Mike Shatzkin

Agency pricing didn’t restrain Amazon; it strengthened them

2 February 2017

From veteran publishing consultant Mike Shatzkin:

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

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

. . . .

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

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

. . . .

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

. . . .

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

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

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

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

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

. . . .

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

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

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

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

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

. . . .

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

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

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

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

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

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

17 January 2017

From veteran publishing consultant Mike Shatzkin:

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

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

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

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

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

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

. . . .

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

. . . .

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

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

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

. . . .

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

. . . .

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

Link to the rest at The Shatzkin Files

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

4 January 2017

From veteran publishing consultant Mike Shatzkin:

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

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

. . . .

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

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

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

. . . .

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

. . . .

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

. . . .

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

Link to the rest at The Shatzkin Files

Conferences are thermometers recording the level of fear about publishing changes

8 December 2016

From veteran publishing consultant, Mike Shatzkin:

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

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

. . . .

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

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

. . . .

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

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

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

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

. . . .

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

Link to the rest at The Shatzkin Files

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

16 November 2016

From veteran publishing consultant Mike Shatzkin:

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

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

. . . .

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

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

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

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

. . . .

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

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

. . . .

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

. . . .

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

Link to the rest at The Shatzkin Files

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

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

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

 

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

19 October 2016

From veteran publishing consultant Mike Shatzkin:

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

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

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

. . . .

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

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

. . . .

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

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

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

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

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

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

. . . .

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

Link to the rest at The Shatzkin Files

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

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

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

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

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

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

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

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

The reality of publishing economics has changed for the big players

19 September 2016

From veteran publishing consultant, Mike Shatzkin:

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

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

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

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

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

. . . .

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

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

. . . .

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

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

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

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

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

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.

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