Thursday, April 16, 2009

Where's the Friction?

We have been asked for a copy of Peter Jovanovich's speech at our Seminar. Since this was impromptu the best (and this is very good) is Gayle Feldman's article that appeared in The Bookseller in the UK. We are reprinting and we thank Gayle Feldman and the Bookseller for their permission.

U.S. Publishing: Where's the Friction?

Former Pearson Education head Peter Jovanovich urges publishers to find where readers and authors cannot connect: the market in the gap. Gayle Feldman explains...

"During a recession, we often misdiagnose our disease," was one of the blunt home-truths Peter Jovanovich, a former chief executive of Pearson Education, imparted to a high-powered invited publishing audience at the annual conclave sponsered by intellectual property laywers Cowan, Liebowitz and Latman in New York.

The talk, on crisis management in publishing, given the crises Jovanovich himself managed at three major houses, and the fact that, since health problems forced his retirement in 2005, he is that rare specimen: somebody with profound inside knowledge who can speak objectively, with no corporate strings attached.

Jovanovich grew up in the business while his legendary father William built Harcourt Brace into HBJ. He remembered how his father "was always on the lookout for a downturn," recalling "the weekend meetings in the summer when men in suits would come to talk about cutting expenses, laying off people, and hunkering down for a tough time."

Jovanovich is also the rare publishing son who went on to earn his own colors as an executive. He ran HBJ after his father and the company were weakened by the battle to ard off Robert Maxwell: then he ran McGraw-Hill's educational and professional group; and finally he created Pearson Education as we know it, acquiring the businesses of S&S and merging them into Addison Wesley Longman.

He recalled sitting down with three schools publishers in March last year, sensing that "the business was going south. I said that they had four months to figure out how many people to let go. 'Get ready to do it in the summer, before the national sales meetings.' I told them. I guessed that there would be a three-year recession at least. Two of the publishers looked at me as if I were mad."

"Six months later, Houghton Mifflin Harcourt, McGraw-Hill and Pearson all did layoffs, but it was in the fall, not the summer." Jovanovich drove home the point that "this publishing recession began a year ago, and all publishing recessions go faster, deeper, and longer than you think." So the first lesson is, "don't lie to yourself. It may be worse than you think."

The second lesson is to be "Anglo-Saxon" rather than "Latinate". In other words, "find the author, make the book and sell it," while eschewing such cash devouring "Latinate activities" as strategic research and new business development.

"Do what you have to do to keep the best editors, sales people, designers," Jovanovich urged. His father used to say, "90% of publishing is the decision which book to publish".

If you're not going to support the best people, you'll lose them, "and not have that talent to create great new products". Publishers make the mistake of freezing everything across the board at their peril.

The third lesson was to pay attention to cash flow - "operating cash flow is what counts. Let's imagine that Borders went under tomorrow and that you have to run your business without Borders' cash flow. I think thats the reality."

Also remember that a recession "can mask corporate disease".

The fundamental question publishers must ask themselves, according to Jovanovich is, "Are you needed?". "In college publishing, absolutely (publishers are needed), even in an electronic world. The only risk is greed. Greedy publishers will train their customers to steal from them because of price". he said.

"On the other hand, look at parts of trade publishing and ask, 'Are you needed'. If there are only two customers, Amazon and Barnes & Noble, how big a sales force do you need? And if there is an explosion of self-publishing, a lot of the trade is not needed."

"The larger publishers are at greater risk," Jovanovich warned. "The smaller and medium sized companies know how to gravitate to where they are needed. The big trade publisher has become a kind of factor, in the garment business sense of the word. John Grisham can't wait for his money from Borders so the publisher gives it to him."

How, then, should we look at the future? Jovanovich advised asking a corrolary question: "Where's the friction? Where is it that the reader and the author can't connect because things in the middle need to be done?"

The electronic age has "destroyed" the encyclopedia and monograph businesses, having made them "frictionless", he said.

The best publishers, Jovanovich predicted, "will gravitate to areas of friction... Look at the consequences of the search engines and move to the areas that require capital investment that means you're needed."

He concluded: "The future is friction."