The end of 2009 marked the end of both a challenging year and a difficult decade for publishers. While it would be nice to think the worst is over, don't bet on it. As we look back at a year marked by job losses—and at a decade roiled by technology—we can't help thinking that tough times are likely to linger a bit longer. To paraphrase Winston Churchill, for book publishers, the end of 2009 is not the end of a difficult period. It is not even the beginning of the end. With any luck, however, it may be the end of the beginning.
But we'll say this much: what a difference a decade makes. On New Year's Day, 2000, more Americans were concerned about the Y2K bug than their local newspaper going under. Google still had its sights set on Yahoo. Time Warner and AOL were actually celebrating a $160 billion merger. The new Rocket e-book reader was preparing for launch (with a price tag over $1,000). Facebook and Twitter were years away. And a freshman at Northeastern University, supported by little more than a college meal plan and his parents' credit card, had just launched a free music application called Napster.
Now, we don't mean to start 2010 off on a down note. In fact, we're quite optimistic. Despite its economic challenges, 2009 was also the year that book publishers began to see some very real opportunities in the digital realm. With the Kindle, a surging iPhone app market, the increase in e-reading devices, the conversation sparked by the Google settlement, and the power of social media, publishing truly seemed to turn a corner in 2009.
No question, this was a difficult year for the book business, and many of the year's problems remain. For one, the effects of the 2009 recession are about to be felt in earnest in 2010 library budgets, and that's one very big strike against a meaningful publishing industry rebound in the coming months. Despite gaudy, triple-digit growth, e-books still represent less than 5% of publishing revenues, so few are banking on digital revenues to bolster sagging bottom lines in the near future. And from courtrooms to boardrooms, some central, controversial issues remain unresolved.
All in all, 2009 may have been the most painful year of a disruptive decade for publishers. But it was never dull. What made the biggest headlines in 2009, and what stories are likely to stay with us through 2010? Read on.
1. Layoffs, Pay Cuts, and the Reshaping of the Industry
By the time 2009 had begun, the publishing industry had already started to shrink, with one company after other announcing staff cuts, wage and hiring freezes, or, in some cases, job furloughs. The layoffs and restructurings began in December 2008, when Macmillan eliminated 64 jobs and formed the Macmillan Children's Publishing Group to combine the company's various children's imprints under one roof. Simon & Schuster started by slashing 35 jobs. Random House announced its plan to merge five publishing groups into three. And the cuts continued throughout the year. In February, HarperCollins abruptly closed its Collins division. Reorganizations, meanwhile, were still occurring as recently as December 2009, when Random split Crown Publishing into two groups.
By the time PW's annual salary survey was conducted in spring 2009, roughly 90% of respondents said their company had taken action to control personnel costs. Altogether, in 2009, the publishing industry shed as much as 7%—10% of its workforce. And the pain didn't end there. While most of the downsizing took place in the first quarter, publishers continued to look for ways to control costs throughout the year, and that rippled through the industry in the form of lower turnouts at book fairs, lower print runs, fewer launch parties, and in some cases, canceling or delaying publications.
While many of the cuts were in direct response to economic conditions, the silver lining for 2010 is that, hopefully, the restructurings have addressed operations that had grown haphazardly, which could allow some organizations to focus on new strategic initiatives with better growth potential in the coming year—in other words, digital. Indeed, as 2010 begins, publishers have slowly begun to lift pay freezes. Hiring, however, remains very selective. One 2009 trend sure to carry into 2010 is the type of candidate publishers are looking to hire. With digital important both to publishers' current bottom lines as well as their long-term futures, one headhunter told PW that publishers will increasingly look to hire people who can bring “a new perspective.”
2. That “Pitiful, Paltry Sum”
At the 2009 BookExpo America, Daily Beast founder Tina Brown made headlines when she slammed Amazon's $9.99 price for Kindle books, calling it a “paltry, pitiful sum.” Brown's high-profile voice echoed a common complaint from publishers in 2009: Kindle prices are unsustainable. In October, however, the price issue was kicked up a notch when Wal-Mart touched off a price war by undercutting Amazon's prices on more than 200 popular hardcover titles—even dropping prices for physical books below “the Kindle line.”
Within days of Wal-Mart's initial price cut, Amazon matched. Customers could order bestselling books pre-pub like Sarah Palin's Going Rogue on both Amazon and Wal-Mart for $9—less than the standard Kindle price, nearly half the price at BN.com and Borders.com, and less than a third of the publisher's $28.99 list price. On his blog, agent Richard Curtis called the price war suicidal. At $9, he suggested, booksellers were surely losing money on every book sold—unless, of course, publishers dropped their discounts, which meant they lost money, which of course meant that authors were likely to see their royalties dip. And competing bookstores? “As if they didn't have enough trouble,” Curtis observed, “an extended price war could drive remaining indies out of business completely.”
The Wal-Mart/Amazon price war of 2009 calmed without significant collateral damage—this time. But price will be a major issue in 2010—both for digital and traditional books—and that's one variable that must be keeping publishing executives up at night. For one, setting price is often more art than science, balancing fixed costs against what the market will bear. As if there wasn't enough pressure on publisher bottom lines with traditional discounts, now they must factor in a buying public that has come to expect lower prices and different formats, whether a $9.99 Kindle price, a POD paperback, or a cheap Wal-Mart hardcover. Add to that the wealth of content online competing for readers' attention, and it becomes difficult to see how a $30 hardcover can survive.
In 2010, more e-readers will enter the market, and retailers will continue to battle for market share. Consumers will have more entertainment choices but less disposable income..
3. The Google Settlement Sparks Controversy
Announced at the end of 2008, the Google Book Search Settlement seemed to be cruising toward a June 2009 approval hearing—then, the wheels came off. After a group of authors, spearheaded by Gail Steinbeck, succeeded in delaying the hearing for four months, opposition mounted. The deal was assailed by foreign rights holders, objected to by foreign governments, torn apart by lawyers, questioned by librarians and scholars. It was the subject of a congressional hearing, at which Marybeth Peters, the U.S. Register of Copyrights, blasted the deal. In a crushing blow, the Department of Justice, while praising the deal's goals, urged its rejection as written.
Roughly a year after the settlement was announced, the deal's architects were back at the drawing board. An amended deal was submitted in early November—and while it addressed some concerns, critics say it has not addressed them all, and opposition once again is growing.
As the amended settlement makes its way toward a February 18, 2010, approval hearing, its fate remains very much uncertain. Bank on even more legal wrangling in 2010. Whether approved by the court or rejected, the deal's true destiny almost certainly rests with the federal court of appeals—and possibly the Supreme Court. It is not out of the question, too, that the deal could be recalled yet again and further tinkered with. Congress could also get into the act—why not a bailout for books, as Harvard's Robert Darnton suggests?
In the meantime, one hopes that the parties on both sides of the issue can not only continue the conversation the program has started but actually further it. At its core, the Google settlement is about making books discoverable. It is about bringing the world's vast out-of-print heritage into the online world. Reasonable people can disagree about how that is best accomplished, and the deal on the table is admittedly imperfect. But to not make progress toward putting out-of-print works online would be a serious blunder for an industry that can ill afford to miss any opportunities.
4. Borders Cuts 180 Stores
If anyone needs proof that booksellers are feeling the pain, look no further than Borders, the nation's second largest bookstore chain. In January 2009, the company overhauled its top management team, starting with the appointment of Ron Marshall as CEO, and went through several rounds of companywide layoffs throughout the year. In November 2009, the company announced its most extreme measures yet: a plan to cut 180 Waldenbooks stores, dropping the number of mall-based stores to around 150 by January 30, 2010. Clearance sales began last month.
The jury is out on whether Borders's drastic moves can turn the struggling company around. Company officials estimate that operating costs were cut by $120 million in 2009, and reduced its debt. Unfortunately, the company has failed to generate positive sales momentum. Borders's third-quarter performance was, in the words of Marshall, “difficult and disappointing.” Comparable-store sales through the first nine months of 2009 at its superstores, the cornerstone of its turnaround strategy, plummeted 14.6%, with both a decline in customer traffic and a decrease in sales per customer.
Publishers badly want Borders to succeed. To date, the chain remains in the good graces of publishers because it continues to pay its bills on time; as long as that is the case, publishers will continue to extend credit.
What might 2010 hold for Borders? Mark this date: April 1, 2010. That's the day a $42.5 million loan from Pershing Square, Borders's largest shareholder, is due. In 2009, with the credit markets locked tight, Borders managed to amend that credit agreement, originally set to expire last April, an extension that gave Borders “some necessary breathing room” to get its financial house in order, Marshall said.
5. B&N Unveils the Nook and Raises the E-reader Stakes
Determined not to let the Amazon Kindle run away with a vibrant, emerging market, Barnes & Noble unveiled its own dedicated reading device at a Manhattan press conference in October: the Nook. Like the Kindle, the Nook features a black and white e-ink screen, but is coupled with a smaller, color LED screen, not unlike the lesser known Alex Reader. In fact, the Nook so resembles the Alex Reader, Alex's manufacturing team, Spring Design, filed suit in a federal court, claiming B&N stole its idea.
So far, the Web site TechCrunch estimates that only 60,000 Nooks shipped in 2009 and that the early rollout has been plagued by some software glitches and delivery delays—nothing unusual for a new product. But Barnes & Noble has projected that it could sell as many as 500,000 Nooks in the first quarter of 2010, a number that would make it a serious competitor to the Kindle. Certainly the Nook has brand recognition going for it, and may have one advantage over the Kindle: you can actually purchase one in a brick-and-mortar Barnes & Noble bookstore.
In 2009, Kindle dominated the growing American e-reader market. In 2010, however, there will be increasing competition, and not just from the Nook. There's already a host of lesser-known—and cheaper—readers, including the Irex DR800SG, a stylus-touchscreen e-ink device, developed by Dutch manufacturer Irex (with B&N, in fact), the Bookeen Cybus Opus, the BeBook and the Astak EZReader. Indeed, mapping the ever-developing terrain of new digital reading devices has become the whack-a-mole of today's e-publishing industry.
For consumers, competition should mean better devices. The million—perhaps billion—dollar question going forward, however, is whether consumers will continue to go for dedicated reading devices. Already, more and more consumers are choosing to read using apps designed for smartphones, like the iPhone/iPod Touch and the new Android OS phones. And, of course, there's the e-reader elephant in the room: Apple. It is rumored that a sophisticated Apple reading device, featuring a color screen and multimedia, could come as early as February.
6. The Return of Jane Friedman with Open Road
Just over a year after she left the helm of HarperCollins, Jane Friedman returned, in fall 2009, with a new digital venture, Open Road Integrated Media. Together with Jeffrey Sharp, a film producer (whose credits include Boys Don't Cry) and $3 million in seed funding from Kohlberg Ventures, Friedman billed the new venture as a “360 degree” company with an eye to expanding—and exploiting—the market for content empowered by technology. The lynchpin of Open Road will be “an author-branded” e-book backlist, including writers like Iris Murdoch and William Styron, as well as a crop of newly published “e-riginals,” under the watch of editorial director Brendan Cahill.
Open Road is set to launch in 2010 with as many as 750—1,000 e-books, Friedman noted, along with possibly 20 original e-books, and multimedia components, such as short films Sharp dubs “mini-docs.” Friedman says the company was still “auditioning” distributors as of December, but would seek to price the e-books around $14, about the same as a trade paperback. Open Road e-books will be readable on any device. Revenues will be split 50—50 between author and publisher. And among the various layers of the business is a plan to offer some kind of “curated” self-publishing program. Friedman cited the company's recent agreement with William Styron as a good example of Open Road's plan to “aggregate content” including books and collections, like personal papers, “to curate it, brand it, and push it back out again.”
Without question, Friedman's return and her new company's vibrant vision for e-books was a welcome, energizing piece of publishing news in 2009. At the same time, many details of the business remain unclear—for example, will younger generations really pay $14 to download Sophie's Choice? And just how many lawyers can the company afford to hire with its current funding? See number seven for details on why that might be important.
7. Random House Claims Its E-book Backlist
So much for peace, love, and understanding—after more than a year stumping together for the controversial Google settlement, publishers and the Authors Guild got back to their natural adversarial positions at the end of 2009, when Random House CEO Markus Dohle sent a letter to agents claiming Random House owned “the exclusive right to publish books in electronic format” over “the vast majority of [its] backlist contracts.”
At issue: thousands of books acquired before 1994—the year that Random House added digital rights language to its contracts. Random House spokesman Stuart Applebaum said the letter was sent in the spirit of “collaboration, not confrontation.” The Authors Guild didn't see it that way. It called the letter “regrettable and unhelpful,” and characterized it as a “retroactive rights grab” designed to “intimidate authors and agents over old book contracts.”
Specifically, the letter seemed calculated to intimidate one venture in particular: Jane Friedman and Open Road. Although Open Road has a deal with the Styron estate to publish e-books of the late author's work, Random House, Styron's publisher, has also claimed those rights. The dispute harks back to 2001, when Random House filed a lawsuit seeking to block fledgling Rosetta Books from distributing eight e-books by authors whose printed works were published by Random House. After losing its bid for an injunction, Random House and Rosetta settled on license terms—leaving the key question open for another day.
Will Random House really seek to fight the issue in court in 2010? That seems highly unlikely given its experience in the Rosetta case. It is more likely that Random House is staking out the strongest position possible from which to negotiate.
8. A Public Option for BEA?
The 2009 BEA could have been a disaster. Held in expensive New York City during a global recession when the very concept of the book was in doubt, the show, many feared, would make for a very quiet Javits. Those anxieties, however, helped transform the show. A nervy program of panels and “Big Ideas” dared to flirt with visions of the industry's total transformation if not its extinction. And BEA organizer Lance Fensterman kept traffic and interest high with other innovations, such as holding author stages on the show floor.
The question going into 2010 is not whether the innovations of 2009 were enough to save the show, but rather, as they say in New York, what else you got? Former Soft Skull publisher Richard Nash challenged BEA leadership by raising the issue of opening BEA to the public. Nash lamented the low “demand for books” and suggested that keeping the public out of the show was a grave mistake. Two months later, Penguin CEO David Shanks and president Susan Petersen Kennedy proposed the same thing.
Don't expect the public to swarm the halls of BEA in 2010, however, though show organizers have other changes planned. This year's changes are designed to save exhibitors money—the show is midweek, and the exhibit floor is open only two days.
Perhaps the biggest change for 2010 is the departure of Fensterman, who was promoted in November to run Reed Exhibitions' “pop culture business.” The pressure is on Fensterman's successor to devise a program as sharp as last year's. An International Digital Publishing Forum will take place simultaneously and should help generate plenty of constructive—and controversial—discussions.
Most agree BEA is “a show in transition.” For a little perspective, the decade's first show in 2001 drew 21,000 attendees to Chicago's McCormick Place, compared to 30,000 last May in New York. At the 2001 show, a PW reporter summarized the talk of digital products an “e-snooze,” and Chronicle Books' Jack Jensen said, “The fair is a lot more exciting than the industry.” One thing is clear: the industry is changing very quickly, and BEA will have to keep up. It did last year; it must do so again in 2010.
9. Scribd Raises Piracy Concerns, Signs Deal with S&S
In 2008, Scribd, a new “social publishing” venture, burst on the scene and by 2009 had become known as the “You Tube of books.” But by March, the company was faced with charges of facilitating piracy after a British newspaper found a slew of bestsellers and other books posted to the site. Amid the usual clamor over digital piracy, something interesting happened this time. Simon & Schuster struck a deal.
In June, S&S announced a Scribd “storefront” that would feature 5,000 Simon & Schuster e-books available for purchase and thousands more titles available for preview. How did S&S get past piracy concerns? The company did the math. On one side of the equation was traffic. Over the summer, Scribd hit a peak of 58 million monthly visitors (although it now hovers closer to 30 million). On the other side, was Scribd's innovative copyright management system, which compares uploaded works to works in its existing database and blocks the upload of unauthorized works. Thus, the more works you put on Scribd, the more pirated copies are blocked from being uploaded.
Digital piracy will continue to be a hot issue in 2010. At a 2009 NYU event, Macmillan's John Sargent said 90% of the company's frontlist could be found on pirate sites. And at the Frankfurt Book Fair, digital piracy was the most popular topic for panels. The good news is that publishers, like S&S, have not followed those who have gone before them—notably, the music industry—and indiscriminately sued their customers. But another realization may also be setting in: perhaps DRM isn't the answer? Perhaps, a bolder solution is required than digital locks or litigation. For one thing, DRM clearly hasn't stopped books from being pirated. And, suggests Cory Doctorow, DRM breaks a vital bond, by turning book buyers into mere licensees. “The most important part of the experience of a book is knowing that it can be owned,” Doctorow said in a recent speech, “How to Destroy the Book. “ “That it can be inherited by your children, that it can come from your parents, that libraries can archive it, lend it, that patrons can borrow it.” That was made abundantly clear in 2009, when Amazon removed copies of George Orwell's 1984 from people's Kindles, sparking outrage and evoking images of the novel's Big Brother.
It's doubtful that S&S's DRM-protected, no-copy, no print, near full-price e-books on Scribd are making much money for the company. But it is small step forward, with bigger steps to come. On Christmas day, Amazon said it sold more e-books than physical books for the first time—and as digital revenues surge, so too will fears of digital piracy.
10. A Chris Anderson Free-for-All
With price issues looming for publishers in 2010, Wired editor Chris Anderson's Long Tail follow-up in 2009, FREE: The Future of a Radical Price, offered a glimpse at just how messy the digital landscape is—and might get—in 2010 and beyond.
Almost immediately after publication in July, Anderson was on the defensive. Publishers like Macmillan's John Sargent claimed free content would rob the book industry of its value over time. Reviewers and traditional journalists, including the New Yorker's Malcolm Gladwell, characterized the book as simple, even dangerous. A brief tempest over unattributed passages from Wikipedia didn't help. But for Anderson, months of skeptical reviews, panel discussions, and editorials confirmed that he's on to something. “The biggest misunderstanding of my work is that I believe everything should be free. Not the case,” he's told PW. “But I would rather start a conversation about free, even in wildly misinformed, polarized, noisy ways, if it gets people thinking.”
Thus far, Anderson's publisher, Hyperion, remains mum on whether a strategy to give away free e-book editions led to higher book sales in 2009. But the book certainly got people thinking—so much so that a number of major media companies have decided to bring back the “paywall” in 2010. But will the return of the paywall in 2010 really help a struggling media sector? Anderson isn't so sure. “Once you establish a relationship, it's hard to change it,” he observes. “It's hard to raise prices and get people to change their impression of value, and hard to lower prices and not get some sense of devaluation.”
“Free” will be a major issue in 2010 for publishers—primarily because new paywall strategies are certain to emerge in various media outlets. These experiences will greatly inform book publishers as they move further down the digital path. But, Anderson notes, whether coming to grips with fears of piracy or finding new ways to stand out among the growing amount of user-created content, embracing digital, one way or another, means competing with free.
Still, as tough as the coming years may be, Anderson foresees a bright future for books. “The physical book adds value to Internet,” he observes. “That is our job now, to add value to the Internet. To make the Internet better, or offer things the Internet can't.”