A Parallel Universe? Book Industry Strategy Group's (BSIG): Final Report.

Unlike most industry observers, I was very cynical about Industry Minister Kim Carr's establishment of the Book Industry Strategy Group when he announced it in February 2010. 


The Group's final report to government has just been released.


It's 100 pages long and is in two parts. Part 1 regurgitates the awful PwC report I reviewed here, and Jenny Lee's excellent summary of the industry's progress in going digital. (Both of these reports are on the BISG's official website here). So don't read this first part. You'll be put off, particularly as you'll have to read all of the Group's final recommendations without the benefit of the full context and background information which is the only way they make sense.


Part 2 starts at page 45 and is well worth reading. Surprisingly, for a document like this, which must have had so many inputs, it is generally well written and it pretty much sticks to the facts. Titled Transforming the Industry, it's obviously rather bold and visionary, but manages to stay calm and unemotional. Is it naive? Probably. Optimistic? Certainly. Unrealistic? Undoubtedly. But in its rationality I found it persuasive. An ambitious agenda, spelt out clearly and in detail. 


It's mainly concerned with establishing the rationale for the 21 recommendations. The first, and probably most important, is to establish a Book Industry Collaborative Council with membership from all sectors of the industry. This council would be charged with articulating and implementing the ambitious reform agenda envisaged by the BSIG, and would have a direct line to government. Nowhere was there any hint as to how this Soviet beast would be funded. Presumably it would have a full time director, with some support staff, but that's not clear. Perhaps Carr's department will fund it through one of its programs, because it will surely be all form and no substance otherwise. 


However, philosophically, it's hard to get beyond the elemental fact that industries change and develop through market forces and competitive pressures, not by the determinations of councils, committees and bureaucrats, no matter how supreme or benevolent. And we're mostly talking about a global publishing industry now. It's been a long time since those industry dynamics in Australia were mainly determined by Australian management. 


The next two recommendations advocate abolishing the GST on books (or the $1000 GST-free threshold on imports), and fixing the high parcel postage rates for deliveries within Australia. I guess we had to expect this sort of stuff.


Then comes an interesting one: reduce the 30/90 day rule to 14/14. This is obviously a win for the booksellers who argued in their submission for 7/14 days. To get the publishers to go along with this looks like quite a victory. The APA recommended the 30/90 provisions be extended to ebooks, a category mistake if ever there was one.


Of course the 14/14 change is akin to the familiar Arab Despot manoeuvre: throw some democratic tidbits at the angry mob in order to protect the regime. As the report insinuates time and time again, high Australian prices, set by publishers and unrelated to the high dollar, are the root cause of the retail uncompetitiveness problem. It's the elephant in the room but the BSIG is content to ignore it. The same old conceptual confusion about what constructs territorial copyright is there in all its glory.


The booksellers had another win in their push for a thorough-going reform of publishers' distribution practices. Recommendation 6 wants the industry to establish a goal of 48 hours from order to store (it's currently 3-5 days if you're lucky!), and have the Soviet BICC tasked with the necessary 'rationalisation, standardisation and consolidation'. How on earth this body can do this without having a mandate to be able to dictate to private companies is anyone's guess: 'Close your pathetic little warehouse and go through UBD or ADS'! Can't see it. Only intense competition can make things like this happen. 


The appalling lack of regular, comprehensive, up-to-date industry stats is confronted, with a recommendation that the ABS and the industry jointly fund regular compilations, beginning in 2012/3. Will the industry be able to raise about $200k per time? Yes, in my view, and the money should come from CAL. 


There's quite an odd recommendation to resurrect the old National Book Council to source additional funds from private sources to support Australian publishing. Someone on the committee should have thrown a bucket of cold water over whoever suggested this!


The government is being asked for quite a bit of money, $50 million or so, which is hard to take seriously, even as an ambit claim: 


- $5 million for TitlePage stage 2;
- $10 million (matched by $6 million from universities) to subsidise the publishing of scholarly monographs;
- About $1 million for the ABS for the collection of statistics;
- $30 million for schools to be able to purchase digital learning resources for the National Curriculum;
- $5 million for a grants program for academics to encourage textbook authorship;
- $1.5 million to double the existing Literature Board grants;
- Close to $500k, I suspect, in making all author prize money tax exempt;
- Plus sundry smaller amounts for small business development grants, printing industry transition, support packages for displaced printing industry employees, and additional miscellaneous funds for writers.


Despite the fact that the rationale for all this funding might make a great deal of sense theoretically, and that the arguments are well marshalled, and that the recommendations (mostly) are worthy, everyone knows that only a very small part, if anything, of what is being asked for will be forthcoming. Piddling stuff that bureaucrats can give a nod to, under the political radar. There'll be no large grants or government funded initiatives. We don't live in that sweet mendicant universe any more.


You can make a case that the industry has been conned, or that we're so out of touch politically and economically that we ought to be embarrassed for even countenancing a submission like this to government. We are not a charity. We should have asked for just $3 million and left it at that - for the ABS stats collection; for doubling the Lit Board grants; and for making author prizes tax free. 


But whatever becomes of it, it does seem that the whole BISG project was worth it, if only to get all parties around the table and bang heads about the current and emerging challenges of our common future.


For there is a great future. No doubt about it. But it's one the industry will have to construct almost entirely on its own. And that's the way it should be. 

The Book Industry Strategy Group: PwC's Report on the Industry

This is from the Department's website:

In undertaking its deliberations, the BISG commissioned a number of major research and consultation projects. The primary research project, the Market Analysis Research Report  [PDF 1296KB] [RTF 30MB] provided the BISG with an analysis of the Australian industry and a review of its competitiveness against parallel industries in other major English speaking markets.

The Market Analysis report was prepared by accounting and business consultancy firm PwC, and it has just been released.

It's 130 pages in length, and will take you about six hours to read and absorb. Don't bother. It's not worth it. Just read the first 30 pages which nicely bring together much statistical data on the book industry available from a wide variety of sources, and it's absolutely up to date (including 2010) and superbly presented.

After that come long sections on ebooks and their growth prospects; overall industry competitiveness; global opportunities; and a very peculiar final section on 'Business Models'. None of these are worth reading. They re-hash old chestnuts, serving up as insightful and new such tired cliches like this: 'The fragmented nature of Australia's book distribution system, and a lack of universal standards, imposes additional costs on the wholesale price of books, and results in lengthy delivery times'. (Hello, 1999!)

And there's really helpful stuff like this: 'The ebook market in Australia is projected to reach between $150 million and $700 million in 2014, representing between 6 per cent and 24 per cent of total estimated book sales'.

To anyone who's been in this industry for a while, and who had to stomach, even participate in, godawful stuff like Accenture's report on the industry in 2001 (it was so bad it was good!), much of PwC's report will sound familiar. There's the all-pervasive naivety for starters. Then the sheer ignorance, which is inexcusable given there happen to be quite a few people from all sectors of the industry who could have sounded howler alerts along the way. Here's an example: 'There would appear merit [sic] for Australian publishers to pool their resources...in undertaking international market development that benefits the book industry as a whole. Such instances of international market development may include [drum roll..] attendance at international book fairs'. 

We also get an enormous amount of confusion - different issues jammed together that are of different orders of magnitude. For instance the 'inefficiencies in Australia's book distribution system' comes before the Parallel Importation Restrictions in forcing up prices, when such inefficiencies could only be adding '$0.40 to $1.00 to the unit cost of a book'.

On the fabled PIR's we get this fearless assault: 'On the weight of the available evidence, we conclude there is a conceptual case that the PIRs do have an impact on the value of wholesale book prices in Australia. The exact magnitude of this impact, is however, difficult to ascertain..'

The report is very weak when it comes to industry collaboration. It presumes there's virtually none of it. It references related creative industries both in Australia and overseas where players have come together to build common and online platforms - Freeview (TV), MOVE (outdoor advertising), Batch.co.uk (UK book industry) - without mentioning at all, throughout the whole report, TitlePage or Pacstream or the many other standards, systems and protocols that have been part of the industry for decades. 

So this is a lame effort. The stats are good but the rest is worthless. 

Pearson's Lapse in Concentration

Large corporations are always on the look out for acquisitions. In mature markets, when organic growth is hard to come by, and cash reserves need to be put to productive use, the attractions of acquiring another business and integrating it into current operations are easy to see and make so much commercial sense. 


There are dangers, however. Acquisitions can be strategic and even brilliant - the right business purchased at precisely the right time and for the right price. 


They can also be dumb. 


Pearson Australia's purchase of REDgroup Retail's online business fits snugly into the latter category. This is precisely the sort of acquisition that seasoned managements usually know to avoid like the plague. They are opportunistic - the businesses have just become available, are crying out to be picked up, and are undoubtedly cheap as chips - but they are foreign to normal and well understood operations, and current management has no experience or appreciation of the subtle dynamics that need to be known and respected for them to be successful.


Executives have to guard against the sort of emotional self-pleasuring that successful acquisitions bring. When announced, the press is quoting you, the industry is abuzz and admiring your cleverness, you've got a jump on the competition. Hard to psychologically resist.  


No doubt Pearson assessed this acquisition carefully. A good Australian-based operation, with an excellent Kobo partnership, growing strongly, a loyal customer base, needed by publishers, etc. It would be a shame if it disappeared just because its parent got into difficulty. Revenues now might be only $25 million or so but could well be $100 million in five years time. Penguin, in fact all Australian publishers, just can't sit by and see this business disappear. There has to be strong, vigorous and well-funded, local competition to the off-shore powerhouse, Amazon.


All superficially plausible, but the negatives are overwhelming. Pearson is a publisher, not a retailer, and no publisher understands, or has the skills to manage, specialist book retail operations. They are totally different beasts. They require careful attention, love and continued investment, all the sorts of things that REDgroup didn't bring to the table. As well, retailers have secrets. They know things about other publishers that no individual publisher should be privy to - things like trading terms, promotional deals, forward publishing plans, strategic intentions, etc. It's no use Pearson vowing to run the business 'as a separate entity'. Other publishers will be deeply suspicious, and seek alternatives. 


No doubt Dymocks and other retailers passed a ruler over this business and walked away. The demise of REDgroup's online outfit would not at all have meant that the local industry would have been  denied this growth opportunity. It would've simply been spread around.

The Future of Publishing

 I was asked to submit a contribution to 'the future of the book' series of short essays, a blog being compiled by if:book Australia. This was published today at http://www.futureofthebook.org.au                                   

Over the last twelve to eighteen months the debate over the future of the book has moved through a number of stages. We initially focused on ebook devices and their features, functionalities and sales volumes, particularly when the iPad first appeared; we then moved onto DRM, ‘windowing’ and ebook pricing; then to agency and other supply models; then, when it became obvious that retailers were suffering, onto the critical role of high street booksellers and whether they’d survive and what impact on an emerging ebook industry their possible demise would have.    

Now we’re at the stage of debating the role of publishers, and not just their role, but whether, in a thoroughly digital future, they’d even exist.  Would they not be exposed as analogue relics, rooted to the legacy business models of print, and soon to be cast aside by the inexorable march of digital progress?

‘The entire publishing industry is going down the drain’ according to an executive from Siemens at the World E-Reading Congress in London in early May.

‘Publishing is not dead. It’s more like Wile E. Coyote in the moment before he notices the cliff has dropped away beneath him’, tweeted Australian author James Bradley on May 11.

The panel discussion on Jennifer Byrne Presents: Future of the Book on the ABC on May 17 was telling because it signalled how thoroughly we’ve all now moved on to a much more mature reflection on the issues. It concerned the future of publishing and whether one should be optimistic or pessimistic about the radical, structural shifts taking place in the industry that could well mean the demise of the familiar behemoths that have ruled the book world since Gutenberg.

And then there are the recent, very meaningful, moves by one of the ‘new’ behemoths – Amazon, Apple and Google. Amazon has thrown a cat amongst the pigeons by setting up a number of publishing imprints and hiring an experienced publishing professional to build its own list. Whether this will be a successful financial venture for Amazon is not the point. The fact that they have chosen to do it is the point.

Literary agents, author associations, and many authors themselves have not been slow to register their frustration over the seemingly inflexible, unresponsive and defensive corporate manoeuvres from the big publishers, and many of them are voting with their feet and striking out on their own to best position themselves for the digital future.

I find it fascinating, if not a little sad, that it’s come to this. But publishers really have no-one to blame but themselves.

Humility is not a virtue usually associated with publishers, particularly the majors (frequently referred to as ‘the big six’). Arrogance, yes, but not its usual opposite. The problem is that today, in the midst of a profound digital transition, with outcomes and endpoints intrinsically unknowable and barely amenable to forecasting, arrogance is a habit of mind that publishers need to quickly shed or they will die. When that arrogance is combined with fear, as it always is, it becomes toxic indeed.

Let’s review some of publishing’s wrong moves over the last few years:

It was wrong to respond to Amazon’s aggressive ebook pricing with the Agency model of supply, thus guaranteeing higher and uncompetitive prices. This was a distinctly pro-producer, anti-consumer move as its effect was to disallow consumer-tested pricing at the very birth of a new and exciting industry product.  

It was wrong to bind the new e-tailer behemoths to geographic, territorial restrictions by contract, thus denying non-US consumers access to tens of thousands of important new titles upon their first release. (There are far better and consumer-friendly ways of dealing with territorial rights sales).

It was wrong to impose on authors a maximum royalty of 25% of net receipts on ebook sales. (35% plus is far more justified).

In Australia, publishers were wrong to oppose the abolition of our parallel importation restrictions which serve to protect publisher over-pricing and under-servicing in our local market. (This issue never had anything to do with territorial copyright, but that was the way publishers framed it – very successfully unfortunately).

Australian publishers are wrong to continue over-pricing when the Australian dollar is so strong against the US dollar and UK pound. And they are wrong to argue that the GST should be foisted on booklovers – their customers – if they chose to order online. (Publishers need to be hyper-responsive to consumer sentiment, and dramatically lower prices accordingly to keep faith).

These are only some of the ways publishers, globally and locally, have and are reacting to new, emerging paradigms – with fear, defensiveness, arrogance and protectionist sentiment. It is not the way into the future.

But the simple fact is that publishers are terrified, as are most businesses, of the digital future – perhaps not visions of that future, but the ugly, messy, transitional process of getting there.  For they are being required to submit themselves and their organisations to a radical process of refinement, akin to jumping head first into a giant threshing machine, and trusting they’ll emerge alive, pared down to their essence, and thoroughly renewed.    

All the analogue baggage of the print business that made them powerful players – marketing and sales machines, distribution might, wholesale/retail connections – all this has to be shed, perhaps slowly, perhaps quickly, but certainly painfully. This amounts to losing 20-30% or more of current overheads, and many staff.

What will remain is the pared down, distilled essence of publishing that most publishers today have long forgone, forgotten, and always outsourced – editorial.  

Over the decades, under the pressure of mergers, acquisitions, restructurings, and downsizings, when Big Retail has squeezed margins to the thinnest imaginable, our standards as publishers have been lowered. Our regard for the quality of the text has too frequently been off our radar screen. Our respect for the old, intense, creative relationships; the old skills and craft of recognising, developing and editing talented authors; the ancient role of challenging, clarifying, re-writing, querying, red-lining and binning. We’ve been absent, cold and unsupportive.

Perhaps I’m naive in thinking that this serious, collaborative, sympathetic profession of editing will be re-born as the core of publishing. But I do know this: people are sick to death of unedited prose – the knotty, clotted, jargon-infested illiterate bilge that clogs our time and space. How refreshing and joyous it is to read clear, lucid, beautifully balanced sentences that sing and instantly communicate. And how powerful it is to be moved and spiritually expanded by stories brilliantly told.

Unless publishers rediscover this essence of what publishing is all about they will have little to offer and will certainly be squeezed out of the value equation.  

But if they do, and if they bring all their design, production, marketing, metadata, administrative and management skills to the ancient process of ‘making public’ the words and ideas of the best of the best amongst us, then they deserve to, and certainly will, flourish. 

Pearson's net pricing move: a lot more than meets the eye..

I've been thinking a little about Pearson Australia's move, scheduled for May 1, and I think it could well be a much larger initiative than one simply involving net pricing. I haven't talked to anyone at Pearson, least of all my good friend David, but I suspect this could be the first roll-out of the American model of textbook supply to Australia. In the US publishers supply campus booksellers on net pricing terms, but the effective discount off their list price (which exists in their systems but is not public) is around 20% to 25%.


There has always been the possibility, but up until now not really a probability, that the US supply model could come to Australia. Tertiary publishers and booksellers have always enjoyed a partnership relationship in Australia, which has been to both parties' advantage. In the US the relationship has always been adversarial, often ferociously so. Decades ago US campus booksellers opted to become willing participants in, and beneficiaries of, the commercially and nationally organised used book business, to the great detriment of new book sales. They effectively declared war on publishers. There has been no love lost ever since.

In Australia the used book situation has always been a fairly piddling business run by student associations on a campus by campus basis.

What has changed in Australia however, like everywhere else around the world, is that educational publishers are having to make huge investments in digital products and infrastructure, and are having to deal directly, and interactively, with students . The traditional textbook is becoming far less central to the educational process, to the point where it doesn't really matter whether it's bought or not. Thus the traditional textbook retail supply model is also becoming more marginal.

So if ever there was a time to change the Australian supply paradigm, and move more margin the publisher's way, it is now.

Pearson is probably thinking - rightly in my view - that they need the support of the Australian campus bookseller less than ever before.

Here's what may well happen May 1: net prices will not change, but Pearson's 'RRPs' may be reduced by 10% or so. Pearson is therefore able to negotiate adoptions with academics more successfully, and answer the charge that their prices haven't come down because of the strong dollar.

But they don't suffer any revenue or profitability decline by doing so. Just a bit of outrage from their legacy intermediaries, which they can fairly effectively steel themselves against.


It's the booksellers who will suffer the financial consequences. Their effective discount will be reduced from 33.3% to 25% or so.


The big problem booksellers will have is that most, if not all, tertiary publishers, particularly the Americans, will follow suit. They couldn't let Pearson take all the advantage alone. This is what happens when the dominant player makes a bold and unpopular move - the rest fold in behind, taking cover accordingly.


Perhaps I'm wrong, but somehow I doubt it. The time is ripe for such a move.