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Thanks everyone for having me up here

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I used to come to Toronto to do presentations of individual book titles

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at the sales conference for Publishers Group Canada.

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It's sort of funny to be here talking about books in a much more abstract way

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and I look forward to also being able to present titles to PGC sales conference again in the future.

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An odd little personal anecdote: I suffer from a very very benign heart condition

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that causes my heart to beat at 120 beats a minute while at rest

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and I control it with beta-blockers, and I forgot to bring the beta-blockers.

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So I'm going to be doing this presentation in a biological state akin to permanent stage fright

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so bear with me if the adrenaline becomes too much.

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For the recorded history of publishing, risk was about what books you acquired,

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it was a supply-side issue: What product will we supply?

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And that contained two questions, effectively:

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What titles? and how much do we pay for them?

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And Bob alluded to the "How much we pay for them?" problem

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but I'd like to delve a tiny bit deeper for a second into understanding

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the true pathology of unearned advances.

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Because it was discovered in the early 1970s

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that, when you're engaged in a competitive auction,

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for something the long-term value of which is not clear

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the winner always overpays. Not sometimes, but always.

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It was three oil economists trying to figure out why they were always overpaying for drilling rights.

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And they did exhaustive studies and comprehensive game theory analysis,

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and, in fact, the rest of the world has figured this out.

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When they were auctioning the wireless spectrum for 3G, back in the early '00s,

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several countries structured their auctions so that the second bidder won,

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because the assumption was the first bidder was going to so overpay

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they would not have enough money left to build all the towers and infrastructure required to execute on 3G.

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So this isn't just an accident of a couple of individual editors going slightly off the reservation

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or sort of a little bit of a bad habit, it is a profound pathology in the industry that we are taking

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our working capital out of what we do and handing it to authors,

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and it is part of the deep structure of how we've been operating.

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Even if we were to solve that particular miracle, however,

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of transforming our capacity to not overpay,

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the question with supply still becomes: Well, what do we publish?

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And a fascinating thing of what's happened over the last hundred years

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is that in a certain sense the supply... it doesn't matter anymore, because the supply

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of content is going infinite.

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The 20th century has been a history of supply of long-form narrative content increasing.

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It began...-and it's a beautiful thing-, it began with reductions in the overall degree of racism,

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and sexism in our society.

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The so-called "Golden Era" of publishing in the 1950s consisted of white men in tweed jackets

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publishing each other.

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It was a golden age for them, it wasn't a golden age for the rest of society,

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who were suffering from bigotry, and racism, and sexism all along.

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So, as our societies let the other 60 to 70% start writing, start getting educated,

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get access to tertiary education, access to the social, intellectual, creative capital

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required to just be able to write, and discover an agent, and discover a publisher,

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that was really the first moment revolutionizing over the supply chain of publishing.

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And the second moment is a digital moment that has nothing to do with the Internet,

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and is something that enabled a lot of the people here in this room to be publishers,

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which is good old Adobe Pagemaker.

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The "desktop publishing revolution", as it was once called,

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the Xerox, the Kinkos -you don't have Kinkos in Canada but... oh, you do? Ok-

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Softskull Press started in a Kinkos in 1993, with two people who were employees

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working the graveyard shift

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laying out their book on Pagemaker, chopping it, chopping it, tape-binding it,

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and, over the course of about 8 weeks, they had 400 tapebound paperbacks to publish,

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and that the first Softskull book.

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So the explosion that we've seen in the number of titles published in the United States,

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depending on how you estimate it, about 25000 in 1990, and half a million in 2008,

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is not at all even a function of the Internet,

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because those were all print books. It is a function of goold old desktop publishing.

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So we've barely even begun to see the effect of marginal cost of reproduction of digital narratives

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and the fact that it goes to zero. We've not even begun to see the effects of that.

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Everything we're contending with right now is a function of Kinkos,

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and the aftermath of the Kinkos revolution.

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The quote that you see behind me

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is taken from an article in Wired magazine from about two years ago

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it was an article about the Netflix prize.

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Netflix -is there Netflix in Canada? I should have checked out. No, ok.-

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So Netflix is basically a DVD rental service where you sign up and

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you pick 3 DVDs, they mail them to you,

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you mail back the DVD when you've watched it and it sort of cicles through like that.

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It's a monthly membership.

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And they've a very complicated algorithm that they use to try to tell people

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well, the people who watched this movie rated these other movies 4 stars,

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and since you rated this movie 4 stars and they did, then, these other movies you might also like.

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It's "people who bought ... algo bought ..." in a more sophisticated level.

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And they wanted to improve the algorithm by 10%.

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And they announced a million dollar prize

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for the person or persons who could pull this off.

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It took about three years, and they got about 85% of the way there fairly quickly,

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so they'd 1.5% left, and they looked at what was the other part of the 1.5,

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the data points that were the components of what they weren't able to figure out

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and it was basically Wes Anderson movies.

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How would you characterize a Wes Anderson movie?

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It's not very plot-driven, it's driven by voice and by character.

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So, what's the contemporary novel

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other than a not particularly plot-driven thing, driven by voice and character?

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So basically novels break algorithms.

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And when this guy who wrote the article interviewed one of the mathematicians

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-he was actually an organizational psychologist-

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he made a comment about media, and it was this comment here:

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"The 21st century is going to be about sorting demand..."

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because the supply side... the game is over, in a certain sense.

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The genie is out of the bottle. We're going to keep at least doubling,

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if not tripling or quadrupling the number of books published

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in the English language on this planet every year.

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And even in everyone here in this room said: "We won't be a part of it, we won't do it," everybody else will.

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So this is happening. So how do we respond?

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How do we manage risk now that we cannot manage it by controlling supply?

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It's going to be demand, obviously.

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What can we do, therefore, to manage demand?

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One of the main things we did in the United States over the last decade was pray for Oprah.

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She doesn't have the same effect here, I know,

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but there's Canada Reads, right?

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I saw a woman on the plane yesterday reading Lawrence Hill with a Canada Reads sticker on it.

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Oprah's genius, though... -we used to think of her as the patron saint of publishing in a certain sense-

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but I want to propose what I think is a relatively radical notion about Oprah,

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which is that she needed books more than books needed her.

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Because Oprah was in the broadcast business.

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And the broadcast business is not really a very good business to be in.

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It's one-way communication.

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And Oprah had an hour a day, at most, with her audience,

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and it was a one-way conversation.

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So how does she own her audience all their waking hours seven days a week?

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How does she get into their heads?

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How does she get mindshare?

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She starts a book club.

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Books are cultural objects that take fifteen hours to read,

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fifteen hours of another person's voice inside your head,

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and so the commonality between two people who've read the same book

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is a profound and deep intervention.

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The genius of Oprah was to use the book as the platform to own her audience.

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So if we actually get to be in the book business

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the book business where you are inside a person's head for fifteen hours

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and you own that proxy object, that cultural proxy object,

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that connects two people to one another in a deeper deeper way than any other media

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then you've got something going for you,

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you've got something really really deep going for you.

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About two years ago I had lunch with a guy called Michael Cader,

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who runs a newsletter called Publishers Lunch in the US,

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and he said to me at one point, our business, our industry...

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(you'll see the slides go a little faster than I go,

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consider that they took their beta-blockers and I didn't)

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Michael said to me: we're a tiny industry perched atop a massive hobby.

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And so I submit to you in that sense that what Bob alluded to in the Q&A earlier

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the person who's going to self-publish their memoir on a Espresso machine in a bookstore

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that's the bottom, that's the massive pyramid, that's the industry

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if we only stick to the little triangle on top, and functioning as gatekeepers,

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deciding which of the hobby bit stuff reaches the little triangle on top,

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then we're going to be stuck in managing the supply side,

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whereas if we can engage with the entire pyramid,

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with the whole hobby, then we're in the business of managing demand

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which is a somewhat sexier area to be in.

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As I moved into my post-Softskull life, a year ago, when I resigned from Softskull

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a number of writers would come to me and say:

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How do I get published?

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They felt more comfortable asking me now that I didn't have any direct influence

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in whether they would get published.

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And I told them the things I think a lot of editors here,

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when they're on pannels, talking to would-be writers say

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and agents would also say

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which is: "You should submit your stuff to literary journals,

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check out your favorite author's blog, comment on it

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go to reading series, apply to reading series,

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go to writers retreats, participate in your community."

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I explained that has the opportunity to increase serendipity.

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An agent might discover you, an editor might discover you.

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But I realized over the last year, as I was telling them this,

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that that wasn't really the reason they should do it.

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The reason they should do it is that it would make them happy.

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Because I saw what happened when I published writers in the conventional way in which we do.

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We edit, design, print, ship, shelve their books.

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The moment they're shelved, the post-partum depression kicks in.

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They're not happy being published, in the sense of the publishing supply chain.

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They want to connect.

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And that is in a certain sense the massive sidetrack that we've gone on in the publishing industry

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where we've allowed ourselves to believe that being published is the thing, is the end,

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and it is a means to an end.

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The end being happiness, the end being connection.

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We're in the writer-reader connection business,

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and the fact that we build this elaborate supply chain to effectuate that

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does not mean that we have to remain prisoners of that supply chain

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if it is not effectively connecting writers and readers,

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or, to frame it more possitively, only to the extent that it enables us

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to best connect writer and reader should we be using the supply chain that we have constructed.

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The slide that I just put up is something I'm sharing with you,

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I'm in the middle of launching a startup called Cursor

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and, when you do startups in this day and age, you do a lot of slides,

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you do a deck, they call it.

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A guy called Guy Kawasaki says "ten slides". This is one of the ten slides.

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No one's seen this yet, other than a couple of venture capitalists, and my co-founder.

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But it is a way to try to describe the economic logic of what I'm saying to you.

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In interesting ways it reflects something that Bob already alluded to.

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Basically, it's a demand curve,

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and it basically says that a demand for a given writer,

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one person will pay ten grand, or a thousand grand, to have them wash a toilet,

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to connect with a writer or artist in some personal way,

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and then there's maybe ten thousand people who will pay a buck to connect with that writer

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let's say, with a digital download.

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And the demand curve basically is everything in between.

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And we in the publishing business, because we got so addicted to our supply chain,

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have only ever captured the value

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under that demand curve that lies between 10 and $30,

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and we've let everything else on the table,

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we have no products under $10, and we have no products above $30,

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so whether there might be people willing to pay $1000 to connect to our writer,

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we haven't figured out a way to get those other $970 from them

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and we refuse to supply them with stuff for a dollar,

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in the belief that all these products are completely interchangeable,

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whereas pretty much humans beings have shown in every area

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from fashion and cosmetics to furniture

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that we don't actually consider these things interchangeable at all.

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That we buy paperbacks because we buy paperbacks,

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and we buy digital objects because we buy digital objects

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and we go to dinner parties with Paul Auster because we want to go to a dinner party with Paul Auster

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and a digital download is not a substitute for the $250 Pen Awards gala ceremony with Paul Auster.

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So the only way we are going to be able to effectively get out from under the supply chain we've created

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is discover all the other value that exists under the demand curve,

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that is there either being fed in a half-assed way by MFA programs

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or for-profit writing centers, or bittorrent.

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But it's going to get supplied by somebody

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and, for our sakes, it better be publishers,

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if you're interested in finding out more about this particular endeavor,

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this Cursor endeavor, you can go to ThinkCursor.com

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and just stick in your email address.

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This here takes a lot of work to do in PowerPoint.

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And it's there because I believe that our industry has to face the same thing

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that we ask our authors to face,

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they have to face the blank page with the blinking cursor

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and we need to do that too.

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Thank you very much.

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I'm happy to answer less abstract questions than the much more 30000-feet-style-thing that I just did.

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All those questions that you asked Bob, I was like, I have to ask me something like that

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I could just start answering some questions.

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I will throw out one thought, in relation to enhanced books.

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I lean towards the "enhanced digital books are the CD-ROMs"

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there's absolutely no evidence that there's any demand for them

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if there were, people have been making pictures out of words for a very very very long time

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yet we still read long-form text-only narrative.

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The absence of audio and video in text-only long-form narrative is a feature not a bug,

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and thus far it's been treated as a bug by people who have basically hammers

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and if that's the only tool you have, then you see an enhanced ebook,

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which is not to say that there isn't a role for video and audio in relation to text,

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but that's called a website.

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Creating something that downloads is going to be kind of pointless

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in a universe of 4 and 5G and Wi-Max

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already there's 4G in Stockholm that works 60 feet below... in tunnels 60 feet under the ground

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So we're going to be in a universe of completely pervasive always-on connectivity

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where text and image and sound will work together in a device,

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so the notion that we have to bundle it together into a downloadable file seems...

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Bob says it's only ($)10000, but only 10000 is only 10000 if your marketplace is the United States

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10000 is not an "only" number for a Canadian independent publisher.

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So my little advice there is don't waste money on elaborate video in relation to text,

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just make a website.

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Are there non-imaginary questions? Shawn, thank you

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[Q: Can you talk about Print-On-Demand, Publishing 3.0,

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and the opportunity to explore under-served, unknown markets through digital?]

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My belief is that if you're in the demand management business

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then you've got to own the community.

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There's just no other way around it

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the price of digital content is going to zero

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it has already in music

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you can get any song you want for free

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and at a certain point you'll be able to get any text you want for free

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it's just not going to not happen

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and it's delusional to think it's not going to happen simply because it hasn't happened yet

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the only extent to which it has not happened is frankly lack of demand

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as Bob pointed out, 2000 pirated whatevers is a good sign, it means somebody wants the damn thing

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most of our problem in the publishing industry it's been people don't want the things that we create

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So the price of digital content is going to zero, so how the hell do you make money?

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Well, you make money by owning the community.

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How are you going to make money under that demand curve?

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You've got to own the community. You've got to know who's going to pay the ten grand to take a workshop

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a personal tutorial with Miriam Toews,

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People are already doing this. The British publisher Faber has launched something called "Faber Academy"

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which is basically Faber writers teaching writing workshops.

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Miriam Toews is going to be the first writer doing that in Canada.

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That works, Faber is a brand, people think: "'Faber Academy', I want to write like a Faber author"

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therefore there they go.

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So it's by really establishing mindshare over your audience,

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either at the level of the author, which would be the case of blockbuster publishing,

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with the Gary Vaynerchuks and up, where he's got mindshare of his audience.

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Or if you're not in that business, if you're not in the blockbuster business,

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everything below that, everything midlist and below,

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you're going to have to basically circle everybody together,

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and cluster everybody together, so that you can really get to learn who the hell is reading these books.

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The role of POD [Print-On-Demand] in that? It's a tool

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It's certainly a tool for reducing your working capital outlay,

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to the extent that you're still participating in the supply chain

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and it's also a tool... You could say a 25-copy artisanally-made limited edition

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that you've printed the 25 copies of because you've already got 25 credit card numbers

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and you're going to charge them 250 bucks

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because the author is going to put his bloody thumbprint on the title page

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is a kind of Print-On-Demand.

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I know almost everybody in this room has to think very concretely about what do you do tonight,

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what do you do tomorrow to address some of these things?

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But I also urge you to be able to step back and think about the business you're in,

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so that you can make choices about which of these tools to use

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because otherwise you're just throwing a bunch of tools against the wall and seeing what sticks

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and that's not going to work any better than throwing all the books against the wall to see what sticks.

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So Print-On-Demand can mean two very different things to very different publishers.

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The trick is: who am I selling the book to?

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Who am I connecting this writer I represent with?

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[Q: Do you consider this a marketing or a publishing strategy?]

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It's a complete business strategy.

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It is the business you're in.

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It always used to bug me when people announced they had open online marketing departments

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because I was wondering what the offline marketing department was doing.

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It couldn't be anything terribly useful,

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if it was going to be separated from how people spend half their lives.

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Most of their reading life, our text-processing life.

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I think you have to think about it in profoundly integrated ways.

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In other words, your act of publishing is an act of marketing.

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My business is perceived -to some degree by outsiders- as a digital-only business, let's say, this Cursor model

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and it takes a while to point out to people why I'm being distributed by Publishers Group West

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and Publishers Group Canada

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These communities are going to produce books that are going to go through the supply chain

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why am I doing that? I'm not doing that to make money.

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One of the ways in which I tested my business plan was

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I took all the non-publishing-supply-chain revenues out of it, and costs out of it

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and I discovered I had in the business plan operating margins of 3%,

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so I'm like, ok, this model clearly works, because we know that's true.

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I'm doing it because 500 heavily-trafficked-by-book-reading-people bricks-and-mortar retail locations

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around the country, where I can put a 6 by 9 inch ad about the book and the community for free

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is not something I intend to give up very likely.

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Publishing is a marketing strategy for an owner of a community.

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Publishing is a marketing strategy for the Daily Beast,

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this website that Tina Brown has set up in the United States.

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She's going to do publishing. She's not going to make money publishing,

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but she's going to build brand equity for the Daily Beast publishing.

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A lot of people who own communities, knitting, fly-fishing,

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paranormal romance, whatever the community is,

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they're going to start publishing, because that's a way for them to build brand equity,

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and for them publishing is marketing,

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That's the kind of conceptual challenge that we face.

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You're not going to face it tomorrow, or the day after, but that is the challenge we face,

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and I know this sounds very abstract, but when we think of this topic,

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this "Calculated Risk", effectively what we are saying is that

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it is too risky not to completely reconceive our business.

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That's where the risk lies, it's in remaining siloed,

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remaining in the manufacturing business.

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We are in an intellectual property business where almost our entire cost basis is based in manufacturing.

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if you look at the markup on shoes, farmaceuticals, anything,

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the markup that everybody else gets to put over the manufacturing bit of the business

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is so much greater than what we do in publishing

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and we are in the pure intellectual property business.

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When I say content isn't king, culture is, that's what I'm trying to get at,

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that the container, the cultural artifact, the object itself, isn't what we are doing

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it's the connection between people that that object enables,

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whether that person is a writer or a reader, or a reader and a reader, or a writer and a writer.

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[Q: Does asking writers to start selling something other than their writing

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undermine our commodity (writing as culture)?]

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Pulped-wood bound in cardboard isn't culture, the words in it are the culture.

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It's no more cultural than a t-shirt.

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I'm not suggesting the we abandon it,

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but I've been chatting with a number of writers...

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I mean, I get what you are trying to get at,

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are we distracting writers from the pure process of creativity

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and turning them into product shells?, the cruder way of summarizing that.

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And I have two observations about that

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one is that there is no writer happier than the writer who is not writing.

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Beckett, the greatest sort of allegedly antisocial curmudgeon of all time,

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wrote plays and TV scenarios and radio stuff so that he could get out of the house.

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Writers actually want to connect, they don't like spending three years stuck in the attic,

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they like getting out, they like connecting,

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they may be erratic about doing it or may be scared because they're not used to it

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but engaging with the readers is what writers want,

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so we're not forcing them to do something that is absolutely alien to them

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and it is also the case that, prior to Gutenberg,

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culture thrived, poets were allowed to run around and sing for their supper,

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and that worked reasonably well,

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so assuming that the physical book is the only conceivable incarnation

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for the writer-reader connection is, I think, a mistake.

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They want to connect.

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I'm... Time. Thank you very much.