The biggest publishers today are regularly delivering improved profit performance on a flat or declining sales base. This masks a troubling truth about today’s book business. The core asset base of a book publisher is “performing titles”: the books that are delivering measurable revenues. The more of them there are the healthier the business is.
Thirty years ago, big publishers were adding to that core title base and, in fact, it was the effort and investment required to deliver new titles into the marketplace that made short-term profits harder to earn. Today’s reality is that new titles are much harder to introduce successfully and publishers have responded to that by flattening and even reducing new title production.
But another twist of the past 30 years is that there are more ways to get profits out of the backlist. Ebooks and digital delivery of audio, along with the online print book marketplace, have made it possible to generate revenue from books that might have been declared “out of print” with rights cheerfully reverted in the 20th century. So far, the additional sales from digital renditions and online sales, combined with the reduced costs associated with digital delivery and reduced returns associated with the shift from stores to online sales, have enabled profit growth without topline sales increases.
Of course, the fact that nothing ever goes out of print is part of what contributes to the title glut that has made launching new titles successfully so much more difficult.
There are two new opportunities to deliver profitable topline sales growth that publishers can’t get at without making some adjustments to their standard thinking about their business. It would seem inevitable that they will turn to them, even though both opportunities have been in place for a while and uptake has not been very rapid or widespread. I had to resist being sensational and titling this post “free money for publishers that they just aren’t putting in their pockets”, but that’s actually what it is about.
One of these opportunities is to set up all titles with Ingram Lightning Source for what their Chairman John Ingram calls “just in case, rather than just in time” use of print-on-demand. The other is to put some of the thousands of titles every big publisher has that are virtually non-performing into Open Road’s “Ignition” program for ebooks. (Yes, both of these companies are my clients, but they have built these capabilities to help the publishers without any direction from me.)
The Ingram opportunity is really easy to understand. Books that are in Ingram’s digital database can be delivered by their wholesale arm to every account in the world tomorrow, whether or not there is presently any stock. This matters every time there is a significant publicity break that generates demand that wipes out Ingram’s stock and they have to wait for the publisher to provide replenishment.
It really matters a lot when the publisher is out of stock and orders can’t be filled for a couple of weeks while waiting for the reprint. Not only are sales postponed, sales are also lost forever. And the sales that are lost would often have triggered additional sales. Momentum is lost.
The most recent eye-opening example of this was the recent death of basketball star Kobe Bryant. Apparently there were half-a-dozen Bryant books, none of which had stock to meet demand and none of which were set up for print-on-demand. When I asked a friend at Ingram how often he sees books where substantial sales are lost because they aren’t set up for immediate POD, he said “every day”.
Publishers probably need to sharpen their pencils and re-do their math. Although it is true that delivering a POD book is a great sacrifice of margin for a publisher compared to one from their own warehouse, it is both not as great a sacrifice as they think and, really, no sacrifice at all if a sale that would otherwise be lost is captured. Lower print unit costs for pressruns can be misleading if the publisher doesn’t consider the costs of multiple handlings, delivery, returns, and books printed but never used.
It could well be that the future best practice would be for every book to be set up with Lightning and for every order Ingram gets for an active title to be shipped next day. The inventory management objective would be to maximize margin by having pressrun-delivered books in place as often as possible without loading that would produce returns. Keeping inventories lean would entail regular use of POD to fill in gaps. And that will create a big windfall in sales in cases like Kobe Bryant’s death, but would actually boost sales and profits all the time.
The Ignition opportunity is almost as obvious a winner. Open Road started its life as an ebook publisher with a list built on the industry’s failure to see ebooks coming. Former Harper CEO Jane Friedman saw the ubiquitous contractual ambiguity around ebook rights as an opportunity and corralled a large number of titles before the publishers plugged the holes in their contracts. That left Open Road with a big list of ebooks but no real mechanism to grow their list.
So they started working on doing ebook marketing in a more focused and determined way than other publishers with big backlists. Open Road developed an understanding that the top 100,000 ranked ebook titles got boosts from industry algorithms (largely Amazon’s), but, of course, every publisher’s list (including their own) had thousands of titles that ranked well below that, in the millions and nowhere near the top 100,000.
So Open Road developed tools to move titles from virtually zero sales to really measurable ones, building mailing lists of identified customers through use of verticals (subject-specific targeting) and bargains (price-shopping consumers can really boost a title.) Doing this not only required cash and focused effort, it also required time. They’ve been at this for a few years and anybody starting now will not be able to do it much faster. In fact, there are almost certainly early mover advantages that benefited Open Road and will no longer apply.
Their results are consistently dramatic. On one representative group of 5000 titles, Ignition was able to move more than 6% of the bottom 3500 titles from ranks in the millions to a performance that would have put them in the top 10 percent of the total group. The total revenue of the 5000 titles in the year before Open Road had them was $2.4 million. It should have declined by 20-40 percent. Instead, they almost tripled the take to $6.8 million. The 500 bottom titles rose from 0 sales to $108,000; the next 500 moved up from a total of $3500 to $226,000.
That’s an improvement of infinity from the 10th decile and 64 times the sales for the 9th. Each decile improved by a less dramatic percentage but a greater dollar value than the one below it. And the many titles that got into the top 100,000 through Ignition’s proprietary tool set then got lift from the retailers’ algorithms.
And those are just the sales of the ebooks. The print sales also reflected the increased awareness in the marketplace and all that gravy remains with the publisher.
All the big publishers have increased their marketing staffs to work on digital opportunities, but they tend to work on particular titles or groups of titles. The combination of tools that Open Road has built — newsletters and mailing lists connected to them and knowledge of individual consumers based on both — requires a lot of effort and a lot of time. But the publishers’ good fortune is that Open Road needs titles from outside its base to feed and grow its capabilities. Good digital marketing techniques require the fuel of new titles all the time.
The Open Road opportunity rescues titles from total oblivion and, in addition to the ebook sales Open Road builds and shares in, grows their print sales as well. This presents publishers with the ability to create performing titles out of “dead” backlist using ebook sales and marketing to power the growth.
There is what some publishers find to be a stumbling block. In order for Open Road to do its magic, it has to be listed as the “vendor of record” for the ebook editions of the titles it handles. This has apparently deterred publishers but it probably shouldn’t. From the public’s perspective — the consumer perspective — the publisher is still the publisher. But the intermediary customer — the retailer, wholesaler, or website — sees Open Road as their source. In fact, Open Road has built an engine to enable publishers full visibility on every move they make.
Publishers in bygone days licensed mass-market paperback rights to other publishers because they didn’t have the capability to sell to the rack jobbers and the title was no longer performing in their conventional channels. Licenses were for a term, and then they reverted. This situation seems really analogous to me.
Any publisher that has thousands of titles listed in their catalogs as still “in print” but which they know are producing nearly zero sales has little to lose and a lot to gain by putting those titles into Open Road’s Ignition System.
And any publisher who sets up all their titles with Lightning and their most comatose backlist with Open Road will have sales growth they couldn’t have gotten any other way.
As many of you know, I have been spending a lot of my time working on climate change. I don’t write about it here out of respect for the many subscribers who are looking for observations about publishing, not the state of the planet. But if you want to know what I’m posting on that other topic, here is a link to a recent piece where I enumerate what I think are the arguments worth having about climate today. And this one expanded on the folly of shutting nuclear plants when what we need to fear is the carbon dioxide that comes from burning fossil fuels.
I am looking forward to the 2020 London Book Fair next month. It will be my first one in a few years. I expect to catch up with more than a few old friends.