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Breaking: The Sky Is Falling. Will Publishing Innovate or...

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I’m worried, readers. I am worried about publishing as a business. My worries do not stem from used sales. My worries do not stem from piracy of digital books. My worry is that publishing will not take this opportunity to innovate. Anita Elberse’s article in the Wall Street Journal only increases my concerns. Elberse’s argument is essentially that the current publishing business model worked before and so publishers need to keep at it. I found her to be arguing that the existing publishing model is the only publishing model.

The current publishing business model:

The current publishing business model is built on the success just a few titles: The Secret, the Harry Potter series by JK Rowling, The DaVinci Code by Dan Brown. According to Elberse,

Most large media firms make outsized investments to acquire and market a small number of titles with strong hit potential, and bank on their sales to make up for middling performance in the rest of their catalogs.

Publishing operates under the Pareto concept.   20% of the titles generate 80% of the publishing houses’ profits.   But one successful book or series does not a successful publishing model make.   Take The Secret by Rhonda Byrnes.   As of June 2007, there were 5.2 million copies of The Secret in print.   In December of 2008, S&S laid off 2% of its staff.   Dan Brown’s The DaVinci Code has over 60 million copies in print worldwide.   At the end of 2008, Random House had eliminated the position of its discoverer, jettisoned a number of employees, and consolidated imprints into three more streamlined entities.   Scholastic enjoyed 7 years of unprecedented profitability under the Rowling franchise, but in 2003, Scholastic laid off 400 employees, in 2006 Scholastic laid off over 87 employees and in 2008, Scholastic instituted a hiring freeze and 110 employees took early retirement.  

Publishing thought it was recession proof.   It thought that it would weather any economic storm, any technological changes, and any consumer changes.   After all, you can’t improve on the book.   Harleqin came to prominence during the Great Depression as more and more people turned to entertainment as a relief from the depressive events of the day.   At the height of the Great Depression, there was a 25% unemployment rate yet Harlequin, and books, still thrived.

So what’s changed?   So   much.   

For one thing, as astutely noted by Tom Englehardt in the Nation, the entertainment landscape has changed dramatically.   

It was well known in the business that, during the Great Depression, books, like movies, had done splendidly. They were an inexpensive bit of entertainment and distraction, consumable at home, at a time when not much else pleasurable was going on in a rugged world. Ergo, books would be no less recession-proof in the next big downturn.

There was no reason to believe otherwise… unless you happened to focus on just how many dazzling entertainment options had, in the interim, entered the American home at prices more than competitive with the book. After all, most Americans can now read endlessly on the Internet, play video games, download music, watch movies and even write their own novels without stepping outside; and keep in mind that the $27.95 hardcover and the $15.95 paperback on the shelves of that mall store, once you drive there, aren’t exactly the inexpensive objects of yore.

In a July 2008 article, the NY Times noted that the teens addicted to the internet were part of the reading decline.   More and more people spend time on the internet and its not just teens.   For the million or so subscribers that receive the print version of the Times, there are twice as many that read the Times online.   Video games and video consoles are outpacing expectations and not seeming to suffer any hardship from the downturn in the economy.   Movie saw record box offices in 2009.   Englehardt’s point about the increasing cost of books is also important.   Mass markets are edging close to the $10.00 mark; and hardcovers are 3x that amount.   For the not so avid reader, would she rather buy a game for her WII that she can replay a hundred times than a book she might enjoy (or might not) for only a few hours.

In 2007, there was a fabulous article by the NY Times about the mysterious making of a bestseller.   It is not a science.   

Eric Simonoff, a literary agent at Janklow & Nesbit Associates, said that whenever he discusses the book industry with people in other industries, "they’re stunned because it’s so unpredictable, because the profit margins are so small, the cycles are so incredibly long, and because of the almost total lack of market research."

The first book by Curtis Sittenfeld, Prep, was wildly successful.   She was paid   $40,000 for her first advance.   Her success was awarded with a two book deal for a multiple of her first advance.   The book, The Man of My Dreams, at the time of the article was a disappointing seller.   One might even argue it was a flop despite all the money that the publisher threw into promoting it hot on the heels of the publication of Sittenfeld’s successful book.

Readers enjoy variety.   

The worst thing for an avid reader is hegemony.   Indeed, every YA book sale looks like a Stephenie Meyer knock off.   How many Grail books did we suffer through post Dan Brown (some would say they had to suffer through Dan Brown as well. I found it immensely readable)?   Publishers often seem to be looking for the next similar book to the previous blockbuster because they are so tied into the blockbuster business model.   

Simply because   it worked in the past doesn’t mean that it is going to work now.   And let’s face it, it didn’t really work that well in the past.   See above NY Times article and the guessing that goes on in the industry.     

The Music industry was built on album sales. When Apple got a hold on the digital music market, it introduced the concept of buying individual songs to consumers. Consumers took to that business model and rejected the old one. They liked the instantaneous aspect of downloading songs and they liked spending just the right amount of money on the music they wanted instead of buying an entire album to get just three songs.   In 2008, overall unit sales were up 10% due to digital downloads but physical album sales dropped 20 percent.   The music industry is watching its profitability decline as downloads increase because changing consumer behavior is reducing the profit margin.

So if the old business model for music based on album sales is no longer profitable, is the best thing to do to protect it with changing legislation? In other words, how long do we artificially support a failing entertainment business model? When do executives recognize that this is the time for innovation? To adapt to and predict consumer behavior in a way that is beneficial to the company and the artist?

Other Media Lessons.

There are only a few books that will ever have broad appeal and when that happens, it is a great thing.   But reliance on the 20% of books to provide a successful and growing book market will inevitably miss whole segments of the reading public.   In 2006, Netflix offered 60,000 DVDs.   

Out of the 60,000 titles in Netflix’s inventory, I ask, how many do you think are rented at least once on a typical day?
The most common answers have been around 1,000, which sounds reasonable enough. Americans tend to flock to the same small group of movies, just as they flock to the same candy bars and cars, right?

Well, the actual answer is 35,000 to 40,000. That’s right: every day, almost two of every three movies ever put onto DVD are rented by a Netflix customer. “Americans’ tastes are really broad,” says Reed Hastings, Netflix’s chief executive. So, while the studios spend their energy promoting bland blockbusters aimed at everyone, Netflix has been catering to what people really want — and helping to keep Hollywood profitable in the process

Wow, Americans’ tastes are really broad. Imagine that. Add in the rest of the world and you find perhaps even more diversity.

The entirety of the publishing model   built on the blockbuster requires it to spend lavishly in advances to get the right 20%. The problem is that publishing has no idea when it pays out its million dollar advances whether a book will be a blockbuster, no matter the amount of money that it spends on marketing. Hachette hit it big with Stephenie Meyer. It was packaged beautifully and the story hit alot of right notes with female readers. Hachette can’t print these books fast enough. The series is like printing money, one publishing person told me.     Times are good now for Hachette but the Twilight series is concluded. How many more years of immense profitability will it be able to sustain on one series alone?

Publishing Needs to Innovate

Publishing needs to innovate. I have some ideas but none that can be implemented in the short term.   Publishing needs to invest more heavily in print on demand technologies.   By now, they should have developed a POD machine that could print and bind a mass market in under 5 minutes.   POD can eliminate or, drastically reduce,  warehousing costs.   Publishing needs to learn more about its consumers.   It needs business intelligence.   This is where microtargeting can come into play.   If publishing spent less in advances and had better POD technology, it could provide more targeted sales.   Wouldn’t it be less of a risk to try to make money off of 80% of the publishing list rather than just 20%.

Have you ever bought a book at a non traditional book outlet (such as a bookstore or big box store)?   I have. I’ve bought books at Pottery Barn Kids.   In fact, one of my daughter’s favorite series, Keeker and the Sneaky Pony, we discovered at PBK.   I think that there’s some idea that the kids books at PBK are the high end of what is out there for kid’s books because the selection is so minute.   I couldn’t help but wonder, the other day as I sat leafing through some of the books while my daughter played with the kitchen set, why more books weren’t in these non traditional retail spaces? I.e., why isn’t Beth Kery’s Wicked Burn  at Victoria’s Secret?   Harlequin once sold books at Nascar races.   Books featuring knitters at knitting stores.   Books that are hot and sexy at lingerie stores.   Why not set up a vending machine at the mall frequented by young shoppers full of Berkley/Jove paranormal books?

Why not set up their own stores and sell books at a discounted rate, undercutting Amazon.   After all, if you have to pay 40%-60% of the retail price to the retailer, then there is a clear margin for price reduction sold direct.   There’s dozens of more ideas that other people will probably come up with as well.

The Fallen Sky

I don’t see alot evidence that publishers are going to innovate.   Look at the publishers partnering with new iPhone application ScrollMotion.   Instead of offering the book at a reduced rate, it charges more for the iPhone special.    Even HarperStudios, the experiemental publishing arm of HarperCollins, is relying heavily on celebrity focused books.   I see publishers slowly getting into the ebook market, but I am often shocked at how many books are not digitized.   As I sat with my friends liveblogging the other night, talking about ebooks, they asked me if every book that they wanted was in eform and I had to tell them no.   They couldn’t comprehend it.   I tried to explain rights and piracy and so forth, but I don’t think it was getting through.   And why should they care?

The problem is that the longer that it takes publishing to innovate and the more that they try to push their own reading selections on us, the consumer, the more that readers will turn to other forms of entertainment.   If I couldn’t read, I’d sew more.    I love to read, don’t get me wrong, but I can go extended periods without reading a book.   I was obssessed by this Apple iPhone game called Fieldrunners and I played that for five days, nearly non stop.   Before my daughter, my husband and I would play video games, we played Soduko, did crossword puzzles.   There are simply so many things out there that I can do and do for low cost that if publishing doesn’t provide me with the product that I want, I can see myself drifting away or I would if I didn’t have the blog.   I’ve seen it among my own friends who’ve left the avid reading market to become casual readers.   For those casual readers, who buy maybe 1   book a month, it becomes even easier to let reading go by the wayside.   

Publishing needs to be ready and able to meet the customer where she is at instead of requiring the customer to adapt to the publishing model.   My sister in law wanted to read Twilight over the holidays but the Twilight was sold out.   POD could have met that demand and made a sale.   Instead, she’s busy knitting with a special knitting machine she got as a gift.   

Reading consumption will decline   and it’s not because readers are buying used or because they are pirating, but because they will inevitably turn to other forms of entertainment as publishing increasingly offers a sameness to its selections.  

Publishing must change its business model to provide greater variety, with better targeted marketing. Today’s technology tools make it easier than ever for companies to do this.   Right now is an exicting time for publishing. It has an opportunity, in these difficult economic times, to throw off the mantle of the old.   After all, what do they really have to lose by changing?    We know what they are going to lose if they don’t.

Jane Litte is the founder of Dear Author, a lawyer, and a lover of pencil skirts. She spends her downtime reading romances and writing about them. Her TBR pile is much larger than the one shown in the picture and not as pretty. You can reach Jane by email at jane @ dearauthor dot com

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