As we recently wrote, today’s publishing model based on the returnability of unsold books is no longer viable. (See A World Without Inventory Part 1 and Part 2). The digital revolution has created a highly successful, efficient new model relying on pre-ordered and prepaid books printed on demand.

You would therefore think that we ardently advocate doing completely away with the old system. In fact there are many compelling reasons why we would hate to see that happen.

Publishing pundit Mike Shatzkin has put his finger on them. In his blog Shatzkin offers several cogent arguments, and we urge you to read them. In essence, 1) overprinting can actually be profitable for publishers and authors even with high returns; and 2) without return privileges, publishers might simply decline to publish many books that they now accept.

Shatzkin gets no argument from us.  But it’s worth reminding readers that in the waning years of the 20th century the returnability privilege was manipulated by chain store operators who discovered that they could overorder without penalty, use returns as a form of currency to order more books, and delay settlements to publishers.  The havoc created by this abuse has been incalculable, driving cash-starved publishers into mergers with or acquisition by bigger publishers. The roll call of wonderful houses that succumbed is sad, and it is arguable that the only thing that put the brakes on this predatory behavior was the advent of a powerful rival – Amazon.com.

So yes, we’d love to see a reasonable, fair and reliable retailing model based on return privileges.  But e-books and print on demand now have an increasing grip on book retailing and, in Thomas Wolfe’s immortal phrase, you can’t go home again.

Richard Curtis

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

Empty Warehouses Coming to Book Publishing?

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

We’ve projected a near-future in which kiosks located in supermarkets, coffee shops or public libraries will dispense print on demand books. Customers will be able to choose among hundreds of thousands of titles and watch their book being born while they have a cup of coffee or finish their shopping. Some clever Brits, however, have created a lower-tech kiosk – out of a phone booth, turning a village’s double loss – its public phone service and its mobile library – into a wonderful amenity.

The council of a small parish called Westbury-sub-Mendip took one of those familiar red boxes off the phone company’s hands for a token £1. Then the townspeople stocked the booth with books, CDs and DVDs. “Users simply stock it with a book they have read, swapping it for one they have not,” BBC explains. “‘It’s really taken off,’” said one of the town’s councillors. ‘”This facility has turned a piece of street furniture into a community service in constant use.’”

BT Group, Britain’s leading landline telecommunications provider, subsequently received almost 800 applications for parishes to “adopt a kiosk”, and about half of the applications have been fulfilled to date.

Obviously, in an age of cell phones, phone booths worldwide are just occupying real estate. And so are a lot of books, CDs and DVDs. Converting phone boxes to microlibraries solves both problems at a stroke. The only one it creates is long, long queues. C’mon, mate, make yer bloody selection!

Richard Curtis

“At least one major publishing company will be acquired by a retailer,” predicts Richard Curtis in Galley Cat. “For instance (and this is NOT a prediction, just a for-instance), Amazon could acquire Random House or Apple could buy Simon & Schuster.”

That is one of eight prognostications offered by Curtis in a response to an invitation by Jeff Rivera to share his vision for the publishing business in the next ten years.

“A combined publisher/retailer solves many problems for both.” Curtis amplified on his prediction of a publisher/retailer hybrid. “The retailer owns the content and doesn’t have to pay a premium for it. The publisher does not have to pay a premium to distribute its books. There would be huge efficiencies of manufacturing and distribution.”

You can read all eight here.

Do books have to be sold at bookstores?

After the introduction last year of the Espresso print on demand press we wondered about that. As we wrote at the time (see I’ll Have Four Sesames, Four Poppy-Seeds, and One Copy of War and Peace), “If you think outside the bookstore box, it’s not beyond the realm of possibility that, as POD printing technology improves and miniaturizes, tabletop presses could be installed in a Wal-Mart, Macy’s or 7-Eleven. You just go to any neighborhood kiosk and browse Amazon or Barnes & Noble or another book retail website, make your selection, enter your credit card and order the book. Finish shopping or get a cup of coffee, then come back and pick up your bound volume, still warm like a fresh bagel. Hey, you can put POD presses in bagel shops too! Just don’t shmear lox spread on your newly minted paperback.”

Installation of kiosks to support any product is still an expensive proposition when you think about all the technical challenges and support they require. Think for instance about what’s involved just to place an ATM – a kiosk that dispenses cash – in a newspaper shop. So, not only must the operation be impeccably smooth over countless uses, it must sell a product in volume that justifies the use of the real estate it sits on. DVDs are one such product. We wonder if print books are another.

These reflections were triggered by the recent announcement of installation of DVD kiosks in 200 pharmacies in the Duane Reade chain, a drugstore outfit that has become as ubiquitous in New York City as yellow cabs. The kiosks will be sponsored by Blockbuster, the movie rental giant that is trying to reinvent itself after a media revolution that left it holding a bag full of videotapes. “Now Duane Reade pharmacy customers can get a movie with their next prescription pickup,” writes Alex Palmer in brandweek.com. (We’re not sure where the kiosk pictured here is installed.)

Rental of a DVD is $1.00 per day, so cheap that it plays up how profitable volume projections must be if two corporations splitting the revenue believe they can make out well on a buck per item per day. Some other high-traffic chains like grocery leviathan Publix have opted in.“’These are places that consumers are going by every day,’” the Brandweek article quoted an executive for NCR, the company operating the kiosks under the Blockbuster name. “’You’ve got a kid who’s home sick, you can run to the drug store and pick up their medicine and grab a movie, so as they’re sitting on the couch they can enjoy the rest of their day.’”

Okay, now read Blockbuster Kiosks Debut at Duane Reade and switch “book” for “movie” and you will grasp that, as Espresso technology is refined and the machines are miniaturized, a Duane Reade or Publix book nook on every corner is entirely within the realm of imagination.

Richard Curtis

Once the Google Settlement is finalized, you will be able to print on the Espresso Book Machine any of 1.5 million titles furnished by Google. Not long after you make your selection and prepay for it, your bound book will slide out of the birthing bay, or whatever the business end of the machine is called. You can then pick it up, still warm from its natal passage through the Espresso’s POD canal.

Though it will take a mere four minutes from the time the operator hits Print” to the time you collect your order, there may be delays while customers select among a million and a half titles. So, we recommend that you make your selection before you arrive at the printer’s location. “Come on, Jack, I’ve been standing on line for two hours!”

The Espresso has been installed in a growing number of institutions, mainly libraries and colleges, and of course it’s being considered by a number of major book chains. But, as we have pointed out, there is no reason why a book printer has to be located in a venue dedicated to books. It can be set up in a supermarket, drugstore or airport. If you’re an entrepreneur with between $75,000 and $97,000 you can buy one yourself and set it up in your shoe repair shop, beauty parlor or condo lobby.

The only hitch is that the titles offered by Google are all in the public domain. But surely you can find something among 1.5 million titles to read. Bet you haven’t read Beowulf since freshman year.

Read details here.

Richard Curtis

Last year, asserting that Amazon leaned too hard to compel publishers to use its print on demand subsidiary Booksurge to print their titles, independent publisher BookLocker launched a lawsuit against Amazon. BookLocker, with a list of some 1200 titles, alleged that it was being cornered into using Booksurge at risk of having its Buy buttons deactivated for books that BookLocker sells on Amazon.com. You can read our backgrounder on the matter here.

Publishers Weekly, which has closely followed the legal filings, reports that the judge hearing the case has denied Amazon’s motion to dismiss it. That means the dispute will move to the discovery stage where documents will be exchanged.

If you’re into courtroom drama, or appreciate legal hairsplitting, you’ll find the core issue vitally interesting. BookLocker’s claim focuses on a concept called “tying”. Section 1 of the Sherman Act prohibits a seller from “tying” the sale of one product to the purchase of a second product “if the seller thereby avoids competition on the merits of the ‘tied’ product. BookLocker argues that Amazon tied its retail business to its POD business in a way that comes under the Sherman definition. Amazon vigorously disputes the contention, arguing that the two services enhance efficiency. The court stated that “BookLocker‟s Complaint raises a plausible right to relief.” Meaning, let the case continue!

The battle is being closely monitored by publishers who, like BookLocker, may wish to use other presses besides Booksurge to print their on-demand titles but still want to sell their books on Amazon’s retail website.

Read Lynn Andriani’s coverage in Court Denies Amazon’s Motion to Dismiss BookLocker Antitrust Lawsuit, and if you’re into exquisite detail, you can read the judge’s order here.

RC

Every Blogger owes a debt of gratitude to newspapers and magazines. This posting relies on original research and reporting performed by the Publishers Weekly.

Those of you fortunate enough to have enjoyed what Andy Warhol coined fifteen minutes of fame know that celebrity is too intoxicating to relinquish after so brief a time. Like a single crystal of an addictive drug, a mere taste makes most of us long for immortality. It’s just that most of us don’t want to work that hard to achieve it.

There is, however a shortcut: have a famous author name a character after you. All you have to do is outbid the competition. Frederick Forsyth, author of such blockbusters as The Day of the Jackal and The Dogs of War, is inviting offers for naming rights to a character in his next novel, according to Guardian.co.uk. The money will go to a charity.

But wait! Before you reach for your checkbook, shouldn’t you be asking whether the character is good or evil? In Forsyth’s case, it will definitely “be a goodie rather than a baddie, representing the forces of law and order!” But if you want to appear in a Stephen King novel, you take your chances. A few years ago a number of famous authors including John Grisham, Dave Eggers and Neil Gaiman agreed to auction off naming rights on behalf of The First Amendment Project, a free speech organization. King was among them. But, he warned, “Buyer beware.” The novel, Cell, “is a violent piece of work, which comes complete with zombies set in motion by bad cellphone signals that destroy the human brain. Like cheap whisky, it’s very nasty and extremely satisfying. Character can be male or female, but a buyer who wants to die must in this case be female. In any case, I’ll require physical description of auction winner, including any nickname.”

If the bidding is too rich for your blood (Forsyth’s minimum is pegged at £990) there’s a far cheaper alternative, but one that guarantees your name will appear in a branded author’s book. It’s called SharedBook™, a publishing platform that enables you to customize and personalize books.

Founded in 2002, SharedBook™ “sprang from the founder’s early belief in the collaborative nature of the web,” the company’s website informs us, “and his realization that the user’s interest in having control over the type and method of content he consumed would require an adaptable and powerful application.”

Our trade publishing partners use SharedBook to provide consumers with the opportunity to make their favorite books even more valuable and special through the addition of personalized pages. These custom creations maintain the artistic and creative integrity of the underlying work while allowing the reader’s affinity for the work to increase with the new version, an on-demand one-of-a-kind rarity. One example: the addition of a personalized dedication page to the Golden Books classic Poky Little Puppy in our store devoted to personalized titles for children.

E-Reads has teamed up with SharedBook™ to produce 20 novels by such bestselling authors as Greg Bear, Janet Dailey and Hannah Howell. Fans can order them to be printed with their own unique dedication messages and photos.

Unique dedication pages are one thing; having an author name a character after you is quite another, requiring the author’s permission, and it will no doubt cost you a pretty penny. But the technical part of it is a piece of cake thanks to the SharedBook’s innovative applications.

Richard Curtis

This summer, E-Reads is proud to announce that 20 of our best-selling titles are now available in very special editions where you can order them to be printed with your own unique dedication messages and photos, thanks to the Inscribe-It services by Shared Book™, a new E-Reads distribution partner.

E-Reads uses Shared Book to provide consumers with the opportunity to make their favorite books even more valuable and special through the addition of personalized pages. These custom creations allow the reader’s affinity for the book to increase with the new version, an on-demand one-of-a-kind rarity. Simply type your own dedication and upload a picture from your computer when you shop for your book online at our Shared Book print-on-demand webstore.

What does the service cost? Actually, nothing! It’s included in the regular price of the book, and they have free shipping in the U.S.!

Among the titles presently available are our best-selling books by Greg Bear, Janet Dailey, Bill Dietz, Dave Duncan, Hannah Howell and John Norman. What are you waiting for? Buy your personalized, one-of-a-kind editions today! (Click here)