The publishing industry faces some very challenging times ahead. The coronavirus pandemic and retail shutdown will likely accelerate changes that were already underway, such as the rise of print on demand, publishing industry consolidation, and increasing headwinds for authors and publishers trying to break out new titles.
In order to think through what we’re facing, I turned to Mike Shatzkin, one of the most experienced and knowledgeable people in the publishing industry. Check out his book The Book Business: What Everyone Needs to Know.
Here’s a recording of our conversation (you may need to click here to hear it if you’re reading via email or a feed reader). And there’s a transcript below.
Nathan: Hi everyone, I’m here with Mike Shatzkin, who’s the founder and CEO of the Idea Logical Company. He’s someone I’ve called a publishing industry sage through the years. He’s someone who knows more about the book business than just about anyone I’ve ever met and has a wealth of experience with just about every facet of the book business. In fact, he wrote the book on the publishing industry, he’s the author of The Book Business: What Everyone Needs to Know. Thank you so much, Mike, for joining me.
Mike: Happy to do it.
Nathan: So, we’re here to talk about the impact that this pandemic and shutdown is going to have on the publishing industry. It hit the bookselling landscape at an interesting time, a time when the book industry was already in a time of transition. You have a new CEO and new ownership at Barnes & Noble, you have a growing but maybe fragile indie bookselling landscape where independent bookstores have picked up a lot of the slack in the wake of Borders closing, and you have Amazon kind of edging away from direct book fulfillment and beginning to rely more on third parties. It’s hitting at a time when the industry is in a bit of transition.
Let’s start with Barnes & Noble. There’s new ownership and James Daunt, who comes from the UK where he had a lot of success transforming Waterstones and things like that. What do you make of how this is going to hit them and is a retail slowdown going to blunt any comeback we’re going to see from Barnes & Noble?
Mike: Well it certainly can’t be good. It can’t be good for anybody in retail, and it particularly can’t be good for a company that was already challenged to pay for itself. I don’t really know what Daunt’s plans are, but Barnes & Noble has a really serious problem, which is that sales keep migrating away from physical retail to various forms of online and direct sales to end users. That’s not their fault, it’s not something they can fix, it’s not something they can change, but it means that the market that they’re addressing through their very expensive retail footprint is simply getting smaller every day. And that’s a very difficult problem to overcome.
On top of it all they’re facing several months, or certainly several weeks, without revenue from these places… Maybe they can save on staff costs by laying people off in the meantime, which creates a different set of problems when they start again and they have to staff themselves all over with knowledgeable people, which they need more than most retailers… It’s tough. Any subsequent challenges and reductions in store count or whatever else they end up being pushed to, Mr. Daunt is going to have coronavirus to blame because he hasn’t executed his strategy yet. Whatever that is, it hasn’t happened.
I would also say there’s a generic problem with retail, which is one of the reasons sales are moving away from physical retail, is that the sheer number of titles now available is so mammoth that the percentage that are stocked by the retailer is so small. The chances of finding a specific thing, well, the odds against it have gotten higher and higher. So we’re just in a different world than we were twenty-five years ago when the production of books was much less, the backlist didn’t stay in print forever, and stores had three, four, five times as many titles as they do now.
The math works against them, the physics works against them, and the coronavirus doesn’t help them.
Nathan: Meanwhile you have Amazon… they recently announced they were going to focus their warehouses on household goods and medical supplies, which seems like it’s only going to accelerate a shift away from Amazon doing direct book fulfillment and more and more online bookselling is going to happen through third party sellers rather than being fulfilled by Amazon directly. This seems like it’s going to create another challenge for publishers. How does a publisher calibrate a print run if Amazon is not stocking books and all the sales are happening through this vast landscape of third party sellers?
Mike: Well, first of all I don’t have any information that would suggest to me that Amazon is going to suddenly disappear from the marketplace. Amazon wants to sell whatever it is they can sell. The current moment is a little different because they’re dealing with the urgency of things that are needed in the coronavirus emergency, but I don’t think that anyone is going to feel that they can’t get the book they want from Amazon. Amazon may use third party fulfillment, but most of those third parties with print books: they’re not stocking those print books. Very, very few of these third party sellers are stocking a lot of books. They’re getting their books fulfilled by Ingram for the most part.
The third party reseller is one aspect of the value chain, the other is who’s the publisher. Going back to your print quantity question, from the print publisher’s point of view it’s actually a bit simpler if the inventory is all moving through Ingram than if it’s moving through even half a dozen other places. In the case of Ingram, they also have the opportunity that’s been around for a while but has been exploited more lately, to set their book up with Ingram for print on demand and if they do that, the publisher can sell a book tomorrow that doesn’t exist this afternoon.
I don’t think the end user is going to suffer, whatever Amazon’s strategy ends up being. And I don’t think the proliferation of internet points of purchase, which is what these third party sellers are, I don’t think that proliferation is going to cause a lot of anxiety around inventory because most of those guys don’t have any inventory.
Nathan: Is this going to accelerate more of a shift away from publishers having warehouses and larger print runs? Is it going to accelerate more of a shift toward print on demand?
Mike: When we look back at all of this (whenever it ends, we’re at the beginning not the end, nothing’s happened yet), six months from now or a year from now or whenever it is we can say no one’s worrying about the coronavirus anymore and everything’s gone back to normal, I think one of the things we’re going to see is that the supply chain for books will have dramatically altered. The whole notion of printing lots and lots of books in advance and sitting on them in a warehouse is going to look a lot less attractive for a lot of stock.
The Ingram proposition that we have a print on demand setup and we can take your order this afternoon, print the book this evening, and ship it out tomorrow in a box that says “Nathan Bransford Bookstore” on it so you don’t have to worry about the fact that we fulfilled it not you, I think that’s going to look more and more attractive to more and more people.
Today, publishers will actually make people wait for a press run they’re going to do next week rather than allow Ingram to print a POD copy today and get the book to the consumer the day it’s ordered rather than when the new press run comes in. I think that is going to be seen as bad practice and we’re going to get to a point where best practice is to ship every book the day it’s ordered, and if you don’t have stock let Ingram print the one, and then when you get the stock back in you get the stock back in. I think that we’re going to see a move in that direction.
Nathan: There’s been a lot of investment in the past few years in a lean print on demand and distribution ecosystem that can quickly respond to demand and reduces warehousing costs. Have you heard of any disruptions to the supply chain or any sort of coronavirus related disruption?
Mike: Well, there is disruption because there are printers who can’t print and there are warehouses that are short of staff and can’t receive and ship properly. The whole traditional supply chain is broken in several places. You’re lucky if your printer and your warehouse are functioning okay, but there are fewer and fewer places to ship things. Ingram is still operating and let’s hope they continue to because we’ll really have a problem if they don’t, but it’s getting harder and harder from a publisher’s point of view for it to make sense to bring people into work at this time even if you convinced your local authorities that you’re essential.
The leaner the supply chain the worse the problem. In the old days if you were sitting on a year and a half worth of stock, this happens and it’s not a problem. Today, if you’re sitting on two and a half months worth of stock, something happens and you’re out of stock and all of a sudden you’re facing the problem that you’ve got to get to the printer, the printer’s got to get paper… I mean there are all sorts of issues here.
One of the things I’m wondering about is, Ingram’s going to have to get paper for their print on demand. Will that end up being the choke point? We don’t know, we’re going to be finding these things out.
Nathan: So far publishers haven’t announced the kind of layoffs and wholesale shuttering of imprints that we saw during the financial crisis of 2008, but looking at this landscape where you have more distribution shifting over to print on demand as opposed to warehousing and the industry is facing a lot of external pressures, do you think we’re due for another wave of consolidation within the book business and are the kinds of layoffs that we saw during the financial crisis inevitable at some point?
Mike: Yeah, well, the business is shrinking and will continue to shrink because of the entry into the business in a meaningful way of people who aren’t necessarily trying to make money, whether they’re independent authors or causes or not for profits that are publishing books as a mission… all of these entities putting books into the marketplace makes it that much harder for the commercial publishers.
My sense of these things, and they’re measured very imprecisely, but my sense is that the total share of the book business that goes to commercial enterprises that are trying to be economically sound is diminishing every year and the percentage of the book business in the hands of self-published authors or not for profits or people who are doing it for some reason other than to make money, increases every year.
Yeah, I would already have expected that in the next five years the Big 5 becomes no more than a Big 3. This can’t do anything but accelerate that. You already have all publishers trying to figure out how to reduce their overheads and part of the reason they want leaner printings is that they don’t want to have to rent so much space to store so many books, aside from the risk and the cash tied up and all the rest of it.
The other thing is that it’s getting harder and harder to make new books work compared to ten years ago or twenty years ago. So publishers want to reduce their footprint in terms of their overall overhead, it’s getting harder and harder to make new books successful, which argues for reducing the new title output, that certainly would argue for reductions in imprints.
So yeah, I think what you’re anticipating is probably accurate and is only going to be accelerated by the damage that’s being done to everyone at the moment.
Nathan: Yeah. To offer maybe one glimmer of hope that I’ve seen, people have begun to realize that independent booksellers are just as capable as Amazon as serving as online booksellers. I’ve seen at least some anecdotal evidence, you know Powell’s recently hired back some staff to help with fulfilling online orders… people are beginning to realize that their local independent bookseller can get them books just as easy as Amazon.
Mike: You know I have to say Nathan, even more meaningful competition to Amazon is WalMart, Costco… All of those stores have everything from Ingram. They can get you any book Ingram’s got, which is for the most part just about any book Amazon’s got and then some, although Amazon does have some books in CreateSpace and Kindle Direct Publishing that weren’t necessarily set up for the rest of the world so they do have a bit of a proprietary list, but not that much.
What’s happening, a lot of books are bought by people who are not core book buyers. They don’t go to bookstores, they got their books from Book of the Month Club when that was a fashionable way or they buy them off the bestseller racks at mass merchants. Those people shop costco.com or walmart.com, they’ve got a full selection of the 18 million books that are available. Depending on how those websites are laid out it will determine what they find.
My understanding is that Amazon is beginning to lose share to Costco and WalMart.com, not so much to independent booksellers.com. It stands to reason those are the sites that are getting a lot of traffic, and people who buy books also buy rubbing alcohol and socks and filling up one cart is easier than filling up six carts.
I think that is really where the shift is happening more than to the independent booksellers. I think the independent booksellers benefit from the desire of people to shop in bookstores. That is a market, it’s not as big as it used to be when anybody who wanted a book had to go to a bookstore, but it is a real market. Those people will not be satisfied with the book aisle at Costco. They need a bookstore.
Nathan: That’s also interesting from the standpoint of the author. If more and more people are shopping in an ecosystem of millions of titles and basically any title that’s possibly available, there’s both opportunity and peril for authors there. Publishers will have a harder time breaking out fewer authors, so if you’re one of those authors publishers feel like they can break out in a big way, you’re probably going to get a big advance and you’re going to have a more traditional book publishing experience.
And then there’s just going to be the vast “everyone else” jousting among the long tail. Which is great for some authors because you can have your book out there in the same ecosystem as every other author, but then there’s such a premium on marketing and getting attention to your book and things like that.
Do you see any other opportunities and perils from the author’s perspective?
Mike: What you’re describing and what is real is that the book business for individual titles follow a power law distribution. A power law distribution increasingly shifts share from the long tail to the head, to the very top of the head. As you described, you get a very small number of books or authors that get a tremendous sale, and everybody else sort of fights for crumbs.
That is not a viable circumstance for commercial publishers. That’s a real problem. In terms of the independent author, I’m making up numbers here, but your chances of selling 150 or 400 may be greater than they’ve ever been, or certainly your chances of selling 10 are greater than they’ve ever been, because everyone can find your book and everybody can get your book. Your chances of selling 1,000, or 4,000, or 8,000 are a lot less because there are so many books competing at that level.
For the author that has a real audience, somebody who gives speeches, who has a podcast that thousands of people tune into, who really touch their audiences, can independently publish these days and the fact that their book will be available at Amazon.com and Costco.com and click through their website to a simple mechanism to buy the book, which is easily set up with Ingram these days… Ingram can not only give help to a publisher but also to a store to create an online store for you in a turnkey manner…
That’s going to be the new book business. If you’ve got a real market you can reach, you can do something with it. And if you don’t, in the old days the publisher was supposed to reach the market for you but that was when there was a book business where the book review mattered the most and most people discovered their books on a bookstore table or on a bookstore shelf. In those days the publisher controlled the marketing. These days those things are not nearly as important and the marketing is much more helter skelter and depends a lot more on whether the author his or herself has a real following.
Nathan: Well, it certainly seems like we’re headed for some challenging times ahead. Anything else that we’re maybe missing or that I might have missed with my questions that may be relevant to the current time?
Mike: No, I think you covered it pretty well. You’re right, these are very challenging times, things are really going to change, I think essentially what we’re going to have is an acceleration of things that would have happened anyway in terms of consolidation and market fragmentation. There’s going to be zillions of people publishing books and zillions of people selling books and most of that is going to be mediated through Ingram.
And that is the thing that’s really intriguing that there’s this company delivering books from everybody to everybody. On the publisher side they know who it is, but on the consumer side they’ve never heard of this business, but they’re getting a box sent to their house from them once a week. It’s an intriguing wrinkle on the whole internet thing.
Nathan: Definitely. Well, thank you so much for joining me. This was very informative. Thank you so much.
Mike: You’re quite welcome Nathan, always a pleasure to talk to you. I appreciate it.
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Art: Sextuple stereotype perfecting press and folders with color printing attachment by Unknown
Very informative interview. Now many of us wait to find out what’s next. How will this affect some of the big houses? AND, will this pandemic and our isolation spawn some new, exciting fiction?
Good interview. Thanks.
Thank you for this information. As a boutique publisher in Australia, we have found that the bookshops who have survived hardship after hardship, (including one that outlived a Borders store that opened across the road in direct competition) are the ones who know their local market and stock according rather than trying to stock ‘everything’. Their retail spaces are getting smaller and smaller but are beautifully fitted out and a joy to visit, like a free trip to an art gallery. Often they are owner-operated so the person on the floor, always a bibliophile, knows the customer and is committed to the store. Even with some of the smaller chains, their stock will vary from store to store depending on the local community. On other details, as a children’s book publisher of board books etc., print-on-demand is not really an option for us yet…
Hey Nathan, thanks for sharing this interview with Mike Shatzkin. Coronavirus has a major impact on various industry verticals and I was curious to know it impacts on the publishing industry. This was indeed an informative post.
Almost 2-1/2 years have passed since this interview. Much of what Mike predicted has come to pass. Maybe you could do a repeat interview in the coming months?
Indeed it has! Let me see if I can get the gang back together.