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.