Mike Shatzkin

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.

eBook pricing resembles three dimensional chess

6 September 2016

From veteran publishing consultant Mike Shatzkin:

The current round of reporting from major publishers contains some danger signs. Their ebook sales are declining (in dollars and even more dramatically in units) in an ebook market that is probably not declining. The “good” news for the publishers is that print sales are pretty much holding their own, or even growing. And profits are being maintained, which is probably the most important metric in their board rooms. But the bad news is that total revenues are down. And print sales have been buoyed by the consumer excitement for adult coloring books(now spreading to adult “activity” books), so the combined results for many author-driven titles don’t necessarily reflect growth and total unit sales of print plus digital for many titles are almost certainly falling behind expectations

In a complicated marketplace with large unknowns around indie authors and indie books, particularly those that are Amazon-only, it is hard to be definitive about what the cause of this is. (Author Earnings does yeoman work trying to put the two overlapping markets in context.) Certainly, barriers to entry have come down and there are many more books in the marketplace competing for readers that don’t come from the companies the publishers think they’re competing against. But the publishers’ “success” in establishing agency pricing — where the price they set is the price the consumer pays — combined with Amazon’s decision to “respect” agency (at first with no choice but subsequently, after contracts were renegotiated, with apparent enthusiasm) and offer no pricing relief from their share of the book’s sales revenue is almost certainly a major component of the emerging problem.

Amazon doesn’t need big publisher books to offer lots of pricing bargains to their Kindle shoppers; they have tens of thousands of indie-published books (many of which are exclusive to them) and a growing number of Amazon-published books, that are offered at prices far below where the big houses price their offerings. That probably explains why Amazon can see its Kindle sales are rising while publishers are universally reporting that their sales for digital texts, including Kindle, are falling.

. . . .

This is putting agency publishers in a very uncomfortable place. It has been an article of faith for the past few years that there is revenue to unlock from ebook sales if only the pricing could be better understood. Just a bit more revenue per unit times all those ebook sales units is a very enticing prospect for publishers. After the agency settlements liberated publishers from the price limitations Apple had originally insisted on, the immediate tendency was for publishers to push ebook prices even higher.

And since ebooks are sold in a less price-competitive market than we had before agency, Amazon can devote its marketing dollars to cutting prices on the print editions. This undercuts the publishers’ intention to support a diverse (and store-based) retail network and, at the same time, often embarrasses them by making the print book price (set by Amazon) lower than the ebook price (which Amazon makes very clear was set by the publisher).

. . . .

It is maintained by many people that there has been a reduction in the rate of surprise breakout books over the past few years because of this pricing as well. This perception would be explained by the fact that price attracts readers to try new authors, and so the new rising talent would more frequently come from the lower-priced indies. Higher ebook prices reduce the speed with which a book can catch on in the marketplace. It feels like there is a consensus in the big houses now that it is harder to create the “surprise” breakouts. (This is a very difficult thing to actually measure.) The “Girl on the Train” phenomenon is always unpredictable, but big publishers still could count on it coming along often enough to keep the sales revenue trend line rising. That doesn’t seem to be the case anymore.

High ebook prices — and high means “high relative to lots of other ebooks available in the market” — will only work with the consumer when the book is “highly branded”, meaning already a bestseller or by an author that is well-known. And word-of-mouth, the mysterious phenomenon that every publisher counts on to make books big, is lubricated by low prices and seriously handicapped by high prices. If a friend says “read this” and the price is low, it can be an automatic purchase. Not so much if the price makes you stop and think.

. . . .

An unpleasant underlying reality seems inescapable: revenues for publishers and authors will be going down on a per-unit basis. This can most simply be attributed to the oldest law there is: the law of supply and demand. Digital change means a lot more book titles are available to any consumer to choose from at any time. Demand can’t possibly rise as fast and, in fact, based on competition from other media through devices people carry with them every day, might even fall (if it hasn’t already). So publishers are facing one set of challenges with their high ebook prices; they’ll create another set if they lower them.

But, unfortunately, lower them they almost certainly must. With more data, we may learn that developing new authors absolutely requires it, particularly in fiction.

Link to the rest at The Shatzkin Files

Barnes and Noble faces a challenge that has not been clearly spelled out

24 August 2016

From veteran publishing consultant Mike Shatzkin:

The sudden dismissal of Ron Boire, the CEO of Barnes & Noble, follows the latest financial reporting from Barnes & Noble and has inspired yet another round of analysis about their future. When the financial results were released last month, there was a certain amount of celebrating over the fact that store closings are down compared to prior years. But Publishers Lunch makes
clear that store closings are primarily a function of lease cycles, not overall economics, and we have no guarantees that they won’t rise again this year and in the years to follow when a greater number of current leases expire.

With B&N being the only single large source of orders for most published titles for placement in retail locations, publishers see an increasing tilt to their biggest and most vexing (but also, still their most profitable) trading partner, Amazon.

Although PW reported immediate dismay from publishers over Boire’s departure, there has been plenty of second-guessing and grumbling in the trade about B&N’s strategy and execution. Indeed, getting their dot com operation to work properly is a sine qua non that they haven’t gotten right in two decades of trying. But one thing Boire did was to bring in a seasoned digital executive to address the problem. This is presumably not rocket science — it isn’t even particularly new tech — so perhaps they will soon have their online offering firing on all cylinders.

. . . .

A “bookstore” doesn’t have the power it did 25 years ago to make customers visit a retail location. Selection, which means a vast number of titles, doesn’t in and of itself pull traffic sufficient to support a vast number of large locations anymore. This changes the core assumption on which the B&N big store buildout since the late 1980s was based.

This has been true before. One hundred years ago the solution to the problem became the department store book department. Post-war prosperity grew shelf space for books, but the department stores remained the mainstays for book retail. The first big expansion of bookstores started in the 1960s when the malls were built out, which put Waldens and Daltons in every city and suburb in America. The mall substituted for the department store; it delivered the traffic. In fact, department stores “anchored” all the malls to be sure they’d get that traffic!

. . . .

By the late 1980s, it appeared that standalone bookstores outside of malls could become “destinations” if their selections were large enough, and that created the superstore expansion: B&Ns and Borders. But, only a few years later when it opened in 1995, the universal selection at Amazon mooted value of the big-selection store, especially for customers who knew before they shopped what book they wanted. Selection as a traffic magnet stopped working pretty quickly after Amazon opened in 1995 although it was not so immediately obvious to anybody.

. . . .

We are seeing book retailing become a mix of pretty small book-and-literary-centric stores and an add-on in many places: museums, gift shops, toy stores. These have always existed but they will grow. And true “bookstore” shelf space will shrink, as has space for “general” books in mass merchants. The indie bookstore share will definitely continue to grow, but whether their growth will replace what is lost at B&N and the mass merchant chains is doubtful. Every publisher I’ve asked acknowledges significant indie store growth in the past couple of years, but they are also unanimous in saying the growth has not replaced the sales and shelf space lost when Borders closed.

Link to the rest at The Shatzkin Files

Book publishers do not do SEO like the big guys do although they could

3 August 2016

From veteran publishing consultant, Mike Shatzkin:

Partner Pete McCarthy pointed me to an article a couple of weeks ago that also introduced me to a website called Viperchill and its gifted, self-promoting SEO/Marketing creator, Glen Allsopp. The linked post, which I strongly urge you to read, enumerates quite painstakingly the techniques used by 16 online media companies with a large portfolio of brands that enable them to dominate specific search results in Google across a very wide range of topics and categories.

The example ViperChill explained in detail was how Hearst created a lot of traffic very quickly to a new site and business it had created called BestProducts.com.Judicious placement of content and links to BestProducts from the very big brands that Hearst controls (Cosmopolitan, Womens Day, Marie Claire, Esquire, Elle) resulted in Google placing BestProducts startlingly high in search results.

This is a result of three elements Google values a great deal: “domain authority” and “inbound links”, nested in “content” that seems “natural”. “Natural” suggests that Google believes the content is genuine information, not a ruse to point to an otherwise irrelevant link.

This is tricky and problematic stuff for Google, as the story makes clear. Google’s objective is to deliver the most relevant search results for a user. While Womens Day’s editorial opinion about the best nail polish would seem worthy of high “authority” (which ultimately translates into an elevated position in the search results), Google does not intend to confer that authority on a nail polish suggestion that is motivated by BestProducts’s commercial interests. How can Google tell what motivates the placement of content and a link on Womens Day’s web site? They may still be figuring that out.

In other words, what is working so effectively for these brands, enabling them to use the collective authority of many powerful domains to drive traffic to something new and different, may not work forever without some serious adjustments. But it sure is working now!

This information wouldn’t be appearing on this blog if it didn’t have application to book publishers. It demonstrates a very large opportunity for many of them. The precise size of the opportunity depends entirely on the number of individual web domains that publisher controls or influences, the authority of each of the domains according to Google, and the judicious placement of content and links among those sites to push the desired result to a specific search term.

These powerful multi-brand content organizations have such massive traffic and authority that they can influence Google search for the most searched terms on the Internet. No book publisher would have comparable capability. But for terms that are more publishing-specific — those that reference books or reading groups or book genres or authors — the larger book publishing organizations have the ability to influence search results exactly the way these big outfits do.

. . . .

Probably the first big insight that created the success of Google was the recognition that links to content or a website told you something valuable about the worth of that content or website. So from the very beginning of SEO two decades ago, domain owners have understood that getting links is a way to improve their rank in search and increase their discoverability. What is documented in this article is that when one entity controls a large number of authoritative domains, they can constitute an ad hoc “network” that gets them the power of inbound links without having to persuade somebody outside their family of their worth. That’s particularly important when you’re trying to launch something new, as Hearst was with BestProducts.

And which publishers do every day with new books and debut authors.

There are two big steps publishers need to take in order to put themselves in position to execute this strategy effectively. The first is that they have to enumerate and understand all the web presences they own and control. Obviously, that includes the main domain for the publisher. But it also includes individual book sites, author sites, series sites, topical sites, or any other sites that have been created and which are regularly used and posted to.

In fact, any site that has meaningful domain authority can be helpful. We’ve worked with sites that have long since been defunct but that still have “weight” in the Google-verse. Those can be revived and used to impact SEO for current projects.

The second is to enumerate and understand all the related sites, owned or controlled by others, but where there is a mutual interest in some property between the publisher and the website owner. These will largely be sites for titles or authors, but might also include corporate sites for some authors and movie sites for some others.

. . . .

[T]he more the publisher can orchestrate these links, from their own sites and tethering their authors to each other on the web, the more the publisher adds otherwise unobtainable value for the author that costs nothing but a little administrative effort.

Indeed, the value added for authors, which would be tangible and visible, is one of the most important strategic reasons why publishers should heed the advice in this post.

. . . .

An understanding of this opportunity also makes clear why authors having their own websites with their own domains is an important marketing component.

. . . .

Perhaps it is not surprising that we think it will take a powerful outside consulting team to make that happen, at least in the first place to do it.

Link to the rest at The Shatzkin Files

For PG, this was a blast from the past. Mike is talking about SEO 101, as practiced fifteen years ago.

PG knows this because he was in charge of marketing for an enterprise software company at that time and one of his tasks was running an SEO operation that did what Mike talks about plus much, much more.

As mentioned before, PG regards Mike’s posts as an indicator of what forward-looking people in the traditional publishing business are thinking about.

PG has some doubts about whether publisher-driven SEO of the type Mike describes is going to move the needle on book sales, but the fact that Mike is telling marketing and sales types at publishers something they don’t already understand astounded PG.

Yes, he knows he shouldn’t be surprised at anything technically retrograde about Big Publishing, but these people never fail to astonish.

The “Big Change” era in trade book publishing ended about four years ago

12 July 2016

From veteran publishing consultant Mike Shatzkin:

Book publishing is still very much in a time of changing conditions and circumstances. There are a host of unknowables about the next several years that affect the shape of the industry and the strategies of all the players in it. But as publishers, retailers, libraries, and their ecosystem partners prepare for whatever is next, it becomes increasingly evident that — from the perspective of trade publishing at least — we have already lived through the biggest period of transition. It took place from sometime in 2007 through 2012.

At the beginning of 2007, there was no Kindle. By the end of 2011, there was no Borders. And by the end of 2012, five of America’s biggest publishers were defending themselves from the US Department of Justice. The arrival of Kindle and the exit of Borders are the two most earthshaking events in the recent history of book publishing and its ecosystem. The Justice Department suit first distracted and then ultimately strait-jacketed the big publishers so it was both difficult to focus and then difficult to react to further marketplace changes.

Paying close attention to what we then called “electronic publishing” started for me in the early 1990s, with a conference other consulting colleagues and I organized for Publishers Weekly which we called “Electronic Publishing and Rights”. This was before Amazon existed. It was when the big transition taking place was from diskettes to CD-Roms as the means of storage. And it was even before Windows, so the only device on which you could view on a screen anything that looked at all like a book was a Macintosh computer, which had literally a sliver of the market. The most interesting ebook predecessor was the Voyager Expanded Book, and it could only be used on a Mac.

In this speech I gave in 1995, I put my finger on the fact that online would change all this and that publishers shouldn’t spend too much energy on CD-Roms.

. . . .

The first important new device for books in 2007 didn’t start out as one at all. It was the iPhone, first released in June of that year. Although Palm Pilots were the ebook reader of choice for a big chunk of the then-tiny ebook community, they lacked connectivity. The iPhone was not seen as an ereader when it came out — indeed, Apple head Steve Jobs still believed at that point that ebooks were not a market worth pursuing — but they could, and did, rapidly become one when it was demonstrated that there was a market. And they vastly expanded the universe of people routinely paying for downloaded content, in this case music from the iTunes store.

Then Kindle launched in November of 2007. A still unannounced number of Kindles sold out in a few hours and Amazon remained out of stock of them for several months! Because the original Kindle was $399, it was only a “good deal” for the consumer who read many books on which they could save money by buying electronic. What this meant was that Kindle owners bought ebooks in numbers much greater than the relatively small number of devices placed would have suggested. Throughout 2008, the awareness dawned on the industry thatebooks were going to be a significant business.

And that awareness rapidly shook loose a raft of competition. Barnes & Noble saw that they had to compete in this arena and started a crash program to deliver the Nook, which first appeared almost precisely two years after the first Kindle, in November 2009. Months earlier, Amazon had released the app that put Kindle on the iPhone. Meanwhile, Jobs had become persuaded to take ebooks seriously, and, anyway, he had a store selling content downloads to devices like crazy. Now, about to launch his new tablet format, the iPad, he had what looked like the perfect vehicle with which to launch ebooks. The iPad and the iBookstore debuted in April 2010. A month later, Kobo entered the market as a low-priced alternative with their first device.

. . . .

All of this change within three calendar years — 2008 through 2010 — created a blizzard of strategic decisions for the publishers. Remember, before all this, ebooks were an afterthought.

. . . .

During the period when Amazon was pretty much alone in the game (the pre-Amazon market leaders, Sony and Palm, faded very quickly), they started pricing Kindle titles aggressively, even willing to take losses on each sale to promote device sales and the ecosystem. This alarmed publishers, who were seeing small Kindle sales grow at what were frightening rates and raising the spectre of undermining their hardcovers. It didn’t hurt that the retailers with whom they (still, then, though not now) did most of their business were also alarmed. Nook arrived and Barnes & Noble would never have been as comfortable as Amazon with selling these new products at a loss. But B&N also worried about the impact that cheap ebooks might have on more expensive print book sales. Amazon didn’t.

. . . .

Coinciding with and enabled by all of this was the huge growth in author-initiated publishing. Amazon had bought CreateSpace, which gave them the ability to offer print-on-demand as well as Kindle ebooks. The combination meant that a huge audience could be reached through them without any help from anybody else. When agency happened (2010), they started to offer indie authors what amounted to agency terms: 70 percent of the selling price for ebooks. This was a multiple of the percentage an author would get through a publisher.

Agency pricing fell right into Amazon’s and the self-published hands. Getting 70 percent on the ebook, the indie author got $2.10 pricing at $2.99 and $2.80 pricing at $3.99, royalties comparable to what they’d get from full-priced print.

. . . .

Suddenly, names nobody had heard before were on the map, selling millions of ebooks, and taking mindshare away from the industry’s output. And it also handed the publishers’ authors an alternative path to market that could only have the effect of improving their negotiating position with the publishers.

. . . .

Amazon continues to grow its share, and they are around 50 percent of the business or more for many publishers these days.

Barnes & Noble is troubled but in no immediate jeopardy and is still, by far, the number one brick-and-mortar account for publishers. But the optimistic view is that their book sales will remain flat in the near future.

Independent bookselling continues to grow, but even with their growth since Borders went down, they are less than 10 percent of the sales for most publishers. It is true that ebook sales for publishers have flattened (we don’t know the overall trend for sure because we don’t really know the indie sales at Amazon, and they’re substantial) and don’t seem likely to grow their share against print anytime soon.

These things seem likely to be as true two years from now as they are now. Nothing felt that way in from 2008-2012.

. . . .

But the challenges of today aren’t about change of the magnitude that was being coped with in the period that ended five years ago. They’re more about improving workflows and processes, learning to use new tools, and integrating new people with new skill sets into the publishing business. And there are a lot of new people with relevant skills up and down the trade publishing organizations now. That wasn’t so much the case when things were changing the fastest, 2007-2012.

It isn’t that there aren’t still many of new things to work on, new opportunities to explore, or long-term decisions to make. But the editor today can sign a book and expect a publishing environment when it comes out in a year or two roughly like the one we have today. The editor in 2010 couldn’t feel that confidence.

Link to the rest at The Shatzkin Files

As PG has mentioned before, he believe Shatzkin’s posts reflect the thinking of many in Big Publishing.

Unfortunately, the predictions in the OP represent a typical pattern of thinking in an industry swept up by disruptive technology. The survivors of early changes think, “It’s going to stop now. Nothing happened to me last year or last month, so nothing will happen to me next month and next year.”

PG doesn’t think this is the case for Big Publishing and its ecosystem.

Why? Big Publishing is simply too expensive. It costs everyone too much.

It’s too expensive for authors to try to live on a royalty of 17.5% of the price of an ebook when they can earn a 70% royalty on the same ebook sold in the same place.

It’s too expensive for readers because the $15 ebook price from a big publisher is too high when they can find excellent ebooks for $2.99 or borrow them at no charge.

It’s too expensive for everyone to load Manhattan rents, salaries and costs of business into the the fixed costs for publishing a book when indie authors can and do create competitive books from a kitchen table with a wifi signal.

The relevant question for more and more authors is not, “Can I find a publisher for my book?” but “Can I really afford the expense and hassle of using a publisher for my book?”

PG regularly talks to a lot of smart and successful authors (as well as smart and beginning authors). He has an idea of what kinds of questions they’re asking. Unlike Shatzkin, he doesn’t think the Big Change is over for trade publishing.

PG thinks the largest changes of all for trade publishing are in the future.

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

29 April 2016

From veteran publishing consultant Mike Shatzkin:

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

. . . .

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

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

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

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

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

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

. . . .

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

Link to the rest at The Shatzkin Files

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

 

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

18 March 2016

From veteran publishing consultant Mike Shatzkin:

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

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

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

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

. . . .

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

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

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

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

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

1 March 2016

From veteran publishing consultant Mike Shatzkin:

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

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

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

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

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

. . . .

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

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

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

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

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

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

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

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

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

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

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

And dropping.

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

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

But PG could be wrong. It happens sometimes.

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