Book Industry Study Group

Subscriptions are in the news this week

Subscriptions for ebooks are certainly in the news this week. Amazon just announced their Kindle Unlimited offering, taking its place beside Oyster and Scribd as a “one price for all you can eat” Netflix- or Spotify-for-ebooks program. And the Book Industry Study Group has released a lengthy and fact-filled report from Ted Hill and Kate Lara covering subscriptions across publishing segments.

It is hard to quarrel with the report’s contention that “subscriptions are here to stay”. The report makes clear, and documents extensively, that there are a great variety of ways subscriptions can be offered and that tools making it easier to manage them are becoming cheaper, better, and more ubiquitous. The report suggests that subscriptions could occur for as narrow an offering as one author’s works. As technology enables subscription offers to be economically viable with less and less revenue, the tendency for more and more publishers to want to “own” their customers, combined with the tendency for publishers to build up their intellectual property inventory in an audience-centric (vertical) way, either organically or by acquisition, it is easy to see how they could proliferate.

When I have expressed skepticism in the past about the commercial viability — or commercial importance — of subscription services, my intention was (is) to confine my skepticism to broad-based services like KU, Oyster, and Scribd. In other segments, the viability of the model is obvious. Safari has operated successfully for a decade-and-a-half. Journal publishers figured out in the 1990s that selling annual access to the whole catalog of their publications, including backlist, was an opportunity presented by digital delivery because of the value of being able to search across the catalog. The science-fiction publisher Baen has had an apparently successful subscription offering for years. And patron-driven acquisition, which the BISG report calls a form of subscription (loose defining, to be sure), allows a publisher’s whole catalog to be exposed to a library’s patron base with purchase decisions to follow (rather than patrons only being able to see what a library had already bought) just makes sense for everybody.

But the consumer ebook business is a different animal and it is far from obvious (to me) that a model can be constructed that will satisfy all the stakeholders and provide profits for the model owner. But the pieces are certainly in place for us to find out.

It is clear from the catalogs presented by KU, Oyster, and Scribd that the jury on subscriptions is still out because big publishers are still reluctant to participate. No Big Five house has put books into Kindle Unlimited. Only HarperCollins and Simon & Schuster are (as yet) participating with Oyster and Scribd. Penguin Random House, Macmillan, and Hachette have — so far — held out. What those houses do in the next few months will tell us a lot about how likely the concept of the broad-based ebook subscription is to succeed in the future.

The BISG report surmises, and I agree, that only PRH could possibly deliver a general subscription offer on their own. I “predicted” some time ago that they would. A top Random House strategist tried to set me straight on that some months ago. This person asked the rhetorical question: “why would we want to turn $1000 a year book customers into $100 a year book customers?” Last week, an even more senior executive, recalling that s/he had read this speculation from me told me directly and assertively, “we aren’t going to do that.” (Random House executive Madeline McIntosh is quoted in the Hill-Lara report issued by BISG saying “Many people who are buying our books today are spending more than they would with a subscription.  If that amount starts to dip, then subscription services will become more interesting to us.”)

These people are straight shooters. I believe them when they describe their current intentions. But what if Scribd and Oyster and KU build big subscriber bases? And what if those subscriber bases tend to buy fewer books outside the subscription offering? It is in a publisher’s DNA to push books into any channel that will take them. They have resisted the subscription offers so far because they don’t want to empower an aggregating intermediary the way Amazon is now empowered (which is why KU has the hardest time pulling big publisher books into its aggregation) to beat them down on terms. This is good forward thinking if staying out stops the subscription services from reaching viability. But what if it doesn’t? How long can publishers refuse to participate in revenue opportunities for their books and authors?

The offers (as we understand them) by Scribd and Oyster, and in other ways by Amazon, have been very generous. Scribd and Oyster are apparently paying 80% of the cover price (to the big agency publishers; others don’t get that deal) once a book is deemed “bought”, which requires a threshold amount of the book — often suggested to be 10% for the Big Houses, which is where Amazon put the bar for Kindle Direct Publishing authors within Kindle Unlimited — has been perused by the subscriber. (Not everybody gets that deal either.) 

Amazon presumes the right to include books in Kindle Unlimited from its wholesale trading partners (everybody but the Big Five), but it considers the ebook “sold” when it is cracked, a far more generous interpretation of when a book has been consumed. (Nor is that deal for everybody. For authors and pubs participating in KU via KDP Select, the threshold for a “sale” is 10% like Oyster. Then they are compensated from the “KDP Select Global Fund”.) The introduction of KU and the various terms around it have been met by initial grumbling in Amazon’s indie author community, according to both Publishers Lunch and Hugh Howey.

Agents will be seeing what the subscription revenues mean to their clients. It will be harder for them to get a handle on whether those subscription services are cannibalizing regular per-copy sales, but they will have ample information from which to form opinions about that as well.

Part of what holds back the big publishers from participation in subscriptions is a fear that agents share. Today Scribd and Oyster offer 80 percent of cover price, and Amazon pays the minute an ebook is opened, because that’s what they have to do to get books in their service. And the books in the service are what bring in the subscribers.

But if one of these services has a million members three years from now, each individual book won’t be quite as important anymore. Just as Amazon can get along without maximizing their sales of Hachette books today, the subscription owners will see a different, and lower, value for each book and each publisher then. Amazon gambles today that the customers of theirs who don’t find the Hachette book they’re looking for will often just buy something else rather than go shop somewhere else. Their own subscription lock-in, PRIME, shifts the odds in their favor there.

Amazon will be in this game to stay. Offering Kindle Unlimited is relatively painless for them. They have the books and they have the audience; it is just another way to keep their customers loyal. The big questions for the industry are whether Oyster and Scribd succeed in taking a substantial number of single-purchase customers out of the market and, if they can, whether they have a sustainable model with the prices they charge customers and the way they compensate publishers.

If what they have works for them, then all publishers will eventually have to play. That will mean that HarperCollins and S&S will be joined by Hachette and Macmillan. And despite what their executives tell me today, I’d bet a steak dinner that Penguin Random House will see more opportunity and less risk in creating their own service than in joining one of the existing ones. In fact, a Penguin Random House “backlist only” subscription offer today would constitute the most robust commercial assortment in the marketplace if it existed.

It has seemed to me for a long time, and I said in a public forum over a year ago, that all the Big Five (and others) should immediately create a subscription service for kids’ books. Parents want their kids to be able to “shop” without actually delegating to them the decisions to spend money; many would love a service of this kind, even if it were publisher-specific. As the support services Hill and Lara describe get cheaper and better and better known, perhaps that will start to happen.

We will cover subscriptions at Digital Book World with a panel chaired by Ted Hill. Scribd and Oyster have already agreed to participate.


Three words of wisdom: standards, rights, & data

The Book Industry Study Group’s annual membership meeting on Friday concluded with a panel discussion among four industry executives who have leadership roles in the group. They are also four of the sharpest minds in publishing and they all had provocative things to say. Recollection of detail is not my strongest suit and I didn’t take any notes, but all of them said things that stuck with me and which struck me as ideas that deserve more attention than they get.

Dominique Raccah, the founder and CEO of Sourcebooks, made the now-obvious (but new to me that morning) point that we are going to have to streamline generating metadata in multiple languages to take advantage of emerging global markets.

Maureen McMahon, the CEO of Kaplan, which serves a very targeted audience, recalled that five years ago she was able to track her very discrete list of competitors and closely calculate her market share. But as an information-provider, she now finds competitors can pop up from anywhere.

Ken Michaels, just appointed President of Hachette Book Group USA, reminded us that 70% of the sales are still print. He said that we need to stop talking about digital as if digital is all there is; that just as media and consumer habits are converging so must the approach publishers take to running their business. He stressed building workflows around content, not product, so you can curate and compose once for all formats, and incorporating digital as a way of life, even in publicity and marketing, rather than having any stand-alone digital workflows. In other words, it is time to integrate digital, not treat it as a thing apart.

All great insights, but what I really took to heart was some simple wisdom from Tom Turvey of Google. Turvey is spending a lot of time outside the US these days, as Google Play opens in markets across the globe. He reminds us that we are way ahead of everybody else in digital change. That means that potential markets abroad are only in their earliest stages of development. He sees that the publishers in those markets –and we as well — need to concentrate on three things: standards, rights, and data.

Standards, rights, and data. These are the three elements which can restrain digital growth, or propel it. They’d also serve as a good short summary of BISG’s agenda. Turvey took the opportunity to say that every country needs a BISG, but not every country has one.

Standards, of course, are a community endeavor. It is not for any one publishing player to create standards on their own for everybody else. If you’re powerful enough, like Amazon, it might be in your best interest not to throw yourself wholeheartedly into participation in standards that make it easier for others to compete with you. But, as publishers well know, insufficient standards can cost a lot of money, rendering content for different screens or even subtly different applications of epub or Adobe.

The challenges with rights are, first, having them, and second, making sure a file’s metadata spells them out clearly. One of the the first rules I learned when I came into publishing decades ago was “acquire rights broadly, license rights narrowly”. That is practice which was unambiguously the wisest commercial course until our current and developing age of digital delivery. Now agents (or publishers) having licensed rights “narrowly” can cause books not to be available to customers who would be happy to buy them when they easily could be doing so.

Data is a combination of an industry problem and an individual publisher challenge. The digital age is presenting us all with new metrics if we can gather and use them: from websites and Twitter and Facebook, as well as from publishers’ sales. We are beginning to learn what marketing and social activities move the sales needle and we’re finding it isn’t necessarily the same for different kinds of books. BISG and AAP have joined forces to deliver BookStats, the most rational and accurate book industry sales data we’ve ever had in the US and perhaps the most accurate industry data in the world. Tara Catogge of Readerlink Distribution Services did an eye-opening presentation of what that database can do earlier in the show, but we’re still at the earliest stages of learning how best to use it and we’re as blind as we’ve ever been everywhere else.

Standards, rights, and data. Publishers could benefit by reviewing their practices and progress in all three areas at a senior level on a regular basis. My hunch is that some, including the ones who joined Turvey on that stage, already do.

Two of those BISG panelists, Raccah and Michaels, are among the “innvoators” presenting at our Publishers Launch Conference next Monday, 10:30-6:30, at the Frankfurt Book Fair. Dominique will be talking about two new initiatives from Sourcebooks and Ken will be explaining the value of SaaS — software as a service — to modern publishing IT departments, including some tools his team at Hachette has developed and are making available to the industry. Pub Launch Frankfurt will also feature a presentation from Noah Genner, who runs Book Net Canada — their version of BISG — about a survey of Canadian book consumers they’ve just done: more about data.


A helpful questionnaire for any publisher to figure out if its permissions policies and practices make sense; many don’t

A year ago last March, the Book Industry Study Group hosted a conversation aimed at uncovering what were the key transitional issues publishers needed to deal with in the current decade. I was not part of that effort, but I chimed in with my two cents in a post in which I said that getting rights databases straight was the most critical concern that, by my observation, was not being adequately addressed by most publishers.

The underlying point of the piece was that publishers will find that revenue opportunities for licensing pieces and fragments are an expanding opportunity while they will see sales of books themselves increasingly challenged.

Over many years, trade publishers have evolved with “permissions” activity, which is where much of this fragment licensing falls, being managed separately from “subsidiary rights” sales. The latter, although declining with the great reduction in book club and paperback licensing revenue over the past three decades, is still seen as a revenue center.

The former is seen as a “cost”. Although it frequently involves granting permission to use a small amount of content for free, it has been a growing revenue opportunity because of digital change. In addition to wholly new uses like for apps and websites, textbook publishers, for example, now often need rights for a “family” of products, mostly electronic, that surround a textbook. But “permissions” in many — probably most — trade publishers is still seen primarily as a cost to be managed, not a revenue opportunity to be seized and nurtured.

This is leading to costly disconnects and increasingly widespread frustration. Our clients at Copyright Clearance Center, who provide tools to automate what has always been an overwhelmingly manual process, see this every day.

They see many publishers whose requirements when they license rights from others are not matched by the offers they’re willing to make when others want to license rights from them.

They see publishers incurring costs handling permissions requests manually that far too often exceed the revenue those permissions can generate, even though there are automated tools that can make those permissions profitable.

They see a growing clerical burden, both in managing an increasing number of permissions to be granted and in securing an increasing number of permissions now required (because trade publishers are needing a variety of digital licenses they didn’t need before either), with no strategic assessment of how that should be addressed.

In response to an increasing awareness at CCC that most publishers don’t have an articulated view of these changes, or any particular idea about how these things are working in their own shops, CCC created a questionnaire that allows any publisher to do a self-assessment of their licensing and permissioning activity. As we were offering some help developing it, I realized that the questions spell out things every publisher ought to be thinking about. So I got CCC’s permission to reproduce it here.

1. Do you know how much it costs you to process a single re-use request with your current procedures?

2. Does your average permission fee, including zero dollar licenses, cover the cost of each transaction?

3. Is your total number of permission requests and corresponding revenues growing year over year?

4. Are you sure that the requests you answer are the most important and lucrative ones and the ones that you don’t respond to are the less important ones?

5. Are the requests that don’t get processed quickly enough for licensees to be able to use your content growing in number?

6. Have you recently reviewed the processes you use when publishers request permissions from you?

7. Is your permissions granting managed entirely by internal staff?

8. Does your organization consider rights and licensing a strategic priority?

9. Do you have a process to summarize and share the information about permissions requested and granted more broadly in your organization (i.e. with sales, marketing, editorial, etc.)?

10. Have you analyzed your permissions and licensing revenue and usage data alongside of your direct sales revenue and usage data?

11. If yes, do you do this routinely?

12. Do you incentivize your rights and permissions managers to meet a revenue goal or efficiency goal?

13. Do you pre-price your permissions and revisit your pricing annually or semi-annually?

14. Do you require prepayment for republication rights?

15. Would a service providing consolidated tracking, reporting and payments for your permissions be worth exploring to reduce your costs and organizational strain?

16. Is there any permissions granting activity within your organization but outside the rights and permissions department (i.e. permissions granted directly by editors or the sales department?)

17. Have you compared your policy and process on granting rights to what you want when requesting rights?

18. If you answered Yes to Question 17, do these policies align?

I urge publishers to think through this list of questions for their own organizations. The entire activity of responding to permissions and secondary licensing requests has gotten far too little thought to date.

One tool offered by CCC is its RightsLink service, by which a click-thru opportunity “at the point of content”  enables automated licensing for many reuse cases. As Alfredo Santana, the Associate Director for Global Rights Operations at John Wiley will explain at our “Book Publishing in the Cloud” conference on July 26, the up-front work of putting in RightsLinks pays for itself very quickly when it is implemented. Are you going to join us at the event?


It has nothing to do with the subject of this post, but I wanted to acknowledge with thanks and without delay the letter published yesterday in the Wall Street Journal by Senator Chuck Schumer (D-NY) entitled “Memo to DoJ: Drop the Apple eBook Suit”. It is probably a lot to expect that any of this can reverse the course of the coming Court decision (due in early August) but it is a further sign, as I think the letters from the public will prove also to be when they’re published at the end of the week, that the arguments of the industry against the “price-fixing” hysteria are starting to be heard. I took my own crack at that in a speech last week.


Shifting Sales Channels, and What Publishers Are Doing About Them

We (Ted Hill of THA Consulting and I) are working with BISG again this year on their Making Information Pay conference. Last year we did a project on “Experimentation and Innovation” where we used both an online survey and interviews to surface the issues we captured in a research paper and then formed the backbone of the program at the MIP conference itself.

This year’s theme, taking the same approach, is “Shifting Sales Channels: How the Sources of Revenue are Changing and What Publishers Are Doing About It.” We’re trying to find the outlying practices: the things a few people are learning or doing that could be of great benefit if more widely employed. The big question going into something this is “will people talk? Will people tell us anything that might benefit a competitor?” The answer, after the first few interviews (just completed) and the first 100 survey results is, clearly, yes.

We really want everybody in consumer publishing to participate in our survey. More than 100 people have done so already but if you’re not one of them, please do so after you finish reading this piece.

Here is a preliminary list of things we have learned already. We have a lot of survey results and further interviews coming to add to this. It looks pretty certain that we’ll have a Making Information Pay conference on May 7 that will be packed with useful information.

1. Opportunity arises when competitors cut back. One publisher told us a story about a direct competitor of theirs cutting back the staff covering a major account. Our interviewee responded to this by stepping up their efforts with the same account with the result that their sales are up at that account when sales elsewhere are declining.

2. Strong brands matter more to consumers and buyers in a downturn. Despite the fact they are pretty challenged at creating consumer brands themselves, publishers have always appreciated the marketing lift that comes from a brand that validates a book to an audience. It turns out that in the recession, the branded material seems to hold up better, particularly in challenged areas like cooking and gardening.

3. Publishers should constantly reshuffle sales resources to pursue opportunity. One publisher we spoke to said they re-evaluate their sales personnel deployment every 12 to 18 months. They have created dedicated efforts where they didn’t have them before and they have reduced the sales hours dedicated to declining areas. The idea that sales deployment should be under constant review is one that more companies should take on board.

4. Reps in the field need to cover more than bookstores. We first got this thought from a niche publisher that has a focused list and therefore a focused batch of non-book accounts to go after. But then we heard again from a larger publisher, which is now in certain territories experimenting with having reps cover accounts beyond bookstores, particularly specialty retailers and libraries. It just makes sense to us that the product and company knowledge a rep has, once “loaded” and deployed in the field, should be directed at any opportunity to produce sales, not just a particular kind of store. This observation has challenging implications for publishers still relying primarily on commission reps to cover bookstores.

5. There are lots of online sales accounts besides Amazon and and that are worth a publisher’s sales effort to cover. This one came out of left field to us. One publisher said with total confidence that there are many online booksellers, some effectively operating as extensions of Amazon, that can be built into significant accounts with attention from a publisher’s sales organization.

6. The right subjects still matter more than the economic circumstances: books with timely appeal will sell. “Gardening” might be troubled, but “growing your own organic food” is a book subject that will work in these green and economically troubled times. Business might be a softening category, but books about job hunting or creating cash flow from a new business are perfect for the moment that we’re in.  The converse is also true, so it could be that overall book sales, which actually aren’t doing so badly compared to other things, will further strengthen as titles and subjects which pretty suddenly became inappropriate over the past 12 months cycle out of the system in favor of books aimed at the new times we’re in. Maybe books are recession-proof.

7. Direct mail still works, but the sales come online. This was another one that was a big surprise to us. One publisher reported that sending out printed niche catalogs still worked well in professional markets, but the orders don’t come back with stamps. They say it is really fascinating to watch the direct online orders spike after they put a piece into the mail.

8. Catalogs and sales conferences are being aggressively rethought. We have found three publishers so far that only hold one full company sales conference a year, and they’re always reviewing whether that one — largely about company morale — is worth it. The first few publishers we spoke with all are looking for ways to cut back, if not eliminate, the full-line print catalog. The new wisdom is that PDFs should be the catalog format of choice, enabling targeted groups of books to be printed as leave-behinds customized to the account.

9. Custom publishing is a growth area. This one was good to hear  me because it confirms the “end of trade” idea, which says that publishers have to (and can) create new channels to replace the time-honored ones that are fading away. One publisher reported to us that they had started a custom publishing operation three years ago with one person and that group now has six! Custom publishing can be about selling in bulk to a corporation, but it also can be about creating a special package for a book chain or mass merchant.

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