Publishers' Outlook 2012: The Industry's Next Bold Move

By Brian Howard

The year 2011 may well go down as the annum of the e-reader. Amazon, Barnes & Noble, Apple, Sony and Kobo went all-in for holidays to get their e-readers, tablets and apps into as many hands, purses and briefcases as possible. In 2012, we'll see the results of that push, as publishers anticipate the next step in the digital evolution. Book Business interviewed executives across a wide swath of the industry, from giant trade publishers to university presses, educational outfits and upstart indies. We found that while digital is on the march, print is far from dead, and the next bold move in the industry may be maximizing the synergies between the two.

David Young

Chairman and CEO • Hachette Book Group (HBG)

David Young oversees HBG's massive operation that includes imprints such as Grand Central, Yen Press, and Little, Brown and Co., and third-party services for other publishers. Young, a Hachette vet of seven years, spoke with Book Business from his New York office about growing digital sales, the library/e-book conundrum and the need for more standardization.

Brian Howard: How does the knock-down/drag-out going on between Amazon and Barnes & Noble for the e-reader market affect Hachette?

David Young: Well, it affects it in a very positive way. The manner in which new devices have appeared this year, and at lower prices, have meant far more competition. I think it's quite clear that they're all trying to leapfrog the other in terms of price and technical ability, and that's just a good thing for the consumer and for us.

Howard: What is your current mix of digital and print, and how do you see that changing in 2012?

Young: I think we'll end up this year at about 23 percent digital net revenues. I see that increasing next year to around 30 percent. … Some of our franchise authors, particularly in the thriller area, are already way ahead of that. Some areas—illustrated titles—are completely unaffected. The exciting thing that's happened right at the end of the year is that children's book publishing is beginning to benefit from the Nook Color, the Kindle Fire and the Nook Tablet. And I'm excited about our [Yen Press] Manga editions. I know from talking to librarians that they're seeing pick-up from reluctant readers … teenage boys who wouldn't otherwise think of reading a book.

Howard: Are you watching trends in libraries, specifically the lending of e-books?

Young: It's no secret that we haven't yet found a solution to e-book lending that encourages us. … I'm just not prepared to let the genie out of that bottle because we'll never get it back. … If you imagine all these millions of devices that are spread across America, if we just make our books readily available for borrowing for free in libraries, and it becomes a completely frictionless process, that's the best way of committing commercial suicide I can think of.

Howard: Hachette also offers a number of services to other publishers, from distribution to publicity to rights and permissions. How do you see that part of the business developing?

Young: We've recently licensed Hachette Digital Platform to a small company called Round Table under a software-as-a-service deal, which is a first for us. … On Jan. 17 we [are rolling] out our new Order to Cash System, which has been a massive companywide enterprise and has resulted in the eradication of our old mainframe system, and we've gone entirely to a cloud environment. And it means we can take on new clients more easily, more efficiently; we can deliver their data requirements in bespoke form. The word transparency is bandied around a lot, but we're certainly going to be a much more transparent company. We're completely re-launching our business-to-business website. It will include a portal for our authors and agents to look at sales information, print information, royalty information. That could also be made available in due course for our distribution clients. There's nothing that we do which we don't offer to our distribution clients.

Howard: Do you see transparency as an important part of the puzzle going forward?

Young: Yeah, I think publishers as a whole haven't done a great job telling the general public what they bring to the party. It's something we're acutely aware of in these days of self-publishing.

Howard: What do you see as the biggest challenge and/or the biggest opportunity for Hachette?

Young: Well, when all is said and done, my company has to be fit for purpose, if you like. It has to be excellent in all areas of how it operates. But the great opportunity is to publish bestsellers. If you'd asked me [about our biggest challenge] two or three years ago, I would have said [it] was to get fit for purpose around digital, but I believe we have done that now. I do think there are ongoing challenges, especially as there are so many new devices. I think there needs to be more standardization in our business than there is at the moment.

Susan Driscoll

President & CEO • Wolters Kluwer Health (WKH), Professional & Education (P&E)

WKH's P&E division includes prestigious Philadelphia-based medical publisher Lippincott Williams & Wilkins, which produces books and journals in wide use throughout the healthcare industry for education and practice purposes. Driscoll, a WK vet of three and a half years, and CEO of P&E for a bit more than a year, spoke to Book Business from her home in New York.

Brian Howard: I suspect, as a medical publisher, your split between print and digital will be different from trade publishers.

Susan Driscoll: … It is complicated because most of our print … includes a digital component. We have a very big education business, and every one of our textbooks comes with an electronic version of the textbook with additional assets, and it's all bundled together —… just one price. So when you take that into account, over 60 percent of our revenue is electronic.

Howard: Can you tell me more about those additional assets?

Driscoll: Our education books are print and e-books, and … there … is a website with additional digital assets for every [book]. As for the practice titles … one of the big trends we see is the need for quick answers right at the point of care, and a mobile- or web-based solution that's subscription-based and frequently updated is much more useful.

Howard: Does the battle that's currently going on in the e-reader/tablet space influence WKH?

Driscoll: Not really. We're making our titles available in multiple platforms, and our philosophy is we want to be wherever the customer is. Today in medicine, Apple—the iPad and the iPhone—are the predominant devices. That said, we sell a lot of medical products through the Kindle app, and we think it's [the app for] iPad.

Howard: Do you see a specific business area as having the most opportunity for revenue growth?

Driscoll: Not really. It's funny because I read the earnings reports from the big publishers, and everybody says the education market is troubled. … Actually, we're very optimistic … primarily because … with all the healthcare reform, there's more need for physicians, so there are a lot of new medical schools opening.

Howard: It sounds like you're doing quite a bit with mobile and anticipating more demand in that area going forward.

Driscoll: Absolutely. I think it's not necessarily "instead of." What we see in education is that students still prefer print, but they like the ability to have a mobile version of that print book. So it's not really either/or, it's both. And I think that for apps it's that they're really a replacement for the same kind of product, but they're new types of products. If you're a medical student, you have to study: You have the textbooks, but you might want your flashcards on a mobile app that you can take with you. We really focus on how and when people are using the different kinds of content that we create, then we're trying to figure out which of those are most likely to migrate to a mobile … or tablet device.

Howard: What process do you have for getting that kind of usage information?

Driscoll: Gosh, I think Wolters Kluwer maybe five or six years ago started doing customer-insight work. So, we spend a lot of time going to the workplace of our users. … It's a more ethnographic kind of research, but we actually watch what they do and how they use our content. Because we found that people say they do something, but don't even realize what they're doing.

Howard: What do you see as the biggest challenge and/or opportunity for WKH?

Driscoll: In terms of opportunity, it's twofold. All of the trends in healthcare support the need for continuous learning, and more people who need to learn and be trained. I guess the challenge would be that, because it is a hot space, there's more and more competitors, so we just have to keep on our toes. But because we're actually the oldest continuous publisher in America—Lippincott has been around for well over 200 years—we have a very strong brand, a really strong relationship with customers and a deep knowledge of what they need. So I guess I'd put that on the opportunity side. The challenge is just figuring out what's coming next [laughs]; there are so many rapid advancements.

Maureen McMahon

President and Publisher • Kaplan Publishing

Founded in 1938, Kaplan is one of the premier names in higher education and professional test preparation materials and courses. With the launch of Kaplan Labs, a division dedicated to product development and testing, Kaplan is focusing on the synergies between print and digital products. Maureen McMahon spoke with Book Business from her office in New York.

Brian Howard: What do you see on the horizon for Kaplan Publishing?

Maureen McMahon: One of the things that I am most excited about … is having access to user metrics. … Right now, you send a print book out into the world and you never actually know if someone starts the book and finishes it, if they jump around, … read it for an hour every night … [or] over the course of many months, if they highlight certain parts. … So we're starting to deliver more of our course materials digitally, and … able to start to use that information to make better materials for our students.

Howard: How do you see the print/digital divide evolving?

McMahon: We don't think it's going to be a binary answer. We're looking at what are all the different kinds of content that we provide and what are all the different ways in which we provide it. We provide lessons, … drills, … practice questions, … realistic practice and … videos. We do it in video format, audio format, online, apps, you know? One of the things that we're really trying to figure out this year is: Are there things that video does better than any other format? Are there some things that ePub does better than any other format? We want to develop a profile of the strengths and weaknesses for each delivery format so that we're always using the most effective format for each type of content.

Howard: That's got to be a big change from a workflow standpoint.

McMahon: Technology needs to be part of the process from the beginning. I think that people are used to thinking about technology as kind of an afterthought, like, oh, the business is going to come up with the project and the idea, and then they're going to go to technology and say, "Can you do this?" And what we're finding is that, particularly with ePub3, the developers need to be part of the brainstorming. They need to be part of the creative process from the very beginning.

Howard: What opportunities do you see with ePub3?

McMahon: We're doing a pilot program right now with the Book Industry Study Group [BISG] and the IDPF [International Digital Publishing Forum] where we're doing some testing with ePub2 and ePub3. We're taking the same content that was developed in ePub2, and we're adding the enhancements that ePub3 supports. And what we're actually testing is: Do students recognize and appreciate the difference?

Howard: You're very committed to testing.

McMahon: [Our customers] want us to help them learn, so we have to be very careful not to produce a bad result for them. We actually have to make sure that something works and delivers a better result for students before we roll it out into our larger product. And I think our students like it. They know that they can trust our core products, because we've tested them. But they also know that we're really continuously seeking ways to produce a better experience for them. Kaplan Labs will continue to be where we pilot ideas first and then hopefully, if they're successful, roll them into our larger courses.

Howard: What are you doing with mobile and apps? McMahon: It's funny, just speaking on the retail side, our customers appear to trust e-books more than they trust mobile apps. When we deliver content in a mobile app and we deliver the same content in an e-book, we sell many more e-books, and I think that's because customers understand the value of a book and feel like that is more predictable than apps.

… We are experimenting with delivering our course materials through mobile apps. A smartphone is a great device for practice questions, drilling and flash cards. We've been experimenting with delivering our [full] course materials through mobile apps and the tablet. … We decided to stick with the tablet format only, versus making course materials available for smaller devices. While many … more people have smartphones, we didn't want the majority of our users to have a lesser experience than the really great experience you have with a tablet device.

Howard: I want to ask you about the economy. Is your strategy different when things are good as opposed to now when lots of folks are just trying to find a job, or replace obsolete skills with new ones?

McMahon: Our students are trying to do something really,  really difficult. When we talk to them about what they're looking for, price is not at the top of the list. They want help doing this difficult thing because they've set a goal for themselves. I think price is a factor in everything we do; none of us are infinitely rich. But when we ask people, "Why did you choose what you chose?" it's never because it was cheapest.

Donna Hayes

CEO

BRENT LEWIS

Executive Vice President, Digital

Harlequin Enterprises Ltd.

Best known for paperback romance, Harlequin was a pioneer in publishing books that appealed specifically to women. That pioneering spirit endures, as the company has been on the cutting edge of digital distribution and moves into nonfiction and young adult territories. Donna Hayes and Brent Lewis spoke to Book Business from Hayes' Toronto office.

Brian Howard: How does the knock-down/drag-out between Amazon and Barnes & Noble affect Harlequin?

Donna Hayes: I would say, the more the merrier. We are happiest when we have a broad … base of retail customers to sell our books to. So we would like to see Barnes & Noble do well through this period, absolutely. We'd like to see Kobo take some more market share, as well. We'd like to see Apple take some more market share.

Howard: What is your print and e-book sales' split?

Hayes: We can tell you what we publicly reported last quarter. Global digital revenues were 15.8 percent of total revenue in the third quarter of 2011 and 14.8 percent year-to-date. That's up from 8 and 7 [percent] in the same periods last year.

Howard: What do you see as having significant potential for growth going forward?

Hayes: Certainly digital is one of them, and it has been a great area of growth for us in North America. We imagine that that will be the case in certain overseas markets as well, so the U.K. has quite a good growth rate right now. We have e-book sales starting to occur in France, Italy, Germany, Australia, Spain and Japan. About half of our sales are in the U.S. and the other half are around the world. So we're watching the rest of the world in that respect. We have … a nice business in Brazil that we started five years ago …[and] a new business in India, which I think in the future will be worth something to us. We started a business in Turkey last year.

… In the last couple of years we've started to publish nonfiction, so we think we can still appeal to women, but build a nice position in nonfiction. And also with teen.

Howard: You are doing interesting things with mobile and e-book shorts. How have those been doing for you, and what's up your sleeves?

Lewis: Well, I can't tell you about that [laughs]. A lot of it starts as experimentation. Especially with the short [or] visual-only content, it has been successful. … We've also had a great amount of success finding authors. We've published some new-to-Harlequin authors in those programs that have actually gone on to write full-length editorial in print.

On the mobile side, we're doing free apps that support both our overall Harlequin brand, but also will support specific titles with what we believe will be appreciated extra content, mainly along the nonfiction and teen routes. We took a swing at [enhanced books] a few years ago just to learn, and our learning said the market wasn't ready. I think that's been the experience of pretty much most publishers in the trade space.

Howard: What sort of mechanism do you have at Harlequin to foster experimentation?

Lewis: I think we have a nice blend in the digital group—of people with general publishing backgrounds, people with digital media backgrounds and then people that come from outside of the industry. That brings in a lot of new ideas and innovation. … We realize we're at a time and place in publishing that we have to innovate, we have to continue to prove our value to consumers, to readers, to our authors, to our trade partners. That innovation has probably never been more important in publishing than it is right now.

Howard: What effect does the economy have on romance?

Hayes: Romance novels tend to have happy endings and make you feel good, which in a not-terrific environment is good, but they're also quite inexpensive relative to other choices you could make. I do think there's an absolute point where, if there's a lot of economic pressure, it still is a discretionary purchase, and so to what degree do you start getting impacted by that if it continues for a long time? Which sort of feels like where we are now.

Howard: What do you see as your biggest challenge and/or opportunity in the coming year?

Hayes: I would probably say digital on both sides. The biggest opportunity is: How big is this digital growth going to be next year? We think that growth could be relatively high.

On the other hand, what impact will that have on print, and will that add up to 100 or 90 or 130 [percent of last year's revenues]? When you look at the AAP [Association of American Publishers] stats for this year and you look at mass market, trade and hardcover for U.S., you say, "Huh. There's $4 billion worth of sales there on an annual basis. It's been $4 billion more or less for the last five years maybe, but now a billion of it's digital." So you know, we look at that and say, "It's still $4 billion, there's just a bunch of shifting around between formats." So the challenge is managing that shift.

Johnny Temple

Publisher and Founder • Akashic Books

A former member of indie band Girls Against Boys, Johnny Temple started Akashic in 1997 as an outlet for dark urban fiction. In 2011, author Adam Mansbach and illustrator Ricardo Cortés' "Go the F--k to Sleep" (something of a children's book for parents) became an out-of-the-blue bestseller for the small (25 to 30 titles per year) house. Temple spoke with Book Business from Akashic's offices in Brooklyn.

Brian Howard: How do you see the knock-down/drag-out going on between the Nook and the Kindle right now affecting what you do?

Johnny Temple: Our books are doing really well in e-book format, and we're happy to make our e-books available for sale by anyone who sells e-books. I do have a concern in the long run about the piracy of e-books. … Right now [digital is] working very well for us. In four years, maybe it'll have destroyed the business [laughs], like it did with music.

Howard: What are you doing in print and digital sales?

Temple: I think our digital sales are about 10 to 15 percent of the print sales. [And] it seems to be increasing.

Howard: This has been a pretty big year for Akashic with the success of "Go the F--k to Sleep." Where does it rank among your best-selling titles?

Temple: Oh, it's a whole different ballpark than any other books we've ever published. It's sold exponentially more than any of our previous books.

Howard: What challenges does a press like Akashic face when a book essentially goes viral like that?

Temple: I think one of the biggest challenges is managing the process with a small staff. It's a huge amount of work, and I've seen other small companies eaten up and essentially destroyed by success. One [problem] is that the company suddenly thinks that it's this big, successful company, and so it hires staff and starts expanding, only to find out that the success was kind of a rare thing. … So I'm trying very hard to basically grow very little and to be very conservative about how we're spending the money that we're making this year. We published our first book in 1997, and now we publish 25 to 30 books a year. And like almost any other independent company, we've been sort of chronically unstable the whole time. What I would like to do is stabilize the company. … It's [all] been very welcome and very exciting, but also with some pretty significant challenges along the way.

Howard: Between online retailers, brick-and-mortar retailers and your website, where do you see the most sales?

Temple: Most of our sales are through regular retail channels, regular bookstores. When I say regular book stores, I'm lumping Amazon and other e-retailers into it. We do a lot of business with Amazon, as well as the independent stores. We love the great independents, but Amazon and Barnes & Noble [also] treat us very well.

We sold tens of thousands of copies [of "Go the F--k to Sleep"] in specialty channels: gift shops, children's stores. That's a book that lends itself to being sold in non-bookstore locations. And we also publish a lot of musicians, and you'll see those books … in places like record stores. But the lion's share of our business is regular retail channels.

Howard: What is the biggest challenge and/or the biggest opportunity for Akashic going forward?

Temple: The biggest opportunity for us is if "Go the F--k to Sleep" continues to sell really well year-round. Today it's No. 2 on the New York Times Best Sellers list. When it came out six months ago it was No. 1. I'm not suggesting it'll stay [there] forever, but we've sold half-a million copies, and if we can sell 100,000 copies … a year, that would really alter our business. In a weird way it would affect us more than selling a half-a million copies this year, because with selling a huge amount this year, we're just kind of all trying to hold on.

A unique challenge we face is: The essence of Akashic Books has always been dark literary fiction, which is more or less what we exist to publish. … So it's an interesting challenge to become famous for a book that … I think "Go the F--k to Sleep" sits very well on our list, but it's the only book that we've published that could be called a gift book.

Adam Krefman

Associate Publisher • McSweeney's

Based in San Francisco, McSweeney's is the book-, journal-, magazine-, Web- and now app-publishing outfit founded by Dave Eggers ("What Is the What"). Known for wit, literary high-mindedness and an unflinching commitment to production values, McSweeney's has spun off a number of non-profit organizations related to works it has published, from the Valentino Achak Deng Foundation working in South Sudan to the 826 National tutoring centers devoted to increasing language skills among the young. Book Business caught up with Krefman via e-mail.

Brian Howard: Does the knock-down/drag-out going on between Barnes & Noble and Amazon affect McSweeney's?

Adam Krefman: We're too small to have a dog in the fight. From a business perspective, it's great to see a diverse set of platforms. From a content perspective, it's very far from ideal.

Howard: What is your print and digital sales split?

Krefman: We only have five or six books available widely as e-books, so the majority of our income in e-books so far has actually come from our app [Ed. Note: The app is free, features exclusive content, and provides "deluxe access" to McSweeney's e-book store]. But even those two combined are a pretty small chunk of our business. I think our investment in the quality of the printed book/magazine, and the audience we've built around that, cushions us a bit against the migration to e-books.

Howard: How do you anticipate that changing?

Krefman: We're going to make more of our books available in e-book over the coming year. We'll also keep looking at ways to make things specifically in e-book that wouldn't work in print. We did a Chris Ware comic for our app that … has sold pretty well. Looking at ways to use the various platforms for their strengths seems in keeping with our overall approach to publishing, rather than simply feeding text through some program that spits out ePub files.

Howard: McSweeney's has always been big into production values, making products that look and feel good. What is the company's e-book strategy?

Krefman: We never plan on e-books being a flagship part of our publishing. It's more like an added bonus for us—it's another way to sell our content. Our [print] sales haven't really slipped much, and I think it's because of our commitment to quality. That will never change.

Howard: Between online retailers, brick-and-mortar retailers and direct-to-consumer sales through your website, where do you see the most sales?

Krefman: Our own store website is a huge part of our business—we couldn't exist without it, really—and we're actually on the verge of completely re-launching that. It's hard to know exactly where various wholesalers send our books … but I will say that we sell an inordinate amount of books through independent bookstores, and we really value our relationships with them.

Howard: How many titles did you print in 2011, and how many do you anticipate printing in 2012?

Krefman: Not counting magazines, quarterlies, etc., we did 21 last year. This coming year, we're aiming for 29. We just created a poetry imprint, and we're adding young adult books to our children's imprint, McSweeney's McMullens. We spent this past year creating two periodicals (Grantland and Lucky Peach), and created the McMullens imprint, so 2012 will be a year of growing into all this expansion.

Howard: What's your biggest challenge/opportunity?

Krefman: Indie publishing is always a break-even business at best. So the challenge is to thrive. Maybe that's more of a goal.

Opportunity: The playing field has leveled ever-so-slightly for publishers of our size. I think we're coming into our own as a company that is big enough to pull off ambitious projects, but small and flexible enough to maintain meaningful relationships with our authors, bookstores and other folks in the industry. Given the media's love of "books are dead" proclamations, I feel almost self-conscious saying we're feeling really optimistic about the future. But it's true.

Garrett Kiely

Director • University of Chicago Press (UCP)

The UCP, founded in 1891, is notable not only for its long history of publishing books and academic journals, but also for its distribution arm that provides print and digital services to other presses. Garrett Kiely, spoke with Book Business from his office on a "beautiful, sunny, cold day" in Chicago.

Brian Howard: Of UCP's three main divisions—books, journals and distribution—where do you expect the most revenue growth in the coming year?

Garrett Kiely: Well, from the standpoint of new business, we found that the books division has had the most growth because of the explosion of e-book sales. We've really seen that to be an incremental sale—at the moment it still seems to be adding to our sales rather than replacing sales. Our e-book sales grew about 300 percent last year from a very small number to what would have been considered a more substantial number. We're seeing about 100 percent growth this year; there's not that much growth in any other sector we have.

On the distribution side, we're diversifying by offering options for digital distribution, and [on] a scale that many smaller presses can't do on their own. We've added about 12 presses in the last year, and about 30 or so over the last couple of years.

Howard: What is your current print-to-digital mix, and how do you see that changing?

Kiely: On the book side, likely about 10 percent of our sales will be digital, and that's a little deceiving because not all of the books on our backlist are available in electronic form. Where we do have a print and electronic edition, the sales tend to run more like 25 to 30 percent electronic. … On the distribution side, we have encouraged many of our distribution clients to continue evolving their business toward digital. It's hard to say what the exact split is there because we have 90 publishers that we distribute.

Howard: How is UCP affected by current trends in libraries, specifically the adoption of e-books and a trend toward demand-based purchasing?

Kiely: The fact that services like ebrary, NetLibrary and others can offer a wide range of books to libraries, and the libraries only purchase them when customers use them, I think that that's a good thing in a lot of ways because it basically helps prove which books are used versus which books are not. But, at the same time, … there has to be a certain amount of serendipity as far as research is concerned. A lot of the researchers we talk to will say that being able to physically scan the shelves for books and find things that you didn't know were there is one of the key aspects of research.

E-books and libraries, especially academic libraries, are something we support and have supported. We've had deals with NetLibrary and ebrary going back to 2000. … For publishers that publish books that are going to be used in courses, it's a concern. For example, if you put a single copy of a book into a library, and that library has unlimited usage of it, as many students as [they] want can access it simultaneously or something like that; if that book was used for courses, the revenue to the publisher will dry up entirely.

Howard: What changes do you anticipate with your flagship, "The Chicago Manual of Style"?

Kiely: The 2003 edition published in print, but it wasn't until 2007 that the electronic edition came out. With the new [print] edition that published in 2011, we published the new version of the online site simultaneously, and we've had an interesting mix of business there as far as bundling and offering specials.

We've been getting a lot of push from people who say, "We want a 'Manual of Style' app, we want a 'Manual of Style' e-book." It's a complicated e-book because the "Manual of Style" is meant to encompass everything confusing about print and publishing in one book. But the evolution of tablets is helping quite a bit. So I'd say keep your eye on the "Manual of Style"—we're always evolving the model and other digital forms of it will be coming.

Howard: What is the biggest challenge and/or opportunity in the next year?

Kiely: I think the biggest opportunity remains evolving our staff and our thinking into different ways of doing business. More and more I see people on my staff—who, frankly, were pretty resistant to [digital]—suddenly turning around saying, "Hey, this is important because my authors are asking about this."

What if we turned the whole power of this press towards this? I think we can actually change our business quite a bit. And that is also the challenge [laughs], because you know, any time you take a well-established business and try to reform it in some way, it's inherently risky. And it's part of my job to ensure that this press continues for [another] 120 years. BB