Codex Group

The publishing business as we have known it is not going away anytime soon


Regular readers, please pardon me for the unusual length of this post, but it covers a lot of ground that I think is necessary to make the point.

A friend who has actually been working fulltime in the book business since I was still in college and who remains active was speculating at BEA about the “next big disruption” in our business. He’s expecting it sometime pretty soon.

I don’t think I am.

Gareth Cuddy is one of the most practical service providers in the industry. His Vearsa ebook distribution company is providing global services to publishers large and small and he is a pioneer in reading and sales analytics. He recently wrote a piece that concludes “whatever emerges from this next phase will surely be a complete departure from what we understand today as an industry” with timetables around it wondering whether 2016 will be too late to respond and whether we’ll have an unrecognizable industry in 2020.

I don’t see it.

One of the disruptor-authors, one who studies the industry trends closely with special attention to indie author growth, told me he “is pegging 2019 as the year that major media outlets cover the collapse of the major publishing houses the same way they started reporting on newspaper declines last decade”.

I wouldn’t be surprised to see a merger or two by then, but “collapse”? I don’t see that either.

The industry has a myriad of sales stats that are not rationalized in any way and don’t talk to each other:

BookScan (print sales, reported by select retailers)

BookScan data is compiled from reports of print sales by most, but not all, retailers. That data includes all the ISBNs (but perhaps not retailer- or indie-published books that don’t have ISBNs), but not all the sales. BookScan covers an estimated 85% of the print retail market in the US and 90% in the UK. (See the “About Nielsen Book” section.)

PubTrack Digital (ebook sales, reported by select publishers)

The PubTrack Digital data, compiled from reports by publishers, doesn’t include all the ISBNs — only those from reporting publishers — but they do include all the sales of those publishers’ ebooks.

AAP (cross-format sales, reported by select publishers)

The AAP tracks sales across all major channels and formats. Like PubTrack, AAP stats are based on reports by participating publishers. (Though all of the Big Five houses report in both cases, other publisher and distributor participation varies.)

Consumer survey data (purchases, attitudes, and behaviors, reported by consumers)

Market research firms and consumer panel surveys (Nielsen Market ResearchCodex Group, and PlayCollective among others) provide another look at how book sales are shifting.

Other survey data

Additional surveys, particularly of authors (e.g. DBW’s author surveyHarry Bingham and Jane Friedman’s author survey) help fill in some of the blanks. But as the survey organizers frequently note, these are not representative samples, so the conclusions that can be drawn from these surveys are limited and primarily directional in nature.

Proprietary data (publisher and retailer-specific)

We also get regular reports from publicly-traded companies and whatever data accounts happen to reveal to the public, which can provide useful benchmarks and comparison points. (The sales data from the accounts themselves includes self-published or retailer-published books that other two sources don’t, but no by-book sales numbers told to the public.)

Bestseller lists and scraped data

Author Earnings tries to translate ebook sales rankings (which are publicly visible at retail, and therefore “scrapeable”) into actual sales numbers. (The now defunct DBW Ebook Bestseller List, powered by Dan Lubart’s Iobyte Solutions, was based on similar principles.) And the major bestsellers lists (like USA Today and NYT) provide at least some context for relative sales performance.

And as a sign of how complicated it all is, the DBW Ebook Bestseller List was discontinued at least partly because the “noise” from Amazon reporting “sales” on ebooks distributed and read through their subscription service was making the bestseller status of many titles a bit contentious.

Despite and because of all the sources, the data is incomplete and scattered. There is inevitable ambiguity in interpretation so that a variety of conclusions can be reasonably drawn. From the big publisher perspective, it would appear that sales are about flat and that the ratio of print and digital sales has become pretty stable. This is true in an environment where publishers have experimented with even higher ebook prices and, for a variety of contractual and commercial reasons, discounting of ebooks has diminished. But that’s been true for a relatively short period of time, and the ebook reporting is routinely delayed by three months, so we don’t have enough evidence to know for sure that higher ebook prices are sustainable in this marketplace. And even if they are sustainable today, that doesn’t prove they will be in three months or a year.

On the print side, Amazon continues to be the largest single customer for almost every publisher. And even though they have managed to increase their discounts and various marketing fees and their returns have creeped up, they are still the most profitable large account for many, if not most, publishers. Since Borders went down several years ago, Amazon has, indeed, grown, but independent stores have also thrived and become more numerous. And although Barnes & Noble still slowly shrinks in sales, it remains the most important account for “breaking” many new titles and still provides more sales to most publishers than all the indie bookstores combined.

While I’ve been working on this piece, the AAP data has been being worked through. Nate Hoffelder (whose blog has been renamed “Ink, Bits, and Pixels”) scoffed at the Nielsen claim that their hard numbers constitute 85 percent of the book market. The AAP, which like Author Earnings, uses modeling and guesstimating to get from the data they have to a bigger industry picture, sees a much bigger trade industry. The point Nate wanted to make, using the AAP data (echoed by an indie author friend of mine who believes that the indies are toppling the establishment and we’d all know that if we knew the “real” numbers that didn’t leave out all the indie success stories) is that the ebook market is not shrinking or flattening.

But if you want to use AAP figures to prove that point you have to use this year’s AAP data. Because last year the AAP said the ebook market had shrunk. By the way, the AAP data was the first to offer some insight on how much ebook subscription offerings are changing the market. The answer, so far, is not very much so far. They account for about 2 million ebook units out of a market of 500 million!

I asked my knowledgeable indie author friend what he thought the consumer dollar volume was for indies last year. He reckoned it at $459 million (I love the presumption of precision: not $450 million or $475 million, but $459 million!) Since the AAP figures adult trade fiction and non-fiction at about $10 billion (and the juvie numbers, another $5 billion, actually have some big “adult” sales in them), he is implicitly acknowledging (but would never say explicitly) that indies are 5 percent of the adult business at retail, using what I’m sure is the most ambitious estimate of indie sales you’ll see anywhere.

The reality is that the business has been actually pretty stable for the past few years, after a period — about 2008 to 2012 — when the shifts away from print and from stores were dizzying and immediately disruptive.

That’s not to say we haven’t seen a lot of change or that change doesn’t continue to be much faster than it was in the period before 2008. But not all of that change is bad for publishers.

More sales at Amazon, less inventory in the physical store supply chain, more ebooks, and the outsized impact of ebooks on the inefficient mass market channel means that returns are lower and less capital is tied up in inventory, which makes publishers more profitable.

The promise that offshore markets can be reached efficiently with ebooks (which, indeed, might be masking a reduction in ebook sales domestically in the overall publisher-reported numbers) is increasingly being realized, partly through the growth in capabilities of the service offerings from old standbys like Ingram and new entrants like Cuddy’s Vearsa.

New tools and workflows are enabling publishers to package their content for both print and digital delivery much more efficiently than they did when ebooks were in their infancy.

Techniques that make it possible for books to be “discovered” through online means — search, social referrals, and growing book- and topic-based communities — are being mastered by publishers.

And a number of factors — consolidation of the accounts, more efficient wholesalers, consolidation of the publishers’ shipping through growing distributors — have reduced costs on the back end for most publishers as well.

So the publishers have, thus far, dealt with massive changes in sales, marketing, and distribution pretty effectively. They’re selling as many books as they used to despite growing competition from both indie authors (a million titles a year or more) and from Amazon itself, whose own publishing operation reportedly intends to issue 2,000 titles in 2016.

Trying to view things from the author perspective requires one to divide them into at least three big “buckets”: successful authors who know where their next totally-acceptable contract that pays them a living wage in advance to write a book is coming from; aspiring authors who either can’t get an agent or a deal or have decided that with self-publishing working as it does that they simply don’t want one; and the ones in the middle, who might have an agent or have had a deal or two, but aren’t really making a commercial success of authorship.

For those authors who find it hard or impossible to get an agent or a deal, self-publishing is a godsend. It gives them a way to really reach the global public at minimal cost and, as we’ve seen repeatedly over the past decade, they can, indeed, break through and achieve commercial success. This is only a good thing for everybody. Even publishers benefit because they get to discover new talent that is surfaced by self-publishing.

For those authors who are working steadily and profitably for publishers, self-publishing has offered the possibility of greater control and bigger margins: more profit if they can achieve the same level of sale. This is not an opportunity very many authors in this category have pursued. That has surprised me a little bit, but probably it shouldn’t have. Being a publisher is a lot of work and no small risk. If an author is making a living doing the writing and letting a publisher handle the rest, that’s damn near nirvana. Very few in that position want to abandon it.

So that leaves the authors “in the middle”: getting deals or capable of getting deals, but not really making the living they want to make with those deals. Among those authors, if they have the skills to manage an enterprise and the personality to put themselves out there for promotion, self-publishing offers a real alternative to the legacy system. Particularly for those authors who have a backlist they can claw back rights to and use as a foundation for their efforts, this new opportunity has real possibilities.

And writing in genres, being able to deliver several books a year, and writing in a way that allows pieces of big books to “work” as self-contained smaller chunks, are all attributes that enhance the likelihood of self-publishing success. It is worth noting that, so far, publishers haven’t developed the techniques to make the most effective use of chunked stories or a voluminous output (unless you’re James Patterson!).

So another source of potential disruption — authors abandoning publishers to do it themselves to make more money per unit and claim greater control of their work and career — has also not really happened. I was among those who expected, during the era of dizzying change we experienced for a few years until a couple of years ago, that publishers could have a big problem holding on to their biggest stars.

Both the supply (authors) and demand (sales channels) sides of the equation appear more stable than they’ve been in recent memory. But there’s no guarantee they’ll stay that way. The number of self-published titles keep growing by a million titles a year or more. They sell a paltry average per title, and a very small percentage sell a measurable amount at all, but cumulatively, their sales add up. Most of the revenue from that growing market segment goes to Amazon and a very small share of it goes to print or brick-and-mortar. Amazon’s growth in any way fuels their ability to be tough on terms, reducing publishers’ margins. (One big potential wild card is Amazon’s pressuring publishers to allow them to manufacture more and more of the inventory; that could be a paradigm-shifter if they succeed in making it widespread.) And more ebooks, particularly indie ebooks, and the subscription services for ebooks also tend to force down retail prices, which puts further pressure on publishers’ margins.

One other source of potential disruption — and this is one that I think many have in mind when they predict real danger for the establishment is around the next bend — would be some sort of disruptive product innovation. What if book readers suddenly demand video in books, or that stories be turned into games, or that books be enhanced by the margin notes made by prior readers? Would today’s publishers be able to compete? What would that do to margins?

There are areas of publishing outside trade where the “book” has either already become obsolete or could well be in a few years. As we have pointed out repeatedly over the years, ebooks have only really “worked” as substitutes for print books that one reads from beginning to end, narrative reading. The additional “functionality” that might be employed, such as those described above, has been pretty consistently and over a long period of time rejected — or, at least, not widely embraced — by the book-reading public.

But that’s not true in professional publishing, where books have often already been replaced by websites, online tutorials, and other uses of digital interactivity. (John Wiley, one of the biggest professional and trade publishers in the world, is largely exiting the business of “books”. O’Reilly Safari demonstrated over a decade ago that a subscription service was a great commercial proposition for professional books, long before it was even tried for consumer.) It is likely not to remain true in school and college textbook publishing, where the value of integrating testing and then adjusting what’s presented in the content delivery has enormous value and where institutions, rather than individual consumers, are in control. Predicting big disruption in these markets over the next few years seems like a much safer bet than in trade. Of course, those parts of the trade markets that look similar to those — cookbooks and travel in particular — have already seen wide-scale disruption.

Frequently, those who say they’re expecting disruptive change also promote the expectation that there will be some really substantial shift in consumer behavior. Quoting Cuddy:

So what is a book? What is reading? How will the millennials and children of the future consume stories? Will they even want to? I don’t think any of us know.

This is the big bugaboo: the death of long-form reading. That’s a reasonable thing to conjecture about, but not in the next three years or five years or even ten. In 2025, most of the books being read on the planet will be read by people who are reading them now. The most recent serious study about “designing books for millennials” (from Publishing Technology) seemed to conclude that millennials aren’t much different than the generations that preceded them when it comes to their book-reading habits.

Over the long run, things will almost certainly change in very big ways because of the inexorable forces eroding publisher margins described above. I wouldn’t be surprised to see only two or three big trade publishers as soon as ten years from now. I’d expect that the two recent plateaus we’ve reached, with ebook sales stabilizing in relation to print and with bookstores holding their own, will prove temporary. I wouldn’t expect ebook sales or online purchasing to grow by the leaps and bounds they did a few years ago, but it would surprise me if we’ve reached any long-term limit, particularly in ebook use. (The devices keep proliferating and people get increasingly comfortable reading for a long time on screens.)

More and more entities of all kinds will be using books, and particularly ebooks, to further their own missions through education or content marketing. They may not “flood” the market, but they’ll add a lot of product not necessarily priced with commercial intent that will steal sales and reader time from what publishers are trying to peddle.

For some time, I have figured that book reading might grow but that the industry that delivers books for profit might shrink. That would still be my expectation.

The biggest threat to publishers as we have known them would be consolidation among the intermediaries who sell their books. My hunch today would be that Amazon sells more than 40 percent of the books in the US. Indeed, their own publishing operation is growing despite the fact that they face continued resistance from their competing retailers to carrying their books. That suggests that books can be profitable, and authors made happy, on sales made to the Amazon audience alone. The bigger their share gets, the more that presents a real danger to publishers.

The whole point of publishers is “many to many”. They handle the output of multiple authors to give them the scale necessary to provide services to multiple sources of revenue for both books and rights. Amazon consolidated a big enough share of the audience that what they alone could sell constituted a viable market. That, combined with the elimination of inventory investment enabled by ebooks, created a robust indie publishing business. (Yes: iBooks and Nook and Google and Smashwords and others are part of it, but Amazon created it, and it might not be much of anything yet if they hadn’t!) Amazon could afford to pay a higher share of the consumer price than any publisher selling through them could and that created the marketplace in which indie authors could thrive financially and have a logical basis to express incredulity that other authors would take a publisher’s deal. During the days when both Amazon’s share and the ebook market were growing without any obvious limits, predicting that they would one day soon put a bullet in the heart of the publishing business might have been an overambitious projection, but it wasn’t entirely illogical.

But those days have passed. In retrospect, the big threat to publishers probably ended when Larry Kirshbaum’s efforts to get big name mainstream authors to leave legacy publishing in some numbers for Amazon failed, largely (I’d conjecture, we’ll never really know) because the competing retailers refused to play ball. Their outspoken refusal to carry Amazon books escalated the risk to an author’s career if they took any amount of money to be Amazon-published. That was not necessarily a deal-killer to a genre author who could reach a big share of their market with Amazon alone, but it made it just about impossible for Kirshbaum (or anybody else who might have occupied that seat) to use a checkbook to persuade an author already successful with legacy publishers to, essentially, risk their career.

Since then, despite Amazon Publishing’s continued growth (primarily in genres, not general trade) and what appears to be the continued growth in self-publishing have not really threatened the legacy publishing business. As long as the big authors don’t abandon the publishers, they’re safe. And as long as there is a complex demand chain for publishers to manage and service to pull in the revenue, they probably won’t.

So figuring out whether or when the industry turns upside down depends on figuring out whether or when the demand consolidates at Amazon to such an extent that the rest of the market can be lived without.

There will be fewer bookstores. There will be more titles competing from outside the commercial publishers. There will be continued downward pressure on prices. There will be diminishing interest in having a narrative book in printed form. And despite publishers’ efforts to add value by reaching distant markets and learning how to do digital marketing at scale, the publishing industry will, indeed, shrink.

But an apocalypse is probably not around the corner. And the book business as we see it today will still be recognizable in 2020 and even in 2025. I suspect that the business environments for all other media — music, movies, TV, and games — will change more than the business for narrative trade books over the next ten years.

Remember that we are conducting two surveys of industry opinion to inform the programming we’re doing for next March. Click here if you want to express yourself on the topics for Digital Book World 2016 and here if you want to register opinions on the program ideas for Publishers Launch Kids. 

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Innovators and circumstances: the Frankfurt Publishers Launch show


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

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

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

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

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

Both sets of presentations are extremely diverse.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

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DBW lets us look at ebook bestsellers by price, and things are revealed


Digital Book World unveiled its new ebook bestseller lists this morning. They put this effort together — I program the annual January conference for them; this work has almost nothing to do with me (although I’m over-generously credited with having provided “guidance”) — over the past couple of months working with Dan Lubart. Lubart owns Iobyte, which had been tracking ebook sales and rankings for over a year before he took a job at HarperCollins late in 2011.

It occurred to me a long time ago that ebook bestseller lists had a core flaw. Because many print book lists were sorted by format (hardcover, trade paperback, mass-market paperback) — USA Today’s is an exception — they were effectively “tiered” by price. But ebook pricing, famously a point of contention as publishers tried to maintain higher prices in the marketplace through agency agreements, varied widely and that variance was obfuscated in the lists.

So when four self-published authors land on the NY Times list, the stories saying so don’t even mention the big price advantage working at the back of two of them, whose books were 99 cents. All the more credit, of course, to Colleen Hoover, who scored with two books on the list priced at $7.99. She has since signed a contract with Simon & Schuster. (Bella Andre, who has books at $4.99 on the list, spoke for us at Digital Book World III last January.)

In the absence of prompt unit sales reporting by accounts, which doesn’t seem to be on the horizon any time soon, the only way timely lists of this kind can be assembled is with a certain amount of informed guesswork. (You can collect unit sales numbers through the publishers, but only with a very serious time lag.) The Lubart-DBW team can see the sales ranks of all these books on the various ebook vendor sites, but they have to take educated guesses about how to factor in the different rankings (power law curve; sales drop sharply as ranks drop) and different account sales power (number five on Amazon almost certainly sells more than number five anywhere else).

So nobody’s list can be above dispute.

DBW’s methods, which I have discussed with them and which Lubart lays out in a post, are objective and reasonable and constantly under review. So their lists deserve to be treated with respect and analyzing what they tell us is worth the effort.

First of all, there is a striking lack of self-published material represented. There is not one self-published ebook in the overall Top 25 and only two appear at all, both on the lowest price band (from zero to $2.99).

Secondly, there is a publisher I hadn’t heard of that shows up with two titles in the cheapest band and with one in the next one up ($3-$7.99). That’s “Entangled Publishing”, which has an interesting business model that Jane Litte talked about on her blog a couple of months ago. They’re also intriguing because one of their hits, a book called “The Marriage Bargain”, was on the Hollywood radar screen when I was out there talking to people two months ago. Now they know there’s a new publisher to watch.

The Top 25 break down by publisher this way: Random House 10, Penguin 5, Scholastic 3 (we know what those are), Simon & Schuster 2, Hachette 2, Macmillan 1, HarperCollins 1, Soho 1. (Soho is an independent New York-based publisher.)

But what is even more interesting to me, and which defies the notion that the big publishers aren’t aware of the value of lower pricing, is how the list breaks down in the lowest price tier (they list 10 titles): Random House 2, Self-published 2, Entangled 2, HarperCollins 2, Soho 1, Penguin 1.

Six of the top 10 titles under $3 belong to the Big Six.

The Big Six plus Scholastic have seven of the top 10 in the $3-$7.99 price band as well.

Above $8, only Kensington breaks the monopoly of the Big Six, with one title.

So it would appear that the notion that The Big Six are hurting authors by pricing their books too high is not borne out by this data.

It will be particularly interesting to watch how the lists change in the various price bands later this Fall if the DoJ settlement is approved and the retailers are free to set prices on the output of half of the Big Six.

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Barnes & Noble announced today that they’re going into the UK with partners they will name later. This was a move the industry has been waiting for. The expectations that B&N would team with Waterstone’s were dashed by the surprise deal the British retailer announced with Amazon earlier in the summer.

This is a very important move by B&N. They absolutely have to get global to be a long-run competitor in ebooks, and Britain is certainly the logical place to start.

I see two big issues for them. The obvious one is that they probably won’t be partnering with a signficant book retailer since Waterstone’s has their Amazon partnership and WH Smiths is partnered with Kobo. So they might get a lot of consumer reach — through one of the supermarket chains, say — but the core book market won’t be instantly accessible.

The less obvious one is that dedicated ebook readers, which is where Nook is strongest, particularly with the Glow, are losing ground to a plethora of tablets, led by iPad, of course, which is rumored to have a new smaller version coming. There is a reasonable theory that the eink device has “peaked” and that multi-function tablets will be the point of entry to the ebook market for new consumers in the future.

In fact, that theory is one we’re discussing at our Pub Launch Frankfurt conference on October 8, as Peter Hildick-Smith applies his Codex Group research data to the question of how digital markets will shape up in countries beyond the US and the UK in the future. At the same event, B&N executives Jim Hilt and Theresa Horner will appear as well.

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Extending the life of bookstores is critical, but devilishly difficult


I’ll admit that I would have thought a few years ago that by the time we got to the point when more than a third of unit sales for major houses had gone digital — and perhaps more than half for fiction — that the future shape of the book business would be discernible. But, at least according to what I learned from one Big Six house last week, we have reached that level of ebook uptake and despite that, the business still looks very much as it has. It seems impossible to me that it will stay that way.

Here are a few bits of information that came onto my radar last week.

One Big Six executive told me that ebook sales in their shop had reached the mid-30s as a percentage of units sold. That broke down to about 50% of fiction units and 25% of non-fiction.

Nonetheless, that same executive noted a real slowdown in the rate of ebook growth. This is to be expected as the base of sales grows, of course, but it slowed down faster than this house expected. They had seen a 120% increase in ebook units in 2010 and figured they’d see an 80% growth in 2011; it came in at 60%. In short, the rate of increase was cut in half.

These numbers gave this particular executive reason to believe that print demand was begining to stabilize and that it was reasonable to assume that 50% print units might persist into the future, with commensurate new stability for brick-and-mortar stores. I have since been told that a leading executive at another of the Big Six houses shares the same expectation, or hope. Perhaps they all do.

On the other hand…

Another publisher, substantial but not Big Six, has seen much more explosive growth continuing in ebooks and, for that publisher, unit sales for fiction have already gone to well beyond 50% digital.

A paper by the accountants-consultants at Deloitte in the UK, reported in the Guardian, predicts a decline of 40% in all brick-and-mortar stores over the next five years. That’s because books are not the only item for which sales are migrating from brick stores to online. We’ve already learned that books are among the items most susceptible to online purchasing for a myriad of obvious and well-established reasons. We also know that buying public in the US is at least as receptive to online purchasing as the British.

I’ve written time after time after time about the diminishing retail network for books and its potential impact. I have always seen this as existential for big trade houses, whose distinguishing value proposition for authors remains their ability to put books on retail shelves. (There are other things that matter, but I’d argue that all of them put together don’t equal that.) Publishing printed books is a complex endeavor best done by a large organization that can perform its various functions — warehousing, shipping, billing, commissioning the manufacturing, sales representation, and contact with marketing megaphones — at scale.

A proliferation of online marketing channels with real influence could once again challenge the under-resourced (authors working alone or smaller publishers) or otherwise-preoccupied (Amazon) who are trying to substitute for what the big publishers do. So far, the platforms that matter (to the extent they do…more on that below) have been limited in number, Facebook being the most prominent one. (One sales executive said to me yesterday, “Facebook isn’t a platform. It’s a requirement.”) If Tumblr becomes really important and Pinterest really were the next Facebook and, over time,  online influencers become as dispersed as our 20th century media world was, it opens up opportunity for big organizations to add value that smaller ones can’t.

So even if the Big Six optimists are wrong that their business proposition will be preserved by a slowing switch from print to digital (and, with no more knowledge than they have, my intuition against their intuition, I wouldn’t bet a dime that they’re right), perhaps we’re heading for a world where any author in her right mind would want a publisher to cover all the digital marketing bases, with the help of technology and dedicated staff, rather than trying to do it herself.

Nobody’s predicted that yet that I’m aware of, but let me be the first on the block to acknowledge the possibility.

The future of bookstores and the future of publishers if the bookstores diminish much futher in importance should be one of the most important topics on the minds of all stakeholders in the book business. We’re going to try two different ways to explore it at our next Publishers Launch Conference, taking place at BookExpo on June 4. Both of them involve one of the distinguishing features of our events: delivering insightful data about our industry that is not delivered by other industry conferences.

All of the current industry data reporting, including the recent effort called BookStats put together by the AAP, BISG, and Bowker, are unable to isolate sales and inventory in stores by type of book. To plan future publishing programs (and to sign up books this month and next), publishers need to understand with some level of granularity whether it is true that stores are shifting their buying (and selling) from immersive reading to illustrated books and, if so, which illustrated books. Among the reasons that the industry stats fail to capture this properly is that they don’t look beyond the sales publishers make to wholesalers to find out what happened with the books the wholesalers bought.

But the wholesalers know whether the book they just sold went to a brick store, a library, an online store, or an individual. We’ve been fortunate to get Phil Ollila of the Ingram Content Group to examine his company’s records to give us a more detailed and granular understanding of what is really happening in the retail marketplace. Are bookstores really stocking fewer novels and more illustrated books? Is the proportion of sales made online versus in stores changing at different speeds for straight immersive books and illustrated books? Ingram is mining its data to come up with answers to those questions. Ollila will report some findings at our conference.

We will also have a data-rich and sobering presentation from Peter Hildick-Smith of the Codex Group. Hildick-Smith and his team have been surveying book consumers on a quarterly basis for nearly a decade. Their work is high-level and expensive and is normally only available to the big companies that can afford to subscribe. But Hildick-Smith sees a crisis ahead for the industry in his data, and he cares enough about our collective future to want to sound an alarm. He’ll be doing that our June 4 event.

And what he sees and documents is the critical role bookstores play in consumer discovery of new books and authors. He demonstrates with data and logic that SEO and social media are totally inadequate substitutes. Hildick-Smith thinks a future without bookstores will be very different than the present. He makes the case that author brands established in the bookstore era will be largely unchallenged when the bookstore ladder gets pulled up and future authors can’t climb it. And he believes that publishers don’t appreciate that all measures, even desperate measures, are called for to preserve the brick store base as long as possible.

When you start trying to figure out how publishers could do that, you appreciate very quickly that you’re tackling a very challenging problem.

Six decades ago, long before there was any bookstore crisis, my father, Leonard Shatzkin, then at Doubleday, recognized that bookstores were the publishers’ lifeblood. He didn’t see the logic in giving bigger discounts to wholesalers than to retailers. After all, wholesalers primarily put their books in warehouses waiting for orders that publishers’ marketing efforts and a book’s inherent appeal create while retailers put them on shelves in front of customers, stimulating demand. His solution, implemented ever-so-briefly, was to eliminate the wholesalers’ discount differential and offer them the same terms as retailers.

Unfortunately, this is a story about which I didn’t capture all the details while Dad was around to give them to me. I know that the wholesalers went ballistic and demanded meetings with Doubleday management (presumably including Dad, who implemented policies like this from the relative safety of the “Research Department”, not from the front lines of the Sales Department.) The policy was reversed and the wholesale discount was restored.

But I can personally attest to the enduring bad feelings this initiative engendered. In 1974, around two decades after the failed experiment, I was working for Dad selling books for Two Continents. As the top sales guy, it was my role to introduce the company to Bookazine, a wholesaler that then occupied a warehouse on West 10th Street in Greenwich Village. Bill Epstein was the owner of Bookazine and, when he met me, all of the anger from that Doubleday discount change came to the surface, as if he’d been waiting 20 years to complain about it again.

The day has perhaps come again when publishers will want to consider offering the highest discount incentive for placing a book on a retail store shelf. (The idea exists in the world of commerce: it is called a “retail display allowance”, although the concept would need to be extended to favor all retail display, not just favored positioning.) This would be a devilishly difficult policy to design and implement to avoid alienating the wholesalers the way my Dad did. (There is no way a policy like this would be well-received by Amazon.) But after publishers hear Peter Hildick-Smith at Pub Launch BEA, it is bound to strike some, at least, as an idea well worth considering.

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