Making frenemies

The world’s largest non-imprint publisher is …

Toward the end of the management class I teach at NYU’s M.S. in publishing program, we cover three cases, including one on Harlequin at the time it is considering a launch of Mira, a trade imprint.

To that point, Harlequin had been known for series romance fiction, much of it sold directly to consumers.  There is ample evidence in the case that the market is changing to favor single-title romances and named authors, and Harlequin assembles a task force to consider its options.

Ramping up single-copy sales is complicated by many factors, including a multi-year trade distribution deal that Harlequin had made with Simon & Schuster as part of an agreement that settled a “romance war” between the two firms.  At the time the case is written, S&S is one of the dominant publishers of single-title romance novels.

I teach the case to draw together structural lessons taught throughout the semester.  It’s a good opportunity to apply Michael Porter’s “five forces” framework.  It’s also a preview of 2010’s interdependent publishing world.

Generally, students recognize the significant differences between a direct and a trade model, but very few discuss the sales and margin impact of a long-term agreement with a distributor whose interests diverge from Harlequin’s.  I give them a break: they are students, at NYU to learn, and supply-chain analysis is hard.

They are also playing with Monopoly money: no harm, no foul.

Flash forward to 2010: Amazon is busy making the entire book business a “direct-to-consumer” model.  This isn’t new; they have been doing it for 15 years.  By most accounts, the company is now the largest retailer of physical books and the dominant player in the digital space.

What are Amazon’s priorities?  It doesn’t hide them.  In 2007, Amazon founder and CEO Jeff Bezos described a company that is “congenitally customer-focused” whose enduring priorities are selection, low prices and fast delivery.

Compare those priorities to the ones in place at most publishing houses.  It’s easy to see where interests start to diverge.  And if you apply Porter’s framework to Amazon, you quickly see why the company has become publishing’s best-known and most significant frenemy.

A direct customer focus has paid off for Amazon.  Customers describe buying books from Amazon in ways that they seldom do when talking about bricks-and-mortar stores.  And like it or not, the sense that books should and can cost less is now ingrained in our consciousness.

The recent controversy involving an agent selling exclusive e-book rights to Amazon (you know the one) has focused largely on royalty rates, the role of agents and the exclusive nature of the deal.  I think that debate misses the point.

The publishing supply chain has shifted.  The interests of the company best positioned to benefit from those changes are not aligned with those of most publishers today.

Publishers can defend, change or co-opt, but they can’t stand still.  Issue all the press releases you want, but realize this isn’t about e-book royalty rates.  It’s about Amazon.





Posted by Julie Trelstad
Jul 28, 2010  at  11:58 AM

Amazon’s power to provide speed, selection, and ease of purchase quickly killed off the earlier generalist direct-to-consumer publishing models: Encyclopedias, Reader’s Digest, Time-Life, and the book clubs to name a few.

This represents a further shift whereas the “houses” (bookstores, publishing companies, and literary agencies) now also have interests that are too general for the specialist reader. This suggests to me that to be found on Amazon, authors and “houses” will compete on the same playing field…in either case, becoming a brand or having known reputation for quality ideas or entertainment will become the key to finding readers.



Posted by Brian O'Leary
Jul 28, 2010  at  01:33 PM

Thank you for your perspective, one that I think parallels or informs the idea of niches and “verticals” for which Mike Shatzkin has been a leading voice.

When analyzing a situation using Porter’s “five forces” framework, there is no generic answer to the right strategy.  Different publishers can and likely will have different profiles relative to Amazon, and as such they will likely be able to successfully implement different strategies.

Focusing on the immediate can distract from the hard work required to analyze one’s competitive position and adapt to the results.  It’s a risk for publishers of newspapers, magazines and books, alike.



Posted by Tim Brandhorst
Jul 28, 2010  at  02:24 PM

Bryan, nice post. Two quick points:

1. Yes, it’s Amazon. But more broadly, it’s disintermediation.

2. You put your finger on an important key: recognizing where a distributor’s interests diverge from a publisher’s. I suspect this very notion has been front and center for many publishers recently (if it hasn’t been, it damn well should have been) in grappling over how to participate in Google Editions (or for some, whether to participate at all).



Posted by Brian O'Leary
Jul 28, 2010  at  02:52 PM

Tim - agreed about disintermediation.  The thing that appealed about Amazon is that it’s a specific example a publisher can use in applying the five forces.  I am usually more theory, sometimes to my detriment smile



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