Tag Archives: bookselling

Publishing 3.0: A World Without Inventory Part 2

In our previous posting we pointed out that today’s “speculative” publishing model, based on the returnability of unsold books, is no longer viable. It has served us well for the better part of a century. But the digital revolution has created a highly successful, efficient new model relying on pre-ordered and prepaid books printed on demand.

The publishing industry has had decades to deal with its addiction to returns. I have been beating this drum in vain for decades including an editorial in Publishers Weekly in 1992 (see Behind Publishing’s Wednesday of the Long Knives). Now it is too late. The old way can no longer be sustained. The good news, however, is that it no longer has to be. Amazon has demonstrated that the prepaid model is mature and ready to replace the old speculative one.

Publishing oracle Mike Shatzkin would seem to support this vision of things to come.  In a recent article he projected “about half of new book sales will be made through online purchases if we count the print book sales made through online retailers (mostly Amazon). Online print sales can be served through inventory generated on demand. So, if these estimates are right, we are less than three years away from a publisher (or author) being able to reach half the market for a book without inventory risk!”

“Every publisher,” he adds, “should be preparing for the disruptive effects” of this paradigm shift. Among his recommendations are:

  • Publishers are going to really have to rethink the development process for their ebooks.
  • It will be eminently sensible to launch books with a no-inventory strategy and move to press runs with returns allowable when reviews or sales have proven that it makes sense…The idea of printing and distributing speculatively will make less and less sense as the potential market to be reached by that tactic diminishes as a share of the whole.
  • By the end of 2012, we’re saying half of all the sales potential can also be reached with the product without a local nexus: no requirement of local inventory or any shipping or revenue collection facility beyond your digital distribution and print-on-demand partner.
  • Because books or ebooks will be purchased by half of their customers electronically, the potential exists to know exactly who those are and to establish interaction with them…This opportunity presents a new battleground for competitive advantage that publishers will have to pursue both for marketing and for author relations.
  • Publishers will have to start devoting the bandwidth and resources to direct sales that they devote to intermediary sales today. (See Direct Sales: Publishing’s Last Stand.)
  • There’s an inevitable concurrent downward spiral of brick-and-mortar retail inherent in this forecast that sales are moving online. The nearly-limitless online selection has been an increasingly powerful magnet since the day Amazon opened and in the new paradigm there will be a growing body of talked-about content not visible on store shelves.

“On-demand printing is very much in demand in 2009,” says David Taylor, president of Lightning Source, the biggest POD supplier in the business. “The business model, quality and cost structure have matured considerably in recent years. With POD, publishers can better match supply to demand, thus eliminating the risks and costs associated with the book market….A globally distributed print model, where publishers use the same file to print at multiple locations that are closest to the origins of the orders, has given the book industry a platform to publish smarter. POD is no longer an optional novelty; it is an integral and essential part of the future of publishing.”

Richard Curtis

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Publishing 3.0: A World without Inventory Part 1

By now it must be clear to all but a handful of diehards that the business model based on returnability of books for credit, a practice instituted by the trade book industry some 75 years ago, is no longer viable. In fact it has proven to be a bargain with the Devil.

The original principle on which it was instituted – to encourage bookshops to invest in otherwise risky literary forms like first novels and poetry – was an admirable one, and publishers can look back with pride that their good will made possible the launch of countless great works and authors. But soaring returns have rendered this practice utterly dysfunctional. Return rates approaching or even exceeding 50% have slashed profit margins of trade book publishers to single digits, no digits or negative digits.

Though the industry managed to keep a lid on returns until the latter part of the 20th century, in the post-World War II era the system deteriorated as return rates escalated, triggering cash shortages. The consequences were catastrophic: countless underfinanced houses were driven into the arms of larger ones. These big fish in turn succumbed to even bigger fish until we ended up where we are today – with a handful of bloated leviathans. But even they have discovered that immense scale offers no immunity from the same toxic business model that forced smaller houses to give up the ghost. Huge publishers may have more blood to hemorrhage than small ones but eventually they succumb too.

Yet, despite decades of proof that returnability is a sucker’s game, the publishing industry is incapable of curing its addiction to the practice.

The time has come for publishers to accept the fact, now glaringly apparent to all but those in total denial, that no business enterprise can afford to sell just half or even two-thirds of what it manufactures – and to foot the bill for the return and disposal of the unsold other half.

Some pundits ascribe the woes of our business to printed books themselves, saying that the medium is no longer appropriate for our times. In truth nothing is wrong with printed books. Everything is wrong with the way they are distributed.

And the way they are distributed is appallingly profligate, taking a dreadful toll on the environment in terms of paper waste and carbon footprints. The tortuous methods by which bookstores account to publishers and publishers to authors are imbecilic and arguably fraudulent. An alien visitor tracking the journey of a printed book today from editorial office to printer to warehouse to bookstore, back to warehouse and then to remainder jobbers or pulpers would have genuine reason to wonder whether there is intelligent life on this planet.

For over a decade we have had before us a technique for publishing books called print on demand. Those who witnessed its introduction at a book expo in 1998 declared the process revolutionary. Though it’s taken a decade or so to refine the technology, they were absolutely correct. The delivery system has matured and begun to make serious inroads on the traditional one. Though representing only 2.5% of all book production in 2009, it is expected to grow at 16% per annum according to David Taylor, president of Lightning Source, the nation’s biggest POD firm. The first generation of Espresso POD machines, now being installed in libraries and bookstores, promises to expand the technology’s popularity even further. As anyone who has seen a demonstration of the Espresso can testify, the process itself is a technological miracle and will most certainly be miniaturized. It is easy to imagine a day when POD kiosks – in bookstore or non-bookstore venues – will issue books from an infinite inventory of digitally stored titles.

But it is not just the technology that is so exciting to contemplate.  It’s the business principle underlying the process that promises the invigoration and perhaps even the salvation of printed books.

The Speculative Model

In today’s traditional model, which might be termed “speculative,” publishers relying on information gathered from booksellers make educated guesses about how many copies to print and distribute. The sale of a book occurs only after it has been published, placing the burden of financing its publication squarely on the shoulders of the publisher. To the degree that the publisher’s forecasts are incorrect, unsold copies will be returned. Settlement of retailer accounts are delayed or adjusted while returns are processed, delaying desperately needed cash flow to publishers. Publishers in turn must delay settlement of royalties to authors for months and even years until returns calculations are finalized.

In short, the entire system is founded on a negative principle: it’s not how many copies of a book are sold, but rather how many are not returned. Everybody in the chain suffers, from bookseller to publisher to author. Even readers suffer because the cost of all this inefficiency is passed along to them in the form of higher book prices.

The Prepaid Model

Now consider the business model created by print on demand, which we’ll call “Prepaid”. When a book is ready for sale it is displayed on the website of a publisher, author, retailer, or all three. Customers may browse or sample it online. When they decide to buy it they purchase it on the website, charging it to their credit card. Until that moment the physical book does not exist: it is simply a digital file on the server of a printing press. Unless the book shipped to the customer is defective, it is seldom returned. By adopting the print on demand model, the returns problem disappears. Settlement of bills is prompt. Whereas traditional publisher issue royalty statements semi-annually, print on demand makes quarterly or even monthly settlements possible – without reserves against returns!

Do the math: 30, 40 or 50% returns for the speculative model vs. 0% for the prepaid. Case closed. Or so you would think.  Yet traditional publishers cling to the topsy-turvy model of paying a lot of money upfront for books they believe will be hits, then making educated guesses on the size of the audience, then overprinting, then recovering unsold stock and remaindering it or sending it to a pulp mill.

These practices can no longer be sustained, and the good news is that they don’t have to be. Amazon has demonstrated that the prepaid model is mature and ready to replace the old speculative one like a creature that has outgrown its carapace.

In the second installment of this posting we’ll hear what a well known publishing industry oracle thinks the industry must do to prepare for paradigm shift.

Richard Curtis

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Going Backwards from Digital to Tangible

We’d suspected it all along, but the New York Times confirmed it: retail stores are not just fighting back, they’re coming back.

“A Manhattan retail real estate broker reports an increase in inquiries from online-only retailers about opening shops, particularly in smaller spaces.” The piece went on to say that “Customers want to feel the merchandise.” “They see shopping as a social event,” said a retailer. “Think of the store as a showroom,” said another. Yet another said “They’ll show them a few products, lure them in and hopefully have them hooked. They feel that, yes, people are online, people have apps, but there’s nothing like the spontaneous face-to-face.”

One online retailer, inspired by his customers’ desire to feel the merchandise, opened a physical store and was thrilled to report that “‘the average in-store transaction was $360, double what it is online, and first-time store visitors buy again in 58 days, versus waiting 85 days between Web site purchases. And, he said, he has cut Web marketing expenses in half as in-store purchases have increased.'”

The product these people were talking about was apparel. But it could just as well have been books. Not just print books but books in all formats and domains. For some time we have been predicting that after an intoxicating decade of growth, readers would revisit print books and the brick and mortar stores that sell them.

Bookstore sales over the recent holidays suggest the trend in hard copies may be paralleling the trend in other hard goods like clothing. And for the same reasons: people like to browse, feel the merchandize, sample the goods, discover surprises, speak to an informed and friendly human salesperson. “The owner of The Book Cellar in Chicago, which saw 2011 sales rise 38% in the wake of Borders’s closing, was pleased to have last year’s increase stick,” Publishers Weekly reports. “‘Holiday sales for 2012 were “terrific,”’ the owner said, “’up a whisker.’” And Michael Boggs, co-owner of Carmichael’s Bookstore, with two stores in Louisville, Ky., was satisfied with being down 6% at one store and 4% at the other. “Both were up 38% from the year before. The new level is 30% more than pre-Borders. It’s an enormously big figure for a store that’s 35 years old to have.’”

Buried in the Times‘s report was this even more intriguing item: “An eBay pop-up store in London that opened this holiday season has no actual merchandise, just scannable screens displaying gift suggestions.” The idea of a physical kiosk selling virtual books is an idea whose time may at last be realized in the year to come, and if there is any breakthrough event we can predict for 2013, it’s that one. We’ll have more to say about kiosks before long.

Details in Once Proudly Web Only, Shopping Sites Hang Out Real Shingles by Stephanie Clifford.

Richard Curtis

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Print/E-book Bundles on the Horizon?

Michael Clarke, an executive at Silverchair Information Systems and a passionate music lover, is torn between vinyl and digital – squarely split down the middle. Vinyl to him means warm sound, beautiful packaging, tactility and the special rituals of opening record jackets, reading the copy, placing the record on a turntable and lowering the needle on it. Against these advantages he weighs only one for digital music: convenience. But that one completely balances the scales.

But Michael Clarke wonders why he has to choose. Why can’t he have both? Why can’t he buy the record and get the download too – at no extra cost? It’s not unprecedented. Blogging in The Solitary Kitchen, he writes : “What indie rock bands have figured out is that the purchase of music does not have to be an either/or proposition. They don’t make their customers choose between analog or digital. Whenever you buy a record from just about any indie band, it comes with either a CD or with a card that contains a URL and a download code so you can get a digital copy at no additional cost.”

Clarke doesn’t use the word, but what he’s talking about is bundling, and we think it’s the next big step in the evolution of the book business. We also think it’s the next war zone.

Bundling is an age-old merchandising technique in which customers are offered a discount if they purchase two related products. In the case of books, it’s a combo of two formats, print edition and e-book. Though the technical barriers to delivering both in one transaction are coming down, the real issue is how much to charge for the bundle. A little test we gave readers a few years ago will give you a sense of how challenging the concept is:

When you purchase a print book you should be able to get the e-book for…

a) the full combined retail prices of print and e-book editions
b) an additional 50% of the retail price of the print edition
c) an additional 25% of the retail price of the print edition
d) $1.00 more than the retail price of the print edition
e) free

The choices aren’t just economic but philosophical, reflecting just how aggressive a publisher wants to be and the various thresholds at which the publisher believes consumer resistance will melt. A good argument can be made for each, and as the bundling issue warms up you can expect to hear them all endlessly debated.

The time will soon come when publishers will have to choose one of the above strategies and put it into effect. Misjudging consumer attitudes could prove to be a big mistake and possibly a ruinous one. My own view? I strongly believe that the e-book version should be included free of charge with the purchase of the print edition. What do you think – and why?

Details in Bundling: Publishing’s Next Battleground.

Richard Curtis
This blog post was originally published on Digital Book World under the title Why Do We Have to Choose Between Print and Digital?

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Rumors of Amazon Retail Bookstore? Don’t Believe Them

Shame on Forbes.  We thought they were a thoughtful business publication but in spreading  rumors without an ounce of foundation or attribution they make washerwomen look martyrs for truth.

The tittle-tattle in question is that Amazon is developing plans for a retail bookstore or chain.  Even the headline, Why Amazon’s Rumored Retail Bookstore Will Be Huge, dignifies the gossip with an unqualified future tense of the verb, as if the building is all but completed and about to open the doors to its first customers.  (“Get ready for the rollout,” says Forbes.)

Among fatuities on display in Forbes‘s article are these:

“First off, if the rumors are correct, Amazon has the most important part of the plan right — it’s thinking small boutique store, not giant superstore. Big rent is what killed many of the bookstore chains.” [A boutique store for its millions of titles?]

“A physical Amazon bookstore addresses one of the biggest problems in brick-and-mortar retailing today — the mind-numbing sameness of product. You go through a mall, and it’s the same clothes, the same gadgets, and in bookstores, the same books.” [Why all books in stores are the same, and why Amazon’s books will be different from those displayed in, say, Barnes & Noble, is not articulated.]

“With its emphasis on its exclusive booklist, Amazon also presents an alternative to traditional bookstores rather than a direct competitor. Sure, some visitors will buy Tom Clancy for the Kindle while they’re there.” [Why is a customer going to a physical store to buy books for the Kindle?]

“Amazon’s idea has the potential to reinvigorate the entire bookstore sector, and grow interest in reading in general. That could lift the surviving indie bookstores, too, particularly those that take the hint and innovate.” [What surviving indie bookstores?]

“It could just be a media-grabbing, one-shot flagship store. It could even be a seasonal holiday store that’s gone come January.” [We have no comment. Indeed, words fail us.]

After a strategy of undercutting retailers, when chains and independent stores of all kinds are dropping like flies, why on earth would Amazon would go into the brick and mortar business? Come on, Forbes, you’re a business publication, you know better than that.

If Amazon did want to have a physical bookstore presence the only strategy that might make sense is a chain of print on demand kiosks combining the company’s greatest strengths, brilliant technology and limitless inventory, in a relatively modest space. But Espresso-type printers would have to shrink to  desktop dimensions.

You want a rumor to monger, Forbes?  Try this one: POD Kiosks Coming Soon (to Your Local Truck Stop)

Richard Curtis
This blog post was originally published by Digital Book World as Brick and Mortar Amazon Bookstore? No Way

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Israeli Antitrust Bookselling Law Could be a Light to the Nations

What happens when a big retail bookstore also happens to be a book publisher? Well, in order to drive out competition the publisher can price its books below cost. The collateral damage to the author and reader community can be devastating. The reduced list price means a commensurate cut in royalty paid to authors. Independent bookstores are driven out of business. And without independent stores, less prosperous customers no longer have access to the books they seek.

Does this sound like a familiar pattern?  Yes – except it’s taking place in Israel.  And, unlike the reluctance of American and other governments to roll back predatory practices, Israeli lawmakers are proposing strong measures to restore fair trade.

Maya Sela of the Israeli newspaper Haaretz reports a bill making its way through the country’s legislature stating that “books cannot be sold for less than their list price for the first 18 months after publication.” The bill also “sets minimum royalties to be paid to authors during that period.”

The minister sponsoring the bill described the current situation, in which the country’s two major bookstore chains have been beating each other’s brains out with loss leaders, “intolerable. Books are devalued when they are sold for less than it costs to print them. This is abnormal and illogical.”

It seems illogical to us too but it’s hard to imagine legislation as enlightened as the Israelis’ to be adopted anywhere else. But who knows?  Maybe the law will serve as a light to other nations?  It wouldn’t be the first time.

The bill was endorsed by the committee that drafted it and now goes to the Knesset for a vote.

Details in Bill to protect Israeli authors’ income wins government backing

Richard Curtis
This blog post was originally published in Digital Book World as Thou Shalt Not Covet Thy Neighbor’s Discount.

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B&N Hits Amazon Where It Hurts: Authors

When Amazon offered in December to reward customers who scanned book bar codes in bookstores and then bought the book on Amazon instead, we wrote “Amazon’s strategy could backfire.”

“When Amazon’s sales reps call for an appointment to pitch their list,” we pointed out, “they may find the owners’ phones turned off.” (See Please Shut Off Your Cellphones. This is a Bookshop)”

They did. Barnes & Noble will not carry books published by Amazon’s publishing imprints.

“In a sharp answer to Amazon and its expanding publishing efforts,” writes the New York Times‘ Julie Bosman, “Barnes & Noble said on Tuesday that it would not sell books released by Amazon Publishing in its bookstores. The ban includes books released by New Harvest, a new imprint of Houghton Mifflin Harcourt that recently struck a deal to publish and distribute books released by Amazon Publishing’s unit based in New York.

“’Barnes & Noble has made a decision not to stock Amazon published titles in our store showrooms,’ Jaime Carey, the company’s chief merchandising officer, said in a statement. ‘Our decision is based on Amazon’s continued push for exclusivity with publishers, agents and the authors they represent. These exclusives have prohibited us from offering certain e-books to our customers. Their actions have undermined the industry as a whole and have prevented millions of customers from having access to content. It’s clear to us that Amazon has proven they would not be a good publishing partner to Barnes & Noble as they continue to pull content off the market for their own self interest.’”

B&N’s decision may impact negatively on the authors and their agents contemplating selling their authors to Amazon Publishing.

Though some publishing executives may take a measure of satisfaction that B&N, now the victim of Amazon’s aggressive marketing strategies, is paying dearly for its own predatory practices when it was the ruthlessly dominant bookseller of the twentieth century, consumers will rally around it and its more helpless independent bookstore cousins. Publishing industry old-timers like to say “What goes around comes around” and for Amazon it has come around.  We hope however that Amazon Publishing will itself come around – to an open policy of mutual cooperation in the fragile ecology called publishing.

Details in Barnes & Noble Won’t Sell Books From Amazon Publishing

Richard Curtis

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There’ll Alway’s Be an England

Did we get your attention, grammarians? We hope so, because this story is about apostrophes.

It seems that the new head of Waterstone’s, the British bookshop chain, has dropped the possessive apostrophe because Digital Age rules prohibit that punctuation mark in domain names.  “Waterstone’s,” the Telegraph reports, “will become plain old Waterstones.” Worse, it will become waterstones, with a lower case w.

Punctuation, like puppies, has fanatic defenders in Britannia, and the apostrophe is no exception. John Richards, who is swear-to-God chairman of an organization called the Apostrophe Protection Society, characterized the change as “slapdash”. Take that, you miserable barbarians!

Waterstones ditches apostrophe

Richard Curtis

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P-Books Make Strong Showing in Holiday Sales. Why?

Okay, all you street corner prophets. Given the depressing if not depressed economy, last year’s dismal holiday retail sales, the meteoric triumph of e-books, the advent of bookstore showrooming that drives customers out of bookstores, and the bankruptcy of Borders, how do you think bookstore sales will fare over the 2011 holidays?

If you said Down the Crapper, go back to Prophecy 101 and relearn the first two principles: #1, Never Give a Specific Time Line. And #2, The Odds That a Prediction Will Be Correct are 50-50.  Julie Bosman, covering the book beat for the New York Times, reports that “The initial weeks of Christmas shopping, a boom time for the book business, have yielded surprisingly strong sales for many bookstores, which report that they have been lifted by an unusually vibrant selection; customers who seem undeterred by pricier titles; and new business from people who used to shop at Borders, the chain that went out of business this year.” Sales are up as much as 16% over the same period in 2010.

One of the biggest surprises is that “glossy, expensive hardcover books have emerged as sleeper successes,” says Bosman. There’s a brisk trade in books of $75 and more. To what can we attribute this counterintuitive if not perverse surge in consumer commitment to print?  Our guess is that now that consumers have had a few years of e-books, they are starting to distinguish between books they merely want to read but not own, and those they want to read and own.

But that raises another question: why aren’t they buying them on Amazon and BN.com to take advantage of heavy discounts? Many book lovers we’ve spoken to have said they would rather pay list price and support their local bookstore than get a high discount that may lead to the demise of that store.  If you thought writers were strange, what can you say about readers?

One book we think you will want to read and own is The Oxford Companion to Beer by Garrett Oliver, arguably the world’s authority on the beverage.

Here is Oxford University Press’s product description for the book:

For millennia, beer has been a favorite beverage in cultures across the globe. After water and tea, it is the most popular drink in the world, and it is at the center of a $450 billion industry.

The first major reference work to investigate the history and vast scope of beer, The Oxford Companion to Beer features more than 1,100 A-Z entries written by 166 of the world’s most prominent beer experts. Attractively illustrated with over 140 images, the book covers everything from the agricultural makeup of various beers to the technical elements of the brewing process, local effects of brewing on regions around the world, and the social and political implications of sharing a beer.

Garrett Oliver is the Brewmaster of the Brooklyn Brewery and author of The Brewmaster’s Table: Discovering the Pleasures of Real Beer with Real Food. He has won many awards for his beers, is a frequent judge for international beer competitions, and has made numerous radio and television appearances as a spokesperson for craft brewing.

RC

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