Jeff Mayersohn and his wife Linda Seamonson own the Harvard Book Store in Cambridge, Massachusetts. As might be expected, it carries some very old books. What is not so predictable is that it carries 4 million of them. It happens that they installed an Espresso print on demand press.

Customers access Google’s vast database of titles, many of which are facsimiles of antiquarian works worth a king’s ransom in the original but only a few dollars in replica. Writes Mayersohn: “The first book that we printed on Paige [the owners' nickname for their pet printing machine] was the Bay Psalm Book, the first book printed in English-speaking North America. The original was printed on Stephen Daye’s press in Cambridge, about a hundred yards from the location of our store, almost four centuries ago. There are 11 extant copies of Daye’s original printing. Now any customer can own a scan of the original book.”

Interestingly, though customers can download the Google  e-book versions of these editions free, they like the feel of a printed book in their hands, and the look of it on their shelves. “For many readers and for writers, the allure of paper remains,” says Mayersohn. ” Watching the joy on their faces leads one inevitably to the conclusion that we still cherish the experience of the printed word, preserved for eternity in the pages of a book.”

But reprints of ancient tomes are only one part of ye olde booke shoppe’s custom. Of the 1500 or so books that “Paige” prints monthly, three quarters are self-published works, Mayersohn explained in the “Soapbox” feature of a recent Publishers Weekly. You can read details in Hit ‘Print’: How One Bookstore Uses Its Espresso Book Machine.

You can expect to see more Espressos popping up in bookstores as the technology is perfected and miniaturized.  Indeed, as we recently pointed out, there’s no reason why POD kiosks need to be restricted to bookstores.  See I’ll Have Four Sesames, Four Poppy-Seeds, and One Copy of War and Peace

Richard Curtis

Every Blogger owes a debt of gratitude to newspapers and magazines. This posting relies on original research and reporting performed by Publishers Weekly.

FOR IMMEDIATE RELEASE

Challenging book publishers’ expectations, a new Report from Forrester Research forecasts slow growth for both eBooks and eBook reader devices. However, strong projected sales of custom-printed trade books and digitized textbooks will force publishers to dramatically restructure their processes and technologies.

Above, the opening paragraph of a report issued by Forrester Research -  in December 2000. To their credit, they got it half right: digital technology in the form of print on demand is revolutionizing the printed book industry.  As for e-books, here’s what Forrester’s senior analyst had to say: “Publishers are expecting trade eBook sales that won’t materialize — the drawbacks of reading onscreen will discourage all but the most motivated readers.”

Oh well, all of us prophets have an off-day

Read details in eBooks Will Flop, But Print-On-Demand And Digital Textbooks Will Thrive, Predicts Forrester Research

Richard Curtis

Last week’s Digital Book World conference lived up to its billing.  Each hour was filled with stimulating speakers and panels focused on every aspect of the emerging world of e-books.

Every aspect except one, that is.

As the three day event progressed I realized that one subject was being overlooked. I pored over the conference schedule seeking programming about print on demand. I found none.

Why should I have expected any? It was an e-book conference, not a print conference, right? Well yes, unless you think of PODs as e-books that are printed and bound. And I happen to think that’s what they are.

It’s not surprising that few think of print on demand as a form of electronic publishing. Because POD produces a tangible object – a printed book – we lump it together with other machine-made goods.  Of course, all printed books are machine-made, whether offset in large quantities or printed on demand in small ones. But that’s where the resemblance stops.

Offset printing is designed to serve a traditional bookstore distribution model. After publishers make educated guesses about how many copies they can sell, they print copies to distribute in bookstores. Because they cannot predict how many copies will be sold, a great many will be returned to publishers for full credit. In the last few decades the return rate for trade books has soared to 50% and even higher, and if the decline of the publishing industry can be attributed to any single business practice, the consignment model of printing and distribution is it.

Contrast that with print on demand, in which copies are not printed until customers have ordered them on the Internet and paid for them in advance. Although books printed on demand are occasionally returned, the return rate in POD is negligible.

Unlike offset printing, POD is ideally suited for a book industry based on preordering – what might be called the Amazon model, a model that is transforming the retail landscape. (See A World without Inventory, Part 1 and Part 2)

The offset and on-demand business models could scarcely be more different from each other. On the other hand, POD and e-books are twins – fraternal twins perhaps, but twins nevertheless. (They were even born the same year, 1998.) The way you order a POD book is identical to the way you order an e-book. The only difference is that the printed volume is “uploaded” into your mailbox instead of your e-reading device.

When we founded E-Reads in 2000 we made POD one of our foundation stones. We were certain that until a viable popular e-reader was created, the reading device of choice would remain the printed book.  This turned out to be correct.  Until very recently, when the Kindle revolution took hold, POD sales represented about 50% of our revenues. It remains a significant contributor to our – and our authors’ – revenue stream. And of course it provides printed copies to those readers who prefer them to e-books. And there are still a lot of them.

It is also becoming a significant option for small presses and big publishers alike. David Taylor, President of Lightning Source Inc., arguably the largest POD press in the world, reported last spring that business was growing at a rate of 20% to 30% annually. Lightning prints, binds and ships 2 million copies a month on machines that run around the clock, a statistic all the more remarkable in view of the average number of copies per title they print on any given press run: two! And that’s just one POD company. There are others including one owned by a little outfit called Amazon. Many independent publishers are shifting to a purely POD model, and bigger houses use POD to keep books in print after inventories diminish and the cost of doing new print runs is prohibitive.

If we may therefore presume to make a suggestion to the program directors of Digital Book World, some attention to POD in 2012 would be welcome by many attendees. How do I know? Well, about 20,000 people have signed up for the On Demand Expo in Washington DC in March 2011.

Are POD’s e-books? Without a doubt.

Richard Curtis

Okay, it’s time to play Institutional Investor. Here’s today’s quiz:

Net sales of Amazon leaped by 39% in the third quarter of the year,  exceeding predictions of $7.35 billion. Fourth quarter revenues are estimated to be over $12 billion.  What happened to its stock on the day that news was announced?

1. It went up by 5%
2. It went up by 10%
3. It went up by 20%
4. It went down by 4%

If you guessed 1, 2 or 3 you don’t know jack about investing.  In fact it dropped 4.01% to $158.35, because investors were disappointed. Why?

According to Publishers Weekly‘s Jim Milliott it wasn’t the earnings. It was the spending. “Investors were disappointed,” he wrote, “with the company’s higher spending on new distribution centers. Analysts said they were concerned about the cost of the 10 giant warehouses that opened in the third quarter, which ended Sept. 30, and a handful more that are to open before the end of the year.”

In a publishing environment that has shifted to digital delivery – and who knows more about that than Amazon? – the construction of brick and mortar depots to contain printed books feels not just counterintuitive but downright perverse.  This is especially true because Amazon has the wherewithal to do away with warehouses altogether. It’s called print on demand, and Amazon has a division called CreateSpace devoted to printing books on demand.  Sometime back we speculated that Amazon’s POD operation could make warehousing a thing of the past. (See The Nine Gazillion Pound Gorilla Bares Its Fangs.)

Though Milliott points out other reasons that investors were not enchanted by a growth surge that would be the envy of any other company in the world, Amazon’s heavy bet on a fading world of tangible goods could continue to drag the stock down.

Read about it in detail in Print, Digital Book Sales Accelerated in Third Quarter, Amazon Says

Richard Curtis

From time to time we bring back some of the more popular articles and blogs posted on E-Reads. This one is from April 2008. The name “BookSurge” for Amazon’s print on demand company was eventually changed to CreateSpace.
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I write this blog in two capacities: as an authors’ advocate and as president of E-Reads, an Internet publisher that, in addition to publishing e-books, prints its titles on demand for readers who prefer traditional volumes. Indeed, fifty percent of our company’s revenues are generated by print on demand. Our PODs are produced by Lightning Source Inc. and sold on Amazon. The excellent relationships we enjoy with both firms have enabled us to realize our vision of what a twenty-first century publishing venture can be. We are happy to claim them as partners and would hate to be placed in the position of choosing between them. But Amazon’s proposed policy requiring small presses such as E-Reads to shift its POD business to its BookSurge press would do just that.

Though Amazon’s ploy comes as a shock to publishers and authors, it did not come as a surprise to me. In the summer of 2005 Amazon.com announced the acquisition of MobiPocket, an e-book company, and BookSurge, a print on demand operation. A lot of ink was spilled on the MobiPocket deal but no one except me speculated on what it meant for a book retailer to have the capability of printing books on demand. In a guest editorial in Publishers Weekly, I wrote,

“It’s hard to say for sure what is behind amazon.com’s acquisition of BookSurge, the on-demand book-printer. But any move the Nine Gazillion Pound Gorilla makes is worthy of serious consideration. Indeed, the implications of the deal, especially combined with amazon’s purchase of e-book company MobiPocket, are profound.”

The implications were so disturbing that PW’s editors urged me to tone down my speculations, which seemed to fall at the red end of the spectrum of possibility. Actually, I suspect that the editors were so freaked out that they went into denial. And who can blame them? In my editorial I spun the logic of Amazon/BookSurge to the max.

Here is the conclusion I reached: If Amazon is capable of printing books on demand, they will no longer have to carry any physical books in their warehouses at all! They simply have to load the files of Random House, HarperCollins, Hachette, Penguin, and every other publisher onto their server and print all of their books – frontlist as well as backlist – on demand. It would not only be a huge savings for Amazon in terms of warehouse space – it would be a huge savings for the publishers, too: they all would eliminate printing, warehouse, and freight costs at a stroke. Yes, they would still have to print and distribute books to other retailers besides amazon, but such sales would be modest compared to those of Amazon with its incomparable marketing and technical capabilities. Allowing Amazon to become the POD press for the publishing industry is a very seductive lure to publishers operating on razor-thin profit margins. But it would also enable Amazon to undercut bookstore prices, put Barnes & Noble and other bookstore chains and independent booksellers out of business and complete its march to monopoly. While you’re trembling, consider the possibility of a mega-retailer ultimately deciding what you read as well as how and where it’s printed.

If you are as incredulous as my Publishers Weekly editors were, ponder this statement in the letter just issued by the amazon.com books team: “It isn’t logical or efficient to print a POD book in a third place, and then physically ship the book to our fulfillment centers. It makes more sense to produce the books on site, saving transportation costs and transportation fuel, and significantly speeding the shipment to our customers.” You need only to remove the term “POD” from that statement to arrive at the terrifying conclusion that I reached in 2005.

Though I have railed for decades against the stupidity and wastefulness of an industry based on tangible books sold in brick and mortar stores, I have to wonder whether Amazon’s Orwellian vision of absolute zero-returns efficiency is even more destructive than a traditional business model that pulps one copy for every two it distributes.

It is vital for publishers of every size to confront this potential restraint of trade.

- Richard Curtis

Duck! Here comes the long tail!

Traditionally, when inventories of a title dwindle, a publisher will do a short print run and store it in a warehouse in order to keep it in print. But the advent of print on demand technology promises to make that process – including warehouses – a thing of the past. (See A World Without Inventory Part 1 and Part 2)

Now, the Macmillan publishing group (St Martins, Farrar Straus & Giroux, Henry Holt among others) has taken a giant step toward that virtual future by turning its inventory management over to Ingram Content Group, owner of POD behemoth LightningSource Inc. Slow-moving titles – the phenomenon Chris Anderson termed “the long tail” -  will go into LSI’s print on demand program. The books will exist only as files on a printing press’s server until a customer orders a copy. No inventory. No warehouses.

Read Jim Milliot’s story in full in Publishers Weekly, Macmillan to Move Some Fulfillment to Ingram

Richard Curtis

The following question is deceptively simple, and we urge you to take your time responding. How much time?  Three or four months. You’ll need that much.  A lot rides on your answer.

Here’s the question:

When you purchase a print book you should be able to get the e-book for…

• a) the full combined retail prices of print and e-book editions
• b) an additional 50% of the retail price of the print edition
• c) an additional 25% of the retail price of the print edition
• d) $1.00 more than the retail price of the print edition
• e) free

The subject of this little quiz is bundling, a common marketing tactic in which two or more products are packaged and sold at a single price. In this case the package is a printed book plus its e-book iteration.

As simple as it sounds, bundling is shaping up to be the battleground for clashing publishing philosophies, and the time will soon come when publishers will have to choose one of the above strategies and put it into effect. Misjudging consumer attitudes could prove to be a big mistake and possibly a ruinous one.

The essence of bundling is to offer customers a discount for selecting the combo instead of the individually priced components, so choice a) above is a non-starter.  But choices b), c) and d) reflect just how aggressive a discounter wants to be and the various thresholds at which consumer resistance is expected to melt.  A good argument can be made for each and as the bundling issue warms up you can expect to hear them all endlessly debated.

Yet even the cheapest package – a dollar or even less than a dollar over the cost of the print edition – may not suffice to capture the consumer’s fancy. Why? Because many people believe they’re entitled to get the e-book free with purchase of the print book. How large is public support for that position?  We need to take a poll to find out, but if anecdotal reports are any indication, they may be in the overwhelming majority and they are unquestionably the most vocal. You will certainly hear their outpouring of joy when one publisher steps up to offer a print and e-book combo for the price of the print edition alone.  Our own prediction? Free will become the standard, and even ten cents above free will be a competitive disadvantage.

Economic factors aside, consumer negativity toward double-charging is a contributor to piracy. Comments sent to us in response to postings about piracy strongly suggest that the public expects digital versions of books to be tossed in for nothing when a printed book is sold, and if it isn’t tossed in, many of those customers will feel no compunctions about downloading an unauthorized copy. They simply feel entitled to it. Libertarian spokespeople like Cory Doctorow have articulated this sense of entitlement, and though some feel that their arguments go too far, there is a solid core of realism in their position. We can condemn the immorality of consumer attitudes ’til the cows come home; and we can (quite reasonably) complain that if people were willing to wait for the paperback reprint they should be willing to wait for the e-book reprint. It makes no difference: the public’s sense of entitlement creates an environment susceptible to the allure of piracy.

With so many sound arguments in support of heavily discounted bundles, why have we seen so little of it in book marketing? The answer is that it is harder to assemble print/e-book packages than it looks.  Publishers that control both formats are in the best position to do it but the technology is not yet in place.  Customers purchasing the latest James Patterson or Nora Roberts novel in a bookstore have no simple way to download the e-book in the same transaction. The publisher might offer a discount coupon but that requires a number of steps  and clicks that discourage a quick and easy procedure.

What is wanted is a one-click experience: “Click here to order the print and e-book.” Such a deal might best be offered by a publisher on its website.  However, the price of that bundle might undercut the prices offered by retailers or e-tailers for the individual components, and for publishers to compete with their own retailers is to cut their own throats.

Amazon is in a good position to offer print/e-book bundles but hasn’t done so yet, probably because it recognizes the complexity of the issues.  Book pricing is already fraught with so much angst that adding bundling to the debate will undoubtedly induce cardiac infarction among book people already near apoplectic with worry.

For the record, we at E-Reads strongly support the position that the e-book version should be included free of charge with the purchase of one of our print editions and are working to overcome the technical obstacles to implementing our conviction.

We invite your comments and look forward to seeing the debate over bundling heat up on the next stretch of road to the future of books.

Richard Curtis

Question: What’s the difference between Dorchester Books and E-Reads?

Answer: None, now.

We reached this conclusion after Jim Milliot of Publishers Weekly broke the news that “Mass market romance publisher Dorchester Publishing has dropped its traditional print publishing business in favor of an e-book/print-on-demand model effective with its September titles that are ‘shipping’ now.” Dorchester, an excellent but undercapitalized publisher of mass market paperbacks in such popular genres as romance, horror, thrillers and westerns had been struggling for some time as returns hammered it relentlessly and digital books ate further into its margins.  Milliot reports that the editorial team will remain intact but in all likelihood the monthly releases will drop from 30 to 25.

If Dorchester follows its digital decision, monthly releases are not the only thing that’s going to drop. Everything about the company’s operation will shrink if not implode. And yet, oddly, that will not necessarily be a bad thing. In the new paradigm, direct-to-consumer publishing means higher profits because all intermediaries (distributors, bookstores, etc.) are eliminated. E-Reads knows this: we’ve been doing it since 2000.

Although a number of trade and mass market publishers have occasionally experimented with original e-books, Dorchester is the first to take the plunge into pure e-books and no retail bookstore distribution. The mass market format will be dropped in favor of trade sized paperbacks and these will be printed on an on-demand basis. That is, customers interested in buying the print version of a Dorchester title can order a trade paperback on Amazon.com and it will be printed and shipped directly to them.

Dorchester’s move raises the question: how does Dorchester now define itself compared to mass market paperback houses like Kensington or Harlequin?  In truth it is a completely different species. It is however one with which we here at E-Reads are all too familiar: our own.  Since its launch ten years ago E-Reads has been publishing in e-book and print on demand with no bookstore distribution.  We call ourselves a virtual publishing company and welcome Dorchester as a colleague in our space.

Since we have a one decade jump on Dorchester we’re happy to offer a few pages from our playbook to help our new playmate increase its profitability.

The first is to clear out of those expensive Madison Avenue offices and relocate to a smaller and less expensive space. Indeed, you could relocate in rural Vermont and and no one would know, because far more tasks will be outsourced and performed on the Internet. You won’t need all the staff you have now since you’ll be purely online. Now that you’re walking away from the struggle for shelf space you’ll be able to cut down on sales*, marketing and bookkeeping personnel. Your royalty accounting can probably be handled by one person, and, if you’re like us, you can begin issuing royalty statements on a quarterly basis instead of semi-annually as you do now. Why? Because the biggest headache of mass market publishers, returns, will be eliminated. You can also dump your art department and shift it to freelance designers working from clip-art archives.

By the way, what royalty will you be paying? We hope it will be 50% of net receipts, as E-Reads pays.  Gains in efficiency will enable you to double the current mingy 25% being paid by the leviathans of the Old Guard with their fancy midtown real estate – and 50% returns. Even doubling the royalty you should still be able to make a good profit because your operation will be so much leaner and more efficient.

Dorchester’s CEO John Prebich said “We felt like we needed to take some chances and make a bold move.” When the realities of going virtual sink in, Mr. Prebich will find out just how bold the move is. After all those intermediary functions are streamlined, he may not even recognize the brick and mortar publishing company he guided into the 21st century.

* Update: Publishers Lunch reports that Dorchester “laid off its sales staff of seven people.”

Richard Curtis

Every Blogger owes a debt of gratitude to newspapers and magazines. This posting relies on original research and reporting performed by Publishers Weekly.

The announcement that Barnes & Noble has been put up for sale confirms something we have been saying for years: that on-demand bookselling is destined to replace the traditional brick and mortar model.To put the B&N news in perspective we thought it might be timely to reprint a two-part article we posted last spring dealing with the disintermediation of the old system and its replacement by one based on an on-demand, direct-to-consumer approach. This is part 2.

RC

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In our previous posting we pointed out that today’s “speculative” publishing model, based on the returnability of unsold books, is no longer viable. It has served us well for the better part of a century. But the digital revolution has created a highly successful, efficient new model relying on pre-ordered and prepaid books printed on demand.

The publishing industry has had decades to deal with its addiction to returns. I have been beating this drum in vain for decades including an editorial in Publishers Weekly in 1992 (see Behind Publishing’s Wednesday of the Long Knives). Now it is too late. The old way can no longer be sustained. The good news, however, is that it no longer has to be. Amazon has demonstrated that the prepaid model is mature and ready to replace the old speculative one.

Publishing oracle Mike Shatzkin would seem to support this vision of things to come. In a recent article he projected “about half of new book sales will be made through online purchases if we count the print book sales made through online retailers (mostly Amazon). Online print sales can be served through inventory generated on demand. So, if these estimates are right, we are less than three years away from a publisher (or author) being able to reach half the market for a book without inventory risk!”

“Every publisher,” he adds, “should be preparing for the disruptive effects” of this paradigm shift. Among his recommendations are:

• Publishers are going to really have to rethink the development process for their ebooks.
• It will be eminently sensible to launch books with a no-inventory strategy and move to press runs with returns allowable when reviews or sales have proven that it makes sense…The idea of printing and distributing speculatively will make less and less sense as the potential market to be reached by that tactic diminishes as a share of the whole.
• By the end of 2012, we’re saying half of all the sales potential can also be reached with the product without a local nexus: no requirement of local inventory or any shipping or revenue collection facility beyond your digital distribution and print-on-demand partner.
• Because books or ebooks will be purchased by half of their customers electronically, the potential exists to know exactly who those are and to establish interaction with them…This opportunity presents a new battleground for competitive advantage that publishers will have to pursue both for marketing and for author relations.
• Publishers will have to start devoting the bandwidth and resources to direct sales that they devote to intermediary sales today. (See Direct Sales: Publishing’s Last Stand.)
• There’s an inevitable concurrent downward spiral of brick-and-mortar retail inherent in this forecast that sales are moving online. The nearly-limitless online selection has been an increasingly powerful magnet since the day Amazon opened and in the new paradigm there will be a growing body of talked-about content not visible on store shelves.

“On-demand printing is very much in demand in 2009,” says David Taylor, president of Lightning Source, the biggest POD supplier in the business. “The business model, quality and cost structure have matured considerably in recent years. With POD, publishers can better match supply to demand, thus eliminating the risks and costs associated with the book market….A globally distributed print model, where publishers use the same file to print at multiple locations that are closest to the origins of the orders, has given the book industry a platform to publish smarter. POD is no longer an optional novelty; it is an integral and essential part of the future of publishing.”

Richard Curtis

The announcement that Barnes & Noble has been put up for sale confirms something we have been saying for years: that on-demand bookselling is destined to replace the traditional brick and mortar model.To put the B&N news in perspective we thought it might be timely to reprint a two-part article we posted last spring dealing with the disintermediation of the old system and its replacement by one based on an on-demand, direct-to-consumer approach.

This is Part 1.

RC

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By now it must be clear to all but a handful of diehards that the business model based on returnability of books for credit, a practice instituted by the trade book industry some 75 years ago, is no longer viable. In fact it has proven to be a bargain with the Devil.

The original principle on which it was instituted – to encourage bookshops to invest in otherwise risky literary forms like first novels and poetry – was an admirable one, and publishers can look back with pride that their good will made possible the launch of countless great works and authors. But soaring returns have rendered this practice utterly dysfunctional. Return rates approaching or even exceeding 50% have slashed profit margins of trade book publishers to single digits, no digits or negative digits.

Though the industry managed to keep a lid on returns until the latter part of the 20th century, in the post-World War II era the system deteriorated as return rates escalated, triggering cash shortages. The consequences were catastrophic: countless underfinanced houses were driven into the arms of larger ones. These big fish in turn succumbed to even bigger fish until we ended up where we are today – with a handful of bloated leviathans. But even they have discovered that immense scale offers no immunity from the same toxic business model that forced smaller houses to give up the ghost. Huge publishers may have more blood to hemorrhage than small ones but eventually they succumb too.

Yet, despite decades of proof that returnability is a sucker’s game, the publishing industry is incapable of curing its addiction to the practice.

The time has come for publishers to accept the fact, now glaringly apparent to all but those in total denial, that no business enterprise can afford to sell just half or even two-thirds of what it manufactures – and to foot the bill for the return and disposal of the unsold other half.

Some pundits ascribe the woes of our business to printed books themselves, saying that the medium is no longer appropriate for our times. In truth nothing is wrong with printed books. Everything is wrong with the way they are distributed.

And the way they are distributed is appallingly profligate, taking a dreadful toll on the environment in terms of paper waste and carbon footprints. The tortuous methods by which bookstores account to publishers and publishers to authors are imbecilic and arguably fraudulent. An alien visitor tracking the journey of a printed book today from editorial office to printer to warehouse to bookstore, back to warehouse and then to remainder jobbers or pulpers would have genuine reason to wonder whether there is intelligent life on this planet.

For over a decade we have had before us a technique for publishing books called print on demand. Those who witnessed its introduction at a book expo in 1998 declared the process revolutionary. Though it’s taken a decade or so to refine the technology, they were absolutely correct. The delivery system has matured and begun to make serious inroads on the traditional one. Though representing only 2.5% of all book production in 2009, it is expected to grow at 16% per annum according to David Taylor, president of Lightning Source, the nation’s biggest POD firm. The first generation of Espresso POD machines, now being installed in libraries and bookstores, promises to expand the technology’s popularity even further. As anyone who has seen a demonstration of the Espresso can testify, the process itself is a technological miracle and will most certainly be miniaturized. It is easy to imagine a day when POD kiosks – in bookstore or non-bookstore venues – will issue books from an infinite inventory of digitally stored titles.

But it is not just the technology that is so exciting to contemplate. It’s the business principle underlying the process that promises the invigoration and perhaps even the salvation of printed books.

The Speculative Model

In today’s traditional model, which might be termed “speculative,” publishers relying on information gathered from booksellers make educated guesses about how many copies to print and distribute. The sale of a book occurs only after it has been published, placing the burden of financing its publication squarely on the shoulders of the publisher. To the degree that the publisher’s forecasts are incorrect, unsold copies will be returned. Settlement of retailer accounts are delayed or adjusted while returns are processed, delaying desperately needed cash flow to publishers. Publishers in turn must delay settlement of royalties to authors for months and even years until returns calculations are finalized.

In short, the entire system is founded on a negative principle: it’s not how many copies of a book are sold, but rather how many are not returned. Everybody in the chain suffers, from bookseller to publisher to author. Even readers suffer because the cost of all this inefficiency is passed along to them in the form of higher book prices.

The Prepaid Model

Now consider the business model created by print on demand, which we’ll call “Prepaid”. When a book is ready for sale it is displayed on the website of a publisher, author, retailer, or all three. Customers may browse or sample it online. When they decide to buy it they purchase it on the website, charging it to their credit card. Until that moment the physical book does not exist: it is simply a digital file on the server of a printing press. Unless the book shipped to the customer is defective, it is seldom returned. By adopting the print on demand model, the returns problem disappears. Settlement of bills is prompt. Whereas traditional publisher issue royalty statements semi-annually, print on demand makes quarterly or even monthly settlements possible – without reserves against returns!

Do the math: 30, 40 or 50% returns for the speculative model vs. 0% for the prepaid. Case closed. Or so you would think. Yet traditional publishers cling to the topsy-turvy model of paying a lot of money upfront for books they believe will be hits, then making educated guesses on the size of the audience, then overprinting, then recovering unsold stock and remaindering it or sending it to a pulp mill.

These practices can no longer be sustained, and the good news is that they don’t have to be. Amazon has demonstrated that the prepaid model is mature and ready to replace the old speculative one like a creature that has outgrown its carapace.

In the second installment of this posting we’ll hear what a well known publishing industry oracle thinks the industry must do to prepare for paradigm shift.

Richard Curtis