I probably should have started my blog by giving you my background.
Let's start by stating that I turned 60 this past summer......yeah, I know....old.
Grew up on Long Island, first in Merrick and then Great Neck and I still live on Long Island today.
My first job out of college was with a firm called Kroll Associates, Inc., which was an investigation firm of white collar crime, specializing in the printing industry at the time. While working there one of our clients was Rolling Stone magazine which was launching a new magazine at the time, called Outside. After working on the launch of Outside magazine, I was very fortunate for Rolling Stone to offer me the job as Director of Manufacturing and Distribution when they moved from San Francisco to New York. I worked there for three years and it was truly an amazing experience. The highlight of that job had to have been when Elvis passed away and we had to redesign the entire issue virtually overnight and get to press within a day or two.
After working at Rolling Stone and armed with a background in printing, I decided to give printing sales a shot. I sold publication printing for a couple of years and then commercial printing to publishers for a few years. I finally started my own printing brokerage firm which only printed promotional material for New York publishers. In 1992, my father's partner Roberta Grossman passed away at the very young age of 46. At the same time my father was in the process of trying to sell the Company to Harlequin; a deal that ended up never being completed. While Roberta was in the hospital and the Harlequin deal was pending my father asked me to sit with him and just be there to help out any way I could. After her untimely passing, my father said he wasn't getting any younger, although he was only 69 at the time; and asked me to join Kensington. I sold my printing business and started my career in publishing.
In 1997, I was promoted to President of Kensington and in 2005, to Chairman and Chief Executive Officer. My father continued working side by side with me until August 2010 when he became too ill to come to the office any longer and he passed away in March, 2011 at 87 years of age. I was extremely fortunate to spend close to 20 years working side by side with a man who was considered a legend in the business and was able to compete with the giants of the industry. My son, Adam Zacharius joined the firm about 7 years ago and worked for us in our Los Angeles developing film interest in our books and looking for West Coast writers. After the passing of my dad, Adam moved to New York with his wife, a little over a year ago. He now sits in the office my father occupied and one day he will have his opportunity to run the Company as well.....but he's going to have to wait a while yet....after all my dad worked until he was 87.
On a personal note I've been married to my wife Robin for 23 years and I also have a daughter who lives nearby. We're very fortunate to have a 3 year old adorable granddaughter from my daughter and her husband a new three month old cutie pie baby boy from my son and his wife. (The Zacharius name will continue) !!! I'd be remiss if I didn't mention that I also have a younger sister who decided many years ago to move to Fairbanks, AK...... we're still trying to figure out why :)
Wednesday, November 27, 2013
The Other 70% of the Publishing Revenue---Printed Books
My first Huffington Post blog created some controversy from some of the successfully self-published authors, some of which were also published in print previously. So for this post I thought I would republish my original history of the book publishing business, the print component of books, along with some updated details.
Kensington Publishing is coming up on its 40th anniversary next year. We continue to be a thriving family owned business; but what's happening to the rest of the industry? Looking back 40 years ago when my father started this company, it was a totally different retail climate. The accounts were broken down into a few categories which included magazine and book wholesalers, book jobbers, independent bookstores and chains. Things have certainly changed over the 40 years and I'm wondering what's going to happen in the next five years.
40 years ago there were 750 magazine and book wholesalers. These wholesalers distributed books and primarily magazines to all the newsstands, supermarkets and drug stores. Over the past 15 years they went through a period of enormous consolidation and we're now down to a few large remaining companies. These include Readerlink Distribution Services, News Group and Hudson News. To the average reader they probably recognize Hudson News more than the other two, even though the other two companies are much larger. Hudson supplies the NYC metropolitan area newsstands and of course many of the airport stores that they own and that everyone sees when they're traveling. Readerlink supplies many WalMart stores, Target, supermarkets, drug stores and some of the big box retailers. News Group, the primary beneficiary of most of the consolidation of accounts, services a tremendous amount of supermarkets, drug stores and newsstands across the entire country. Anderson News which was one of the largest wholesalers only a few years ago closed their doors but the family still owns Anderson Merchandisers which supplies most of the books, music and video for WalMart. After these few big wholesalers, there are probably another 40 or so that are fairly small, but still have a successful account base in their local areas.
Book jobbers are "middle men" companies that distribute to independent bookstores, libraries and also help resupply some of the biggest accounts like Amazon and Barnes and Noble when they need books quickly to replenish their inventory. Two of the biggest are Ingram Book Company and Baker & Taylor. There are several other smaller companies as well. When a bookstore runs out of a book they will quite often order backup supply from one of these book jobbers for next day replenishment. These book jobbers are also the primary supplier to the library market and are a very important piece of the publishing business.
As most of you realize there are fewer and fewer independent bookstores remaining. They found it impossible to compete with the giant retailers and have been disappearing although there has been a slight resurgence in the past year. The independent bookstores are still a great source for getting the buzz going on a book, and the best at hand selling books, even though as a category they represent a declining portion of revenue for most publishers. There are some amazing independent bookstores that are still thriving and they should be supported whenever possible. Many of them focus on certain genres such as mysteries or cookbooks.
We all know what's happened to the chain stores. Borders has gone bankrupt and closed all of their stores leaving Barnes & Noble as the only national chain remaining. They also have their digital business with their Nook digital reader. The industry also thankfully has Books-A-Million which is a large chain, also owned by the Anderson family, and there are other chains that sell books and other merchandise, such as Hastings.
The unfortunate result of all this consolidation is that there's less and less physical shelf space left for publishers.
The more recent development of big box retailers like BJ's, Costco and Sam's, which all sell large quantities of varied merchandise, also happen to sell books. They carry a more limited selection of titles in comparison to a retail store, but their prices are extremely competitive because of the low profit margins that have defined their business model for consumers and therefore they sell large quantities on the titles that they do stock.
Along came Amazon and some other smaller online retailers and they caused the physical space to diminish even further because so many people found it so easy to purchase books online. Of course the fact that they started selling New York Times bestsellers below their cost and were willing to take a loss on these titles in order to gain marketshare has helped them crush competition. How long this policy of selling books and other merchandise at a loss can continue and how long shareholders can tolerate them not making a profit is for another discussion. Now that they have so many warehouses there are many parts of the country where you can get books the same day or next day without any problem. The online retailers were the primary factor in causing the decline in book club companies that sold books via direct mail.
So here's the approximate count of physical bookstores that remain:
Barnes and Noble about 675
WalMart 4100 stores in the US and 11,000 total world wide
Target about 1800 US stores
Books-A-Million about 250 stores
Hastings about 150 stores
Hudson News more than 600 airport stores
WH Smith about 1200 stores primarily in the UK
Independent bookstores in the US-about 2000
To these numbers you'd have to add all of the supermarkets and drugstores that also sell books; some with very large book departments.
The Trade Book Publishers:
So what about the publishing side of the business? We've had the same sort of crazy consolidation. The industry frequently calls the largest publishers the Big 5 and now that Penguin and Random House have merged, they are actually the Big 4. These companies are all billion dollar conglomerates and are frequently owned by overseas firms. They include Bertelsmann (German) which owns Penguin Random House, Simon & Schuster (US) which is owned by Viacom, Holtzbrinck (German) which owns St. Martin's Press and Macmillan and finally, Lagardere (French) which owns Hachette and what used to be Warner Books (now Grand Central Publishing). In addition to these big four, I would add Harlequin (Canadian), which is owned by the newspaper company, the Toronto Star. I'm referring to general trade publishers. There are several educational publishers, some of which are also owned by the above companies.
Kensington Publishing, being privately owned, is a fraction of the size of these companies but is the largest of the remaining paperback publishers. There are still hundreds and hundreds of small presses that publish from just a few books per year to several hundred books. There are also educational and religious publishers which are not considered "Trade" publishers.
It is nearly impossible for a new company to develop in this industry because of the limited places available to now sell printed books. This is why there have been so many smaller digital presses that have started like Ellora's Cave, Samhain, Entangled Press, Lyrical Press, and many others as well as other independently owned print/digital publishers like Sourcebooks. The digital sales for most of the large publishers is now in the 30% range of their total revenue although the rapid growth has come to a screeching halt in the past year. During these past couple of years while digital growth was exploding, the sales of print books dropped precipitously. Hopefully these rapid changes have slowed down and will allow publishers to adjust their financial models so that we all stay healthy viable businesses.
Unfortunately for publishers, most readers pay very little attention to whom the publisher is of the book they're reading. The one big exception might be in the romance genre where series romance is dominated by Harlequin. In the coming years it will probably become more critical for publishers to emphasize their brand to help distinguish their books from the other books from traditional publishers as well as the huge number of self-published books that are being done digitally.
Next week I'll go into a discussion on the ebook market and the retailers, as well as print on demand technology which allows most books to be reprinted at the push of a button in quantities as small as one copy at a time.
Happy Holidays to all.
Kensington Publishing is coming up on its 40th anniversary next year. We continue to be a thriving family owned business; but what's happening to the rest of the industry? Looking back 40 years ago when my father started this company, it was a totally different retail climate. The accounts were broken down into a few categories which included magazine and book wholesalers, book jobbers, independent bookstores and chains. Things have certainly changed over the 40 years and I'm wondering what's going to happen in the next five years.
40 years ago there were 750 magazine and book wholesalers. These wholesalers distributed books and primarily magazines to all the newsstands, supermarkets and drug stores. Over the past 15 years they went through a period of enormous consolidation and we're now down to a few large remaining companies. These include Readerlink Distribution Services, News Group and Hudson News. To the average reader they probably recognize Hudson News more than the other two, even though the other two companies are much larger. Hudson supplies the NYC metropolitan area newsstands and of course many of the airport stores that they own and that everyone sees when they're traveling. Readerlink supplies many WalMart stores, Target, supermarkets, drug stores and some of the big box retailers. News Group, the primary beneficiary of most of the consolidation of accounts, services a tremendous amount of supermarkets, drug stores and newsstands across the entire country. Anderson News which was one of the largest wholesalers only a few years ago closed their doors but the family still owns Anderson Merchandisers which supplies most of the books, music and video for WalMart. After these few big wholesalers, there are probably another 40 or so that are fairly small, but still have a successful account base in their local areas.
Book jobbers are "middle men" companies that distribute to independent bookstores, libraries and also help resupply some of the biggest accounts like Amazon and Barnes and Noble when they need books quickly to replenish their inventory. Two of the biggest are Ingram Book Company and Baker & Taylor. There are several other smaller companies as well. When a bookstore runs out of a book they will quite often order backup supply from one of these book jobbers for next day replenishment. These book jobbers are also the primary supplier to the library market and are a very important piece of the publishing business.
As most of you realize there are fewer and fewer independent bookstores remaining. They found it impossible to compete with the giant retailers and have been disappearing although there has been a slight resurgence in the past year. The independent bookstores are still a great source for getting the buzz going on a book, and the best at hand selling books, even though as a category they represent a declining portion of revenue for most publishers. There are some amazing independent bookstores that are still thriving and they should be supported whenever possible. Many of them focus on certain genres such as mysteries or cookbooks.
We all know what's happened to the chain stores. Borders has gone bankrupt and closed all of their stores leaving Barnes & Noble as the only national chain remaining. They also have their digital business with their Nook digital reader. The industry also thankfully has Books-A-Million which is a large chain, also owned by the Anderson family, and there are other chains that sell books and other merchandise, such as Hastings.
The unfortunate result of all this consolidation is that there's less and less physical shelf space left for publishers.
The more recent development of big box retailers like BJ's, Costco and Sam's, which all sell large quantities of varied merchandise, also happen to sell books. They carry a more limited selection of titles in comparison to a retail store, but their prices are extremely competitive because of the low profit margins that have defined their business model for consumers and therefore they sell large quantities on the titles that they do stock.
Along came Amazon and some other smaller online retailers and they caused the physical space to diminish even further because so many people found it so easy to purchase books online. Of course the fact that they started selling New York Times bestsellers below their cost and were willing to take a loss on these titles in order to gain marketshare has helped them crush competition. How long this policy of selling books and other merchandise at a loss can continue and how long shareholders can tolerate them not making a profit is for another discussion. Now that they have so many warehouses there are many parts of the country where you can get books the same day or next day without any problem. The online retailers were the primary factor in causing the decline in book club companies that sold books via direct mail.
So here's the approximate count of physical bookstores that remain:
Barnes and Noble about 675
WalMart 4100 stores in the US and 11,000 total world wide
Target about 1800 US stores
Books-A-Million about 250 stores
Hastings about 150 stores
Hudson News more than 600 airport stores
WH Smith about 1200 stores primarily in the UK
Independent bookstores in the US-about 2000
To these numbers you'd have to add all of the supermarkets and drugstores that also sell books; some with very large book departments.
The Trade Book Publishers:
So what about the publishing side of the business? We've had the same sort of crazy consolidation. The industry frequently calls the largest publishers the Big 5 and now that Penguin and Random House have merged, they are actually the Big 4. These companies are all billion dollar conglomerates and are frequently owned by overseas firms. They include Bertelsmann (German) which owns Penguin Random House, Simon & Schuster (US) which is owned by Viacom, Holtzbrinck (German) which owns St. Martin's Press and Macmillan and finally, Lagardere (French) which owns Hachette and what used to be Warner Books (now Grand Central Publishing). In addition to these big four, I would add Harlequin (Canadian), which is owned by the newspaper company, the Toronto Star. I'm referring to general trade publishers. There are several educational publishers, some of which are also owned by the above companies.
Kensington Publishing, being privately owned, is a fraction of the size of these companies but is the largest of the remaining paperback publishers. There are still hundreds and hundreds of small presses that publish from just a few books per year to several hundred books. There are also educational and religious publishers which are not considered "Trade" publishers.
It is nearly impossible for a new company to develop in this industry because of the limited places available to now sell printed books. This is why there have been so many smaller digital presses that have started like Ellora's Cave, Samhain, Entangled Press, Lyrical Press, and many others as well as other independently owned print/digital publishers like Sourcebooks. The digital sales for most of the large publishers is now in the 30% range of their total revenue although the rapid growth has come to a screeching halt in the past year. During these past couple of years while digital growth was exploding, the sales of print books dropped precipitously. Hopefully these rapid changes have slowed down and will allow publishers to adjust their financial models so that we all stay healthy viable businesses.
Unfortunately for publishers, most readers pay very little attention to whom the publisher is of the book they're reading. The one big exception might be in the romance genre where series romance is dominated by Harlequin. In the coming years it will probably become more critical for publishers to emphasize their brand to help distinguish their books from the other books from traditional publishers as well as the huge number of self-published books that are being done digitally.
Next week I'll go into a discussion on the ebook market and the retailers, as well as print on demand technology which allows most books to be reprinted at the push of a button in quantities as small as one copy at a time.
Happy Holidays to all.
Friday, November 15, 2013
Legal Point of View
Over the past couple of months we've seen two major rulings that were related to the book publishing business. The first was the Department of Justice ruling against Apple in a price fixing case. The more recent decision just announced the other day was that Google can continue to scan millions of books for the purpose of making them searchable. So far they've scanned over 20,000,000 books and their goal is to scan every book. Of course both of these decisions will be appealed.
In the DOJ case the DOJ said that Apple conspired with several of the major publishing firms to fix ebook prices. (BTW, Kensington was not one of those). Apple offered publishers a new publishing model for their digital business where they would act as an "agent" and take 30% of the proceeds and give the publishing company the other 70%, but the digital prices had to be at a specified price which was directly related to the price of the printed book. The publishers also were accused of telling the other ebook retailers that they would have to go along with this same type of arrangement. The bottom-line was that the price of digital books increased. Publishers thought this was a great idea because they felt that the low prices that Kindle was charging, below cost in many cases, were devaluing the content. Consumers enjoyed the benefits of Amazon's low prices and the DOJ basically won their case stating that the new business model, which several of the publishers all switched to at the same time, raised the price of ebooks.....and that's all the DOJ cared about.
Most publishers were outraged by the decision because the agency model was seen as a way for the publishers to put the ebook retailers all on the same footing and make them all charge the same price. This would prevent Amazon/Kindle from selling ebooks well below cost even though they had to pay publishers based on the digital list price. Amazon's philosophy is that they will continue to absorb this loss on much of the merchandise that they sell because they say they are giving the consumer a great value.
What do you think about this? Do you think it's fair that Amazon/Kindle sells books below cost making it impossible for any other smaller ebook retailers or printed book retailers to compete? How long can Amazon continue to do this? Do you think they'll continue doing this and gain marketshare until they wipe out the competition and then eventually raise prices? What happens when the other ebook retailers eventually throw in the towel and does Amazon then raise their prices and finally other book retailers get back into the game again? Do you feel that Amazon's shareholders are going to get fed up that the Company continues to lose money even though their revenue increases? Or is Amazon really the greatest thing to happen for the consumer since the internet really exploded?
The Google case has been going on for years now. One side wins, then the other side appeals....For most consumers this will not have any bearing on them. Do you think that it's right that Google is able to scan all of the books they want, even though they are copyrighted; just so they can make them searchable when you type in a related subject in Google? Or do you think they should be required to get the author's approvable before scanning copyrighted material?
I'd be interested in hearing your comments.
Steve
BTW, I am a frequent user of Amazon and Kindle as well as just about all of the major ebook retailers, including B&N and Nook, Apple and Kobo. I constantly try different ebook retailers to see which offers the best user experience for me. I've also had the luxury of trying most of the major ebook readers and tablets and own a Kindle New Paperwhite, several iPads in different sizes, the new Nook Glowlight and the brand new Kobo Aura. And of course everybody uses or has tried Google as the search engine of choice and it has become the defacto standard.
In the DOJ case the DOJ said that Apple conspired with several of the major publishing firms to fix ebook prices. (BTW, Kensington was not one of those). Apple offered publishers a new publishing model for their digital business where they would act as an "agent" and take 30% of the proceeds and give the publishing company the other 70%, but the digital prices had to be at a specified price which was directly related to the price of the printed book. The publishers also were accused of telling the other ebook retailers that they would have to go along with this same type of arrangement. The bottom-line was that the price of digital books increased. Publishers thought this was a great idea because they felt that the low prices that Kindle was charging, below cost in many cases, were devaluing the content. Consumers enjoyed the benefits of Amazon's low prices and the DOJ basically won their case stating that the new business model, which several of the publishers all switched to at the same time, raised the price of ebooks.....and that's all the DOJ cared about.
Most publishers were outraged by the decision because the agency model was seen as a way for the publishers to put the ebook retailers all on the same footing and make them all charge the same price. This would prevent Amazon/Kindle from selling ebooks well below cost even though they had to pay publishers based on the digital list price. Amazon's philosophy is that they will continue to absorb this loss on much of the merchandise that they sell because they say they are giving the consumer a great value.
What do you think about this? Do you think it's fair that Amazon/Kindle sells books below cost making it impossible for any other smaller ebook retailers or printed book retailers to compete? How long can Amazon continue to do this? Do you think they'll continue doing this and gain marketshare until they wipe out the competition and then eventually raise prices? What happens when the other ebook retailers eventually throw in the towel and does Amazon then raise their prices and finally other book retailers get back into the game again? Do you feel that Amazon's shareholders are going to get fed up that the Company continues to lose money even though their revenue increases? Or is Amazon really the greatest thing to happen for the consumer since the internet really exploded?
The Google case has been going on for years now. One side wins, then the other side appeals....For most consumers this will not have any bearing on them. Do you think that it's right that Google is able to scan all of the books they want, even though they are copyrighted; just so they can make them searchable when you type in a related subject in Google? Or do you think they should be required to get the author's approvable before scanning copyrighted material?
I'd be interested in hearing your comments.
Steve
BTW, I am a frequent user of Amazon and Kindle as well as just about all of the major ebook retailers, including B&N and Nook, Apple and Kobo. I constantly try different ebook retailers to see which offers the best user experience for me. I've also had the luxury of trying most of the major ebook readers and tablets and own a Kindle New Paperwhite, several iPads in different sizes, the new Nook Glowlight and the brand new Kobo Aura. And of course everybody uses or has tried Google as the search engine of choice and it has become the defacto standard.
Thursday, November 14, 2013
eBook Subscription Services
The hot new trend in the digital arena are these eBook subscriptions that are popping up all of a sudden. There's Scribd, Librify, Oyster, eReetah and I'm sure more are coming. Basically you pay a very low monthly subscription price for unlimited reading of selected ebooks. Is this a viable business model for these companies? My thoughts are that this is basically the same type of business model that gyms use. They get a lot of people to join up for a very low monthly price and they then hope that nobody shows up to use the facilities. (I can't tell you how many times I've done this).
None of these services can make money if they have voracious readers who are going to read more than two books per month because they are paying the publishers full price each time a book is read. This ends up costing more than the member is paying for the service each month. But if the reader comes on and only previews a book or takes a long time reading one book, the service is only paying out a few dollars and will come out ahead.
Kensington Publishing has agreed to provide title for some of these services and we're finalizing contracts on others. I personally feel that it's a model that we should experiment with and see how it performs. We're getting interesting feedback from some of these services. We learn how long it takes a reader to read one of our books as well as if they started a book and decided not to finish reading it. What we end up doing with this data is a different matter as I'm not really sure how we're going to utilize it at this time.
Have any of you tried any of these services yet and what do you think?
Steve
None of these services can make money if they have voracious readers who are going to read more than two books per month because they are paying the publishers full price each time a book is read. This ends up costing more than the member is paying for the service each month. But if the reader comes on and only previews a book or takes a long time reading one book, the service is only paying out a few dollars and will come out ahead.
Kensington Publishing has agreed to provide title for some of these services and we're finalizing contracts on others. I personally feel that it's a model that we should experiment with and see how it performs. We're getting interesting feedback from some of these services. We learn how long it takes a reader to read one of our books as well as if they started a book and decided not to finish reading it. What we end up doing with this data is a different matter as I'm not really sure how we're going to utilize it at this time.
Have any of you tried any of these services yet and what do you think?
Steve
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