Monthly Archives: April 2010

Stories on the Future of Book Publishing

I always enjoy reading articles on the future of book publishing, particularly by people who have a scarce knowledge of the history or workings.  Generally these articles talk about how shocking it is how rapidly books and how we read them are changing.

Most of us inside the industry are shocked only by how slowly the world of book publishing is catching up to what has happened and is happening to every other business and the common business models.  In short, middlemen are out and direct from creator to consumer is in.  There are very few business models that have so many people involved for so little money per unit.  Because there were high barriers to entry until the mid-1990s, book publishing was able to use an awkward model and still make it work very profitably.  Then, of course, the technology we all know and take from granted changed the playing field, not just a little, but dramatically. Two things in particular turned book publishing from a rich company’s sport to an every person hobby:  Personal computers which allowed for desktop publishing (in the late 1980s the cost for even a reasonable typesetting system for a smaller publisher was $250K) and the Internet (which made Amazon possible, which made international distribution possible for anyone who wrote and published a book).

Many other business models have had this sort of revolutionary change, the most similar to book publishing is the music industry.  The music industry went from mega-labels that only signed the most bankable stars and produced record albums then cassette tapes then CDs at a very profitable gross margin to a place where you buy any single song you want for 99 cents from iTunes to download to your MP3 player.  You probably know the artist, but do you have any idea what label the song came from (assuming there was one, at least one you might have heard of)?

This radical shift in business model is not sad, it is glorious.  Consumers rule.  Authors and creators of other intellectual property rule.  And the market decides what it wants and when and how it wants it.  No record label executive or publishing company CEO or acquisitions editor decides what you publish and what you read.

So, with all that in mind, I hope you enjoy reading this New Yorker article by Ken Auletta as much as I did:

He got some things right and others wrong. Early in the article it says that the book publishing industry expects ebooks to account for 25% to 50% of the market eventually.  Make that 90% – at least.

The article rightly explains the economics, almost:

Traditionally, publishers have sold books to stores, with the wholesale price for hardcovers set at fifty per cent of the cover price. Authors are paid royalties at a rate of about fifteen per cent of the cover price. A simplified version of a publisher’s costs might run as follows. On a new, twenty-six-dollar hardcover, the publisher typically receives thirteen dollars. Authors are paid royalties at a rate of about fifteen per cent of the cover price; this accounts for $3.90. Perhaps $1.80 goes to the costs of paper, printing, and binding, a dollar to marketing, and $1.70 to distribution. The remaining $4.60 must pay for rent, editors, a sales force, and any write-offs of unearned author advances. Bookstores return about thirty-five per cent of the hardcovers they buy, and publishers write off the cost of producing those books. Profit margins are slim.

An author whose contract says that he or she is paid royalties based the list price and gets 15% has a pretty good contract.  But only those authors who are in a position to negotiate generally have their books come out in hard cover.  For most new authors, their books are published in soft cover from the beginning, they get only a 10% royalty and the royalty is based on the net price (the $13 that the publisher actually gets if we use the example above), not the list price.  So the author’s royalty at 10% would be $1.30 per book, not $3.90. Profit margins are worse than slim – they are virtually nonexistent.

If you take out the distribution and printing costs, covering publisher overhead like rent and staff because you don’t sell a printed book and you don’t sell them in bookstores, a whole new prof picture emerges.

The article shares this quote from Tim O’Reilly, the founder and C.E.O. of O’Reilly Media, about publishers: “They think their customer is the bookstore,” he says. “Publishers never built the infrastructure to respond to customers.”

And who is it that caters to readers and not bookstores?  Authors.

In probably the most important section of the article is this:
In Grandinetti’s view (Amazon executive), book publishers—like executives in other media—are making the same mistake the railroad companies made more than a century ago: thinking they were in the train business rather than the transportation business. To thrive, he believes, publishers have to reimagine the book as multimedia entertainment. David Rosenthal, the publisher of Simon & Schuster, says that his company is racing “to embed audio and video and other value-added features in e-books. It could be an author discussing his book, or a clip from a movie that touches on the book’s topic.” The other major publishers are working on similar projects, experimenting with music, video from news clips, and animation. Publishers hope that consumers will be willing to pay more for the added features. The iPad, Rosenthal says, “has opened up the possibility that we are no longer dealing with a static book. You have tremendous possibilities.”

Authors, pay attention to this. the more you can reimagine your two-dimensional words on a page becoming three-dimensional with web interactivity, visuals and audio, and iPhone apps, the more you will be able to keep up with the pace of change and have a real chance of selling your book profitably, yourself.

While I think the article does give some insight into what the publishers are thinking and how they see themselves competing with the help of the device and application developers Apple, Amazon and Google, it misses the forest for the trees because it still focuses on publishers.

Publishers as we know them right now are not going to exist. There will be a continued reduction in their numbers and mid-sized publishers will be purchased or go out of business (a trend started at least in the mid-1990s if not before). Micro publishers (you and I) will continue to grow and we will bring out intellectual property to Amazon and Apple. The larger publishers will cater to mega-media stars and the books they publish will be part of a star’s overall branding strategy (not much of a change from the current mode). Publishers will cease pretending they are looking for new talent to develop. They want to only developed bankable talent.

If publishers could have seen this trend 15 years ago (and a number of us did) and had decided to get closer to authors by providing meaningful ways to help them develop and give them feedback (instead of creating less of a relationship and fewer services to authors), then publishers might have a meaningful role in the new dynamic. Instead, they decided to get closer to bookstores, who are now closing in record number. A critical mistake. They chose the middleman instead of the creator because they thought that was where the money was.

What authors needed then and still need now is a way to develop their thinking and a closer connection with their readers. Before Facebook, LinkedIn and Twitter, publishers were in the best place to provide was focus groups with the target audience, community development and teams of editors to create and give feedback and encourage and teach new authors how better to communicate their ideas. Instead, publishers provided less feedback, less encouragement, less teaching with every year. A publisher’s intellectual capital was in the heads of their editors who knew what it took to write a great book, to organize it in a way that was spell-binding to readers and to package it in a way that was catnip to readers. That kind of valuable expertise is developed over years of experience, seeing so many books that don’t work and developing a knack for understanding what does. What great editors did that was so valuable was to teach writers to become authors – to help them think through concepts, to challenge them to make them better writers and better thinkers. Editors represented the target audience member for the author and never let the author forget who he or she was writing for. Most of these experienced editors have been let go or may be part of the executive team at their publishers, but few authors have the opportunity to work with these people. Editors are now asked to take on 50 authors at a time instead of the more reasonable 12 to 18 many years ago.

Authors have no loyalty to their publishers because they have no reason to be loyal. And these same authors, some of whom have hired book coaches and ex-editors to mentor them because they had to get mentoring from somewhere, will be taking their highly developed intellectual property and reader communities direct to the market with no publisher needed.

I don’t think there is time for publishers to make this shift now. I think that time, for most book publishers, has passed. There still may be room for a few publishers who decide to focus on quality of books, development of and investment in people and IP. But from the quotes we see in the article from publishers, I don’t see any indication that they get where they missed the boat and that they are still missing it. Authors now have other options of where to develop, where to create audience connection and where to sell – all because publishers didn’t understand what their core strengths were.

So authors, your best strategy is to get good help, build community with readers and own your own intellectual property. Develop that intellectual property across media platforms. Don’t sell rights you don’t need to sell. And don’t fall into the get-rich-quick trap. Your best opportunities still lie ahead.