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The Publishers Association numbers show consumer ebook sales have collapsed by 17 per cent, but physical book sales are up by 8 per cent[1]. The media took delight in Amazon bashing – “[The Kindle] was new and exciting,” says Cathryn Summerhayes, of Curtis Brown in the Guardian, “ but now they look so clunky and unhip, don’t they?”. Is this the death of digital? Absolutely not.

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membership economy

Recently in The Extraordinary Business Book Club I interviewed Brant Cooper, author of The Lean Entrepreneur (Wiley, 2013). I’m a big fan of lean methodology, for digital products and service development but also as a mindset in general, and Brant is a great demonstration of how lean principles lend themselves to books at every stage:

‘I think that for authors it’s important to view their book endeavour as a startup… even back then [for his first book The Entrepreneur’s Guide to Customer Development with Patrick Vlaskovits in 2010] we were doing interviews based upon contacting early adapters and we knew our market segment really well. They were tech startups. We already had access to them and we called them on the phone, we met them in person and talked pricing. The lean entrepreneur was the same thing. By that time, I was travelling the world and doing workshops and speaking engagements and so I would test out content. I would test out frameworks and my methodology inside the workshops to try to figure out what resonated and how could I get entrepreneurs thinking along a particular way that I thought would expose their assumptions and allow them to develop experiments to test those assumptions. It really was being down there in my market segment, testing, running experiments, trying to figure out what was the right way to construct the next book.’

Although the book was published by Wiley, Brant and Patrick ran a crowdfunding campaign ahead of publication partly to provide a ‘war fund’ for marketing, but also to ‘test out the messaging’ and to create a body of engaged fans, ‘early evangelists’, to spread the word about the book because they had a stake in it.

The messaging, like the movement, goes beyond the book. Brant cited Brian Clark’s concept of the ‘entreproducer… producing in a variety of media in order to increase the market size’. This I believe is core to how business books work today, as part of a bigger platform that encompasses video, blogs, elearning, podcasts, a whole range of content types.

And when publishers understand this and support it – by allowing authors to use their content in other media, providing visuals, offering advice and resources for digital content creation and so on – they not only sell more books, they give authors a reason to continue working with them rather than defecting to the growing self-publishing service sector (where people like me are providing exactly those services). It means looking at the bigger picture, investing in the author not just the book and accepting that the brand benefits will be the author’s rather than the publisher’s. But the cost of NOT collaborating effectively in the digital marketing game could be unacceptably high.

Alison Jones (@bookstothesky) is a publishing partner for businesses and organizations writing world-changing books. She also provides executive coaching, consultancy and training services to publishers. www.alisonjones.com. 

Self-employed in publishing

There is a theory stating that 1000 True Fans are all a person needs to make a living from their own products. Whether you’re selling books, songs, music or paintings, having 1000 True Fans who are willing to spend about £30 per year on your products will keep you afloat. It may sound unlikely, and according to the anecdotes it’s a pretty hard road, but it is possible.

What’s more, the theory is equally applicable to businesses and companies: for every extra person involved, simply add another 1000 True Fans to the total that you need.

But why does this theory work? And why is it becoming more popular?

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Authors marketing

The news came recently that ReaderLink has purchased Anderson News. Those two companies have been the leading suppliers of books to the mass merchandisers: primarily Wal-mart, Target, and Sam’s Club. There are other players selling books in the space, including Ingram, Baker & Taylor, and smaller distributors like the less-well-known American West. But most of the books going to most of the mass merchant accounts have gotten there through what will now be one company supplying them: ReaderLink.

By my count, that puts four companies in the book business who have extraordinarily powerful holds on their space. They are ReaderLink (in the supply of books to mass merchants), Amazon (as an online retailer), Barnes & Noble (as a bricks-and-mortar retailer) and Penguin Random House (as a commercial trade publisher).

ReaderLink, Amazon, and Barnes & Noble now have extraordinarily powerful positions from which to demand better terms from their publisher-suppliers. In all three cases, they have customer bases which are extremely difficult, if not impossible, for a competitor to take away from them.

Amazon

Amazon has pretty much owned the online book customer since the year they opened for business in 1995. There is a faint hope that fragmentation of the online marketplace and the placement of commerce in the social stream, such as is enabled by Ingram’s Aer.io technology, could wrest some of their share. Perhaps, over time, that will happen. But they keep pulling further ahead of their only real competition, BN.com, and I am not aware of even one single reporting period when Amazon’s share of the online book market hasn’t grown. It is simply not an option for a publisher who wants to sell to consumers to avoid Amazon. (The only way a publisher could conceivably do that is if their customer base is reached entirely by direct sales or through intermediaries outside the book business.)

Barnes & Noble

Barnes & Noble may be losing brick-and-mortar market share to independents, but they remain by far the leading bookstore chain. If a publisher wants books in the retail marketplace, Barnes & Noble has been, since the demise of Borders five years ago, the only one-stop way to get national coverage. In fact, they almost certainly control the majority of bookstore shelf space in the country, and their single biggest competitor, Books-a-Million, has fewer than half as many stores. And B-a-M’s stores are smaller.

ReaderLink

ReaderLink is now in a similar position vis a vis the mass merchants. These stores constitute the other big component of the store retailing system and they are critical for bestsellers, mass-market paperbacks, and “merchandise” like adult coloring books and kids books. In fact, ReaderLink and Anderson lived with what was a “managed competition” controlled by their accounts; they each had stores assigned to them by their mass merchant customers. Publishers have always had to deal with both of them in order to place their books in the mass accounts. And, indeed, it could be that there will be efficiencies to this consolidation that will be beneficial for the publishers. But, if there are, it is also quite likely that ReaderLink will find ways to adjust their terms to take at least some of the benefits back and they are likely to be successful persuading publishers to allow that. (They have also manifestly strengthened their negotiating position with those accounts that are committed to stocking books.)

Penguin Random House

There is a fourth powerful player: Penguin Random House. PRH is almost (but not quite) the size of the other four members of the Big Five combined. As such, they are in a position to do things in the marketplace that no other publisher could contemplate. Since the merger of Penguin and Random House, I’ve written about what they uniquely could do with their marketplace power. The two key suggestions, neither of which has drawn any evident interest from the management at PRH, were a program to supply non-bookstores with vendor-managed inventory (creating store retail accounts nobody else would have) and to create their own ebook subscription service. (That would also create unique distribution.)

Mass-merchant supply

The new combination in mass-merchant supply could suggest another such opportunity. Perhaps this one will be more compelling.

The supply of books to mass merchants, as to any account that is not primarily in the book business and comfortable with both the logistical challenges and relatively low profit potential in books, is complicated, expensive, and usually inefficient. The number of titles that actually make it into these stores is a paltry percentage of the industry’s output. Only the biggest publishers have enough of the right books to really play.

And then the publisher has to cover both the retail accounts that will ultimately sell their books and the distributor-intermediary that supplies them. It will be a bit easier for the big publishers selling books to Wal-mart and Target to manage the business through one big account rather than two (one fewer account to deal with), but it is still a frustratingly inefficient segment of the business. (The one fewer account aspect of this is bound to be causing some nervousness right now in the sales departments of some publishers.) Visibility into inventory status is, relative to the store-level view available at Barnes & Noble, klunky. Returns are high. Responsiveness to breaking events is slow. And the margins are worse than for any other part of the domestic business.

But part of the reason for that is that delivering on the service requirements for these accounts is expensive. One sales executive I spoke to estimated that ReaderLink has more than 2500 detail people calling on the outlets of the mass merchants: checking stock, tidying fixtures, and replacing sold books. No wonder these distributors need hefty margins to do this work. And this also explains why Ingram and Baker & Taylor, who, of course, carry all the titles these merchants would ever need, don’t appear to move aggressively to take this business away from the incumbent(s).

To picture the Penguin Random House options, I try to view this from the perspective of one publisher with about half the books that these mass merchant accounts need. I’m giving away margin to a middle player that adds a layer of inefficiency and cost in order to be an effective aggregator. Obviously, the accounts want that aggregator. They don’t want to deal with hundreds of publishers individually, or even with just each of the Big Five. It would be a non-starter for a publisher supplying five or ten or even twenty percent of their books to say: “can we work out a way to do this directly?” So just about everybody has to accept the inefficiency.

An alternative model

But what about if it were a supplier that provided half the books? And what if that supplier offered, as an opening gambit, to share some of the margin that now goes to the middle player directly with the account? And what if that effectively became the account’s only way to get those books, because the powerful publisher was no longer willing to play ball with the high discounts and high returns that the current system entails?

Only Penguin Random House is in a position to take this approach. And it wouldn’t be an easy thing to do. They’d have to create a VMI system. They’d have to organize a detailing army quite different from the sales force(s) they have created and managed historically. They’d have to either gear themselves up to execute more smaller shipments or form alliances that would make that possible. But the payoffs would also be substantial. And PRH has a much bigger margin share to support their efforts than ReaderLink, or any other wholesaler or distributor, would have.

Sales would go up. Returns would go down. Margins would improve. Their competitors would be weakened. In fact, it is conceivable that, over time, a PRH direct-supply operation could morph into a ReaderLink service that was available to other publishers as well. (All big publishers, including PRH, already offer their core distribution services to competitors. This would be a variation on that theme.)

Perhaps Penguin Random House will never behave in a qualitatively different way than the other Big Five houses, exercising power that they uniquely have. They certainly haven’t so far. On the other hand, it was pointed out to me recently that the integration of what were the two biggest publishers among the Big Six when Random House and Penguin combined four years ago is, even today, not yet complete. Rationalization has occurred in the “back end”, with the consequent job losses which are part of the payoff for the owners in any big merger of this kind. But more consolidation is still in front of them, and perhaps the radical paradigm-shifting initiatives need to wait until that job is really done.

And perhaps Amazon, Barnes & Noble, and now ReaderLink are wary of poking the bear, and are less demanding that PRH honor their primacy with margin than they are of PRH’s competitors. In fact, the CEO of one of their Big Five competitors told me a year or two ago that he liked having a competitor of PRH’s size on the publisher side because this executive felt it kept the overall industry terms under control. The belief on this CEO’s part was that PRH’s size restrained the big accounts to the benefit of all the big players.

But unlike Amazon or Barnes & Noble, whose businesses can not be efficiently replaced by any direct effort, the supply of mass merchant accounts is something PRH could conceivably do better on their own. Whether the acquisition of Anderson by ReaderLink provides the catalyst to get them to try it is something it will probably take a couple of years to find out.

Although Ingram occupies a unique position in the global book supply chain and, indeed, might be the single most important player, they aren’t in the position of these other four to exercise power. In wholesaling, they have always had a powerful national competitor, Baker & Taylor, which is now even more financially stable having itself been acquired by Follett. Even in smaller-publisher distribution, where Ingram grew dramatically by acquiring Perseus, they will always have all the big publishers and a host of smaller distributors as alternatives for those considering their services. Indeed, Ingram could try to compete with ReaderLink for the mass merchant accounts, but they’d have to support the substantial systems and staff investments on a distribution margin, which is a much more challenging proposition than it would be for PRH with the publisher’s margin.

Mike Shatzkin has been in publishing since 1962. Since 1979, Mike has been an independent consultant (The Idea Logical Company) with clients that have included most major publishers in the US and UK, retailers including Barnes & Noble and Borders, wholesalers including Ingram, and a host of tech startups. You can follow him on Twitter @MikeShatzkin. This post was originally posted on The Idea Logical Company blog in May 2016.

This is a guest post by Nick Robinson. Nick has worked in ELT publishing since 2004 and in 2012 he founded the world’s first ELT author representation agency. He is the Co-founder of the IATEFL Materials Writing Special Interest Group (MaWSIG) and ELTjam.

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To celebrate 5 years of publishing events, BookMachine held a big birthday bash on Thursday night. Appropriately, the event was all about the next 5 years of publishing – what to expect and how we can approach it. The event was hosted by the wonderful Evie Prysor-Jones and George Walkley, Head of Digital for Hachette UK, was our speaker for the night. Taking inspiration from the infamous Donald Rumsfeld quote, George explored some of our industry’s known knowns, known unknowns and unknown unknowns, offering us a framework for navigating the next 5 years.

Here’s a collection of photos and tweets to sum up the night.

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