Both the supply chain and book marketing are forever changed by Coronavirus

From veteran publishing consultant, Mike Shatzkin:

Just before the world changed, about five months ago on February 18th, we wrote in this space about two initiatives that made sense for all publishers to employ to raise revenues and profits.

One was Ingram’s Guaranteed Availability Program (GAP), which connects their Lightning print-on-demand capability to their ability to ship within 24 hours, delivering just about any quantity of books to justabout any account in the world. With just about any return address you want on the package. By mid-April, it was clear that the supply chain was already adjusting.

The other was Open Road’s “Ignition” marketing program, a highly automated way to sharply improve the performance of ebook titles. The tactics employed include metadata improvements, pricing adjustments, search-optimized discovery that brings in tens of thousands of new readers every day, 8 unique newsletters touching millions of consumers (about whom more and more is known every day), and an array of genre-specific websites that funnel readers to books they love. Building this capability involved many thousands of ebooks tracked across millions of consumers for more than five years.

Both of these capabilities required tens of thousands of titles, millions of dollars of focused investment, and laboriously constructed system support to build. Ignition required a commitment to build an automated marketing effort that works across many thousands of titles. This is not a good fit with a publishing business model that has always focused on a few new titles, not the thousands on the backlist, with dedicated efforts that are largely driven by hands-on human marketers.

It is not likely that any publisher, even the very biggest ones, could build what Ingram and Open Road have created. But beyond whether they could, it is even less likely that they would.  It took Ingram seven years to make Lightning Print efficient and tie it to “third party distribution”, the ability to ship the book “as” coming from somebody else. And Open Road, by dedicating massive marketing resources to build an automated capability that hardly connects at all to the marketing that publishers have always done, built something that it is almost impossible to imagine any of the biggest publishers shifting their focus to attempt.

The timing of the February 18 piece was accidentally prophetic. The world of publishing pretty much shut down less than a month after it was written. It is evident to many publishers that Ingram’s GAP capability has been a lifesaver. In a recent week, five of the top ten New York Times paperback bestsellers were being printed by Lightning. Those publishers know that they wouldn’t have been able to grab those sales with the normal book supply chain.

. . . .

Indeed, sales at Ignition are up 75% in the four months since we published that first piece. Forced lockdowns are good for online sales, and especially good for ebook sales.

. . . .

Publishers market manually. They use humans to examine their metadata and change it. They assign titles to marketers, who are charged with making them more visible to buyers and today that means online visibility for online buyers. They are experts at “publicity”, which means getting their titles featured to other people’s audiences. They have, to varying degrees, built lists of book consumers they can address directly with newsletters and emails. Some have “vertical” websites that give them billboards to feature their books.

But all of those devices are applied book-by-book by human marketers who are directed, intentional, intelligent, and extremely limited in how many moves they can make and how many titles they can touch. And, therefore, very expensive.

This is a very poor match even for a publisher with 5,000 or 10,000 titles on their backlist. The publishers’ standard approach is not at all useful for lists of 20,000, 30,000 or 50,000 titles. And that’s why what Open Road has created, the only truly automated book marketing program in the industry, is of such extraordinary value. And unless two or three very big publishers get together to build something that will require millions of dollars and years of work as a joint effort, that will not change.

. . . .

For a variety of reasons, the biggest publishers have been the slowest to join the party. For one thing, Ignition is designed for large and difficult-to-manage backlists. Even though it works for new titles as well, it performs a function — marketing backlist — that publishers with enormous lists built over decades always got along without. The reflex reaction of a publisher seeing the virtue in marketing backlist (and, in the online sales era, everybody does) is to do it the time-honored way: allocating scarce (for backlist) marketing resources where they would seem to provide the most benefit.

Link to the rest at The Idea Logical Company blog

PG will lay out the problem with big publishers.

They don’t really want to change.

And, if a Big Publishing CEO takes a wiggle toward change that costs any significant amount of money, the large international conglomerates that own four out of the five largest US publishers (ViacomCBS, which is all about TV and video, owns the fifth), will shut down that foolishness in a New York Minute or a Gütersloh Minute (Bertelsmann), Paris Minute (Lagardère), Stuttgart Minute (Holtzbrinck) or a New York Minute with an Australian accent (News Corp).

In these conglomerates, publishers play the strategic role of cash cows (not terribly fat cash cows, but, still cash cows). If conglomerate management wants to take a flyer on risky booming growth and capital appreciation, it will invest in something in Silicon Valley through its separate venture capital investment arm. No book persons will be involved.

Furthermore, to the best of PG’s knowledge, none of the five conglomerates which own the Big Five US publishers have made even baby waves in the tech world. The founders of next Google or next Amazon are not looking for money in Stuttgart. Palo Alto, Menlo Park and San Jose are just a few freeway exits away and everybody there is already fluent in geekspeak and moving very fast is how those investors thrive and survive.

PG hadn’t heard about Open Road’s “Ignition” marketing program as mentioned in the OP.

However a quick look gave him the impression that the organization is primarily a collection of book-oriented e-newsletters – see Our Portfolio.

The company touts:

Ebook Promotions

Feature your books in a newsletter that reaches over 1 million book lovers looking for their next favorite read.

Content Marketing

Showcase your brand, product or creator on one of our targeted digital properties. Smart, search-first, audience-focused opportunities.

Maybe there’s some magic juice happening behind the scenes, but Early Bird Books, the company’s largest email newsletter with a claimed circulation of 2.6 million doesn’t seem too special:

Early Bird Books provides a great service to ebook aficionados looking for free and discounted ebooks written by authors they love—and by others that they’re willing to try at a special price.

The Early Bird Books web and social channels provide fun articles, book lists, product recommendations, and other highly relevant content to keep consumers engaged on all of their devices.

Email newsletters, social media marketing and search-engine optimization are standard vanilla services, provided by any number of internet marketing agencies. Analyzing the results of such activities typically comes with the package as well.

But this may be news for New York publishers.

Two pretty easy ways to add revenue that most publishers are missing

From veteran publishing consultant Mike Shatzkin:

The biggest publishers today are regularly delivering improved profit performance on a flat or declining sales base. This masks a troubling truth about today’s book business. The core asset base of a book publisher is “performing titles”: the books that are delivering measurable revenues. The more of them there are the healthier the business is.

Thirty years ago, big publishers were adding to that core title base and, in fact, it was the effort and investment required to deliver new titles into the marketplace that made short-term profits harder to earn. Today’s reality is that new titles are much harder to introduce successfully and publishers have responded to that by flattening and even reducing new title production.

But another twist of the past 30 years is that there are more ways to get profits out of the backlist. Ebooks and digital delivery of audio, along with the online print book marketplace, have made it possible to generate revenue from books that might have been declared “out of print” with rights cheerfully reverted in the 20th century. So far, the additional sales from digital renditions and online sales, combined with the reduced costs associated with digital delivery and reduced returns associated with the shift from stores to online sales, have enabled profit growth without topline sales increases.

Of course, the fact that nothing ever goes out of print is part of what contributes to the title glut that has made launching new titles successfully so much more difficult.

There are two new opportunities to deliver profitable topline sales growth that publishers can’t get at without making some adjustments to their standard thinking about their business. It would seem inevitable that they will turn to them, even though both opportunities have been in place for a while and uptake has not been very rapid or widespread. I had to resist being sensational and titling this post “free money for publishers that they just aren’t putting in their pockets”, but that’s actually what it is about.

One of these opportunities is to set up all titles with Ingram Lightning Source for what their Chairman John Ingram calls “just in case, rather than just in time” use of print-on-demand. The other is to put some of the thousands of titles every big publisher has that are virtually non-performing into Open Road’s “Ignition” program for ebooks. (Yes, both of these companies are my clients, but they have built these capabilities to help the publishers without any direction from me.)

The Ingram opportunity is really easy to understand. Books that are in Ingram’s digital database can be delivered by their wholesale arm to every account in the world tomorrow, whether or not there is presently any stock. This matters every time there is a significant publicity break that generates demand that wipes out Ingram’s stock and they have to wait for the publisher to provide replenishment.

. . . .

The most recent eye-opening example of this was the recent death of basketball star Kobe Bryant. Apparently there were half-a-dozen Bryant books, none of which had stock to meet demand and none of which were set up for print-on-demand. When I asked a friend at Ingram how often he sees books where substantial sales are lost because they aren’t set up for immediate POD, he said “every day”.

Publishers probably need to sharpen their pencils and re-do their math. Although it is true that delivering a POD book is a great sacrifice of margin for a publisher compared to one from their own warehouse, it is both not as great a sacrifice as they think and, really, no sacrifice at all if a sale that would otherwise be lost is captured. Lower print unit costs for pressruns can be misleading if the publisher doesn’t consider the costs of multiple handlings, delivery, returns, and books printed but never used.

. . . .

The Ignition opportunity is almost as obvious a winner. Open Road started its life as an ebook publisher with a list built on the industry’s failure to see ebooks coming. Former Harper CEO Jane Friedman saw the ubiquitous contractual ambiguity around ebook rights as an opportunity and corralled a large number of titles before the publishers plugged the holes in their contracts. That left Open Road with a big list of ebooks but no real mechanism to grow their list.

So they started working on doing ebook marketing in a more focused and determined way than other publishers with big backlists. Open Road developed an understanding that the top 100,000 ranked ebook titles got boosts from industry algorithms (largely Amazon’s), but, of course, every publisher’s list (including their own) had thousands of titles that ranked well below that, in the millions and nowhere near the top 100,000.

So Open Road developed tools to move titles from virtually zero sales to really measurable ones, building mailing lists of identified customers through use of verticals (subject-specific targeting) and bargains (price-shopping consumers can really boost a title.) Doing this not only required cash and focused effort, it also required time. They’ve been at this for a few years and anybody starting now will not be able to do it much faster. In fact, there are almost certainly early mover advantages that benefited Open Road and will no longer apply.

Their results are consistently dramatic. On one representative group of 5000 titles, Ignition was able to move more than 6% of the bottom 3500 titles from ranks in the millions to a performance that would have put them in the top 10 percent of the total group. The total revenue of the 5000 titles in the year before Open Road had them was $2.4 million. It should have declined by 20-40 percent. Instead, they almost tripled the take to $6.8 million. The 500 bottom titles rose from 0 sales to $108,000; the next 500 moved up from a total of $3500 to $226,000.

. . . .

The Open Road opportunity rescues titles from total oblivion and, in addition to the ebook sales Open Road builds and shares in, grows their print sales as well. This presents publishers with the ability to create performing titles out of “dead” backlist using ebook sales and marketing to power the growth.

. . . .

Publishers in bygone days licensed mass-market paperback rights to other publishers because they didn’t have the capability to sell to the rack jobbers and the title was no longer performing in their conventional channels. Licenses were for a term, and then they reverted. This situation seems really analogous to me.

Any publisher that has thousands of titles listed in their catalogs as still “in print” but which they know are producing nearly zero sales has little to lose and a lot to gain by putting those titles into Open Road’s Ignition System.

And any publisher who sets up all their titles with Lightning and their most comatose backlist with Open Road will have sales growth they couldn’t have gotten any other way.

Link to the rest at Mike Shatzkin

PG notes that if the publishers are missing ways of adding revenue per the OP, their authors are receiving smaller royalty payments and are not in a position to do anything meaningful to increase them.

What is causing the uptick in independent bookstores?

From veteran publishing consultant, Mike Shatzkin:

My first real job was in a bookstore, on the sales floor of the brand new paperback department in Brentano’s on 5th Avenue in the summer of 1962. I loved that place; I loved that job; and I’ve always had a soft spot for bookstores. But, romanticism aside, the truth is that books are just about the single best consumer product to buy online rather than in a store. For many reasons.

First of all, there’s finding what you want. An online bookseller will be able to offer you 15 million titles or so. A bookstore will offer no more than half-a-percent of the universe (which would be 75,000 titles) and most have far fewer than that. When Amazon began, there were more like half-a-million possible titles and many super bookstores carried 20-30 percent of them (more than 100,000 titles). And even then, before the numbers had shifted so massively, Jeff Bezos saw that books were the best place to start for an internet retailer.

Thus, the odds of finding any particular book in a store have moved from reasonable to minuscule. But on top of that, books are heavy, so if you are going anywhere after the bookstore, carrying a purchase around can be a nuisance. And how often do you “need” that next book right now, rather than it being just as good to get it in a day or two? (If you need it right now, you’d better be really lucky in what you’re looking for and the store you’re going to.)

The point is that book purchases, at least for personal reading (books for gifts and heavily-illustrated books are different, but are a smaller slice of the total sales) have moved from stores to online for compelling reasons, and there is no reason to think they won’t continue to. It is hard to see physical retail bookselling as a growth business.

But, in fact, the number of independent bookstores has been growing for the last decade. This has been a real cause for celebration in many quarters. Publishers are certainly glad to be seeing some additional inventory-stocking outlets springing up.

Why is this? Harvard Business School professor Ryan Raffaelli has formulated an answer based on his “3 Cs”. They are community, curation, and convening. By this he means that bookstores provide a “community” function, their owners perform a “curation” service by winnowing down the book selection, and they offer the opportunity for like-minded people to “convene” around an information quest or a purpose. He alliteratively wraps this all up with “collective identity”. And he discourages us from looking at the profitability of those stores; just the fact that they are there in recently-increasing numbers, he believes, constitutes the important indicator.

Does anybody else see a remarkable congruence between this vision of bookstores and what has always been the function of libraries?

. . . .

I can agree that community, curation, and convening are good touchstones for any bookstore owner to keep in mind to build their business. But I can’t agree that these are the explanation for why bookstores have been growing in number.

My nominee for “most important reason for indie bookstores growing in number” is also a “c”, but one that wasn’t mentioned. It is “closing”. By that I mean the “closing” of the Borders chain in 2011, almost precisely the date when the indie resurgence, tracked by number of active stores, began.

When several hundred Borders stores closed at one time, it moved the reduction of shelf space ahead of the declining demand for retail bookstores. Even in the bookstore market of 2010, reduced as it was from two decades before by Amazon and ebooks, there were a lot of people served by those closed Borders stores who hadn’t yet completely made the switch to buying all their books online. That could have been 30 percent or more of existing retail bookstore shelf space that was closed. (Borders was not 30 percent of the stores, but all of their stores were very big ones.)

So independents have seized an opportunity. Somebody smarter than I am ought to look at where the indies are and where the Borders were and I’d bet they’ll see a correlation. If they could also overlay the closed Barnes & Noble stores and the ones that have had their book inventory drastically reduced, they’d likely find more examples of substitution. Independent bookstores are substituting for the remaining portion of the demand that used to be supplied from the big store chains.

There is likely also one other factor at play — not a new one — behind the recent increase in the number of independents. To be consistent, let’s label this one “compromise”. All these independent bookstores are started and run by entrepreneurs who, most likely, had a career doing something else before they started their bookstore. I’m going to guess, without supporting data, that many of those bookstore owners could be making more money doing something else. But the psychic rewards of owning and running a bookstore, including the attraction of managing the first 3 “c”s , are sufficient to attract capable people to compromise by owning and running one rather than spending their time doing something where they might make more money.

Link to the rest at Mike Shatzkin

Mike certainly has more insider knowledge about all facets of Big Publishing and the traditional bookstore experience than PG does, but regular visitors to TPV will remember that PG has often harped on the overlooked effects arising from the disappearance of Borders, the second-largest bookstore chain in the US when it suddenly collapsed and disappeared into the bankruptcy court.

Literally overnight (it’s not unusual in bankruptcies likely to result in liquidation instead of a plan to continue the business entity’s operations after rearranging a variety of debts and blasting others into tiny pieces for a business to close all its doors at once) a huge amount of traditional publishing’s retail distribution network disappeared. Not only were publishers stuck with unpaid bills for unsold physical books, but large orders for future releases went up in smoke.

Some of Borders’ customers went to Barnes & Noble if there was one nearby, others tried Amazon and liked it and a few went to local independent bookstores (if there were any of those in the vicinity). Of those who went to indies, some liked the experience and continued as patrons but a lot missed the large selection of books on offer at the dead and departed Borders or were less than entranced by a down-market feel of their local independent and ended up going to Amazon or perhaps just stopped buying quite so many books.

The disappearance of Borders certainly helped Barnes & Noble postpone its decline for several years and removed competitive pressure to change how it did business on the meatspace side of things.

PG suspects the demise of Borders and the business benefits that accrued to Barnes & Noble may also have caused BN to feel less pressure to accelerate into ebooks (the first Nook was introduced in late 2009) than it would have felt if its largest competitor in the physical bookstore space had still been around.

At Casa PG, the closest Borders was about five minutes away and the closest Barnes & Noble was and is about 15 minutes away.

For whatever reason, when Borders died, about 95% of the book shopping at Casa PG almost immediately went online and, at the present time, the only occasions for visits to Barnes & Noble are when young offspring (who like books as objects) are in town. PG typically spends his time during such offspring-powered visits looking at non-fiction sections of interest to him and being disappointed at the small number of interesting books which are stocked.

2020: Zero year thoughts about the changes in book publishing

From veteran publishing consultant, Mike Shatzkin:

In 1990, three zero years and three decades ago, the universe of books available for a person to buy or for a store to carry was pretty much defined by “Books in Print”. This annual compilation, at that time primarily delivered as a book itself, passes along the aggregate of what publishers say is available. At that time, the total was in the mid six figures, not more than 500,000 titles. BIP contains duplicates, so the number of available titles was probably less than that, but that’s a reasonable working number.

That means each new book brought out by a publisher was competing against a universe of half-a-million other books.

As we begin 2020, Ingram’s Lightning Source has about 18 million titles in its Lightning print-on-demand database, ready to be printed and delivered to you tomorrow. Of course, there are duplicates to consider and some junk in there too, so let’s say that there are actually 15 million discrete titles. There are also more than 750,000 titles in stock in Ingram’s warehouses, most of which are not reflected in the POD database, which tends to collect titles after their prime sales life has passed.

So each new book brought out by a publisher today may be competing against 15 million other possible titles. The competitive set has grown by as much as 30 times.

When substantial commercial publishers or university or academic presses with real sales organizations published new titles 30 years ago, they routinely sold at least a couple thousand copies of almost every title. Stores that carried 125,000 titles were proliferating at that time, which was about a quarter of the theoretical possibilities and well over half of the titles that had any real commercial appeal. That meant both that the consumer was likely to find what s/he was looking for in one of those giant stores and that the publishers with real access to the retail network could count on a measurable sales result for everything they did.

This is no longer true in the 15+ million title and heavily online retail world we now live in. There just aren’t as many bookstores as there were back then and the ones we have are much smaller. Today it is not uncommon for titles on a major publisher’s list to sell almost nothing, low hundreds of copies or even less.

The difference is critical. Sales of, let’s say, 2000 copies of a hardcover book will deliver about $25,000 or more in sales revenue for the publisher. If the advance was modest and the publisher didn’t wildly overprint, that would probably cover the out-of-pocket expense of delivering the books required to produce that revenue. In other words, most books published by most substantial publishers in those days didn’t cost the publisher out-of-pocket cash.

. . . .

When Thomas McCormack was CEO of St. Martin’s Press, which he was for about the last three decades of the 20th century, he exploited that understanding to the max. McCormack saw that the true revenue picture meant that the more titles he published with the same corporate overhead, the more money his company would make. St. Martin’s relentlessly expanded their title count year after year. And they grew consistently.

The key insight was that overhead is mostly fixed, not variable. And calculations that pretend that it is variable lead you to very erroneous conclusions.

Another important reality of the new title economics that existed then was that the backlist grew steadily. Not every title that recovered its costs would sell for a long period of time, but many of them did. Others produced additional revenue from rights sales: foreign, paperback, book clubs. So the short-run economics that encouraged title count growth also created companies that were constantly expanding their asset base to produce future revenues.

The predictability of a substantial minimum sale from established publishers back then was the result of two things that have since changed. One is the number of titles effectively competing for sales all the time, the explosion from half-a-million choices to 15 million. But the other is that the sales base shifted. Thirty years ago, the sales came mostly from a highly disparate retail network, which did have some big customers but also had hundreds of smaller ones that had to be addressed individually, preferably by a human being who showed up to “present” the title choices. Big publishers had tactical advantages to employ for both the chains and the individual accounts.

The major accounts naturally gravitate to the major suppliers. They are important to each other. The big publishers have the biggest books, the biggest budgets to spend on marketing and promotion, and the authors whose store appearances will pull in the most customers. But everybody, large or small, put their books in front of the big chain accounts. Thirty years ago that meant both the mall chains, Walden and Dalton, and the expanding superstore networks of Borders and Barnes & Noble.

But the vast array of independents, several times larger than it is now in numbers of stores and even more dramatically larger than today in shelf space, depended on visits from local reps to know what to stock. And there the smaller publishers were much more variable. Many didn’t cover individual bookstores effectively.

So with bigger stores, a smaller number of titles, and filters that favored placement of the larger publishers’ books, the net result was that big publishers achieved a pretty high minimum sale right to the bottom of their list. And the ultimate consumers chose from the books that were in stores, not the entire universe, and publishers with real sales organizations had a significant advantage.

All of this began to change with Amazon’s arrival in 1995. Online sales grew relentlessly, but slowly at first. Twenty years ago Amazon was still a single-digit percentage of the total book business in the US. Today it is probably more than half.

. . . .

[F]rom the consumer perspective, shopping at Amazon (or any online retailer working with the Ingram database, which includes other big brand merchants) gives them the choice of any book, whether the publisher has a good sales force or not.

With more titles competing for sales and the advantage of blanket coverage by the big publishers diluted, it is no longer true that every title on a big list achieves a substantial minimum sale. Big publishers are having the experience of three-figure unit sales — and sometimes even less — on books they issue, and not infrequently.

The net result is that new title publishing has become much riskier and more expensive for all publishers. They naturally react to that by publishing fewer new titles, and that describes the tactics of just about every publisher in the business over the past decade. And a smaller percentage of those titles go on to become enduring backlist.

. . . .

If this analysis is right, the inevitable result is that commercial trade publishing will (continue to) shrink. (And it will also consolidate. The big publishers today substitute for new title production by buying other people’s backlists.) The number of titles entering the marketplace might not shrink, because self-publishing authors and other entities that see benefit to putting out books will continue to add titles. Those publishers are not primarily motivated by profit. But publishers who are primarily motivated by profit will keep seeing, as they have, that the financial risk of putting out a new title keeps growing.

Publishers have found ways to turn the new world into an advantage for their backlist (which is why they find acquiring others so attractive). They can capitalize on a break more readily than they used to because an increasingly-online marketplace does not require inventory to be “in place” for sale. 

. . . .

What could be deceptive is that the new world of less new title production and the shift to online sales is making profit growth attainable, almost routine. Cash investments go down and overheads go down (less shipping and billing and warehousing). Returns, which are expensive, also go down.

But, unlike the growth that came from an expanding title base 30 and 40 years ago, today’s growth can not be sustained on the present course. (In fact, the new audio growth is itself a delayed benefit from the old title base expansion!) Backlist title decay — lower sales in each format for most titles year after year — is still a fact of life; a backlist beating last year’s sales is only an occasional event. There will be an end to audio sales growth for publishers as the available backlist is exploited and those available to be acquired also are diminished in number.

And the non-commercial portions of the business will continue to churn out new titles to compete with the output of publishers. The growth of the competing title base will not stop.

Link to the rest at Mike Shatzkin

PG has always been interested in Mike’s discussions of the inner world of publishing, in part because of his perspective arising from decades in the business. The role of backlist in the long-term profitability of a publisher, as described in the OP was interesting and reflects the thoughts and experiences of indie authors with large backlists. It also explains why, although the author is receiving a pittance in royalty payments, some publishers are so resistant to reverting rights to the authors (which behavior helps the parts of PG’s business involving “persuading” publishers that it’s a good idea to revert rights instead of having the existence of some very poorly-drafted boilerplate in the client’s publishing agreements as well as every other author’s publishing agreements signed during the same period of time).

(It will shock many of you that publishers sometimes publish editions of books for which they hold no rights under the terms of the contracts they drafted and signed. And sometimes, publishers get mixed up about how royalties should be paid to the author according to the publishing contracts. PG has never seen a publisher which paid more royalties than the author was entitled to, however.)

Back to Mike’s thoughts. Perhaps he is wrong, but, to PG, it appears that, since his retirement several months, Mike’s posts have become more pessimistic (realistic?) about the future of the traditional book business.

With respect to relying on backlist titles for a significant and predictable portion of a publisher’s income as described in the OP, PG will note that many indie authors experience the same thing. Also, each successful new book an author publishes reaches new readers who then explore the author’s backlist for other books they will enjoy.

For authors who are seeking to pursue the traditional route to publication of their books, there is a credible alternative to mourning over rejection slips. The stories from earlier decades about a talented author who was rejected by 30 publishers before finally finding one who would publish the book will, in PG’s superabundantly humble opinion, become more and more rare.

Even if indie publishing is not her/his first choice (as it is for a growing number of savvy younger authors), the existence of remunerative indie publishing as an alternative to dealing with the flavor of the month attitude in New York City and London is going to attract more and more authors with important/entertaining stories to tell.

One lovely thing about writing and reading is that we’ll never run out of stories.

Should Barnes & Noble rethink its supply chain?

From Mike Shatzkin:

About 25 years ago, Ingram was benefiting from a big buildout of America’s bookstore network. Borders and Barnes & Noble were both opening new stores — big stores — at a rapid rate. Ingram hit a mother lode delivering “store opening assortments” and then, at least in some cases, doing the stock replenishment for the first 90 days.

The stock for the store opening cost the retailer more that way because Ingram couldn’t offer the discounts that publishers would give the stores for direct orders. But getting the opening stock delivered by store section, ready for shelving, and then covering the entire breadth of inventory for reorders across publishers that would also arrive consolidated rather than piecemeal, was worth a couple of points of margin.

Around this same time — 25 years ago — Jeff Bezos was using Ingram’s superior service to build Amazon.com in an industrial building in Seattle, in the same-day service zone for Ingram’s Roseburg, Oregon, warehouse.

Consolidation was the order of the day. Borders and Barnes & Noble were building out store networks that clearly threatened smaller chains and independents. (They would all also be hurt by Amazon, but that would take a few years to become obvious.) Publishers were also consolidating. (Random House and Bantam Doubleday Dell were the big merger of the late 1990s.) All of this threatened Ingram’s basic business model, which was built on being an efficiency-creator between many publishers selling to many bookstore customers.

But the efficiency of centralized supply was also clearly demonstrated to the chains, so B&N saw value in acquiring Ingram to own their own supply chain, presumably opening up the possibility of buying from publishers at the higher discounts normally afforded to wholesalers. It took two years for the deal to fall through because of federal government concern about “monopoly”. That meant Ingram had to start rethinking the future of their company.

And it meant Barnes & Noble would build its own warehouse network to provide more efficient resupply to its own stores that would give them a competitive advantage over Borders, their primary competitor. Borders, of course, was thinking along similar lines.

. . . .

And now things have changed again. B&N’s viability is threatened by the movement of book sales from physical retail to online retail. New ownership is now challenged to find new paths to commercial viability. The biggest opportunity may be a return to the past, once again turning over the supply chain to Ingram.

As sales of books in the retail channel decline, as they have and will continue to, the per-unit cost of maintaining a proprietary supply infrastructure just keeps rising.

. . . .

On top of that, the “job” of the resupply infrastructure for a retail chain has become much more challenging. When B&N was building out its capabilities at the turn of this century, the number of possible titles was probably not even a million and many of their stores carried over 100,000. Now there well over 10 million titles available through Ingram’s print-on-demand database plus nearly a million more in warehouse stock (which includes most of what is new and sells the fastest), and the retail stores carry a third or less than they did back then. The more that ratio shifts, as what each store carries is a smaller and smaller fraction of the possible universe, the more expensive it is to maintain your own supply chain.

. . . .

James Daunt, the new head of B&N, had no such option when he was rebuilding Waterstones, the UK chain he previously managed. There is no wholesaling operation in the UK with comparable ability to supply the breadth of titles Ingram does. But one imagines that Daunt sees every day what it is costing him to keep operating his distribution centers. One also imagines he also feels a need to free up capital on a daily basis.

Link to the rest at Mike Shatzkin

PG suggests that Mike’s post highlights just one of Barnes & Noble’s many problems.

The continued growth of Amazon and other online retailers (Walmart has been spending a lot of money on its online operations for several years and may have finally figured it out) is a huge indication that US consumers are perfectly happy with buying a lot of things online.

Large and small grocery chains have started services that allow online shopping with the bags of bananas, Doritos and Coke delivered to their car trunk or home. If there was ever a commodity that a great many observers thought would never go online, it was produce sales where shoppers have traditionally eyed and squeezed the fresh fruits and veggies before they selected the perfect cucumber.

Of course, each copy of a book is the same (down to the electron level for ebooks) and online information and opinions about various books on offer is enormous. Plus text messages and email make it effortless for Bev to share her book raves and rants to her friends who like to read the same sort of things she does.

PG contends that fewer and fewer feel they will understand any more about whether a book is right for them by leafing through a hardcover at a physical bookstore. They can look inside on Amazon, find out all far more about whether they’re likely to enjoy it online than they’ll ever get from an underpaid Barnes & Noble clerk (if they can find one when they need one).

Again, there is so much more detailed and reliable information about a new book online than in the bookstore, what does anyone really learn from picking it up and looking at the back cover?

In past decades, PG would sometimes visit a bookstore to kill some time in a pleasant manner. The electronic devices in his pocket or on his desk provide a much better time-killing service than any bookstore he has ever visited.

One big change in book publishing is that it does not require you to have much of an organization to play anymore

From veteran publishing consultant, Mike Shatzkin:

More than two decades into its digital transition, book publishing has evolved so that a capital-intensive infrastructure is no longer a requirement to successfully develop a book, or a list of books, and bring the books to market. This has resulted in a self-publishing segment, so far almost entirely author-driven, that is substantial in reach and readership and which offers ongoing competition to the commercial publishing business largely because of its ability to price its ebooks below what would be survival levels for commercial publishers.

. . . .

What publishers do, over and over again, is the business of “content” and “markets”. Each book is unique content and is individually delivered to its own unique market. So publishers need to stick to content and markets that they understand in a contextual way. That is usually done by sticking to genres in fiction and topics or “audiences” for non-fiction. But people who live in any of many non-fiction “worlds” could well be as well-equipped as any publisher to grasp the content-and-market equations in those environments.

The discrete tasks are:

1. Creating the content, which requires domain knowledge (the world of the content) and, of course, the ability to discern good and effective writing and presentation. And a knowledge of the content world implies a sense of any particular project’s uniqueness and timeliness.

2. “Packaging” the content in a form that is reproducible. That means different things for print and for digital. And it is more complicated for books that are illustrated or annotated with charts or graphs.

3. “Marketing”, or making potential readers aware of the book. This takes in what we used to think of as publicity and advertising, which in the “old days” largely centered around book reviews and the sections in newspapers that carried them, but which is now much more about search engine optimization and social network marketing.

4. Connecting with the avenues of distribution: reaching the sources of printed books their customers might use — bookstores, other retailers, or online merchants for consumers and wholesalers or distributors for those intermediaries, print and e. You have to sell to them and serve them: persuade them to carry or list the book and then deliver, bill, and collect so they can.

5. Selling rights where you can’t sell books. Because many books, no matter their origin, have the potential to gain additional revenue and exposure through licensing for other languages or placing chunks of the book’s content in other venues (what was very simply “serialization” in the all-print days), rights sales and mangement is another activity that a book publisher has to cover.

How have the avenues for sale to end users changed in the past two decades?

Before digital change arrived, which for trade publishers we could say began when Amazon opened in 1995, publishers sold most of their books in stores. The books got there because their sales reps persuaded the stores to stock them. Reps and stores are still a part of the delivery system, but they are no longer the only path to an audience that can deliver a book’s author substantial revenue.

In the past 20 years, online sales of print have moved from under 5% of the total units to certainly 40% of units, perhaps 50%. And it can be much more for some titles.

In addition to print, publishers sell ebooks and those are exclusively online. Twenty years ago, sales were zero. Now they appear to be 20% or more of the sales for big publishers. Once again, there is a range across titles and types of titles and there is a whole new segment of digital-first publishers for which the percentage of ebook sales is much higher, sometimes approaching 100%.

. . . .

Twenty years ago was probably the peak of the big bookstore chains — Borders and Barnes & Noble. Two decades ago, those two retail behemoths were more than 30% of many publishers’ sales. Today, Borders is gone, Barnes & Noble has shrunk, and their sales are less than 10% for most publishers. The number of chain stores is fewer than half of what it was, but shelf space for books has shrunk even more.

As a result of the diminishing bookstore space — shrinking and disappearing chains and despite a recent resurgence of independents the growth from them hasn’t nearly replaced what’s been lost — the opportunities to put printed books in front of consumers have shrunk. So the shelf space in mass merchants, like Walmart and Costco, is especially important for the big books.

. . . .

At the same time, the general interest book clubs have pretty much disappeared. Publishers used to be able to move thousands of copies of big books through those direct mail channels. They’re effectively gone.

And all of the above is really attributable to the fact that the sales have moved to Amazon. Twenty years ago they were probably not as much as 2 percent of book sales. Now, if you include Kindle sales, they are almost certainly 50 percent of the sales. For printed books alone, they are over 40 percent for most publishers.

. . . .

Amazon sales reached a tipping point about ten years ago. Kindle, launched in 2007, grew fast, as the first “direct download” ebook system. (Before Kindle, the ebooks had to be downloaded into a computer and then “synched” to a device.) So when Amazon first offered the self-publishing opportunity through Kindle, they were able to “reach” an audience of sufficient size to enable aspiring authors to actually make some money. When they added their “Create Space” capability for print-on-demand, an author could readily reach half the book-buying audience with one stop.

That was really the catalyst for what has become a tsunami of self-publishing.

. . . .

The much-cheaper [indie ebooks on Amazon] were most compelling for the audiences that consumed many titles: readers of romance, sci-fi, thrillers, and mysteries. It didn’t take long — maybe a couple of years — for a very robust title selection in those genres to become available from many previously-unknown authors.

Whether it was intentional or not, Amazon’s flipping of the time-honored “razors and blades” pricing strategy contributed to their rounding up all those multiple-book readers.

. . . .

[F]rom day one, the tiny-but-growing community of Kindle readers bought an outsized number of books.

For those authors who captured readers through the combination of low-pricing and the appeal of the free book “samples” that digital enabled, the Amazon self-publishing ecosystem could be very remuerative.

. . . .

Regular publishing required an agent most of the time but it required a lot of patience all of the time. Finding an agent took effort and could take months. The publishers’ decision-making process to buy also took a long time, often months. The act of publishing took a long time, also often months. It quite often added up to years. And then the share the author got was a fraction of what Kindle would pay them.

. . . .

So by 2010, we had a very different profile of intermediaries between publishers and their readers than we had a decade or so before.

And in the decade since, the total retail shelf space dedicated to books, across chains, independents, mass merchants, and specialty merchants, has continued to decline. The share of sales being taken by online has continued to grow to the level we cited: 50 percent for most titles. All publishers, but particularly big publishers, have taken to heart that they have to market direct to consumers . . . .

. . . .

If you go back to the top to look at the requirements to publish a book, numbers one and two are the creation and designing of a book, and most publishers use freelance capabilities for that which are available to anybody, including individual authors. Number three (marketing) has many components, but there are a plethora of independent services available to deliver most of the capabilities. Number four (connecting with the avenues of distribution) is delivered by Amazon to their customers and by Ingram to the world. And number five (licensing, particularly foreign rights) can be done by a vast network of agents and digital marketing consultants that already exists. You don’t need to own any of it to play.

And, as a result of all of that, many of the structural advantages a being a book publisher have faded in importance. A person with a manuscript, a computer, and a bit of a budget has been able to publish effectively, and sometimes profitably, for the past ten years. That has spawned the current infrastructure of capabilities and services that might suddenly be discovered as a key tool by entities bigger than individual authors. On another day, we’ll explore that might mean to publishing’s future.

Link to the rest at The Shatzkin Files

PG has been hard on Mr. Shatzkin on many occasions in the past. However, over the past several months, Shatzkin has come around nicely (in PG’s occasionally meek and deferential opinion).

If PG were to date this change, he thinks it may have begun when Shatzkin retired (or mostly-retired, PG has no familiarity with anything other than what The Shatzkin Files have disclosed) from his work as a long-time and well-respected publishing consultant based in New York City.

As PG considered this apparent change, he was reminded of Miles’ Law, reputedly named for Rufus E. Miles, Jr., a supervisor in the Bureau of the Budget in the 1940s who told a group of subordinates that, in government agencies, “Where you stand depends on where you sit.”

PG has never been in the traditional publishing business (although he has been exposed to traditional publishers via helping Mrs. PG by reviewing the publishing contracts from the traditional publishers with which she formerly did business).

PG was not alone in recognizing the potential for Amazon and its general pricing practices, but particularly for its aggressive move into ebooks, to completely upend traditional publishing. He had witnessed and participated in the revolution that had significantly impacted the legal profession with the birth of computer-based word-processing and its ability to turn out perfect, custom-fitted documents of all sorts very quickly and inexpensively. When he was still practicing retail law, PG made a lot of money by building software programs that could start printing out sophisticated wills and trusts or divorce petitions and related documents while the client was still in the process of writing a check and handing it to one of his legal assistants.

Even more importantly, PG had absorbed significant amounts of the thinking and writing of Clayton M. Christensen, Harvard Business School professor and well-known author of The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail, a book that Jeff Bezos and Steve Jobs have each said had a major impact on how they built Amazon and Apple.

The early moves of Bezos into providing self-publishing tools for the masses were extraordinarily disruptive, especially for ebooks, putting Amazon’s promotional power behind making some of those indie ebooks into big sellers and, even more important, on a per-ebook basis, paying authors far more than they would receive from the sale of an ebook via a traditional publisher through Amazon.

When you add the tools Amazon has provided for author to exercise broad control over ebook pricing plus author access to the Amazon-based advertising and marketing tools for selling books, Amazon has effectively set up an online laboratory that permits authors to experiment with all sorts of marketing/pricing strategies in an ongoing search for the best way to sell a lot of ebooks. Perhaps more important even than the money Amazon earns from selling indie ebooks, it is in a position impossible for any traditional publisher to equal, where it can watch and learn from all the various pricing/marketing/product design experimentation going on among thousands of individual authors, including some who are selling a huge number of ebooks.

PG suggests that, while good editors, nicely-formatted books and skilled cover designers are very important for most indie authors, paying for those services separately (or doing them yourself, particularly in the case of book formatting), instead of offloading those jobs to publishers and giving up far more income than even the most expensive editor or designer would charge just doesn’t make sense.

If you’re writing in a niche that benefits from quick-to-market strategies to take advantage of something that’s happening right now or soon will happen, a traditional publisher is most definitely not a smart strategy. You can make it all happen much faster (and probably  much better – most publishers’ employees are generalists, not specialists in particular market segments or sub-segments, plus everything at a publisher is subject to bureaucratic time lags) by doing it (or hiring specialists to do it) yourself.

The discovery of truth is prevented more effectively, not by the false appearance things present and which mislead into error, not directly by weakness of the reasoning powers, but by preconceived opinion, by prejudice.

~ Arthur Schopenhauer

Bureaucracy defends the status quo long past the time when the quo has lost its status.

~ Laurence J. Peter

In any bureaucracy, there’s a natural tendency to let the system become an excuse for inaction.

~  Chris Fussell

Bureaucracy is a giant mechanism operated by pygmies.

~  Honore de Balzac

A lot has changed in book publishing in the last ten years

From veteran publishing consultant Mike Shatzkin:

I am returning this September to speak at Digital Book World.

. . . .

The new DBW is well aware of “corporate” publishing, a term they use to describe the increasingly frequent occurrence of non-publishing companies and entities issuing their own books (and not necessarily with the primary objective being to make money doing so).

This inspired me to make a list of Big Changes since 2009. It did not take long to come up with quite a few.

The arrival of the IPad and ubiquitous smartphones and tablets
Pretty universal broadband
Apple iBookstore
Nook: big arrival on the market, large uptake, fairly rapid sunset
Successful, as in producing dollars and reaching readers, self-publishing
Disappearance of Borders
“Resurgence” of independents (and its limits)
Diminishing of B&N
Growth of Amazon from less than a fifth of sales for most publishers to over half
Through Ingram, a full POD and distribution infrastructure available to anybody
Audio has become ubiquitous (fastest-growing segment; smartphones; Audible)

. . . .

Ten years ago: Pub date was the key organizing point for the assignment of a publisher’s budgeted and conscious efforts on a book. Generally, publishers marketed six months around pub date.
Today: Any book can pop at any time. This has had a very visible impact on budgeting and marketing resource allocation, but it also adds a new challenge: monitoring the world to make the best decisions about what books to put effort into right now.

TYA: “Direct marketing” to consumers was the work of specialists.
TOD: Every publisher builds and maintains email lists, with widely varying degrees of expertise applied to using them.

. . . .

TYA: Popular reference books were enduring backlist for book publishers. I know, because in the 1980s I created a compendium of baseball biographies called “The Ballplayers”, trying to appeal to the same audience of the perennial bestseller, Macmillan’s “Baseball Encyclopedia”.
TOD: You wouldn’t think of going to a book for either of these things. “The Ballplayers” had a life online as BaseballLibrary.com before Wikipedia mooted it. And the encyclopedia was effectively replaced long ago by baseballreference.com.

. . . .

TYA: In order for a book to sell, it really needed to be distributed by a “legitimate” publisher, because it was a requirement to be on sale in bookstores to move the needle and only a publisher could get books stocked across a wide range of outlets.
TOD: There are big categories of books (mostly genre fiction) that have a vast number of crowd-curated self-published titles that are available at prices no commercial enterprise can consistently match. And anybody with a worthy title can buy their way into full distribution without having to persuade a publisher to give them a contract.

Link to the rest at The Shatzkin Files

The Sale of B&N Again Calls the Question of the Future of America’s Bookstores

From veteran publishing consultant Mike Shatzkin:

The most important question in the world of trade publishing is “what will happen to the book trade”, meaning, primarily, the bookstores (but also the other retailers that sell books, the libraries and the wholesalers that supply them).

. . . .

[I]t was announced that Barnes & Noble was being sold to Elliott Management, which also owns and has reconditioned the Waterstones chain in the UK. That acquisition caught everybody’s attention and made two reporters call me as part of the research for their stories. (ReaderLink emerged as a late possible alternative acquirer of B&N, but that did not come to fruition.)

They wanted to know, “will Elliott save B&N?” The announced strategy, by James Daunt who will run both chains and who engineered the changes at Waterstone’s, is to repeat what appears to have worked in Britain. Diversify the stores from each other. Give more local autonomy for title selection and merchandising. Make them as different from each other as independents are different from each other.

My hunch is that it will take much more profound change to make the “big chain bookstore” model commercially viable in the US anytime in the future. What surprises me a bit is that this conversation about the future of bookstores, and just about every one I’ve seen, just doesn’t acknowledge the history of how we got to where we are.

The Barnes & Noble store network that exists today was spawned by investor enthusiasm in the late 1980s, which also financed the growth of B&N’s longtime competitors, Borders, which closed in 2009. When the book consumer of that time either wanted a specific book, particularly one that was not a current bestseller, or wanted to “shop” a category or topic to see what was available, it was a natural instinct to go to the store with the biggest selection, the most titles.

The fact that selection was a magnet became the driving reality the superstores were built on. The biggest independents had long carried a very large number of titles and now the chains, which had previously specialized in 20-25,000-title stores in malls, started building freestanding destination stores that carried 100-125,000 titles. The national wholesaler Ingram also kept expanding their title base, so both the chain stores and the independents could get rapid resupply support for most of what they carried.

The situation started to change when Amazon arrived in 1995 with the ability to deliver just any available book to any customer in as much time “as it took” (varied by the book and publisher, of course), with a “promise date” to tell the customer when to expect it. Since most needs for most books by most people are not immediate, over time online shopping, rather than looking for the biggest in-store selection, became the logical default for anything you weren’t sure you’d find. And in a multi-million title world of books (to which we have evolved over the past 20 years from the quarter-million title world we lived in before Amazon), that’s by far most of the shopping and has become most of the purchasing.

In addition to the shopping reality, the marketing reality has also changed. It used to be that word of mouth was a slow thing, taking the time it did to travel from person to person through conversation and personal interaction. The internet changed that; social media changed it on steroids. Now word of mouth can spread like lightning, and stop nearly as quickly as it starts. Social media can make a book, or a meme, very ubiquitous for a week or a month, and then disappear.

That means that there is a high premium on having a book available in as many places as possible for the period of its great fame, but it also means those books need to be rotated quickly. To maximize sales, they need to show up right away when they’re hot, and they have to relinquish their place of prominence to make room for the next thing that comes along.

What that all added up to is that the retail sector that is needed in the area of rising online sales is very different from the one we needed before. A massive selection is not an effective magnet anymore.

. . . .

[I]t will take more than diversification of the title selections and merchandising emphases to make the pretty large B&N stores thrive again. They need more smaller stores, not so many very large ones. Making the title selections more local is well and good, but the information that drives that has to be deep, sophisticated, digital, and reacted to very quickly.

. . . .

Britain is culturally and physically different enough from the States that it is hard to know whether a strategy that worked for Waterstones there can work for Barnes & Noble here.

Link to the rest at The Shatzkin Files

PG is familiar with the incoming CEO of Barnes & Noble, James Daunt, only through a variety of articles written about him that include quotes from Daunt.

PG’s general impression is that Daunt is British in a way that can lead to parochial views of the world and the United States in particular. From a brief scan of biographical information, Daunt’s father was a British diplomat and Daunt was educated at a 1300-year-old private (in the US sense) boarding school prior to completing his education at Cambridge. One profile mentioned that he presently owns three different homes.

Daunt’s only extended exposure to the United States that PG could discover was when he worked as an investment banker in New York City for four years in the 1980’s right after he graduated from college.

PG has no doubts that Daunt’s business instincts are well-attuned to the sensibilities of a typical British book purchaser, particularly in the upscale locations where he sited Daunt Books stores prior to being named CEO of Waterstones.

PG has his doubts about whether Daunt’s instincts will work as well for a Barnes & Noble in Omaha or Mobile as they do for a Daunt Books in Marylebone however.

At present and in most locations, working in a Barnes & Noble store is pretty close to a dead-end job. It’s a half-step above flipping hamburgers for working conditions, but Shake Shack isn’t on anyone’s list of public companies most likely to show up in bankruptcy court either. PG suggests that a Shake Shack manager is more likely to have his/her job five years from now than a manager of a Barnes & Noble is. And a Shake Shack manager may be earning more money as well.

PG suggests Daunt’s most important task will be to make the employees of Barnes & Noble’s retail stores feel like they are part of a business that is worth caring about and isn’t likely to lead to unemployment during the next few years.

Customers sense when the store staff feels like they’re in dead-end jobs.

The best ways to use Lightning are not widely employed yet 20 years in

From The Shatzkin Files:

The 20th anniversary of Lightning Source, the digital service provided by Ingram that supplies both printed-on-demand books and ebook file distribution services for publishers, was recently noted in a tribute piece in Publishers Weekly. The growth of the file repository at Lightning was reported to have reached 15 million titles.

Those represent books that might not have copies for sale in anybody’s inventory but which can be delivered in the next 24-48 hours by Ingram to any bookstore, library, or consumer in the country (and many more around the world).

John Ingram was quoted suggesting that publishers would only get the full benefits that Lightning has to offer them if they have every title they own archived with the service and ready for delivery. The story doesn’t unpack that idea, but it is a very powerful one.

The value that almost all publishers now recognize in Lightning was summed up very well by Steve Zacharius of Kensington Books.

“We use it for short runs to cover books temporarily out of stock or to keep the book available when there’s not enough demand to do a full offset printing. We also, of course, use it for ARCs.” (ARCs are “advance reader copies”, sometimes called “bound galleys”, which are usually pre-publication samples of a printed book.)

But there is another way to use Lightning which only a few publishers have employed so far but which could become one of its most valuable capabilities in these times. Ingram now has what they estimate is “several tens of thousands” of titles within the catalog that sell thousands a year, so they wouldn’t be obvious candidates. But they are set up “Just in Case” (as opposed to for “Just in Time”) and they make use of Lightning in ways most publishers still don’t.

Because, more than ever before the Internet changed communication, our collective attention is briefly grabbed and we see a “spike”. A sudden and unpredicted surge in interest in a topic (which often means a book) is suddenly driven by an event in the news or public sphere. These surges can be extremely brief but the boost in demand they can deliver for any book can also be extremely powerful. And, of course, the body of thought contained in a book could actually further sustain the interest, if the book is available for media exposure and public consumption at the moment of opportunity.

. . . .

Because if there’s a news break on a Monday morning that could promote interest in a book, even a publisher with ample inventory in its own warehouse is unlikely to be able to get copies to Ingram to place on sale any earlier than Wednesday. Those two days could be two major days for sales, perpetuating a chain of interest into the book-buying public.

Turning on Lightning printing for that book could mean thousands of copies in stores and libraries by Wednesday. This is the potential magic of the Lightning-Ingram connection. Ingram is shipping books to just about every bookstore and library that matters just about every single day. The newly hot book could be in all the shipments to stores that want it almost from the moment of the news break by employing Lightning. In our times, delaying the book’s real distribution into the marketplace by even 48 hours could be the difference between a book that catches fire and one that misses its opportunity.

Link to the rest at The Shatzkin Files

PG will note that an agreement between a publisher and Ingram for Lightning service could arguably provide a basis for the publisher to claim none of its books would never go out of print. Under language commonly used in publishing contracts all rights revert to an author if the author’s book goes out of print, but most publishers don’t do much to clarify when a book will go out of print.

For those authors who wish to enter into publishing contracts with traditional publishers, PG suggests that out-of-print provisions be triggered at the author’s election whenever royalties paid to the author for a particular book drop below a specified dollar amount. For example, if the publisher fails to pay the author at least $1,000 in royalties for a book during any royalty reporting period, the author can cause rights to the book to be reverted because the book is selling so few copies, it is effectively out of print.

As far as the OP is concerned, it’s hard to believe that anyone with an internet connection will be interested in waiting two days to go to a bookstore to buy a hardcopy book instead of reviewing all the online information on the topic that would appear much sooner  (which online info could easily include excerpts from the book).

Much of the value of Lightning also assumes that the publisher doesn’t already have an ebook for sale on Amazon.

Imprint consolidation at big houses is a sign of changed times

From veteran publishing consultant, Mike Shatzkin:

I had reason to learn recently that Ingram has 16 million individual titles loaded in their Lightning Source database ready to be delivered as a bound book to you within 24 hours, if not sooner. So every book coming into the world today is competing against 16 million other books that you might buy.

That number — the number of individual book titles available to any consumer, bookstore, or library — has exploded in my working lifetime. As recently as 25 years ago, the potential titles  available — in print and on a warehouse shelf ready to be ordered, or even to be backordered until a next printing — was numbered in the hundreds of thousands. So it has grown by 20 or 30 or 40 times. That’s between 2000 percent and 4000 percent in the last quarter century.

This has, like the Internet or CO2 in the atmosphere, changed everything. And it seems like the organizing structure of the major publishers is also changing in response.

On Monday morning, Simon & Schuster became the second major house in a week to announce that it was consolidating two imprints, effectively reducing by one the number of discrete publishing units within the conglomerate empowered to decide what to publish and how to promote it. They folded the Touchstone imprint into Atria and Gallery; last week Penguin Random House collapsed their Crown imprint into Random House (sometimes referred to as “Little Random”.)

The title explosion is part of a sea change in the world of book publishing that has taken place over the past quarter century. At the same time, sales have shifted in two dimensions: a big chunk of the books now bought and consumed are digital, not printed, and more than half the books consumers buy are not bought in brick-and-mortar stores. And the share for physical stores continues to shrink. Indeed, these trends are linked. The fact that books can now be delivered without inventory, without a sales force, and without a warehouse has made it possible for just about anybody to publish a book.

. . . .

Commercial publishers bring books to market to make money for themselves and their authors. But today, book publishing is a idea-dissemination or brand-extension tool for many originators, and making money on the publication is a secondary consideration.

That means that commercial viability is no longer an effective check on the number of titles. One wealthy and digitally-smart author we know is reluctant to engage with a publisher because he wants to be free to give away his content. And in another case we found and discussed in a recent post, because the originator was so enamored of the idea of giving it away through web streaming, they ignored the opportunities through commercial ebooks that would have required setting some price a bit higher than zero to work in that channel. Anybody doing this more than once will figure out ways to increase their distribution.

It wasn’t very long ago that nobody would think seriously about publishing a book unless they had the infrastructure — a sales force, a warehouse, a way to process shipments and returns — to put books on many bookstore shelves. Now those services are ubiquitously available for variable, not fixed, costs (you can reach the whole world through Ingram Spark or a big chunk of the world through Amazon Kindle and CreateSpace).

. . . .

In the new marketplace, where most of the sales don’t require the expensive-to-engage distributed bookstore infrastructure, established publishers no longer automatically dominate. So we’ve gone from a marketplace where only truly professional publishers could effectively get books to customers to one where their size, their lists, their sales forces, and their operational efficiencies give them much less competitive advantage. That new marketplace and the competitive set means that publishers can no longer count on a reasonably substantial minimum sale for every title they publish.

. . . .

For as long as I’ve been in the industry, I have heard publishers complain “there are too many titles” while the smartest ones also saw that their own profitability was improved by increasing their own company’s title output. But over the past two decades, the title glut has hit home and even the biggest and most powerful publishers need to exercise restraint about what they try to publish profitably. Because they really can lose money publishing a book, which two decades ago was actually a rare occurrence in a major house unless they had wildly overpaid for the rights.

Publishers have also found it sensible to redeploy resources from “sales” — working with intermediaries to reach a book’s customers — to “digital marketing”, which often leads to a direct sales appeal from the publisher to the consumer. (Although the sales themselves might be executed through Amazon or another retailer, the publisher’s effort is driving the specific sale to the specific customer.)

This has, inevitably, made publishers more “audience centric”. They build topic- or genre-specific websites, apps, and — critically — email lists. The email lists of book purchasers are of increasing value, if the publisher can continue to feed it choices from which it will find things to buy.

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

PG suggests that, not long ago, publishers would not have considered direct sales efforts to readers via mailing lists, etc., because bookstore owners would have objected. The OP suggests to PG that publishers have mentally written off Leonard Riggio/Barnes & Noble and no other bookstore chain is big enough to intimidate them.

At a time when real digital marketing talent is widely recognized as a valuable skill, PG also wonders what sorts of digital marketers are willing to go to work for a publisher instead of a tech startup or digital marketing agency with potential for some real upside.

For authors, signing a standard contract with a traditional publisher looks like something akin to an extraordinarily expensive exclusive contract with a digital marketing agency which you can’t fire for incompetence or failure to respond to your emails.

And where’s the nurturing in that sort of relationship?

Words-to-be-read are losing ground to words-to-be-heard, a new stage of digital content evolution

From veteran publishing consultant Mike Shatzkin:

“Words-to-be-read” must now become a content category, along with still images, video, and audio. Audio includes “words-to-be-heard”. We are in what must be the early stages of a reordering of primacy among these varieties of “content for delivery and consumption”, which is distinguished from “content for interaction”, or the world of “gamified content” along with who-knows-what-else.

In a post three months ago, I observed that I had been fortunate enough to have been taught to type when I was a little kid, so producing written words was relatively fast and easy for me. That led to great “experience” with the practice of narrative word creation at a young age, a great competitive advantage in school and the workplace (quite aside from enabling the writing of several published books). That piece also made the point that words-to-be-read were, until some very recent moment, the cheapest and easiest form of content to deliver and distribute. Still pictures required film and processing. Audio and video required controlled (and often expensive) circumstances for recording and a variety of skills to deliver professional content. And beyond that, delivery by cassettes and CDs was expensive and also failed to reach large numbers of the potentially interested people.

. . . .

What really rang a large bell for me was the recent New York Times article about the rise of audio, which focused on big-earning writers whose fortunes and reputations had been earned through “words-to-be-read” (in what we can now see was really a different content era), but who were now switching to audio. One such author, John Scalzi, was moved to reconsider his publishing strategy when a recent book sold 22,500 hardcovers, 24,000 ebooks, and 41,000 audiobooks. Author Mel Robbins responded to her self-help book “The 5 Second Rule” selling four times as many audios as print by making her next creation an audio original.

. . . .

So while we have been recently living through an era where audio pioneers like Don Katz of Audible have had to make the case (and offer the tools) to enable creation of good audio content that was originally intended as “words-to-be-read”, that may be about to flip. More and more, we’re going to find that extra effort is required to make content accessible to the word-reading population, who otherwise will not be able to enjoy a variety of fiction and non-fiction content that will only be professionally rendered to be seen and heard.

Link to the rest at The Shatzkin Files

The dominance of Amazon needs to be addressed but it is far more attributable to natural circumstances than it is anybody’s fault

From veteran publishing consultant Mike Shatzkin:

As things evolve in an era of rapid change, it is human nature to assign credit or blame for any drastic alterations in circumstances. And so we have the book business, with its last remaining chain store behemoth, Barnes & Noble, in a period of obvious decline and presenting the clear possibility that the book publishers’ single biggest brick-and-mortar account might suddenly disappear.

This is a very unpleasant notion to contemplate for all publishers and, perhaps surprisingly, to Barnes & Noble’s erstwhile competitors among independent bookstores. Today, the head of the trade association that represents bookstores (mostly independents), Oren Teicher of the American Booksellers Association, is quoted in The New York Times saying, “It’s in the interest of the book business for Barnes & Noble not just to survive but to thrive.”

The op-ed in which Teicher’s quote appears is a piece by columnist David Leonhardt basically blaming the US Department of Justice for Amazon’s growth and the consequent reduction of market share available to all other retailing competitors. There is a lot of history and context not discussed in this piece but I have a nominee for the single most glaring omission. At just about the turn of the century, Barnes & Noble made a deal to buy Ingram, the biggest book wholesaler and distributor in the world, which was shot down by an activist Department of Justice. This is not mentioned.

And, in 1998, when the purchase was announced and B&N specifically cited its need to strengthen its ability to sell online as part of the reason for the purchase, the American Booksellers Association was vigorously opposed!

. . . .

It has long appeared from here (here’s a piece from 2012) that the existential issue in the book business in the 21st century has been “when does Amazon’s share growth stop, and who will be left standing when it does?”

Although definitional and data ambiguities make this an imprecise statement, it is likely that we’ve reached a day when more than half of the printed books sold through retailers are sold online, not in stores. Ebooks added into the mix for the narrative reading portion of the published material constitute a further erosion of the brick-and-mortar store sales base.

The shift of habits from buying in stores to buying online is not restricted to books, of course. Because of Amazon, it largely started with books. But books also have other characteristics that make them better than most things for online purchase, from a consumer point of view.

. . . .

So buying a specific book that you know you want online just makes sense to most people. Of course, Barnes & Noble has had its own online bookstore operation since the 1990s. They have steadily lost online purchasing share to Amazon for decades.

It is true that Amazon cut prices below what many brick retailers charge. And I even think I identified the moment when that strategy kicked in. See the same piece linked above. If I’m right, then they did it specifically to discourage independent stores from using the same Ingram capabilities they used to launch an online sales effort. (In fact, discussing the “low price” challenge that exists for publishers in 2018 without mentioning the self-publishing world which is the primary price restraint mechanism in the market, assuming no disingenuousness, displays serious ignorance of the marketplace realities.)

But the way things looked in then 1990s, with online retail in its infancy, was that it didn’t constitute a threat to brick-and-mortar. Many physical retailers ignored the opportunities and threats of online competitors. Borders, at about the same time that the Department of Justice was killing the deal by which B&N bought Ingram, was partnering with Amazon to deliver its online offering!

With those realities, does it make sense to be blaming the DOJ for not seeing the threat?

Much is made of Amazon’s pricing practices and the possible fallacy inherent in looking at consumer prices as the be-all and end-all indicator of whether a marketplace is working right. But even that argument is just not so simple. More than a decade before Amazon was launched, the retailing chain Crown Books (not to be confused with the then-indie publisher now an imprint of PRH) was aggressively discounting bestsellers. They grew fast in the 1980s. Until the superstore era began in the late 1980s, and the massive selection in the big Borders and B&N stores became the “killer” consumer attraction, this variation of the Amazon strategy (using bestselling books as loss leaders to pull in customers, to whom Crown sold remainders and bargain books to generate the margin to operate) was upsetting the old order.

. . . .

It is not hard to support Leonhardt’s idea that Internet monopolies, even if they result at least partly from the natural power law forces of Internet economics, will have to be regulated, as I suggested in another forum recently. (I publish the stuff that is not mostly about books in other places.) Perhaps the first step with Amazon is to ban them from the publishing function. And because they are a vital path to the consumer for all publishers, it would be helpful for the government to be sure that their sales terms are fair among the publishers competing for their customers (a concept that wll get increasingly tricky as Amazon’s physical store footprint expands).

. . . .

So while it is absolutely true that Amazon is gaining a level of market share, and therefore a level of power and control, over the book business that is frightening for those of us in it and not a good thing for society, this does not make them evil or make everybody who failed to stop them stupid. Through a remarkable series of brilliant moves — the first ones putting books online with a huge master catalog and providing “promise dates” for each individual title so the customer knew when to expect delivery but then continuing onto Prime and Kindle and harnessing their own print-on-demand and, most of all, enabling self-publishing by individual authors that delivered meaningful revenue — they have achieved what sometimes looks like imminent hegemony.

Link to the rest at The Shatzkin Files

Large market share and dominance is something Amazon is developing in a variety of different fields besides books.

From MarketWatch:

Amazon.com Inc. may already be the largest apparel retailer and could still grow to sales between $45 billion and $85 billion by fiscal 2020, according to Instinet analysts.

Instinet analysts led by Simeon Siegel estimate overall apparel and accessories sales at above $1 trillion with “above average” online penetration and “leading gross margin” compared with other categories.

“We believe Amazon has the largest [total available market] TAM (ever), doesn’t carry socio-economic retailing stigmas, can stock a limitless number of goods on its virtual shelf and knows customers better than they do,” Instinet wrote. “Amazon’s path to book dominance provides a potential road map for apparel success, with its fiscal 2007 media progress sharing similarities to its fiscal 2017 apparel achievements,” the note said.

PG notes that the “socio-economic retailing stigmas” refer to Walmart, previously the largest apparel retailer and now generally regarded as #2.

PG includes the apparel dominance Amazon has built as evidence Amazon is very good at understanding what customers want and how to deliver it to them at a reasonable price.

Amazon didn’t start selling books online with the goal in mind of becoming a publisher. However, in the face of illegal price-fixing by major publishers and other anti-Amazon activities calculated to bolster an outmoded, inefficient and expensive (for consumers and authors) publishing industry, Amazon innovated.

Prior to KDP, the self-publishing business was dominated by shady operators like Author Solutions and its companions whose business model focused on exploiting would-be authors. Instead of exploiting authors, KDP offered them much higher royalties they could earn in the traditional publishing business – 70% of the amount received by Amazon for KDP ebooks is a prime example.

Unlike traditional publishers that use a long and opaque supply chain which substantially reduces the amounts received by the publisher and thus the amounts received by authors, Amazon sold directly to consumers. Author royalties were quite close to 70% of the amount readers paid for author ebooks. (PG notes that some traditional publishing contracts {although fewer than in former days} calculate author royalties based upon the suggested retail price of the author’s printed book. Ebooks, books sold at a discount to discount retailers like Costco, Sam’s Club, etc.,  and some or all types of paperback sales are typically calculated based on the amount received by the publisher. Royalties calculated on the amounts received by publishers are virtually always much lower than royalties calculated based upon the suggested retail price of a book.)

For readers who really want to support authors they like, buying ebooks or CreateSpace books through Amazon is a much more effective means of doing so than buying books from a bookstore that takes its cut and acquires books from a wholesaler who takes its cut who acquires books from a publisher who takes its cut and passes a relatively small amount of the retail price of a book to the author.

Indeed, if we consider the annual incomes of all the people involved in the traditional publishing supply chain, it is quite likely that the author is the lowest-paid individual working in that business, even including clerks at Barnes & Noble.

PG suspects the traditional publishing practice of paying royalties to authors every six months may subtly influence authors to feel they’re earning more from their writing than they really are. Receiving a $6,000 royalty check in the mail feels psychologically like a larger amount than a $500 salary check every two weeks, particularly after taxes, social security and other deductions.

PG just did some quick calculations and discovered that a worker earning the US minimum wage of $7.25 per hour working 40 hours per week is earning more money than an author who receives a royalty check of $6,000 twice per year. If the author isn’t receiving a royalty check of over $7,500 every six months, the author would be financially better off working in a convenience store.

PG is not going to perform the calculations, but will note that the minimum-wage convenience store employee only pays 6.2% of wages for Social Security and 1.45% for Medicare (with the employer paying the same amount) while a self-employed author pays twice as much because she’s obligated for both the employee’s and the employer’s portions of those taxes.

Quick internet research didn’t disclose the average income of an author in the US, but in 2015, The Guardian calculated that the median earnings of professional authors in the UK fall below the minimum wage.

Do the median earnings of publishing executives fall below the minimum wage? Other employees working for publishers? How about median earnings of employees of book wholesalers? Delivery drivers that bring books to bookstores? Bookstore clerks?

So exactly why should the federal government take action to protect the traditional book publishing and selling industry at the expense of Amazon if that industry consistently fails to pay authors a living wage? Why penalize Amazon when it consistently pays authors more than traditional book publishing does?

The written word is losing its power and will continue to

From veteran publishing consultant Mike Shatzkin:

If there were a futures market in literacy, it would be dropping. It is a sad fact that the value of written words, in relation to spoken words and still and moving pictures, is sinking like a stone. Changes like this happen for structural reasons.

Since the invention of moveable type and the printing press, printed words have been advantaged for creation and mass distribution. Printing pictures first required “engraving” and then shooting half-tones (showing the picture as smaller and larger black dots to add “shades of gray” to black and white) while type just got set, locked up, and printed.

And the primacy of words continued into the early years of digital information as well. Keystrokes choosing from among letters and punctuation marks instructed computers. Rendering words was easy for them.

Between the era of ubiquitous personal computers (starting in the mid-1980s), through the era that brought us ubiquitous laptops (from the 1990s forward), words could be delivered on smaller and ever-more-widely-distributed devices: personal digital assistants like Palm Pilots and cell phones. Still images didn’t really render well on either of them and moving images were a non-starter.

But all of that has changed in the past ten years. Most people now have smart phones and tablets that show images beautifully through broadband connections. On top of that, the same devices will record the images or videos, so everybody has “creation” capability in their hands as well. And the process 20 years ago had to begin on film and then somehow or other get to a digital form. Now all the images are born digital, cutting out a whole lot of complication and cost. And nobody has to learn a keyboard — or how to spell — to use the capability effectively.

. . . .

Being able to craft good prose quickly has been my personal competitive advantage for my whole life. Meanwhile, I’m not so facile with images. Writing a better sentence is something I’ve been practicing for more than 60 years. Framing a better image is something most people can do much better than I can.

Link to the rest at The Shatzkin Files

 

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

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

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

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

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

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

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

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

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

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

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