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May 9, 2011
THE SHATZKIN FILES
The Old Publishing Value Chain Got Twisted a Bit Last Week
by Mike Shatzkin
Although the value chain in trade publishing for the last century has, for the most part, kept retailers between publishers and consumers and kept publishers between retailers and authors, that has never been 100% true. Doubleday covered the whole value chain in the 1950s, when it not only owned the Doubleday Book Shops and the Literary Guild book clubs, it also owned printing plants. In the early 1960s, the Crowell-Collier Publishing Company bought (and eventually renamed itself) Macmillan (and that’s the old Macmillan that became part of Simon & Schuster in the 1980s, not the new Macmillan which was what the renamed Holtzbrinck group became a few years ago) and they also bought the Brentano’s bookstore chain.
I sold books to both Brentano’s and Doubleday in the 1970s and I don’t recall it ever being an issue that they had publisher ownership. Of course, that was before trade publishing consolidated into anything remotely resembling a Big Six.
After those two chains were sold in the 1980s (and I’m going to admit that I forget whether Walden which became Borders or Dalton which became Barnes & Noble bought each of them), in a period of two decades when publishers and book retailers grew enormously, the neatness of the division between the publisher’s role and the retailer’s was mostly respected. A number of retailers — notably B&N and Borders, but suppliers to the mass merchants as well — bought bargain books directly from packagers during that period, but joint ownership of significant publishing and retailing capabilities was, temporarily, suspended.
But Barnes & Noble was particularly aggressive at direct sourcing of book content and around the turn of the century announced the goal that 10% of their volume should come from directly-sourced product. To further that objective, in late 2002, B&N outbid several other companies (including at least one very large publisher) for the independent niche publisher, Sterling. Immediately, Borders stopped buying Sterling books and Barnes & Noble started stocking a lot more of them than they had in the past.
Meanwhile, the Internet was forcing everybody to rethink the paradigm. Even before the Kindle was launched in November, 2007, Amazon was encouraging authors to “publish” with them directly. All they could offer was the connection to the vast majority of online consumers — no print runs, no presence in any brick stores — but this could still be attractive and productive for some authors. My friend and client, David Houle, a futurist who blogs at Evolution Shift, published his “Shift Age” book with Amazon before Kindle and has sold thousands of copies, many of them at his own speeches. He’s very happy earning about $7 on every sale of a $17 book. No publisher was going to offer him as much as a third of that per copy.
As online sales grew, and then were further fueled by ebook sales starting in late 2007, it became increasingly obvious to many that publishers would have to start selling direct themselves. Some did. Harlequin has done so for years. F+W Media, one of the most aggressive publishers employing a vertical community strategy, announced a year ago that they would use Ingram to sell their books as well as those of their competitors to their direct audiences. Macmillan announced a similar plan for science fiction through Tor.com, although that idea has apparently never been implemented.
Part of what has discouraged the big publishers from selling direct is the threat of retaliation by Amazon and Barnes & Noble, both of which are much happier if the customer contact for big books is through them, thank you very much. Since both companies really exercise direct influence on many consumers, big publishers are inclined to respect their concerns.
To a certain extent.
And then we had the events of last week.
Amazon, which had previously established imprints for author-direct publishing and for translations of foreign works and had created a relationship with Houghton Harcourt to address their prior inability to get brick store distribution for books they owned, announced a new romance imprint called Montlake Romances. (Personally, I thought it was a bit strange that they announced it with just one book coming this Fall, rather than 10 books coming next week!) That put them squarely into the publishing business in a new way, and one could only imagine that the mystery shoe and thriller shoe and sci-fi shoe will be soon to drop.
In the same vein, Barnes & Noble has a program called Pub It! to enable authors to by-pass publishers and earn bigger royalties. They also still own Sterling, which gives them in-house the distribution capabilities that Amazon had to team with Houghton Harcourt to get. And with Sterling they also have the entire infrastructure in place to deal with authors and their care and feeding which could constitute competitive advantage when the gloves come off chasing brand-name authors.
So both of the giant retailers are looking more and more like publishers.
But it turns out the publishers were cooking something up too. On Friday, we learned about a new business called Bookish, which will be the “new digital destination for readers.” In its announcement release, Bookishpromises to use content and software tools to promote discussion and discovery around books and to answer the reader’s question: “what book should I read next?”
What was most eye-catching about Bookish was its backing by three of the Big Six: Hachette, Penguin, and Simon & Schuster, who have apparently been planning this move for quite some time.
What was downplayed, but perhaps most significant, is that Bookish is trying to straddle the same fence that Google, and, to a lesser extent, Kobo are: being an ally of existing retailers while selling direct to consumers itself.
It really is impossible to speculate intelligently about Bookish’s potential for success. What they’re suggesting they’ll do is reminiscent of Copia and Goodreads and Library Thing, and none of them have yet replaced the marketing power of the brick store, a fact which is front and center in the minds of the trade publishers who depend on that merchandising.
But it will certainly accomplish one thing: giving the big publishers a direct path to the consumer. The hunch here is that if any one of these three big publishers had gone aggressively into direct sales, they would have risked serious retaliation from both of their two biggest customers: Amazon and Barnes & Noble. But it will be hard for them to retaliate against three publishers who, among them, deliver about half the biggest commercial books in the marketplace.
Let’s remember a year ago January when Amazon briefly sought to block agency terms for ebooks by removing buy buttons from Macmillan books when they briefly thought they could stop the plan from being implemented. As quickly as it became clear that the five publishers determined to implement agency would not be deterred from doing so, Amazon retreated. (In fact, they graciously joined Macmillan in compensating authors who might have lost sales during the brief period the buy buttons were inactive.)
And that brings up another important point about Bookish: what it says about the common interests among fierce adversaries, which the trade publishers certainly are. The times call for collaboration among competitors in trade publishing. It is a little bit nuts that several of them are building competing romance, mystery, and science-fiction “communities”, which only leaves the field wide open for a third party to be the biggest aggregator in each of the verticals and also allows much smaller competitors to look comparable on the web. But collaboration models have to withstand anti-trust concerns. Presumably three of the biggest publishers jointly investing in this web venture will.
Whether or not the Bookish team can invent the general book marketing future, or, through competition, spur Amazon and BN.com to be more creative about online merchandising, remains to be seen. But this past week certainly gave us further indications that the publishing value chain is being drastically reshaped and that the neat roles we’ve been used to for 100 years have less and less applicability to publishing’s future.
I chuckle when I think about a very smart person from a major house who was telling me just about a year ago, right after agency was implemented, “whew, now I think things can settle down for a while.” Actually, “things” are just getting moved over to the fast track so they can really change. Montlake and Bookish within a day of each other; Barry Eisler (who’s speaking at our “eBooks Go Global” show at BEA on May 25) and Amanda Hocking going in opposite directions within a week or so of each other a couple of months ago; these are significant events but they’re also signs of accelerating change.
Mike Shatzkin is Founder & CEO of The Idea Logical Company, Inc., a consulting company that also provides data management services to the publishing industry. The company also owns BaseballLibrary.com, the largest aggregation of narrative writing on baseball history.
Mike’s first job in publishing was as a sales clerk at the brand-new paperback department at Brentano’s Bookstore on 5th Avenue in 1962. Since then, he has authored five books and worked at virtually every step in the publishing value chain: editorial, production, sales, marketing and distribution. He served as Director of Marketing for The Two Continents Publishing Group in the 1970s and has been a consultant since 1979.
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November 4, 2010
Dollar in Dire Straits?
by Vibhas Tattu
The Federal Reserve in Washington has sailed into the blue. As widely expected by many across the world, Fed Chairman Bernake announced a massive tranche of $ 600 billion dollar “bond purchases” ostensibly to boost the flagging US economy and create jobs. This exercise has many politically correct and euphemistic names and economic theories to support it. “Quantitative Easing” is the phrase being used in world media to describe this affair. Since the first installment of the QE was already done by the Fed in 2008 / 2009 to the tune of $ 1700 billion, this second round is being referred to as “QE2”. The QE2 is being hailed as the kiss that will breathe new life into the US economy. In practical terms what the Fed Reserve has actually done is simply create, literally out of thin air, a bank balance of $ 600 billion in its own current account. The economists call this as debt financing. When my current account bank balance goes up it is usually after I have worked quite hard for a month and my employers send my salary from their account to mine as a compensation for my work. In other words, I have EARNED the credit and now I can spend it. This is by and large the mechanism by which ALL individuals or organizations throughout the world create wealth and operate their finances (at least all legal ones) . Governments don’t always work that way. They are above it all, like God, and can create things out of thin air. God said “Let There Be Light” and there was light. On Wednesday morning, Bernake & Co said “ Let There Be Money” and lo presto $ 600 billion dollars became available for the dubious “bond purchases”.
It is well to dwell a bit on this event which is raising so much expectation within the US and causing so much consternation in the emerging economies like China, India and Brazil.
Let’s review the facts. Despite astronomical and unprecedented financial injections into the US economy (QE1 = $ 1700 billion), the US unemployment rate remains at its highest since 1984. Consumer spending in the US is at its lowest in many years. The economy, it is feared, will be “deflationary” or shrink. This QE2 injection is expected to reverse this deflation by making money available cheaply to banks for lending and in turn to boost consumer spending. But who said banks don’t have money to lend? All the top banks in the US have returned to profit and are flush with funds. The likes of Bank of America, Goldman Sachs and Merrill Lynch turned in multibillion dollar profits for 2009 and multimillion dollar bonuses for their top exces. Even the black sheep of the banking community, Citibank, has shed all its fat and has returned to a modest profit. There are just no borrowers. It’s just that consumers and businesses don’t want to spend right now. So what will be the effect of this QE2 money? By most accounts, the huge infusion will cause the dollar to depreciate significantly and hence make US goods and services more competitive in the world market (now you know why China’s Commerce ministry is very upset with the QE2 - it makes their life difficult). Part of it will be invested within the US economy and generate fresh revenue streams and jobs. All this makes the QE2 sound like a wonderful thing for the American public, doesn’t it?
In fact what is most likely to happen is not so goody goody. A lot of the foreign reserves held by China ($ 1200 billion), India ($ 260 billion) and the rest of the world are in US Dollar currency. What the QE2 will do is reduce the value of these reserves (due to a depreciated dollar). This is unpalatable and will result in these emerging economies moving away from the dollar in the long run and cause a further erosion in the dollar value. The fact is that the US is no longer a net producer but rather a net consumer on the world scene. It is a fundamental truth of economics that unless your production of wealth keeps pace with your consumption of wealth, within reasonable limits, you are likely to end up as a sub-prime risk; and we all know how sub primes end up don’t we? By QE2 the US is increasing its long term chances of ending up as a sub-prime risk for itself and the world. Even in the short term the QE2 could well have very negative results. US funds are already flowing in large measure to foreign shores and it is feared by many that at least part of the QE2 funds will find their way to China and India and not be invested in the US at all. It is not very difficult to believe that the recent surge in market valuations in India are partly because the markets have already factored in the availability of the cheap QE2 money. At the Government level this sudden money flow could trigger what is being called as a “currency war” which threatens to escalate tensions between nations. Also the extent of the fund flows outside the US will restrict job creation within the US. So is the QE2 good at all? Probably not.
In the long run, a nation’s economy must be largely, if not wholly, self sufficient. The operative word being “self”. The reason America rose to prominence in the 20th century was due to its innovations as well as its domestic consumption. The reason why China and India are rising to prominence in the 21st century are also due to their own domestic innovations and consumption. As such if the US is facing hardships, it should look within to spur growth, and not try to spend its way out of it by debt financing. Already the fiscal deficit of the US is a matter of concern the world over. Continued US government excesses in the form of QE2 will dethrone the dollar from its position as the currency of choice. QE2, in the long run, will only hasten the exit of the dollar from the world stage. Austerity measures like the ones UK’s Government is taking are what are needed to save to US economy and the world economy at large.
The Fed’s desire to appear to take bold and concrete steps to stave off economic woes is laudable but sometimes no action is the best action. At the risk of sounding brutal, I would like to turn Marie Antoinette’s famous coinage on its head and say to Bernake & Co “If they don’t have cake, let them eat bread instead”. A little austerity never hurt anyone.
Vibhas Tattu hails from India and is a manufacturing engineer by profession. He has worked in India, USA and now in the United Arab Emirates. Vibhas is interested in Shakespeare, Indian music, poetry (English, Hindi and Marathi) and a new found love of writing.
Tattu has a bachelor’s degree in Production Engineering from the University of Bombay and Master’s degree in Industrial Engineering and Operations Research from the University of California at Berkeley, where he was a Fellow.
EMAIL: vibhas1@gmail.com
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October 5, 2010
Ecuador – Was It A Coup or Not?
The Fate of President Rafael Correa
by Angie Brenner
 Rafael Correa – December, 2007
Last week’s attempted coup d’état and violence toward Ecuador’s President Rafael Correa by a group of government policeman protesting pay reductions was shocking, yet perhaps not so surprising. Consider this: Prior to Correa’s election in 2006, Ecuador went through eight presidents in ten years.
Elected to a second term in office, Correa, Ecuador’s popular, leftist president, has given Ecuador a sense of stability. A trained economist, he has brought hope to his fellow Ecuadorians by increasing spending on healthcare and standing up against the big oil companies that have dictated the country’s future for decades. He has also steered Ecuador clear of a recession, and the country projects a 2.5 percent growth in 2010.
On September 30, a gun battle broke out in Quito’s central square, the Plaza Grande. Correa was tear-gassed, doused with water, held captive by his own police at a Quito hospital for half a day, and then rescued. His response was to loosen his tie and open his shirt to show that he wasn’t wearing a bullet-proof vest.
He then taunted his foes: “If you want to kill the president, here he is. Kill him, if you want to. Kill him if you are brave enough.”
Later, from the balcony of Carondelet Palace , Correa once again showed his public he was not planning a change of address any time soon. He would lead his country according to the rules of its constitution and they had elected him to do just that. To those involved in the violence, which struck other Ecuadorian cities including Cuenca and Quayaquil, Correa promised ”no pardon or forgiveness.”
The video I watched of Correa on the palace balcony brought back my almost surreal memory of a day nearly three years before when I stood on the verysame balcony with Wild River Review Editor in Chief, Joy Stocke, an entourage of politicos, reporters, interpreters, guards, and one Nobel Prize winner.
However, the circumstances were vastly different.
In December 2007, Stocke and I were invited to Ecuador by Ivonne Baki, current president of the Andean Parliament, to join a week-long delegation of business people and politicians hosting Muhammad Yunus, the Bangladeshi banker and economist who won the Nobel Prize in 2006 for creating a successful micro-credit lending business and founding Grameen Bank.
Mr. Yunus – and the rest of us – were invited to the presidential palace one afternoon where President Correa honored him and pledged government money for micro-lending projects throughout Ecuador.
My head was spinning as I sat in the palace room with its gold brocaded walls, formally dressed guards and politicians. Then, Mr. Yunus graciously gave his talk, one we would hear repeated from dining hall to stadium across the country during the week that followed.
Later, we filed up stairways and outside onto the palace balcony. Correa and Yunus stood center front, Stocke and I sood at the rail to the right of them. Below in the city square a crowd had gathered, some in colorful skirts of the Andean Highlands. Guards on horeseback filed past holding their standards, followed by a marching band playing the national anthem: “The worthy sons of the soil….”
As the crowd cheered, it was so easy on that warm December day in Quito to stand a few feet from the president of Ecuador and believe in a bright future for him and his country.
Last week on that balcony, Corred raised his fist in defiance of those who struck against him, holding on to a tentative peace.
 From the Balcony of Carondelet Palace in the Plaza Grande, Quito, Ecuador
Angie Brenner is the West Coast Editor for Wild River Review.
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August 12, 2010
Publishing and Bookstores: Learning Some Things in Sao Paolo
by Michael Shatzkin
(Editor’s Note: Mike Shatzkin’s weekly blog, The Shatzkin Files, sheds light on the world of publishing, where books are headed, and by extension how we’ll read content in the very new future.)
I was struck when I visited Australia three years ago at how the protection of thousands of miles of ocean had kept their book trade looking like ours did three decades ago. Prices of books were very high in stores and there were lots of stores and lots of independent stores. But the biggest moat in the world couldn’t keep the forces of digital change at bay forever. All of the forces of online bookselling, discounting, and ebooks are now hitting Oz, and booksellers are feeling a dramatic impact. When an old publishing salt brought two Australian booksellers in to visit me last May and I was pretty apocalyptic describing what they should expect, they didn’t disagree with me. They were feeling it.
So a purely anecdotal report of the difficulties of one specialist independent in Australia resonates, even though I generally don’t put much truck in one person’s opinion about one entity’s fate.
This week I am in Brazil. My new friend Ricardo Costa, who runs Publish News, a local operation reminiscent of our Publishers Lunch (and who has been translating a post from The Shatzkin Files into Portuguese for his audience weekly for several months) gathered a group of publishers and a bookseller to join me for dinner on Monday night so I could learn a bit about the state of the Brazilian book trade. Because they were not joining us to be put on the record, I’m keeping my dinner companions anonymous.
For many reasons, the situation on the ground in Brazil is much more like Australia three years ago than it is like the US today. There has been very little take up of ebooks. One major reason for that is that there is a paucity of devices. Brazil charges punitive taxes on electronics assembled outside the country, which all ereaders are. The only device that got any play in the market previously was the Cool-er Reader, and that company has gone bust. One of our dinner companions is a bookstore owner (a small but very important chain) that started selling a new ereader yesterday. This e-ink device with no wifi or 3G, requiring (like Sony) that you import to your computer and then transfer to the device, will sell for the equivalent of just under $400. That’s about triple what Kindle is charging US consumers for its new wifi-enabled device.
I got to handle the device. It’s smaller and lighter than a Kindle, with touch-screen capability and a built-in dictionary, and a more solid feel. But at its high price and without the direct connectivity to enable acquiring new books directly into the machine, it is no more than a step on the path to widespread ebook uptake.
Discounting through online resellers has entered the market. (The retailer in the crowd, which has a very successful web operation, refuses to discount his online sales below his store prices. “That would be telling my customers not to visit my stores!”) My dinner companions were concerned about the effects of the discounting. The online resellers get books from publishers totally on consignment (no inventory carrying cost) and are selling at very deep discounts. This inevitably will have negative consequences for brick-and-mortar stores.
As one of my dinner companions, who runs a large publisher, said, “we want to know what happens in the US because it is what will happen in Brazil five or ten years later.” Both he and the bookstore owner could see that the future for stores will get increasingly difficult.
The entire table agreed that retail price maintenance, such as exists in France and Germany but which is almost universally sneered at by the Americans and British, would be a boon to the entire book trade.
One of the party, a children’s book publisher, reported that Mexico had just introduced retail price maintenance. As a result, her company was renegotiating all their terms with retailers and wholesalers in Mexico to take discounts down. And, at the same time, they will be lowering the prices of their books. From her perspective, the prices to the consumer will remain pretty much the same as they were with discounting, her take will remain pretty much the same as it was with the lower prices and lower discounts, and the effective margin to the retailers will also be pretty much unchanged. But the market will be more stable and less subject to control by the biggest players who can afford to be the most aggressive discounters.
This is not the picture that is painted by most powers-that-be and economic experts in the US and the UK.
One thing that became abundantly clear here in Brazil is that epub conversion in smaller languages is going to be a bottleneck. Most of the ebooks available in this market are PDFs because the market is too small to encourage publishers to invest in the conversions. Of course, PDFs don’t deliver nearly as attractive a reading experience. But there aren’t the same resources available for epub conversions in Portuguese that there are in English (and, presumably, in Spanish or French). That is going to slow down adoption of ereading in many parts of the world and, furthermore, tilt those who do use ebooks to read in English rather than their local language so they can get the benefits of reflowed delivery. I’ve seen ebooks as a potential boon to publishers in smaller languages, enabling them to reach a scattered diaspora, but it isn’t going be as effective if putting Welsh or Danish into epub is expensive.
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June 21, 2010
THINKING OTHERWISE – Technical Hubris: and the Sinkhole of Obama’s Centrism
by William Irwin Thompson
“We Irish think otherwise” Bishop Berkeley
Tower of Babel, Bruegel
When a technological enthusiast recently called for an undersea nuclear blast to seal the BP oil leak in the Gulf of Mexico, I recalled another time some forty years ago, when another American engineer, fascinated by the entire moon’s vibration at the lift off of the Apollo moon capsule, called for an atomic blast on the moon to measure its scale of resonant vibration. It was, no doubt, an opportunity for a fascinating experiment, and our short-sleeved and short-sighted, flat-topped but unlevel-headed NASA engineer probably got off at the thought of shaking Mother Nature up a bit.
It never occurred to the lunatic engineer to consider that the moon’s orbit might be disturbed enough to be gravitationally attracted back to Earth, or displaced from its protective position for us on Earth as an attractor for asteroids; nor did it occur to the atomic bomb enthusiast that a tsunami might take out all the Florida Keys and coastal cities of the Gulf and poison the food chain for a quarter of a million years.
Speaking as a former MIT professor, I must say that the fact that two technicians could utter such nonsense indicates our great failing in the education of engineers, architects, and technical experts of all sorts. We Americans have an admirable “Can do!” mentality, but considering our fixing of Iraq and our present fixing of Afghanistan, it is time to step back, re-assess, and perhaps develop a new and humbler mentality, one that is no longer based on the World War Two mind-set of fixing the old world order with a new one based on atom bombs and Marshall Plans and newsreels of GI’s passing out Hershey bars to the admiring children standing to the side of history in their tattered European rags.
We need to think in a new way. When designing anything, the first thing we should ask is: What does the system excrete and how can we recycle that shadow-form into its on-going forms of production? The second question we should ask is: What are the ways the system can fail, and how can we make failure reinforce a process of correction and rescue?
All human systems fail at some point. Bowstrings snap, bullets jam, boilers explode, and airplanes crash. Deep sea oil rigs and nuclear reactors are simply too complex for Homo sapiens sapiens to be wise enough to manage. And if human cleverness is compromised by the greed and short-sightedness of a Halliburton or a BP and capitalism’s systemic purchase of government officials, then we are doubly exposed, as the surrounding system of management is not one of protection, but of menace.
In the Jeffersonian eighteenth-century agrarian vision of governance, “That government is best that governs least.” Since history has been said to repeat itself, the first time as tragedy, the second time as farce, Jefferson has found his farcical reprise with the contemporary Tea Partiers.
Because our TV instantiated short-term memories have robbed us of the long-term memory of history and the reflective ponderings of reading, our contemporary citizens, incited by Rupert Murdoch’s Fox News, are angry and threatened. But they do not direct their anger at the invisible forces that do actually threaten them–such as Goldman Sachs, Fox News, Halliburton, or BP; instead, they direct their anger into the channels suggested to them by the owners of the media. So birthers claim Obama is an alien and that his programs are socialist, when they are entirely centrist and completely lacking in the ability to re-vision our historical situation and energize a new paradigm of political and civilizational thinking.
Were the Tea Partiers and the fans of Sarah Palin reflective citizens and intelligent readers, they might be able to recall in the long-term memory of history the real conditions of life in an unrestrained world of free enterprise. There were twelve hour work days, child labor and no public education; there was no public health or safety requirements for the work place; there was no public inspection of meat factories or sea food and produce. What was indeed free and omnipresent was disease and death. Government was, and has become again, a more civil form of organized crime.
These were the good old days of the culture of the real America, before uppity blacks from Harvard and Latina judges from Princeton led the rural white Tea Partiers and Libertarians into this miasma of a multi-culti world.
President Obama ran his campaign on a program of hope and a renewed sense of the invincible American “Can do!” spirit with his incantatory slogan of “Yes, we can!” Readers of his book, Dreams from My Father, will recognize in his presidency the traits he showed early on as the nice young black man who learned how not to make elderly white women like his grandmother feel afraid. He was always an idealist, but never an ideologue. And so to save the economic system, he rescued the banks. To get health insurance passed by Congress, he appeased the medical insurance corporations. To keep the lights on for American cities and the American economy running on its airplanes, trucks, and SUVs, he has called for off-shore drilling and more nuclear reactors. Nowhere has he called for the re-visioning of industrial civilization, the rethinking of the global projection of American military power, and at no time has he recognized that our technological mentality is contributing to our extinction. While President Obama seeks to fix failed states in Pakistan and Afghanistan northern Mexico is fast becoming a failed state.The drug wars have opened a giant sinkhole that can swallow up the entire Southwest and turn El Paso, Tucson, and Los Angeles into other versions of Ciudad Juarez.
In fact, the sinkhole, like the black oil jet in the sea, has become an archetypal symbol of our new political landscape. Obama reached across the aisle in a spirit of rational compromise, but the aisle was only a red carpet over an abyss.
Sinkhole, Guatemala
William Irwin Thompson (born July, 1938) is known primarily as a social philosopher and cultural critic, but he has also been writing and publishing poetry throughout his career and received the Oslo International Poetry Festival Award in 1986. He has made significant contributions to cultural history, social criticism, the philosophy of science, and the study of myth. He is the founder of the Lindisfarne Association. In 2009, Wild River Books published his latest book, Still Travels: Three Long Poems. To order, click here: Wild River Books.
To support our mission and passion for good storytelling, please make a tax-deductible donation by clicking here: Wild River Donation.
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June 1, 2010
 Upton Sinclair selling his book Oil
by Mike Shatzkin
(Editor’s Note: Mike Shatzkin’s weekly blog, The Shatzkin Files, sheds light on the world of publishing, where books are headed, and by extension how we’ll read content in the very new future.)
I am finding an eerie similarity between the disastrous Gulf oil spill and the parlous state of America’s bookstores. In both cases, the forces are in place for a disaster that will play out over the coming months and years. And while the tragedy of what is happening in the Gulf is far more consequential to everybody on the planet than what is happening to our bookstores, we are appoximately as powerless to prevent an eco-system disaster of the first magnitude in both cases.
Of course, the causes of the problems are quite different. British Petroleum, it would seem from here, could have operated differently and the blowout might not have happened. If the US government had the same offshore drilling rules as the Canadian government, requiring the relief well to be dug at the same time as the main drilling well, the disaster might have been averted.
Just like the shrimpers on the Gulf Coast, we are entering the highly visible stages of what will be a painful and accelerating change in the circumstances for general trade publishing. In an exchange in the comments of a post here from last November called “Why are you for killing bookstores?”, I was told by a resident of Orange County, California, that he didn’t even know where his nearest bookstore was. Now there is news that Laredo, Texas, is aware of its status as the largest city in America without a bookstore because its local B. Dalton outlet has been closed. Unfortunately, I don’t think Laredo will retain that status for very long. Much larger cities will be joining Laredo. These are like ships not bothering to leave the harbor because there is nothing out there worth catching.
Bookstores in the US are being pushed aside by the forces of what in the larger sense is definitely progress. The four biggest villains are the switch by consumers to Internet shopping (which affects all brick-and-mortar retail; Walmart’s sales are down too) and three aspects of that switch that amplify the problem: the ubiquitous availability of used books sold alongside the new, competition from long tail books that would have disappeared from commercial view in years past, and the rise of ebooks. All three of these effects reduce print sales in terrestrial stores, crippling retailers and damaging publishers as well.
The trend is impossible to ignore. Borders, just rescued by the latest White Knight that believes the business can be saved, announced that same store sales were down over 11% in the first quarter compared to a year ago. Barnes & Noble’s reduction in same-store sales was put at “2 to 4 percent” in its most recent reporting. [Late add: B&N actually reported same store sales down 5.5% in the most recent quarter.] Borders is a financially challenged operation with an inadequate supply chain, which could have led to not having the books they need to get all the sales that might have been available to them. But, if that’s true, the well-financed and well-operated B&N would be benefiting from their rival’s problems. (They probably are; sales would have been down more if they weren’t.)
I first worked in a bookstore almost 50 years ago, in the summer of 1962 in Brentano’s flagship store on Fifth Avenue. I’m going to guess that there were about 25,000 titles in that store: 10,000 hardcovers upstairs on the main floor and about 15,000 paperbacks downstairs in the brand new paperback department where I worked. Maybe there were more, but not a lot more. And this was one of the best bookstores in America at that time.
There just weren’t a lot of bookstores in America in 1962. Mass-market paperbacks were on sale in many drugstores and on many newsstands, and were in somewhat limited supply in bookstores. Paperback distribution then was just about exclusively through rack-jobbing local wholesalers and offered lower margins than trade books. Even Brentano’s, which was one of the few stores served direct by mass-market publishers, displayed the mass-market paperbacks by publisher rather than by subject to make it easier for the publishers’ reps to check their stock and fill in empty pockets every week.
Department stores were critical outlets for publishers. They provided what amounted to local chains in each city which were, at that time, just beginning to expand into suburban locations through a nascent shopping center industry. Reps for Dolphin Books (Doubleday) and Collier Books (Crowell-Collier, later Macmillan), two trade paperback lines begun by my father, were putting racks of their books into barber shops and motel lobbies in many parts of the country which had virtually no bookstores at all.
Running a bookstore was very hard. Publishers were numerous, title acquisition was fragmented. The only national wholesaler, Baker & Taylor, was really a provider for the libraries, which were willing to wait for B&T to go get the book after they ordered it from them. Local wholesalers, sometimes the same operations that rack-jobbed the mass paperbacks, didn’t attempt to stock much more than the bestsellers, the resupply for which was their real profit center.
In the late 1960s, as shopping center construction heated up, this started to change. Two national chains, Waldenbooks and B. Dalton Booksellers, grew on the back of that expansion. Shopping center developers preferred a national chain to a local independent as a tenant; they were more “bankable” when the developer was borrowing money to build. So these two chains started to grow as fast as suburban mall development would let them, which was pretty damn fast. When I went into publishing sales in 1974, each of the chains had about 300 stores nationally.
Dalton revolutionized backlist sales. Before scanning technology existed, Dalton instituted unique SKU numbers for every title which the cashier would punch into the register when each sale was made. (The SKU number was on a sticker on the book.) That enabled an automated reordering system to bring core backlist (designated “model stock quantities”) back in as they sold it.
Dalton had a “hot list” and a “warm list” of titles. The “hot” titles sold 10 copies a week across the chain. The “warm” list sold 10 copies a month across the chain. That was in a chain of about 300 stores and gave me my first real understanding of how few titles sold very much in a bookstore! Those lists were very important. If your book wasn’t on the hot list, it wasn’t going to get noticed by a buyer for re-ordering. And if it wasn’t on the warm list, the title was likely to be returned.
At about the same time, the early 1970s, the Ingram Book Company introduced technology that changed life for the independent bookseller: the microfiche reader that allowed every retailer to know, before they ordered, what Ingram was carrying. All of a sudden, just as Dalton was demonstrating how important a broader selection and in-stock backlist could be to a store’s economics, independent stores could imitate that strategy by ordering regularly through Ingram. Although computerized inventory management help was still a few years in the future, just being able to get the books from a single reliable supplier enabled independents to begin to compete and grow. (Of course, independents still didn’t have the advantage of 300 locations providing data so they could detect a “hot” book or “warm” book that might not be evident in a single store.)
There were two newer operations spawning stores with robust backlists in the 1970s: Paperback Booksmith and Little Professor. Both jump-started new independent stores with their branding, their inventory, and systems to support both new title buying and keeping key backlist alive. The Doubleday and Brentano’s chains had fewer stores, but bigger and richer ones.
From the publishers’ perspective, this was all providing more and more opportunity: more stores, more efficient stores, more backlist-conscious stores. So general trade publishers grew. Title outputs grew. Dalton and Walden grew. Independents and various smaller chains grew. Ingram grew. Baker & Taylor grew.
In the 1980s, the growth continued, fueled by increased efficiencies. Machine-readable fonts enabled Walden to imitate Dalton’s point-of-sale monitoring without having to sticker every book. Computerized inventory tracking systems improved efficiency at stores far and wide and at the wholesalers as well. New retailer Crown Books pioneered a new idea: a more limited selection of new books, combined with a lot of remainders and bargain books, and aggressive discounting of bestsellers. Even while the chains grew, the independents grew and became more powerful. A newly-energized American Booksellers Association became an aggressive advocate. They sued major publishers, ultimately forcing changes in sales policies that were deemed too chain-friendly.
Throughout the 1980s, the independents were the ones building the big category-killer stores. Good independents were confident that they beat the chain stores on title selection. They were even competing pretty much at full price against Crown’s deep discounting simply by being the place you could find the books you wanted. In the late 1980s, Borders and Barnes & Noble, along with Wall Street, saw the opportunity. Borders acquired Waldenbooks and B&N acquired B. Dalton to give them operational scale, and then they started to open very large 100,000+ title stores (under their own brands, not the acquired ones) in a model that had been developed by a Texas operation called BookStop (which was acquired by Barnes & Noble.) This just meant more growth for publishers; more backlist being stocked in more places. This might have been when the big indies first started feeling a pinch; I recall Andy Ross of Cody’s expressing concern about a big Barnes & Noble opening in Berkeley about that time. But the indies and the chains had a much bigger problem just over the horizon.
In the summer of 1995, Amazon.com opened for business. And, probably since Day One, but certainly increasingly and increasingly obviously, Amazon has been damaging the ecosystem which spawned a robust bookstore network and, which, in turn, fostered large and powerful general trade publishers. That was when the wall protecting the water that fed bookstores and trade publishers was breeched by the oil of digital distribution.
The analogy is not precise. Amazon is not a villain like BP. They aren’t just destroying an old eco-system; they are building a new one. To the consumer that is finding shopping easier than it ever was before, finding books they could never find before, being presented with cheaper choices of used books and electronic books that were not available before, there is no crisis here. In fact, there is no problem.
But to bookstores that depended on customers that had little other choice but to come to them for the books they wanted, shop from what was available under the store’s roof or wait for something to be brought in from outside, and who were effectively restrained by geography from shopping around for price or selection, the waters have become toxic. And to publishers that built a business whose principal competitive advantage is their ability to take intellectual property and put it onto bookstore shelves, the imminent prospect of reduced revenue, increased costs, more difficult title acquisition, and competition from old IP long-sold or long-dead, are now fouling the drink for them as well.
All of the eco-destroying forces that have so far hit the bookstores, like the oil coming onshore in the Gulf, are just harbingers of much bigger waves of challenge to come. More and more people buy ereaders and cut print consumption drastically; more and more books get digitized; the long tail only gets longer as more and the more digitized stuff meets increasingly efficient print-on-demand. And more and more competitive material enters the supply chain with some appeal to the public but with no participation in the structure that makes bookstore stocking easy. The bookstores’ problem is not just about demand, it is also about supply. That’s competitive advantage for trade publishers in getting their books on bookstore shelves, but it is competitive disadvantage for bookstores competing against a universe of content a click away from more and more eyeballs and mindshare.
In an exchange in front of a large audience at BookExpo last week, one prominent publishing executive took relative comfort in the fact that “more than 90% of our business is still print.” That’s (still barely) true, but only about 70% of the business is still occurring through brick-and-mortar outlets. That number will be under 50% in 12 to 18 months, and the slide will still be accelerating. Big publishing grew in an eco-system of expanding retail shelf space. It has been challenged in the past 15 years as all that growth was stopped by the new forces unleashed online. Now that shelf space is going to start to shrink faster and faster, it is hard to see how big trade publishing can avoid doing the same.
Another aspect of this problem was raised this morning on a mailing list I’m on. Public libraries are losing the funding they need to stay open. Public libraries buy a lot of books from trade publishers, although most of those sales go through wholesalers and not all publishers are managing library sales discretely the way they should. Library purchases have tended to act like ballast in previous recessions; public funding wasn’t usually as volatile as consumer spending. Unfortunately and somewhat coincidentally, the erosion of the bookstore infrastructure is occurring when we’re also facing what is likely to be a longterm crisis in public funding as well.
Two Australian booksellers were in my office last week. The trauma they face is even worse than it will be here. Geography has protected Australia from competition so books are priced 50-to-100 percent higher than they are here. That’s been great for bookshops. Their trade looks like ours did 15 or 20 years ago. With the arrival of ebooks and POD, they’re probably facing the changes we’ve seen since then in the next two or three years.
Mike Shatzin
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May 26, 2010
by Joy E. Stocke
 Turkey (green) and Iran (red)
There they are – kissing cousins, if you will, Turkey and Iran – sharing a border to the south with Iraq. Where the three borders meet and overlap, you have Iraqi Kurdistan.
Turkey herself has a complicated history: From the 3rd to the 15th century Turkey was known as Byzantium, where Christianity was debated and codified. In the 15th century it became the Caliphate of the Muslim Ottomans, who, until the 20th century, not only tolerated but relied upon the mercantile skills of its Christian and Jewish citizens. In 1934, the Secular Musilm Republic of Turkey was created under the leadership of Kemal Ataturk. Secular Muslim Republic, a unique oxymoron if you will – considering that in Islam there is no separation of church and state. For every other Muslim country in the region, Sharia – the Quranic rule of law – is the law.
Into this mix, Istanbul, a city straddling Europe and Asia, is home to numerous forward-thinking Turks, a large community of expats from around the world, as well as millions of immigrants from traditional and often conservative villages. And herein lies the paradox: Prime Minister Recep Tayyip Erdogan, a conservative Muslim, has raised concerns among secular Turks that he and his party, Justice and Development, are intent on, if not bringing back Sharia, creating a Turkish version of it.
And so, Turkey and Brazil, acting as brokers for the West, reached a deal in Tehran a week ago where Iran would ship much of its low-enriched uranium to Turkey. Sounds noble, but the deal did not ease concerns in the West about Tehran’s aim of building a nuclear weapon.
Erdogan, who has cast himself as conservative and pro-European Union, who has instituted several democratic reforms including giving the European Court of Human Rights supremacy over Turkish courts and passing a partial amnesty to reduce penalties faced by many members of the Kurdish terrorist organization PKK, is also playing ball with his Muslim neighbor, on the short list of Human Rights Watch’s abusers.
What he and his party aims to achieve in the long run remains open to debate. But, it’s important to remember that Turkey has some powerful assets of its own including within its borders the headwaters of the Tigris and Euphrates Rivers, which flow into Iraq and Syria. Brazil – Turkey’s partner in the deal for Turkey to become the repository for much of Iran’s uranium – has oil.
And Iran? Erdogan has described Iran’s President Mahmoud Ahmadinejad as a friend. Iran has become an increasingly important Turkish trading partner, particularly in the energy sector. Erdogan also seems intent on upsetting the balance with Turkey’s longtime ally, Israel (and Iran’s sworn enemy), who does have nuclear weapons.
East/West. In Turkey ever thus. In Roman Mythology, Janus – the god of gates and doorways – who gave his name to the first month of the Roman calendar, has two heads, one facing toward the past and one toward the future. In Turkey’s case one may ask, but which past and which future?
 Recep Tayyip Erdogan
 Property of the Vatican, Rome
Joy E. Stocke is Editor in Chief of Wild River Review. Her book, Anatolian Days & Nights: A Love Affair with Turkey, Land of Dervishes, Goddesses, and Saints will be published in 2011.
To support our mission and passion for good storytelling, please make a tax-deductible donation by clicking here: Wild River Donation.
May 11, 2010
by Mike Shatzkin
(Editor’s Note: Mike Shatzkin’s weekly blog, The Shatzkin Files, sheds light on the world of publishing, where books are headed, and by extension how we’ll read content in the very new future.)
I don’t think too many future predictors are .300 hitters, and one ground ball I tapped out to shortstop was my hunch that the iPad wouldn’t have an immediate significant impact on ebook sales (although I thought it would be important over time.) According to data and analysis uniquely developed and provided by Michael Cader, published last Wednesday (which you need to subscribe to Publishers Marketplace to get and, if you don’t yet, what are you waiting for?), I was proved wrong in less than a month. Apparently if we get slightly larger and portable screens into people’s hands, they want to read books on them. And they don’t need to be e-ink and be lightweight (like Kindle and Nook and Sony Reader and the new Kobo Reader and a slew of forthcoming devices) to have that impact.
All we know from Apple is that they sold about a million iPads in the month of April, with 3G sales beginning only at month end. (Virtually everything sold in April was wifi-only.) We got download numbers, but no real guidance about what they meant in terms of sales. We can figure out that any sales numbers we can gather are for an average installed base of 500,000 iPads.
We wouldn’t expect the monthly sales rate of a million units to be sustained; there were a lot of pre-orders and launch-hype sales in April’s numbers. But with May being launch month for the 3G version and both the wifi and 3G models available going forward, and the 3G model apparently much more popular than the wifi-only, a sale of 500,000 in May which is 3G launch month and a “run rate” of 300,000 a month going forward would seem a modest expectation. If that’s right, then the average installed base in May will be 1.25 million, in June 1.55 million. So the installed base for June will be triple what it was in April.
Cader got anonymized information from an unknown number of large Agency publishers for the April sales. He says that for most of the companies he surveyed, iBooks sales were 12 to 15 percent of their ebook total before the 3G models landed! And then two companies reported sales jumps of 300 and 400 percent on the weekend that they did. And one publisher who showed Cader figures by title revealed that there were already books on which the iPad sales exceeded Kindle sales.
Cader’s analysis pointed out two nuances that need to be considered when interpreting these numbers. The Agency Five impact is overstated because of relatively restricted competition. They have far fewer titles competing with them in the iBooks environment than they do in the Kindle store, the Kobo store, the Sony store, or from the ebook independents. Giant Random House and lots of smaller publishers just weren’t there. So even if the sales of all five publishers were 12 percent of their total ebook sales in April, it wouldn’t suggest that iBooks constitute that portion of overall ebook sales. Yet.
But, at the same time, these numbers also understate the impact of the iPad because iPad owners also buy and consume books on the device from the Kindle and Kobo and B&N readers which wouldn’t be reflected in Cader’s survey numbers. One ebook retailer who shares information told me that sales for his company were very strong in April. I had asked that question to probe whether sales were adversely affected by the price increases mandated by the Agency model. Were they reducing business? No, definitely not. (This is a very big sub-point, but we’ll leave it for another day.) So while one must assume that some of the sales being made from iBooks would otherwise have been made by Kindle or Kobo or another existing retailer, the market is apparently growing fast enough to mask the impact of any cannibalization.
With five of the Big Six and most of the big titles in the iBooks store, it would seem reasonable to assume that 65% of the sales potential is reflected in those books. Applying that assumption to the average of the reported 12-to-15 percent market share (13.5%) would suggest that the overall share of iBooks sales is just a tad under nine percent.
But it would seem to me that number will more than double in May. The installed base will be more than twice as high and the 3G model, from which publishers are reporting much more activity, will constitute a significant portion of the May base after having been non-existent in April. In fact, it seems at least as likely that the number could triple! So by June, we could well be seeing a quarter or more of all ebook sales occurring through iBooks. The rise will probably be slower after that (May sales will reflect the huge installed base increases generated by initial sales in April of the wifi model and in May of the 3G) but Apple climbing into a solid second place behind Kindle in 60 days is pretty dramatic.
Even more exciting for publishers is the evidence that the iBooks sales are expanding the ebook market. Cader reported that many strong titles skewed to a younger and male demographic and that iBooks sales boosted the performance of some nonfiction titles. Most people figured that the iPad would appeal to an audience of not-as-heavy book buyers compared to Kindle, which was part of the reasoning behind my own flawed expectation that sales would be modest at first. But what we may be seeing is that people who get a decent reader in their hands might consume more books digitally than they had in print. If that proves to be true, it would be very good for publishers and authors.
Meanwhile, even before this analysis was delivered, we got news last week from two publishers that increased ebook sales were their best financial news. Both Simon & Schuster and Harlequin reported that print results were disappointing, but digital sales were stronger than expected.
It was only about six weeks ago that I looked at the IDPF’s most recent numbers, applied them to what I’d heard in my own anecdotal conversations with major publishers and agents, and had an epiphanic moment realizing how close we were to what we called at BISG’s Making Information Pay conference last week a “point of no return.” I wrote inmy London posts and then repeated at the conference last week that I saw ebook sales to be 25% of a narrative book’s unit sales expectation by the end of 2012. With print book sales made online thrown in, I saw virtual cash registers ringing up half the units for narrative books by then. Two Big Six CEOs privately agreed with me as did a retailer knowledgable about both print and ebook sales. Then I spoke to a Big Six digital strategist who said I was being conservative.
This view is not universally accepted. An executive at a trade book distributor last week told me (nicely, he’s a nice person) that he thought I was nuts. He still sees ebook sales as trivial and not likely to reach the levels I expect by the end of 2012 by even the end of 2016.
Well, I intended to be conservative because I was so surprised at my own realization at the beginning of April. But I remind myself (and all of you) that things happen “gradually, then suddenly.” It now looks to me like the iPad — joined as it will be by a flood of new ereaders and tablets and even whole new platforms like Blio and Copia — may be the catalyst for the transition encapsuled in those three words.
When I examined the Random House tactic of staying out of the iBook store initially, I said it made sense but that it constituted a bet that iBooks sales wouldn’t be robust right out of the box. Now that sales results seem to have proven that conjecture (which I shared) wrong, I’d expect that Random House will join the other big publishers in moving to the Agency model to enable them to join the iBook offering. The numbers we discuss in this piece would suggest they’re losing sales and the agents representing the authors not in the iBooks store are bound to be pointing that out. In the meantime, Random House has gained some benefits from having less expensive ebooks in the marketplace in other storefronts, but it would be surprising if that compensated for not having an outlet selling 12% or more of the ebook units.
The Idea Logical Company provides strategic thought leadership to book and journal publishers and to their trading partners. As digital book publishing futurists, we have a special interest in the challenges and opportunities presented by digital change.
You can follow Mike Shatzkin’s blog at: The Shatzkin Files
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