Nook

Some things I will be looking to learn more about at London Book Fair


The London Book Fair is an every-second-or-third-year thing for me, going back many decades. From an English-centric perspective, it is like a mini-Frankfurt. All the UK players are there and a lot of US senior executives. But because it is so accessible to the Continent, you can get a taste of how things look to the rest of the world.

In the US, we look to me to be in a period when two dominant giants — Amazon for online bookselling and Penguin Random House for general trade publishing — are consolidating their positions. Amazon’s enormous market share is growing, both for print and ebooks. It is too early to draw the same conclusion about PRH, but my guess is that a year or two from now we’ll have seen them taking share from their biggest competitors just like Amazon is from theirs.

(Dominant giants will be part of a conversation I’ll be taking part in on a stage in London. I’ve been asked to participate in The Great Debate, where this year the proposition is ”It’s all about size. Bigger is always better.” I’m arguing the affirmative with Ken Brooks of McGraw-Hill Education as my teammate. We’re opposed by Stephen Page, the CEO of Faber, and Scott Waxman, who is both an experienced literary agent and the entrepreneur behind Diversion Books, a digital-first publisher. It should be fun. And friendly. We’re all nice guys.)

The dominant US brick-and-mortar retailer, Barnes & Noble, appears to be fairly healthy in its traditional business. It is shrinking, but the store operations are still profitable and well run. They appear to have benefited from the demise of its erstwhile competitor, Borders (as have the independents). From across the Pond, one does not get the same impression about UK’s Waterstones chain. However, in the UK, there are forces we don’t have in the US: not just the ubiquitous newsstand-type WHSmith stores, but also two supermarket chains, Sainsbury’s and Tesco, which are each ambitiously trying to build a book business and their own ebook channel. One thing I’ll be asking everybody about is the impact these retailers have in the book marketplace, particularly when we get beyond the top sellers. Perhaps if they’re doing well, it would encourage Walmart to get serious about bookselling. Certainly Walmart would like to do anything they can to poke Amazon in the eye.

Without serious competition from new players who are well-funded, like the UK supermarkets, it is hard to see what stands in the way of the global ebook giants: Amazon and Apple and, to a lesser degree, Google and Kobo. Perhaps I can get a sense in London of how Barnes & Noble’s multi-territory expansion for Nook is faring. But, however they do, there is a so-far little-noted effect beginning to become evident that could tilt the global book business to the English-language marketplace, and to the US in particular.

In a recent conversation, an executive at a Big Five company told me of a recent development. His company had licensed a few titles for Russian language rights to a publisher in Moscow. But by which retailers would most of those ebooks be sold? The answer is Amazon, Apple, Google, Kobo and Barnes & Noble! And the Russian publisher, really just breaking into the ebook business, has far more limited access to these retailing giants than the US publisher which had licensed them the rights.

So the US publisher, in a suggestion that seemed in everybody’s interests, offered to be the “distributor” of those Russian ebooks to the major accounts. The deal was made and it worked. I said to the executive who explained this to me, “You could be helpful in distributing all their books, not just the ones you licensed them.” “Exactly,” he said.

But then we took the conversation a little further. This house is wondering whether, in an ebook-dominant world, it wouldn’t make more sense for them to publish books themselves in Spanish, Mandarin, and French (the first three languages they are thinking about). After all, the translations are done by freelancers. Anybody can hire them no matter where they are. And if most of the books sold are ebooks, and if the publishers of English, especially those in the US, have multiple daily contacts with the big ebook retailers and others don’t, then what is the point to licensing away those rights?

That approach would mean that publishers in at least some non-English territories would, at best, be able to license the print rights for the local geography they really cover. And it would mean that the biggest publishers with the biggest checkbooks to sign the biggest authors and titles will be able to benefit from an even larger share of the book’s global market while paying the author more than they could earn with a local publisher sharing in the other-language rights.

If this is more than one company’s inspiration right now, I should be able to find evidence of that at the London Book Fair.

The other thing for me to learn, of course, is how digital marketing of books looks from the UK. In our fledgling new business with Peter McCarthy (take a look at his new post) we have already done some title optimization work for two UK-based publishers, one large and one medium-sized. So we’ve learned how to do the work using UK-based Google and Amazon and putting BIC codes rather than BISAC codes into the metadata. We’ll be formally announcing the new business and opening our web site the day before the London Book Fair opens. I expect to find a lot of interest in what we can offer, just as we have in the US. There is no doubt that the London Book Fair presents the best possible opportunity to find out very quickly what our own opportunity is outside the US as the need for sophisticated marketing naturally follows the growth and increasing complexity of the overall digital environment.

One person I will be sad not to see at London Book Fair is my longtime friend Bruce Robertson, a founder of the pioneering packagers The Diagram Group, who died a little over a week ago at the age of 79. Bruce was sui generis: a brilliant man with a unique gift for visualization that was the guiding spirit behind dozens of global bestselling illustrated books. Forty years ago, I had the opportunity to sell three of Diagram’s greatest books, “Rules of the Game”, “The Way to Play”, and “Man’s Body” when Bruce’s publisher at that time, Paddington Press, was distributed in the US by my family’s distribution company, Two Continents. I always enjoyed seeing him and hearing his witty, insightful, and often cutting take on the people and practices in our business. Fortunately, there were many opportunities to see Bruce and his endlessly good-natured wife, Pat, over the years, at industry events or when he was in NY or I was in London. We are all one of a kind, but some of us are more obviously so than the rest of us. Bruce was like nobody else. He’ll be missed by many friends from all over the world.

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Sony exits and the ebook business loses an original player


Sony has thrown in the towel on the ebook business and turned its customers over to Kobo. This has unleashed speculation that Nook will soon do the same. If B&N were really forced to choose between the investments they need to make in their stores and the investments required to compete in digital delivery, it would be hard to see them making any other choice but to save the stores. The notion of another retailer, perhaps Walmart, buying the whole thing seems eminently logical, but one can’t account for the role that a sentimental attachment to the stores by B&N’s principal owner, Len Riggio, might play in these decisions.

Despite the hopes and expectations of upstarts like Zola Books (which itself made an acquisition lately, taking Bookish off the hands of the three publishers that started it) and Baker & Taylor’s Blio or longtime competitor Copia or the originally phone-based txtr, it feels to me like we’re seeing the beginning of consolidation of the ebook business. Verticalization may work, as it has seemed to for Allromanceebooks but just being “indie-curated” wasn’t enough for Books on Board, a pretty longtime player that expired last year. (So far, Diesel, a comparable indie, is hanging in there.)

Sony is a big company with a very tiny ebook business. They were also really the “first mover” in the modern era ebook device space. The e-ink Sony Reader is more like the Kindle and Nook than any other thing that came before. But if the ebook play ever fit into a larger objective for Sony, it is not clear what that was.

Apple opened their ebook store because they thought they had a suitable device for book consumption (the iPad), but they also had experience with selling content before (iTunes). They also see potential for iPads in the school and university markets, so they have developed technology to enable more complex books — the kind that haven’t been successful commercially yet — to be developed for their platform. Establishing their devices and the iOS ecosystem in the education market would be a big win for them.

Google recognized over a decade ago that books, being repositories of information that contained the best response to many searches, were a world they wanted to be in. With their growing position in devices — the Nexus 7 phone and Chromebook computers — and as the developers of the Android ecosystem that competes with iOS in the app market, there are many ways that being in the ebook business complements other endeavors, including, perhaps, competing with Apple and iOS in the schools.

In the last post here, I posited (among other things) that ebook retailing just wouldn’t work as a stand-alone business; it has to be a complement to other objectives and activities to make commercial sense. Sony has found that it doesn’t fit for them, almost certainly because it doesn’t add value to any of their other businesses.

Of course, ebooks definitely complement Barnes & Noble’s core business. You have a pretty obvious deficiency if you run a bookstore and don’t sell ebooks, so everybody manages to do it somehow or other. Among the mistakes Borders is accused of having made before they disappeared was turning their ebook business over to Kobo. Doubts about the future of Waterstones in the UK include whether it was wise to turn their ebook business over to Amazon. If Barnes & Noble didn’t have Nook, they’d have to make a deal with whoever did have Nook, or with somebody else.

I’m sure Apple or Kobo or Google would be just delighted to have their ebooks integrated into Barnes & Noble’s suite of offerings, and probably Amazon would too, although they would almost certainly never be asked. All of them have shown interest in affiliating with indie stores, with Google having gone in and out, Kobo now trying hard with them, and, even Amazon, which can’t penetrate indies effectively with their own published books now offering them an affiliate program to sell Kindle ebooks called Amazon Source. But surely all of them would jump at the chance to expand their distribution to Barnes & Noble customers.

It is likely that B&N believes that the Nook business can only be truly successful if they keep investing in improved devices and create a global presence. That may be true, but it also might be that Nook can be a useful adjunct to their store business without continually adding devices or creating a presence outside the US where there are no B&N stores. More and more people are comfortable reading on multi-function devices through apps. Maybe B&N could profitably hold on to a core Nook audience by emphasizing synergies with the stores more (bundling print and ebooks, like Amazon does with its Matchbook initiative and as has been tried on a smaller scale by some publishers, would be one such way) and not worrying so much about making Nook competitive with the other ebook retailers as a stand-alone business.

The wild card here is if some big outside player — Walmart being the most frequently mentioned — saw benefits to having the ebook business (or even the whole book business) in its portfolio. That’s happened in the UK, where supermarket chain Sainsbury’s bought a majority stake in Anobii (a UK-publishers-backed startup, analogous to Bookish in the US) and Tesco bought Mobcast because the ebook business was one that they thought fit in well with their offerings and customer base. (Both Sainsbury’s and Tesco made statements about strengthening their “digital entertainment” and online retailing propositions. Tesco is investing in devices as well.) Kobo has made it a pillar of their strategy to find brick-and-mortar partners all over the world.

On a global basis outside the English-language world, the ebook business is still in its infancy. But it is hard to see how any player without a strong English-language presence could develop the scale to compete with those who have it. Every nation and language will have local bookstore players who have “first claim” on the book-readers in their locality. Some might harbor ambitions to also own their local ebook business, particularly as it becomes increasingly clear that ebooks cannibalize bookstore shelf space. But the cost in cash and time of doing it, combined with the competitive advantage of having English-language books in the offering no matter what language your target market reads, will make a build-it-yourself strategy increasingly unattractive. So it would seem that Amazon, Apple, Google, and Kobo are positioned to grow organically and partner ubiquitously. And it will require some seriously disruptive event, like Walmart buying Barnes & Noble, to break the hold that quartet will have on the global ebook market over the next decade.

A potential disruptive development which this piece ignores is the possibility that ebooks become largely a subscription business over the next decade. I have two overarching thoughts on that.

One is that the book-by-book purchasing habit is sufficiently ingrained that it will not be changed drastically around ebooks in the next ten years. I have no idea what percentage of the ebook market is now subscription, but I think it is safe to say “far less than 1%”. So my instinct is that it would take wild success for it to get to as much as 10% in the next ten years.

The other thing to remember is that any ebook retailer can always develop a subscription offering. Amazon effectively started already that with Kindle Owners Lending Library. You can be sure that if Oyster or 24Symbols starts gathering a substantial share of the market, all of the Big Four as we see them here will find a way to compete for that segment. (It is considerably harder to go the other way around; it is much less likely that Oyster or 24Symbols will open regular stores.)

So whether subscription grows faster or not, the giants of ebook retailing will remain the same.

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The future of bookstores is the key to understanding the future of publishing


One of the subjects we have been probing for a long time is the inevitable impact that increased purchasing of books online would have on the shelf space at retail and what that would mean to trade publishers. (You’ll see that this speech that is well more than a decade old also says publishers are going to have get audience-centric, or vertical, as well.)

Of course, there has already been one shock to the system — one “Black Swan” event — which was the closing of Borders stores in 2011. That suddenly took about 400 very large bookstores out of the supply chain. Since then, the anecdata about independents — which includes encouraging, but unaudited, financial information from the BEA and a lot of rah-rah from thriving indies (a fire we threw a log on with a great break-out session at DBW last week) — has been very upbeat (although Bowker data seems to suggest Amazon gained more from Borders’s passing than anybody else did). And while B&N has continued to show some sales slippage, its more drastic setbacks have been in the Nook business, not selling print in stores.

One distracting fact for analysts considering this question has been the apparent slowdown in the growth of ebook sales, suggesting that there are persistent print readers who just won’t make the switch. The encouraging fact is distracting because it is incomplete as far as predicting the future of shelf space at retail, which is the existential question for the publishers, wholesalers, and bookstores (and, therefore, by extension, for legacy authors too). We need to know about changes in the division of those sales between online and offline to really have a complete picture. If ebook takeup slows down but the online buying shift doesn’t, the bookstores are still going to feel pain.

This point about the key index being online sales versus offline sales rather than printed book sales versus digital book sales is a key one that we’ve been hammering for years. It was nice to see Joe Esposito emphasize it in a recent post of his addressing some of my favorite questions about Amazon.

We had a panel of four successful independent booksellers at DBW. One of them, Sarah McNally of McNally-Jackson, has recently been quoted as saying she worries about the future of her Soho bookstore when her lease is up. (Rents rise quickly in that part of the city.) Meanwhile, she’s taking steps to move beyond books to retailing design-heavy but perhaps-more-enduring retail goods like art and furniture. (And, in that way, McNally-Jackson takes a page out of Amazon’s book, not limiting themselves to being a bookstore brand.)

A friend of mine who is a longtime independent sales rep says that even the successful indies are finding it necessary to sell books and other things — cards, gifts, chotchkes — to survive. The mega-bookstore with 75,000 or 100,000 titles or more was a magnet for customers in the 1970s, 80s, and 90s. It isn’t so much anymore because the multi-million title bookstore is available through anybody’s computer. This is a fact that makes the number of successful stores a weak indicator of the distribution potential available to publishers. If replacement stores carry half the inventory of the ones that go out, we can have a lot of indie retail success stories but still a shrinking ecosystem into which publishers distribute their books.

In general, the proprietors of successful indie bookshops and their trade organization, the American Booksellers Association, paint the times as hospitable to independent bookselling. They dismiss the skepticism of people like me that believe that the current surge of apparent good fortune is due to a window of time (now) when Borders’s closing removed shelf space faster than Amazon and ebooks had removed demand for books in retail stores.

It has been an unspoken article of faith that bookstores would not go the way of stores selling recorded music or renting and selling video, both of which are segments that have just about entirely disappeared. The physical book has uses and virtues that a CD, a vinyl record, a DVD, or a videotape don’t, not the least of which is that a physical book is its own “player”. But it also provides a qualitatively different reading experience, whereas the other “physical” formats don’t change the consumption mode at all. Of course, that only helps bookstores if the sales stay offline. People ordering books online are overwhelmingly likely to order them from Amazon. In other words, it is dangerous to use the book’s ability to endure as a proxy for the bookstores’ ability to sustain themselves. The two are not inextricably connected.

But the fate of almost all trade publishers is inextricably connected to the fate of bookstores. There are only two exceptions. Penguin Random House is one, because they are large enough to create bookstores on their own with just their books. The other is publishers who are vertical with audiences that open up the possibility of retail outlets other than bookstores. Children’s books and crafts books are obvious possibilities for that; there aren’t a ton of others.

The feeling I had at Digital Book World is that most people in the trade have either dismissed or are wilfully ignoring the possibility that there could be such serious further erosion of the trade over the next few years that it would threaten the core practices of the industry. With more than half the sales of many kinds of books — fiction in the trade area, of course, but also lots of specialized and professional and academic topics — already online, many seem to feel whatever “adjustment” is necessary has already been made. They got support for optimism at Digital Book World. Stock-picking guru Jim Cramer touted Barnes & Noble’s future (because they’re the last bookstore chain standing) and, from the main stage, the idea was floated that Wal-mart might buy and operate B&N as part of an overall anti-Amazon strategy.

All that is possible, and I have no data to refute the notion that we’ve reached some sort new era of bookstore stability, just a stubborn feeling in my gut that over the next few years it will turn out not to be true. I don’t mean to ignore the positive signs we’ve seen over the past year or so. And the overall decline in physical retail versus online purchasing affects all retail, not just books, so it is possible — some might say likely — that the rent squeeze will ease. It isn’t just bookstore shelf space that seems to be in oversupply compared to demand; that’s broadly true of retail. So your gut may differ and would have some logic to support a contrary point of view.

But my hunch (and this is not a “prediction” as in “this will happen; take it to the bank”) is that shelf space for print in Barnes & Noble and dedicated bookstores could well shrink by 50 percent over the next five years. What CEO or CFO of a trade publishing house would consider it prudent not to consider that possiblity in their own planning?

Obviously, less shelf space and more online purchasing change each publisher’s practices in many ways. They will want to deploy more resources for digital marketing and less for sales coverage. They will want to own less warehouse space and less inventory, changing the overall economics of their business. As we’ve been saying for years, they’ll find it sensible to become more vertically consistent: acquiring titles that appeal consistently to the same audience. Each house’s own database of consumers will become an increasingly important component of their equity: an asset that provides operational value today and balance sheet value if they become acquired.

But, most of all, publishers are going to have to think about how they maintain their appeal to authors if putting printed books in stores becomes a less important component of the overall equation. It is still true that putting books in stores is necessary to get anywhere close to total penetration of a book’s potential audience. Ignoring the in-store market obviously costs sales in stores but it also costs awareness that reduces sales online. (After all, stores are very aware of the “showrooming” effect: customers who cruise their shelves with smartphones in hand, ordering from Amazon as they go!)

But that’s today when the online-offline division may be near 50-50 overall and is 75-25 for certain niches. If those numbers become 75-25 and 90-10 over the next five years, the bookstore market really won’t matter that much to most authors anymore. Whether through self-publishing or through some fledgling publisher that doesn’t have today’s big publisher capabilities but also doesn’t have their cost structure, authors will feel that the big organizations are less necessary than they are now to help them realize their potential.

Higher ebook royalty rates, more frequent payments, and shorter contract terms are all very unattractive ways from the publishers’ perspective to address that issue. So far the marketplace hasn’t forced publishers to offer them. If bookstores can hold their own, the need to move to them may not be compelling for a long time. But if they don’t, most legacy publishers will have very few other levers to continue to attract authors to their ranks.

We are already seeing big publishers quietly moving away from publishing books that haven’t demonstrated their ability to sell as ebooks: illustrated books, travel books, reference books. That implies an expectation that the online component — particularly the ebook segment of it — has already changed the marketplace or certainly will soon. Adjustment of the standard terms with authors is a shoe that hasn’t dropped, but if the marketplace continues to change, it might become very hard to keep things as they’ve been.

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Barnes & Noble and managing the digital transition


We keep making the case that the split that matters when trying to foretell the future of the book business (and everybody in it) is not “print” versus “digital”, but “bought online” versus “bought in stores”.

Of all the major retailers, only Barnes & Noble has a stake in all four of the meaningful transaction streams for trade books: print in stores, devices in stores, print online, and ebooks. (All devices are available online.) Amazon has no store presence. Kobo has a minimal store presence through independent retailers but has no print business. Apple has no store presence for content at all and doesn’t sell print online. And Google seems to only tangentially deal with any of the non-digital content businesses.

In fact, B&N is in a fifth “segment”: college bookstores. That segment was the only one that showed revenue growth in their latest reporting, although even in that segment same store sales showed a slight decline. College textbooks having been slow to move to digital has helped preserve that business, but it would be a weak bet to expect that to last forever, or even for many more years.

What this means is that Amazon, Kobo, and Apple are firmly planted in parts of the business that are growing. Kobo and Apple only sell ebooks and Amazon sells print too, but, in general, the migration to online buying and ebook consumption is going to continue so the sales taking place in the environments in which they operate will continue to grow. Whatever their share, they will be taking it from a bigger and bigger pie.

B&N, on the other hand, gets most of its sales from print in stores. That is the component of the sales which is declining and bound to continue to decline. That means that B&N, uniquely, has the challenge of keeping its customers as they switch their mode of buying and consuming books.

The retailer announced their latest quarterly results this week and, at least superficially, they are not encouraging. Sales of devices are down. Sales of digital content are down. Sales of print in stores and online are down. The company points out that book sales in general took a hit because the two most recent book sales phenomena, “Hunger Games” and “Fifty Shades of Gray” are running out of steam and haven’t been replaced by The Next Big Thing(s) yet. But in the absence of sales information about print and ebooks from Amazon (which data is normally well-masked in their overall reporting), we have no basis for comparison. And comparison is what we need to know how B&N is doing and what their future holds.

In other words, are Amazon’s online and ebook sales declining because of the lack of a replacement for “Hunger Games” and “Fifty Shades”? Or is B&N not only losing sales, but also losing share as the market migrates from stores (their strength) to online (Amazon’s strength)?

There really is no “industry” data to help us get at an answer to that. For a few years in the prior decade, Idea Logical did some sales data analysis work for a number of publishers large and small. Each publisher gets clear reporting of its sales in a granular-enough way to examine this. Of their B&N sales, they know what is digital and what is print, and they know what is sold in stores and what is sold by BN.com. At the time that we were doing this work, which ended before ebooks became a significant portion of the commerce, it appeared that Amazon sold about 10 times as many books across most lists than BN.com did. (Of course, at that time at least, B&N stores sold more than Amazon.)

Barnes & Noble is in a unique position. Every other player is looking to capture customers migrating from old patterns to new ones, whether switching from buying print in stores to buying it online (Amazon) or switching from reading print to reading ebooks. Only B&N is trying to keep customers who came to them for print in stores.

In 2010 and 2011, it appeared they were doing very well at just that, selling lots of Nook devices in their stores. It appeared that there were a large number of heavy book readers who had been unwilling to jump to digital. Perhaps they wanted to see and touch the devices first. Perhaps they wanted to see that many friends and family of theirs had made the leap before they would. Or perhaps they just wanted their trusted book vendor, Barnes & Noble, to offer them the ebook opportunity.

The anecdata suggested (there was no clear objective data to prove) that, following the launch of Nook in the Fall of 2009, B&N’s format shot up pretty quickly to a market share in the neighborhood of 20-25%, with Apple (initially) taking about 10% with the iBookstore. Amazon’s Kindle declined from more than 90% of the market to around 60%.

Then some things changed in the marketplace. The DoJ suit effectively ended publisher-set pricing. Apple took the direct link to the bookstore off all the iOS apps except their own. And tablets and phones increased their share of the ebook market in relation to dedicated ereaders. Again, relying on anecdata where no industry data exists, reports suggest that the B&N/Nook share has declined, Apple’s iBookstore has risen, and Amazon has perhaps come back a bit. (Amazon, Apple, and Kobo have a much bigger global footprint than B&N, although that probably doesn’t matter much in the US market.) Certainly, the numbers from B&N reporting that digital content sales have declined in real terms strongly suggests a reduction in their US market share. Overall digital content sales have almost certainly not declined.

It is beyond B&N’s power — or anybody else’s — to do much to affect overall consumer behavior. People will buy and read in the way that the current combination of price, convenience, and technology motivate them to. In the abstract, it would seem that a company that has a foot in all the markets would have a better chance to capture people switching buying or reading modes than a company with a more limited offering. It would seem that way, but it isn’t working out that way. B&N has to figure out how to make their ubiquity work in their favor which, except for a year or two around the debut of the Nook, they haven’t managed to do yet.

The facts tell us that Barnes & Noble failed years ago to make its store customers into online customers. They’ve been sharing customers with Amazon since Amazon began. Indeed, the skill sets a corporation needs to run a successful online business aren’t the same as they are to run a chain of physical stores. But it can be done: the office supply retailer Staples is the second-largest online retailer in the US. I think if I were at B&N I’d be asking somebody up there how they did it.

BN.com has been the weak link in the Barnes & Noble chain since they launched it under joint ownership with Bertelsmann. When the company was run by strong merchants, they didn’t pay close attention to it. For the past few years, the company has been run by an ebook-focused management and they didn’t improve it. In both cases, BN.com’s success was secondary to another agenda. It is ironic that the current management, rooted in finance and operations, seems to have focused on this core — perhaps existential — strategic problem, with improvements in BN.com promised shortly.

Another aspect of the B&N reporting was that major shareholder and Chairman Leonard Riggio announced that he is “suspending” his interest in buying the stores. Whether that is an indication that he’s less confident of their future than he was before or whether, as the announcement says, he just feels that B&N as a company needs to concentrate on making the Nook-and-store combination work more effectively, is not something anybody but he and his closest advisors know for sure.

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Losing bookstores is a much bigger problem for publishers than it is for readers


Start with this. You’re kidding yourself if you’re a book publisher who believes the digital revolution has slowed down, that independent bookstores will thrive in the new environment, that ebooks — if not a fad — have reached their growth limits, and that something resembling the book business we’ve known for the past 100 years will survive for another 100 years. Or even for another 20. It might even be breaking down in five or 10.

The obsession with the false dichotomy between printed books and digital ones is beginning to give way to attention for the more important shift taking place between purchasing books online and purchasing books in stores. It has been my concern for years — first elaborated on at length in the “End of General Trade Publishing Houses” speech I gave at BEA in 2007 — that the publishing industry that grew up around 50 years of expanding retail shelf space for books would be seriously challenged by its 10-years-on and continuing diminution. It will not be a happy time, frankly, seeing that prediction being proved correct, and it hasn’t been proven correct yet. But the circumstances that will test the proposition are rapidly being put into place.

The motivation to discuss this subject came from the convergence of a few recent stimuli. One was Bowker’s research, reported by DBW, suggesting that about half of US book sales were now taking place online.

That confirmed that the US market was in approximately the same place that Hachette UK had reported itself to be in the past few weeks.

Next was the hopeful thinking that printed books were holding their own and, anyway, all that was required for publishers to live without bookstores was some pluck and imagination, all capped by a piece in The Times making some perfectly valid points about how much easier it is to remember what you’re reading with print than it is with ebooks.

My two-part hypothesis, from the beginning, has been pretty simple. Online book buying — whether print or digital — takes business away from bookstores. So bookstores close or reduce shelf space. That decreases both their attraction and their convenience, which makes online buying increase even more. So bookstores close or reduce shelf space further. (This is called a “vicious cycle”.) That’s part one.

Part two is about publishers, particularly the big general trade publishers (Big Five plus a few others) but all of them, really, who depend on bookstores for their value. Publishers perform the service for authors of getting their books in front of readers. That has primarily meant, for about 100 years, “we put books on shelves”. My concern was that, without shelves, publishers had diminished value to authors.

The fact that part one is nearing a conclusion was confirmed in Monday’s Times with a front-page story about bookstores turning to charity to stay afloat. If anybody believes this is a sustainable strategy, I’d like to hear the explanation. This is a “Hail Mary” pass and the fact that some bookstores cited in the piece have managed to score a touchdown doesn’t mean the bookstore team is winning this game.

I have to emphasize here — to reduce the future flow of indignant comments — that the continuing decline of bookstores is not something that makes me happy. My first job in publishing, 51 years ago, was in a bookstore. My dad’s career was made on his understanding of the importance of bookstores to publishers and figuring out ways to create more mutually profitable ways for publishers and bookstores to interact. But if about half the sales of books today are being made online (which is probably five times or more the percentage it was less than a decade ago), you’d have to be able to predict a sudden reversal, or at least a cessation, of the trend to see a positive future for bookstores.

I never believed the trend would stop or reverse because I don’t see any end to the “vicious cycle” described above. But my friend, Joe Esposito, has been even more thorough and cogent in explaining why it won’t end. As Joe articulates it, at least part of the print versus digital choice for some consumers is based on price and convenience. As long as stores constitute an important tool for “discovery” — finding new things to read — it will be more convenient for most people to walk out of the store with the discovered book than to purchase it any other way or in any other form.

As bookstores become less powerful discovery engines (fewer of them farther apart and fewer books on display in those that are left), people are forced to find out about books some other way. Many of those other ways are already online (without even counting the suggestions of online retailers). A lot of “word-of-mouth” these days is digital communication (email, Facebook, Twitter, or even a blog).

Since the beginning of the year, it has been frequently observed that ebook sales are not rising very quickly anymore at all. Nicholas Carr just wrote about it again, citing his post from the beginning of the year. (If you care about how the Internet and ebooks might affect our brains and thinking ability, read Carr’s book, “The Shallows”. There’s some digitally-delivered word-of-mouth. I told you it could happen on a blog!) Certainly, part of the slowdown is rooted in the shift from dedicated ereaders like Kindles and Nooks to tablet computers. Books aren’t the only game in town anymore; in fact, they’re competing with real games and videos and music and email and the whole damn Internet on the devices people might read ebooks on these days. And, at the same time, the later device-acquirers are also lighter readers to begin with. Heavy readers had more financial incentive to switch from the beginning.

But, in fact, is ebook sales growth slowing? Maybe not. It depends on how you look at it. Author Nathan Bransford, who probably has as much to contribute to publishing houses with cool analysis as he does with content, did an excellent post a couple of months ago demonstrating that the smaller percentage increases don’t indicate a decline at all. In fact, Bransford does the math (and the graph) to show that ebook sales continue to rise, at pretty much the same pace they have been, in real unit terms. And this is despite the fact that self-published ebooks, which were credited with 12% of the market a very short time ago are not counted in these numbers!

So it is actually a myth based on a misunderstanding of how percentage increases are affected by a change in the base on which they’re calculated to claim that the ebook switchover is slowing down.

Esposito’s post cited above was making the case that it is publishers that have much to fear from the decline of bookstores because it robs them of their prime value to authors. That is a point we’ve made often in this space. But some of those objecting to his point of view did so by making the case that many books don’t “port” to digital very successfully. Certainly we have seen very few successes with digital illustrated books of any kind.

In fact, there was false hope created that the children’s book market — which is largely illustrated — was going digital about 18 months ago. It turns out that, really, this was a misreading of reality. What made it appear that way was the massive sales of “The Hunger Games” which, although categorized as young adult reading (so tallied that way; thank you, metadata) is actually straight narrative reading that was not just read by kids but also by many adults.

Yes, it is absolutely true that ebooks haven’t “worked” (commercially) yet for anything except narrative reading, books that you start on page 1 and read to the end. We are where we were when I wrote in my first post of 2012 that the problem hadn’t been solved yet  and then worried out loud a few months later (more than a year ago) that this was an existential problem for illustrated book publishers.

So objecting to Esposito’s argument by pointing out that some books don’t work as ebooks is a non sequitor. Bookstores can’t continue to exist because there are some books being published that don’t work as ebooks; that’s even less of a sustaining proposition than asking for shekels in a digital tin cup.

Logic and facts tell us some immutable things. They can be ignored or papered over with wishful thinking, but anybody with a commercial interest in the book publishing value chain is probably making a big mistake rationalizing them away rather than confronting them.

1. Narrative books, those read from beginning to end, are being increasingly read in digital form.

2. Both because of that, and for several other reasons (bookstores being less ubiquitous and stocking fewer books, a wider range of actual choices making the odds of a bookstore having what you want even lower, and a general propensity for all consumers to shop online more for all things), online purchasing of books is still taking share away from brick stores.

3. Books that are not narrative books don’t have the same natural opportunity to have their sales migrate either to ebooks (because the format doesn’t work as well for them) or online (because they often have to be seen and touched to be purchased).

4. The single biggest reason (aside from a fat advance payment, which few get) for authors to work through a publisher is to get the distribution of printed copies to many stores.

5. As the number of books grows that have commercial appeal but which are published so far outside the conventional trade that their sales aren’t even captured in industry data, it further weakens the legacy publishing ecosystem and further encourages both established and aspiring authors to work around it. Aspiring authors every week see books on the NY Times Bestseller List that are either self-published or have imprint names they’ve never heard of. When conventional publishing requires an agent to get a deal (which it does, and which takes time), then you have to wait for publishers to make a buy-or-not decision (more time), and then put your book out on a trade publishing schedule that usually wants to give Barnes & Noble and other retailers months of advance notice (still more time), it can seem ever-so-much-more appealing to just skip the wait and go straight to self-publishing, which will put books on sale right now (more or less).

6. What you will need to do as a publisher to survive longer in this increasingly hostile environment depends on what you publish.

* If you do straight narrative reading, your books may continue to sell in equivalent or even better numbers than they did previously, but both your authors and your retailers will be looking hard at what you take and wondering if they can go around you. Your challenge will be to continue adding enough value to be worth enough of a share to have a business. How? Digital marketing at scale is your best bet.

* If you publish children’s books, you have a launching pad to get into the world of licensed products and video (which some are doing), which promises a rosier future but brings with it a slew of powerful new competitors.

* And if you publish anything else (art books, instructional books of any kind, travel books), you’re looking for a new business model. We’re believers that being vertical makes the most sense (don’t publish all over the lot; stick to audiences you can know and grow). But “being vertical” is not in and of itself an adequate strategy. Professional publishers have had an edge here; professional needs can be satisfied with content and services that aren’t delivered as books, and, in general, the relevant publishers have responded sensibly to that.

The challenges to publishers in the US are only just being felt in markets outside the English language. But ultimately, they’ll be felt everywhere. That sums up the perspective of our Publishers Launch Frankfurt Conference, which will take place on October 8. We’ll be looking at markets in transition, getting views from Amazon and Nielsen about which markets are showing signs of a digitally “tipping”, as well as a scan of the developing world from Octavio Kulesz. We have a great panel of industry leaders from Germany to discuss whether that market is about to look like an English-speaking one, with diminishing bookstores, scrambling publishers, and increasing numbers of do-it-yourself authors. We’ll hear from Goodreads, Wattpad, and Scribd about how international their large communities of reading-centric people are. We’ll have presentations about Big Data from Ken Brooks and DRM from Micah Bowers that I promise won’t repeat things you’ve heard anywhere else. And some very sharp CEOs — Charlie Redmayne of HarperCollins UK, Rebecca Smart of Osprey, and Marcus Leaver of Quarto — will be on the program as well. Michael Cader and I will try to cover the subjects that are hardest to talk about, including the growth of Amazon and the power of the new Penguin Random House.  If you’re in the neighborhood on October 8, this will be a show not to be missed.

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The totality of the relationship is what matters


Like a marriage, relationships between people and companies are seldom made or broken on the back of one transaction or one kind of transaction. They are bigger and more complicated than that. That point was driven home in my house over the weekend by the dustup between Time Warner Cable and CBS, which resulted in both our local Channel 2 and Showtime being removed from our service. That meant that Martha couldn’t see the last episode of “Dexter”, a show she has loyally followed for years.

Although, as of this morning, it is still not clear to us whether CBS pulled their programming as a negotiating ploy or whether Time Warner booted it to strengthen their own hand, it seems evident that the broadcast networks want to move to pay-channel remuneration from the cable systems that use them, among other programming, to get us to use their services and pay their bills. (In our case, that’s north of $300 a month for TV, internet, and telephone service.) Pulling just one brick out of that wall — the CBS-owned programming — has us immediately questioning the whole bundle.

We say we’re confused about this because TW customer service, and some news reports, said that CBS pulled the programming. But the Times contradicts that.

“Indeed, timing seems to be the dominant factor driving the dispute. CBS has continued to insist that it would make its programs available to the cable company throughout the negotiations and that the cable company acted now to remove them from its service because Time Warner Cable would lose leverage as the football season got closer — a point the cable executives do not dispute. They acknowledge they need to push the issue now.”

I remember that when we had RCN — an alternative provider — one “price” we paid was that we didn’t get Channel One, a NY news channel. We didn’t switch to Time Warner for that reason (I can’t remember what the motivation was; probably a price offer at the time) but we weren’t losing popular series or can’t-miss sports like Tiger Woods’s golf victory yesterday or the NFL games coming on CBS.

My reaction was anti-Time Warner immediately, and to start investigating alternatives. But since some accounts suggested that CBS had pulled the programming to gain the edge in negotiating, Martha reserved a large part of her annoyance for them. If they can pull programming she’s been following closely for years in this way, she reasoned, then she can’t trust them not to do it again. Her solution is to reconsider becoming loyal to any CBS (or Showtime) series in the future. She says she will immediately stop watching “Ray Donovan” for that reason.

But I think it is easier for her to find substitute dramatic series than it is for me to find a substitute for NFL football. Both of us are annoyed at the moment, but how we respond depends on the totality of our relationship with CBS. CBS is apparently counting on us to punish Time Warner, reasoning that TW is producing a large-scale relationship on the back of their programming.

Publishers will want to watch how this plays out. CBS really has a small fraction of the total possible programming, comparable to the sliver a large-ish but not supersized publisher might have. The new Penguin Random House combination, on the other hand, has about half the most commercial book titles in the marketplace. How will anybody run a functioning bookstore without those titles? (In fact, Amazon backed down from its own mini-boycott of Macmillan in 2010 because it would have upset the totality of their relationship with their customers.)

This “totality of the relationship” point is going to become more important to us, but it is not new. In 2010, when five of the Big Six publishers had gone to Agency pricing — reducing their revenue-per-ebook-sold in a vain attempt to re-engineer the ebook marketplace into one  in which publishers controlled the selling price — a sales executive at one of them was querulous about B&N’s apparently unwillingness to “punish” Random House for continuing wholesale terms. “We largely did this for B&N,” was the executive’s complaint. He really couldn’t understand why B&N was, effectively, letting Random House “get away” with staying out, effectively gaming the change to its own advantage.

Of course, the fact that B&N lived with Random House’s ebook selling policy was not because they weren’t unhappy with it. It was because so much else in their relationship worked so well. With Random House having invested in systems that enabled them to provide vendor-managed inventory, they were probably B&N’s most profitable trading partner. B&N wasn’t going to cut off its nose to spite its face. On the whole, they did well in the Random House relationship, even if a high-profile component of it wasn’t to their liking.

The same principle applied, in different ways, when Apple started to enforce its requirement that in-app sales pay a 30% “toll” to Apple. Since that requirement would have effectively made profitable ebook sales impossible, the other ebook vendors — Kindle, Nook, Kobo, and others — complied by taking the direct link to their stores out of their apps. So, from that day (until now), you can only buy ebooks for iOS devices directly from the app if you’re buying from iBookstore. That’s annoying, and it certainly has had the effect of increasing sales at the iBookstore at the expense of their competitors for readers using iPads or iPhones to read books. (iBookstore share has reportedly jumped since then. Of course, they also have added Random House titles, which they didn’t have at the beginning and which certainly diminished the totality of their customer relationship until they did.)

But many iOS-device customers who are satisfied with the totality of their experience with Kindle or Nook or Kobo continue to shop with them, even if it is less convenient. And Apple has apparently decided satisfaction with the total iOS experience might be too badly damaged if they took the step of prohibiting the apps for other platforms entirely.

One senior executive from a big publisher was recently expressing frustration at what it took to set up a functioning direct relationship with consumers, opining that publishers couldn’t sell ebooks profitably one-at-a-time. Only a subscription model of some kind could work. That’s likely to be true, but underscores again that there needs to be a relationship larger than individual transactions to enable individual transactions.

Amazon has operated on this principle for a long time; it is the core of the logic behind Amazon Prime, which entices a customer to stay loyal with a variety of incentives, the most obvious of which is “free” shipping.

And that brings me to a point worth considering in today’s news about the evolving ebook marketplace. The Department of Justice has asked for changes that are intended to be punitive to Apple. Certainly the suggestion that Apple be forced to allow in-app sales without compensation would be. It is likely that iBookstore sales will suffer almost immediately if they are no longer the only ebook vendor on iOS devices with a link straight to the store from within the app.

But with the DoJ’s desire to totally liberate the book marketplace from price controls, they could also be setting up the whole incumbent ebook business, including Amazon and the others as well as Apple, for an entirely new kind of competition based on total relationships that aren’t being contemplated.

(Caution: this coming bit of future-think will only work effectively for ebooks in a DRM-free environment. My own hunch is that DRM-free is coming before long for unagented and midlist books, particularly those of an instructional nature. It should be noted that F+W Media, one of the largest active “books to use rather than read” publishers, already sells DRM-free.)

Let’s say you’re a seller of home improvement tools, fixtures, and services, like Home Depot or Lowe’s. Wouldn’t you like to have all the searching for books on those subjects taking place on your site, so you knew who was looking for new bathroom fixtures and who was looking for robin’s egg blue paint? What if you made your site a destination for that kind of searching by offering no-margin pricing on all books in that category, combined with enhanced metadata for those titles in the subject area(s) that matter to them? (Metadata enhancements will come from the knowledge of the specialists at a vertical retailer who think about what is in a book differently than a book publisher or retailer would.) How about if you sweetened the pot further by offering customers a credit on their purchase of a sink or a can of paint based on their book and ebook purchases?

Or let’s say you’re a law firm that specializes in bankruptcies and divorces. You could do the same thing, perhaps enhanced with your lawyers’ (and their clients’) highly relevant commentary on whether one book or another was particularly useful in a real-life circumstance.

On the hard-copy side, these vendors can set themselves up with Ingram or Baker & Taylor to fulfill print as well. But since margin-free transactions are baked into the strategy, whether or not they make the sale wouldn’t be the central concern. They want the interested traffic and the information that come from the searches. That’s the payoff.

(At the moment, there is a below-cost selling war on print taking place between Overstock.com and Amazon.com, sparked by Overstock.com’s announcement that they’d sell at 10 percent below Amazon’s prices. This is an attention-grabbing device for Overstock.com, not a sustainable strategy, and Amazon is demonstrating that by driving many books into a downward pricing spiral in response. The most damaged parties will be BN.com, and all the bookstores. Overstock will gain some share, but mostly at the expense of those who don’t have the breadth of total experience being provided by Amazon, which will be everybody else that sells books. Amazon will just use the challenge as an opportunity to demonstrate again that they won’t be undersold.)

Whatever you sell, the books on the subject are of interest to the customers for your goods. If the ebook marketplace is further court-mandated into unprofitability, it is probably just a matter of time before books which are used rather than read will become part of the “totality of the relationship” with a vendor who doesn’t sell books for a living. They’ll be the ones who can benefit from being the front end.

And that is a sustainable reason that selling books for a living is going to continue getting harder to do.

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The future of books in stores


The future for books in retail stores is not unified; it’s dispersed. To the extent that there continue to be bookstores (and although shelf space in them will continue to decline inexorably, they’ll also be around for years to come), the bookstores will increasingly be more about books for reading and less about books for using. Much of the slack can be picked up by merchants of other things, but there are challenges.

The one piece of good news from Barnes & Noble’s most recent reporting was that their stores are still throwing off cash. We don’t know how much of the margin they’re reporting comes from books as opposed to NOOKs or toys and games. But it is definitely good news that the stores, which publishers still depend heavily on for sales as well as “discovery” are apparently still healthy.

Unfortunately, it would be a surprise if things stayed that way for very long. The share of book sales that are migrating to the Internet keeps growing. Amazon’s print book sales keep going up (more slowly, of course, but everybody else’s are going down) and sales of ebooks keep rising as more and more people get the digital habit. Amazon gets 60% or more of those sales through the Kindle platform.

The term “showrooming” is becoming familiar to people in the book business to describe the retailer’s role in the consumer’s new tendency to use stores to shop but the Internet to buy. Part of what drives this effect is Amazon’s well-earned reputation for heavy discounting — it seems just about every book at Amazon sells for less than the publisher’s suggested retail and most books in stores sell at the price the publisher printed on the book. (It was actually instructive in a recent NY Times piece decrying the reduction of discounting at Amazon to see that even academic books with very limited audiences were being sold at some discount from the publishers’ suggested price.)

With handheld devices that can check Amazon (or any other online) prices now ubiquitous, capitalizing on showrooming isn’t surprising consumer behavior, but it keeps bookstore retailers from “capturing all the value they create” as their own revenue.

Ultimately, illustrated books and the publishers who create them will be the most affected by these changes. There are two important reasons for that. One is that “straight text”, narrative books that are read from beginning to end work just fine as ebooks. That means they’re already cheaper and it is easy for more and more consumers to purchase them this way. (And from the publisher’s perspective, their margin is — at least for the moment — fully replaced when a sale migrates from print to digital.) The other reason is that a novel doesn’t need to be seen or touched to be considered for purchase. Even with the capability to “look” or “search” inside the book, many illustrated book customers really want to examine the printed version to make a buying decision. As there are fewer stores carrying them, that gets harder and harder for the consumer to do.

One of the changes we’re living through is that content as a “pure play” is getting less and less viable at retail. For Amazon, “media” (i.e. content) is no more than 20% of their business. It’s what got them started and it is still very valuable because the content people search for and buy sometimes can provide important clues about what else you can sell them. At least some of Amazon’s success against online media competitors is due to the fact that their base is broader than media.

Selling media alone has become a dinosaur in brick-and-mortar. Stores selling music and renting video have all but disappeared. Retail shelf space for books isn’t ever precisely measured, but what’s available in book-centric stores must be less than half of what it was five years ago, when Borders was still in business and before cutbacks in shelf space that are visible in Barnes & Noble and others. One of the hopes for traditional publishers is that smaller independent stores will pick up some of the slack. But the kind of stores they’re envisioning would probably carry less in the way of illustrated books, particularly illustrated how-to books.

All of this should spell opportunity for other retailers, particularly those who are in “verticals” where there is a lot of publishing: gardening, home repair, and crafts, as examples. Just about every retailer could benefit from a customized selection of books that would both attract and excite their core audience, often stimulating them to buy the other things the store sells.

But doing that is hard because buying books is hard for all retailers to do but it is particularly challenging for non-book retailers. They get foiled by the unique characteristic of the book business that frustrates just about everybody coming into it from the outside: its sheer granularity. A store that wants to carry 100 or 500 SKUs on gardening, home repair, or crafts will most likely need books from several, perhaps dozens, of publishers to have the best selection. And they’d be selecting from 10 or 100 times as many titles as they want to carry. New titles will be issued every week. Each individual title might have a sales potential in any one store of $150 or $250 or $500 at retail, less than any other single item that store has ever carried or thought of carrying.

The biggest publishers of illustrated books in the categories that can benefit from non-book merchants are all quite aware of their importance to their future. If you talk to people at companies like Abrams, Chronicle, Quarto, and Workman — and I have — they will all tell you that “special sales”, the industry term for sales outside the bookstore trade, are critical to their future.

Of course, publishers have been doing special sales for many years, certainly including the five decades that I’ve been involved in the business. They have done it in ways that aren’t necessarily optimal. They’ve forced stores to “buy”: select the titles and quantities and place orders for each shipment they get. That’s an unacknowledged bottleneck. It has also engendered two sales policies which are counterproductive but well-established. Special sales accounts customarily buy from publishers at high discounts (lower costs) than bookstores but, unlike bookstores, don’t get the rights to “return” unsold stock. This has “taught” some publishers that returns aren’t “necessary”; retailers should just mark down what they can’t sell.

And it has taught the retailers to expect unrealistic margins. Of course, those margins are also largely unrealized, because they are buying stock without the right to return and end up marking down a too high (but unknown to the publisher) percentage of what they buy.

Of course, stores that don’t return any other merchandise don’t know anything’s missing in their terms. But, ultimately, it reduces those stores’ ability to experiment and it reduces the publishers’ ability to get stock in place on speculation. They can only sell “sure things”, and even those end up not being sure things.

But that’s not the biggest constraint. The challenges of mastering the mechanics of buying are. Non-book retailers simply don’t have the inventory management systems or the ordering practices that are necessary to manage books, where good practice might be to bring in one copy 20 times over a year to get 20 sales. Why? Because the book might only sell 1 or 2 or 5, and putting in 20 to sell 20 would result in overstocks most of the time.

There is a better way for distribution to work for non-book retailers, and that’s with vendor-managed inventory, relieving the retailer of the need to manage complexity challenges greater than they face in their core business for what amounts to a sideline. So far, we are only aware of one distributor — West Broadway Book Distribution — that offers that capability. (Full disclosure: West Broadway is our client, and we had a lot to do with creating their offer and their system over a decade ago.) WBBD gathers books from many publishers for their retailer clients. That’s also almost always necessary because very few publishers have enough titles in any category to stock a store adequately on their own.

The future of bookstores is challenged. The likelihood is that those that survive will be smaller (or, like today’s B&N, devoting some of their floor space to things other than books). The book-centric retailer will be increasingly inclined to stock “writerly” books rather than “practical” ones. That creates an enormous opportunity for non-book retailers to create a traffic magnet, incremental margin, and a stimulus for their customers to buy their principle lines of merchandise by creating book departments. More of them will, but the challenges of buying will continue to be a constraint in the market.

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An innocent story with dramatic implications


It’s a holiday weekend in America, but they’re working in the UK. A story posted by The Bookseller today really caught my eye.

It says that Hachette UK is seeing “nearly half” of its sales taking place online. The report, built around data provided in an annual letter by CEO Tim Hely Hutchinson to authors, reports that ebook sales are about 25% of Hachette’s sales. That implies that a third of the print sales (another 25% of the total) are taking place online.

Furthermore, Hutchinson reports that ebook sales for fiction are at 30%, with “some genres and authors” at over 50%! If you assume that the ratio of print sales online remains a third for those subsets, you calculate that for fiction overall online sales are about 53% and for some genres and authors they are close to two-thirds!

This is the first time I’ve seen (or noticed) a breakdown that is “online versus offline” rather than “digital versus print”. I’ve argued for sometime that online versus offline is the more meaningful distinction in sorting out the power equation between publishers and Amazon. (And that’s why we’ve got both Amazon and Nielsen talking about that very topic at our Publishers Launch Frankfurt conference.)

The chances are that Amazon has 80% or more of the online sales in the UK (NOOK, which takes approximately 20% of the ebook sales in the US, is much less powerful there.)

This is earthshaking. I am not sure enough people in our business are seeing it that way. Or maybe they don’t talk about it much because it’s scary and there’s not much they can do about it. I didn’t see the letter, just the report of it, but Hutchinson’s expressed concern was that the total value of print and digital sales is showing a tendency to decline over time. There was nothing in the article and appears to be nothing in the letter about the implications of the sales ratios it reveals, but start with two things:

1. Amazon can pay double the royalties of a publisher on ebooks without breaking a sweat and, frankly, can do the same on print books they sell themselves. Do the math. That means they can often sign an author and deliver as much revenue from just the sales they deliver themselves as a publisher does with the whole UK market.

2. If you were an intermediary delivering half of somebody’s sales — in any business — wouldn’t you demand a better deal than anybody else gets by a considerable amount?

I wouldn’t presume what the Hutchinson letter reveals is unique to Hachette. This is a powerful sign that the changes we’ve seen in the book business over the past few years are merely prologue.

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Stats are often hard to interpret in our business


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

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

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

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

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

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

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

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

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

Thirteen percent is a big increase in a stable marketplace.

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

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

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

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

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

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

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

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

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

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

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B&N results are disappointing, and one wonders if prior success with NOOK might deserve part of the blame


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

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

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

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

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

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

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

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

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

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

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

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

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