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Is the new Amazon acquisition something publishers need to think about or not?


If you’re like me, you know a thing or two about the book business but you didn’t know there was a business called Twitch until you heard the announcement this morning that Amazon had bought it for about $1 billion, apparently outbidding or somehow finessing Google to make the purchase.

Twitch, I have learned, streams video games played by champions and by amateurs, and has a business because people watch other people playing video games in substantial numbers. Since Amazon is so existentially important to anybody in the book business, anything they do is of interest to those of us in the book business. But not everything they do — think selling cloud computing capabilities or running a marketplace for all sorts of non-book goods — has much to do with the book business.

Whether Twitch is something we book people have to understand or fear or gain benefit from is not clear to me yet. (I’ve only known about it for a few hours.) But Amazon’s purchase of it brings forth some points worth considering.

1. In the digital age, new pastimes can spring up and become large very quickly. At the very least, the millions (or billions) of minutes consumers are spending with Twitch are not being spent reading, or watching a movie, or watching the sporting events we used to think were dominant.

2. Amazon is both in the “selling stuff” business and in the “consumer attention” business. This is definitely the latter and might also be the former.

3. One informed observation from James McQuivey about the acquisition was that it showed Amazon wants to control as much content as it can. Twitch is a content-streaming machine, not just a game-hosting site.

4. It has long been the contention of some publishing visionaries like Bob Stein that the digital revolution for books will, in the long run, not just be about the form of delivery and consumption of the same old stuff books have always been (which is pretty much what the ebook revolution has been so far) but that over time what we call a “book” will become something quite different. Stein’s particular interest is in the book as a social construct, where the comments and annotations of many readers can become part of the intellectual property itself for subsequent readers. Stein told me that he sees this as a “game-changer” (pun perhaps intended), suddenly making Amazon a leader in the gaming world. He also sees the “second screen phenomenon” as exemplified by Twitch as extensible to other live events, like concerts and lectures and even television. He has clearly followed gaming for a long time.

Richard Nash expressed a similar idea in a recent speech: that ebooks mean that books are now “reading services”, not “objects”. Does Twitch point the way to that? Are we on the verge of “watching people read” in any substantial numbers? Or, at the very least, looking at the detritus of other people’s reading with interest?

It could be that Amazon’s acquisition of Twitch means exactly the same thing to Penguin Random House, Netflix, and the New York Yankees, just constituting another way people can spend their time which reduces what they have available to spend with older media forms and older brands. But Amazon having acquired it and the massive (and, frankly, unexpected by those of us not in the gaming world) participation it has to consume “media” that are totally outside the historical creators’ domain is another reminder that books in a virtual world particularly have competition that we wouldn’t have dreamed of 20 years ago. The Wall Street Journal says Twitch is the 4th largest source of US internet traffic, and the Times says it’s among the 15 most-trafficked sites in the world

And it certainly adds a dimension to an observation I offered 18 months ago: that books are becoming part of other people’s businesses, not just a business on its own. We’re living in an increasingly complicated world.

We haven’t switched off of Feedburner yet (maybe next week) so many of you might not know about the post I just did suggesting a combination that could compete with Amazon for media sales. It’s right here.

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More on atomization: why the new publishers are coming


The most recent post here laid out a future for trade publishing that will be less and less about traditional publishers and more and more about non-traditional publishers delivering books into the marketplace without the financing or “approval” of a profit-seeking publisher. That’s a radical change from the industry we’ve seen grow over the past 100 years when book sales in retail stores of all kinds have been the primary revenue source for publishers and authors.

Obviously, the likelihood of what that post predicts coming to pass is dependent on the validity of the argument that a substantial amount of commercially viable publishing will take place without the funding of the commercial trade publishers. Of course, “commercial viability” is a function of the publisher’s objectives; the new book publishing entities have ways to win that aren’t just about the profit they make publishing their books.

Books have a mystique and symbolic power, for a reason. For three centuries, they have been at the center of high-value communication of stories, information, and ideas. The number of entities that generate content that fits that description is far larger than the number of book publishers, and includes entities that wouldn’t be thought of as publishers of any kind at all.

Because delivering a book requires managing a huge variety of details and because selling one effectively has always needed a multi-faceted organization and an investment in inventory, until recently only companies dedicated to the business of books could effectively publish them.

Not anymore.

Because of ebooks and digital distribution, it is now possible for any content packaged as an ebook — if marketed effectively to its target audience — to find its readers (or to be found by them). The big publishers of today are all grappling with how to re-connect with their readers in an information universe that has been redefined. Meanwhile, the networks by which they have always connected with readers in the past — bookstores and mass merchants and even libraries — are becoming less and less relevant as readers increasingly read on devices and find what they’ll read through their online interactions.

But where there are challenges and painful adjustments in store for the biggest publishers, there is vast new opportunity for just about every other enterprise that connects to a lot of people and knows something about what those people want to know. And companies are increasingly figuring that out.

Jeremy Greenfield is the editor of the Digital Book World website; we partner with DBW to deliver their annual conference. Long before the post last week “predicting” that entities that aren’t book publishers would become book publishers, Jeremy had been keeping a list of them. It’s impressive. When we asked Jeremy what was on his list, he sent us this note:

Most recently, Scientific American launched a series of ebooks. American Express Publishing launched an ebook line with Vook. The Atlantic began to publish its own ebooks. USA Today published USA Tomorrow, a collection of expert predictions about the future of America. Harlequin and Cosmopolitan magazine inked a deal to publish several ebooks a month together. Newsweek/Daily Beast entered into a partnership with Vook to publish ebooks. Playboy launched a series of shorts for the Kindle, the Washington Post announced an e-book program, and the Chronicle of Higher Education, a trade publication focused on the higher education field, launched an e-book business. Other notable companies to jump into the space are magazine publishers Conde Nast and Hearst and NBC News, a division of NBC Universal. And the Wall Street Journal has recently rejuvenated its e-book program.

In addition to these, we know of more: the New York Times, the Toronto Star, the Chicago Tribune, the Boston GlobeTED Books, Esquire, the Guardian, Wharton Business School, the US Army, Provincetown Public Library, the Saturday Evening Post, Xiamen Bluebird Cartoon Company of China, cartoon-producer Fred Seibert creating Frederator Books, and Scott Rudin and Barry Diller’s Brightline, and many others.

Of course, all of these are content-producing entities; many of them are even print-content producers. But it simply wasn’t in their power to decide to become book publishers until the world changed.

Three companies which started out with content-generation ideas of their own — Vook, Byliner, and Atavist — are frequent partners for these new publishers, as are existing publishers from Big Six players to Perseus’s Constellation, Ingram, new ebook publishers Open RoadDiversion and Rosetta, and other companies like INscribe and PressBooks. (Not all of these have gotten into this game yet, but they certainly all will.) These companies are serving the first wave of fledgling publishers and the aspirants so far have been content-generating companies.

Some of those we’ll soon see wouldn’t think of themselves as content creators. Before long, I’d expect to see every museum, every historical society, every consulting firm and law firm and accounting firm joining the party.

For example, a law firm of our acquaintance sent us a notice last year that key members of their team had put together a “White Paper” about changes in trademark law. I called the partner there that I knew and asked “why don’t you publish it as an ebook?” He said, “I don’t know.”

Another attorney to whom I told the story patiently explained to me that intellectual property like this was created to be given away to lure clients to the firm and impress them. Why, I was asked, should we publish it as ebook? What would we gain?

That’s pretty simple. Somebody will go to Amazon and search “trademark law”. You want to come up! And, in fact, you could price your White Paper at $100. It wouldn’t be great for sales, but you’d get the discovery benefit and you’d be putting a marketplace value on what you’re giving away for free. You win twice.

The next wave will be everybody else: every brand with a following, a meaning, a reputation, a website. The next group will need editorial services which presents a whole new set of opportunities for writers, agents, and, especially, packagers. And it will present an opportunity for me to elaborate more on atomization in another post.

Of course, we’ve got this subject covered at our upcoming Publishers Launch Conference at BEA on May 29. The program is starting to take shape, and we’ll have a panel called “Outsiders: New Book Publishing Operations from Media and Content Companies”. Steve Kobrin of Wharton Digital Press, Alison Uncles of the Toronto Star, and David Wilk, just appointed the publisher of Frederator Books, will be speaking on it. Each of their programs is quite different from the others, as are their objectives. But all of them are heading up businesses that would scarcely have been conceivable five years ago.

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More thoughts about the future of bookstores, triggered by Barnes & Noble’s own predictions for itself


On Monday, the Wall Street Journal published a story by Jeffrey Trachtenberg quoting Barnes & Noble’s retail group CEO Mitch Klipper on the company’s plans for shrinking its store footprint over the next decade. Klipper suggested only a gentle acceleration of what has been the pace of contraction for the past couple of years far into the future.

Klipper was quoted as saying that “in 10 years”, the chain would have “450 to 500 stores”. Trachtenberg reports that the chain had 689 locations operating as of January 23.

In addition, the chain operates 674 college stores. The college stores are, along with the NOOK device, BN.com, and the ebook business, part of “NOOK Media” which took recent investment stakes from Microsoft and Pearson.

As usual, Cader’s overview is a helpful summation of the facts.

On Tuesday, I got a call from a reporter who started out by asking me, in effect, “how will publishers manage with 200 fewer B&N stores in 10 years?”

That question jumps past what I think are the first two questions the WSJ story begs.

The first one is to please tell me how much shelf space for books will diminish, not just how many stores will be closed. The piece reports that B&N peaked with 726 stores in 2008, which means a net reduction of 37 stores in the past five years. That’s a five percent reduction in locations. But publishers know that shelf space at B&N has contracted considerably more than that, as space in the stores that used to be devoted to books now merchandises NOOK devices and a variety of non-book items.

Trachtenberg reports that sales of print books (as reported by BookScan) have declined 22% since 2008. Anecdata and intuition suggest that sales of print in stores have fallen more than that. Every time a store closes, online purchasing becomes the more convenient option left for some of its customers. Even if BN.com keeps some of that business away from Amazon.com, it doesn’t help support a physical store of B&N’s or anybody else’s.

The second one is “how likely is Klipper’s forecast to be right?” They had a net reduction of 5% of the stores in the past five years and he’s suggesting a further 30% reduction over the next ten. That calculates to net closings at about triple the recent rate. Is that realistic?

Frankly, I’d be concerned that it isn’t.

Among the developments of the last five years has been the shuttering of Borders. That took something like 400 big competitor locations out of the market. There is no comparable subtraction of competition available in the future.

And while the migration to digital, as measured by what we can glean about what percentage of the publishers’ sales are ebooks, has slowed, we don’t know if that’s temporary. We also don’t know if the split we see between books of narrative reading and other books will continue. There is good news and bad news for stores if it does.

The good news is that stores will continue to be desperately needed for illustrated books. The bad news is that the readers of narrative books won’t be in the bookstores to have their eye caught by them anymore.

Forecasting of this kind is highly dependent on intuition and belief because there’s no data today on which to base a prediction for a product form that hasn’t evolved yet. There are still legions of techies and illustrated book publishers trying to find the formula that will enable the books which haven’t “converted” to digital to do so in the future. If somebody finds the way to make a digital rendition of illustrated books that consumers want, it might save the illustrated book publishers from their dependence on physical stores. But that would, at the same time, accelerate the reduction of stores.

I’m personally skeptical that there is an answer to this. I’m not expecting or predicting the demise of illustrated books anytime soon. To the extent that they are replaced by digital products, I expect something far from the 1-to-1 relationship between the print and digital iterations that has saved the publishers of narrative reading from far greater pain than they’ve felt so far. And if the digital products aren’t close to the books, then book publishers might have very little to do with making or selling them. Since we don’t even know what the replacement for books will be, I think we can assume all these questions will take a long time to answer.

It is clear that bookstores have an uphill battle in front of them even if we don’t know the steepness of the slope or how big the boulders rolling down on them will be. The questions that all publishers should be asking themselves now are “what are the bookstores really worth to us” and “what, if anything, can we do to bolster them financially”.

Michael Cader has made the point that B&N’s market cap (my app says it is $775 million at the moment) combined with B&N’s own valuation of its new business (nearly $1.8 billion based on the valuations of the Microsoft and Pearson investments) is worth pondering. One could interpret the numbers to mean that the stores are worth considerably less than nothing. Of course, that’s not true; the stores still generate more than $300 million in EBITDA annually (and that number was up slightly in 2012 over 2011). But it does suggest that having the legacy B&N store business in a common entity with the NOOK Media businesses (NOOK, the college stores, and dot com) is not making the investment community jump for joy.

So could somebody come along and do everybody a favor by buying the retail component of the B&N business? Would the market reward that move, or would it just reveal that the notional value of the new business is wildly inflated?

The businesses with the biggest strategic interest in keeping the stores alive, of course, are the publishers. So if publishers were to seriously ask themselves what they can do to help the B&N stores, buying them would have to be a recurring thought. One wonders whether the DoJ would like it better if one big publisher bought them or if a bunch of publishers got together to do it.

Cader has also made the point that the physical stores are being made the last line of defense for book pricing. It is a virtual certainty that if a book has three different prices: print in the store, print online, and ebook, the printed book in the store will cost the most. This is not a formula to assure bookstore survival.

Philip Jones of The Bookseller tried to sum up the ideas that have been offered from around the industry about how publishers could help booksellers be more profitable in an emailed post entitled “Books Need Bookshops”. What he covered were sales on consignment (the store doesn’t pay the publisher until they sell the book); higher discounts (more margin); a suggestion that bookstores could somehow exploit Amazon’s “weaknesses” in online selling (good luck with that one!); that bookstores themselves should change into something slightly different (based on B&N’s claim that they are creating new “prototype” stores); and creating special print editions of particularly high quality (which Random House has done for Indigo in Canada).

Examining whether any of these suggestions point the way for publishers to make stores more profitable will be the topic of another post, maybe even the next one.

 

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Amazon as a threat to steal big titles from big publishers is still a ways off


When Larry Kirshbaum, the longtime head of TimeWarner Publishing (purchased right after he left in 2007 by Hachette and now the company called Hachette Book Group USA) joined Amazon many people thought — I among them — that Amazon was about to become a threat to take big titles away from the major publishers and, by doing so, also put pressure on competing retailers who would either have to buy from Amazon or do without major books.

An article last week in The Wall Street Journal spells out just how futile have been Amazon’s efforts so far to upend the Big Six. Their two biggest headline acquisitions — a celebrity bio from actress Penny Marshall and the latest from bestselling non-fiction writer Tim Ferriss — are achieving paltry sales outside Amazon as measured by BookScan.

Michael Cader does some deeper digging to suggest that the high-profile books are not the place to be looking for the successes in Amazon’s publishing. They’re publishing lots of genre fiction and buying up some backlists.

Yet, I can’t believe that the high-profile output from the New York office meets Amazon’s original expectations or Kirshbaum’s. If they miscalculated the impact they could make, maybe it was for the same reason I did. An abrupt slowdown in ebook switchover took hold at about the same moment the Kirshbaum era at Amazon began. Big publishers are reporting that ebook sales are now approaching 30% of their revenue, which is about a 50% increase from what they said last year. That follows several years when ebook uptake increased by 100% or more.

(It is important to note here that the reported figures are a percentage of all revenue. Many titles are not “ebookable”: they’re illustrated books or little kids’ books and, if they have ebook equivalents at all, they don’t sell nearly that percentage. So the digital sales of immersive reading would constitute a somewhat higher percentage than that.)

Amazon as a publisher has advantages and disadvantages against more traditional competitors. They have the advantages of direct customer contact, which pay off in two ways. They can send you an email pitching a book as the logical next one to the one you just read; general publishers can’t do that. And, as the publisher, they have more margin to either pay the author more or charge the customer less, which, either way, increases an author’s revenue through online channels.

But their disadvantages are also significant. For most books, and particularly non-fiction (as both of which the high-profile releases the Wall Street Journal wrote about are), more than half of the sales still come from brick-and-mortar stores. Despite their attempt to secure that exposure by a licensing deal with Houghton Harcourt, the resistance to Amazon from Barnes & Noble and many independent stores and mass merchants has curtailed that distribution.

Apparently Amazon led at least some people to believe with their success on the recent Barry Eisler book that they could sell more copies through their own channels than big publishers could through the entire network. The claim that they had outsold all his previous NY Times bestsellers was made to literary agents in a letter that also cited other great successes, all with genre fiction. Without questioning anybody’s numbers, I was skeptical about the significance of the relative Eisler sales because, it seemed to me, whatever they could do for Eisler (whom they published) they could do for any other book they wanted to, whether they published it or not. So it seems illogical to me that they would somehow magically sell more than the whole trade combined on a book because they were publishing it.  It seems apparent that Amazon isn’t succeeding at persuading agents that the Eisler case, even if it is as portrayed, is replicable.

I saw reports of bitter comments from Tim Ferriss, complaining about Barnes & Noble’s apparently-effective boycott of their competitor’s publishing program. Maybe he would be doing that even if Amazon is selling more than his conventional publishers did before. But I doubt it.

This is not a final answer. Amazon’s share of the trade market — ebooks and online print combined — is still growing and shows no sign of abating. Most publishers would still report that Amazon is their fastest-growing account.

But shelf space erosion — a metric with no reliable index anywhere — seems to have slowed down. That means that, at the moment, we have a more stable book trade than we’ve had for at least five years. It is smaller, but it is more stable. In the US at least, our market of three big ebook players (Amazon, B&N, Apple) and two sturdy and persistent upstarts (Kobo and Google) is still welcoming some new entrants. Zola eBooks, promising some interesting merchandising innovations, and Bookish — the repeatedly postponed effort from three major publishers — are expected to join the fray soon. Sony and Copia and Blio are still trying to gain traction, but they’re also still here.

Amazon definitely has the most advantages. Their Kindle ecosystem is still the best-functioning, deepest in title selection, and benefits in numerous ways from having more readers and selling more ebooks (and books, for that matter) than anybody else. The growth in their genre title base that Cader points out increases their market share of dedicated genre readers, who read other things too. They have the most self-published titles and the best ecosystem for self-published authors to make money. And the big title growth enables them to build subscription or subscription-like capabilities like KOLL (Kindle Owners Lending Library) which do take customers out of the game for everybody else.

As their share of the market grows — as long as it continues to grow — their argument to authors to cast their lot with them gets stronger.

But, for now, it would seem that B&N definitely did the right thing for their own good by boycotting Amazon’s titles. And, for now, it would seem that most of the authors Amazon will get for their general list will be those who are annoyed at the publishing establishment like Konrath and Eisler or curious about working with a tech-oriented publisher like Ferriss.

Authors who want bookstore exposure or to maximize their total sales across the US bookselling universe will remain hard to persuade for the forseeable future. But probably a little less so with each passing day.

I note with sadness the passing of Senator George McGovern. I am proud to have worked on all three of his presidential campaigns: 1968 at the Democratic National Convention working for Pierre Salinger, two years on the 1972 campaign, and a weekend in New Hampshire trying to light a fire in 1984.

What motivated us to join Senator McGovern was primarily his opposition to America’s involvement in Vietnam, but his personal and political appeal went far beyond that. He was extraordinarily decent and straightforward. In my stretch of two years working for him in the early 70s, it was remarkable how consistently he took issue positions we young idealists could be proud of. A poorly-vetted choice for vice-president will always be part of the explanation for why he was crushed, but my friend Professor Wade — one of McGovern’s top strategists — told me years ago that it was the assassination attempt that crippled George Wallace that actually was responsible for the defeat. 

Nixon had won the 1968 election with a little over 40% of the vote. Wallace had taken a share in the high teens. The McGovern planning from the beginning assumed a similar race in 1972. When Wallace was eliminated by the assassination attempt, Nixon’s “Southern Strategy” made him the heir to the Wallace vote and a landslide victory.

In the end, of course, it was Nixon’s vice-president, Spiro Agnew, who went to jail and his administration that ended in disgrace. McGovern was always gracious and never bitterBut, as a country, we’ve never spent enough time contemplating how different things could have been if Bobby Kennedy hadn’t been shot in 1968 or if McGovern had won in 1972.

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What retailers know that publishers need to know


The Wall Street Journal ran a piece last week about what the ebook retailers know about how we are all reading. In fact, all the ebook retailers who manage ecosystems that include apps for using their platform on multi-function devices can see every move their consumers make. We all have the sense that they know something on a per-customer basis because they recommend what we should read next when we visit or through emails they send (and even that gives some consumers the heebie-jeebies). The piece focused on the analysis of aggregated data way beyond just purchases to understand the interaction between many readers and books.

Much of what was cited in the article would be intuitively assumed. Readers of fiction tend to finish the books more often than readers of non-fiction and to read them more continuously. Readers of genre fiction tend to read the books faster. Readers of literary fiction tend to have more than one book going at a time.

This kind of stuff, in my opinion, actually doesn’t help a publisher or a retailer much more than sales data at the ISBN level already can. Barnes & Noble reports launching Nook Snaps (shorter books) for non-fiction, it is implied in the piece, because they observed that readers often quit non-fiction books before they’ve completed them. But there’s already plenty of data in all retailers’ databases about the performance of shorter works. Kobo started as “Shortcovers”, thinking they’d be the pioneers of shorter stuff. There are independent efforts to publish shorter books like Byliner and The Atavist.

And, of course, there are Amazon Singles. Research by Laura Owen at paidContent points to some robust successes there, with over 2 million Singles sold in a year and at least a handful of authors making some pretty decent money from them. In other words, anybody monitoring the sales of shorter works or cheaper works can draw their own conclusions about how they sell without regard to data about the consumption patterns for longer books.

But the Journal piece did suggest one kind of data that is extremely worth noting: when consumers show heightened interest in a particular author (by reading that author’s book faster and with fewer interruptions than others) or declining interest (by reading more slowly or abandonment before completion) in one that has had prior success.

It isn’t actually the retailer that is most in need of that data; it is the publishers who will bid on the next book by the author who most need to know that.

And that brings us to the crux of the matter which is mentioned, but only lightly touched upon, in the story: only Amazon (so far) is really both a retailer and a publisher.

This has been on my radar screen for a long time. It was several conferences ago — well over a year — that I asked Michael Tamblyn of Kobo to talk about “what retailers know that publishers would want to know” about ebook consumption. Kobo, which works hard to promote its publisher-friendliness and willingness to share data, readily took up that challenge.

Then last Fall I was counseling a purveyor of ebook sales data about how a service that I thought would be of value to publishers. “Aggregate the usage stats from the ebook retailers.”

“Why would they give them to me?” he asked.

“Because, if they’re smart,” I said, “they won’t want Amazon to be the only publisher who knows what retailers know. Books Amazon signs up might well be lost to them for sale; they want publishers to keep signing up all the important books. To the extent that this data can only be used by a publisher and they aren’t using it, they’re well served if the data is used well by publishers who look to them for distribution.:”

Then, as the Journal story reported, Jim Hilt of Barnes & Noble excited our audience at Digital Book World last January by promising that B&N would share data with publishers going forward. I took that as confirmation of my judgment about smart retailers. There have been false starts on that promise since then, but the Journal article says that B&N is now sharing analytics data with publishers.

Hilt cites the case of a series where interest from the readers seems to be flagging and suggests it might be a hint that publishers should juice it up, perhaps by adding a video. Of course, he has the analytics data and I don’t, but I wonder if that’s the right reaction. Do videos get clicked on and viewed? Would they add interest or create a distraction?

I’d suggest there are three responses more likely to be valuable. The pretty obvious one is to lower the price of the ebooks. (Surely the retailers’ analytical capabilities would show the efficacy of that pretty clearly.) I suspect one thing retailers see more clearly than publishers is the price-banding of their customer base. To the extent that’s true, you can revive a tired backlist title by introducing it to a “new audience”, those who buy in a price-band and don’t consider books above it.

Another would be to change the configuration of the offer, such as putting three (or more) books together for a special bundled price. That would gain some attention for the “event” value of a new edition, as well as presenting a price-offer.

And the last, totally in the hands of the publisher, would be to offer the author advances based on a lower sales forecast going forward or to stop publishing him or her at all.

What would be of even more interest to a publisher, and almost certainly something that Amazon has set to be flagged for their publishing arm, is when a less-known author or book is being read very avidly. That would signal an opportunity for a publisher — one the author herself wouldn’t know about, even if she checks her sales figures and ranks regularly.

One conjecture that would seem to be worth confirming is that ebooks make continuous series, or multiple ISBNs that form a reasonably seamless and continuous story, more commercially attractive than in the days of print. The Journal story opens with B&N’s observation that the first thing most readers of the first book in The Hunger Games series do when they finish it is to order the next one. And, of course, they can start reading it right away.

We already know that ebooks are lifting genre fiction over literary fiction and all fiction over non-fiction in relation to print. If the series is lifted by comparison to the print-in-store past, it would suggest some changes in the creative output (novels that leave plenty of hooks for successor books rather than ones that neatly resolve all the loose ends) and dealmaking (publishers wanting stronger option clauses and, perhaps, more multi-book deals even for first-time authors.)

Successes like the self-published “Wool” by Hugh Howey might be instructive. We spent some time learning about it last week in conversation with Howey’s agent, Kristin Nelson, as background for our Publishers Launch Hollywood conference on October 22 (at which we’re hoping that Howey will appear). “Wool” is a novel compiled from five novellas. Howey and Nelson have publisher deals in place in 10 markets including the UK and Brazil (with sales in Germany and Russia imminent) and the movie rights have been sold to 20th Century Fox. But Howey is doing so well with his self-publishing ebook sales (and a handful of print sales through Amazon’s CreateSpace) that he has so far turned down six-figure offers from US publishing houses.

Howey introduced what is now his phenomenon as a single novella on Amazon without particularly high expectations. A combination of reader reaction and Amazon’s response to it, promoting him in various ways, led to Howey writing further installments as novellas. Eventually, five of them were collected into an “omnibus”, which is the novel “Wool”.

I suspect that some good analytics at Amazon led to the promotion which contributed to Howey’s success, which he has extended to other ebook platforms. I also suspect that at some future time Amazon will adjust their tactics so they give their publishing arm a crack at an author like Howey before they promote him into stardom.

It is worth noting that during the time that Howey’s writing, his readers, and Amazon’s marketers were combining to create what might be a new commercially giant mega-saga, he wasn’t publishing on the Nook or Apple or Kobo platforms. Only after he proved that “Wool” was actually a sensation, did he even bother to make his work available through the other retailers.

I think I might find a lesson or two in that if I worked for any of Kindle’s competitors.

Now Howey is working on his next two novels, which will also be issued as a series of novellas before they are collected. He’s no secret to anybody anymore.

I’m involved in two events this month about very different topics that will both profoundly change publishing.

I’m speaking at George Washington University at their 5th Annual Conference on Ethics and Publishing on July 9 about the danger to the publishing industry posed by the DOJ’s suit and the settlement agreement apparently about to be ratified by the Court. 

And on July 26, we’ll hold our “Publishing in the Cloud” conference at Baruch in Manhattan. We see “hosted software” as a key tool for publishers to cut their overheads and pre-production costs (as they will have to) by almost unimaginable percentages in the next few years. Our conference is the first dedicated to this topic for publishing and we’ll be hearing from publishers large (Hachette, HarperCollins, Perseus, Random House, Washington Post, Wiley) and not-nearly-so-large (David C. Cook, Liberty Fund, Wayne State University Press, Workman) about how they’re employing these new capabilities. A great roster of sponsors will not present from the stage, but our  “speed-dating” and “expert session” format will enable all attendees to get their very specific questions answered both by the people they’ll hear present and from many of the suppliers who provided them the capabilities they will have talked about.

 

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If the government makes agency go away


The Wall Street Journal reports that the Justice Department has notified the Agency Five (Hachette, HarperCollins, Macmillan, Penguin, and Simon & Schuster) and Apple that it plans to sue them for colluding to raise the price of electronic books. I have no standing to comment on the law here. But if this does mean the end of the agency model, it would seem to be a cause for celebrating at Amazon and a catalyst for some deep contemplation by all the other big players in the book business.

Agency pricing, for those who have not been following the most important development in the growth of the book market, enabled the publishers to enforce a uniform price for each ebook title across all retail outlets. This was Apple’s desired way to do business, and it addressed deep concerns the big publishers had about the effect of Amazon’s loss-leader discounting.

Although the WSJ article and Michael Cader’s follow up in Publishers Lunch make no “agency is dead” declaration and there are quotes from publishers and others indicating that there are a range of possible outcomes, including a version of agency that is modified to allow some discounting, everybody in the industry now has to contemplate what it would mean if the agency model is legally upended.

To Amazon, it would mean they would be free to set prices on all books again, including the most high-profile and attractive ones that come from the big trade houses. That is an opportunity they are likely to seize with loss-leader discounting of the biggest marquee titles.

To Barnes & Noble, it would mean they have to devote cash resources to ebook discounting that they might have preferred to dedicate to further development of the Nook platform, maintaining the most robust possible brick-and-mortar presence, and improving the user experience at BN.com. Unconfirmed stories abound that B&N is about to announce an international expansion. Whether that will produce cash flow immediately or require it for a while is not yet known. For B&N’s sake, it would always better if it were the former, but if they’re about to fight discounting wars, it might be critical.

To Kobo, it would mean that they also will need to devote cash resources to subsidizing price cuts to match Amazon. With their new ownership by Rakuten, they should have the capital they need to fight this battle. They must be glad that deal got done before agency was upended.

To Google, it would mean that the bookstore service piece of their ebook business will suddenly be highly challenged. Many independent stores might be pushed out of the ebook game completely; it certainly would be extremely difficult for them to support competition with Amazon’s prices. To Google itself, with their new Google Play configuration, it means they will have to both spend more margin and more management energy to be a serious competitor in the retail marketplace. There’s no clear evidence that they have the interest at the top to do that, although they certainly would have the resources.

To Apple, it would mean that their entire iBookstore model is in question. They apparently didn’t want to take on all the normal responsibilities of a merchant, which would include setting prices. Now they may have to.

To all the big publishers, including Random House (the one of the Big Six not being sued, because they stayed out of agency for the first year and therefore were not considered part of the “collusion”) it would mean that they will have to painfully reverse the re-pricing and systems adjustments they went through to implement agency in the first place.

Smaller publishers and distributors might be beneficiaries if agency is eliminated, but they might not. The agency model is a great advantage for those publishers who are able to fully implement it. But that is only six publishers — the Big Six — because Amazon has simply refused to let anybody else sell to them that way. That creates problems for the smaller publishers but an even more threatening one for distributors. All but the Big Six, if they want to sell to both Amazon and Apple, must operate a “hybrid” model, selling Apple on agency terms and Amazon on wholesale terms. The two are inherently in conflict. What is ultimately a threat to the distributors is that distributees that desire agency terms, and many would. might seek distribution deals from one of the Big Six. (It might be coincidental, but it is worth noting that IPG, the company having a fight with Amazon at the moment over terms, is a distributor.)

Of course, we don’t know how the Big Publishers will respond if they’re forced off agency. It’s long been my opinion that the 50% discount for ebooks is unworkable. It leads to ridiculous and unrealistic retail prices. (Publishers operating on the hybrid model have to have two retail prices: one on which to base the wholesale discount and another at Apple operating agency-style. It’s crazy.) Would the big publishers, if they couldn’t do agency, keep the 30% discount and their current prices? Would they go back to the 50% discount and jack the suggested retail prices back up? If they did the former and nothing else changed, the smaller publishers could be at a much greater disadvantage than they are now.

Over time, the biggest losers here will be the authors. The independent authors will feel the pain first. Agency pricing creates a zone of pricing they can occupy without much competition from branded merchandise. When the known authors are only available at $9.99 and up, the fledgling at $0.99-$2.99 looks very attractive and worth a try. Ending agency will have the “desired” effect of bringing all ebook prices down. As the big book prices are reduced, the ability of the unknowns to use price as a discovery tool will diminish as well. In the short run, it will be the independent authors who will pay the biggest price of all.

But, in the long run, all authors will just get less. They will join the legion of suppliers beholden to a retailer whose mission is to deliver the lowest possible price to the consumer.

Seth Godin has recently made the argument that this is simply inevitable. Perhaps it is. The laws of supply and demand would support that contention. But from my personal perspective, I don’t like seeing the government hasten the process along.

But what about the reader? The reader gets lower prices, cheaper reading. What the reader won’t see is that s/he’s not getting what s/he won’t pay for. Some of the best books won’t get written and the biggest casualties will be in the area of highly-researched non-fiction, like major biographies, in my opinion. Twenty years ago they used to say that a conservative was a liberal who’s been mugged. I’m not about to become a conservative, but I sure see how easy it is for the government not to understand how their decisions might affect the dynamics of a business. Or, in this case, a culture.

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It’s hard to figure out pricing for ebooks from anecdotal evidence


The Wall Street Journal wrote last week about what we have been concerned about for some time: how hard it will be for publishers to sustain book prices as supply (of books) rises faster than demand because of all the self-publishing being done.

WSJ built their story around John Locke, whose thrillers are 99 cents and who earned well over $100,000 in March selling them on Kindle. Locke himself put the pricing in perspective. If his books are 99 cents and most ebooks from big publishers are $9.99 and up, he doesn’t have to prove he’s as good as they are; they have to prove they’re 10 times better than he is!

I can tell you this. I’ve read one of John Locke’s books. Nobody I can think of is ten times better than he is. By his own criterion, he could readily sell for $2.99 (and be earning a higher percentage royalty) because nobody is three times better than he is, either.

Meanwhile, on a much less signficant level commercially, the ebook of The Shatzkin Files is now out from Kobo for $3.99. How did the price get set? Kobo said, “let’s put it there.” Their first thought was that it should be $4.99 but then they suggested scaling it back because, after all, the entire body of content in the ebook is on this blog, which is available free. (This establishes that anybody who buys the book is paying for the convenience afforded by the container, not for the content itself.)

I don’t know what the dilutive impact on “real” ebook sales is of The Shatzkin Files, but it is, like John Locke’s material, additional competition for books that are issued by legitimate publishing houses. It is more supply competing for the same demand.

Trying to understand the actual impact of price is very difficult. Amazon tells us that books on which they control the prices are seeing share growth over books on which the publishers control the price. That is shorthand for “99 cent and $2.99 books by self-published authors are growing share over $9.99 to $14.99 books published by the big agency publishers.” That would tend (and is certainly meant) to suggest that pricing high (and ignorantly) is hurting the big publishers’ and big authors’ revenues, but we can’t actually draw that conclusion from the data.

Locke makes the point that the $9.99 book needs to be “10 times better” than his to be an equivalent value, but I’d make the point that they need sell only 1/10 as many copies to deliver the same amount of revenue. Penguin is still selling Ken Follett’s “Fall of Giants” for $19.99. Would it sell twenty times as many copies if they priced it at 99 cents? And, if it did, would it do so by stealing sales from the hardcover, which, with a list price of $36, is yielding a margin in the ballpark with that nearly-$20 ebook.

I don’t know if $19.99 is the right price for “Fall of Giants”, but I’m pretty sure 99 cents wouldn’t be.

In other words, the big publishers are not crazy to resist following ebook prices to where the new self-publishers would lead them. To be fair, one should not suggest that Amazon would set their prices at that level, even if they had freedom from agency constraints. For one thing, unless pricing schemes changed completely, Amazon would have “bought” an ebook (wholesale) at a price that would limit their willingness to mark it down. They did scare publishers by taking losses on some ebooks, selling for $9.99 what they bought for $12 or $15. But they never sold those books for 99 cents!

In fact, it would appear that Amazon does not have control of Locke’s book pricing, because the Journal article makes it clear that he will stick with 99 cents even if he can make more money at $2.99. (Amazon pays a 35% royalty for books under $2.99 and 70% royalty for books between $2.99 and $9.99, so Locke would get $2.10 a copy at $2.99 and he gets about 35 cents pricing at 99 cents.) Presumably, Amazon would have priced him where he (and they) get the most revenue, not where they get the most unit sales, which we would assume would rise with every drop in price down to free.

But the fact that publishers aren’t necessarily wrong to try to maintain prices at near $10 and up doesn’t obviate two very cogent truths here that it would be a mistake to ignore.

One is that the downward pressure on price is inexorable, because the number of entreprenurial authors like John Locke will grow and they will be discovered and “branded” so that many readers will find them as substitutes for the more expensive big house authors. And because the number of offerings that come like The Shatzkin Files ebook did — from people who weren’t writing for the profit from the content, but who built an audience and had a book issued anyway — will continue to add supply to meet what is relatively static demand.

And the second — made before here and not long ago — is that publishers don’t know nearly as much as they could and should about how price affects unit sales and total revenues.

Sooner or later, a big publisher or two will start seriously experimenting with this. They will gain knowledge that will enable them to tell an author or agent, “we know things about pricing that are worth real revenue to you if you publish with us.” When that happens, it will likely be more significant to an author than an increase in the ebook royalty rate would be. Maybe a publisher can even add enough value with pricing savvy to pay for their cut!

So far, only one author we know of has turned down a significant advance from a major house to self-publish. That’s Barry Eisler, and we wrote about him when he made the decision to give up a half-million bucks to self-publish. We’ve just booked Barry to speak at our first Publishers Launch Conference at BEA on May 25. I’ll be interviewing Barry and focusing on questions of interest to our target audience of international visitors to BEA and their trading partners. We’ll be very interested in how much he anticipates in the way of foreign sales and how he’ll handle translation rights, but we’ll also be looking for Barry’s thoughts about how he’ll set prices for his books when the power is entirely in his hands.

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Lots going on; no single topic today


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

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

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

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

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

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

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

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

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

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

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

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

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Agency seems (to me) to be working; I hope it’s legal


A year ago, before Agency was ever publicly discussed, I was grasping for what publishers could do to get control of ebook pricing and curtail, or at least manage, the degree to which ebooks undercut paper and, in turn, brick-and-mortar. At the time, people told me that it was possible for a manufacturer to control the pricing of their goods at retail and pointed to Apple’s success doing that and to other manufacturers like Bose that managed to do it. I believe the key was that they controlled the entire supply chain, right to the point of consumer purchase (although we know that other retailers do sell Apple products.)

I never got a grip on how this could be made to work, legally.

Then, along came Agency. The concept is that the publisher is the selling party in the retail transaction so the publisher sets the price. The intermediaries (the retailers) wouldn’t actually buy and sell the goods, as they always did. They would, instead, be “agents” for the publisher. That approach pushes the responsibility for sales tax back to the publisher, no trivial matter (although services are springing up to help with it). But it gives the publisher price control.

From Publishers Lunch, and then picked up by the Wall Street Journal, comes the news that the Attorney-General in Texas is investigating Apple and the publishers participating in Agency over the legality of the Agency arrangement. For publishers who had been struggling for years with the real market control exercised by Amazon, Apple’s arrival on the scene and willingness to accept unform pricing across outlets (to be followed shortly by Google doing the same) constituted liberation.

But one can see a logic to the Texas investigation. Amazon’s strategies required no cooperation with any other company. They bought the ebooks at the prices publishers charged them and sold them at the price they thought was best for them in the marketplace. But the Agency agreement with Apple (as I understand it; I’ve never seen one) allows (or maybe requires) that Apple meet any lower price for the same title offered by another retailer. So there is a “combination” and it is “restraining” trade. That’s a speaker-of-English talking here (which I am), not a lawyer (which I’m not.)

It would make many publishers very unhappy if the Agency model were deemed illegal. One major house CEO I spoke with two weeks ago was positively rhapsodic about the control the new paradigm gives the publisher. That CEO told me about one major bestseller at their publishing house which suffered no loss of unit sales when the price went up from the Amazon-set $9.99 to the Agency price of $12.99. Struck by that, the CEO further raised the price of that title to $14.99 and saw immediate sales erosion. So, two weeks later, the CEO took the price back down to $12.99 for that title, where it sits.

As this person said, “I can’t ever see going back. I have never had this ability to maximize revenue before or to experiment with pricing.”

I’m personally persuaded that universal set prices for ebooks are good for the industry and, ultimately, for consumers. They will definitely foster competition among retailers. My belief for a long time has been that the day will come when almost all web sites will offer their own curated selection of ebooks. (Why shouldn’t ESPN.com be selling the new Willie Mays or Steinbrenner biography?) That will work great in a price-set world. It would make the retailing opportunity about “location, location, location”, rather than “price.” It would boost sales for publishers and authors by putting ebooks a click away from interested consumers across the Web. But it isn’t going to happen if web sites figure that their curation efforts will just be triggers to send people to a deep-pocketed etailer that is pricing for market share.

It would appear that the Agency model is good for just about everybody except the etailers that would use price to drive others out of the market. But will it ultimately be ruled legal? I don’t think we know yet.

Late add: The vision of every-site-a-curated-bookstore got some confirmation a couple of hours after I posted this when Ingram and F+W Media announced a partnership by which Ingram will power sales of all publishers’ ebooks through the online stores F+W operates for their communities. I’d expect this to become increasingly common.

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New ways to sell ebooks aren’t easy to implement


A simple and perfectly sensible suggestion emerged on the Brantley email list yesterday but the conversation around it showed that some stark realities about the book world have not yet been taken on board, even in very sophisticated circles (which this list is.)

The list discussed a suggestion from librarian Josh Greenberg  that publishers take note of the “rental” model built into the iTunes store as an alternative way to collect money from readers for ebooks.

Greenberg’s piece calls out a fact that many people in publishing have a great deal of difficulty with: that all ebook sales must be licensing deals. They can’t be anything else. Greenberg says:

“When we think about iTunes, we think about a basic fee-for-purchase model. We’ll just leave aside the fact that you never truly “own” a digital file, you’re just buying a particularly-structured license to use it…”

He’s right. When you deal in printed books, you have a tangible object. When you deal in ebooks, you only have “code”. The first sale doctrine says you can re-sell the book or lend it or share it. But copyright law says you can’t re-sell, lend, or share copyrighted “code.” Many digerati (and many librarians not named Josh Greenberg) refuse to acknowledge this distinction.

But that’s a legal point, one that can be debated until a court or a Congress makes a ruling (and then beyond, actually, since we continue to fight battles even after courts or Congress have rendered their conclusion.) The challenge to Greenberg’s idea of switching to a rental model is not so debatable. It’s practical.

Implementing new models for book sales requires herding cats. It can never be done fast and many business ideas relating to content have foundered because it couldn’t be done at all.

What should be clear to anybody who has been following developments since the days a decade or more ago whenRocketbook and Softbook and Sprout were trying to get publishers to give them rights for their content propositions is that it takes a very persuasive sales pitch to get publishers to do so. That sales pitch must be delivered publisher by publisher, and then the impressive ability of publishers to discuss a problem to death takes over, and the new proposition might itself die before its owner gets an answer. Or certainly before its owner gets enough answers to get the new idea off the ground.

What was further made clear by the participation of agents at Digital Book World, and particularly by the opinions expressed by superagent Robert Gottlieb on the ebook “timing” panel, is that the publishers don’t make this decision without consulting with their upstream gatekeepers. Gottlieb made clear that a) it takes a very small number of lost hardcover sales to make an author’s book slip notches on the New York Times Bestseller list, b) he and his authors believe that a much cheaper ebook, or perhaps any ebook at all not reported as a hardcover sale, can make that critical difference between being Number 1 or being much further down the list, and c) the difference in several places on that list is worth losing some sales over.

So just imagine how Gottlieb and his star clients (and all the other agents and star clients) would react to a rental model!

Let’s add one more point before the next great suggestion is made. The same thing will be true of an even better model than rental (which also has plenty of precedent in media even closer to publishers, audio books): subscription sales.

The switch that Apple has made to the “agency model” is not of equivalent complexity from a business perspective. There we’re still “selling the book” (although we’re really licensing access to a file) and the amount of money flowing to the publisher is comparable. But, even there, the switch will not be simple. Publishers have signed contracts governing almost all their ebook sales (which is a further demonstration that this is different from selling physical books, for which signed contracts between publishers and vendors is by far the exception, not the hard and fast rule) which one could imagine the purchasing party (Amazon, Ingram, Content Reserve, Barnes & Noble, Kobo) believes prevents the publisher from changing the rules in the middle of the game.

What Michael Cader reported last week which we expanded on in a blog post and a CNN interview is that publishers can use the new agency model to hold back books from channels where they can’t control the pricing. This very much underreported exchange between Steve Jobs and Walter Mossberg of the Wall Street Journal makes it very clear that Apple expects vendors who would undercut the pricing publishers set for them will be denied access to the content.

We can look forward to continued battles over pricing and over the terms of sale between publishers and the downstream players in the ebook supply chain. But I think it will be a while before real alternative distribution schemes to the public make any appearances. In fact, they’re likely to occur in vertical niches first, where the big agents are less involved and the number of publishers one needs to get on board is something less than “just about all of them.”

A quick thanks to everybody who attended Digital Book World (and there were a lot of you.) I am hoping that the fact that all I’ve heard is praise and enthusiasm for the two day event is not just a result of people being kind to the guy who put the program together. I think we really did generate discussion on some issues that had previously been neglected. But most of all I’m proud of the job we did selecting panelists; everyone I saw presenting was smart, well-prepared and entertaining. Some we had seen in front of audiences before; some we only knew through our interviews in person or on the phone. But picking them carefully and one by one certainly seemed to work and it is the same formula we’ll use putting together Digital Book World 2011. I hope we’ll see everybody again there next year.

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