Mike Shatzkin

A great step forward by Sourcebooks which we expect other publishers will imitate

29 April 2016

From veteran publishing consultant Mike Shatzkin:

Since I started working with Peter McCarthy, he has been impressing me with the importance of publishers doing “research” in the digital age, by which he means“audience research” done with a variety of online tools. That audience research should inform what publishers do to market their books by identifying, segmenting, locating, and understanding the potential buyers for those books. That enables publishers to “aim” their marketing efforts where they are likely to do the most good.

. . . .

What we were already beginning to see then (and more since) is that many publishers, and by now most of the big ones, have created an executive position with the word “audience” in the title or job description. The responsibilities to address audiences required research as a prerequisite, but it has seldom been framed that way.

This week we were delighted to see that Sourcebooks, a legitimate contender for the title of “most innovative company in book publishing”, has created a “data and analysis” department. As reported by Shelf Awareness in its newsletter (and also reported by Publishers Marketplace and Publishers Weekly):

Sourcebooks has created a data and analysis department that brings together “experts from supply chain, editorial, and sales” to streamline data functions and offer a higher level of analytical support to departments, partners and customers.

The only part about this that is disappointing is that the word “research” is not in the department name or description. But the separate department to specialize in “data and analysis” is exactly what we were advocating when we called for creation of research departments.

It is important to keep the connection between “data and analysis” and “research” in mind because, historically, “data and analysis” in publishing have meant “post mortem analysis” of specific marketing efforts. Indeed, many publishers have “analytics” roles already, but they are not cross-functional and they tend to be focused on analysis of time-honored activities, not applying new techniques on audiences as is enabled in the digital age.

As an industry, we have usually used “data and analysis” to measure the effectiveness of prior activities rather than to understand what we’re aiming at in the future. Being explicit about the fact that “research” is the core function means you are also being explicit that the primary purpose of that function is to aim future efforts, not evaluate the successes or failures of prior ones. Research is seeking to be predictive as well as to inform rapid response to an ever-changing landscape. With most of their existing capabilities and activities, in Pete’s words, “publishers don’t look out; they don’t look forward; and they don’t look ‘big’”.

. . . .

We applaud the Sourcebooks approach to staffing their data and analysis group, which acknowledged that “editorial, sales, and supply chain” needed to participate.

Link to the rest at The Shatzkin Files

PG was going to “comment” about “research” but decided not to.

 

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If the industry is changing, publishing house structures, processes, and budgets need to change too

18 March 2016

From veteran publishing consultant Mike Shatzkin:

A thought kept recurring — one I’ve written about before — while I was learning new stuff at Digital Book World last week. The structure of publishing houses and of the publishing process as it has developed over the past century make some of the challenges and opportunities of publishing in the emerging digital era very hard to address for publishers operating at any degree of scale.

One example arose from the incredibly insightful presentation from Author Earnings’ Data Guy. As most readers of this blog know, Data Guy is the pseudonym for an author-cum-analyst who scrapes the sites of book retailers, starting with Amazon, and breaks down the sales of ebooks (and now print books too) looking for insights. One of the most compelling Data Guy insights shown in what he presented at DBW is the importance of “introductory” pricing for debut authors. What DG’s data strongly suggests is that the odds of a debut author breaking through are increased dramatically by having very-low ebook pricing.

That’s quite a challenge for a conventional publisher who has a one-book-plus-option deal with a debut author. Making money becomes very much more difficult if ebook prices are lowered dramatically. Doing that would almost certainly also require that the print edition for the debut be a trade paperback, not a hardcover, or the stores would feel really disadvantaged by the edition they had to carry. So to adopt this as a strategy, publishers would have to sign all debut authors to contracts for two (or more) books, so the debut could be seen as a loss-leader with a later opportunity to cash in.

Otherwise, the publisher takes a loss on the debut book and then, even with an option, has to bid against other publishers if the debut is commercially successful (which does not mean it necessarily “made money”).

. . . .

Here’s another takeaway from DBW that requires structure changes at publishers. The “transforming” publishers often cited the need to create consumer-facing brands to work for them. Mary Ann Naples mentioned it as part of Rodale’s strategy. Dominique Raccah’s Sourcebooks has created “Put Me In the Story” and “Simple Truths” to appeal directly to consumers, while not trying to make Sourcebooks a consumer brand at all. Marcus Leaver is in the process of reorganizing Quarto around verticals and nesting them in the “Quarto Knows” rubric to create a public face that is logical for consumers.

Publishers need to come to grips with this. Publishing brands — house names and imprints — have always cultivated their B2B reputations. They are about impressing bookstore buyers, library collection developers, reviewers, and authors. They are not about selling to the public. Yet imprints that are not audience-centric are still being created, and most big houses have books for the same or similar audiences housed in different imprints. It certainly won’t always be possible to create new brands that are also new businesses, as Sourcebooks has done (once from a standing start and once by acquisition) and which Quarto may ultimately aspire to do with Quarto Knows. But all houses need to be rethinking their imprint and presentation structures, as well as tailoring their acquisition decisions to fit an audience-centric strategy.

Another point Mary Ann Naples made, citing a speech that Dominique Raccah made a couple of DBWs ago, is that experimentation and failure are a critical requirement for success. One wonders how many of our biggest publishers — which are, after all, corporations seeking profits and measuring their sales and margins quarter-by-quarter — have built that understanding into their internal scorecards. It seems doubtful that employees of big houses are encouraged to try things that might very well not work and then take the learnings on to a next experiment.

Link to the rest at The Shatzkin Files and thanks to Jan for the tip.

Walking back the assumptions that were the basis of the last post

1 March 2016

From veteran publishing consultant Mike Shatzkin:

In the few days since the last post here about Big Five publishers and agency pricing, I have been challenged on two specific points by comments sent privately. Both of these comments are right and therefore lead to this corrective post.

One powerful literary agent, who is inevitably informed by publishers about negotiations that affect the selling prices of ebooks (which, in turn, affect the author royalty), tells me that I have the whole motivation thing on agency backwards. It may have started six years ago as a way for publishers to control the prices of ebooks across the supply chain, so something they were “imposing” on Amazon. But that turned around. It became a way for Amazon to guarantee that they would get a full margin on all agency publishers’ ebook sales (because publishers could lower the ebook price, but the stipulated agency percentage would not be affected). So, in the recent negotiations, the big publishers had no choice about sticking with agency. Amazon insisted that they stick with agency.

The grapevine, although not this agent, also says that the original 70-30 split of revenues that agency began with has been revised in the recent contracts so that Amazon gets a wee bit more than 30 percent. I can’t verify that although, in time, agents should be able to see that picture clearly.

I have had no conversations with any friends in big houses during the recent agency negotiations. The sensitivity around those negotiations, given that they started because of the DoJ’s involvement, was very high. But now I’m being told by people in a position to know that four of the five big publishers think agency has been a big mistake. As one observer sees it, it has bled 25% out of digital sales that have been replaced by physical, resulting in an increased share for Amazon of the print portion of publishers’ businesses.

As it was put to me by one observer, agency in 2010 was a strategy; by 2015 it was a surrender.

. . . .

It turns out that the real story of “agency pricing today” is that Amazon demonstrated dazzling marketplace power by keeping all the big publishers on agency terms. And all of the changes in the marketplace, including the degree by which the divison sales within Big Five houses between print and digital may have tilted in favor of print, probably work in Amazon’s favor.

Link to the rest at Mike Shatzkin and thanks to Jan for the tip.

PG has no doubt Mike was told the stories he describes, but PG says it would be contrary to the way Amazon does business with everyone else. Mike’s agent friend says, “It became a way for Amazon to guarantee that they would get a full margin on all agency publishers’ ebook sales.”

Since when has Amazon been obsessed with margin? For years, the big knock on Amazon was that it was too focused on revenue growth while sacrificing profits.

In what other vertical market does Amazon impose a pricing regimen that guarantees retail prices will be substantially higher than they were under the previous pricing system?

It’s impossible for anyone, including PG, to know whether Amazon pushes hard for best prices for all its multitudes of products, but for every product PG has ever priced, Amazon prices were almost always better than he found anywhere else online.

PG did a quick check of the prices of the ebook versions of several New York Times hardback bestsellers on Amazon, Kobo and Nook. The ebook prices were identical on each platform. There was no price advantage to buying these big-selling tradpub ebooks on Amazon.

So this is Amazon’s big book business power play: Negotiate pricing that guarantees Amazon will never offer lower ebook prices than readers can find anywhere else on the web? Give up the competitive advantage of low prices?

Perhaps you could concoct a conspiracy theory that Amazon is plotting to drive Big Publishing into bankruptcy by forcing high ebook prices which cause Big Publishing ebook sales to drop through the floor. Conspiracy theories are fun, but PG thinks Amazon has much better things to do with its time, talent and money than plotting the demise of anyone smaller than Walmart.

Books are just not that central to Amazon any more. The revenues Amazon generates from sales of Big Publishing titles becomes less and less important to Amazon every year. The latest estimate PG has seen (2014) says overall book sales represented 7% of Amazon’s revenue.

Given what Author Earnings has shown us, we know that indie ebook sales make up a large portion of that 7%. Small and medium-sized publishers account for a big chunk of the rest. So Big Publishing products (hard cover and ebooks) are 2-3% of Amazon’s total revenues?

And dropping.

Year over year growth in other parts of Amazon is much larger than year over year growth in the book market.

PG is not privy to Amazon’s inside analyses of the future of the book industry, but he would not be surprised if Amazon agreed with him: Trade publishers are toast over the next 3-7 years and Big Publishing is toast burned black. On both sides.

But PG could be wrong. It happens sometimes.

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Mike Shatzkin, e-publishing guru

27 February 2016

An interview with Mike Shatzkin from TeleRead:

T: Where do you land on the topic of physical Amazon bookstores? Do you really think they’re gunning for 400 brick-and-mortar locations? What are the possible anti-trust ramification of that? And other things. You’ve heard a rumor that B&N may kill the Nook in the UK–could it next fade away in the U.S. And what would that mean, in possible antitrust terms?

MS: I am not an expert in anti-trust, but we’re featuring one named Jonathan Kanter at DBW so we’ll get answers to those questions. I think a rollout of Amazon stores—who knows what number—makes a lot of strategic and logistical sense for Amazon. B&N’s new Chief Digital Officer is speaking at DBW too. I expect he will talk about the future of the Nook. It must always have been hard for them to operate Nook outside the US. Their big competitive advantage was controlling their own stores. And they don’t control any outside the US.

T: One of the big topics at DBW is “transformation.” What are some of the companies that seem to evolving well with the changing marketplace, and what attributes do they share? Have the big publishing companies done enough to transform in this marketplace or is there greater room for them to change? In what areas?

MS: Ingram is the outstanding example of a company that has transformed. They are earning half their margin or more from businesses they didn’t have two decades ago. The other companies we’re featuring are large and small, new and old. They are Rodale, Sourcebooks, Quarto, John Wiley, Houghton Mifflin Harcourt, NetGalley, and Diversion Books. We define transformation as a dramatic change in business model or revenue sources. The Big Five have not really transformed. They are continuing with basically the same business model. Sourcebooks, for example, has built an entire new business of customized children’s books. I can’t think of any initiative from a Big Five house that is comparable transformative.

I still believe the big transformations to come are around “verticals”, topics of interest. There has been real movement on that front from big houses as marketing initiatives. But they haven’t built the verticals into new business models or free-standing profit centers. I think that might be something to look for in the next few years.

T: How keen are you at this point on publishers selling directly to consumers? Who’s doing it best, and what are they successful at it?

MS: I think it is ultimately a necessary capability, but not a transformative one. Publishers will never succeed selling most of their books directly. But the tools to do this are becoming so easy and ubiquitous that it is hard to see how all of them can continue to avoid it. Right now the big publishers are doing a lot to have direct contact with consumers without necessarily owning the transaction. I think all of the Big Five are doing something: vertical communities, email blasts promoting discounted ebooks, and increasingly coaching authors to be helpful marketing partners. But there’s a lot of room for “more” on all these fronts from all the big houses.

. . . .

T: How do you feel about the future of public libraries? Will there be a place for them 20 year from now, and if so, what will it be?

MS: I really have a hard time understanding how public libraries make commercial sense in a mostly ebook world. If you can go to one website and get the ebook for free and at another you have to pay for it or for access to it, why wouldn’t you always choose “free”? Free public print libraries always had “friction”: you had to go get the book and you had to go take it back. AND ownership had a benefit: a physical object you could lend, write in, or use to decorate your shelves. All of this goes away with ebooks. You can see publishers struggling with this now with high library prices and loan cap rules, for example. As the infrastructure gets built out, I see the conflict becoming more and more difficult to manage.

Link to the rest at TeleRead

If Amazon pricing of ebooks is the problem, is agency actually the right solution?

26 February 2016

From veteran publishing consultant Mike Shatzkin:

In the past week, I’ve had conversations with leading executives at two of Amazon’s competitors in the ebook space. They had strikingly different takes on whether the agency pricing regime, which is now in place by contract with all five of the biggest trade publishers, helps keep competitive balance in the ebook marketplace or prevents it.

Agency pricing was promulgated by Apple for the opening of the iBookstore in 2010. What it meant was that publishers would set a price that was “enforced” across the retail network. Apple liked this because it meant both that they didn’t have to price-compete with Amazon and because they didn’t have to think about pricing hundreds of thousands of items on a daily basis. (And it fit the model Apple used to sell other media.) Publishers liked it because they feared the erosion of print sales that cheap ebooks might lead to and because it seemed that level prices might reduce what was then Amazon’s stranglehold on the ebook market.

. . . .

Now the big publishers have replaced the original agency agreements with new ones that appear satisfactory to the court because they were obviously separately negotiated. And the new ones seem to allow at least some of them more flexibility to set and enforce higher prices than the numbers in the original Apple-promulgated deals. And all of that has led to a reconfigured marketplace.

The good news for the publishers is that print sales erosion — at least for the moment — seems to have been stopped. (Print sales started to grow even before “new Agency”; when higher prices hit the ebook market, print was immediately assisted.) A variety of industry and company sales statistics seem persuasive on that point. The percentage of revenues coming from ebooks for big publishers has declined and the sales of print have risen. And there is even some anecdotal evidence suggesting that bookstore retail shelf space is increasing again. Even if that is true, it is an open question whether it is sustainable, or whether it is a delayed and temporary marketplace response to the shuttering of 400 giant Borders stores, which occurred in 2011. Bookstores might also be helped by the diminishing book shelf space at mass merchants, a venue where print continues to lose ground.

But there is also some good news for Amazon in how all this has worked out. Their market share on the ebook side is rising. Their margins on the ebook side must have gone up even more, since they’re being “forced” to keep the margin they earn on Big Five ebook sales. (Wouldn’t it be ironic if Amazon’s internal calculations are that they can afford more losses on their Kindle Unlimited subscription program because of the margin they’re earning on the Big Five single-title sales? We can only guess…) And certainly Amazon benefits from the increased sales of print.

In fact, they could be partly responsible for it. All the searches on Amazon for Big Five books show an agency-priced ebook with a highly-discounted print book, often cheaper than the ebook, alongside of it. How much of the print book sales increase is due to the reaction of consumers being presented with that choice?

. . . .

Only Barnes & Noble can even attempt to meaningfully compete with Amazon in this environment. The price-sensitive book consumer needs to see both the ebook and the print book to make a wise purchasing decision. They won’t see that at Kobo, Google, or Apple’s iBookstore.

So competing with Amazon on price is confined to B&N on print and confined to non-agency titles — which means only a sliver of the bestseller list — for everybody else. So, is everybody happy? Publishers are selling more print, which they wanted. There’s growth in the indie store base, which publishers also wanted. But Amazon continues to grow market share in relation to Barnes & Noble and now threatens to open bookstores to compete with B&N and the indies. And that is most definitely not what publishers wanted.

. . . .

What this executive believes is that price-cutting as a way to recruit customers is a fool’s errand. The customers who come aboard for a cheap deal will abandon you just as fast for somebody else’s cheap deal. They don’t stick. On the other hand, offering pricing advantages based on customer loyalty is a better bet. This player thinks that having agency in the market makes it easier to hold onto customers once a platform has acquired them. As evidence, that person pointed to the loss of market share by Nook that occurred once the DoJ restored discounting under agency.

Link to the rest at The Shatzkin Files

Mike has some very good observations in this column.

On the other hand, PG wonders if anyone in Big Publishing understands a single thing about disruptive technological innovations and their impact on legacy products and legacy producers.

Trying to manipulate pricing and customers to preserve printed book sales is a fool’s errand. The future of books is digital just like the future of letters became digital when email was introduced and the future of news became digital when the web and streaming video entered the scene.

Stories are special. Printed books are not. Big Publishing is trying to preserve its landline business in a cellular world. The future of paper is in napkins and toilet tissue, not as a medium for communicating ideas.

Book publishing lives in an environment shaped by larger forces and always has

12 January 2016

From veteran publishing consultant Mike Shatzkin:

Book publishing has always adapted to an environment shaped by larger forces. That hasn’t changed.

Andrew Carnegie provided a big lift early in the 20th century when he financed a lot of libraries, taking books and reading into every corner of the country. In the 1930s, publishers led by Putnam and Simon & Schuster made “returns” a part of the commercial equation between publishers and bookstores because the depression was making stores especially wary of taking on inventory.

After World War II, the mass-market paperback revolution was made possible by a network of magazine wholesalers (also called “IDs”, or “independent distributors”) who could push product out to hundreds of thousands of points of purchase.

. . . .

Then in 1995, Amazon arrived and changed the game in many ways. And we can see in retrospect that the birth of Amazon heralded an even bigger change in the commercial context for publishers. Amazon’s arrival began an era which is now in full flower, where the environment for book publishers is largely influenced by major tech companies for which publishing is a hardly-noticed activity even though their impact on the world of publishing is profound. Although there are certainly others who figure in, the environment today for marketing and delivering books is shaped by what Professor Scott Galloway of NYU Stern School of Business calls “The Four Horsemen”: Amazon, Apple, Facebook, and Google.

. . . .

The number of shipping points for Amazon, which have recently proliferated and is now in the dozens at least, grew slowly, so Amazon was inherently more “efficient” with its purchases than bookstores could possibly be. Each book shipped to them had a much bigger sales base than it would in a single store and therefore also had a much lower chance of being returned. At the same time, as they took sales away from brick-and-mortar stores, returns from that side of the business tended to go up, at first because the publishers’ sales forecasting was unconsciously working with a diminishing base, and then later because moving to fewer titles in stock became part of the solution to reduced sales and returns were part of how they got there.

The book-buying public adjusted very quickly to Amazon. For several decades leading to the 1990s, publishers and bookstores had learned that a massive in-store selection was a powerful magnet to draw customers. The choice of books has always been so granular that it is virtually impossible for any retailer to stock everything a customer might want. Jeff Bezos knew and understood that, and he had the vision to understand how an online retailer could benefit from the impossible challenge a brick-and-mortar bookstore faced.

. . . .

And then Borders, one of the two dominant national bookstore chains and proprietors of more than four hundred 100,000-title stores nationwide, shut down, taking a big double-digit percentage of the nation’s bookstore shelf space with them.

The collapse of Borders had an impact on the publishers’ ecosystem comparable to what the effect will be on sea levels when the Greenland or West Antarctica ice sheets break off: a sudden surge of change reflecting a long-term trend. As Hemingway wrote about the way things often happen: “gradually, then suddenly”.

And this brings us to the world we live in today. Like a frog in gradually heated water, many of us have lived through the change so we may think we’re more adjusted to it than we actually are.

Publishers now live in a world where more than half the sales for most of them— the exceptions are those who are heavily into illustrated books and children’s books — occur online through varying combinations of print and ebooks. Their two biggest accounts — Amazon for online sales and Barnes & Noble for stores — each reign supreme for their channel of the business. (And although Amazon has opened a store and Barnes & Noble has an online sales capability, they are likely to remain the leading player where they are now and much less important in the other channel.) Because they’re so important, they can be increasingly aggressive in how much margin they insist on as discount from the publishers’ price and various merchandising fees.

. . . .

So the model that has served publishers for a century, putting out books through a network of stores that both draw in the public and contextually position the books for them (in topical “sections” and some featured placements like windows or front tables), has been seriously eroded. What has replaced big parts of it are online purchases of books “discovered” through a variety of mostly online channels. And that’s where the Four Horsemen become so prominent.

Amazon and Apple are, along with Barnes & Noble, where most of publishers’ sales will take place. Each retailer does its own merchandising, of course. All of them will undoubtedly be increasing the variety and sophistication of its offerings, but will also have different rules and algorithms influencing how they respond to descriptive copy and metadata triggers the publishers will be providing. Understanding how this all this works at Amazon and Apple as well as publishers always did with Barnes & Noble and other brick-and-mortar retailers is a clear agenda item for all publishers.

. . . .

Another is to make better synergistic use of author relationships. What authors do on Facebook and Google Plus (and a host of other social networks) needs to become part of the publisher’s overall picture of the book and its marketing. And the structural barrier there is that the editor is too often forced to be the conduit for this coordination, a task for which they are neither prepared nor supported.

Operating through and with these behemoth companies is a big challenge for our industry. David Young, who just retired from Hachette UK, shared an observation with me when he was CEO of Hachette US a few years ago. The CEO of a big publisher in the past could always get the CEO of his or her biggest accounts on the phone if necessary. That was no longer true eight years or so ago when he made the observation, talking about Amazon.

Link to the rest at The Shatzkin Files

Ebooks change the game for both backlist and export

7 October 2015

From veteran publishing consultant Mike Shatzkin:

There are two aspects of the business that ebooks should really change.

One is that ebooks can really enable increases in sales of the backlist.

The other is that ebooks will really enable sales outside the publisher’s home territory.

The second piece of this hardly even requires much effort. At a conference called Camp Coresource hosted by Ingram two weeks ago, Mary Cummings of Diversion Books, which last year launched a romance-only eBookstore app,EverAfter Romance, reported just short of half of EverAfter’s app users are coming from outside the “home” (US) market. Of that 49 percent, only about 6 percent come from the UK and Canada. Of course, Diversion owns world rights on many titles. And the rest of the world has far more than half the people, even far more than half the English speakers, in the world. So the US is still responsible for far more users per capita, but that’s really of secondary importance. Getting half one’s customers from markets that would have been very hard to reach ten years ago — without any extraordinary efforts — is a very new thing.

This global reality comes up in another frequent current discussion. The big publishers are suggesting that ebook sales have plateaued, perhaps even declined. Amazon says “not true”, that ebook sales are still rising. Some analysis, such as what is done by Data Guy for Author Earnings, says that the publishers’ big books are losing ebook share to the indies, primarily relying on data scraped from Amazon to make the case. The most commonly-offered explanations are that publishers’ success forcing higher ebook prices for their titles, combined with a decline in new converts to ebooks (who are inclined to “load up” their devices when they first start reading digitally) account for the apparent trend.

. . . .

The point to capture is that just having ebooks for sale around the globe can bring markets to a customer’s door, wherever the book originated. Any rights management policy that prevents an ebook from being on sale anywhere is likely to be costing some sales.

The backlist challenge is trickier and the results might not be as obvious. Two of the biggest drivers of ebook sales are discovery in response to search and the amplified effect of existing sales momentum in bestseller lists and retailer recommendations. (“People who bought this, bought that.”) A power law distribution seems inherent in ebook sales. Those that sell develop sales momentum; those that don’t remain hidden and buried.

But a lot of that has to do with metadata. Publishers have been getting better and better at writing the descriptive copy that determines whether search engines identity them as an “answer” to the right queries. That means that as you go back in time, the copy is less and less likely to be useful for the purpose.

And there are some realities about budgets and effort allocation in big companies to take into account. The lion’s share, and that means more than 90 percent, of budgets and internal effort allocations for marketing go to the current frontlist. The backlist has many times the number of titles as the frontlist, so a much smaller amount of money and assignable labor is spread over a far larger number of titles. On a per-title basis, there have hardly been any resources available for backlist.

. . . .

And, on top of that, publishers often count on backlist sales to be the most profitable precisely because they don’t have to allocate marketing spending or staff time to those books. There sometimes seems to be a fear operating at publishing houses that starting to expend marketing effort on backlist is opening a Pandora’s Box which would compromise the most profitable aspect of their business.

Link to the rest at The Shatzkin Files

What Oyster going down demonstrates is not mostly about the viability of ebook subscriptions

24 September 2015

From veteran publishing consultant Mike Shatzkin:

The news that the general ebook subscription offering Oyster is throwing in the towel was not really a surprise. The business model they were forced to adopt for the biggest publishers — paying full price for each use of a book with a threshold trigger at considerably less than a complete read while, at the same time, offering consumers a monthly subscription price that barely covered the sale of one book, let alone two — was inevitably unprofitable. Their only hope was that they’d build a large enough audience fast enough that publishers would become in some way dependent on it (if not the revenue it produced) and agree to different terms.

It would be a mistake to interpret Oyster’s demise as clear evidence that “subscriptions for ebooks don’t work”. Obviously, they can. Safari has been a successful and profitable business for nearly two decades. The Spain-based 24Symbols has been operating an ebook subscription business, mostly outside the US and mostly not in English, for too many years to be running exclusively on spec VC money. Scribd has very publicly (and a bit clumsily, in my opinion) adjusted their subscription business model to accommodate what were unprofitable segments in romance ebooks and audiobooks, but the inference would be that for other segments the business model is working just fine. And then there’s Amazon’s Kindle Unlimited, which is sui generis because they control so many of the parts, including deciding more or less unilaterally how much they’ll pay for much of the content.

What seemed obvious to many of us from the beginning, though, was that a stand-alone subscription offer for general trade books could not possibly work in the current commercial environment. The Big Five publishers control the lion’s share of the commercial books that any general service would need. All of those publishers operate on “agency” terms, which makes it extremely difficult, if not impossible, for a subscription service to pull those books in unless the publisher allows it. The terms that the publishers would participate in the subscriptions required, which were, apparently, full payment for the book after a token amount was “read” by a subscriber, combined with a limited number of titles offered (no frontlist), made the subscription offer inherently unprofitable.

The publishers see the general subscription offers as risky business for books that are currently selling well a la carte. Not only would they threaten those sales, they threaten to convert readers from a la carte buying to going through the subscription service. To publishers, this just looked like another potential Amazon: an intermediary that would control reader eyeballs and have increasing clout to rewrite the terms of sale.

. . . .

So the failure of Oyster is actually another demonstration of a “new” reality about book publishing, except it is not so new. Book publishing — and book retailing — are no longer stand-alone businesses. Publishing and bookselling are functions, and they can be quite complementary to other businesses. And as adjuncts to other businesses, they don’t actually have to be profitable to be valuable. What that means is that entities trying to make them profitable — or, worse, requiringthem to be profitable to survive — are at a stark competitive disadvantage.

. . . .

The story on Oyster, still incomplete as of now, is that a lot of their management team is on its way to Google, which, in effect, “bought” the company to get them. Google seems to be trying hard to make sure we don’t think they bought Oyster’s business, they just bought Oyster’s staff. Obviously, Google fits the description of a company with many other interests in which books can play a part. In the beginning, that was all about search. Now it is also about the Android ecosystem and media sales in general. An ebook subscription business, or even a content subscription business, could make sense in Google’s world. But it would be a relatively small play for them. My hunch, and it is only a hunch, is that they have something other than a mere “book subscription service” in mind for that Oyster staff to work on. Smarter observers than I seem to believe that the personnel Google recruited give them knowledge about Oyster’s mobile reading and discovery technology. Of course, that’s core information for Google.

Link to the rest at The Shatzkin Files and thanks to Toby for the tip.

Barnes and Noble results and the latest news from Perseus

15 September 2015

From Mike Shatzkin

The most recent Barnes & Noble financial results — which appear to have discouraged Wall Street investors — aren’t good news for the book business. They show that the sale of books through their stores is flat at best, as is the shelf space assigned to books. And it would take a particularly optimistic view of their NOOK results to see anything but an accelerating slide to oblivion for what was, for a time a few years ago, the surging challenger to Kindle.

***

The real failure we see at B&N, which almost certainly affected the NOOK business as well as the stores, was that the customer knowledge within the dot com and NOOK operations apparently has never been used on behalf of the store business. This might be blamed on organizational silos that ran these three components as separate businesses. The failure is otherwise hard to explain. How hard can it be, really, to dig up email addresses of people who bought a book by a particular author to let them know s/he’ll be autographing books near where they live sometime soon?

Or, putting that in terms Barnes & Noble should relate to, might you not be able to charge the publishers a promotional fee for doing that? (AND you’d drive more traffic and sell more books!)

***

The people who own and run B&N are plenty smart. Before the game changed and was complicated by the online option, they had organized their supply chain to give them real competitive advantage over Borders and all other book retailers. But they were tripped up by a combination of Amazon’s longer-term view as an upstart in the 1990s and early 2000s when B&N was an established and profitable company. This was a classic “innovator’s dilemma”, failing to employ a new technology to maximum advantage because a legacy position was being defended.

Amazon was willing to lose money for many years to build its customer base. That was how they could build their stock price. B&N was a profitable company at the top of their category. Profits were how they grew their stock price. This not only discouraged deep investment in the early years of online bookselling, it discouraged the kind of discounting from their online store that Amazon did. Both of them knew that discounted books online put competitive pressure on the brick-and-mortar business. That was fine with Amazon. It was not appealing to Barnes & Noble.

***

When B&N decided to go after the ebook market with the NOOK, organizationally they did it with a dedicated and largely independent effort, not an integrated one. That might have been necessary. But it also might have been B&N’s last chance to build on its one distinctive advantage: having a strong store base and a real dot com business. (Borders never had the latter and Amazon, of course, doesn’t have the former.)

***

But the time B&N has to change the reality that they can’t seem to grow their market share continues to shorten. The one big advantage they are likely to retain over their competitors in Seattle — who are certainly growing theirs! — will be a cooperative attitude from the publishers, who live in fear of Amazon’s growing power. But even that advantage has its limits.

Link to the rest here.

As a long time reader of Mikes blog I have to say this is one of his better posts. Some of this will no doubt be read by many here as information they already had, but the break-down is spot-on.

As for the changing landscape of B&N and its effect on the Big Five Randall views it as self-fulfilling. The dwindling shelf space at B&N will eventually lead to only the bestsellers being available. This will reduce the mid-list titles to an even smaller portion and effectively lock the Big Five into the blockbuster model for the remainder of their existence.

However, if you find yourself in sudden need of a birthday card, stuffed animal, calendar, scented candle and cup of coffee, B&N is your place for one-stop shopping. 

The publishing world is changing, but there is one big dog that has not yet barked

5 August 2015

From veteran publishing consultant Mike Shatzkin:

Recent data seem to show that, for the publishers, the growth in the retail ebook market has slowed down or stopped (at least for the moment), while Amazon’s ebook sales apparently continue to grow. The share of the market controlled by the publishing establishment — the Big Five publishers and others — is starting to be slowly eroded. This does not yet suggest that an author’s best bet is to go out on his/her own and we may be a very long way from that. But it does suggest that life may get increasingly difficult for publishers.

The headline data we saw last week is that Hachette’s ebook sales went down last year. All their sales declined, but ebooks fell faster and the percentage of their business in ebooks is diminishing.

. . . .

What we’re also seeing and hearing is that publishers might have boxed themselves in with their return to agency pricing. When publishers first “raised prices” by instituting agency pricing for ebooks in 2010, they saw no reduction in ebook sales, which continued to grow. Michael Cader’s analysis (can’t find it in print, but he told it to me) was that publishers may have misread the real impact of price increases because they raised them in a growing market. The number of ebook readers was increasing every day, so those who were put off by the high prices were outnumbered by the new entrants who just wanted to read their books digitally on their shiny new devices.

Whatever is the reason, the anecdotal reports I’m getting suggest that the price increases aren’t being so easily swallowed in the current round of Agency pricing. Amazon may not care about ending discounting from those prices because they don’t need to or want to, but it would appear that the new deals won’t let them. They certainly don’t have the flexibility to do so that they did before Agency came to the marketplace. So the sometimes startlingly high publisher-set prices are prevailing. And, aside from the Hachette numbers that were reported, we’re hearing widespread but totally unofficial reports that big publisher ebook sales are dropping noticeably when their new higher agency prices are activated.

Hugh Howey told me this was happening in a private exchange three months ago. I didn’t believe him. I do now.

. . . .

Amazon’s Kindle Unlimited may be having a bigger impact on the overall market. In all these cases, it is the public understanding that the subscription services are “purchasing” the ebooks from the established publishers. (Kindle’s own authors are compensated with a “by the page read” division of a pot that Amazon arbitrarily decides.) But the Big Five aren’t participating in KU and they aren’t putting their new books — the biggest sellers with the highest prices — into the subscription services. So all the reader bandwidth and revenue going through those services might be coming out of the big players’ and big books’ share.

Our friends at Ingram told me another piece of anecdata which may also be at play. They keep track of the number of SKUs that sell 100 copies or fewer and those that sell 10,000 copies or more. The aggregate sales of the former group is growing; the aggregate sales of the latter group is not. What that suggests is that the sales of books that are not really commercial are taking share away from those that are, whether those that are come from publishers or indie authors like Hugh Howey. Whether that particular change is yet impactful, it is inexorable.

. . . .

The reduction in ebook sales of hot new titles could be starting to affect future deals — one agent told me unambiguously that it is visible — which would be the next step in the indie vision of how publishers disappear. Publishers base their advances on revenue expectations, which, for ebooks, might now be diminishing.

. . . .

What is definitely true is that the share of the reading market held by commercially-minded publishers (not just commercial “for profits”, but also university presses) will diminish as both successful self-published authors and hundreds of thousands of others who don’t succeed (and maybe don’t even care) take their content to market on their own.

Link to the rest at The Shatzkin Files

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