Publishers and booksellers already compete with free. Popular books, albeit ones in the public domain, have been available for free for years. There was a pent up demand for Napsterized Mp3s so the rise of file sharing lead to a equal and opposite decline in music sales. That appears not to be so for books. Customers will continue to pay for public domain books if the price is balanced with convenience (see the app store). Listen to your readers — this line of reasoning goes — and Scribd is not a threat.

The second thing he said was about the rate of decline for the old model. The question for publishers and bookstore owners is how long will this take? The music industry saw double digit declines year over year until the Tower Records empire and the Virgin MegaChain became untenable. At the root of this were declines in every category and every genre. Book sales won’t transition to digital at equal rates across genres. Kids books will likely be the last to cross the chasm. Fiction may be a hold-out as well. The lesson being, if you are a publisher or retailer, prepare yourself to throttle back on different categories of books at different rates at different times. If the business goes into a dive of double-digit losses that is a death spiral no one can recover from. But if a bookstore can experiment in their computer section while remaining profitable in fiction then they are likely to stay alive. Question is how many businesses are that agile?

This could be an app, a model, and an interface worth adopting for ebook management. Of course I can’t be sure because Spotify is only available in Europe.

See also Spotify and the Great Leaps of Faith

McNally Jackson has a YouTube Channel of its own. Check it out.

But quarterly troubles aside, the financial results were accompanied by a new site release that refreshed the main Chapters.Indigo.ca homepage. This is a great sign. The online division is clearly still top-of-mind even though its sister site, Shortcovers, gets all the attention and cash. In fact, a quick Google search for ebooks and ebooks in Canada,  leads me to conclude Shortcovers isn’t doing so well in organic search and is getting a majority of its traffic from Indigo.ca. Hopefully we will see further integration between the two sites. With that, the numbers should bounce back in no time.

All that being speculation, what really interests me is the homepage redesign itself. The ‘New & Hot Carousel’ at the top of the page is reminiscent of Border’s Magic Shelf. It makes a big and bold statement that I like a lot. And the fact that it is all new books, irrespective of marketing hook, makes me want to explore the product selections.

There is a second carousel for “Today’s Top 50″ just below the pagefold that lets visitors browse the selection with similar navigational aids. Sandwiched between the two carousels is the old ‘topspot’ with four or five rotating marketing stories of its own. This is a little confusing because there isn’t a consistent message to visitors about where they can expect to find the navigation.

At the top of the page there are clickable tabs. The clickable navigation then moves to either side of the page asset in the carousel just below that. The clickable navigation then moves to the bottom of the asset in the tier below that before reverting to the right and left arrows in the bottom-most carousel. The setup works a lot better on the section pages where the two carousels are stacked with nothing in between them. This is niggly but I am turning into a UI geek.

Overall the two carousels and the ‘topspot’ banner make a strong visual statement to site visitors. The effect is more compelling to the eye then the Amazon homepage. And it emphasizes the product choices of the site merchandisers over site search (the search box is still undersized) and it emphasizes Indigo’s human warmness versus Amazon’s product algorithm. Simply Indigo is merchandising more hits and less long tail products than Amazon is.

That is a good thing.

Just so I don’t forget for next time I should note that Toys and Games have two rows on the main page followed by two rows for CDs and DVDs. I think that is more real estate for toys and games but I can’t be sure.

In June Heather Reisman hinted Indigo would be getting an e-reader of its own. But at the time no reader could conceivably be used with Shortcovers unless they introduced downloads or hooked up with a cell carrier and a yet-to-be-invented device. If Plastic Logic can produce such a device a 2010 launch date seems more likely than Reisman’s promise for Christmas. Fingers crossed.

Last week Publishers Weekly reported 2008 audiobook numbers were down by 6%, but that is revenue not units. I for one am glad to see the end of the $75 dollar audio book. I am all for the $150 per year subscription plan, profits of the old-guard be damned. Good luck to SAB. I hope they are able to convince publishers to avoid exclusives with Audible/Amazon.

I had hoped that the popularity of the Twilight and Harry Potter fan podcasts would spawn a general vidcast for girls. If only some enterprising teenagers out there would start a show then the professionals could swoop in and give them aid. I am thinking professionals like Daisy Whitney and the PIxel Corps or Amber McArthur and MGImedia . Not professionals like Proctor and Gamble. But years into YouTube’s popularity that has yet to happen and probably never will.

A retailer could step up. And all-teen Youtube-channel from Indigo or McNally Robinson makes a lot of sense. Gary Vaynerchuk says as much. The store could even go co-op with publishers to make it happen. But that is pretty unlikely too.

Instead we get a glut of publisher-driven efforts to connect with teenage readers. Simon and Schuster just launched a social network for teenagers called Pulse-It. No stand-alone URL. Mistake. You need to sign-up (of course you do) to see what it is all about. Mistake.

Hey everyone! Thanks SO much for joining and all the great support. We actually got an overwhelming response (hurrah!) and far, far more traffic than we had expected. We’re actually somewhat behind in terms of approving members so please, please if you could just give us a day or two, bear with us while we get through everyone! Feel fr…

Approving members? There they go again, the publishers inserting themselves (painfully and artificially) between writers and readers. The big promise for participating users — earn points! Yuck.

Penguin has SpineBreakers. And there is Harper Teen. Both do better in their own ways but there is still room (and a need) for a filter for the teenage reader. Best be one that is open (on Youtube), focused (girls only), authentic (hosted by teens), and includes books from all publishers (sponsored by a retailer).

Amazon’s continued land grab of promising book-related start-ups has a feeling of inevitability in it. Who else has the cash and the vision to buy this companies?

Processing. Processing…

I can’t think of anyone who is leaning into the changes in the industry as aggressively as Amazon is.

Ingram? They are amalgating their businesses and aren’t yet ready to buy new ones.
B&N? Perhaps too conservative. Perhaps too poor. Perhaps a culture predisposed to build and not to buy.

Indigo is the only company in the world I can think of that that is well positioned to rival Amazon in acquisitions. They are out of debt. They have direct long-term interest in this space (unlike Apple or Google). They have shown a willingness to both innovate (Shortcovers) and expand (Pistachio). And they have experience merging with another company (Chapters — whether that merger is successful however is debatable).

So what’s holding them back? Vision? Leadership? A regional mentality? My bet is there are people in the organization that could lead Indigo’s acquisition of start-ups but those people and those ideas and those companies aren’t finding their way in front of the decision maker(s). Call it a chilling effect. If you are a VP and you bring forward an idea that fails, you wear it. That is the downside of the sole-proprietor model. Shame.

So George Bush and Bill Clinton were in town today. Some 6000 people paid to see them. One week ago in the same room some 600 people paid to watch Larry King be interviewed by Indigo’s Heather Reisman. The two events had me thinking of the first author signing I remember where you had to pay at the door — Douglas Coupland, ten years ago.

(IFOA doesn’t count.)

I have praised Random House Canada in this space before but I was cynical of their effort then to take my money for both Coupland’s book and a chance to meet him. After all this time I think I was wrong. Ticketed events clearly were working. They continued to do them. Not for every case but they experimented here and there. They tested the audiences’ willingness to pay for certain authors at certain points in their careers. They tested how much to charge. It isn’t like they invented ticketed events, but in retrospect that was pretty smart — even if there was no master plan beyond basic cost recovery.

Last week Richard Nash dropped “event-i-ness” into a conversation we were having about the future of the industry. By this he meant creating value around an author that would make people want to pay for an experience — be that a signing or history walk or interview. People wouldn’t begrudgingly pay. They would actually want to give you money. The industry, he said, needs to be better at creating eventiness.

In the days since Nash mentioned it I have come to think eventiness is a huge blind spot for publishers. Publishers are worried about a lot of things these days but piracy, ebook formatting, and market consolidation at Google and Amazon will run a straight course. Learning how to build value at the author level is such a difficult problem it has yet to be adequately defined. If you are publisher, please take up the challenge. Recruit a willing bookseller. Convince an author. Get out there and get readers to buy the t-shirt. You don’t have ten years to figure out how to make your midlist authors draw 60 people let alone 600.

(photo source)

This will be all over the tweets tomorrow and I have nothing substantive to add, but I am wondering if Canadian rights/contents have been cleared? I bet not. At time of writing the app is in US iTunes but not in Canada.

Kudos to Bezos for taking the long view and undermining his own hardware (they are not a manufacturer and it showed) and kudos to Steve Jobs (like he needs it) for slyly asserting the primacy of the app store. I wonder how the purchase path will work? Buy from Amazon or Apple?

All very interesting for the DRM question — did Amazon just VHS ePUB’s Betamax? or did they just Boxee ePub’s Bluray?

Repercussions for shortcovers won’t be felt immediately but Lexcycle will likely be in pain by the end of the week.

It is a chess match from now on.

UPDATE: I have downloaded the app –> it prompts for an Amazon.com password (Canadians that ain’t you).

The cool thing is it downloads books you have already bought from your kindle and syncs your progress between the devices. (Amazon’s expertise with cloud computing makes more and more sense). It is offering 244,000 titles with first chapters free, and bestsellers at $9.99 USD.

UPDATE2: Hmm seems like a kludgy implementation from what Karen is saying. From a purchase path perspective, it is a glorified link to Amazon.com. No ability to purchase books from within the app. You need to download and sync over. Lame.

UPDATE3: You can purchase content from the browser on the iPhone (not from within the app itself). Still lame. Amazon is always 80% of the way to perfection but they blow it in the last mile (kindle, their site UI, DRM, the stickiness of their MP3 store) Blerg.

Normally just after Christmas, two things happen in retail. First, stores start purging titles and quantity that didn’t sell over the holiday. Second, stores also purge work-hours and employees so their labour costs realign with their mid-winter revenue. These two things are naturally at odds — lots of manual labour, not enough people — but that inefficiency lets a store breath instead of being expertly filleted to the point it is empty by March break.

This year, something seems off. I was in the flagship Barnes and Noble store in mid-February and it looked lean compared to the Indigo at the Toronto Eaton Centre that I visited this past weekend.

One possibility is Indigo hasn’t pulled the trigger on returns because they are distracted by other things. I am skeptical, but it’s possible. Another option is they are rebalancing their inventory. That is possible too but if they were tweaking the title count in stores than they would still be returning the massive quantities I am seeing stacked under tables. The quantity and the breadth makes me speculate that some other force is at work here.

A really simple definition of a bubble is when everybody does the same thing. In this, the late age of book retail, I fear every Canadian publisher has made entreaties to Indigo not to return their books. I am worried publishers have paid Indigo off — not just one of them either but the majority of them. I am worried the inflated inventories are a bubble that is insulating publishers from reality (if sales dropped drastically after Christmas, then publishers won’t feel it until fall) and I am also worried the extra fat is going to make the industry supply chain unstable.

Publisher incentives for retailers aren’t new. Richard Curtis was complaining about them 15 years ago. But look at co-op. Retailers have come to rely on revenue from co-op. It is built into their budgets for subsequent years. Now imagine a publisher giving a retailer a performance incentive for their entire account. If a store sells x number of a publisher’s titles, then the publisher rewards the retailer with y number of dollars at the end of the year. That makes sense doesn’t? Well yeah so did collateralized debt obligations but I digress.

Now imagine a publisher rewarding a retailer on what they purchased from the publisher and not on what they in turn sold to the customer. Publishers think in these terms all the time. Sell-through is such a novel curiosity. Are you following me? The retailer doesn’t have to do anything new for free money. It doesn’t have to hustle or double down on its commitments. It doesn’t have to sell any more than last year. All it has to do is hold returns into the new year and the publisher will give it money. A smart retailer could conceivably get an incentive from the same publisher every other year. With a little luck they may be able to get one a few years in a row.

The thing is when you give a publicly traded company free money, they tend to expect it the following year. There is this whole wall street stigma with growth. I can’t blame a manager for demanding growth but there is a real danger — as we have seen — in demanding growth from a false economy. If a bunch of publishers are giving a retailer free money, you could see how it could get out of hand and you could see why a retailer would ignore its own inventory practices.

If, and this has been all speculation so far, publishers are offering Indigo performance incentives to sell their books I hope they have had the good sense to tie the incentive to sell-through not to sell-in. And if Indigo or any other retailer has agreed to play the performance incentive game, I hope they have the good sense to get off the crack before they drive their inventory system off the road.

I also hope the 8 percent comp is here to stay.

There was a session at TOC all about Google’s Book Search. Some publishers in the audience went wide eyed when the mobile app came up. No one got militant or anything but a few people in the foyer after wards were saying how dare they. No one says that about Amazon.

Amazon’s book search is a goldmine for people looking to skirt access barred by territorial rights. People like me.

All last week I enjoyed the wonders of the US internet. I checked out HULU.com and the Dailyshow.com and I also poked around GBS. In the past I had found using Google Book Search in Canada next to useless. At the time, what I wanted to see wasn’t available for preview. Across the border it is a completely different story. Those same books are browsable. In the US the service actually makes sense. Yes I know, I can use a proxy but it is a heck of a lot easier to just go to Amazon. The stuff that is locked down at Google is freely available from Amazon. Orginating publishers either don’t know or don’t care that the international preview flag = Y in the feed they send to Seattle.

Chill out everyone. Not being in GBS is a lot worse than being in it. Or at least get as angry at Amazon as you are at Google.

The PW post had some information new to me. There will be integration with their in-store kiosks and the service will be partially ad supported. In the article, Indigo’s CTO Michael Serbinis also says the service is an ‘open platform’. That statement is just plain confusing to me. Open as in non-proprietary? Platform as in software framework? Anyway I am reading the tea leaves too closely. TBD.

As I have said before price, selection, and ‘the filter problem’ are my three big questions with Shortcovers.

If Shortcovers is a service (with no file to download) then they should get their pick of the best books. There is huge pent-up demand for cheap front list out there.

The filter problem is more a function of interface design than anything else. The PW article quotes Serbinis as saying…

“Ultimately, the service is about discovery”… It emphasizes community features, like rating, tagging and sharing, and people can create lists of favorite books and even upload their own writing.

That is great and all but they need to do something really innovative here to differentiate themselves. Seriously — when is the last time you rated a movie in Netflix or IMDB? I am hoping their emphasis on community features translates to actual community. Fingers crossed.

But pricing is the hornet’s nest. I had assumed publishers would demand pricing control and Indigo would have to discount on the side (a la Kindle) but after talking to a couple people familiar with Shortcovers at TOC, I started to wonder if their pricing — based on per chapter purchases — would be too confusing. I wonder if Indigo (not the publishers) is going to screw up the pricing by making it convoluted.

To trully differentiate yourself in the ebook space you need to be easier and cheaper. The per piece pricing model may prove to be neither.

Update 1: The new International version of the Kindle is out and Canada still gets the shaft. I have more speculation as to why in a new post.

Amazon released an upgrade for their Kindle reader last week. Bezos’ brother-in-law designed it. Stephen King was there. He hasn’t had a bestseller in 15 years but still. (I submit a corollary to Godwin’s Law: as any future-of-publishing discussion grows longer, the probability someone from the publishing establishment mentioning Stephen King approaches one.)

But still no news of when Kindle will arrive in Canada. Arghh!

There are problems for sure. We are a small market and the territorial rights for Canada would be a pain (but not a terribly difficult problem to solve).

No. The biggest barrier is likely the whispernet wireless technology that allows Kindle owners to download books over the air. Amazon needs a Canadian mobile carrier to be on board before they can launch.

If you were one of those Canadians that salivated over the iPhone while Rogers and Apple dickered for a year over a carrier agreement, you may be tempted to think similar baroque contract negotiations are holding back Amazon from launching here.

Its more complicated than that.

Bell and Telus are desperate for customers. Witness their massive advertising campaigns this past holiday. Rogers, the only iPhone carrier in Canada, didn’t advertise at all. So I am sure both Bell or Telus would be receptive to any agreement that funneled money their way. But I bet Amazon hasn’t approached either of them yet.

The real problem is a company called Jasper Wireless. Actually the problem is Jasper Wireless’ business model.

If you don’t know, the Kindle uses a evdo modem that works on Sprint’s cell network in the US. Most people think Amazon contracted directly with Sprint. They didn’t. They signed up with one of Sprint’s MVNO‘s — Jasper. Jasper was a new company at the time and I am willing to bet that Amazon’s contract with Jasper is exclusive. For the Kindle to grow, Jasper has to grow. And the MVNO market is dead everywhere but in the US and Jasper’s specialty — machine-to-machine cellular — has yet to explode like I bet they were hoping. Launch with the Kindle then expand to smart vending machines and toasters.

I am speculating that the Kindle won’t come to Canada or the UK until Jasper can find other revenue sources in those countries. If that doesn’t happen quickly then Amazon needs to find other wireless providers that have the specialized know-how that Jasper has. To the best of my knowledge at time of writing, there aren’t any.

If you see a networked toaster at The Bay, buy it. That might get us our ebook fix faster.

As expected revenue was up (hooray!) by 2.3%, but Reisman is quoted as saying, “Our profit was dampened by the steep and unexpected decline in the Canadian dollar during the quarter which impacted the cost of imported goods and a number of our operating costs.”

I translate that as the cost of buying around Canadian vendors to serve the online business made them lose money. Any gift items that would have been imported would have been purchased before the quarter started. They were buying books from Ingram to support Christmas sales and that killed them.

Ingram — not the exchange rate — is their achilles heel. They could fix it if they split off the online business as its own store number then created a second, separate inventory feed for each Canadian supplier. If the Canadian supplier couldn’t fulfill within 6 hours then cancel the order and redirect to Ingram. This seems vitally important but Indigo appears oblivious to the problem. They are adding paperstock metadata to the ONiX feed instead. Come on guys. Get it together for everybody’s sake.

Shortcovers also gets a mention. The relationship between that project and the mothership is a curiosity. I thought it was being treated as its own company. Maybe not though.

With Amazon concentrating on its own formats and with a new Kindle on the way in February, I am actually feeling bullish about shortcovers even though they will struggle to get attention once Amazon kickstarts the Kindle2 press machine.

One of the things I am wondering about is whether consumers will be able to read shortcovers content offline. My sense is not. Personally I want to own content I pay for. I don’t want it to live exclusively on Indigo’s servers, but going with a cloud-solution would bypass all this nonsense with competing formats. That could be a smart move at the end of the day — provided the pricing is reasonable.

related|Amazon Forces POD-Publishers to Use Amazon Fufillment [PW]

Consider the Espresso Book Machine. The second machine of its kind in Canada (and the ninth in the world) is now at McMaster University in Hamilton. Since installation, the university bookstore has been offering students a choice on select titles. The ebook is given away. The printed edition is done on the Espresso and sold at a small markup. Guess what? The free option, paired with a reasonably priced printed edition, means the bookstore moves more volume. Everybody gets paid. Students would otherwise have stayed away.

Given this information you would think textbook publishers would play along. Instead they see their volume decline year-over-year and then raise the cover price of the next edition. If they tried free, they could at least stave off digital darwinism.

It is for those reasons that I think it is their fault for not being able to make the business work. Then on second thought, maybe servicing Canada isn’t profitable for anybody. Indigo.ca and Amazon.ca are racing each other to the bottom — Indigo will get there first. Sears.ca has legacy infrastructure from their catalog business. HBC.com is a joke. Walmart.ca offers shopping lists without fulfillment. Roots‘ footprint is tiny. The only two retailers that run viable operations are Costco.ca and BestBuy.ca/FutureShop.ca.

I wonder if the CanadianTire closure is the beginning of a trend. I wouldn’t be surprised to see others follow. Seems shortsighted but these are troubled times…

photo by 416style

Indigo Books is celebrating the inauguration with a nice all-Obama boutique on their webstore. The coverflow on the in-store kiosk version looks a lot better. Here’s to hoping books about the economy and books about Obama push non-fiction readers into stores.