domingo, 11 de noviembre de 2007

lecturas de fin de semana [ 56 ] / cambios en la industria de producción, distribución y venta de contenidos

El escritor de best sellers policíacos Barry Eisler le propone a M.J. Rose hacer para el blog Buzz, Balls & Hype una serie de artículos sobre lo que significan para la industria de producción, distribución y venta de contenidos algunos hechos recientes que podrían debilitarla. A continuación reproduzco la segunda parte de la serie “First Madonna and Radiohead; Next, James Patterson”.

First Madonna and Radiohead; Next, James Patterson: Part 2

By bestselling thriller author, Barry Eisler.

In Part 1 of this article, I argued that distribution is flattening, and in doing so is undermining the most important competitive advantage of media companies. This time, I'd like to examine the impact of flattening distribution specifically on the book biz.

Let's start by breaking down the whole book business ecosystem. Who are the players? What are their functions? What does it take to get a book into the hands of a reader?

First, obviously, you need the book. To get a book, you need a writer (good news for writers: we're not replaceable). Once the manuscript is written, it needs to be edited (agents do some of this, some is done by editors). An agent brokers the sale of the manuscript to a publisher. The manuscript will need further editing and then copyediting. It needs a title, cover art, and jacket copy (the package). It needs to be printed and bound (only now is it a "book"). It needs to be marketed and sold to resellers (bookstores and other retail sales outlets). It needs to be shipped. It needs to be marketed and sold to consumers.

So the functions in today's book biz are:

1. Writing

2. Agenting

3. Editing

4. Copyediting

5. Book packaging

6. Printing and binding

7. Marketing (to retailers)

8. Sales (to retailers)

9. Distribution

10. Marketing (to consumers)

11. Sales (to consumers)

Overgeneralizing slightly, note that today, functions 3-10 are concentrated in the hands of publishers (although publishers increasingly outsource many of these functions, a point we'll return to in a moment).

Now imagine a book ecosystem in which resellers no longer needed publishers for distribution. In which, for example, Barnes & Noble, has installed a POD station in every one of its stores, so that books are now distributed electronically and printed on the spot. How would such an ecosystem differ from the one we're living in today?

Freed of distribution dependence, B&N would quickly realize it no longer needed the publisher's sales force, either. Today, the function of a publisher's sales force is largely to excite retailers to buy lots of copies of certain books. The pitch is: "We love X Title, which as you can see has a full two-page spread in our spring catalogue, and we're putting a major, six-figure marketing campaign behind it. Based on the quality of the book and our marketing efforts to consumers, it will sell strongly, so you should buy and stock it in quantity."

In the flat distribution future, B&N will respond, "Glad you love the book -- we'll check it out. And glad to know you're going to market it aggressively to consumers. But we don't need to buy it in quantity, or in any quantity at all, in fact, because with our POD stations, we'll just keep a couple copies on the shelf and print them out locally based on demand."

B&N will then think, "Hmmmm, if I no longer need the publisher for distribution, and I don't need their sales force, what about the marketing to consumers part? I'm already doing a lot of that myself. Some of it, like coop, is subsidized by the publisher, but what's to stop me from doing it all and eliminating the middleman?"

There's more. The chief advantage B&N, Borders, and other chain stores have over the independents, and the advantage Wal-Mart and other so-called big box retailers have over the chains, is lower prices. Lower prices are a function of volume. Volume is a function of distribution. In a flat distribution world, it doesn't matter whether you move 100 copies of a title, or only one. Your distribution costs are the same.

In other words, flat distribution will de-emphasize price (that is, discounting) as a means of competition among retailers. It will even de-emphasize the role of selection -- because digital delivery means all titles will be equally available, whether at a corner independent or a three-storied superstore (but see the discussion of exclusive publishing deals in Part 3). Flat distribution will therefore force retailers to compete in other ways -- customer relationships, for example, and expertise and service. Good news so far for independents... but on the other hand, a small independent will still need to sell books for a profit, because books are the store's only source of profit. Wal-Mart can choose to sell books (or anything else) as a loss lead to pull in customers for its other, profitable items. It'll be interesting to see how flat distribution affects online retailers like Amazon. On the one hand, Amazon's bulk distribution advantage goes away while its distribution-to-consumer cost remains. On the other hand, Amazon's distribution-to-consumer cost hasn't proven to be a problem for the company thus far. But either way, Amazon's massive selection advantage will disappear entirely (subject to those exclusive publishing deals again, discussed in Part 3).

So booksellers realize they no longer need publishers for functions 7 through 9, and that they can eliminate the middleman for function 9. What about 3-6? Publishers are increasingly outsourcing these functions even today; what's to stop an ambitious bookseller from eliminating the middleman there, too?

Nothing. In fact, it's already happening. B&N and Borders both publish their own books. True, the titles in question are mostly self-help, public domain, and other perennially-selling categories. But in June, Borders published Slip and Fall, a hardback novel by Nick Santora that's available nowhere else. Slip and Fall is a classic case of middleman elimination. I don't know the financial details, but I know the dynamic that drove the deal: Santora gets to keep more than the 15% of the price of each book he would have received from a traditional publisher, and Borders keeps more than the 40% it would have kept after paying a traditional publisher 60% of the retail price. In other words, the 45% of the retail price publishers keep today leaves a lot of room for parties like Santora and Borders to settle on a different split -- somewhere between 15% for the writer and 40% for the retailer. A good deal for them (if the book succeeds, of course); a shutout for traditional publishers.

If Slip and Fall succeeds, the model will become more widespread. And here's where what Madonna and Radiohead are to changes in the music biz, James Patterson represents to book publishing. That and more, in Part 3.

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