Monthly Archives: September 2017

B&N didn’t have the culture or financing to compete with the likes of Amazon and Google

22 September 2017

From Publishers Weekly:

During its annual meeting held Tuesday morning at its flagship store in New York City, Barnes & Noble chairman Len Riggio supported its new CEO, Demos Parneros who was named to his current role in April.

During the meeting, Riggio called Parneros “the perfect fit” to help the company grow its top line and improve profits. Observing that Parneros “has brought lots of energy to the company,” Riggio said he is looking forward to watching the executive over the next few years, noting that Parneros shares his vision and will revive B&N “store by store.”

. . . .

Riggio also assured shareholders that B&N is no longer in the tech business. While the Nook e-reader and e-books will remain a part of the company’s offerings to customers, bricks and mortar stores will be its focus. Riggio explained that when e-book sales began exploding several years ago, B&N felt it had no choice but to enter the digital market. In retrospect, Riggio said, B&N didn’t have the culture or financing to compete with the likes of Amazon and Google.

Instead, according to Riggio, B&N will focus on its physical stores and will partner with technology companies to keep a presence in the digital space. “There is no business model in technology” for B&N, Riggio acknowledged.

Link to the rest at Publishers Weekly and thanks to Nate at The Digital Reader for the tip.

PG says the Nook business was doomed from its earliest days. The big reasons are:

Riggio didn’t want to pay for top online talent.

This was evident from the first time PG visited the Nook Store. Poorly designed and poorly executed. And it never really changed.

Real tech talent is rare and in great demand. In the beginning, for the right money, skilled tech people would have gone to work at Nook, but Barnes & Noble wanted to pay bookstore salaries.

PG has no idea if Nook tried to hire really good talent at the right price after it became clear that the Nook Store was a disaster. Unfortunately, by that time, serious tech talent wouldn’t have come regardless of salary because nobody wants to clean up someone else’s mess and a line mentioning the Nook Store would have been deadly on the résumé.

Besides, nobody would have believed Barnes & Noble stock options would ever make them rich at that point.

The Nook Store set ebook prices at a level designed to support the print book prices in its stores.

One of PG’s least favorite things to hear during a product planning meeting is, “We don’t want to cannibalize our existing business.”

The problem is that, if your business is cannibalizable by you, it’s cannibalizable by somebody else. Jeff Bezos has always been a happy cannibal.

Low ebook prices combined with instant availability fueled Amazon’s early dominance. Over time, by cultivating successful indie authors, in part by using Kindle Unlimited, Amazon has added tens of thousands of high quality titles that Riggio couldn’t sell if he wanted to.

Amazon vs. Big Bookstores and Big Publishing is going to be a classic business case used in MBA programs around the world for decades to come. Brains and speed beat money and size once again.

Court Rules Copyright is Not a “Use It or Lose It” Right

22 September 2017

From Nova Southeastern University:

On September 7, 2017, the District Court for the Southern District of New York issued a significant ruling on the issue of fair use. In the case of Penguin Random House v. Colting, the Court ruled that the failure of a copyright owner to enter a segment of the market for an expressive work, here, the children’s market, did not entitle an unlicensed interloper to enter that market under the doctrine of fair use.

Here, the defendants adapted several widely famous novels into a series of “illustrated children’s books,” without (of course) taking the step of requesting a license to do so. The works at issue were “Breakfast at Tiffany’s” by Truman Capote, “The Old Man and the Sea” by Ernest Hemingway, “On the Road” by Jack Kerouac, and “2001: A Space Odyssey” by Arthur C. Clarke.

If the name of the Defendant here rings a bell, as it did with me, it is because this is not the first time he has claimed “fair use” by creating a derivative work by a famous author. Previously, Fredrik Colting wrote an unauthorized “sequel” to J.D. Salinger’s seminal work “The Catcher In The Rye” and claimed that his novel was fair use. Both the District Court and the Second Circuit Court of Appeals rejected this argument.

So, Mr. Colting is back at it again, defending his rather obvious infringements with arguments variously characterized by the Court as “absurd” and “an exercise in sophistry.”

. . . .

Here, amongst other defenses, the defendants make the preposterous arguments that the indelible character of Holly Golightly is a “stock [character] that does not warrant copyright protection” and that the plot of “2001: A Space Odyssey” is an unprotectable cliché or “simply a ‘man versus technology’ plot, hence the elements which naturally arise from it (“a space station, space shuttle, an intelligent machine, tragedy in space, overcoming technology”) are not protected.”

As the Court would say in the very next paragraph, this is absurd.

. . . .

But the main defense here is fair use. Defendants claim they have “transformed” Plaintiffs novels by:

  • Substantially abridging and shortening the novels
  • Removing adult themes (sounds like VidAngel doesn’t it?)
  • Adding analysis and two pages of quiz questions

The Court responds:

  • Abridgements are generally considered to be derivative works
  • “[T]he mere removal of adult themes does not meaningfully ‘recast’ the work anymore than an airline’s editing of R-rated films so that they can be shown to children on a flight absolve the airline from paying a royalty.”
  • “[T]acking on these few pages [of analysis and quiz questions] does not provide safe harbor for an otherwise infringing work.”  “Fair use…is not a jacket to be worn over an otherwise infringing outfit. One cannot add a bit of commentary to convert an unauthorized derivative work into a protectable publication.”

. . . .

“Congress did not provide a use-it-or-lose-it mechanism for copyright protection. Instead, Congress granted a package of rights to copyright holders, including the exclusive right to exploit derivative works, regardless of whether copyright holders ever intend to exploit those rights. Indeed, the fact that any given author has decided not to exploit certain rights does not mean that others gain the right to exploit them. ‘It would … not serve the ends of the Copyright Act—i.e., to advance the arts—if artists were denied their monopoly over derivative versions of their creative works merely because they made the artistic decision not to saturate those markets with variations of their original.’”

Link to the rest at Nova Southeastern University

New England

22 September 2017

New England is the home of all that is good and noble with all her sternness and uncompromising opinions.

Ellen Swallow Richards

At Annual NEIBA Show, Booksellers Slam Amazon and Toast Each Other

22 September 2017

From Publishers Weekly:

The annual New England Independent Booksellers Association (NEIBA) gathering in Providence, RI, boasted big names and even one big outburst, when the host of the New England Book Awards Banquet, Joe Donahue, kicked off the evening with a loud expletive about Amazon.

. . . .

Porter Square Books marketing director Josh Cook’s session “Be a Nerd, Not a Brand,” was representative of the broader balance between business education and an encouragement for booksellers to be who they are. At the beginning of his session, which aimed to get booksellers to sell more books through social media, Cook promised that attendees would, “come away with actions and a mindset for sharing joy with your community on social media.”

. . . .

The New England Book Awards banquet dinner captured the spirit of the show. Donahue opened to loud applause after yelling “F*** Amazon,” as he stepped to the podium. The rest of the dinner, though, displayed the warm camaraderie of the close-knit regional community.

President’s Award-winner and acclaimed novelist John Irving told the audience that his ties to the region were so strong that he thinks of himself “more as a New England writer than as an American writer.” After the event, Irving hung around to chat with booksellers and the Independent Spirit award from Water Street Bookstore, which received the Independent Spirit award, and is located in the author’s hometown of Exeter, NH.

Link to the rest at Publishers Weekly

Those New England booksellers have always been a classy group. PG can hardly wait for a ticket to their banquet next year (maybe at a McDonald’s in Vermont).

Business Musings: I Spent Decades Developing My IP (Contracts/Dealbreakers)

22 September 2017

From Kristine Kathryn Rusch:

I’m conducting too many negotiations right now. I discuss them as if they’re easy.

They’re not. They’re stressful and take time.

But I always learn something.

And yesterday, I gained a brand new perspective.

I wrote the following sentence to someone who wanted to take my entire IP in a series for a pittance:

I’ve spent decades developing my IP.

I then proceeded to explain to that person that I controlled my IP and they would not get their grubby paws on it, especially for a few thousand dollars and promises of future money. (Anyone who could read contracts would know that the company didn’t have to pay me the full up front money in a timely fashion if at all, and there would be no future money…to me…because I would have signed it away.)

I’ve spent decades developing my IP.

I have never said that before, nor have I said it so blatantly. It provided me with an incredible and unexpected perspective.

I was trained in traditional publishing, where writers go begging for opportunity. Writers are taught to beg, from professors (let me into your class!) to critique groups (is my writing good enough?) to agents (will you take me on?) to publishers (will you buy my book?).

We’re not trained to value what we’ve built.

I’ve spent decades developing my IP.

That statement is a statement of power. It’s a statement of value. It says I have worked hard. Respect my work and deal with me like a professional.

Imagine if all writers took that attitude into their negotiations for their work. Or into anything they do for their writing.

Writers would become stronger, just by owning what they have done. By valuing what they have achieved.

I know many of you are frowning as you look at that sentence. A few of you don’t know what IP is. IP is intellectual property. Intellectual property has become so important in modern business that companies are buying it up and sitting on it.

. . . .

Writers are so used to begging to get attention, that they have no idea how to think of their work as something not just important to them, but as something with lasting value.

As Forbes said in the very short introduction to its list of the Top 25 Intellectual Property Valuation firms:

The world has changed dramatically in the past several decades with more and more of a company’s value attached not to factories, machines, or hard assets but rather the companies’ ideas, processes, and designs – their intellectual property.

The American economy has moved from a manufacturing economy to one that makes most of its revenue from businesses that monetize their intellectual property. You know, like film studios. Game companies. Damn near every business in Silicon Valley.

While I’ve been writing about the disruption in publishing initially caused by (ahem) someone’s proprietary design (um, Amazon Kindle), I really wasn’t paying attention to the outside world’s acknowledgement of IP. In the past, if I had written I’ve spent decades developing my IP to someone I was negotiating with, they would have responded with a confused “Whaaaaat?”

Now, they understand exactly what I mean.

Writers need to understand it too. Even if your books don’t sell well.

Link to the rest at Kristine Kathryn Rusch

Here’s a link to Kris Rusch’s books. If you like the thoughts Kris shares, you can show your appreciation by checking out her books.

Looming Toys R Us bankruptcy has odd parallels to Barnes & Noble’s situation

22 September 2017

From Chris Meadows at TeleRead:

I just ran across a CNBC piece on a potential Toys’R’Us bankruptcy filing. The toy retailer may not necessarily plan to go out of business, but a bankruptcy filing could allow it to restructure its massive load of debt so it can stay in operation.

At first glance, this doesn’t seem to have a whole lot to do with ebooks, but on a closer read, it’s really interesting to observe some of the parallels between Toys R Us’s situation and things that have been happening to bookstores over the last few years.

For example, there’s this paragraph:

A Toys R Us bankruptcy does not necessarily mean the company will close stores, and retailers such as Macy’s have operated through bankruptcy before. For the major toy companies, there may be vested interest in Toys R Us successfully coming out the other end of a debt restructuring.

. . . .

The CNBC piece goes on to say:

Beyond offering the toy companies a place to sell their products, the retailer often does so without marking their prices down as much as big box retailers like Target. The retailer’s vast space and toy-centered raison d’etre give toy companies a unique venue to sell their product.

“They’re the only true showroom the industry has,” said toy industry analyst Richard Gottlieb.

You could replace “toy companies” with “publishers” and “toy-centered” with “book-centered” and you’d perfectly describe the role of bookstore chains like Borders—and, for that matter, Barnes & Noble. The bookstores don’t mark their book prices down as much as big-box stores, but they have a much bigger selection. It’s that selection of books that people can look at and browse and flip through in person that publishers and their advocates bemoan losing as sales migrate more and more toward on-line. They’re also“the only true showroom the industry has,” if you’re talking about the publishing industry. Of course, Amazon can outdo both the toy stores and bookstores on both price and selection.

Another odd toys-to-books connection is that, elsewhere, the CNBC article mentions that another problem toy stores face is “children who increasingly prefer tablets to toys.” But the article never goes on to elaborate on that point, even though it entitled the whole article section “Tablets over toys.” (If you look elsewhere, though, you can find articles about research showing that kids are playing with tablets more than traditional toys—even as they seem to prefer to read books on paper rather than the screen.) Certainly tablets like the Fire 7 are getting cheap enough that they cost less than some children’s toys, and they do have a broader range of uses than an articulated chunk of plastic.

The piece does touch directly on Amazon, though, at the very end—when it discusses how toy companies could wean themselves away from dependence on Toys’R’Us by turning to alternative sales channels.

One of the quickest growing channels: Amazon. The e-retailer is the “beneficiary of [the] millennial parent,” said [Jefferies analyst Stephanie] Wissink, as Amazon is “quickly becoming the No. 2 toy retailer behind Wal-Mart.”

You would think, from the way the publishers allowed Borders to die and don’t seem to be doing a lot to try to save Barnes & Noble, that they should be trying to wean themselves over to alternate channels than big bookstore chains. The problem is, they have that love-hate relationship with Amazon, the mega-store that sells more than half of their books for them at the moment. The last thing they would want to do is give Jeff Bezos even more power.

The odd thing is that the CNBC article never directly touches on the way that Amazon’s ascendancy to “the No. 2 toy retailer” position might also be responsible for some of the financial troubles Toys R Us finds itself in.

Link to the rest at TeleRead

Students Forgoing Required Learning Materials Due to Cost

22 September 2017

From No Shelf Required:

A growing number of college students are choosing not to purchase textbooks and other required course materials in an effort to save money, according to a new study conducted by Wakefield Research on behalf of VitalSource Technologies LLC.

The study finds 85 percent of the college and university students surveyed have either waited to buy course materials until after the first day of class or opted not to purchase the materials altogether – up five percent from a similar survey conducted in 2016. Nearly all (91 percent) of the students surveyed cite cost as the reason for not buying their books, and half admit their grades suffered as a result.

. . . .

“As costs have risen, we have seen course material cost become a significant barrier to student retention and completion. Students are increasingly finding work-arounds that are not working – like putting off buying materials or choosing not to buy course materials at all.”

. . . .

“With college costs on the rise and student outcomes lagging, offering more affordable options on critical course materials is just common sense,” said Pep Carrera, Chief Operating Officer of VitalSource®, a leading provider of digital learning materials. “In recent years, there has been a marked increase in the number of students who are forgoing course materials due to costs. This is alarming, but even more disturbing is the consequence this decision has on students’ grades.”

The study also confirms students’ interest in “inclusive access” programs as a solution to their textbooks and course material cost woes. Inclusive access rolls the cost of digital course materials into tuition, making it easier for students to automatically access critical learning materials at a more affordable price.

“The prevalence – and success – of digital inclusive access programs has increased significantly in recent years,” said Carrera. “The survey results mirror the anecdotal data we have collected from students about the value of digital course materials delivered through an inclusive access model.

Link to the rest at No Shelf Required

As we look to reinvent our customer value proposition

21 September 2017

From Barnes & Noble CEO Demos Parneros (the fourth BN CEO since 2013) on an investor call on September 7, 2017, about five months since he had become CEO. Prior to coming to Barnes & Noble, Mr. Paneros spent about 30 years working for Staples. During the call, Barnes & Noble announced yet another decline in revenues, down 6.6% from Q1 2017.

Per the observations of Nate at The Digital Reader, PG noted a word salad being thoroughly tossed during the call. A partial transcript follows with a link to the entire transcript at the end.

The first portion is excerpted from Mr. Paneros’ prepared introductory remarks. Partway down, PG includes a few answers he gives to questions from securities analysts. All statements were from Mr. Paneros:

As we look to reinvent our customer value proposition and growth sales, we’re focused on a number of initiatives to increase the value customers derive from shopping at Barnes & Noble. Our value proposition is comprised of membership, convenience, digital offerings and most importantly our stores where customers come to browse, discover, and interact with 26,000 knowledgeable booksellers.

Pricing is a key consideration and over the past few months, we’ve launched a number of price tests tied to our membership program to see which authors resonate best with customers and increase the overall value of the program. Our goals are to increase enrollment, conversion and visit frequency.

Beyond pricing, we’re also focused on growing sales by improving the overall shopping, browsing and discovery experience for better visual merchandizing and signage as well as personalized recommendations. This includes testing changes to existing store layouts and remerchandising certain businesses. We believe there are significant opportunities to manage our inventory better, increasing trends and reduce unproductive merchandize.

As part of our efforts to better understand customers and develop a robust data analytics program, we’ve recently installed customer counters in all our stores and reintroduced mystery shops. We plan to enhance customer engagement and personalization through improved customer insights. And recently we’ve established an analytics team building the foundation for better analytic rigor.

. . . .

In addition to the two new test stores we have in the pipeline, we are reviewing our entire portfolio in identifying opportunities to open new stores in new markets as well as opportunities to relocate stores as their leases expire instead of simply vacating markets. Our goal is to position the company for net store expansion.

Turning to our ecommerce business, online sales declined during the quarter as we cycled against last year’s eBook settlement and focused on improving margins and profitability through lower promotional activity. Our goals for this business are centered on improving performance and enhancements to our omni-channel capabilities.

. . . .

This includes our new prime-time program where booksellers focus exclusively on engaging with customers during peak hours as opposed to doing tests. We expect this initiative to increase conversion through higher customer engagement while decreasing costs by reducing non-productive tests.

. . . .

[Responding to questions from analysts]

And in terms of specific initiatives for the second half, I’d say that we’ve got a long pipeline of ideas and tests in place to drive sales, traffic, margin to really improve the business overall that range from store experience, conversion tactics to looking at offers, our efficiency membership program, price perception overall on the initiatives that we’re doing with our two channels. So there’s quite a bit in the pipeline and we’re actually meeting on a very frequent basis weekly to determine which things are really rising on our lift and which ones that we ought to drop off so that we can put things in place for the second half.

. . . .

In the past couple of years, we have closed some stores in markets we like very much. So we’ve got our eyes on those markets. There are also some very attractive targets where we don’t have stores. While that’s happening, we’ve been developing a smaller and newer very exciting store prototype that is almost ready but not quite there yet. So that’s some of our thinking. And our plans are to begin to replace very good stores and add opportunistically.

. . . .

So in terms of how far reaching, I’d say that at the moment we’re not very far reaching. We are more testing different value offers. We’re looking at different components from pricing, structures within the program. We’re taking a look at special timing for certain offers. So I’d say that we’re in the early stages of enhancing the program.

. . . .

I’ve had very productive meetings with our publishers who share similar goals to us. And they’re very focused on really providing the great experience in store. The teams I think partner very well together. We’ve actually established an even better cadence to meet frequently and to share successes and to challenge one another. So I think obviously having stores and product by using touch and feel and discovery have the highest importance to them and to us.

Link to the rest at here

Leonard Riggio, Barnes & Noble’s 76-year-old Chairman and the guy who really calls the shots in the company says Paneros has brought a lot of energy to the company.

If you’re competitor-focused

21 September 2017

If you’re competitor-focused, you have to wait until there is a competitor doing something. Being customer-focused allows you to be more pioneering.

Jeff Bezos

Amazon and the future of physical retail

21 September 2017

From veteran publishing consultant Mike Shatzkin:

There are two parallel conversations about the future of retail that are quite active. One is within the book business and it centers around what the future will be — and will there be one? — for Barnes & Noble. The other one is about the future of retail competitors to Amazon in the broader sense, particularly the big retailers that anchor the malls and shopping centers and are depended upon to draw the traffic to all the other stores that share the same parking lots.

Whenever B&N announces financial results, the whole book business pays attention. When a chain with the ubiquity and brand of Toys R Us goes under, as it did last week, everybody pays attention.

Barnes & Noble has been feverishly changing executive management and delivering pretty vague and unconvincing strategic pronouncements in a context of declining revenues and a sliding stock price. Since B&N is both the single stop capable of putting a new title in front of the most bookstore customers and the single biggest retail customer for publishers’ backlists, it occupies a position of singular importance to almost every publisher.

Amazon may already be a bigger account for most publishers but that doesn’t change B&N’s unique importance. So it is not surprising that publishers obsess about the chain’s financial and operational health. And although I am still skeptical that their demise — or even a rapid shrinkage — is imminent, the consequences whenever it were to come to pass would be industry-changing.

. . . .

Of broader interest is the impact Amazon is having on all retailers. So many of them — Sears, JC Penney, Macy’s — are very obviously struggling. This year alone, we’ve seen stories about the death of department stores and other retailers from the Atlantic, Business Insider (citing Warren Buffet as their expert), and Time, among many others. Borders is gone. Radio Shack is gone. And then last week came the word that Toys R Us is filing for bankruptcy. So Barnes & Noble’s struggles are within a context that goes way beyond them and way beyond the book business.

. . . .

The current story attributes Best Buy’s success to the obvious tactic of matching Amazon’s prices and to soft factors like being quiet about cutting costs (so as not to panic the employees) and “staying humble”. But the one single operational change Best Buy made to enhance their competitive position actually demonstrates why Amazon has the advantage over them and everybody else. And why that is not likely to change.

The operational change Best Buy made was to use their distributed store inventory to ship online orders received centrally. The Times piece highlights the reduction in delivery time to customers that can be achieved by shipping from one of the 1000 stores that is closer to the purchaser than a warehouse with the same product. In fact, that’s only one of at least three advantages. The most significant is that they are undoubtedly able to fill orders with stock on store shelves that they would have lost completely by not having stock of the same item in a warehouse. The other is a much more efficient, and therefore profitable, use of their inventory. They effectively need less stock to fill more orders.

Link to the rest at The Shatzkin Files

PG says the history of retail stores in the US is one of more efficient and better-managed upstarts putting established retailers out of business. Why? Because customers liked the newer retail idea better than the old one.

Montgomery Ward, Sears (barely not dead), A&P, Marshall Field, Wanamaker’s, Gimbels, Eaton’s in Canada, Jacobson’s, Bamberger’s, Bullocks,  I. Magnin, Joseph Magnin,  and Carson Pirie Scott immediately come to PG’s mind. They disappeared because their customers went somewhere else.

Since Walmart was founded in 1962, it has put thousands of retailers out of business, including many small retailers in small towns.  And don’t forget how many bookstores that Barnes & Noble and Borders forced to close.

In each of these cases, customers voted with their dollars. Today, millions of people say, “I like Amazon better than Walmart” and “I like Amazon better than Barnes & Noble.” And spend accordingly.

Economic freedom in action.

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