Rocket Bomber - business

[Please also read the preceding post, Cheaters Prosper]

I’m a bookseller—not a lawyer—and I don’t pretend to know all the ins and outs of tax law, but a couple of Google searches can pull up most of the information you need to know why Amazon should be collecting the tax. I’ll leave you to your own conclusions on why they fight so hard against it.

First up:

http://www.newrules.org/retail/rules/internet-sales-tax-fairness

“In a 1992 decision, Quill v. North Dakota, the U.S. Supreme Court ruled that retailers are exempt from collecting sales taxes in states where they have no physical presence, such as a store, office, or warehouse. (The legal term for this physical presence is ‘nexus.’) Although the case dealt with a catalog mail-order company, the ruling has subsequently been applied to all remote sellers, including online retailers. The Court said that requiring these companies to comply with the varied sales tax rules and regulations of 45 states and some 7,500 different local taxing jurisdictions would burden interstate commerce.

“In its ruling, the Court specifically noted that Congress has the authority to change this policy and could enact legislation requiring all retailers to collect sales taxes without running afoul of the Constitution. ‘Congress,’ the Court declared, ‘is … free to decide whether, when, and to what extent the States may burden interstate mail-order concerns with a duty to collect use taxes.’

“Today, software has largely eliminated the difficulty of calculating and remitting sales taxes for the country’s many state and local jurisdictions. Indeed, Amazon.com, which opposes extending sales tax to online retailers on the grounds that it would be ‘horrendously complicated,’ collects sales taxes nationwide for Target as part of its management of the chain’s online business.”

So, first: the argument presented by mail-order and online retailers against their obligation to collect the tax [19 years ago!] has been made irrelevant by technology.

Second, the Supreme Court took the time to point out Congress could reverse their decision at any time with simple legislation.

Most importantly, though,

“[W]hile remote sellers are not required to collect sales taxes, the tax is still owed by the individual who made the purchase. Individuals are suppose to keep track of these purchases and pay an amount equivalent to the sales tax as a ‘use’ tax on their state tax returns. Few people do, however, and the use tax is almost impossible to enforce, which effectively exempts these purchases.” [emphasis mine]

Hear it again from another source: http://www.nolo.com/legal-encyclopedia/sales-tax-internet-29919.html

“Consumers who live in a state that collects sales tax are technically required to pay the tax to the state even when an Internet retailer doesn’t collect it. When consumers are required to pay tax directly to the state, it is referred to as ‘use’ tax rather than sales tax.

“The only difference between sales and use tax is which person — the seller or the buyer — pays the state. Theoretically, use taxes are just a backup plan to make sure that the state collects revenue on every taxable item that is purchased within its borders.”

And from Wikipedia: http://en.wikipedia.org/wiki/Use_tax

“A use tax is a type of excise tax levied in the United States. It is assessed upon otherwise ‘tax free’ tangible personal property purchased by a resident of the assessing state for use, storage or consumption of goods in that state (not for resale), regardless of where the purchase took place. The use tax is typically assessed at the same rate as the sales tax that would have been owed (if any) had the same goods been purchased in the state of residence. Use tax applies when sales tax has not been charged. Purchases made over the Internet and out-of-state are the most common type of transactions subject to a use tax.” [emphasis in original]

also: http://en.wikipedia.org/wiki/Sales_tax#Enforcement_of_tax_on_remote_sales

“In the United States, every state with a sales tax law has a use tax component in that law applying to purchases from out-of-state mail order, catalog and e-commerce vendors, a category also known as ‘remote sales’. As e-commerce sales have grown in recent years, noncompliance with use tax has had a growing impact on state revenues. The Congressional Budget Office estimated that uncollected use taxes on remote sales in 2003 could be as high as $20.4 billion. Uncollected use tax on remote sales was projected to run as high as $54.8 billion for 2011.” [emphasis mine]

It is not that internet purchases are “tax free” — they’re not. It’s a matter of who collects the tax. If you want to argue that internet purchases shouldn’t be taxed, well, take that up with your elected representatives — but as noted above, this went all the way to the Supreme Court and the ruling came back that tax is still owed even if it is not collected at time of purchase — in both the 1992 case, Quill Corp. v. North Dakota and the earlier 1967 case cited as precedent, National Bellas Hess v. Illinois Department of Revenue, no one was arguing that the tax was not due, only that making out-of-state companies collect the tax constituted an unfair burden. The tax due is not a matter of where the company headquarters is located, or which warehouse it ships from: it’s a matter of where you, the purchaser, live.

When you buy a book from a bookstore, we collect the tax at the register (It’s listed on your receipt). We send a check to local and state governments monthly, and the sales tax revenue is an important part of what keeps your local municipalities running: it would be very hard to make payroll (for say, firefighters and police officers, and to be fair, also the really awful people at the DMV – but they deserve a paycheck too) without this stream of income. If these sales tax revenues weren’t available year-round, your city or county would have to borrow the money, and then wait until April (or later) to pay the loans back, incurring interest and fees that eat into already small budgets.

Amazon’s continued resistance to collecting taxes has nothing to do with the internet being tax free. [in case you missed it: the internet is not tax free]

Amazon doesn’t have to advertise the tax when they list prices — just like they do not currently list shipping costs. They can still sell a 500 page hardcover book for $11.37. They can still beat us on price, and force bookstores into bankruptcy by doing portions of our job better than we ever could. These fundamentals would not be changed if Amazon added one more little line item, between the price they charge and the shipping fees. Amazon would make no less money.

Well, Amazon might make marginally less money. Like, one-millionth less. But it’s still cheaper to pay for lawyers than it would be to actually collect the tax and forever burst the myth that Amazon is tax free.

When I pointed out that Amazon cheats, I was referring to the near-universal [incorrect] perception among shoppers that Amazon “will always be cheaper” by whatever percentage equal to that tax. It is such a widespread belief that I encounter it at the bookstore every day, and I even get “corrected” by well-meaning people on the internet.

When retailers cry foul and ask for equal treatment under the law, we’re not asking that a ‘handicap’ be imposed upon Amazon because we just can’t compete. Almost the exact opposite is true: We’re asking Amazon to stop cheating and play by the same rules. We’re asking Amazon to stop abetting widespread tax fraud. We’re asking Amazon to disclose to their customers the actual costs of purchases, including the tax, and customers’ obligations under the law.

I’m just trying to sell you a book. *I* didn’t come up with the sales tax, I don’t “charge” tax [retailers collect it on your behalf], and Amazon will beat me in most (but not all) cases purely on price whether they also collect the tax or not.

But let’s stop perpetuating the myth that internet purchases are free of tax.
Also, allow me to correct the perception that asking Amazon to do the right thing [morally if not legally — and also the right thing for their customers] is ‘sour grapes’ from grumpy retailers over losing sales to the internet.

I can provide intangibles at the bookstore that Amazon can’t. I’ll compete on that. But I’d appreciate a level playing field without the de facto tax-subsidy that allows Amazon to advertise an additional discount that doesn’t really exist.

##

Full disclosure:

I work full time as a bookseller at Barnes & Noble. I’m a manager at one of their many, many stores.

I’m also an Amazon affiliate, and earn a small sum from linking from my book reviews to the Amazon site. [I’m also signed up for 3 other affilate programs I use on a regular basis, so my relationship with Amazon is not unique.]

It’s not that I hate Amazon; I shop with Amazon too, on occasion. But I do hate cheaters and it seems like AMZN has gotten a pass for far too long —

Take local sales tax, for example: as a retailer, I have to collect it. As an internet retailer, Amazon should have to collect it too — but they don’t. Please note, your local business do not charge sales tax, they collect it on your behalf to pay for local services, and the salaries of the government employees [your neighbors] who provide those services.

Amazon claims it shouldn’t have to collect these taxes [note: no one is asking Amazon to pay tax, they merely need to collect on your behalf] because it’s not a local company — Why, we’re up here in Washington State, what do you mean local sales tax? — but that’s not the issue:

Amazon’s customers are local — UPS trucks use local roads to deliver Amazon packages [roads maintained by taxes], Amazon’s customers’ kids go to local schools, Amazon’s customers’ civil disturbances are broken up by local police — heck, readers make use of local sewers when they read Amazon’s books [on certain occasions], sewer lines built using local taxes.

Local sales tax isn’t paid by the retailer, it’s paid by you, and your neighbors. Sure, you can opt not to pay tax if you order through Amazon — and Amazon is more than willing to be complicit in the act, as that translates into a 4-11% “discount” [depending on your particular locality] and that is a massive competitive advantage. The states of Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming don’t charge income tax so a majority of the state budget has to come from other sources, like sales tax. (Alaska and New Hampshire also don’t charge a state sales tax, but I’m sure local jurisdictions within those states do.)

Maybe we could move to an honor system, where no retailer has to collect the tax, and you just report your purchases for the year past every April, and you’re on your own coming up with the total tax bill. Then Amazon wouldn’t have to collect sales tax and neither would I and your yearly tax headache [and burden] would be tripled — instead of straight-forward automatic collection at point of sale you’d have to save all receipts, figure out what was bought where [as each muncipality, county, and state have different rates] and reconcile your tax burden on an individual basis for each jurisdiction. Sound like fun?

Here’s the plain, honest truth: Amazon will have to collect sales tax. Even if it takes an Act of Congress and a Supreme Court decision, it’s coming. It’s to Amazon’s advantage to prevaricate and dodge and lie and cheat for as long as they possibly can, though — and negotiate back room deals besides, because the alternative is competing fairly with other retailers on a level playing field — without additional discounts enabled by lies and tax evasion.

Amazon Knows This: and they have already built the website infrastructure necessary to comply with the law — so don’t listen to them if they say it would be “prohibitively expensive” to “radically change” the way they operate. Truth is, they already collect sales tax in 5 states.

A handy explanation is on their web site – and oh, yeah, you don’t want to know what they had to go through to accomodate the agency model for ebooks:

“ Kindle books, subscriptions and active content titles sold by various publishers are subject to sales tax based on the publisher’s state tax reporting obligations and the taxability of digital books in those states. As a result, sales tax for Kindle books sold by the publisher may differ from the sales tax to which you’ve been accustomed for Kindle products.”

And figuring out local sales tax based on the purchaser’s home address would be too hard to figure out. Right…

Amazon doesn’t want to get stuck paying sales tax twice — once at point of sale, and once at point of delivery. And that’s fine; it may in fact take an act of congress to work out how digital delivery of files count in terms of “point of sale” and taxable sales, and to clarify where internet sales of physical goods actually takes place (for tax purposes).

For Amazon, is the point of sale where their web server is located, or the warehouse? — or is the computer screen right in front of you? I think we all know who the customer is, and where they live, and where the sales tax should be going.

See also:
http://www.thestreet.com/story/11052898/1/amazon-sales-tax-the-battle-state-by-state.html
http://en.wikipedia.org/wiki/Sales_taxes_in_the_United_States#By_jurisdiction

The US Census Bureau has been reporting retail sales numbers on a monthly basis since January of 1992.
http://www.census.gov/retail/

It’s not just about having the numbers. It’s not even the way the USCB breaks retail down into convenient categories, like books. But if you have the numbers, and a little time (and in my case, sufficient beer to keep the brain lubricated while churning data)
…well, the nice thing is being able to visualize almost 20 years of dynamic change in an industry in a single graph

Please note: while I go back to 1992 because those are the earliest numbers available, 1992 is handy because that’s just before the major chains (B&N and Borders) exploded across the suburbs, with new big box bookstores springing up like mushrooms every week. [Barnes & Noble went from 203 “superstores” in 1993 to a peak of 726 big boxes in 2008; Borders went from just 44 superstores to 515 over the same period.]

Of course book stores were also closing, particularly smaller independents and mall locations. Barnes & Noble was closing B.Daltons by the hundreds annually, closing the last of them in 2009. Borders also closed their smaller outlets, but has been much more confident in the Waldenbooks chain; the recent store closings have all been Borders Superstores (more than 200 of them) — but the surviving Waldenbooks have been left largely intact. (I might be tempted to guess they don’t want to shrink Waldenbooks any further as that would make it more difficult to sell them as a unit)

The first chart tells a story of an industry undergrowing massive growth, doubling from 8.3 Billion to 16.8 Billion in just 12 years; hitting a peak of 17.2 Billion in 2007, before the current recession. The past 5 years seem like a minor blip, or maybe a bit of a plateau before future continued growth.

Maybe you can sense there’s a ‘but’ coming…

Let me adjust for inflation — just an quick calculation using the numbers pulled from http://www.westegg.com/inflation/

After adjusting for inflation, 2005 was a definite peak and book stores are struggling — struggling every month, getting worse year after year.

##

Someone is going to come back with e-books, right? “Well this obviously proves e-books are killing bookstores”

Except that ebooks sales were miniscule until Dec. 2009 – and the much-vaunted Kindle wasn’t even introduced until 2007. The graph shows the decline started the year before.

Was it Amazon? Amazon is a problem, and Amazon sales are certainly growing by billions year after year

but their growth in “Media” is much slower than the growth in overall revenue — and is shrinking as a percentage of total sales over time

I would say those that conflate “Amazon” with “books” and “ebooks” might need to make some mental realignments and redefine their terms: Amazon only makes half their money off of sales of “Media” and only 20% from media sales in the US. Amazon, as a website and as a company, is more than a bookstore.

Oh, Amazon is still eating my lunch: Amazon Media Sales exceeded Trade Book Store sales for the first time in Q3 2010; a feat they matched in Q4.

to produce this one, I had to really work the data – Amazon only reports sales results quarterly, and only breaks down sales by category in their annual reports. Media includes digital downloads (not just e-books, but all that music and even the occasional video) and also includes sales of music, movies, and video games on physical media — you know: discs. I’ve done my level best to tease out Just the Book Sales by comparing Amazon to the overall market and ended up frustrated. My best guess is above.

On the book side, I used the publisher’s reported revenue [http://www.publishers.org] to adjust the monthly Census Bureau retail number — taking the Billions of dollars’ worth of college text books out of the equation. The results are much more striking on a monthly basis [with dramatic reductions in January and August, with a smaller but still noticeable effect on September and December] — matching the Census numbers to Amazon’s quarterly reporting averages out the effect over the whole year.

So, even considering that trade book sales are only half of overall bookstore retail and that Amazon’s sales continue to grow year on year — well,

Amazon is not your local bookstore yet. Their market share of physical books is growing slowly, not explosively, and I might even be able to argue that Amazon’s sales of old-school-paper-books has been mostly flat, growing only modestly, and their market share since 2005 is growing only because book store sales shrank. —oh, a gain is still a gain, and a book sold by Amazon is a lost customer for me, but Amazon is doing nothing special and nothing different from what they did—for books—in 1997.

There is no way for anyone to really know until the economy improves and consumer confidence (and spending) finally gets back to 2007 levels. Ask me again in 5 years.

It also remains to be seen how much ebooks will continue to cannabalize physical book sales, both in stores and online. It is Amazon’s own admission that they sell more e-books than books.

##

The recession didn’t hit until 2008; book store sales began sliding 2 years earlier. Why?

I don’t know, but I have two theories.

First: consumer spending took a hit in 2006 because credit card regulations changed, and suddenly everyone (well, everyone still using credit cards) had to rethink all of their spending. Discretionary purchases (like books) took a hit first.

http://www.dailykos.com/story/2005/08/20/139986/-Your-Credits-The-October-Surprise-2005
http://mooreslore.corante.com/archives/2005/08/21/dating_the_next_recession.php
http://useconomy.about.com/b/2010/05/12/how-2005-bankruptcy-bill-led-to-recession.htm

The other explanation is much harder to swallow, and has implications for the long term health of my industry:

Kids aren’t reading. Well, of course they’re reading but they look at a screen, not a page.

The Consumer Expenditure Survey program [http://www.bls.gov/cex/] consists of two surveys, the Quarterly Interview Survey and the Diary Survey, that provide information on the buying habits of American consumers, including data on their expenditures, income, and consumer unit (families and single consumers) characteristics. The survey data are collected for the Bureau of Labor Statistics by the U.S. Census Bureau.

That top line is total spending on reading, in Billions. Note the downward trend, and note the loss of about $3 Billion over the last 10 years. That’s all you need to know. No need to blame Amazon, or E-books — this is a much larger trend, visible across all age demographics.

It isn’t just that the kids aren’t reading—though they aren’t—much more disturbing is the slope on the next two brackets, the Under 45 and Under 35 sets.

The Bad News: Even ebooks are competing for a shrinking market.

The Good News: Even if all current trends continue: reading is still going to be a $10 Billion Market 10 years from now — and ebooks and the internet are inventing new forms of ‘reading’ and building new markets even as you read this.

It’s not only about competing for readers, but also just competing for eyeballs. Games, movies, online video, blogs, aggregators, and social media — the much bigger market is the Attention Economy: How do we get people to spend time with us, and with our product?

Here is where bookstores have an advantage over Amazon:

people are here in the store using our wifi for hours every day — they come back day after day — some folks only come once a week but they stay all afternoon. Folks coming in for “just a book” only leave hours later. Bookstores are ‘sticky’ in a way that many websites wish they could be. Of course, we provide the chairs and tables, the browsing and atmosphere for free.

How do we monetize this? Can we monetize this? Is there a value for bookstores that has nothing to do with books? Is there value in providing a public space? Can we do more than just sell coffee?

##

I don’t have an answer for this. Or at least, I don’t have a single, definitive answer; I just have a lot of ideas and a lot of questions.

Pessimists will look at the charts posted above and say, obviously the book business is dying. I think it’s more a matter of coming off of an awesome high in the 90s, and rediscovering a business model that is more reasonable or sustainable — or finding a new use for this massive bookstore platform moving forward.

There are about 1500 or so Big Box Bookstores all across the country; more than half are already making the rent, even if we can’t quite please investors with massive profits.

Say only 500 locations are truly worthwhile, and worth keeping open on a self-sustaining basis for the next decade: that’s a hell of a lot of prime real estate that hundreds of thousands of people visit regularly — the longer they’ve been open, the more valuable they are. Bookstores also have a bit of a ‘halo effect’, as we are already associated with learning, knowledge, literacy, culture, and entertainment. Bluntly: We’re known for books, and even if you don’t read them, you know about books.

Apple [The Almighty, can-do-no-wrong APPL] only has 312 stores. Apple has it’s own thing going on; apparently their products key into the same neurons as religious cultists or obsessive hobbyists and hoarders.

But if you were trying to compete with Apple, wouldn’t it be handy to have a retail platform like a bookstore, with free wifi already in place and millions of square feet nationwide and an established brand, and locations your customers already know about, and have already visited in the past?

I’m not going to bother with rumor-launching headlines or search-engine grabbing keywords or stock symbols & name-dropping, and all that tech blog buzz that clogs up most talk of ebooks and devices. This is just a quiet little post — a shared secret between me and my regular readers. You know, I don’t think I’ll even publicize this, past posting it to the blog.

##

It’s rather amazing what one can find on the internet, if you know where to look. I rather enjoy looking at the want ads.

no, not for Atlanta. [Have a job; kinda love it actually — I get to spend 40 hours a week with books. Even the bad stuff is “good” after a fashion as it is continual fodder for blog posts.]

Instead of looking for a new job, I like to look at jobs available in Palo Alto, CA. Did you know Barnes & Noble Digital is based in Palo Alto? [of course you do, I told you myself like a year ago. How quickly we forget…]

So what’s up in Palo Alto?
[note: links below valid as of 9PM EST 17 May 2011 – but these are job listings, and not permanent web pages.]

They’re looking for the usual, scarce talent (in fact, they’re also hiring headhunters…) and in the usual flavours — Android, Flash, Webkit, Bug fixes & OS optimization — past the usual, though, it starts to get really interesting.

Senior Services Delivery Engineer

“The B&N Cloud Services team in Palo Alto has built a brand new set of services which the NOOKcolor device is using for several functions including eBook browsing, searching, and purchasing, as well as social networking features. Bring your skills and experience in data center automation to minimize downtime, improve the code deployment process, and expand automation in all areas.”

Why, I had no idea B&N had a Cloud Services team. What else are we going to find?

Senior Java Cloud Services Developer

“if you are a Java Software Engineer with back end development experience or a Java Senior Server Engineer who has solved complex scalability, performance, and or optimization issues, then this position should interest you! We are working on designing and operating a highly optimized mobile services platform and we are looking for Java server engineers that have a strong background in core platform server development to join the team.”

So Java engineers to work on the servers — but for what?

Business Development Manager, 3rd Party Apps & Services

just wait until you read the job description:

“The primary objective in this role is to manage and grow key business partnerships, especially in the areas of music and video…” and “Contribute to the development and refinement of Barnes & Noble’s strategy around media & digital content.”

And then there’s this listing:

Product Manager, Mobile Clients

“The Product Manager for Mobile Clients is responsible for the product planning and execution throughout the product lifecycle for Barnes & Noble Nook eReader mobile client software. This includes gathering and prioritizing product and customer requirements, defining the product vision, and working closely with the content acquisition teams, product marketing, engineering and customer service to ensure that revenue and customer satisfaction goals are met. The Product Manager’s job also includes ensuring that the product supports the company’s overall strategy and goals.” [emphasis mine]

and

iOS Developer (iphone, objecitve C)

“Join the eReading and eCommerce eVolution. Simply put, building great software is the most important thing we do at BN.com. Whether it’s our eBookstore, our fastest growing product line, offering content on multiple mobile platforms, or continuing to grow our award-winning eCommerce shopping platform, you will personally have the opportunity to build software solutions used by millions of customers. In our NYC and Palo Alto offices, we’re making significant investments to create a world-class team of Software Engineers, Architects, and Technical Leads who will thrive in our solution-focused, collaborative culture.

***We are looking to hire multiple iOS consultants and employees for a major initiative***” [emphasis in original listing]

Oh my, that does sound exciting. That was first posted 13 days ago. [4 May 2011]
edit: or *reposted* at that point in time. Here’s the thing: I can’t find confirmation of the above job posting at the official corporate site so I’m thinking this is an undeleted artefact from at least 30 months ago, before the original B&N iPhone app launched. Note the different tone used, and the reference to “significant investment” rather than to the currently-up-and-running B&N Digital division. Still, the cloud stuff and video content could be cool, even without a new iPad app. [/endnote]

##

The Nook Color won’t be standing still:

Hardware Design Engineer

“Candidate will be responsible for architecture and design of current and next generation B&N e-readers. Engineer will be responsible for schematic of design and choice of key components in conjunction with JDM manufacturer in Asia. Responsible for supervision of pcb layout as well as board level BOM. Definition of all testing and analysis of prototype systems. Work with JDM to bring up and debug system level boards. Work with mechanical designers to define form factor and clearances. Manage JDM regarding support in the areas of layout and signal integrity testing. Work as a team lead or senior designer in a team of 2-3 EE’s per project”

Platform Multimedia Engineer

“Barnes and Noble are searching for world-class software engineers to join the Android platform development team. In your role you will be responsible for the design, implement, and optimize multimedia system software for Barnes and Noble’s NOOKcolor product line leveraging its hardware acceleration and enabling cutting edge digital media use cases in the areas of audio, video, and image playback and capture. Advanced use cases include HD content delivery and playback leveraging streaming video and encryption, video telephony, etc.” [awkward grammar in original listing. Ooo, not so professional — hope they fix that, or fill this position (these positions) soon.]

tantalizing hardware and features aside, I also like the fact that B&N will be paying to make it look good:

Art Director

“The Art Director is responsible for driving the creative vision, direction and development of all visual design assets for Barnes & Noble, Digital Products. This person is responsible for conceptualizing the visual identity of our digital products, as well as ensuring visual and brand consistency across all experiences. The Art Director also manages the Design Team, providing creative direction and hands on support to digital artists, ensuring their workload is manageable and the output is high quality and on brand.”

##

These are just job listings, and reflect expectations & required skill sets: not actual job responsibilities or finished products. I’d be reading a lot into these if I were to extrapolate future hardware or applications just from a handful of classified ads that are likely going to disappear soon anyway.

Oh, but it’s fun to guess.

Here’s one I should probably apply for

Executive Assistant

“Be a part of the digital reading evolution! Since its debut, NOOK and the Barnes & Noble.com eBookstore have received accolade upon accolade from the most well-respected technology and consumer electronic pubs in the industry. We’ve assembled a team of the top thought leaders in Software Architecture, Product Management, Consumer Electronics, Supply Chain and Mobile technology. At NOOK’s epicenter… our growing Palo Alto office has an opportunity for an Executive Administrative Assistant with a track record of success supporting Engineering Executives. In this individual contributor role, based in Palo Alto, CA, you’ll be responsible for supporting the success of 2 engineering executives and their teams.”

—except I’m a book seller, have been for 10 years. I’m probably not qualified ;)

Start Here:

http://en.wikipedia.org/wiki/Phonograph_cylinder
http://en.wikipedia.org/wiki/Gramophone_record
http://en.wikipedia.org/wiki/Long_play

The playing time of the earliest wax cylinders was only 2 minutes.

As the name implies, the phonograph cylinders were wax and could only be replayed 100 times or so before they had to be replaced. [though worn out cylinders could be “erased” and reused for home recordings]

Later cylinders made of celluoid and phenolic resins like Amberol (you may have heard of a similar material brand-named Bakelite) lasted much longer, and in fact Edison [you know, the guy who invented the damn things] came up with a way to double the information packed on cylinders, so you could listen for all of *4 minutes*. [Whoa, give me a minute, I think I’m getting the vapors]

By the 1920s, a 12” 78 would run 4 and a half minutes. My Goodness. But as always, technology marches on…

So by the 30s you have Columbia introducing the LP — 10 minutes to a side playing at 33½ rpms on 10” discs — and RCA Victor (not wanting to pay licensing fees for Columbia’s patents) introducing the 7” 45 (which ran at 45rpms — hence the name) (* for those of you who have previously heard of 45s, of course)

image credit: Wikimedia commons

The competing formats [which used different spindle sizes and ran at different speeds] shaped the music that was released – and while a number of disc-switching systems were employed to get around size/time limitations, for the most part songs were truncated to the format. The 3-4 minute single is a direct result of the 45. When folks today talk about an EP (~15min, 3-5 songs) or an LP (~40min., the Album of my youth) (or of Albums, for that matter) they use a nomenclature descended from the limitations of grooves in plastic. Wikipedia has a wealth of information on all this minutiae.

The point I would like to make, my major digression before I get to the actual argument I’d like to make in this post, is that consumer music on distributed media in the 88 years between Edison and Rubber Soul was almost exclusively the sale and distribution of singles — a single song, just like 99¢ downloads today. The limits of technology at the time meant an operational upper limit of about 270 seconds. Even prior to discs — before cylinders even, of either wax or plastic — there was printed sheet music, and player piano rolls, which were also largely limited to single songs — and the music business being what it is, of course parties whose profits depended on one model sued the new technology in court: Wikipedia also has an article on the White-Smith ruling. This is a pattern repeated many times and covered at least twice in depth by folks who know more about the issue than I do.

But the rights & formats & changing technology are secondary to the primary economics of consumption: except for a golden period in the late 60s and throughout the 70s [the era from Rubber Soul to MTV] the industry was ALL ABOUT the production of singles and the mass consumption of “hits” — through the 50s, 60s, disco in the 70s, 80s, 90s, and the decade just past: rare indeed was the artist who released an album as a preconceived artistic whole, and so many of those were also supported by the release of singles that it’d be hard to envision an ongoing music industry without them.

Thriller? Seven of it’s nine songs were released as singles, and the stature of the album itself (to say nothing of it’s record-breaking sales) are as much about the success of the singles as in the album’s “concept” — if it has one. Purple Rain? It even has a movie, right? Can’t separate the tracks from the album — except they did, releasing the title track, Let’s Go Crazy, and When Doves Cry (along with two other tracks that no one remembers) as singles — and just like I can’t think of the name of any other track, I doubt anyone except die-hard Prince fans could even hum a few bars without the album playing in the background.

Classic albums, even Dark Side of the Moon, the 1973 masterwork and ur-concept album — the platonic ideal form of the concept album — all have at least one ‘best’ track that ends up as the single. Floyd’s label released both Time and Money from DSotM, likely without consulting the band. [“btw, which one’s Pink?” & the other lyrics from ‘Have a Cigar’ on Wish You Were Here released 2 years later seems the best commentary on that]

So some few albums aside: it’s all about the single. The single is what we want, and even though artists continued to release album-length CDs throughout the 80s & 90s, we only grudgingly bought the whole disc just to get one or two songs we like. For about 20 years, recording industry profits were unfairly inflated as they were charging $8 — then $10, then $15, then $18 — for a pair of singles.

Add onto that as well the large proportion of fans repurchasing their entire collection on CD: 20 and 30 (and 40) year old albums that wouldn’t have sold otherwise that suddenly found new life, and the ability to package even third-tier artists’ output into ‘greatest hit’ collections that would sell. [Even if, once again, all we wanted were the one or two hits.]

##

Many would point to the death of the music chains as a dire premonition for all retailers of packaged entertainment. Oh look, there goes Borders. Watch it, Blockbuster is next.

The advent of downloadable music led to decreased album sales, decreased sales of physical media, the bankruptcy of several chains that sold music [though some individual stores and ‘indy’ music stores seem to be doing OK – many of them by increasing their stock of vinyl!] and in general, much soiling of pants by music industry executives.

*Allow me to call bullshit* : The music industry collapsed because the CD format (and CD pricing) led to an unsustainable bubble built on the $18 price point cited above (for 2 good songs and an hour of dross) and the once-in-a-format buying binge as customers built a “library” — you only re-buy your collection once, though, and once you’ve bought ‘enough’ you fall back to your normal (& typically very sparse) buying habits.

The “rediscovery” of the single by the shopping public made possible by per-track purchases (and the occasional illegal download) supposedly led to the collapse of album sales, but it should come as no surprise that as soon as we could drop the 11 tracks of filler [at an unjustified markup] and just pay for the songs we liked — well, we did so.

(Perhaps many of us downloaded them illegally first — but the whole industry went into transition for a solid 10 years starting in 1999, and one could certainly write a whole book on that. The fact that Apple and Amazon make money off of music proves “piracy”, while real, is not the bugbear the RIAA wants you to think it is.)

I’d argue that the point where we all hit ‘enough’ CDs for our library just happened to coincide with the advent of digital downloads, two trends which both resulted in decreased album sales but also two separate and distinct trends the recording industry unfairly conflated — an assumption which led more or less directly to their present day stupidity like suing fans for liking music, and withdrawing from digital when they should have embraced the new format as firmly as they once did CDs — to the point where they were pushing CDs down our throat. This misstep means they ceded the initiative, and the profits, to Apple — and to Amazon, to a lesser extent. This is ground that they will never make up, and soon the artists [who actually make the music] & the tech companies [who now distribute it] will meet somewhere in the middle and wonder just what the recording industry is for, anyway?

##

One more quick aside: The movie companies suffered from a similar blindness, but also benefited from format changes and the associated bubble as we rushed to build our personal movie collections (something one couldn’t even do in the 70s, unless you owned a film projector) – in fact, the studios got to hit us twice, selling us the same movies on VHS & DVD (and now Blu-ray) and even as ticket sales slump (a trend hidden by ever-increasing ticket prices) they showed improving profits — and developed whole new profit centers.

In some cases, the film libraries are worth more than the current production studios. Movies differ from music in that prior to VHS, there was no collector or home consumer market: you bought the ticket while it was out in theaters and that’s it. Even the occasional broadcast on TV hardly holds a candle to DVD.

So movies finally made their way into a market that music had been developing since 1880. Not surprisingly, there was pent-up demand — in fact, ask any blogger what they want to see on DVD or Blu-ray and even if they blog about business or book retail or manga of all things, I’m sure after some thought said blogger would be able to give you a Top 10 wishlist of things that should be out and available for exorbitant prices but isn’t. Stop worrying about bittorrent, guys. Fire your lawyers and hire archivists — the money is sitting in vaults, on celluloid that is deteriorating as we speak.

##

Anyway.

As stated up top: Books are not Music

CDs can be deconstructed into individual tracks — indeed, the single is the “default” unit of music and CDs are the artificial construct: when given the option, we want CDs broken up so we can buy just the tracks we need. In contrast to music, books have always been a long-form art, and even short stories take a hell of a lot more than 4 minutes to read. [If you can read a short story in 2 minutes, that tells me the author worked and agonized, for weeks or months to write something that short, and you need to go back and read it again. now. I’ll wait.]

Songs are played on the radio, available from our personal libraries, available via streaming services, and otherwise permeate our life, and except for our teens — when we soak up new music like life-giving water [and the once-every-20-years format changes, when we’re forced to repurchase the music of our youth] — actual music purchases are fairly rare.

Books aren’t movies, either, for that matter: Both music and movies are passive entertainment — you can turn on the radio and have it playing in the background while you write, or cruise the web, or study, or make sweet sweet love, or many other tasks that require more of your attention. Similarly, I can put on a DVD and simultaneously cram popcorn in my maw while either drinking beer or letting my hands roam over a willing partner [an activity that usually ends with us missing the last half of the movie, but hey, that’s one more argument for owning the DVD].

Movies and music are passive entertainment; we can sit back and do other things while we enjoy them. Seeing a first run movie in a theater is more engaging than watching videos at home — but I think many of us have noted how many other people manage to text, talk, or tweet their way through a movie [you and I would never do that though] — or have noted with distress the jackhole who thinks he’s MST3K but wittier and who maintains a running commentary through the whole thing. [most of you have a tire iron in your trunk; I’m not advocating violence against jackholes but I thought I’d remind you it’s there]

Books are active and engaging. You don’t read a book while you write blog posts and surf the web. Hopefully you don’t read books while driving – mostly because you can’t, but also because it would be dangerous to try. You might be able to page through a magazine, skimming the ads and reading only the article headlines, while talking with friends or otherwise doing something else but when you sit down to read a book: That is all you are doing: You are reading a book, and it takes up your whole brain.

Sure, you can listen to music while you read and I often do: but the one is just background noise, while the other engages you to the point it crowds out everything else.

You can sell music by the track, and assemble playlists from many disparate sources. You can sell TV series by the episode, and while we occasionally marathon a whole series in a single sitting, it is much more common to take TV shows in half-hour to hour chunks, and to keep at least a half dozen ‘stories’ going at a time, at the rate of one episode a week.

Dickens and his serialized novels aside: when we buy a book we buy the whole damn thing, and read the whole damn thing, and the reading of it takes over our whole imagination — and even in a series consisting of several books we only begrudgingly admit that it takes a while to write a book, and given a preference we’d read a whole series at once rather than wait between installments. There are the Twilight books as an example, of course, or Potter mania from a few years back, or the agonizing wait Martin has put us through with “The Song of Ice & Fire” [Game of Thrones for the newbs who only heard about it from HBO] — or King, or Patterson, or Steele, or Woods, or Block, or authors sadly passed who will write no new books, or the next series in your favourite genre that you haven’t even heard of yet.

Readers are obsessive.

Not everyone is a reader; certainly more folks passively consume music [because they’re stuck in a car during a commute, or it’s playing as Muzak on speakers in most public spaces we inhabit] and Movies & TV are a mass media in ways that books will never be. […alas. and our society is poorer for it]

In fact, a book is usually only considered a success after it get picked up for [inferior] TV or Movie adaptation — so very sad. Even a “bestseller” will get a sales bump from a movie, because the movie-going public just aren’t readers.

##

Sure, I sell to a niche. And at least two large chunks of that niche [genre readers and avid fans of a particular author, whichever author] are getting peeled off by digital readers: I’m beat, usually by price and certainly in ‘instant gratification’ metrics.

But my core, the reader, is still there. Book Discovery hasn’t quite made it’s way online yet, and the plain truth is that more readers discover new books in a bookstore than they do anywhere else. I’d argue that to an extent they only *can* discover new titles in a bookstore, because of the inherent properties of the books.

image credit: Wikimedia commons

For music, there is radio. And when there were record stores, there was radio. While there were concerts, there was radio — when digital downloads and online streaming and customizable channels and personalized suggestions all hit the scene, there was radio. We can argue that it sucks now, and many of the music stations really, really do suck: but they still broadcast, and it’s still one way (the primary way?) most folks discover new music — if only because broadcast radio is a mass distribution channel, about as ubiquitous as these things get. Seems old fashioned; but still there. Radio is not dead yet.

For books: yes, there are online sales sites and reviews and blogs — and to an extent, customizable channels and personalized suggestion services — but the primary, mass distribution channel is still books on shelves: the retailer. Seems old fashioned, quaint even. But actually bricks-and-mortar retail isn’t going away anytime soon.

[One could argue whether your “bookstore” in 15 years time will be just another small department in Walmart and Costco, but that’s a different essay — and if you ask a publisher whether they’d prefer that kind of channel or an actual bookstore, even a crippled, suffering bookstore that is a pale shadow of the 90s chains on only a fraction of their former salesfloor footprint — well, I think we know which they’d pick]

Books engage. Books demand. Books compel. I can do other things while I listen to music, or while a video plays — but when I read a book I Read and I find myself all but incapable of doing anything else. I can’t even drink beer — well, I can, but I only think to pick up the beer stein at the end of each chapter.

I’m not worried about the new digital landscape — if the world of bookselling changes so much that it’s all online, then well, the online players will need booksellers. I think I’ll be able to find my way. Books are not music, after all. You can make up your own mind about a song in about 5 minutes — in fact, you can listen to the whole damn song in that amount of time in nearly every case.

Books take longer to appreciate, and more skill to sell.

Also, publishers are embracing digital publishing in a way the recording industry never did — and still hasn’t. I’m not saying publishers volunteered to host this party, but now that everyone is showing up, they’ve sent the interns out to buy chips and dip and a digital keg.

Also, there is no related format-bubble like the CD or DVD binge as customers re-bought all their old favourite titles over again to build their new library…

Well… unless you count digital books as the new-format bubble that will eventually pop. (I’m not going to push the point or force you to confront it: I’m just going to leave that little gem right here where I can link to it later.)

As long as there are books, and readers, there will be bookstores. And Amazon is not a bookstore, which is my next topic.

The first automated teller machine was installed in New York City 50 years ago.

Today, we all know ATMs, use them on at least a weekly basis (maybe more, maybe less) and digital banking has advanced to the point that between direct deposit and debit cards and online bill payments, it is possible to conduct all of one’s personal financial transactions without touching a single piece of paper, let alone paper money. [my water & sewer bill is the last one still mailed to me on paper; thanks to my new landlord, I’ve even been able to transition to paying my rent online]

There are other technologies involved, and a number of connected networks and digital adaptations of old technologies (e-checks, anyone?) and of course, the internet — all of which enable various forms of digital and automated banking.

And yet: there are still banks. In my neighborhood, two new branches opened in just the past year – banks I’d certainly never heard of before so they’re either brand new or represent expansions of out-of-town banks.

You can walk into any bank and guess what: you’ll still see a bank teller. (Fewer than there used to be, sure, but still a person.) Past the main counter, folks still work in bank offices, and if you want to open an account, or get a loan, or purchase CDs (certificates of deposit) you’ll end up talking to one of these bankers: specialists in their field, still ready to help for all the things that can’t yet be done online. Some services and interactions just can’t be online, and likely never will be.

##

In 1961, patrons at the City Bank of New York had the option to use an ATM, but apparently so few trusted the machine to make their deposit (cash withdrawals weren’t available) the device was removed 6 months later.

Digital banking in all of its glory took time.

Digital publishing will also take time, and I think the analogy to banking is apt: even when most things are digital, some will completely forgo digital by choice while most of us will still revert to paper for some options, and will still own at least a few things on paper because of convenience or personal preference, and that paper as a whole will be impossible to get rid of.

After all, you still have cash in your wallet, right? (Or if you don’t: you see a lack of cash as a problem to be addressed, and not a goal to be working toward.)

##

Project Gutenberg was founded 40 years ago— no, seriously, and we have sources besides wikipedia to back that up. See also: www.gutenberg.org/wiki/Gutenberg:About

So: 40 years. And digital books had a false start 11 years ago, as well, with a major push by Stephen King and his digital-only short story, “Riding the Bullet”, which was downloaded a half a million times soon after release — over dial-up! this was 2000 — and which made a splash even in the print media: I love this reaction in the New York Times [25 March, 2000] which also includes this choice bit quoting Microsoft:

“In lavish ads heralding its new ‘book-like’ device, Microsoft Reader, it touts ‘the best estimates of Microsoft researchers and developers’ about the post-print future: E-books will start outselling printed books in 2009; newspapers will abandon paper editions in 2018; Webster’s will alter its first definition of ‘book’ to refer to writing read on a screen by 2020.”

Stephen King made the cover of Time that same week [dated 27 March, 2000] though to their credit, the cover story in that issue predicted how “amateur” and user-generated content would “win”, and make the internet what it is today.

Sony introduced their first ereader in 2004 — not THE first ereader, but a milestone. In 2005, Amazon bought their way into the market, with their own device to follow in 2007. [as near as I can determine, the first dedicated e-reader devices were the SoftBook and Rocket eBook — the device was known as an eBook, not the files — both of which came out in 1998. Back in ’98, an ereader weighed 3 pounds, had a battery life of about 5 hours and used a black-and-white LCD screen.] So the devices are between 7 and 14 years old, depending on how one would care to count it — one could even make the argument that “ereaders” in the collective consciousness and as a “mass market” device are only a year old, as prior to 21 June, 2010 no device (that anyone had heard of, anyway) sold for less than $250.

[We’re still waiting for the sub-$100 unit. There’s your e-book revolution, right there, and when a decent sub-$100 dedicated ereader comes out—if it does—then I’ll start worrying about the future of bookstores]

##

Publishers are among the most conservative and change-averse companies out there, quite similar to banks in that regard. But publishers are also among the most responsive to their customers—their readers—and relatively quick to respond to trends.

The shift to ebooks came as a result of customer acceptance, not because of some inherent superiority of the digital format — if digital books really were better, they would have taken off in 2000, not 2010.

The two business are not directly comparable, but even after decades of moving toward automation and taking both the paper and the people out of banking, one can still be employed as a bank teller (indeed, the banks are still hiring) and the bank branches are still open. Now, one could argue that the physical branches are only part of the overall business, and that banks make their money elsewhere, and in fact the “store front” is subsidized by all this other business & the profits made with and by computers in digital markets and transactions.

Sure. Fair enough.

And this differs from, say, a Barnes & Noble, Inc. in, say, 2021 how exactly? There may be fewer branches, and fewer booksellers in 10 years time, and the store front may be subsidized by the digital business, and most folks would rather use the website or buy direct off of a device or whatever.

In 2021 we may have all traded in our debit cards for smart phones using NFC, and maybe folks under 30 won’t know what a check or a check book is, let alone still use them, and maybe, finally, after six decades the banks will finally begin to close branches because we all use the website & ATMs.

Could happen. I doubt it, but could happen. I personally think that as long as cash is an option, I’ll still have a corner bank with a bored teller behind the counter, thankful to see an actual customer and willing to spend extra time with me because *I* took the extra time to do things in person, and helping me is their job: a role the bank is willing to subsidize because 15 minutes of actual human contact can buy years-worth of loyalty and justifies (in the customers’ minds) all the other transactions that take place online and through devices.

Similarly, a smart company will still have booksellers [fewer of us, but…] and will still run a storefront with actual books [likely fewer of these, too, sadly, but…] and if a customer chooses, they can still come into a bookstore and chat with a bookseller and get recommendations and browse and discover books in a way that is impossible to do online.

…because 15 minutes of actual human contact can buy years-worth of loyalty and justifies (in the customers’ minds) all the other transactions that take place online and through devices. and see also: Fill the Showroom, Sales Will Follow at PublishersWeekly.com

In ten years time, I will still be a bookseller. Hell, I’ll likely still be working in the same damn branch of the same damn store, the one I started at more than 10 years ago.

Bank on it.

I hear ebook this and ebook that so much — not only from news sources but from my corporate overlords — it makes me sick. Sure, ebooks are growing, but I feel the time and attention (not to mention resources, financial and otherwise) focused on ebooks are missing the point.

Yes, Ebooks are blowing open new holes in the publishing industry. New! Shiny! You can read ‘em on your iPad!

…but folks are still buying a lot of paper.

Let’s start off with a messy graph.

& let me break it down for you: The red line tracks adult hardcover sales, the yellow one is trade paperbacks, the green one is mass markets — this is just for those three categories as reported by publishers.org — so no kids books, no text books, no teen books [classed as Young Adult by most pubs, so part of the ‘childrens/YA’ chunk of AAP’s data] but the “Adult Trade” category is the still largest part of the trade market.

(Text books completely blow any segment of the “trade” market out of the water — which makes all kinds of sense given the price points, numbers of students, number of classes taken, and the requirement to use a text. But no one says anything about e- compared to the text book market, yet.)

(and I’ve posted these numbers before — well, most of these numbers: I’ve added data for Sep. 2010 to Feb. 2011 as they became available — which you can go see laying around here and there on this blog)

The Latest News, widely repeated, is that purple line: unit sales of ebooks.

For February 2011, ebooks ranked as the #1 format among all categories of Trade publishing (Adult Hardcover, Adult Paperback, Adult Mass Market, Children’s/Young Adult Hardcover, Children’s/Young Adult Paperback).

This one-month surge is primarily attributed to a high level of strong post-holiday e-Book buying, or “loading,” by consumers who received e-Reader devices as gifts. Experts note that the expanded selection of e-Readers introduced for the holidays and the broader availability of titles are factors.

Additionally, Trade publishing houses cite ebooks as generating fresh consumer interest in—and new revenue streams for—“backlist” titles, books that have been in print for at least a year. Many publishers report that e-Book readers who enjoy a newly-released book will frequently buy an author’s full backlist.

For the year to date (January/February 2011 vs January/February 2010), which encompasses this heavy post-holiday buying period, ebooks grew 169.4% to $164.1M while the combined categories of print books fell 24.8% to $441.7M.

I have done a bit of massaging to the AAP reported sales numbers. I divided sales for each by an average unit price to find an estimated number of units sold. It actually makes the rise of ebooks a bit more dramatic.

What the press release skips over is something I think most of us can see: January and February are awful months for publishers — among the worst (when they are not in fact the worst) two months of the whole year. This is because book retailers bought their stock back in September and now they’re running clearance sales, cutting back on displays, and recovering from the December shopping orgy.

I put a vertical gray line into the chart to point that out for you.

Sales of ebooks, though, are instantaneous. There are no physical storefronts [just online ‘shops’] and publishers get to bank that sale right away. The messy, seasonally-variable and returns-prone book business just doesn’t affect ebooks: that’s why the three trade categories wobble like an EKG, and the e-book graph just goes up and to right in ways that make MBA’s hearts skip a beat.

You tell me, based on the first graph. Which business do you want to be in?* [it’s a trick question, but you may not have figured out why yet.]

##

Let me simplify things. Please allow me to add back childrens’ books, and the university presses [but not text books, yet], and the “professional” category which includes quite a few computer books & building codes and some other stuff I carry — and then add everything up to get to an honest ‘bookstore’ number. And let me take the wobble out of the graph: I’ve enough data culled from AAP press releases to compute a rolling 12-month average for this same time period.

This distributes the Christmas rush over the whole year, and makes the time delays related to shipping books to retailers moot: we can see the direction books are actually heading.

I think you’ll be surprised.

and let me re-quote one paragraph from the AAP press release:

For the year to date (January/February 2011 vs January/February 2010), which encompasses this heavy post-holiday buying period, ebooks grew 169.4% to $164.1M while the combined categories of print books fell 24.8% to $441.7M.

Dead Tree Artefacts still outsell Digital Files 3 to 1 — for the first two months following the gifting of millions of ereader devices — and for the two months of historically abysmal revenue for publishers. Ebooks are doing quite well, but are not the whole book market quite yet, even during the winter sales slump.

We’re not just comparing apples to oranges, we’re comparing apples to digital downloads: and the apples are still selling.

##

For the data above I assumed an average price per print book of $15, and an average price for e-book of $10. I assumed publishers gave retailers of whichever sort the standard %40 discount off of list prices. And the AAP reports publisher revenue: all those free, public domain ebooks or sales by self-published authors aren’t included.

Please note the green line is largely flat. Please note that book sales are seasonal, and when a press release comes out saying one format (ebooks) outsell another format (hardcover, whatever) that’s because the people tracking these numbers split things into at least a dozen categories, and we can play with numbers all we like, and make them say lots of things, especially if we do a press release in March, instead of November.

Your take-away:

1. Book Sales are seasonal, but after accounting for seasonality: Actually Print Book Sales Are Flat.

2. Ebooks are growing. Obviously. And it is much too early to predict when those sales are going to level off: but I’ll tell you, ebooks can’t maintain exponential growth forever and eventually, yes, it’s going to level off. [I’ll refer you to the manga bubble, 1998 to 2007, for those with short memories: just because it’s E- doesn’t make it immune to market forces.]

Ebooks are the only segment of the industry that is growing right now. So they get a lot of attention.

However: I ran the math, and ebooks aren’t cannibalizing sales of physical books. (yet.)

3. Text Books are still the market to crack. The person or company who manages a “kindle” for elementary, secondary, and college text books is going to be rich.

7.2 Billion Dollars Annually, equal to all ebooks and trade books combined.

I’m posting this as part of my series on how to run a start-up publisher [see part 1, part 2] but the points I make today could easily be extended to any start-up [tech or otherwise] and of course would be an obvious extension of my “rethinking the box” posts about bookstores: for any small independent, of course you rely on key booksellers to help with the important buying decisions that might otherwise be made by “corporate” – an added layer whose “benefits” you cannot “enjoy”.

[Rethinking the Box – Previously:

Study your History. Recognise your Motives. Location, Location, Location. Know your Customer Base, and your Staff. Hire folks who love books. Find your Niche. Consider your Product Lines, Stock Your Shelves, Set your main-aisle displays, consider Alternative display strategies, take a second look at What the Customers Want and Why Even Annoying Customers are Important. Answer for yourself whether raw dollars or customer service is more important to your store, and its future. Stare again in dismay at the Profit Margins. Try calculating your upper-limit affordable rent and affordable salaries along with revenue from inventory (with a side of coffee) and compare your numbers to average industry per-storefront sales.

Unique Bookstore Experiences: Zero – Intro – 1 – 2 – 3 – 4 – 5

Chronologically: 1 – 2 – 3 – 4 – 5 – 6 – 7 – 8 – 9 – 10 – 11 – 12 – 13 – 14 – 15 – 16 – 17 – 18 – 19 – 20 – 21 – 22 – 23 – 24 – 25 – 26 – 27 – 28 – 29 – 30 – 31 – 32

yeah… I’ve been at this a while]

##

Let’s say there’s a local college library; they have many resources you could use, and some you might want to use even though you don’t need them every week, and certainly there are some archives you don’t even know about yet — but for the most part you just need access to one archive of one particular academic journal.

It’s a private college, so you can’t just flash ID at the library door to get in; they reserve most of their collection for current students, faculty & staff, college alumnae — and donors.

For a single, sizeable yearly donation, you could have access to the entire library and all it’s collections, but since you think you only need the occasional citation from this one particular journal, instead of becoming a benefactor of the library, you work out a deal with one of the reference librarians – once a month or so you submit a specific request, and you get a single file folder with just the information you need — or at least, the pages you asked for, as the librarian feels no need to go outside your request.

[this is an extended metaphor, folks, I know libraries don’t work this way]
[speaking of metaphors…]

##

Let’s say between you and your printer, there is an apple farm — and going the long way round, miles out of your way, there is a toll road — but you have to take the toll road because you can’t cut across the farm. Even though it adds a couple hours to your trip, you always take the toll road because, well hell, you only make this trip once a month or so.

You have to get to your printer, because it’s the only way to get your books printed.

Of course, you could bribe the apple farmer to let you cut through the orchards. As a bonus, you get free apples, whatever you can pick up along the way. The thing is, the apple farmer wants a steady payment, once a month: you get the shorter route to the printer but you’re stuck paying the farmer all the time, not just when you need to get to the printer.

The toll road ends up being more expensive, per trip, but you do the math and you figure, no, I don’t need a shortcut. We’ll keep driving around the apple farm.

##

There’s an amazing database of cheat codes, shortcuts to get you through most—if not all—video games. You desperately need a code to get you past the final boss of this one game you’ve been working on for months. You could buy access to the whole cheat code database, but they only sell monthly subscriptions – not single-day passes. You contact the folks who maintain the database, and they agree to sell you the one cheat code you need, but for $100. You could buy 10 months of access for that much, but once again, you only need the one cheat code, right? to get past this one boss, and finish the game. You know it’s going to save you a hell of a lot of time, so you pony up the $100. After you buy it, though, you still can’t clear the boss.

Oh hell yes you go to complain. You raise all holy heck. You threaten and cajole and start badmouthing this site everywhere you can think to post…

…and it turns out you were using it wrong. Once you’ve been corrected [condescendingly] you finally get the code to work, you clear the boss, you win the game.

But you’ve burned bridges, and now you’re banned. Where once, you could have been a monthly subscriber, with access to the member forums, with the ability to ask questions, and seek clarification, and get support for all sorts of games — now you just have a $100 cheat code you got to use once, and a whole bunch of experts who actively hate you.

##

[I mentioned these were metaphors, right?]

You’re a college student. You could sign up for the meal plan, at a significant per-meal savings, but you like fast food and pizza too much [it’s just so tasty, even though it’s a bit empty nutrition-wise for the calories]

You figure, heck for as often as I use the dining halls, I’ll just pay a la carte — so you do, which means when you go for dinner, you pay per plate for salad, sides, a main dish — & maybe you skip dessert.

Instead of eating whatever you want whenever the dining hall is open, you pay for a box of cold cereal on a Saturday morning, and pay extra for the 8oz. carton of milk. It’s not quite enough milk, but you make do. You congratulate yourself because you didn’t ‘waste’ money on the meal plan, and you try [but fail] to ignore the smell of bacon and butter and syrup from the guy eating a pancake breakfast next to you.

And since you ‘saved’ so much money, not buying a meal plan, well now you have the priviledge of spending $23 a pop on pizzas, or $7 a meal going through the drive-thru — twice a day.

##

The bookstore offers a member card, $25 a year but you always save 10%.

You think, what a rip off. I don’t spend that much money at a bookstore — besides, why don’t they just discount the books for everyone anyway? Why pay for a coupon?

And maybe you don’t spend enough on books to make the discount card pay for itself.

But you buy magazines once a month… $10-20 worth. didn’t figure that into the total.

And you buy CDs and DVDs — well, at least for as long as the bookstore carries them. Sure, you might get them cheaper from Amazon, but Amazon doesn’t really discount the BBC stuff — Inspector Morse box sets are still $70 each, and hell, that’s the same price you’d get at the bookstore with the discount card. Hm. And you’d get to take them home the same day, watch ‘em that night.

And by the time the holidays roll around and you’re shopping for Festivus and Yule presents [or whatevs] and you find yourself spending $200 — you could save $20 just that day! — you still talk yourself out of buying a discount card ‘cause it means an extra $5 on today’s receipt, and you still can’t justify spending more — you’re just not in the bookstore that much.

##

Sick of the metaphors yet? Have you figured out what I’m driving at?

No matter what business you’re in, you can hire talent, have it in-house working for you 5 days a week (plus the occasional weekend, if you pay well enough) and have guaranteed access to those skills, that knowledge base, that experience set — to say nothing of one more creative brain actively working with you to solve problems…

Or you can hire consultants & freelancers.

Sure, any freelancer will perform to specs and deliver what was ordered. But only what was ordered: if you didn’t think to ask for it you’re not getting it. And if you are hiring someone short term for open-ended projects that might require creative solutions or additional freelance work to exhaust all possibilities: you’re going to be charged a really ridiculous rate.

Less than what you might pay someone in yearly salary and benefits, but you’ll be paying through the nose for this one project — so your brain-dead mechanical accountant says: “Pay the freelancer. We don’t have the budget for that, in house“

But gods forbid you have to run more than one ‘major’ project a year, or you have to go back to a consultant for another ‘fix’ on something they did years ago — even if they are still available [not a guarantee], even if it was their mistake [and not your mistake, when you set the scope-of-work], well, you’re going to get charged more anyway.

Go ahead and buy the talent. Buy the short cut. Buy the cheat code. Buy the meal plan. Sign up for the year-long discount.

It only seems like more money. I’ve said it before, employees are an investment and in the end, they’re going to be the only investment worth having. Find the best people, get them to ‘buy in’, to be invested in your company and what you’re doing.

Say I ran a manga publisher, and all of a sudden one of my best clients decides to pull all their licenses to publish direct to the North American market on their own — I know, it seems so unlikely — but if I had good agents negotiating on my behalf in Japan, a solid editorial staff to translate comics, and capabilities in-house to do my own art adaptation, formatting, & printing — I don’t think I’d sweat it. We’d get started on new books. Maybe we have to look further afield — say we hire folks who know the Korean market, or we hire folks fully conversant with the dojinshi circles so we can find artists willing to work to spec on our scripts

Or say we contract with creators direct — put them on payroll for a set number of books, or option a first look at their work for a small sum, with an advance on royalties for anything we do decide to print.

[If we hadn’t burned our bridges with domestic comickers by offering a really bad deal a few years back, compounded by no marketing and mid-series cancellations, why, there is a lot of work to be done right here in North America on original comics that has nothing to do with manga or asia or licenses — I’m just sayin’]

There are many examples of comics imprints that have failed: CrossGen, Tokyopop, CMX, Broccoli, Aurora — and each failed for different reasons. Many over-reached and overspent. Some suffered from too little capital to begin with, or corporate overlords that refused to market the books, expecting that comics would somehow sell themselves just because they are comics.

Your first sign that a publisher is about to face significant challenges [up to and including bankrupcty and going under] is they fire staff. The deeper the cuts, the more experienced staff that they lose — the better the chance that their days are numbered.

You just can’t get that back. Even if you recover, and re-hire, it will be very rare that you’ll improve on the staff that you lost. One can come back from the brink, but never quite to the same heights.

##

Maybe it’s just me: I have always felt that payroll, the right people in the right jobs, is the only investment that pays off in the end. Freelancers are fine — in fact, hiring freelancers is a great way to ‘interview’ people for a job: if they do good work, pull them into your organization and put them on the payroll.

If you invest in your staff, and they invest (emotionally, not just financially) in the company, then when the hard times come everyone pulls together and works their way out of it.

I would rather drive a company into the ground, personally borrow against my house & my life insurance, get that last $10,000 from a loan shark who is going to break my kneecaps — just to make one more week of payroll — rather than let anyone go.

But That’s Me. I know I can’t think of everything myself; I need all these smart people around me. As many smart people as I can find. And you never know when the part-timer who is working your mail room ends up being a grad student whose thesis is exactly what you needed to solve your problem — of course you won’t know if you fired her.

And obviously: You also won’t know unless you hired her — even if it’s ‘just’ and internship, or ‘just’ a part-time menial job: if you’re committed to identifying talent, promoting from within, working on training, and eventually integrating part-timers into your full-time staff, well, these are the real gems. So far as I know, no one does this kind of hiring anymore. One can’t work their way up a corporate ladder; those paths were closed and only Harvard or Wharton grads get the entry tickets. Andrew Carnegie would be stuck as a telegraph boy, John D. Rockefeller would have spent his days as someone else’s bookkeeper, Oprah would just be a newsreader on a local Tennessee radio station, H. Wayne Huizenga would just be a garbage man, Richard Branson merely a record shop proprietor.

Oh sure: these are all self-made industrialist and entrepreneurs. The rags-to-riches Horatio Alger Fairy Tales we all love to believe in. But no matter how self-directed, every self-made-mogul has, in their history – an educator, an investor, or an early employer who believed in this young genius and gave them a leg up, a boost to the next level — or even just the first $1000 of investment.

Speaking for myself: I would be overjoyed to be put out of business by someone who rose up through my organization and ended up doing the job better than I ever could. I would be as proud as any parent.

##

In each of my parables that opened the post, an initial and ongoing outlay of cash means access to resources or shortcuts that would otherwise not be available. And even when you know what you’re buying [a shortcut to bypass the toll road] you occasionally get bonuses from your employees that you never counted on [free apples!]

You’ll never get all you can from your “associates” unless you commit to them first – put ‘em on the payroll. The investment will pay off over time.

Only in an age of nigh-immortal corporations has my second point been lost: the life-work of any craftsman is not just the craft, but in raising the next generation. Trump has permanently poisoned the term, but there is value in apprenticeship: in training not only your successor but also your future competitors. In a world where interns and part-timers hold only those roles not filled by consultants and freelancers — and the whole business is run like an elaborate temp agency — there is no craft, only maintaining the status quo.

We need a world run by craftspeople — not accountants.

If you own the shop, if you run the company:

Find the best people, and put them on payroll. Find promising people, and lock them in. Love them. Train them. Shape them. – And listen to them; if they’re good enough to hire, hell, they’re smart enough that you should always repect their opinion even if you know they’re wrong [at least this year… next year everything you think you know should be tossed out the window]

Like I said: I’m not that smart. I need as many smart people as I can find to help me, and that’s the only investment that will pay off in the long run.

Need another parable? Twitter — the service now known as Twitter — wasn’t the original business; hell, it wasn’t even on the radar. But a company once known as Odeo had enough smart people on payroll that when their original business model collapsed, a new business emerged almost despite corporate ‘oversight’ and interference. Next time you hire a freelancer, consider that you might in fact be giving that next Twitter-equivalent to someone else…

[boilerplate intro]
Say circumstances handed me a chunk of cash and the mandate, “Start a new comics publisher. Licensed manga, manhwa, Euro-comics, English originals, et al. and thank you. Here’s a wad of cash; tell me how you’ll use it.”

Kodansha launched their US comics imprint with a scant 2 Million Dollars [see also] — granted, Kodansha doesn’t have to negotiate licenses [as a major publisher in Japan, they already own them] and also, Kodansha doesn’t have to establish a Tokyo office, fly executives and editors across the Pacific, spend money smoozing the gatekeepers and content-rights holders, convincing the most conservative businesspeople [& as in many industries, mostly conservative business men] on the planet to take a chance on a no-name small firm with no publishing history, few alliances, sketchy prospects, and an amateur as Publisher & CEO.

All that said, Stu managed it. And if someone handed me $16 Million Dollars [I’ll need more than the token $2Mil. Kodansha fronted] then I’d make one hell of a run at it.
[/boilerplate]

##

What’s the difference between a small publisher and a self-publisher? Maybe an S-corp or some other legal doc, but it’s mostly a matter of scale. A self publisher has one writer, one editor [or purchases proofreading and other minor editorial services retail, one book at a time], a very modest backlist (whatever one person can manage to write), and no budget for marketing. A small publisher will have an editorial staff (however small) and deal with multiple writers & properties, but the backlist is still quite modest, all things considered. Every city and most larger towns already have at least one publisher — maybe they only do regional titles or kids books or they’re the University press at the local institution of higher learning, but they’re out there. A lot of folks can do it — have done it — and while it’s not a way to get rich it *is* a way to produce books.

What’s the difference between any small publisher and one of the major multi-media conglomerates that control programming, publishing, movies, music, and your life?

Night and day.

Starting small means starting from zero, really. A major publisher engenders imprints like a snake sheds its skin: it’s a natural process, happens all the time as the beast grows. They have an exisiting infrastructure (editorial & marketing departments, contacts and contracts with printing companies — and not just an arrangement with a book distributor but direct distribution to retail) and there’s no way to copy that. If Hachette, HarperCollins, Macmillan, Penguin, Random House, Scholastic, or Simon & Schuster decided to launch a new comic imprint tomorrow, we’d see books by December. And in fact, most of these major publishers already have a comics imprint [or a distribution agreement with an exisiting, smaller publisher]

• Random House distributes DC, Vertical, and Kodansha — and puts out excellent books under both the Pantheon and Villard imprints.
• Hachette owns Yen Press
• Scholastic has their own Graphix imprint (Home of Bone)(to say nothing of all the other illustrated books they do)
• Simon & Schuster distributes Viz
• Macmillan owns First Second, and distributes Seven Seas
  [& Disney owns Marvel, but despite recent growth Diz is not a ‘big six’ publisher]

Two majors are left out of the dance at the moment — HarperCollins lost it’s affiliation with Tokyopop (even before T-Pop went under) but given the success of the HC/Tokyopop cobranded comics they really should get into this soon. [hey, HC, if you don’t have a junior VP on this already: call me] — and Penguin/Pearson is the great white whale: the only major without a comics sidekick. The indy who lands a deal with Penguin (especially if they can get the oval-penguin logo on orange and black spines for a RH-Pantheon- or Villard-type lit-comics imprint) has all but won the lottery.

Like I said, any of the majors have the resources on hand to launch an imprint as easily as I sneeze. Heck, they don’t even need seed money; just reassign a few staff, or add the comics as a new initiative at an established brand [Del Rey, anyone?]

##

Many folks think that to start a publisher, you need to copy the heirarchies and relationships of a Big Publishing House: you have a publisher [job title], and editors, and marketers, and contracts with a printer, and solid working relationships with distributors like Ingram or Baker & Taylor (or Diamond, maybe). You negotiate with agents (or authors direct) to acquire titles, you package & prepare books for print runs (carefully calculating just how many to print, based on your budget, and projected sales, but mostly your budget) and you all-but-bribe some buyers at Costco, Wal-Mart, and Barnes & Noble to get your books out on shelves, and then hope the eventual and unavoidable returns don’t amount to more than, say, half the total so you at least break even.

All that helps, sure.

Here’s the thing: that is a 19th century business model, using 18th century tech and medieval thought processes.

It also suffers from the worst possible contribution from 20th century business practices: accountants, and outsourcing.

To an accountant, of course it makes sense to contract with a printer: they can produce your books cheaper than you can, since they do nothing but print books all day: scale brings lower unit costs. The printer assumes the risks of investment in expensive machinery, and its maintenance and ongoing operation, and you as publisher just ‘rent’ the massive beast for however long it takes to run off your books. Of course the printer takes his cut [a reasonable profit] but he can still print them cheaper than you could yourself.

For a major publisher, with their extensive print runs, maybe the savings is only pennies per book, but we’re talking millions of books and accountants earn their salaries by pinching those pennies.

##

That said,

Now consider the parable of Dell Computers:

Dell sold direct to the customer. Options added to one of a few basic frames were selected by the customer, then custom built from common components as needed and shipped — after it was paid for. Eventually, Dell got big enough that they shipped some of the most popular configurations to retailers — you could walk into a store, buy a stock Dell, and take it home the same day — but the bulk of their business was still direct internet sales.

Dell is typically considered to be a success. Instead of stockpiling in bulk of a predetermined model of computer, they waited for the market to tell them what was needed, and how many of each.

Considering all the components that can go into a computer, Dell has it rough — and they have to constantly purchase new peripherals and cards and chips and all that jazz, as the technology all-but-completely rolls over every 6 months.

A publisher attempting a similar strategy has it easy: paper, cover stock, and ink. Sure, you need more than black ink if you’re doing colour covers, or want to print full-colour, heavily illustrated things like textbooks and “coffee table” books — and comics — and you can certainly go wild with paper, from cheapest newsprint to fine cream papers — but honestly? Your local Kinko’s had all that in stock. This isn’t expensive.

One of my favourite quotes is: “The Press is only Free to a man who Owns one.” I can’t remember where I first read it, and I’m sure whoever wrote it down for me to read stole it from someone else. The point being made was that 1st-amendment-style-free-press only applied if you were wealthy enough to publish it yourself, otherwise there will always be an intermediary between you & your thoughts, and the world.

But it also points out: You can own a printing press. “Printing” is not just a service provided by specialist firms, Print is a verb as well as a noun, and for relatively small sums one can own the means of production. Just because the Bigs don’t bother with their own printing anymore, doesn’t mean you have to slavishly follow the business model dictated by scrooge accountants who don’t see value in ownership, and merely want to pare a business down to a preconceived ‘core’ without any thought of what that costs — in real terms, not just in dollars.

##

First up, set up shop. I personally like the idea of intown real estate, if not downtown; find a funky artists’ neighborhood on the cusp of urban renewal, old industrial converted to loft space [and soon, to be converted by us back to industrial].

Pick a building with plenty of room. Consider that you’ll need some warehouse space, and some production space (for the printing equipment), and some office space — and we’re going to want enough leftover space right at the building’s ‘store front’ for, well, a store front.

Yes, we’re a publisher. Yes, we print our own books, on site. Yes, this is the nexus from which we distribute books to the world: but true to my bones this will also be a bookstore.

Why not? We sell books. Might as well sell a few right over the counter at the front of the shop.

Right now, I don’t know how much this might cost. Capital investment in equipment is, in fact, capital investment. But it can’t be that much, and why not have a printing press, if you sell books? Go ahead and sink the million or two into offset printing capabilities. (and then forget about those dollars. Don’t worry about paying it back; write it off from the start. Get the books to pay for themselves, and eventually they’ll also pay for the equipment. Maybe you find a printing firm to start off with, buy it as an ongoing business, and then start running your publishing imprint from the back room.)

There’s a one-time charge to prep a book for print, but once you have your plates set up for each book, well, you can run off 100 or 1000 copies whenever you like. Also, there is nothing stopping you from printing other folks’ books: run the printer as a sideline, same as anyone else who owns the machinery.

Given advances in technology, maybe you don’t even need a massive steam-powered-clockwork-rube-goldberg-press in the back room to make this work: Buy an Espresso Book Machine from On Demand Books for a scant $100,000. This is the same tech Ingram is using for its Lighting Source Print on Demand division — it’s an all-in-one box that fits in a closet:

Once again, if you own the means of production, there’s nothing stopping you from selling other books printed POD — or accepting orders from your customers to do custom print runs of family genealogies, vanity projects, local history, poetry, or even an actual goddamn novel from a local author — or competing for larger jobs like festival and sports programs (or similar annuals from the local symphony & opera), tourist guidebooks, marketing materials of many sorts, and maybe even a quarterly or bi-monthly magazine.

The printing business might just be self-sustaining, or even turn a profit… and when you’re not fulfilling orders, you can print your own graphic novels in the wee hours of the night.

##

Say you want to be a small publisher.

Fine.

But you don’t have to contract everything out to someone else, paying their profit margins and guessing at the best size for a print run or how to warehouse the books from a overlarge order you placed because the per-book-cost was cheaper that way.

Own the press. Own the shop. Sell you own books from your own storefront, both in meat-space and online, and on Amazon or B&N or wherever. Sell digital books the same way, if you’re able and feel the need.

The investment will be worth it, and will be self-sustaining. And you can do a short-run of lovely books whenever you like.

##

Other resources and references:

Here’s a guy who has been at it for years: http://www.fonerbooks.com/selfpublishing/

http://www.fonerbooks.com/paper.htm

http://www.fonerbooks.com/pod.htm

If you just want to get a *very* rough idea about the market, try these online calculators:
http://www.gorhamprinting.com/pricing/InstantQuote.php
http://www.48hrbooks.com/

This is just an estimate, from my own research: $3.50 a book for a run of 1000, $2.70 for a run of 3000

The devil is in the details, and who knows what an actual cost might be.

http://www.frugalmarketing.com/dtb/cheaperprinting.shtml
“Now you can have just 100 to 500 books produced and used for promotional purposes. Authors may send copies to agents and publishers. Publishers may send copies to major reviewers, distributors, catalogs, specialty stores, associations, book clubs, premium prospects, foreign publishers suggesting translations and various opinion molders.”

http://ireaderreview.com/2009/05/03/book-cost-analysis-cost-of-physical-book-publishing/
“For larger print runs, the cost of printing a book comes to just 10% of a book’s price. So the perception that ebooks should be a lot cheaper than physical books because there’s no printing or binding is inaccurate.”

http://www.broadfootpublishing.com/publishing%20cost.htm
http://www.bestbookprinting.com/prices
http://dogearpublishing.net/resources-book-costs.aspx
http://www.millcitypress.net/book-printing-costs.aspx
http://printshopcentral.com/book-printing.php

I almost hesitate to add…
http://www.colorprintingforum.com/printing-business-practices/low-cost-color-book-printing-singapore-china-88.html

And the Espresso isn’t the only solution out there — Xerox sells direct:
http://www.xerox.com/digital-printing/printers/print-on-demand/docutech-6115/enus.html