The Big Five (2017 in Review)

This content has been archived. It may no longer be accurate or relevant.

From Kristine Kathryn Rusch:

In the fall of 2017, the CEO of Penguin Random House, Markus Dohle, gave a rousing, optimistic speech about the future of publishing at Frankfurt Book Fair. Some of what he said was directed at the trade, but some of it was in code, and much of it pointed to the direction that traditional publishing will take in the next five years.

Dohle’s speech discusses the new phase, in some depth, in fact. He said,

…we have relatively stable business models for selling and delivering print and e-books to readers. Amazon’s Kindle will be celebrating its tenth birthday next month. The Kindle launch in November 2007 marked a breakthrough for digital books in the mass market. The business model for e-books was “in flux” for some years, to put it mildly, especially in the large Anglo-American markets. After some disruption and a lengthy lawsuit in the U.S., we have had a widespread business model, in terms of media content, for the past two years…

I love it when business people put a positive spin on ugly. “In flux” indeed. And “a lengthy lawsuit,” as if his company had nothing to do with it.

. . . .

The Big Five publishers have a completely different problem with their profits than other traditional publishers. The Big Five answer to international conglomerates, which means that the Big Five need to generate profits for their corporate overlords. Depending on the setup of the conglomerate, those profits must appear on a quarterly or biannual basis.

And in certain corporate environments, those profits must show an annual upward trend. (A few even demand an upward quarterly trend, which truly stifles innovation.)

So the business setup is different for the Big Five than it is for other, smaller traditional publishers. And when I say smaller traditional publishers, I mean publishers who generate tens of millions of dollars in annual revenue.  These companies aren’t part of an international conglomerate but are either closely held corporations or family businesses.

A smaller traditional publisher has its own corporate culture which usually comes from the owner or board of directors. The owners are knowable, and the focus of the company understandable.

. . . .

In his speech, Dohle said this about traditional publishing:

The fundamental challenge posed by the digital transformation is the change from a B2B-oriented, publisher to bookstore publishing industry to one that is B2C-oriented (publisher to reader). In an online-dominated world, we publishers must become more reader-centric and we need to establish a direct connection with the reader.

Let’s move this out of corporate speak into real people speak, shall we? What he means is that traditional publishing’s focus used to be all about selling its product to other businesses—generally to bookstores or large distribution companies. All of traditional publishing’s marketing was geared toward getting those businesses to carry that publishing house’s books. It was up to the bookstore to sell the books to consumers.

Now, Dohle says, traditional publishers must communicate directly with the reader. They’re stymied about how to do that, since most of these companies haven’t done anything like it in corporate memory.

But a Business-to-Consumer (B2C) model doesn’t work in the kind of corporate environment that the Big Five are in. B2C models generally require slow build, with lots of focus on the consumer experience. B2C models often sustain heavy losses, sometimes for years, as the company builds its reputation (which cannot change on a whim) and then eventually makes small profits which (one hopes) turns into large profits.

I don’t see how these Big Five publishers can make the shift to B2C. In fact, I don’t think they can, not with their overall business structure.

. . . .

I think he’s telling the employees at Penguin Random House that they need to figure out how to change to a B2C model, so that they can increase sales, while he and others in the company are working on a completely different way of increasing profits.

He alludes to that different way in this part of his speech:

Furthermore, every good film and every good television series is based on a good story, and in most cases, those stories begin with a great book. Hollywood’s thirst for stories, from established studios as well as new players in the business—among them Netflix, Amazon and Apple, Hulu, Facebook and Google—has never been greater than it is today. And each iteration of a story as a film or a TV series increases sales of the original story, namely, in the form of the book.

Just before that quote, he had talked about the growth in audio books and how audio books harken back to having stories read to us as children or listening to tale told over the camp fire.

What he does not mention is that these sub-rights are on his mind, and in his negotiating strategies.

In December, Alice Luytens, a literary agent and the audio rights manager at Curtis Brown, wrote in The Bookseller that the publishing deals for audio rights have changed in the past three years.  She has seen what she calls “a significant drop in separate/independent audio rights deals.”

She writes,

This is not because the market is shrinking or offering fewer options. Far from it. It is because book publishers now believe that audio rights are “part of the package.” I do not altogether agree. Audio rights and e-book rights are not the same. … They utilize different skills and are created for an audience not limited to the reading public. So why are we in a position where we are pressured to lump together two distinct sets of rights into one package?

She asks an excellent question at the end of that quote, and means the question almost rhetorically. While her entire article points out a problem for writers (and, in theory, agents), it also shows a lack of understanding as to why these deals are changing, and changing rapidly.

The money in super-large traditional book publishing no longer comes from straight book sales. If you look at the sales figures for the big bestsellers, they’re abysmal compared with just ten years ago.

To prep for these posts, I went through months of Publisher’s Weekly, which showed the BookScan numbers, and found that books by writers like John Grisham and Stephen King were selling monthly what they used to sell on a weekly basis.

Now, these sales numbers did not include ebooks, as Publisher’s Weekly happily pointed out, but those tradionally published ebook sales numbers have gone down dramatically as prices have gone up. Traditional publishing has bitched about declining ebook sales all year.

. . . .

But that paper-to-ebook shift means that Grisham and the other big name writers are making significantly less money. They don’t generally receive a percentage of cover price on ebooks; they receive part of the net profits (unless they had a really savvy agent/lawyer way aback when). Those profits fluctuate.

And the profits fluctuate for the traditional publishers too. Because it’s become harder and harder to funnel readers into a handful of books. There has been a leveling in publishing. The mountain peaks of the bestsellers have become hills as people find other books to their tastes.

. . . .

Dohle has been complaining for years that discoverability is getting harder, and he’s right. For traditional publishing, which had a stranglehold on what was published, the open floodgates of indie publishing have been a complete nightmare.

. . . .

But the Big Five publishers have to be making their money somewhere. Right now, they’re making it by cutting back on expenses and employees, and on how much they publish.

Link to the rest at Kristine Kathryn Rusch

Here’s a link to Kris Rusch’s books. If you like the thoughts Kris shares, you can show your appreciation by checking out her books.