Mike Shatzkin

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

30 November 2017

From veteran publishing consultant Mike Shatzkin:

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

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

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

. . . .

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

. . . .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

22 August 2017

From veteran publishing consultant Mike Shatzkin:

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

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

. . . .

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

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

. . . .

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

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

. . . .

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

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

. . . .

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

. . . .

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

So much for my contextual frame.

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

. . . .

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

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

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

Link to the rest at The Shatzkin Files

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

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

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

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

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

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

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

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

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

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

Strategies to cut overheads in a shrinking book business

31 July 2017

From veteran publishing consultant, Mike Shatzkin:

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

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

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

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

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

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

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

. . . .

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

Big in-store inventories have become a pointless anachronism.

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

. . . .

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

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

Link to the rest at The Shatzkin Files

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Digital marketing scales and that could create new opportunities for capable publishers

18 July 2017

From veteran publishing consultant, Mike Shatzkin:

There are three new promotion and marketing opportunities for publishers of ebooks that have been created by the original upstart ebook publisher, Open Road Integrated Media. They all come from OR/M’s development of tools to promote their own extensive list of ebooks, but which now actually benefit from the inclusion of a broader array of titles than the publisher can provide on its own.

This development is interesting for many reasons, but not least because it demonstrates a point about “scale” in the digital era. While it has always been true that a larger title and revenue base enables a publisher to have a larger and more robust sales organization — more reps, more accounts called on more frequently, more frequent shipments that are more efficient to deliver — this could be the first time that a publisher has built digital marketing capabilities that, in effect, wanted more books to optimize their effectiveness.

Open Road’s digital marketing toolkit and resource base is now growing considerably faster than its title base. The company was founded on twin pillars; marrying a publishing opportunity with digital marketing prowess including a strong focus on the backlist. The publishing opportunity — gaining ebook rights to established properties that had not been nailed down in their original publishing contract — is inevitably past its heyday as the number of available worthy titles shrinks every year (if not every day). But the company’s digital marketing assets and expertise, as well as its direct audience reach, are growing faster than ever.

Open Road just announced that their email lists have grown past one million names, on which they are achieving an average 30% open rate and, for their bargain newsletter Early Bird Books, a 28% conversion to sale. These metrics constitute a loud demand for more titles. To provide them, either the company would have to shift to a much riskier title acquisition strategy to add titles of its own or make marketing services an important component of its growth so they could feed their engine with titles from other publishers. Delivering marketing services was the obvious choice.

. . . .

The Early Bird Books newsletter, which features ebooks which are currently (and temporarily) promotionally-priced, resembles what is offered by BookBub to the industry and is employed by some other publishers, probably most prominently HarperCollins with BookPerk, for their own books. Open Road is a big customer for BookBub but they believe, based on their own extensive experience, that the maximum effectiveness of promotional pricing is achieved by promoting it as broadly as possible. Open Road sees a synergistic effect when they promote through BookBub and Early Bird at the same time.

. . . .

In fact, Open Road’s carefully measured experience leads them to also advocate that promotional prices only be offered for a brief period — perhaps just one day — for the publisher to enjoy the biggest benefit of the tactic, sales momentum that carries over after the price has returned to “normal”. (Open Road calls this “the tail”.)

There are a few critical takeaways here. A core benefit to promotional pricing is to drive additional sales at full price. The promotional offer is amplified, and therefore much more effective, if it is trumpeted as broadly as possible. Using both BookBub and Early Bird achieves that. And in the digital age, having tight control of your metadata in the marketplace, including being able to change prices up and down with speed and certainty, is a fundamental requirement to maximize marketing effectiveness and sales revenue.

. . . .

Open Road’s experience — and that of other publishers like Penguin Random House and Simon & Schuster that have invested in verticals — demonstrates that vertical audiences are fertile ground for building awareness of a forthcoming book. This is of growing importance. Publishers have been seeing a steady reduction in book “launch” media opportunities. Fewer magazines are doing serialization. There is less book review print space and the most powerful online review opportunities, at the digital retailers, are glutted with self-promoters.

. . . .

What Open Road is looking for are clusters of titles that have a reasonably steady baseline of sales. Then, if the publisher will make Open Road the “vendor of record” for these titles for a minimum of a year, they will guarantee the historical level of revenue to the publisher and only take a share of the incremental lift they produce. During the period they control the titles, Open Road will invest their own cash in marketing services and manage the pricing of those title to maximize the revenue gain they will share.

Link to the rest at The Shatzkin Files 

 

 

The Critical Marketing Challenge in Digital Times: What to Work on Next

25 May 2017

From veteran publishing consultant Mike Shatzkin:

Every publisher with more than a handful of published titles has a daily challenge to assign the marketing resources available to where they will do the most good. Efforts no longer have to be restricted, as they sensibly were until the most recent past, by what titles have inventory in front of customers on store shelves. With more than half of book sales — and for many titles half of the print sales — taking place online, the lack of availability of copies in stores is no longer the insuperable barrier it once was to getting sales when a title has appeal in the marketplace.

In fact, better allocating their marketing resources may well have become the single biggest opportunity for publishers to improve sales in the digital age.

. . . .

What Pete learned through data-driven experimentation, which has been leveraged by OptiQly, is that Amazon reads dozens of ranking signals to determine its own marketing position on any book at any time. So the Amazon product page becomes a window into a title’s online positioning, if you know how to look through it.

From the user’s perspective, OptiQly looks at each book and gives it two “scores”: one for the “brand” (which most of the time means the author’s online footprint and credibility) and one for the “product”, which is the book itself. The higher the score, the more likely the product is to be successful within the online retail environment.

. . . .

OptiQly looks at the ecosystem outside of Amazon — as Amazon itself does — to find out whether there is interest in the title and the brand. But then it looks inside Amazon to see if people can find the title and whether it is positioned correctly. As Ruszala explains it, the book’s Amazon “page” is its storefront where the title can be — metaphorically — face out at eye level or spined on an ankle-level shelf.

Amazon is trying to put the most appealing title for you in front of you, and what Amazon considers the most appealing titles are merchandised directly by Amazon in a variety of ways, guaranteeing an uptick in sales, with no added marketing expense to the publisher.

Link to the rest at The Shatzkin Files

Knowing which titles to work on is a challenge today that was not important 10 years ago

11 May 2017

From veteran publishing consultant Mike Shatzkin:

About 15 years ago, my friend Charlie Nurnberg, then the Sales VP at Sterling (which was, then, an independent publisher not yet bought by Barnes & Noble) threw me a challenge.

“For years,” he said, “I got the B&N green-bar report [by which he meant an Excel spreadsheet] every Friday. I had 800 titles on my backlist and I knew everything that was going on.” But times had changed. “Now we have several thousand titles on the backlist, I have two guys working for me looking at the report, and I know stuff is falling between the cracks. Can you help me find it?”

I did a bunch of things to tweak that report, but two of them were extremely simple and turned out to be extremely valuable. B&N was telling its publishers in these weekly reports what the inventory for each title was in the superstores and how many they sold last week. And they also told each publisher how many of the copies of each title B&N was holding in their distribution center. These were copies not on store shelves.

In our massaged version of the spreadsheet, we calculated and reported what percentage of the week’s superstore inventory had sold and what percentage of the total B&N stock was in the distribution center. Then, employing one of the simplest things one can do in Excel, we sorted by those percentages to see what titles had sold the highest percentage of their inventory and which had the highest percentage of their stock in the DC.

Actionable items literally jumped off the spreadsheet. There were titles with little distribution that had sold big percentages of their stock, suggesting strongly they should be in more stores. And the first time out, we found two titles with 5000 copies in the DC and none in the stores. And those two titles had shipped several months previously.

. . . .

It was also well understood that it was a rare title that would have many copies in circulation 180 days after it came out. Most stores that had initial copies would either have sold them or sent them back. So a truly professional book marketer at a big house knew that any publicity break on a book more than six months old could only have value if a) it was big enough to compel stores to restock the title in anticipation of it and b) the publisher had enough time to alert the stores, perhaps through telemarketing, and get copies shipped in.

. . . .

But one lesson from that experience is important to apply today. Deciding which titles should get attention on any particular day, or for any particular sales call or marketer’s attention, is not a trivial challenge.

And that challenge for marketers in today’s marketplace is more difficult than it ever was before. Why? Because all titles are in play now. It is no longer true that only titles with real representation in the stores can benefit from a publicity break. It is no longer true that having inventory in place at retail locations is a necessary preconditon to get sales. Except for the biggest bestsellers — for which individual publicity breaks would seldom require a publisher to do anything — I reckon most titles over time sell more copies online than in stores. Online venues, with rare exceptions, are always “in stock”.

Link to the rest at The Shatzkin Files

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.)

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