Along with David Shanks, our Person of the Year, we also profile a group of Notables of 2011 who changed the publishing business this year.
In a time of tremendous turmoil in the book publishing industry, the role of the established large trade houses has been called into question by analysts and commentators inside and outside of publishing. Yet the Big Six publishers, by adapting to the changing circumstances, continue to operate profitably, while publishing award-winning books. No executive within the industry has done a better job of balancing the often conflicting demands of supporting an existing print infrastructure with investing in digital businesses than Penguin Group (USA) CEO David Shanks, PW’s Person of the Year.
Penguin Group (USA) followed up record financial years in 2009 and 2010 with a host of initiatives in 2011 that includes the official launch of two imprints, David Rosenthal’s Blue Rider Press and the company’s Spanish-language imprint C.A. Press, as well as the fall announcement of InterMix, an e-book imprint headed by Berkley Publishing president Leslie Gelbman that will publish its first titles in January 2012.
The new imprints are a byproduct of one of the first strategic decisions Shanks made when he and Susan Petersen Kennedy, president of Penguin Group (USA) were named to succeed the legendary Phyllis Grann as head of Penguin in October 2001. “We decided we wanted to grow organically,” Shanks says. Penguin’s imprint strategy follows two lines—launching imprints in areas where it wants to grow (Portfolio to reach the business market, Sentinel for conservative readers, for example), and hiring high profile publishers and/or editors when they become available. “We don’t have a hit list,” Shanks says about bringing new executives to Penguin, “but we’ll take the right person if they become available.” Penguin’s most notable imprint startup is arguably that of the Penguin Press, started in 2004 under the direction of Ann Godoff after her departure from Random House. Penguin Press has been consistently profitable, and the imprint has also had a string of award-winning titles including the 2011 Pulitzer Prize for Biography, Ron Chernow’s Washington: A Life.
Penguin’s ability to attract what Shanks says is “powerful personalities” is a tribute to the publishing system he and Kennedy have established. “Everybody plays by the same rules,” Shanks explains, with the golden rule being that no Penguin imprint can bid against another.
Shanks and Kennedy divided up their duties early on, with Kennedy directly responsible for the adult imprints, while Berkley and the children’s group report to Shanks along with the business sides of the company. “Susan has been a great partner,” Shanks says. “We complement each other really well. I can’t imagine anyone spending any time in a room with Susan and not learning how to be a better publisher.” Kennedy in turn, appreciates what Shanks means to Penguin. “David embodies everything a great leader is: wise, forward-looking, someone who motivates, someone who inspires, someone who is accessible and has a warm sense of humor, and someone who always looks at everything with an acute and original eye. He knows our business inside and out, and he has a clear vision for where our business is going.”
The division of labor gives Shanks the opportunity to focus on the business decisions that are shaping the new publishing landscape. Like other trade houses, Penguin has seen e-book sales soar, with sales more than doubling in the first six months of 2011. Helped by the boost in e-book sales, the profit margin for the entire Penguin Group inched up slightly in the first six months of 2011 to 9.2% from 8.9%, despite the debacle at Borders that Shanks says “took far too long to be resolved.”
While the retail situation is now a bit more stable, Shanks is not expecting sales to increase in that channel over last year; with Borders gone, finding ways to keep the bookstore market vibrant is a priority. To that end, Shanks met with representatives of the ABA to look for ways Penguin can better work with independent booksellers. “We want to help,” Shanks says, “but whatever we do needs to work for both of us.” While Shanks says he was intrigued by the possibility of selling some titles on consignment, the lawyers vetoed the idea due in part to concerns about what would happen to its titles if a retailer went bankrupt. Penguin and the ABA have instead begun various dating experiments with 14 stores and if any proves successful, Penguin will roll it out to more outlets.
The future of sales reps that call on those retail accounts is one of the many questions raised by the growth of e-books sales; at Penguin’s November sales conference, Shanks informed his field reps that they will be getting a title change, from district sales manager to district sales and marketing manager. The title switch, effective at the beginning of 2012, is meant to tap into the knowledge the sales force has of Penguin’s list. “These [people] have been great at getting people to buy our books, but sales forces need to change given the retail realities,” he says. By expanding the reps’ responsibility to include marketing, Shanks hopes to marry the needs of continuing to sell to brick-and-mortar stores with getting books discovered in the crowded online and e-book marketplaces.
The decision to mesh sales and marketing at the rep level also reflects Shanks’s strategy of integrating digital products at Penguin. Early in the digital days, Shanks says, it became apparent that “you could build a shadow company” that would be devoted only to digital, but he quickly determined that would be inefficient and counterproductive. “We have people with world-class publishing skills. It didn’t make sense to hire new people who really didn’t understand the business,” he says. By treating e-books as another format, “we mainstreamed digital. By thinking of e-books as a new format, it took the pressure off the staff,” Shanks adds.
That’s not to say that the Penguin organization is not operating in new ways. At a recent meeting with his publishers, Shanks says he stressed to them to stop thinking of books as merely something between two covers. “That’s thinking too small,” he says. Authors are “creators of content that people want to read,” but not necessarily in traditional book formats. “By breaking the bonds of format and territoriality you open up” a world of new possibilities, he says. To bring different viewpoints on how publishers can create content, Shanks says, some new editors could come from such businesses as video games or television.
Since the great recession, Penguin has managed to post steadily improving operating margins, and if that is to continue more costs have to be driven out of the supply chain. That is one factor that led to Penguin’s recent agreement with Quad Graphics. Under the deal, QG will use its short-run and print-on-demand capability to support what it calls a “virtual inventory” for some Penguin titles. The number of titles covered in the agreement is in the “four figures” and Shanks believes that will help Penguin better deal with keeping the right amount of print titles available as the demand for e-books rises.
Although e-books don’t have the same manufacturing costs as print titles, they do have unique costs of their own, particularly because of the incompatibility of formats. Penguin has been working with Firebrand to create a new workflow system that will help the publisher create one file that with relatively minor changes can be used by a variety of digital vendors. The new system combined with the growing use of EPub 3 has Shanks hopeful that Penguin is close to making real progress in holding down digital development costs.
Notwithstanding those costs, Penguin has developed a robust digital program that, in addition to e-books, includes three Amplified Editions, 77 eSpecials, 28 apps, and 13 enhanced e-books. Despite having a hit with the Mad Libs app (which sold 133,470 copies through October 31), Shanks says Penguin will proceed cautiously in the market, noting the difficulty consumers have in finding quality apps. Successful apps “just can’t be about price,” making marketing efforts in the app store all the more important. He sees Penguin’s eSpecials as an opportunity to do timely works while also giving Penguin the chance to test different price points.
One of Penguin’s most ambitious projects in the new publishing environment is Book Country. The launch of Book Country’s fee-based platform for aspiring writers in mid-November drew some criticism, but Shanks defends the idea behind the Book Country concept. “Discovering new writers is the lifeblood of publishing, and while the traditional model of agents presenting books to publishers has worked well, Book Country is a chance to create a world-class farm system,” he says. The way Book Country is structured, Shanks expects the best authors to rise to the top, where they will be published by Penguin or another house, noting that he expects most of the revenue generated from Book Country to come from the sales of books Penguin signs, not from fees by authors using the service.
In another big initiative, Shanks made Penguin one of the three founding publishing partners of Bookish. Shanks says he agreed to become part of Bookish because of the “underwhelming” experience Penguin had in selling from its own Web site and his conviction that consumers have a hard time finding the next book they want to read from existing online retailers. The goal of Bookish remains to create a place that can help consumers discover books that will appeal to them, and the recent change in leadership “should take us the rest of the way there.”
After 10 years at the helm of Penguin, Shanks says he has no plans to step aside any time soon. One person who is glad that Shanks is staying is his boss, Penguin Group chairman John Makinson. “David is the most restless publisher I have ever known,” says Makinson. “He is constantly challenging every assumption in our industry through the filter of his extraordinary experience, knowledge, and judgment. He is also an exemplary colleague and boss, tough but always fair-minded and compassionate. These qualities have delivered an outstanding record of growth and profitability at Penguin USA, year after year.”