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Temperature check from two US CEOs at Frankfurt 2017

22 November 2017

From veteran publishing consultant Mike Shatzkin:

It is no surprise that the public remarks at Frankfurt by Penguin Random House CEO Markus Dohle and Simon & Schuster CEO Carolyn Reidy contain gems worth pondering. Book publishing has been fortunate to have really smart people leading the biggest companies during our period of digital transition. The apparent collusion over the implementation of agency pricing — which is itself proving to be a mixed blessing — was definitely a collective setback and has to be seen as a very big mistake (that I didn’t see that way at the time.) But, for the most part, book publishers have done very well in a time of great turmoil, certainly better than other publishers of print or any other big media from the 20th century.

Now we have settled into a period of apparent stability. The two big shifts that were big challenges to navigate — from printed books to digital books and from in-store purchase to online purchase of the content — are no longer occurring at a dizzying pace. From the commercial publisher’s perspective, the ebook market is flat or declining and the print book share is holding its own.

. . . .

Dohle’s speech delivered virtually unqualified optimism. He is jubilant about the stability in the market with print holding an 80% share. (He takes a dig at the fact that prognosticators would have predicted that it could be ebooks that would hold the 80% share by now.

. . . .

Dohle points out that his company is now publishing John Green’s follow-up to “The Fault in Our Stars”. I’m sure his marketers will tell him that they’re aiming for lots of adult readers with their efforts, whatever the original intentions of the author were about the audience.

. . . .

Two observations from [Simon & Schuster CEO Carolyn] Reidy seemed extremely important to take on board. One is that self-publishing is taking a growing share of the market. She characterized the self-publishing share in America as “huge, no matter what statistics you use.” And the companion observation should be a wake-up call to publishers. As she was quoted by Michael Cader in Publishers Lunch:

“The romance market, which used to be huge in mass market, has pretty much dried up and gone to digital original. [And] it has put pressure on pricing of all ebooks…. Those are consumers who, if they wanted a book, they used to come to us, and now they go elsewhere.”

. . . .

The other elephant in the room which got no mention, as near as I can see, from either CEO, is Amazon. That growth in print sales that publishers are so happy about was given a huge boost by Amazon shifting promotional dollars from ebook-discounting to print-discounting when Agency forced them to reconsider their strategy.

. . . .

The growth of sales at Amazon presents a number of potential challenges to the big houses. It means that their biggest trading partner will push them for more margin. It means that the channel with the growth is one where big publishers don’t have an automatic advantage because of size. And, if the print sales being boosted in relation to digital is because Amazon’s pricing strategy can whipsaw the consumer in that way, it can also reverse itself if Amazon decides to change its strategy.

Link to the rest at The Shatzkin Files

One additional point PG would add, the biggest elephant in Big Publishing’s room, is that Barnes & Noble is going to disappear.

Whether it continues to disappear slowly (Barnes and Noble has been closing 15-20 bookstores annually in the US for the last ten years) or if it collapses all at once (like Borders did seven years ago when 511 Borders superstores and 175 stores in the Waldenbooks Specialty Retail division closed and, within a few weeks, disappeared into bankruptcy court).

If Big Publishing continues to hitch its wagon to hard copy books, it will be relying upon a retail distribution network that becomes more mom and pop with each passing year.

A major marketing push for a new title through Barnes & Noble can be a powerful tool in launching books for big publishers. Doing the same thing through a bunch of  shops run by Fred and Ethel that carry inventories perhaps 20% of the size (at best) of a typical Barnes & Noble is a whole different story.

Amazon, Big Publishing, Bookstores, PG's Thoughts (such as they are)

27 Comments to “Temperature check from two US CEOs at Frankfurt 2017”

  1. One thing I never see anyone mention is how stagnant the b&m book market seems to be. Maybe it’s because of where I see books when I’m out shopping–the grocery store and Walmart and occasionally Barnes & Noble if I’m in a mood to be deeply disappointed. (There aren’t any indie bookstores left in my area.) All I see are the same names and books I’ve been seeing for the past ten or fifteen years. Grisham, Patterson, Roberts, Childs, the same old thing, month after month. There’s more variety in the egg case.

    Even if I suddenly refused to buy books online and returned to reading print only, where do publishers expect me to find books to buy?

    • Dexter von Dexterdorf

      Publishers want you to be limited to the Grisham, Patterson, Roberts, Childs so that they can better concentrate their expenses on their bestsellers. Sit down and take what they offer you and be grateful they let you read at all, peasant.

    • Even if I suddenly refused to buy books online and returned to reading print only, where do publishers expect me to find books to buy?

      They expect you to return to Amazon.

  2. “Doing the same thing through a bunch of shops run by Fred and Ethel that carry inventories perhaps 20% of the size (at best) of a typical Barnes & Noble is a whole different story.”

    And they’d have to sell/ship/handle returns to all those little shops, rather than one big push at B&N.

    “And, if the print sales being boosted in relation to digital is because Amazon’s pricing strategy can whipsaw the consumer in that way, it can also reverse itself if Amazon decides to change its strategy.”

    Which they did just last year Mickie, didn’t you get the memo? The penned trad-pub writers were publicly whining about Amazon reducing their book discounts.

    I myself am waiting for Amazon to put that little ‘price set by the publisher’ on those hard/paper back books – oh how the publishers will howl! 😉

  3. “That growth in print sales that publishers are so happy about was given a huge boost by Amazon shifting promotional dollars from ebook-discounting to print-discounting when Agency forced them to reconsider their strategy.”
    “And, if the print sales being boosted in relation to digital is because Amazon’s pricing strategy can whipsaw the consumer in that way, it can also reverse itself if Amazon decides to change its strategy.”
    These two statements might be another culprit why the e-Book sales are dropping through the floor. At least for me. Anyone else are seeing drop in sales?

  4. “It is no surprise that the public remarks at Frankfurt by Penguin Random House CEO Markus Dohle and Simon & Schuster CEO Carolyn Reidy contain gems worth pondering. Book publishing has been fortunate to have really smart people leading the biggest companies during our period of digital transition.”

    Yo, Mike, you need to wipe that brown stuff off your nose.

    • Book publishing has been fortunate to have really smart people leading the biggest companies during our period of digital transition.

      Liberals think that smart is good. I’m smart. Really smart. Means nothing.

      What I look for in a leader is vision and heart and persistence. Book publishing — no gots.

      • @ antares

        “What I look for in a leader is vision and heart and persistence. Book publishing — no gots.”

        They got no smarts, either. That’s obvious. Smart people are cognizant of reality, not denying it.

        • I suppose I would ask what reality is being denied by publishers? What don’t they know that independent authors know?

          What should they know that they do not know? And if they become aware of it, what specific action should they take?

          What should their objective be? Suppose their objective for themselves differs from the objective authors want them to have? Is that a problem? For whom? Should we care? Why?

  5. Only in publishing do execs brag about forcing down sales of their high margin product as low as possible to hold sales of their lowest margin product as high as possible.

    • If cross-elasticity yields greater profits, then they do indeed have something to brag about.

      • But since their own reports show no significant profit increase and significant loss of market share and market power their reactionary strategies are buying them nothing of value.

        If the BPHs were publicly owned corporations those execs would’ve been fired years ago.

        • They are managing decline. Profits aren’t going to have a significant increase, but they can be maximized. Part of that is paying close attention to cross elasticity among different product lines.

          The competitive advantage publishers had is steadily eroding. It is shifting to others. That’s the fundamental force behind publishers’ decline.

          Managing in a declining market is very different from managing in a growing market. There is a tendency to criticize companies for not acting as they would in a growing market. But acting like it’s a growing market would only accelerate the decline.

          • The thing is the market as a whole isn’t declining.
            What is declining is the BPH market and it is declining because of their own strategies and misdeeds.

            People are buying more books than ever. They’re just not buying their books because they are managong tp maximize per unit margon onstead of managing to maxomize profit.

            • That should be: “maximize unit gross instead of managing to maximize volume and profit.”

              Just because you can rationalize a strategy doesn’t mean it is the right strategy for the times.

            • The market is indeed not in decline. Market share is shifting as competitive advantage shifts. So, we have a sector with declining market share in an industry with a growing market.

              That’s a sector in decline, and that’s what the publishers have to manage. The competitive advantage they had is production and distribution of paper books, and they did a great job at that. They filled the world with books. Nobody did it better.

              Any author who wanted widespread distribution had to use publishers. Any consumer who wanted a large and varied selection of books had to buy from them.

              But, what is their competitive advantage today? Authors can get wide distribution without publishers, and consumers can access it without publishers.

              This is a segment in decline, and maximizing profits in decline demands very different strategies than maximizing in growth.

              The external environment is bullish on books, but bearish on publishers. Authors presume publishers have one objective, while publishers have another. So authors judge publishers based on the presumption that publishers accept the objectives authors have selected for them. They don’t.

    • https://www.publishersweekly.com/pw/by-topic/international/Frankfurt-Book-Fair/article/75092-frankfurt-book-fair-2017-penguin-random-house-ceo-markus-dohle-s-full-remarks.html

      Third, we have achieved a healthy coexistence between print and digital books. Who would have imagined that, in 2017, we would be observing an 80:20 split among those formats globally? You might say that many so called “experts” predicted the split five years ago. But the split that experts and other observers were predicting was that 80% of all books sold today would be digital. Many were even predicting the death of print books.

      Yet today’s reality shows that the relationship is exactly the opposite. Sales of the most popular e-books by traditional publishers have declined in the last three years in the major Anglo-American markets. In many European countries, e-book sales are stagnating; in emerging markets, revenue and sales are growing more slowly in the digital segment than expected. In fact, print books have experienced a veritable renaissance. This is having a massive stabilizing effect on physical retail. And we need to preserve a diverse retail landscape if we want to ultimately sustain the diversity of stories, opinions, and ideas in book form.

      (emphasis mine)

      translation: “Those Amazon market share numbers are terrifying!”

      • . Sales of the most popular e-books by traditional publishers have declined in the last three years in the major Anglo-American markets.

        People on the traditional side have recently taken to qualifying their statements about eBook sales. Now we hear about slowing or stagnant eBook sales from “traditional publishers.” Not too long ago we rarely saw the qualifier.

      • Those two quotes taken in that order are actually a pretty damning indictment of their schemes.

        They aren’t just losing sales, they are losing the avid readers and relevance: as Reidy said, those lost readers aren’t coming back. And the losses aren’t stopping with romance. Other genres are going that way too, in varying degrees.

        Their obsessive attempts to control distribution channels is running counter to market needs and the best interests of readers and the market is steadily punishing them for it.

        They really don’t appreciate the role of avid readers in generating front list buzz and are shocked that even top sellers are coming in at ever lower levels.

        • And the losses aren’t stopping with romance. Other genres are going that way too, in varying degrees.

          Sure they will. Neither authors nor consumers need the publishers for these books. Consumer and author indifference follows. That is the unkindest fate of all.

    • *Slow clap* for publishing genius.

  6. “The romance market, which used to be huge in mass market, has pretty much dried up and gone to digital original. [And] it has put pressure on pricing of all ebooks…. Those are consumers who, if they wanted a book, they used to come to us, and now they go elsewhere.”

    As someone who wrote romances (as well as mysteries) for many years, I found this observation fascinating.

    Although there have always been wonderfully supportive editors, in my opinion most publishers were dismissive of romance novels and novelists. For example, when authors cried out to write paranormal stories, publishers refused to buy them. These have become huge sellers in digital/self publishing.

    Many of us wrote fun, charming, well-crafted love stories that were published by category houses such as Harlequin. Although the romance buyer at Borders was very helpful, many other bookstores did not carry most Harlequins. They were sold primarily by subscription. I am now regaining rights and reissuing these as ebooks, finding a whole new market.

    I don’t have any brilliant insights for the publishing industry or bricks-and-mortar bookstores of today. Telling them to respect midlist and genre authors is (pardon the cliche) a ship that has sailed. Too bad. I miss browsing in person.

    • Browsing in your pj’s is a lot more fun 🙂

    • >most publishers were dismissive of romance novels and novelists.

      This always blew me away. Everyone in publishing (who was paying attention) has long known that the Romance genre accounted for over 40% of sales in the industry. Forty percent! Not only is that a huge audience, it’s money! That they would dump all over such a large customer base is just more evidence of cluelessness at a very deep level, imo.

  7. Oh, my. I’ve been turning an alternate universe tale around in my head recently.

    Idea aborted even before conception. I’ll never compete with the likes of Mike Shatzkin in that genre.

  8. Barnes & Noble had 705 stores in 2011, and now has 633 stores in the United States, according to this website: https://www.statista.com/statistics/199012/number-of-barnes-noble-stores-by-type-and-year-since-2005/

    When you look at the graph, you do not see a collapse. Maybe it’s not a reliable site, though.

    • The number of open stores isn’t the best indicator of B&N weakness because their stores are tied to long term leases. It also says nothing about the productivity of the stores in $/square foot.

      A good indicator is the percentage of stores that *aren’t* being closed when their leases expire. (Hint: low)

      A better indicator is the amount of shelf space no longer dedicated to books and repurposed to toys, trinkets, and even restaurant space. All in an attempt to bring in traffic.(Hint: a lot)

      The best indicator is the fraction of all consumer books still being sold via B&N. At their peak, eight after Borders was pushed into liquidation, they held a 35% share. These days it is less than half that and Shatzkin himself expects them to hit single digits by the time they hit bankruptcy.

      B&N’s problems are due precisely to those stores and their size. If they had good management they would have long ago filed for chapter 11 protection to get out from under those leases. As is they are very s-l-o-w-l-y replacing a few of the closed stores with much smaller stores. Given the size of the problem, downsizing a few stores a year isn’t doing much for their bottom line.

      There I still plenty of room in the market for B&M bookstores but not for 600 of those big B&N stores. Their primary customer base these days is looking for new releases not backlist so a more realistic mix would be 50 big stores and 500 B. Dalton size/format booktiques like the larger airport newsstands and, ahem, AmazonBooks.

      B&N needs to let go of the big store business model or they’ll die with it.

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