Hachette at the Tipping Point

Hachette CEO David Young

But it's not the tipping point that you might be thinking of. At this week's Publishing Point Meetup, David Young, Chairman and CEO of Hachette Book Group took his turn being interviewed by Michael Healy. Here's the bit that caught my ear:

If you just rewind the clock five, even ten years, the negotiations that one had with with Barnes and Noble, or WH Smith or Waterstones seemed like the most challenging things in the world, you were entering a G8 summit or something, and now they appear like a vicar's tea party compared with the people with whom we now regularly deal. Massive companies, Amazon, Apple, Google, and in fact last year was a tipping point for our company, because 50% of our net revenues were made through outlets that were not invested in us. Companies like Walmart and Costco and all the others you can think of, not directly invested in our business. And I think that was a big moment and it means you're having to deal with people who think about books in a way totally different from the way Barnes and Nobles regards books. Every retailer who does sell books understands that they drive traffic into their stores, I have no doubt that's why Walmart and Target and Costco love them so much, but they do tend to cream off the top. [..]

We have a very wide ranging, wide array of customers with whom to deal. They're selling our books in our special sales department through TJ Maxx and Anthropologie now. I know they even think about covers of our new books ahead of time to make sure that they're in this season's color.

That's right, Amazon just announced they were selling more Kindle ebooks than print books, and the big transition in Hachette's business is that they don't sell the majority of their books in bookstores anymore.

I had never been inside an Anthropologie store before, so I decided to go and take a look at the future of the book selling business. It seems to be mostly pink and pale green this year. Also a sort of pale purplish blue.

Here are some of the titles I found:

• Things Good Mothers Know
• Your Mother Was Right
• Vanity Fair's Proust
• Etcetera
  
• The Stylist's Guide to NYC
  
• Modern Vintage Style
  
• Casual Living
  
• Creative Walls
  
• Domino
  
• The Cocktail
  
• Soil Mates
  
• Grow Your Own Food
  
• I ❤ Your Style
  
• How to Sew a Button
  
• Vintage Cocktails
  
• Things I Want My Daughters to Know
  
• The Lover's Dictionary
  
• I Was Here
  
• Markets of New York City
  
• The Traditional Shops and Restaurants of London
  

What a brilliantly arranged store! The casual cotton dresses look at least twice as slinky with a stack of color-coordinated Lover's Dictionaries piled next to them. And my mom loved candles- I never realized their connection to good parenting!

That other tipping point I've been writing about here? The library ebook thing? In the Q&A session, Young was asked: "What's your policy on ebook library lending?" Since Hachette allows Overdrive to distribute its ebooks to libraries, I hoped this would be a softball. But it wasn't. (Or maybe Young, an Englishman, only knows cricket.)

That is, I think, a really really big question, and I wish I knew the answer to it. All I know is we're putting a lot of thought into it. I'm meeting the President of the ALA in New Orleans in June and we're talking with our various partners around that. I think its something that needs a lot of careful thought because if you let that particular genie out of the bottle and get it wrong then you could get yourself in all sorts of trouble. Should there be a library solution? I'm certain there should be, but what it is we haven't figured it out. We're putting a lot of thought and effort into it.

The beginning of dialog at the very highest level between book publishers and librarians is definitely good news, and long overdue, but I'm not sure what advice I would give to ALA President Roberta Stevens for that meeting. Maybe she could offer to put the genie in one of those pot-candles that look so great alongside books at Anthropologie?

Related articles

• Publishing Point: conversation with David Young, Chairman/COS Hachette Book Group (teleread.com)

Simon and Schuster is Looking at Limited Lending Library eBook Models

Michael Healy and Carolyn Reidy

Today's installment of the Publishing Point series of CEO interviews featured Simon and Schuster CEO Carolyn Reidy. Reidy was appointed to her current position at the very bottom of the economic cycle; she has had a lot on her plate to say the least. Although she knew when she took the job that she'd need to steer the company through a transition to a purely digital product, she had no idea it would happen as quickly as we're seeing.

Michael Healy, who didn't appear to be unemployed yet, again played the role of master interlocutor. He started out by asking the obligatory question about S&S's reaction to yesterday's decision on the Google Books Settlement.

We of course are disappointed that the judge didn't approve it, although I would also say that it wasn't so surprising that he didn't just approve it in total. Along with the other publishers who were party to the suit, we do hope that it's just another way-station on what will be a final settlement. I think he did give some indication in his ruling on ways that we can get to a final settlement and I think that all parties involved have a hope that we'll get there and there will be further conversations about it; it'll just take us longer to get there.

Healy, the Executive Director Designate of the Book Rights Registry that would be created by the settlement, joked that "this particular party certainly hopes that we get there!" Reidy continued:

I'm sure you do. And we all do, because there are real principles involved in the whole thing that we'd like to see preserved and definitely settled for the good of all of us.

Healy then asked if Reidy shared the optimism about growth in the book industry recently expressed by Len Riggio, Chairman of Barnes&Noble. Reidy does:

I share the optimism because I think that even though  there are negative fallouts occurring, as you see with bookstores closing and things like that, the ease by which consumers can acquire books, the ease by which people can publish books, also of selling and being able to put books in front of consumers the variety of ways you can market, all of these things are just exploding. and we don't yet have the same grasp of them that we did of the old system but there are so many opportunities facing us that I'm I definitely share the optimism about it, there's no doubt about it. The biggest question is whether or not you're going to take the old market and transform it into a new way of consuming or whether it'll get bigger; of course we all hope its going to get bigger. That's the biggest question in front of us: can we in fact enlarge the market for reading by using all the new tools and opportunities in front of us.

Reidy discussed at length the many challenges facing a publishing CEO in times of technological change. 20 years ago, even 10 years ago, a publishing CEO would be wrestling with questions of production systems and bandwidth pipes and why a best-selling crossword puzzle iPad App couldn't just be moved to the iBookstore. She believes that the biggest problem facing publishers is maintaining their ability to create value compared to the many entities ready and willing to disintermediate them.

Healy's last question concerned Harper-Collins and the "eye of the hurricane" that they've found themselves in regarding their change in ebook lending policies. Reidy's answer was succinct:

Simon and Schuster does not yet sell ebooks to libraries. We have not yet found a business model that makes us happy. That's why we're not in it

Later, in the Q&A period, I pressed Ready about finding a business model for providing ebooks to libraries: "libraries are worried about whether they'll survive the transition to digital books and funding difficulties at the same time. Are you at all worried about the survival of libraries across the transition to ebooks?" I asked.

There's a part of me that worries about it, but I'm first worried about my company... and my authors, and their survival. So we have met with several people who are trying to come up with a solution to sell into libraries and there are people who are working on various and sundry different models that are not just sell one ebook and let it be loaned forever, and in fact we met with one last week. So we've actually been meeting with people and think there will come a solution that we can live with. We just haven't seen one yet.

I hope that Reidy also finds a model that will allow libraries to thrive in time to help Simon and Schuster grow the market for reading.

Related articles

• Publishing Point interview with Carolyn Reidy, President and CEO, Simon & Schuster (teleread.com)

Philosopher Tim O'Reilly Lights Up Publishing

Tim O'Reilly, Founder and CEO of O'Reilly Media, didn't mean to become a publisher, he just fell into it. He started out doing technical documentation by accident because a friend who was a programmer was asked to write a manual but didn't know how. O'Reilly had written a book about Frank Herbert, and agreed to help. After doing consulting for a while, he noticed that all his clients wanted manuals for the same software, so he started to retain his rights so he could sell the same manual over and over again. He never wanted to be a publisher; the job he wanted to do was to "spread the knowledge of innovators".

That single-minded attention to "doing a job" has set him apart from many of his colleagues in publishing, because it has led his company into efforts that focus on spreading knowledge rather than selling books. He recognized that by publishing books, he was taking an oral culture around technology and translating it into a written culture.

Early on, O'Reilly expanded into conferences. He found that despite the strong sales of "Programming Perl", no one was talking about or spreading the word about Perl. He organized a "Party for Perl" and a lot of people showed up. The resulting conference business built on the realization that his best selling books were being written by innovators who had no place to get to know each other and spread their innovations.

Another direction that grew naturally out of O'Reilly's focus on spreading knowledge was a digital distribution business. O'Reilly had taken the trouble to figure out how to do some of the messy bits in selling digital versions of their books, so when other publishers saw what they had, they were happy to have O'Reilly help them do the same.

O'Reilly was interviewed in front of a room full of New York publishers on Wednesday as part of a series of interviews produced by the Publishing Point group. He  combined an enthusiasm for the changes sweeping publishing with a missional faith in its practicality. Yet many of his themes were deeply at odds with the conventional wisdom of traditional publishers, and he claims not to be a publisher at all from a philosophical point of view. O'Reilly wants to see more innovation in pricing, and thinks that people will buy more books - and spend more, if ebooks are more moderately priced. Publishers trying to preserve the pricing of print books in the shift to ebooks are not following a winning strategy, according to O'Reilly.

O'Reilly's notions of what's NOT important for publishing were surprising to hear. They're shaped by O'Reilly's formative experiences in publishing. He claims to fight the notion that publishing is about quality. His first books sold even though they didn't have an index or an ISBN, or even a spine. They didn't have pretty formatting, but they had good information, and they paid attention to the things that mattered for the job they were meant to do. In a book about programming, the code samples needn't look good, but they do need to be correct, without extra spaces that break syntax. They were selling  books for $5, and people would call up from Europe asking them to overnight a copy.

He's also skeptical of the notion that an important role of publishers is curation.

In the old days, we had a long period where it was fairly clear what were the hard things that publishers did. To be quite honest, It was NOT curating the content and finding great stuff. I think that's certainly part of what a publisher does, you know winnow through the chaff and find something really great. It's still part of what you have to do. But I think It's seductive to think 'we're really good at that'.

O'Reilly learned not to overvalue curation the hard way. At the very start of the internet, O'Reilly developed a website called GNN (for Global Network Navigator) which selected the very best websites from the internet and organized them into categories. "We had a publisher's mindset. We said: we're going to winnow through all these emerging world-wide web sites, and we're going to pick out the ones that are the best." You've probably not heard of GNN; that's because Yahoo came along and categorized all the websites it could find, not just the good ones. Google then came along and made Yahoo's categorization irrelevant by indexing all the pages on the web without even bothering to categorizing the web sites.

According to O'Reilly, "Manual curation is going to get it wrong a lot." He mentioned that Frank Herbert's bestseller "Dune" was turned down by over 50 publishers until it was finally published by Chilton's, a publisher of automobile repair manuals, of all things!

Michael Healy, the interviewer for the day, wanted to clarify what he heard O'Reilly saying. "With the notion of curation having been disrupted, if you're a general trade publisher and you're relying on curation as your value-add, are you screwed, or have I missed something?"

"It's certainly true that alot of my thinking is biased by the fact that I publish stuff that people need rather than the stuff that they just want, so I'm not sure how deep my insight goes into the problems of general trade publishing."

Audience member Bill Glass expressed concern about the low prices for ebooks. He pointed to the room (in the Random House building overlooking Broadway), and asked "In the ebook world of the future, will we still be able to afford THIS?"

To me, you gotta care about something more than preserving your business. Because, obviously companies have made these types of transitions, and this is just my personal response. We're all gonna die one day anyway and we'll lose all our stuff. So don't worry too much about it. Just do something that lights you up, and lights up your customers, and lights up the world and scale to that. Because what's going to happen is people who are lit up by the future are going to be pursuing that future, and the people who hold onto the past are going to hold on too long.

Amen.

eBooks in Libraries a Thorny Problem, Says Macmillan CEO

John Sargent, CEO of Macmillan, one of the US's "Big Six" publishers, is not afraid of new business models. Over the past year, Macmillan has been trying to figure out how to push ebook pricing above the $9.99 level that Amazon had set as a standard on the Kindle. They had explored "enhanced" ebooks- ebooks that come with extra content- and were about to implement "windowing" (holding back ebook release to protect hardcover pricing, something that Sargent felt was "completely stupid").

Instead, Sargent decided to take advantage of Apple's announced entrance into the ebook distribution game to force a change of Macmillan's business relationship with Amazon. Instead of using the same discount model for both ebooks and print books, Macmillan wanted Amazon to change to a "agency model" where pricing would be controlled by Macmillan and Amazon would take a percentage. Amazon (which is Macmillan's 2nd largest customer) balked, and stopped selling Macmillan books entirely. But two days later, Amazon gave in. As a result, Sargent has been called publishing's "new hero".

Sargent spoke with the "Publishing Point" Meetup Group today in New York City, and I got to participate in the questioning. Michael Healy, Executive Director Designate of the Book Rights Registry, did a great job of leading the conversation. I was very impressed with Sargent, who dressed in jeans and had a casual, down-to-earth manner that matched. Sargent clearly understands all the challenges his industry faces- disintermediation, shifting distribution, the need to develop technology expertise, but at the same time he's very optimistic about publishing's prospects. He understands the assets at his disposal, in his words, "a lot of extremely good people who know how to obtain manuscripts and who know what people want to read", and who know how to gather enthusiasm around a piece of writing, a process that's "magic".

The most amusing comments by Sargent came in response to Healy's questions about whether the large, generalist, publishing houses would continue to be viable. Sargent seemed to think that in the near term (5-10 years) the big 6 would likely remain intact. (HarperStudio's Robert Miller has predicted the Big 6 could shrink to 3) His reason was not what I expected. The Big 6 are in no danger of implosion- they survived a very hard economic stretch quite well, but no private equity firm or bank would go near them because of "disastrous" balance sheets. They "suck cash, and have terrible profits." "We're disastrous but stable" quipped Sargent.

When my turn came to ask a question, I asked Sargent if he had thought about the role of libraries, and particularly public libraries, in ebook distribution.  His answer indicated that just as he was not afraid of changing the relationship with Amazon, Sargent is not afraid of changing the publisher's relationship with libraries. In fact, change may well be required.

"That is a very thorny problem", said Sargent. In the past, getting a book from libraries has had a tremendous amount of friction. You have to go to the library, maybe the book has been checked out and you have to come back another time. If it's a popular book, maybe it gets lent ten times, there's a lot of wear and tear, and the library will then put in a reorder. With ebooks, you sit on your couch in your living room and go to the library website, see if the library has it, maybe you check libraries in three other states. You get the book, read it, return it and get another, all without paying a thing. "It's like Netflix, but you don't pay for it. How is that a good model for us?"

"If there's a model where the publisher gets a piece of the action every time the book is borrowed, that's an interesting model."

Sargent has clearly thought about libraries, but perhaps he's not talked much to them. His points are valid- the existing business relationship between publishers and libraries won't work for ebooks the way it has worked for print books and the "frictions" that exist for print materials could disappear for ebooks. But he has gaps in his knowledge of libraries. The patron-on-the-couch scenario wouldn't work for libraries either- why would a town support its library's ebook purchasing if everyone could get the ebook from a library 3 states away? The fee-per-circulation model would be a disaster for most libraries, which have fixed annual budgets, and can't just close in September if they've spent their circ budget.

On the other side, the models preferred by libraries are not necessarily going to work for publishers. While the subscription model will probably work for academic institutions, it would turn public libraries into unnecessary intermediaries. The "perpetual access" model would be suicide for publishers if applied to their most profitable top-line books.

Now is the time for publishers and libraries to sit down together and develop new models for working together in the ebook economy. Executives like John Sargent are not afraid of change, but they need to better understand the ways that they can benefit from working with libraries on ebook business models. Libraries need to recognize the need for change and work with publishers to build mutually beneficial business models that don't pretend that ebooks are the same as print.