Alberto Vitale was running Bantam Books, the world leader in paperbacks, when the Newhouse family recruited him to become the COO of Random House. In that role, and later as the CEO of one of the world’s top publishing firms, Vitale oversaw huge changes in the publishing industry. In this interview with Stephen J. Kobrin, publisher and executive director of Wharton Digital Press, and Knowledge at Wharton, Vitale discusses the rise of digital publishing, the future of bookstores and the globalization of copyright, among other issues.

An edited transcript of the interview appears below. You can hear the complete interview via the audio link and watch part of it on video.

Knowledge at Wharton: You took over as the CEO of Random House in 1989. What was your career in publishing before that? How did that lead to your role at Random House?

Alberto Vitale: I headed a team that bought, in 1975, Bantam Books for the Agnelli family … the [principal] owners of Fiat. I got to know the Bantam executives very well. Bantam was a very independent company, extraordinarily profitable, and not a pioneer, but the world leader in paperbacks. Maybe three, four, five [or] six months after we bought it, I got a call that said, “Would you like to come and be chief operating officer?” That’s how my career in publishing started.

At some point, I was asked if I wanted to go run Random House. It was a very difficult decision, but the opportunity to go run the premier publishing house in the world, at that time, was too interesting to even think about.

Knowledge at Wharton: What was your assessment, when you reached Random House, about the shape the company was in? What was your assessment of what was going on in the publishing industry? How did that shape your strategy for leading Random House?

Vitale: The reason they asked me to go run Random House is probably because the ownership [the Newhouse family] wanted it to be run better. I took a good look at all the imprints … and made the changes that I thought needed to be made. In publishing, it’s very difficult to have a strategy in the academic or generally-accepted meaning of the word. The best strategy in publishing is to have books that people want to read. That strategy is not quantifiable. You cannot describe it. You have to rely on your imprints and your editors and your publishers, and your marketing people, to make sure that they pick books that people want to read, and that they’re published as well as one can publish them.

Knowledge at Wharton: You were also one of the first publishers to emphasize the importance of electronic rights. Could you tell us about your thinking there?

Vitale: Actually, I was the first one in book publishing who decided that we were not going to sign any contracts unless we had digital rights. I received a lot of flak. I had a few agents who refused to sell us. I said, “Well, if you refuse to sell us, we refuse to buy from you.” It didn’t last very long. [I faced] some resistance within the company and from other people, saying that I was too harsh when it came to the rights. I said, “Listen. You guys want to have a future; we get the rights. [If] you don’t want to have a future, then I don’t want to have any part with the business. Because it’s like giving away a major asset — it’s like doing what publishers did with movies. They lost that battle. They didn’t even fight that battle. They lost it to start with.” And so we decided — I believe it was 1994 — that we were not going to sign any contracts unless we had electronic books rights … digital rights.

Knowledge at Wharton: We’re at a point where very dramatic changes are taking place in the publishing industry. These include the rise of digital books, the shift from physical bookstores to Amazon, and an attempt to self-publish digitally. Is all of this going to change the role of the traditional publisher?

Vitale: No, I don’t think so. When I stepped down as CEO of Random House in the second half of 1998, even though I continued [in an advisory capacity] with Random House, Microsoft asked me to become the chairman of the International E-Book Foundation. I felt, at the time, that e-books were going to be the savior of publishing, which was not known as a highly-profitable undertaking. I got very involved with e-books, and I was expecting them to be used by the general public a hell of a lot faster than they did.

But in the meantime, Microsoft lost some interest, and was not able to develop a tablet reader that was state-of-the-art and easy to use. [The company] didn’t even have in mind what Amazon eventually produced with the Kindle [e-reader]. The foundation was disbanded after a couple of years, and nothing happened until two years ago. Publishing got into terrible trouble. Publishers frantically were looking at an alternative to how you present the product of the intellect.

At the same time, Amazon came up with the Kindle. Frankly, the rest is history. Now we have the iPad, and we’re going to have many more iPad-like devices. A lot is going to be changing … but for the better. Digital technology has brought to publishers the ability to develop a new business. That doesn’t mean that the book business will disappear. Actually, paper books will be with us for a very long time to come, if not forever … except that they will evolve into much more precious products. [They will be] better-printed, better-bound, better-produced and better-marketed, even at much higher prices. E-books will turn out to be the equivalent — not the same thing — as the paperbacks of the past.

Digital technology may allow a lot of individual authors to self-publish. That’s the power of digital technology, of the Internet. But still, the role of the publisher will continue [to be] as strong as before. You still have to figure out which book you want to publish. And, how do you want to publish it? There are obvious synergies between paper and digital [media].

We’re still at the dawn of digital publishing. All we do today is take a page from a [book] and put it on a screen. It’s interesting, but it doesn’t take a rocket scientist to do that. But we have tremendous possibilities with digital technologies to experiment in content marketing. When you publish a hardcover book, you slap a price on it and you’re stuck. It’s out in the field, and what are you going to do? If it sells, fine. If it doesn’t sell, you get it all back. With digital technology, you can put a price of $9.99. But if the book doesn’t sell, and you’re convinced that you have a good book, maybe you misjudged the audience, and you can reduce the price to $6.99 or $7.99 or $5.99.

The ability to experiment, and to evolve your publishing marketing techniques, [are factors] publishers still have to come to grips with. Take, for instance, the book by [former President] George Bush [Decision Points, published by Crown Publishers in November 2010]. Now, if you buy the [Decision Points] e-book, you get lots of pictures, which are extremely interesting, [and enhance] the book and your reading experience. It is more alive, more close to reality. In contrast, the hardcover version has no pictures.

Knowledge at Wharton: Do you think bookstores will survive?

Vitale: Absolutely. However, they’re going to undergo major changes. Three [or] five years from now, up to 70% of the space in [big box bookstores, such as Barnes & Noble] may be dedicated to other products. It makes sense. You have the universe that is digitalized now. You don’t need these huge stores anymore.

Knowledge at Wharton: What do you think are the biggest differences between Barnes & Noble, which seems to be doing reasonably well, and Borders, which has filed for bankruptcy? Why has one survived and the other failed?

Vitale: First of all, Borders has always been second to Barnes & Noble, and the weaker [of the two]. The management of Barnes & Noble has been unified, very savvy and very talented. It has evolved, as you evolve any type of management over the years, under the leadership of [chairman Leonard] Riggio, who’s really an extraordinary person. Borders has probably changed management 10 times in the last 15 years. Now, I know what it means to change management. It’s an upheaval, all the time. And so, that didn’t help Borders. Borders never had a real personality, a valid strategy, a real image, as Barnes & Noble always had.

Knowledge at Wharton: Will the absence of major bookstores, or the fact that a large proportion of the bookstores’ selling space is now taken up by other products, affect the ability of publishers to reach readers? If you can’t find a book in the bookstore, and you can’t look at it, how are you going to make a reader aware of a book?

Vitale: Readers today are a lot more sophisticated than they were [in the past]. If they don’t find the book at Barnes & Noble, they go home, they go online, and order it from Amazon in two minutes flat.

Knowledge at Wharton: But how are you going to make readers want to find the book? How are you going to make them aware of the book in the first place?

Vitale: There is such thing as PR. First of all, you have to bring people into the bookstores. Then you have to show them the books when they are in the bookstores. If someone comes into a bookstore to look for a book, and the book is not there, you go online. There is no publishing house, small or large, that doesn’t have an e-mailing list, where they more or less effectively tell you what they have coming.

Everybody’s online now. The access to information is tremendously enhanced. But remember, the publishing model will change. And the product will change. The prices of hard cover books are now still $27.95, $26.95, which I find ridiculous. They cannot possibly make ends meet with those prices. They are going to grow to $36.95, $46.95. But the reader will have a much better product to purchase.

Knowledge at Wharton: How will it be better?

Vitale: Better paper, better type, better binding. And so, you will have a book to cherish. Also, as more people buy books, where are you going to put your books? If you’re a real reader, probably for every book you read, you have purchased 10 books that are waiting for you to have the time to read. But in the meantime, 10 other books that you want to have are being published. People will use the hardcover book more selectively. Publishers will have to become infinitely better at resupplying the bookstores overnight. How to beat Amazon on that? I read the other day that they’re opening up their 52nd warehouse. You place 52 warehouses across the United States in strategic positions, and … you probably cover 95% of the country and ship overnight.

Individual publishers cannot do that, but they will have to find a way to come close to doing it. They cannot afford, on these expensive books, to have huge print runs with 40% returns. They’re going to have to be able to tell the bookseller, “Well, you’re out of this book. You’ll get it tomorrow.” And the bookseller will tell the customer, “You have nothing to worry about, I’ll get it tomorrow and I’ll send it to your home. You’ll get it the next day.” I’m not suggesting that this is the formula. But those are the types of things that will have to change, which will bring efficiencies and profitability to booksellers, to publishers, and service to customers.

Knowledge at Wharton: Do you see a role for the independent bookstore in this environment?

Vitale: Yes.

Knowledge at Wharton: How will that change, or evolve?

Vitale: I don’t know. But, for instance, there is a program now … that will pair up independent booksellers and Google. If while you are in the bookstore you say, “I really want this book,” but [the bookstore doesn’t] have it, [the bookseller and the customer] can together go on a computer and order it…. Maybe by doing that, [the bookseller is] acting as a service point and may get a commission … [or] some kind of fee.

Knowledge at Wharton: In the digital world, global distribution becomes possible. How do you see the future of copyright laws being affected by that?

Vitale: Copyright will have to change, to some extent. Someone in Tashkent [Uzbekistan] should be able to buy a book from anybody without any restrictions due to copyright. With digital technology, you can do marvels. You could get someone to buy a book in Tashkent from Amazon in London, rather than New York. The author can get his royalty from Tashkent, and the publisher in Tashkent should be able to get his cut, on a digital book, assuming that the book is in English.

Knowledge at Wharton: Why should the publisher in Tashkent get a cut?

Vitale: The publisher of that book in Tashkent has bought rights. If you buy one of his books from Amazon in New York, he should get what’s due to him. It’s a complex paradigm here. But it’s something that can be solved. It’s not going to be solved in the next two or three years. But it will be solved over the next five to 10 years.

Knowledge at Wharton: If we think just about the English-speaking market, globally, will territorial rights survive? Is there any reason you can’t publish a book in English, in New York, and have it downloaded from, say, Amazon servers onto Kindles all over the world?

Vitale: For as long as there is a copyright issue, it’s going to be a problem. Things become illegitimate when you put obstacles to legitimate things. I agree with you that anybody in the world should be able to download a book from the publisher, or from Amazon, or from whoever it is. But, you have to also protect the publishers in England, in Canada, in Australia, in New Zealand, [and] in South Africa. It’s going to be something rather arduous, but it’s going to have to be done. If the publishers don’t do it, those books will find a way, anyhow … through not-so-official ways and that would be a problem.

Knowledge at Wharton: Can I push that one step further? Why is there a reason to protect the publisher in Australia or New Zealand, or Tashkent?

Vitale: Excuse me? How is the publisher going to live? On thin air?

Knowledge at Wharton: No, I understand, but…

Vitale: End of the story.

Knowledge at Wharton: But the question is, in a digital world, where books can be sold globally, is there a role for national publishers, when people are going to be publishing books globally?

Vitale: There is a role. These national publishers are also publishing books, even in digital format. Those books can be distributed by Amazon in New York or in London. That publisher has to be protected.

Knowledge at Wharton: In the e-book world, is there a reason that the publisher — if they’re not publishing paper, but just electronic books — shouldn’t have global rights to the book, and be able to market it globally? In those instances, is there a reason to protect publishers in other countries?

Vitale: In that situation, obviously not. But that’s utopia. Paper books are going to be with us for as far as I can see. But the digital book will change guise many, many times, because of what the technology allows you to do. Amazon [in January began] publishing $2.99 or $1.99 books … or the Amazon [Kindle] Singles [short works of between 10,000 and 30,000 words]. That’s a major development. Whatever anybody innovates, it will be taken a step further by the establishment.

Knowledge at Wharton: If you could re-live your career, what would you do differently?

Vitale: I thought about that a lot of times. I don’t know what I would be doing differently, because of the nature of publishing. But I know one thing for sure — that I would devote an inordinate amount of energy to the digital aspect of the business. If you have a book on Provence [in France] or Tuscany [in Italy], to have a little video clip here and there at the right time would enrich the e-book dramatically. If you have a romance book and you put a little music in the background … I don’t know; you have to experiment. The iterations are infinite with digital technology.

I would also put a lot of energy in working with authors not as a pure editor, but as a producer. That’s why I would want to see my editors being 50% editors, and 50% producers.

Knowledge at Wharton: What does that imply, being producers?

Vitale: It implies that I can sit down with you, and say, “Why don’t we do this?” And, “Why don’t we do that?” And, “Why don’t we develop this idea? Why don’t we market the book, instead of in its entirety, in chapters or whatever?” Before, you had only one way. You read the book; you stick it in the middle of two covers and its 350 pages. You ship it out there, and you hope to sell it. Now, you can do a lot more.

Knowledge at Wharton: Over the course of your career, what is the biggest leadership challenge you ever faced? How did you deal with it? And what did you learn from it?

Vitale: The biggest leadership challenge in my publishing career — also, in all the other businesses I’ve been in — is dealing with people. To respect people. To let them open up, never shut them down. Allow them to criticize. I had a condition, though, on that. Which is, you can criticize, but then you have to tell me what you would do in my place. I may agree with it, or not. But you cannot criticize just for the sake of criticizing. The ability to communicate and work with people is probably the biggest challenge that you have in publishing … [and] in every other business.

Knowledge at Wharton: One last question — how do you define success?

Vitale: It’s not an easy definition. It’s a combination of events. Number one is the level of satisfaction you derive. If you’re very satisfied, in all likelihood you’re very successful. Second is the qualitative aspect of success. For instance, there is an Italian publisher called Adelphi, which publishes absolutely first-rate quality books. I could say the same thing about [Alfred A. Knopf, part of Random House] and about many other publishers. That is success.

And finally, to be in business, you’ve got to make money. This idea that publishers should not make money, or that what they do on the Internet has to be for free, is utter nonsense. You have to make money. The more money you make legitimately, the more you can reinvest in the business, and the more you can be, hopefully, successful.