Full-service publishers are rethinking what they can offer

At lunch a few months ago, Brian Murray, the CEO of HarperCollins, expressed dissatisfaction with the term “legacy” to describe the publishers who had been successful since before the digital revolution began. For one thing, he felt that sounded too much like “the past”. “We need to come up with a different term,” was his assessment and he suggested that perhaps “full-service” was more apt.

I find I keep coming back to “full service” as an accurate description of the publisher’s relationship to an author. That’s what the long-established publishers have evolved to be.

It would be disingenuous to suggest that publishing organizations were deliberately created as service organizations for authors. They weren’t. In fact, as we shall see, the service component of a publisher’s DNA was developed in service to other publishers.

My Dad, Leonard Shatzkin, pointed out to me 40 years ago that all trade book publishing companies were started with an “editorial inspiration”: an idea of what they would publish. Sometimes that was a highly personal selection dictated by an individual’s taste, such as by so many of the great company and imprint names: Scribners, Knopf, Farrar and Straus and Giroux, for examples. Random House was begun on the idea of the Modern Library series; Simon & Schuster was started to do crossword puzzle books.

That is: people had the idea that they knew what books would sell and built a company around finding them, developing them, and bringing them to market.

And the development and delivery to the market required building up a repertoire of capabilities that comprised a full-service offering.

The publisher would find a manuscript or the idea for one and then provide everything that was necessary — albeit largely by engaging and coordinating the activities of other contractors or companies — to make the manuscript or idea commercially productive for the author and themselves.

The list of these services describes the publishing value chain. It includes:

select the project (and assume a financial risk, sometimes relieving the author of any);

guide its editorial development (although the work is mostly done by the contracted author or packager);

execute the delivery of the content into transactable and consumable forms (which used to mean “printed books” but now also means as ebooks, apps, or web-viewable content);

put it into the world in a way that it will be found and bought (which used to mean “put it in a catalog widely distributed to opinion-makers or buyers” but now largely means “manage metadata”);

publicize and market it;

build awareness and demand among the people at libraries and bookstores and other distribution channels who can buy it;

process the orders;

manufacture and warehouse the actual books or files or other packaged product;



and, along the way, sell rights to exploit the intellectual property in other forms and markets, including other languages.

It has long been customary for publishers to unbundle the components of their service offering. The most common form of unbundling is through “distribution deals” by which one publisher takes on some of the most scaleable activities on behalf of other smaller ones. It has reached the point where almost every publisher is either a distributor or a distributee. Many are depending on a third party, quite often a competing publisher, for warehousing, shipping, and billing and perhaps sales or even manufacturing. All the big ones and many others, along with a few companies dedicated to distribution, are providing that batch of services. It is not unheard of for one publisher to do both: offering distribution services to a smaller competitor while they are in turn actually being distributed by somebody larger than they.

An assumption which influenced the way things developed was that the key to competitive advantage for a publisher was in the selection and editorial development of books and in their marketing and publicity, which emerged organically from their editorial efforts. All the other functions were necessary, but were not where many editorially-conceived businesses wanted to put their attention or monopolize their own capabilities.

About 15 years ago, working on VISTA’s “Publishing in the 21st Century” program, I learned the concept of “parity functions” in an enterprise. They were defined as things which can’t give you much competitive advantage by doing them well but which can destroy your business if you screw them up. This led to the conclusion that these things were often best laid off on somebody else who specialized in them, leaving the publisher greater ability to focus on the things which truly and meaningfully differentiated them from competitors.

Another driving force here was the way that bigger and smaller publishers look at costs and scale. If you’re very big, it is attractive to handle parity functions as fixed costs: to own your own warehouse, have a salaried sales force, and to invest in having state-of-the-art systems that do exactly what you want them to do. If you’re smaller, you often can’t afford to own these things anyhow and, on a smaller base, fluctuations in sales could suddenly render those fixed costs much too high for commercial success.

It is therefore more attractive to smaller entities to have these costs become variable costs, a percentage of sales or activity, that go up when sales go up but, most importantly, that also go down if sales go down. And the larger entity, by pumping more volume through their fixed-cost capabilities, subsidizes its own overheads and improves the profitability and stability of its business.

One of the things that is challenging the big publishers — the full-service publishers — today is that the unbundling of their, ahem, legacy full-service offering has accelerated. You need scale to cover the buyers and bill and ship to thousands of independent accounts. If you’re mainly focused on the top accounts — which today means Amazon, Barnes & Noble, Ingram, and Baker & Taylor for most general trade publishers — you might feel you can do it as well or better yourself with one dedicated person of your own.

And if you’re willing to confine your selling universe to sales that can be made online — print or digital — you can eliminate the need for a huge swath of the full-service offering. Obviously, you give up a lot of potential sales with that strategy. But the percentage of the market that can be reached that way, combined with the redivision of revenue enabled by cutting the publisher out of the chain, has made this a commercially viable option for some authors and a path to discovery for others.

So the consolidation of business in a smaller number of critical accounts as well as the shifting of business increasingly to online sales channels has been a challenge for some time that larger publishers and distributors like Perseus and Ingram have been dealing with.

But now the need for services and the potential for unbundling is moving further up the value chain. The first instances of this have been seen through the stream of publishing efforts coming directly from authors and content-driven businesses like newspapers, magazines, and websites.

To the extent that the new service requirements are for editorial development help and marketing, it gets complicated for the full-service publishers to deal with. The objective of organization design for large publishers for years has been to consolidate the functions that were amenable to scale and to “keep small” the more creative functions. So it is a point of pride that editorial decisions and the publicity and marketing efforts that follow directly from the content be housed in smaller editorial units — imprints — within the larger publishing house.

That means they are not designed to be scaleable and they’re not amenable to getting work from the outside. It’s much less of an imposition for somebody in a corporate business development role to ask a sales rep to pitch a book that had origins outside the house than it is to assign one to an editor in an imprint. The former is routine and the latter is extremely complicated.

But what does this mean? Should publishers have editorial services for rent? Should they try to scale and use technology to handle editiorial functions — certainly proofreading and copy-editing but ultimately, perhaps, developmental editing — as a commodity to assure themselves a competitive advantage on cost base the way they do now for distribution? Should publishers try to scale digital marketing? Should they have teams that can map out and execute publishing programs for major brands?

The way Murray sees it, a major publisher applies a synthesis of market intelligence and skills that can only be delivered by publishing at scale. He believes that monitoring across markets and marketing channels along with sophisticated and integrated analysis of how they interact provide an unmatchable set of services.

The scale challenge for trade publishers to collaborate with what I’m envisioning will be an exploding number of potential partners is to find ways to deliver the value of the synthesized pool of knowledge and experience efficiently to smaller units of creativity and marketing.

There is plenty of evidence that publishers are thinking along these lines. The most obvious recent event suggesting it is Penguin’s acquisition of Author Solutions. Penguin had shown prior interest in the author services market by creating Book Country, a community and commercial assistance site for genre fiction authors. Penguin suddenly has real scale in the self-publishing market. They have tools nobody else has now to explore where services for the masses provide efficiencies for the professional and how the expertise of the professionals can add value to the long tail.

There are initiatives that stretch the previous constraints of the publisher’s value chain that I know about in other big companies, and undoubtedly a good deal more that I don’t know about. Random House has a bookstore curation capability that they’ve coupled with editorial development in a deal with Politico that could be a prototype. Hachette has developed some software tools for sales and marketing that they’re making available as SaaS to the industry. Macmillan has a division that is developing educational platforms that might become global paths to locked-in student readers. Scholastic has a new platform for kids reading called Storia that involves teachers and parents that they’d hope to make an industry standard. Penguin has a full-time operative in Hollywood forging connections with projects that can spawn licensing deals. Random House has both film and television production initiatives.

These developments are very encouraging. One of the reasons that Amazon has been so successful in our business is that our business is not the only thing they do. One of the elements of genius they have applied ubiquitously is that every capability they build for themselves has additional value if it can be delivered unbundled as well. Publishers were comfortable with that idea for the relatively low-value things that they do long before they ever heard of Amazon. It is a good time to think along the same lines for functions which formerly seemed closer to the core.

Speaking of which, many of publishing’s most creative executives will be speaking as “Publishing Innovators” at our Publishers Launch Frankfurt conference on Monday, October 8, 10:30-6:30, on the grounds of the Book Fair. 

We did a free webinar with a taste of the Frankfurt conference last week and it’s archived and available and worth a listen. Michael Cader and I were joined by Peter Hildick-Smith of The Codex Group, Rick Joyce of Perseus, and Marcello Vena of RCS Libri.

Dominique Raccah of Sourcebooks, Helmut Pesch of Lubbe,  Rebecca Smart of Osprey, Anthony Forbes Watson of Pan Macmillan, Ken Michaels of Hachette, Stephen Page of Faber, and Charlie Redmayne of Pottermore (as well as Joyce and Vena) will all be talking about initiatives in their shops that you won’t find (yet) going on much elsewhere. And that’s just part of the program. There is a ton of other useful information — about developments in the Spanish language, the BRIC countries, the strategies of tech giants and how they affect publishing, and much more — that will make this the most useful single jam-packed day of digital change information you’ll have ever experienced. We hope to see you there.


Should trade publishers start ditching their B2B imprints for a B2C world?

I spent last Friday at the On Copyright 2012 conference staged by my clients at Copyright Clearance Center. CCC is an organization dedicated to generating revenue for content creators from what is referred to as “secondary” licensing, or uses that are not core to the publisher’s revenue stream and which are often impossible to manage from an individual publisher’s point of view. CCC has the interests of copyright-holders at heart and at the core of their enterprise, but they also live on the cutting edge of digital content consumption where mash-ups, fair use, and the reality that piracy often happens because rights are too difficult to license can’t be avoided.

I’ll admit that discussions of the nuances of copyright itself leave me mostly befogged. Fortunately, this event was much more about the practicalities of the marketplace than about the theories of the law.

The most engaging and interesting speaker of the day was Robert Levine, author of “Free Ride”, an analysis of content and the Internet that deeply questions the increasingly ingrained notion that getting paid for content is inherently contradictory with the growth of digital media. Levine is smart and open-minded about content models and DRM and piracy and enforcement. Indeed, one of the noteworthy features of the entire day was its willingness to entertain notions that might be considered heretical by copyright and old model zealots.

In fact, Maja Thomas, the chief digital thinker and strategist for Hachette Book Group USA, opened the door just a bit to the idea that DRM on ebooks might be counterproductive (at worst) or futile (at best). Maja’s background is extensive in audiobooks. She told the conference that she had been assigned to monitor the destruction of her audio business when DRM was removed from those products a few years ago. And, in fact, there was no destruction!

When the program ended, I dashed down to the front to introduce myself to Levine. He knew me before I said my name and “reminded” me that he had interviewed me during his research for his book. (Somebody else later told me, “oh yes, you’re in there.” I’ll have to read it…) I don’t know whether to blame the fact that my memory for these details is a sieve or that I do an interview or two a week with somebody about something and am seldom called upon to remember them later.

What triggered further thoughts for me (and, ultimately, the point to this post) was a discussion in that last panel, chaired by Michael Healy and including Levine and Thomas, about branding. There was a reprise of the frequent (and mostly accurate) meme that author brands are the ones that matter to consumers, not publisher names, with rare exceptions such as Harlequin.

I think that could be changing. Certainly the circumstances around it are. As publishers are challenged to think about and articulate the value they bring to the process, they often cite curation (publishing just the good stuff and filtering out all the inferior stuff) and editorial development (helping the author improve the work before it is published) as significant contributions. Thomas seemed to suggest that a lot of thinking is going into articulating a publisher’s value at her shop.

I have said for some time that the core value proposition for a trade publisher is “we put books on shelves.” That’s looking at it from the author’s point of view. From the consumer perspective, the curation function is seen to be performed by the bookstore and the hurdles that stores create to getting on those shelves assure that only well-conceived and well-edited books make it there. (There have always been exceptions, of course.) As the shelves for print books diminish and are replaced by virtual shelves that are not nearly so limited, books that might not have made the selection grade in a physical world are sharing space with the carefully (and expensively) selected and edited works of major houses.

And that brings us back to branding. Brands are shortcuts for their users, telling them in a name what they can expect from a product or service they haven’t sampled yet.

Publishing brands until the digital era were really shortcuts for the trade, not for the consumer. The buyers at chain and independent bookstores, the collection development team at libraries, and the editors of major book review media all believe they understand the difference between a Farrar Straus or Knopf book and one from a “lesser” house. That figures into the “hurdles” I cite above. Top publishing imprints found it easier to get placement and reviews and get their books in front of the purchasing public.

That fact (alongside the fact that big publishers grew by acquisition of smaller companies and often would preserve the name of the company they bought, which is how Knopf ends up a Random House imprint and Scribners is an imprint at Simon & Schuster, to cite two of far more examples than you’d care for me to name) started the proliferation of imprints we now see. It has been fueled by publishers’ use of imprints as way to attract and award top acquisition talent.

Imprints have dedicated editorial teams and usually some internal marketing resources, but their value as identities is diminishing. The point to them was always to provide useful branding for business intermediaries, not the end consumer. And, as they proliferate, their value for their original B2B purpose is diluted.

(It is currently fashionable to castigate publishers for their focus on the supply chain rather than the end purchaser. This fashion, along with the totally ignorant bashing of the convention of “returns”, is based on apparent indifference to the history and development of the business. When the entire imprint structure of publishing houses is built around B2B brand recognition and has been built up that way over a century, you’d think people would think twice before being reflexively dismissive of the B2B focus. It is really only recent developments that have turned it into a questionable idea.)

But times really have changed. Attention on the end user is rising; the intermediary structure is declining. And publishers should be rethinking their branding strategies, at the core of which are imprints, as they address the emerging marketplace realities.

Publishers seem to recognize that the competitive statement they need to make going forward is about quality, expertise, and investment in professional support for the creative effort. This will distinguish theirs from the swelling mass of self-published books which are usually sorted out today by their pricing. On the agency model, the Big Six books are $9.99 to $14.99 (a few bucks cheaper on the backlist) while the self-published books cluster around a band centered at $2.99.

That may actually work, for now. But what if big publishers want to compete at the lower price points but still make a “quality” statement? And some indie writers are trying to nudge pricing up a bit while publishers are experimenting with bringing them down, so what if we start to see both indie and branded ebooks in the $5.99 range? Can the big publishers do anything that would help them then?

I think they can, but it will be require a decision that is painful to make, considering their history. They should, for the most part, get rid of their imprints. They should brand every general trade book they publish for quality and professionalism, and that only requires one name per major house and could never benefit from more than two.

That is, knowing that a book is from the Random House family of books is all the quality branding the consumer needs. They don’t benefit from from the more nuanced distinctions between Crown and Knopf, and Random House scatters its consumer firepower to its disadvantage trying to establish multiple names in the consumer mind. (In fact, I’m not sure the big houses even try to establish all these imprints as consumer brands. If they’ve already abandoned that effort, they’ve taken the first step in the direction I’m trying to encourage here.)

If this idea is right, then each Big Six house should select one name (and logically, the single best known name they now have among consumers would be the most sensible choice), or perhaps two, and promote it. (The second name might make sense if there is an imprint already known for “quality”, like Farrar Straus or Knopf.) No other name should be promoted to consumers unless it is establishing a clear niche identity (Fodor travel books or science fiction, as examples). There’s no point establishing brand identity unless you expect consumers to return to it repeatedly, the way they return to stores to buy reading material.

Consumers can’t keep dozens of imprint names straight in their heads, but they can learn the names of six big houses, particularly if they’re starting with names they already know. Like the possibility that Random House should preserve the brand equity in Knopf in addition to building Random House as the general trade imprint, there are nuances to consider in other houses to best implement this strategy.

For example, should Penguin perhaps restrict the use of the Penguin name to classics and established backlist and use something different (Viking?) for everything else? Penguin, because of its publishing history, means something to some people, although I’d argue that not restricting the use of the imprint name to classics and the most distinguished backlist actually dilutes the meaning it might have.

Should Hachette, a name that probably has very low recognition to US consumers as a quality book imprint, be ditched as the brand? Should the company use Little Brown, the most venerable and best known of its imprint names, even though it has created an internal distinction between LB and its relatively new (and therefore mostly unknown to consumers) Grand Central imprint?

What’s the best known name the company now known as Macmillan has? Is it Macmillan? Or is it St. Martin’s or Henry Holt? Farrar Straus might have a cachet worth preserving at the high end, but it would be diluted if it were the overall brand. I suspect that should be Macmillan, but that’s not what they’ve ever called their books; it is just what they have recently started to call their company!

America’s biggest consumers of books can readily remember a few company names to signifying “quality”, and perhaps a few more to mean premium content. Knowing a book comes from an established company with a long list of previously-published titles that book readers are familiar with is the kind of signal people need to be persuaded to part with a few additional bucks for an otherwise unknown author. But that’s all we can ask the brand to do: signal professionalism and quality. The much more nuanced distinctions that the imprint names have been intended to communicate within the trade can’t possibly be delivered cogently to the public at large.

And since the public is now the brand target that matters, it is time to align brand strategy and the brands themselves to that reality.


Publishers, brands, and the change to b2c

I’ve been in the book business for a long time, more than 48 years since my first job on the sales floor of Brentano’s bookstore. For over 37 years it has been my fulltime occupation. My father started his career in books just before I was born, so I have been meeting publishing people more or less since I was in the cradle. And it isn’t that big a business. So, over the years, I’ve gotten to know many people in the industry.

But I hadn’t met Markus Dohle, the relatively new CEO of Random House, until we had lunch last month. He proved to be a very sharp, informal, and relaxed companion, very open with his opinions and observations and very straightforward. And since his prior experience was outside trade publishing (the reason I’d never previously met him), he brings a completely fresh personal perspective to the business.

One thing Markus said really struck me because I agree with it so wholeheartedly and because I hadn’t ever heard it said so explicitly by any of his counterparts. “We have to change from being a b2b company to b2c over the coming years,” he said. He expanded on this when I asked him whether I could attribute the quote for this piece. (I don’t want to disappoint my readers, but I make a living as a consultant, not a blogger, and my career would be crippled if I couldn’t have a conversation with an executive without a looming fear that whatever s/he said would end up in print. If some readers wonder why the sources of some comments remain anonymous, that’s your answer.)

Markus replied that he was fine being quoted because he was “convinced that publishers have to become more reader oriented in a marketing and trend finding/setting way rather than in a direct to consumer selling way.” I welcome the clarification and believe it is right in its emphasis on marketing over sales even though I think that sales, inevitably, becomes part of what a publisher has to do too. And direct contact with and tracking of individual consumers both seem absolutely essential.

(The politics of this are worth a digression to spell out. For several more years at least, big trade publishers will continue to depend primarily on a retail network to reach readers. Despite the fact that all the big retailers, in their way, compete with publishers to control content at its source, they are universally resentful if publishers compete with them to serve consumers. On the other hand, it is increasingly apparent that the retail network is reducing its size and scope and, unless publishers develop alternate channels to consumers, they’ll be reduced in size and scope as well.)

Although Markus was the first CEO whom I ever heard say explicitly that the shift to b2c was in any way a priority, there is evidence in other houses that the importance of direct consumer contact is on the radar. A senior digital officer at another large house is directing a wide-scale effort to organize their consumer contact names — which he found, as he would have in every other house — to be scattered, unorganized, and largely unusable. Pulling names together is one of a number of “first steps” the big publishers must take to act on Markus’s insight.

But there are other “first steps” that are just as important as rationalizing the contact database for consumers. Two of them are related. One is being committing to owning specific groups (or, in the current parlance: communities) of interest. This is what I refer to as “verticalization” and I have written and spoken about it exhaustively. But the commitment to verticalization, in order to be captured and turned into real equity going forward, must be expressed in branding.

The names of publishing houses and the imprints they create are their brands today. (Authors are brands for consumer marketing purposes, but publishers don’t own those brands: the authors do.) What publishers own really do work in a b2b context. Bookstore buyers, book review editors, and collection developers at libraries can discern meaning from company names and imprints. They work the way brands are supposed to work: as shortcuts to establish expectations. Brand tells an informed buyer to expect high-quality writing in a Knopf book and high-quality reproductions in an Abrams book. Brands will also signal them, before they see a finished package, whether a book is likely to feel overpriced or underpriced, and whether the publisher’s claims for promotion and media are likely to be fulfilled.

But most of these brands mean nothing to consumers. And mere knowledge of a brand doesn’t necessarily tell you what to expect if you buy it. Nor would knowledge necessarily provide you with a motivation to get “closer” to it.

The one consumer brand in publishing that means the most and provides the most equity to its owner is Harlequin. Consumers recognize it and have understandings about quality and price based on it. But because they also know that the Harlequin name means the “romance” genre, and because many romance readers buy and consume dozens, even hundreds, of titles in the genre every year, they have logical reasons to visit Harlequin’s web site repeatedly and to request and open email reminders of new publications from them.

In fact, Harlequin’s brand is so clear and so powerful that they can get people to subscribe to their books. When you think about alternative revenue sources, that might be the Holy Grail. It will certainly help publishers stay on the right track if they focus on creating brands and clusters of books around them that could conceivably deliver customers for a subscription proposition.

The Penguin brand is perhaps equally well-known, but it isn’t nearly as well defined. Penguin Classics certainly have a collective meaning, but many books are published under the Penguin imprint that aren’t classics. And while it is likely that sometimes the purchasing choice between one edition of Robinson Crusoe or Hamlet and another might be influenced by familiarity with the imprint, it is not clear that the “quality” signal is important there (because, after all, the words were set down long before Penguin or its competitors existed) as it is for a new romance novel. And it certainly would be harder for Penguin to attract regular web traffic with its brand or to make sales through an email list of brand adherents.

A brand that is in between these two is “Dummies.” It definitely creates a meaningful shortcut for a consumer; they recognize it and it tells them “this book explains the basics on the subject in a way that requires you to bring almost no knowledge to it for it to be useful.” But because Dummies covers many subjects under the sun, it would be difficult to make use of it for audience-gathering or direct marketing the way Harlequin is employed.

You wouldn’t “subscribe” to new offerings, sight unseen, from either Penguin or Dummies. That means that, in at least one very important way, those brands aren’t as useful as Harlequin. Why? They’re too broad. General Motors wouldn’t ever have sold nearly as many cars if they called all the cars “GMs” to create a megabrand and had lost the distinction between Chevrolet and Cadillac. Trying to create “one big brand” if it captures unrelated content or unrelated audiences could be “one big mistake.”

My own theory is that publishers have to completely re-think their imprints in light of the need to move from b2b to b2c. Imprints at big houses are almost always silos with no discernible b2c meaning. In fact, the names of smaller houses, because smaller houses tend to focus on subject areas, can more readily have meaning to consumers.

In fact, Random House just faced a branding question of exactly this nature and got it right. They had acquired a smaller, subject-dedicated company, Watson Guptill, a couple of years ago and had some overlap between what WG published and what Random House already did within their Clarkson Potter imprint. RH executives engineered a solution by which they preserved the venerable Watson Guptill name for “hardworking” instructional books on art and photography —  WG’s strongest historical categories — and made made Potter Crafts a subimprint of WG. They invested in building the crafts list to triple the previous output of WG. The two thirds to three quarters of the WG list that is not crafts will still be WG imprint books. By making Potter Crafts, which they owned before, a part of Watson Guptill (joining Amphoto, the well-known photo line, and WG’s other subimprints), they might get the best of all branding worlds.

And it is further worth noting that tripling down on title output to become a serious player in a niche is probably a move very few Big Six companies would be making these days, but it is necessary to think that way if you’re serious about making substantial b2c marketing efforts. Building a subscription business would almost certainly imply a growth in title output in any vertical.

Random House’s clarity on how publishers should structure brands to have content-specific meaning is still unusual. (There are other examples: Hachette’s invention of “Springboard”, a brand to do books for baby boomers, is a nod in the same direction.) Publishing Perspectives, the thoughtful online publication operated by the Frankfurt Book Fair, offered a piece on the subject six months ago that was locked into what is still publishing’s more normal b2b way of thinking. The catalyst for the post you are now reading, actually, was their editor Ed Nowatka’s piece with the provocative headline asking “Does a Publisher’s Brand Equity Translate to the Digital Age?” which (with all due respect, of which I have plenty, to Ed) I thought really didn’t address the question. But at least he asked it. I don’t recall ever reading a single piece on the subject of this one: how do what have always been b2b publishers create b2c brands?

In fact, Random House just faced a branding question of exactly this nature and got it exactly right. They had acquired a smaller, subject-dedicated company, Watson Guptill, a couple of years ago and had some overlap between what WG published and what Random House already did within their Clarkson Potter imprint. RH executives engineered a solution by which they preserved the venerable Watson Guptill name for “hardworking” instructional books on art and photography —  WG’s strongest historical categories — and made made Potter Crafts a subimprint of WG. They invested in building the crafts list to triple the previous output of WG. The two thirds to three quarters of the WG list that is not crafts will be WG imprint books. By making Potter Crafts, which they owned before, a part of Watson Guptill (joining Amphoto, the well-known photo line, and WG’s other subimprints), they are making an attempt to get the best of all branding worlds.
Random House’s clarity on how publishers should structure brands to have content-specific meaning is still unusual. (There are other examples: Hachette’s invention of “Springboard”, a brand to do books for baby boomers, is a nod in the same direction.) Publishing Perspectives, the thoughtful online publication operated by the Frankfurt Book Fair, offered a piece on the subject six months ago that was locked into what is still publishing’s more normal b2b way of thinking. The catalyst for the post you are now reading, actually, was their editor Ed Nowatka’s piece with the provocative headline asking “Does a Publisher’s Brand Equity Translate to the Digital Age?” which (with all due respect, of which I have plenty, to Ed) I thought really didn’t address the question.

This is a subject that has been on my mind for a long time. I wrote a post 18 months ago about an imprint started at another house that I considered to be, similarly, the product of the same b2b thinking that characterizes the Publishing Perspectives piece. And about a year ago, I stressed the importance for publishers of building b2c brands going forward.

I believe Markus’s insight is the necessary first step that others haven’t yet taken and, whether or not it started with Markus, the awareness of the need for consumer focus certainly helped Random House make sensible decisions to exploit the brand equity in the WG name they had acquired. Once publishers accept that being consumer-focused is essential to their long-term survival, it follows logically (although not automatically or instantaneously) that they need to think about discrete audiences on more than a book-by-book basis; that they need to gather those audiences on web sites and in mailing lists; that they need to publish books that satisfy them repeatedly, not occasionally; and that all these efforts will make more sense if each separate audience has a brand facing them with real meaning. We’re seeing that from the big publishers right now in genres; they are trying to build science fiction and romance communities and branding them. Random House built a vertical in travel earlier in the decade, developing business models out of a critical mass of content that went beyond simply selling books. That, and the efforts at Random and other big houses to build communities around genres, is a start. But a lot more development of this kind is going to be needed to replace the marketing clout being lost as the old channels to consumers wither in the months and years to come.


It isn’t wise to draw lines in the sand that ultimately can’t be defended

Apologies in advance for a much-longer-than-usual post.

It is not like the publishers haven’t seen the ebook royalty fight coming. On a panel he and I were on together in March of 2009, John Sargent, the Chairman and CEO of Macmillan, identified ebook margins as the critical issue for publishers going forward. Even though ebook sales at that point were financially insignificant and the growth surge that we’ve seen in the past 15 months wasn’t yet evident, Sargent expressed the belief that ebooks would be the future and that publishers had to be diligent to preserve their margins in the digital environment.

There are three moving parts to the publishers’ margin equation for ebooks.

The one that I think Sargent was thinking most of at that time is ebook pricing. If “misguided” publishers or market forces drive down prices a great deal, that could threaten publishers as sales migrate to digital.

The second one, which was then and remains today a focus of publishers, is the potential consolidation of sales channels so that power moves from a multitude of publishers to a small number of, or perhaps a single dominant, point of contact with the customer. Until the Nook came along from B&N last winter and the iPad from Apple in the spring, Amazon and Kindle looked dangerously close to being able to dictate both pricing and margin in the ebook supply chain.

And third, of course, is the amount of the consumer spend that is taken by the authors: the royalty.

The ebook pricing and channel consolidation issues have been front and center for the past year, ever since Dominique Raccah of Sourcebooks put “windowing”, which had been tried before for ebooks, in the spotlight as her solution to the perceived damage deeply discounted ebooks could do to print book sales, particularly of the hardcover edition. After she announced that she was holding back the ebook for Bran Hambric, similar announcements came from other publishing houses. At that time, only a year ago, Amazon was the dominant ebook vendor with Kindle sales amounting to 80% or more of the ebook sales for narrative trade books.

But the introduction of Barnes & Noble’s Nook device began to eat into Amazon’s hegemony last winter as 700 B&N stores started pushing a Kindle-type experience on their millions of customers. Then, in April, Apple introduced the iPad and changed the game two ways.

First of all, their tablet computing device, which can serve as a larger-than-a-cellphone screen for an ebook reader, started adding tens of thousands of new device-equipped potential book customers every day!

But along with the device competition, the iPad and its iBooks platform added a new business model called Agency. And, under Agency, the pricing of ebooks at retail theoretically becomes standardized across the web, not subject to discounting by individual retailers. This visibly upset Amazon, which appeared to pick a fight with Macmillan over the terms. It looked to those of us with no inside knowledge of their conversations to be an attempt to bully publishers to give up the Agency idea. In retrospect, this was perhaps a bad fight to have picked. Amazon’s threat was to stop selling the print editions of titles from those publishers who sold ebooks on Agency terms. Since five of the top six publishers were moving in that direction, and none of them blinked, Amazon had to, in their own words, “capitulate.” (On the other hand, we are not aware of any other publisher, beyond the Big Five, to whom they also capitulated, so the final score on this fight isn’t in yet.)

So it would seem that the big publishers have solidified two of the major components of their ebook margin. With their help, consolidation in the ebook channel has been reversed and they’ve taken critical steps to control prices to the consumer, while ebook sales have continued to rise at an accelerating pace.

But there remains this tricky question of royalties.

Agency pricing compounded the 25% problem from the authors’ and agents’ point of view because the base price for Agency books is 25% to 40% lower than it is for the old model, wholesale, so the authors’ share is commensurately reduced. Most agents liked the principle of getting uniform pricing, likely to create a healthier ebook marketplace, but were understandably miffed that their per-copy take could be reduced without any agreement required on their part. The publishers would no doubt point out that their take per ebook unit was going down as well. And Random House, still selling at wholesale, is no doubt making the point that their 25% amounts to substantially more per unit than the other guys’ 25%.

There had already been signs for a while that a lot of legacy backlist wasn’t being enticed by the royalty offers of its current publisher. Jane Friedman, formerly the CEO of HarperCollins and an important player on the New York publishing scene for four decades with a lot of very solid relationships, started a new publishing company called Open Road. Among her propositions was to secure ebook rights to some very well established backlist titles by offering a royalty of 50% of receipts while many of the big publishers were apparently holding the line at 25%. The early headline “get” for Open Road were novels by William Styron.

Then in December, S&S bestselling author Stephen Covey announced that he was putting some of his backlist into ebooks for a deal calling for more than 50% of receipts through Rosetta Books, which had litigated inconclusively with Random House about these matters a few years ago. Through Rosetta, Covey’s books were going to be exclusively offered for a time through Kindle. At the time that announcement was made, Nook hadn’t taken hold and iPad hadn’t come out and Kindle was the dominant platform in the market. A time-limited exclusive with them at that moment didn’t seem crazy.

Last week, the plot really thickened.

In retrospect, one could say that there were two preliminaries to the big news about the intentions of the agent Andrew Wylie.

On Tuesday Teleread carried the story that Knopf was pushing ahead to digitize more backlist. There appears never to have been a formal announcement of this, and it seemed a bit curious on a couple of counts. One is that Random House, of which Knopf is a part, has already digitized backlist for years. What could they have missed in their prior efforts? The other is that it always seemed that Random House’s digital efforts were corporate, not imprint-specific. Why would there be news about Knopf on its own?

Then my good friend Evan Schnittman published a post on his Black Plastic Glasses blog called “Pass the Gestalt, Please.” Evan’s point was simple and forcefully made. Ebooks don’t exist in a vacuum; they can’t be evaluated with stand-alone economics. Publishers acquire intellectual property and they monetize it every way they can. They make more from some formats and channels than they do from other formats and channels. But what matters in the end is how much total money they produce, for themselves and for their authors.

I have a problem jumping from the math Schnittman lays out to the characterization that agents are being unreasonable when they ask for a higher percentage of ebook receipts than they get of hardcover receipts. Schnittman argues that margin is irrelevant because the parties aren’t negotiating a profit-sharing deal. I’d say the receipts comparison that he draws is irrelevant. Hardcover receipts are offset by printing costs, handling costs, and spending for excess inventory that receipts on ebooks are not.

Schnittman’s post, which was debated as soon as it hit, turned out to be prologue to the events which then dominated conversation for the rest of the week.

By all public appearances, big publishers were being very stubborn about their 25% ebook royalty, even on very important backlist and more or less daring authors to do something about it.

On Wednesday morning, the plans of the Wylie office were dropped like a bomb, apparently by Amazon. (I am told by a source I trust that Amazon revealed the news and that Andrew Wylie himself was, and is, away on vacation. The Times, as you can see, didn’t report it that way.) It was announced that Wylie that had formed a new publishing company called Odyssey to handle some significant backlist  and — in an apparent middle finger to the entire publishing community — were putting the books into Amazon for a 2-year exclusive. Left unrevealed were what Wylie was paying the authors, what splits Amazon offered Wylie’s authors, and whether any money changed hands between Amazon and the new Odyssey entity. The announcement of Odyssey followed a long period where Wylie had complained publicly about publishers’ reluctance to pay what he (and many other agents) thought were reasonable ebook royalties for legacy backlist.

Response was quick. John Sargent, tongue deeply in cheek, welcomed Wylie to the community of publishers and suggested he should perhaps be paying AAP dues. Random House announced they would not be buying any books from the Wylie agency until this issue was resolved. And many people observed that signing an exclusive deal with Amazon when they’re losing market share quickly and are likely to lose more soon was questionable, not to mention whether there was a conflict of interest for an agent publishing his own clients’ books.

Without knowing what incentives Wylie got for his authors from Amazon in return for the exclusive, it is hard to be sure that it is a mistake (although it seems likely, given the current growth pattern of the ebook suppy chain.) But the conflict of interest for an agent charged with looking for the best possible deal for an author and then self-publishing, in the face of potential litigation, is transparent. And even if Random House is the only house that openly boycotts the agency, there’s an impact on all Wylie clients in return for a theoretical advantage for the ones being he will publish through Odyssey. One must imagine there are more than a few current authors with that office who are scratching their heads about what this might mean for them.

From my perspective, there’s plenty of justification on all sides of this argument. Although I didn’t like his math, Evan Schnittman is entirely correct to say that a publisher making a deal for a copyright plans to exploit it through all channels. In words I’ve heard often from John Schline of Penguin, “you don’t do a P&L on a format; you do a P&L on a title.” They’re right that the author negotiating a deal with them accepts a basket of compensation schemes for different channels in return for an advance. Logical fallacies can creep in when you take one element of it in isolation and say it “isn’t fair” (although, in practice, that’s exactly how contracts are negotiated.)

But the controllers of old copyrights — the Styron estate and Stephen Covey, among others, and apparently several other estates and authors represented by Andrew Wylie — are also right to believe that the ebook rights weren’t contemplated in the contracts for the books in question and that a publisher starting today to publish those books electronically will have a tiny cost base and relatively astronomical margins.

Certainly not all publishers are being stubborn about the 25% number in all negotiations. And agents usually feel they can’t talk about concessions they get publishers to make. One made it very clear to me that s/he was getting concessions from publishers on ebook royalty terms in the form of escalators, but would never say so out loud for fear of angering the customers of s/he’d wangled those concessions from.

(On the other hand, things might be changing fast. In a story I saw just as I was finishing this post, the Financial Times wonders if the Wylie plans don’t signal the conclusion of publishing as we have known it. In that story, superagent Amanda (Binky) Urban is quoted saying her ICM office is getting significant royalty concessions from major publishers, including Random House. Perhaps the Wylie story has changed the dynamic so that now publishers want all the agents to know they’re ready to be reasonable. I’m not aware of an agent having been quoted to that effect before, and it would seem highly unlikely that Urban said what she said without having consulted any house she would name in advance. All of that would anticipate the suggestion I’m making below.)

All public statements are, by definition, posturing.

But the arguments publishers have made publicly to this point have elided the fact that their negotiating position is not the same for these books as they are for a new book. When a new proposal is put in front of them for purchase today, whether they are offering $10,000, $100,000 or $1 million for the rights, they’re in a position to say “if you want my check, it comes attached to these royalty terms.” But they didn’t stipulate those terms when they published books 40 or 30 or 20 years ago, or even 10 years ago. At a minimum, they require agreement from the author on a royalty rate to publish the ebook today; they may need agreement from the author to publish the ebook at all.

Why would the publishers expect an author whose book has earned out long ago, who has no requirement to allow the publisher to publish the ebook and (at the very least) a case to make that they’re free to sell ebook rights elsewhere, to accept the same terms that are offered to authors not in that position?

Publishers may have trapped themselves by not articulating that distinction. Their public position seems to be that they can’t make a competitive deal on this backlist because it would create precedents for the new titles they’re negotiating for today. But it doesn’t have to. There’s a very simple, clear policy they could declare that would make this whole issue go away. Maybe there are one or two already acting this way, but it would be nice if even one publisher would just say this:

“Our policy for all new titles we sign up in the context of all our other standard terms is that we pay 25% royalty on ebooks. But for those books on our backlist which a) have earned out their advance and b) have ambiguity in their original contracts making it unclear what the royalty rate for an ebook should be, we will negotiate a higher royalty in recognition that a contractual element is being negotiated after the value of the copyright has been demonstrated in the marketplace and the risk profile has changed.”

Life is very complicated here. Every deal is different. There are costs and risks for authors and publishers trying to set up these separate ebook deals while a print backlist remains with a legacy publisher. The publisher might sue (although that opens up, for them, the danger that they’d lose, and the consequences of that could be dire.) At the very least, the author annoys the guys with the big checkbooks who are still the custodians of their print sales.

Although it is certainly possible that some authors or estates would want a publisher as talented as Jane Friedman remarketing their backlist, I still believe that if Open Road and others are offering 50%, publishers would find many authors receptive to avoiding the conflict if the publishers were offering 40%. But even if they had to pay 50% to some authors, the publishers would be doing themselves a favor by stating the position articulated above.

Each publisher has to do its own math about how many books of theirs would be affected and what openly paying 60-to-100 percent higher royalties on those books would cost them. Undoubtedly, it would also require them to make concessions to authors they’d roped in for the 25% royalty; certainly many of those have re-openers or most favored nation clauses of some kind in their contracts. That’s the downside. But there is a lot of upside. For one thing, Open Road and Rosetta and Wylie’s new imprint would be seriously weakened; except for Open Road, which has strong cachet with Jane Friedman at the helm, they might just disappear. For another, lots of great titles that could be selling robustly as ebooks if only they were available as ebooks would be producing revenue for the publishers (as well as the authors.) Significant legal costs and liabilities would evaporate. And they’d gain enormously in trust and goodwill with the agents, who are spending far too much time trying to figure out how to go around publishers for the best backlist they control, rather than how to work with them. The conversations I have had make me believe that most agents do not believe that most big publishers are willing to deal on the basis I’m outlining here, (although a lot of them will be calling the publishers tomorrow after they read Binky Urban’s quotes.)

Aside from the reduced per-copy royalties agents and authors are seeing from the Agency pricing, they are also afraid that robust ebook sales at the hardcover price are postponing the issuance of trade paperback editions, on which the 25% Agency royalty does exceed the normal 7% of retail paid on print. That makes them feel like they’re losing again.

It is a paradox that traditional contracts have legacy publishers — the ones who write the large advance checks — paying higher per-copy print royalties than many little publishers pay on hardcovers, even with the various high-discount clawbacks that have been built in over the years. The ebook-first publishers who do print will almost certainly pay lower print royalties than print-first publishers have, if they do hardcovers at all. Publishers will need a foundation of good will, but over time should be able to negotiate lower hardcover royalties in return for higher ebook royalties on new contracts. And that will make sense, because, ultimately, print sales are more expensive for publishers to deliver than ebook sales.

Even if the publishers pushing back manage to win this round with Wylie, and they well might, I don’t think the 25% royalty can hold for very long. As more and more of the business shifts to ebooks, companies without the legacy costs that big publishers have will find it easy to pay higher royalties than that and agents will keep doing the math about how many sales they can afford to lose and still end up ahead in dollars with a higher ebook royalty. As Amazon should have learned in their fight with Macmillan in January, it isn’t smart business to draw a line in the sand marking a position you ultimately can’t defend. I hope every big publisher in town will take that lesson on board, or, even better, that Urban’s remarks tell us that they already have.

In a dialogue with a couple of smart people in my “kitchen cabinet” between writing this piece and posting it, I was asked whether I thought the ebook should have a royalty “greater than the hardcover or less than the paperback.” My response was:

I don’t have an ideology about this. Applying logic alone, I would think a Harlequin or O’Reilly ebook author should get a lower percentage than a Big Six ebook author because the Harlequin and O’Reilly brands add to the online ebook sales power in ways the Big Six publisher brand does not. The same author and the same book wouldn’t sell as well if it were under another imprint. Fully applied, that approach would mean that every deal would be different, which is utterly impractical. I don’t like to advocate things that are impractical.

Publishers should try to make standard the lowest royalty that they can apply in the marketplace without making enemies of their trading partners. It just isn’t realistic to offer a brand name with a choice of where to go 25% in this day and age. It’s just bullheaded. My sense is that any house that offered a standard 25% to earnout and 35% thereafter would be fine for now, except with the biggest authors with whom they’ll have to negotiate escalators (or change the basis on which the not-intended-to-be-earned-out advance is calculated.) But all solutions here are temporary. The line won’t hold. When ebook sales get to 50% of the total (2014-15), even 50% is not going to cut it.

I don’t have an ideology about this. I think a Harlequin ebook author should get less than a Harper ebook author because the Harlequin brand adds to the sales power: the author wouldn’t sell as well if the same book were in another imprint. Fully applied, that means that every deal would be different, which is utterly impractical.
I think publishers should try to apply the lowest standard royalty that they can get away with based on marketplace reality. It isn’t reality to offer a brand name with a choice of where to go 25% in this day and age. It’s just bloody-minded. My sense is that any house that paid a standard 25% to earnout and 35% thereafter today would be fine, for now, except with the biggest authors with whom they’ll have to negotiate escalators. When ebook sales get to 50% of the total (2014-15), even 50% might not cut it.


Lots going on; no single topic today

I find myself with a lot of pages open on my web browser. Even before Amazon’s announcement yesterday about ebooks passing hardcovers in sales this past quarter, there has been a lot going on.

There had been some suggestions, which I never bought into, that ebook sales were slowing in 2009. (Is this a meme that started with somebody anti-Agency? More on that later…) I look at the IDPF chart as it stands today and it is headlined 2010 Sales  “OFF THE CHART” vs. Previous Quarters and that’s how it looks to me. A major publisher told me yesterday that AAP figures suggest ebook sales are up 210% this year and that house’s numbers are up 225%, so they feel they’re rising with the tide. That’s about what PW said the AAP said with the additional information that hardcover sales were up and paperback sales, trade and mass market, were down.

In fact, Amazon, in the face of the apparently-stiff competition from the Nook and the iPad, says Kindle book sales have tripled in the first half of the year!

Nonetheless, Madeline McIntosh at Random House doesn’t see ebooks causing problems for paperback sales. She’s quoted in the Wall Street Journal saying, “Our conclusion is that there’s no data to prove any connection—good or bad—between growth in e-books and the growth or decline, in trade paperback sales. … If anything, we may be seeing a positive effect in which the steady pace of e-book sales helps to keep a book in front-of-mind for a growing number of consumers after hardcover momentum slows.”

Kat Meyer, blogging for O’Reilly, got an indie ebookseller to talk on the record about the difficulties they’re having with the transition to Agency. This would seem to undercut the idea (which I agree with) that Agency is good for smaller sellers, because the little guys will get squashed in a price war with big guys. A seminal figure in the online book retailing world who has worked with smaller stores on these challenges for years told me in a phone conversation this week that he completely agrees with me. But the problems Kat lays out for the smaller guys during the transition are real. Let’s hope we don’t lose too many of them while this all gets figured out.

Meanwhile, Knopf made some news with the announcement that they are converting more of their backlist to ebooks. We were wondering what titles they could have missed so far. Random House has never been a laggard at ebook conversion and we’re scratching our heads wondering about a conversion initiative that would be imprint-specific. But this shows that the ebook sales records being broken are occurring without the gun being fully loaded; they’re still making ebullets out of old books.

Joe Wikert wrote a blog about the emerging ebook landscape in which he imagines that the various indies selling Google Editions will, all together, constitute a big Amazon. I don’t think so. I don’t think Google can save indies with what they’re doing. But it is good that they’re trying.

Joe also thinks that Amazon will abandon the Kindle device in favor of the Kindle as a platform. I don’t agree with that either. The device is reportedly still selling like hotcakes with sales rising quickly since a recent price cut, even while the Nook has established itself and iPad has been “competing.” I think there’s room for tablet computers and ereaders, which might be a minority position at the moment. (Being in the minority is perfectly comfortable for me.)

You know we’re all about vertical here at The Shatzkin Files. It looks like some authors from big houses are taking this vertical thing into their own hands. A bunch of gardening authors have created their own garden experts speakers bureau.  It won’t surprise anybody if I predict that this effort will be more successful than the “horizontal” speakers bureaus launched by some of the major houses over the past few years. I checked with the folks at Cool Springs Press, the gardening publisher I featured here a couple of weeks ago, and, of course, they’re involved.

I had written a blogpost recently saying that I thought ebook selling nodes would explode and be all over the web. It looks like Oprah is fueling that idea in a way that I hadn’t entertained: with an app. Why not? Who has a better brand than Oprah for “curation”? Maybe Barnes & Noble. But maybe not.

It also seems that self-publishing is growing in ubiquity and respectability. PW announced the plans of an author who told his agent not to bother selling his rights. If this isn’t the major trade houses’ worse nightmare, it should be! Joe Konrath, who may go down in history as the trailblazer who proved that some authors, at least, can make money without publishers, is reporting his rising Amazon revenues on books the New York houses have turned down, and they’re eye-catching.

And the last thing I note in this pot-pourri is the news from Farrar Straus & Giroux that they’re launching an online literary magazine. On the one hand, this is the kind of niche marketing we’ve been advocating that larger houses pursue. On the other hand, the story suggests this is all about promoting FS&G books, not about building a community of like-minded readers, few of whom would know or care which publisher put out the last book they liked.