Why did News Corp decide to break into two companies? Because the path-to-market model has changed forever and new investments are needed.
Does that mean publishers will disappear? No. Distributors like Ingram? No. Bookstores? No. Nothing will change in the current supply chain except—volume. So why is News Corp so worried about the future of newspapers and book publishers? Because a lot of expensive investment experiments will be coming to websites and bookstores near you. Experiments that will drag down the bottom line. Experiments that will test business relationships to the breaking point. What kind of experiments? Bear with me a minute.
Much has been said about 20th Century publishing methods and advantages versus independent authors who go direct to the reading consumer via e-readers. Nothing will ever be decided or finalized in that debate. Unlike the music industry, publishing has always had the original hardcover and always will. Cheap paperbacks are a different story. Those will be gone shortly. There are people like me who still prefer the hardcover and people like my wife who prefer the e-reader. There are books I prefer on my e-reader, notably books with big words I need to look up, and books with pictures. (Insert joke about my reading level here.)
No matter what format readers prefer, there are two distinct methods of reaching the reader: Direct and Indirect. This has existed for years in technology. Corporations often buy computers direct from the manufacturer. Consumers played with that idea for a while, then came back to Costco to check the look and feel before buying. Both channels continue to exist even after Apple glorified the direct-storefront. I will let you mentally hash out the rationales for different buying experiences but suffice it to say, there are times when one is better than the other and vice versa.
In 2002 the model for publishers to reach the market looked like this: author-> agent-> publisher-> distributor-> Bookstore-> reader with unsold books-> distributor-> publisher. Efficient? Think about shipping half a pound of paper at least twice if not three or four times.
Today, that model still exists and will continue to exist but most likely at a lower volume. The streamlined alternative is author-> publisher (optional)-> ebook distributor (optional)-> reader. Lower cost? Yes. Lower profit? For the publisher, yes. A lot lower.
Of course the operative phrase here is (optional). Do publishers add value? Yes. Is it irreplaceable value? No. Is it a known value? No. Walk into a book store and ask readers to name five HarperCollins authors. Or Penguin. Or _____. Readers are not aware of any publisher’s added value. That is a problem.
The publisher and bookstore of the future will have to add value to the reading experience. Yes, they do that now. What value they add and how they add it will change dramatically over the next five years. With the biggest drama occurring over the next two.
What options do the Big 6 publishers of today have to add quantifiable value in the streamlined path-to-market? How do they protect that value from duplication by competitors? How do they make that value obvious to the reader? And most important: how do they build that new brand?
1) Go direct to consumers? Yes. They will have to offer it as an option at some point. Several already have. Few with any passion.
2) Apple-style showrooms? Maybe. Barnes & Noble will sell books to readers without worrying about one brand versus another. HarperCollins versus Random House. If things get really dicey, The HarperCollins Store might become an attractive option for them.
3) Pay-to-display hardcover books at independent outlets? Maybe, but probably not any more than they’re doing now.
4) Paid Reviews. Yes, until they’re caught. Oddly, paid reviews are expected for independent authors but spurned in the Big 6 (or so they tell us). How long will that dignity last?
5) Turn their collective back on Amazon? If they can. Amazon is a competitor and distributor. And growing in power daily. The Big 6 need B&N, Amazon, Apple & Google at the moment. If options 1-3 play out, and if Google’s Nexus 7 creates an open platform, it’s open season on Amazon.
How will investing in these experiments payoff? Unknown. And therein lies the risk to the News Corp bottom line. A great deal of flexibility will be needed to weather the coming storm and Fox Entertainment (TV & Movies) does not need that drag on profits. Therefore–split the company in two. And what do we learn from the split? That News Corp intends to make big investments in changing the publishing marketplace.
How do you expect to procure books in 2022? What are the options for publishers and bookstores in the next two years?
Peace, Seeley James
PS on 7.11.12: A 6th thing they could try is to acquire new technology. But that is just an admission that they don’t have the personnel on board to implement those new technologies. If the latter is true, past M&A experiences teach us that the acquired company will evaporate (note Dell and HP acquisitions). For more on MacMillan’s sad attempts to deal with the future, see this article in the PandoDaily.
Peace, SJ
