VISTA

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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Digging up a 15-year old speech, and a lesson in preservation


One thing I’ve heard often and dismissed is that we need print to preserve intellectual property. I figure that digital files are less destructible than paper and that, with any care at all, it should be possible to create more reliable preservation of bits than of atoms.

I still think that. However…

A month ago I was helping my sister clean out some of the old files of my father’s (now gone over eight years, but it takes a while to get around to this stuff.) Among his papers, I found the hard copy of a speech I had delivered at a VISTA Conference (VISTA is now a company called Publishing Technology) in November of 1995. As I started to read it, I realized I hadn’t seen it in a long time. I checked and it wasn’t on my web site. I checked further and it wasn’t in my hard drive.

So if Dad hadn’t saved this printed copy, I wouldn’t have had it to show you. I’m glad he did. Ironically, the speech was titled “How Quickly Things Change”.

The speech is too long (I’ve learned a thing or two about brevity in the past 15 years), for which I apologize. It is on the site without edits or corrections or updates (both because I’m honest and because I’m lazy). But I think many people of my generation and close to it will enjoy the refresher course about what the world of digital change looked like to book publishers in November of 1995. And the many people now thoroughly engaged in the issues that concern this blog and our industry who were still in school or in short pants at the time might be amazed at how little we knew at what was, at least for trade, the dawn of the digital publishing era.

At the time I made this speech, the obsession of most book publishers was to take advantage of the seemingly-vast amounts of data that could be packed on a CD-Rom. Several major publishers had formed “new media” divisions or departments to start creating what were, in effect, enhanced ebooks or apps out of their intellectual content. The industry was only on the verge of consciousness about how important connectivity was. In the speech’s opening sentences, I say “last year at this time, very few of us had heard of the World Wide Web” and I myself had been online since before the 1992 election. But “online” then meant, for most people, being connected within the walled gardens of America Online, Prodigy, and Compuserve.

I was happy to be reminded that I got a number of things pretty damn right at that early stage.

1. When most people in publishing didn’t believe it, I said that getting online was much more important than making fancy new products on CD-Roms.

2. I suggested resisting the trend to “new media divisions” because online communication was the key going forward and the move to exploit it should not be siloed.

3. I identified cell phones as (arguably) the fifth big new technology adoption of the past 20 years (the previous four being the VCR, the audio CD, the fax machine, and the personal computer.) But it is a time-capsule moment to recognize that the cell phone wasn’t ubiquitous yet.

4. I saw that professional publishing would shortly become mostly electronic, particularly directories.

5. I didn’t name it Wikipedia, but I did envision an encyclopedia online that is “dynamic, interactive, and perpetually being updated by organizing on-line tools to solve an age-old need.”

6. I said that we’d reach “universal connectivity”, defined as the point when just about everybody above the poverty line would be online, by the year 2000. At the time 16.6% of adults had internet access and only 10% had used the internet in the last month. By the way, those numbers constitute a reasonable approximation of where ebook uptake is today.

7. I said newspapers would be crushed first, magazines second, and that we’d be glad we’re in the book business as internet use grew.

8. At the time of the speech, there were 100,000 active domains and under a million home pages. In what I remember was an audience-gasp moment, I said that the small merchant on the corner would also have a presence on the Web. As I put it, Time Warner and MCI would be “joined, literally, by the butcher, the baker, the candlestick maker, and the local real estate agent.”

9. At a time when “several hundred” American publishers had web sites (“plus 38 British, 31 Canadian, and a handful of Australian”), I cautioned publishers against thinking that having web sites would substitute for having booksellers. Some people thought they might.

10. I said there should be a web page for every book, although I was somewhat over-ambitious in how I saw it developing organically and being part of the development and early marketing process.

11. When publishers were thinking of digital products almost exclusively as CD-Roms, which were “enhanced ebooks”, I saw the value of just delivering the text file to be read on a screen. (Of course, I thought we’d deliver them on diskettes, and I was wildy wrong about that!)

12. I concluded with a summary of all the ways online could be involved in our business, from agent submissions to marketing to make the case again that “new media divisions” were not the answer for publishers as they entered the digital age.

Of course, there’s a lot I didn’t see coming. No mention of iPods and iTunes and disaggregating the album into songs. (But I did see the impact of disaggregation on newspapers.) No mention of piracy or DRM. And although it had existed for a few months at that point, no mention of Amazon. (I did say that “it will be some time” before we’d be selling substantial numbers of books online, which turned out to be true. Amazon was still two or three years away from having a significant sales impact for most publishers.)

My job in these VISTA conferences was to deliver a message which was “way out there.” I was supposed to throw caution to the wind, to be the guy who could say things that most people wouldn’t say even if they believed it. In some ways, the greatest utility of the speech today is to show people where “way out there” was 15 years ago, in November of 1995.

So a belated thanks to my wonderful Dad for saving a hard copy of this speech. But I’m not changing my mind about the fact that usually, digital files will be more enduring than paper.

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Introducing Digital Book World


Back in 1993 or so, my friend Lorraine Shanley of Market Partners International and I went to a free half-day conference sponsored by Microsoft. At the time, Microsoft was really pushing the computer manufacturers to install CD-Rom drivers into new computers. They had a definite selfish interest, which was to reduce the cost of goods for their software, which was being delivered on multiple floppy disks. One CD-Rom could hold what a dozen or more floppies would hold and would cost Microsoft considerably less. Since the consumer was paying for what ended up in their computer, not the manufacturing cost of the shrink-wrapped product that got it there, Microsoft knew that making the delivery mechanism cheaper wouldn’t oblige them to cut the cost of their software; they’d just make more money.

So on this particular day, they were hosting the publishing community to tell them what CD-Roms could mean to them. This was the first time that I was aware (although perhaps it had happened before) that the mainstream tech community was talking to the consumer trade publishing community and saying “have we got something for you!”

What Microsoft tried to demonstrate was that many things could be done with all the data that could be packed on a CD-Rom. They were in the process of creating their own CD-Rom encyclopedia, Encarta, and they wanted all publishers to get on the CD-Rom bandwagon. The message essentially was: “you’re the creative people; you’re the content guys. Look at all this cool stuff that CD-Roms can do. Now we don’t know what the product should be exactly and we don’t have a business model for you, but, don’t be Luddites, get off your duffs and start making some CD-Roms!”

Lorraine and I walked out of that meeting thinking, “this isn’t very helpful” to the content publishers who were our client base. So our two companies joined forces with another consulting company owned by Dan McNamee, got PW as a sponsor, and staged a full-day conference called “Electronic Publishing and Rights” (which turned out to be the first of two.) We had a plenary session in the morning, and then the afternoon proceeded on three tracks: consumer, education, and professional. (When we did the second show, we made it five tracks: consumer, school, college, sci-tech, and legal/accounting.) Both shows were sellouts and what I learned putting them together really pushed me, before the Web, before Amazon, and before ebooks had anything more than a 4-line display on an early Sony device, into the business of thinking about what the impact of digital delivery of content would be on consumer trade publishing.

Before long, the conferences we did led to the “Publishing in the 21st Century” program I described last week and the regular reminders that book publishing is many  businesses with quite different characteristics, not just one (which we had acknowledged at our EP&R shows with our afternoon tracks.)

And that leads us to Digital Book World, the new conference on digital change for consumer trade publishers that was announced yesterday. We’re now having conversations that go beyond our very illustrious Advisory Board about speakers and topics. What comes back to us over and over again is how important the trade book focus is.

For example, earlier this week we spent the day working with a client — a large aggregator — that wanted a little “ebook seminar” for their team to be part of our visit. In order to really focus the conversation, I asked for a list of questions and concerns. It became evident very quickly that this company needed information about sci-tech, college, and school ebooks and, of course, what I know best is trade. But I knew enough about the others to know that they are quite different, so I checked in with two smart industry colleagues (both of whom are members of our Advisory Board, as it happens) who know both the trade and non-trade spaces. We came up with a list of distinctions, but one really stood out to me.

In the trade space, one of the big ebook topics (which we plan to explore in depth at DBW) is “pricing.” What should ebooks cost the consumer? The convention among trade publishers has been to peg ebook retail prices to the least-expensive edition available in print. So if there is a cloth edition and a paperback edition, the publisher would be guided on ebook pricing by the paperback (usually setting at or slightly below the print book price.)

But in academic publishing, hardcover and paperback editions are often published simultaneously. The publisher figures that the paperbacks are for the students; the hardcovers are for the libraries. Since ebooks in the academic space are considered primarily library items, and because they have often become part of larger searchable databases, the academic publishers would set their ebook prices based on the hardcover, the more expensive print book available. He also said that sometimes they are even more expensive than the hardcover, because of the additional functionality they have, like links and embedded video.

This was important information for our client, who works across publishing segments. But if presented without a clear contextual frame, it could well be confusing information to a consumer trade publisher (or an academic publisher) trying to figure out a pricing strategy. Because we are tightly focused on consumer trade publishing, our panel(s) at DBW might not mention a tie-to-hardcover pricing, but if we did, we’d pose the model and talk about why it made sense in some other context, but not in ours. We’ll be talking about lots of other things that affect price: discounts, retailer strategies and control, the impact of the publisher selling direct to the consumer, and the extent to which there is enrichment or enhancement, for example. All of those things, as well, are somewhat different in the consumer space than in the others, where aggregation and value-added capabilities are critical components of ebook development.

Now that DBW has been announced, we’re engaged in conversations to refine the topics list and speaker suggestions we’ve gotten from our Advisory Board. We’ll be announcing speakers and panels as they are nailed down. We’re striving for a show that will scream “this is for me!” to consumer trade publishers. While we’re not doing a “call” for topics and panels (we did that ourselves, internally and with our Advisory Board, already), we certainly will happily entertain suggestions. If you have any you want us to consider, better to email my colleague Sophie Shepherd (at [email protected]) than to post them here (though you can also do both.)

This post and my last post last week and many you will see in the weeks to come will be making the distinction between “general trade publishing” and other book publishing. That distinction is a remarkably important one, but it is also going to be a disappearing one. In fact, the distinction between “book publishing” and “publishing” is going to be a disappearing one over the next couple of decades; we have talked before about the fact that format-agnosticism will increasingly characterize all media, not just publishing, as will verticality. While that means that there is a real need for Digital Book World, which emphasizes that distinction, it also means there is a place and need for the more tech-centric and publishing-type-agnostic program presented at O’Reilly’s Tools of Change. Personally, I’m planning to attend both.

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