Tuesday, August 25, 2009

A Few Thoughts on Pricing

As publishers try to figure out and work their way into new business models, there's been lots of discussion about ebook pricing and timing of releases of ebooks vis-a-vis print titles. Questions include, "How should publishers set the price of an ebook?"; "What should be the relative price of the ebook to the print edition?" "Should they be released simultaneously? Print first? Ebook first?"; "How can publishers train readers to value ebooks more highly?"

Some of the most thoughtful conversations are taking place at my friend Mike Shatzkin's blog, The Shatzkin Files. I nearly always agree with Mike (and I'm usually wrong when I don't) but in his most recent post, Mike postulates a "debut pricing" model for the simultaneous release of "e" and "p" editions of new books that I'm having a hard time with. To oversimplify, the idea is to price the ebook 'high' upon its simultaneous release with its print edition and then to lower the ebook price at a later date (in Mike's suggestion, six months) when the initial sales frenzy surrounding the print edition has presumably slowed.

The argument is that this maximizes print sales (and boosts rankings for bestseller lists) while still allowing the hardcore digerati to get their hands on the book in e-form if they want it badly enough. A supporting argument is that publishers are not in the business of satisfying the few (ebook readers who want lower prices and simultaneous release) but rather are in the business of satisfying shareholders who want revenue and (if they're doing it right) profit maximization. These are understandable positions for Big Six-type publishers to take, invested as they are in print infrastructure.

To my mind, this approach and others like it break down because they assume a publisher-centric world that is fast evaporating as well as assuming that the 'e' and 'p' versions of a title compete with themselves in a vacuum.

First, to the extent that publishers have had the ability to set prices in the past, that ability is eroding quickly. The virtual collapse of the supply chain, the sheer volume of new titles, deep discounting by online and bricks and mortar retailers and the skyrocketing growth of the used book market make publishers' suggested prices virtually meaningless. At the same time, while a traditional discount schedule might be in place, retailers' co-op and other merchandising programs are driving publishers' net receipts and profits lower despite ongoing efforts to reduce costs. The result is that a small number of retailers are setting prices (lower) and a very large number of reader/customers are determining value (lower still) by voting with their wallets.

Which brings us to the print/digital relative pricing schemes. The debut pricing model assumes the consumer has no other choices. That may be the case for the hottest of the hot new releases, but those are rare. In the majority of cases, the shopper doesn't have to have a specific book today and he or she will simply move along to another title for his purchase. Or a video game. Or go to dinner. Or watch "Mad Men". Will that consumer come back or is it a lost sale entirely? (In some cases, the consumer may decide he or she wants the book, but not for 80% of the $29.99 hardcover price and default to one of the many torrent sites where books appear virtually simultaneously with--and sometimes before--their trade release.)

Sure, there are games to be played in the short term. As long as Amazon pays publishers for Kindle sales on the print price, publishers can optimize in the short term, but Amazon's subsidy of book prices with Kindle sales won't go on forever and increasing the volume of unit sales is really the only long term solution, and you don't do that with high prices.

Publishers may attempt to set price, but readers will ultimately determine value, and that's where the price will end up, legitimately or otherwise.Why fight your customers? More importantly, why fight your potential customers, many of whom you've never interacted with or made a sale to?

Why not, instead of trying to train customers to act against their interests and instincts in accepting high pricing initially, try to expand the audience of readers? If margins are declining faster than your ability to cut costs, you have to expand volume and Econ 101 taught us all that volume increases at lower prices. (Don't tell customers about your cost structure; they don't care. Just ask GM and Chrysler.)

In any for-profit business, profits must be sustained and shareholder value must be increased for the business to remain viable. As a publisher I'm all for that.What often gets left out of that "Mom and Apple Pie" statement is "over the long term". Publishers can optimize profitability for the short term or they can build models and grow readership for the future. If you do too much of the former, you many not have a chance to do the latter in the future.

It's a reader-centric world now. And readers are smart.

Wednesday, July 15, 2009

Transition vs Transformation

I've been thinking a lot lately about how how wrenching the changes in media are for publishers and their efforts to adapt to the evolving environment. It's particularly difficult since most in the industry thought there would be a window of (depending on whom you talked with) two to five years to make the adjustments in business models; but the sharp economic decline has accelerated that timetable from 'the intermediate term' to 'now, dammit.' Even the most creative and forward-thinking media companies are struggling to move quickly enough to deal with changing consumer preferences, technological change and near meltdown of the supply chain.

In the book business,we see efforts like Harper Collins' "Harper Studio" and Grand Central's "12" exploring new models, distributors like Perseus adding digital distribution capabilities to their client offerings, and bricks and mortar retailer Barnes & Noble acquiring Fictionwise to try to help accelerate the transition. And you know what? While each of these steps is admirable and may succeed (at least in terms of their relative importance and size in the grand schemes of their respective parent companies), they're unlikely to have the kind of impact that will fundamentally address the systemic and strategic obstacles these players face. It has nothing to do with the competence of the people involved or the quality of products or services that will be forthcoming; it has everything to do with the magnitude of the sea change our industry is undergoing and the fact that mere transition along a (mostly) traditional continuum of progress isn't enough. What's needed is radical transformation and large businesses with legacy systems of all kinds (and more importantly, with legacy thinking) are not particularly good at that kind of radical action in good times, let alone when they're under duress.

I can tell you from experience how difficult (and expensive) it is to make even the most basic changes (such as introducing XML into a traditional publishing workflow) without creating disruptions and delays in editorial, design, layout and production that can delay release dates and risk lost sales. And those changes are only table-stakes. An entire rethinking of marketing and sales strategies, acquisition and development methods and costs, and investments in inventories and distribution must be integrated on the fly. It's just not going to happen, particularly not in the ossified infrastructures of conglomerate publishing.

The new world, in my judgment, will belong to smaller, more nimble publishers who can deliver quality content, to niche (or 'vertical' if you prefer) publishers who provide invaluable services and content to their audiences (think O'Reilly and Harlequin) and who have been leaders in transforming their businesses for years, and to start ups. It's a lot easier (and given the availability and abundance of open source tools and freelance workers) cheaper to build rather than transition or transform. As a result, we see new publishers popping up (OR Books, Roundtable, Quartet) with experimental models that challenge the long-held assumptions of traditional publishers of 'how it works' .

Any or all of these, and the others that will emerge in the coming months, may succeed or they may fail completely, but my instincts are that they have a higher probability of success than do the behemoths who are trying to transition by taking modest steps. Their time is probably up, which is equal parts terrible (because they've brought us wonderful books over the years) and exciting (because of the opportunities it offers smart, aggressive and creative people to bring us even more wonderful books in ways that suit today's consumers' wants and needs).

Sunday, June 21, 2009

Digital-Only Publishers: In The Ghetto

There's a fascinating and potentially important debate going on within the membership of Romance Writers of America as their annual meeting approaches, and it's worth following for anyone interested in digital publishing, whether or not you give a hoot about romance novels or RWA.

Central to the debate is the status of authors whose works are published only in ebook format and of the acceptance of digital-only publishers, some of whom have been very successful, within RWA. Apparently, there's a lot of history (not to mention intramural and interpersonal politics) in play as the debate has unfolded, but the opening shot of the current round was fired by outgoing RWA president Diane Pershing's letter in the most recent edition of RWA's magazine. In that letter, she effectively dismissed the digital only business model and authors who choose to operate on those terms as unworthy of RWA's stamp of approval. She also reiterated RWA's decision not to provide any workshops or educational programs about digital rights generally and digital publishing specifically at their annual meeting, implying that the level of interest among the majority of members didn't support providing such programming.

In response, agent and author Deidre Knight (who has been successful wearing both hats in print and digital arenas) posted a thoughtful rejoinder on the website of RWA's special interest chapter (Electronic and Small Press) ESPAN. Ms Pershing responded a few days later with her own post her own post on ESPAN, and the battle was joined. The dozens of comments in response to each of these posts, the chatter on twitter (#RWA.Change) and the formation of a new Yahoo Group reflect the intensity of the debate and are worth reading, despite their length and some inevitable redundance (and stupidity).

So what, you ask? Old generation vs new generation in a fight over the future of a writers' organization is not the stuff of headlines. But there's something deeper going on here. The implication of Ms Pershings's statements is that digital publishing is not only different from traditional print publishing...it's inferior. And inferior to the point that its name shall not be spoken. In so doing, she not only disses a growing market, she also does RWA's members a great disservice by not educating both established and aspiring writers about an alternative way of approaching (or supplementing) their careers with new tools.

Interesting stuff, but more interesting to me is an undercurrent throughout the discussion that digital-only publishers are implicitly shady characters whose business practices are suspect, who are in the business for a quick buck and who are ruthlessly exploiting authors for short term gain. Undoubtedly there have been and are some of those out there (and there are others who do authors a disservice with shoddy or non-existent editorial and marketing support), but there are players in print publishing whose contract, accounting and payment practices don't exactly meet the gold standard either. (If you're in doubt, check the news on Inkwell's collapse due to non-payment from major publishing companies or talk to an author who was unceremoniously dumped when her first novel's sales didn't live up to expectations.) .

While I understand that new business models deserve close scrutiny and the new-kid-on-the-block publisher (whether digital or print) must earn the trust of the author community, the wholesale ghetto-ization of a different model from that with which RWA has been traditionally aligned seems shortsighted at best and discriminatory against a significant and growing percentage of its membership at worst.

I'll be following this closely as it unfolds and hope RWA and other writers associations begin to let the scales fall from their eyes as new models and practices evolve in response to the failing traditional print publishing and distribution models. My money's on the insurgents here and I wish them well.

Tuesday, June 16, 2009

A Strategy for Authenticity

On Monday, I had the opportunity to attend O’Reilly’s Twitter Boot Camp (#otbc if you’d like to check it out on Twitter) in New York City. Program Chair Kat Meyer had assembled a fantastic group of thought leaders, power-users, marketing and publicity experts, and analytical types to explore how this terrific little app can be used for business. Each of them, whether speaking individually or gathered as panels, imparted an enormous amount of information about the business opportunities that exist for smart Twitter users. The crew and cast put on a perfectly good conference. So why did I come away from Twitter Boot Camp feeling depressed?

The program started out harmlessly enough with some warm ups from Tim O’Reilly, Steve Rubel (“Director of Insight” of Edelman Digital) and the ubiquitous Tony Hsieh of Zappo’s. The overall message was one of the power of the medium…one that most of the 200 or so attendees had already embraced.

This was followed by Carri Bugbee (who tweeted for one of the characters in “Mad Men”), Megan Calhoun of TwitterMoms, and Eric Mueller of FlashlightWorthy (who provided the astonishing statistic that nearly 80% of the hits to flashlightworthybooks.com come directly from Twitter). Despite the fact that Ms Bugbee had tweeted as someone else (in this case, a fictional character) the message from this group, reinforcing that delivered by the earlier speakers,was all about delivering value to the community via your tweetstream and maintaining authenticity.

Things began to turn dark somewhere during the panels on “Logistics of Integrating Twitter into Existing PR and Marketing” (the name should have been a clue), Lunch, and “Twitter and the Rules of Engagement” as the theme moved inexorably from authenticity to strategy and monetization. At this point a big portion of the audience (many of whom were taking notes furiously in spiral notebooks...possibly because they were unaware that the stream of tweets from the room was searchable….possibly because there were exactly zero electrical outlets in a room full of laptop users) leaned forward awaiting the secret which, it turns out,is: “You can’t just be authentic….you have to have a strategy for being authentic and you must use all sorts of metrics to assess whether you are a successful Tweep.” As an aside,the purveyors of these metrics openly admit that they are in their infancy and by implication deeply flawed measures.(I should point out that Marla Erwin, who tweets for Whole Foods, was an outstanding exception in these panels. Marla and Whole Foods are as authentic as they come and she rocked the house.)

Suddenly, corporate-speak prevailed and we began leveraging brands, monetizing communication assets, and determining return on investment from twittering in the blink of a tweet. Amy Martin of Digital Royalty (and apparently the personal twitter strategist behind @THE_REAL_SHAQ) spoke of “planning spontaneous twitter events” for Shaquille O’Neal. Ted Murphy of IZEA tried to rationalize the appeal of so-called ‘sponsored tweets’ (Hey…Did you know TNT Knows Drama?) by saying it was fine to take money for tweets as long as you stay authentic to your community of followers, and Mike Volpe of Hubspot who along with Eric Peterson of Twitalyzer shared their algorithm-based analyses of various twitterers’ performance in the twitterverse. (Interestingly, their respective algorithms, in at least a couple of cases mentioned, produced completely opposite ‘grades’ for individuals being scored with both tools. Ah, science) By the time we reached the Afternoon Break, all notions of authenticity were out the door and the speakers and most in the audience were all about monetizing this mutha’.

Now I’m not na├»ve and I understand that marketing and publicity types at major companies can’t just tweet away all day in their offices without somebody in a suit (a) wondering why the hell they’re on twitter instead of cranking out the next brilliant direct mail piece and (b) wanting to know how this is making the company any money. So I’m not at all opposed to there being some commercial element in the tweet stream. I’ve learned about some nifty (and not-so-nifty) products, discovered terrific books and music, and gotten good advice on solutions to problems from both individual and corporate tweets. And while I tweet as an individual, I’m not above recommending titles from the publisher I work for or aiming my followers in the direction of our company’s website or warehouse sale from time to time. I get it….it’s not strictly for fun and games.

What left me feeling depressed after these panels had finished was the impression that Twitter is about to become a massive marketing land grab just as soon as the attendees at #otbc and sessions like it (along with those paying even bigger dollars to bring “Social Media Experts” in house for custom consulting) figure out how to use Tweetdeck or Seesmic or (insert your favorite client here) and get the Twitter budget approved by Accounting. And then we’ll see the tweetstream clogged with corporate messaging. You can say that you just won’t follow those who play that game, but how many of us are busy retweeting #squarespace every day in June in hopes of winning a $199 iPhone from a company who figured out they could get tons of publicity for about $6000? And would you begrudge a writer friend whose tweets you love the opportunity to pick up a few bucks to tide her over to her next paltry royalty check by tossing out a few sponsored tweets from time to time? I’m not sure.

I’m relatively new to twitter, but what I’ve loved about it since discovering it is its immediacy and its spontaneity. That’s where the joy is and, in my opinion, that’s where the power is (witness #iranelection and related topics). My fear is that the suits will “Clear Channel” (yes, that’s a new verb) this simple little application into nothing but a giant vanilla message board filled with thinly-disguised spam and planned spontaneity. I don’t want, or know how, to develop a strategy for my authenticity. Apparently, I will not be a successful tweeter. So block me.

Disclosure: During the Twitter Boot Camp, I was following the speakers and the audience’s tweets in one column on Tweetdeck, while following #iranelection on another. It’s possible, even likely, that the commercialism of the OTBC program in such stark contrast to the moving news and images coming from Iran colored my view.