Challenging publishers to change isn’t the safe path

Continuing my tale of the publishing industry presentation I made last month, begun here, let’s turn to the changes in the book and book supply chain that are necessary to resurrect publishing as a pivotal source of creative value in a time when gatekeepers are despised and largely redundant.

The electronic publishing supply chain is dominated by distributors, particularly those that wield a popular format as leverage to gain a larger share of revenue from publishers, who are still trying to determine how to change their product to address opportunities when books are not trapped in paper. Just as the music industry in the late 90s was led by the nose by encoding companies that charged a million or more dollars to “rip” a new version of a record label’s catalog to address a new format, today’s e-book industry is being hauled along by distributors who trade “free” encoding and distribution of e-books to publishers in exchange for rights to do so. The only major difference between the e-book industry today and music industry of 1999 is that more rights are being exchanged for encoding, where music remained a cash business that sapped the labels of massive amounts of money to keep up with new formats and channels for music. There are, however, plenty of e-book services companies trying to reproduce the music encoding phenomenon with publishers who, thinking that they can pay for a format will then be able to distribute the resulting files directly.

Unfortunately for publishers, the channel is controlled by application and hardware developers who have the actual customer relationships. Amazon, which has been toying with the question of whether to compete directly with publishers for more than a year, finally did so last week by signing Seven Habits author Stephen Covey to an e-book deal that completely circumvents the publisher of the books, Simon & Schuster. When I made my presentation in November, this suggestion was greeted with horror and a reflexive dismissiveness that has been beaten into sensibility by the hard reality that publishers have never mastered the customer relationship.

Publishers have excelled at the paper distribution process, actually managing to earn profits despite the vast return rates that paper books produce by the nature of mismatched supply and demand. With electronic publishing and the Web, publishers can certainly reduce returns—indeed, that is what most publishers I talk to are banking on in order to survive the transition to mixed paper and digital publishing—but no one establishes a branded relationship with a publisher, simply because books are aimed at readers’ attention, which is completely fungible, shifting from one publishers’ products to another’s from day to day and read to read.

Competing for attention and building brand reputation for reliable, enjoyable or authoritative writing (though books will be much more than writing in the near future, as Fast Company‘s Adam Penenberg pointed out on Wednesday), requires that publishers reject the idea of a finished and closed product that exists between the the covers of a book so that the work can be freed to interact with readers in a networked marketplace.

The book supply chain is built on defined products at a time when readers are beginning to define the use of their attention in radically different ways, collecting not whole finished works, but instead discovering parts of books in other books, on Web pages and in articles, and reading their way into those titles over time. Reading relationships are accretive, they build up over time. You find a quote you like and recall it, perhaps writing it down. Later, you come across the author’s name, the same quote or another quote somewhere else and make additional connections to the work where that quote resides. Finally, you might go searching for the book or the author to see the whole idea in the context it was presented, in a book you order online or check out from a library.

However, publishers have existed as definers of whole products that could not be broken up for improved discovery. The ISBN used over most of the world to define a book’s identity exists not primarily to help the reader find the book but to help the publisher account for the book and make the appropriate payments. If a publisher is going to issue individual chapters of a book, they must treat each as a separate whole with a unique ISBN, which defeats the purpose of relating chapters and sections of a book to the whole. While those accounting problems are still vital issues, particularly if we are going to compensate writers for their hard work, the bookkeeping related to whole books doesn’t facilitate the way readers enter works today.

Books must be findable in parts, discoverable by turns from the fragment to the whole to compete with the rush of data people can access today. Books are increasingly sustainable, to address the slide above, which is a good thing, though utterly useless if the supply chain remains designed to complete the circuit between publisher and distributor to the exclusion of the reader and an author who may have more than one idea to sell at a time. Solve that one problem, the question of how to treat the parts of a book as well as the whole, and the rest of the challenges a publisher has in participating in the reader’s experience of value fall into place.

A book that is freed from the binding and social in the social media sense, that it acts as a connector of people, along with ideas, can be constantly renewed through the connectivity and curation a publisher can provide across time, over generations and between far-flung readers.

In short, the publisher can be the hub around which a book is organized and with which the readers interact both with the text and the community that book represents. Do this, and a “small” book of a few tens of thousands of copies becomes viable as an investment, because each book creates new sales opportunities by opening the door to adding value later, through the book, the e-book and across editions.

Exploding the old fixed-asset based book supply chain requires publishers take the lead. One of the primary concerns expressed when I presented this idea was that I did not address the distributors and retailers deeply, but this was a political issue and not a practical problem. Someone has to lead the way to a new definition of value in publishing and forgive me if I think it is the publishers. Distributors are primarily concerned about pricing and inventory—the notion of a book that stays “on their books” as an item in inventory after it is sold is antithetical to the distributor’s business model. Certainly, a distributor could participate in ongoing revenue from a book that continues to create value after the initial sale (which could be a “freemium” offering that drives revenue from a variety of sources, including advertising and curation of new, related ideas that are offered to readers in the future), but they don’t need the ongoing revenue if they have made their margin on the initial sale.

Retailers, on the other hand, are creatures of their communities, if they are successful. Failing retailers have become moribund because they remain enslaved to the distributor’s processes, they serve only as the disgorging point for the book supply chain if they have not carved out a unique services-oriented niche for their customers.

As the slide at the right notes, book retailing is leaving the physical bookstore, but that doesn’t mean the bookseller is doomed.

Instead, a talented bookseller can create a cultural service that thrives in a value chain based on well-defined parts of books interacting in a networked marketplace with socially connected readers. In order to do this, the bookseller must break with the existing supply chain, which asks them to manage their inventories, and focus on service to the reader, who will reward providers of value—publishers and retailers working together—with revenue. As Amazon, Barnes & Noble and Google Books have demonstrated, each of these ubiquitous interfaces to books has begun to build significant value, each in unique ways, in the networked marketplace. So, too, have stores and sites like Powells City of Books, which has not been hurt by the rise of online competitors, because it focuses on identifying its customers’ interests and providing deep service in response.

Publishers should consider cutting loose much of their sales forces and co-investing with them to create myriad specialized retail experiences that focus on categories of readers. This deep fragmentation of the book market began during the paper publishing era, when romance, mystery and other genres became industries unto themselves.

In the digital book era, that specialization can cut deeply into the pools of interested readers and differentiate based on services built around knowing a community’s tastes, knowing how to enthuse and tap the resulting passion among readers, and so forth. This is one aspect of bookselling about which I disagree with Seth Godin’s recent video presentation, in which he suggests publishers might auction exclusive rights to books—no, instead, retailers should create high-value audiences that want enhanced experience and service, including special editions and access to the author in forums conducive to intimacy appropriate to the readers’ habits. Retailers can sell that to publishers for higher shares of revenue.

Publishers must lead this change, because they remain the sole focal point within the distribution system that can— that has for decades—assembled all the resources that make books. Authoring is only one step in book production, and book distribution is another category of activity that publishers have managed, though not on behalf of authors as much as they will need to in the future. Publishers must include readers and writers in the value chain if they want to provide the services that will create the greatest value in a digital book market (one that includes paper books and other artifacts of the author/reader relationship, as well).

If publishers can take up that challenge, they will continue to thrive. If not, readers and authors will certainly find the answers they want in a retooled reading experience that shuts the door on the majority of the existing publishing industry and its current economics. Unfortunately, asking publishers and distributors to change isn’t the safest path and it certainly didn’t get me the job I was seeking that day. The politically safe path is the one that will kill publishing.

Next, we’ll look more closely at that retooled reading experience.