Fasten Your High-Tech Seatbelts

In an era of flat sales growth, digital technology will dramatically change the roles of publisher, wholesaler and bookseller.

There is no doubt that digital technology changes the way publishers and booksellers handle their most basic business processes, but the most profound changes digital technology will create may be in the marketplace itself.

Most projections of book consumption in units over the next five years are pretty flat. Al Greco, a Fordham University economist and book industry analyst, has recently confirmed this in a digest of consumer trend data he has just completed for the Book Industry Study Group, which will be released shortly.

Although the market is not growing much, it is being fragmented into many more pieces, with results that have not yet been adequately acknowledged by much of the industry's strategic planning.

The growth of book sales on the Internet, headed past 15% by some recent forecasts, but which we'd guess will be past 25% by 2005, is tending to push sales across a growing number of titles. Of course, backlist titles benefit. The fact that people search by keyword and not by year of publication changes what comes to the foreground for consumers compared to what they find in the bricks-and-mortar world. And online sales of backlist reflect this.

One other effect, not as obvious yet, is that books from non-consumer segments are competing with consumer books. Publishers who did not have the capability or the vision to put the books they publish into bookstores are finding sales online. So those books accelerate the spread of the book sales dollar over a greater number of titles.

That's the tip of the iceberg as we near the end of the fourth year of the Internet bookselling revolution. But even more dispersal of the sales dollar is coming.

Added to the titles in print and those being published by the usual means, we now have on-demand printing, most evidently but certainly not exclusively Ingram's Lightning Print program. On-demand will make "out of print" and, eventually, even "temporarily out of stock" archaic concepts.

Already, on-demand is sparking an Oklahoma land rush for out-of-print titles with future sales life, even if a faint pulse. Authors, agents and publishers are all waking up to the fact that for a very modest investment, a title is not only back "in print," it is also in stock at Ingram, which means that it is in stock at every Internet retailer, including Amazon, Barnes &Noble and Borders, as well as every other retailer who sources from Ingram.

Publishers have an added incentive for using on-demand printing: forestalling the reversion of book rights to authors. For the past 20 years, rights reversions have been handled casually, particularly because tax rulings have penalized publishers for holding on to slow-moving inventory. On-demand printing removes the requirement to maintain inventory to keep a title in print.

The print-in-store model -- being pioneered by Sprout, ODMC and other companies -- could become ubiquitous in the next few years. This could add hundreds or thousands of instant delivery locations for every book loaded for on-demand delivery.

So the number of backlist, or "small sale," titles taking pieces of the stagnant bookselling pie is growing at an accelerating rate. How many titles will go back into print through an on-demand solution? Estimates run into the hundreds of thousands between now and 2005.

But of course, if authors and agents learn how to work the Lightning Print and dot com seller connection for out-of-print books, they could use it for new books, too. Certainly that will start to happen for books that publishers, correctly or incorrectly, deem not commercially viable. Since a publisher's definition of commercial viability usually includes factoring in the publisher's overhead, then authors, agents and small publishers will find it easier to attain commercial viability of their won with titles big publishers can't see being profitable.

Add a few more tens of thousands of titles to share the flat sales.

Electronic Books

The book simulator, the e-book, is now making its debut. Several commercially viable versions, including the Softbook and the Rocket eBook, are now in the marketplace. They work pretty well and they'll work better in time. They cost a few hundred dollars; they'll cost less in time. They're having both rights and technology hangups building their libraries; they'll solve those in time. By 2005, these e-books will become a fixture in the marketplace.

Some people today can't imagine people reading books from a screen, no matter how it is designed. I believe that, ultimately, an electronic device can be developed that will give you everything a paper book gives you now. "Ultimately" will take a little longer for art books than for novels.But even if you don't believe what I believe, think about this. In the next few years, corporations all over the world will find Softbooks and Rocket eBooks (and their successors and competitors) a cost-effective way for their employees to process instruction and reference and training now distributed to them in print. It is quite significant that a recent PW Daily story on Rocket emphasized the ease with which one's own files could be "loaded" to be read by the device, rather than seeking out already published material.

Colleges and schools are also likely to be powerful distributors of e-book hardware. Sales to students allow for publishers to amortize hardware cost over a lot of content.

Institutionally driven distribution will assure that by 2005 millions of people will own these devices and use them. The corporate institutions that distribute them will want to buy books to put on them when they want to distribute a book as part of their instruction, reference or training. Universities and schools will load both trade and non-trade books on the e-books they distribute.

Before too long, somebody will get the idea that an employee or a student might sneak a peak at something of "personal" interest on the institution's machine. Remember that many companies resisted, and perhaps still resist, broadly distributing Web browsers because employees would find sites of personal interest on company time.

Even if you don't believe that people will embrace a screen as a substitute for a printed book, you can accept the idea that there will be a book market in downloads for these screens.

In fact, the existing installed base is already visible. A couple of enterprises are distributing "books" to be read on Palm Pilots. Palm Pilots are not nearly as good for that purpose as any of the e-books, but they do have the virtue of already being widely distributed. Some of the many people who own and carry them will, if the compatible files are made available, read books on them.

So e-book files will share the flat sales numbers, too.

Obviously, a problem is building for publishers. With flat sales being chipped off by bits and pieces in all directions, it will get harder to launch new titles in the ways the industry is used to. The share of sales they command will be less and less.

In fact, if the flat sales projection is anything near correct, it implies that the actual sales of new titles, year by year, will start to decline, if it hasn't already. Of course, the mass audience itself d sn't shrink, and the biggest names will continue to sell in ever greater numbers. But it will be harder to have surprise breakout titles and for original material to break even, the way it is published today.

Whether the big publishers who practice list management like it or not, there will be an increased number of new titles in the marketplace, as authors learn to operate the new digital distribution on behalf of works publishers deem to have markets too small to be worth publishing.

There is an essential strategic message for publishers in all this: if your new titles publishing strategy is not a backlist-creating strategy, you're headed for increasingly hard times between now and 2005.

Booksellers

The challenges are no less for booksellers. In the grandest sense, all this change is very good news for booksellers. The wider the array of potential titles for the consumer to shop, the more dependent consumers will be on intelligent intermediation. Our search engine technology, to the extent that the title metadata is accurate and available, helps scope out the wide range of published possibilities to answer any question. It is not as good at providing more focused and precise answers. And it d sn't help a consumer judge the quality or the suitability of any particular book to any particular purpose or user.

A bookseller we can trust, who can help us sort out the possibilities, is increasingly worthwhile. Maybe even worth enough to pay a little margin, even if somebody else on the Internet will sell us one of the books we need a little cheaper.

But the challenges of being a good bookseller will also grow. If you think there are inaccuracies in title metadata now, when Book in Print and the major wholesalers and retailers struggle with large and small publishers to keep information timely and accurate from a book's inception to its demise, you ain't seen nothin' yet. The coming explosion in the diversity of the active title base will be matched only by the explosion in entities providing that title base growth. And even though metadata integrity is critical to Internet sales, many of the newer and smaller entities may learn to make books and promote them before they master all the niceties of managing them through the supply chain.

What we now call "books," even with the definitions expanded by on-demand books and e-books, will no longer be the boundary of the bookseller's world. With the Internet, a pamphlet with a Web page can be a "book," or at least a bookselling opportunity.

The growing complexity of the supply problem makes life more difficult for today's booksellers, but it also insulates them from another trend we are likely to see accelerating in the next five years: the selling of nonfiction books by retailers whose primary business is to sell other products related to the books' content rather than selling other books.

The "affiliate" model pioneered by Amazon is now a proven way for booksellers to cooperate with other retailers or information purveyors to grow sales for everybody. And Amazon is not the only one who can use it. An intelligent and informed specialist in business books, for example, might persuade some appropriate Web sites that it is a better choice for an affiliate relationship than Amazon. That is a new opportunity for independent booksellers.

In the next five years, this tendency for nonfiction books to be marketed and sold in subject-specific environments will accelerate both on the Web and off. We will see a growing distinction in the distribution patterns for fiction, belle lettres and art books, on the one hand, and everything else.

What this all means is that publishers will be challenged to alter their content delivery mechanisms and their basic economic models and make corresponding adjustments in how they promote, with more attention to backlist and, almost certainly, less speculative attention to new titles. And the successful publisher in 2005 will have to be a master of marketing, if not selling, through the Net as well as expert at distributing to a widening array of bricks-and-mortar retailers, often through wholesalers and subject-specific distributors.

Booksellers will have to capitalize on distributing books in any form the consumer wants them. That, and an increased emphasis on the fiction, belle lettres and art books that most other retailers can never sell, very likely means that bookstores will increasingly see new books and used books being sold in the same outlets, perhaps even shelved side-by-side.

And booksellers will have to be increasingly creative at providing customized services, offering chapters and other summary offerings through the Web both to trigger customer demand and to respond to it. As the number of active titles proliferates, the relatively easy sourcing through one or two wholesalers, which has satisfied most demand for the past decade or two, may also become an artifact of a simpler day.

Of course, the wholesalers will try to keep up. The fragmentation of sales over an ever-expanding number of titles published by an ever-growing number of publishers keeps raising the bar of wholesaler competition at the same time that it makes them increasingly useful to the whole supply chain. But the concept of "complete" will become increasingly elusive as old and new titles pour into the marketplace from diverse sources and as pamphlets and magazine article reprints and every other collection of words somebody might want to read becomes part of some bookseller's universe.

Playing a Scary Tune

Consider, for a moment, what we anachronistically refer to as "the record business."

It has the equivalent of e-books; the technology du jour is called MP3. E-books are debatably capable replacements for printed books; MP3 is a totally functional equivalent for CDs or tapes.

It also has decentralized manufacturing capabilities. On-demand printing of books today is expensive, takes a lot of time and d sn't work yet for color or hardcovers or a number of variations in common use. Making a CD takes a $400 machine and a $1 blank CD.

And the record business is different in another significant way. Tom Clancy and John Grisham don't have manuscripts sitting in their closets that no publisher will issue for them. Eric Clapton and the Rolling Stones have mountains of unreleased tapes you've never heard: from every concert they've ever done to every second-best session take. But the record companies would rather have, say, one album that sells 500,000 copies than 20 that sell a total of a million copies. This is good for the record companies, but not so good for the artists.

Between now and 2005, we can expect to see the beginnings of what will be a complete reorganization of the music business. Major artists will abandon their labels and the widest choices of the best new pop music will no longer come from established labels. It will be obvious very soon, perhaps as soon as the end of 1999, that record behemoths are in serious trouble. And terrestrial music retailers will have to scramble to stay in the game; the justification that you have to see it, touch it or smell it in order to enjoy all the joys of ownership makes no sense in the music business.

In fact, when broadband delivery of the Internet becomes common, which it will be in much of the U.S. by 2005, you will be able to plug your stereo into a library that can deliver anything you want any time you want in the way of sound, so you will "have" all the music when you own your connection, and you'll pay for it in some form of pay-per-use.

So we get to watch them go first, probably a good five or 10 years ahead of us. Aren't you glad you are in the book business?

Shatzkin has been an independent publishing consultant and packager for more than two decades. He is the founder of the Idea Logical Co. (>www.idealog.com), which helps clients use technologies in product creation, marketing and general operations. This article was adapted from a talk at the BEA show in Los Angeles.