By Gary Schwartz

With the supposed separation of the Nook digital books business from Barnes & Noble, expected company losses and lowered guidance for fiscal 2012, the bookseller’s stock fell dramatically last week. The Nook tablet and ereader was the poster child of Barnes & Noble’s in-store growth strategy, but now that approach is in play.

Meanwhile, Barnes & Noble’s nemesis, Amazon, is doling out cash to authors who make their ebooks available exclusively on Kindle for 90 days.

Kindle Direct Publishing – KDP for those in the know – has put aside at least $6 million in 2012. Books can be “borrowed” for free and authors receive royalty payment based on the popularity of their title.

This may be one more step towards the end of the bookshelf as we know it.

While Amazon erodes the viability of the physical store, the Amazon storefront is fast becoming confusing to navigate, and it is a slippery slope for authors.

If we let the age-old publishing process that allows a book to percolate, sometimes arduously, from manuscript to agent to editor to published work to fade away, who will curate our content? Can the publisher and bookstore forge a new role in the value chain?

No more rejection letters
There is the time-old tale of the rejected writer: years of shipping manila envelopes to agents; years of returned manuscripts and polite decline letters from editors.

J. K. Rowling’s agent submitted her wizard’s tale to 12 publishing houses and was rejected a dozen times before she finally found a home. She is in good company: Stephen King and George Orwell were also rejected.

One of Orwell’s critics wrote on the back of the “Animal Farm” manuscript, “It is impossible to sell animal stories in the USA.”

As the blog “Literary Rejections on Display” writes. “Remember this: Someone out there will always say no” This is no longer the case.

Now there are aspirational tales such as Karen McQuestion who, after giving up on publishing her book, “A Scattered Life”, managed to self-published and sell more than 35,000 copies.

There are stories of writers such as Jim Kukral who went to the Web to raise funds for his next book – remarkably $16,000 in a week.

Mr. Kukral, author of “This Book Will Make You Money” says the “The walls are crumbling down, and aggressive and smart entrepreneurs are running through the gates to grab their share of self-publishing gold.”

But is this new business model sustainable? Is this the inevitable revolution of the masses against the traditional publishers, whomany feel are removed from the new realities of digital publishing?

The answer is no
According to R.R. Bowker, a publishing industry data firm, self-published titles in the United States nearly tripled to 133,036 in 2010 and will continue to grow.

Like the flood of self-published applications on the iPhone storefront, there is a point where the author can no longer be found amidst the huge numbers of books being published. Finding a publisher becomes the easy part. Selling and driving profit becomes impossible.

Self-publishing your first novel and hoping that it reaches a mass audience is effectively the same as the delusionary garage app developer who decides to develop a game and post it to iTunes inspired by the success of Rovio’s Angry Birds.

While Peter Vesterbacka, Rovio’s chief eagle, is touting his line of Red Bird sweatshirts, the developer’s app will be buried deep beneath the other half-million assorted apps, waiting for success.

The book is lost and the digital bookstore is becoming increasingly crowded with vanity press.

With triple-digit growth in self-publishing, it is difficult to know where to go to find an audience, and writers are flummoxed.

With the surge of books self-published on Amazon’s storefront, readers are flummoxed about where to go for quality content.

So how does the writer reach an audience? Amazon offers new reach and readers. But who is curating the explosive proliferation of content?

What we collectively do not seem to understand is how the industry’s shifting roles are undermining the value chain for both the writer and the reader.

After years of battling the demons of book store conglomerates, then cloud commerce and ebook business models, the industry is teetering on reinvention.

We all know that what Amazon calls “pro-consumer” has been a major business disruptor for bookstores and now shoe, apparel and electronic stores.

Could Amazon be simply using the book to build its mobile commerce empire? Is the book industry a necessary sacrifice: mobile commerce road kill?

Book countdown
Here are the modified Cliffs Notes on how the book industry turned on its ear:

1. Bad-boy Barnes & Noble: In the 90s Barnes & Noble opened up superstore after superstore across America. It became the Walmart of books, with the same vendor-facing attitude. Publishers were forced to grin and bear the harsh Barnes & Noble business terms: challenging discounts, sling-shot mechanize return policies and more.

2. Amazon Cloud: Ten years later, Amazon reinvented book browsing and shopping, and Barnes & Noble opened coffee shops and began selling household furniture. Smaller publishers and independent bookstores began to vanish.

3. The ebook: In 2007, we saw the first Kindle, the harbinger of a new power game and more importantly a new relationship with the mobile consumer.

The Kindle became the new storefront, further threatening the first market disrupter, Barnes & Noble.

In order to promote its Kindle device, Amazon sold electronic books below wholesale prices – a tactical loss. Owning the commerce platform was the ultimate reward for Amazon.

4. Macmillan’s counter attack: This revenue model is understandably suboptimal for the publisher.

Led by New York-based Macmillan, the industry challenged Amazon’s hostile business model. Amazon pulled Macmillan content from its site. Macmillan held ground. Amazon caved. Round one.

5. Vanity press: In the traditional publishing relationship, the writer should expect approximately a 7.5 percent royalty for paperback books and for digital, 25 percent of net receipts, which is the 70 percent that publishers receive from the retailer.

Amazon offers “publish direct” capability for writers on a 70/30 royalty share across the Kindle, Amazon Cloud and the free Kindle apps. Direct is an attractive option.

The creative ? agent ? publisher ? distributor relationship become disintermediated.

Touted thriller-writer John Locke joined the Kindle Million Club – authors who have sold more than a million books. And then there is the tenacious Amanda Hocking, who became a successful self-published author after receiving multiple rejections from traditional houses.

However, the Million Club is an elite club, and I would hazard a guess that there are a many other would-be writers who will never go beyond vanity press.

6. Slippery slope: Bookstores such as Barnes & Noble and publishers such as The Perseus Books Group launched self-publishing ebook services – PubIt! and Argo Navis, respectively – with similar flattering revenue shares. With all stakeholders playing all the roles, the value chain is breaking up.

7. Kindle Fire: Combining commerce with the immersive Kindle experience is the final frontier.

Layering in Cha-Ching into the armchair reader is a natural and powerful evolution of the bookstore. Amazon is so confident that they it is selling the device at a loss: $199 for $210 per unit cost.

8. Kindle Owners’ Lending Library: Amazon Prime members who own a Kindle can “borrow” one title per month from this expanding library for free.

There are currently a limited number of books available. Amazon has not received publisher consent to include titles from many publishers. In some cases, Amazon is simply paying the wholesale price for the book each time somebody borrows it.

This is Napster, the original peer-to-peer music file sharing service, but legal and underwritten by Amazon. The Authors Guild naturally has harshly criticized this business model.

Is this an eight-point epitaph for the book publisher?

John Biggs blogs nostalgically, “While I will miss the creak of the Village Bookshop’s old church floor, the calm of Crescent City books, and the crankiness of the Provincetown Bookshop, the time has come to move on.”

Move on? Where to?
What is the beleaguered publisher’s new role? Guaranteed the solution is not for the publisher to go digital by offering multimedia extras such as video and audio commentary with their ebooks. The publisher can:

1. Taste management: The publishing industry can retain its credibility as the purveyors of content. The publisher is providing rich content and in the best position to build a long-term relationship with the customer, selling target stuff to this person, not once but many times.

2. Drive subscription: Learn from mobile commerce. The mobile content aggregator never sold one ringtone – too much work for the publisher and for the buyer. The mobile content aggregator sold a subscription. The mobile consumer paid for music curation, and a pretty penny at that.

Perhaps we need to reconsider the idea of buying a book. Perhaps we should be buying a content subscription to chapters instead of books. Or see the book as a modern Dickensian novel serialized in mobile monthly installments.

3. Sell non-traditional: Fight Amazon in the cloud, not the store. Publishers need to find ways to sell digital content into competitive storefronts. The publisher needs to work closely with the remaining terrestrial booksellers to help them sell into their digital storefronts.

PUBLISHERS NEED to be aware that the 2010s are eerily reminiscent of the music industry in 2000s. Books have changed. Reading and commerce behavior has changed.

Indeed, publishers need to reaffirm their value proposition and find a way of reintroducing their mission-critical role into the digital mall.

Gary Schwartz is president/CEO of Impact Mobile, Toronto, and author of “The Impulse Economy” (Simon & Schuster, 2011). Reach him at [email protected].