Mike Shatzkin

Authors need help with their digital presence that they still are not getting

13 April 2017

From veteran publishing consultant Mike Shatzkin:

A major difference between book publishing today and book publishing 25 years ago is the practical power of the author brand in marketing. Multi-book authors can not only build their own followings in ways that can be usefully exploited, they now have an unprecedented capability to help each other.

Of course, they can do that best if they’re “organized” in some way. But both of the most obvious potential organizers who deal with many authors — the publishers and the agents — have commercial and structural impediments to being as helpful as they could be, or as authors need them to be, at either of the new needs: helping authors be better marketers of themselves or getting them to act in a coordinated way to help each other.

Building an individual author’s digital marketing footprint is an important component of career development. And, in fact, the foundation of the author’s “brand” footprint has strong influence on the success of the title marketing publishers would see as their principal objective.

But the publisher has a book-by-book relationship, not an assured ongoing relationship, with authors so investing for a longer-term gain is not structurally encouraged. And agents live with pretty strict ethics rules limiting their compensation to a share of the author contracts they negotiate, so they also have a structural impediment against investing money and time in the author’s general welfare beyond getting the best possible deal they can for every book they represent.

. . . .

When you discuss author marketing with literary agents you find that many of them already think of themselves as career consultants for their authors. Many of them build it into their own job description. But, frankly, the skill and expertise agents have to advise on financial management or digital marketing is highly variable. There could be even less consistency to what agents know about digital marketing than there is across publishers.

One agent, expressing what I think is appropriate humility, said she thought of herself as a “coach” for authors on career and digital marketing matters, not a “manager”. It seems likely to me that most agents with a multitude of clients will have some that know much more about digital marketing than they do!

. . . .

But organizing authors to help each other in this way is also touchy for both agents and publishers. For agents, there are two obvious problems. One is that the best marketing partners for any particular author might be represented by a different agency. That makes things complicated. But the other is that the agent’s “job” is to get an author deals. Getting authors engaged in a perhaps-complex marketing consortium requires another level of understanding and persuasion that agents could rightly see as a distraction to what pays the bills: developing proposals and getting offers from publishers. From a publisher’s perspective, organizing the house’s writers and having them communicate directly is a bit like asking big-company management to organize the union. There might be good arguments to do it but for many it would provoke a visceral negative reaction.

One consultant I spoke with in the course of writing this piece made a long list of concerns publishers would have about what authors encouraged to trade war stories might talk about, including contract terms and how much attention they were getting for their marketing efforts. But, of course, the authors’ agents already know these things.

. . . .

Trelstad made clear that authors are talking to each other about marketing and organizing themselves to help each other. With modern digital tools, this is easy. It is also very hard to track. There is one effort that has gotten some notoriety called the Tall Poppies, a collection of writers organized and spearheaded by author Ann Garvin. Their mission statement explains that “Tall Poppy Writers is a community of writing professionals committed to growing relationships, promoting the work of its members, and connecting authors with each other and with readers. By sharing information and supporting one another’s work, we strive to stand out in the literary marketplace and to help our members do the same.”

According to Trelstad (who is herself a “Tall Poppy member”), this kind of collaboration among authors is becoming increasingly common under the radar, like with her “masterminds” groups. It makes sense. The Trump and Sanders supporters didn’t need the party apparatus to get themselves together in common cause. Using the same tools and techniques, authors can also unite in their own interest without needing a publisher or agent to facilitate it for them. And apparently they are.

. . . .

So authors talking to authors is a development we may as an industry not be as aware of as we should be.

. . . .

When I asked Trelstad if any publisher seemed to be getting this right, she said, without hesitation, “Amazon. They are very good at communicating with their authors. They help overcome fear and uncertainty. And they automatically give authors and editors a voice in their covers.”

Link to the rest at The Shatzkin Files

PG should be smarter by now, but he continues to be constantly surprised by how clueless the pillars of traditional publishing are about what’s happening outside their small circle.

Authors are talking to each other!

Authors are helping each other!

Authors are creating websites and blogs – sometimes all by themselves! In every one-stoplight town in America, there are people who know how to build websites and blogs who are happy to be hired by authors who don’t want to do the work themselves.

And then there’s that internet thing that lets an author in Boston hire a digital designer in Anchorage to create the author’s online presence and promotion materials that an internet marketing consultant in Dallas uses to run the author’s book promotions all over the world.

The idea that authors talking to each other, sharing inside information in the process, will only happen if publishers or agents organize such gatherings is truly bizarre. Publishers and agents would be out of business without their suppliers – authors – yet they have huge gaps in their knowledge about what authors have been routinely doing for years – getting together electronically to talk shop, share information about royalties, advances, which marketing techniques work and which don’t, etc., etc., etc.

Of course, Amazon is different. Amazon is a well-managed, highly-efficient 21st century organization. Amazon is obsessively customer-focused and Amazon’s publishing arms – KDP and Amazon Publishing – view authors and readers as their customers.

As many regular TPV visitors know, one of Mrs. PG’s books was selected for publishing via Kindle Scout. For someone who had a lot of books traditionally published, the Amazon Publishing experience is extraordinary. Information is shared, emails are answered, the publisher treats the author like an intelligent human being who wants the same thing the publisher does – a high-quality book. Mrs. PG’s book is likely to be published and selling sooner than a New York publisher could manage to email her a publishing contract.

Also, Amazon knows more about selling books than any publisher and any conventional bookstore because, unlike the English majors running big publishing, Amazon understands the value of data and employs a whole lot of people who are extremely talented at mining big data for its secrets. In Jeff Bezos’ letter to shareholders, referenced in an earlier post, he talks about how much of what happens behind the scenes on Amazon’s websites relies on cutting-edge artificial intelligence and machine learning techniques.

Speaking of data, PG’s impression is that, when Data Guy speaks to a large gathering of traditional publishing folk, 99.9% of the analytical brain power in the room is up on the podium talking and running the PowerPoint presentation.

Meanwhile 99% of the audience really needs a stiff drink because Data Guy is showing them reams of information about their own industry that they didn’t know before the PowerPoint started.

 

 

 

Amazon could become our leading physical retailer before very long

22 March 2017

From veteran publishing consultant Mike Shatzkin:

More than five years ago in this space we contemplated the likelihood that Amazon would just keep growing and growing its share of the book business without any end. Of course, a book business-centric view of Amazon these days doesn’t really do Amazon justice. Books and ebooks are a really small part of their business (although it is, for many publishers, more than half of theirs!)  It might be unfair to say that Amazon alone has crippled retail stores but the impact of online delivery is changing the landscape in ways that are impossible to ignore.

Living in midtown Manhattan, as I have for my entire adult life, has always presented distinct advantages of convenience. With street-level retail on every inch of the avenues and in many of the buildings that occupy the streets between them, the number of choices of restaurants and stores of all kinds within a 5- or 10-minute walk of my apartment has always exceeded what is available to most people within a half-hour drive, even if they live near a large shopping center.

But things have been changing noticeably. Even in midtown Manhattan, the locale with the most walking traffic in the country, retailers are struggling. The number of empty storefronts in my neighborhood is staggering; there are one or two or more on just about every block. It has never been that way before in my experience.

For most of the 45 years I’ve lived here, there was a supermarket in my building and one immediately across the street. Now the one in my building is a large restaurant in a mini-chain called The Smith and the one across the street has been empty for nearly a year. The closest remaining ones are 2-1/2 blocks away in one direction, 3-1/2 blocks in another. This is a big deal when all your travel is on foot and your normal procedure is to carry your bags home.

And, of course, that just means we start ordering more things online to be delivered.

. . . .

It doesn’t take a genius or a futurist — nor require one to be a contrarian — to see that that we are “over-stored” everywhere, not just in the shopping centers being challenged by the gradually-then-suddenly demise of department store chains like Macy’s and Sears. And when you live where I do, the shift to online purchasing is plain to see in the piles of delivered packages our doormen have to deal with every day which becomes a flood that now overflows the pretty large package room in December. And most of those boxes have an Amazon logo on them.

. . . .

Barnes & Noble outlasted Borders primarily because they had a better logistics network supporting their stores. Smart location and inventory selection and merchandising certainly didn’t hurt, but it was the rapid and automated resupply of books as they sold that provided an insuperable advantage.

B&N’s logistics capability pales in relation to Amazon’s. And probably so does the logistics capability of every other retailer. None of them requires the complexity that Amazon does, across not only the widest conceivable range of products but also across millions of retailing “partners” — affilates and Amazon Marketplace sellers — who are integrated into the same supply chain.

In fact, for all the discussion of B&N’s experimentation with “concept stores” and my own suggestion that they should be working on delivering smaller stores, it is Amazon that is doing the most experimentation in the physical store space.

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

Deep in the weeds of publishing economics

3 March 2017

From veteran publishing consultant Mike Shatzkin:

When publishers decide whether or not to buy a book, or look back at a book to evaluate its performance, the analysis is done in a way that could be, and often is, misleading. This is almost universal practice, has been for at least a century, and may never change. But it is worth a few minutes for anybody interested in understanding the profitability of a publishing house to contemplate what seems to me to be rampant misunderstanding.

The problem is the practice of constructing P&Ls on a book-by-book basis. The concept itself is a logical fallacy. The idea of an individual book making a profit or loss only makes sense if there is no publishing house. That is, if you decide this afternoon to take time off from your career as a truck driver or a banker and invest a little cash in publishing a book, your exercise could at some point be measured and a profit or loss could be calculated.

Doing that would be very straightforward if you were doing it on a cash basis. You’d add up all the revenue you got from publishing the book and all the expenses you incurred in publishing it and pursuing that revenue, mash them together, and have your calculated profit or loss. You would have to account for unsold inventory if you didn’t use a print-on-demand strategy. You might have net positive cash (profit) or net negative cash (loss) and some unsold inventory (potential additional profit) that you might have to pay storage fees on (potential additional loss).

Standard accrual accounting methods would call that unsold inventory an “asset”, essentially adding to your “profit”, but that would only be true if you could actually sell it.

. . . .

But if you decided to grow your little operation and do ten books, even on a cash basis the accounting for each book now wouldn’t be quite as simple. Your production or marketing or sales team works on your whole list and how much of their time should be “allocated” to each book might be hard or even impossible to calculate. If you were being precise about it, you’d have to account for the reality that the books are not all the same. They take different amounts of effort to develop editorially and do not place consistent demands on your production and distribution overhead costs. You couldn’t actually just “add up” all the expenses for each book to subtract from the revenues to produce a profit calculation.

And imagine how much harder it would be to be precise about assigning those costs if you were dealing with hundreds of books in an organization each year. Or thousands.

Because many publishing decisions are made one book at a time and because accounting is done to the government to pay taxes and (sometimes) to shareholders as well, it is common to do the accounting on a “per title basis” and ultimately on a “per unit” basis (where we aren’t just trying to understand the profit — or loss — by title, but literally score things down to the individual unit transacted). Title P&Ls and unit cost accounting are part of the operating fabric of every large publishing house.

I’d argue publishing would work better if they weren’t.

. . . .

Here’s how book publishing economics actually works. A publishing house has overheads which are reasonably fixed: primarily rent and salaries but also including travel and entertainment, insurances, legal and accounting, and the costs all businesses have to keep operating and keep their doors open. Unless there is some conscious expansion or contraction of the publishing program, those expenses do not fluctuate appreciably based on the number of titles a house publishes or the revenues it generates from selling books and rights.

Then each book has two kinds of costs: the investments required to publish it at all (author’s advance and what used to be called design and typesetting but which would now be better described as “creating a print-ready file”) and unit production costs, the “paper, presswork, and binding” of the actual printed units. There is no unit production cost for ebooks.

When books or rights sell, the publisher banks a “margin”. For rights, that is all the revenue not paid through to the author. For book sales, it is “contribution margin”, the difference between the revenue the publisher receives from accounts and the actual direct costs required to complete the sale, which for most books requires subtracting the unit printing cost and any incremental sales commission and royalty due to the author (if the advance has earned out). The margin earned on each book has to “pay back” the book’s direct investments first but then gets applied to address overhead.

When the net positive margin generated by all the books, frontlist and backlist, in a fiscal year have covered the house’s overhead, the additional margin constitutes the house’s profit. One might say the book’s “profit” is the margin it generates, but no publishing house I know looks at it that way.

Instead, the standard practice is to assign each book its “share” of the house’s overhead. (Sometimes this is made even more complicated by assigning different overheads to books from different reporting units — imprints — within the house.) How the number to apply is calculated in each house is not transparent, and almost certainly varies, but the simplest form would be for the house to calculate what the fixed overheads were last year in relation to total sales and “allocate” each book that percentage of overheads. (The overhead number often ends up being 35 to 45 percent.) That overhead allocation pushes many, if not most, books from being scored as”profitable” to being calculated to be “unprofitable”.

. . . .

Before the rise of indie publishing enabled by Amazon, it was much easier for the big houses with their big sales and distribution capabilities, to be sure they’d get thousands of copies out on just about every book they did. Now it happens — and it really didn’t back then — that even a big house can have frequent abject failures: books that don’t even recover their direct costs (even without a massive advance against royalties). That was a much rarer event in bygone decades.

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

Agency pricing didn’t restrain Amazon; it strengthened them

2 February 2017

From veteran publishing consultant Mike Shatzkin:

Many, if not most, of the people in publishing houses I know have what they feel is a pretty clear picture of the changes we’re seeing in the business. There seems to be a strong consensus that the ebook share is leveling off or diminishing as opposed to print. And there is an enthusiasm about what is characterized as a vibrant and growing independent sector. And stronger print, too many (if not most) people (even inside the industry) figure, means stronger brick-and-mortar and a lessening of the power of Amazon.

But data is really elusive and confusing in our business. Nobody really counts everything in the same way with the same time periods and methodology.

. . . .

The challenge of aggregating that data and making sense of it has been tackled by Data Guy, the anonymous quant who put together the Author Earnings website with indie author star Hugh Howey. The original mission of Author Earnings was to get a handle on how much money indie authors earned in relation to conventionally-published ones. Indie authors often sell ebooks, particularly, at much lower prices than established publishers do, with the author getting a much larger share of the consumer dollar from those sales. But indie authors don’t get the same level of print sales (almost none in stores) and often don’t produce audiobooks, which require a separate creative effort.

So indie authors often make more per copy on ebooks, even when they are priced very low, than published authors do, ignoring, for the moment, that so many published books don’t earn out their advance so the effective royalty rate is higher than the contractual royalty rate. The indies also usually give up a big share of the potential market because many of them only get ebook sales through Amazon.

. . . .

So it requires a certain amount of faith to accept Data Guy’s analysis. It is almost certainly not 100% correct. But Bookscan doesn’t capture all the cash registers and PubTrack doesn’t get reports from all the publishers either. (Welcome to the world of publishing data!)

. . . .

That’s analysis each publisher needs for each book they do, and should perhaps engage Data Guy to help them with. There are some stunning revelations even within his DBW slides but, as he spells out, he can get exceedingly granular with that analysis. If my commercial success depended on knowing the landscape, I’d want him to inform me about the market for each book I published.

The other set of insights provided blows away the picture of reality painted here in the opening graf. (Admittedly, the sophisticated quants inside the biggest publishers must know this picture isn’t accurate about their own books.) It documents that the strategy of the biggest publishers, going to agency pricing so it was harder for Amazon to discount ebooks, is not solving their “Amazon problem”. It is exacerbating it!

Data Guy delivers a much clearer picture of the real market by including and integrating data for what Bookscan and PubTrack leave uncounted: the indie-published books (and even some from publishers) that don’t carry ISBNs and Amazon-published books that aren’t reported. He estimates the total “non-traditional” market at $1.25 billion consumer dollars, almost 300 million units across formats, with the lion’s share — 263 million of the 297 million units — being ebooks. The ebooks are on the cheaper side (he says an average of $2.92 per unit for the self-published and $4.38 per unit for Amazon-published). The ninety-nine cent price is pretty much a relic, except for windowed promotions. Amazon made that happen with their royalty structure, encouraging authors to price at $2.99 or above.

This shadow market constitutes 43% of the units purchased on Amazon and 24% of the dollars spent.

Those 263 million ebooks that Data Guy counts and Bookscan doesn’t are the difference between the flat or shrinking ebook market that publishers see and the perhaps-still-growing ebook market that Amazon sales suggest.

. . . .

No, the strategy of forcing Amazon to eschew discounting of ebooks — the agency pricing publishers have fought for and accomplished over the past several years — is not fostering an ecosystem more hospitable to the publishers.

In fact, it is making it more difficult for them.

This is clearly revealed through Data Guy’s consolidated picture of print book sales (only) in 2015 and 2016. In fact, the year-to-year change over those two years showed that the percentage of sales delivered through B&N, Walmart/Target, and “other” (smaller chains, airport stores, non-bookstores) all fell. The celebrated independent bookstores held their own, at a pretty paltry 6 percent of the sales.

But Amazon increased its share substantially, from 38 percent of the print units to 42 percent.

So if the original point to the agency strategy was to reduce the power of Amazon, it isn’t working.

. . . .

It is an incredible irony that the publishers had a strategy to hobble Amazon: stop ebook discounting. The courts found that unpalatable, so the publishers were forced to relent a bit. But, Amazon effectively said “no, thank you, we’re okay with what you did originally” and changed tactics to create a different pressure point.

We now live in a world where 69 percent (shout it out: SIXTY-NINE PERCENT) of book sales — print, digital, and audio — are online and only 31% in brick-and-mortar stores. For kids books, fiction and non-fiction, that’s a bit under half. For adult books, fiction and non-fiction, that’s about three-quarters!

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

PG suspects “sophisticated quants inside the biggest publishers” don’t exist. If PG is wrong about the nonexistence of quants, the only explanation for Big Publishing’s strategy during the last 5-8 years is that management never listens to anyone with the tiniest bit of quantitative ability.

At every major fork in the disruptive road, publishers have made the wrong decision. Fighting Amazon when they should have embraced Amazon. Mispricing ebooks to support print sales. Chasing talented authors away when they should have been treating them like queens. (Yes, publishers are sexist, particularly in their attitude towards “women’s” genres and the authors who write in those genres. Anybody with a single quant cell in their brains would have gone all-in for ebook romances and their voracious readers.)

For the book business, VMI in warehouses might happen before VMI in stores

17 January 2017

From veteran publishing consultant Mike Shatzkin:

The sales-and-returns convention by which most books are sold by most publishers to their retail and wholesale accounts is too often described as “consignment”. It actually isn’t. Actual consignment terms would give us a quite different supply chain, and we may be closer than most people imagine to shifting to it.

Although major trade accounts do purchase their stock from publishers with the rights to return unsold stock for full (or nearly full) credit, this is quite different from true consignment in a number of ways.

1. The publisher’s customer is on the hook for at least some freight cost for shipping the goods. Most customers would pay the shipping cost to receive the books in the first place and almost all would pay the cost to send them back.

2. For almost all their customers, the publishers are paid faster than the customer recovers their investment (which would be by selling to the end customer for a retailer or by selling to and then collecting from the next holder of the inventory or a final customer for a wholesaler). So the publisher receives cash which is an actual capital investment by their customer. True consignment would not require that investment.

3. Because the retailer or wholesaler is providing the capital investment for the books on the store or warehouse shelf, the customer decides on prices and quantities. The publisher has to “sell” the customer on parting with some of their limited funds for inventory investment. True “consignment” would see the publisher deliver the inventory (pay the freight) to the customer and, if they subsequently wanted it returned, pay the freight to bring it back. The customer would be responsible for receiving the inventory, shelving it, paying for anything sold or lost, and packing it back up when asked to return it. But it wouldn’t be commercially practical for the account to determine titles and quantities if they were at no risk or penalty for taking in excess stock. Overstocking, which ultimately would require the publisher to overprint and eat inventory on every title, would be routine if the accounts decided what to receive on consignment. If there’s no cost, why should they risk being out of stock?

So, if the terms were “true” consignment, where the inventory risk and investment remained with the publisher, it would also require that the publisher decide on the titles and quantities to be consigned.

. . . .

This is a topic worth considering because we as an industry could be on the cusp of switching to this kind of commercial arrangement. For publishers today there are three major accounts which drive the business for most of them: Amazon, Barnes & Noble, and Ingram. Amazon has had an “Advantage” program for years that entices smaller publishers to offer consignment terms. Barnes & Noble has, with limited success, been pushing publishers toward consignment inventory in their distribution centers for years. And Ingram already holds a ton of consigned inventory through its largest-in-the-industry distribution business. They are already a very progressive company and would undoubtedly see the benefits of consignment for all their wholesale inventory as well.

. . . .

From the accounts’ (Amazon, B&N, Ingram) perspective, there are two big “risks” in going to consignment and ceding the inventory decisions to publishers. The less expensive one is that they might actually have to physically hold (warehouse, but not invest in) more books to achieve the same sales level. I say “might” because the publisher could conceivably operate with leaner inventory on many of the fastest-moving titles when replenishment inventory can be supplied without the bureaucratic need to get to a buyer and get an order.

The more serious risk would be of not having books that would sell that their own buyers would have put on their shelves. But, of course, any publisher would want to put in the most likely to sell, so as long as the account didn’t totally lose its ability to know what it could sell, that information could find its way to the buying decisions.

This all boils down to the practice of “demand planning”, which could also be called “sales predicting”.

. . . .

For Barnes & Noble, the information the publisher has about its own marketing efforts and how the book is doing in general in reviews and in cyber-discussion — or even how it is selling in other locations in the marketplace — is almost always secondary to internal B&N merchandising information. Is the book on model stock, an automated reorder capability where the sale of a copy triggers replenishment? Is the book displayed prominently in the stores, or, at the other extreme, is it in the stores at all? Is the book distributed across all geographies and store sizes? All of these elements have a big impact on the demand B&N distribution centers will see, whatever the other signals say about a title’s inherent appeal and marketing experience.

. . . .

There are few, if any, publishers today who are equipped to make the decisions to manage consignment inventory effectively at their accounts’ warehouses. But there are compelling reasons for the industry to shift to doing things that way. Fortunately, doing many of the right things will come naturally to the publishers if the tables get turned. It takes instinct more than genius to keep quantities lean if you’re on the hook for the freight in and out and you don’t need anybody’s permission to ship more copies in when they’re needed.

Link to the rest at The Shatzkin Files

Digital marketing and coping with Amazon are the two big challenges for publishers as we begin 2017

4 January 2017

From veteran publishing consultant Mike Shatzkin:

[T]he big challenges for the industry [in 2017] — how to change marketing to hit customers who are mostly learning what to buy online (which, as you’ll see, is well covered) and how to cope with the steadily growing market share that is Amazon’s — remain the ones I would have anticipated.

Although I do actually know other people who, like me, consume just about all their books on screens, we’re a minority who are not really looked upon by those who have stuck with paper as the avant garde. Whatever market share ebooks achieve by evolution (and the data suggest that share has plateaued in the past couple of years), the expectations of revolution are at least temporarily over. I thought we’d be clearly on a path by now to most people reading most narrative books digitally. We aren’t, even though the one precondition I thought was necessary has been met: most people carry screens all the time that would work fine for ebooks. This clearly demonstrates that there is a limit to how much the appeal of convenience changes reader habits when the comfort level with a form is a competing consideration.

. . . .

By anecdotal information gleaned from publishers, Amazon appears to be booking half or more of the print sales for many publishers and many books.

(I told this fact to a former CEO who has been out of the business for 20 years last week. He said, “you mean, if I sell 40,000 books, Amazon will sell 20,000?” I said, “yes”. He said, “wow.”)

One informed estimate I heard is that Amazon constitutes upwards of 95 percent of online print sales. Kindle has outrun its ebook competition, gaining share consistently from Apple’s iBooks, B&N’s Nook, and Kobo and Google. Amazon probably has an ebook share in the mid-60s for most publishers. However, with the ebooks they control and keep off other platforms — Amazon Publishing and many of their top indie authors — and with additional impetus compared to the other vendors from their subscription business, their overall ebook market share is perhaps 10 or more points higher than that.

. . . .

So my expectation this year is that the most important information [Digital Book World] is going to have to deliver will come from Data Guy, Hugh Howey’s collaborator on the Author Earnings website, whom Michael Cader and I introduced to the DBW audience last year.

. . . .

Data Guy has broadened his remit, which was originally about understanding ebook sales, by joining forces with Nielsen Bookscan. That enables him to analyze print, audio, and digital sales through online and physical store channels, and to look at the books both by source (indies, Amazon-published, and “traditional”) and by genre. DBW has published a mini White Paper, available now, that tips to a lot of this information.

. . . .

I am hoping that there will be price breakdowns [in the Digital Book World presentation by Data Guy] as well. I have noticed that the last four or five ebooks I’ve bought have been pretty pricey — well above $9.99. These books are all non-fiction and they are relatively serious and nichey, not aimed at mass audiences. I’m pretty certain that both the publisher and the author are making more profit on those sales than they would on a print sale of that book. The information already revealed by Data Guy through the White Paper would support conjecture that the biggest ebook sales are going to much cheaper ebooks published in high-volume-per-reader genres (like romance, mystery, and sci-fi).

Link to the rest at The Shatzkin Files

Conferences are thermometers recording the level of fear about publishing changes

8 December 2016

From veteran publishing consultant, Mike Shatzkin:

In the latest sign that the need for information about digital change in publishing has undergone a sea change in the past few years, it was announced today that Nielsen will not stage an independent conference in London this April, but will instead join forces with the London Book Fair to do an event there in March.

This reminds me that the best salesperson I ever worked with had a mantra 40 years ago that is proven over and over again to be true. “I never sell with logic,” he said, “unless I find no way to sell with fear.” Nothing demonstrates that more clearly than the rapid ups and now apparent downs of the digital change conference business in our industry.

. . . .

As their then-chairman Denis Bennett said at the time, “we sell software to help publishers keep track of books in warehouses. What if there are no books? What if there are no warehouses?” He decided his customers needed to explore the same questions, so he funded a team led by Mark Bide of the UK and me to do research on digital change. First the findings benefited VISTA’s strategic planning and then they were turned into conference presentations to help publishers.

Meanwhile, Amazon grew, Barnes & Noble — first with Bertelsmann and then on their own — competed for online sales and ebooks reared their head through initiatives by Sony, Palm, and Microsoft. It became evident to many people that the industry might change a lot. And the era of digital conferences throughout the publishing calendar began.

. . . .

Then in 2009, David Nussbaum and Sara Domville of F+W Media conceived Digital Book World and recruited me and then Michael Cader of Publishers Lunch to program and market it. That began a run of seven years for us, which had a bit of a bell curve. The first few years we were up and the last few years it got increasingly difficult to maintain the level of success we’d reached.

And that was because publishers lost the fear. This was for a variety of reasons. One is all to their credit: they hired in people who knew digital even if they didn’t (yet) know publishing. But it was also that circumstances changed. The surge in ebook sales taking share from print slowed down, then apparently stopped. New marketing procedures, still driven by major accounts but also now using new tools like NetGalley and ever-improving techniques and software assistance to find the right keywords for discovery, were developed to address the new marketplace.

What had been been a disruptive and frightening pace of change became a much slower boil. As the metaphorical frog in boiling water demonstrated, not feeling a change doesn’t mean one isn’t happening. But feeling the change drove the fear and fear drove the need for education and validation.

Now the challenges are more subtle. Amazon is past 50 percent of the sales for many publishers. That’s comprised of a lion’s share of online print sales and almost as much of the ebook sales. Not only does Amazon have a multiple of the biggest share of the book business any prior account had ever achieved, they aren’t shy about using their clout to claw back margin.

. . . .

So, in 2016 publishers can literally reach most of the customers in the world through two intermediaries, Amazon and Ingram. Obviously, a publisher who calls on stores locally and around the world will stimulate sales that the best relationship in the world with Ingram can’t deliver entirely on its own. It still definitely “pays” for a publisher to push to get books in stores in the US and around the world on their own. And it is likely that books on display and selling in brick-and-mortar stores in the US and elsewhere actually stimulate sales at Amazon as well. But a publisher with no more organization than relationships with Amazon, Ingram, and a talented digital marketing team can publish successfully in today’s world.

Link to the rest at The Shatzkin Files

Newspaper publishers face very different and much more immediate threats than book publishers

16 November 2016

From veteran publishing consultant Mike Shatzkin:

The business news has been very painful for newspapers lately. A piece we saw a couple of days ago says both the New York Times and the Wall Street Journal are going to cut back sharply on their arts coverage. The advertising simply isn’t there to support it.

And recently before that, we read a piece suggesting that perhaps newspapers should have just ignored the whole digital thing (a frighteningly obtuse suggestion) and then right afterwards a Times story documenting the collapse of advertising dollars available for print which pretty much obviates the “just skip digital” idea. (One wonders if the people advocating that solution are not aware that overall ad budgets are reviewed by all advertisers regularly and the budgets are routinely reallocated to put more into digital and less into print! This is not a “secret” trend.)

. . . .

I have two print subscriptions left: The New York Times and The New Yorker. I have recently found that their online prompts through emails and digests have led me to read most of what the print edition offers on my phone before the print edition arrives! (Still, I have no plans to cancel either because digital-only isn’t that much cheaper and I still get a bit of value out of the print.)

While I think the book business still has years of viability in front of it, I can’t see a way to sustain the periodicals. It isn’t just about consumption in print versus consumption in digital. There are two massive differences between the businesses.

1. Newspapers (and magazines) depend on advertising in their business model; book publishers don’t.

2. Newspapers (and magazines) are aggregates of content while many books are themselves a single unit of content. You can get the box scores or the weather or the national news headlines from a variety of places, no matter how unique or distinctive are other parts of the newspaper you buy. You wouldn’t find an acceptable substitute for the sixth chapter of a novel you’re reading.

. . . .

Both the “whole” newspaper and the record album made sense in a physical world. It would simply not be practical for the newspaper to deliver recipes and box scores on your lawn and national news and TV listings on mine. Record companies “stamped” records and CDs, and it was approximately the same cost basis to them whether they gave you one or two songs when they did that or twelve. Both business models were built on aggregations when physical requirements made the aggregations sensible and the consumer readily went along with it.

Book publishers certainly have serious challenges in front of them. In the short run, they are learning that novels work better as both print and digital productsthan cookbooks (where the unit of individual content appreciated is the recipe, although for the printed version there are rewards in the entire presentation). They are dealing with consolidation on the distribution side which threatens their margins at the same time that increased competition from indies forces down retail prices. There is reason to believe that long-form reading itself may diminish as our attention spans are increasingly shaped by mobile consumption with many built-in distractions. The commercial book business is already shrinking and it will continue to do so. But the core business model by which publishers acquire units of content, develop and refine them, and then market and distribute them, is currently only eroding. The advertising-based model for printed newspapers and magazines appears to be collapsing.

. . . .

Each large and (historically) successful newspaper is a large business on a one-way path to oblivion.

. . . .

So while newspapers and magazines should continue to pursue events and any ecommerce opportunities they see, they should also recognize that they are riding on a seriously dated business model. If there’s still cash to extract from it, that’s fine. But it is like a mine that has been worked for years or a machine designed for years of use that has now performed for decades.

Link to the rest at The Shatzkin Files

People have stopped buying printed newspapers but people will always buy printed books?

The business model of publishers “is currently only eroding” while the model of printed newspapers and magazines “appears to be collapsing.”

In PG’s experience, erosion is usually followed by collapse, often sudden collapse.

 

The latest marketplace data would seem to say publishers are as strong as ever

19 October 2016

From veteran publishing consultant Mike Shatzkin:

This post began being written a couple of weeks ago when I recalled some specific misplaced expectations I had for the self-publishing revolution and started to ponder why things happened the way they did in recent years. It turns out a big part of the answer I was looking for provides clarity that extends far beyond my original question.

For a period of a few years that probably ended two or three years ago, we saw individual authors regularly crashing bestseller lists with self-published works. Some, like Amanda Hocking, parlayed their bootstrap efforts into significant publishing contracts. Others, like Hugh Howey, focused on building their own little enterprise and tried to use the publishing establishment for what it could do that a self-publisher couldn’t. (In what was certainly a very rare arrangement of this kind with a major indie author, Howey made a print-only deal for his bestseller, “Wool”, with Simon & Schuster. And he made foreign territory and language deals and Hollywood deals as well.) And we know that there were, and are, a slew of indie authors who self-publish through Amazon and don’t even bother to buy ISBN numbers to get universal distribution under a single title identifier, effectively keeping them out of bookstores.

All of this was enabled by three big changes to the historical book publishing and distribution ecosystem. One was the rise of ebooks, which simplified the challenge of putting book content into distributable form and getting it into the hands of consumers. The second was the near-perfection of print on demand technology, which enabled even print books to be offered with neither a significant investment in inventory nor the need for a warehouse to store it. And the third was the increased concentration of sales at a single retailer, Amazon.Between print and digital editions, Amazon sells half or more of the units on many titles and, indeed, may be approaching half the retail sales overall for the US industry.

. . . .

What the rush of indie bestsellers told us a few years ago was that things had changed to the point that a single person with a computer could achieve sales numbers that would please a big corporation going after sales with the tools provided by tons of overhead: careful curation and development, sophisticated production capabilities, teams of marketers and publicists, legions of sales people, and acres of warehouse space. This had not been possible before ebooks. And the market reach of the amateur publisher was extended even further asAmazon’s share of print sales surged as a direct result of retail shelf space declining with Borders’s passing and Barnes & Noble’s shrinkage.

For a period of time that was relatively brief and which now has passed, agents and publishers worried that self-publishing could be appealing to authors they’d want in their ecosystem. The author’s share of the consumer dollar is much higher through self-publishing. And the idea of “control” is very appealing, even if the responsibility that goes with it is real and sometimes onerous.

. . . .

I’d suggest that the biggest reason this activity was so feverish 2-to-4 years ago and isn’t so much now was revealed first in a vitally important post by hybrid author and helper-of-indies Bob Mayer and then reiterated by the latest report from the Author Earnings website.

Mayer built an impressive business for himself by reissuing titles of his that had previously been successfully published and gone out of print. He spells out clearly what has changed since the days of big indie success and the plethora of entity-based publishing initiatives.

The marketplace has been flooded. An industry that used to produce one or two hundred thousand titles a year now produces over a million. Nothing ages out of availability anymore. Even without POD keeping books in print, ebooks and used books make sure that almost nothing ever disappears completely. And Mayer’s sales across a wide range of titles — his and other authors whom he has helped — reflect the mushrooming competition. They’re down sharply, as are the sales of just about everybody he knows.

What Mayer wrote tended to confirm that the breakthrough indie authors happened far more frequently before the market was flooded. Authors who struck it rich in 2010 and 2011 (like Hugh Howey) were lucky to get in before the glut. Recommending that somebody try to do the same thing in 2013 or 2014 was telling them to swim in a pool with water of a completely different temperature.

On the heels of Mayer’s piece, Author Earnings made discoveries that seemed to startle even them. For those who don’t know, AE is a data collection and analysis operation put together by indie author Hugh Howey teamed with the anonymous analyst “Data Guy”. The AE emphasis is on what the author gets, (“a site for authors by authors” is what they call themselves) with less interest in what publishers want to know: how topline ebook revenues are shifting.

According to the industry’s best analyst, Michael Cader, the most recent AE report shows, for the first time since they’ve been tracking it, a reduction in earnings for indie authors and an increase for published authors. (Cader may have a paywall; here’s another report from Publishing Perspectives.) But even more startling is the shift in revenue. Publishers have booked 65% of Kindle revenues and Amazon Publishing has 10%. They put self-published authors at 20%, which is down from 25% previously.

. . . .

What this is telling us is that, whatever deficiencies there are in the way publishers are organized for publishing today, they clearly are able to marshal their resources more effectively for book after book than indies can.

Link to the rest at The Shatzkin Files

PG says it’s interesting that Mike and others associated with Big Publishing debunked Author Earnings for its methodology (which, in PG’s distressingly humble opinion, they took way, way too long to understand) and its results.

Beginning in October 2014, as AE released report after report showing indie authors capturing a larger and larger share of the ebook market, the same criticisms continued.

Now, when the latest AE report shows an interruption in this trend, AE has suddenly become a reliable basis for saying this self-publishing thing is just a fad and Big Publishing will be fine after all.

While he doesn’t have any inside information or amazing predictive powers, PG says market data, particularly sales data, flucutuate.

While AE is a brilliant idea, it is a snapshot based on one day’s sales ranks on Amazon. A series of eight AE reports from October 2014 to May 2016 showed that indie authors were capturing a larger and larger portion of ebook sales. With each report after the first, a trend emerged and its reliability strengthened. The first AE snapshot was not a fluke, created by a single day’s fluctuation. Neither was the second, etc.

While PG was as surprised as anyone that the latest AE report showed a reversal of the previous trend, sales data fluctuate. We’ll have to see several more AE snapshots to understand what, if anything, is changing.

However, the economics and technology that underlie indie authors and their success with self-publishing haven’t changed.

  • Large numbers of people who become more and more accustomed to spending their days and nights reading emails, texts, news, etc., etc., etc. from their phones and tablets are unlikely to suddenly decide they really want to read a physical book.
  • The aggressive pricing of ebooks practiced by indie authors is not going to lose its power to attract new readers and retain existing ones.
  • We are not going to see a larger number of physical bookstores opening than are closing. A bookstore is a lousy financial proposition.
  • It’s not going to become easier for traditional authors to support expensive traditional publishers operating in high-cost cities.
  • As time goes by, readers will continue to discover that indie authors produce books that equal or exceed the quality of those created by legacy publishing. Once that discovery is made, it is not forgotten.

The reality of publishing economics has changed for the big players

19 September 2016

From veteran publishing consultant, Mike Shatzkin:

A veteran agent who was formerly a publisher confirmed a point for me about how trade publishing has changed over the past two decades, particularly for the big houses. This challenges a fundamental tenet of my father’s understanding of the business. (And that’s the still the source of most of mine.) I had long suspected this gap had opened up between “then” and “now”; it was really great to have it confirmed by a smart and experienced industry player.

One of the things that I took from my father’s experience — he was active in publishing starting in the late 1940s — was that just about every book issued by a major publisher recovered its direct costs and contributed some margin. There were really only two ways a book could fail to recover its costs:

1. if the advance paid to the author was excessive, or

2. if the quantity of the first printing far exceeded the advance copy laydown.

In other words, books near the bottom of the list didn’t actually “lose” money; they just didn’t make much as long as the publisher avoided being too generous with the advance or overly optimistic about what they printed.

. . . .

In the 1970s, the two big chains (Walden and B. Dalton) accounted for about 20 percent of the book trade. The other 80 percent was comprised of nearly as many decision-makers as there were outlets. So while it took a really concerted effort (or a very high-profile book or author) to get a title in every possible store location, just about every book went into quite a few. With five thousand individuals making the decision about which books to take, even a small minority of the buyers could put a book into 500 or 1000 stores.

But two big things have conspired to change that reality. The larger one is the consolidation of the retail trade. Now there are substantially fewer than 1000 decision-makers that matter. Amazon is half the sales. Barnes & Noble is probably in the teens. Publishers tell us that there are about 500 independent stores that are significant and that all the indies combined add up to 6 to 8 percent of the retail potential. The balance of the trade — about 25 percent — is the wholesalers, libraries, and specialty accounts.

. . . .

The other thing that has happened is that the houses are much better organized about which books they are “getting behind”. This has the beneficial effect of making sure the books seen to have the biggest potential get full distribution. But it also has the impact of reducing the chances that the “other” books will get full attention from Barnes & Noble (able to deliver more outlets with a single buyer than one would customarily get from the entire indie store network). And, without that, it takes a lot of luck or online discovery to rescue a book from oblivion.

The agent who was confirming my sense of these things agreed that the big houses used to be able to count on a sale of 1500 or 2000 copies for just about any title they published. Now it is not uncommon for books to sell in the very low triple digits, even on a big publisher’s list.

Even before any overhead charge and with a paltry advance, that isn’t going to cover a house’s cost of publication. So there definitely are books today — lots of books — coming from major houses that are not recovering even their direct costs.

This is a fundamental change in big publisher economics from what it was two decades ago. While the potential wins have become exponentially bigger than they were in bygone days, the losses have become increasingly common.

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

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