Digital Book World‘s Executive Editor Jeremy Greenfield recently released a document circulated inside the Hachette Book Group that was purportedly not intended to be seen by outsiders.  The report rebuts the commonly sounded criticism that legacy publishers are no longer relevant.

Subsequently J. A. Konrath, popularly acclaimed as the voice of independent publishers and legacy publishing’ s most articulate critic, issued a confutation on the DBW website.  Both debaters scored points. What are we to believe?

Right off the bat one thing I’m not sure I believe is that HBG’s internal memo was not meant to be seen by the public.  Nothing about it is confidential, nor is anything in it surprising. Though the arguments presented in their white paper are cogently assembled, there is nothing in it that we haven’t heard promulgated for the last decade. It isn’t as if a highly placed executive leaked a plot for HBG to launch a hostile takeover of Amazon.  The report looks like it was intended to be leaked.

Deliberate or not we’re glad it was leaked, for it forcefully reminds us of everything that Old Publishing has done for books, authors and literary culture for which we ought to be grateful (and many of us are).

Let’s hear the salient points of Hachette’s paper, then hear what Konrath had to say about it, then try to make some sense of both positions:

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Publishing [says the HBG paper] requires a complex series of engagements, both behind the scenes and public facing. Digital distribution (which is what most people mean when they say self-publishing) is just one of the components of bringing a book to market and helping the public take notice of it.

1. We find and nurture talent:

• We identify authors and books that are going to stand out in the marketplace. HBG discovers new voices, and separates the remarkable from the rest.

• We act as content collaborator, focused on nurturing writing talent, fostering rich relationships with our authors, providing them with expert editorial advice on their writing, and tackling a huge variety of issues on their behalf.

2. Venture Capitalist: We fund the author’s writing process:

• At HBG we invest in ideas. In the form of advances, we allow authors the time and resources to research and write. In addition we invest continuously in infrastructure, tools, and partnerships that make HBG a great publisher partner.

3. Sales and Distribution Specialist: We ensure widest possible audience:

• We get our books to the right place, in the right numbers, and at the right time (this applies equally to print and digital editions). We work with retailers and distribution partners to ensure that every book has the opportunity to reach the widest possible readership.

• We ensure broad distribution and master supply chain complexity, in both digital and physical formats.

• We function as a new market pioneer, exploring and experimenting with new ideas in every area of our business and investing in those new ideas – even if, in some cases, a positive outcome is not guaranteed (as with apps and enhanced ebooks).

• We act as a price and promotion specialist (coordinating 250+ monthly, weekly and daily deals on ebooks at all accounts).

4. Brand Builder and Copyright Watchdog: We build author brands and protect their intellectual property:

• Publishers generate and spread excitement, always looking for new ways make our authors and their books stand out. We’re able to connect books with readers in a meaningful way.

• We offer marketing and publicity expertise, presenting a book to the marketplace in exactly the right way, and ensuring that intelligence, creativity, and business acumen inform our strategy.

• We protect authors’ intellectual property through strict anti-piracy measures and territorial controls.

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J.A. Konrath argues:

Publishers should stop trying to convince themselves and others that they’re relevant, and start actually being relevant. Here’s how:

1. Offer much better royalties to authors.

2. Release titles faster. It can take 18 months after a book is turned in to be published. I can do it myself in a week.

3. Use up-to-date accounting methods that are trackable by the author, and pay royalties monthly.

4. Lower e-book prices.

5. Stop futilely fighting piracy.

6. Start marketing effectively. Ads and catalogue copy aren’t enough. Neither is your imprint’s Twitter feed.

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If I were refereeing this bout I’d award a draw.

• Gatekeeping. Legacy publishers unquestionably offer invaluable gatekeeper judgment and curatorial support to authors in countless ways.  But they also need to recognize the emerging populist culture that elects its own stars and superstars through a viral networking system that is alien to Old Publishing culture.
• Royalties. The traditional book industry offers half the royalty paid by independent e-book publishers, and about one third of that paid by Amazon and Barnes & Noble.  But traditional publishers have far higher overhead, and it goes to support the personnel, infrastructure, risk capital and a multitude of other services that self-published authors cannot easily find. The greater the investment the more return the investor is entitled to.
• Fast Release of Books. True, self-published authors can get their books out in a week, but seldom can they get those books into bookstores, or keep them there, because they lack the kind of sales, marketing, promotional and publicity resources that enable legacy publishers to “make” bestselling books and authors and create exciting events that are worth waiting twelve or eighteen months.
• Monthly Royalty Statements. Traditional publishers cannot issue royalty statements month or even quarterly but I’m not sure they need to.  Most authors are perfectly content to receive semi-annual statements as long as they are clearly and fairly accounted.  The fact that they often are not, and publishers continue to rely on a preposterously archaic returns-driven business model, is the tragedy of the book industry and one for which they have paid dearly. 
• High E-book Prices. Because they are afraid that cheap e-book sales will cannibalize print-book sales, legacy publishers must artificially keep e-book prices high. This paradox is inextricably ingrained in the book industry’s culture and there is not much to be done about it.  On the other hand, self-published authors who elect to issue their books in paperback via print on demand have discovered that the price of their books is twice that of books done via print runs by traditional publishers. 
  
• Piracy. Piracy remains the Number One threat to the future of book publishing both traditional and alternative, and must be countered by every author and publisher that values the right of creators to their own creations.

Perhaps the future of book publishing will draw on an amalgam of the best that the old industry and new one have to offer.  There is room for both models, but both models also have room to improve and thrive.

The original Hachette memo may be read here.  Hachette Explains Why Publishers Are Relevant

J. A. Konrath’s rebuttal may be read here. Konrath Responds to Hachette Document

Richard Curtis

“Authors are like mushrooms,” a writer once told me. “They’re fed a lot of horseshit and kept in the dark”

That observation served as my slogan when I launched a campaign in the 1980s to make royalty statements more transparent.  Authors today take for granted that their publishers’ royalty statements will provide vital details such as the number of copies returned or royalties withheld as a reserve against returns.

But thirty years ago that information was not provided unless an author or his agent or lawyer made a colossal pest of himself. A typical statement simply reported that you had sold, say, 1000 copies and here’s a check for $1,000.  When you asked how the publisher arrived at that figure you were given no explanation.  I likened it to being told that a baseball player had 150 hits without being told how many times he had been at bat.

After other agents joined in the assault on publishers’ accounting practices the barriers finally crumbled and publishers at last started telling authors what they needed to know in order to assess the performance of their books.

I am telling you this because we are about to enter a new phase of transparency in royalty reporting.  To their great credit, Simon & Schuster,Random House and Hachette Book Group announced initiatives to open their sales database to authors and agents, who will be able to access the publishers’ websites and view recent and cumulative activity in their account.

You would imagine that I greet this new as the fulfillment of a lifelong dream. Yet I wonder if it’s such a hot idea. I’m thinking of the burden it puts on the publishers.

Authors as a whole are more enlightened about royalty accounting than the mushroom people of a few decades ago.  Nevertheless there is a great deal of data to understand, and if an author cannot penetrate such mysteries as reserves against returns, net-price versus list-price royalty rates, or the effects of high discounts on royalty calculations, he or she is going to  hit the phones or emails and demand answers.  Multiply that by hundreds if not thousands of perplexed authors and you can imagine that the bookkeeping departments of publishers could be besieged.

This is a Law of Unintended Consequences just waiting to happen.

Publishers should not be punished for the good deed of offering transparency, but before they lift the veil on their accounting they must make sure that their statements are crystal-clear and every term unambiguously defined. That said, we wish Simon & Schuster Random House and Hachette the very best of success in this commendable initiative.

Read Authors to Get Sales Data Online From 3 Big Publishers by Julie Bosman in the New York Times.

Richard Curtis

Macmillan need not feel quite so alone in its quarrel with Amazon. A day or two ago Rupert Murdoch cast HarperCollins’s lot with Apple’s “agency” e-book retail model (see Apple Promoting a New (and Radical) Business Model for Selling E-Books?), a structure that threatens Amazon’s hegemony in the e-reader space. Now Hachette has joined the bloc, meaning that half of the so-called Big Six want to recapture control over the timing and pricing of their e-books. Precincts yet to be heard from are Simon & Schuster, Random House and Penguin, but even without them, the forces arrayed under the agency model flag should signal the imminent capitulation of Amazon.

Wait a minute. Amazon did capitulate. They did it so long ago we forgot. (See If This Is Capitulation, What Does Triumph Look Like?)

In any event here is the statement issued to the literary agent community by David Young, Hachette Book Group’s Chairman and CEO.

RC
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Dear Agent -

At Hachette Book Group, we have been considering a new pricing model for some time, and have decided to transition to selling our e-books through an agency model.

There are many advantages to the agency model, for our authors, retailers, consumers, and publishers. It allows Hachette to make pricing decisions that are rational and reflect the value of our authors’ works. In the long run this will enable Hachette to continue to invest in and nurture authors’ careers – from major blockbusters to new voices. Without this investment in our authors, the diversity of books available to consumers will contract, as will the diversity of retailers, and our literary culture will suffer.

The agency relationship will allow us to make more titles available to more consumers on more platforms. This expands the author’s reach and readership, which is at the heart of what we do as a publisher. Ultimately, these new terms open doors to all online e-book service providers and create more avenues for delivering e-books to readers.

Another great benefit to our consumers is that we intend to release HBG e-books simultaneously with the hardcover (or first format print edition).

It’s important to note that we are not looking to the agency model as a way to make more money on e-books. In fact, we make less on each e-book sale under the new model; the author will continue to be fairly compensated and our e-book agents will make money on every digital sale. We’re willing to accept lower return for e-book sales as we control the value of our product – books, and content in general. We’re taking the long view on e-book pricing, and this new model helps protect the long term viability of the book marketplace.

We believe that this new model is preferable to withholding books, and is in our authors’ and HBG’s best interest. I’m happy to answer individual questions about the agency model, so please don’t hesitate to contact me.

Best,

David Young
Chairman and Chief Executive Officer | Hachette Book Group

The following release was emailed by Hachette Book Group to literary agents and other publishing industry professionals this afternoon. It is a followup to a tough-talking release issued less than a month ago. We reprint it in its entirety. For information about Attributor, click here.

Last month we contacted you, Hachette Book Group authors and their agents, regarding our position on online book piracy. We’re pleased to announce that HBG has engaged Attributor, a leading anti-piracy protection service, to monitor the web for unauthorized copies of our authors’ titles. Please see announcement below for more details. If you have any questions, please email us at piracy@hbgusa.com.

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June 17, 2009 – Hachette Book Group has engaged Attributor, a leading anti-piracy protection service, to monitor the web for instances of unlawful use of its authors’ books and content.

The rapid growth in digital availability of books has resulted in a dramatic increase in pirated editions on file sharing websites that allow users to upload, share and download content of all kinds, free of charge. While some of the content appearing on these sites is lawful and user-created, an alarming number of unauthorized copies of copyrighted book titles are uploaded and shared for free.

Attributor’s web-crawling tool checks document hosting sites, linksites, and social media and social networking sites, quickly identifying unauthorized copies. Attributor’s monitoring service will enable Hachette Book Group to proactively find unlawful uses of content and have infringing material taken down when necessary.

“Attributor is an essential resource in achieving HBG’s commitment to combating online book piracy and protecting our authors’ work,” said David Young, Chairman and CEO of Hachette Book Group. “With our lawyers and legal assistants spending a significant amount of time checking sites for pirated content, it was clear that we needed to automate and augment our monitoring, while keeping our staff very involved in the process. This automation will dramatically increase our reach and effectiveness.”

Hachette Book Group, tormented by pirated and other unauthorized use of its copyrighted books, has taken aggressive measures to curb these practices, including a face to face meeting with Scribd, the peer to peer file sharing website. Though Scribd has pledged cooperation, its prophylactic protection remains porous enough to alarm many authors, agents and publishers. HBG is pressuring another site, Wattpad, and enlisting the publisher community to join the action.

Hachette has circulated a statement via email to the publishing industry. Below is the text in full.

RC
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As Hachette Book Group’s CEO, David Young, noted in a recent New York Times article, online piracy is “exponentially up.” The rapid growth in e-books has resulted in a dramatic increase in pirated or unauthorized editions on peer-to-peer file sharing websites that allow users to upload, share and download content of all kinds, free of charge. Two such websites, Scribd and Wattpad, are particularly active. While some of the content appearing on these sites is lawful and user-created, an alarming number of unauthorized book titles are uploaded by people without authorization and shared for free on both sites.

HBG is firmly committed to combating this type of blatant online piracy, and our Legal Department reviews those sites on a periodic basis for unlawful copies of a sampling of HBG titles. The Legal Department sends various document sharing sites, including Scribd and Wattpad, numerous copyright infringement take-down notices each month. In addition to the checks being made by our legal department and our editors, we hope that authors and agents will check frequently for infringements and report them to us. The most efficient method of reporting piracy is to complete the Online Piracy Report Form attached and email it to HBG’s Legal Department at piracy@hbgusa.com. We will then pursue the take-down process. If an author or agent is unable to complete the form for any reason, they should notify their editor.

HBG has sent stern legal letters to some of the sites, alerting them to the potential legal recourse for permitting or hosting repeated infringements. HBG is also a member of the AAP’s Online Piracy Working Group (“OPWG”), which coordinates anti-piracy efforts among member publishers. Despite these efforts, we recognize the daunting challenge we all face in combating online copyright infringement. Even when we succeed in getting an author’s titles removed from a site, the same titles can easily pop up again, uploaded by new users.

In an attempt to address the problem head on, HBG recently initiated a face-to-face meeting with Scribd to discuss its antipiracy efforts. Scribd described to us its newly implemented text-matching copyright protection system, which Scribd claims been highly effective at detecting and removing hundreds of unauthorized uploads every day (although it admits that its system is not perfect). Scribd also committed to us that it disables, without notice, the accounts of repeat infringers on a “three-strikes” basis, and that all documents previously posted by that infringer are automatically withdrawn. Scribd pledged that it has a zero tolerance policy for users who post advertisements offering to send pirated e-books to personal email addresses. We discussed ways to strengthen Scribd’s text matching filter and Scribd has recently published a more complete set of antipiracy policies. Scribd recently met with the AAP’s OPWG to discuss its procedures in detail and agreed to follow-up on a number of questions and issues raised by the OPWG.

HBG hopes to persuade Wattpad to implement more robust procedures. Wattpad confirmed recently that they have begun implementing their own text matching filter. We hope that pressure from HBG, other publishers, and the OPWG will cause document sharing sites, such as Scribd and Wattpad, to address this problem proactively.

Thank you for your attention to this urgent issue. Should you have questions about online piracy, please email us at piracy@hbgusa.com.

This may contain confidential material. If you are not an intended recipient, please notify the sender, delete immediately, and understand that no disclosure or reliance on the information herein is permitted. Hachette Book Group, Inc. may monitor email to and from our network.

Click here for Hachette’s Online Piracy Report Form.

Hamilton Nolan of Gawker posted a late-breaking news item that Hachette is cutting salaries of all employees. In the US, that includes Little, Brown and Grand Central***. In addition to pay cuts ranging from 3% to 6%, the company is asking employees to punch an extra half hour into the time-clock.

If you are the kind of person who sees the glass as 94%-97% full, you can be thankful that no one was let go. “We hope that taking this measure across the company will save headcount in the long run,” says the memo circulated by President and CEO of Hachette Filipacchi Media, Alain Lemarchand. We genuinely commend Mr. Lemarchand for his efforts to spare employees from outright dismissal.

Here’s the memo in full. We’re not sure what the difference is between exempt and non-exempt employees, but as the memo refers to overtime wages it may have to do with pay scales for executives vis a vis nonexecutives.

*** Click here for correction

RC

Alain Lemarchand memo:

Dear colleagues,

Today’s business environment requires decisive and quick action for the welfare of the company. This includes a number of difficult decisions on my part, some of which impact you personally. In this case, I deliberated long and carefully before coming to the conclusion that one of the steps that needs to be taken immediately is a cut in base salaries. Effective April 27, 2009, the salaries of all exempt employees will be reduced by 6% and the salaries of non- exempt employees by 3%. In addition, we are changing the regular work day from 7 ½ hours to 8 hours. For non-exempt employees, overtime will continue to be calculated on a weekly basis and will be paid for all hours worked over 40 hours.

I understand that this economy has already had an impact on each of you and that this represents another loss. I am sorry for that. We hope that taking this measure across the company will save headcount in the long run. I know you join me in wanting this company to remain competitive in this challenging marketplace. I want to assure you that once the economic picture improves, we will reevaluate this decision.

I thank you for your continued dedication to your work. Your professionalism and contributions are essential to the ultimate performance and success of HFM U.S.

Alain Lemarchand

Jim Milliot & Judith Rosen of Publishers Weekly report that Houghton Mifflin Harcourt’s trade book division – the one that stopped acquiring last fall – is being auctioned off as we speak by its debt-plagued parent company. Their sources say there are four “serious” bidders and the action is at $200 million so far. Given the 7 billion debt load that Education Media & Publishing Group groaning under – costing them $500 million annually in debt service alone – bidders will have to get thirty or forty times more serious if the winning bid is to make EMPG even remotely whole.

Leading the pack of snapping bargain hunters, as we predicted here, is Hachette, but there is also apparently a dark horse in the person of “former HM executive Wendy Strothman who has the backing of private equity firm.”

Vultures are standing by.

RC

Motoko Rich in the New York Times reports that Education Media and Publishing Group, the Irish owner of Houghton Mifflin Harcourt, “borrowed heavily to finance the acquisitions of Houghton Mifflin in 2006 and, last year, Harcourt.” How much, exactly? Jeremy Dickens, the private-equity company’s president who this week announced a temporary halt of acquisitions, put it at “about $7 billion in debt outstanding, on which it was paying about $500 million in debt service annually,” says Rich, who makes it clear that the purchase freeze was directed at the company’s consumer book business, not the textbooks. The former comprises less than 6 percent of total revenues.

Yesterday we speculated on the possibility the company or some part of it might have to be sold to relieve debt pressure. Dickens denied it – sort of. “If there’s a transaction that makes sense for all of our stakeholders, we’ll consider it,” he stated, admitting that some trade publishers had been sounding the company out.

We thought one of them could be Hachette. Interestingly, Hachette and Houghton Mifflin Harcourt were paired in Rich’s article for another reason. Contrasting the bleak news from HMH, Hachette announced a holiday bonus for all its employees amounting to one week’s salary.

RC

After I ran an item yesterday about the acquisition freeze at Houghton Mifflin Harcourt, in which Publishers Weekly used the term “leveraged”, a related news item was brought to my attention. At a panel panel conducted at last October’s Frankfurt Book Fair, Lagardere Publishing’s Arnaud Nourry observed, “within the last two or three years some major publishing companies, particularly in education, have been acquired by highly-leveraged private equity funds…. I’m sure that within the next months some of these companies will have to sell some of the assets back…”

In light of yesterday’s news, Nourry’s prescience is quite remarkable.

Or is it more than prescience? Nourry, Chairman and CEO of Hachette Book Group, which owns Little, Brown and Grand Central among other holdings, finished the above sentence thus: “…and we’ll be there…to make these acquisitions.” If he, and we, are talking about the same highly leveraged major educational publishing company, he may have been hinting that he’s got his eye on Houghton Mifflin Harcourt.

Is there a white knight in the offing? Watch this page…

Incidentally, Nourry also had this to say on that same panel: “I don’t see the banks pushing Borders into bankruptcy in the short term, and I’m rather confident about the next six or nine months for these big accounts.”

From his lips to God’s ear.

RC