Publisher Strategies and Devastating Opportunity Costs

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Random House Author Portal

Random House Author Portal

I was never much of an economics student. In truth, I was pretty bad. I did, however, grasp the idea of opportunity cost. The first sentence of Wikipedia’s definition sums it up wonderfully for me:

Opportunity cost is the cost of any activity measured in terms of the value of the next best alternative forgone (that is not chosen).

It goes on to state:

The opportunity cost is also the “cost” (as a lost benefit) of the forgone products after making a choice.

When considering opportunity cost, the obvious currency is money. However, time, focus, human resources, morale, and anything else that is scarce may also be considered. When I look at what is happening now in the publishing value chain, I find myself thinking a lot about opportunity cost – particularly the devastating effect I feel it is having on the major trade houses.

A sharp colleague of mine once stated that the only two constants in the publishing value chain are authors and readers. Authors create, readers consume. Everyone else in the middle serves merely to make that exchange as efficient, scaled, and pleasurable as it can be (in theory, anyway).

This month finds the two largest trade publishers turning their attentions to the author pole of the value spectrum. Penguin, via parent company Pearson’s acquisition of Author Solutions, Inc., moved into the “self-publishing” space, developing a direct relationship with authors opting for pay-to-play “sushi menu” style publishing. Meanwhile, Random House recently launched agent– and author-centric email programs and an author portal, designed to increase transparency for the author/agent constituency. In both cases significant cash, focus, and human resources are being deployed to demonstrate a commitment to writers of all stripes. Publishers seem to be putting a stake in the ground — “we own the relationship with the author.”

Ins and outs and nit-pickings aside, both maneuvers strike me as wise when viewed in isolation. Publishers are nicely positioned to serve authors. A great deal of their focus naturally goes in this direction and, given Amazon’s moves toward authors, publishers should be making damned sure the author/agent community is with them.

But a great deal of publisher focus also goes toward the accounts, including Amazon. After all, retailers hold the critical transactional relationship with the end reader. So, publishers can hardly drop those relationships, though they’ve been “re-thinking” them for years now and the “re-thinking” seems to be resulting in shrinkage. However, when B&N speaks, publishers still listen. Period.

So, publishers are tight with authors, agents, and retailers (and the distributors who sometimes service them). So far so good. Scratching head now, I think all I am hearing these days is that publishers must develop direct relationships with consumers or they will be disintermediated in that always nearing future where members of the value chain stop adding value and simply drop out.

So publishers make forays toward the consumer end of the value chain — selling to them, emailing and updating them, collecting them in niches, etc. Meanwhile, Amazon, the most notable value chain hopper, heads toward authors — self published and otherwise. Resource-wise, it’s an unfair race. The capital available to Amazon dwarfs that available to the Big 6 (more often than not to that of their parents, as well). But, I believe that with appropriate focus, publishers can secure their position in the value chain if they…

Take a moment, think about it, and respond to opportunity cost.

When viewed in light of opportunity cost, all of publisher’s recent strategic moves — even the perceived lack of attention to certain areas, and “failures” of several tacks taken — make sense. How does one focus on authors and sell directly to consumers? Well. At the same time. And simultaneously innovating and mastering the discipline of each endeavor. Unless, you de-prioritize something else like, say, physical sell-in to accounts. And I mean really de-prioritize it (eg. all but stop doing it), you can’t.

Simply put, publishers can’t do everything. They must cop to this. Now. The more they try to do it all, the more morale dips and fear rises as they find themselves in mismatches, feeling as if they aren’t putting their best feet forward to anyone. To be fair, publishers try to shift resources but they never truly and explicitly commit. Everything remains “sort of” funded and “sort of ” prioritized. The strategically significant move of the month gets top billing. But only for now. It will be interesting, for instance, to see if Pearson/Penguin’s move with ASI is “real” or a “strategic dabble.”

Call me cynical. I don’t see myself that way. Though I do think the ignoring (or minimizing) of opportunity cost is eating away at publishers. I feel it accounts for much of the general malaise, premature death knelling, languishing initiatives, gallows humor and, truthfully, static profit margins that are pervasive in our industry. This is a) unfortunate and b) can and should be eradicated.

I believe publishers must allocate resources with a greater degree of intentionality and — and this is hard to swallow — often at the full expense of other endeavors. They need to know what they will do — and more importantly, they need to know what they will stop doing until they are able to focus on it. I am quite hopeful that publishers will find this focus as the need to do so increases, thanks to Amazon and others.

As always, I’d love to hear what you think.

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  1. says

    I think you’ve framed the challenge/opportunity issue really clearly here. While I agree that the “only two constants in the publishing value chain are authors and readers” these constants of course have profoundly different dependencies and opportunity costs.
    I’m not good with economics either, but it seems to me the winners in the publishing value-chain will be the marketing platforms that deliver sales to authors. (This is after all the value that publishers traditionally provided by getting print books in bookstores.) If you can deliver sales, authors will follow. To my mind, this means that publishers–whether they are also retailers as well or not–are in direct competition with Amazon. The measure of publishers’ relative success will be first based on sales volume and, only a distant second, on author services (editorial, production, design, and SaaS that publishers dream up).
    For what it’s worth, the reason why I’m such a strong advocate of direct sales is because of the need to own the customer experience in order to increase the long-term value of having captured that customer. I don’t think there’s any good data on this, so it’s a supposition, but my feeling is that the cost of the necessary marketing efforts in the digital space will require that publishers capitalize on that long-term value.
    Now, I’m not saying that the large, general trade publishers are in a good position to accomplish this, far from it, and I appreciate why they’re hesitant to move too quickly to compete directly with their #1 retailer. But I find it hopeful that MacMillan’s Tor/Forge, Sourcebooks, O/R Books, and others, are going in this direction. I’d also be willing to bet that BookCountry, GoodReads, and other middlemen will move in the direction of direct retailing.

    • says

      Thank you for the comment, Peter. I agree completely. I like that you focus on delivering sales volume to authors as the key factor to success. If that can remain/become the key mission than I think a great deal of focusing will occur naturally. The hard part is to be future-looking and strategic at the same time as driving sales growth. Building the engine to maximize sales now might find one ill-equipped for two years down the road. I’ve often advocated for explicit R&D (non-editorial R&D) within publishers but I’m not certain that’s the answer. What I do know is that initiatives often get prioritized based on different criteria — this project to grow sales, this one to extend consumer reach, this one to enhance author relations, and so on. My concern with publishers having this approach — and of course not all do and the degree varies — is that no one thing gets outsized attention, focus, and resources the way, say, the Kindle did at Amazon. In a funny way, I’m sort of starting to think that it’s either consumers or authors and each publisher needs to make its bet and then superserve. Doing so will naturally serve the other. I think that will be more successful than a little for everyone. Obviously, I am still formulating on this…

      • Peter Turner says

        Totally. But if I had to do just one thing and do it well, my focus would be delivering passionate customers/readers to authors. The other orientation potentially requires that authors choose between readers/customers ans publisher services (all of which can be increasingly bought as needed). But that’s easy for me to say, what with little skin in the game.

  2. says

    When in doubt I usually call in the music industry to set my head straight.

    Record companies –should– have direct relationships with people who buy music. Some do; the largest ones don’t.

    The issue is specialization. If a publisher specializes in a particular kind of book, or a record company specializes in a particular kind of music, they can create a community of interest. If not, they can’t. There’s nothing implicitedly shared with a company that publishes history, poetry, novelles romans AND cookbooks.

    I think most publishers should just get on with it and do what they do best: add value to an author’s best efforts and help to make an author’s work known.

  3. says

    I think Thad’s point is a good one, and I think it’s important to distinguish between large “generalized” houses that feature the roll-up of many different imprints and smaller, more vertically oriented houses that CAN cultivate end-user followings because they have a clear brand and content mission. Think McSweeny’s, Chronicle, and the excellent examples like Tor/Forge mentioned by Peter above. The irony for the big houses is that the conglomeration of the 80’s and 90’s–and the attendant “economies of scale”–were supposed to make them more competitive. Now that undifferentiated mass is their Achilles heel, and I predict we will see a substantial cutting of that legacy overhead as well as some kind of return to niche branding before we’re done. The question is, can those big publishers move as quickly as they have to? My opinion is that publishers should focus on the core editorial work of making great content for the mass market. They serve the mass market very well. They should leave the creation of a disruptive discovery engine or retail mechanism to another player. They lack both the market position and the innovation to create the next big platform on an individual basis, and the DOJ issue prevents them from doing it together. If they don’t develop an understanding that they hold the top of the publishing pyramid (the mass market) so they can consolidate their focus and efforts there, those small presses and disruptive service providers below them are going to eat their lunch one tasty bite at a time.

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