Mike Shatzkin

Imprint consolidation at big houses is a sign of changed times

26 October 2018

From veteran publishing consultant, Mike Shatzkin:

I had reason to learn recently that Ingram has 16 million individual titles loaded in their Lightning Source database ready to be delivered as a bound book to you within 24 hours, if not sooner. So every book coming into the world today is competing against 16 million other books that you might buy.

That number — the number of individual book titles available to any consumer, bookstore, or library — has exploded in my working lifetime. As recently as 25 years ago, the potential titles  available — in print and on a warehouse shelf ready to be ordered, or even to be backordered until a next printing — was numbered in the hundreds of thousands. So it has grown by 20 or 30 or 40 times. That’s between 2000 percent and 4000 percent in the last quarter century.

This has, like the Internet or CO2 in the atmosphere, changed everything. And it seems like the organizing structure of the major publishers is also changing in response.

On Monday morning, Simon & Schuster became the second major house in a week to announce that it was consolidating two imprints, effectively reducing by one the number of discrete publishing units within the conglomerate empowered to decide what to publish and how to promote it. They folded the Touchstone imprint into Atria and Gallery; last week Penguin Random House collapsed their Crown imprint into Random House (sometimes referred to as “Little Random”.)

The title explosion is part of a sea change in the world of book publishing that has taken place over the past quarter century. At the same time, sales have shifted in two dimensions: a big chunk of the books now bought and consumed are digital, not printed, and more than half the books consumers buy are not bought in brick-and-mortar stores. And the share for physical stores continues to shrink. Indeed, these trends are linked. The fact that books can now be delivered without inventory, without a sales force, and without a warehouse has made it possible for just about anybody to publish a book.

. . . .

Commercial publishers bring books to market to make money for themselves and their authors. But today, book publishing is a idea-dissemination or brand-extension tool for many originators, and making money on the publication is a secondary consideration.

That means that commercial viability is no longer an effective check on the number of titles. One wealthy and digitally-smart author we know is reluctant to engage with a publisher because he wants to be free to give away his content. And in another case we found and discussed in a recent post, because the originator was so enamored of the idea of giving it away through web streaming, they ignored the opportunities through commercial ebooks that would have required setting some price a bit higher than zero to work in that channel. Anybody doing this more than once will figure out ways to increase their distribution.

It wasn’t very long ago that nobody would think seriously about publishing a book unless they had the infrastructure — a sales force, a warehouse, a way to process shipments and returns — to put books on many bookstore shelves. Now those services are ubiquitously available for variable, not fixed, costs (you can reach the whole world through Ingram Spark or a big chunk of the world through Amazon Kindle and CreateSpace).

. . . .

In the new marketplace, where most of the sales don’t require the expensive-to-engage distributed bookstore infrastructure, established publishers no longer automatically dominate. So we’ve gone from a marketplace where only truly professional publishers could effectively get books to customers to one where their size, their lists, their sales forces, and their operational efficiencies give them much less competitive advantage. That new marketplace and the competitive set means that publishers can no longer count on a reasonably substantial minimum sale for every title they publish.

. . . .

For as long as I’ve been in the industry, I have heard publishers complain “there are too many titles” while the smartest ones also saw that their own profitability was improved by increasing their own company’s title output. But over the past two decades, the title glut has hit home and even the biggest and most powerful publishers need to exercise restraint about what they try to publish profitably. Because they really can lose money publishing a book, which two decades ago was actually a rare occurrence in a major house unless they had wildly overpaid for the rights.

Publishers have also found it sensible to redeploy resources from “sales” — working with intermediaries to reach a book’s customers — to “digital marketing”, which often leads to a direct sales appeal from the publisher to the consumer. (Although the sales themselves might be executed through Amazon or another retailer, the publisher’s effort is driving the specific sale to the specific customer.)

This has, inevitably, made publishers more “audience centric”. They build topic- or genre-specific websites, apps, and — critically — email lists. The email lists of book purchasers are of increasing value, if the publisher can continue to feed it choices from which it will find things to buy.

Link to the rest at The Shatzkin Files and thanks to Nate at The Digital Reader for the tip.

PG suggests that, not long ago, publishers would not have considered direct sales efforts to readers via mailing lists, etc., because bookstore owners would have objected. The OP suggests to PG that publishers have mentally written off Leonard Riggio/Barnes & Noble and no other bookstore chain is big enough to intimidate them.

At a time when real digital marketing talent is widely recognized as a valuable skill, PG also wonders what sorts of digital marketers are willing to go to work for a publisher instead of a tech startup or digital marketing agency with potential for some real upside.

For authors, signing a standard contract with a traditional publisher looks like something akin to an extraordinarily expensive exclusive contract with a digital marketing agency which you can’t fire for incompetence or failure to respond to your emails.

And where’s the nurturing in that sort of relationship?

Words-to-be-read are losing ground to words-to-be-heard, a new stage of digital content evolution

14 June 2018

From veteran publishing consultant Mike Shatzkin:

“Words-to-be-read” must now become a content category, along with still images, video, and audio. Audio includes “words-to-be-heard”. We are in what must be the early stages of a reordering of primacy among these varieties of “content for delivery and consumption”, which is distinguished from “content for interaction”, or the world of “gamified content” along with who-knows-what-else.

In a post three months ago, I observed that I had been fortunate enough to have been taught to type when I was a little kid, so producing written words was relatively fast and easy for me. That led to great “experience” with the practice of narrative word creation at a young age, a great competitive advantage in school and the workplace (quite aside from enabling the writing of several published books). That piece also made the point that words-to-be-read were, until some very recent moment, the cheapest and easiest form of content to deliver and distribute. Still pictures required film and processing. Audio and video required controlled (and often expensive) circumstances for recording and a variety of skills to deliver professional content. And beyond that, delivery by cassettes and CDs was expensive and also failed to reach large numbers of the potentially interested people.

. . . .

What really rang a large bell for me was the recent New York Times article about the rise of audio, which focused on big-earning writers whose fortunes and reputations had been earned through “words-to-be-read” (in what we can now see was really a different content era), but who were now switching to audio. One such author, John Scalzi, was moved to reconsider his publishing strategy when a recent book sold 22,500 hardcovers, 24,000 ebooks, and 41,000 audiobooks. Author Mel Robbins responded to her self-help book “The 5 Second Rule” selling four times as many audios as print by making her next creation an audio original.

. . . .

So while we have been recently living through an era where audio pioneers like Don Katz of Audible have had to make the case (and offer the tools) to enable creation of good audio content that was originally intended as “words-to-be-read”, that may be about to flip. More and more, we’re going to find that extra effort is required to make content accessible to the word-reading population, who otherwise will not be able to enjoy a variety of fiction and non-fiction content that will only be professionally rendered to be seen and heard.

Link to the rest at The Shatzkin Files

The dominance of Amazon needs to be addressed but it is far more attributable to natural circumstances than it is anybody’s fault

8 May 2018

From veteran publishing consultant Mike Shatzkin:

As things evolve in an era of rapid change, it is human nature to assign credit or blame for any drastic alterations in circumstances. And so we have the book business, with its last remaining chain store behemoth, Barnes & Noble, in a period of obvious decline and presenting the clear possibility that the book publishers’ single biggest brick-and-mortar account might suddenly disappear.

This is a very unpleasant notion to contemplate for all publishers and, perhaps surprisingly, to Barnes & Noble’s erstwhile competitors among independent bookstores. Today, the head of the trade association that represents bookstores (mostly independents), Oren Teicher of the American Booksellers Association, is quoted in The New York Times saying, “It’s in the interest of the book business for Barnes & Noble not just to survive but to thrive.”

The op-ed in which Teicher’s quote appears is a piece by columnist David Leonhardt basically blaming the US Department of Justice for Amazon’s growth and the consequent reduction of market share available to all other retailing competitors. There is a lot of history and context not discussed in this piece but I have a nominee for the single most glaring omission. At just about the turn of the century, Barnes & Noble made a deal to buy Ingram, the biggest book wholesaler and distributor in the world, which was shot down by an activist Department of Justice. This is not mentioned.

And, in 1998, when the purchase was announced and B&N specifically cited its need to strengthen its ability to sell online as part of the reason for the purchase, the American Booksellers Association was vigorously opposed!

. . . .

It has long appeared from here (here’s a piece from 2012) that the existential issue in the book business in the 21st century has been “when does Amazon’s share growth stop, and who will be left standing when it does?”

Although definitional and data ambiguities make this an imprecise statement, it is likely that we’ve reached a day when more than half of the printed books sold through retailers are sold online, not in stores. Ebooks added into the mix for the narrative reading portion of the published material constitute a further erosion of the brick-and-mortar store sales base.

The shift of habits from buying in stores to buying online is not restricted to books, of course. Because of Amazon, it largely started with books. But books also have other characteristics that make them better than most things for online purchase, from a consumer point of view.

. . . .

So buying a specific book that you know you want online just makes sense to most people. Of course, Barnes & Noble has had its own online bookstore operation since the 1990s. They have steadily lost online purchasing share to Amazon for decades.

It is true that Amazon cut prices below what many brick retailers charge. And I even think I identified the moment when that strategy kicked in. See the same piece linked above. If I’m right, then they did it specifically to discourage independent stores from using the same Ingram capabilities they used to launch an online sales effort. (In fact, discussing the “low price” challenge that exists for publishers in 2018 without mentioning the self-publishing world which is the primary price restraint mechanism in the market, assuming no disingenuousness, displays serious ignorance of the marketplace realities.)

But the way things looked in then 1990s, with online retail in its infancy, was that it didn’t constitute a threat to brick-and-mortar. Many physical retailers ignored the opportunities and threats of online competitors. Borders, at about the same time that the Department of Justice was killing the deal by which B&N bought Ingram, was partnering with Amazon to deliver its online offering!

With those realities, does it make sense to be blaming the DOJ for not seeing the threat?

Much is made of Amazon’s pricing practices and the possible fallacy inherent in looking at consumer prices as the be-all and end-all indicator of whether a marketplace is working right. But even that argument is just not so simple. More than a decade before Amazon was launched, the retailing chain Crown Books (not to be confused with the then-indie publisher now an imprint of PRH) was aggressively discounting bestsellers. They grew fast in the 1980s. Until the superstore era began in the late 1980s, and the massive selection in the big Borders and B&N stores became the “killer” consumer attraction, this variation of the Amazon strategy (using bestselling books as loss leaders to pull in customers, to whom Crown sold remainders and bargain books to generate the margin to operate) was upsetting the old order.

. . . .

It is not hard to support Leonhardt’s idea that Internet monopolies, even if they result at least partly from the natural power law forces of Internet economics, will have to be regulated, as I suggested in another forum recently. (I publish the stuff that is not mostly about books in other places.) Perhaps the first step with Amazon is to ban them from the publishing function. And because they are a vital path to the consumer for all publishers, it would be helpful for the government to be sure that their sales terms are fair among the publishers competing for their customers (a concept that wll get increasingly tricky as Amazon’s physical store footprint expands).

. . . .

So while it is absolutely true that Amazon is gaining a level of market share, and therefore a level of power and control, over the book business that is frightening for those of us in it and not a good thing for society, this does not make them evil or make everybody who failed to stop them stupid. Through a remarkable series of brilliant moves — the first ones putting books online with a huge master catalog and providing “promise dates” for each individual title so the customer knew when to expect delivery but then continuing onto Prime and Kindle and harnessing their own print-on-demand and, most of all, enabling self-publishing by individual authors that delivered meaningful revenue — they have achieved what sometimes looks like imminent hegemony.

Link to the rest at The Shatzkin Files

Large market share and dominance is something Amazon is developing in a variety of different fields besides books.

From MarketWatch:

Amazon.com Inc. may already be the largest apparel retailer and could still grow to sales between $45 billion and $85 billion by fiscal 2020, according to Instinet analysts.

Instinet analysts led by Simeon Siegel estimate overall apparel and accessories sales at above $1 trillion with “above average” online penetration and “leading gross margin” compared with other categories.

“We believe Amazon has the largest [total available market] TAM (ever), doesn’t carry socio-economic retailing stigmas, can stock a limitless number of goods on its virtual shelf and knows customers better than they do,” Instinet wrote. “Amazon’s path to book dominance provides a potential road map for apparel success, with its fiscal 2007 media progress sharing similarities to its fiscal 2017 apparel achievements,” the note said.

PG notes that the “socio-economic retailing stigmas” refer to Walmart, previously the largest apparel retailer and now generally regarded as #2.

PG includes the apparel dominance Amazon has built as evidence Amazon is very good at understanding what customers want and how to deliver it to them at a reasonable price.

Amazon didn’t start selling books online with the goal in mind of becoming a publisher. However, in the face of illegal price-fixing by major publishers and other anti-Amazon activities calculated to bolster an outmoded, inefficient and expensive (for consumers and authors) publishing industry, Amazon innovated.

Prior to KDP, the self-publishing business was dominated by shady operators like Author Solutions and its companions whose business model focused on exploiting would-be authors. Instead of exploiting authors, KDP offered them much higher royalties they could earn in the traditional publishing business – 70% of the amount received by Amazon for KDP ebooks is a prime example.

Unlike traditional publishers that use a long and opaque supply chain which substantially reduces the amounts received by the publisher and thus the amounts received by authors, Amazon sold directly to consumers. Author royalties were quite close to 70% of the amount readers paid for author ebooks. (PG notes that some traditional publishing contracts {although fewer than in former days} calculate author royalties based upon the suggested retail price of the author’s printed book. Ebooks, books sold at a discount to discount retailers like Costco, Sam’s Club, etc.,  and some or all types of paperback sales are typically calculated based on the amount received by the publisher. Royalties calculated on the amounts received by publishers are virtually always much lower than royalties calculated based upon the suggested retail price of a book.)

For readers who really want to support authors they like, buying ebooks or CreateSpace books through Amazon is a much more effective means of doing so than buying books from a bookstore that takes its cut and acquires books from a wholesaler who takes its cut who acquires books from a publisher who takes its cut and passes a relatively small amount of the retail price of a book to the author.

Indeed, if we consider the annual incomes of all the people involved in the traditional publishing supply chain, it is quite likely that the author is the lowest-paid individual working in that business, even including clerks at Barnes & Noble.

PG suspects the traditional publishing practice of paying royalties to authors every six months may subtly influence authors to feel they’re earning more from their writing than they really are. Receiving a $6,000 royalty check in the mail feels psychologically like a larger amount than a $500 salary check every two weeks, particularly after taxes, social security and other deductions.

PG just did some quick calculations and discovered that a worker earning the US minimum wage of $7.25 per hour working 40 hours per week is earning more money than an author who receives a royalty check of $6,000 twice per year. If the author isn’t receiving a royalty check of over $7,500 every six months, the author would be financially better off working in a convenience store.

PG is not going to perform the calculations, but will note that the minimum-wage convenience store employee only pays 6.2% of wages for Social Security and 1.45% for Medicare (with the employer paying the same amount) while a self-employed author pays twice as much because she’s obligated for both the employee’s and the employer’s portions of those taxes.

Quick internet research didn’t disclose the average income of an author in the US, but in 2015, The Guardian calculated that the median earnings of professional authors in the UK fall below the minimum wage.

Do the median earnings of publishing executives fall below the minimum wage? Other employees working for publishers? How about median earnings of employees of book wholesalers? Delivery drivers that bring books to bookstores? Bookstore clerks?

So exactly why should the federal government take action to protect the traditional book publishing and selling industry at the expense of Amazon if that industry consistently fails to pay authors a living wage? Why penalize Amazon when it consistently pays authors more than traditional book publishing does?

The written word is losing its power and will continue to

22 February 2018

From veteran publishing consultant Mike Shatzkin:

If there were a futures market in literacy, it would be dropping. It is a sad fact that the value of written words, in relation to spoken words and still and moving pictures, is sinking like a stone. Changes like this happen for structural reasons.

Since the invention of moveable type and the printing press, printed words have been advantaged for creation and mass distribution. Printing pictures first required “engraving” and then shooting half-tones (showing the picture as smaller and larger black dots to add “shades of gray” to black and white) while type just got set, locked up, and printed.

And the primacy of words continued into the early years of digital information as well. Keystrokes choosing from among letters and punctuation marks instructed computers. Rendering words was easy for them.

Between the era of ubiquitous personal computers (starting in the mid-1980s), through the era that brought us ubiquitous laptops (from the 1990s forward), words could be delivered on smaller and ever-more-widely-distributed devices: personal digital assistants like Palm Pilots and cell phones. Still images didn’t really render well on either of them and moving images were a non-starter.

But all of that has changed in the past ten years. Most people now have smart phones and tablets that show images beautifully through broadband connections. On top of that, the same devices will record the images or videos, so everybody has “creation” capability in their hands as well. And the process 20 years ago had to begin on film and then somehow or other get to a digital form. Now all the images are born digital, cutting out a whole lot of complication and cost. And nobody has to learn a keyboard — or how to spell — to use the capability effectively.

. . . .

Being able to craft good prose quickly has been my personal competitive advantage for my whole life. Meanwhile, I’m not so facile with images. Writing a better sentence is something I’ve been practicing for more than 60 years. Framing a better image is something most people can do much better than I can.

Link to the rest at The Shatzkin Files

 

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.

Ten Years Ago Amazon Started A Revolution and It Just Gave Me a Very Good Month

30 November 2017

From veteran publishing consultant Mike Shatzkin:

Ten years ago, Amazon released the first Kindle device. There had been electronic book reading devices before the Kindle and, indeed, the Sony ereader was actively in the market when Kindle arrived. (Others, like Rocketbook and Softbook, had perished for lack of interest.)

Kindle and Amazon succeeded where others failed for several reasons. First and foremost was the power of Amazon, which already had the attention of a very large segment of the book-reading and book-buying public. But Amazon helped themselves with three big breakthroughs — one technological and two commercial — which made what they were doing different from what had been done before.

The technological breakthrough was integrating the purchasing into the device, eliminating the two step “download and synch” process that previous ebook readers had required. Since wifi didn’t exist yet, executing on that required Amazon to take the risk on dial-up connection charges that MIGHT have been used by Kindle owners to do things other than make ebook purchases.

. . . .

The other commercial breakthrough was pricing. Amazon was willing to take real financial risks to present ebooks as a money-saving alternative to print. They wanted to establish a maximum ebook price of $9.99, so that’s what they charged even if the publisher’s price to them was higher and they had to take a loss on the sale.

. . . .

Back near the beginning of ebook time, a friend at Kobo put together a collection of the first two years of Shatzkin Files blogs into an ebook. Then, about a year ago, a British digital publishing operative named Simon Collinson felt the blogs were worth collecting into annual “books”. He did an extraordinary amount of work to arrange the blogs by subject and to give me the drafts of annual summaries. This turns out to be a pretty decent history of the ebook revolution since its dawning.

And now those ebooks are available in all the ebook formats for 20112012201320142015, and 2016.

Link to the rest at The Shatzkin Files and thanks to Nate at The Digital Reader for the tip.

“Since wifi didn’t exist yet” in 2007, ten years ago when Amazon introduced its first Kindle, is an example of both MikeSpeak and MikeWorld.

The first version of the 802.11 wifi protocol was released in 1997. This was updated in 1999 with 802.11b to permit 11 Mbit/s link speeds which really got things going.

Within five years, wifi exploded to about 100 million users, tens of millions of wifi devices being sold, etc. PG can’t remember when he first installed wifi in Casa PG, but recalls regularly using hotel wifi in the early 2000’s.

PG suggests that wifi may not have existed in New York publishing circles in 2007 (MikeWorld), but it was in common use at airports, restaurants, homes, etc., at that time. For example, in 2004, Slate published an article entitled, How to Steal Wi-Fi and How to Keep Your Neighbors from Stealing Yours.

PG has always viewed Shatzkin’s thoughts as reflective of the current thinking in traditional publishing.

Unfortunately, that thinking is consistently out of date and seems unable to draw any lessons from other businesses that have been diminished or destroyed by disruptive technology. The ebookstore, the ebook and the ease of self-publishing an ebook together constitute a hugely disruptive technology.

Traditional publishers are accustomed to paying only a small percentage of the revenue generated from book sales and licensing to the author. Of course, Amazon pays a much higher percentage to authors who self-publish via KDP. Depending on the pricing the author chooses, the majority of the price a reader pays for an ebook will flow through to the author.

Publishers are fond of talking about all the things they do that an indie author can’t do, chiefly getting printed books into traditional bookstores. From the publishers’ viewpoint, this sales channel is very important. From the author’s viewpoint, looking at the money the author actually receives from the physical bookstore channel, it’s less important.

Simply put, an author can often generate a higher income from a given book by self-publishing ebook and POD paperback editions only and selling exclusively through online bookstores than the author can generate by paying a much higher percentage of each book sold to a traditional publisher and accessing the physical bookstore channel. The publisher captures the lion’s share of income from physical book sales, so from the author’s viewpoint, that channel is much less important to his/her financial well-being than it is to the publisher’s.

If publishers were willing to enter into hardcopy only publishing agreements with authors, permitting authors to retain ebook rights for self-publication, business-savvy authors would be happy to sign such agreements. Even with low royalty rates, the hardcopy only agreement would generate net income to the author that the author would not otherwise receive while the author would benefit from the much higher percentage available from independently publishing his/her ebook editions.

One last and obvious point – twenty years ago publishers generated all of their income from print-only operations. If, as the traditional publishing press keeps saying, readers are returning to printed books and physical bookstores, a return to an earlier era of print-only publishing would seem to be a viable business proposition.

Are the tech giants too big to be good partners for book publishing?

22 August 2017

From veteran publishing consultant Mike Shatzkin:

An online discussion forum that includes publishers and librarians and tech people usually sends me several emails a day. About 10 days ago, a conversation evolved about Google Book Search and the Google Library Project, two initiatives by the search giant that were initiated in the early part of the last decade.

Because both programs essentially gave Google a trove of book-published content for full text search, there was a wariness among the publishing community about them when they started. In time, publishers (through the AAP) sued Google and the course of the lawsuit ultimately led to a sharp curtailment of Google’s ability to just do the scanning. After a while, it appears the reservoir of interest at Google for the project, which started as more of a “service to humanity” idea than a profitable one, just evaporated. The scans that Google had already done became part of the HathiTrust repository of content, an important research and scholarship tool in the non-trade world without any recognition or impact on the trade world at all.

. . . .

And, of course, Google is the single most powerful source of “discovery” and many in publishing wonder if books overall would have benefited from Google being more “knowledgeable” about what is inside of them.

So, to this day, years after the litigation and the scanning program have concluded, there is a division of opinion in the publishing community. Some see Google as a bully and a villain, trying to make its own rules to benefit from publishers’ content and crippling the value of copyright. Others focus on the lost opportunity and believe publishers would actually have more valuable intellectual property (more valuable copyrights!) today if they’d just allowed the Google programs to develop and flourish.

. . . .

In the course of the discussion, a very knowledgeable and experienced veteran of publishing across education, professional, and trade offered the comment that “Google is a terrible partner.” I asked him (offline from the group discussion; he’s a friend) to amplify that.

My points of context for Google weren’t in publishing; they were in tech. My own most extensive experiences with the big three tech companies that publishers dealt with — Amazon, Apple, and Google — was working out their participation at publishing conferences.

. . . .

What I saw was that Apple was the most uptight; it was hard to get speakers because messaging was so tightly controlled by upper management.

Amazon would sometimes be very agreeable, but primarily when they had an agenda: some program they wanted to get across or some point they wanted to make. So they were often cooperative, but very much on their terms to put across their message du jour. In general, they wouldn’t do panels or Q&As. They needed to control the conversation and skillfully avoided being pushed to publicly discuss anything they didn’t want to talk about. But they were often available and always interesting, and unlike Apple (in my experience), would engage with you honestly about their agenda.

. . . .

Google was, in my experience, by far the most open and accessible of the three companies. You could tell them you wanted speakers or panelists to cover one subject or another and you’d get directed to people who could help you. And Google employed a pretty fair number of ex-publishing people who were conversant about issues from a perspective that publishers could relate to.

. . . .

What my friend said in response to my inquiry, in which I had only mentioned Google, was, “Google, Apple, and Amazon are all bad partners. Ingram, Baker & Taylor, and Firebrand are good partners.”

So much for my contextual frame.

But grouping the three to me made the point that my context was what mattered. Ingram, Baker & Taylor, and Firebrand all make their living in the book business. Google, Apple, and Amazon have a financial stake in the book business that amounts to a small rounding error to their overall financial performance.

. . . .

For the entire life of the book business until about fifteen minutes ago, it was very much a free-standing industry. The only larger-than-the-industry enterprises it had to deal with were the Post Office and United Parcel Service. Our authors, designers, typesetters, printers, and, most important of all, customers to which we shipped directly (the wholesalers and retailers and libraries) were part of the publishers’ world. They depended on the publishers as much as the publishers depended on them.

Amazon was the first piece of evidence — and still the most important piece of evidence — that the old world has disappeared.  . . . . They sell more than half of the books for most publishers, but all the books they sell probably amount to less than 5 percent of their total margin. And while Penguin Random House may be in the neighborhood of half the consumer book sales overall, they wouldn’t amount to nearly that big a percentage of Amazon’s book sales because Amazon gets a disproportionate share of professional and other niche markets and thus from publishers who don’t compete at all with PRH in the consumer market.

And because Amazon has very intentionally created a whole massive pool of consumer books that nobody else has, through their own publishing and enabling independent authors.

Link to the rest at The Shatzkin Files

PG has had direct business/legal dealings and negotiations with Apple and Amazon over the last 15 years or so. For context, he has also had business negotiations with Microsoft, Oracle, Hewlett-Packard and Intel in the tech world plus every major investment bank in New York (Goldman Sachs, Morgan Stanley, etc., etc.), most of the large accounting firms plus Disney, American Express and a bunch of other big companies.

To be clear, this doesn’t mean PG knows everything about negotiating intellectual property partnerships and other deals with large organizations, but he does know some things about that subject.

PG definitely has not represented any large publishers in their dealings with large tech companies. He has, however, represented a lot of authors in their dealings with large publishers.

Speaking generally, large publishers are not cut out to be good partners for tech companies.

Publishers are simply too rigid in their business vision and very much focused on the short term (which is strange for organizations that license copyrights, which extend far into the future).

This short term outlook is substantially affected by the fact that the Big Five publishers are all owned and controlled by other and larger media conglomerates. Four of the Big Five are owned by large European publishing corporations that are not known for their commitment to innovation and could not be described as tech-savvy in any sense. The fifth Big Five publisher, Simon & Schuster, is owned by CBS.

Each of these media conglomerates is heavily focused on this quarter’s and this year’s income, expenses and profits. They’re not what anyone would call forward-looking or focused on the long term. If they think about the long term at all, they’re convinced it will not be much different than last quarter.

(PG worked for a major subsidiary of a very, very large international media conglomerate for three unhappy years and knows that of which he speaks.)

This means that if Google sends someone to talk to the President of a Big Five publisher, Google is talking to a middle-manager in a much larger business organization. The Big Five President can do pretty much whatever he/she wants to do with Barnes & Noble and Ingram (as long as it doesn’t have an adverse impact on profits), but cutting a strategic deal with Google is way, way out of his/her job description.

Organizations like Google, Apple and Amazon quickly become frustrated with organizations that are not able to move rapidly.

Strategies to cut overheads in a shrinking book business

31 July 2017

From veteran publishing consultant, Mike Shatzkin:

An inexorable reality of today’s commercial book publishing world is that it is shrinking.Although there have been no obvious signs yet that actual long-form book reading itself has declined (even though that would seem a likely consequence over time of the changed ways we get our reading inputs), the self-publishing and indie segment of the market keeps growing at the expense of the legacy commercial business.

Although it would take data I don’t have to prove this, it certainly appears anecdotally that the big houses are cutting back their investment in midlist titles, perhaps actually cutting future title count (which, over the years, has been an often-espoused but seldom-pursued strategy) but also offering smaller advances for all but the very top books.

Sales seem to be drifting away from the established publishers as their title outputs shrink or remain static and are shifting to Amazon’s own titles and indies, which is where the title base is expanding.

When businesses are shrinking, or even just not growing, it is a normal reaction to find ways to cut costs to maintain margins and profits. And, in fact, the big publishers have generally been managing their costs pretty effectively during a period of flat or declining top line sales.

In that context, it was no real surprise when it was publicly announced last week that F+W Publishing, which recently changed ownership, will cut overheads by moving from doing their own sales and distribution to working instead through Perseus, an Ingram company.

Meanwhile, the whole legacy industry worries about the future for Barnes & Noble.

Last week a significant Barnes & Noble shareholder called publicly for the chain to offer itself for sale, apparently calculating that new (and perhaps “private”) ownership would see paths to profits that aren’t being followed right now. This follows continuing evidence that B&N’s overall sales track the legacy business, and are therefore declining. Amazon, of course, is not just the principal creator and beneficiary of the new competitors, primarily independent authors. They are also moving from being an online-only retailer to competing in B&N’s milieu: physical locations offering books.

. . . .

Amazon’s supply chain, built on a scale that the book business alone could never support, is now the gold standard. It will enable them to continue rolling out smaller stores, which is the kind of outlet that can succeed in today’s book marketplace. The stark fact today is that more than half the sales are online (and despite BN.com and the increased frequency of online book peddling from authors and various vertical organizations enabled by Ingram’s Aer.io and its competitors, almost all of those go to Amazon).

Big in-store inventories have become a pointless anachronism.

It is cheap sport to ridicule Barnes & Noble’s performance in the Internet age. They’ve made many of the standard incumbent mistakes in the face of upstart competition. They dealt themselves out of the online business by not pursuing either of the two most likely paths to success. They should either have made their dot com a stand-alone business, with pricing and growth aspirations beyond books that competed with Amazon, or they should have tightly integrated the online and store offerings to produce a hybrid that had its own appeal. They did neither.

. . . .

The shrinkage of the commercial business has other visible impacts. There is anecdotal evidence that the agents are suffering from these cutbacks. One much-younger-than-I-am publishing veteran recalled for me that when he started agenting (he no longer is active in that aspect of the business) a dozen years ago, he could live on his salary as a fledgling agent and he could really “build a list”. Neither of these things seem to be possible anymore, or at the least they are much more difficult. Meanwhile, even the older agents — those who have a list of productive authors — are finding it get harder and harder to make sales. And like publishers of a certain age, these agents don’t find their own progeny or their younger staff as willing to commit money or time to the future of the business as they would have expected them to 10 or 20 years ago.

Present trends clearly suggest that we will continue to have fewer commercial publishers signing up fewer books for smaller advances outside the handful of authors that are virtual guarantees to deliver big unit sales. And for those books that do have an assured big unit sale, publishers will tend to be willing to overpay because they need throughput to feed their fixed-overhead machines.

Link to the rest at The Shatzkin Files

PG has disagreed with more than one of Mike’s posts in the past. In this instance, PG doesn’t disagree with the way Mike has characterized the current business climate for publishers. Mike has described the serious (likely fatal) problems of the traditional book business utilizing perspectives and information sources only a long-time publishing professional would understand.

However, as far as a solution for Barnes & Noble’s or the publishing industry’s overall problems, PG is reminded of an old business adage, “You can’t cut your way to success.”

Unless there is a reason to believe that a smaller book business will, by virtue of its size, gain access to powerful strategies, tools and talents that the larger one can’t obtain, cutting expenses is just trying to keep the Titanic afloat by tossing buckets of water overboard.

For authors, PG will repeat his harangue that the “standard” publishing contract that will last for the term of the author’s copyright – the remainder of the author’s life plus 70 years in the US and similar lengths of time in other countries – puts traditionally-published authors into a very difficult situation. They’re the only ones who can’t jump ship and take their sources of income with them.

Traditionally-published authors have signed a contract that ties up their books basically forever. The contract is with a publisher that is a corporate entity, not a person.

Although the publisher’s past record of selling books or an editor’s reputation for quality work developing other authors’ careers may have been a key element in deciding to place the author’s book with that particular publisher, the editor and the people who worked hard to establish a successful sales record are not parties to the contract. They have no obligations to the author or to the publisher. The publisher probably has no long-term obligations to the people who built the publisher’s reputation.

Cutting your way to success often means firing people with the highest salaries. Cutting your way to success can also mean ruthlessly pruning expenses so the corporation can be sold to an entirely new owner.

The author has no voice in choosing a new owner for the publisher and no ability to change the lifetime term of the publishing contract.

The new owner will undoubtedly be another corporation. That corporation may be operated by people who are experienced and skilled in the book business or the new owner may be a hedge fund that specializes in sucking the last dollar from distressed properties prior to placing them into bankruptcy where even lower bottom-feeders will pick over the bones of the once-successful publisher.

And the author continues to be an unwilling participant in the process by virtue of the lifetime plus 70 contract she signed.

Visitors to TPV can decide whether publishers operated by bottom-feeders will be conscientious about sending out timely and accurate royalty reports. And royalty checks.

If an author has an obligation to give the publisher first option on new books or is prohibited from writing books that will compete with those the publisher has already published, how likely is it that the bottom-feeder will promptly respond to the option manuscripts or agree that the new books are not competitive so the author can sell those books to another publisher or self-publish them? A bottom feeder might decide that the author should pay a fee to obtain clearance to take each new book elsewhere.

PG reflexively takes the author’s side in business transactions with others. As he has mentioned before, Mrs. PG is a long-time author, first traditionally published and, in recent years, very happily self-published.

He lays out these possibilities and probabilities not to ruin the day for a traditionally-published author, but as a warning to act like a business person who sees a big storm on the horizon and take whatever precautions are available to minimize the financial and emotional damage which is likely to occur based upon current trends in the book business.

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