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The Big Five (2017 in Review)

4 January 2018

From Kristine Kathryn Rusch:

In the fall of 2017, the CEO of Penguin Random House, Markus Dohle, gave a rousing, optimistic speech about the future of publishing at Frankfurt Book Fair. Some of what he said was directed at the trade, but some of it was in code, and much of it pointed to the direction that traditional publishing will take in the next five years.

Dohle’s speech discusses the new phase, in some depth, in fact. He said,

…we have relatively stable business models for selling and delivering print and e-books to readers. Amazon’s Kindle will be celebrating its tenth birthday next month. The Kindle launch in November 2007 marked a breakthrough for digital books in the mass market. The business model for e-books was “in flux” for some years, to put it mildly, especially in the large Anglo-American markets. After some disruption and a lengthy lawsuit in the U.S., we have had a widespread business model, in terms of media content, for the past two years…

I love it when business people put a positive spin on ugly. “In flux” indeed. And “a lengthy lawsuit,” as if his company had nothing to do with it.

. . . .

The Big Five publishers have a completely different problem with their profits than other traditional publishers. The Big Five answer to international conglomerates, which means that the Big Five need to generate profits for their corporate overlords. Depending on the setup of the conglomerate, those profits must appear on a quarterly or biannual basis.

And in certain corporate environments, those profits must show an annual upward trend. (A few even demand an upward quarterly trend, which truly stifles innovation.)

So the business setup is different for the Big Five than it is for other, smaller traditional publishers. And when I say smaller traditional publishers, I mean publishers who generate tens of millions of dollars in annual revenue.  These companies aren’t part of an international conglomerate but are either closely held corporations or family businesses.

A smaller traditional publisher has its own corporate culture which usually comes from the owner or board of directors. The owners are knowable, and the focus of the company understandable.

. . . .

In his speech, Dohle said this about traditional publishing:

The fundamental challenge posed by the digital transformation is the change from a B2B-oriented, publisher to bookstore publishing industry to one that is B2C-oriented (publisher to reader). In an online-dominated world, we publishers must become more reader-centric and we need to establish a direct connection with the reader.

Let’s move this out of corporate speak into real people speak, shall we? What he means is that traditional publishing’s focus used to be all about selling its product to other businesses—generally to bookstores or large distribution companies. All of traditional publishing’s marketing was geared toward getting those businesses to carry that publishing house’s books. It was up to the bookstore to sell the books to consumers.

Now, Dohle says, traditional publishers must communicate directly with the reader. They’re stymied about how to do that, since most of these companies haven’t done anything like it in corporate memory.

But a Business-to-Consumer (B2C) model doesn’t work in the kind of corporate environment that the Big Five are in. B2C models generally require slow build, with lots of focus on the consumer experience. B2C models often sustain heavy losses, sometimes for years, as the company builds its reputation (which cannot change on a whim) and then eventually makes small profits which (one hopes) turns into large profits.

I don’t see how these Big Five publishers can make the shift to B2C. In fact, I don’t think they can, not with their overall business structure.

. . . .

I think he’s telling the employees at Penguin Random House that they need to figure out how to change to a B2C model, so that they can increase sales, while he and others in the company are working on a completely different way of increasing profits.

He alludes to that different way in this part of his speech:

Furthermore, every good film and every good television series is based on a good story, and in most cases, those stories begin with a great book. Hollywood’s thirst for stories, from established studios as well as new players in the business—among them Netflix, Amazon and Apple, Hulu, Facebook and Google—has never been greater than it is today. And each iteration of a story as a film or a TV series increases sales of the original story, namely, in the form of the book.

Just before that quote, he had talked about the growth in audio books and how audio books harken back to having stories read to us as children or listening to tale told over the camp fire.

What he does not mention is that these sub-rights are on his mind, and in his negotiating strategies.

In December, Alice Luytens, a literary agent and the audio rights manager at Curtis Brown, wrote in The Bookseller that the publishing deals for audio rights have changed in the past three years.  She has seen what she calls “a significant drop in separate/independent audio rights deals.”

She writes,

This is not because the market is shrinking or offering fewer options. Far from it. It is because book publishers now believe that audio rights are “part of the package.” I do not altogether agree. Audio rights and e-book rights are not the same. … They utilize different skills and are created for an audience not limited to the reading public. So why are we in a position where we are pressured to lump together two distinct sets of rights into one package?

She asks an excellent question at the end of that quote, and means the question almost rhetorically. While her entire article points out a problem for writers (and, in theory, agents), it also shows a lack of understanding as to why these deals are changing, and changing rapidly.

The money in super-large traditional book publishing no longer comes from straight book sales. If you look at the sales figures for the big bestsellers, they’re abysmal compared with just ten years ago.

To prep for these posts, I went through months of Publisher’s Weekly, which showed the BookScan numbers, and found that books by writers like John Grisham and Stephen King were selling monthly what they used to sell on a weekly basis.

Now, these sales numbers did not include ebooks, as Publisher’s Weekly happily pointed out, but those tradionally published ebook sales numbers have gone down dramatically as prices have gone up. Traditional publishing has bitched about declining ebook sales all year.

. . . .

But that paper-to-ebook shift means that Grisham and the other big name writers are making significantly less money. They don’t generally receive a percentage of cover price on ebooks; they receive part of the net profits (unless they had a really savvy agent/lawyer way aback when). Those profits fluctuate.

And the profits fluctuate for the traditional publishers too. Because it’s become harder and harder to funnel readers into a handful of books. There has been a leveling in publishing. The mountain peaks of the bestsellers have become hills as people find other books to their tastes.

. . . .

Dohle has been complaining for years that discoverability is getting harder, and he’s right. For traditional publishing, which had a stranglehold on what was published, the open floodgates of indie publishing have been a complete nightmare.

. . . .

But the Big Five publishers have to be making their money somewhere. Right now, they’re making it by cutting back on expenses and employees, and on how much they publish.

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Big Publishing, Kristine Kathryn Rusch

8 Comments to “The Big Five (2017 in Review)”

  1. Minor point about Dohle and the Agency conspiracy: he truly wasn’t part of the lawsuit.

    He was a party to the planning from the beginning but he kept Random House out of Agency for months until Penguin’s pressure campaign (using Apple and B&N as proxies) shifted to Bertelsmann and then RH toed the party line. Shortly afterwards Pearson sold Penguin and the price fixing hardliners took control of both.

    Now, when it comes to the stupidity that is Agency Part Deux he has no defense.

  2. To prep for these posts, I went through months of Publisher’s Weekly, which showed the BookScan numbers, and found that books by writers like John Grisham and Stephen King were selling monthly what they used to sell on a weekly basis.

    I’m a bit confused as to whether this means Grisham and King’s popularity is waning, or if they can legitimately serve as a proxy for best-selling authors. If the latter it sure sounds like you can sell a heck of a lot fewer books these days and get onto the various bestseller lists.

    • What is being reported is slower release window sales.

      This can mean a lot of different things: that they’re not as popular, people aren’t rushing to buy their books, the bulk of their fans are buying them in ebook form or waiting for mass market, piracy is really hurting them…

      There are a variety of bulk trends reducing total BPH sales but those trends don’t affect every author and every title exactly the same way.

      For example, $15 ebook prices will absolutely drive away a big segment of the market but it is more likely to scare off readers of a midlister than a fan of a big name author while, on the other hand, a less popular author will be pirated less than a King or a Grisham.

      The damage of these slower sales is twofold: because big name releases are supposed to be high volume events that draw in lots of buyers and generate coattail sales, stores are typically flooded with their books so lower release window sales will either generate large return volumes or require a longer release window, keeping the books longer on the front tables and coop-supported displays. And since there’s only so much payola-supported shelf space, if King and Grisham tie it up for longer periods there won’t be any left for “lesser” authors.

      In the end it doesn’t matter if the name author is selling the same or more units if it is taking two or three times as long to move the print run. Lower sales velocity means higher costs and reduced profits.

    • KKR can probably give you a much better reply, but it’s my understanding that you need to sell a lot fewer books to get in the best seller lists than was once the case. I guess the test is whether a Grisham or King new release makes the lists in the same way as they used to do.

  3. before Dohle, there were a series of the Mohn family appointees to run RH/Bertalsmann. They were out of touch with reality, and were not innocent bystanders of the price fixing etc. Dohle, like his predecessors has only experience in risk management in all its many guises, including protecting his own job. He doesnt work for the authors, or the editors, or the bookstores. He works for the Mohn family in Germany.

    It would be interesting with P-RH’s many holdings overseas as well as domestically, what their tangled monkey-house of domestic tax structures look like. With so much money leaving the usa, it seems like paying tribute to the ‘king and queen far away’ when/if one publishes with P-RH or some of the others.

    From inside both P and RH, if you listened into the staff meetings of the princes and off with their heads queens of publishing, you would think you were at a meat cutting/butcher convening, not a ompany that wants to bring edu and entertainment and fascinating work to readers.

    Readers? Really? If P-RH knew the readers they would publish FAR more deeply and broadly. They dont see readers with hearts and minds. THey only see pocket books that happen to have ‘a reader’ attached.

    Moving units is the only goal.

    They coulda been contenders and also allied with care of the reader, and care of the authors. Instead, authors are seen as pesky necessities. Except when they are not any longer ‘useable.’

  4. IP exploitation is a B2B strategy anyway: only instead of focusing on B&N and Ingram as their customer their intended customers are Hollywood producers.
    It plays to their strengths in contract drafting and shark to shark negotiation.

    In that context, getting out of cozies makes sense for the randy Penguin because these days the only video client for cozies is HALLMARK and they have their own suppliers in place.

    One big problem with the strategy is that the Hollywood sharks aren’t impressed by “NYT Bestseller” and they practice their own form of disintermediation by going after the creators of the IP. Indies included.

    Hollywood isn’t looking to partner with the BPHs but to bypass them.

    As for authors, if dealing with the BPHs is risky business, dealing with Hollywood is sleeping with great white sharks.
    Seller beware.

    • Its safe to say that they aren’t PRIMARILY interested in “NYT Bestsellers”. But they are most definitely interested in IP that already has a large enough built-in platform they can exploit. That most definitely has a spot on their P&Ls when figuring out if a movie is worth doing.

      • And they know better than to buy NYT bestseller hype. There’s more to exploitable IP than launch window sales.

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