2012 Digital Perspectives: The Publisher

This week we have written a series of short articles titled, ‘2012 Digital Perspectives?’ These have looked at what we believe are the short term issues, challenges, potential game changers and outcomes across the digital publishing value chain. Today we look at the many complex opportunities facing the Publisher.

As we have seen this last week with the HaperCollins versus Open Road legal charge, different parties can view even a contract from a perspective, which is not always shared. We often find ourselves through different windows into the same house and seeing completely different rooms.

Rights
Publishing is a rights business without a Rights registry, where much of the information about rights remains locked away behind closed doors. Digital publishing now demands greater clarity and transparency on rights and the current ambiguity and lack of information remains digital publishing’s biggest threat and opportunity.

The book world is global and as the ebook market explodes, publishers have to rethink territory rights. Orphans remain the prize sought by many and an issue still unresolved. Permission rights will increasingly become an opportunity as content gets fragmented, enhanced and as snippets become more accessible in a digital world.

Licensing models that exist in other media don’t exist in the book market today. Rental and loans can’t be ignored any longer and if not addressed proactively they may be addressed by others.

Digital Rights Management will continue to be demanded by publishers who will be wary of piracy. The shift to online and cloud based on-demand platforms will also start to negate the need for DRM and downloads as we know them today and it is inevitable that DRM as we know it will have a limited life.

Copyright contracts should move to fixed term contracts and commercial terms where a licence may automatically revert if not renewed. This could itself offer a different reward structure and one which is based more on performance by all parties. However publishers must seize the initiative and not wait for others to dictate it.

Content
Many still print first then convert to digital and Editorial remains for many the last bastion of the analogue world. Although many in professional and STM have already learnt the lesson and gained the benefits of XML workflow and development it is still to be adopted more widely across all sectors..

Context
Ester Dyson once said that being able to find a needle in a digital haystack was key and we thought that Google’s big opportunity was to start to change search and discovery. However this did not happen in 2011 and perhaps their problem is that they still see books as mere information to index and fail to grasp the context.

Content will increasingly be used to provide context and support search and discovery. These opportunities demand changes in how content is developed, managed and distributed.

Progress has been made with services such as Net Galley and Yudu, but these were still locked into solving bits of and not the total problem. The industry is failing to grasp the difference between content based services and transactional ones. It’s standards bodies and focus is still focuses on servicing business to business information and fails to grasp the more important and greater business to consumer opportunity.

Social networking is starting to make a difference, and the challenge is to harness the social facilities in a positive way to advise, stimulate and lead consumers to discover titles, whilst avoiding blatant product placement and ;happy money'. Success is not guaranteed by the size of the spend, but by the skill of the approach and the only one that really matters and decides the winners is the consumer.

We still have to see trade publishers grasp direct marketing skills and mail list management. It is after all easy to collect names, but a lot harder to know how to exploit them when you are not the natural consumer facing agent. Trade publishers now find themselves dealing with traditional mass marketing, marketing to channels, brand building of both authors and their own brand and direct marketing. Is it therefore understandable that they all often fail as they try to cover all bases.

Digital Sales, Tax, Pricing and Royalties
Today’s digital ‘honesty box’ sales model is not sustainable without sales and royalty transparency. Asking publishers to reconcile sales that they can’t often audit, could be seen by some as an untenable position. No longer can publishers count the stock out, sold and returned. In a digital world, the unit only needs to be stored once and only moves when it is sold and there should be no returns. In theory this should make sales and royalty reporting and reconciliation very simple. We expected the industry to address this before it became indoctrinated within the market, but have seen little co-ordinated effort, standards or even approach.

Taxation is a digital mess with different rules and rates everywhere and a lack of harmonisation even across the EU. Should prices be inclusive or exclusive? Should tax be at point of distribution or consumption? Why is the same product taxed differently because it is digital? Publishers may not make the rules but can lobby and influence them.

We know now that the agency pricing model will face many legal tests this next year and will probably fail some if not all. Pricing is a threat and an opportunity. Managing prices across thousands of titles, from thousands of publishers, through many many channels and outlets, can only be managed at the consumer interface. In a digital world where all books look the same, the lack of consumer price points only adds to confusion. This was partially addressed in music when iTunes invented the track price but remains a challenge in publishing where value still has to be effectively communicated.

The Publishing Organisation
Publishers now need to seriously consider the impact of digital on the organisation. There is no right or wrong answer.Do they have a single organisational focus that sees physical and digital as mere renditions of the same work and if so, which part is the dog and which is the tail?

The digital business will have to be far more holistic in its approach and consideration of all aspects of publishing and yet must remain agile enough to respond to rapid changes.

The large publishers will continue to control the vast majority of sales and in sectors such as education, professional and academic and it is hard to see a change to this 80/20 rule set. However, in trade publishing we see a different dynamic and potentially, a more level digital playing field. In digital, publishers are only as good as their ability to exploit their content and rights and those that believe they have a divine right to market share will soon learn the digital reality.

A New Era of Author Care?

We live in a connected world where information can be instantly available at a click. However, information on book movement and sales has todate often been a dark secret and a source of frustration to a major stakeholder – the author.

Today three major publishers have announced in the US that they would allow their authors to access book sales data directly online. Simon & Schuster have created an author portal, where authors and illustrators can check sales of their books, by format and merchant and including digital. Random House and the Hachette Book Group have also declared plans for their own portals for authors sales information. This in itself a significant break through and starts to make sales data transparent, embraces authors and is to be applauded.

Some have suggested that the motive behind the initiative is to combat Amazon, which gives authors access to data on their titles from Nielsen BookScan and also allows them to check their sales ranking compared to other books on Amazon. If this is the case it should be accepted as a price to be paid for not acting earlier and making business with author transparent in the first place.

The big question is whether this new wave of Author Care is to be consistently applied across all publishers, or remain as a tool by the big publishers to differentiate them from the smaller ones who will find it difficult to compete. As the creators are the ones who input the most it would be great if industry bodies such as the APA or AG could help facilitate a similar service for smaller publishers and their authors.

There will always be issues re timing and accuracy of the feeds but as the likes of Bookscan have proved, there should be no reason in today’s world why information lines are so broken and inconsistent.

Authors should only need to see actual sales to consumers, not the units shushing around in the market. Trying to explain sale or return movements to authors may prove a very interesting exercise and its not one that they need to understand today. However they will need to see special sales as units sold firm to intermediaries.

Digital sales are different and should be instantly available, as in theory, they only leave the digital warehouse when sold. However the more these are with aggregators the more difficult this often becomes. This brings us to the next logical issue of royalties and whether this new era of transparency will lead to a long overdue open reporting on royalties and speeding up of payments? As more contracts adopt reward based on net sales the actual cost of sales and not price paid by the consumer becomes important. With respect to digital sales and the agency model there is little reason why monies earned should not straight forward and even transfered in the swipe of a card. We realise that may be too much to ask but it should not be too much to strive for.

As many author advances and rewards shrink we must strive to look at ways to keep them better informed and pay them quicker.

Are You Selling Your eBooks Via An Honesty Box?

Imagine you have 100 ebooks and each has to be handed over to not one reselle,r but potentially many. Each reseller stores the files on their system and effectively sells copies of the file to their customers and can also sell them through other resellers to their clients. The files sold may be complete download sales and could if I have granted these could be sold as separate chapters. Some could be sold online as direct rentals, or under subscription. Some may be loaned by ‘libraries’. Revenue could be subject to an agency model on a ‘fixed price’ , or net sales as per a wholesaler terms. Whatever, the model, whatever the channel, whatever the price you only effectively learn what has been sold long after the event.

Now ask your CFO if they are happy giving the company assets to all resellers and then waiting, for them to tell you what they have sold and to pay you what some call as being ‘on consignment’ in a print world and via an ‘honesty box’ in the digital world. The difference is that in the print world you can count the units out the door and the stock in hand. In a digital world you merely hand over one copy of which many copies are made and sold, hopefully many times.

We are not questioning the integrity of any reseller service, we are merely pointing out that the digital ebook world is built on a lots of trust and not a lot of counter balances. Some aggregators do provide some statistics of sales online, others you wait for the sales report to tell you the facts after the event. In all cases money sits in cash flows waiting for yesterday’s financial processing to grind into action.

Now spare a thought for the author who is one link up the chain and has to wait until his royalty statement is produced to find out what sold and the royalties earned. It often can’t be done any sooner as it has ‘to be processed and consolidated with the old print royalty system’. We would suggest that authors may be a bit more digitally responsive with transparency and speedier in not instant reward. Some would suggest that they first have to earn out any advance on front list but on back list, we shouldn’t have the same block and maybe we should be thinking how and why rather than why not?

Digital is different but we spend far too much time dreaming up the sizzle and worrying about the formats and standards and selling and often very little focusing on how we could collect cash faster and more transparently. The next thing we will have is a new audit service to pour over the figures to validate that they are accurate or not and of course incur yet more cost to offset. The obvious candidates for this would be the likes of Nielson and Bowker.

We are living in a world of instant cash transactions, where a credit transaction made anywhere in the world can be see by all, where information is real time. We subject the ebooks to DRM authentication which automatically can validate licences in flight and the likes of Adobe can authenticate every encrypted licence of an ebook using their DRM solution in real time, yet we can’t appear to see sales and collect cash on payment. It somewhat ironic that it could be argued that Adobe today has better sales data on the transactions they licence, than the publishers! There should be no digital returns and what disputes may occur, can always be dealt with retrospectively. So why has the standards and processes not been delivered to provide live and transparent reporting of sales transactions in a standard manner. We bet its coming but not soon and probably at the same speed that the returns issue did in print.

Perhaps we have been so obsessed with readers, platforms, formats, aggregators, pricing and DRM we have forgotten to close the loop? Perhaps we shouldn’t be thinking about ‘messages’ as much as instant processes.

Managing Digital Sales Data

When we gave physical inventory it was easy to count the books out and count them back in, but in the digital world there is only one going out and none coming back in.

As a publisher today just how many aggregators and resellers would you give your digital files to? Once you have given them how do you effectively monitor the sales and reconcile and potentially audit these? If someone goes out of business how do you effectively retrieve your assets and what is the service implication on licences issued? Obviously everyone has the answers and new models such as agency don’t impact these questions, or do they?

Today sales are reported many ways, on many different schedules and consolidation is not always straightforward. Services, such as those provided by RoyaltyShare, manage eBook transactions and complex digital revenue data from dozens of eBook, downloadable audio book, and print-on-demand retailers. Today these systems have to supports feeds from tens of digital e-retailers and distributors worldwide and also support both the agency and wholesale models. We already provide such client services and respect that reconciling sales today is not easy. However what is the number of resellers they will need to support tomorrow? Will the industry choose to stick with a small number of big reseller and aggregators or cut out the middle man and enable anyone to sell their titles?

Long overdue standards are coming which should make the reconciliation of sales data easier for all to handle, but does the data challenges stop there?

Do these new outsourced collection companies such as Royalty Share also become the effective auditors of digital sales? Do they have the licence to consolidate the information across publishers and offer sales charts? Can they be used to offer direct royalty payments to authors? Does sales reconciliation and associated activities ever reach a point were it has to come back inside the organisation?

We are seeing the emergence of new service offers that are geared to join the new digital dots, but each needs to be paid for and each extra outsourced operation can impact the bottom-line. It is somewhat surprising that industry bodies and groups of publishers have not collaborated to specify and provide these essential services and are happy to pay individually to address them. Alternatively, why isn’t the obvious industry data collectors such as Neilson’s and Bowker’s stepping up to address this obvious market need.