Hard work of publisher restructuring begins – and the #1 reason many will fail

Technology researcher Forrester released a survey of US publishing executives yesterday which uncovered an interesting disconnect: 82% were optimistic about the digital transition of books, but only 28% thought their own company would be stronger as a result. The explanation?

“Publishers have started to do the hard work of making the digital transition and they’re finding that it is, indeed, hard work,” says James McQuivey, vice president and principal analyst at Forrester Research.

The hard work has probably been delayed by early windfall profits from ebook backlists, with major publishers still reporting good results, despite the mayhem in the book trade.

But if the transition is going to be successful for incumbent print players, it will need a shift in thinking. The biggest barrier is the widely-held idea that ebooks are just another format. They’re not.

It’s an easy idea that reassures staff and stakeholders and provides a potential lifeline for the existing business. But it’s damaging because it leads publishers to focus on the similarities and overstate their advantages. These similarities are much less important than the differences.

The paperback was just another format. It fitted neatly into the same business model and the same supply chain. It had the bonus of delivering everyone more business. Cheaper books brought armies of new buyers to buy the same books from the same group of sellers through the same channels.

But digital isn’t like this.

• The supply chain is completely different. The companies driving the structure of the ebook industry are technology companies, not publishers, booksellers or book distributors.
• The economics are different. That includes both the overall cost structure and the marginal cost of delivering one more unit anywhere in the world.
• The value proposition to the reader is different. That means price but it also means a host of other benefits. And the ability to instantly access your books or buy any book 24/7 from anywhere is a killer app, no matter how much you love the feel and smell of paper.
• The barriers to entry are different. They’re both lower (for a publisher/self-publisher) and impossibly high (for most booksellers). And soon Google Ebooks and a beefed-up Amazon partner programme might flip this around again and make the entry barrier so low that not only indie bookstores but every website and blogger will be able to sell ebooks.
• The value chain and power relationships among major participants are radically different. If you want proof of this, you only need to see how Random House was backed into a corner by agent Andrew Wiley. The reason? No one believed one of the world’s biggest trade book publishers had any more power getting an ebook to its readers than a miniscule start-up.
• The content will be different once the digital tail starts wagging the print dog and richer digital editions diverge, instead of being cheap replicas of print-ready PDFs. Of course, this can be an opportunity for big publishers — or big new entrants — to shine.
• The rights are different. Authors don’t have to tie the two formats together and increasingly they won’t. Publishing and distributing narrative works as ebooks is actually easy and inexpensive, and plenty of service providers and ebooksellers are jumping in to help authors.
• Major customers are different. How much time do publishers spend peddling ebooks to today’s most important customer group, bricks and mortar booksellers? Almost none. How important are sales reps for ebooks? Not very.
• Marketing is different. If your book is digital, almost nothing in a traditional book marketing plan is relevant. Scratch everything tied to bookstores (all the in-store, most author touring). Reviewers are usually different (bloggers, readers — most traditional reviewers don’t review ebooks though that will change in time). Merchandising happens online.
• Most jobs are different. Many—possibly most—skills are different from those found in a traditional book company, whether publishing or supply chain. Whether you’re selling ebooks (to whom? how?), marketing them (how? to whom?), producing or editing them (books as software), your job in an ebook business will be different. Very different in many cases.

So just how different must ebooks be before they’re not just another format? I know from personal experience the challenges CEOs face as they’re torn between serving existing customers, resource demands and processes; and giving new ones the freedom, resources and fresh-thinking to grow. What they almost always do is tether an exploding new business to a limping old one in the name of synergy — and to cover the old business’s overheads.

But how much synergy did Amazon need when it got into online bookselling in the mid 1990s? Jeff Bezos had an IT degree and worked on Wall Street. He’d never sold books. How much synergy did Barnes and Noble leverage when it completely failed to get into the game? This article from Fortune magazine of September 27, 1997 is a great example of an incumbent overstating the value of what it brings:

The big guys can just as easily join the fun. Barnes & Noble, the nation’s leading bookseller, opened its own online bookshop (at www.barnesandnoble.com) three months ago and has swiftly exposed the tenuousness of Amazon’s head start. It turns out that figuring out the sexy new stuff, like Web pages and online order taking, is a lot less difficult than figuring out such drudgery as how to cost-effectively finance, stock, and move the physical stuff, the books.

Anything Amazon.com can do on the Internet, so, too, can Barnes & Noble. “There was a mystique about how difficult it was to get started on the Web,” says Steven Riggio, chief operating officer of Barnes & Noble, “but it’s quickly fading.”

In fact this article— and B&N — were 180 degrees wrong. Barnes & Noble failed miserably, Amazon shone. It turns out that the ‘sexy new stuff’ is actually hard and important, and the ‘drudgery’ of the old business was much easier to figure out (and mostly irrelevant to online success). The guy who came to work every day to sweat over the new stuff, without distraction or compromise, won.

Says Ingram Book Group CEO John Ingram in this insightful Q&A:

Publishers have two business models to run: a legacy print model and a new digital one. What competencies are needed now? And if they’re different competencies, and I think they probably are, how do you pay for those? How can the business be restructured so that cash can be created to pay for new things that need to happen?

Unfortunately, very few legacy businesses can sever their digital arms to give them the best chance to compete. The reason: doing this will create huge internal problems. Everyone will be frustrated, nothing will seem to work, communication between the print and digital businesses will be terrible. Out in the real world, it won’t matter, but inside the company it will become a major issue. So the digital business will be reined in and have to serve two masters.

Is this why executives in the Forrester survey are pessimistic about their own company’s chances of winning?

Creating ‘synergies’ with the legacy business — which the ‘just another format’ thinking encourages — too often ends up being a straitjacket for the new one. That’s pennies from heaven for those upstart new competitors.