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Fixing the business

by Jessica

Publishers Marketplace ran a link to the Harvard Business School Working Knowledge interview with former Random House CEO Peter Olson, whose class at HBS uses the publishing industry’s hype/hate relationship with the e-book as a semester-long case study.

The whole article is worth a read, but one passage struck me as particularly noteworthy. With regard to the price skirmishes over e-book pricing, Olson points out that the customer has not been given much of a say. He continues: “I don’t know of many successful examples of pricing a product based not on what it costs or what people want to pay for it, but based on another format that is completely different, just because you want to keep that format alive.” Youch.

Publishing is a peculiar, and some might say, poorly conceived business. I’ve often thought it would be interesting to issue an invitation to assorted big-thinkers, (economists, management consultants, authors, agents, editors, plus all the students in Peter Olson’s class) for their plans to “fix” publishing—redesigning this ad-hoc business into something self-sustaining, or at least, an industry whose death is not forecast on a daily basis. Of course, I realize such schemes might or might not have any bearing on reality. Back when I worked at a publishing house that was part of a larger entertainment conglomerate, the sleekly suited management consultants from McKinsey and Co. favored us with several visits; in each case our role was to answer their questions, then speculate among ourselves how much they were being paid.

I was flat out amazed at how little our well-compensated interlocutors seemed to know about publishing. Perhaps their ignorance was in fact their strength, and they could see, de-Toqueville style, the assets and liabilities we local yokels failed to perceive. Without knowing how things are done, how things have always been done, they were free to critique our ways, and offer comprehensive recommendations. My favorite being “Publish more bestsellers.” I recall that one consultant asked me what I could tell him about market testing. My mouth hung open for a moment before I replied “only that publishers don’t do it.” So far as I know, focus groups are not convened on behalf of books. What might this look like? AOne could create one easily enough on-line, and indeed, the book-to-blog phenomenon is the closest that publishers come to “market testing,” ascertaining that there is some quantifiable readership for a given subject.

Now that Harper Studio has been shuttered, I wonder if their innovative idea of attempting to do away with returns will vanish along with it. Returns are, of course, a prime example of the way in which how things are done seldom reflect best practices. As you probably know, booksellers can, at pretty much any time, return unsold stock for a full refund from the publisher. The return system was dreamt up during the Great Depression to entice booksellers to stock shelves that might otherwise have remained empty; knowing that the books came with a money back guarantee lowered retailer’s risk and essentially propped up their business. Now, however, some 70 years later, the same system is in place. Abolishing it makes good common sense, but it would send shockwaves through the industry. Booksellers would certainly reduce their buys, and likely demand a deeper discount. But we might move closer to a tenable model…

So, I’m throwing open the doors to the big thinker among you. Any ideas to reform the whole (or even a part?).

Anyone, anyone?

13 Responses to Fixing the business

  1. Creepy Query Girl says:

    What about product demand by genre? Everyone is always throwing out random comments about what's big, what's over with, what always works, and what the next big thing will be. But I have yet to see any serious stats. It's absolutely obvious when something's doing well and all our attention is turned towards it. But there must be some kind of analysts that can take the actually sales of each genre on its own and give feedback on what percentage of the books brought down to the retailer's level are actually selling, thus giving a forecast of how much they should be investing in said books. Something like this must be taking place already. But like I've said, I've never seen the stats.

  2. Jill says:

    I can't think of any other industry that uses such a silly business model.
    The only way it could ever change is if all publishers truly banded together… not a likely happening.

    But perhaps a penalty system could be instituted. For example, what about a full refund within 90 days, but 10% held back for each 30 days thereafter…

    Just my two cents.

  3. GK says:

    This is a fascinating topic, and I look forward to seeing people's suggestions. I've put my brain to work on it as well, but then I'll talk to publishing folks and find out why my ideas wouldn't work, so nothing has come of it so far. ^_^

    @ CreepyQueryGirl: I'm a bit perplexed. There certainly are numbers out their saying what percentage of books are in a specific genre (off the top of my head, romance accounts for about 55%; and then there are numbers about sub-genres as well, like 40% of romances sold are category). And when the publishing sales team goes out to convince booksellers to buy their books, they offer comp titles that basically say, "Hey, the book we're offering is like this other book, and look how much they sold." So people certainly are looking at the numbers. Is that the data you're looking for, or something else?

    @ Jill: The problem with that is that then bookstores would have less reason to keep stock on their shelves that wasn't immediately selling. It goes back to the current reason for the model: We want to have as many books as possible available to as many people as possible for as long as possible. If independent bookstores hold a stronger hold on the market, rather than the decision of which books go on shelves being left to a handful of execs at B&N, Borders, and Wal-Mart, then returns would have a better chance at being phased out. As is, we have a tough enough time as it is getting midlist and debut authors on the shelves. 90 days seems an awfully short time to allow an author to make-it-or-break-it.

  4. Paula B. says:

    Actually, you can't return unsold books any time. When we ran our wildly unsuccessful online store in 2004 and 2005 (thank goodness we got out quickly), we got burned because we held onto merchandise for a very long time. We thought we were *helping* publishers by making their books available for a year or longer, but when the books didn't sell and we tried to return them, some publishers told us we'd get no money back because we hadn't returned the books within their time limit. I won't mention any names, but I will admit to being grossly naive and stupid.

  5. Bethany says:

    You had me at de Tocqueville.

  6. Anonymous says:

    Can I offer a suggestion?

    In a world of digital entertainment, when everything from the latest movies, music albums that haven't even been released yet and comic books are all available, for free, online simply by typing 'rapidsearch [name of thing you want for free]' into Google …

    … FOR GOD'S SAKE DON'T MAKE YOUR PRODUCT, THE ONLY FORM OF ENTERTAINMENT IN THE WHOLE WIDE WORLD THAT IT'S STILL CHEAPER TO BUY THAN PIRATE, EASIER TO PIRATE.

    Ebooks? Yes, do them. But for public domain novels, for non fiction things like travel guides that need updating and amending, for textbooks.

    But if you want to sell – 'sell' here meaning 'get people to pay money for' – novels, then keep them cheap and keep them on paper.

  7. Creepy Query Girl says:

    I have seen the percentages of genres that are 'out there' but have yet to see the percentages of a specific genre sold within a specific period.
    For example- 30% of books sold in 2009 were YA (by theme would be even better) / 19% self help / 8% Non-fiction in Cooking/Gardening/History/Travel/etc. If booksellers could see what the genre or theme have sold in the past- if it's a steady number, increasing, or falling and then buy according to demand in product.

  8. P. Bradley Robb says:

    Here's five steps:

    1.Nix returns. Book sellers are already getting 50% on the cover price, arguably the greatest return on investment in the entire publishing industry.

    2.Monetize the backlist through P.O.D. and eBooks. Further this monetization structure by selling every public domain book available.

    3. Conduct heavy market research geared towards the reader as the end customer (rather than the distributor or bookseller). Understand how other media impact book sales and what advertising avenues are worthwhile, and which are worthless (Here's a hint, even avid readers don't read Publishers Weekly, so publishers shouldn't waste their money advertising there).

    4.Redesign the imprint structure at major publishers to tightly focus on a specific niche or vertical and engage in strong branding where the readers are. Define the market at small and independent presses to the same tight niche or vertical. Foster the notion of a publisher as a curator specific to the reader's tastes, and be as narrowly focused as possible.

    5.Create a range of formats and release them simultaneously. Low prices/low value eBooks. Mass Market Paperbacks. Hardcovers. Audiobooks. Transmedia eBooks. High value special editions that appeal to the most demanding subset of buyers. By creating multiple revenue streams, publishers can capture the widest possible number of buyers during the period of peak demand and highest advertising. After peak demand, use P.O.D. and eBooks to capture long tail sales.

  9. Charles Pergiel says:

    Once upon a time I read something about tax laws having something to do with books returned to publishers. I am pretty sure it is crucial to the way the business is run, like in big money crucial.

  10. Liesl says:

    I like the idea of bundling e-books and hardcovers. It actually can be a miraculous marketing technique because people always like more and if they can get more for just a little bit more money, they'll usually get it.

    PREDICTABLY IRRATIONAL by Dan Ariely is an amazing book all the way around, but has a fascinating chapter on why we buy things. He uses periodicals like The Wall Street Journal and The Economist as an example in bundling. You can buy The print for one price, and the online edition for a little less, or you can buy both for an overall savings. It is more expensive to buy both, but what buyers do is see the savings, that they are actually getting more for less. It's this whole A, A-, B choice thing.

    I lent that book to a friend, so I can't quote it or explain as eloquently as he does. That's why it would be cool if I had bought the book and the e-book as a bundle.

    Publishers need to quit kicking against the pricks. They need to release e-books at the same time as hardcovers, offer bundling for an overall savings (and it should be a good deal!) People like the e-books but we still like objects in our hands. I believe there will always be a place for books, but we need to make room for what's coming. Fight 'em or join 'em.

  11. Kelly McClymer says:

    To be fair, publishers *did* have a working market research program: ARCS were sent out for reviews (reader-experts, so to speak), pre-orders by bookstores (those who were tapped into the customers), etc. This chain worked very well in a pre-internet marketplace. Unfortunately, the ability to browse the internet for books at Amazon, the slow strangling death of the independent bookstores, and the ability to buy books in e-version has damaged this chain to the point where it is not reliable any longer. The megabookstore relies on heavily discounted bestsellers to draw in reading customers — and even that is compromised by Wal-Mart and Target and the local supermarket chains which carry the top sellers (the sure-sellers).

    So now we're at the point where the market research needs to change, and the question is how. Publishers have relied on very small groups (bookstore buyers, distributors, reviewers) to vet their selections and determine print runs because they're committed to short tail sales (which were the only important sales in a a huge percentage of published books, I concede).

    Publishers have to decide on a new model of market research. I think they need a model which considers long-tail sales. Take, for instance, historical romance (since romance is a very strong and sustained market). Historical romance readers love series. There are many. But often a reader who comes into the middle of the series has to beg, borrow or steal to find the backlist. Unless the numbers of readers were large, the publisher saw no point in reprinting, and the bookseller didn't want to use up shelf space for the backlist (long tail sales). Both understandable, but frustrating to authors who were constantly asked "where can I find your older books?"

    Amazon wasn't really a good answer, because that sent readers to used book stores, where neither publisher nor writer made a dime. E-books has changed that equation. Publishers (and perhaps booksellers) ought to look to understand long tail sales and what they mean to the bottom line. For example, B&N and Borders have computer Kiosks. What if they teamed with the publisher to offer Nook/Kindle/computer downloads of backlist titles for a nominal fee (99 cents per title, perhaps) when a newly released title is purchased? Long tail sales, plus ongoing market research.

    Maybe during this market research paradigm shift, publishers should bring booksellers in as a partner — offering longer return times instead of none. Maybe offering a cafeteria choice — a slightly better discount for a no-return book than a book with return? I assume B&N and Borders have two options — return the book (short tail thinking), or sell it through the online marketplace (long tail thinking). I suppose I'm surprised that the online marketplace option isn't helping bookstores feed the bottom line, since it clearly works for Amazon. But part of that surprise is grounded in the fact that I'm still thinking in bookstore terms about books and, despite trying to wrap my mind around what's going on and what is going to happen a few years down the line, I haven't found good data (Amazon, free your data :-).

    Kelly

  12. NinaP says:

    I agree with Kelly, publishers need to stretch their thinking beyond a book’s “single wave” of sales. As one who is highly involved in my local library's semi-annual book drives, we resell thousands (and I do mean thousands) of "back-list" books that patrons donate to create shelf space in their own homes. No one in the Publishing Life Cycle makes a dime when we sell a book. Sad that e-books will eventually cut into our book-drive donations, but, if the publishers play their cards right, their e-book backlists will become as valuable as current best-sellers.

  13. Anonymous says:

    I think you start with the basics. First, book publishers should be low cost providers. I have no clue why they're in New York City. The publishers need to move their officers to locations, where they can obtain cheaper staffs. Second, demand should drive pricing. Third, an eBook is not a hardcover. These two products should be not be priced the same. Third, returns are dumb. Get rid of them and deal with the fallout. Better during an economic downturn than during an economic upswing. Fourth, find out what adults want to read. I think there is a huge disconnect between what publishers are printing and adults are reading. Last, don't ignore the Internet. Check out the product: Eclipse Phase. It's free via Creative Commons, but the print version still sells well. Check out what these guys are doing.

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