they face existential questions. They can’t suffer the print run reductions readily. They can’t just make a digital version by copying the print. And, if they did, it won’t sell.

Some illustrated book publishers have robust distribution outside the bookstores, to museums or gift shops, for example. In some cases, the book trade was already a diminishing share of their business before the ebook revolution happened.

But the impact of digital change on publishers that used to all depend together on a healthy bookstore network is very highly variable. Their fates were joined. They’re now being unbundled.

Although the organizing theme of our Pub Launch BEA conference is “scale”, the other trends definitely get their moment. Ken Michaels of Hachette will talk about tools his company has developed that are being unbundled and delivered as services to other publishers. And the particular challenge of the illustrated book publishers as they lose the ability to piggyback on bestseller traffic in bookstores is the subject of the final chunk of the day’s programming. First, Ron Martinez of Aerbook will survey the new tools available to make putting an illustrated book into digital form cheaper and more effective. Then a panel of illustrated book publishers — Joseph Craven (Quarto Group), Tim Greco (Dorling Kindersley), Lindy Humphreys (Abrams), and Mary Ann Naples (Rodale) – will talk about how they are adjusting to the new retailing environment unbundling is creating in a panel discussion moderated by former Crown Illustrated publisher Lauren Shakely.

The idea of vendor-managed inventory has never become particularly popular in the book business, despite a few experiments over the years where it was implemented with great success. (And despite the fact that I was pushing for it back in 1997 and 1998.) But as the book business overall declines, with the print book business leading the slide and that portion of the print book business which takes place in retail stores falling off at an alarming rate, it is time for the industry to think about it again.

In fact, VMI for the book business began with the ID wholesalers and mass-market paperbacks right after World War II. The IDs — the initials stood for “independent distributors” — managed the distribution of magazines and newspapers at newsstands and other accounts within their geographical territory. The retailers had no interest in deciding how many copies of LIFE they got in relation to Ladies Home Journal; the ID made that determination. And since only the torn off covers were necessary for confirmation of a “return”, the “bulk” cost of distribution was in putting the copies in, not taking back the overage. And because newspapers and magazines had a disciplined frequency, it was obvious that you had to clear out yesterday’s, or last week’s, or last month’s to make room for the next issue.

When the first mass-market paperback publishers started their activity right after World War II, providing books for, among others, returning servicemen who had access to special servicemen’s editions of paperbacks (in a program created by the polymath Philip Van Doren Stern, a Civil War historian and friend of my father’s) they helped the jobbers along by having monthly lists. They also were comfortable with a book only having a one-month shelf life and having the stripped covers serve as evidence the book hadn’t been sold.

For quite some time, the initial allocations to the ID wholesalers (the local rack jobbers were called “Independent Distributors”) were really determined by the paperback publishers. Eventually, that freedom to put books into distribution choked the system, but there were a lot of other causes of the bloat. By the 1960s, many bookstores were carrying paperbacks and many other big outlets were served “direct” by the publishers, leaving the IDs with the least productive accounts. But VMI, even without any system and very little in the way of restraints on the publishers, was responsible for the explosive growth of mass-market paperbacks in the two decades following World War II.

In the late 1950s, Leonard Shatzkin, my father, introduced The Doubleday Merchandising Plan, which was VMI for bookstores on Doubleday books. For stores that agreed to the plan, reps reported the store’s inventory back to headquarters of Doubleday books rather than sending an order. Then a team posted the inventories, calculated the sales, and followed rules to generate an order of books to the store. Sales mushroomed, particularly of the backlist, and returns and cost of sales plummeted. Doubleday was launched into the top tier of publishing companies.

In a much more modest way, a distributor that my father owned called Two Continents introduced a VMI plan in the 1970s. Even with a very thin list and no cachet, we (I was the Marketing Director) were able to get 500 stores on the Plan in a year. We achieved similarly dramatic results, but from a much more modest base.

Two Continents was undone by the loss of some distribution clients. The Doubleday plan was undermined by reps who convinced headquarters years after my father left that their stores would be more comfortable if they wrote the Plan orders rather than letting them be calculated at headquarters. And the rise of computerized record-keeping systems for inventory and national wholesalers who could replenish stock quickly improved inventory performance, and store profitability, without VMI. Although our client West Broadway Book Distribution has successfully operated VMI in specialty retail for more than a decade, and Random House has worked some version of VMI at Barnes & Noble for the past several years, the technique has hardly been considered by the book trade for a long time.

It is time for that to change. What can foster the change is a recognition about VMI that is readily apparent in West Broadway’s implementations in non-bookstores, but would not have been so obvious to the bookstores using Doubleday’s or Two Continents’ services.

From the publisher’s perspective, the requirement that there be a title-by-title, book-by-book buying function in the store in order for the store to stock books purely and simply reduces the number of stores that can stock books. The removal of that barrier was the key achievement of the ID wholesalers racking paperbacks after World War II. Suddenly there were thousands of points of sale that didn’t require a buyer.

From the store’s perspective, buying — and managing the supply chain to support the buying decisions — is expensive. VERY expensive. Books are hard to buy. New ones are coming all the time; the number of publishers from which they come (and who are the primary sources of information about the books, even if you could “source” them from wholesalers at a slight margin sacrifice for operational simplicity) is huge; the shelf life of any particular title is undeterminable; and the sales in any one outlet are very hard to read.

Consider this data provided by a friend who owns a pretty substantial bookstore.

Looking at the store’s records for a month, 65% of the units sold were singles: one copy of a title. Only 35% were of books that sold 2 or more. (I didn’t ask the question, but that would suggest that 80-90 percent of the titles that sold any copies sold only one.)

Then, the following month, once again 65% of the units sold were singles. But only 20-30 percent of them were the same books as had sold as singles the prior month. Upwards of 70% of them were different titles. And upwards of 70% of the ones that sold one the prior month didn’t sell at all.

To further underscore how slowly book inventory moves, another report they do shows that more than 80% of the titles in the store do not sell a single copy in any particular month. So it is no surprise that an analysis of books from a major publisher that promotes heavily showed that more than half the new titles they receive from that publisher don’t sell a single copy within a month of their arrival in the store, which would include the promotion around publication date!

These data points demonstrate another compelling reason for VMI. When a store sells none of 80% of its titles in a month, and of the ones they do sell 80% of those sell one unit, they clearly need information about what is going on in other stores to know which ones to keep or reorder and which ones to return. Above the Treeline is an inventory service which provides its stores with broader sales data to address that issue, but the information is not as granular or as susceptible to analysis as what a publisher or aggregator could do with VMI.

Partly because of the high cost of buying and a supporting supply chain that a book outlet requires, publishers will see shelf space for books drop faster than retail demand. (The closure of Borders, which wiped out a big portion of the shelf space, is part of what is behind the recent good sales reports from many independents.) At the same time, retailers of all things will be under increased pressure to find more sales as the Internet — often, but not always, Amazon — keeps eating into their market.

This all adds up to VMI to me. We’ll see over the next couple of years whether industry players come to the same conclusion.

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

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

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

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

Scale

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

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

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

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

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

Verticalization

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

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

Those days are gone. Twice.

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

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

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

Atomization

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

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

But those days are gone too.

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

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

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

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

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

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

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

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

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

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

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

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

Verticalization in Action – 7/2/2009

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Publishers Are Reshaping Themselves – 3/12/2013 

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

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

This is the fourth of a series of posts on bookstores and their future. The previous posts have covered the challenges of buying (proposing VMI as a possible solution), explored what we should expect for the future of Barnes & Noble, and envisioned what the world of brick-and-mortar book retail might look like in the years to come. I promised previously to review the list of suggestions for publishers to help bookstores recently rounded up by Bookseller editor Philip Jones. He’s written more about this since, but the “original” list from Philip included:

1. Publishers offering books to retailers on consignment. That means the store pays when the book sells rather than on a date based on when it was shipped to them.

2. Publishers offering books to retailers with higher discounts. That means giving stores more margin between the price they pay and the price the publisher “suggests” as the retail price.

3. Bookstores taking advantage of Amazon’s “weaknesses” as an online bookseller. That would apparently be about localized curation as opposed to algorithmically-based suggestions.

4. Bookstores becoming something more (or less, but different) than bookstores. This suggestion may be inspired by B&N’s claim that they are creating new “prototype” stores.

5. Publishers creating special print editions for stores. This was done in Canada by the device of Random House creating Indigo-specific editions for Canada’s biggest bookstore chain.

And since then, in a radio interview, Harper UK MD Victoria Barnsley added a sixth suggestion:

6. That bookshops should charge “admission” to allow browsing (and perhaps credit the admission charge against a book purchase.)

We’re going to dismiss suggestions 3 through 6 pretty quickly. They either don’t scale or don’t help.

The notion that indie stores can beat Amazon at online selling is nothing short of preposterous. What indie stores can do, and should do, is offer an online sales capability to allow the customers they have who want to express their loyalty to do their online shopping with them. And they should do that in the simplest and easiest way possible. To the extent that the store has done curation work (store bestseller lists, recommendations from staff or customers), those should certainly be reflected online. But the notion that a single player can beat an online behemoth at the behemoth’s own game is a delusion and no great effort should be wasted on it.

The idea that bookstores become something other than bookstores, which is how I’d interpret suggestion number 4, is also not really much help. If not a “bookstore”, what, exactly? And if you can’t tell somebody “what, exactly”, then how is this advice anything more than a suggestion to keep throwing stuff at a wall until something sticks? That’s a strategy? Bookstores have already and always been “community gathering centers”. Playing up that piece of it is never a bad idea, but it hardly seems like an original one.

Similarly, the idea that publishers can save stores by offering them “unique” product is not really a solution at all. Yes, Random House (the biggest trade publisher) can do it for Indigo (a dominant retailer that owns the Canadian market). Even if it is adding value for Indigo, and we really don’t know if it is, there are precious few situations in the world where it could be applied.

And the suggestion that stores can save themselves by charging admission is one that can be very rapidly be disproven by any store that cares to try. It actually strikes me as a very good Candid Camera sequence. Put a toll booth at the front door of a retail store (any retail store, but a bookstore will do) and record the reaction of customers when they encounter something that makes absolutely no sense to them. I suspect wild enthusiasm for the idea will be rare.

However, the first two suggestions — to provide the stores inventory with more time to pay (consignment or extended payment terms) or more margin to work with — are worthy of more analysis and thought.

For publishers to consider easing the financial burden for bookstores based on their importance as a marketing component of the supply chain is a reasonable idea. But neither expanding retail discounts nor applying consignment is without complications.

Expanding margin needs to be done carefully, so that the margin expansion accomplishes the purpose that publishers seek: to increase the display of books in retail stores. Simply increasing discount is a difficult way to do that. What needs to be applied is an expansion of an existing principle.

In the book business, “coop” is the heading under which publishers purchase display for their books in prime locations. Coop was originally used for publishers to purchase space for their titles within a local bookstore’s newspaper ads. (Sometimes that “local bookstore” was a branch or group of branches of a chain.) But recently it has been applied to getting prime display locations, often near the cash register, as part of a promtion. The convention is for the payment for the space to be calculated as a percentage of a “supporting order”. This process imitates what happens in other classes of trade and is referred to outside the book business as RDA (retail display allowance) or MDF (marketing development funds). Another application of the same idea is for publishers to pay for “pockets” (sometimes called “slotting fees”). Under an arrangement like that a non-book retailer (like Michael’s, the craft store chain) can get an additional subsidy over and above what the discount schedule calls for on every title they carry.

But what we may be learning is that every book in a bookstore, or perhaps any retail location, has its discovery enhanced, not just the ones on promotional tables. So perhaps a publisher (followed by others, in time) might consider extending the idea to pay a “shelving fee” for every book in a “qualifying” bookstore. Consider a little math.

Let’s imagine a store that does $2 million in annual sales. If their average discount is 40% (which is a reasonable number; discount schedules would say it is higher than that, but it is reduced by freight costs, including for returns), the value of the inventory to make those sales is $1.2 million at cost. If they turn their stock three times a year, the average cost value of the inventory in the store is one-third of the total, or $400,000.

The two million in annual sales means shifting about 133,000 books (if the average retail price of the books is $15), and the average inventory is about 45,000 books. If publishers paid ten cents per book per month to be shelved, that would deliver an additional $4500 a month — $54,000 a year — to the store. If publishers paid 25 cents per book per month to be shelved, the store would get an additonal $135,000. Since a bookstore would be doing quite well to earn 10% on its sales, our notional $2 million store would be happy to earn $200,000 in profits now so, in either case, the “shelving fee” would be adding a meaningful increment. Certainly, for some stores it could make the difference between staying open or closing down. For others, it would encourage a bigger book inventory. In either case, that’s what publishers want to accomplish.

Publishers could, if they chose, make the “shelving fee” applicable whether the store bought the book directly from them or from a wholesaler. It actually makes it less tricky to apply if the wholesaler-supplied books are included. Invoicing now is done when publishers ship books, not when they arrive at the store so the time lag in between works in the publishers’ favor. For a “shelving fee”, publishers wouldn’t want to pay for time the book is not on the shelf: while it is in transit, or in a box waiting to be unpacked, or in a stockroom unavailable to a browsing customer.

In order to collect “shelving fees”, a store would have to deliver much more robust data than they now have to publishers about stocking and selling. But modern technology can make doing that not terribly difficult (systems don’t routinely do it now, but they surely could) and, in fact, stores should want to know about the efficiency of their shelving practices for their own reasons. And doing things this way would put publishers and stores on the same side around returns, because both would have good reason to get books that can’t sell off the shelves (and replace them with ones that have better odds).

Increasing the margin as a reward for a brick-and-mortar store being open and stocking books is doable and it is doable without cutting the wholesalers out of the picture. Consignment is definitely more complicated. And perhaps less helpful.

Sometimes the sale-and-return convention that has prevailed for nearly a century in the US book business is thought of as equivalent to consignment, but it isn’t. Although bookstores sometimes use returns as a tool to diminish the payments they have to make to publishers, they also “own” (and, in many cases, have paid for) a lot of books on their shelves at any particular time. And a non-trivial side effect of sale-and-return is that “shrinkage”, books that don’t sell but for whatever other reason may disappear from a store, are very much the store’s problem, not the publisher’s.

Under consignment, the payment from stores to publishers would be based on what passed through the cash register, not what was shipped from the publisher’s (or wholesaler’s) warehouse. “Shrinkage” would only be detected if a publisher called for a return of a book it had previously shipped and the store was unable to send it. Since even with the best of intentions, a store wouldn’t necessarily know a book was missing and certainly couldn’t pull a missing book for a return, the payments for those books would, at the very least, have to wait until some inventory check or returns protocol was invoked and discovered it.

The big question in consignment is when and how often a store pays. I recall having a discussion about consignment with a very large book retailer ten years ago. The top person there was thinking in terms of paying publishers every six months or so. It is safe to assume that no publisher would be excited about offering consignment on that basis. Allowing a store to “pay on sale” is one thing; allowing them to pay six months after sale is much more costly to the publisher.

For consignment to be workable, payments would have to be no less frequent than monthly, and would have to cover sales pretty much up to the moment of payment. What might make sense, for example, would be payments on the 5th of the month for sales made through the end of the preceeding month. That would be 35 days after sale for some books, 5 days after sale for others, and an average of about 15-20 days after sale. It wouldn’t be unreasonable for a publisher offering consignment to want payment more often than that, perhaps even as often as weekly.

The challenges of turning consignment into a workable commercial practice in our business include establishing a payment timing that makes sense and some method to catch shrinkage.

But the next problem is that the process of ordering would probably have to change. It is sometimes said that stores are now too easily tempted to over-order because, after all, they can return whatever they don’t sell. Imagine how much less restraint there would be on over-ordering if the store could hold books cost-free for as long as it took for them to sell! (There could still be the cost of freight in and out to discourage over-ordering, but that exists now.) Unlike the “shelving fee” concept, consignment puts the publisher and store in conflict around slow-moving inventory.

Let’s also take note of the fact that consignment is not all about paying later; sometimes consignment would require paying earlier. Bookstores get a boost when a bestseller comes in and flies off the shelves for the first week or two it is out. The revenue on those books is kept by the stores for 45 or 60 or 75 or 90 days (depending on how publishers enforce their collections) before they have to pay the publisher. Under a consignment arrangement, they’d have to turn over the publishers’ share much faster. (Of course, at the same time, they wouldn’t have to pay for some slower-moving books that might have come in the same shipment but hadn’t sold yet.)

There are other complications to consignment. The way things work now, publishers carry books in their warehouse on their balance sheet at inventory “cost” (something like manufacturing cost). When they sell them, they book the amount they sell to the store for, and keep some “reserve” for potential returns. On the store’s balance sheet, the books sit at the price the store paid, or will pay, the publisher for them.

But if the books are shipped to the stores on consignment, there has been no sale. So the publisher would have to continue to carry those consigned books on their balance sheet at the manufacturing cost and not credit themselves with the sale until the store reported it and paid them. What this would do to public reporting and bank covenants is a company-by-company proposition, and perhaps a knotty problem in some cases.

And sometimes there are state or local taxes based on “inventory”. IANAL (“I am not a lawyer”) but the taxing authority probably expects payment from the entity that ownsthe inventory. Under sale-and-returns, stores “own” it (whether or not they’ve paid the bill). Under consignment, the publisher certainly owns it. That would create complications, at the very least. Complications could also arise over insurance. (If a store had a flood or fire, would consigned inventory be covered by a store’s insurance?)

The bottom line is that publishers can help stores most by helping them carry their inventory less expensively and there are a great variety of ways to do that. The simplest way of all, of course, is just to extend the payment time from the current (as it often enforced) 60 days to something more. Thirty-five years ago, my father had me administer a program called “credit for overstock” where we gave stores 180-days extended billing for books left unsold after Christmas if they’d delay returning them. (Simple to do: issue a credit for what’s there dated today and an invoice for the same stock dated six months from now).

We’ve heard through the grapevine that at least one of the Big Six is experimenting with 180-day terms and that another might be a fast follower. That strategy is apparently offering competitive advantage (stores stock more of that publisher’s books, so they sell more of them too). That’s a way for a publisher to give benefits that are “like consignment” without the complications. From my perspective, it’s a shotgun, not a rifle, because it extends terms for everything equally. Credit-for-overstock targeted books that would very likely have been returned. The old “dated billing” plans targeted particular titles at particular times of year. Consignment requires that books that sell fast be paid for fast. A big across-the-board increase in time to pay is a far less targeted tool, but it still constitutes a big step in the right direction.

That’s because books on bookstore shelves are more valuable to publishers than books in their warehouse. Increasing recognition of that fact is occurring; more actions will certainly follow.

Worth mentioning — and inadvertently neglected by me in the VMI post — is that VMI does not need to be, and should not be, at odds with bookseller-management of curation. A publisher can certainly manage lists of titles that are designated “do not stock” or “always have on hand” that are designated by the store. The point to VMI is not to take tastemaking power away from the store. Of course a store should be able to exclude books they find offensive or that they think their customers will find offensive. And their decisions about categories or authors to stock out of proportion to how well they sell — higher or lower — can also be accommodated. And so can their inputs about local promotions that a publishers’ central office would have no way to know about. VMI offers two enormous benefits in any case. One is that the publisher knows things about individual book promotions, and recent performance, that might not be factored into each store’s calculations. And the other is that most stocking decisions are routine and  best made — particularly in the age when we’re discovering Big Data — by a system massaging the maximum amount of information.

Stats are often hard to interpret in our business. The reported data comes, of course, after the fact (you can’t report things before they happen) and is often aggregated in ways that don’t tell us what we really need to know. So I tried an exercise last week of asking a few agents for their impressions of the evolving ebook marketplace. I wanted to get a handle on two things: where we are now in terms of books sold in stores versus books sold other ways and whether the transition from print to digital consumption is slowing down.

The picture I got from nine smart and well-informed agents seems to confirm that:

* sales of ebooks for fiction more often than not top 50% of the total sales, in both the hardcover life and the paperback;

* sales of ebooks for immersive non-fiction are at something like half the percentage of fiction;

* illustrated books do a lot less in their digital editions, which usually struggle to reach 10% of the sale;

* while the marketplace data seems unambiguous, the agents have not formed a consensus that the print-to-ebook switchover is slowing down.

Perhaps we can attribute that to the fact that the data presentation which most shapes the agents’ impressions is provided in royalty reports. This past year, and especially this past season, have not yet been delivered in the data they study most intensively. But it was still useful to check with them, if only to confirm that fiction ebook penetration is double non-fiction and that illustrated books lag far behind.

If 50% of fiction is selling now as ebooks, it is likely that only about 35% of it is selling as print in stores (because 25-30 percent of the print sale is online). Considering that number was more like 90% ten years ago and 80% five years ago, that’s all the explanation anybody needs to understand the reduction of shelf space we’ve seen. Every year when stores are interviewed about traffic and sales, they cite the presence (or absence) of “big books” as a key driver. The “big books” are most often big fiction. This year, the Fifty Shades family of titles may have provided that lift, which may be why stores (other than B&N) are anecdotally reporting a strong Christmas.

But what the industry should be most interested in, which will be reflected in the next round of royalty statements agents see, is that ebook sales growth appears to have damn near stopped. As Michael Cader pointed out on Lunch, Random House UK indicated a 13% increase this year over last, which mirrors Barnes & Noble’s reported rise of 13% in ebook sales in December.

Thirteen percent is a big increase in a stable marketplace.

But if you consider the heavy activity in the device field — the new iPad mini, Kobo devices being sold by independent stores, and B&N turning progressively their stores into NOOK showrooms (and not to mention the always-growing ebook title base, still adding backlist and formerly out-of-print books and small press and self-published books) — the rise in ebook sales seems like no rise at all. So perhaps we really have hit the point of resistance from print readers and a new stability in division of sales across channels.

The consequences of only about a third of fiction being bought in stores — and not all in bookstores — are still to play out. If it is true that independents did better than B&N this past Christmas, could part of the reason (as I speculated in a prior piece) be B&N’s prior success selling their customers NOOKs? Is the indie store customer somewhat less likely to have bought a Kindle or NOOK previously and therefore disproportionately in the marketplace for printed books?

It is quite possible that the disappointing B&N results could be a more accurate indication of the world we’re now living in than the reported success of the indies.

Under the heading of data being ambiguous, note that the reported big rise in sales by independents in 2012 appears to have taken place in the first part of the year so that sales at Christmastime might not have been as much better than B&N’s as first impressions on the data could lead us to believe. (Once again, thanks to Cader for doing some in-depth analysis of the raw data to lead us to see that possibility.)

And at the same time that we’re seeing an increase in ebook sales of about 13%, PW reports that BookScan US numbers show print unit sales having declined by 9%. What is interesting there, though, is that deeper PW reporting about BookScan says that non-fiction declined by 13% while fiction fell only by 11% in unit sales. Since we think we know that ebook penetration for fiction is much greater than for non-fiction, perhaps the reported decline in non-fiction units reflects lower sales of illustrated books, not because they’re being cannibalized by ebooks, but because of the store traffic decline B&N reported.And that’s exactly what I’d be worrying about if I were an illustrated book publisher. Their business isn’t transitioning to digital as fast as novels, but it is possible their sales were more interdependent on novels and their power to bring traffic into the bookstores that sell the illustrated books than they might ever have thought.

The data reported by PW also says that mass-market paperbacks have suffered by far the biggest decline among the book formats. The ebook sales by independents (self-published) are apparently underreported. Could the very cheapest ebooks, which are largely the indies, be cutting into the sales of the cheapest print books. It would stand to reason, wouldn’t it?

Both our sold-out (really and truly, we will have to turn people away if they show up trying to buy a ticket at the door) Children’s Books Go Digital conference on this Tuesday (Jan 15) and Digital Book World on Wednesday and Thursday (Jan 16 and 17) feature as much worthy original data presentation and analysis as we could find.

On Tuesday, we have Carl Kulo and Kristin McLean presenting data from Bowker’s survey of the kids book market, Peter Hildick-Smith of Codex with fresh information about children’s book discovery, and both our case study of middle-grade marketing from Simon & Schuster and a presentation from Random House about driving word of mouth with a YA audience will undoubtedly deliver some objective information that will help other publishers make sound marketing decisions.

We have always featured original data presentations at Digital Book World. This year is no exception. We will kick off the event with Forrester’s snapshot based on interviewing executives; we’ll feature academic research from Carnegie-Mellon on the true impact of piracy; and Dan Lubart and Jeremy Greenfield will deliver a report based on close study of ebook bestseller data. That’s just on the first morning. We also will have insights from a survey F+W Media did to which more than five thousand authors responded; data about discovery in the general trade marketplace from Hildick-Smith; and a report from Bowker about book buyers and BISG about ebook buyers, based on regular surveying that has taken place over the past couple of years. Children’s Books Go Digital is sold out, but there are still tickets available for Digital Book World. 

I’m really proud of what we’ve put together for both events and I hope to see you there. If you can’t make it because of geographical separation, though, DBW is making live streaming available this year for the plenary sessions and some of the breakouts. If the plane won’t get you to New York on time, you should check that out.

Barnes & Noble announced some holiday sales results this morning and they were universally disappointing.

Overall sales are down. Same-store and online sales (the year-to-year comparables) are down 8.2%, while total sales are down 10.9% (because they have closed more stores than they’ve opened.)

NOOK sales were down 12.6% for the holiday period. Digital content sales were up 13.1%, but that’s alarming too. The company has sold a lot of devices since last Christmas (I don’t know, but one would expect the number of NOOK devices in the market has gone up by more than 13.1% in the past year) and last year they reported (according to Publishers Lunch) that NOOK business rose 43% during the holidays.

But what was most attention-grabbing (to me) was that the core sales decline was attributed to “lower bookstore traffic”.

Since the results were announced this morning, I had a conversation with a journalist who pointed out that the indies (anecdotally) seem to be reporting a very good Christmas. Why would the indies be up and B&N be down, this person wondered?

Thinking about that yields one piece of anecdata, one bit of conjecture (offered in yesterday’s forecast post), and one newly recalled (and somewhat frightening) insight.

The anecdata is that a Big Six CEO told me a couple of months ago that a very major book being published by that house (certainly one of the ten most anticipated releases of 2012) was not primarily promoted at B&N because they couldn’t get the bandwidth and cooperation on the B&N side to put something together. So the book was instead primarily launched through Walmart.

The conjecture in the last post was that the independents were more focused on selling printed books than B&N was. Indies are selling Kobo readers, but I’ll bet not one of them is devoting the prime sales space and portion of the paid staff to them that B&N does to the NOOKs. They’re focused on selling books, not devices, so they’re merchandising them better.

And the insight is that B&N has converted much of its store traffic to an online customer base because of their success at selling NOOKs. Those people may not be coming back, except virtually. These results may be the evidence of that.

B&N demonstrated with last week’s sale of NOOK equity to Pearson that what they have is of value to other companies. But that’s not particularly encouraging to the publishers and authors who are counting on them to sustain a bookselling presence.

B&N has a tough row to hoe building an international NOOK business without the store base they used to do it here. If the core US business declines faster than expected, that’s no help.

We always knew that the “old” Barnes & Noble was a fantastic US-based brick-and-mortar bookseller and that the “new” Barnes & Noble would be a global company based on devices and content. It always seemed tricky to get from one to the other and the challenge doesn’t appear to be getting any easier.

Although “digital change in publishing” has a year that lags the calendar year and this year won’t “end” until we have a read on how post-Christmas ebook sales were affected by the new devices consumers got for Christmas, the dropping of the ball in Times Square is the signal most of us respond to when timing our look ahead.

The signals about what to expect when the “digital year” ends are mixed, but not wildly encouraging. There are anecdotal reports of strong sales by US indies selling Kobo devices and Amazon has bragged about their Kindle Fire sales. On the other hand, B&N does not seem to be meeting its targets on the digital side and we’re learning that we don’t get the ebook sales surge from replacement devices that we get when a consumer first switches over from print. Most of the devices being sold now are replacements. And we’re also seeing tablet sales surging past ereaders. Prior analysis has told us that people spend more time reading books on ereaders than they do on tablets.

But quite aside from precisely where Digital Year 2012 ended up, there are five trends I think will be increasingly noticeable and important in trade publishing that are worth keeping an eye on in 2013.

1. Overall migration of sales from print to digital will continue to slow down.

We have already seen this clearly in data that has been reported throughout 2012. After ebook share growth that was in triple digit percentages for four years (2008-2011), this year we saw that switchover slow down considerably to substantially less than a 50% increase over last year.

Although the slowdown was pretty sudden, it shouldn’t really have been that surprising. Since the ebook era began in earnest with the arrival of Kindle in November, 2007 (5 years and a few weeks ago), it has been clear that heavy readers were early adopters. Both price and convenience were drivers that made the reader of a book a week much more interested in the new way of purchasing and consuming than the reader of a few books a year.

There appear to be those out there who believe this is a temporary lull and that the ebook switchover will shortly accelerate again. I really don’t think so. Although I don’t think the various surveys of reading habits have captured this, my hunch is that there are relatively few heavy readers left to make the change and those are, demonstrably, extremely resistant.

It is entirely possible that the death of Borders and changes at B&N reduced the amount of shelf space for books by as much as 50% in the two years that ended with 2011, a year ago. (That emphatically does not mean that print sales declined by that amount, or even that print sold in stores did.) That adjustment of shelf space to the reality of the purchasing shift consumers had made was a sudden over-correction, with the result that the remaining booksellers got a bit of wind at their backs. The data is hard to interpret, but it is possible that the indies benefited from that more than B&N did, perhaps as a result of B&N’s more intense focus on its NOOK business compared to the indies, who (despite the lift they got from selling Kobo devices this past Fall) are more focused on print.

This does not mean the digital switchover has ended. My gut (I don’t think there’s a great empirical substitute available here) tells me that store sales for books will continue to lose ground to online (print and digital) at a rate of 5-to-10 percent a year for some years to come. But that’s a much more manageable situation than the one bookstore owners had been dealing with for the several years leading up to 2012.

This is good news for big publishers. Their model is still built around putting print on shelves and managing a marketplace that works around a publication date focus and the synchronized consumer behavior that store merchandising really stimulates. It is good news for B&N too, if they can take advantage of it.

2. “Other-than-immersive” books will continue to lag in digital transition.

The commercial realities of ebooks and print are very different for immersive reading than they are for reference books, illustrated books, and picture books for kids. This difference is unfavorable for other-than-immersive books both in their creation and their sales appeal.

For immersive reading — books that are all text where you basically start on the first page and read through to the last — the “adjustment” to ebooks is both technically simple and uncomplicated for the consumer. Make it “reflowable” and it works. And the additional “labor” to make the two different versions (print and digital) is minimal.

But for books that aren’t consumed that way (reference) or which have important content that isn’t mere words, a single digital version might not work effectively (think of the difference in screen sizes and what that could do to a picture and caption or a chart). And compromises we make for a printed book — using six still pictures instead of a video or a flat chart instead of an animated one — can be downright disappointing in a digital context.

There are ongoing efforts to make creating good complex ebooks cheaper and easier, the most recent one coming from Inkling. Apple offers tools to do this, but then you can only sell the output through Apple. Vook was on this trail, although their most recent pivot seems to be away from reliance on illustrated books. The ebook pioneers at Open Road Digital Media have been making deals with illustrated book publishers — Abrams and Black Dog & Leventhal among them — and appear committed to solving this problem

But it seems to me that it might not be readily solvable. The inherent issue is that precisely the same intellectual output in both formats, which works fine for immersive reading, almost never does for complex books. So the core realities that have cushioned the digital transition for publishers of novels and biographies — that the cost of delivering to the digital customer is really very low and the appeal of the content is undiminished in digital form compared to print — don’t apply for illustrated books for adults or kids.

Will the how-to or art book in digital form ultimately be as close to its print version as has been the case for novels? Or will the how-to or art digital products in the future come from book publishers at all? Will there be any real synergy there? I don’t think we know that yet. As pressure grows in the retail marketplace, it gets increasingly urgent for illustrated book publishers to find out.

3. Mergers and consolidation among publishers are likely to become more common, after a long period when they haven’t been.

I have been a bit surprised about how little imagination has been evident from the kommentariat about the pending merger of Penguin and Random House. It seems like it is being viewed primarily for its cost-cutting potential (and that will be real), but I think it could actually be transformative.

I see two very big immediate wins for the combined company. They’ll be able to launch a credible general subscription, book-club-type offer using their own books exclusively (print and digital, although the big opportunity is digital). And they’ll be able to serve no-book-buyer retail accounts with a commercially-appealing selection of books working with a publisher’s full margin, not the thinner revenue available to a third party aggregator.

This is the two biggest of the Big Six joining forces. The other combination that is believed to be under discussion, putting together HarperCollins and Simon & Schuster, would be something like half the size of Penguin Random House and it wouldn’t have an equivalent reservoir and flow of highly commercial titles.

While Macmillan, according to the year-end letter from its CEO, John Sargent, remains determinedly independent, it is hard to see Hachette staying outside the merger tent as a stand-alone if Harper and S&S were to execute on the current rumor. The three of them together would present a competitive challenge to PRH and would have similar opportunities to open up new and proprietary distribution channels.

The merger activity will not be confined to the big general players. Both F+W Media (our partners in Digital Book World) and Osprey are building out the “vertical” model: providing centralized services to enable development of “audience-centric” publishing efforts for many and diverse communities. F+W has more than 20 vertical communities, most recently having acquired Interweave. Osprey, starting from a base in military history, has added science fiction (Angry Robot) and mind-body-spirit (Duncan Baird) to their list by acquisition.

The key in both cases is being able to add revenue channels to an acquisition as well as the time-honored objective of cutting costs through a combination. In different ways, all of the mergers we’re talking about here accomplish that.

4. Platforms for children’s books will become increasingly powerful gatekeepers.

Publishers discovered the power of platforms when Kindle showed them that they, not the publishers, controlled the customers and they, not the publishers, controlled the pricing. It took less than a year for Kindle to “own” enough customers that it would have been very difficult for any publisher to live without their sales, even without the leverage Amazon had as a significant customer for print.

Now we suddenly have a plethora of platforms that want to convince parents and teachers that they are where kids should be doing their reading. This is coming from the retailers: Amazon has a subscription offering for kids’ content and both Kindle and NOOK have parental control features. It is coming from the people who have been in this market all along: Storia from Scholastic and Reading Rainbow’s RRKidz. It is coming from outside enterpreneurs: Story Town and Ruckus.

And, before long, I think we’ll see branded digital subscription offers from the biggest publishers. (Why not?)

This suggests that a lot of shopping and purchasing decisions for young reading are going to take place outside of any environment that one could say now exists. And that’s going to be true pretty soon.

There are a lot of moving parts here. Sometimes the content has to be adjusted in some way for he platform, or can be enhanced for it. Sometimes the platform can facilitate a sale of stuff that is pretty much as it already was. Some of the platforms work on subscription models and others on discrete product sales models. But publishers (and agents) are going to be thinking about what those deals ought to look like. For now, platform owners are eager to engage the content so they have something to capture an audience with. When the audience is captured, the power shifts to the platform owner for anything but the most highly visible and branded content.

This will be an interesting arena. (And one that will be discussed at length at our conference, “Children’s Publishing Goes Digital” on January 15.)

5. Marketing for publishers will be a constant exercise in learning and reinvention, and increasingly difficult to separate from editorial.

I spent a post recently trying to describe an “audience-driven” rather than “title-driven” or, worse, “title-on-pub-date-driven” approach to marketing. When you get down to actually trying to use the biggest new tools publishers have in the digital world — the top two coming to my mind are using email permissions and social media for dirt-cheap communication and lots of data sources with more and more tools for analyzing big data — you very rapidly realize that it is very limiting to think about using them on a per-title basis.

Rick Joyce of Perseus presented some ground-breaking thinking at our Frankfurt event about using social listening data tools for publishing marketing; he learned that the tools were most effectively applied across categories rather than for titles. (Part of the reasoning here was that using the tools is time-consuming and therefore expensive; part of it is that you just get more actionable information categorically than you do title-by-title because you’re crunching more data.)

So when publishers start to conform their publishing and marketing to what the new tools can do best (we’re still in the stage where we’re mostly trying to make the tools do what we did before), it will mean an explosion in the number of marketing decisions that have to be made (because the age of the book will not be a central factor in the decision to include it in a marketing opportunity.) This is accompanied by the big increase in decisions required to respond to the near-instantaneous feedback marketing digital initiatives deliver.

All of this will continue to be very challenging to the structure and workflow practices in large companies.

I think the clearest indication that marketing is reaching its proper 21st century position in publishing will be its increasing importance in driving title selection. As publishers become more audience-centric, it is the people who are communicating with the audience (the marketers, but also the editors, and the line between them will get fuzzier, not that it hasn’t sometimes previously been blurred) who will see what’s needed that isn’t in the market yet. In a way, that’s always happened. But in another year or three, it will be a formal expectation in some structures, and will have a defined workflow.

One obvious trend I’m not discussing here is “globalization”. In fact, one analyst sees exploiting global opportunities as one of the big wins of the Penguin Random House merger. With all the retailers publishers know well (Amazon, B&N, Kobo, Google) expanding into new countries every month, there will be no shortage of reminders that publishers should clear rights and price books in all territories for which they possibly can. But the problem starts further upstream than that, with the licensing practices of agents, who still often maximize advances-against-royalties by selling books market by market. There is a long gestation time on deals, so even if the dealmaking changes, it will take a while for that to be reflected in more ebooks on sale in more places. That’s why I am not expecting globalization to have a major commercial impact in 2013 and it is also why I see it as a more distant opportunity for the new PRH business than the ones I suggested in this piece.

Blog posts have been scarcer for the past couple of months because I’ve been so engaged with a major responsibility: putting together what amounts to 7-1/2 days of conference programming that will be presented on four days next month in New York City.

As most readers of this blog probably know, we’re responsible for the programming of the two-day extravaganza that is Digital Book World. DBW 2013 — taking place on January 16 and 17 at the Hilton New York Hotel — will be the fourth iteration of the event, which aims to explore the commercial challenges facing trade publishing in the digital transition. DBW is not about technology per se; it is about the business problems publishers must cope with in an age of technological change.

DBW’s main two days are divided between morning plenary programming — all 1500+ people in one big room — and afternoon breakouts. We’ll have up to five simultaneous breakout sessions in each of three slots each day. So we have what amounts to 4-1/2 days of programming in the breakouts plus one on the main stage.

Because people really do come from all over the world to attend DBW, we were delighted to agree when they asked us at Publishers Launch Conferences (the conference business I own with Michael Cader) to add a show on each side of theirs to build out a week of programming. (The team at DBW itself are also putting together some pre-conference workshops that will run on Tuesday.)

So on Tuesday, January 15, we’ll do our second annual “Children’s Publishing Goes Digital” conference at the McGraw-Hill Auditorium (put together with the invaluable assistance of our Conference Chair and close friend, Lorraine Shanley of Market Partners). And on Friday, January 18, we’re presenting (in conjunction with the DBW team) a new program called “Authors Launch“, a full day of marketing advice for publisher-published authors. (Self-published authors are welcome and will learn a lot, but the program is framed for authors who are working with publishers, not looking for ways to avoid them.)

Programming the “Children’s Publishing Goes Digital” show revealed what we think will be the most important theme in the children’s book space for the next few years: the development of  digital “platforms” that, like subscription offerings (which some, but not all of them, clearly are), will “capture” consumers and make them much less likely to get ebooks and other digital media from outside of it. The list of platform aspirants in this space is long and varied: Storia from Scholastic; RRKidz from Reading Rainbow (the TV show brand); Poptropica from Pearson (which launched Wimpy Kid before it was a book); Magic Town; Disney; Capstone; and Brain Hive. All of them are presenting, as well as NOOK, which, like Amazon Kindle, has announced parental controls on its platform that encourage parents to manage their kids’ reading experience there.

There are other big issues in children’s publishing, particularly the creation of original IP by publishers so they can better exploit the licensing opportunities that follow in the wake of successful kids’ books. We’ll have data presentations from Bowker and from Peter Hildick-Smith of Codex to help our audience understand how kids books are found and selected outside the bookstore in today’s environment.

But we know that the digital discovery and purchase routines will be markedly affected by the platforms as they establish themselves. Publishers are faced with an interesting conundrum. They can’t reach the audiences that are loyal to a platform without going through the platform. But it is the presence of many publishers’ books that strengthens the attraction of the platform and, once it gains critical mass, the value of the content to it (and probably what it will be willing to pay for the content) is reduced. So publishers licensing content to these platforms may be strengthening beasts that will ultimately eat them. I think the roundtable conversation Lorraine and I will lead at the end of the day, which will include publishers Karen Lotz of Candlewick, Barbara Marcus of Random House, and Kate Wilson of Nosy Crow, will have interesting things to say about that paradox.

We’ve developed some “traditions” in the four years we’ve been doing Digital Book World. As we’ve done the past two years, the plenary sessions will open on Tuesday with the “CEOs’ view of the future” panel organized and moderated by David Nussbaum, the CEO of DBW’s owner F+W Media and the man who really dreamed up the idea of this conference. David will be joined this year by Marcus Leaver of Quarto, Karen Lotz of Candlewick, and Gary Gentel of Houghton Mifflin Harcourt. And Michael Cader and I will — as we have every year at DBW — moderate a panel to close the plenaries, “looking back and looking forward” with agent Simon Lipskar of Writers House; Harper’s new Chief Digital Officer, Chantal Restivo-Alessi, and Osprey CEO Rebecca Smart.

Among the presenters on the main stage who will be unlike what our audiences usually hear at a digital publishing conference will be Teddy Goff, the digital director for the Obama campaign, who will talk about targeting and marketing techniques that might serve us well in the publishing world; Ben Evans of Enders Analysis in London, who will tell us how publishing fits into the strategies of the big tech companies (Amazon, Apple, Facebook, Google, and Microsoft) that he tracks regularly*; ex-Macmillan president and now private equity investor Brian Napack, talking with Michael Cader about the investment climate in publishing; and Michael D. Smith, Professor of Information Technology and Marketing from Carnegie-Mellon, talking about a study he and his colleagues have done on the real commercial impact of piracy.

(We’ve also scheduled a breakout session for Teddy Goff so he can talk more about the Obama campaign for those in attendance who want to learn more of its lessons to apply.)

We’re also delighted to have gotten Robert Oeste, Senior Programmer and Analyst from Johns Hopkins University Press, to deliver his wonderfully insightful, entertaining, and informative presentation on XML, the subject so many of us in publishing need to understand better than we do. And we will after he’s done. (We’re also giving Oeste a break-out slot to talk about metadata which I’ll bet a lot of our audience will choose to attend after they’ve heard him on XML.)

Some authors have had remarkable success without help from publishers in the past year, but few or none more than Hugh Howey, the author of “Wool”, who has just signed a groundbreaking print-only deal for the US with Simon & Schuster. His dystopian futurist novel has sold hundreds of thousands of self-published ebook copies and rights all over the world and to Hollywood. We’ll have a chat with Howey about how he did it and we’ll be joined by his agent, Kristin Nelson, for that dialogue. Kristin will stick around to join a panel of other agents (Jay Mandel of William Morris Endeavor, Steve Axelrod, and Jane Dystel from Dystel & Goderich) to talk about “Straddling the Models”: authors who work with publishers but are also doing some things on their own.

We will have several panels addressing the challenges of discovery and discoverability from different angles. One called “Closing the New Book Discovery Gap” teams Patrick Brown of Goodreads with three publishing marketers — Matt Baldacci of Macmillan, Angela Tribelli of HarperCollins, and Rachel Chou of Open Road — and is chaired by Peter Hildick-Smith. That will focus on what publishers can do with metadata and digital marketing to make it more likely their titles will get “found”. Barbara Genco of Library Journal will share data on library patron behaviors and then helm a panel discussion with Baker & Taylor, 3M, Darien Public Library, and Random House exploring the role of libraries in driving book discovery and sales. Another session called “Making Content Searchable, Findable, and Shareable” introduces three new propositions from Matt MacInnis of Inkling, Linda Holliday of Citia, and Patricia Payton of Bowker, along with SEO expert Gary Price of INFODocket. Publishing veteran Neal Goff (who is also the proud father of Obama’s digital director) will moderate that one. MacInnis, Holliday, and Payton offer services that will help publishers improve the search for their books. Price will talk knowledgeably about how the search engines will react to these stimuli.

We’re covering new business model experimentation (with Evan Ratliff of The Atavist, Brendan Cahill of Nature Share, Todd McGarity of Hachette, and Chris Bauerle of Sourcebooks) where publishers discuss ways to generate revenue that are not the old-fashioned ones. We’ll underscore the point that we’re about changes caused by technology rather than being about technology with our “Changing Retail Marketplace” panel, featuring publishers and wholesalers talking about the growth of special sales (through retailers that aren’t bookstores and other non-retail channels).

The future for illustrated books will be discussed by a panel with a big stake in how it goes: John Donatich of Yale University Press, Michael Jacobs of Abrams, Marcus Leaver of Quarto, and JP Leventhal of Black Dog & Leventhal. Two publishers who have invested in Hollywood — Brendan Dineen of Macmillan and Pete Harris of Penguin — will talk about the synergies between publishing and the movies with consultant Swanna McNair of Creative Conduit.

We will have major US publishers and Ingram talking about exports: developments in the export market for books — print and digital. And we’ll have some non-US publishers joining Tina Pohlman of Open Road and Patricia Arancibia of Barnes & Noble talking about imports: non-US publishers using the digital transition to get a foothold in the US market.

One session I think has been needed but never done before is called “Clearing the Path” and it is about eliminating the obstacles to global ebook sales. That one will start with a presentation by Nathan Maharaj and Ashleigh Gardner of Kobo where they will enumerate all the contractual and procedural reasons why ebooks are just not available for sale in markets they could reach. And then Kobo will join a panel conversation with Joe Mangan of Perseus and agent Brian Defiore to talk about why those barriers exist and what might be done in the future to remove them.

Oh, yes, there’s much much more: audience-centric (what I call “vertical”) publishing; the changing role of editors; the evolving author-publisher relationship; and a conversation about the “gamification” of children’s books. David Houle, the futurist and Sourcebook author who wowed the DBW 2012 audience, will return with his Sourcebooks editor, Stephanie Bowen, to discuss their version of “agile” publishing: getting audience feedback to chunks before publishing a whole book.

We will also do some stuff that is more purely “tech”. We have a panel on “Evolving Standards and Formats” discussing the costs and benefits of EPUB3 adoption, which will be moderated by Bill McCoy of IDPF. Our frequent collaborator Ted Hill will lead a discussion about “The New Publishing IT Department”. Bill Kasdorf of Apex will moderate a discussion about “Cross-Platform Challenges and Opportunities” which is about delivering content to new channels.

But purely tech is the exception at Digital Book World, not the rule.

And purely tech won’t show up at all at Authors Launch on Friday, January 18, the day after Digital Book World.

Authors Launch is what we think is the first all-day marketing seminar aimed squarely at authors with a publisher, not authors trying to work without one. It is pretty universally taken as a given that authors can do more than they ever have before to promote themselves and their books and that publishers should expect and encourage them to do that. But, beyond that, there is very little consensus. What should the publisher do and what should the author do? That question is going to be addressed, in many different ways, throughout the day.

The Authors Launch program covers developing an author brand, author involvement and support for their book’s launch, basic information about keyword search and SEO, use of metrics and analysis, a primer on media training, when and how to hire a publicist or other help, and a special session on making the best use of Goodreads. We’ll cover “audience-centric” marketing, teaching authors to think about their “vertical” — their market — and understand it.

The faculty for Authors Launch includes the most talented marketers and publicists helping authors today: Dan Blank, co-authors MJ Rose and Randy Susan Meyers, journalist Porter Anderson, David Wilk, Meryl Moss, Lucinda Blumenfeld, agent Jason Allen Ashlock, and former Random House digital marketer Pete McCarthy.

We have assembled a group of publishers and an agent to discuss how an author should select the best places to invest their time from the staggering array of choices. (Facebook, Twitter, YouTube, Pinterest, etcetera.) That panel will include agent Jennifer Weltz of The Naggar Agency as well as Matt Baldacci of Macmillan, Rachel Chou of Open Road, Rick Joyce of Perseus, and Kate Stark of Penguin. Matt Schwartz, VP, Director of Digital Marketing and Strategy for the Random House Publishing Group, will conduct the session on metrics.

A feature of both our Kids show on Tuesday and the Author show on Friday are opportunities for the audience to interact with the presenters in smaller groups so each person can get his or her own questions answered. At Kids we’ll do that at lunchtime, seating many of our presenters at tables with a sign carrying their name so our attendees can sit with them and engage. At Authors Launch, we’ll be conducting rounds of workshops, crafted so that the authors can get help in their own vertical (genre fiction, literary fiction, topical non-fiction, juvies, and so forth), and on the topics of greatest need for them.

We are sure the week of January 15-18 will prove to be an energizing and stimulating one for all of us living in the book publishing world. We hope you’ll join us.

Digital Book World Week | January 15-18, 2013

Children’s Publishing Goes Digital | Tuesday, January 15, McGraw-Hill Auditorium
DBW Pre-Conference Workshops | Tuesday, January 15, Hilton New York Hotel
Digital Book World Conference + Expo | January 16-17, Hilton New York Hotel
Authors Launch | Friday, January 18, Hilton New York Hotel

So now in addition to the Random House and Penguin merger that is being reviewed by governments far and wide, we have the news that HarperCollins is exploring a tie-up with Simon & Schuster in a deal that hasn’t been made yet. That leaves Hachette and Macmillan, among the so-called Big Six, still on the outside as the general trade publishing behemoths rearrange themselves for whatever is the next stage of book publishing’s existence.

I am not sure we really need an “explanation” for what is the resumption of a perfectly natural phenomenon. Big publishers have been merging with each other for several decades in a process that suddenly stopped after Bertelsmann acquired Random House (to add to its holding of Bantam Doubleday Dell) in 1998. We didn’t know it at the time, but that concluded a long string of mergers that had recently included Penguin’s acquisition of Putnam-Berkley, but which stretched back to the 1970s when pursuit of the paperback-hardover synergy had driven Viking and Penguin; Doubleday and Dell; and Random House-Ballantine and Fawcett into each other’s arms.

(Perhaps HarperCollins should get credit for the resumption of the era of consolidation. Their acquisition of Christian publisher Thomas Nelson, combined with their holding of Zondervan, created a powerful position in one of publishing’s biggest vertical markets shortly before Penguin and Random House announced their plans.)

But consequential events always get an explanation, whether they deserve one or not, and this merger appears to many to be driven by consolidation among the retail intermediaries and the rational concern — amply documented by recent experience — that the retailers would use their leverage to press for more and more margin. This is complicated by the fact that both of the dominant retailers — Amazon in the online world and Barnes & Noble in the brick-and-mortar space — have small publishing operations of their own that are always available to put additional pressure on publishers at the originating end of the value chain.

There is an important asymmetry to take note of here. The retailers publish and are always a threat to acquire manuscripts directly and cut the publishers out but the publishers, particularly the biggest ones, don’t do retail and there is no obvious path for them to enter retailing in any significant way. (That last sentence was written with full cognizance that we await the debut of Bookish, which is an attempt by three of the Big Six to enter retailing in a significant way. Maybe when concrete plans for it are announced there will be some reasons provided to amend that thought.)

In my opinion, the dominant position that Amazon holds in online retailing and that B&N owns in shops are impregnable on their own terms in ways that the positions of each of the big publishers are not.

The threat to Barnes & Noble is that bookstores will become unsustainable: that a retailer trying to exist at scale with books as its primary product offering will, because of ebooks and online purchasing of print, simply become unviable. The threat to Amazon is more nuanced and more distant. One can imagine a world developing where content retailing evolves into niches by subject or tastemaker. But that world is not around the corner (an environment toxic to bookstore chains appears to be much closer) and it would be far easier to imagine how Amazon could adapt to niche online retailing than to see B&N adapting to deliver retail book selections that are only viable at a fraction of their current size.

(I consulted to them a decade ago and suggested that to no interest. They were shutting down their mall stores at the time and the idea seemed totally counterintuitive.  I’ve also written about it.)

I saw recent data (sorry, can’t remember where…) suggesting that something like 38% of the book business is now done online, taking both ebooks and sales of print into account. This seems to be confirmed by a chart built on BookStats data by reporter Laura Owen of PaidContent, if you take “institutional sales” out of the equation and assume that wholesalers sold books to online and store retailers as well as libraries.

Whatever the percentage is, it is almost certainly higher for immersive reading than for illustrated or reference books because immersive works for ebooks and the others mostly don’t. So it would appear that something like 60% of the book business is still a bricks-and-mortar game, with the number being somewhat lower for straight text and higher for illustrated.

That, in a nutshell, explains why the big publishers are still extremely powerful. The 60% sold at retailers is what they’re uniquely skilled at getting and what Amazon is uniquely challenged to penetrate.

But the one thing we know for sure is that the shift to online purchasing — while it has slowed down — will continue to progress for a long time. The increased ubiquity of devices; the always-larger selection from an online merchant; the increase in availability of appealing and useful content that is either too short or too specialized for print; the steadily increasing cost and hassle of shopping by car rather than by computer; the natural results of birth, death, and demography; and the increase in online word-of-mouth and recommendation sources are among the many factors that assure that.

As the percentage of a publishers’ sales that are made through retail stores decreases, the cost of covering them increases. This has already become an issue as the big publishers view their overheads and come to the conclusion that they can’t afford to pay ebook royalties greater than 25% of receipts. Surely, some of the cost basis they see driving that necessity are really print-based (creation and distribution), which makes them calculate what’s affordable differently than a more new-fangled publisher that is planning primarily on digital and online distribution.

The publishers who are merging or thinking about merging are not doing so out of immediate desperation. The financial reports we see from trade publishers are not frightening. Top line sales are challenged — there is little or no growth — but margins have been maintained through the seismic marketplace shifts of the past few years and the pace of change is slowing. So it is probably preparing for a world a few years off that drives publishers to merge today. What will that world look like?

The world of publishing we’re going to see five or ten years from now will probably look quite different. Even if store sales only decline 10% a year against the industry total, what is a 60% share today will be about a third after five years have passed and below 20% in ten. Those are sales well worth having, of course, but they’ll be a lot more expensive to get. And if I were predicting rather than just speculating, I’d expect the erosion of retail sales to be a bit faster than that.

My expectation is that freestanding bookstores will be less and less common, and smaller book sections in other retailers (the way they’re in mass merchants today) will proliferate. We already see this in “specialty” retail: stores stock books that fit alongside their other product offerings. But as bookstores get scarcer, it will probably begin to make sense for general book selections — bestsellers, classics, and the cream of popular categories like cooking and current affairs — to be offered by other merchants. Part of the reason that doesn’t happen now is that it is too hard for the retailer not in the book business to do. A representative selection either requires dealing with many publishers or buying from a wholesaler. And the wholesalers are working on tight margins, not allowing them much room to offer expensive services (like inventory management) unless they really cut into the store’s margin.

But you don’t have to have every book — or even every bestseller — to deliver a compelling consumer offering. Book-of-the-Month Club and The Literary Guild proved that half a century ago when they competed for the general book club market. They demanded exclusives on the bestsellers, so they tended to split them. And they each had enough to pull a very large audience.

Well, the combination of Random House and Penguin has damn near half the bestsellers too. And Random House, at least, has already developed vendor-management capabilities that they can apply at the store level. So as the bookstores disappear from town after town, a Random Penguin combination (they really ought to call it that!) becomes able to offer any local retailer a selection of books that will look pretty good to the average consumer.

In addition, they’ll find that the combined lists give them a great head start on having enough titles to deliver retailers other vertical selections — cooking, crafts, home improvement — that their VMI skills will also help them serve.

Right now the challenge Amazon is having is that they’re trying to publish with a grip on no more than half the market. That’s great, as far as it goes, because that’s where they have a real margin advantage when they cut the publisher out of the chain. But because there is so much Amazon fear-and-loathing around the rest of the industry, they’re not able to build out beyond their proprietary position. (See the recent frustrations expressed by their author, Tim Ferriss, to appreciate how that’s working out in the market today.)

But if Amazon could reach 75% of the market — that is, if store purchasing declined below 25% of the total, which is in the cards for the next ten years — leverage would be reversed. (I’m eliding the format and proprietary reader device issues around ebooks here, but I’m guessing they’ll mostly go away in the next five or ten years.) Then Amazon wouldn’t want or need distribution to the stores or other online outlets. In fact, chances are they’d see it in their best interests to withhold those titles from other retailers and use them as tools to compel shopping with Amazon.

(This would not be a peculiar selfishness of Amazon if they did it. I remember well the battles my friends at Sterling had when they were first acquired by Barnes & Noble trying to convince their new owners that it was necessary to distribute the books as broadly as possible or they would start finding it impossible to sign new titles. B&N’s instinct was to want what they published available only from their stores, an instinct they acted on with SparkNotes.)

But if I’m right about where Random Penguin might go, they could play this same game. As the cost of running book departments increases as a percentage of sales, as they surely will as sales in stores decline, the mass merchants will diminish their presence. If Random Penguin has half the bestsellers, they will be able to use VMI to build secondary locations to keep their print books available. Those locations will be theirs and theirs alone. Maybe they’ll only be making 10% or 15% of the total sales this way, but those sales will be unavailable to other publishers (unless they go through RP at diminished margins.)

The proprietary distribution will give RP an advantaged position signing up the biggest books. In time, they might even have enough of the biggest books to pursue one of the current active fantasies of Amazon and a bunch of entrepreneurs: creating a value proposition for big authors that will enable a subscription library with headline titles. And that would be another proprietary distribution channel that this next generation of scale might make possible.

The resistance of the bookstores to doing anything that helps Amazon will make it difficult for Amazon the publisher to build a general trade list of bestsellers until a much bigger chunk of the market has moved online. Barnes & Noble, which had a chance to become the one dominant trade publisher if they’d played their Sterling card differently, seems not to be interested in that role. So it will be one or two of the incumbents that will be left standing ten years from now managing the most commercial titles in the marketplace. The odds are very good that one of them will be Random Penguin.

I (usually) resist the temptation to make political observations on the blog, because that’s not what people come here for. But I have to make an exception because I think one of the most important points to be made about the results of November 6 has not been made anywhere else. And it is, ultimately, a non-partisan point.

Among the many reasons that President Obama convincingly defeated Governor Romney was the superior execution of the Obama campaign around data and operations. They were simply better analysts and managers and they executed better than the Romney campaign.

So can we please put to rest the notion that “getting rich” or “running a business” is a proxy for “management skill”? The most frequently-offered argument from Romney was “I’m a successful businessman so therefore I can run things better than this guy who is community-organizer-turned-public-official.” Actually, Governor, you couldn’t. You didn’t.

The last presidents we had with business experience were (working backwards) George W. Bush, Jimmy Carter, Herbert Hoover, Calvin Coolidge, and Warren Harding. There is no historical evidence in there that shows that business success correlates with the ability to run the United States government. Or even, as we’ve just been shown, an effective national campaign.

In some ways, I think this year’s Publishers Launch Frankfurt show kicks off the next era of digital change in global publishing. The US and other English-speaking markets have established clearly that immersive reading — fiction and narrative non-fiction — is easily ported to screens for most people. In the past 18 months, changes in the UK book market have begun to resemble what we saw in the US, including Amazon’s dominance and bookstore shelf space shrinking.

While there are still many unanswered questions about how the English-speaking trade book world will look in a few years, I think the story of the next 12 months could well be more dramatic in non-English markets. The Frankfurt show is our most international; Americans are in the minority as attendees at this event.

We have packed 18 panels and presentations into our one-day Publishers Launch Frankfurt. (I like to keep things moving.) In keeping with the way digital change has taught us to think about the book business, we have two themes that are actually analogs for “content” and “context”.

Providing the “content” will be nine “Innovators”. The presenting innovators are publishing executives who are doing things inside their companies that are hard (or impossible) to find being done anywhere else. Yet.

Creating the “context” are a number of presentations on “Circumstances”. The context of the digital revolution differs by country, by language, and by time. What happened in the United States over the past five years offers clues, but not definitive answers, about what to expect in other countries over the next five years. We are exploring a wide range of circumstances that are defining the environment for publishing around the world in the future.

Both sets of presentations are extremely diverse.

We’re starting off the day with what I think will be one of the most impactful of the “circumstances” descriptions. Benedict Evans of Enders Analysis tracks the strategy of the five big tech companies whose activities are most likely to have an impact on publishing: Amazon, Apple, Facebook, Google, and Microsoft. He’ll describe the overarching objectives of each company and examine how book publishing fits into their thinking. The point will be to help publishers see how to take advantage of opportunities that will be created and avoid the pitfalls that will come along with the opportunities.

Jim Hilt, Theresa Horner, and new International Managing Director Patrick Rouvillois of Barnes & Noble will be talking about their company’s recent first move outside the US, launching the NOOK in the UK with local retailer partnerships. The UK will therefore become the first market outside the US to experience an initiative from the one company which, inside the US, has made a meaningful run at Amazon. If they can do it in Britain, then perhaps they can do it elsewhere as well. This is a “circumstance” everybody in the business will be watching.

Michael Tamblyn of Kobo will also speak. Kobo has opened in six major markets in the past year. They’re bringing an independent — but complete with devices, including new ones just announced — ebook retailing presence into many markets. The spread of the digital delivery infrastructure is definitely one of the changing circumstances that all publishers need to stay aware of and these two retailers are an important part of it.

The decline of print bookstores has been taking place for some time in the US, an effect not yet evident in much of the rest of the world. Peter Hildick-Smith of The Codex Group has been studying that, surveying book consumers about their purchasing decisions for a decade. He has data spelling out what the impact on sales and discovery is as bookstore shelf space contracts, which he’ll be reviewing for publishers to consider as they do their own forecasting about how fast bookstores will decline in their own markets. Hildick-Smith also has data about the reading habits of consumers on tablets as opposed to ebook readers which will be of great interest because so much more of ebook uptake outside the English-speaking world will take place on tablets.

We will have panels looking at two sets of emerging markets.

The BRIC countries — Brazil, Russia, India, and China — are watched by economists for emerging trends and we’re going to do the same. All of them are in the earliest stages of ebook uptake, but the beginnings are there in all four markets. We’ll have local representatives from each — publishers and retailers — to fill us in on the prospects and expectations in each of these countries.  The panelists will be Carlo Carrenho (PublishNews) from Brazil, Alexander Gavrilov (Book Institute) from Russia, Ananth Padmanabhan (Penguin) from India, and Lisa Liping Zhang (Cloudary Corporation from China.

We will also have a panel of leading Spanish-language publishing executives, chaired by Patricia Arancibia of Barnes & Noble, to discuss how digital change is playing out in the Spanish-language market. Spanish, like English, is the local language for many countries — more than 20 in the case of Spanish — and also has a very large market within the US. Digitization has been slow and there are unique issues having to do with the fact that control of copyrights is often housed in Spain, despite the fact that the biggest markets are in Latin America. Patricia and her panelists (including Arantza Larrauri of Libranda and Santos Palazzi of Planeta) will explore how fast that will change and when we should expect to see ebooks rising beyond the sliver of the market they have captured so far.

Michael Healy of Copyright Clearance Center is going to do a presentation on changes to copyright law and practice that may not be taking place where you live and publish but which could affect you where you do.

Noah Genner, their CEO, will report on the first fielding of a BookNet Canada survey of Canadian book consumers, the beginnings of a project that is planned to take place over the next couple of years. This may be the first intensive study of digital reading habits outside the United States so we thought it was worthy of a report to our global audience.

And a circumstance on every big company’s mind in publishing is how they will be regarded by the investment community as they navigate the digital transition. Brian Napack is now at Providence Equity Partners. Last year at this time he was President of Macmillan USA. Nobody is in a better position to discuss this topic than Brian and he’ll present on it at our event.

The innovative executives who will be navigating these shifting circumstances constitute the other half of our program. These speakers will be talking about initiatives that are often unique but are always pioneering. Our bet is that they are introducing a lot of practices that will be common in a couple of years.

Two of our innovators work from outside the English-speaking world but part of their story is that they’re not letting that cut them off from the biggest book-buying language.

Helmut Pesch leads the team that provides the internal ebook support for the German publisher Lubbe. But he’s using that position to pioneer. He’s teamed with a TV production entity to deliver a multi-media novel as a serial, launched an ebook first imprint, and is publishing original work in both English and Mandarin Chinese!

Marcello Vena oversees digital initiatives for the Italian holding company RCS Libri, which owns the book publishers Rizzoli, Bompiani and Fabbri Editori. Vena has started two ebook first genre imprints (thrillers for Rizzoli and romance for Fabbri) and is delivering those files DRM-free. He’s created a couple of very successful illustrated ebooks (this in a market where digital has barely cracked 2% of sales) and he also is trying out English-language publishing.

Stephen Page of Faber and Faber in the UK is building publisher- and author-services businesses while he innovates in his own publishing house. As an example of that, Faber has produced delivered two compelling apps for classic poetry: one on T S Eliot’s “The Waste Land” and one just released on Shakespeare’s Sonnets. And he’s building author communities that include live events and writing courses.

Rick Joyce, the Chief Marketing Officer for Perseus and their digital Constellation service, is exploring “social listening” tools, but with a twist. Joyce points out that working with these tools isn’t easy but he also is skeptical of the value which can be derived as they are often used: tracking the impact of social media efforts by a publisher. Joyce and his team are exploring whether the tools can be used to find the right marketing venues and approaches, down to the level of what blog comment streams to join and what nomenclature to use when they’re being worked. He will explain the tricky balance between being terribly specific in your search (like using the book title) which yields far too few opportunities and being so broad that the targeting is ineffective.

Anthony Forbes Watson is Managing Director of Pan Macmillan in the UK, part of the newly reorganized global trade division of Macmillan. Watson’s house is distinctly smaller than the four biggest UK trade houses (Random House, HarperCollins, Hachette, and Penguin) but much larger than any other player. Watson has reorganized his shop to get closer to both the authors and the markets. The evidence so far is that Pan Macmillan is proportionately outselling its competitors in digital; Watson will lay out the ways in which internal structural changes can lead to competitive advantage.

Rebecca Smart is the Chief Executive Officer of Osprey, a global publisher whose first vertical audience was military history. Since then, Osprey has executed acquisitions to put them into other verticals: science fiction, mind body spirit, food, and health. Her company is global and focused on audiences and she is building a multi-vertical publisher that will work with very diverse set of customers with a consistent approach and central services when possible.

Ken Michaels is the COO of Hachette Book Group USA. He’s also a big believer in SaaS: software as a service and he’s been rethinking and rebuilding Hachette’s internal technology structure in light of that belief. Hachette has also created some solutions themselves — among them, a capability to track metadata and ranks of books at ebook retailers and a tool for sharing content on Facebook — that they are making available as SaaS services themselves.

Charlie Redmayne is the CEO of Pottermore. He believes they’re building the digital publisher of the future and that a key element of that is to go where the audiences are: every device or channel that commands eyeballs is in his sights. Of course, Pottermore was built on the back of one writer’s amazing fictional brand and world. Redmayne believes what they’ve built might be applicable to other worlds from other authors. And that part of his presentation might get a lot of publishers and agents in the audience thinking what they have that might apply.

Dominique Raccah is the founder and CEO of Sourcebooks. Dominique is an indefatigable experimenter. She’s developed a poetry vertical. She’s experimented with “agile book creation” which invites the author’s audience to participate in creating the book. Dominique does more experiments before breakfast than most publishers do in a year. I put her on this program “on faith” because she told me she’s got 2-1/2 experiments to discuss that support her conviction that publishers have to completely rethink their businesses. (Today on a listserv she mentioned that she has “five startups” taking place internally!) Maybe I’ll find out exactly what she’s going to talk about at the conference before we get there, but I haven’t found out yet. But I’ve never been disappointed by Dominique and she says she’s more excited about what she’ll discuss at Publishers Launch Frankfurt than she has ever been about anything she’s done before. I am confident that we’ll be glad to hear what she has to say and all the other innovators will feel they are in very good company.

As we usually do at Publishers Launch events, Michael Cader and I will be opening the show with stage-setting remarks and doing a quick wrap-up at the end as well as popping up during the day whenever we think we can be helpful.

We got Peter Hildick-Smith, Rick Joyce, and Marcello Vena to do a webinar with us previewing what they’re doing at the event. Check it out! And our friends at the Frankfurt Book Fair did a little session with me talking about the conference as well. Take a look.