The Wisdom and Optimism of Warren Buffett

Warren Buffett posted his annual letter to the shareholders of Berkshire Hathaway this morning.

In case you don't know Buffett or his company, he is an enormously successful investor whom Forbes called the richest person in the world in the middle of last year. He has been associated with Berkshire Hathaway for 44 years.

Berkshire is a holding company, investing primarily in insurance and utility companies, although it holds more than 8% of Coca Cola, 13% of American Express, and 18% of the Washington Post. According to Wikipedia, Berkshire's "Class A shares sold for $96,600 as of December 31, 2008, making them the highest-priced shares on the New York Stock Exchange."

The New York Times alerted me to Buffett's letter, which I found here on the company's website.

Early in the letter to his shareholders, Buffett says:

By the fourth quarter, the credit crisis, coupled with tumbling home and stock prices, had produced a paralyzing fear that engulfed the country. A freefall in business activity ensued, accelerating at a pace that I have never before witnessed. The U.S.--and much of the world--became trapped in a vicious negative-feedback cycle. Fear led to business contraction, and that in turn led to even greater fear.

He then offers this optimistic viewpoint:

Amid this bad news, however, never forget that our country has faced far worse travails in the past. In the 20th century alone, we've dealt with two great wars (one of which we initially appeared to be losing); a dozen or so panics and recessions; virulent inflation that led to a 21 1/2% prime rate in 1980; and the Great Depression of the 1930s, when unemployment ranged between 15% and 25% for many years. America has had no shortage of challenges.

Without fail, however, we've overcome them . . . America's best days lie ahead.

Buffett's sense of humor never fails to tickle me. In talking about Berkshire's acquisition of PacifiCorp in 2006, he says:

. . . when we purchased PacifiCorp in 2006, we moved aggressively to expand wind generation. Wind capacity was then 33 megawatts. It's now 794, with more coming. (Arriving at PacifiCorp, we found "wind" of a different sort: The company had 98 committees that met frequently. Now there are 28. Meanwhile we generate and deliver considerably more electricity, doing so with 2% fewer employees.

At this point, I'd like to play with Buffett's words. In talking about the investments Berkshire Hathaway holds, he made statements that I couldn't help but apply to the publishing industry. Below I am going to list the statements, replacing some of his words with my own (shown in bolded text):

The music industry fiasco should have served as a canary-in-the-coal-mine warning for the publishing industry. But publishers and author trade groups learned exactly nothing from the DRM debacle. Instead, in an eerie rerun of that disaster, the same mistakes were repeated.

By yearend 2008, the half dozen or so publishers and bookstore chains that had been the major players in this business had . . . fallen into big trouble.

The type of fallacy involved in projecting costs from a universe of traditional print publishing onto a deceptively-similar universe in which electronic books are produced pops up all over New York. "Back-tested" models of many kinds are susceptible to this sort of error. Nevertheless they are frequently touted by traditional print publishers as guides to future action.

While I modified Mr. Buffett's sentences mostly for my amusement, I'm dead serious about the need for the publishing industry, including authors, to reexamine itself and rethink some of their hard-and-fast stances on copyright and DRM.

Power is shifting from publisher to reader. Readers will control the future of the industry. Authors stand to gain in that shifting of power . . . if they can accommodate a concomitant shift in attitude.

I share Mr. Buffett's optimism for the world and for publishing. But then happily-ever-after endings are my stock-in-trade.

I'll be back on Monday. I'm taking tomorrow off.

Amazon Blinked

Yesterday Amazon backed down on the text-to-speech feature on their Kindle 2.

Here is their press release:

Kindle 2’s experimental text-to-speech feature is legal: no copy is made, no derivative work is created, and no performance is being given. Furthermore, we ourselves are a major participant in the professionally narrated audiobooks business through our subsidiaries Audible and Brilliance. We believe text-to-speech will introduce new customers to the convenience of listening to books and thereby grow the professionally narrated audiobooks business.

Nevertheless, we strongly believe many rightsholders will be more comfortable with the text-to-speech feature if they are in the driver’s seat.

Therefore, we are modifying our systems so that rightsholders can decide on a title by title basis whether they want text-to-speech enabled or disabled for any particular title. We have already begun to work on the technical changes required to give authors and publishers that choice. With this new level of control, publishers and authors will be able to decide for themselves whether it is in their commercial interests to leave text-to-speech enabled. We believe many will decide that it is.

Customers tell us that with Kindle, they read more, and buy more books. We are passionate about bringing the benefits of modern technology to long-form reading.

I'm not going to rehash the stance I took two weeks ago. If you want to read my opinion, go here.

A Closer Look at Harlequin's Success

I reported yesterday on Harlequin's great fourth quarter results.

In a world in which publishing house after publishing house has reported dismal financial results, this is not a sudden upswing in readers wanting romance novels. If so, why aren't all the other publishing houses that feature romance not doing equally as well?

Nor is this good news an accident.

Harlequin is doing well because they took proactive steps to reinvent themselves.

Less than five years ago, Harlequin was on a downward slide. In reporting the full year 2004 results on February 23, 2005, the Torstar (Harlequin's parent company) CEO said, "For the year as a whole, our results were mixed with record profits in our newspaper group and disappointing results in book publishing. For 2005, our goals are . . . to invest in Harlequin's future growth while maintaining current levels of profitability in book publishing."

The foundation of Harlequin's empire--their famous book clubs--had begun to crumble. The book clubs' results are reported under the North American Direct-to-Consumer heading. For 2004, revenues in that Direct-to-Consumer category were down $12.6 million. Harlequin acknowledged fewer books were being sold.

And this made sense in view of the shifting romance landscape. Two trends were emerging: a growing interest in hotter romances and an increasing willingness to download romances online.

Why would readers subscribe to a Harlequin book club in which they could expect to receive four to six unknown novels every month in the mail when--instead--they could go online and select what they wanted to read when they wanted to read it at a fraction of the price Harlequin charged?

But Harlequin had already begun acting to re-position itself in the market. The company dropped unprofitable lines and opened new lines (erotic romance among them).

Among their other initiatives:

1) Harlequin jumped into e-books in a big way in 2005.

2) In mid-2005, Harlequin announced an exclusive marketing and content licensing agreement with Audible.com. According to that press release, "Under the agreement, Audible will be Harlequin's exclusive partner for digitally distributed audiobook publishing of its romance and women's fiction genres."

3) In November, 2005, they announced they would make many of their "novels available as downloadable eBooks on library websites through Overdrive."

4) In December, 2005, they begin producing two lines of manga in the States: one for teens and the other for readers in their early 20's. They'd been producing manga in Japan for years.

5) In August, 2006, Harlequin announced the launch of "four digital entertainment ventures": Harlequin Mini eBooks, Harlequin Mini Round Robin eBooks, the eBook Boutique on eHarlequin.com, and www.writeharlequin.com, "a platform for gathering reader-generated content."

They established an ebook website at eHarlequin.com, they began to play with shorter length ebooks (minis), and they began inviting would-be writers to create original content.

eHarlequin was an immediate hit.

It would be hard to overestimate the importance of this. Most readers pay no attention to the publisher that releases the books they read . . . unless given a reason to do so. As an example, starting in 2000, I hunted down every book produced by Kensington Brava, an independent publisher's imprint for erotic romance. Kensington was the only print publisher I could find producing erotic romance at that time. They gave me a reason to pay attention to the publishing house.

Harlequin gave romance readers reasons to visit their eHarlequin website. They held contests and offered help to would-be romance writers. They made their site a place readers wanted to visit.

6) In October, 2006, Publishers Weekly reported that Torstar had announced a restructuring of Harlequin to eliminate about forty jobs or 4% of their worldwide workforce.

PW also reported that "For the first half of 2006, operating profit was down 47% on a 6% decline in sales." That stat suggested that the company was incurring LARGE expenses as they continued to reinvent themselves.

7) In March, 2007, talking about fiscal year 2006, Torstar finally publicly acknowledged the truth: " . . . shipping disruptions, in conjunction with the long-term decline in the customer base and higher product costs contributed to the year over year decline in earnings. Improved sales through the Internet channel partially
offset this decline." They openly admitted their former business model wasn't working, but that their online efforts were beginning to bear fruit.

8) In April, 2007, I reported that Harlequin had signed with a British company, ICUE, to offer "the capability to transfer books into mobile phone-friendly content."

The UK publishing director for Harlequin Mills & Boon Ltd. said ". . . it's women who like reading on phones, and romantic fiction that's rising to the top."

9) In September, 2007, Harlequin issued a press release, announcing that "they have become the first major publisher to make their complete front-list catalog available in the eBook format. Harlequin releases more [than] 120 titles per month, and their complete list can be found at http://www.harlequinebooks.com."

10) In July, 2008, Harlequin distributed a press release to announce the launch of their "Enriched Edition eBooks." The enriched edition refers to e-books that are enriched by the addition of interactive buttons that provide hyperlinks to web sites that contact more information about the material in the e-book.

It's taken more than four years, but Harlequin's proactive moves are now paying off.

They took a hard look at their operations and made the necessary changes to ensure their survival.

[Shrug] It remains to be seen whether the rest of the industry will take similar steps.

Change in Leadership at the AAP

The Association of American Publishers (AAP) has named a new president and CEO effective May 1.

Publishers Lunch reports that Tom Allen, a six-term congressman from Maine will take over from Pat Schroeder, who has been running AAP since 1997.

Harlequin Reports a Strong Quarter

From yesterday's Publishers Lunch:

"Harlequin recorded a strong fourth quarter, with sales of $126 million (CA)[Canadian] up over 18 percent from a year ago, and EBITDA [Earnings Before Interest, Taxes, Depreciation and amortization] of $18.4 million up more than 30 percent. Good results were made even stronger by the decline of the Canadian dollar against the US dollar, and they say that 'Harlequin's revenues, to date, have not been significantly affected by the global, and in particular, U.S. economic situation' . . ."

In the press release, Torstar (Harlequin's parent company) reported:

North America Direct-To-Consumer [the famous book clubs] operating profits were down $0.6 million in 2008. The traditional direct-to-consumer business continued to face the challenge of a declining customer base which was reflected in the lower revenues.

Torstar's CEO and President Robert Prichard had this to say about Harlequin:

“Harlequin finished the year strongly with another good
quarter that drove earnings for the year up 11 percent. This is the third year in a row of business growth for Harlequin which is making important gains in both print and digital products. We are very pleased with Harlequin’s performance and prospects."

Tomorrow I'll do a post analyzing Harlequin's success in the midst of otherwise dismal publishing news.

Amazon's Dominance of e-Books Ending?

Regular readers of this blog know how much I respect Mike Shatzkin, a publishing consultant. I have frequently quoted his speeches to groups such as Book Expo America, the London and Frankfurt Book Fairs, and the Book Industry Study Group.

Yesterday morning Mike posted an essay titled "Amazon’s Competitive Advantages: Will They Extend to an eBook World?"

Mike's assessment?

No, Amazon will lose its competitive edge in the electronic publishing world.

He says, "Amazon’s twin advantages in the physical book market are its huge customer base and its mastery of logistics."

After going on to explain why Amazon dominates the p-book market, he offers this zinger, ". . . we are probably at or near the high-water mark for Amazon’s dominance of ebook sales."

Mike then went on to give the five reasons why he thinks Amazon will soon topple from its dominant place at the top of ebook sales. Two of his reasons (the introduction of more e-readers and smartphones overtaking cell phones in the marketplace) are easy to accept.

The reason I found most interesting was this:

There will be increasing recognition that “retailing” . . . the file doesn’t entitle a vendor to nearly the same margin that “retailing” a physical product does. The days of retailers getting a pbook-like discount for ebook transactions are not going to last much longer.

Again, this goes back to the subject I've been talking about here for some time.

The foundation on which the publishing industry rested was its ownership of the means of production. That foundation is shifting. Publishers and retailers will have to adjust their thinking to accommodate the change.

Go here to read Mike's entire article.

Applauding Booksquare

Take a look at Booksquare's Monday post.

She does a great job of talking to publishers:

Once upon a time, you had the power to decide pricing in the marketplace. Now it’s the customer, and the customer has all the power . . .

In the digital marketplace, books have to remain competitive with other media. It’s not so much your opinion of the value of your product that matters; it’s all about how the customer values your product. And, lordy, if you think they’re fired up by ebooks that cross the $10 threshold, you are not talking to real people who live real lives and buy stuff with real money.

[Sound of Maya applauding]

Kassia points out what I've said before: Publishers need to reinvent their pricing model based on the new market.

Forget what it used to cost you to produce a physical book AND an ebook. What does it ACTUALLY cost you today to produce an ebook . . . without producing the p-book? That's the point from which you need to start.

Yes, you are going to continue to produce p-books, but begin thinking of ebooks as its own line of business. Start preparing NOW for initial print runs to shrink and to use POD technology to fill in after that initial run is exhausted. Let your readers decide whether they will fork over the additional money for a p-book or whether they want that cheaper ebook.

I was enormously entertained by one of the comments to Kassia's post where an anonymous onlooker talked about being stunned that a publisher would say "it only costs $2.50-$3.50 less to produce an ebook." The commenter said, "By that reasoning shouldn’t paperbacks cost $21 or so?"

Go here to read Kassia's post and be sure to read the comments, too.

Interview With a Best-Selling Author

I've been reading Robert B. Parker's Spenser novels my entire adult life. Since he has written thirty-six Spenser novels over the last thirty-six years, his writing history is actually longer than my entire adult life.

By now the Spenser novels are like pasta y fagioli soup to me. For those of you not fortunate enough to be Italian, pasta y fagioli is macaroni and bean soup. It's my #1 comfort food. Lots of carbs. Carbs boost serotonin levels. Believe me, after a bowl of pasta and Great Northern bean soup, you can't help but feel better.

The Spenser novels are pasta y fagioli soup for my soul. Are they formulaic? Yes. Is Parker phoning them in? Yes. BUT . . . for these uncertain times, Spenser is a moral touchstone. He's a Boston private investigator who hates authority (something he and I share in common), who flouts rules, but who has a very strict personal code. Spenser's world is black and white, good and bad, and he's always on the side of the angels (bedraggled though their wings may be).

AND, Parker is one of the masters of dialogue. Reading the dialogue in one of his novels is the equivalent of taking a writer's class on the subject.

I say all this because Monday's Wall Street Journal (WSJ) offered me a rare treat. My favorite WSJ columnist (Jeffrey A. Trachtenberg) interviewing Robert B. Parker.

The most interesting exchange of the interview for me was this one, which only reinforced my belief that Parker was not expending vast amounts of effort on the newer novels:

WSJ: You'll publish three books this year. What's your daily schedule like?

Mr. Parker: I write five days a week unless there is something I have to do instead. I normally write seven to 10 pages a day, which means I generally finish a new book every three months. It comes easily, and I don't revise because I don't get better by writing a new draft. Indeed, I sometimes get worse. When you reread, you never like it as well, which means I won't like the second draft either. So I don't do it… If I were single and childless, I'd probably write fewer books and venture off to more exotic fields. But I'm content. It's not a grind.

Read the entire interview here.

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What NOT to Say In a Query

Several agents recently addressed what NOT to say in a query so consider this post a PSA for newbies.

Janet Reid's blog introduced me to Rachelle Gardner's blog. Rachelle's sense of humor makes me think she would be a fun person to know.

Rachelle offered what the query letter said and then offered her own comment in parentheses. My favorite was this one:

"I realize you require information about my platform and credentials, but Jesus’ disciples did not have impressive resumes, degrees, or extensive evangelical experience... my credential is that I am a disciple of Christ."

(True, but the disciples could get an endorsement from Jesus…in his own handwriting. Bring me one of those and we’ll talk.)

To read the rest of Rachelle's post on the subject, go here.

Nathan Bransford recently referenced one of his blogs here in which he also addressed the subject of what NOT to say. I am amazed that anyone would actually be dumb enough to include this in a query:

- Any rejection letters or references to rejection letters or quotes from rejection letters no matter how positive the person was when they were rejecting you

Nathan also included a link to Jennifer Jackson's post on the same subject here. My favorite of Jennifer's comments was this one:

* Certain kinds of email address names are really not appropriate for professional correspondence. (But sometimes they make me laugh. Or cry. And, no, they don't determine whether I ask for pages. I just notice some of the really outlandish ones when I'm drafting replies.)

Jennifer is kinder than I am. When I am interviewing applicants for a position, I weed out anyone who expects me to respond to email addresses like DrunkEveryWeekend@anycarrier.com or LovesSex@anycarrier.com. Non-professional email addresses suggest a dangerous lack of judgment, which in turn disqualifies the candidate in my eyes.

While I'm at it, I'll confess another email bias: I get irritated with email addresses like TonyandMaria@married.com.

I'm as big a believer in togetherness as anyone, but the (sub)merged identities of two people with a single email address gives me the creeps. I jump to what I will admit is an unfair conclusion: that someone is overly controlling or someone derives a sense of identity from being part of a pair.

At any rate, read the recommendations of all three agents. There's a lot of wisdom in those posts.

An Urban Fantasy Sampler

Being home from work has permitted me the luxury of reading for pleasure. In the last week I've read two books that I really enjoyed and wanted to share. I'll do one today and the other later in the week.

I'm a huge urban fantasy fan so most of my "for fun" reading is in that genre.

Mean Streets (released by Roc on January 6th) is a compilation of four novellas by some of the hottest UF writers around: Jim Butcher, Simon R. Green, Kat Richardson and Thomas E. Sniegoski. Since I'd read all four of them before, I was happy to purchase the book. It was like a belated Valentine's Day sampler.

I've been a Jim Butcher fan since September, 2006 when I purchased all his available books at once after reading my first one. His protagonist is a wizard named Harry Dresden--hence, the "Dresden Files" television series (now cancelled).

Dresden is a professional wizard who lives in the basement of a boarding house in Chicago. He has a thirty-pound cat named Mister, a huge grey temple dog named Mouse, and a talking skull named Bob (Actually Bob is a spirit that inhabits the skull in Dresden's lab much the way a hermit crab moves into an unoccupied shell).

In a novella called The Warrior, Dresden is trying to protect his friend Michael, a former Knight of the Cross, and Michael's magical blade Amoracchius, which Michael has entrusted to the wizard's care.

Simon R. Green is a well-known British sci-fi and fantasy writer with at least six series to his name as well as stand alone books, and short stories. Although I'd sampled his works in the past, it wasn't until he created his Nightside series in 2003 that I became a diehard fan.

John Taylor is a private investigator who specializes in finding lost things. He lives in the Nightside, the secret heart of London. Neither Heaven nor Hell holds sway in the Nightside, but denizens from both places are free to wander about . . . along with ancient gods, and creatures from fantasy and other worlds. "Sin is always in season in the Nightside."

In the novella titled The Difference a Day Makes, John Taylor is approached by a woman who seems to have misplaced both her memory and her devoted husband. Using a photo and his special "gift," Taylor locates the husband in the badlands. He enlists the help of his friend Dead Boy (don't ask) and Dead Boy's futuristic car to travel to the badlands and reunite wife with husband.

I discovered Kat Richardson last summer when Barnes & Noble did a stand alone display of her first two books, Greywalker and Poltergeist. A few months later, her third book Underground was released.

Harper Blaine is a Seattle private investigator who died for two minutes when she was attacked by a criminal. When she awoke in the hospital, she discovered she had become a Greywalker. She can now see The Grey, the otherworld between ours and the next. And unfortunately the creatures in the Grey can see her, too.

In The Third Death of the Little Clay Dog, Harper receives a commission through an attorney executing a will to take a small clay figurine of a dog to Mexico and, on the night of the Day of the Dead, place it on the grave of a man and stay throughout the night. The $30,000 fee convinces her to go.

Thomas E. Sniegoski has previously written Young Adult and comic books. Last summer I read his debut adult novel, A Kiss Before the Apocalypse. His second in the Remy Chandler series, Dancing on the Head of a Pin, will be released on the same day as my Bad Boy, April 7th (coincidentally, my birthday).

Remy Chandler, Boston private investigator, is the earthly form of the angel Remiel, who--weary of Heaven and fond of mortals--has thrown off his angelic trappings to live among humans.

In Noah's Orphans, Remy is brought by another angel to the place where Noah (yes, he of the Ark) was recently murdered. While investigating the murder, Remy realizes Noah was obsessed with trying to learn if a species barred from his Ark had managed to survive the Flood (yes, THE Flood).

If you're interested in finding a new UF author, Mean Streets is a great way to sample the work of some of the best out there.

Whither Newspapers?

Thanks to Teleread for pointing me toward an op/ed in today's Wall Street Journal (WSJ) that addresses the ailing newspaper industry.

The WSJ riffs on that platitude of the Information Age, "Information wants to be free," when it says:

. . . "Information also wants to be expensive." The right information in today's complex economy and society can make a huge difference in our professional and personal lives. Not having this information can also make a big difference, especially if someone else does have it. And for valuable information, online is a great new way for it to be valued.

It's past time for news companies to regain the courage to ask readers whether what they produce is worth paying for online.

The Wall Street Journal has over a million paid subscribers (along with 20 million free readers) and the op/ed's author, L. Gordon Crovitz, argues that the challenge for papers today is to determine what content readers will value enough to pay for it online.

I have a brother who is a popular newspaper sports columnist. We've spent lots of hours over the past few years discussing the future of newspapers. For years, I subscribed to BOTH the Dallas Morning News and the Dallas Times Herald (which went defunct in December, 1991). In November, 2005, I cancelled my subscription to the Morning News because I got tired of their editorial bias slipping into straight news stories.

Nowadays, I scan newspapers from around the world online. And I stop by Newseum here to check on their top ten front pages around the U.S.

In the same way that I hope New York publishers figure out how to operate successfully in a digital world, I hope newspapers can work out a model that will make them successful in today's electronic environment.

Go here to read the WSJ editorial.

The Alamo: February 23 - March 6, 1836

One hundred and seventy-three years ago today, a battle began in Texas.

It's almost unfair to call it a battle. The estimates are that the Mexican army had 2,400 soldiers and the Texans had somewhere around 200 men. Yet those 200 Texans held off Santa Anna's superior force for thirteen days.

I'm not a historian, but each year I note the day the Battle of the Alamo began. Click below to understand why. If the video does not appear, please click on the link here to get it.

Now let the children gather 'round to hear my song of praise
Honoring the heroes of early Texas days.

'Twas back in 1836 at a mission in San Antone
It's the story of some Texans who fought and died alone.

Santa Anna's thousands were enough to make 'em flinch,
But one hundred and eighty Texans, they didn't give an inch.

For 13 days, those thousands attacked and were repeled.
A hundred and eighty Texans fired back and held.

But then at last the enemy, using cannon shell,
Burst through the mission's crumbling walls and turned it into hell.

Jim Bowie on his sick bed, Crockett at the door,
They fought till they were lying dead on the stone cold floor.

From the gutted chapel rose a cry, conceived in death and pain.
"Remember the Alamo," they cried, "so we won't have died in vain."

In a place called San Jacinto just thirty days from then,
Santa Anna, he was whipped by Houston and his men.

Those Texans of the Alamo gave up their lives to bring
Liberty to Texas and the sound of freedom's ring.

A hundred and eighty dead men, but there's no call for tears
For they will be remembered for a million Texas years.

Outnumbered twelve to one, all chose to stay and fight.

One Hundred and Seventy Three Years and Counting . . .

Taking Steps Into The Digital Future

Publishers Weekly did an article titled "Taking Steps Into The Digital Future" on Monday.

The article focuses on teenagers:

It's no secret that teens live online--Twittering, blogging, posting videos on YouTube and downloading from iTunes--or that most teens (80%, according to a national survey last fall) have cellphones. Together that adds up to a sizable potential market for mobile phone and Web-based e-books. Google and Amazon have no intention of ceding that business to developers of iPhone apps like Stanza. Earlier this month, they announced that they will provide e-content for mobile phones. Google will release 1.5 million public domain titles; Amazon will adapt books already in the Kindle format.

PW likened the "e-frontier" to "publishing's new Wild West," and I was pleased to see that comment followed by a quote from Penguin, my own publisher. Don Weisberg, head of the Penguin Young Readers Group said: “We're very gung-ho on e-books . . . We as publishers have to be ready for it all. However anybody wants to consume a book—on your computer, on an e-book reader or a printed book—we're going to be there.”

On Sunday, I made this suggestion:

What if New York created a virtual book club in which the readers and the writer read the book online together? I am a huge fan of Tom Friedman. I would pay a premium to read one of his books with him answering questions from readers as I read along.

Maja Thomas, SVP of Hachette Digital and Audio, talked about the attractions of reading as a social activity for teens: “There are good things to be said about the book as a solitary pleasure . . . But with an e-book you can highlight and share a line instantly--e-mail it, Twitter it. It becomes a communal activity.”

Thanks to Dear Author for the link to the article.

I'm taking Sunday off. I'll be back on Monday morning.

More Major Cuts At Borders Corporate Level

From today's Shelf Awareness:

Borders Group has made another round of major cuts, laying off 136 people in corporate positions, most of which are in the headquarters office in Ann Arbor, Mich. The cuts follow the firing of 16 v-p's and directors earlier this month (Shelf Awareness, February 3, 2009) and 274 corporate jobs last June. Altogether the corporate cuts represent about 30% of Borders's corporate staff as of last May . . .

Yesterday's cuts were made in a variety of departments, from marketing and human resources to field management and corporate sales, and in a variety of levels, from entry level to middle management.

An Interview With Four Editors

Yesterday's Publishers Lunch directed me to a Poets & Writers interview with four editors. I'd encourage all writers to read it.

Here was an interesting question and answer:

When you look at the industry, what are the biggest problems we face right now?

CHINSKI: I think they're all so obvious. Returns. Blogs.

GARGAGLIANO: And just finding readers.

CHINSKI: The end of cultural authority. That's something we talk about a lot at FSG [Farrar, Straus and Giroux]. Reviews don't have the same impact that they used to. The one thing that really horrifies me and that seems to have happened within the last few years is that you can get a first novel on the cover of the New York Times Book Review, a long review in The New Yorker, a big profile somewhere, and it still doesn't translate into sales. Whereas six years ago, or some mythical time not that long ago, that was the battle—to get all that attention—and if you got it, you didn't necessarily have a best-seller, but you knew that you would cross a certain threshold. Whereas now you can get all of that and still not see the sales.

I think that phenomenon is about the loss of cultural authority. There's just so much information out there now that people don't know who to listen to, except their friends, to figure out what to read. And that's the question we wrestle with the most.

I think publishers have to communicate more directly with readers—that's the big barrier we're all trying to figure out. How much to use our websites to sell directly and talk to our readers directly?

Read the entire interview here.

Empty Bowls To Feed The Hungry

I'm posting to my blog earlier than usual today because I've got plans.

The North Texas Food Bank is "a non-profit hunger relief organization that distributes donated, purchased and prepared foods through a network of feeding programs in thirteen North Texas counties." NTFB is a member of America's Second Harvest program

Every year NTFB holds fund-raising luncheons in both Dallas and Fort Worth. Area artists and pottery makers donate hundreds of hand-thrown bowls. Local restaurants donate prepared food. Willing donors pay $35 for an empty bowl and the food that will fill it.

Today will be the tenth annual Empty Bowls luncheon, which will be held in the Meyerson Symphony Center in downtown Dallas. While I've made donations for years, I have never attended the actual lunch. I've invited my good friend Linda to go with me, and so we're having an OUTING.

Two posts will follow this one today.

See you tomorrow.

Surviving With Wolves

Almost a year ago--on March 1, 2008--I wrote about yet another writer's hoax. You may remember it. I'm going to cheat here and steal from some of my earlier posts.

Last February, Misha Defonseca, a seventy-one-year-old Belgian woman, admitted that her 1997 book, Misha: A Memoire of the Holocaust Years, was a fabrication.

In her "memoir," Defonseca claimed she'd escaped into a forest at age six to avoid the Nazis who'd seized her Jewish parents. She described living with wolves as she crossed Europe over the next four years.

The book became a best-seller in Europe and was turned into a French film, Survivre avec les loups (Surviving With Wolves), which was released in November of 2007.

In my post I explained that the book came about after Defonseca and her husband moved to Massachusetts and Jane Daniel, a publisher who operated out of her house, heard the improbable tale and decided it would make a great book. Daniel roped in her own next-door neighbor, a retired French professor named Vera Lee, to work with Defonseca who preferred to dictate the story in French.

According to the Boston Globe:

The book was published - with a glowing blurb from Nobel laureate Elie Wiesel, author of the Holocaust memoir "Night" - with Lee's name on the copyright page, not on the cover. Lee sued Daniel in 1998, claiming her rights as coauthor had been violated. Defonseca also sued, alleging that Daniel had broken her promise to publicize the book and had hidden profits in offshore corporate accounts.

As I explained in my first post, that 2001 jury found for the plaintiffs, giving Defonseca $7.5 million in damages and giving Lee another $3.3 million. The judge trebled those damages to $9.9 million for Lee and $22.4 million for Defonseca. The rights to the book went to Defonseca.

Since the judgment, Daniel [told The Boston Globe] she has lost most of her assets, spent a night in jail on a judge's order, and is about to lose her house, a bed-and-breakfast inn overlooking Gloucester Harbor.

Although admitting that she neglected to adequately fact-check the book she'd published, following the court judgment, Daniel embarked on a one-woman crusade to prove Defonseca was a fraud. In August of 2007, she established a blog here dedicated to tracking down information about her former author client.

Sharon Sergeant, a genealogist, saw the blog and began researching the meager facts Daniel had on Defonseca's past. With the help of Belgian journalist Marc Metdapenningen of Le Soir newspaper, Sergeant turned up the information that proved Defonseca was lying. Defonseca was not Jewish. Her real name was Monique De Wael and she'd been baptized Catholic. Her parents were resistance fighters executed by the Nazis. She was raised by her grandfather and uncle.

When confronted with the facts, Defonseca admitted the truth last February leading to my first blog post on the subject here.

In April, 2008, Publishers Weekly reported that Jane Daniel was seeking to overturn the court's judgment on the basis that the book was a fraud.

Today's Publishers Lunch had the following tidbit:

Jane Daniel, who both published Misha Defonseca's fake Holocaust survival story of living with wolves and then lost a huge court verdict for allegedly hiding royalties and failing to promote the book properly (called "reprehensible by the judge) seeks exoneration in the final court--her own small press book, Bestseller! The $33 Million Verdict. The 20-year Hoax. The Truth Behind the Headlines.

I immediately started by checking Jane Daniel's blog, which led me here to this copy of a court complaint. Jane claims this complaint was filed with the Massachusetts Superior Court, but I have not been able to confirm that, and the copy shown does not bear the stamp of the court or a filing date.

For a link to Jane's book on Amazon released four months ago, go here.

The (Publishing) House Is Burning, Part IV

In the previous posts in this series, I've focused on the New York publishing houses and the impact the new technology is having on them.

Today I'd like to talk a bit about the impact of the changing publishing landscape on authors.

Let's talk first about the Dead Trees Method (DTM) of publishing: Under that system, if you're a published author, your book has a print run. Your publisher prints seasonal catalogs that their sales force uses to persuade bookstores and libraries to purchase the book. Buying a supply is a no-risk proposition for bookstores because they can return the hardcovers and trade copies (and the covers of the mass market paperbacks) for credit if they don't sell.

Your goal as a new author is to achieve the highest sell-through rate possible. Newbie authors are told they need a 50% sell-through (the percentage of copies actually sold versus the percentage of copies that were shipped) to get another book contract.

Your book is on bookstore shelves for a limited period of time. After that, it is either returned to the publisher, put on a discount table, sent to a consignment retailer or pulped. Soon, the only place that book is available is in used bookstores. The publisher and the author receive no income from used book sales (although new readers may discover the writer that way).

The industry, which was once dominated by wealthy families who handed the business down to their heirs, has become very centralized--the bulk of the New York imprints are now owned by the Big Six houses, which in turn are all owned by large media conglomerates.

Corporate ownership has had consequences for authors and editors:

1. A focus on short-term profits. Books are simply another product in the array of product lines owned by these large corporations. Remember: When you are a publicly traded company, you have a 90-day mindset. Every quarter you must answer to your stockholders, which keeps the focus on the bottom line. And keeps the pressure on the writer to sell.
2. A reluctance to take chances. A natural offshot of that focus on profits is a reluctance to gamble. Given a choice between a well-known, popular writer or an unknown newbie, can you blame publishers for preferring the popular writer? With everyone vying for those top authors, it's easy to understand why advances have grown exponentially. The real chances are being taken by independents and e-publishers. It's no accident that the "new" genre of erotic romance started online. Once the genre proved popular, New York was all over it. But the reluctance to take chances makes it tougher than ever for a newbie writer to break into publishing.
3. A reluctance to change. Everyone admits that the large advances and the "returns" system are strangling publishing, but change has been slow to come. The tendency to cling to the status quo makes it difficult for the people currently running the industry to reinvent themselves and their houses.

Meanwhile, the Internet, print-on-demand (POD) and digitization are changing the nature of the business. Remember when we talked about the DTM above? Let's talk about how that is changing.

Think of the Internet as a virtual bookshelf with unlimited space. A book that is digitized can be offered for sale forever online.

Go visit the Google Book Search site here. Note that when you click on a book--whether it is in the public domain or not--Google offers you a link to purchase that book. If you or your publisher agree to have your book scanned and posted to Google Book Search, it need never go out of print. You can continue to see that book sold and you can continue to earn royalties on those sales.

With a digitized file and POD technology, if a reader clicks on your book, it can be printed immediately and shipped. No huge print runs, no warehousing, no returns. The book is only printed when an order and payment arrive.

The reader of the future has choices. S/he can order the book online from a link provided by Google or Amazon or Barnes & Noble or a publishing house and it will be printed and shipped.

Or the reader could run down to his local bookstore, order and pay for the book, and then wait five minutes for it to be printed on an Espresso Book Machine.

Or finally, the reader could choose to order the e-book to be downloaded to his/her e-reading device.

All of this is about the reader and the many options that will soon be available.

So what should an author or aspiring writer be thinking about these days?

1. Recognize that while the ownership of the publishing houses (and of bookstores) has centralized, the audience has decentralized. The Internet has permitted the development of all kinds of niches. Pay attention to your genre. Become familiar with the places where your readers gather. And make your presence known.
2. Let the technology work for you. Develop a website, Tweet on Twitter, join Facebook.
3. Pay special attention to your contracts. Be sure the definition of "out of print" is one you can live with. Be very certain that it is written in a quantitative way so that if the publisher is not actively marketing the book, the rights revert to you. By actively marketing the book, I mean set a minimum number of sales each year. If those sales do not occur, your rights should revert to you.
4. Discuss your career with your agent and make certain that if you want to write for e-publishers in addition to print publishers, your agent's contract does not prohibit that. Obviously you cannot sell the same book in different mediums to separate publishers, but keep your options open when possible so that if you want to write a novel for the e-market you can do so. This also means you need to understand the "options" clause in your publishing contract and what it commits you to. Remember the lessons of Dara Joy (see the post here if you don't know what I mean).
5. Watch the royalty percentages you are being offered for e-books. Be sure you can live with whatever commitment you make. Depending on the contract you sign, you may have to live with that commitment for a long time.
6. Stay abreast of the news of the industry. Learn everything you can. Don't hesitate to ask questions. And don't stop asking until you get an answer.

Most of all, keep on writing!

A More Eloquent Argument Than Mine

I know I promised the last in my series of posts today, but two things happened to derail me:

(1) I went to see my doctor who released me to drive. Doing the Happy Dance!!! I spent several hours visiting the local nursery, the bookstore, the Jewish deli, the dry cleaners, etc., etc. Came home and collapsed into a three-hour nap.

(2) Publishers Lunch offered a link to Jason Epstein's speech at the Tools of Change conference. You'll recall I mentioned Jason in my post for yesterday. He is one of the founders of On Demand Books, the firm that developed the Espresso Book Machine.

I'd like to detour today to let you read his comments, which are far more eloquent than anything I've been saying this week.

Here is a small piece of the speech:

The radically decentralized digital marketplace has already rendered traditional publishing infrastructure -- warehouses, inventory, shipping, returns and so on redundant. Like American automobile manufacturers traditional publishers will persist in their traditional mode as long as they can, but they cannot indefinitely defend their institutions against disruptive technologies any more than the monks in their scriptoria could withstand the urgency of movable type.

As factory based production and distribution gradually give way to web based production and marketing the cost of entry for publishers will decline to practically zero. Such traditional publishing functions as publicity, design, marketing, legal, record keeping and so on will be sub contracted as will web marketing and design. Talented editors require only minimal managerial services and in the digital future will require even fewer provided they resist inducements to expand or merge. Today's unwieldy conglomerates, trapped in a bad economy within their Gutenberg mode and motivated only by profit rather than the intrinsic value of the work itself -- the joy of publishing distinguished books, the primary motive of successful publishers -- will deconstruct, leaving their surviving imprints to fend for themselves under diverse ownership or vanish.

Resourceful agents may become business managers for groups of like minded editors and authors whose imprints will become recognizable brands, distinguishing their content from the great sea of helter skelter digital content while authors, as stakeholders along with their editors, may opt for profit sharing arrangements rather than traditional royalties. Best selling branded authors who require only minimal publishing services beyond manufacturing and distribution may become their own publishers, retaining their agents as business managers, subcontracting essential functions, and forgoing today's unsustainable guarantees in exchange for the entire net proceeds of their titles. Customers will pay less but pricing must still cover traditional author royalties, residual publishers' overheads and profit.

Go here to read the entire speech.

I'll be back tomorrow with my last post in my series.

A Nod From Teleread

Teleread was kind enough to link to my blog today.

Since their blog is one I read daily I was tickled pink.

Go here to see their comment.

The (Publishing) House Is Burning, Part III

Tomorrow marks two weeks since a couple of surgeons cracked me open like a walnut. I return to the hospital for my checkup in the morning and am hopeful I'll be released to drive again.

I live near Dallas. Here in Texas, we talk about hogtying, which is a way to render steers and pigs helpless and immobile by tying their four limbs together.

I've been discussing the thinking biases that are holding the large New York publishers back. I believe that among the thinking errors that hogtie them is a steadfast belief that the traditional model of publishing will continue to be the dominant model. Instead of seeing digital technology as a part of a new digital model, they seem to regard e-books as simply another medium (like hardcover, trade, mass market and audiobooks). That's why they cannot get past the notion that e-books are only incrementally cheaper than other forms of delivering content . . . they still envision having all the other expenses they currently have.

So let's look at publishing from the standpoint of a business model.

In the traditional publishing model, the writer provides the artistic talent and the publisher provides the capital to turn the writer's work into a printed book. Since most writers don't have the financial resources to produce a printed book themselves, all the leverage is in the hands of the publisher. The power (and the game advantage) belongs to the publisher.

However, the Internet, digitization and POD technology are changing that dynamic. Instead of one publishing business model, the new technologies have splintered the market into three potential models. I'm going to call them the traditional model, the digital model and the self-publishing model.

We all know how the traditional model works, and I'm going to put self-publishing aside for the moment. If you want more information about self-publishing, go here and here. Right now I want to focus on the digital model.

Back on 6/25/07 here, I talked about the ownership of publishing houses becoming increasingly centralized into the hands of a few giant media companies. I said:

While ownership of publishing houses has been limited, the Internet has been fragmenting the book market itself. Consumer choice is increasing. Consumers can now buy physical books, audio books, e-books, or download podcasts.

I've repeatedly said that digitization and print-on-demand technology will break the stranglehold the large publishers have on the system. They will no longer be the only ones in possession of the technology to produce a printed book.

In that same post, I referred to a 6/26/2006 Publishers Weekly interview with Jason Epstein, one of the founders of On Demand Books, the company that produces the Espresso Book Machine:

"'In theory,' said Epstein, 'every book printed will be digitized, which means the market will be radically decentralized. A bookstore with this technology, without any expense to themselves [other than the machine] can increase their footprint.' Of course, that also means that Kinko's or Wal-Mart can transform themselves into mini-bookstores, especially given the machine's affordability."

In another story on a demonstration of the Espresso Book Machine, Publishers Weekly asked a rhetorical question: "But how realistic is this plan? When can we expect it to catch on? Certainly not until copyright issues are addressed . . ."

In my blog post I said the PW reaction was short-sighted and that I believed Epstein's comment to the effect that "the market will be radically decentralized" was on target. However, I added then (and still believe) that this decentralization will start from the ground up, not from the top down.

The PW comment neglected the fact that copyright belongs to the writer. The writer is the one who leases that copyright to the publisher.

Unless big publishing wakes up and begins to reinvent itself, it is going to find that it has become redundant in a world in which digital files, print-on-demand and e-books allow other players to enter the field and disrupt their game.

Does anyone seriously think that Amazon is NOT going to continue expanding its reach in the publishing arena? They now have both print and e-book publication capacity. They've built review sites and social networking opportunities into Amazon.com. What's to stop them from approaching popular authors and offering to better the deals big publishing currently offers?

And what about Google? Their original interest in copying the world's books was to increase the reach of their search engine. But as Aristotle said long ago, "nature abhors a vacuum."

Then you have the online boutique operations. I have good friends who make great money writing for the online publishers like Samhain and Ellora's Cave . . . in addition to their print books released through New York publishers. They aren't letting go of their online presence; they are writing for both markets.

New York keeps decrying the small numbers being racked up by e-books. But let's face it, they did nothing to support e-books. The e-book segment has grown virally despite big publishing, not because of big publishing. Remember the auto industry and the electric car.

There is literature related to the life cycle of a new technology. Here is a graph courtesy of the Nielsen Norman Group:

The graph is based on the work of two technology consultants, Everett Rogers and Geoffrey Moore, using the standard bell curve to illustrate the diffusion of innovations.

Rogers postulated that, in any new technology, you have innovators and early adopters who eagerly jump on board.

Moore, building on Everett's work, argued that a chasm exists between the visionaries and the pragmatists, based on their different expectations. According to Nielsen Norman, firms must use differing strategies to appeal to each segment's culture. In other words, targeted marketing is needed to create momentum that will build a desire to jump on the bandwagon (and across the chasm).

There have been dozens of e-reading devices over the past ten years. However, it wasn't until Sony and Amazon got into the market that people began to pay attention. Those two companies have the clout and the marketing expertise to cross the chasm.

Today, I got a survey from Barnes & Noble, asking whether I read e-books, whether I would consider joining an e-book club located inside a B&N site and whether I would be interested in getting discounted e-books. This from a bricks-and-mortar store.

I said on Saturday that failing to act and act quickly is a guaranteed death sentence for the large publishers. If they fail to act, someone else will. I see lots of possibilities:

• Internet giants like Amazon
• Hungry bookstores like B&N and Borders
• A wholesale distributor like Ingram
• Online publishing outlets
• Smaller print publishing houses

Or maybe a player we haven't yet seen.

One thing I'm certain of. If they don't act fast and decisively, New York will find their authors being plucked away by other players willing to share a bigger piece of the pie, if only to buy quick entry onto the playing field.

Go here to see the Nielsen Norman Group website and read more about the life cycle of new technology.

Tomorrow we'll talk about the writer's role in all this.

Response to a Comment

Nathan left a great comment to my post of Saturday. I took Valentine's Day off and wasn't planning to post today. However, I do want to address the points he raised.

Rather than try to answer in the confined space of the comments section, I am responding here.

Nathan, I hope you'll forgive me if I address your paragraphs out of order, but your second paragraph makes a better jumping-off place:

I think these posts, while very interesting, fall into a longstanding habit of blaming the publishing industry (and specifically publishing executives) for forces that are far beyond its control. Sure, mistakes are made and the eBook realm is a work in progress, but the people at the top in publishing are incredibly, incredibly smart people who aren't blind to the forces at play. You wouldn't believe the number of meetings and conversations I've had with publishing execs in the last couple of months about eBooks, digital audio, DRM, etc. etc. We're all planning for the eBook world.

Nathan, I've no doubt that the people at the top of publishing are very smart. That's how they got where they are.

Please note that I'm not accusing them of being blind to the "forces at play" as much as I am accusing them of responding poorly and ineffectively to those forces. I'll talk about that more tomorrow.

And I'm sorry, but taking the blame for poor performance is the burden the men and women at the top always bear. President Bush took the fall for the War in Iraq and the failed economy, and President Obama will carry the same stigma if he cannot prevent this recession from turning into a full-fledged depression. The heads of the Big Three automakers are being castigated for their companies' failure to adapt to a new world order in a timely manner. The same fate awaits the leaders of the publishing industry unless they act very, very quickly.

Remember: the big six houses are all owned by mega-corporations. The recent turnovers in publishing leadership teams suggest that their corporate owners are holding these execs responsible for what's going on in their industry.

Shakespeare said it best: "Uneasy lies the head that wears the crown."

The simple fact is that the retail climate is absolutely dismal, bookstores are closing, eBooks are still a tiny fraction of the market, and the vast bulk of the challengers are outside of the industry's control.

Yes, the retail climate is bad, but that's been a relatively new phenomenon over the past six months for most of retail. Don't fall into the trap of confabulating. The economic mess in the housing and lending industries just threw the rest of the retail segment into the sewer with publishing.

The retail climate for publishing has been languishing much longer. There have been troubling signs for as long as I have been blogging. In late 2005, the data coming out of the BISG's Used Book Study estimated that one out of every twelve books purchased in 2004 was a used book. Within five years (hello, 2009), that number was predicted to be one out of every eleven. The Associated Press said this was "a troubling trend when sales for new works are essentially flat . . ." (see blog post here)

In early 2006, I reported for the first time on bookstore sales. The entire retail segment's sales were up 7.4% in February at the same time bookstore sales dropped 1.7%. (see blog post here)

Let's say I buy your argument that the bulk of the industry's challenges have been outside the executives' control. Changing technology and changing reader taste is, of course, not something they control. However, for years, the response to those challenges has been . . . anemic.

My points is (1) that the industry was suffering long before the rest of retail felt the impact of the current economic crisis and (2) technology has been reshaping publishing for quite a while.

Just ask any newspaper editor in America.

As I said in my post on Friday, print publishing industry execs have responded in alternating waves of action (setting up digital warehouses) and inaction (treating technology--not just electronic books--as interesting rather than world-shaking). And I don't see that this has changed a whole lot. You're telling me you've been in lots of meetings over the past few months. I'm talking about the past five years.

eBooks look like an exciting new avenue, but they're still in their infancy and sure, there are kinks, but as many have pointed out recently, the eBook market is currently a fraction of the audiobook market alone. Yes, that's going to change, but let's not overstate it at the moment. And publishers can't vertically integrate as easily as Amazon because few consumers want to buy from publisher websites -- they want a one-stop shopping experience. Until that changes: advantage Amazon.

Of everything you've said, this statement probably frustrates me the most. "And publishers can't vertically integrate as easily as Amazon because few consumers want to buy from publisher websites . . . advantage Amazon."

For Pete's sake, because Amazon won the first couple of innings, are you saying New York should just pick up their ball and gloves and go home???

The New York houses still have a couple of HUGE advantages: (1) New York has stables of popular writers, who have intensely loyal fans. (2) New York vets for quality and has staffs of terrific editors. Amazon does not. Amazon slaps any old self-published novel up there on their website along with classic works of art. (3) New York has marketing expertise out the wazoo. They need to start using it.

Here are a couple of random thoughts:

Niche Marketing: Take a look at Harlequin. They have a vibrant, active publisher's website. Granted it is a niche for their own brand of romance books, but it is starting to pay off. As hard a pill as it was for Harlequin to swallow, they have begun the retreat from their formerly profitable book clubs and are going digital in a big way.

Social networking: The publisher websites I've visited are sterile, boring places. Take a look at the blogosphere where authors and review sites are creating their own networks of readers.
Start one. The catch here is that you have to allow the readership to "own" the site. You cannot (and should not) control it.

What if New York created a virtual book club in which the readers and the writer read the book online together? I am a huge fan of Tom Friedman. I would pay a premium to read one of his books with him answering questions from readers as I read along.

Partnering with Mid-Level Writers in a Viable Way: I'm not talking about asking a writer to occasionally blog for you. I'm talking about a serious partnership where New York surrenders royalty points to a writer who helps build the publisher's presence online. This is something to which New York needs to pay serious attention. I'll talk about this more tomorrow because there is a huge danger lurking ahead for big publishing here.

Pay Attention to Changing Reader Tastes: Flash fiction, novellas, manga. In today's increasingly stressful environment, we have less time for everything, including reading. Mix up your offerings and make it convenient for a reader to buy something short to read while s/he is standing on line or waiting for the kid to finish tennis practice. And to buy it immediately when s/he wants it. As an aside, I can't tell you how aggravating it is to me to stand in an airport bookstore during an unexpected layover and look at the expensive and limited supply of books they offer.

eBook pricing is still a work in progress because the sphere is changing so rapidly, but it will get worked out. And while Bob's estimation may or may not have included distribution and warehousing costs (can't speak for him), when you spread out those costs on a per-book basis they really aren't that high. eBooks cost less to make, but only incrementally less.

Nathan, I hope you know I adore you.

Having said that, please excuse me for pointing out that this statement is a total crock. I'm afraid New York has been telling itself that for so long that they are now believing it . . . which is really, really scary.

The cost is only incrementally less if New York continues to do business in exactly the same way it has for the last ten years. In the words of Dr. Phil, "How's that been working for them?"

My daytime job is as a management analyst. When I look at a division, nothing is sacred. We start from ground zero and build from there. Just because something has always been done one way doesn't mean it still has to be done that way.

And if the publishing executives cannot find ways to benefit from digitization, they NEED to be fired.

Good god. They've been nattering on about the way the returns system is strangling the industry and now they have the brass to say that e-publishing is only a couple of dollars cheaper??? Give me a break.

No manufacturing, no print overruns, virtually no distribution cost, no warehousing, no returns/shipping, no pulping.

I'm not going to belabor this point. This post is long enough as it is.

I want New York and the independent publishers to succeed. I think Amazon's vertical integration is a dangerous threat to the industry.

And as much as it pains me to say, I believe Google may be a negative influence as well. I was hugely disappointed to learn of the non-compete clause they were making universities sign in exchange for digitizing their collections. Isn't it enough, Google, that the cost of digitizing would keep most of your competitors out? What happened to "Don't be evil"?

A variety of publishing houses provides a more vibrant, diverse world of books.

However, we who are interested in literature and reading need to start working on real world solutions and not stand there spitting at the waves crashing around us.

Thanks for giving me a chance to say all this. I appreciate you and your positive spirit enormously.

Warm regards,

Maya

The (Publishing) House Is Burning, Part II

Yesterday we talked about James Shein's model for the phases of crisis. I quoted Dr. Shein telling fifty newspaper executives that he wasn't sure they could look at their industry with fresh eyes.

That comment has enormous implications for the print publishing industry.

The thing is that, just like the newspaper execs--even knowing their environment is under attack--the print publishing execs' own cognitive biases will work against them when it comes to reinventing themselves or their industry.

By cognitive biases, I mean the way people tend to respond when it comes to making decisions. Clinical psychology has identified a number of these biases. I am going to list the ones that I believe hold the potential to doom the publishing industry if its executives cannot rise above their instincts:

• Confirmation bias: the tendency to select information that supports the individual's preconceived notions and to avoid information that contradicts those existing beliefs
  
• Conservatism bias: the tendency to be conservative, to wait and see before making a change. A refusal to acknowledge both technical and social change even to one's detriment
  
• Illusion of Control: the tendency of people to believe they can control outcomes over which they have no control
  
• Status Quo bias: the tendency of people to want things to stay as they are, to not change

Earlier this week, a publishing executive for whom I have a lot of respect made the comment that it costs a publisher about $2.50-$3.00 less to publish an e-book than it does to publish a $27.99 physical book.

My first reaction was that this comment was made cynically--in the full knowledge that it was complete nonsense. If you accept that the materials, the printing and binding of a physical book cost $3, the exec's comment still fails to address the costs of warehousing, distributing, returning unsold stock and pulping those bound books.

However, I suspect the truth is that it is more a combination of two biases--confirmation bias and status quo bias. How else can you explain an industry where some execs actually thought anyone would buy an e-book priced $2 MORE than the mass market paperback? I know it sounds crazy, but one of the big six New York publishers actually set its pricing that way--and then lowered it to the price of the physical book a month later after readers complained vociferously.

Readers aren't stupid. They know that e-books don't cost as much as physical books to create. Look at all the e-publishing operations that have sprung up overnight on the Internet, with headquarters in someone's kitchen or den.

On Thursday, I referred my readers to an article by John Siracusa. Now is a good time to quote that article:

. . . most publishers dictated list prices for e-books that were based on the prices of the printed versions. When a book was available only as a hardcover, the list price of the e-book version was the hardcover list price. Later, when the book became available as a paperback, the e-book list price was reduced to match the paperback price. This, despite the fact that the e-book version remained unchanged during this time. Pricing based on cost and demand is all well and good, but it should be the cost and demand of the actual product for sale, not another product with entirely different costs and demand . . .

All of this is to say that the publishers effectively sabotaged the e-book market from day one. The DRM, the pricing, the general treatment as second-class citizens, it all added up to an insurmountable drag on a budding industry.

This makes absolutely no sense until you look at it not as a way to sell e-books, but rather, as a way to ensure that e-book sales do not eat into hardcover sales. That, in turn, makes even less sense, given the comparative profit margins of hardcover books and e-books, but, well, there you have it . . .

The thing is, the New York houses have forgotten the main reason for their hegemony in the publishing world: THEY OWNED THE MEANS OF PRODUCTION. Writers seeking a large audience were forced to go to them and forced to accept the royalty terms they dictated.

Guess what, folks? That isn't the case any more. Digitization and the Internet is democratizing publishing in the exact same way that Gutenberg's press democratized reading nearly six hundred years ago.

It's not too late for the big publishers. They need to look at the services they offer and the things they do better than anyone else and capitalize on those strengths. Pretending nothing has changed is a guaranteed death sentence. Paying lip service to electronic publishing is a guaranteed death sentence. Failing to act and act quickly is a guaranteed death sentence.

Vacuums attract new players. Look at Amazon and the steps they've taken. They are concentrating on vertical integration, owning a piece of every part of the publishing chain of distribution from its publishing arm (BookSurge) to its distribution system (Amazon.com):

Publisher => Wholesaler/Distributor => Retail Outlet => Reader

New technology offers all kinds of opportunities. Look at the deal Lightning Source (a division of Ingram) cut with the people who developed the Espresso Book Machine (EBM). Unlike Amazon, Ingram is focussed on horizontal integration. Many EBMs placed in bookstores or libraries around the country would lead to a hugely decentralized market where there would be numerous distribution outlets.

I think there are going to be more and more unusual partnerships in publishing. Writers and agents and bookstores and publishers are going to begin to come together in new and creative ways.

We'll talk about this some more in my next post on Monday.

Doesn't Anyone Notice the House is Burning??

I'm going to switch hats today and speak not as a relatively newbie author, working on her third book, but in my other role as a management analyst.

My daytime job sends me into divisions that are not working smoothly, to analyze the issues and institute the necessary changes. It's a job I've done in a variety of venues for about twenty years now.

It is because of that background that I chose to focus this blog on the wider publishing industry, which is of course facing a crisis. A crisis that has been brewing for the four years I've been posting. Now things are reaching a critical point. Over the past few months, we've become accustomed to hearing about layoffs and closures of imprints among the top publishing houses. It would be easy to blame everything on the economy, but that is not what is going on.

This post is probably going to turn into a series of two or three, but I want to start first at a top level and then work down to the nitty-gritty of the details.

Dr. James B. Shein, a turnaround specialist and a professor at Northwestern University, devised a model for a company in crisis. In November, he presented his "Phases of a Crisis" to a group of fifty newspaper executives to help them understand the future of their industry and the need for them to take proactive steps.

The thing that amazed me was how well his model fits with Elisabeth Kubler-Ross' "Five Stages of Grief." As a social worker with a MSW, I am intimately familiar with that seminal work that examined the universal human response to loss . . . whether by death or divorce or job termination.

The earliest stage of Dr. Shein's five-part model is blindness, where executives simply refuse to acknowledge the existing conditions that permitted their previous success are in flux. This matches Kubler-Ross' stage of denial.

The second phase, when change has progressed to the point that the executives can no longer pretend that nothing has happened is inaction in Shein's model. The executives now acknowledge the changing environment, but are paralyzed to do anything about it. In Kubler-Ross' model, activity and passivity also occur in alternating waves. Her second stage is anger, where frustration pours out as the individual tries to avoid the inevitable.

Dr. Shein's third stage of crisis is faulty action, which he describes as the executives' efforts to find a quick fix out of the mess. Kubler-Ross also recognizes the need for a way out in her third stage, which she calls bargaining. People frequently pray to God, promising to lead a better life if only this terrible reality will go away.

At this point, in both models, the actual crisis occurs. Shein simply describes it as crisis while Kubler-Ross calls it depression.

Let me stop here and expand on the concept of crisis. For a number of years while in graduate school, I earned my living doing mental health crisis interventions. Dallas County funded a van and paid the salaries for a pair of us to go to homes, hospitals, schools and street corners and try to intervene in crisis situations. Most often we were called out by the police, but sometimes by family members or other health care professionals.

My definition of crisis: An emotional state in which all the individual's coping skills have deserted him and quick action must be taken in order to prevent a disaster. Since I was in the mental health field, a disaster would have been identified as suicide, homicide or onset of psychosis. Kubler-Ross' definition of disaster would probably have been the same as mine. Shein's definition is the business equivalent . . . complete dissolution of the company, his fifth and final stage.

In speaking to the API in November, Shein was quoted as follows:

As an organization moves down the crisis curve, it will find executing a recovery plan more difficult, and will have less time to do it. . .

"The biggest hurdles to progress [are] the industry's senior leadership, including some of the people in this room . . . I am not sure you can take a look at your industry with fresh eyes."

In my next post, we'll talk about this some more.

The Authors Guild Goes After The Kindle 2

Both Tuesday's Wall Street Journal and yesterday's Publisher's Weekly had articles about The Authors Guild's response to the new Kindle 2, which will start being shipped out beginning February 24.

If you've been reading this blog for any length of time, you know that I haven't been bowled over by the regressive stances taken by The Authors Guild. And the latest contretemps isn't doing anything to change my opinion.

One of the new features of the Kindle 2 is the Text-to-Speech function, which reads the e-book out loud with a computer-generated voice.

According to The Wall Street Journal:

"They don't have the right to read a book out loud," said Paul Aiken, executive director of the Authors Guild. "That's an audio right, which is derivative under copyright law."

The Authors Guild posted a statement on its website here. The comment included the following:

This presents a significant challenge to the publishing industry. Audiobooks surpassed $1 billion in sales in 2007; e-book sales are just a small fraction of that. While the audio quality of the Kindle 2, judging from Amazon's promotional materials, is best described as serviceable, it's far better than the text-to-speech audio of just a few years ago. We expect this software to improve rapidly.

We're studying this matter closely and will report back to you. In the meantime, we recommend that if you haven't yet granted your e-book rights to backlist or other titles, this isn't the time to start. If you have a new book contract and are negotiating your e-book rights, make sure Amazon's use of those rights is part of the dialog.

Yahoo had this to say:

The challenge revolves around audiobooks, which are treated separately from printed material from a copyright standpoint. A retailer can't record a copy of a book on a CD and sell it or bundle it along with a novel without paying a separate fee, just as buying a copy of an audiobook doesn't entitle you to a free copy of the printed version.

Amazon -- and many legal observers -- vehemently question this stance, noting that an automated text-to-speech system isn't the same as a pre-recorded audio book . . . Since the Kindle doesn't store a copy of the book on the device in an audio format, but rather converts from text on the fly, it seems likely that Amazon is on the right side of the law on this one.

The thing is, every audiobook I've ever purchased was read out loud by actors, and had sound effects, including music.

My new laptop has a Text-to-Speech feature. A computerized voice is a freaking long way from any audiobook I've ever heard.

I want to understand the slippery slope argument here, but I'm having some difficulty.

And coming fresh off Cory Doctorow's speech to Microsoft (see yesterday's post), I can't help but remember these words, which Doctorow gave permission for others to copy:

Whenever a new technology has disrupted copyright, we've changed copyright. Copyright isn't an ethical proposition, it's a utilitarian one . . .

Technology that disrupts copyright does so because it simplifies and cheapens creation, reproduction and distribution. The existing copyright businesses exploit inefficiencies in the old production, reproduction and distribution system, and they'll be weakened by the new technology. But new technology always gives us more art with a wider reach: that's what tech is *for*.

Tech gives us bigger pies that more artists can get a bite out of. That's been tacitly acknowledged at every stage of the copyfight since the piano roll. When copyright and technology collide, it's copyright that changes.

Which means that today's copyright -- the thing that DRM nominally props up -- didn't come down off the mountain on two stone tablets. It was created in living memory to accommodate the technical reality created by the inventors of the previous generation. To abandon invention now robs tomorrow's artists of the new businesses and new reach and new audiences that the Internet and the PC can give them.

If history has taught us anything, it is that technology cannot be stopped. The auto manufacturers tried to bury the electric car because they were convinced gas guzzlers were the wave of the future. We know how that worked out. If the American auto industry had begun to adapt years ago, they wouldn't be facing the crisis they are confronting today.

IMHO, The Authors Guild does writers no favors by encouraging them to cling to a model that is ultimately doomed to failure. Sure, they may win a battle or two, but the outcome of the war is already determined.

Writers need to learn to straddle both worlds--print and e-books--and to move forward with their readers, not against them.

More on e-Books

Since I was lazy yesterday, I'm working twice as hard today.

First, Teleread had an interesting post three weeks ago about "The Rise of e-Books." Mark Coker said:

E-book sales are surging while the entire trade book industry suffers a decline. Are print sales suffering at the hands of e-book sales? Unlikely. Something else is happening.

Go here to see what he thinks is happening.

Then Booksquare talked about moderating a panel called "Smart Women Read eBooks" at the TOC conference this week.

One of her comments ties with my previous post from today regarding DRM:

My first comment to the panel was that readers are downright hostile to DRM, but as I read more closely, I realized it wasn’t hostility toward DRM, per se, it’s the fact that managing DRM is so difficult that angers these readers. They get that publishers need to protect their product, but when means that they can’t access the books they’ve purchased — or that someone might take those books away at any moment — it doesn’t engender warm fuzzies.

And, of course, she did give me warm fuzzies when she said, "The vast majority of respondents read romance and erotica when it comes to ebooks."

May it ever be so. [grin]

Please go here to read more of Booksquare's comments.

Oh, I Wish I Were At TOC

If I could have been anywhere this week, it would have been attending the O'Reilly Tools of Change (TOC) conference in New York.

Second best option has been to follow coverage of the TOC conference online.

While reading about TOC, I discovered a link to an article posted on Ars Technica earlier this month titled "The Once and Future e-Book" by John Siracusa.

While Siracusa spent several pages venting his spleen (it was page three before he actually caught my attention), the article contains some excellent material on digital books (past and future), digital rights management (DRM) and the mistakes New York has made in confronting the same challenges already faced by the music and film industries.

His description, using Alice and Bob, to explain DRM rights is a convoluted mess. I would encourage you to read the original description given by Cory Doctorow in a speech to Microsoft back in June of 2004 here. Or, better yet, listen to the 45-minute speech (with a 15-minute Q&A) here.

If you don't have the time to do either, here's a quick summary. DRM is an elaborate form of cryptography, used for security purposes.

The essence of any encryption is that there is a message someone wishes to keep secret. Therefore, Alice (originator of the message) uses a cipher, an algorithm that will render the plain text unreadable without a key. She then sends the newly encrypted cypher-text to Bob with the intent of keeping anyone BUT Bob from reading her message. Bob, who has previously been given the key is able to decipher (de-cipher) the message. In order to obtain Alice's message, her enemy Eve must have the cipher, the cypher-text and the key.

Now we come to today and DRM. Instead of a third-party enemy like Eve, Bob is both the enemy and, as a consumer, the intended recipient of the message. Siracusa says: Bob "is the intended recipient of the 'message,' whether it be a song or a video or text. He must be given all the tools [cipher, cypher-text and key] required to decrypt and consume the information!" Can you see why DRM is likely to fail?

Bob pays for his "product." But if he wants to switch formats, make a copy of the film so his kids can watch it in their room, copy a song so he can listen to it in his car or download the e-book so he can read it on his phone, frequently he becomes a victim of DRM, which will not permit him to make perfectly legal copies. But, since he has all the parts of the encryption [cipher, cypher-text and key], he or a cyber-savvy friend will probably figure a way around the encryption. And, of course, he will feel perfectly entitled to do so since he paid for the product in the first place.

While we can understand Bob's frustration, he crosses the legality line when he sets out to circumvent DRM. Much worse, the next time he buys a product--remembering the aggravation Alice created for him--he may be more inclined to download the product for free online than go through all the hoops Alice put him through to use his own, paid-for product.

As someone who recently purchased a new computer, I can tell you EXACTLY how irritating it is to run into DRM when all you want is to access the copies you LEGALLY purchased.

I'd encourage all writers to read Siracusa's article because the issues he addresses are ones you will need to be thinking about and dealing with in future contracts.

Read the full article here.

I'll be talking more about this subject and other TOC issues this week.

Oh, Happy Day!

One of the interesting side effects of my recent surgery has been my sudden interest in network television.

I'm not a huge TV watcher normally. I love House, Judge Judy, and the Sunday morning news shows, but don't subscribe to cable.

Now that I'm at home 24/7, the allure of television is somewhat stronger. A moment ago, I actually checked the listings for this evening.

Much to my great joy, I realized that Michael Biehn will be guest starring on Criminal Minds tonight.

I catch Criminal Minds a couple of times a month. The chief attraction of the show for me is Shelmar Moore, who plays FBI agent Derek Morgan.

Sorry, Shelmar, but you don't hold a candle to Michael Biehn in my heart.

If you don't recognize Biehn's name, think of Kyle Reese in The Terminator, Corporal Hicks in Aliens, and Commander Anderson in The Rock.

Mmmmmm, good.

The Answer to the Question of . . .

Which one of us does Mom love best?

HarperCollins Shutting Down Collins

The Associated Press reported this morning that HarperCollins has closed its Collins division, specializing in non-fiction books. The news of the closure and layoffs first appeared in postings on Twitter this morning.

The AP said:

The cuts were widely expected after HarperCollins, owned by Rupert Murdoch's News Corp., reported poor earnings last week for the quarter that ended Dec. 31, 2008. Among those leaving are Steve Ross, who had worked on President Obama's bestseller "The Audacity of Hope" at Crown Publishing before going to head Collins in 2007.

Publishers Weekly reported:

". . . Steve Ross, president and publisher of Collins, and Lisa Gallagher, senior v-p, and publisher of William Morrow, are leaving the company. Ross was brought over by Jane Friedman two years ago from Crown to rebuild the Collins brand. In addition to closing Collins, CEO Brian Murray issued a memo today saying that despite efforts to avoid layoffs, a reduction in the workforce will be necessary. 'Given the continued uncertainty in the market and soft revenues for the company, we need to take further action to align our cost basis with expected revenues,' Murray wrote. 'I have asked each division to evaluate their business and begin the process to meet this goal. Unfortunately, in some HarperCollins divisions, implementing these plans will result in a reduction in workforce'.”

Publishers Lunch said:

"William Morrow publisher Lisa Gallagher is leaving the company as well. The Harper imprint, under Jonathan Burnham, will absorb the Collins general non-fiction list (which will be published as Harper titles), along with Collins Reference, which retains its name as an imprint, and Collins Business, which will publish as Harper Business going forward.

"Bruce Nichols remains as publisher of Collins Reference and will also serve as executive editor at Harper; similarly, Hollis Heimbouch will continue to oversee the business books program and become executive editor at Harper. . .

"Collins trade paperbacks, with the exception of Collins Reference and Collins Design, will be folded into Harper Perennial and Harper paperbacks under SVP, publisher Carrie Kania.

". . . Harper paperback svp Carrie Kania . . .will now oversee the Avon trade paperback line.

"Liate Stehlik takes over as publisher of William Morrow/Eos/Avon, and will continue to oversee Avon and Harper mass market titles."

See Gawker here for copies of the internal memos issued by HarperCollins.

Equal Time

Last month I wrote a post about my youngest brother here. It seemed only fair to give my middle brother equal time.

My middle brother lives in north Texas, is an avid hunter and a conservationist. I know, it came as quite a shock to me that most responsible hunters care deeply about the environment and spend a fair amount of time and money on conservation.

He sent me an email a couple of days before my surgery:

Let me know if you would like me to bring you something to read or eat… otherwise you get deer chili and Field & Stream.

I responded that just him being there would be enough. Sure enough, shortly after I woke from anesthesia, he was at my bedside in the hospital.

I was tickled silly by his little gifts: He brought me several issues of Ducks Unlimited magazine with articles that he thought I might be interested in carefully marked with Post-It notes. AND, the pièce de résistance was a set of eight magnets, featuring photos of various cat butts. Yes, you read that right, the rear end of eight cats, looking straight at the anus. The nurses were hugely entertained by my magnets and, when I introduced him on subsequent visits, they invariably asked, "Is this the cat butt guy?"

Today's diversion as I recuperate was two video clips of him training his hunting dog Mocha to do blind retrieves. A blind retrieve is when the dog takes her cues from her master's hand signals rather than from a visual sighting of a duck.

No birds were harmed in the making of these videos. My brother has two training dummies. In the first video, he neglected to pick up the second dummy before sending Mocha after the first one. Here's the video.

And then there's the second video where the operator finally got his act together here. Notice that he uses a whistle to get her attention and doesn't permit her to just drop the dummy when she returns. She must learn to bring it to his hand.

My brother's hunting partner has a pointer that he was training at the same time P was training Mocha. Somehow, someway, Mocha, a labrador retriever, figured out how to point. The video in which she did it the first time without training is here. And notice that the second dog, an English Spaniel, "honors" the point. Other dogs are trained to hang back and not interfere with another hunter's dog or bird.

Men are wonderful, mysterious and totally entertaining creatures.

The Wonders of Super Glue

Do you remember that man in The Graduate who extolled the virtues of "Plastics" to Dustin Hoffman?

Well, here I am doing the same thing for Super Glue.

My surgery started on time at 10:30 Tuesday morning. The first thing I remember after that was waking at 3:00 PM in my fourth floor hospital room with my surgeon standing by. She explained that the surgery took twice as long as expected because the tumor (and my uterus) had spread to every available space in what was supposed to be my abdominal CAVITY. All my other organs had been squished by the "Fibroid That Ate Maya." The two surgeons had to cut both the tumor and uterus out in pieces. She said, "You are going to feel soooo much better."

And she was right. Even with an incision across my body, I feel better today than I did before the surgery.

I have no bandages at all. All the sutures were internal and my external wound (a bikini cut) was sealed with something called DermaBond. It's Super Glue for the skin and simply wonderful! I can climb into the shower and bathe without worrying about getting my incision wet (as long as I pat it dry afterward). I'm seriously considering buying Johnson & Johnson stock again.

I was on a morphine drip that first night, but it made me so dopey, I asked them to remove it, the oxygen tube and the catheter the following morning.

I was in the woman's wing of Presbyterian Hospital. It was more like a luxury hotel than a hospital. My private room looked out on a wide atrium. The nurses told me that nine times around the atrium was one mile. On Tuesday night, I managed to make two laps around. I was incentivized. Walking was less painful than the anesthesiologist's gas that still filled my abdomen. On Wednesday and Thursday, I made my nine laps each day. The gas is gone, but coughing (or laughing) still hurts.

By yesterday morning, I'm sure I resembled a demented Dorothy in a muumuu and sock slippers, demanding to be returned to Kansas. "I want to go home" I told anyone who would listen.

I took my last pain pill at 5:30 yesterday morning, opting for two Motrin every four hours instead. By noon, I was sitting, surrounded by my luggage and all my plants, looking like I was on Platform 9 3/4 waiting for the Hogwarts Express to come and carry me off.

Didn't actually get home until 4:00 PM yesterday, Friday. Bob the Cat's greeting was heartfelt. We released him into the backyard while I ran for the bathroom. He circled the house, figured out which room I was in and jumped up on the window, screaming to be admitted. I let him in, and he sat in front of me, complaining of his treatment over the past three days.

We climbed into bed together and fell into an exhausted asleep for two hours.

It's now almost 7:30 on Saturday morning. I slept a solid six and a half hours, waking for about five seconds at 4:30. That's the longest block of time I've slept in six months.

I'm so grateful to the Lord for guiding me safely through this time.

My plan for the next few days is to sleep and walk and get my strength back. I'll report in again next week.

Thanks to everyone for the kind wishes. I appreciate you more than I can say.

Lots of love,

Maya