Disruptive Innovation

Stability in the book marketplace does not mean commercial publishers continue to maintain their share

14 December 2017

From veteran publishing consultant Mike Shatzkin:

Publishing reporters doing wrap up stories occasionally call me for impressions. From those conversations I have gleaned that the prevailing impression of where the book business is now is of “stability”. The consensus about adult trade is that ebook sales have stalled or perhaps even receded, that print is strong, and that the big publishers have beaten back the threat of disruption from indies that a few short years ago seemed like a massive threat.

But while that picture has accurate aspects, it is really incomplete. The world of commercial publishing — even factoring in the growth in juvie books and audio — is shrinking more slowly than it was a few years ago, but it is still shrinking. One “tell” is that Amazon doesn’t believe ebook sales are reducing, they see them growing. Part of that is that Kindle is taking market share from all the other ebook platforms (except possibly Apple iBooks, at the moment). Part of that is that Kindle has titles nobody else has, as some self-publishing entities just use the dominant platform and skip the rest. Part of that is that Kindle doesn’t just sell ebooks; it provides subscription access through Kindle Unlimited that in the aggregate logs a lot of eyeball hours. And almost no big publisher commercial content is included in Kindle Unlimited.

. . . .

The impression that big publishing is shrinking has anecdotal support. S&S CEO Carolyn Reidy . . . recently acknowledged that romance fiction had become very challenging for conventional publishers. Of course, genre fiction is precisely the area where indie authors and Kindle Unlimited have made the biggest inroads.

. . . .

But while maintaining ebook prices well north of ten dollars may be what Barnes & Noble and indie bookstores need to keep selling printed books, those prices cut publishers off from growing chunks of the market that prefer to choose from the wealth of much cheaper books on offer from indie authors and smaller, often digital-first, publishers.

. . . .

The under-reported media story of the 21st century is how well book publishers have adapted to their new world, better than their counterparts in any other print content business. Top line revenue for the majors is flat or shrinking slightly, but profits have been maintained. One big reason for that is that returns go down as sales move online, and print sales are now in the neighborhood of half online. Profitability in these circumstances underscores the point that Amazon is the most profitable account for just about every publisher. It moves half or more of the books, requires minimal staffing to cover, and has, by normal standards, very low returns.

The challenge, of course, is that Amazon has no interest in being publishers’ most profitable account. Amazon does everything they can to claw back margin from publishers and always has a looming threat with their own publishing program, which at any time could reconsider the idea it abandoned a few years ago of going after big trade books outside the genres.

Link to the rest at The Shatzkin Files

PG was a little hard on Mike Shatzkin in his last TPV comments that referenced one of Mike’s posts.

The process of a particular style of creative destruction, described as disruptive innovation by now-famous Harvard Business School professor Clayton Christensen in his 1997 book, The Innovator’s Dilemma, is something PG has observed over and over, primarily among technology companies, but not limited to that business sphere.

PG is not alone in his appreciation for Professor Christensen. The Innovator’s Dilemma has been included on countless lists of the best business books of all time. See, for example, herehere, here, and here.

A few of the victims of disruptive innovation in the technology world, a space with which PG is quite familiar, include names that were once dominant in their industries: Kodak, Nokia, Blackberry, Wang, Sun, Lotus, WordPerfect, Borland, and Novell, to name just a few.

Disruptive innovation has impacts far beyond traditional technology companies, however.

Apropos of the bookstore world, major retail companies and industries based upon people coming into physical spaces to purchase products have either disappeared or are disappearing in the face of technology innovations including, but not limited to Amazon’s. See, for example:  Sears, Montgomery Ward, Macy’s, KMart, Blockbuster and Borders.

More than 300 retailers have filed for bankruptcy this year, including Gymboree, The Limited, Radio Shack (again) and discount shoestore chain, Payless ShoeSource.

According to Time, 1,500 shopping malls were built in the U.S. between 1956 and 2005, but, today, these great retail inventions of the latter part of the 20th century, are closing down at an increasingly rapid pace. Between 2010 and 2013, mall visits during the holiday season, the busiest shopping time of the year, dropped by 50%.

There are still about 1,100 malls in the U.S. today, but a quarter of them are at risk of closing over the next five years, according to estimates from Credit Suisse. Other analysts predict the number of malls closing be even higher.

Again, in Time:

A growing number of Americans, however, don’t see the need to go to any Macy’s at all. Our digital lives are frictionless and ruthlessly efficient, with retail and romance available at a click. Malls were designed for leisure, abundance, ambling. You parked and planned to spend some time. Today, much of that time has been given over to busier lives and second jobs and apps that let you swipe right instead of haunt the food court. Malls, says Harvard business professor Leonard Schlesinger, “were built for patterns of social interaction that increasingly don’t exist.”

PG says bookstores aren’t special retail snowflakes. The forces impacting malls are no different in their effect on physical bookstores. The only remaining major US physical retail outlet for list-price hardcover/paperback books is, of course, Barnes & Noble. Borders has already disappeared as have B. Dalton, Coles, Crown Books, Hastings, Krochs & Brentanos, Mediaplay and Waldenbooks.

PG suggests that three categories of disruptive change are impacting the traditional book business:

  1. Ecommerce
  2. Ebooks
  3. Profitable self-publishing via Kindle Direct

If ecommerce alone is enough to radically change the world for many physical retailers, imagine what two additional disruptive developments will do to traditional publishers and retail outlets for books.

Mike notes a fourth major development in the OP: Amazon is the most profitable place for major publishers to sell books.

Viewed properly, ebooks are a gift from heaven for traditional publishing profits:

  1. Create and upload a digital file to Amazon and other ebook outlets.
  2. Periodically check to see how much money arrived via bank transfers.

Yet Amazon is traditional publishing’s Great Satan because (with no malice that PG has observed) Amazon is changing power dynamics in publishing.

For one thing, Amazon likes to sell things at low prices, lower than prices charged anywhere else, including other places where books are sold.

For a second thing, one of Amazon’s earliest decisions was to make it easy for authors to self-publish both ebooks and POD paperbacks. Amazon also made it profitable for a great many authors to self publish through royalty structures that are vastly more beneficial to authors than those in traditional publishing contracts.

Easy and profitable. What’s not to like?

In the OP, Mike quotes the S&S CEO as admitting that romance books “had become very challenging for conventional publishers.”

Well, of course.

Why? (besides easy and profitable)

Romance authors have traditionally been treated in a disrespectful and condescending manner by a great many mainstream publishers. Since romance has always (or at least for a long time) sold large numbers of books to loyal readers, PG has wondered why. Perhaps it’s a perceived social or class thing. Publishers may regard romance as a necessary evil of their business, not deserving of the star treatment they provide for authors writing about more respectable characters and subjects, the kind of people who would have attended Wellesley.

Perhaps as a result of past disrespect which has toughened them up, a lot of smart women who write romance were happy to give KDP and other epublishing platforms a try. The computers didn’t care if you attended Wellesley or not, plus ebooks paid a lot better, you were in control and could write as many books as you wanted to. Plus, your readers had no problems locating and purchasing your books without dealing with sometimes-arrogant book store employees.

Amazon hearts romance authors. What’s not to like about that?

(No offence is intended toward Wellesley graduates, whether they write romance or not. PG’s grandmother graduated from Wellesley a very long time ago. She was a very nice person with a college friend she called Bunny.)

In PG’s surpassingly humble opinion, a variety of poor business decisions extending over many years have made it likely that an increasing number of traditional publishers will cease to be profitable in the foreseeable future. Poor profitability has been masked in recent years through a large number of mergers and acquisitions, but eventually that solution will dry up.

When a traditional publisher runs into financial trouble and is acquired by an investment bank or some other entity with a modicum of financial acumen, guess what’s going to happen.

  1. Costs of the newly-acquired publishing business will be examined in detail with particular attention being paid to potential cost savings.
  2. Sources of income will be examined with their fully-loaded costs, including personnel costs associated with each stream of income, to determine their true profitability.
  3. The new owners will determine that ebooks are by far the most profitable part of the publishing business.
  4. The new owners will determine that a huge number of expenses are tied to printed book operations, including a large portion of the firm’s overall personnel expenses and costs of third-party service providers that enable printed book operations.
  5. The new owners will attempt to outsource tasks performed in-house such as editing and as much of the content acquisition labor as possible.
  6. Layoffs, including elimination of layers of management no longer needed in the leaner publishing organization, will be a rational step for new owners who want to harvest income from the publisher.
  7. If the real costs of print books cannot be reduced enough to reach target profitability, print prices will be increased.
  8. If print can’t be made profitable, print rights will be sold to the highest bidder and further layoffs will follow.

Needless to say, all the changes in traditional publishing directed by the new owners will result in substantial anxiety for a great many traditionally-published authors. At a minimum, after selling off remaining stocks of an author’s print books, future print runs will either be substantially reduced or eliminated, depending upon the profitability of the individual author’s print titles when considering all associated costs.

If financial analysis causes a traditionally-published author to fall into the harvesting profits bin, he/she will be a line on a computer ledger and all expenses associated with the author’s books will be cut to bare minimums.

Circling back to Barnes & Noble, PG’s assessment is that the company is coasting along, riding modest waves of print customers who are coming to Barnes & Noble as more and more meatspace retail outlets for physical books disappear. PG reads some of the transcripts of quarterly earnings calls for BN and has observed the quality of top management decline under the revolving-door CEO direction of Mr. Riggio. PG suggests that it is unlikely for any salvational innovation to appear from this group of employees.

In PG’s earnestly humble opinion, Barnes & Noble will either collapse a la Borders or transition into the hands of financial types who deal in distressed businesses a la Sears.

The Future Of Retail In The Age Of Amazon

27 November 2017

From Fast Company:

The Mall of America’s terrazzo floors, glazed white like doughnut frosting, ribbon out in every direction, creating a vast mirror maze of consumerism with 520 glassy storefronts. Shoppers, who have escaped an endlessly gray Bloomington, Minnesota, sky on a Monday morning in October, drift through the largest mall in the United States like tourists at an Atlantic City buffet. A couple holding hands strolls into a Zales while buttery perfumes emanate from an Auntie Anne’s next door. Kids and some willing parents fling around on the SpongeBob SquarePants Rock Bottom Plunge roller coaster, one of 27 rides at the Nickelodeon-branded amusement park on-site. Distant echoes of saxophone Muzak clash with both elevator whirs and bubbly pop songs. Somewhere in this otherworldly commercial expanse are five Lids stores and four Sunglass Huts.

When the mall opened, in 1992, it represented the pinnacle of retail convenience and a mecca for young people to gather and spend. But the $650 million megamall was always “vaguely unreal . . . exuding the ambience of a monstrous hallucination,” as novelist David Guterson described it in a 1993 Harper’sarticle, calling it “monolithic and imposing.” Two years later, Jeff Bezos launched his online book marketplace, which quickly grew into a new type of Everything Store, one that fundamentally redefined the shopping experience and led some to argue that commercial centers like the Mall of America would become gaudy relics of an antiquated era.

Now, Wall Street analysts say, the retail apocalypse is upon us. Amazon dominates e-commerce and has gobbled up 5% of total U.S. retail sales. Some expect that the company will own half the online market within the next five years, a period during which, Credit Suisse predicts, a quarter of all malls will close. By the end of this year, more than 8,600 stores will have shuttered in 2017, the worst year on record.

But here’s the thing about the Mall of America: It’s fighting back. “I hear all this doom and gloom in the industry,” says the mall’s SVP of business development, Jill Renslow, with an upbeat, Midwestern delivery. “I’m like, ‘Folks! Keep your chin up! There’s so much opportunity!’ ” The mall completed a $325 million expansion in 2015, says Renslow, who started working there as an intern in the mid-1990s and has seen it endure recessions and upheaval before. A new 342-room JW Marriott has opened upstairs, and retailers like Zara and Anthropologie are being lured to the space.

. . . .

“Amazon alone isn’t holding the knife,” says NYU Stern professor of marketing Scott Galloway, who studies the retail industry. Cultural tastes have changed. Malls grew too quickly, at twice the rate of the population, from 1970 to 2015. Many retailers succumbed to quarterly earnings pressures, invested in share buybacks rather than their stores, became saddled with private-equity debt, or failed to keep pace with digital trends. What we’re seeing now, industry executives say, is a rational, albeit painful, course correction.

. . . .

“Retail is under huge pressure, but the death of stores is greatly exaggerated,” says Galloway, who believes that while Amazon will continue to disrupt the market, an increasing number of competitors will discover new ways to respond. “In the age of Amazon, retailers must leverage assets that [Bezos] doesn’t have: When Amazon zigs, retailers must zag.”

. . . .

Target’s digital efforts continue to lag. When Mulligan takes me to the back to show off the redesigned storeroom, I don’t see any floor-roaming robots or automated conveyer belts, despite the fact that Target has stated that it plans to use its more than 1,800 stores as fulfillment centers (80% of the U.S. population lives within 10 miles of a Target). Instead, I find just one store clerk manually taping cardboard boxes for in-store pickup. Later, when I arrive to retrieve a $14.99 Goodfellow Henley shirt I purchased via Target’s app, the cashier asks for my ID because the flagship store’s smartphone scanner is broken. When I test Target’s new curbside-pickup service to buy paper towels, it fails at three consecutive outlets within the Minneapolis area. Ultimately, I give up.

Link to the rest at Fast Company

The evolution of the media landscape (and why you probably won’t finish this article)

19 November 2017

From Method:

At a time when many sectors are ripe for disruption, the publishing industry has been doubly affected. Not only is publishing itself being disrupted by new technology, media and changing consumption habits, but the advertising industry, on which it has relied for so long for a business model, is also under disruption. Failure to act quickly and foresee these changes has left publishing searching for a viable alternative model.

It’s a race to the bottom where eyeballs and clicks are the prizes. Fake news, bot-generated articles, echo chambers and walled gardens make up this new media landscape. How did we get here and how can we expect things to evolve next?

. . . .

While the printing press has benefited from improvements and technological advances over the years, from mechanization to digital presses, the most drastic innovation in publishing came with the advent of the World Wide Web. Where Gutenberg had made the replication of content possible, the Web democratized the distribution, lowering the barrier to the access of information further than ever before.

. . . .

[W]e are now at a point where the Web is instant, pervasive and has more content than anyone could ever consume in a number of lifetimes. Yet the publishing industry is still wrestling with some fundamental questions: How do we profit from published content? How do we uphold quality and integrity amid a tidal wave of user (and bot) generated content? How do we ensure that readers can still have shared experiences rather than retreat into tailored, targeted, personalized bubbles?

. . . .

Content is becoming more and more disposable and nowhere is this more visible than in the advertising-driven sites vying for the eyeballs and clicks of the low attention span reader. The 24-hour news cycle has made us hungry for stories throughout the day, we demand an endless stream of news. With this constant barrage of content, inevitably quality and due diligence fact checking often suffer in the rush to output more and more stories. The fight for clicks is a race to the bottom in terms of quality and this can be seen in successful sites like Buzzfeed and the Mail Online — now the most popular news website in the world.

Link to the rest at Method

MIT researchers trained AI to write horror stories based on 140,000 Reddit posts

3 November 2017

From Quartz:

Sometimes the scariest place to be is your own mind. Or Reddit at night.

Shelley is an AI program that generates the beginnings of horror stories, and it’s trained by original horror fiction posted to Reddit. Designed by researchers from MIT Media Lab, Shelley launched on Twitter on Oct. 21.

The team behind Shelley is hoping to learn more about how machines can evoke emotional responses in humans. “The rapid progress in the field of Artificial Intelligence (AI) has people worried about everything from mass unemployment to the annihilation of the human race at the hand of evil robots,” writes researcher Iyad Rahwan by email. “We know that AI terrifies us in the abstract sense. But can AI scare us in the immediate, visceral sense?”

Shelley, named after Frankenstein author Mary Shelley, is interactive. After the program tweets a few opening lines, it asks people on Twitter to continue the story, and if the story is popular, it responds to those responses.

Using information from 140,000 stories from Reddit’s r/nosleep, Shelley produces story beginnings that range in creepiness, and in quality

. . . .

[S]ome of Shelley’s stories contain dread of a more existential sort:

I started breathing heavily, and waited for whatever it was to happen. I never saw it, because it drove me insane, I couldn’t move. All I could do was stand there, wide eyed, and stared at the wall, screaming at the top of my lungs, but the words were loud and I couldn’t take it anymore.

Link to the rest at Quartz and thanks to HG for the tip.

What to expect from the new Digital Book World

19 October 2017

As background information, the Digital Book World Conference has been sold to Score Publishing. This post is written by the CEO of Score.

From Talking New Media:

We live in a world where everyone individually, and every organization collectively, is a publisher. Whether it’s full-blown books, or case studies and white papers, or long-form content on the web, audio content like audiobooks and podcasts, multi-modal content like interactive books and mixed-media works, and much more. We’re a publisher nation.

Digital Book World has a rich legacy of influence and impact. We will be making a variety of changes that will seek to build on this foundation of success.

In the weeks and months to come, we will be reaching out far and wide to partner with anyone and everyone we believe has value to the vast community of publishers. Expect to see some surprising and valuable alliances as we re-tool DBW.

. . . .

Publishers right now are trying to decipher how best to bring existing content into a world where people interact with computers with their voice first, and keyboards and screens second. Amidst a raft of technologies impacting old media and new media which we’ll explore at Digital Book World, this sea change to voice computing – yes, led by Amazon – will sit front and center.

Link to the rest at Talking New Media

PG has attended an enormous number of conferences and conventions, including many gatherings of lawyers and technology folk.

He has received valuable information from the legal gatherings although most of his continuing legal education these days is online, usually in the form of recorded talks by lawyers and panel discussions of lawyers provided at various physical conferences and gatherings. Speakers are almost universally comprised of a few highly-specialized attorneys. Some of these sessions are provided entirely online with no associated physical gathering.

Depending upon the technology, there is often a lot more show instead of just telling at technology conferences. For example the Adobe MAX conference, sponsored by the creators of Photoshop, Lightroom and a zillion other products focused on visual creativity is happening right now.

Suffice to say, the visuals at the Adobe conference are more interesting than a table with a white tablecloth behind which a few men and women in business dress are sitting, which is the typical visual element at virtually all lawyers’ conferences. 99% of Powerpoint presentations in such settings are boring and the rest have goofy animations, transitions, etc., that a 14-year-old could improve.

However, major keynotes and new product announcements – typically the biggest draws at a tech conference – are usually streamed live and recorded for later viewing at no cost. For PG’s level of engagement with Adobe, those provide all the information he might be seeking plus much more without attending the conference.

PG has attended a handful of conferences for authors/publishers and, based on that limited experience, suggests that these conferences are visually and structurally, very similar to legal conferences (and even worse than some legal conferences). He hasn’t seen anything like the show Adobe presents.

The reason that the Digital Book World conference has been sold by its prior owner is that conference attendance fees plus fees charged to vendors to set up booths, tables, etc., don’t cover the costs of putting on a conference. PG won’t bore you with the details, but costs are substantial, particularly if the conference takes place in a serious conference setting like San Francisco, New York or Las Vegas.

Most of the revenue a conference like Digital Book World will receive likely comes from attendees who aren’t paying their own way, like publishing executives and employees, plus the afore-mentioned vendors who want to sell products and services to publishers and, to a lesser extent, authors.

What the sale of Digital Book World tells PG is that the complacency of traditional publishers toward ebook sales means those publishers have less interest in cool new ebook technology. At a fundamental level, a publisher needs to convert an electronic manuscript into an ebook and send the resulting file to Amazon, Apple, etc. That conversion probably takes place at the same time the physical books are typeset and is a low-cost offshoot of that operation. That’s pretty much the end of modern digital technology in their operations.

The idea that large publishers would be interested in cool new types of ebooks supported by innovative tech was always a long-shot. Remember, publishers are run mostly by English majors and accountants. Any tech innovators who might have mistakenly believed they had a potential career bringing publishers into the digital age have left for greener pastures by now.

PG says a technology conference for traditional publishing is on about the same level as a technology conference for beekeepers.

 

Is This The Death Of Retail As We Know It?

2 October 2017

From Seeking Alpha:

The tremendous ructions occurring in the retail industry continue and are gaining momentum at a tremendous pace as Amazon and the rapid growth of e-commerce progresses. Already the number of bankruptcies in the retail industry for 2017 thus far have exceeded all of 2016 and there are signs of more to come.

Indeed, even retailers typically perceived to be resistant to the disruptive influence of Amazon and the rapid growth in popularity of e-commerce have proven vulnerable.

The Oracle of Omaha Warren Buffett considered by many to be the world’s greatest investor also chose to weigh in on the debate earlier this year, stating at the Berkshire Hathaway annual meeting:

The department store is online now, . . .

There are a range of signals which indicate that it is only going to get worse for traditional bricks-and-mortar retailing which makes it foolish for investors to consider investing in the industry.

. . . .

North American retailers are filing for bankruptcy at a record rate this year. According to industry data over 35 retailers in the U.S. alone have filed for bankruptcy this year with some of the standout names being Toys R Us, Payless ShoeSource and Radio Shack. It isn’t the first time for Radio Shack, it filed for bankruptcy protection just a little over two years ago because of similar problems including a challenging operating environment, rising competition and dwindling sales.

. . . .

The bad news doesn’t stop there, many major department store chains focused on cutting costs by reducing their operational footprint through store closures because the unprecedented competition created by e-commerce and Amazon has left very few other options.

One-time industry leader Sears is aggressively closing stores in a desperate bid to survive. The embattled retailer closed 180 stores during the fiscal year 2017 and plans to close another 150 by the end of its fiscal third quarter which amounts to roughly 10% of its remaining Sears and Kmart locations. For the second quarter revenue fell by a deeply worrying 23% year over year while comparable store sales declined 11.5%.

. . . .

Department store chain J.C.Penney which saw second quarter comparable store sales slip by 1.3% year over year doesn’t appear to be much healthier. It has also embarked on an ambitious restructuring strategy which involves closing 138 stores over coming months.

. . . .

Long-time industry stalwart Macy’s is also planning to close 88 stores and layoff thousands of employees.

. . . .

According to the report grocery shopping’s transition to online will occur at a far more rapid rate than other industries that have already done so such as banking or media because of a greater acceptance of e-commerce among consumers.

Younger, newer and more engaged digital shoppers adopt digital technologies more quickly, and will hasten the expansion of digital grocery shopping further.

. . . .

In a stunning revelation of just how fast e-commerce sales will grow, the National Retail Federation has forecast that as a proportion of total retail sales they will expand by 8% to 12% annually. This is around three-times greater than total retail sales, indicating that e-commerce’s share of total retail sales will grow at a rapid clip.

. . . .

For the reasons discussed investing in bricks-and-mortar retailers is becoming increasingly unappealing and risky. The depth and breadth of the industry’s transformation coupled with rapidly changing technology as well as an increasing appetite among consumers to accept technological changes places almost every bricks-and-mortar retailer under threat.

Link to the rest at Seeking Alpha

PG notes that some of the recent discussions about Barnes & Noble on TPV, have tended to focus on physical bookstores vs. Amazon as an isolated battle.

As indicated by the OP here and in many other posts on TPV, the movement from bricks & mortar to online sales is a megatrend affecting all sorts of different retailers. If people buy children’s clothing online instead of going to Target and small appliances online instead of going to Sears and office supplies online instead of going to Staples, why would books be any different?

There is one additional factor that does make books special, but not in a way that benefits Barnes & Noble and other physical bookstores.

PG is not aware of eclothing or eappliances, but he and many others are regular consumers of ebooks.

Due to a combination of disastrous decisions by management and incredible ignorance of ecommerce and all other things internet, Barnes & Noble squandered the opportunity to leverage its brand and relationship with millions of longtime Barnes & Noble customers into a dominating online store for ebooks (very high profit margins once properly-designed infrastructure is in place) and physical books.

Competent management of any b&m bookstore chain should have looked at ebooks as a wonderful source of increased revenues and profits. Instead of supporting a business structure to deal with thousands of poorly-paid store employees managed by hundreds of not much better paid store managers, a relative handful of well-compensated technical, design and marketing employees located in one place could have generated expanding revenues with consistently higher profit margins.

PG appears to be suffering from an attack of run-on sentences today, so he will stop. The blindness of the entire traditional book business to the opportunities for online sales, particularly of ebooks, is prime fodder for dozens of business school lectures, case studies and discussions for decades.

Google Offers Hand to News Publishers

2 October 2017

From The Wall Street Journal:

Google is rolling out a package of new policies and services to help news publishers increase subscriptions, a move likely to warm its icy relationship with some of the biggest critics of its power over the internet.

Google said it will end this week its decade-old “first click free” policy that required news websites to give readers free access to articles from Google’s search results. The policy upset publishers that require subscriptions, believing it undercut their efforts to get readers to pay for news.

Google, a unit of Alphabet Inc., said it also plans tools to help increase subscriptions, including enabling users to log in with their Google passwords to simplify the subscription process and sharing user data with news organizations to better target potential subscribers.

With billions of people using its search, YouTube and other web properties, Google has an outsize influence on a wealth of industries and modern society.

. . . .

The new publisher rules are good news for the print industry, which has largely struggled to convert its business model to the internet as print advertising sales have plummeted in the digital age. Google and Facebook dominate the internet ad industry, and news organizations are increasingly reliant on those two tech giants for web traffic. Google says it drives 10 billion clicks a month to publishers’ sites.

Some newspapers even asked Congress this year to exempt them from antitrust laws so they could negotiate collectively with the tech giants.

. . . .

“We really recognize the transition to digital for publishers hasn’t been easy,” Google Chief Business Officer Philipp Schindler said in an interview. He said a strong news industry boosts the utility of Google search and helps Google’s ad business, which sells ads on news sites. “The economics are pretty clear: If publishers aren’t successful, we can’t be successful.”

. . . .

Kinsey Wilson, the former executive editor of USA Today who now advises New York Times Co. , said publishers must be careful about letting Google be the middleman to its readers. “Google can remove some friction,” he said, “but publishers have to stay vigilant.”

Link to the rest at The Wall Street Journal

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.

What the “Book People” Won’t Tell You: Print is Dead

18 September 2017

From The Digital Reader:

I have been writing about industry trends in bits and pieces in each news story, but it has been a long while since I last pulled everything together, took a step back, and told you what I see.

I can sum it up in a single sentence: The major publishers are dead because they bet against digital, which is the future.

The thing about the major publishers is that they thought they could make the market go where they wanted.

They didn’t want ebooks to cannibalize print sales, so they conspired with Apple in early 2010 to bring about the Agency model. Then they doubled down on their bet with Agency 2.0, and hedged that bet by sabotaging subscription ebook services like Scribd and Oyster by saddling them with nonviable business models.

It is now 2017, and book publishing is in the later stages of a transition to digital.

. . . .

The major publishers bet against digital, and they continue to do so, and it is going to kill them in the long run. In fact, we can see them die bit by bit. First they dropped mid-list authors, then they started dropping best-selling authors.

Link to the rest at The Digital Reader

PG thinks the illegal collusion between the big publishers to force Amazon to set higher prices for ebooks was an important milestone on their path to suicide. They got together in various New York restaurants to engage in face-to-face groupthink.

Here’s a summary from Wikipedia:

The Publisher Defendants sold over 48% of all e-books in the U.S. in the first quarter of 2010. The Publisher Defendants along with Random House Publishing are the six largest publishers in the United States (collectively the Publishers) and are often referred to as the “Big Six” in the publishing industry. In 2009 Amazon.com Inc. had nearly 90% of the e-books industry. Amazon charged $9.99 for certain new releases and bestselling e-books which helped make it the market leader in the sale of e-books and e-readers with its Kindle.

Amazon’s price point caused discontent among the Publishers. The Publishers believed that the low price point was a problem for their sales of more profitable hardcover books. Approximately every three months, the CEOs of the Big Six would meet in private dining rooms in New York restaurants “without counsel or assistant present, in order to discuss the common challenges they faced, including most prominently Amazon’s pricing policies.” The Publishers used several different strategies to fight against Amazon’s pricing point, including selling e-books for the same price as their printed version through a continued wholesale model and “windowing” new releases. Windowing is a tactic that would delay the release of books to their e-book form for a certain window of time.

. . . .

Amazon sent a letter to the Federal Trade Commission complaining about the simultaneous nature of the demands for agency model agreements from the Publishers who had signed with Apple. By March, Amazon had completed agency agreements with four of the five publishers. During the negotiations over the agreements, the publishers would talk with each other and share information about what Amazon would concede with each. Apple was closely following all of this progress and Cue was in contact with the publishers. Following Amazon’s move to agency amounted to “an average per unit e-book retail price increase of 14.2% for their new releases, 42.7% for their NYT Bestsellers, and 18.6% across all of the Publisher Defendants’ e-books.”[2] The Publishers also raised the price of some of their New Release hardcover books so as to move the e-book versions into a correspondingly higher price tier. Amazon saw Random House (who for the moment had not joined Apple) e-book sales having an increase of 41%. Two studies showed that the Publishers who moved to agency model sold over 10% fewer units at major retailers. In contrast, other publishers’ sales increased 5.4% in the same period. In January 2011 Random House also moved to the agency model and raised the prices of its e-books, and then experienced a decline in its e-book sales. This allowed Random House to join the iBookstore.

. . . .

Beginning on December 8, 2009, Apple’s senior VP of Internet Software and Services, Eddy Cue, contacted the Publishers to set up meetings for the following week. During the meetings Cue suggested that Apple would sell the majority of e-books between $9.99 and $14.99, with new releases being $12.99 to $14.99. Apple also adopted the agency model which it used in its App Store for distribution of e-books. This let Publishers control the price of the e-books with Apple receiving a 30% commission. Apple also set up price tiers for different books. Apple also included a MFN clause in their contract with the Publishers which allowed for Apple to sell e-book at its competitors’ lowest price.

. . . .

On the day of the launch, Jobs was asked by a reporter why people would pay $14.99 for a book in the iBookstore when they could purchase it for $9.99 from Amazon. In response Jobs stated that “The price will be the same… Publishers are actually withholding their books from Amazon because they are not happy.”[2] By stating this, Jobs acknowledged his understanding that the Publishers would raise e-book prices and that Apple would not have to face any competition from Amazon on price.

This collusion between the top executives of five out of the (then) six major US publishers to destroy Amazon’s pricing model for ebooks helped accelerate the development of anti-Amazon/anti-ebooks groupthink throughout Big Publishing.

Later, when the Justice Department charged these publishers with illegal anti-competitive behavior and publicly humiliated their management by requiring an admission of guilt and forcing monetary settlements, the anti-Amazon/anti-ebook sentiment blossomed into something of an industry-wide psychosis.

Publishing couldn’t live without Amazon and hated the company even more for their dependence upon it.

When Borders, the second largest bookstore chain in the US, went bankrupt in 2011, that shocking event should have set alarm bells ringing in CEO offices of every publisher.

The second-largest bricks-and-mortar customer for every major US publisher had just imploded. Perhaps it was time for some new thinking? Would the future be a lot different than the past? What a silly thought.

Borders would have been happy to sell its assets to virtually any willing purchaser, but smart money was not interested. Neither was dumb money and about 650 retail bookstores in the US just disappeared.

At the time of the Borders bankruptcy, reporters and business writers (often relying on traditional publishing sources) concluded that Borders had made a big mistake by working with Amazon to sell ebooks. On the other hand, Barnes & Noble was brilliant because it had spent lots of money to build up its Nook business as a viable competitor to Amazon’s Kindle.

Amazon Derangement Syndrome was running rampant through the publishing business and that, combined with widespread ignorance of technology among management, blinded them to a simple fact that was evident to anyone with an ounce of internet savvy: Amazon was much, much better at selling books (and a lot of other things) online than Barnes & Noble and the gap between the two organizations was growing at a rapid pace.

The traditional book industry and its convoy of pet pundits have not gotten any part of selling online right for well over ten years and show no indication that anything is going to change in the next ten years (to be clear, PG is not predicting that Big Publishing has ten more years ahead of it).

Barnes & Noble is running on fumes. Whether it continues to sink into the sunset or suddenly implodes won’t impact the overall trajectory of the retail book business. It’s dying. At this point, even if Barnes & Noble were able to hire talented management, PG thinks it’s too late for that to make a difference.

When Barnes & Noble is gone, what’s left for legacy publishing? A bunch of mom and pop bookstores. There may be some fancier moms and pops in Manhattan and Washington DC, but they’re all small businesses with tiny profit margins.

PG ran out of time before he could bloviate about traditionally-published authors heading for the exits and hedge funds taking over management of the gazillion legacy publishing contracts which represent the only value of Big Publishing.

Building our new house

13 September 2017

From Medium:

I was struck by Jeff Jarvis’s recent polemic, ‘If I ran a newspaper…’ published on Medium.

In it, he quoted an unnamed editor’s description of the predicament he — and many of us — find ourselves in:

“We have two houses. One is on fire and the other isn’t built yet. So our problem is that we have to fight the flames in the old house at the same time we’re trying to figure out how to build the new one.”

He was, of course, describing the rock-and-a-hard place dilemma that’s beset legacy media brands for more than a decade now: We know print is declining fast, and the future’s digital, but the problem is most of our revenues are still in the former, and the latter will never generate the money we made back in the day.

I’ve lived in this cleft stick for most of my career. The legendary ‘tipping point’ is still talked about hypothetically years after it should have become a reality for more of this country’s legacy media — particularly in the regions. The tipping point comes when your digital revenue growth offsets your print revenue decline. Rather than waiting reluctantly for it to happen — or indeed trying to postpone it — we should have been doing everything to make it happen on our terms. Unfortunately, I think the industry dragged its feet for too long.

. . . .

We announced this week that we are creating a new, standalone and sustainable digital business that could be a model for similar enterprises across the UK and beyond.

At the heart of the new operation is a digital-only newsroom forged from the team that has made BirminghamMail.co.uk the fastest-growing regional news website in the UK for much of the past year. Thanks to my team’s efforts, we reach more than 50% of Brummies every week, and now we want to reach even more with our new approach.

At the same time, we want the new model to be completely self-sustainable, achieving a profit driven by programmatic and solus digital advertising, and not over-dependent on print upsell from legacy clients. There’ll be whole new revenue streams, too.

The new newsroom will be more than digital-first; it will be digital only.

. . . .

When you lose pounds in print, you only ever get pennies back online / we’ll never make enough money to have a newsroom as big as it was ten years ago.

True(ish), and true. Sadly, we know the future requires the business to be leaner and more flexible than we are now, and despite years of seemingly endless restructures and job losses, we will have to make further reductions. We are building the new model by asking the question: “What size newsroom can we afford, given what we know about our current and future digital scale, how much programmatic revenue we get, and how much new digital revenue we think is out there in the market?”.

Link to the rest at Medium

PG says the OP describes a constructive way to deal with disruptive innovation. “What would my business look like if I was starting it from scratch today?” It’s a much better management strategy than, “How can I preserve my existing business when the economics of the market it serves have completely changed?”

The more common strategy of downsizing, then downsizing some more, then further downsizing is self-defeating in the extreme.

  1. Employee morale tanks and stays tanked with deleterious effects on the enterprise.
  2. Talented new people who might like the idea of working in a particular business stay away because of justified skepticism about the long-term future of the business and a rational desire to avoid a sinking ship.
  3. The talent level of new hires is lower than that of veteran employees.
  4. Existing employees who can leave do leave, taking their experience and abilities with them.
  5. The percentage of staff who stay with the business because they can’t get a job elsewhere skyrockets.

PG considers himself typical of many traditional readers of printed newspapers.

Growing up, he pretty much read every newspaper that arrived in his home cover to cover every day. When he commuted to work by train, he bought and read one newspaper in the morning and another in the evening.

(Yes, my young friends, in large cities, some newspapers published every morning and others published every afternoon. Chicago had four major daily papers, two morning and two afternoon, plus at least a half-dozen other dailys devoted to particular audiences, African-Americans, for one example.)

When he didn’t commute via mass transit, PG had at least one daily newspaper delivered to his home, usually two.

A couple of years ago, PG observed many issues of the two daily papers he received were piling up, largely or completely unread. He stopped The Wall Street Journal, but still pays for access to the entire digital edition.

At first, he kept his subscription to the local daily paper because he has always wanted to support local news organizations. However, when a week or two would pass without him reading any physical papers, he quit renewing that subscription as well.

Perhaps based upon years of habit, PG’s delivery person has continued to drop the local daily on his driveway, despite PG not having paid for a subscription for several months. PG has wondered if the paper’s management is trying to artificially pump up its subscription numbers.

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