“Enterprise self-publishing” is coming

From Mike Shatzkin at The Idea Logical Company:

The book business is in the early stages of its third great disruption in the past quarter century. The first two both changed the shape of the industry and created winners and losers across the entire value chain: touching every step from how authors got money to how readers got books. Significant institutional players were lost in both prior disruptions, and all the ones who remained had to change their models and practices significantly.

The cause of the disruption on both prior occasions and now was the introduction of asymmetric competition. Before 1995, publishing and retailing were the province of entities that did it in a businesslike way, usually for profit but always within an organizational structure dedicated to their publishing or retailing activity.

Amazon changed that in the 1990s when they were able to sustain virtually profit-free retailing, employing two points of leverage which they uniquely discovered. One is that they used book retailing as a customer acquisition tool: they always had the intention to make profits in other ways on the customers they sold books to. The other is that they persuaded Wall Street that their profit-less growth was valuable and that it was worth increasing their share price based on sales growth that didn’t (yet) produce profits. (Wall Street might also have been seduced by another unique feature of their model: positive cash flow on sales. Amazon would sell you a book today and take your money and they didn’t have to pay Ingram for the book they’d get and ship you tomorrow or the next day for another month or more!)

The second great disruption was spawned by Amazon’s Kindle, which was the big driver needed to galvanize what is a robust capability for authors to publish themselves. In this case, the asymmetry didn’t come from Amazon, but from the massive horde of independent self-publishing authors they have spawned. They have collectively crowd-sourced millions of titles into a market which was previously supplied pretty much exclusively by publishers. And authors often, if not usually, deliver their competitive titles with pricing strategies that a publisher paying royalties and rents and salaries couldn’t begin to match.

And now we are at the dawn of a third reordering of publishing’s structural and commercial landscape. The infrastructure capabilities spawned by the past dozen years of author self-publishing are now industrial strength. Ingram is the heart of this. It is literally the case today that all you need to be a publisher is a manuscript and a checkbook to pay freelancers; all you need to be a book retailer (print and digital) is customers. Ingram can provide all the rest, mostly with transaction-based pricing, so there are no large up-front investments required. Service organizations that handle details from copy-editing to cover design to press release copy for books, one of which I am helping to build now, are ubiquitous.

What I believe we are on the verge of seeing is that waves of entities will discover that they can clearly benefit from publishing books. Think of this as enterprise self-publishing. Every law firm, accounting firm, consulting firm, retailer, political campaign, cause organization, charity, and church, synagogue, or mosque is only a bit of imagination and effort away from books that can promote any variety of missions. These will be books delivered by a vast unaffiliated network of entities doing publishing as a “function”, not publishing as a “business”.

Across what will be many times the number of titles as are now being published, making money will sometimes happen. But in most cases the payoff from the publishing “investment” will be expected to be realized in other ways. The new players who are doing “publishing as a function” will also band together in countless opportunistic ways. But, once again, that asymmetry of economic purpose will be poison to people trying to publish books as a rational, stand-alone economic enterprise.

. . . .

The first big disruption — Amazon as a retailer — completely remade the retail network in less than two decades. The second — easily-enabled self-publishing — unleashed a tsunami of titles in competition with the ones delivered by the commercially-minded players. The combination has spawned two trends, neither of which has any end in sight.

The first trend is that the sale of books is increasingly online. If you add ebooks and books sold via customer-generated web ordering of print, it is well over half the business. Bookstores are less and less important to the overall sales profile, only three decades after they were the only player in many sales profiles. Mass merchants are paying somewhat more attention to books, but the biggest remaining chain dedicated to selling books, Barnes & Noble, is still shrinking.

The second trend is that the share of all book sales that is delivered by “real” publishers is also shrinking. That has been true for the many years since authors were empowered by Amazon, and then by IngramSpark, to put their books into the marketplace effectively without working through a publisher. But if I’m right that every business with a marketing or business development or client relations budget will explore how books can help their business, what the authors have spawned will be dwarfed by what enterprise self-publishing will do in the coming decade.

Link to the rest at The Idea Logical Company

Ingram: the global infrastructure for the book industry

From veteran publishing consultant Mike Shatzkin:

The global infrastructure for the book business that is not Amazon is owned and operated by the Ingram Content Group. In fact, a lot of the global infrastructure of the book business that is identified as Amazon is actually Ingram. And on top of that, there would probably have been no Amazon, certainly not the one we have, if Ingram hadn’t been innovating for more than two decades before Jeff Bezos left Wall Street to became an entrepreneur.

Ingram has been rewiring and repaving the book business since it was expanded beyond its roots in the 1960s as the Tennessee School Book Depository by its new owner, Bronson Ingram, who made his fortune in the oil business in the decades after World War II. His investment in the book business, which would reconfigure and redefine the industry in many different ways, began as a pure act of kindness. As it turns out, that was a very suitable and appropriate genesis.

As a leading businessman in Nashville, Ingram was involved with Vanderbilt University’s business school. So when Jack Stambaugh retired from a career at Vanderbilt, he accepted Bronson’s offer of an office at Ingram to be a base for his post-University endeavors. A few months later, Ingram observed that Stambaugh did little except read the Wall Street Journal each day and offered to put up the money to buy a business for Stambaugh to run.

And that’s how Ingram bought the Tennessee Book Company. The School Book Depository it operated was a low-risk, stable but no- or low-growth business that enabled local school districts in Tennessee to get textbooks in quantities smaller than publishers wanted to deal with. So the sales were pretty assured — new textbooks in some subjects were acquired every year by some school districts — and the customer base of schools were reliable payers.

Thus begins the story told in “The Family Business”, a history of Ingram by Nashville journalist Keel Hunt, a great storyteller who has known the Ingram family for almost all of its just over five decades of operation. “The Family Business” is being published tomorrow, April 20, by West Margin Press in Berkeley, CA.

Having a part in creating this project has been among the most enjoyable experiences of my career. Working with Hunt, publishing veteran Bruce Harris, and editor Karl Weber has been a voyage of rediscovery of my own time in the business. 

. . . .

The Ingram of today reaches every corner of the global book business. It is more accuracy than hyperbole to say that every publisher, every bookseller, and every library in the world does business with Ingram. As a wholesaler, they carry the books of all publishers and are the primary distributor (the originating source) for those published by hundreds of them. Their CoreSource digital asset repository, which dispatches the digital files for books to deliver ebooks or print books all over the globe, is the single biggest. Their “third party distribution” capability delivers books to more American homes than anybody else, in boxes identifying the customer of Ingram’s — which could be any bookstore including Amazon — that transacted the sale as the source for the book’s purchaser.

. . . .

I have met dozens of people from Ingram. I have consulted with them for years as well and introduced them to projects they have taken on board. I have never met a single person from Ingram who wasn’t smart. I have never met one who was in any way difficult to work with. And what was always most impressive throughout all these decades, they conducted their business without a hint of the bullying (even gentle, polite, subtle bullying) that is endemic in all businesses when large accounts deal with small suppliers.

They are relentlessly efficient and they value operational excellence. They are also very civil and they also value just being nice.

Ingram’s growth was accelerating when I met them. The company did about $1 million in business in 1970 and over $100 million in 1979. (Hitting $100 million is another great story well told in the book.) This growth was fueled by the expansion of retailers enabled by the vastly streamlined supply chain that for the first time allowed booksellers to know, through the microfiche, that they were ordering books they’d reliably have in a few days. That level of certainty in the supply chain had never existed before and it suddenly made bookselling a much better business to be in than it ever was previously.

. . . .

At almost the precise moment that Ingram’s operational efficiency was enabling the invention of the phenomenon of Amazon (clearly detailed in “The Family Business”), the torch was being passed to the next generation of the Ingram family. Bronson’s premature death led to his son, John Ingram, coming back from building Ingram Micro in Europe to take over the family enterprise in 1995.

The late 90s were a prelude to the new digital realities that mark the book business today, and Ingram’s hallmarks — operational excellence, focus on delivering value for their trading partners, and the patient money that only a very private business can invest — both shaped the change and assured the central place Ingram has in the global world of books today.

It was in that period, while Amazon was building their own behemoth, brilliantly leveraging the capabilities that Ingram gave them, that John Ingram launched two initiatives that are still central to the company’s success.

One was Lightning Print, the capability to print a single copy of a book at a commercially acceptable price on short notice. The other was the previously-mentioned “third party distribution”: the capability to ship to the end consumer with the book appearing to come from the Ingram customer using the service. The latter capability enabled any bookstore or web site to sell any book Ingram had as though they were sending it themselves. The former extended that capability beyond the hundreds of thousands of titles Ingram actually stocked to the many millions (now approaching 20 million) in the Lightning database.

In 2021, all you need to be a bookseller is customers and a relationship with Ingram. And all you need to be a publisher is a manuscript, a checkbook to hire some freelancers, and a relationship with Ingram.

Link to the rest at Mike Shatzkin

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.

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

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.