The Shatzkin Files: 2015: The Shatzkin Files

By Mike Shatzkin

Your essential, insightful guide to the past, present, and future of book publishing

In his 50-year career, Mike Shatzkin has worked in every area of the publishing industry: writing, editing, agenting, packaging, selling, marketing, and production. Since 2009, his blog, The Shatzkin Files, has been essential reading for publishing executives, indie authors, journalists covering the industry, and academics, as well as for people just plain interested in book publishing.

Covering everything from the rise of the ebook and serious self-publishing to the trade’s growing internationalism, the birth of vertical marketing and dramatic changes in retailing, Shatzkin combines deep knowledge of publishing’s history with keen—and at times controversial—analysis of the challenges and opportunities posed by digital change.

This volume of The Shatzkin Files includes every post published in 2015, a new introduction summarizing the year in publishing and reflecting on its impact, and a foreword by series editor Simon Collinson. It has been lightly edited and carefully proofread, and the posts have been newly categorized for easy reference.

• Language: English
• Publisher: Mike Shatzkin
• Release date: Nov 16, 2017
• ISBN: 9781386898337

Book preview

Preface

If you’re seriously interested in the strange business that is trade book publishing, you’ll probably have come across Mike Shatzkin. A fifty-year veteran of the publishing industry, since 2009 he’s been writing a blog called The Shatzkin Files, analyzing publishing news and providing a forum for frank and intelligent discussion of the business. Mike has covered everything from the rise of the ebook and serious self-publishing to publishing’s growing internationalism and the birth of vertical marketing. He has been particularly insightful about the impact of online bookselling on physical retail and on the way publishers approach what they do. His commentary has long been required reading for publishing executives, indie authors, and academics alike.

In 2011, Kobo published the first two years of The Shatzkin Files as an ebook. So much has happened in the publishing world since 2011, however, that we were overdue for an update. In late 2016 we started work on six new volumes, and this is one of them. We’ve taken the opportunity to add some extra value and context to Mike’s original work. These volumes have been fully proofread, and broken links have been updated to point to archived pages at the Wayback Machine. The posts have been categorized under broad subject headings, but for anyone who’d like to read the posts in the order they were published, there is also a chronological table of contents at the end of each volume.

Mike’s analysis is bold, clear-sighted, and unsentimental – at times even pugnacious. He’s made his fair share of mistakes, and has been happy to acknowledge them in the introductions to these volumes, written with fresh perspectives and new data. In general, however, Mike has succeeding in predicting and explaining many of the changes publishing has seen during the past decade. Where publishers have often sought comfort in the familiar, Mike has urged them to rethink everything. Nobody can read the Shatzkin Files without coming away with a few new ideas.

The first few years of 21st century have been a crucible for a publishing business that will soon be radically different from the one we are used to. It is our hope that Mike’s commentary will go some way towards helping readers, writers, and publishers understand this fascinating, strange, and wonderful business – both now and into the future.

Simon Collinson

November 2017

Introduction

In 2015 we started to see the trade’s old guard starting to relax a little. Publishers were less worried about self-publishing, and one agent told me: four years ago, indie publishing had us quaking in our boots. We really wondered whether our whole business model would be upended. We don’t worry about that anymore. I argued that traditional publishing remained the most viable path to success for many authors, despite earlier expectations (on my part and others) that major authors would begin switching to self-publishing.

But Barnes & Noble continued to struggle to bring the lessons from their online store and Nook over to the bricks and mortar business. Shelf space for books continued to shrink, and as I argued at the time, B&N hadn’t fully grasped that smaller stores were a critical component of the answer. By the time of writing this introduction, however, B&N had recently announced plans to open smaller stores in place of some of their 100,000-title locations.

In 2015 I made a pretty wild prediction about book retail: that by 2025, almost all distribution to retailers would be through some kind of vendor managed inventory system. We haven’t seen much movement on that front yet – and indeed, the cross-border and cross-language integration of the publishing giants is a complex process and continues to this day – but Penguin Random House have the books and the clout to do it if they choose.

In September, Oyster was sold to Google for parts, after failing to generate enough revenue to keep itself going. At the time, I pointed out that this didn’t necessarily say anything about the viability of subscriptions as a business. But at the same time, we saw the first articles claiming a decline in ebook sales.

Publishers continued to fail on SEO and building authors’ web presences. I recommended that publishers should be building author websites at scale and publicizing their authors’ entire backlists – even books published by other houses. At the time of writing, though, nobody seemed to have tried this.

Mike Shatzkin

November 2017

Amazon

Asking whether Amazon is friend or foe is a simple question that is complicated to answer

March 15, 2015

I’ve been invited to join a discussion entitled Amazon: Friend or Foe (meaning for publishers) sponsored by the Digital Media Group of the Worshipful Company of Stationers (only in England!) and taking place in London next month. I think the answer must be both, and I suspect that my discussion-mates — Fionnuala Duggan, formerly of Random House and CourseSmart; Michael Ross from Encyclopedia Britannica; and Philip Walters, the moderator for the conversation, will agree. This is a simple question with many complicated answers. I am sure that Fionnuala, Michael, and Philip will introduce some perspectives I’m not addressing here.

The first thoughts the question triggers for me are three ways I think Amazon has profoundly changed the industry.

Although just about every publisher has headaches dealing with Amazon, very few could deny that Amazon is their most profitable account, if they take sales volume, returns, and the cost of servicing into consideration. This fact is almost never acknowledged and therefore qualifies as one of the industry’s dirty little secrets. Because they’ve consolidated the book-buying audience online and deliver to it with extraordinary efficiency, Amazon must feel totally justified in clawing back margin; it wasn’t their idea to be every publisher’s most profitable account! But since they are effectively replacing so many other robust accounts, the profitability they add comes at a big price in the stability and reliability of a publisher’s business, which feels much more comfortable coming from a spread of accounts. Publishers strongly resist Amazon’s demands for more margin, partly because they don’t know where they’ll stop.

It is also true that Amazon just about singlehandedly created the ebook business. Yes, there had been one before Kindle was introduced in November, 2007, but it was paltry. It took the combination that only Amazon could put together to make an ebook marketplace really happen. They made an ereading device with built-in connectivity for direct downloading (which, in that pre-wifi time, required taking the real risk that connection charges would be a margin-killer). They had the clout to persuade publishers to make more books, particularly new titles, available as ebooks. And they had the attention and loyalty of a significant percentage of book readers to make the pitch for ebooks. With all those assets and the willingness to invest in a market that didn’t exist, Amazon created something out of nothing. Everything that has happened since — Nook and Apple and Google and Kobo — might not have worked at all without Amazon having blazed the trail. In fact, they might not have been tried! Steve Jobs was openly dismissive of ebooks as a business before Amazon demonstrated that those were downloads a lot of people would pay for.

The other big change in the industry that is significant but might not have been without Amazon is self-publishing. The success of the Kindle spawned it by making it easy and cheap to reach a significant portion of the book-buying audience with low prices and high margins. Amazon added its skill at creating an easy-to-use interface and efficient self-service. Again, others have followed, including Smashwords. But almost all the self-publishers achieving commercial success have primarily Amazon to thank. It appears that, in the ebook space at least, self-publishers among them move as many units as a Big Five house and, in fiction, they punch even above that weight. Without Amazon, this might not have happened yet.

So, in the three ways Amazon has really changed the industry — consolidating the bulk of online book buyers, creating the ebook business, and enabling commercially-viable self-publishing, publishers would really have to say the first two are much to their benefit (friend) and the last one they could have done without (foe).

The second big heading for this Amazon discussion is around the asymmetry between what Amazon knows about the industry and what the industry knows about Amazon. Data about the publishing industry is notoriously scattered and because of the large number of audiences and commercial models in the book business, very hard to interpret intelligently. Amazon, on the other hand, has its own way of making things opaque by not sharing information.

The first indication of this is that Amazon doesn’t employ the industry’s standard ISBN number; they have their own number called an ASIN. So whereas the industry had a total title count through ISBN agencies that required its own degree of interpretation, the titles published exclusively by Amazon, which only have ASINs and not ISBNs, are a total black hole. Nobody except Amazon knows how many there are or into what categories they fall.

Another piece of Amazon’s business that has critical relevance to the rest of the industry but is totally concealed from view is their used book business. There is an argument to be made that the used book marketplace Amazon fosters actually helps publishers sell their new books at higher prices by giving consumers a way to get some of their money back. But it is also pretty certain that people are buying used copies of books they otherwise would have bought new, with the cheaper used choice being offered to them from about the first moment a book comes out. One would intuitively assume that the effect becomes increasingly corrosive as a title ages and the supply of used copies keeps rising as the demand for the book is falling, inexorably bringing the price of the used books down. But none of us outside Amazon know anything about this at all, including how large the market is.

And, by the same token, we have no idea how big Amazon’s proprietary book business is: the titles they sell that are published by them exclusively. Beyond not knowing how many there are or what categories they’re in, the rest of us can’t interpret how the sales of Amazon-published titles might affect the prospects for titles a publisher might be signing up. Amazon has that perspective to inform their title acquisition, their merchandising, and to gauge the extent of their leverage in negotiations with publishers.

Going back to the original question, except for the possibility that some new book sales occur because the purchaser is confident of a resale, this is all foe!

In retrospect, it is clear that Amazon’s big advantage was that they always intended to use the book business as a springboard to a larger play; they never saw it as a stand-alone. This was an anticipation of the future that nobody inside the book business grasped when it was happening, nor was it imitated by book business pure players. But it was the key to Amazon’s economics. They didn’t need to make much margin on books; they were focused on lifetime customer value and they saw lots of ways to get it. Google and Apple have the same reality: books for them are in service to larger purposes. But they started with the larger purposes and, for that and other reasons, have never gotten as good as Amazon is with books. (One big deficiency of the Google and Apple offers is that they are digital only; they don’t do print books.) And B&N and Waterstone’s never thought beyond books; it appears that Waterstone’s scarcely thought beyond physical stores!

But it could well be that Amazon is approaching its limits in market share in the book business. What they did worked in the English-speaking world — for printed books two decades ago and for ebooks almost a decade ago — because they were first and able to aggregate an enormous customer base before they got any serious challengers. They will not find it as easy to dominate new markets today, particularly those that have rules that make price competition harder to employ. Language differences mean book markets will remain local for a long time and strong local players will be hard for Amazon to dislodge.

Amazon has powerful tools to keep their customers locked in. PRIME is the most effective one: once customers have paid a substantial fee for free shipping, they’re disinclined to buy elsewhere. Kindle is another one. The devices and the apps have broad distribution and, because of self-publishing, Kindle remains the ebook retailer with the biggest selection.

The marketplace is changing, of course. Amazon’s big edge is having the biggest selection of printed and digital books in one place. That’s been known for decades to be the best magnet to attract book buyers. But now a lot of book reading is done without the title-by-title shopping in a bookstore that it always used to require. We are at the beginning of an age of distributed distribution. Many different tech offerings — Aerbook, Bluefire, De Marque, Page Foundry, and Tizra among them — can make it easy for publishers to sell ebooks directly (and Aerbook enables that and promotion in the social stream). The subscription services Scribd, Oyster, 24Symbols, and Bookmate (as well as Amazon’s own Kindle Unlimited) are pulling customers away from a la carte ebook buying and Finitiv and Impelsys make it easy for any entity to offer digital reading by subscription. All of these sales except Kindle Unlimited come primarily out of Amazon’s hide, since they are the dominant online retailer for books. Publishers mostly see this dispersal of the market as a good thing for them, even though some of the same opacity issues arise and, indeed, the big general subscription services are a new group of potentially disruptive intermediaries now being empowered.

For the foreseeable future — years to come — Amazon will remain dominant in most of the world as the central location where one shops online for books a la carte because they have the best service, the biggest selection, and they sell both print and digital books. But they now have their own new challenge dealing with the next round of marketplace changes, as what they dominate becomes a smaller portion of the overall book business in the years to come. Publishers face the same challenge presented a somewhat different way.

Four of the big five have new deals with Amazon and only the biggest is still to negotiate one

April 24, 2015

A reporter called earlier this week focused on what he figures are the upcoming negotiations over trading terms between Amazon and Penguin Random House. I had observed when Amazon was throwing sharp elbows at Hachette during their contractual dispute that Amazon wouldn’t try similar tactics with PRH.

Since then, with HarperCollins and Amazon having announced they’ve reached new terms, deals have been done with all the Following Four US publishers. It would appear that the DoJ’s and Judge Cote’s work to stop publisher-controlled pricing across retailers has been very largely undone by the deals independently arrived at. So it is a sensible question for a reporter to ask, as this one was: can Penguin Random House do better than the others did in these negotiations?

I don’t know the answer to that. And even after a deal is announced, none of us will necessarily know the answer. But this is an appropriate time to consider the power of Penguin Random House’s position in the marketplace. It is very strong. If I were any of the other four major publishers, I would fear PRH more than Amazon as a potential disruptor of my business. When I put that proposition to a UK-based executive of one of those companies at the London Book Fair last week, he readily agreed with me.

When one considers what a segmented business publishing is, the Penguin Random House combination becomes that much more eye-catching. These five companies — PRH, HarperCollins, Simon & Schuster, Hachette, and Macmillan — compete much more with each other than they do with anybody else. Cambridge competes with Oxford and other university presses. Quarto competes with Chronicle and Abrams and Running Press and outside the US with Egmont and other illustrated book publishers. Yes, a bestseller might come from anywhere: Harry Potter came to the US market from Scholastic and the UK market from Bloomsbury. But the publishers who compete for the bestselling authors and the front-of-store slots repeatedly are the Big Five, which were formerly the Big Six.

And when Penguin merged with Random House, that was not just any old merger of the Big Six. It was a merger between Number One and Number Two. It has created a single company that is, in the US market, about twice the size of its next competitor (about $2.5 billion in sales for PRH against about $1.2 billion for HarperCollins). And HarperCollins, in turn, is about double the size of each of the other three.

What that means is that PRH, like Amazon, can make its commercial decisions independently from the rest of the industry. They can take risks that would be very challenging for anybody else. Amazon could afford to get into a dust-up with Hachette that affected the supply of books in ways its customers could clearly see and make it public to try to make a point. Random House, even before the merger, could afford to stay out of the new iBookstore (they wouldn’t play ball with