Sterling

Publishers need to rethink their marketing deployments and tactics in the digital age to take advantage of their backlists


Well-articulated complaints about the way traditional publishing compares to self-publishing have recently been posted by two accomplished authors, one who writes fiction and one who writes non-fiction.

These point to what most publishers really should already know. Some fundamental and time-honored truths about publishing need to be reexamined as we continue the digital transition. And one of the things that really needs to change is the distinction between backlist and frontlist.

There is a real baked-in logic to how publishers see their responsibilities and effort allocation across their list. Books have always been launched like rockets. The publisher commits maximum firepower to getting them off the ground. Most crash to earth. Some go into orbit. The ones that go into orbit have “backlisted” and, like satellites, it takes no power or effort to keep them in orbit for a long time if the initial blast-off gets them there.

In fact, a virtuous characteristic publishers have always recognized about backlist stands in the way of developing the right 21st century approach: backlist books sell without the marketing effort that it takes to introduce a new book. (This has, unfortunately, too often been interpreted in a way that discouraged extra effort that would make them sell better if they were actively marketed.) My Logical Marketing partner, Pete McCarthy, who worked for both Penguin and Random House in his corporate career, points out that titles in the backlist make can make up more than half the profits for a Big Five house in a given year.

But in the digital age, the “guided missile” is a more appropriate metaphor for best practice than the “rocket”. Audiences are discerned and they are targeted. The messages delivered to the target audiences should be as topical and current as today’s news and social graph and as relevant and useful to them as possible. And that means that marketing efforts for all books need to be continuous, or, at the very least, adjusted over time as necessary. It doesn’t make sense anymore to stop the marketing of a book after its first month, whether it has early success or early failure.

Experienced publishers learned over the years that it didn’t matter what promotion you did for a book not fully distributed. If it wasn’t available in stores, promotion and advertising wouldn’t make it sell. Savvy publishers would ignore news breaks or marketing opportunities for books that had gone through their peak bookstore distribution cycle — which can be as short as a few months or even less if a book doesn’t gain initial traction — because chasing them was wasted effort.

None of this is true anymore. Any break can get around quickly, or even “go viral”. And there don’t need to be books in any stores for a break to move print and digital copies. For many categories of books, most copies are already bought online. It’s probably the case for the majority of titles published and it is true for periods of time for just about any title, particularly an older one past its bookstore peak that has a sudden moment of relevance or fame. With hundreds of millions of consumers having online accounts, publishers should have no concerns about them finding and buying the books they feel they want or need at any moment.

The common experience of the two authors who have switched from traditionally published to self-published and written about it is that some marketing effort, including price-fiddling, applied to long-ago backlist can resuscitate a dormant book and that fact, combined with the higher share of revenues self-publishing brings, can make the effort of managing their own publishing business well worth the effort to them. Another component is that both authors want to work on making their books sell.

Of course, this constitutes a loss to the publishers whose initial efforts helped create both the product and the platform that the self-publisher and the self-publishing infrastructure (most prominently Amazon, but there are plenty of players there) then capitalizes on. This squares with our recent observation that there are two (and only two) categories of successful self-publishing authors so far: those who somehow manage to reclaim and republish a backlist and extremely prolific genre fiction writers. (There are other success stories, but they are isolated and relatively rare.)

Traits just about all of them share (along with the authors of the linked posts above) are marketing and publicity capability and constructive business sense. These are traits publishers should be looking for in their author partners and the fact that they can gain better expression and leverage outside a publishing house is a failing the industry really needs to fix. We have seen indications of some awakening to this in the literary agencies, some of which are actively learning about and teaching their authors how to best leverage their efforts and networks.

Aside from marketing effort that these authors expended long after their publishers’ efforts had ceased, the other variable here seems to be consolidation of effort across publishers’ lists. An author who has had a long career, as these two have, frequently find their backlist spread among several publishers. So only when the author reclaims rights across those publishers is a meaningful author-centric marketing effort even possible. This is a kind of middling-scale application. An author with a few books of his/her own to push can amortize marketing and management efforts — from putting titles up to watching sales to fiddling with prices — across a real list. Scale is supposed to be the advantage that the publisher provides, but it is diffused and ineffective if each of an author’s titles is viewed as a separate SKU and that is particularly likely if the number of SKUs each publisher has is a minority of the author’s total output.

There is a critical strategic question here that the industry has not resolved. Authors really need to control and manage their own personal web presences and decide on how to best leverage those presences — in conjunction with their publisher(s) or not. But managing a personal web presence is knowledge-, cost-, and labor-intensive and there is no great correlation between how well a person can write and how well they can manage their online opportunities. Still, an author can’t really totally entrust that work to any one publisher, because each is only really interested in the books they publish. Agents are aware of this reality and many of them work to help their clients understand the opportunities. But somebody’s got to pay for web sites and maintaining the Facebook account. Whoever does will effectively own the names and attention they can harvest. (At Logical Marketing, we’ve already done work with three of the largest literary agencies in New York, sometimes totally independently and sometimes in conjunction with publishers. And it is only about 100 days since we opened the doors.)

Publishers really need to work out ways to support authors who can contribute to their own marketing. But it is complicated and it can only done between a publisher and an author who acknowledge their own and each other’s interests and responsibilities. Working out how to make these efforts both fair and synergistic — including rules of the road for how email addresses that could really be attributed to either should be shared and used — will be a key characteristic of productive agent-publisher partnerships over the next ten years.

Digital marketing in this business can be defined as identifying and building audiences for books and for authors — two separate endeavors that need to be complementary — by enhancing discovery and understanding and using the social graph. Agents and publishers working together on marketing in a sustained way will increasingly be the key to commercial success. And the minute a publisher recognizes the author as a true marketing partner, the old industry attitude about backlist marketing must yield, because authors have a very long attention span to push their work. (Remember, in many cases it took them years to write!)

My longtime friend Charlie Nurnberg, who spent most of his career at Sterling and was always a champion of backlist, often said “any book is new to somebody who didn’t know about it before”. That’s an aphorism that must become every publisher’s motto. Combined with our ability today to understand audiences categorically, and to understand them better for backlist books (because the evidence of who really constitutes the audience is sprinkled across the Internet), the fact is that it is easier to do intelligent and targeted marketing for a book that is a year old than for one that hasn’t been published yet.

But publishing organizations are not structured to take advantage of that fact. In the past ten years, the ratio of marketing personnel to sales personnel has changed in every house: more marketers and fewer sales people. But there has not been a comparable shift in marketing deployment between new titles and backlist. If publishers want to stop losing their most marketing-savvy multi-book authors to self-publishing, that’s something that urgently needs to change.

Publishers need to apply both big scale and middling scale to address this issue. They need to create and employ new tools, such as an engine that digests the news and social graph on a daily basis to help identify specific backlist titles that could benefit from additional effort right now. To make that investment in tools productive, they need to go into their backlist and create new metadata — short and long descriptions — that reflect the audiences for those books. Doing all of that is a six-figure investment for big publishers, but not a seven-figure one. Though it is penny-wise and pound-foolish not to do it, we only know of one trade publisher who possesses the tech to digest today’s reality and systematically bounce it off their backlist. (Of course, there may be others; we don’t pretend that everybody tells us everything they do. But if a publisher “doesn’t know how”, Pete McCarthy and our Logical Marketing team can guide you or do it for you.)

Publishers should have specialist marketers for genres, topics, and multi-book authors. Having staff dedicated to marketing authors will make another unusual step that needs to become common much more likely: acquiring the rights to titles of that author that now belong to other publishers or to the author. As we move into the digital age, selling “one title at a time” — which was pretty much the only way to do it when books were bought in bookstores by consumers and bought by bookstores order by order — becomes decreasingly efficient. Publishers have always built their marketing around their understanding of their distribution channels. Those are changing and the marketing and publishing tactics need to change with them. Working in a collaborative way with an author who may have titles at other houses or self-published is essential. Acquiring the rest of the list of an author in whom a publisher wants to invest building their name should be even better.

There are a variety of additional tactics, some well-recognized already, that are all about marketing across a range of titles. Most publishers already know the value of discounting (or even giving away) the initial title of a compelling series. But to maximize sales, it is also necessary to spell out clearly the sequence of publication of a series so a consumer can easily read them in the order the author intended. It would probably also be helpful to provide a roster of characters with descriptions. All of these can be tools to stimulate additional sales, but they don’t fit comfortably with the “marketing each new title” workflows that publishers are used to.

One new publisher that I’ve seen reflect this thinking is Open Road. Their publishing program has always been about about bringing in authors with backlists. So their publishing calendar is not centered on pub dates of new and upcoming titles; it is about the holidays and occasions that we all celebrate. They think about “Easter” or “Father’s Day” and look for the books on their list that can benefit from the connection. Coding holiday connections into the metadata needs to be a standard part of preparing each new book for the market, but it also requires expending the effort to do it for backlist to be fully effective. (The longtime ebook publisher Rosetta Books is similar to Open Road in many of these respects.)

Of course, the new title publishing activity can’t stop; each new book needs to be properly introduced into the marketplace and, for at least a few more years, sales in the opening week or weeks need to be optimized. But that should become just part of the marketing effort and it should ultimately be the smaller part (if it shouldn’t be that already).

Publishers need to recognize that if authors can sell their backlist more effectively than their publisher(s) did, the publisher was doing something wrong — or failing to do some things right. Authors are right to leave and take matters into their own hands when that happens. Publishers further need to recognize that the authors who can effectively market themselves are the very authors they most want, and that figuring out how to create an environment of collaborative synergy with them is what the successful publisher of ten years from now will have done. More imagination, energy, and resources devoted to the backlist is a very good, and likely a very profitable, place to start.

Industry statistics on backlist and frontlist don’t exist. In fact, the definition of when a book is considered backlist varies across the industry or people work without any standard definition at all. Nonetheless, it is likely that most publishers are already benefiting from digital discovery and shopping increasing their backlist sales. Recent financial reporting from big publishers has been very upbeat, a fact usually attributed to the more favorable margins publishers achieve on ebook sales, which have positive margin attributes around costs of inventory, costs of royalties, and elimination of returns. However, it is almost certain that improved sales of backlist due to the natural effects of “unlimited shelf space” for discovery and fulfillment also play an important role in improving the financial picture for the publishers with the biggest backlists.

Our wildly unreliable Feedburner distribution system hasn’t emailed last week’s post on subscriptions as of when this one is being published.

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Marketing will replace editorial as the driving force behind publishing houses


One of the things my father, Leonard Shatzkin, taught me when I was first learning about book publishing a half-century ago was that “all publishing houses are started with an editorial inspiration”. What he meant by that is that what motivated somebody to start a book publisher was an idea about what to publish. That might be somebody who just believed in their own taste; it might be something like Bennett Cerf’s idea of a “Modern Library” of compendia organized by author; it might even be Sir Allen Lane’s insight that the public wanted cheaper paperback books. But Dad’s point was that publishing entrepreneurs were motivated by the ideas for books, not by a better idea for production efficiency or marketing or sales innovation.

In fact, those other functions were just requirements to enable somebody to pursue their vision or their passion and their fortune through their judgment about what content or presentation form would gain commercial success.

My father’s seminal insight was that sales coverage really mattered. When he recommended, on the basis of careful analysis of the sales attributable to rep efforts, that Doubleday build a 35-rep force in 1955, publishers normally had fewer than a dozen “men” (as they were, and were called, back then) in the field. The quantum leap in relative sales coverage that Doubleday gained by such a dramatic sales force expansion established them as a power in publishing for decades to come.

Over the first couple of decades of my time in the business — the 1960s and 1970s — the sales department grew in importance and influence. It became clear that the tools for the sales department — primarily the catalog, the book’s jacket, and a summary of sales points and endorsements that might be on a “title information sheet” that the sales reps used — were critical factors in a book’s success.

There was only very rarely a “marketing” department back then. There was a “publicity” function, aimed primarily at getting book reviews. There was often a “sales promotion” function, which prepared materials for sales reps, like catalogs. There might be an art department, which did the jackets. And there was probably an “advertising manager”, responsible for the very limited advertising budget spent by the house. Management of coop advertising, the ads usually placed locally by retail accounts that were partly supported by the publishers, was another function managed differently in different houses.

But the idea that all of this, and more, might be pulled together as something called “marketing” — which, depending on one’s point of view, was either also in charge of sales or alternatively, viewed as a function that existed in support of sales — didn’t really arise until the 1980s. Before that, the power of the editors was tempered a bit by the opinions and needs of the sales department, but marketing was a support function, not a driver.

In the past decade, things have really changed.

While it is probably still true that picking the “right books” is the single most critical set of decisions influencing the success of publishers, it is increasingly true that a house’s ability to get those books depends on their ability to market them. As the distribution network for print shrinks, the ebook distribution network tends to rely on pull at least as much as on push. The retailers of ebooks want every book they can get in their store — there is no “cost” of inventory like there is with physical — so the initiative to connect between publisher and retailer comes from both directions now. That means the large sales force as a differentiator in distribution clout is not nearly as powerful as it was. Being able to market books better is what a house increasingly finds itself compelled to claim it can do.

In the past, the large sales force and the core elements that they worked with — catalog, jacket, and consolidated and summarized title information — were how a house delivered sales to an author. Today the distinctions among houses on that basis are relatively trivial. But new techniques — managing the opportunities through social networks, using Google and other online ads, keeping books and authors optimized for search through the right metadata, expanding audiences through the analysis of the psychographics, demographics, and behavior of known fans and connections — are still evolving.

Not only are they not all “learned” yet, the environment in which digital marketing operates is still changing daily. What worked two years ago might not work now. What works now might not work a year from now. Facebook hardly mattered five years ago; Twitter hardly mattered two years ago. Pinterest matters for some books now but not for most. Publishers using their own proprietary databases of consumer names with ever-increasing knowledge of how to influence each individual in them are still rare but that will probably become a universal requirement.

So marketing has largely usurped the sales function. It will probably before long usurp the editorial function too.

Fifty years ago, editors just picked the books and the sales department had to sell them. Thirty years ago, editors picked the books, but checked in with the sales departments about what they thought about them first. Ten years from now, marketing departments (or the marketing “function”) will be telling editors that the audiences the house can touch need or want a book on this subject or filling that need. Osprey and some other vertical publishers are already anticipating this notion by making editorial decisions in consultation with their online audiences.

Publishing houses went from being editorially-driven in my father’s prime to sales-driven in mine. Those that didn’t make that transition, expanding their sales forces and learning to reach more accounts with their books than their competitors, fell by the wayside. The new transition is to being marketing-driven. Those that develop marketing excellence will be the survivors as book publishing transitions more fully into the digital age.

A very smart and purposeful young woman named Iris Blasi, then a recently-minted Princeton graduate, worked for me for a few years a decade ago. She left because she wanted to be an editor and she had a couple of stops doing that, briefly at Random House and then working for a friend named Philip Turner in an editorial division at Sterling. From there Iris developed digital marketing chops working for Hilsinger-Mendelson and Open Road. She’s just taken a job at Pegasus Books, a small publisher in Manhattan, heading up marketing but doubling as an acquiring editor. I think many publishers will come to see the benefits of marketing-led acquisition in the years to come. Congratulations to Pegasus and Iris for breaking ground where I think many will follow.

Many of the topics touched on in the post will be covered at the Marketing Conference on September 26, a co-production of Publishers Launch Conferences and Digital Book World, with the help and guidance of former Penguin and Random House digital marketer Peter McCarthy. We’ve got two bang-up panels to close with — one on the new requirement of collaboration between editorial and marketing within a house and then in turn between the house and the author, and the other on how digital marketing changes how we must view and manage staff time allocations, timing, and budgeting. These panels will frame conversations that will continue in this industry for a very long time to come as the transition this post sketches out becomes tangible.

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Peering into the future and seeing more value in the Random Penguin merger


So now in addition to the Random House and Penguin merger that is being reviewed by governments far and wide, we have the news that HarperCollins is exploring a tie-up with Simon & Schuster in a deal that hasn’t been made yet. That leaves Hachette and Macmillan, among the so-called Big Six, still on the outside as the general trade publishing behemoths rearrange themselves for whatever is the next stage of book publishing’s existence.

I am not sure we really need an “explanation” for what is the resumption of a perfectly natural phenomenon. Big publishers have been merging with each other for several decades in a process that suddenly stopped after Bertelsmann acquired Random House (to add to its holding of Bantam Doubleday Dell) in 1998. We didn’t know it at the time, but that concluded a long string of mergers that had recently included Penguin’s acquisition of Putnam-Berkley, but which stretched back to the 1970s when pursuit of the paperback-hardover synergy had driven Viking and Penguin; Doubleday and Dell; and Random House-Ballantine and Fawcett into each other’s arms.

(Perhaps HarperCollins should get credit for the resumption of the era of consolidation. Their acquisition of Christian publisher Thomas Nelson, combined with their holding of Zondervan, created a powerful position in one of publishing’s biggest vertical markets shortly before Penguin and Random House announced their plans.)

But consequential events always get an explanation, whether they deserve one or not, and this merger appears to many to be driven by consolidation among the retail intermediaries and the rational concern — amply documented by recent experience — that the retailers would use their leverage to press for more and more margin. This is complicated by the fact that both of the dominant retailers — Amazon in the online world and Barnes & Noble in the brick-and-mortar space — have small publishing operations of their own that are always available to put additional pressure on publishers at the originating end of the value chain.

There is an important asymmetry to take note of here. The retailers publish and are always a threat to acquire manuscripts directly and cut the publishers out but the publishers, particularly the biggest ones, don’t do retail and there is no obvious path for them to enter retailing in any significant way. (That last sentence was written with full cognizance that we await the debut of Bookish, which is an attempt by three of the Big Six to enter retailing in a significant way. Maybe when concrete plans for it are announced there will be some reasons provided to amend that thought.)

In my opinion, the dominant position that Amazon holds in online retailing and that B&N owns in shops are impregnable on their own terms in ways that the positions of each of the big publishers are not.

The threat to Barnes & Noble is that bookstores will become unsustainable: that a retailer trying to exist at scale with books as its primary product offering will, because of ebooks and online purchasing of print, simply become unviable. The threat to Amazon is more nuanced and more distant. One can imagine a world developing where content retailing evolves into niches by subject or tastemaker. But that world is not around the corner (an environment toxic to bookstore chains appears to be much closer) and it would be far easier to imagine how Amazon could adapt to niche online retailing than to see B&N adapting to deliver retail book selections that are only viable at a fraction of their current size.

(I consulted to them a decade ago and suggested that to no interest. They were shutting down their mall stores at the time and the idea seemed totally counterintuitive.  I’ve also written about it.)

I saw recent data (sorry, can’t remember where…) suggesting that something like 38% of the book business is now done online, taking both ebooks and sales of print into account. This seems to be confirmed by a chart built on BookStats data by reporter Laura Owen of PaidContent, if you take “institutional sales” out of the equation and assume that wholesalers sold books to online and store retailers as well as libraries.

Whatever the percentage is, it is almost certainly higher for immersive reading than for illustrated or reference books because immersive works for ebooks and the others mostly don’t. So it would appear that something like 60% of the book business is still a bricks-and-mortar game, with the number being somewhat lower for straight text and higher for illustrated.

That, in a nutshell, explains why the big publishers are still extremely powerful. The 60% sold at retailers is what they’re uniquely skilled at getting and what Amazon is uniquely challenged to penetrate.

But the one thing we know for sure is that the shift to online purchasing — while it has slowed down — will continue to progress for a long time. The increased ubiquity of devices; the always-larger selection from an online merchant; the increase in availability of appealing and useful content that is either too short or too specialized for print; the steadily increasing cost and hassle of shopping by car rather than by computer; the natural results of birth, death, and demography; and the increase in online word-of-mouth and recommendation sources are among the many factors that assure that.

As the percentage of a publishers’ sales that are made through retail stores decreases, the cost of covering them increases. This has already become an issue as the big publishers view their overheads and come to the conclusion that they can’t afford to pay ebook royalties greater than 25% of receipts. Surely, some of the cost basis they see driving that necessity are really print-based (creation and distribution), which makes them calculate what’s affordable differently than a more new-fangled publisher that is planning primarily on digital and online distribution.

The publishers who are merging or thinking about merging are not doing so out of immediate desperation. The financial reports we see from trade publishers are not frightening. Top line sales are challenged — there is little or no growth — but margins have been maintained through the seismic marketplace shifts of the past few years and the pace of change is slowing. So it is probably preparing for a world a few years off that drives publishers to merge today. What will that world look like?

The world of publishing we’re going to see five or ten years from now will probably look quite different. Even if store sales only decline 10% a year against the industry total, what is a 60% share today will be about a third after five years have passed and below 20% in ten. Those are sales well worth having, of course, but they’ll be a lot more expensive to get. And if I were predicting rather than just speculating, I’d expect the erosion of retail sales to be a bit faster than that.

My expectation is that freestanding bookstores will be less and less common, and smaller book sections in other retailers (the way they’re in mass merchants today) will proliferate. We already see this in “specialty” retail: stores stock books that fit alongside their other product offerings. But as bookstores get scarcer, it will probably begin to make sense for general book selections — bestsellers, classics, and the cream of popular categories like cooking and current affairs — to be offered by other merchants. Part of the reason that doesn’t happen now is that it is too hard for the retailer not in the book business to do. A representative selection either requires dealing with many publishers or buying from a wholesaler. And the wholesalers are working on tight margins, not allowing them much room to offer expensive services (like inventory management) unless they really cut into the store’s margin.

But you don’t have to have every book — or even every bestseller — to deliver a compelling consumer offering. Book-of-the-Month Club and The Literary Guild proved that half a century ago when they competed for the general book club market. They demanded exclusives on the bestsellers, so they tended to split them. And they each had enough to pull a very large audience.

Well, the combination of Random House and Penguin has damn near half the bestsellers too. And Random House, at least, has already developed vendor-management capabilities that they can apply at the store level. So as the bookstores disappear from town after town, a Random Penguin combination (they really ought to call it that!) becomes able to offer any local retailer a selection of books that will look pretty good to the average consumer.

In addition, they’ll find that the combined lists give them a great head start on having enough titles to deliver retailers other vertical selections — cooking, crafts, home improvement — that their VMI skills will also help them serve.

Right now the challenge Amazon is having is that they’re trying to publish with a grip on no more than half the market. That’s great, as far as it goes, because that’s where they have a real margin advantage when they cut the publisher out of the chain. But because there is so much Amazon fear-and-loathing around the rest of the industry, they’re not able to build out beyond their proprietary position. (See the recent frustrations expressed by their author, Tim Ferriss, to appreciate how that’s working out in the market today.)

But if Amazon could reach 75% of the market — that is, if store purchasing declined below 25% of the total, which is in the cards for the next ten years — leverage would be reversed. (I’m eliding the format and proprietary reader device issues around ebooks here, but I’m guessing they’ll mostly go away in the next five or ten years.) Then Amazon wouldn’t want or need distribution to the stores or other online outlets. In fact, chances are they’d see it in their best interests to withhold those titles from other retailers and use them as tools to compel shopping with Amazon.

(This would not be a peculiar selfishness of Amazon if they did it. I remember well the battles my friends at Sterling had when they were first acquired by Barnes & Noble trying to convince their new owners that it was necessary to distribute the books as broadly as possible or they would start finding it impossible to sign new titles. B&N’s instinct was to want what they published available only from their stores, an instinct they acted on with SparkNotes.)

But if I’m right about where Random Penguin might go, they could play this same game. As the cost of running book departments increases as a percentage of sales, as they surely will as sales in stores decline, the mass merchants will diminish their presence. If Random Penguin has half the bestsellers, they will be able to use VMI to build secondary locations to keep their print books available. Those locations will be theirs and theirs alone. Maybe they’ll only be making 10% or 15% of the total sales this way, but those sales will be unavailable to other publishers (unless they go through RP at diminished margins.)

The proprietary distribution will give RP an advantaged position signing up the biggest books. In time, they might even have enough of the biggest books to pursue one of the current active fantasies of Amazon and a bunch of entrepreneurs: creating a value proposition for big authors that will enable a subscription library with headline titles. And that would be another proprietary distribution channel that this next generation of scale might make possible.

The resistance of the bookstores to doing anything that helps Amazon will make it difficult for Amazon the publisher to build a general trade list of bestsellers until a much bigger chunk of the market has moved online. Barnes & Noble, which had a chance to become the one dominant trade publisher if they’d played their Sterling card differently, seems not to be interested in that role. So it will be one or two of the incumbents that will be left standing ten years from now managing the most commercial titles in the marketplace. The odds are very good that one of them will be Random Penguin.

I (usually) resist the temptation to make political observations on the blog, because that’s not what people come here for. But I have to make an exception because I think one of the most important points to be made about the results of November 6 has not been made anywhere else. And it is, ultimately, a non-partisan point.

Among the many reasons that President Obama convincingly defeated Governor Romney was the superior execution of the Obama campaign around data and operations. They were simply better analysts and managers and they executed better than the Romney campaign.

So can we please put to rest the notion that “getting rich” or “running a business” is a proxy for “management skill”? The most frequently-offered argument from Romney was “I’m a successful businessman so therefore I can run things better than this guy who is community-organizer-turned-public-official.” Actually, Governor, you couldn’t. You didn’t.

The last presidents we had with business experience were (working backwards) George W. Bush, Jimmy Carter, Herbert Hoover, Calvin Coolidge, and Warren Harding. There is no historical evidence in there that shows that business success correlates with the ability to run the United States government. Or even, as we’ve just been shown, an effective national campaign.

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The expected changes in the book business favor Amazon’s share growth


This post is the second that is contemplating two big questions facing the publishing industry:

When will the growth in Amazon’s share of the consumer book business stop?

Who will be left standing when it does?

Amazon applies pressure and generates angst among publishers from two directions. As they grow to be 30% or more of many publishers’ business, they are in a position to push to improve their margins at publishers’ expense. And they do, indeed, push.

At the same time, they are both offering authors attractive opportunities to self-publish and wielding a checkbook to build their own publishing program. Both threaten to constrict publishers’ access to the ultimate source of all their revenue, the output of authors looking for a path to readers. And even when Amazon doesn’t sign a book they go after, they could well be pushing up the price a publisher has to pay to get it.

This pincer maneuver is really unprecedented in its power, even though elements of it have existed before.

Joint ownership of publishing and book retailing is definitely not new; it has been a part of the industry for my entire 50 years in it. My first book publishing job was on the sales floor of Brentano’s Bookstore on 5th Avenue in 1962. My dad was a publisher. He was a vice-president of a company then called Crowell-Collier, which bought the first Macmillan in the early 1960s, eventually changed the corporate name to Macmillan, and was then purchased by Simon & Schuster in 1994. None of these entities have anything to do with the company now called Macmillan, which took its name from the British company the owning Holtzbrinck family had also acquired.

Anyhow, when Crowell-Collier bought Brentano’s, Leonard Shatzkin became the responsible corporate executive. He had gone to Crowell-Collier from Doubleday, which also owned bookstores. Across the street from Brentano’s was the Scribner Bookstore, owned by Charles Scribner’s Sons. They were the publishers of Hemingway and Fitzgerald, among others. (Scribners exists today as an imprint of Simon & Schuster.)

And, of course, it has only been about 10 years since book retailing giant Barnes & Noble expanded its proprietary publishing program by purchasing independent niche publisher Sterling. That doesn’t appear to have worked out particularly well for them; they are apparently having trouble selling Sterling today, even at a fraction of the price they paid for it.

And, in fact, Amazon’s publishing efforts haven’t been particularly disruptive to publishers so far. Their big “gets” to date are Tim Ferriss and Deepak Chopra, two big authors who are unusual because their pattern has been to write for different publishers rather than having a lengthy run at one particular house. The very biggest names, which would be fiction authors, have not yet been enticed to make the jump, although Jackie Collins created a stir last week with some self-publishing plans that don’t have entirely to do with Amazon. It has been nearly a year since Amazon signed former Time Warner Books head Larry Kirshbaum to lead their attempt to woo big trade authors. That was very concerning to the big houses but, so far, the sky has definitely not fallen.

Whether we will really see profound changes that justify the questions that head this series of pieces or whether this turns out to be a totally baseless bout of nervousness by the established players depends on what happens in the overall marketplace in the next few years.

The percentage of a publisher’s business that Amazon represents is largely channel-dependent. If ebook sales go up overall, then Amazon’s share will probably go up. If purchasing shifts from brick stores to online, then Amazon’s share will certainly go up. If print sales in brick stores hold their ground, then Amazon’s sales won’t rise.

I think you’d have to look hard to find a credible voice making the case that print sales in stores will hold their ground. To the extent there is a debate, it revolves around how fast those sales will decline.

AAP says we’ve seen double-digit declines of print sales in 2011 over what they were in 2010. They say print revenue was down 17.5% in adult hardcover and 15.6% in adult paperback.

Forrester’s survey of publishing executives finds few expecting such a big decline in the coming year, but then, few expected such a steep decline last year. Forrester’s own prediction is for sudden drops. I would agree that sales will tend to decline in “step-increments”, as players exit the game. Borders may be responsible for a lot of the loss we saw in 2011. There wouldn’t seem to be any shelf space loss that great on the immediate horizon, but we do see B&N reducing both the number of stores and the percentage of shelf space within them devoted to books and there are many predicting that books might lose their appeal to the mass merchants as well. They are fully capable of substituting other merchandise for books and making that switch very quickly whenever they decide it should happen.

My own expectation is that over the next five years we’ll see the share of sales that are ebooks more than double. (This should be seen as a startlingly conservative prediction, since that number has doubled annually for the past five years!) That would put ebook unit sales at about 65% for commercial immersive reading. (I’m grossing up the 20% of revenue number the big houses are reporting because ebooks produce less revenue than print hardcovers and because many titles in the print revenue base aren’t in the ebook revenue base.)

Of the remaining 35% allocated to print, I’d expect half of the sales, at least, to be online. If those numbers are right, then 17.5% of immersive book sales would be in brick stores.

If Amazon remains about 60% of ebook sales and 90% of print books sold online, that would put their share of immersive reading sales at about 50%. And were a book available in Kindle that people knew about and wanted to read and not available in other formats, Amazon could pick up a lot of the ebook sales they would otherwise miss. (Remember, anybody using a Nook or Kobo app as opposed to a Nook or Kobo device could just switch to the Kindle app to read that particular book.) All that is really hard for them to capture is the 17.5% allocated here for print sold in stores. And even the loss of that share wouldn’t be total, since, for any really big book, in-store buyers would buy online if they had to. So they’d be in a position to reach well more than 70%, perhaps even more than 80%, of the market for all books that are principally text. (And those are the books that lead the industry.)

Imagine what that will do for Kirshbaum’s ability to go get big authors. Today an author considering an Amazon publishing deal must figure that half or more of the market is unreachable through that arrangement. No matter how much money Amazon is willing to pay, no matter how much they increase the ebook royalty over the publishers’ offers (which they have ample margin to do), it is a pretty tough sell to get an author to write off more than half the marketplace, particularly the half most visible to the public.

In other words, overall trends are moving things increasingly in Amazon’s direction. Even if nothing changes in the deals offered or resources available to the competitors for author attention in the next five years, Amazon’s position will have grown considerably more powerful. And, in fact, Amazon’s share of publisher sales just about assures that any changes in deals and resources in the meantime will favor Amazon as well.

Of course, there is more to successful publishing than just signing up a book and managing an online audience. Editing and presentation count. A marketing plan that goes beyond just reaching online bookstore customers counts. Rights sales count. And pricing to maximize a particular title’s revenue, not a bookseller’s overall share and customer loyalty, also counts. None of these are things that Amazon’s experience naturally leads them to do. All of them require investment and development of infrastructure and team skills. Will Amazon invest in and perform these functions?

And the more books a publisher does, the more challenging it becomes to manage all these things. Title growth might also challenge Amazon’s marketing resources, such as they are. There are only so many slots on the home page for a category of books to use to feature your own titles. (And there’s a risk of alienating your customers if they think your featuring and recommendations are just shilling for your own books.) There are only so many emails you can send pushing your own books before you lose people’s attention (and perhaps their permission). The special sales and vertical marketing functions that will be increasingly important for publishers are not natural fits at Amazon. Will they do these things?

Of course, we need to remember that while Amazon signs up titles directly, they pressure competitive retailers as well as publishers. There are two approaches Amazon can take in that circumstance and one can imagine them choosing which approach to apply by title.

Either they are a supplier of titles to the rest of the trade, which gives them a different kind of power. Or they withhold what they’ve got from the rest of the trade, which means the Amazon title selection is advantaged over the competition.

You have to excuse publishers if it makes them nervous to think about living in a world where the company through which they get 50% of their sales is also competing with them to sign up titles directly. This is a situation where it is accurate to say that any other player in the ecosystem who is not at least mildly panicked probably doesn’t fully understand what’s going on.

The challenges faced by Amazon as they try to grow as a publisher are not trivial, but neither is the strength they bring to address them. The world five years from now where Amazon is stronger because they can reach 80% of the market rather than somewhat less than 50% is also one where the big players with whom they’re competing for authors are also weaker. In fact, if the number following “Big” isn’t smaller than “6″ by then, I’ll be one very surprised prognosticator.

It’s taken me two posts (here’s the first one) to lay out what I see as the dynamic forces tilting the trade book business toward Amazon. I have at least three more components of this story to consider: how these changes look from each spot in the value chain (author, agent, large and small publisher, retailer, reader); a discussion of the “cultural gap”, which can be traced as much to different objectives as to the lack of shared history, between Amazon and the legacy book business; and a discussion of the Amazon antidotes: what other players in the industry can do, within the constraints of the law and practicality, to slow down or reverse the Amazon share growth before it changes the nature of the industry, and its cast of characters, beyond recognition.

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Which flies the coop first? the chicken or the egg?


There are lessons that can be taught or learned in one segment of publishing that can then apply to another. Well over a decade ago, Mark Bide and I were discussing the business model for journals. The way it works is that the university pays the professors a salary and rewards them with promotions and tenure for writing publishable material for the journals. Then the journal publisher pays nothing for the article (although they spend lots of money managing peer review and doing other things associated with editing, curating, and delivering the content.) Then the university pays for the IP all over again by buying (now licensing) the journal.

From our earliest understanding of the Internet and its potential for disintermediation, this seemed like a very vulnerable model. “How will we know when there’s a problem developing with the model?” I asked Mark. “When the publishers are having trouble getting submissions,” he said. “The problem will become obvious on the supply side before it becomes obvious on the demand side.

One of the challenges for a retail player trying to be a publisher is the difficulty of getting other retailers to play along. Even the most dominant US retailers, Amazon in the online world and Barnes & Noble in brick stores, don’t have a total monopoly on the customer base. People buy books online through outlets other than Amazon and people buy books in stores that aren’t owned by Barnes & Noble. And, of course, either of the two delivers grossly incomplete access to the total customer base without the other.

Barnes & Noble has been acquiring content directly for a long time. They’re very aware of the dichotomy between having a monopoly on content for your stores’ benefit versus making it more broadly available in the content’s best interests. Almost from the minute B&N acquired Sterling, Borders stopped stocking Sterling books (a problem that matters much less today than it did a few years ago.) And Sterling had a real sales force, retailer-friendly sales policies, and all of the systems necessary to support moving their books through intermediaries. Amazon does not.

Amazon took the first steps to fill that gap by making a deal with Houghton Mifflin Harcourt a few months ago, giving HMH a right of first refusal (apparently) to purchase paperback rights (excluding Amazon, we’d assume) to the books Amazon was publishing through their proprietary imprints. I have no inside information, but I would assume that one of the things Larry Kirshbaum will figure out early in his new role there will be how to get real print book distribution for the books he will be acquiring.

Amazon’s strategy appears to be that they’ll use their checkbook, the offer of 70% ebook royalties from the most powerful ebook platform, and their close connection to the online consumer, to get the books they want on the terms they want. And what they seem to want most for the books they pay for is “Kindle exclusive”: the ability to build up an inventory of titles available through Kindle but not through Nook, iBookstore, Google, or Kobo, let alone the stores here and abroad served by Ingram and OverDrive.

Barnes & Noble is familiar with that idea. They wouldn’t let other stores sell their Sparknotes study guide line. They never made it generally available through Sterling’s organization because they perceived value in having it be uniquely available through their stores and online channels.

But they didn’t avoid that dichotomy. The value they perceived is to the retailing entity, not to the content holder. Since their retail business was something like 50 times bigger than Sterling, it might not have been seen as a terribly difficult decision even though the content holder is always better off if the book is sold in as many places, online or offline, as possible.

Last week, PW did a story introducing Amazon’s “summer list”: ostensibly the books being published by them in the next few weeks. Obviously, these books were signed up before Kirshbaum’s arrival.

I’m not a bookseller. I have no expertise to apply to look at a list of books and decide what should be in any particular bookstore. But nothing on this list looked like a “must have” for an independent bookseller. To make sure, I reached out to a smart one I know and asked her to look at the PW list. “Would you stock these books?” was my question.

Her answer was interesting. “I don’t know about any of these,” she said. “For the most part, I learn about books by sales reps visiting our store and telling us about them. Nobody has ever told us about these.”

I had my staff do a little bit of searching. We couldn’t find a consolidated list of Amazon’s summer offerings online. What we found was the press release announcing 32 titles that PW referred to, but that release only listed 19 of the 32. We couldn’t find anything on any of these books at the Houghton Harcourt web site. We were able to find 14 more titles by looking under the various Amazon imprints (including Seth Godin’s Domino partnership with them) for a total of 33 coming or having been released from last March through November. Is this the “summer list”? Maybe, with global warming…

We found nothing about any of the titles on the Houghton site. Oddly enough, they did publish a prior title by one of the Amazon authors, Max Allen Collins, but they haven’t listed the current one, a collection of short stories.

(Here’s an ironic thought. You think Amazon will place an ad in the PW Announcement Issue to get this all straight?)

So, as far as we can tell, the Amazon summer list contains very few books that the old publishing guard, publishers or booksellers, will suffer much for having missed.

Except, of course, that maybe Amazon can create demand among the millions of online customers they have for books and ebooks. If they do, and the word of mouth grows to a point that independent booksellers find they must stock these books, Amazon will really have created a new publishing paradigm. That certainly seems to be what Godin is counting on.

Nobody — or at least very few — outside Amazon knows what new capabilities will be put in place to support the publishing programs Kirshbaum will build. Barry Eisler indicated at our Publishers Launch BEA conference that he had received a six figure advance for the book he just signed directly with Amazon to publish. He seemed to expect, or at least had hopes for, a robust bricks-and-print strategy along with his high ebook royalty. But he’ll have the same problem with Barnes & Noble and independents that Sterling had with Borders: it will take the perception of a very high level of demand to compel them to stock a book from a company they think is taking the bread right off their table.

A related development is that Arthur Klebanoff, one of the original ebook publishers founded on the idea that the big publisher standard of 25% ebook royalties creates opportunity for entrepreneurs, told the British AAA (the agents) this past week that he’d be delighted to publish their backlists and pay a 50% royalty. To agents who are already planning to do this themselves (and quite a discussion has broken out in the UK about whether that is a legitimate thing for agents to do; the AAA has decided it is) Klebanoff points out that things can go wrong with ebook publication (it might not sell, for one thing) and agents would be wise not to jeopardize their relationship with an author client when there are alternative ways to get a high royalty.

Klebanoff seems here to be jumping squarely into competition with Jane Friedman’s Open Road, which has been signing up content with very much the same pitch. (Open Road also has other attributes to tout, primarily some very talented digital marketers and a focus on developing tools and techniques to do that work effectively.)

Meanwhile, other agents are setting up their own digital publishing capabilities and service offerings continue to mushroom. Agents tell me — two were in the office this week talking about this — that their authors are frequently asking about self-publishing.

Does the insight Bide offered to me late in the last century about scholarly journals end up applying to trade publishers? Will the most obvious sign of a challenged model become the resistance of authors to their blandishments and their advances? There seem to be a lot of entities betting on the idea that it will.

It is worth noting here that there’s one dog that hasn’t barked. Richard Curtis was the first ebook publishing agent. He set up his E-Reads business over a decade ago. He also pays 50% royalties. Richard did not create E-Reads to compete with publishers on royalties but because when he did publishers just wouldn’t do the ebooks. He has built his enterprise since that time to nearly a $1 million annual business (meaning that he’s delivering half-a-million a year to authors for properties that, at least until very recently and perhaps still, would never have been put into ebooks by a publisher.) But his name is noticeably absent from the chorus using higher ebook royalties as a public prod to bedevil publishers.

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Amazon’s news of hiring Kirshbaum is a helluva start for BEA


Amazon dropped a shoe last week when they announced their new mystery imprint, Thomas & Mercer Books, and started signing authors, including self-publishing evangelist, Joe Konrath.

Last night they dropped the other shoe, which turned out to be a very heavy boot. They signed former Time Warner Publishing (the company that is now Hachette Book Group) CEO Larry Kirshbaum to head up a new general trade imprint for them.

The next thing to drop will be a few pennies as the industry wakes up to a very new day.

Konrath complained in a blog post over the weekend that independent bookstores planned to boycott the Thomas & Mercer imprint. It would appear Konrath (who, in his pre-ebook-evangelist days worked hard to promote through independents) took very personally what was meant to be resistance to Amazon.

One would suspect that the books Kirshbaum is going to acquire will be very hard for any bookseller that wants to serve and keep her customers to avoid stocking. In other words, the Kirshbaum signing might have cured Konrath’s concern.

Where did this arise before? Many times, many places. Borders stopped buying Sterling books when the independent publishers was acquired by B&N. The relationship between Sterling and Amazon is more complicated, but it would be safe to say that sales of Sterling books were not Amazon’s highest priority and sales through B&N’s biggest competitor were not Sterling’s.

Amazon briefly (for a couple of days) turned off Macmillan’s buy buttons in January 2010 in an fleeting and unsuccessful attempt to persuade the big houses not to go to agency pricing.

When Barnes & Noble bought Sterling, they stated clearly that they did not intend to publish precisely the kind of books Kirshbaum is now going after: “non-fiction and literary fiction.” Although things have changed in what has been nearly a decade since that acquisition, Sterling was a “category” publisher when B&N acquired them and have never stepped aggressively into the high-advance, agented arena that is Kirshbaum’s natural milieu.

I’d say one of the pennies dropping might be at B&N, where they are probably reconsidering their title acquisition strategy. If their biggest retail competitor is going after the biggest authors directly, can they afford not to?

Five years ago we lived in a world where every book that mattered sold more copies at brick stores than it did online. Five years from now every book that matters will sell more copies online than it does in a brick store. The Amazon decision may mark the commercial turning point of that massive shift.

The edge in maximizing online sales revenues will go to the publisher that can manage online pricing and marketing most effectively. That not only means raising and lowering prices dynamically to get the most possible revenue, it might also mean experimenting with free sample sizes to see what delivers the best rate of conversion to a sale. It certainly also means having the best list of potential readers to alert to a book’s publication.

Publishers have a steep hill to climb to develop skills in that regard that Amazon has been honing for years. The announcement of Bookish, a community and information site for readers, seems like a weak counterweight to this Amazon announcement. I would imagine Kirshbaum will have signed away a few books the Big Six publishers wanted before Bookish even opens its doors.

Agents, who have just gotten a big new bidder to drive up the prices of everything valuable they have to sell, are having a very good day. Publishers, as they say: not so much.

I hope I’ll see you at either the memorial celebration of Ruth Cavin’s life tomorrow (Tuesday) afternoon at 5:30 at the Salmagundi Club at 5th Avenue and 11th Street or at our “eBooks Go Global” conference at Javits all day on Wednesday, where the topic of this blogpost will surely arise!

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The old publishing value chain got twisted a bit last week


Although the value chain in trade publishing for the last century has, for the most part, kept retailers between publishers and consumers and kept publishers between retailers and authors, that has never been 100% true. Doubleday covered the whole value chain in the 1950s, when it not only owned the Doubleday Book Shops and the Literary Guild book clubs, it also owned printing plants. In the early 1960s, the Crowell-Collier Publishing Company bought (and eventually renamed itself) Macmillan (and that’s the old Macmillan that became part of Simon & Schuster in the 1980s, not the new Macmillan which was what the renamed Holtzbrinck group became a few years ago) and they also bought the Brentano’s bookstore chain.

I sold books to both Brentano’s and Doubleday in the 1970s and I don’t recall it ever being an issue that they had publisher ownership. Of course, that was before trade publishing consolidated into anything remotely resembling a Big Six.

After those two chains were sold in the 1980s (and I’m going to admit that I forget whether Walden which became Borders or Dalton which became Barnes & Noble bought each of them), in a period of two decades when publishers and book retailers grew enormously, the neatness of the division between the publisher’s role and the retailer’s was mostly respected. A number of retailers — notably B&N and Borders, but suppliers to the mass merchants as well — bought bargain books directly from packagers during that period, but joint ownership of significant publishing and retailing capabilities was, temporarily, suspended.

But Barnes & Noble was particularly aggressive at direct sourcing of book content and around the turn of the century announced the goal that 10% of their volume should come from directly-sourced product. To further that objective, in late 2002, B&N outbid several other companies (including at least one very large publisher) for the independent niche publisher, Sterling. Immediately, Borders stopped buying Sterling books and Barnes & Noble started stocking a lot more of them than they had in the past.

Meanwhile, the Internet was forcing everybody to rethink the paradigm. Even before the Kindle was launched in November, 2007, Amazon was encouraging authors to “publish” with them directly. All they could offer was the connection to the vast majority of online consumers — no print runs, no presence in any brick stores — but this could still be attractive and productive for some authors. My friend and client, David Houle, a futurist who blogs at Evolution Shift, published his “Shift Age” book with Amazon before Kindle and has sold thousands of copies, many of them at his own speeches. He’s very happy earning about $7 on every sale of a $17 book. No publisher was going to offer him as much as a third of that per copy.

As online sales grew, and then were further fueled by ebook sales starting in late 2007, it became increasingly obvious to many that publishers would have to start selling direct themselves. Some did. Harlequin has done so for years. F+W Media, one of the most aggressive publishers employing a vertical community strategy, announced a year ago that they would use Ingram to sell their books as well as those of their competitors to their direct audiences. Macmillan announced a similar plan for science fiction through Tor.com, although that idea has apparently never been implemented.

Part of what has discouraged the big publishers from selling direct is the threat of retaliation by Amazon and Barnes & Noble, both of which are much happier if the customer contact for big books is through them, thank you very much. Since both companies really exercise direct influence on many consumers, big publishers are inclined to respect their concerns.

To a certain extent.

And then we had the events of last week.

Amazon, which had previously established imprints for author-direct publishing and for translations of foreign works and had created a relationship with Houghton Harcourt to address their prior inability to get brick store distribution for books they owned, announced a new romance imprint called Montlake Romances. (Personally, I thought it was a bit strange that they announced it with just one book coming this Fall, rather than 10 books coming next week!) That put them squarely into the publishing business in a new way, and one could only imagine that the mystery shoe and thriller shoe and sci-fi shoe will be soon to drop.

In the same vein, Barnes & Noble has a program called Pub It! to enable authors to by-pass publishers and earn bigger royalties. They also still own Sterling, which gives them in-house the distribution capabilities that Amazon had to team with Houghton Harcourt to get. And with Sterling they also have the entire infrastructure in place to deal with authors and their care and feeding which could constitute competitive advantage when the gloves come off chasing brand-name authors.

So both of the giant retailers are looking more and more like publishers.

But it turns out the publishers were cooking something up too. On Friday, we learned about a new business called Bookish, which will be the “new digital destination for readers.” In its announcement release, Bookish promises to use content and software tools to promote discussion and discovery around books and to answer the reader’s question: “what book should I read next?”

What was most eye-catching about Bookish was its backing by three of the Big Six: Hachette, Penguin, and Simon & Schuster, who have apparently been planning this move for quite some time.

What was downplayed, but perhaps most significant, is that Bookish is trying to straddle the same fence that Google, and, to a lesser extent, Kobo are: being an ally of existing retailers while selling direct to consumers itself.

It really is impossible to speculate intelligently about Bookish’s potential for success. What they’re suggesting they’ll do is reminiscent of Copia and Goodreads and Library Thing, and none of them have yet replaced the marketing power of the brick store, a fact which is front and center in the minds of the trade publishers who depend on that merchandising.

But it will certainly accomplish one thing: giving the big publishers a direct path to the consumer. The hunch here is that if any one of these three big publishers had gone aggressively into direct sales, they would have risked serious retaliation from both of their two biggest customers: Amazon and Barnes & Noble. But it will be hard for them to retaliate against three publishers who, among them, deliver about half the biggest commercial books in the marketplace.

Let’s remember a year ago January when Amazon briefly sought to block agency terms for ebooks by removing buy buttons from Macmillan books when they briefly thought they could stop the plan from being implemented. As quickly as it became clear that the five publishers determined to implement agency would not be deterred from doing so, Amazon retreated. (In fact, they graciously joined Macmillan in compensating authors who might have lost sales during the brief period the buy buttons were inactive.)

And that brings up another important point about Bookish: what it says about the common interests among fierce adversaries, which the trade publishers certainly are. The times call for collaboration among competitors in trade publishing. It is a little bit nuts that several of them are building competing romance, mystery, and science-fiction “communities”, which only leaves the field wide open for a third party to be the biggest aggregator in each of the verticals and also allows much smaller competitors to look comparable on the web. But collaboration models have to withstand anti-trust concerns. Presumably three of the biggest publishers jointly investing in this web venture will.

Whether or not the Bookish team can invent the general book marketing future, or, through competition, spur Amazon and BN.com to be more creative about online merchandising, remains to be seen. But this past week certainly gave us further indications that the publishing value chain is being drastically reshaped and that the neat roles we’ve been used to for 100 years have less and less applicability to publishing’s future.

I chuckle when I think about a very smart person from a major house who was telling me just about a year ago, right after agency was implemented, “whew, now I think things can settle down for a while.” Actually, “things” are just getting moved over to the fast track so they can really change. Montlake and Bookish within a day of each other; Barry Eisler (who’s speaking at our “eBooks Go Global” show at BEA on May 25) and Amanda Hocking going in opposite directions within a week or so of each other a couple of months ago; these are significant events but they’re also signs of accelerating change.

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What will be the big digital issues in January 2011?


I have found a way to describe the difference between the Digital Book World conference we organize for F+W Media and the O’Reilly conference Tools of Change which I believe is accurate and is certainly not intended to be a pejorative description of  Tools of Change. I go to TOC and I find it very valuable, but different from what we’re trying to do.

Tools of Change explores developments in technology that have impact or can have impact on publishing (in general) and helps publishers (of all kinds) understand how to apply them. Digital Book World explores business challenges to trade publishing (defined as book publishers who work primarily through the retail network, or “the trade”) generated by digital change and helps publishers address them. So if I were organizing Tools of Change, I’d want to scan the horizon for technologies that could have an impact and ask “how?” Because I’m organizing Digital Book World, I’m looking at trade publishing’s commercial environment and operations for the impact of technology and asking “what should we do?”

The next Digital Book World Conference is set for January 25-26, 2011. That obliges us to ask: what will the hot digital change questions be eight months from now? What should we be planning to discuss then that will be immediate and relevant to the attendees we’re targeting: the editorial, marketing, sales, and digital strategy people in trade book publishing houses?

To help us figure that out, we’re in the process of recruiting the DBW 2011 Conference Council. That group of about 30 people — CEOs, digital strategists, and marketers from publishing houses large and small, agents, retailers, and independent industry thought leaders — will help us define the panels and choose the speakers that can enlighten and inspire. I’ll introduce you to that group in a future post; the team is in formation at the moment.

Today’s blog is to recruit the readers of The Shatzkin Files to help too. I hope you will.

Here are 15 topics, or speculations, we’ve identified to start building an agenda for discussion next January. Do you have any thoughts on any of these to refine our thinking? Some of these are ideas looking for examples: do you know particular people or companies doing things suggested here (or not suggested here) we should be highlighting? And, most important, what are we missing?

1. What’s going to be in an ebook? We’re definitely moving past the stage where the ebook is a “straight lift” from the print: half-titles, blank pages, and all. As ebook sales are rising, publishers are paying more attention to presentation and quality control. And there have been a few experiments with “enhanced ebooks” that contain added content and features, some of which are presenting books as “apps” to increase the functionality that can be offered. Where will we be drawing the line between “standard” new ebook features — dictionaries and linked notes, for example — and enhancements that might be worth extra money? And what enhancements will we see working in the sense that consumers see them to be worth paying for?

2. What will ebook sales channels look like eight months from now? In addition to the main ones we have today — Kindle, iBooks and the App Store, Nook and B&N, Sony, Ingram Digital and Content Reserve — will we be seeing substantial sales through Google and the Android marketplace, B&T’s Blio, and Copia as well? Will the mobile phone service providers be creating retail outlets that matter too? Will the retailers newly in the ereader game — Walmart and Costco and Best Buy — also be motivated to create a branded outlet of their own to sell ebooks?

3. To what extent will publishers view single-title marketing as a practical endeavor? We’ve maintained that title-by-title marketing is the Achilles heel of general trade publishing and that the steady erosion of book-format-oriented marketing opportunities (book review pages in newspapers, radio and TV talk shows) and verticalization call for different marketing strategies. Where will publishers’ thinking be next January on the challenge of launching each new title into the marketplace?

4. How much progress will publishers be making on establishing direct-to-customer contact? What has characterized trade publishing is its dependence on intermediaries to reach the market. And what has made trade publishing possible is the leverage provided by those intermediaries, allowing publishers to reach millions of readers through mere thousands of touch points. But all publishers today acknowledge that the intermediary structure is breaking down and direct contact with end users is necessary. How is that working out? We may need two panels to answer that question: one of niche publishers that will find it pretty natural to do and one of general trade publishers who will undoubtedly find it very hard and complicated.

5. How important is the mobile phone market? How fast is it growing? What kind of books work best on it? And what do publishers have to do differently to please that market than what they do for larger-screen PCs, tablets, and ereaders?

6. How are publishers tackling the shrinking marketplace for printed books? Are they shedding warehouse space or considering consolidation with other players? Are they renegotiating printing contracts, reconsidering what constitutes a “minimum run” or acceptable print book margins? Are they developing new short-run and POD models to complement their prior pressrun models? Are they launching any new books with a no-pressrun strategy?

7. How much progress are publishers making toward changing their workflow, so that we have “ebook first” editorial processes? Since the beginning of ebooks over a decade ago, the standard technique has been to make them after the print book has been completed, and for the editor and author to focus their efforts on making the best possible print product. There is an increasingly widespread belief that this is backwards, and more complex ebooks help make a compelling argument for reversing the order of things. How far will we have moved in that direction by next January?

8. Does the growth of ebook sales change the thinking of publishers and agents about the efficacy of dividing up the territories for single languages? Do publishers start to see a growth in offshore sales facilitated by ebooks? Anecdotal reporting by O’Reilly, which owns global rights in all its titles, suggests that they’re seeing big sales growth in digital from markets that are hard-to-reach with print.

9. Do non-US publishers start to establish more of a sales presence in the US exclusively through virtual means? We’ve been suggesting on this blog that the growth of online sales — print books and digital books — will soon enable reaching a majority of the US sales potential without inventory, which means without the need for a warehouse or a distributor. That should lead to greater penetration of our market by offshore publishers, in all languages. Will we see enough signs of this by January 2011 to build a discussion around it?

10. How does the future look for the brick-and-mortar bookstore marketplace? On this blog (and elsewhere), concerns have been expressed about the impact on bookstores of the increasing shift to online purchasing for both print and ebooks. Christmas 2010 is being viewed in the consumer electronics industry as the “ebook Christmas”. When we’ve had a chance to digest the sales numbers of new devices and we combine that with what we know about the impact devices have on a consumer’s print book purchases, how do we see the future of bookstores when next January rolls around?

11. Is “profitable self-publishing” an idea gaining credibility or is it a pipedream? In 2009, author J.A. Konrath made a bit of a splash when he blogged about the substantial revenues he was earning putting his short stories and out-of-print backlist on Kindle without a publisher. Will there be more stories like this by January? Will this look like a viable option for established authors?

12. What’s the best approach to ebook distribution for small and mid-sized publishers? Will the original DADs (digital asset distributors) like Ingram Digital and LibreDigital provide the full service suite and sales effort that smaller publishers need? Or will the publishers-as-distributors model — notably including O’Reilly, who went into the business last February, as well as trade publishers and trade distributors like Perseus and NBN and Ingram Publisher Services, be the better option? How much is effective ebook distribution dependent on technical competence and how much of it requires sales competence?

13. After many years of discussion, are we yet beginning to see some new revenue models with any impact, like subscriptions (Disney has tried it now, in addition to O’Reilly’s Safari), selling books by the slice, or new models to compensate for library lending? We know that publishers need metadata-labeled fragments of their books for marketing purposes, but, for trade publishers, is there yet any indication that there’s a real payoff for that kind of tagging in sales revenue?

14. How much of the print backlist is still locked up by rights issues and what impact can different royalty offers have in clearing it up?Jane Friedman’s Open Road has had some success signing up established backlist for higher ebook royalties than the majors want to pay. Is the reservoir of candidates for this treatment substantial? How are agents and big publishers going to resolve these issues?

15. Is the notion of publishers building vertical presences on the web, so often expressed and promoted on this blog, gaining any significant traction in the real world? How are Poetry Speaks and Oxford Bibliographies Online and the forthcoming Pixiq from Sterling doing at establishing a new publishing model? What other examples are emerging or will emerge of publishers using delivering vertical solutions to create new business models?

At the Digital Book World conference, we want to be strategic and we want to be practical. And we want to be focused on the real-world problems digital change is forcing trade publishers to face. Have we left out any of yours?

I have finished this but not posted it yet and am already thinking of things I left out. A substantial publisher I spoke to last week learned from having his trip to the London Book Fair cancelled that he doesn’t need to go there anymore. This company has already given up its BEA floor space in favor of a meeting room. And this CEO himself is no longer going to go to Frankfurt and can see the day not far off when his company will no longer take space there either. Are trade shows  an anachronism in the age of digital communication? I have a feeling you readers and the Conference Council will think of a lot more.

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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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