In the United States, fanfiction is technically illegal, but generally allowed as long as there’s no money changing hands and no claims to copyright.

Elsewhere in the world, however, fanfiction is so common that it’s often actually published and sold. In Japan, for example, amateur fans often get together to produce “dojinshi” books that are essentially fanfiction comics featuring popular characters in continuing adventures or alternate realities. One would expect this sort of thing in neighboring Asian nations that have less restrictive copyright laws (piracy and knockoffs often go hand in hand!), and not in a large consumer nation where intellectual property is big business.

But the Japanese have a very different attitude towards derivative works than people in the United States. The Japanese copyright laws are extremely rigid, but there is something of a gray area where fanfiction is concerned, since fanfiction is seen as something that helps to increase sales of official merchandise rather than take money away from the copyright holder. As long as the copyright holder doesn’t enforce the copyright, the creation and sale of fanfiction is assumed to be permitted. “Dojinshi” communities are even celebrated in certain circles, since they’ve essentially given birth to popular studios such as CLAMP and Gainax. (You can read an interesting interview with a Gainax member here that discusses this further.)

What’s impressive about a lot of the Japanese fanfiction is that it’s created by amateurs, but printed in small professional quality runs and sold in markets. Much of it is of a fairly low quality, but some of it is indistinguishable from the official products. Some of it is even arguably better. And that poses a new problem in the digital era, because while in the old days, one had to buy a physical copy of a fanfic in order to enjoy it (thus keeping the number of eyeballs seeing it rather low), the Internet allows even the crummiest fanfiction story to be viewed by millions of people from around the world.

And that leads me to wonder… now that the Internet has given fanfiction an ability to grow around all of the thorny legal issues surrounding it, is it possible we’ll see a brand new style of “do-it-yourself publishing” in the near future? It could happen sooner than you might think… and it could have major implications for the rest of the world of publishing.

I remember being at a comic book convention a few years ago where a couple of guys were selling a rather slickly produced video involving two popular comic book characters getting into a huge battle with each other. For something produced by a group of fans, it was pretty impressive — the actors fit the roles well and the special effects were quite good. The only problem was that the work was produced without the license or approval of Marvel Comics, the company that held the copyrights and trademarks associated with both characters… and the booth was promptly shut down as a result.

But as the owner of the booth argued with some convention organizers who were telling them to pack their things, he made an interesting point. “Look around, and you see artists all over the place doing sketches of these characters,” he said. “And they’re selling them. Some of them are even selling sculptures. Why aren’t they getting thrown out of here too?”

The answer, of course, is that comic book publishers allow artists to draw and sell sketches of popular characters despite the fact that the practice infringes on copyright because the works are original single-item productions that aren’t affecting sales. As far as the publishers are concerned, it’s “small potatoes” — nobody’s getting rich doing character sketches, and the publishers can’t be bothered to put a stop to it anyhow. It’s only when artists mass-produce work that appears to be infringing on copyright or trademark that the publishers get upset and take action.

That’s good and well in a small place like a comic book convention, but what about the Internet? Isn’t it possible for an creator to mass-produce a derivative work and put it up for sale without the publisher knowing about it? Of course it is. As long as the creator can stay off the radar of the publisher, he or she can easily continue the operation. Books can be easily printed and sold through a print-on-demand service and directly marketed to potential readers… which means that fanfiction can actually become profitable to its creators if care is taken not to tip off the original copyright holder.

Consider this. Right now, Harry Potter fanfiction is extremely popular. It’s entirely possible that some of the more popular Harry Potter fanfic authors could be producing their work in book form and selling it to fans directly, appeasing those who would like to build their Harry Potter collection with professionally-printed books. These authors could even argue that since the fanfiction can already be personally printed by fans that there’s no harm in producing books to save them the trouble. The issue of profit could be negated by talking about the costs associated with printing and production. The entire concept of intellectual property and copyright infringement could be legally sidestepped with a clever enough argument… and it probably will be one of these days.

What publishers need to realize is that there are certain groups of fans out there who want fanfiction, and who will always embrace it, no matter how awful it is. Rather than crank out crummy “official” pseudo-sequels and other publisher-sponsored derivative works, publishers might be smart to jump on the fanfic bandwagon and give fanfic authors the chance to legally sell their work in printed form… a win-win for everyone involved.

The trick, of course, is that the volume has to be there to accomodate print runs. Publishers aren’t going to want to sell books if they can’t print at a profitable rate. Print-on-Demand might be the ace in the hole, though, since it doesn’t require expensive runs or storing unsold copies. Publishers could simply authorize a fanfic compilation two or three times a year, pay the authors nothing (giving them exposure in exchange for the right to have their work published), and sit back and watch the money roll in.

Could this be a viable future business practice for publishers? The only issue in the way is copyright. Publishers generally don’t own the intellectual properties they produce. Authors do. And since many authors are fiercely protective of their own work, it might be hard to talk them into opening up the fanfic floodgates.

I, for one, would be very interested to see a publisher give this idea a whirl. It could be a disaster. But I have a feeling that if it were successful, it could become a normal practice in the world of entertainment media… and a profitable one at that!

Sadly, this happens a lot in the business world. Managers find themselves in the unenviable role of having to appease stock owners, and they focus on the mantra of, “maximize profits, minimize costs.” This has led to a lot of bad decision-making, and it’s also led to a lot of good companies taking a plunge once they reach a point of maturity where they can no longer sustain rapid growth.

What I find most interesting, however, are companies that are able to look at old industries and find new ways to compete in them. I’m going to give three examples today of companies that have done a great job of thriving in mature markets by redefinig the way they do business. I’m also going to discuss some of the ways that an enterprising young publisher might redefine the publishing industry.

But let’s start with an example from another industry first: Build-A-Bear Workshop.

I doubt I need to explain to anyone that the stuffed animal market is extremely saturated; they’re a common gift item, especially for families with newborns, and they’re popular toys for children under the age of 10. Teddy bears are probably the most prevalent stuffed animal, and they range in quality from the well-made Gund and Vermont Teddy Bear brands to the inexpensive private-label bears one can find in a toy store or gift shop. There are also collectible bears, like the Ty Beanie Babies, and there are the specialty bears that one might find in a zoo gift shop. Bears are mass produced using a “push” model of distribution — there’s little motivation to get the end customer involved in the process.

And yet these bears are often quite personal items to their owners, generally because they’re given as gifts, or purchased in memory of a special day, or owned and loved since childhood. My wife has a bear named “Franklin” she got from a Hallmark store a few years back that she often clutches while she sleeps. He’s more than just a stuffed toy; he’s a personal item, a signifier of security to her.

That’s why Build-A-Bear Workshop is such a neat idea. Founder Maxine Clark opened the first store in the St. Louis Galleria in 1997 with a vision of making the process of buying a bear a personal experience. (There’s some controversy involving the fact that she probably stole the idea from a previously existing chain, but we’ll ignore that for now.) She reasoned that the bears couldn’t be that difficult to make on site, and that it would be easy to do. Customers simply had to choose a skin, add stuffing and a “heart,” and stitch their bears up. The store would announce that the bear was “born,” and the customer could walk away with a brand new bear, complete with a cardboard house, and a fun memory that gave them a personal connection to the item. Customers could even come back to purchase clothes and accessories for their bears, and to make additional animals.

What’s interesting about this process is that Build-A-Bear is focused not on the product, but the customer experience. It wouldn’t take much for Build-A-Bear to stitch up the bears and sell them as completed items, but if they did, they’d just be another bear store. It’s the personal connection that makes the product special to the buyer, and it’s the personal attention that sales associates give that make people want to come back for future purchases. Maxine Clark looked at a mature industry, thought outside the box, and figured out a way to develop a major retail chain by simply changing the design process.

The second company I’ll cite is a company that arose out of a desire to create a new kind of ice cream. When they launched their product in 1988, they touted it as the “ice cream of the future.” 20 years later, the future is here, and the successful company goes by the name Dippin’ Dots.

I became interested in this company just a few weeks ago when I picked up some part-time work at Busch Stadium in St. Louis and found myself working at a Dippin’ Dots stand. I’d had the product before, but never thought much of it; it seemed fairly overpriced, to me, and I’m not much of a fan of ice cream since my stomach seems to have issues with large amounts of lactose. And yet every time I visit a mall, a theme park, a stadium, or airport, I see Dippin’ Dots. People really seem to enjoy the novelty of the product (especially since it isn’t sold in stores), and I must admit that it’s a very unique way to present an age-old product.

Dippin’ Dots were invented by a man named Cut Jones in the late 80s, who used a flash-freezing process involving liquid nitrogen to create little dots of ice cream that were capable of delivering a high-quality taste with a unique tingling sensation on the tongue as they melted in a person’s mouth. The dots weren’t something that could be sold in grocery stores, since they needed to be stored at -20°F or below. But they were something that could be sold as a novelty item at malls, theme parks and other high-traffic areas. The company used a franchise strategy to rapidly expand, and even today, Dippin’ Dots are a popular item to splurge on.

What interests me about the product is that it seems, to me, to be of a fairly ordinary quality that is inferior to frozen custard, superpremium brands (Haagen-Dazs, Edy’s, Ben & Jerry’s), or even soft-serve restaurants like Dairy Queen. The portions also seem to be on the small side, while the prices are very high. If I wanted ice cream, Dippin’ Dots would not be one of my top choices. And yet the brand has significant power in the minds of consumers, and though the beads of ice cream are somewhat of a novelty item, they are quite popular. In fact, the company’s website claims that Dippin’ Dots stands outsell other ice cream stands by 2:1. That’s amazing.

Once again, here’s a product that is successful not because it’s brand new, but because it’s well marketed. Let Dippin’ Dots melt, and you’ll have ordinary ice cream. But give that ice cream a fresh look, a clever name, and a tagline that promises that this is the “Ice Cream of the Future” and you’ve got a brand new way of serving an established product.

The third company I’ll cite as an example is a store I’ve never actually stepped foot inside: Club Libby Lu.

I don’t have any children, but I frequently do writing programs (and have been a part of an after-school science program) with grade school children. And over the last few years, I’ve noticed that all of the young girls are talking about Libby Lu. It’s their favorite store in the mall by far. Some of them even have birthday parties there. Having walked by the store in the mall, my impression had always been that it was a “Claire’s” for tween girls, with Hannah Montana music blaring and posters of Miley Cyrus in a wig and two pounds of makeup hanging in the windows. But hearing so many young girls talk about this chain, I did some research, and I was surprised to see how hard this company is working to earn these girls’ money.

Once again, good marketing is the centerpiece of this chain. Mary Drolet opened her first store in 2000 in Schaumburg, IL, naming it after her childhood imaginary friend. The store was designed to provide the sorts of things that tween girls might want, like ear-piercings, makeovers and costume jewelry. Later on, the chain added on a “pooch palace” where girls could create their own stuffed designer dogs. The chain smartly signed Hannah Montana as a spokesperson and has been very successful since being bought by Saks, Inc in 2003. In just 8 years, it’s produced close to 100 stores.

What’s interesting about Libby Lu is that it is unapologetic about how silly it is. Parents likely roll their eyes when they see their 10-year-old daughters walk out of the store with a bunch of silly makeup, hair extensions, and costume jewelry on. It’s far too tacky to make the girls look like makeup-savvy teenagers, but it makes them feel older and more sophisticated all the same. The retailer works hard to help these tween girls enjoy being girls, and it offers them a lot in the way of products to pick up — products that could be available at any other store, but which are uniquely positioned here. Selling cosmetics, posters, and junk jewelry is an old part of the business of retail; selling them this way is a brand new concept.

Now that I’ve covered these three examples, I’m sure that you’ve noticed in all three cases that it was not products, but marketing, that made these companies successful. In the case of Build-a-Bear and Club Libby Lu, the emphasis was on building a one-to-one relationship with customers; in the case of Dippin’ Dots, the emphasis was on creating a unique experience for customers to have as they tried the “Ice Cream of the Future.” In all three cases, the focus was not on selling a product; it was on the end user.

And that leads to the question that I’m sure most people will ask. “That’s all good and well for retailing,” they might say. “But what good does it do for people who are involved in producing the products, like publishers?”

It’s a very interesting question, because publishing itself is nearing a crossroads, a time when there may be a divergence between traditional books, print-on-demand books, and electronic books. We haven’t reached that position yet; POD and eBooks are still in their infancy, and both are still ineffective at serving the needs of individual consumers. But five or ten years down the road, when POD techniques can produce high-quality reprints of backlist titles, and when eBooks finally have a format and reader that looks and feels like a real book, the traditional business of publishing is going to be disrupted by emerging companies who can take advantage of the new ways of doing things and carve themselves a niche. The companies who succeed the most will be those who can develop smart relationships with customers.

In the eyes of today’s trade publishers, customers don’t care about the content; they care about the product. That’s why trade publishers don’t spend a lot of time searching for high-quality material. Instead, they search for material suitable for a mass market — writing by people like Nora Roberts, Janet Evanovich, Dean Koontz, Danielle Steele, Stephen King, Sue Grafton and John Grisham. It’s not that these writers are especially skilled; it’s that they’re able to consistently deliver the kinds of books that appeal to large numbers of readers. Anyone who’s been in the publishing industry for any amount of time knows that the bestseller lists are fixed and phony, but it’s hard to deny that the bestseller lists do turn some writers into household names.

The idea of the mass market, however, is not the future of publishing. There will always be a place for mass market writing, of course… consumers are not very skilled at thinking for themselves, and unless they are familiar with the book industry and the literary sector, they rely on reference criteria such as bestseller lists to help them make decisions. But as we move away from the bestseller racks and move into an era where traditional publishing strategies just aren’t cost effective anymore, it’s going to take some savvy and forward-thinking publishers to grab ahold of the customers who are ready to navigate the waters of POD and eBooks… but who need new reference criteria to guide them through.

I’ll offer three suggestions as to how a publisher might do this:

1) Build stronger marketing relationships with end users. Ask most trade publishers who their customers are, and they’ll resort to market research findings to tell you. That’s because, generally speaking, they don’t know who reads their books; they just know sales figures and demographics. Smaller publishers are generally a little bit more in touch, because they can’t afford not to be. The companies who are most successful in the future are going to be the ones who know their customers, who listen to them, and who keep detailed information on as many of them as possible to guide direct sales.

2) Think up new ways to present old products. Audiobooks used to be cumbersome box sets of multiple CDs; now, more and more are being offered on small, self-contained digital devices. Flash memory is getting cheaper all the time. An enterprising publisher might try to offer “enhanced” books that are available on flash drives, allowing readers to take eBooks to any USB-capable computer and resume reading where they left off. The software on these drives could link up to a web-based account that stored preferences and other information. The upshot of this is that publishers would know EXACTLY how, when, and where their books were being read. This information could prove invaluable!

3) Focus less on retail and more on direct sales. This is a tough boat to rock, since publishers need retailers to get their books to the public. Some customers won’t buy online, and will always check for a book through their favorite retailer first. But publishers can take advantage of the web to offer their entire backlist, and they can also offer frontlist books at slightly higher prices than retail by selling signed (and perhaps even personalized!) copies. Direct sales are far more profitable than retail sales, and can lead to stronger relationships with customers, as well as provide basic demographic information that can be used for market research. It’s never a bad idea to know where your customers are coming from, or how they’re using your product (as a gift, personal copy, or textbook).

I have other ideas, but it’s probably wise to keep them to myself. After all, I hope to be one of the publishers at the forefront of the changes the next decade will pose. But feel free to post your own ideas below… I’d love to hear them!

-SJJ

Link: Off the Record by Robert Sandall, Prospect Magazine

20 years ago, the recording industry operated under a fairly simple model: recording artists would sign up for an album and enjoy all of the benefits of working with a major label, and they would forfeit almost all of their profits to increase their exposure. The artists would then ride the wave of their newfound popularity by touring and make back the money they’d lost by selling out to the label. The label got rich. The artist got rich (if they didn’t suck, of course). Everybody won.

But as technology shifted, things got a little more complicated. For one thing, the movement from analog cassettes and records to digital CDs wound up working against the recording industry since computer users found simple ways to copy and share music over the Internet. For another, the Internet changed the way that music marketing worked and made it easier for unknown acts to build up a fanbase by simply releasing their tracks for free. Listeners became less thrilled with the idea of buying an album just to get “that song I like on the radio” and became more eager to simply buy “that song” for 99 cents on iTunes. The music paradigm shifted drastically, despite the recording labels fighting it every step of the way.

And now, this article reports that the recording industry is desperately trying to force new acts to give up a cut of their touring revenues to offset lower CD sales. To make matters even more interesting, it brings up the case of a band who decided the labels were a complete waste of time and created its own instead so that the members of the band could market themselves instead of relying on a label to do it for them. And they’re succeeding.

Reading between the lines, the real shift has occurred in the product consumers want to buy. While CDs were once in demand, consumers prefer their music cheap or free now. They’d rather shell out bigger bucks to enjoy the experience of seeing an act than pay $15-20 for the privilege of owning a piece of plastic. They don’t want the music as much as they want the thrill of enjoying it live.

This shift may affect the publishing industry in the near future as well.

I’ve always been surprised that there’s a market for $14.99 paperback nonfiction books. I rarely buy them; I prefer to wait until they hit the bargain rack, or to wait until I can find a copy used. Presumably, consumers pay the premium price because they feel that the information in the book is worth a little extra. Often, it’s not, but we’ll get to that in a minute.

The publishing industry’s excuse has long been that “paper and printing are so expensive that these books have to cost $14.95 for anyone to make any money!” And that may be true from a traditional publishing standpoint; if a book with a small print run costs $3 to print and ship and the publisher’s only generating about $6 in revenue per copy, then sure, I can see it. But will that hold true for much longer as the printing and publishing world gets more technologically advanced?

Print-on-Demand technology may change everything. Consider this. There are already companies that have developed mini printing systems that can be placed in bookstores to print books on demand. All a customer has to do is approach the kiosk, select a book, and place an order. The kiosk can print and bind the book in about 15 minutes and have it ready for the customer. The only limit to which books the kiosk can print depends on which files it has available to print from. The book doesn’t have to be shelved, because it’s already been sold. There’s no real labor needed for these sales since the system is doing all the work. And, aside from a defective book here and there, there are no returns.

If this system catches on, it could eliminate the need for trade discounts. Publishers could simply set a royalty rate – say, 30% of cover price – and supply files to these systems. The publishers would make more because they wouldn’t be printing the books. A book sold for $9.99 would generate the same amount of revenue for the publisher. It would also be more economical for the retailer, since it would require less shelf space and improve direct sales of backlist books. The only thing this system would not work well for would be mass market titles selling tens of thousands (or even hundreds of thousands) of copies. It would also probably not work as well for prestige books, children’s books, or coffee table books.

But for fiction paperbacks, nonfiction paperbacks and reference books? The model makes a lot of sense! With all of the shelf space bookstores would be saving, they would have even more opportunities to branch out their services. Consider how different a bookstore would be if half of the customers were forced to browse while they waited for their books to print. Coffee sales would increase, impulse sales would increase, and convenience item sales would increase. The entire retail model would shift dramatically! And the $14.99 paperback would be dead.

There is one place, however, where the $14.99 book could still thrive, and that’s through direct sales from an author.

Consumers relish the opportunity to meet their favorite authors, and they love buying personalized, autographed copies of their books. Price is not an object. If authors going on book tours used offset printing or POD techniques to create special editions of their books designed for fans, they could conceivably charge more for the same book that customers could walk over to the shelves and buy. The reason this is not done now is because authors are sent on book tours by publishers who are hoping to spur the sales of already-published titles. But again… things are shifting. Authors need publishers a lot less now than they used to. Under this new system of printing, an author could be his or her own publisher and no one would notice. And no one would care.

The publishing industry is going to get a big shakeup in the next 20 years as digital distribution becomes more common and traditional printing and publishing practices are out-evolved. If you’re going into publishing now, let me encourage you to think forward… you’ll be glad you did down the road.