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Category: Publishing

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Why Publishers Need Startups

There’s been a lot of commentary recently on the proper relationship between publishing startups and publishers.


No doubt, you know the names of many of the startups: Scribd, Oyster, Inkling. There are more and more every day, especially in the category that’s one keynote speech away from being over-hyped – ”Netflix for ebooks”.


In contrast, it’s getting lonelier for publishers, especially at the top. The merger between Penguin and Random House (PRH) this year left just four other major publishers: HarperCollins, Macmillan, Hachette, and Simon & Schuster, collectively called the Big Five. Industry insiders are so sure that the PRH merger is the beginning of a trend, they’re practically taking bets on who’ll be next. With the consolidation of so much content into such a small group, startups working in the book industry inevitably have to cater to at least a few of the Big Five.


For their part, the Big Five seem happy to talk. Publishing conferences these days are filled with exciting stories of promising meetings between a publisher’s top brass and a string of plucky young startups. If the meetings go very well, big publishers may even invest in the startup through a corporate venture arm. Superficially, there’s a lot of waxing lyrical, but underneath it all, money really is changing hands. It looks like publishers are starting to get behind innovation.


And this is where the debate begins. Publishing veteran, Mike Shatzkin, argues that big publishers don’t need startups, because they don’t really need innovation. Moreover, he says that publishers’ support of startups is much more about keeping one eye open than actual innovation. Amazon taught publishers that startups can seriously disrupt their industry, so they know it’s wise to stay informed about any changes on the horizon. When it comes to working with startups to actually bring about change, Shatzkin says big publishers have no incentive. The best example is Scribd’s new ebook subscription service:


HarperCollins has thrown itself in with Scribd and none of the other major publishers have. If Scribd makes this work, they’re not going to tell Simon & Schuster, “you’re not going to get to come in now because you didn’t at the beginning.” So, big publishers know that they don’t need to move now.


For publishers with so much influence over the industry, there’s simply no reason to change the status quo. And even if change comes, the Big Five are each large enough to wait and adapt at their own pace. So, Shatzkin says, startups need publishers, but publishers don’t need startups.


However, as Twitter quickly showed, people didn’t find that argument convincing.


The status quo is shifting, and it’s shifting towards a company which is largely ambivalent about publishers’ profits – Amazon. If there’s one thing publishers are certain of, it’s that Amazon is eating more and more of their lunch, through extreme discounts, used book sales, and self-publishing. A conservative approach from the Big Five certainly isn’t going to change that.


Unfortunately, as Andrew Rhomberg points out, none of the publishers have a strong strategy for dealing with Amazon’s growing influence and each wishes the others would spend the money and time to handle it. It looks like a prisoner’s dilemma.


This is where startups come in. If the only way to compete with Amazon is to innovate quickly, and the big publishers don’t have the time, money, or skillset to do that, they need to partner with a startup which can. It’s their best hope to make themselves competitive in an unavoidably malleable market. The race is on, and resting now only means they’ll have to run faster later.


While it may be true that most or all of the Big Five can afford to wait and adapt to change as it comes, they’d have a much bigger advantage if they were able to shape that change from the inside. Rather than being forced to accept whatever market reality a new startup (or more likely Amazon) brings about, publishers would be able to direct the path of new innovation.


Look again at the story of HarperCollins and Scribd. The fact that HarperCollins was the only major publisher to give Scribd access to so much content shows they know the advantage of being “inside the club” at the beginning. Of course, if ebook subscriptions are shown to be a profitable business, the other publishers can sign up later, but they’ll have much less input into how the system works. HarperCollins knows the only company capable of making ebook subscriptions work without the backing of any of the Big Five is Amazon, so actively supporting a competing startup is a smart move.


It’s this kind of situation which ensures publishers do need startups. Publishers may not be inclined to innovate when left to their own devices, but with Amazon lurking behind them, they need something to move them forward – fast.