Scribners

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;

deliver;

collect;

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.

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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 tor.com 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.

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Family businesses


The New York Times had a story on Tuesday morning about an advantage the Ford Motor Company had over its competitors at GM and Chrysler: it is still family-owned. As the Times explained, the family ownership was able to take a longer view than their competitors. In fact, we still don’t know whether the re-tooling the family has ordered up will work in the long run. But we do know that they have had a steadier and more far-sighted management because the family cared about the long-term health of the business, not just the next quarter’s profits.

This recalled to me a conversation that I had with Peter Wiley, currently the Chair of the Board of John Wiley & Sons, over dinner 15 or more years ago. Peter said then that he believed Wall Street undervalued family ownership. As Peter put it, “just about all our competitors are focused on quarter-to-quarter results. Mike, my family has owned this company since 1807. I am not thinking quarter-to-quarter.” Wiley’s financial results (even though they have suffered in this recession along with everybody else) over time have certainly vindicated Peter’s opinion.

Family-controlled businesses have been  been ubiquitous in publishing through my whole career. When I was young, there were Scribners at Scribners, Doubledays at Doubleday, sometimes two Roger Strauses at Farrar, Straus & Giroux. When family-controlled but publicly-traded Barnes & Noble acquired Sterling in 2002, they acquired it from the founding families: the Hobsons and the Boehms.

I have consulted with several family-owned or -controlled businesses. Wiley, Barnes & Noble, and Ingram are distinguished by how well managed and basically competent they are as organizations. They really do the “blocking and tackling” well. A big part of the competitive edge of all three companies is in the quality of their operations.

They make the investments, particularly in infrastructure, that are critical to the business. I once asked Peter Wiley why it was that his company’s travel web sites were so much more commercially successful than those of other publishers with equivalently-strong travel brands. “Constant, controlled experimentation,” he said. “What worked for us was on the third try. We didn’t get it right the first two times.” Family ownership — with belief — can make those kinds of investments and stay with them. And it can support a second and third attempt to make a good strategy that is tricky to execute succeed.

John Ingram, the member of the owning Ingram family who runs the book industry-related businesses, got a clear vision of the potential in print-on-demand a little over a decade ago. Very few other owners, and almost certainly no publicly-traded owner, would have made a bet of the scale, in relation to the size of the company, that he did with Lightning Print. But John could see that POD would become extremely important and that Ingram, because of its position in the supply chain, was in a great position to apply the technology. And although it took a few years for him to be proven right, the family had the commitment to see it through and, as a result, Lightning occupies an increasingly central place in the US supply chain and is the linchpin of Ingram’s plans for future growth as the traditional book wholesaling business contracts.

What most distinguishes the successful and still-profitable Barnes & Noble from its once equal and now reeling competitor, Borders, is the quality of B&N’s supply chain. That required investments in warehouses and systems that Borders, long ago sold by its founding family, didn’t have the long-view management to make.

Now I’m working with another family business called BookMasters, in Ashland, Ohio. BookMasters started out as a printer in the 1960s. Their operations have grown in both directions along the value chain from printing. They have a business, BookMasters Digital, that provides an XML workflow from concept to the press. And they have another division, BookMasters Distribution, that takes the output from the presses and provides warehousing, sales, fulfillment, and collection. The Wurster family that owns BookMasters has many business characteristics in common with the Wileys, Riggios, and Ingrams. They have a high degree of loyalty with many long-standing employees. They have a persistent commitment to operational excellence. And they have a high degree of strategic consistency: they are willing to build things over a long period of time.

John Ingram saw over a decade ago that the book wholesaling business Ingram was in was living on borrowed time. He saw Lightning as a bridge to the future. Dave Wurster knows that printing is not a growth industry and he’s building his bridge to sustainability with service offerings that expand his importance to his customer base. Over time, both of these family owners can see the possibility of a totally transformed businesses. Their focus primarily is on how to make sure their business survives a long time, not on immediate profit. In a time of great change, I believe it’s a competitive edge.

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