Welcome back from whatever you did this summer. Me, I spent my time building a digital publishing company. It went mostly okay, though, in the end, there was no company to show for it. That has nothing to do with the work and talent of the people involved. Talk about amazing, smart, and creative.
Four terrifying words: high-resolution Word file.
When we started Quartet Press, one of the guiding principles was openness. It’s an uncomfortable thing. Publishing people like to pretend that the business different and secret. Not so. It’s good to talk about stuff. I believed then, and I believe now, that it doesn’t help an industry to move forward if people don’t talk about what they’ve learned from experiences.
The first thing you need to know is that there are very few industry best practices. They are developing rapidly. Don’t expect today’s rules to apply to tomorrow’s business, so plan for change, failure, and unexpected success (with a little expected success to make you feel good). I would not, however, suggest, for anyone starting in the digital first or digital only realm, to look to traditional publishers for guidance. Okay, maybe a few, but only in the instances where those publishers are doing it differently and taking real chances. Anyone who isn’t engaged in a level of messy experimentation, they’re not worth using as a role model.
(And based on the lovely conversation we had at BEA with a sales rep for a major service provider, the smart solutions are not necessarily coming from legacy service providers; on the other hand, the idea of providing “high-resolution Word files” lead to many hours of amusement.)
Here are some pain points to consider as you try to build a digital publishing business — this is an incomplete list, of course: ISBN madness (really, one ISBN for every format? the mind continues to boggle) and alternate product identifiers; formats, formats everywhere and not a hint of resolution; third party distributors, or, how do you get your books to retailers in the most efficient manner?; customer service (see: formats, devices, and all-around confusion); the challenges of getting your book to show up in retail outlets before release, particularly when you don’t have a corresponding print product; the imposition of DRM despite your stated preferences (really, who are the retailers protecting when they force DRM on the publisher?); pricing and consumer savvy.
It’s this last one that continues to fascinate me because there is a real struggle between people who make books and people who buy books. The former haven’t worked out the logistics of the digital business. In their defense, ebook sales remain at the blip level on the financials. But they are growing, faster than any other segment of the book market.
The latter group, however, consists of savvy early adopters and newcomers who are developing expectations about pricing and quality. These new-to-ebook people are also learning about DRM, portability, and the loss of reader rights. As I’ve said before, it’s never a good thing for an industry when your customers are savvier and moving faster than you are. Publishers need to experiment, but they need to listen to customers.
Last week, Arnoud Nourry of Hachette Livre made waves when he suggested that publishers are “very hostile” to Amazon’s ebook pricing policy. There was, of course, the inevitable “oh no we’re not” from other publishers, but Nourry’s worries are legitimate. The ebook marketplace isn’t geared toward the traditional publisher/distributor/bookseller arrangement. This is a problem. Publishers cannot expect the digital marketplace to conform to their business as usual.
(Oh, and authors? You need to realize this is going to impact you. I’m sorry, it will. Shifting economics impact everyone.)
Nourry’s problem — and his company is not alone — is that he is viewing ebooks and digital distribution through a physical lens. It did not come as a surprise to us that companies like Amazon take a huge chunk of receipts (50 to 65% of every dollar, depending on the program you’re in), and as we built financial models, we had to consider — which in some ways means guess — the volume of sales that would come from third party sources. For a digital publisher of any size, the best returns come from direct sales. In the romance ebook world, readers are accustomed to buying direct; many are aware that this practice puts more money in the pocket of authors, and make the effort to “buy local”.
This is consumer education done right, but most customers shop at Amazon or the Sony Reader store or Fictionwise or Books on Board because these entities aggregate ebooks from many publishers. Oh, and by tying hardware to the store, this means the retailers own these customers, lock, stock, and proprietary format. This cuts into the share of cash received by the publisher, and there is no expectation that retailers will become less aggressive. During Apple’s recent presentation, Steve Jobs noted that the company has 100 million active credit card numbers on account. Consider how much negotiating clout the music industry has with Apple right now. Extrapolate.
Nourry’s problem, as echoed by many, is that the $9.99 price point initially established by Amazon and quickly adopted by all other major retailers will kill the publishing business. It won’t, but it’s going to severely impact a segment of the business, unless publishers treat digital distribution differently. I cannot stress this enough. Every model we built focused on how the money flows in the ebook world, not how it flows in the traditional publishing world.
Yes, I believe there are ebooks for which customers will pay more. We have seen this to be true. But no rational analysis of, oh, Kindle bestsellers can demonstrate that a higher price point, especially when it comes to fiction, is being widely adopted by consumers. As noted many times, publishers aren’t helping themselves with inferior quality control standards while making claims about the value of their product. It’s hard to take these arguments seriously.
What we learned was that any financial model one builds for the ebook world must throw away traditional assumptions. Yeah, if you build everything around the belief that that those crazy customers will embrace your internal $26.99 price point model, then, yes, when Amazon and others start demanding better terms — and they will, they will — it’s going to kill some of your business. So it’s easier to start from the bottom, figure out what it’s going to cost, and then build the model.
Our model changed over time. A lot. As new information came in, new numbers were plugged into the model. Sometimes it came from rethinking front-end and back-end dollars, and how that impacts business relationships and cash flow. Sometimes it came from learning that processes we estimated to be very high were actually ridiculously affordable. Sometimes it came from knowing average unit sales would be a moving target until we’d been in business for a while.
One thing I took away from my summer of digital publishing — other than the fact that you can’t take a few classes and learn this stuff, no, in this case, doing was everything — is independent publishers, small press, has so much opportunity in the digital marketplace. The model is viable, and, most amazing of all, there are many people who are willing to experiment, iterate, revise, and rethink.
The ability to move fast and change with the business is key. The ability to think beyond “that’s how we’ve always done it” is essential. The importance of focusing on talent and creativity is critical. But the most important thing of all is this: your customers are talking to you. Listen.