Can we PLEASE do something about credit cards?

If you live in the U.S., you've probably heard about the theft of as many as 40 million credit and debit card numbers from Target customers between November 27th and December 15th. As with so many of these thefts, the first public disclosure came not from the merchant or card processor that lost the data, but from a third-party source. In Target's case, it was security researcher Brian Krebs who pieced together the story. Krebs buys credit and debit card numbers and other personal information from "darknet" sources on behalf of banks and other clients, and he noticed that a flood of numbers that apparently came from Target were available for sale. Theft of credit and debit card information has become a common occurrence in the U.S., and some researchers claim that as few as 5% of thefts ever get detected and disclosed publicly.

When I heard about the Target theft, I checked my banking records, and sure enough, I used my debit card there a couple of times during the period in question. So, yesterday, I drove over to my local bank branch, cancelled my debit card and got a new one. That was the third time in a little more than a year, and the second time in two months, that I had to cancel my debit card and get a new one. The first time was a scam at Barnes & Noble stores that involved replacement of point-of-sale credit card terminals in dozens of stores with hacked versions that sent complete transaction information, including PIN numbers, to hackers. The second time was due to the hack of Adobe's transaction processing system earlier this year, and now, it's Target for the trifecta.

Barnes & Noble, Adobe and Target are responsible for their security failures, but banks share some responsibility as well. These kinds of data losses are almost unheard of in Europe, where banks issue smart cards to their customers. Smart cards use two-factor authentication to insure that only the proper owner is using it, and encryption to keep anyone except the bank authorizing payment from either intercepting or saving the account information. Smart cards aren't in wide use in the U.S. because they're significantly more expensive than magnetic stripe cards, but, using me as an example, I have to believe that a single smart card has to be less expensive than six magnetic stripe cards (three temporary and three permanent replacements) plus the time of bank tellers, managers and phone customer service personnel spent processing and issuing those replacements. (Update, 12/22/13: According to Brian Krebs, reissuing a magnetic stripe credit or debit card costs from $3 to $5; Gemalto, one of the biggest smart card vendors, says that the average cost for a smart card with a microprocessor is $3.72. Even if that number is on the low side, it means that banks would be ahead of the game, or would at least break even, with smart cards vs. replacing mag stripe cards.)

Whether it's an encryption-based system or a "one-time pad" approach where the customer gives the merchant an account number issued by their financial institution that's good for only one transaction and is useless if anyone tries to use it again, the U.S. needs to move to a more secure and reliable method for credit and debit card transactions. The system we have now is no more secure than the weakest transaction system used by any merchant--which means that we have almost no security at all.

What's really behind the decline in brick & mortar bookstores?

This morning, Bloomberg Television covered yesterday's resignation of Barnes & Noble CEO William Lynch and subsequent management reorganization. Bloomberg showed a bar graph of the decline in the number of bookstores in the U.S., and said that Amazon was responsible for the decline. Yes, Amazon played a part, but there are other reasons that are at least as important:

• The decline in the number of bookstores began in the 1980s, when Barnes & Noble's and Borders's superstores decimated independent booksellers.
• U.S. book sales started declining years before the 2007 introduction of Amazon's Kindle and the 2008 Great Recession. People are simply spending less time reading books.
• eBooks from Amazon and other retailers have cannibalized sales of print books. In other words, eBook sales haven't increased total U.S. book sales revenues--they've only slowed the rate of decline.

So, you've got three factors responsible for the decline in the number of bookstores:

1. Price competition, which was used by Barnes & Noble and Borders to kill off a large part of the U.S. bookstore industry even before Amazon was founded in 1995 (but which Amazon has certainly used to its advantage.)
2. Declining book sales, which pressures all booksellers but puts the most pressure on retailers that don't have other product lines to fall back on for revenue.
3. eBooks, which generally aren't sold in brick & mortar bookstores (although they could be.)

Does a Microsoft purchase of Nook Media make sense, and to whom?

Earlier this week, TechCrunch reported that it received private documents describing a $1 billion offer made by Microsoft to acquire Barnes & Noble's digital businesses from its Nook Media business unit, in which Microsoft invested $300 million last year. Nook Media also includes Barnes & Noble's college bookstore unit, which Microsoft doesn't want and would most likely be reintegrated with B&N's retail business.

Here's what Microsoft would be acquiring:

• Barnes & Noble's eBook business, including its publisher contracts, self-publishing business, eCommerce websites, online order fulfillment infrastructure and customer lists.
• The Nook hardware line (both eReaders and tablets,) and Barnes & Noble's hardware design operation in Silicon Valley.
• B&N's other digital product lines (apps, magazines, newspapers, audiobooks and video.)

The deal, if it goes through, would make Microsoft the second largest reseller of eBooks in the U.S., ahead of everyone other than Amazon. It would save Microsoft the time needed to build its own relationships with publishers and eBook distribution infrastructure. However, the other things it would buy might not be all that valuable:

• Barnes & Noble's tablet business, which was once a viable competitor for Apple and Amazon, has been declining since last year's Holiday sales season. B&N has been running a series of promotions to try to sell off its inventory of Nook HD and HD+ tablets.
• The document received by TechCrunch states that Barnes & Noble intends to shut down its tablet business by the end of its 2014 fiscal year. That's a huge "red flag" to B&N's Silicon Valley-based hardware and software engineers, who'll have no trouble finding jobs with other companies. By the time a Microsoft acquisition closes, most of Barnes & Noble's top engineers are likely to be gone.
• The existing Nook tablet line is of no interest to Microsoft, and in fact will represent a customer support liability.
• Microsoft already has its own app stores for Windows 8 and Windows Phone 8. It has no interest in maintaining the Nook's Android-based app store.
• Microsoft already sells videos and music through its Xbox Marketplace; it doesn't need Barnes & Noble's content.

That's what Microsoft gets for its one billion dollars, but what does the deal mean for Barnes & Noble? A billion dollars could fund a more serious reorganization of Barnes & Noble's retail business. The company is planning to reduce its store count largely by allowing leases for less-profitable locations to expire. Microsoft's money could enable Barnes & Noble's management to buy out leases and reduce its total number of stores much more quickly. It could also be used to redesign the stores in order to make them more profitable--but there's no evidence to date that Barnes & Noble knows how to turn its stores around.

Selling its eBook business to Microsoft also leaves Barnes & Noble with a big problem. eBooks represent as much as 30% of the sales of the Big 6 publishers; for some genres, such as romance, eBooks comprise 50% of sales. B&N's eBook sales are profitable and growing. So, Barnes & Noble needs to continue to offer eBooks to its customers. It could do so by referring its customers to Microsoft's eBookstore and getting a commission. However, Barnes & Noble would no longer be able to use its eBook sales to negotiate steeper discounts from publishers, since Microsoft would actually be the reseller for those publishers.

So, is Barnes & Noble's eBook business really worth a billion dollars (71% of the company's market capitalization as of this writing) to Microsoft? Is that billion dollars worth it to B&N if it means getting out of the only segment of the book business that's continuing to grow in both revenue dollars and units? In the long run, will selling its eBook business save Barnes & Noble's retail bookstores, or will it only buy the company a little more time?

 

Barnes & Noble: Controlled landing or slow-motion liquidation?

Barnes & Noble just ended a bad week: First, It announced that it plans to close as many as 200 of its superstores over the next ten years. Then, a few days later, IDC released its global tablet shipments report for Q4 2012, which found that while the worldwide tablet market increased 75% in Q4 2012 year-over-year, shipments of  Barnes & Noble's Nook tablets actually fell 27.7%, from 1.4 million units in Q4 2011 to one million in Q4 2012. Those numbers added to the gloom from the company's quarterly financial report issued in early January, which stated that B&N's sales from bookstores and its eCommerce site in the holiday quarter fell 10.9% year-over-year, while its same-store sales for stores open at least 15 months fell 3.1%. Revenue at Barnes & Noble's Nook Media unit, which includes Nook devices, eBooks and college bookstores, fell 12.6% year-over-year.

The question to some observers isn't what the company will look like once it closes a third of its stores over ten years--it's whether B&N will even be in business ten years from now. The signs aren't good. As an example, take same-store sales, one of the most important financial indicators for retailers, because it only looks at sales growth in stores open a year or more, not new stores. In Barnes & Noble's case, the same-store number for the holiday quarter was -3.1%. However, that -3.1% is an average. Some stores probably had year-over-year increases, but no one outside Barnes & Noble really knows for sure, and that's a critical factor in whether or not the company's plan to close a third of its stores will work. If B&N has a relatively small number of poor-performing stores, the company can close them as quickly as possible and concentrate on the successful stores. However, if sales are falling across most of B&N's locations, a 33% reduction plan won't be nearly enough to stop the bleeding.

Another example is B&N's failed merchandising strategy. Nothing that the company has tried has done anything to improve its stores' performance. It cut back on its music and video departments and used that space to create dedicated display space for its Nook tablets and eReaders, which are usually prominently featured at the front of its stores. However, its Nook business is actually falling faster than its retail business in general, and it's adding to same-store sales declines. It replaced some of its book display space with an increasingly large assortment of toys and games, but that isn't improving same-store sales, either.

Barnes & Noble's situation is looking uncomfortably like that of Borders and Circuit City, both big-box retailers that closed stores and experimented with a variety of merchandising changes, only to find themselves bankrupt and in liquidation. That's where the "controlled landing" vs. "slow-motion liquidation" question comes in. If B&N starts closing stores, and that results in sustainable year-over-year same-store sales gains, the company's plan to slowly weed out poorly performing locations is likely to work. However, if the same-store declines continue, even with fewer stores, B&N will have to dramatically increase its pace of store closings or come up with even more radical merchandising changes that actually work. As much as I want to see Barnes & Noble's retail stores survive, especially now that Borders is gone, my gut tells me that the company is going down the slow-motion liquidation path.

If eBook sales are slowing, is it good news or bad?

Not long ago, it was common for eBook sales to increase by 100% or more year over year. Those days are behind us--last year, the rate of eBook sales growth fell into the 20%-25% range. Barnes & Noble released its holiday 2013 sales figures today, and eBook sales increased 13.1% year-over-year.

Some industry observers are saying that eBook sales growth has reached an inflection point, which means that sales growth has hit zero or gone negative. In reality, eBook sales growth is slowing but still positive, and will most likely remain positive for a while. In addition, both consultants and reporters have been overly quick to minimize the effect of the Justice Department's settlement with Hachette, HarperCollins, Simon & Schuster, and most recently, Penguin. (Random House will join the settlement if and when its merger with Penguin is completed.) The settlements are still being phased in, and unless price has little or no effect on demand, we should see the rate of eBook sales increase in 2013.

However, let's say that even with the price-fixing settlements in the U.S. and Europe, eBook sales increases level off or turn negative. Is that good news for the publishing business, or bad?

• Some observers believe that it's good news, because they think that those customers will buy print books instead of eBooks. However, there's no evidence that a slowdown in eBook sales will mean an increase in print sales. In fact, print sales continue to decline, even as eBook sales growth slows down. (Update, January 4, 2014: According to Nielsen BookScan, U.S. print book sales (in units) fell 9.3% for all of 2012. Print book sales fell just under 16% between 2010 and 2012. In the U.K., print book sales (in units) fell 3.4% in 2012.)
• eBooks are the only source of growth for the book publishing business. If eBooks stop growing, we'll see even more consolidation and shutdown of publishers, since cost control will be the primary way to improve publishers' bottom lines.

I don't believe that eBooks' sales growth is going to go to zero, but 20%-30% annual growth may well be the ceiling for the next couple of years. Let's be clear--eBooks (and, to a lesser extent, audiobooks) are the only parts of the book publishing and retailing business that are growing. Everything else is stagnant or declining. If eBooks become stagnant, that's bad news for everyone.

Penguin Random House: The Aftermath

Earlier this week, Pearson and Bertelsmann confirmed that they intend to merge Penguin and all of Random House except for its German-language business into a new joint venture, to be named Penguin Random House. (No Random Penguin or Penguin House for us.) Shortly before the deal was announced, word leaked out that News Corp. was considering making an offer to acquire Penguin, but the terms of the Pearson-Bertelsmann deal mean that Pearson can't consider any other offer.

I believe that, three to five years from now, the publishing industry will look much like the recording industry does today, with the Big 6 becoming the Big 3. In fact, it was Bertelsmann's experience in its joint venture with Sony Music that's said by some to be the reason that the company insisted on having a majority interest in its joint venture with Pearson. Its joint venture with Sony was 50:50, and differences in objectives and strategies between the two companies eventually led Bertelsmann to sell its recorded music business to Sony.

If the publishing industry looks like the recording business in a few years, here's a preview of the likely winners and losers:

• Publisher employees: The biggest reason for publisher consolidation is cost reduction. Penguin and Random House, and other consolidating publishers after them, will get rid of redundant distribution facilities and most of the people who work in them. In addition, they'll consolidate cross-imprint functions, such as sales, marketing, copy editing, production and design. That will put a lot of talented professionals on the street, and with fewer big publishers, there will be fewer places for them to look for work.
• Authors: Despite what Penguin and Random House have said, it's inevitable that they, and other consolidating publishers, will reorganize their imprints. Some imprints will be discontinued, and their authors will be moved to other imprints or dropped. The same thing will happen to the editors at the imprints--many will be laid off.
  
  Author acquisition will be dramatically affected. The Big 3 recording companies have all but discontinued their formal A&R (Artists & Repertoire) operations that sent people into the boondocks in order to find new artists. Their equivalents in publishing are acquisitions editors, and many of them will find themselves without jobs. The big publishers will increasingly focus on successful self-publishers as their "farm teams", and will pay big money to poach bestselling authors from each other. For their part, bestselling authors will have less loyalty to publishers, because many of their editors will be gone.
• Retailers: Some industry pundits have speculated that consolidation of the top publishers would give them more clout with retailers such as Amazon and Barnes & Noble. If the recording business is any indicator, they're wrong. Just as with books, the music retailing business consolidated, and highly influential retailers such as Tower Records, Musicland, Wherehouse and Virgin Music are gone (Virgin has closed its U.S. stores but still operates in other countries.) Music retailing in the U.S. is dominated by Apple, and the consolidation of the Big 6 recording companies into the Big 3 has given the surviving record companies little or no additional leverage with Apple or Walmart.
  
  It's unlikely that mergers between the Big 6 publishers will give them any more negotiating power with Amazon, Apple, Barnes & Noble or Kobo. The publishers will continue to depend on the retailers for the vast majority of their revenue, and the U.S. Justice Department will be watching over their shoulders in order to prevent more shenanigans like organized price-fixing.
• Independent Publishers: Independents will actually be helped by publisher consolidation, for several reasons. First, many talented publishing professionals who ordinarily wouldn't have considered working for smaller publishers, or working as freelancers, will become available to independents. Second, some of those professionals will set up their own independent publishing companies. Third, the authors that are shed from the rosters of the consolidating publishers will become available to the independents. Fourth, authors who might have been discovered and developed by the top publishers will instead go to independents. Fifth, with fewer titles coming from the big publishers, retailers will have more shelf space (real or virtual) to devote to independents.
• Self-Publishers: The big publishers will increasingly recruit successful self-publishers to fill their rosters and compensate for the loss of acquisitions editors. The success of the 50 Shades trilogy has eliminated any remaining stigma from self-publishing authors. Big publishers now know that success as a self-publisher is a very strong indicator of marketability--and it eliminates the cost of spending years to develop a promising author.
• Agents: Consolidation of the Big 6 will spell problems for literary agents. They'll have fewer authors on the rosters of the top publishers, and thus, fewer opportunities to earn commissions from big advances and royalty payments. They'll have to devote more of their time to independent publishers, which generally pay lower advances and generate lower royalties for their clients. And, they'll have to compete with other agents to represent successful self-publishers, meaning that they'll have to accept lower commissions.
• Consultants: Publishing consultants who have spent their entire careers in the publishing industry are going to find it hard to adjust to publisher consolidation. Consultants with contracts with two publishers that consolidate into one will have one of their two contracts cancelled, and the surviving contract will be closely scrutinized. (I saw this happen first-hand as the IPTV industry went through massive consolidation starting in 2008.) Publishing consultants will have to shift their focus to independent publishers, which have much smaller budgets than the Big 6.

In short, independent publishers are about the only group that will be a clear winner from publisher consolidation, followed by successful self-publishers. Everyone else will end up either neutral or a loser as a result of consolidation. 

PressBooks prepares to launch its eBook publishing service

PressBooks, an eBook editing and self-publishing service based on WordPress, has announced its pricing plans and is nearing a formal launch. The service, which has been in beta for some time, enables writers to collaboratively create eBooks, either online or via file uploads. Existing WordPress users can selectively convert their blogs into eBooks using PressBooks. The service outputs EPUBs for Apple iBooks, Barnes & Noble's Nook and Kobo, converts EPUBs to Amazon's Kindle formats, creates public or private web versions of eBooks and exports to PDF for print-on-demand. PressBooks offers an assortment of templates that are optimized for different eReading platforms. It can directly post eBooks into Apple's, Barnes & Noble's and Kobo's eBookstores, or self-publishers can download the files and manage their own distribution. (Apparently, self-publishers will have to post titles into Amazon's Kindle Store themselves.)

The new pricing plans, which appear to still be under discussion, are as follows:

• The first five books are free (beta users who've already created eBooks are exempt from monthly pricing on those titles, and will be entitled to five more free titles.)
• Up to 20 books: $50/month.
• Up to 200 books: $200/month.
• Distribution to the Apple, Barnes & Noble and Kindle eBookstores will cost a one-time fee of $100/book + $25/year/book.

In a move that surprises no one, the Book Industry Study Group endorses EPUB 3

In a move that surprised absolutely no one, the Book Industry Study Group has endorsed EPUB 3. The actual endorsement amounts to little more than a solicitation for new members for the BISG and IDPF (International Digital Publishing Fourm, the industry group that created and manages EPUB):

"ISG encourages organizations interested in the advancement of EPUB 3 to become members of both IDPF and BISG in order to work directly with those creating the standard and developing best practices."

The reality is that companies that join the two groups now are going to have virtually no influence over EPUB 3--and the specifications are public, so there's no real benefit to spending thousands, or tens of thousands, of dollars to join. (Yes, I'm suggesting being a "free rider".)

In addition, EPUB 3 is less a standard than a suggestion: The IDPF doesn't require that companies implement the complete specification, nor does it prohibit implementation of proprietary extensions--which is why Apple, Barnes & Noble and Kobo all have their own proprietary multimedia extensions to EPUB 2.X. Also, Apple hasn't endorsed EPUB 3, and isn't likely to do so.

Vook launches HTML5 eReader and new pricing models

Vook just launched a new HTML5 eReader for its eBooks (to try it out, go to http://vook.com; http://www.vook.com will take you to their sign-up page for writers). The samples I've seen are similar to a conventional EPUB display with flowable, resizable text plus embedded rich media.  It can display one or two pages at a time. It also has three layout options with different typefaces. A nice feature is that Vook has anticipated that the eReader will be used on both PCs and tablets, so it supports a single-page vertical scrolling mode for smaller devices, as well as two-page mode for desktop and notebook PCs.

The company has dropped its monthly fees and now offers two options for self-publishers:

• Publish the eBook free of charge to Vook's own eBookstore; the author gets 85% of revenues.
• Create eBooks using Vook's tools and then pay the company $99 for the files, which can be uploaded and sold by the author through Amazon, Barnes & Noble and Apple. 

Hiptype offers third-party analytics for eBooks...with a catch

PaidContent reports that Hiptype, a company that offers third-party analytic reporting for eBooks, has launched. Amazon, Barnes & Noble and other eBook vendors can gather a variety of information about how their eBooks are read--how far a reader gets into an eBook, how often they open it, what notes and highlights they add, etc. However, that information is rarely shared with publishers. Hiptype allows publishers to independently gather similar information. The information is anonymized, but consumers can opt-out of Hiptype's data collection completely (assuming, of course, that they know that Hiptype is collecting information.)

There's a huge hole in Hiptype's data collection that may make it unattractive for most publishers: It requires eReaders that support both HTML5 and JavaScript in order to work, but according to paidContent, neither web-based eReaders like Kindle Cloud nor desktop eReaders, even those that are browser-based, will work. Black & white eReaders are also unsupported. That limits the usefulness of Hiptype to Apple's iBooks and a few iOS and Android eReading apps. Frankly, I'm surprised that they even released the service when its practical value is so low. This isn't a Minimum Viable Product--there's virtually no value in the current offering for most publishers.

They're offering a 30-day trial with service for one book, or programs priced at $19 or $99/month. The $19/month program is limited to 1,000 readers, so it's not useful to anyone other than self-publishers and very small publishers.

BISG survey says that eBook buyers are more willing to buy print

The Book Industry Study Group has just released the third part of Volume Three of its Consumer Attitudes Toward E-Book Reading research report. Here's a summary:

• The percentage of eBook buyers that exclusively or primarily purchase eBooks has dropped from nearly 70% last August to 60% in May 2012.
• The percentage of survey respondents with no preference for eBook or print formats, or who buy some genres in eBook format and others in print, has increased from 25% last August to 34% in May.
• Amazon's Kindle Fire has overtaken the iPad as the tablet of preference among eBook consumers. 7% of survey respondents owned a Kindle Fire last December vs. 20% in May 2012, while iPad ownership remained flat at 17% in both surveys. By comparison, 5% of respondents owned a Barnes & Noble Nook Tablet in May, and 8% owned another Android-based tablet.
• While overall use of tablets as primary eReading devices is increasing, the changes aren't uniform across devices:
• 35% of respondents cited Amazon's Kindle eReaders as their primary device for reading eBooks, down from 48% last August.
• Apple's iPad was cited as the primary device for reading eBooks by 9% of respondents in May, down from 10% in February.
• Respondents who cited Barnes & Noble's Nook tablets and eReaders as their primary device for reading eBooks declined from 17% last August to 13% in May.

NAPCO/InfoTrends eBook Publisher Survey

The July/August edition of Book Business Magazine has the results of a survey of 261 publishers (including 145 book publishers) done in May by InfoTrends and the North American Publishing Company (Book Business' parent) about their adoption of digital media and approach to digital production and distribution. Some of the results are surprising; here's a summary:

• PDF was the format of choice for 76% of the book publishers, followed by EPUB, with 68%.
• The top priority for eBook production and distribution at the book publishers was improving the overall user experience, cited by 60.3% of respondents, followed by improving overall design and typography (54.9%) and incorporating embedded rich media (44.4%). Only 20.6% planned to add search capabilities, and features such as embedded social media and sharing capabilities; improving footnotes and references functionality; and enabling reader annotations and highlighting were all named by less than 20% of publishers.
• The Amazon Kindle was the most popular device that book publishers use to test their eBooks, cited by 39.7% of respondents, followed by Apple's iOS devices (34.9%), Barnes & Noble's Nook (25.4%) and Amazon's Kindle Fire (22.2%).
• Surprisingly, 30.2% of respondents said that they don't test or tune their eBooks for specific mobile devices, which may explain why so many eBooks look so bad on mobile devices, and 13.5% of respondents don't know which devices (if any) their company tests eBooks on.

Pay for a chance to perhaps have your book sold in Barnes & Noble

According to paidContent, FastPencil, a self-publishing services company, has struck a deal with Barnes & Noble to carry some of its titles online and in stores. The deal covers two FastPencil "imprints," Premiere and Wavecrest. Participation in the Premiere program seems to be limited to experienced authors who've already published at least one title that sold more than 10,000 copies, while the Wavecrest program is open to anyone who's willing to spend enough money.

FastPencil offers a free self-publishing service, but it's little more than a mechanism for the company to sell the author more services. There are three bundles of editorial, design and distribution services available in FastPencil's basic program, priced from $999 to $1,999. Even the most expensive program only includes five printed copies of the book. Pricing for Premiere is by quotation only, and Wavecrest, which offers exactly the same services as FastPencil's basic bundles plus a package of promotional services, is priced from $4,499 to $7,499. (For $7,499, the author still gets a grand total of five printed copies.)

FastPencil isn't even guaranteeing that Barnes & Noble will carry Premiere and Wavecrest titles; all it will do is pitch all new Premiere and "most" Wavecrest titles to a B&N buyer at quarterly meetings. B&N has complete discretion as to which titles it carries, and FastPencil has complete discretion as to which Wavecrest titles it pitches. I'm certainly not saying that FastPencil is doing anything fradulent--but they're asking an awful lot of money for what they actually do.

Let me be clear: Publishing your own book is the same thing as starting your own business. It requires a lot of work--but frankly, most of that work is neither difficult nor expensive. If you want someone to do all the work for you, pitch your book to an established publisher. They have more and better resources to help you than just about any self-publishing company, and you can save your money for promotion--which is the one thing that most publishers can't, or won't, do for you.

Simba Information: Waterstones' deal with Amazon will be "...one of the biggest screw-ups in the history of book retail"

Book Business has an interview with Simba Information Senior Analyst Michael Norris, whose company just published its Trends in Trade Book Retailing study. Norris reiterates something that I've been saying for a while: eBooks aren't growing the publishing market--they're just cannibalizing print sales. Further, print sales are falling faster than eBook sales are growing, so at best, eBooks are slowing the market's overall rate of decline.

Norris says that Barnes & Noble's relative success in the eBook business has a great deal to do with its stores, and with its promotion of Nook hardware and accessories in those stores. He's puzzled by B&N's decision to break its Nook business away from the rest of the company--and even more puzzled by Waterstones' decision to partner with Amazon for Kindle eReaders and tablets. Norris compared Waterstones' deal to Borders' disastrous decision to outsource its online eBookstore to Amazon, and said "...I’ve really got to hand it to companies like Amazon, they know how to kill a competitor and make it look like suicide." He added, "It’s going to be one of the biggest screw-ups in the history of book retail."

When asked what book retailers that sell eBooks can do, Norris said "I urge every retailer who does sell ebooks to buy one of their own ebooks and then buy the same or similar ebook from Amazon, then think...about what kind of experience is going to make people come back. "

Book Fairs are still a big part of Scholastic's marketing efforts

The Wall Street Journal reports that Scholastic's book fairs are still working for them. The fairs have been critical for launching several popular series, including "Goosebumps," "The Baby-sitter's Club" and "Captain Underpants." Book fair revenue increased 3% to $288.1 million for the first nine months of the current fiscal year, and rose 10% from 2007 to 2011. Al Greco (not to be confused with El Greco,) a professor at Fordham University, said that even though Scholastic has had great success with series such as "The Hunger Games" and "Twilight," the company's book fair business faces challenges from eBooks and brick & mortar booksellers such as Barnes & Noble, along with rising shipping and delivery costs. To that end, Scholastic is heavily promoting its new Storia eReader at book fairs, such as the recent one at the Nest, a K-12 school in Manhattan, whose PTA hosts a Scholastic book fair twice a year.

Barnes & Noble launches Nook for Web browser-based eReader

Barnes & Noble has launched Nook for Web, a browser-based eReader that the company claims works in Internet Explorer, Firefox, Chrome and Safari for the PC and Mac. Nook for Web allows users to preview the first 10-15 pages of most eBooks for free; the eBook can then be purchased by clicking a button in the eReader. Nook for Web has one- and two-page displays, and a choice of eight fonts and eight point sizes. It also has a slider for navigating through eBooks, and a drop-down table of contents. However, it doesn't have any way to search within a book. In addition, Nook for Web doesn't support B&N's Nook Kids titles or graphic novels. Those can only be read on the Nook Tablet, Nook Color, and for some titles, B&N's iPad app.

New York Magazine publishes first eBook through Byliner

According to the Nieman Journalism Lab, New York Magazine has published its first eBook, a compilation of columns and articles from the past five years as selected by readers through the nymag.com Most Popular Stories feature. They've partnered with Byliner, which does publish original work but is primarily a discovery engine for content from established writers on the web. The new eBook, "New York Magazine's Most Popular," will initially be sold through Apple's iBooks for $7.99, and through Amazon and Barnes & Noble shortly after. Revenues will be split evenly between New York Magazine and Byliner. Individual authors within the anthology will be paid a "courtesy fee," and Byliner will also sell individual articles, for which the authors will get a cut of revenues.

Amazon may be having problems with new Kindle front light design

There have been rumors for some time that Amazon is working on a front-lit version of its black & white Kindle eReaders. A blog claimed to have actually seen a working prototype of a front-lit Kindle, shortly before Barnes & Noble launched its front-lit Nook Touch with GlowLight. However, DigiTimes' sources report that Amazon has told some of its parts vendors to stop shipments, and it may stop orders for E Ink displays through July and August, because of a problem with the design of its front light. If true, it suggests that Amazon won't be able to launch a front-lit eReader until late Q3 or Q4.

Target to offer Livrada's eBook gift cards

PaidContent reports that Livrada, a Los Angeles-based startup, will sell gift cards for bestselling eBooks in Target stores' electronics sections, starting July 15th. Customers will purchase a gift card for a specific title, such as Fifty Shades of Grey. The recipient of the gift card goes to Livrada's website and activates the card, and then chooses whether to get the eBooks for Kindle or Nook. Livrada purchases the eBook from Amazon or Barnes & Noble (other platforms will be supported by the end of the year,) and delivers it to the recipient's eReader, tablet or computer.

Livrada gets marketing fees from the publishers of the eBooks, a portion of the purchase price from Target, and affiliate fees from Amazon and Barnes & Noble. There's no word on whether Livrada marks up the price of the eBooks. The question is whether enough consumers will buy the gift cards to make it into a viable business. At this point, there are only six titles available; Livrada is working to get more titles, publishers and platforms.

Who's winning and losing due to the shift to eBooks?

In my last post, I wrote that eBooks aren't expanding the market for books in general. However, even if eBooks are, overall, simply shifting money from one bucket to another, there are definite winners and losers:

Winners:

• Amazon: The company sells the most popular eReaders and more eBooks than anyone else in the U.S. (although a lot of those sales are unprofitable.) Amazon's dominance in the eBook market scared five of the six biggest publishers into (according to the U.S. Justice Department and more than 30 states) illegal price-fixing in order to take away Amazon's price advantage.
• Barnes & Noble: In the U.S., the bookseller is Amazon's only serious competitor for both eBooks and eReaders. Barnes and Noble has between 25% and 30% of the U.S. eBook market.
• Kobo: The company is Amazon's primary eBook and eReader competitor outside the U.S. It's recovered from the failure of Borders and Borders' licensees (at least, outside the U.S.) Now that it's owned by Rakuten, it has both the financial resources it needs and a natural advantage in Asia.
• Major publishers: Even though eBooks are shifting money around rather than increasing overall sales, publishers are earning more money on each sale, because eBooks have no printing, binding, shipping, warehousing or return processing costs.
• Self-publishers: eBooks have opened up the market to both writers who couldn't find publishers or agents, and writers who've been previously published but didn't earn much money. Royalty rates on self-published eBooks are much higher than those from major publishers, so writers can sell fewer copies at lower prices and still make more money.
• Consumers: Even though the Big 6 publishers have raised the prices of their eBooks under agency pricing, in most cases their eBooks are still less expensive than print. Self-published eBooks are dramatically less expensive than equivalent print titles. In addition, eReaders and tablets are far more convenient for consumers than carrying around multiple print books.

Losers:

• Independent booksellers: Few independent booksellers have successful online eBook businesses, and none of them have the same ease of ordering and delivery that Amazon and Barnes & Noble have. The American Booksellers Association inadvertently tied itself to the "albatross" of eRetailers, Google. which has since given notice that it plans to cancel its distribution agreements with independent booksellers. Whether independents will ever have a significant share of the U.S. eBook business depends almost entirely on who the ABA decides to partner with next.
• Small publishers: Small publishers that are still focused on print are tied very directly to the fate of retail booksellers. They need shelf space in order to build awareness and sales of their books.

Too early to tell:

• Apple: With no more than 10% of the U.S. eBook market and even less internationally, Apple's jump into the eBook business has largely been a bust, plus it's become entangled in Federal, state and private price-fixing lawsuits. Competitors such as Kobo are gaining share more quickly in international markets. Apple may ultimately decide that eBooks are more of a problem than they're worth, and settle for taking 30% of sales from other booksellers.
• Sony: At one time, Sony was the undisputed leader in the eReader market, but a series of missteps have left it an also-ran, even in its original strongholds of Japan and the U.S. Sony can turn things around by aggressively pursuing partnerships with booksellers outside the U.S. and Canada.

None of these judgments are set in stone: Barnes & Noble's partnership with Microsoft could help it build an international business, or its slowly-sinking retail bookstores could bring down the entire enterprise. Major publishers could fail to transition to digital-first strategies and end up with costs that are much too high for their revenues. Independent booksellers could find the right partner and become a viable competitor for eBook and eReader sales. Small publishers could start producing far more eBooks and become more visible in online eBookstores. Apple's rumored new "iPad mini" could be the perfect tablet for reading eBooks and could drive sales of many more titles.