B&N

For the book business, VMI in warehouses might happen before VMI in stores


The sales-and-returns convention by which most books are sold by most publishers to their retail and wholesale accounts is too often described as “consignment”. It actually isn’t. Actual consignment terms would give us a quite different supply chain, and we may be closer than most people imagine to shifting to it.

Although major trade accounts do purchase their stock from publishers with the rights to return unsold stock for full (or nearly full) credit, this is quite different from true consignment in a number of ways.

1. The publisher’s customer is on the hook for at least some freight cost for shipping the goods. Most customers would pay the shipping cost to receive the books in the first place and almost all would pay the cost to send them back.

2. For almost all their customers, the publishers are paid faster than the customer recovers their investment (which would be by selling to the end customer for a retailer or by selling to and then collecting from the next holder of the inventory or a final customer for a wholesaler). So the publisher receives cash which is an actual capital investment by their customer. True consignment would not require that investment.

3. Because the retailer or wholesaler is providing the capital investment for the books on the store or warehouse shelf, the customer decides on prices and quantities. The publisher has to “sell” the customer on parting with some of their limited funds for inventory investment. True “consignment” would see the publisher deliver the inventory (pay the freight) to the customer and, if they subsequently wanted it returned, pay the freight to bring it back. The customer would be responsible for receiving the inventory, shelving it, paying for anything sold or lost, and packing it back up when asked to return it. But it wouldn’t be commercially practical for the account to determine titles and quantities if they were at no risk or penalty for taking in excess stock. Overstocking, which ultimately would require the publisher to overprint and eat inventory on every title, would be routine if the accounts decided what to receive on consignment. If there’s no cost, why should they risk being out of stock?

So, if the terms were “true” consignment, where the inventory risk and investment remained with the publisher, it would also require that the publisher decide on the titles and quantities to be consigned.

Since the most important metric to determine the profitability of a wholesaler or retailer is GMROII (gross margin return on on inventory investment), a shift that sharply reduces the investment required from them could — should — produce a much healthier supply chain for publishers. If inventory were zero, GMROII would be infinity. Perhaps the more sophisticated measure for the future would calculate the cost of the space and shelving to hold it as the “inventory investment”, but that would still be providing a tiny denominator for the calculation and a massive positive result if there were any kind of sales volume.

From the publishers’ perspective, consignment would not represent much of a shift in “risk”, or even a dramatic change in cash flow. It would postpone revenue recognition on the balance sheet, but that should only matter if there is public reporting of the numbers. The shfit in the cost of the freight could be covered by a small adjustment to the discount which would, for the massive improvement in GMROII the accounts would gain, be a small price to pay.

This is a topic worth considering because we as an industry could be on the cusp of switching to this kind of commercial arrangement. For publishers today there are three major accounts which drive the business for most of them: Amazon, Barnes & Noble, and Ingram. Amazon has had an “Advantage” program for years that entices smaller publishers to offer consignment terms. Barnes & Noble has, with limited success, been pushing publishers toward consignment inventory in their distribution centers for years. And Ingram already holds a ton of consigned inventory through its largest-in-the-industry distribution business. They are already a very progressive company and would undoubtedly see the benefits of consignment for all their wholesale inventory as well. While, by the definition of consignment I’m positing here they would “give up” the ability to determine titles and quantities, they would also “give up” the need for as large a buying staff to make those decisions!

From the accounts’ (Amazon, B&N, Ingram) perspective, there are two big “risks” in going to consignment and ceding the inventory decisions to publishers. The less expensive one is that they might actually have to physically hold (warehouse, but not invest in) more books to achieve the same sales level. I say “might” because the publisher could conceivably operate with leaner inventory on many of the fastest-moving titles when replenishment inventory can be supplied without the bureaucratic need to get to a buyer and get an order.

The more serious risk would be of not having books that would sell that their own buyers would have put on their shelves. But, of course, any publisher would want to put in the most likely to sell, so as long as the account didn’t totally lose its ability to know what it could sell, that information could find its way to the buying decisions.

This all boils down to the practice of “demand planning”, which could also be called “sales predicting”. The word “planning” conjures up certainty; “predicting” implies guessing. In fact, demand planning is an imprecise exercise based on using the best information available to forecast what books will be needed from the warehouse in the days or weeks to come. (Almost never would it matter to predict further out than the reprint time required, which is a week or two for domestic straight text — books that Amazon and Ingram could certainly replenish with their print-on-demand capabilities — and perhaps as much as a couple of months for illustrated books brought in from overseas.)

The demand planning exercise is, indeed, totally different for the three accounts but, in all cases, what the account knows and the publisher doesn’t is much easier to incorporate into a publisher decision than it would be for the publisher to keep the account’s buyers abreast of all the publisher knows (which is the often-frustrating situation we have now, and have always had).

For Barnes & Noble, the information the publisher has about its own marketing efforts and how the book is doing in general in reviews and in cyber-discussion — or even how it is selling in other locations in the marketplace — is almost always secondary to internal B&N merchandising information. Is the book on model stock, an automated reorder capability where the sale of a copy triggers replenishment? Is the book displayed prominently in the stores, or, at the other extreme, is it in the stores at all? Is the book distributed across all geographies and store sizes? All of these elements have a big impact on the demand B&N distribution centers will see, whatever the other signals say about a title’s inherent appeal and marketing experience.

At Amazon, the internal picture also matters, although the bottleneck or accelerator affects of store placement and display are much less prominent. Amazon varies pricing; that matters. Amazon puts books in front of more or fewer of their shoppers; that matters. Amazon recommends some books to buyers of other books; that matters. Although Amazon does not know what a publisher might about a review or feature article to come, a piece of news that could affect public perception of a book, or about a promotional effort the publisher or author might undertake, there are decisions and actions Amazon takes that will affect sales, all other things being equal.

For Ingram, the publisher knowledge is the most important knowledge of all. And sometimes they have it. Ingram does not vary prices and Ingram does not, as a wholesaler, much attempt to influence which titles any store chooses to buy. Ingram’s job for wholesaling is to have the books stores want to order and deliver them quickly.

However, Ingram is also the trade distributor for hundreds of publishers and, for those, definitely influences (and knows about) store purchases through their 60-person sales force. For their distribution clients, Ingram has the publisher’s knowledge of any book’s marketing and promotion and it knows what is already on store shelves, the second most important piece.

For those books for which Ingram is exclusively a wholesaler, they are dependent on publishers’ reps to try to transfer that knowledge and understanding to Ingram buyers to do the demand planning, which is something considerably less than an efficient method.

There are few, if any, publishers today who are equipped to make the decisions to manage consignment inventory effectively at their accounts’ warehouses. But there are compelling reasons for the industry to shift to doing things that way. Fortunately, doing many of the right things will come naturally to the publishers if the tables get turned. It takes instinct more than genius to keep quantities lean if you’re on the hook for the freight in and out and you don’t need anybody’s permission to ship more copies in when they’re needed.

Guessing how soon Amazon, B&N, and Ingram might push, or even demand, this change in industry practice is beyond my predictive power. But every publisher should see this possibility as an opportunity. I’m pretty sure that anybody who tries to push the door open for this conversation with any of the three will find that it is unlocked. The opportunity is here now to shape the consignment future for those who see its possibilities.

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Digital marketing and coping with Amazon are the two big challenges for publishers as we begin 2017


I am getting ready to attend my first Digital Book World as a “civilian” (having programmed and moderated the first seven), Thinking about DBW entails recognizing how different the book publishing world today is from what I expected three or six years ago. Be that as it may, the big challenges for the industry — how to change marketing to hit customers who are mostly learning what to buy online (which, as you’ll see, is well covered) and how to cope with the steadily growing market share that is Amazon’s — remain the ones I would have anticipated.

Although I do actually know other people who, like me, consume just about all their books on screens, we’re a minority who are not really looked upon by those who have stuck with paper as the avant garde. Whatever market share ebooks achieve by evolution (and the data suggest that share has plateaued in the past couple of years), the expectations of revolution are at least temporarily over. I thought we’d be clearly on a path by now to most people reading most narrative books digitally. We aren’t, even though the one precondition I thought was necessary has been met: most people carry screens all the time that would work fine for ebooks. This clearly demonstrates that there is a limit to how much the appeal of convenience changes reader habits when the comfort level with a form is a competing consideration.

But a flattening ebook share has not prevented the market from consolidating in the way I thought was worth worrying about when I mistakenly saw a more accelerated ebook future. By anecdotal information gleaned from publishers, Amazon appears to be booking half or more of the print sales for many publishers and many books.

(I told this fact to a former CEO who has been out of the business for 20 years last week. He said, “you mean, if I sell 40,000 books, Amazon will sell 20,000?” I said, “yes”. He said, “wow.”)

One informed estimate I heard is that Amazon constitutes upwards of 95 percent of online print sales. Kindle has outrun its ebook competition, gaining share consistently from Apple’s iBooks, B&N’s Nook, and Kobo and Google. Amazon probably has an ebook share in the mid-60s for most publishers. However, with the ebooks they control and keep off other platforms — Amazon Publishing and many of their top indie authors — and with additional impetus compared to the other vendors from their subscription business, their overall ebook market share is perhaps 10 or more points higher than that.

That anecdata is supported by a December 29 Wall Street Journal story that says that only a diminishing minority of Americans does not shop at Amazon!

(There is one big caveat about any observations about Amazon “share”. Like Ingram, Amazon is a domestic U.S. account that sells what it buys here all over the world. Probably the third biggest topic-of-interest for publishers is how to take advantage of the increased export opportunities promulgated by topics one and two. But one must take note of the fact that some of the dollars that flow through Amazon should not really be considered part of the U.S. market share. That varies by publisher, by book, by time of the year. It is also not transparent to any vendor or statistical analyst.)

When I went fulltime into the business in the 1970s, publishers were concerned because Walden and Dalton combined threatened to become 20 percent of the business between them.

But even percentages as large as what Amazon owns and what share ebooks get are worthy of closer and more granular examination. It is always worth remembering that the 6-foot tall man drowns walking across a river that is an average of 3-feet deep. Using aggregated averages is an engraved invitation to mistaken analysis.

So my expectation this year is that the most important information DBW is going to have to deliver will come from Data Guy, Hugh Howey’s collaborator on the Author Earnings website, whom Michael Cader and I introduced to the DBW audience last year. (We put Hugh Howey on the DBW stage when “Wool” became an Amazon bestseller many years ago.)

Data Guy has broadened his remit, which was originally about understanding ebook sales, by joining forces with Nielsen Bookscan. That enables him to analyze print, audio, and digital sales through online and physical store channels, and to look at the books both by source (indies, Amazon-published, and “traditional”) and by genre. DBW has published a mini White Paper, available now, that tips to a lot of this information. It is particularly readable and informative with an introduction by Porter Anderson.

But the big payoff — the examination of data broken down in 44 discrete categories and genres — will be delivered at the show. That should provide a great deal of value and insight for all of us.

I am hoping that there will be price breakdowns as well. I have noticed that the last four or five ebooks I’ve bought have been pretty pricey — well above $9.99. These books are all non-fiction and they are relatively serious and nichey, not aimed at mass audiences. I’m pretty certain that both the publisher and the author are making more profit on those sales than they would on a print sale of that book. The information already revealed by Data Guy through the White Paper would support conjecture that the biggest ebook sales are going to much cheaper ebooks published in high-volume-per-reader genres (like romance, mystery, and sci-fi).

We have had a bifurcated publishing business before. In the 20 years right after World War II, mass-market paperbacks did “originals” that were sold primarily through magazine outlets and not much in bookstores. (One cultural note: at that time, one of the key genres was “westerns”.) Authors could “migrate” to a hardcover life, but there were many who didn’t. It took years for the established houses to buy up the mass-market houses. That — plus changes in the economic structure of mass-market (caused by an allocation system for placement that resulted in ever-increasing returns of the covers of unsold books) that made the books go up in price — over time blurred the line between the two separate production-and-distribution systems.

If the same thing is happening today, it won’t lead to the same result. There are no returns from ebooks.

There are a number of other items on the DBW program that pique my interest besides Data Guy. My Optiqly partner, Peter McCarthy, is on a panel about “what sells books now” that is increasingly important to keep reconsidering as the market shifts and consolidates. And as the reviewing of books and conversation about them moves from the book review pages of newspapers to an increasingly diverse collection of blogs and influencers. Susan Ruszala, who recently ran NetGalley, is talking about “influencer marketing”, which is largely replacing the relatively static list of reviewers that NetGalley was originally created to address.

“The Changing Role of the Agents” is definitely one of the continuing evolutions we all need to keep track of. My sense is that agents three or four years ago were really frightened that indies would keep surging and their role would be highly challenged. I’ll want to hear what this panel, which includes Ginger Clark and Brian Defiore, has to say, but my sense is that that the once palpable-fear has really dissipated. Whatever Data Guy says about the direction of the market, and the data already revealed says he sees the share of author revenue going to indies going down for the first time, that fear no longer seems to be present. What I want to get a better grip on is how agents view the author-publisher division of responsibility for marketing and, if they’ll tell us, which publishers “get it” on that front and which don’t.

There is also a panel about “taking control of the channel” which promises conversation about vendor-managed inventory, a subject that has gotten too little attention from the industry forever and should become more important in a time when we’re going to want to sell books in non-book retailers that can’t afford the buying expertise books require. That was a challenge we never addressed when I was programming. I am glad it is on this year’s agenda and I look forward to getting a picture of how it is viewed today.

And Peter Hildick-Smith of Codex, who was on our programs frequently over the years, has two sessions that will make my list. One is on “converting book browsers to book buyers”, which is the holy grail. The other one is on pricing strategies on a panel that includes Dan Lubart of Iobyte, another longtime friend who has been mining online data for many years (while he also served as an executive at two Big Five houses). I suspect I’ll get some confirmation that the higher pricing I’ve observed for niche non-fiction is part of a widely shared strategy at the moment.

DBW keynoter and Macmillan CEO John Sargent fingered “maintaining ebook prices” as a key challenge for the industry in a session I saw him do at an agents’ gathering at least six years ago. He was right. How pricing strategies have evolved is something we all need to understand.

The one big missing piece for me in DBW 2017 is Amazon. I know from my own experience that they only come and talk when they’ve got a message they want to deliver to your audience, which makes them no different from any other big company.

The big “get” for DBW 2017 is Sargent. Perhaps he intends to use the time to highlight an announcement or initiative. Not that that’s necessary! Sargent has a refreshing and original take on things, whatever he’s discussing. And DBW has added a nice wrinkle by soliciting audience suggestions for the questions Sargent will answer after his talk. *That nicely finesses a challenge I recognized when I was running the show. It is cumbersome to take questions in the plenary sessions: too many people, too big a room, and too much of an invitation to host an unwanted speech. This way, they get audience participation without those problems. Nice innovation.

(*Turns out I got this wrong when I first posted. The answers to the 7 questions ARE the keynote! So I guess if Sargent has any topics he really wants to cover, they could make sure they get a question for them.)

The Data Guy analysis will certainly produce some Amazon-centric insight. But considering their mushrooming importance to everybody in the book world, that’s a subject about which we can’t get enough information. At least there will be ample opportunity to talk about Amazon and how different publishers are looking at them with the other attendees. I suspect there will be a lot of such conversation. At least I’ll be having some!

One big innovation at DBW 2017 is that they’ve added a third day which is an IndieAuthor conference. They’ve lined up some great speakers including Pete McCarthy. One of real interest will be Jon Fine, whose career in publishing encompasses both Knopf and a long stint at Amazon. The agenda for that one is, as it should be, aimed more at the indie author I’m not than the publishing-establishment-analyst I am, but it will be very interesting to see how successfully they can pull an indie author audience to midtown Manhattan. 

And, in conclusion, a hat tip to Ted Hill who took over the reins at DBW this year. The author day and the questions for Sargent are two of a number of innovations he’s introduced. I first met Ted in 1993 when I was programming my first conference — Electronic Publishing & Rights — in partnership with Publishers Weekly. Ted was selling “electronic rights” for Simon & Schuster and making a LOT of money for the company from sources they never knew existed before. Over the years, he’s seen publishing’s digital change from a number of angles, some on assignments we’ve worked on together. He put together a good team of vertical captains to help him. I’m looking forward to an enlightening couple of days.

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What the Riggio interview in the New Yorker tells us


The New Yorker did a very provocative story dated October 21  about Barnes & Noble that included a great deal of information gained from a phone interview by writer David Sax with B&N significant shareholder and chairman Leonard Riggio. B&N is a subject of obsessive interest to book publishers and their friends, family, and ecosystem. About two months ago, I wrote a post trying to pinpoint the source of their biggest challenges (lots of titles in a bookstore isn’t the magnet for customers that it once was) and suggesting a way to attack it (put bookstores in places the customers already were, which are retailers of other things, not books).

Because I lived through a story I told in that piece, it hit me between the eyes when Riggio was quoted in the New Yorker saying he favored doing smaller stores in 2000! It was 2002 or 2003 when I saw clearly, from B&N data, that the big store magnet was already an outdated relic. I then suggested to a fairly highly placed executive there, “you guys have to use your fabulous supply chain to make the 25,000-title store work”. The response was that such an idea couldn’t even really be broached internally. “Mike,” my contact said, “we’re thinking about the MILLION title store!”

So if Riggio was thinking what he remembers thinking back at that time, the word never got to some of his most trusted executives.

The second thing that jumped out at me from the New Yorker piece was Riggio’s analysis of why people shop where they do. It’s very simple in his view. If you have a bookstore close to you, you buy your books there. If you don’t, you go to Amazon. Oh, the many things that analysis oversimplifies and elides!

The first is that it totally lets BN.com off the hook for 20 years of uninterrupted failure to deliver an acceptable online shopping solution. Since the late 1990s, when Amazon started discounting heavily to discourage indies from delivering a competitive online solution, “the problem” has been that Amazon was willing to discount their books aggressively and B&N, trying to “protect” their store business, was not. But while that may have given Amazon an early edge, it doesn’t explain why B&N has lagged Amazon in every functional way from the beginning. Their search isn’t as good. Their checkout isn’t as good. Their metadata is inferior by miles.

The woman of principle I’m married to would, for years, search and shop for her books on Amazon (where she could find what she wanted) and then go to BN.com to order them (so she kept her dollars in the book business). For the same reason she bought Nook instead of Kindle. That lasted for some years. She’s now a Prime customer. Staying loyal to B&N was just too hard; the stuff didn’t work.

As it happens, people who worked at B&N Publishing and Sterling, the formerly independent publisher B&N bought, did the same thing. I’ve been told by several people that they routinely used Amazon to gather the data they needed to support internal discussions about a book or a category. The internal alarm bells should have been deafening!

Riggio’s view of how customers choose their vendor ignores another important nuance. Those decisions depend both on the customer and what they’re shopping for. The key realization I had from B&N data in 2002-3 that led me to suggest smaller stores was that professors were clearly not buying their academic and professional books at B&N anymore. It wasn’t hard to figure out why.

Professors are smart people. They were well aware from years of experience that their local bookstores (B&N or any other) almost never had the most recent academic or professional book they heard about. When the Amazon alternative became available it was a clearly superior choice if your expectation was that you would just go to the store to special order and then have to go back to pick it up! Before there was an Amazon, the store with the most titles was the logical place to go look for something obscure. After Amazon was established, they gradually — quite logically — became the default for that use case.

What the professors had figured out by 2002, the whole world knows today. The savvy consumer will likely order any title s/he thinks is at all obscure from Amazon rather than expecting to find it in a local store.

Another nuance that segments how book purchasers make those decisions, besides obscurity, is the nature of what they’re shopping for. If you want to buy “The Girl on the Train”, you don’t need to see it or touch it. If you want to buy an art book for your best friend’s birthday, you might well want to look carefully at a few before you decide. Even with access to “Look Inside” capability (which is far more built out at Amazon than at BN) online, seeing the physical book in a store would be preferred for logical reasons by many people.

Then there’s the weight of the book which you might not want to carry around or the possibility that you want it just shipped directly to somebody else. Where you live in relation to a bookstore isn’t going to make much difference in those cases.

In fact, an industry veteran who started in book clubs reminds me that we knew all this decades ago. Outsiders thought mail order book clubs were for people who couldn’t easily get to bookstores. But, in fact, the people running book clubs knew that the zip codes where they had the most customers also had lots of bookstores in them.

I have one more conjecture from reading the New Yorker piece, which is that, as smart as Riggio is and as obsessed as he certainly was with the way his business ran, it is possible he doesn’t fully understand why B&N was so successful. You have to do a lot of things well to run a big bookstore chain.

It could have been because of the intelligence and care they put into selecting locations for the stores. It could have been their internal store design and layout. It could have been the the authority they gave their managers to customize their stock. (Despite the notion, true and emphasized in the the New Yorker piece, that the stores are necessarily standardized in many respects, it has always been B&N’s ethic that the store manager should buy what is needed locally that the New York buyers might miss.) It could have been the skill of the buyers in picking the books.

But I always thought the key to B&N, differentiating them from Borders and other chains and heavily advantaging them over independents, was their supply chain logistics. They built warehouses and systems that enabled them to replace many of the books they sold today by tomorrow or the day after. Stock turn is the most important metric contributing to bookstore profitability, far more impactful than discount (how much margin they get from the publishers). B&N’s supply chain was what gave them the edge.

After reading his quotes in this piece, it occurred to me that Len Riggio might not know that. He certainly said nothing to David Sax to indicate that he realized that was a critical lever for his company and exploring how he might use it. That was, of course, the foundation of my suggestion in the last B&N post I did suggesting they place B&N Book Departments in as many stores as they can.

And if Riggio does come around to that point of view, he might also revisit his concluding thought that, whatever happens, it will “play out over a long period of time”. The B&N supply chain capability, which has given it enormous leverage for decades, will also deleverage very quickly as volume and the number of stores being served goes down. It is the sales in the stores and on dotcom that pay for that supply chain. And even just reducing its size will be an expensive undertaking. That’s something for all of us to worry about.

A publishing veteran friend who recently pocketed beaucoup bucks from an “exit” speculated to me recently that Barnes & Noble would be a great company for somebody with fresh eyes and a fresh approach to do something with. He’d love to be part of a new owning group. That thought may be right, but the stock looks pretty expensive right now. I’m personally skeptical that the new “concept stores” with better food is a winning idea. Do you know anybody who picks their bookstore by the menu?

While this piece was being worked on, Barnes & Noble announced that they were closing their only store in New York’s borough of the Bronx.

And for those who can’t get enough on this subject, here are posts I wrote as long ago as 2009 (some of the linked speeches are much older than that!) and as recently as a year ago making the point that smaller bookstores were the future.

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Full text examination by computer is very unlikely to predict bestsellers


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

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

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

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

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

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

Our verdict on this: absolutely impossible.

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

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

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

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

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

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The sea change that comes with the latest iteration of the book ecosystem


In the past 10 years (since the mid-2000s), the ebook has arrived and the amount of shelf space for books in physical retail has declined, as book purchasing has continued to move to the Internet. This has put pressure on publishers’ distribution costs, as we discussed in a prior post.

In the 10 years before that (mid-1990s to mid-2000s), online bookselling began at what was, we now know, the very peak of book retailing, when the superstore chains B&N and Borders had built out hundreds of 100,000+-title stores and still owned mall chains Dalton and Walden that had many hundreds of smaller stores. And that was on top of the largest-ever network — many thousands — of independent bookstores, many of which were themselves superstores.

In the 10 years before that (mid-1980s to mid-1990s), Wall Street cash enabled the two big bookstore chains to build out their superstore networks, stocking publishers’ backlists deeply. With so many enormous stores opening, publishers received a bonanza of store-opening orders that went deep into their lists and were relatively lightly returned (until the store-opening process reversed itself 20 years later).

In the 10 years before that (mid-1970s to mid-1980s), the two mall chains (Dalton and Walden) rode the growth of shopping centers to a position of great importance in selling books to the public. They became the drivers of the bestseller lists. In the same decade. Ingram and Baker & Taylor built reliable national wholesaling networks, enabling the chains and a growing number of independents to replenish stock of unsold books quickly, increasing stock turn and profitability for booksellers (and lowering returns to everybody’s benefit).

In the 10 years before that (mid-1960s to mid-1970s), the department stores started to yield their strong position in book sales, victims both of their own structured discipline (open-to-buy rules) about inventory control that reduced their title selection and of the growth of the malls. The malls inadvertently doomed the department store concept (even though department stores were the “anchors” that made malls possible) by enabling specialty retailers of all kinds, including bookstores, to provide a better shopping experience than the department that sold those goods in the department store.

In the 10 years before that (mid-1950s to mid-1960s), an increasingly affluent society saw an ever-expanding number of bookstores while, in that era, mass-market paperbacks became ubiquitous in drug stores and newsstands, vastly increasing the number of places where Americans could find and buy books.

And the 10 years before that, which takes us back to the end of World War II, saw the birth of mass-market paperbacks and the development of modern publishing sales forces in trade houses. This was, in retrospect, the beginning of a half-century of uninterrupted growth for American book publishing. It has not necessarily now come to an end, but the growth of the segment controlled by big publishers may have ended.

What happens now? The online book market is likely more than half of the total book market. That is, books purchased online — print and digital — exceed the number sold in retail stores (obviously all print). Amazon is the single most powerful retailer, and they have also made themselves the first stop for any self-publishing or small-publishing entity that wants to reach readers. Ingram and the bigger publishers offer full-line distribution services to the most ambitious of those and to everybody else who wants to reach the whole book market.

Until the last 10 years, all the developments that affected book publishing tended to grow the availability of books relative to the availability of other media. When mall stores or superstores grew, there was no associated lift for television shows or movies (although recorded music also benefited from the malls). That is no longer the case. For the first time, really, books are competing with everything else you might read or watch or listen to in a way they never did before. Online doesn’t care what is in the file it displays. This is a qualitative difference in the nature of book availability growth compared to everything else that has happened in the lifetimes of anybody in the business.

The fact is that books used to live in a moated ecosystem, independent of what was going on in other media and book readers’ communication streams. Since ubiquitous broadband, that is no longer true. This presents publishers with two challenges they never faced before.

One is to take advantage of the opportunity to promote books to readers by tying them in to other media and events in ways that were never before possible. This is digital marketing promoting discovery. In fact, a greater percentage of the potential audience for any book should know about it within a few months of its publication than ever before, if publishers do their jobs right.

But the other is that publishers need to be alert to changes in book reading habits that are bound to occur because of integrated media. Yes, the publisher can promote the book to somebody watching a related video or reading an email on a related subject. But it is also true that promotion for movies and emails from friends can interrupt a reader in the middle of a chapter if they’re reading online. This is probably changing the way people read books and might even change how they want their books edited and shaped. Publishers who pay attention will see those changes as they occur.

We can interrupt people doing something else now to tell them about a book. But they now, in turn, can easily be interrupted while they’re reading the book. Digital change and media integration cut both ways. It is very early days for this reality. It only really occurs because of the combination of broadband and reading on an Internet-enabled device. That’s a relatively recent and still-growing circumstance. We don’t know where it will lead.

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It is being proven that smaller bookstores can work commercially


Sometimes it takes a decade or more for an insight to be validated, but it is always nice when it happens.

Around the turn of the century, I was developing a business called “Supply Chain Tracker”, which had a nice client base for a few years. What we did was take the data feeds — Excel spreadsheets — provided by publishers’ major accounts and find the nuggets of insight within them that enabled better inventory decisions.

This followed the logic of one of Shatzkin’s Laws, which in this case is “every spreadsheet is one calculation short of useful”. We added some calculations to make meaningful metrics out of raw data. For B&N’s spreadsheets reporting inventory and sales activity to publishers, two of these were calculating the “percentage of store inventory sold” from the “on hand” and “sales this week” columns and “the percentage of total stock in the warehouse” derived from “on-hand in the stores” and “on-hand in the warehouse”.

My first client for this work was Sterling in the final year that they were independently owned before they were bought by B&N, which still owns them. When we showed our first prototype of a Supply Chain Tracker report to Sterling, we sorted by “the percentage of total stock in the warehouse” and two books popped to the top: 5000 copies with 100 percent in the warehouse! When Sterling’s then-Sales VP (later CEO) Charles Nurnberg saw that he said, “those books have been there since October!” This analysis was taking place the following February.

It turns out that B&N at the time had no systematic check of this metric in their workflow. If a B&N buyer bought five thousand copies and didn’t order a “store distribution”, the books would go into the warehouse and just sit there. It was a hole in their system. And since publishers tended to eyeball the spreadsheets in order of “sales”, looking for books that needed to be replenished, they just never caught this.

When Sterling showed the problem to the responsible execs at B&N, it bolstered the view of one of them that having the publishers intelligently reviewing inventory was useful support for the chain’s buying activity. They became supporters of our Supply Chain Tracker reporting (which we then extended to other accounts: Borders, Books-A-Million, Amazon, Ingram, and Baker & Taylor). But Barnes & Noble was everybody’s biggest account at the time and they offered the most robust reporting, so they were the primary focus of our work.

Let’s recall that the early years of this century were still the years of superstore expansion. B&N and Borders were proudly featuring stores that had 120,000 titles or more. It was precisely because they stocked so many titles and that the great majority of them turned very slowly that they wanted the additional publisher help in inventory tracking, particularly further down the sales ranks. And no publishers seemed more logical candidates for that help than university presses. B&N wanted to stock them more heavily, but their books were predominantly in the slow-turning majority. Distinguishing the books that would sell a copy or two in a store versus the ones that wouldn’t demanded the deep title knowledge of the publisher combined with the insight of well-structured reporting. Our work seemed to fit, so B&N subsidized our relatively expensive engagements providing our reports and tutorials on how to use them to university presses.

What we found as we started analyzing, though, was disappointing and initially surprising to all of us. But, as we thought about it, it was intuitively logical.

The university press titles had effectively stopped selling, even in B&N stores that were near university campuses. Why? Those sales had all moved to Amazon, which, at the time, was barely more than five years old. This first struck us all as disappointing and surprising. But, then, think about it…

The university professor would hear about a book. S/he’d go down to the local bookshop — could be a B&N or another store, didn’t matter — and look for the book. It would almost always not be there. So s/he’d “special order” it and wait for it. It didn’t take long for this to become an expectation, so ordering online became a very sensible default behavior. By 2002 and 2003, when we were doing this work, the battle to sell the obscure book to an audience that knew it was there and wanted it through a brick-and-mortar store was already lost. When you thought about this, it was intuitive, even though none of us anticipated it when we started doing the work.

Cambridge University Press at the time had a sales representative (since deceased) named Steve Clark. He was one of my most engaged B&N-subsidized clients. As we were doing this work and analysis, Clark told me that Amazon was already a bigger account for CUP than all other US retail outlets combined! That was a “wow”. But it underscored the degree to which Amazon had captured market share from the stores on hard-to-find books.

B&N still operated smaller stores that had been in the B. Dalton chain and Borders had a similar chain called Waldenbooks. While B&N and Borders were building out the 100,000-plus title stores, their mostly-mall chains were 20,000 and 30,000 title stores. They were in the process of shutting them down as leases expired.

With full knowledge of the strategy that governed their activity in those days, I said to my principal contact at B&N, “you guys should be figuring out how to use your infrastructure to make the twenty-thousand title store work”. He said to me, “Mike, we’re thinking about the million title store!” In other words, there was no appetite to take on board what we had all just learned to make a big change to the overall strategy. They had fully absorbed and couldn’t rapidly unlearn the lesson first discovered by my father, Leonard Shatzkin, when he was running Brentano’s in the 1960s: a big selection of books is a huge magnet for customers.

Unfortunately, Amazon had already changed that reality in a few short years after their inception. The huge selection was not as powerful a magnet as the online marketplace when the customer knew exactly what they wanted, particularly if it wasn’t a bestseller.

Now, flash forward to the present day. I’ve been fishing for lessons from retailers around the world that might constitute useful insight for the Digital Book World audience. My friend Lorraine Shanley of Market Partners suggested I talk to Anna Borne Minberger, the CEO of the Pocket Shop chain of stores, owned by the Swedish publisher, Bonniers. I got to meet Minberger for a conversation at the Frankfurt Book Fair in the last fortnight.

And, lo and behold, Pocket Shop has taken the suggestion I made to Barnes & Noble well over a decade ago and made it work at an extreme I didn’t imagine. Their tiny bookstores stock only about TWO thousand titles, but they are a thriving chain in Sweden and Finland now expanding into Germany. Their formula is a very small title selection placed in very-high-traffic locations (of particular interest here in New York City where both our main railroad stations are losing somewhat larger bookstores) with highly knowledgeable and helpful staff. I didn’t get into the details of buying, inventory management, and centralized infrastructure support in our Frankfurt conversation.

But, near as I can tell, Barnes & Noble still needs a solution to grow their book business; the strategy today only seems to be about how to profitably manage shrinking it. Particularly if it continues to work in Germany, a market (unlike Sweden and Finland) where online buying is strong and Amazon is a real presence in the market, one would think that the Pocket Shop formula would be even more effective if supported by the B&N infrastructure and branding in the United States. Of course, making a strategic shift of this nature is probably a heavier lift for B&N now than it would have been when I first suggested it many years ago.

But I don’t discern any other strategy that leads to growth in what B&N is doing now. If they don’t try copying Pocket Shops strategy in the US, maybe somebody else will. One could execute on this leaning on Ingram’s infrastructure rather than creating one’s own supply chain. Who knows? Maybe even Pocket Shops themselves would like to give it a try.

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Barnes and Noble results and the latest news from Perseus


The most recent Barnes & Noble financial results — which appear to have discouraged Wall Street investors — aren’t good news for the book business. They show that the sale of books through their stores is flat at best, as is the shelf space assigned to books. And it would take a particularly optimistic view of their NOOK results to see anything but an accelerating slide to oblivion for what was, for a time a few years ago, the surging challenger to Kindle.

It is safe to say that every book publisher wants a healthy Barnes & Noble. I asked the CEO of one large publisher recently whether the touted recent growth of independent bookstores was making up for the loss a few years ago of Borders. The response was “not even close”. Less dramatic than all the Borders stores going out at one time is that B&N must logically be reducing its shelf space for books, since some stores — though not many — are closing and the presence of toys and games is growing in those that remain.

In some ways, changes in the merchandise mix makes sense. Borders and B&N were, for quite some time, in a competition to provide the greatest possible in-store selection. With Borders out and most indies a fraction of the size of superstores, B&N can have the biggest selection available to most consumers with fewer titles in stock than they had before. (They do not publish any data that shows makes it explicit that there is a reduced title selection. One can only intuit that from the fact that other products have a growing presence and that some publishers report anecdotally that midlist is harder to place in the stores.) In any case, since the slowest-selling books are really barely selling at all, it would make sense that replacing them with other products could add to the store’s margins.

If B&N is successfully weeding only the slowest selling books, they should be removing titles that are turning so slowly that, after the initial hit of taking the returns, the publishers’ revenue line shouldn’t be too seriously affected.

But the overall store experience is definitely diminished. When big store selections were being built up in the 1990s, it was widely believed — or understood — that the books that didn’t sell brought people into the store to buy the books that did sell. And some book categories have so few strong sellers that eliminating the slower-turn books means you don’t have much of a section at all.

And all this ultimately drives sales online and that usually means to Amazon. (I did a calculation several years ago that suggested that Amazon had picked up several times the amount of once-was-Borders business that B&N did. It was Bowker data that I based it on.) It could well be the case that Barnes & Noble has held close to the same market share over the past few years, but they were the logical inheritors of the Borders brick-and-mortar business, and that is not what happened.

The real failure we see at B&N, which almost certainly affected the NOOK business as well as the stores, was that the customer knowledge within the dot com and NOOK operations apparently has never been used on behalf of the store business. This might be blamed on organizational silos that ran these three components as separate businesses. The failure is otherwise hard to explain. How hard can it be, really, to dig up email addresses of people who bought a book by a particular author to let them know s/he’ll be autographing books near where they live sometime soon?

Or, putting that in terms Barnes & Noble should relate to, might you not be able to charge the publishers a promotional fee for doing that? (AND you’d drive more traffic and sell more books!)

We had a recent conversation with Sergio Herz of the Livraria Cultura chain in Brazil. They are much smaller than B&N, 17 stores rather than many hundreds. But they started a dot com business in the mid-1990s, about the time Amazon did and before BN.com (which started as a joint venture between B&N and Bertelsmann called Books Online, or BOL). Their dot com is by far their largest single store, doing 28 percent of the chain’s total sales. (We don’t see how to discern from B&N’s public numbers how they compare with Cultura in that regard, but we’ll admit to being something less than the best analyst of financial reporting.)

One thing that distinguishes Cultura is the success of their in-store events, which are frequent (thousands per year) and take place in theater-like spaces within their stores. When I asked Herz whether Cultura drove dot com customers to store events he told me they do, and have done so “from the beginning”. Cultura’s management sees the integration of their stores and their dot com presence as an important competitive tool, becoming increasingly important as Amazon makes inroads into the Brazilian market.

That should be B&N’s secret sauce as well: delivering an integrated branded experience, with customer loyalty payoffs that encourage book readers to stick with B&N for both in-store and online purchasing of print and their branded ebooks, applying whichever would work best for them for each book they purchase. And while they do not appear to use their email lists on behalf of store events, B&N does enable online purchase for in-store pickup. The offer to do that appears on book product pages; it isn’t particularly featured. You can also buy in a store for dispatched delivery as if bought online. But there is almost no promotion of that capability either. I would guess that if you asked loyal B&N customers, many wouldn’t even be aware those choices exist. And if you are not a B&N customer, you certainly would have no idea. Promotion of those capabilities to former Borders customers (which would have been a highly targetable group when the Borders demise was still fresh) might have enabled B&N to do better at picking up their business instead of having the lion’s share of them apparently go to Amazon.

The people who own and run B&N are plenty smart. Before the game changed and was complicated by the online option, they had organized their supply chain to give them real competitive advantage over Borders and all other book retailers. But they were tripped up by a combination of Amazon’s longer-term view as an upstart in the 1990s and early 2000s when B&N was an established and profitable company. This was a classic “innovator’s dilemma”, failing to employ a new technology to maximum advantage because a legacy position was being defended.

Amazon was willing to lose money for many years to build its customer base. That was how they could build their stock price. B&N was a profitable company at the top of their category. Profits were how they grew their stock price. This not only discouraged deep investment in the early years of online bookselling, it discouraged the kind of discounting from their online store that Amazon did. Both of them knew that discounted books online put competitive pressure on the brick-and-mortar business. That was fine with Amazon. It was not appealing to Barnes & Noble.

In fact, long before NOOK, Barnes & Noble tried to be in the ebook business. At the turn of the present century, they had such ambition in the ebook space that they built a capability that was later spun out to be a company called Publishing Dimensions (now owned by Jouve) to help publishers with the digital conversion from print books to ebooks. But in the early part of the last decade, the ebook business wasn’t ready yet. There were three formats: PDFs (we all know about them), Microsoft Reader, and Palm Digital. Most ebooks were read on Palm, but Palm’s strategy was to sell the content themselves rather than let retailers do it.

Mobi was invented as a solution to the formats problem, to be one that could serve both MS Reader and Palm. By the time Mobi was created, B&N had expended a lot of cash and effort on an ebook market that didn’t materialize. They never took the next step of using Mobi. Amazon, bought Mobi in 2005 and effectively buried it for a while, only to bring it a couple of years later as the format that ran on the Kindle.

The ebook decisions B&N made were not crazy. Launching the Kindle business was a big roll of the dice for Amazon in 2007 when there had been no empirical evidence that there would really be an ebook market. Once again, as with the deep discounting of print books for online sales in the 1990s, the heavy investment in building a customer base made more sense for a multi-product retailer whose stock price responded to customer base growth, regardless of revenue or profitability, than for a more conventional legacy retailer.

When B&N decided to go after the ebook market with the NOOK, organizationally they did it with a dedicated and largely independent effort, not an integrated one. That might have been necessary. But it also might have been B&N’s last chance to build on its one distinctive advantage: having a strong store base and a real dot com business. (Borders never had the latter and Amazon, of course, doesn’t have the former.)

Doing the integration among the three strands of their business — stores, dot com, and ebooks — should still be Barnes & Noble’s top priority. That’s their biggest lever. There potentially are others. Moving from a sale-and-return purchasing paradigm to consignment terms with publishers, which would also almost certainly require allowing vendor-managed inventory, would also really help their financials by removing a large capital requirement. But it would also require rewriting the rule book on buying and substantial changes to their systems. There is also a potential opportunity getting indie authors to pay the cost of putting printed-on-demand copies on the store shelves on consignment as well, with potential profit in the printing and sales as well as new positioning with the growing base of indie authors and their readers. The recent attention Walmart got for stocking one indie title tips to the potential PR and merchandising advantage of that tactic.

But the time B&N has to change the reality that they can’t seem to grow their market share continues to shorten. The one big advantage they are likely to retain over their competitors in Seattle — who are certainly growing theirs! — will be a cooperative attitude from the publishers, who live in fear of Amazon’s growing power. But even that advantage has its limits.

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The news comes this week that Perseus has engaged bankers to help them sell their company. This follows the collapse about a year ago of the sale of Perseus to Hachette with the simultaneous handoff of Perseus’s distribution business — many times the size of its publishing operation — to Ingram.

There has never been any official or public explanation of what caused the Hachette deal to be called off a year ago. But the tricky part of selling this company is definitely that the distribution component will likely need a different home than the publishing assets. It will take a Big Five or other very large publisher to be able to absorb the publishing assets of Perseus. Those companies do distribution deals, but they seem to prefer much larger publishers for that service than many of the hundreds of Perseus distribution clients are.

Ingram was the logical home for the distribution business because it has the ability to scale, has been developing the automation of its distribution service offering through Ingram Spark, and it already handles smaller clients routinely. If Perseus’s estimated $300 million in distribution business yields about $40 million in revenue (as we’ve seen in one estimate), that’s a pretty small business for one of the Big Five to take on as a separate operation. But the many small publishers wouldn’t necessarily combine very well with the current distribution activities of the big houses.

So whichever big publisher might want the Perseus publishing operations (primarily Basic Books, Running Press, Da Capo, and the travel publisher Avalon) might well need an Ingram in the deal the same way Hachette did. It will almost certainly take a combination of two companies to swallow this particular elephant. Presumably the publishing components lean on some acquirer’s overhead, but the distribution piece would probably take a bit of a margin hit as a stand-alone.

There are, presumably, some companies who might want to break into the publishing business with a fully operational scaled entity like Perseus distribution. So maybe a new entrant will be enabled by this opportunity.

Of course, Ingram was interested the first time because they want to add clients to their existing distribution operation. Presumably, they still do. Perhaps they get back in this game again as somebody’s partner, like they did last time. But in the short run, it wouldn’t take a rocket scientist to tell Ingram that Perseus clients, knowing the company is on the block, might be receptive to switching and at least some of the growth Ingram sought might be attainable through salesmanship rather than through acquisition.

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More thinking about how author and publisher marketing collaboration should change


Because of our Logical Marketing work and our interest in author websites (admittedly just a corner of the author-marketing world, even if we think it is a cornerstone), I did a couple of recent posts, the basic thrust of which was that publishers needed to rethink marketing and the author interaction around it.

Now, British author Harry Bingham and American consultant and indie-publishing expert Jane Friedman have published the results of a survey they did asking authors what they think of their publishers. What Bingham and Friedman found suggests strongly that the topic of the author-publisher relationship around marketing will be the subject of attention from a lot more people in the months and years to come.

Bingham and Friedman corralled a really significant sample in response to their survey: over 800 authors, of whom nearly half had published six or more books, more than half said their last book was published by a Big Five or other large trade publisher, and more than 60 percent of whom had an agent. Fewer than 10 percent said their most recent book was self-published, so it is likely that the survey captures the views of the published author more reliably than the views of the self-published author.

But, in fact, these published authors are not strangers to self-publishing. Although about a third of the respondents said they had never considered self-publishing, well over 40 percent have done it and nearly a quarter say they’ve “seriously considered it”.

On the other hand, later in the survey 36 percent of the respondents were “horrified” at the idea of controlling every aspect of the publishing process while only 24 percent were “excited” by that idea.

The point to the exercise was to find out how authors felt about their publishers. There’s a lot of encouraging news in here for publishers around that. The authors are generally pleased with their editing, their cover designs, and the consultation with them around flap copy. But they’re much less satisfied with the interaction around marketing. Significantly more felt their books “weren’t really marketed at all” (28 percent) than felt that the publisher made “full use of” their “skills, passion, contacts, and digital presence” (17 percent).

Although half of the respondents were satisfied with the communication they got from publishers, only 20 percent thought they got the “systematic guidance” they needed so they could “add most value” to the overall effort. It is precisely that challenge that my prior posts, in perhaps an unneccesarily roundabout way, sought to address.

But what Bingham cites as most startling to him among the results was the publishers’ almost total lack of expressed desire for author feedback. About three-quarters of the authors say they weren’t asked for feedback at all from publishers and only 16 percent of the authors said feedback was solicited and they were able to communicate freely.

To me, the most telling questions were those that probed whether the author would leave their publisher or their agent if they had the chance. For the publishers: more would leave than would stay if they got an equivalent offer elsewhere. For the agents: by more than 6-to-1 authors who now have agents would stay with their representative even if they could get another. That’s powerful.

At the end of last week, we conducted a survey of our own among agents and editors, trying to discern whether self-publishing is a useful tool to get a deal. Much to my surprise, the consensus is that it is not useful. We got far more answers from agents than we did from editors, but the clear prevailing opinion is that publishers don’t know how to interpret independent publishing efforts and, most of the time, trying it does an author’s chances of selling that book to a publisher much more harm than good. Most agents responding said they really don’t want to try to peddle a book that has already been self-published unless it has achieved pretty extraordinary success.

(What’s “extraordinary”? One UK agent suggested that it would take at least 50,000 sales to get the attention of a British publisher. An American agent said in that market the number is about 100,000.)

Agents are less negative about whether self-publishing might be helpful selling a next or different book to a publisher, but, even there, they are far less than enthusiastic about the help it provides. One agent said that publishers care about the quality of the writing and very little about the author platform. (To me, this reflects the same lack of grasp of the importance of the author’s online presence that I was writing about in those recent posts. And whatever failures of understanding there are, they are more widespread among editors in publishing houses than they are among marketers.)

What the agents and editors seem to be saying to us is that they don’t think about self-publishing very much. There are definitely exceptions, but most seem content to ignore it unless an author has achieved outlandish success doing it.

It would seem that the level of concern among the establishment about the temptations of self-publishing at any particular time is directly proportional to the apparent health of bookstores and the growth, or lack of it, in the ebook market share at that time. Since, in the U.S., bookstores seem to be doing well right now (which I’d argue is still at least partially due to the subtraction of Borders’s shelf-space and the diminution in Barnes & Noble’s) and the ebook market share has appeared stable for some time, that level of concern is currently pretty low.

So, here are a few conclusions from all of this.

1. Agents are driving the bus. They control the authors; the publishers don’t. That’s not to say that publishers don’t know this; most of them surely do. But this reality — that publisher behavior is channeled by trading partners more powerful than they are — is definitely not appreciated by indie authors and it appeared not to have entered the DoJ’s calculations when they saw collusion in the marketplace a few years ago.

2. Publishers are missing a big opportunity by not simply soliciting author feedback on their experience with the house. Just asking for it would be a win and the chances are that ideas would surface that would be easily executed and could bend that author loyalty curve a bit more in favor of the house. And it would almost certainly also add marketing value with trivial additional cost.

3. Authors are starved for guidance to direct their efforts on their own behalf. They are looking to publishers for this, although they might also look to agents. Thinking through and then spelling out more clearly what authors should be doing to help themselves is a critical task the industry seems to have collectively avoided. Agents are good at providing career guidance. (What book to write? Which house to choose?) But they’re not marketers. They generally know little or nothing about SEO, mailing lists, accessing media and events and all the rest of it. Those things are squarely the publishers’ job and (with few exceptions) publishers have always preferred to avoid much author involvement

4. There are really simple things a publisher could do that would be very evident to authors and helpful to sales. Why aren’t publishers putting some lower-level marketing staff on the task of “retweeting” and “liking” author efforts online? At a slightly higher level of effort, why aren’t publishers evaluating author websites that already exist to make SEO suggestions? The author survey results suggest that doing even little things like this would help a publisher with author loyalty, which should be an objective for every publisher. Publishers should see virtue in the idea that providing authors with knowhow would make them more effective advocates for their own work. It would be very cheap to transfer that knowhow (once it was thought through) and publishers would effectively acquire enthusiastic, energetic and FREE marketing resources.

The two key assets publishers have are their network of authors and their network of accounts. The account side has been substantially disrupted in the past two decades by Amazon’s growth and knock-on effects that have included Borders’s demise and B&N’s increased power in the brick-and-mortar world. Part of the reason we are so emphatic about the importance of author websites is that their absence, or their weakness, creates a vacuum that strengthens Amazon’s grip.

But what the Bingham-Friedman survey reveals is that publishers are vulnerable on the author side as well. The agent world is consolidating too so each powerful agent is just getting more powerful. Every time a publisher signs a book, they get a crack at developing loyalty from that book’s author. Getting ahead of what are really pretty obvious and predictable developments, including the growth of digital discovery and reading and an increased interest from authors in being involved in their own marketing, would seem like an imperative which is escaping most publishers today.

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No author website rules of the road in publishing contracts is a big fail for the industry


The topic of author websites and what the relationship between publishers and authors around them should be is a big “fail” for the publishing industry at the moment. Nobody seems to have thought this through. Publisher policies are all over the lot, even within houses, and that demonstrates that agents haven’t figured out what policies and publisher support an author should require. When they do, there will be much greater uniformity across publishers. (Note to conspiracy theorists about often-alleged Big Five “collusion”: that’s how it actually happens. They’re bullied into it by agents or accounts.)

Although we have been thinking about this for a while, it has been hammered home to us, once again, by events in our own shop this past week. On one hand, we have supplied an agent who asked for one with a proposal to build a website for a key author. The agent is talking to the publishers on both sides of the Atlantic (different divisions of the same big house), trying to get some financial support from them for what the author wants to build and own. Each of the two imprints is lobbying to build the site themselves. We’re not privy to the details of that conversation, so we’re not sure exactly why they want to build it themselves or what other considerations — like domain name ownership, list ownership and management, outbound links, and day-to-day attention to the site — might be motivating the publisher side of this conversation (in addition, we’d assume, to legitimate concerns about the quality of the site and its SEO).

Last week we did a seminar at another house. As we usually do in those sessions, we gave the house the benefit of some of our research into digital footprints for some of their own books and authors. What we found, as usual, is that the author website deficiencies were handicapping their sales and discovery efforts, sometimes by their total absence. That is, on occasion we found no author website at all.

As far as we know, there is no clear policy in either of these big houses concerning author websites. The decisions around how much to help or intervene or invest are, like so many decisions in publishing, left to each imprint to negotiate with each agent for each author. In yet another big house where we have had live meetings and this question came up, it was clear that the marketers understood the author-owned website SEO issues much better than the editors did, and everybody was hamstrung by the editors’ widely varied ability and willingness to engage with their authors or their agents on this subject.

From where we sit, not having contractual policy around a host of questions that involve an author’s web presence is as big an omission as it would be not to have clearly-defined subsidiary rights splits. In fact, we’d argue that, for most authors, the commercial value of the assets around the web presence are more valuable than subsidiary rights are! No publisher or agent would accept a contract that didn’t cover subsidiary rights. It is a sign that the industry is not keeping up with the new realities that the website policy is so far from being worked out.

This is a big challenge on both sides: for agents and for big houses. Most agents don’t operate at a scale that would enable them to gather the expertise and the knowledge to set their authors up properly or to inform what the demands on the houses should be. But the biggest publishers have a hard challenge too. They’ve all structured themselves around clear delineations between what’s big, requires scale, and should be handled centrally (warehousing, sales, IT) and what’s small, requires an intimate relationship with the author, and should be handled in decentralized imprints (title acquisitions, creative decisions, individual title marketing and publicity). This is a really tricky balance to strike from an organizational perspective. It is reflected in job descriptions and in each staff member’s bonus structure. That is, it is really complicated stuff to mess with and requires attention from the very top of enormous businesses to affect and change.

And because there really is no “house policy” on these things anywhere, any agent except the very biggest would get nowhere trying to handle these issues within a contract.

This is a problem that can’t possibly be solved in a big house without CEO-level involvement because it cuts across too many lines: central and imprint, marketing and editorial, author and agent relationships and contractual terms.

There should be no doubt about the critical importance of an author’s web site (and no, a page on the publisher site isn’t an adequate substitute). The author site serves three absolutely essential purposes that will not be adequately addressed without one.

1. It gives an author the capability to make it crystal clear to Google and other search engines precisely who the author is. All SEO efforts are hobbled without it. An author’s website is a central hub of data (a Pete McCarthy point: “data” isn’t always about numbers, in SEO “data” is often words) about the author, to which both fans and search engines can go for authoritative information.

2. It gives the author an extensible platform from which to engage more deeply with fans, some of whom are megaphones and media from whom the benefits of deeper engagement are substantial. An  author can use it to gather email signups and really only with a site can an author reliably and systematically build and own direct relationships.

3. It gives a logical place for anybody writing about the author to link. That’s why author websites often score so high in search. (Inbound links are SEO gold.) And if an author doesn’t have a website, the next logical place to link might be the Amazon author page, or the Amazon product page (the book). The next choice would be a primary social presence, like Twitter or LinkedIn.

This last point is not registering in many places. At one big house, we know that their policy is to avoid linking to Amazon if they can; they’d rather link to B&N. But they also don’t highly value author websites, and they certainly don’t routinely make sure they exist. The omission of author sites means they’re creating links to Amazon, whether they like it or see it that way, or not. The contradiction is apparently not evident.

Let’s kill the thought once and for all that it doesn’t matter whether an author has a website. We’d maintain that if it’s worth the investment to print the books, it’s worth the investment to have a website. Yes, you can do all sorts of useful things in social media, but the website is the only platform the author can own. Everything else is a rental, and the landlord can change the rules about what you can or can’t do at any time. We note that indie author expert Jane Friedman agrees and is helping guide authors to set up their own sites.

There is one more over-arching truth publishers and agents need to understand. And this one goes to the “what’s big and what’s small” paradigm around which big houses organize themselves.

Superior website management, particularly of SEO, is supported and enabled by knowledge of a lot of author websites. In fact, Logical Marketing partner Pete McCarthy has been noodling the process for a publisher-operated Google Analytics capability across multiple author sites that would, if implemented, apply learnings that would improve the performance of all of them. This is a Logical Marketing project still in its conceptual stages, but what we envision is that authors would get great benefits from allowing the publisher to put Google Analytics (or something else to serve that purpose) on the author site around the publication of a book or longer because they’d get better insight than they could get running it on their own. Publishers can help authors do this better than they could do it alone. To date, they don’t (that we know of), but they can and they should.

If you accept it as a fact that there should be at least a rudimentary website for just about every author, a little thought makes it clear that there is a lot a publisher and author should negotiate agreement on as part of their contractual arrangement.

At the very least, this includes site ownership, design, ongoing maintenance (including content creation), and to what extent it promotes author activity not related to the house (which could be other books). The site will gather email addresses; how can the publisher and author work collaboratively to get the most value from them? (Now, there is a question that has hardly been explored!) The site could well earn affiliate income from sales made through referral links to retailers; is that divided in any way?

The site ownership should logically be with the author, but ownership usually goes to whoever makes the necessary cash investments. That’s the tricky bit our agent client is dealing with right now. The agent wants the author client to own the site but also wants some financial support from the publishers. The publishers apparently are willing to pay for it, but they also apparently want to own it.

The design of the site touches three things: tech competence, SEO competence, and aesthetics. The house should be able to provide important expertise around tech and SEO, but the author will frequently want a voice in the aesthetics. And despite scale advantages that provide a real edge, no house we know of has clearly established that they can provide the tech to make something solid and extensible, or that they have the chops to really deliver the SEO.

The ongoing maintenance of the site opens up a number of questions, particularly around content creation. And content creation questions go beyond the site. Is the author, or the author’s staff, able to write the blog posts for the site, the Facebook posts, and the Tweets (let alone create what is needed if Instagram or Pinterest is being employed)? Or should the publisher or a freelancer be providing that help?

And how does that help, beyond the design and creation of the site, get paid for? It could be any combination of author pays, publisher pays, or publisher advances and recoups.

It is my plan in a subsequent post to lay out a scenario or two for a sensible House Position on these questions. It is my hope, but one not supported by any evidence I have in hand, that the Big Five houses and the biggest literary agents are already working on this problem.

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It is hard for publishers to apply even Harvard B School advice in their struggle with Amazon


Harvard Business Review published an article recently by Benjamin Edelman called “Mastering the Intermediaries” which gives advice to businesses trying to avoid some of the consequences of audience aggregation and control by an intermediary. The article was aimed at restaurants who don’t want their fate controlled by Open Table or travel companies who don’t want to be beholden to Expedia. The advice offered is, of course, scholarly and thoughtful. It seemed worth examining whether it might have any value to publishers suffering the growing consequences of so much of their customer base coming to them through a single online retailer.

The author presents four strategies to help businesses reduce their dependence on powerful platforms.

The first suggestion: exploit the platform’s need to be comprehensive.

The author cites the fact that American Airlines’ strong coverage of key routes made its presence on the travel website Kayak indispensable to Kayak’s value proposition. As a result, AA negotiated a better deal than Kayak offered others or than others could get.

Despite some suggestions in the late 1990s that publishers set up their own Amazon (which they subsequently half-heartedly tried to do with no success) and a couple of moves to cut Amazon off by minor publishers that were minimally dependent on trade sales, this tactic has never really been possible for publishers on the print side. Amazon began life by acquiring all its product from wholesalers — primarily Ingram and Baker & Taylor — before they switched some and ultimately most of its sourcing to publishers to get better margin. But the publishers can’t cut off the wholesalers without seriously damaging their business and their relationships with other accounts, and the wholesalers won’t cut off Amazon. So for printed books, still extremely important and until just a couple of years ago the dominant format, this strategy is not worth much to publishers.

However, the strategy was and is employable for ebooks, which are sold via contractual sufferance from agency publishers, even if the sourcing is (sometimes, not typically by Amazon) through an aggregator. That was the implied threat when Macmillan CEO John Sargent went to Seattle in the now-famous episode in 2010 to tell them that ebooks would only be available on agency terms. Amazon briefly expressed its displeasure by pulling the buy buttons off of Macmillan’s print books. (Publishers can’t cut them off from print availability, but they can cut publishers off from print sales!) In the meantime, Amazon’s share of the big publishers’ ebook sales has settled somewhat north of 60 percent, and those Kindle customers are very hard to access except through Amazon. This is considerably more share than Kayak had when American Airlines threatened their boycott.

In fact, it is likely that Amazon could live without any of the Big Five’s books for a period of time, except for Penguin Random House, which is about the size of the other four big publishers combined. The chances are that PRH’s size will prevent Amazon from treating them the way they are now treating Hachette. And the massive share that Amazon has of both print and ebook sales makes it extremely difficult for Hachette, or any other big house except PRH and possibly HarperCollins, to sustain an ebook boycott (with consequent print book sales reductions) for any significant length of time. In other words, for publishers dealing with Amazon, this horse has left the barn.

Where it has not yet left the barn is with the ebook subscription services, and for them many publishers actually appear to be following the strategy being suggested here. Only two of the big houses have put titles into Scribd and Oyster, and it appears that they got extremely favorable sales and payment terms in order to do so. Indeed, these fledgling subscription offerings must have the big houses’ branded books to have a compelling consumer proposition.

The second suggestion is to identify and discredit discrimination.

The HBS piece cites the complaints that eBay was giving search prominence to suppliers who advertised on the site forcing a reversal of the policy.

Although the search algorithms on powerful platforms are ostensibly geared only to give the customer what they’re most likely to want, it is probably generally understood that these results are jiggered to favor the platform’s interest. It is not surprising that Google has underwritten White Papers from UCLA professor Eugene Volokh and from Supreme Court nominee Robert Bork defending that conduct. Volokh argues that the first amendment prevents the government from interfering with search results and Bork says nobody is harmed if Google favors its own interests.

Could we apply that same logic to Amazon? How about this scenario?

Amazon is well on its way if not already past the point where they sell more than half of the books Americans buy (combining print and digital). Book consumers are highly influenced by the suggestions made and choices surfaced by their bookseller, whether physical or virtual. That is: the process of buying books is inextricably linked to the process of discovering books. So Amazon is getting a stranglehold on recommendations which for many consumers also means a stranglehold on marketing and promotion.

The “damage” to society that results from results being gamed in fiction is probably minimal, and restricted to Amazon promoting either its own published titles, its favorite self-published authors, and books from other publishers that have paid to play. But, with non-fiction, the consequences could be much more severe and of real public interest.

Imagine a persuasive book arguing that the government should sharply increase the minimum wage and let’s also imagine that Amazon corporately doesn’t like that idea. Is it really okay if they suppress the awareness of that book from half or more of the book-buying public?

This is the kind of an argument that can arouse the government which, so far, has shown scarcely more interest in Amazon’s dominance of book commerce than they would if they dominated the commerce in soft drinks or lawn fertilizer. Can they be awakened by publishers to this concern before dramatic cases affecting public awareness and policy are documented? We don’t know, but we do know that Hachette sent lawyers to Washington early in the Obama Administration to call attention to Amazon’s growing marketplace power and their willingness to use it. That apparently had no affect (unless, in some perverse way, it contributed to the government’s interest in pursuing the “collusion” case).

There could certainly be some consumer blowback to the gaming of search results by a platform, perhaps including Amazon. The Harvard article says Google changed algorithms that seemed to be burying Yelp because consumer sentiment, partly measurable in search queries, showed dissatisfaction among the public. But in the absence of an aroused government, it would seem unlikely that this suggestion will do publishers large or small much good.

It is definitely worth noting here that Hachette authors are involved in just such an effort right now over the current Hachette-Amazon dispute. (And Amazon authors, also often called “indie authors”, are pushing back in the other direction.) There is a difference of opinion about how much this is “hurting” Amazon or whether it will push them to a quicker resolution of the dispute; I’m not sure anybody will ever know the answer to that.

The third suggestion is to create an alternative platform.

As the piece explains, when MovieTickets was on the verge of dominating phone and online ticketing, Regal Entertainment and two other large theater chains formed Fandango.

Unfortunately, this is a strategy that simply won’t work as an antidote to Amazon. In fact, trying it, which publishers have, demonstrates a failure to understand the source of Amazon’s power in the marketplace.

Amazon’s strategy is in plain sight and is the title of the best and most recent book about them: Brad Stone’s “The Everything Store”. Books had a central role in getting Amazon started, but have now declined to very likely less than 10 percent of their revenue and far less of their operating margin. Books are strategic for Amazon, but not commercially fundamental. This is one of the reasons, perhaps even the principal one, why they operate their book retailing on margins so thin that the incumbent book retailers can’t match them. After all, B&N can’t make up the margin shortfalls created by offering books cheaply by selling that same customer a lawnmower. Nor do they benefit from additional scale provided by selling lawnmowers or cat food or server space.

The fact that Amazon did book retailing in a thorough and sophisticated way as they established their business to become an online Walmart made them different from omni-retailers in the past (going back to departments stores a hundred years ago) who sold some books.

The story has been told on this blog before about Amazon cutting prices more than fifteen years ago to discourage competition coming into the market. Although publishing is a profitable business for them, it is also a strategic component of larger objectives: getting an increasing share of its customers’ purchases across a range of physical products as well as to compete as a streaming content provider across the entire range of digital media.

No enterprise focused primarily on books can compete with that. Amazon takes too many customers off the table before whoever else is competing gets to begin and keeps them for a wide range of reasons. They’ve got the most admirable competitive position conceivable: a first-class operation supported by scale provided by myriad other enterprises, totally wide-ranging and broad knowledge of the details of book retailing, and the financial heft to accept diminished (or even negative) margins from time to time to support strategic objectives.

So, Bookish, the attempt to compete (although that objective was not explicitly stated) forged by three major publishers more than a decade after Ingram’s I2S2 attempt to create a broader base of online retailers, was never a serious threat. (It is now owned by another Regal, Joe Regal, whose Zola Books — an ambitious upstart ebook retailer — bought Bookish, apparently for its recommendation engine, from the publishers.)

This is probably the 20th year in a row, dating from their start in 1995, that Amazon has gained market share for sales of books to consumers. And that’s because consumers are making what for them is the obvious choice for convenience, total selection, and competitive pricing, as well as getting tied into Amazon through their PRIME program. Unless one of the other two tech giants in the bookselling world — Apple or Google — decides to make a dedicated effort to take some of that market share away from Amazon in both print and digital (and neither of them is much interested in print), it is hard to see where a serious competitor can come from.

As of this moment, there is no way for any ebook retailer except Amazon to put DRMed content on a Kindle, which eliminates a big part of the audience from play for any competitive platform.

The fourth suggestion: deal more directly. The article points out that people ordering takeout through online platforms like Foodler and GrubHub have often already chosen their restaurant so that restaurants that deal directly can afford to exit the platform.

As I was working on this post, HarperCollins announced that they have redesigned their website to be consumer-facing which enables them to sell books directly to consumers. They’ve collaborated with their printer-warehouse partner, Donnelley, to handle print book fulfillment and have a white-label version of indie ebook platform Bluefire to deliver ebooks. They promise that authors will be able to use the capability very easily to connect their own web presences and they’re thinking about additional compensation to authors that generate those sales.

This bold move has a hole in it, though, and it is one that publishers so far have no easy way to fill. All the non-Amazon platforms use Adobe DRM, which HarperCollins/Bluefire supports, so they can put your ebook on a Nook or Kobo device with copy-protection. Of course, they have their own “reader”, which can be loaded with ease on most web-capable devices and can apparently also be squeezed onto a Kindle Fire. But, because HarperCollins wants to continue to use DRM protection for the content, they won’t be able to sell directly to users of Kindle devices that are dedicated e-readers.

Although publishers have certainly encouraged that competition to Amazon which exists, their direct efforts have for the most part been limited to cultivating direct interaction with the end user audience to influence awareness and selection. Many smaller publishers are willing to sell direct without DRM and other large publishers sell direct in a more restrained way, but this seems to be the first concerted effort by a major player to drive direct sales.

It will be interesting to watch the pricing interaction between Harper and Amazon and whether Harper can come up with “specials” (bonus content, some connection to the author, bundling) that Amazon or another retailer can’t match. Competing on price is the retailer’s first instinct, but for publishers competing with Amazon on price is a fool’s errand, fraught with the potential for retaliation in many ways (including that “discounts” from publishers, the retailers’ margin, is presumably based on the publisher’s price. What does “publisher’s price” mean if they sell for less?)

But HarperCollins doesn’t need to get a big volume of direct sales for this to be a worthwhile initiative for them. I’d expect it to be copied. Any sales they can get directly increase their power in the marketplace.

There is one other initiative we’re aware of that can perhaps help publishers disintermediate Amazon for direct sales. That’s Aerbook, which widgetizes a book or promotional material for a book so that it can be “displayed” in any environment. Aerbook’s widgets can contain the capabilities for transacting or for referring the transaction to a retailer, Amazon or anybody else. Putting the awareness of the book directly into the social and commercial streams can be a big tool for authors and publishers. But even Aerbook can’t put a DRMed file on a Kindle. They offer a version of “social DRM” — essentially “marking” the ebook in a way that identifies its owner — which can be loaded onto the Kindle. But big publishers and big authors have apparently not yet come to a comfort level with that solution; perhaps the need to get to the Kindle customer directly and the experience Aerbook develops with their method will encourage a more open mind on that question over time.

So, it would seem, the best thinking presented by Harvard Business Review for how producers and service providers can dodge platforms trying to lock in their audiences has precious little that can be usefully applied by publishers to escape the grip of Amazon. Having taken about half the retail book market over the two decades of their existence, they have given themselves a reputation, tools, and momentum that will make it very hard to stop them from eating into the other half substantially in the years to come.

The fact that competing with Amazon is difficult doesn’t stop smart people from trying to figure out how it might be done. A group of publishing thinkers are holding a 2-day brainstorming session at the end of this month to come up with ideas. Two of them, Chris Kubica and Ashley Gordon, will be presenting at a session at Digital Book World in January called “Blue Sky in the ebook future”, which will include thoughts on how to improve the narrative ebook itself from Peter Meyers and somebody not yet chosen to speak about complex ebooks.

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