I originally updated these rules for a blog post for Cynthia Ravinski of Greater Portland Scribists. I'd wanted to see what, if anything, had changed since starting this process earlier this year. I'd be curious to hear how you all feel about the 'rules', should they be amended? Do they stand?
Here's the post:
This month I'll reach the one year anniversary of making my decision to ePublish. This is a momentous milestone for many reasons, the largest is that it commemorates a resolution to step away from publishing as I knew it. Twelve years writing, three novels, a Masters degree, a hundred writing conventions, conferences and workshops, five hundred queries.
I was not an amateur. A hack. A wannabe.
I'm an Authors Guild member who received a four figure advance from a major travel publisher. I'd written for newspapers, magazines, travel journals, literary journals. I'd won writing contests and had received awards for my writing.
I'd spent a thousand hours writing and rewriting queries, synopses and drafts on my three novels, one of which was scrutinized extensively by mentors and peers in Seton Hill University's Writing Popular Fiction Program. I'd travelled hundreds of miles and paid hundreds of dollars to pitch to a single agent at a writing conference.
The decision to ePublish did not come easy. My wife and I thought long and hard about why we wanted to go this route, and even took the OCD course of creating five rules we had to agree to before we'd even consider it.
Here's the list, the reason we felt the rule was important and what has changed since last September:
1. Know why you're publishing independently
Why the rule?
We knew that ePublishing couldn't be pursued as a last resort. We believed that before we could take the plunge, ePublishing had to be our FIRST choice. We knew if we weren't going to treat our book the way a publisher--who'd spend thousands of dollars to print, market and distribute--was going to treat it, then independent publishing probably wasn't going to work for us. We had to believe we knew what was best for our book.
What has changed?
Nothing. The process has been amazing. Since releasing my book in March I have worked with the amazing folks at Hatch Show Print in Nashville, Tennessee to create a fantastic cover, and I loved every second of it. I have interacted with readers, people I did not know until they mentioned they'd read my book. I loved every second of it.
2. Know risk to gain ratio
Why the rule?
Before taking the plunge we had the fortunate experience of knowing exactly what a publisher was going to do for us, and what we'd be doing ourselves. The publisher-supplied publicist did little more than send .jpegs to a few newspapers.
You also have to know how finances are going to break down for you. Many writers are tight-lipped about sales, and for good reason. So finding reliable information about what a new small press or mid-list writer earns will be difficult, if not impossible. Most are lucky to sell-out their advances, and fewer still ever see a royalty check.
What has changed?
Nothing. The reward has outweighed the risk a thousand times already. That may sound trite, but in a few short months I've had experiences that are beyond description or monetization.
3. Know what you're compromising
Why the rule?
When we devised these rules legitimacy was a huge deal for us. We worried about what other writers--specifically our peers from Seton Hill--would say about our choice to jump ship. I had a huge list of Big Six-published books in my arsenal, books from people like Snooki, Nicole Richie, Lauren Conrad, that I could whip out whenever Big Six publication as a path to true legitimacy was mentioned.
But we knew all this before we ePublished.
What has changed?
Everything. Readers legitimize you, not editors, agents, publishers or your peers.
4. Know that you are the company
Why the rule?
This rule let us make a list of all of the things we'd be doing ourselves, almost a checklist to let us know if we had the stomach for it. Editing, publicity, formatting, art, author photos and on and on.
What has changed?
I think we're going to need a bigger boat.
I've never worked so hard for anything, and I have never in thirty-seven years been so proud of an accomplishment.
5. Know if you have the time and energy
Why the rule?
We have jobs, lives, and friends. Stuff we didn't want writing to interfere with.
What has changed?
Writing is my life. Which was always what I wanted, why else would I drop $40,000 on a degree? For a hobby? This pursuit has moved writing from the backburner to the hotplate.
And I learned to love coffee.
These rules were written pre-Borders collapse, and I think they've stood up pretty well. Something else that's stood the test of eleven months' time--the conclusion to my original post, presented here unaltered:
I don't know if independent publishing is for the faint of heart. But seeing that I'd have the freedom to write what I want, instead of writing what I hope an agent would want, is a very liberating experience. And if it bombs it bombs. I change my name and write something else. Or not. I can do whatever I want.
As the writer I should've always had that power--not marketing department or CFOs. Sometime I get the impression that a lot of editors and agents and publishers put writers at the bottom of a very tall ladder. I think independent publishing puts writers at the top.
And look, I wrote this whole post barely mentioning the way the publishing industry has eaten itself into a very awkward and ugly corner. Let the agents have Snooki. I think the readers are smart enough to follow the writing.
Showing posts with label independent publishing. Show all posts
Showing posts with label independent publishing. Show all posts
06 September 2011
03 June 2011
HATCH SHOW PRINT!
Just got off the phone with Hatch Show Print out of Nashville, TN--they're going to fax me a rough cover for THE DEVIL AND PRESTON BLACK on Monday!! Very exciting, indeed.
Special thanks to Jim Sherraden for all your patience, and Brad for the design!
Watch the video to see why I'm so excited.
Visit Hatch Show Print online!
Buy the book on Amazon.
14 April 2011
OPERATION EBOOK DROP
A few years ago Ed Patterson, a Smashwords author and US Army vet, began Operation eBook Drop as a way to distribute ebooks from indie writers to troops stationed overseas. Read all about it over at the Smashwords blog.
I just finished the process and am encouraging all indie authors to do the same. The process is relatively painless and it's a good way to spread the love.
Operation eBook Drop
07 April 2011
30 March 2011
Twitterly Promiscuous Week 3(ish)
So, you all know the deal by now. I followfollowfollow then use JustUnfollow to weed out the bad seeds after a week or so of not following back. At this point (because of JustUnfollow) it's difficult to determine how many people I've followed in the last 3 weeks. But, I do know how many people are following me. And as of 2:51 on Wednesday, March 30, 2011, that number is...908.
Is it working? Being aggressive has been more effective than not, obviously. I see some people surfing onto my blog from Twitter, and some even leave via Amazon. So we'll call it inconclusive and keep trying.
28 March 2011
THE DEVIL AND PRESTON BLACK on AmericanStandardTelecaster.com
I thought it was a pretty cool place to see the book pop up. Thanks for the tag, Ron.
AmericanStandardTelecaster.com
AmericanStandardTelecaster.com
24 March 2011
PREVIEWS AVAILABLE
Just so yinz know, free previews of THE DEVIL AND PRESTON BLACK are up and waiting to be read.
Here's the one at Amazon.com. If you don't have a Kindle, download the free Kindle Reader software on the right hand side of the page below the sample. It's basically a Kindle app for your PC.
And here's the CreateSpace preview. This is where the print version of the book will end up.
19 March 2011
THE DEVIL AND PRESTON BLACK
You'd think finding a song named after you on an old record would be kind of cool. But that's not how it goes down for Preston Black.
What starts out as a search for his old man turns into a quest for an original version of "The Sad Ballad of Preston Black". Turns out the song is about his deal with the devil, a deal Preston doesn't really remember making.
When the devil decides it's time to cash in things get really interesting. People he loves get hurt, and Preston starts to wonder if a long fall into an icy river is his only way out.
Lucky for Preston, he has help. A music ethnographer with connections in some of Appalachia's darkest hollows convinces him that his salvation can be found in the music. Preston can buy that. It's the hexes, curses and spells he has a hard time with.
And it's the ghost of John Lennon who convinces Preston to do something about it.
I wish I could say I found that record the first time I walked into the joint. But honestly, I'd been going into Isaac's every week since he'd hung his shingle out. Ever since I started giving lessons next door, at least. Killing time at Isaac's was easier than killing time with Mick's Strats and Twin Reverbs. The guitar shop had become too much like work, Mick too much like a boss. If I showed up early he always found meaningless little jobs for me to do, like tuning the Guilds and refilling humidifiers. If I showed up a minute late he was all, 'Get yourself a watch.'
So I'd hide out at Isaac's until my lessons arrived, soaking up the juju that dripped off the old vinyl like heat from a spotlight. The simplicity of an album, its lack of moving parts, spoke to me in a way CDs didn't. Vinyl had a tender, handmade quality that made me believe that the music had been born into a more authentic era. Like a record could somehow be more sincere than a CD or mp3. But I knew all that was a load of crap. In the end, only the music mattered.
For me, walking into Isaac's gave me the same feeling some people get when they walk into a church or a mall. I can't describe it. Maybe enlightenment, but I'm not sure if I've ever experienced that feeling. Either way, all I had to do to soak up the collective wisdom hiding in all of those vinyl grooves was appreciate the music, and try to understand where the artist was coming from. I swore if I browsed long enough I'd find whatever guidance I needed to get me through my paper-thin life. And since my own father ran off long before I ever learned how to hold down a G chord, I'd never have to worry about overdosing on guidance.
The guys my mom brought home didn't have a lot of wisdom to pass on. They all either wanted to preach to me or beat me. So I didn't need a semi-employed union pipefitter around giving me shit when I had the Holy Trinity of John Lennon, Joe Strummer and Bruce Springsteen helping me down the path of lyrics and music. Each of these guys came into my life when I needed them the most. And each left just like my own dad did--long gone before I ever had a chance to say goodbye. But their lessons stuck. Joe Strummer taught me it was okay to throw a few bricks, and that a cop was something I really didn't want to be. From John Lennon I learned that if you were clever they hated you, and for a fool it was worse. From Robert Hunter I learned the devil's friend sure ain't a friend of mine.
In hindsight, I should've listened to Hunter. Call it irony, but the morning I found the old LP that had me standing on the Westover Bridge thinking about taking the final jump, I'd been browsing near Ozzy, a friend of the devil if the devil ever had one. Before that LP I assumed lyrics were just lyrics. Didn't know they could be warning labels too.
Besides, the douche bags who worked at Isaac's treated me like I had the musical tastes of a ten-year-old boy. I couldn't help it I never heard of Black Flag or The Pixies growing up. My brother and me were pretty much forced to listen to whatever mom played in the car. Mostly country. Kenny and Dolly singing "Islands in the Stream." Garth Brooks, if we were lucky. Most people didn't have to dig as deep as I did to find something they recognized in an old record or song.
And digging deeper was pretty much what I was doing the day I found my LP misplaced behind Blizzard of Oz. On my way to return the record to the BLUEGRASS section the most beautiful woman I'd ever seen stepped out of the CLASSICAL stacks. She smiled. I smiled back. She asked what I had in my hand. On the cover a bunch of anonymous pickers sat in front of an old log cabin. The back of the record said Uncle Mason's Front Porch: Best of the Blackwater Sessions.
And on the track list, between "Pretty Polly" and "Hangman's Reel" was a song called "The Sad Ballad of Preston Black", written by E. Black.
I knew right then and there that if I could ever find the man who'd written that song, I'd have found my dad.
In less than twenty-four hours THE SAD BALLAD OF PRESTON BLACK shows up in Amazon's Kindle Store. This is kind of a soft release because there'll be a few bugs to iron out--I'm afraid some the internal links won't work and a heading or two may be off-center. But it's what I've been working on for the last few years. And I'm damn proud of it. And I did it independently, without any hand holding. And this is the format my writing was meant to appear in.
A few years ago this type of freedom wasn't available to a writer, unless you were lucky enough to to have an editor at a small press who was willing to take risks with formats. I think seeing the kind of fun Mike Arnzen had with his Gorelets and Audiovile made me wonder what kind of sweetheart deal I'd have to get to be able to work in those formats. Now I don't have to wonder anymore.
As soon as I get my Kindle formatting straightened out I'm going to start recording the soundtrack to The Devil and Preston Black. I already have the guitar worked out for three songs, and have complete lyrics to one, have banjo and electric guitar parts and bass lines for a few more. I'm still looking for somebody to help me with drum tracks and I'm hoping a sexy violinist will show up to put finishing touches on everything. After I get the title track finished I'm going to complete the book trailer I started.
The cover is temporary, too. I put it together out of necessity, but have been talking to Jim Sherradin of Hatch Show Prints of Nashville, Tennessee about a proper cover. Hatch is a traditional print shop that does concert posters for the Ryman Auditorium and Grand Ole Opry. I'd love to visit them over the summer and see how it's done, and hopefully document part of the process.
You know, I dropped more than a few characters talking about the Big Six and the state of publishing and all that, so I'm not going to do it again here. But in a way I feel like I no longer have to do it here, or anywhere. The industry used to be the biggest obstacle to publication and I KNOW they vetted writers and I KNOW their goal was deliver to first-rate stories to readers. But somewhere along the way they became the enemy to writers like me--writers who's only platform was a love of storytelling and a masters degree. And there are a lot of us out there. We like the idea of not having to write to a marketing department or a demographic. We like the freedom of writing for ourselves and being able to get it out there without the hassle of toeing the line or trying to impress an agent.
Writing and publishing this book has been the most gratifying experience I've had since I typed my first Chapter One back in 1998 when we were living in a tiny apartment down in Orlando, Florida while working for The Mouse. The challenges I face are my own, but a community is starting to gel. I've met so many people going this route who are more than willing to help a brother out. (I'm looking at you, M Stephen Lukac. How many other writers can pick up writing advice at Shop 'n Save?)
I got goosebumps writing this. Every writer should be able to feel this way about their work. Now they can. I don't care if my mom's the only person in the world who ever reads my book, because it's out there like H1N1. And I didn't have to compromise or give away 80% to do it.
In 2011, this is what happy, successful writers looks like.
01 March 2011
THE MUSIC AND PRESTON BLACK The Clash, Bond's International Casino, New York, NY, June 13, 1981
Here's another show from The Clash's stand at Bond's. Kind of pulled it at random out of a folder and had it playing while I finished a final draft on my novel.
I know I went into some of this a little before, but Joe Strummer really gives me what I need to get through some shitty times. This business of publishing books is merciless--nobody ever told me otherwise. But listening to some of these shows reminds me why I'm doing it. I'm working on something I believe in, and I'm not going to wait for a gatekeeper to tell me when it's alright to put it out there. If I could bottle just a little of the intensity Joe had for his music...
I've been writing for ten years. For the first five I didn't have a clue. Then I learned about agents and querying and marketing and writing didn't feel as fun. But the changing market makes it all very exciting for me again. I think it's the idea of putting out what I want, when I want without waiting for a marketing department to approve it. Writing this way approximates the way The Clash released their music--on their own terms, even if they lost money. That's why they're the only band that matters, and always will be.
Here's the setlist from http://sugarmegs.org/
The Clash
Bonds International Casino
Times Square, New York (Evening Show)
June 13th 1981
Trade > CDR > EAC > WAV > Traders Little Helper > FLAC
Disc 1
London Calling
Safe European Home
The Leader
Train in Vain
White Man in Ham Palais
Radio Clash
Corner Soul
Guns of Brixton
The Call Up
Bankrobber
Complete Control
Lightning Strikes
Ivan Meets GI Joe
Charlie Don't Surf
Magnificent 7
Broadway
Disc 2
Somebody Got Murdered
Police and Thieves
Clampdown
Career Opportunities
Street Parade
One More Time
Pressure Drop
Washington Bullets
Armagideon Time
Janie Jones
New York Burns
Junco Partner
Brand New Cadilliac
White Riot
Download here: http://www.archive.org/serve/Clash1981-06-13EveningBondsInternationalCasinoNYC/Clash1981-06-13EveningBondsInternationalCasinoNYC.wma
11 February 2011
The E-Book Royalty Mess: An Interim Fix
The E-Book Royalty Mess: An Interim Fix
February 11, 2011. To mark the one-year anniversary of the Great Blackout, Amazon's weeklong shut down of e-commerce for nearly all of Macmillan's titles, we're sending out a series of alerts on the state of e-books, authorship, and publishing. The first installment ("How Apple Saved Barnes & Noble. Probably.") discussed the outcome, of that battle, which introduced a modicum of competition into the distribution of e-books. The second, ("E-Book Royalty Math: The House Always Wins") took up the long-simmering e-royalty debate, and showed that publishers generally do significantly better on e-book sales than on hardcover sales, while authors always do worse.
Today, we look at the implications of that disparity, and suggest an interim solution to minimize the harm to authors.
Negotiating a publishing contract is frequently contentious, but authors have long been able to take comfort in this: once the contract is signed, the interests of the author and the publisher are largely aligned. If the publisher works to maximize its revenues, it will necessarily work to maximize the author's royalties. This is the heart of the traditional bargain, whereby the author licenses the publisher long-term, exclusive book rights in the world's largest book market in exchange for an advance and the promise of diligently working to the joint benefit of author and publisher.
Now, for the first time, publishers have strong incentives to work against the author's interests.
As we discussed in our last alert, authors and publishers have traditionally acted as equal partners, splitting the net proceeds from book sales. Most sublicenses, for example, provide for a fifty-fifty split of proceeds, and the standard hardcover trade book royalty -- 15% of the retail price -- represented half of the net proceeds from selling the book when the standard was established.* But trade book publishers currently offer e-book royalties at precisely half what the terms of a traditional proceeds-sharing arrangement would dictate -- paying just 25% of net income on e-book sales. That's why the shift from hardcover to e-book sales is a win for publishers, a loss for authors.
The Pushback
The publisher's standard reply to this -- which we heard yet again after last week's alert -- is a muddle, conflating fixed costs with variable costs. Let's address that before we move on.
For any book, a publisher has two types of fixed costs: those attributable to the publisher's operations as a whole (office overhead, investments in infrastructure, etc.) and those attributable to the particular work (author's advance, editing, design). The variable costs for the book are the unit costs of production. These costs (print, paper, binding, returns, royalty) tell a publisher how much more it costs to get, say, 10,000 additional hardcover books to stores and sell them. The publisher's gross profit per unit (unit income minus unit costs) is the amount against which the author's royalties are traditionally and properly measured. With this sort of analysis, a publisher can compare the gross profitability per unit of, for example, a hardcover to a trade paperback edition.
Investments in technology change nothing. Publishers never argued, for example, that hardcover royalties needed to be cut when they began equipping their editorial and design staffs with expensive (at the time) personal computers, buying pricey computers and software for their designers, tying those computers together with ever-more-powerful Ethernet cables and routers, and hiring support staff to maintain it all. Publishers simply took their share of the gross profits from book sales and applied it to all of their costs, as they always have. What remains after deducting those costs is deemed the publisher's net profit. Similarly, authors take their share of the proceeds of their book sales and apply it to their overhead (food, clothing, shelter, and computer technology) and costs (their labor and out-of-pocket costs to write the manuscript). What remains is the author's net profit.
The proper question is this: how much better off is a publisher if it sells a book, print or digital, than it is if it doesn't? That is what we measured. We then compared that to the author's print and digital royalties per book.
Publisher's E-Gains + Author's E-Losses = E-Bias
Applying standard trade hardcover and e-book terms to Kathryn Stockett's "The Help," David Baldacci's "Hell's Corner," and Laura Hillenbrand's "Unbroken," we found that publishers do far better by selling e-books than hardcovers (realizing "e-gains" of 27% to 77%), while the authors do much worse (suffering "e-losses" of 17% to 39%). Publishers can't help being influenced by the gains; e-bias will inevitably drive their decisions.
Some simplified examples show how e-bias plays out in publishing decisions:
1. Promotional Bias. Assume a publisher is contemplating whether to invest a portion of a book's limited marketing budget in stimulating the sale of digital books (paying for featured placement in the Kindle or Nook stores, perhaps) or in encouraging print sales through a promotion at physical bookstores. Either way, the publisher expects the investment to boost sales by 1,000 copies. A sensible publisher would spend the money to promote digital books, pocketing an additional $1,570 to $4,170 on those sales compared to hardcover sales. Such a decision, however, would cost Ms. Stockett, Mr. Baldacci, and Ms. Hillenbrand $1,470, $1,570, and $670, respectively, in royalties.
2. Print-Run Bias. E-gains of 27% to 77% become irresistible when a publisher looks at risk-adjusted returns on investment, as any businessperson would. Once a book is typeset for print, the publisher must invest an additional $30,000 to have 10,000 hardcover books ready for sale, using the figures from our prior alert. Once the digital template is created and distributed to the major vendors, on the other hand, there is no additional cost to having the book ready for purchase by an unlimited number of customers. Even the encryption fee (50 cents per book, at most) isn't incurred until the reader purchases the book. In this environment a publisher is nearly certain to keep print runs as short as possible, risking unavailability at bookstores, in order to decrease overall risk and maximize the publisher's return on investment.
Publishers, in short, will work to increase e-book sales at the inevitable expense of hardcover sales, tilting more and more purchases toward e-books, and their lower royalties. Publishers, as sensible, profit-maximizing entities, will work against their authors' best interests.
An Interim Solution: Negotiate an E-Royalty Floor
This won't go on forever. Bargain basement e-royalty rates are largely a result of negotiating indifference. The current industry standards for e-royalties began to gel a decade or so ago, when there was no e-book market to speak of. Authors and agents weren't willing to walk away from publishing contracts over a royalty clause that had little effect on the author's earnings.
Once the digital market gets large enough, authors with strong sales records won't put up with this: they'll go where they'll once again be paid as full partners in the exploitation of their creative work. That day is fast approaching, and would probably be here already, were it not for a tripwire in the contracts of thousands of in-print books. That tripwire? If the publisher increases its e-royalty rates for a new book, the e-royalty rates of countless in-print books from that publisher will automatically match the new rate or be subject to renegotiation.
So, what's to be done in the meantime? Here's a solution that won't cascade through countless backlist books: soften the e-bias by eliminating the author's e-loss. That is, negotiate for an e-royalty floor tied to the prevailing print book royalty amount.
Turning again to our last alert for examples, here are the calculations of e-losses and e-gains without an e-royalty floor:
"The Help," by Kathryn Stockett
Author's Standard Royalty: $3.75 hardcover; $2.28 e-book.
Author's E-Loss = -39%
Publisher's Margin: $4.75 hardcover; $6.32 e-book.
Publisher's E-Gain = +33%
"Hell's Corner," by David Baldacci
Author's Standard Royalty: $4.20 hardcover; $2.63 e-book.
Author's E-Loss = -37%
Publisher's Margin: $5.80 hardcover; $7.37 e-book.
Publisher's E-Gain = +27%
"Unbroken," by Laura Hillenbrand
Author's Standard Royalty: $4.05 hardcover; $3.38 e-book.
Author's E-Loss = -17%
Publisher's Margin: $5.45 hardcover; $9.62 e-book.
Publisher's E-Gain = +77%
Here are the calculations with an e-royalty floor:
"The Help," by Kathryn Stockett
Author's Adjusted Royalty: $3.75 hardcover; $3.75 e-book.
Author's E-Loss = Zero
Publisher's Margin: $4.75 hardcover; $4.85 e-book.
Publisher's E-Gain = +2%
"Hell's Corner," by David Baldacci
Author's Adjusted Royalty: $4.20 hardcover; $4.20 e-book.
Author's E-Loss = Zero
Publisher's Margin: $5.80 hardcover; $5.80 e-book.
Publisher's E-Gain = Zero
"Unbroken," by Laura Hillenbrand
Author's Adjusted Royalty: $4.05 hardcover; $4.05 e-book.
Author's E-Loss = Zero
Publisher's Margin: $5.45 hardcover; $8.85 e-book.
Publisher's E-Gain = +62%
While this wouldn't restore authors to full partnership status in the sale of their work, it would prevent them from being harmed as publishers try to maximize their revenues. This is only an interim solution, however. In the long run, authors will demand to be restored to full partnership, and someone will give them that status.
Part 4 of this series will look at online piracy and book publishing.
--------------------------------
*A traditional industry rule of thumb was that the price of a hardcover should be five or six times the cost of production. (John P. Dessauer, Book Publishing: What It Is, What It Does. R.R. Bowker 1974, p. 92). To keep the math simple, let's assume that it's priced at five times the cost of production, that there are no returns, and that the bookseller pays the publisher 50% of the list price for the book. Of the 50% the publisher receives, subtract 20% for the cost of production (one-fifth the retail price) and the net proceeds are 30% of the retail list price. Split that in two, and one arrives at the author's standard hardcover royalty, 15% of the retail list price. (A current rule of thumb is that the cost of producing a hardcover is about 15% of the retail price, but the actual costs vary widely.)
--------------------------------
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February 11, 2011. To mark the one-year anniversary of the Great Blackout, Amazon's weeklong shut down of e-commerce for nearly all of Macmillan's titles, we're sending out a series of alerts on the state of e-books, authorship, and publishing. The first installment ("How Apple Saved Barnes & Noble. Probably.") discussed the outcome, of that battle, which introduced a modicum of competition into the distribution of e-books. The second, ("E-Book Royalty Math: The House Always Wins") took up the long-simmering e-royalty debate, and showed that publishers generally do significantly better on e-book sales than on hardcover sales, while authors always do worse.
Today, we look at the implications of that disparity, and suggest an interim solution to minimize the harm to authors.
Negotiating a publishing contract is frequently contentious, but authors have long been able to take comfort in this: once the contract is signed, the interests of the author and the publisher are largely aligned. If the publisher works to maximize its revenues, it will necessarily work to maximize the author's royalties. This is the heart of the traditional bargain, whereby the author licenses the publisher long-term, exclusive book rights in the world's largest book market in exchange for an advance and the promise of diligently working to the joint benefit of author and publisher.
Now, for the first time, publishers have strong incentives to work against the author's interests.
As we discussed in our last alert, authors and publishers have traditionally acted as equal partners, splitting the net proceeds from book sales. Most sublicenses, for example, provide for a fifty-fifty split of proceeds, and the standard hardcover trade book royalty -- 15% of the retail price -- represented half of the net proceeds from selling the book when the standard was established.* But trade book publishers currently offer e-book royalties at precisely half what the terms of a traditional proceeds-sharing arrangement would dictate -- paying just 25% of net income on e-book sales. That's why the shift from hardcover to e-book sales is a win for publishers, a loss for authors.
The Pushback
The publisher's standard reply to this -- which we heard yet again after last week's alert -- is a muddle, conflating fixed costs with variable costs. Let's address that before we move on.
For any book, a publisher has two types of fixed costs: those attributable to the publisher's operations as a whole (office overhead, investments in infrastructure, etc.) and those attributable to the particular work (author's advance, editing, design). The variable costs for the book are the unit costs of production. These costs (print, paper, binding, returns, royalty) tell a publisher how much more it costs to get, say, 10,000 additional hardcover books to stores and sell them. The publisher's gross profit per unit (unit income minus unit costs) is the amount against which the author's royalties are traditionally and properly measured. With this sort of analysis, a publisher can compare the gross profitability per unit of, for example, a hardcover to a trade paperback edition.
Investments in technology change nothing. Publishers never argued, for example, that hardcover royalties needed to be cut when they began equipping their editorial and design staffs with expensive (at the time) personal computers, buying pricey computers and software for their designers, tying those computers together with ever-more-powerful Ethernet cables and routers, and hiring support staff to maintain it all. Publishers simply took their share of the gross profits from book sales and applied it to all of their costs, as they always have. What remains after deducting those costs is deemed the publisher's net profit. Similarly, authors take their share of the proceeds of their book sales and apply it to their overhead (food, clothing, shelter, and computer technology) and costs (their labor and out-of-pocket costs to write the manuscript). What remains is the author's net profit.
The proper question is this: how much better off is a publisher if it sells a book, print or digital, than it is if it doesn't? That is what we measured. We then compared that to the author's print and digital royalties per book.
Publisher's E-Gains + Author's E-Losses = E-Bias
Applying standard trade hardcover and e-book terms to Kathryn Stockett's "The Help," David Baldacci's "Hell's Corner," and Laura Hillenbrand's "Unbroken," we found that publishers do far better by selling e-books than hardcovers (realizing "e-gains" of 27% to 77%), while the authors do much worse (suffering "e-losses" of 17% to 39%). Publishers can't help being influenced by the gains; e-bias will inevitably drive their decisions.
Some simplified examples show how e-bias plays out in publishing decisions:
1. Promotional Bias. Assume a publisher is contemplating whether to invest a portion of a book's limited marketing budget in stimulating the sale of digital books (paying for featured placement in the Kindle or Nook stores, perhaps) or in encouraging print sales through a promotion at physical bookstores. Either way, the publisher expects the investment to boost sales by 1,000 copies. A sensible publisher would spend the money to promote digital books, pocketing an additional $1,570 to $4,170 on those sales compared to hardcover sales. Such a decision, however, would cost Ms. Stockett, Mr. Baldacci, and Ms. Hillenbrand $1,470, $1,570, and $670, respectively, in royalties.
2. Print-Run Bias. E-gains of 27% to 77% become irresistible when a publisher looks at risk-adjusted returns on investment, as any businessperson would. Once a book is typeset for print, the publisher must invest an additional $30,000 to have 10,000 hardcover books ready for sale, using the figures from our prior alert. Once the digital template is created and distributed to the major vendors, on the other hand, there is no additional cost to having the book ready for purchase by an unlimited number of customers. Even the encryption fee (50 cents per book, at most) isn't incurred until the reader purchases the book. In this environment a publisher is nearly certain to keep print runs as short as possible, risking unavailability at bookstores, in order to decrease overall risk and maximize the publisher's return on investment.
Publishers, in short, will work to increase e-book sales at the inevitable expense of hardcover sales, tilting more and more purchases toward e-books, and their lower royalties. Publishers, as sensible, profit-maximizing entities, will work against their authors' best interests.
An Interim Solution: Negotiate an E-Royalty Floor
This won't go on forever. Bargain basement e-royalty rates are largely a result of negotiating indifference. The current industry standards for e-royalties began to gel a decade or so ago, when there was no e-book market to speak of. Authors and agents weren't willing to walk away from publishing contracts over a royalty clause that had little effect on the author's earnings.
Once the digital market gets large enough, authors with strong sales records won't put up with this: they'll go where they'll once again be paid as full partners in the exploitation of their creative work. That day is fast approaching, and would probably be here already, were it not for a tripwire in the contracts of thousands of in-print books. That tripwire? If the publisher increases its e-royalty rates for a new book, the e-royalty rates of countless in-print books from that publisher will automatically match the new rate or be subject to renegotiation.
So, what's to be done in the meantime? Here's a solution that won't cascade through countless backlist books: soften the e-bias by eliminating the author's e-loss. That is, negotiate for an e-royalty floor tied to the prevailing print book royalty amount.
Turning again to our last alert for examples, here are the calculations of e-losses and e-gains without an e-royalty floor:
"The Help," by Kathryn Stockett
Author's Standard Royalty: $3.75 hardcover; $2.28 e-book.
Author's E-Loss = -39%
Publisher's Margin: $4.75 hardcover; $6.32 e-book.
Publisher's E-Gain = +33%
"Hell's Corner," by David Baldacci
Author's Standard Royalty: $4.20 hardcover; $2.63 e-book.
Author's E-Loss = -37%
Publisher's Margin: $5.80 hardcover; $7.37 e-book.
Publisher's E-Gain = +27%
"Unbroken," by Laura Hillenbrand
Author's Standard Royalty: $4.05 hardcover; $3.38 e-book.
Author's E-Loss = -17%
Publisher's Margin: $5.45 hardcover; $9.62 e-book.
Publisher's E-Gain = +77%
Here are the calculations with an e-royalty floor:
"The Help," by Kathryn Stockett
Author's Adjusted Royalty: $3.75 hardcover; $3.75 e-book.
Author's E-Loss = Zero
Publisher's Margin: $4.75 hardcover; $4.85 e-book.
Publisher's E-Gain = +2%
"Hell's Corner," by David Baldacci
Author's Adjusted Royalty: $4.20 hardcover; $4.20 e-book.
Author's E-Loss = Zero
Publisher's Margin: $5.80 hardcover; $5.80 e-book.
Publisher's E-Gain = Zero
"Unbroken," by Laura Hillenbrand
Author's Adjusted Royalty: $4.05 hardcover; $4.05 e-book.
Author's E-Loss = Zero
Publisher's Margin: $5.45 hardcover; $8.85 e-book.
Publisher's E-Gain = +62%
While this wouldn't restore authors to full partnership status in the sale of their work, it would prevent them from being harmed as publishers try to maximize their revenues. This is only an interim solution, however. In the long run, authors will demand to be restored to full partnership, and someone will give them that status.
Part 4 of this series will look at online piracy and book publishing.
--------------------------------
*A traditional industry rule of thumb was that the price of a hardcover should be five or six times the cost of production. (John P. Dessauer, Book Publishing: What It Is, What It Does. R.R. Bowker 1974, p. 92). To keep the math simple, let's assume that it's priced at five times the cost of production, that there are no returns, and that the bookseller pays the publisher 50% of the list price for the book. Of the 50% the publisher receives, subtract 20% for the cost of production (one-fifth the retail price) and the net proceeds are 30% of the retail list price. Split that in two, and one arrives at the author's standard hardcover royalty, 15% of the retail list price. (A current rule of thumb is that the cost of producing a hardcover is about 15% of the retail price, but the actual costs vary widely.)
--------------------------------
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05 February 2011
Authors Guild on eBooks, Part 2: E-Book Royalty Math: The Big Tilt
You'd better open your doors because this is going to blow them right off. Feel free to Tweet or repost.
E-Book Royalty Math: The Big Tilt
To mark the one-year anniversary of the Great Blackout, Amazon's weeklong shut down of e-commerce for nearly all of Macmillan's titles, we’re sending out a series of alerts this week and next on the state of e-books, authorship, and publishing. The first installment (“How Apple Saved Barnes & Noble. Probably.”) discussed the outcome, one year later, of that battle. Today, we look at the e-royalty debate, which has been simmering for a while, but is likely to soon heat up as the e-book market grows.
E-book royalty rates for major trade publishers have coalesced, for the moment, at 25% of the publisher’s receipts. As we’ve pointed out previously, this is contrary to longstanding tradition in trade book publishing, in which authors and publishers effectively split the net proceeds of book sales (that's how the industry arrived at the standard hardcover royalty rate of 15% of list price). Among the ills of this radical pay cut is the distorting effect it has on publishers’ incentives: publishers generally do significantly better on e-book sales than they do on hardcover sales. Authors, on the other hand, always do worse.
How much better for the publisher and how much worse for the author? Here are examples of author’s royalties compared to publisher’s gross profit (income per copy minus expenses per copy), calculated using industry-standard contract terms:
“The Help,” by Kathryn Stockett
Author’s Standard Royalty: $3.75 hardcover; $2.28 e-book. Author’s E-Loss = -39%
Publisher’s Margin: $4.75 hardcover; $6.32 e-book. Publisher’s E-Gain = +33%
“Hell’s Corner,” by David Baldacci
Author's Standard Royalty: $4.20 hardcover; $2.63 e-book. Author’s E-Loss = -37%
Publisher’s Margin: $5.80 hardcover; $7.37 e-book. Publisher’s E-Gain = +27%
“Unbroken,” by Laura Hillenbrand
Author’s Standard Royalty: $4.05 hardcover; $3.38 e-book. Author’s E-Loss = -17%
Publisher’s Margin: $5.45 hardcover; $9.62 e-book. Publisher’s E-Gain = +77%
So, everything else being equal, publishers will naturally have a strong bias toward e-book sales. It certainly does wonders for cash flow: not only does the publisher net more, but the reduced royalty means that every time an e-book purchase displaces a hardcover purchase, the odds that the author’s advance will earn out -- and the publisher will have to cut a check for royalties -- diminishes. In more ways than one, the author’s e-loss is the publisher’s e-gain.
Inertia, unfortunately, is embedded in the contractual landscape. If the publisher were to offer more equitable e-royalties in new contracts, it would ripple through much of the publisher’s catalog: most major trade publishers have thousands of contracts that require an automatic adjustment or renegotiation of e-book royalties if the publisher starts offering better terms. (Some publishers finesse this issue when they amend older contracts, many of which allow e-royalty rates to quickly escalate to 40% of the publisher’s receipts. Amending old contracts to grant the publisher digital rights doesn’t trigger the automatic adjustment, in the publisher's view.) Given these substantial collateral costs, publishers will continue to strongly resist changes to their e-book royalties for new books.
Resistance, in the long run, will be futile. As the e-book market continues to grow, competitive pressures will almost certainly force publishers to share e-book proceeds fairly. Authors with clout simply won’t put up with junior partner status in an increasingly important market. New publishers are already willing to share fairly. Once one of those publishers has the capital to pay even a handful of authors meaningful advances, or a major trade publisher decides to take the plunge, the tipping point will likely be at hand.
In the meantime, what’s to be done? We’ll address that in our next installment in this series, on Monday.
Our assumptions and calculations for the figures above follow.
--------------------------------------------------------
Doing the Numbers: Hardcover
To keep things as simple as possible, we assumed that for hardcovers: (1) the publisher sells at an average 50% discount to the wholesaler or retailer (2) the royalty rate is 15% of list price (as it is for most hardcover books, after 10,000 units are sold), (3) the average marginal cost to manufacture the book and get it to the store is $3, and (4) the return rate is 25% (a handy number -- if one of four books produced is returned, then the $3 marginal cost of producing the book is spread over three other books, giving us a return cost of $1 per book). We also rounded up retail list price a few pennies to give us easy figures to work with.
“The Help,” by Kathryn Stockett has a hardcover retail list price of $25. The standard royalty (15% of list) would be $3.75. The publisher grosses $12.50 per book at a 50% discount. Subtract from that the author's royalty ($3.75), cost of production ($3), and cost of returns ($1), and the publisher nets $4.75 on the sale of a hardcover book.
“Hell’s Corner” by David Baldacci, has a retail list price is $28. The standard royalty is $4.20; the publisher's gross is $14. Subtract royalties ($4.20), production and return costs ($4), and the publisher nets $5.80.
“Unbroken,” by Laura Hillenbrand has a hardcover list price of $27. Standard royalties are $4.05. The publisher's gross is $13.50. Subtract royalties of $4.05 and production and return costs of $4, and the publisher nets $5.45.
Doing the Numbers: E-Book
E-book royalty rates are uniform among the major trade publishers, but pricing and discounting formulas fall into two camps: the reseller model favored by Amazon (Random House is the only large trade publisher using this model) and the agency model introduced by Apple a year ago. (See yesterday’s alert for more information on these models.)
Under the reseller model, the online bookseller pays 50% of the retail list price of the book to the publisher and sells the book at whatever price the bookseller chooses (for bestsellers, Amazon typically sells Random House e-books at a significant loss). Random House frequently prices the e-book at the same price as the hardcover until a paperback edition is available.
Under the agency model, the online bookseller pays 70% of the retail list price of the e-book to the publisher. The bookseller, acting as the publisher’s agent, sells the e-book at the price established by the publisher, but the publisher is constrained by agreement with Apple and others to set a price significantly below that for the hardcover version.
The unit costs to the publisher, under either model, are simply the author’s royalty and the encryption fee, for which we’ll use a generous 50 cents per unit.
Here’s the math:
“The Help” has an e-book list price of $13 and is sold under the agency model. Publisher grosses 70% of retail price, or $9.10. Author's royalty is 25% of publisher receipts, or $2.28. Publisher nets $6.32. ($9.10 minus $2.28 royalties and $0.50 encryption fee.)
“Hell’s Corner” is also sold under the agency model at a retail list price of $15 list price. Publisher grosses 70% of retail price, $10.50. Author's royalty is 25% of publisher receipts, or $2.63. Publisher nets $7.37. ($10.50 minus $2.63 royalties and $0.50 encryption fee.)
“Unbroken” is sold by Random House under the reseller model at a retail list price of $27. Publisher grosses $13.50 on the sale. Author’s royalty, at 25%, is $3.38. Random House nets $9.62. ($13.50 minus $3.38 royalties and $0.50 encryption fee.)
------------
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E-Book Royalty Math: The Big Tilt
To mark the one-year anniversary of the Great Blackout, Amazon's weeklong shut down of e-commerce for nearly all of Macmillan's titles, we’re sending out a series of alerts this week and next on the state of e-books, authorship, and publishing. The first installment (“How Apple Saved Barnes & Noble. Probably.”) discussed the outcome, one year later, of that battle. Today, we look at the e-royalty debate, which has been simmering for a while, but is likely to soon heat up as the e-book market grows.
E-book royalty rates for major trade publishers have coalesced, for the moment, at 25% of the publisher’s receipts. As we’ve pointed out previously, this is contrary to longstanding tradition in trade book publishing, in which authors and publishers effectively split the net proceeds of book sales (that's how the industry arrived at the standard hardcover royalty rate of 15% of list price). Among the ills of this radical pay cut is the distorting effect it has on publishers’ incentives: publishers generally do significantly better on e-book sales than they do on hardcover sales. Authors, on the other hand, always do worse.
How much better for the publisher and how much worse for the author? Here are examples of author’s royalties compared to publisher’s gross profit (income per copy minus expenses per copy), calculated using industry-standard contract terms:
“The Help,” by Kathryn Stockett
Author’s Standard Royalty: $3.75 hardcover; $2.28 e-book. Author’s E-Loss = -39%
Publisher’s Margin: $4.75 hardcover; $6.32 e-book. Publisher’s E-Gain = +33%
“Hell’s Corner,” by David Baldacci
Author's Standard Royalty: $4.20 hardcover; $2.63 e-book. Author’s E-Loss = -37%
Publisher’s Margin: $5.80 hardcover; $7.37 e-book. Publisher’s E-Gain = +27%
“Unbroken,” by Laura Hillenbrand
Author’s Standard Royalty: $4.05 hardcover; $3.38 e-book. Author’s E-Loss = -17%
Publisher’s Margin: $5.45 hardcover; $9.62 e-book. Publisher’s E-Gain = +77%
So, everything else being equal, publishers will naturally have a strong bias toward e-book sales. It certainly does wonders for cash flow: not only does the publisher net more, but the reduced royalty means that every time an e-book purchase displaces a hardcover purchase, the odds that the author’s advance will earn out -- and the publisher will have to cut a check for royalties -- diminishes. In more ways than one, the author’s e-loss is the publisher’s e-gain.
Inertia, unfortunately, is embedded in the contractual landscape. If the publisher were to offer more equitable e-royalties in new contracts, it would ripple through much of the publisher’s catalog: most major trade publishers have thousands of contracts that require an automatic adjustment or renegotiation of e-book royalties if the publisher starts offering better terms. (Some publishers finesse this issue when they amend older contracts, many of which allow e-royalty rates to quickly escalate to 40% of the publisher’s receipts. Amending old contracts to grant the publisher digital rights doesn’t trigger the automatic adjustment, in the publisher's view.) Given these substantial collateral costs, publishers will continue to strongly resist changes to their e-book royalties for new books.
Resistance, in the long run, will be futile. As the e-book market continues to grow, competitive pressures will almost certainly force publishers to share e-book proceeds fairly. Authors with clout simply won’t put up with junior partner status in an increasingly important market. New publishers are already willing to share fairly. Once one of those publishers has the capital to pay even a handful of authors meaningful advances, or a major trade publisher decides to take the plunge, the tipping point will likely be at hand.
In the meantime, what’s to be done? We’ll address that in our next installment in this series, on Monday.
Our assumptions and calculations for the figures above follow.
--------------------------------------------------------
Doing the Numbers: Hardcover
To keep things as simple as possible, we assumed that for hardcovers: (1) the publisher sells at an average 50% discount to the wholesaler or retailer (2) the royalty rate is 15% of list price (as it is for most hardcover books, after 10,000 units are sold), (3) the average marginal cost to manufacture the book and get it to the store is $3, and (4) the return rate is 25% (a handy number -- if one of four books produced is returned, then the $3 marginal cost of producing the book is spread over three other books, giving us a return cost of $1 per book). We also rounded up retail list price a few pennies to give us easy figures to work with.
“The Help,” by Kathryn Stockett has a hardcover retail list price of $25. The standard royalty (15% of list) would be $3.75. The publisher grosses $12.50 per book at a 50% discount. Subtract from that the author's royalty ($3.75), cost of production ($3), and cost of returns ($1), and the publisher nets $4.75 on the sale of a hardcover book.
“Hell’s Corner” by David Baldacci, has a retail list price is $28. The standard royalty is $4.20; the publisher's gross is $14. Subtract royalties ($4.20), production and return costs ($4), and the publisher nets $5.80.
“Unbroken,” by Laura Hillenbrand has a hardcover list price of $27. Standard royalties are $4.05. The publisher's gross is $13.50. Subtract royalties of $4.05 and production and return costs of $4, and the publisher nets $5.45.
Doing the Numbers: E-Book
E-book royalty rates are uniform among the major trade publishers, but pricing and discounting formulas fall into two camps: the reseller model favored by Amazon (Random House is the only large trade publisher using this model) and the agency model introduced by Apple a year ago. (See yesterday’s alert for more information on these models.)
Under the reseller model, the online bookseller pays 50% of the retail list price of the book to the publisher and sells the book at whatever price the bookseller chooses (for bestsellers, Amazon typically sells Random House e-books at a significant loss). Random House frequently prices the e-book at the same price as the hardcover until a paperback edition is available.
Under the agency model, the online bookseller pays 70% of the retail list price of the e-book to the publisher. The bookseller, acting as the publisher’s agent, sells the e-book at the price established by the publisher, but the publisher is constrained by agreement with Apple and others to set a price significantly below that for the hardcover version.
The unit costs to the publisher, under either model, are simply the author’s royalty and the encryption fee, for which we’ll use a generous 50 cents per unit.
Here’s the math:
“The Help” has an e-book list price of $13 and is sold under the agency model. Publisher grosses 70% of retail price, or $9.10. Author's royalty is 25% of publisher receipts, or $2.28. Publisher nets $6.32. ($9.10 minus $2.28 royalties and $0.50 encryption fee.)
“Hell’s Corner” is also sold under the agency model at a retail list price of $15 list price. Publisher grosses 70% of retail price, $10.50. Author's royalty is 25% of publisher receipts, or $2.63. Publisher nets $7.37. ($10.50 minus $2.63 royalties and $0.50 encryption fee.)
“Unbroken” is sold by Random House under the reseller model at a retail list price of $27. Publisher grosses $13.50 on the sale. Author’s royalty, at 25%, is $3.38. Random House nets $9.62. ($13.50 minus $3.38 royalties and $0.50 encryption fee.)
------------
Feel free to forward, post, or tweet. Here is a short URL for linking: http://tiny.cc/r71q0
04 February 2011
How Apple Saved Barnes & Noble. Probably.
Here's the text on an email I recieved from the Authors Guild this week:
How Apple Saved Barnes & Noble. Probably.
Happy blackout anniversary! Where were you when the lights went out? We're sending out a series of alerts this week and next that look at the state of e-books, authorship and publishing to mark the one-year anniversary of the Great Blackout, when Amazon attempted to protect its near complete dominance of the rapidly growing e-book market through a stunning, punitive act against a publisher that dared to challenge its terms. (To see our account of this showdown as it happened -- posted last Groundhog Day -- go to "The Right Battle at the Right Time.")
It was one year ago last Saturday that Amazon turned out the lights on nearly all of Macmillan's books, removing the "buy buttons" from the print and electronic editions of thousands of titles. Macmillan authors, many of whom had linked their websites to Amazon pages that were suddenly disabled and useless, found themselves cut off from readers who frequented the dominant online bookstore.
Amazon's stunning move was a preemptive strike, an attempt to keep Macmillan from going through with its plan to shift to an "agency model" for selling e-books. Macmillan, which immediately saw its online sales plummet, stood firm and prevailed: Amazon ended the blackout after a week.
The story of the blackout and its aftermath reveals much about the high-stakes device and format war that's reshaping the publishing industry. Last year's Amazon-Macmillan showdown was a critical battle in that war.
One Year Ago: Amazon's 90% E-Book Market Share
By last January, Amazon seemed destined to retain an overwhelming share of the e-book market. It then, by most accounts, commanded about 90% of the U.S. trade e-book market. Barnes & Noble had entered the game just two months before, launching the Nook in time, barely, for the critical holiday season. Few in the industry were optimistic about Barnes & Noble's e-book efforts, however.
Amazon's strategy, it seemed clear, was to leverage its formidable advantages -- including its dominance of the online print book market -- to all but lock up the e-book market. If it was successful, Amazon would control the equivalent of a vast online book club. Any publisher wanting to sell to the club would have to agree to Amazon's terms. This was an ugly prospect: book clubs tend to be resilient, but ultra low-margin enterprises for all involved, except the proprietor.
Amazon went all-in with the Kindle and its proprietary e-reading software. This commitment was most evident on Amazon's home page -- surely the most valuable retail space on the Internet -- on which it featured the Kindle nearly every day since its launch.
Amazon's most potent weapon in the e-book format and device war, however, was the strategy it deployed so effectively in its conquest of online bookselling: using its seemingly limitless financial resources to discount books at rates no competitor could long sustain. Amazon now pushed this tactic to a new level, routinely buying e-books at wholesale prices of $13 and $14 and immediately selling them at a loss, for $9.99. This not only built customer enthusiasm for the Kindle and e-books, but helped crush online and offline competitors that were selling physical books. Amazon could win the future as it finished off the past.
The prospects for Barnes & Noble in this environment were decidedly grim. Its net income had plummeted during the recession, falling 65% in two years. For Amazon, however, it was as if the Great Recession hadn't happened. Its revenues had grown 65% and its net income increased 72% over the prior two years. Its market capitalization, which had climbed past $55 billion (it stands at $77 billion today), towered over Barnes & Noble's $1 billion.
The e-book market, by all appearances, was for sale to the highest bidder -- the retailer willing and able to sell the most digital books at a loss. Barnes & Noble was in no shape to compete against Amazon in that game.
Then the game shifted.
Enter Apple
On Wednesday, January 27, 2010, Steve Jobs announced the launch of the iPad and the iBookstore.
Apple wouldn't sell e-books under the reseller model that Amazon had been using to lock down the market. (Under that model, the publisher sells e-books to a reseller at a discount of about 50%. The reseller can then sell the e-book at any price, constrained only by antitrust law and the reseller's ability to absorb losses.) Instead, Apple would sell e-books under the same "agency model" it used for iPhone apps. Under the agency model, Apple acts as the publisher's agent, selling e-books at the price established by the publisher and taking a 30% commission on each sale. To participate, a publisher would have to agree to a set of ceilings on e-book prices, generally $12.99 or $13.99 for new books. A publisher would also have to agree not to sell to others under more favorable terms.
If the agency model took hold, unfettered discounting of e-books would be out. Amazon would lose its ability to buy market share in a nascent, booming industry.
Five of the big six trade publishers (not Random House) allowed their logos to be displayed at Apple's iPad announcement. The next day, Thursday, Macmillan CEO John Sargent informed Amazon that it would be shifting to the agency model when the iPad was released. It appears that he was the first publisher to do so.
If there were any doubts about the stakes in this battle, they were erased the following day, when Amazon retaliated by removing the buy buttons from all Macmillan titles (with exceptions for textbooks and scholarly books, where Amazon faced stiff online competition). It removed the buy buttons from all editions -- not just the electronic version -- in an attempt to use its clout in the print book industry to enforce its preferred business model in the e-book industry.
Though the e-book market was growing fast, cutting off Macmillan and its authors from Amazon's print book market -- Amazon controlled an estimated 75% of online trade book print sales in the U.S. at the time -- was far more punitive than just severing Macmillan's ties to the e-book market. Amazon had used this buy button removal tactic before to punish publishers in the U.S. and the U.K. who fail to fall in line with Amazon's business plans, but it had never done so as boldly or comprehensively.
Amazon blinked, perhaps after consulting with antitrust counsel. After a one-week blackout, Amazon and Macmillan came to terms, and Macmillan could sell e-books through Amazon using the agency model. Four of the other big six would come to terms with Amazon on the agency model. Random House, the largest trade publisher, has chosen not to use the agency model, for reasons we will describe in the future (hint: Stieg Larsson).
One Year Later
Barnes & Noble is, unexpectedly, the biggest beneficiary of Apple's entry into the e-book market. With five of the big six trade book publishers using the agency model, Barnes & Noble was able to enter the e-book market based largely on its customer relationships and on technological innovation, rather than on its willingness to burn through capital to subsidize book sales. Its share of the e-book market has grown rapidly over the past year, approaching 20% of trade sales. Its introduction of the Nook Color reportedly gave it a substantial lift over the holidays.
Barnes & Noble still finds itself subsidizing sales of Random House e-books -- it generally matches Amazon's price on those titles -- but those costs appear manageable. Barnes & Noble faces substantial challenges, as do all physical bookstores, as publishing moves to its partly digital future, but it appears to have regained its footing. Should the agency model ever collapse, however, Barnes & Noble could quickly find itself at Amazon's mercy. Amazon's growth and profitability continue to soar, and its appetite for out-discounting competitors at any cost appears undiminished.
In the meantime, Apple is not standing still. According to numerous, but conflicting, reports Apple may be revising the terms for booksellers using iPhone and iPad apps as e-readers. We will be watching these developments closely.
Tomorrow: The E-Royalty Debate
------------
Feel free to forward, post, or tweet. Here is a short URL for linking: http://tiny.cc/s6433
How Apple Saved Barnes & Noble. Probably.
Happy blackout anniversary! Where were you when the lights went out? We're sending out a series of alerts this week and next that look at the state of e-books, authorship and publishing to mark the one-year anniversary of the Great Blackout, when Amazon attempted to protect its near complete dominance of the rapidly growing e-book market through a stunning, punitive act against a publisher that dared to challenge its terms. (To see our account of this showdown as it happened -- posted last Groundhog Day -- go to "The Right Battle at the Right Time.")
It was one year ago last Saturday that Amazon turned out the lights on nearly all of Macmillan's books, removing the "buy buttons" from the print and electronic editions of thousands of titles. Macmillan authors, many of whom had linked their websites to Amazon pages that were suddenly disabled and useless, found themselves cut off from readers who frequented the dominant online bookstore.
Amazon's stunning move was a preemptive strike, an attempt to keep Macmillan from going through with its plan to shift to an "agency model" for selling e-books. Macmillan, which immediately saw its online sales plummet, stood firm and prevailed: Amazon ended the blackout after a week.
The story of the blackout and its aftermath reveals much about the high-stakes device and format war that's reshaping the publishing industry. Last year's Amazon-Macmillan showdown was a critical battle in that war.
One Year Ago: Amazon's 90% E-Book Market Share
By last January, Amazon seemed destined to retain an overwhelming share of the e-book market. It then, by most accounts, commanded about 90% of the U.S. trade e-book market. Barnes & Noble had entered the game just two months before, launching the Nook in time, barely, for the critical holiday season. Few in the industry were optimistic about Barnes & Noble's e-book efforts, however.
Amazon's strategy, it seemed clear, was to leverage its formidable advantages -- including its dominance of the online print book market -- to all but lock up the e-book market. If it was successful, Amazon would control the equivalent of a vast online book club. Any publisher wanting to sell to the club would have to agree to Amazon's terms. This was an ugly prospect: book clubs tend to be resilient, but ultra low-margin enterprises for all involved, except the proprietor.
Amazon went all-in with the Kindle and its proprietary e-reading software. This commitment was most evident on Amazon's home page -- surely the most valuable retail space on the Internet -- on which it featured the Kindle nearly every day since its launch.
Amazon's most potent weapon in the e-book format and device war, however, was the strategy it deployed so effectively in its conquest of online bookselling: using its seemingly limitless financial resources to discount books at rates no competitor could long sustain. Amazon now pushed this tactic to a new level, routinely buying e-books at wholesale prices of $13 and $14 and immediately selling them at a loss, for $9.99. This not only built customer enthusiasm for the Kindle and e-books, but helped crush online and offline competitors that were selling physical books. Amazon could win the future as it finished off the past.
The prospects for Barnes & Noble in this environment were decidedly grim. Its net income had plummeted during the recession, falling 65% in two years. For Amazon, however, it was as if the Great Recession hadn't happened. Its revenues had grown 65% and its net income increased 72% over the prior two years. Its market capitalization, which had climbed past $55 billion (it stands at $77 billion today), towered over Barnes & Noble's $1 billion.
The e-book market, by all appearances, was for sale to the highest bidder -- the retailer willing and able to sell the most digital books at a loss. Barnes & Noble was in no shape to compete against Amazon in that game.
Then the game shifted.
Enter Apple
On Wednesday, January 27, 2010, Steve Jobs announced the launch of the iPad and the iBookstore.
Apple wouldn't sell e-books under the reseller model that Amazon had been using to lock down the market. (Under that model, the publisher sells e-books to a reseller at a discount of about 50%. The reseller can then sell the e-book at any price, constrained only by antitrust law and the reseller's ability to absorb losses.) Instead, Apple would sell e-books under the same "agency model" it used for iPhone apps. Under the agency model, Apple acts as the publisher's agent, selling e-books at the price established by the publisher and taking a 30% commission on each sale. To participate, a publisher would have to agree to a set of ceilings on e-book prices, generally $12.99 or $13.99 for new books. A publisher would also have to agree not to sell to others under more favorable terms.
If the agency model took hold, unfettered discounting of e-books would be out. Amazon would lose its ability to buy market share in a nascent, booming industry.
Five of the big six trade publishers (not Random House) allowed their logos to be displayed at Apple's iPad announcement. The next day, Thursday, Macmillan CEO John Sargent informed Amazon that it would be shifting to the agency model when the iPad was released. It appears that he was the first publisher to do so.
If there were any doubts about the stakes in this battle, they were erased the following day, when Amazon retaliated by removing the buy buttons from all Macmillan titles (with exceptions for textbooks and scholarly books, where Amazon faced stiff online competition). It removed the buy buttons from all editions -- not just the electronic version -- in an attempt to use its clout in the print book industry to enforce its preferred business model in the e-book industry.
Though the e-book market was growing fast, cutting off Macmillan and its authors from Amazon's print book market -- Amazon controlled an estimated 75% of online trade book print sales in the U.S. at the time -- was far more punitive than just severing Macmillan's ties to the e-book market. Amazon had used this buy button removal tactic before to punish publishers in the U.S. and the U.K. who fail to fall in line with Amazon's business plans, but it had never done so as boldly or comprehensively.
Amazon blinked, perhaps after consulting with antitrust counsel. After a one-week blackout, Amazon and Macmillan came to terms, and Macmillan could sell e-books through Amazon using the agency model. Four of the other big six would come to terms with Amazon on the agency model. Random House, the largest trade publisher, has chosen not to use the agency model, for reasons we will describe in the future (hint: Stieg Larsson).
One Year Later
Barnes & Noble is, unexpectedly, the biggest beneficiary of Apple's entry into the e-book market. With five of the big six trade book publishers using the agency model, Barnes & Noble was able to enter the e-book market based largely on its customer relationships and on technological innovation, rather than on its willingness to burn through capital to subsidize book sales. Its share of the e-book market has grown rapidly over the past year, approaching 20% of trade sales. Its introduction of the Nook Color reportedly gave it a substantial lift over the holidays.
Barnes & Noble still finds itself subsidizing sales of Random House e-books -- it generally matches Amazon's price on those titles -- but those costs appear manageable. Barnes & Noble faces substantial challenges, as do all physical bookstores, as publishing moves to its partly digital future, but it appears to have regained its footing. Should the agency model ever collapse, however, Barnes & Noble could quickly find itself at Amazon's mercy. Amazon's growth and profitability continue to soar, and its appetite for out-discounting competitors at any cost appears undiminished.
In the meantime, Apple is not standing still. According to numerous, but conflicting, reports Apple may be revising the terms for booksellers using iPhone and iPad apps as e-readers. We will be watching these developments closely.
Tomorrow: The E-Royalty Debate
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25 January 2011
5 Rules for Indie Publishing
Back in September or October, Heidi and I really started kicking around the idea of flipping the Big 6 the bird (more my idea, I don't think Heidi approves of flipping of said bird) and following the course Joe Konrath, David Morrell and others are plotting.
We spent a week or two trying to figure out what criteria we'd use to ultimately make the decision to publish on our own, and came up with 5 rules or guideline we'd use to aid in our decision-making.
Here they are (count 'em, kids) for your perusing pleasure:
1. Know why you're publishing independently
This is a no-brainer. Independent publishing can not be a last resort after years spent collecting rejections from agents, big publishers, small publishers, ePublishers, etc.. The decision has to be--HAS TO BE--the writer's first choice.
Why?
If you are not going to treat your book the way a publisher--who'd spend thousands of dollars to print, market and distribute--is going to treat it, then independent publishing probably isn't going to be for you. You have to love it enough to make sure it receives the attention it deserves and have to be 100% committed to selling the crap out of it and believing in it. You have to believe you know what's best for your book.
It's your baby. Don't leave it locked up in a hot car while you drink beer.
2. Know risk to gain ratio
Our experience with a major travel publisher taught us a few things. It taught us that a publisher isn't always going to do the things it says it's going to do. Our publicist's campaign for our book consisted of sending .jpgs of our cover to bookstores prior to signings that we'd set up ourselves. Our publicist contacted no local media and couldn't even get us postcards or promotional material to take to conferences and conventions we'd attended on our own dime. We didn't expect subway posters and bus stops, but c'mon. Don't pee on my leg and tell me that's what I paid for.
Then the publisher printed a second edition of our book while continuing to call it a first edition and we haven't seen a royalty statement in months.
I know that some people have great experience with publishers. We haven't.
I'll gladly collect 70% instead of 12% to do the work my wife and I have been doing since our book was released--to promote a book that I've sweated and lost more sleep over than a publisher ever would. And I know that if I fail, the failure is my own.
But I'd rather fail on my own than fail because my query wasn't good enough, because a publisher cut my print run, because I got a contract for a print run I could never sell out, because marketing decided my book was urban fantasy instead of supernatural suspense, because the release date coincided with a release by Snooki or Nicole Richie.
And I'd rather take 70% of $2.99 for a book I spent 10,000 hours on than take 10% of $19.99 for a book a publisher spent a week on.
3. Know what you're compromising
->I'm losing the valuable experience of thousands of cumulative hours shared by the agents, editors and marketing departments who'd have a hand in publishing my book.
But I trust my associates from Seton Hill and the friends I've made at conferences and conventions to give me the same type of support. I know the relationships wouldn't be the same--some would be less personal, some more--but it's a price I pay. (And I wouldn't trust some of the professionals I've met at conferences and conventions with a laundry list or a recipe, let alone a manuscript. I'm looking at you, ------ -----------!)
->I'm losing national distribution.
We know that's not true anymore.
->I'm losing credibility.
I'm not sure that a Big 6 contract guarantees credibility either. I have a master's degree, am adjunct faculty at a distinguished university and am a member of The Authors Guild. I've worked with a major publisher on a big non-fiction project. I'm not Stephen King. But neither is Snooki.
4. Know that you are the company
You pick your release date. You choose a cover. You market it. You go to conferences and signings to represent yourself and the book. You are responsible for your own finances. You deal with complaints from readers. You contact local media. You set up signings and purchase all of your own promotional material. You pay somebody to format the book or you format it yourself. You get the pat on the back. You hang your head when readers point out typos and plot holes that you've missed.
5. Know if you have the time and energy
In addition to writing the book, you do all of the things mentioned above. And then you have to write another book. There's a lot of discussion on Konrath's blog about authors with multiple books doing better than authors with only one. Check out http://jakonrath.blogspot.com/ to read what people who have a hell of a lot more experience in independent publishing (and 'real' publishing) than me have to say about it.
I don't know if independent publishing is for the faint of heart. But seeing that I'd have the freedom to write what I want instead of writing what I hope an agent would want is a very liberating experience. And if it bombs it bombs. I change my name and write something else. Or not. I can do whatever I want.
As the writer I should've always had that power--not the marketing department or a CFO. Sometime I get the impression that a lot of editors and agents and publishers put writers at the bottom of a very tall ladder. I think independent publishing puts writers at the top.
And look, I wrote this whole post barely mentioning the way the publishing industry has eaten itself into a very awkward and ugly corner. Let the agents have Snooki. I think the readers are smart enough to follow the writing.
We spent a week or two trying to figure out what criteria we'd use to ultimately make the decision to publish on our own, and came up with 5 rules or guideline we'd use to aid in our decision-making.
Here they are (count 'em, kids) for your perusing pleasure:
1. Know why you're publishing independently
This is a no-brainer. Independent publishing can not be a last resort after years spent collecting rejections from agents, big publishers, small publishers, ePublishers, etc.. The decision has to be--HAS TO BE--the writer's first choice.
Why?
If you are not going to treat your book the way a publisher--who'd spend thousands of dollars to print, market and distribute--is going to treat it, then independent publishing probably isn't going to be for you. You have to love it enough to make sure it receives the attention it deserves and have to be 100% committed to selling the crap out of it and believing in it. You have to believe you know what's best for your book.
It's your baby. Don't leave it locked up in a hot car while you drink beer.
2. Know risk to gain ratio
Our experience with a major travel publisher taught us a few things. It taught us that a publisher isn't always going to do the things it says it's going to do. Our publicist's campaign for our book consisted of sending .jpgs of our cover to bookstores prior to signings that we'd set up ourselves. Our publicist contacted no local media and couldn't even get us postcards or promotional material to take to conferences and conventions we'd attended on our own dime. We didn't expect subway posters and bus stops, but c'mon. Don't pee on my leg and tell me that's what I paid for.
Then the publisher printed a second edition of our book while continuing to call it a first edition and we haven't seen a royalty statement in months.
I know that some people have great experience with publishers. We haven't.
I'll gladly collect 70% instead of 12% to do the work my wife and I have been doing since our book was released--to promote a book that I've sweated and lost more sleep over than a publisher ever would. And I know that if I fail, the failure is my own.
But I'd rather fail on my own than fail because my query wasn't good enough, because a publisher cut my print run, because I got a contract for a print run I could never sell out, because marketing decided my book was urban fantasy instead of supernatural suspense, because the release date coincided with a release by Snooki or Nicole Richie.
And I'd rather take 70% of $2.99 for a book I spent 10,000 hours on than take 10% of $19.99 for a book a publisher spent a week on.
3. Know what you're compromising
->I'm losing the valuable experience of thousands of cumulative hours shared by the agents, editors and marketing departments who'd have a hand in publishing my book.
But I trust my associates from Seton Hill and the friends I've made at conferences and conventions to give me the same type of support. I know the relationships wouldn't be the same--some would be less personal, some more--but it's a price I pay. (And I wouldn't trust some of the professionals I've met at conferences and conventions with a laundry list or a recipe, let alone a manuscript. I'm looking at you, ------ -----------!)
->I'm losing national distribution.
We know that's not true anymore.
->I'm losing credibility.
I'm not sure that a Big 6 contract guarantees credibility either. I have a master's degree, am adjunct faculty at a distinguished university and am a member of The Authors Guild. I've worked with a major publisher on a big non-fiction project. I'm not Stephen King. But neither is Snooki.
4. Know that you are the company
You pick your release date. You choose a cover. You market it. You go to conferences and signings to represent yourself and the book. You are responsible for your own finances. You deal with complaints from readers. You contact local media. You set up signings and purchase all of your own promotional material. You pay somebody to format the book or you format it yourself. You get the pat on the back. You hang your head when readers point out typos and plot holes that you've missed.
5. Know if you have the time and energy
In addition to writing the book, you do all of the things mentioned above. And then you have to write another book. There's a lot of discussion on Konrath's blog about authors with multiple books doing better than authors with only one. Check out http://jakonrath.blogspot.com/ to read what people who have a hell of a lot more experience in independent publishing (and 'real' publishing) than me have to say about it.
I don't know if independent publishing is for the faint of heart. But seeing that I'd have the freedom to write what I want instead of writing what I hope an agent would want is a very liberating experience. And if it bombs it bombs. I change my name and write something else. Or not. I can do whatever I want.
As the writer I should've always had that power--not the marketing department or a CFO. Sometime I get the impression that a lot of editors and agents and publishers put writers at the bottom of a very tall ladder. I think independent publishing puts writers at the top.
And look, I wrote this whole post barely mentioning the way the publishing industry has eaten itself into a very awkward and ugly corner. Let the agents have Snooki. I think the readers are smart enough to follow the writing.
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