Tuesday, March 1, 2011

The Biggest Danger to Traditional Publishing

As someone who is in the process of working my first traditional publishing deal, I of course keep an eye on the traditional publishing world and it is hard to refute all the doom and gloom forecasted for the industry. People point to the collapse of Borders, the fact that Barnes and Noble has suspended dividends, and the rise of ebooks (outselling print books on both Amazon and BN.com) as proof they the big-six will cease to exist.

I for one don't believe this. I think there needs to be change, and I'm confident that there are smart people working at these organizations that will figure their way through this new world order. If I were to give them one word of advice as to what to fix...it would be ebook royalty rate.

For those that don't know, the industry standard is 25% of net sales to the author and 75% to the publisher. When you consider that print rights range from 6%-15% (depending on volume and format) this sounds pretty good. But it’s incredibly unfair and I predict will be the number one determinant to authors signing with a traditional publisher.

At those rates the breakdown of an ebook priced at $6.99 goes something like this:
  • 30% to Amazon - $2.10
  • 52.5% to Publisher - $3.6
  • 14.9% to Author - $1.04
  • 2.6% to Author’s Agent - $0.18

If the author were to e-publish themselves their income would be:

  • $2.10 – if priced at $2.99
  • $2.73 – if priced at $3.99
  • $3.49 – if priced at $4.99
  • But wait you’ll say…the marketing engine of the big publishers will sell more books at $6.99 then the self-published author can at $2.99 or $4.99, so you’ll make up the difference in volume.

As someone who studies the Top Rankings on Amazon I can tell you this is not true. Many self published authors are selling as good or better than their traditional counterparts. Let’s look at indie names on the Epic Fantasy (where Michael sells) :

  • #2 – Amber Magic (B.V. Larson) $0.99
  • #5 - The Chosen Soul (Heather Killough-Walden) $1.00
  • #6 – Sky Magic (B.V. Larson) $2.99
  • #7 – Shadow Magic (B.V. Larson) $2.99
  • #8 – Dragon Magic (B.V. Larson) $2.99
  • #9 – A Dance of Cloaks (David Dalglish) $2.99
  • #10 – Blood Magic (B. V. Larson) $2.99
  • #11 – Elf Hunter (C.S. Marks) $0.99
  • #14 – Giants (Vaughn Heppner) $0.99
  • #19 – Crown Conspiracy (Michael J. Sullivan) $4.95
  • #20 – Wintertide (Michael J. Sullivan) $6.95

That’s a lot of high ranked books by “indies” and not all of them at $0.99. Michael is being published by Orbit and their first book to hit the list is Joe Abercrombie’s “The Heroes” at $11.99 . Which means that Joe is making $1.79 per book whereas Michael is making $3.46 and $4.87 for the two books that he’s selling that are higher ranked than Joe's.

Now, of course Joe is making print book sales that Michael is not, so his income is probably higher, but as ebooks continue to grow in market, and print books decline, the income from ebooks is going to be the dominant portion of an author’s income. For some, I'm sure it is already.

For print, and indie author can’t compete with a big-six publisher who have the connections and co-op space in the bookstores. They also invest big dollars in large print runs to gain economies of scale. But in ebooks, the costs to an author is the same as that as a publisher (it only takes a few hours to convert a word file of the book to ebook formats and there are no production costs. Assuming the traditional publisher absorbs the costs of editing and cover design as part of the print book they have a very small “incremental” cost to put out an ebook and yet they are taking 52.5% of the profit?

My prediction is that more and more authors will turn down traditional print contracts because of one thing and one thing only --- the share of ebook royalties. Once this starts happening publishers will find they can’t keep best selling authors nor attract new talent. There is a lot that big publishing can weather – but the loss of the producers of content…that’s a hard trick to pull off. And that is why, with all the other challenges the big-six faces, the 25% ebook royalty is the one that should is of greatest concern, and 100% in their control to correct.



Bob Mayer said...

I looked at Kindle top 100 and most were indie published. You could really see the ones that were traditionally published by the agency model pricing. Random House just announced it's going to the agency model which is a big step in the wrong direction. The Big 6 are trying to hold on to their hardcover sales and cover their huge overhead. We just dropped prices on my first Atlantis and my newest book Chasing The Ghost to .99 and saw sales soar. I don't think .99 is sustainable, but it's a good marketing lead. We're happy with $2.99 for the rest of our fiction.

Robert Bidinotto said...

I agree wholeheartedly, Robin. Unless the legacy publishers act quickly, we'll witness a remake of "Exodus" as bestselling authors, fed up with lousy ebook royalties, head for the exit doors.

I think they are extremely vulnerable to the departure of a handful of big-brand authors. And they probably know it: I'm sure they're getting a lot of complaints.

The question is: What are the Big 6 going to do about this? Right now, ebooks are a cash cow for them. How dependent have they become on that cash? If they are gorged with profits from the print side, then they can afford to negotiate with authors and change the ebook royalty formula. But are they still generating sufficient profit margins through print sales that they can afford to give up a lot of money from ebooks? Print sales overall are declining; print outlets (bookstores) are closing fast; and the rise of self-publishing has generated a lot more books (including print titles) to compete with theirs.

So, what do they do? Specifically, how do they challenge the looming 800-pound gorilla, Amazon, as it enters the print and ebook PUBLISHING business? Do they ally themselves with Barnes & Noble (which is the only online and ebook seller-and-producer remotely positioned to be able to challenge Amazon)?

That's what I would do in their position. What do you think?

Robert Bidinotto

J. R. Tomlin said...

I think you hit it exactly. Yet (so far) they haven't seemed to figure this out. I know there are some smart people at these publishing companies. Maybe the ones who understand what is happening aren't in the decision-making positions. I honestly have trouble understanding their standing firm on the 25% royalty.

This is not intended as a criticism because I am sure you have excellent reasons, but I was astonished that you agreed to a contract. I do think that fewer and fewer authors will. Both you and I know at least a few authors who have turned them down already.

Unknown said...

Hi Robin - I love reading your blog as you straight shoot the numbers and provide a bit of analysis. I am an unpublished writer with a dream of someday getting far enough in the editing process that I feel comfortable publishing. It was through reading your blog that I came to the realization that I could actually self-publish via ebook only, no middleman required.

My goals are pretty simple. Finish my work to the point where I am not embarassed and then share it with others. I like the idea of making some money along the way but I already have a successful career so this would be secondary. The ebook market meets these objectives completely.

I cannot imagine why I would ever approach a traditional publisher. I probably represent a small percentage of the hopeful writers out there, but my journey certainly supports your hypothesis.

Thanks for the quality blog!

Robin Sullivan said...

Robert said...Right now, ebooks are a cash cow for them.

To be honest, I'm not sure it is. Dispite they are getting 52.5% of the money from it I don't think they "work" ebook sales like they do others. I think the majority of their "profit" still comes from hardcovers even though the number sold is much less.

I think they are looking at ebooks as "gravy" - they are not the main meal - just something nice - an extra bonus. But...with them getting such high %'s as ebooks climb - it will be the cash cow in the future - and they may not want to give that up - but in order to keep people they'll have to.

Robin Sullivan said...

@Bob - I tink Random house going to the agency model is a good thing - they were one of the last hold outs and it SHOULD mean that they will keep their prices in the $2.99 - $9.99 price range. Publishers pricing above $10 IMO are really looking for some hurt.

Robin Sullivan said...

Do they ally themselves with Barnes & Noble (which is the only online and ebook seller-and-producer remotely positioned to be able to challenge Amazon)?

That's what I would do in their position. What do you think?

Personally...I think they should make their own "edistribution" channel and cut out both Amazon and B&N. Make it so that if you want a big-name title - you HAVE to buy it from Big6.com (or whatever they want to call it). This gives them 40% back in their pockets (sure they'll have some overhead but it won't cost them anywhere near what it does to sell on Amazon and B&N).

That will cut the legs out from under B&N and Amazon and they'll ONLY be able to sell indie books.

Their own Big6.com won't have any competition from the indie books - and they'll be able to lowe prices and still make good margins.

Anyway -- that's what I'd be doing if I were them - Beat Amazon and B&N at their own game by depriving them of a product that they alone have the rights to.

Robin Sullivan said...

Jeanne said...
This is not intended as a criticism because I am sure you have excellent reasons, but I was astonished that you agreed to a contract. I do think that fewer and fewer authors will. Both you and I know at least a few authors who have turned them down already.

No need to apologize - there are many good reasons NOT to take the contract. And there are many authors that I consul not to so the point is 100% valid. I'm pretty convinced on a pure $ and cents standpoint we'll come out behind. But...I think Michael will have a larger audience (all those people who don't buy online) also the ability to sell overseas is a lot eadier when already distributed in the US through a big-six. Last but not least...is a chance at the golden ring of true "breakout novelist". The bottom line is I think I've been very successful with where Michael has gotten so far but I think I reached the limit and it will take the muscle of a bigger organization to take it up a notch. Three years from now print books may be a "luxury item" like in the early days of print but for now there are still a ton of print books being sold and to be in that group - traditional is the only way to go.

Robin Sullivan said...

Thanks Bad Monkey - your way of thinking is catching on with more and more writers so that small % is growing.

crw said...

I think the current publishing model is on the way out because of declining sales and the overheads involved in printing, storing, distributing and not forgetting those big offices in London and New York. Also as you so rightly say they are losing out in terms of offering poor deals to their authors - why would a top selling author with a big backlist want to stay with a publishing house at the moment? No business can survive when over 50% of its market is taken away in a few months and it is leaking its talent and not able to attract new talent.
In an electronic age consider what an author needs; marketing & sales, and all that can be done online. If you think about it, one could now run a publishing house with say 5 of the top 10 selling novels from a corrugated shed up a mountain if one has a good internet connection and the online skills necessary. If you disagree think Amanda Hocking meets Stieg Larsson. The soonner the top 6 recognise this, the more likely they are to be a part of the future.

Robert Bidinotto said...

Amen to what Christopher Wills just wrote.

Robert Bidinotto


a said...

I'm not sure that big publishers are vulnerable to the exodus of a handful of big-brand authors, as Robert maintains. The publishers just keep giving those authors revoltingly large advances, and the bird-in-the-hand looks better than the one on the wing (flying = self-pubbing your ebooks and figuring out how you'll dead-tree self-pub, into the bargain).

Seems to me that it's critical to remember that publishing is such a low-margin business. If the big six publishers are looking at ebooks as a way to increase that oft-cited figure of 4%, there's possibly room to play. It could be a question of which big six publisher blinks first.

Or Amazon could come along and throw a stone at the publishers' glass house, by increasing their royalty rate. Effectively, the publishers are being squeezed from both sides. Where is the equilibrium?

Robin, your hypothesis about forming their own e-distribution channel is intriguing. The potential for restraint-of-trade action is negated by the existence of Amazon and B&N.com. Very interesting, yes. However, Amazon is the place to go, online, for...stuff. It could shape up to be a battle of epic proportions.

Lee McAulay said...

Hi Robin - yet another of the small percentage here, like Bad Monkey. (Watch out world, the indies are coming!) Thanks for the informative blog; keep up the good work.

Merrill Heath said...

Robin, this is a very interesting article. I agree that some some of the traditional publishers will change their business model and survive...maybe even thrive...but some won't and those will fall by the wayside.

The changes to the trad publishing model I expect to see are:

1) The will change the royalty rates for authors on ebooks to get more in line with Amazon and B&N and Smashwords. I don't expect them to go to 70% but they really have no choice but to make a better offer. When you do the math it's a no-brainer for the author - especially if you're trying to get started and make a name for yourself.

2) I think we'll see several publishers do exactly what you suggest and establish their own venue for selling their ebooks. These books will only be available through the publisher and this will help them regain some footing in the ebook market. Readers don't care who the publisher is. If the next Steig Larsson book is only available through Random House Digital Inc., so what? If the price is reasonable and format works on their e-reader, then the readers will buy it directly from the publisher.

3) On print books I think we'll see the old paradigm of return what you don't sell go away. This is one of the few industries where the producer will buy back what the retailers don't sell. It's a bad business model and is very costly in the long-term.

Shelf-life and availability, ease of publication and reduced distribution costs, the ability to revise and tweak the final product in a cost effective manner after testing the market...these are the things that technology provides and why the business is changing. The acceptance of the new technology will only hasten the changes. The publishers will have no choice but to change the way they do business if they want to survive in certain markets.

But anyone who doesn't think there are smart people in the publishing industry who are studying Amazon and watching what they are doing and how they're doing it is naive.

Merrill Heath
Alec Stover Mysteries

Robin Sullivan said...

@Merrill said...3) On print books I think we'll see the old paradigm of return what you don't sell go away.

So you hit on my #2 thing that must change in publishing. The return what doesn't sell model is a dog that "don't hunt". It is a long standing tradition that should have been retired eons ago. While I as a business person hate that it exists and see that it has to leave for the good of the industry...I worry that the end result will be only the "most popular" books will be stocked. But...as long as they have an effiicent process for ordering "on demand" requests of the readers I guess that works.

Merrill Heath said...

Robin, you bring up a good point about the stores only stocking the big sellers if the return policy changes. They have limited shelf space and they can't afford to gamble on multiple copies of books that they aren't confident will sell.

But that is the case already. Within a few months of publication (basically, after the initial promotion ends) most bookstores will only carry 1 or 2 copies of a book. This even applies to backlist titles of the big-name authors. When you consider the time it takes to restock after that 1 book is sold, you have a "trickle effect" which is caused by the limited exposure. It's virtually impossible for a book to gain any traction when stores are only selling 1-2 copies every couple of weeks. As a result, most books die a slow death, then disappear from the shelves altogether.

But ebook technology is providing a marketplace for midlist titles. Since there are virtually no costs in stocking and distributing ebooks, and since the books aren't fighting for limited shelf space (at least not literally), the midlist book is viable from a business perspective. The same holds true for backlist titles. If I "discover" someone like Robert Parker, who has close to 50 books in his Spenser series, I can plough through his entire backlist of ebooks whereas the local bookstore may only have 5 or 10 of the most recent books in the series...and single copies of those 5 or 10 books.

The Author's Guild did a very interesting study on the "problems of the midlist" back in 2000. It's especially interesting now, looking back after more than a decade of changes in the industry. If you don't have a copy of this report, let me know and I'll email it to you.

Tokrika said...

I think people still wants to be published in print by the big houses, yesterday, now and forever.

There is a huge crowd of people who basicly _consume_ stories, and will read with a tempo and frequenzy that would rival my grandmothers addiction to days of our lives. Then there are those who need to feel a book, smell it, admire the texture of on a frequently abused spine and just display ones taste for all who would happen to pop by for a cup of coffee. These groups will ofcourse frequently overlap, but point is that there will always be plenty of room for authors and publishers to publish in any avalible format.

So my unqalified guess is that everyone who writes to publish will want to do so in print, e-book and audio format if possible. The idea is to get your story and your name out there.

Big publishers are actually also known to employ market-analysts, and they are able to see when one of their e-publications recives bad reviews for simple stuff like poor editing and formating. Obviously. Allthough the behemoths are slow to turn in to the wind, they will do so because the have to, and as longs as their buisniss is publishing they'll have every intention to do so in all profitable markets. They'll probably never be in the breach of new tech and new ways of distribution, but they'll come stomping if they can see it working. They'll be able to offer the writers services such as editing, marketing, help with layout and formating, and all the other stuff that many have trouble doing properly themselves. Marketing of e-books will play a increasingly larger role in the time ahead, and the larger companies have the existing framework for people to take notice of the new names or the new titles. Googleing 'thriller+e-book' and having some publishers own 'recomandations' on top is bound to have an increasingly larger impact as more and more people start to experiment with reading stuff in an electronic format.

Then again, I'm just home celebrating the finnishing of a publication that will only be printed in 300 copies and mainly distributed to former co-workers (specialized academic papers have a limited appeal for many), so what the hell do I know .

India Drummond said...

I completely agree.

The industry won't disappear, but it will change. Even if the sluggardly leviathans can't turn it around in time, there are plenty of young upstart publishers that want to try.

I went with a small press for my debut novel... and then realised they weren't doing anything I couldn't do for myself or hire done at a very reasonable rate. So why give them the lion's share of the profit?

Unknown said...

I don't know what genre your traditional book is in, but it seems that middle grade books haven't really hit the ebook market yet, and I can see why. I have a nine-year-old, and I wouldn't trust him with my kindle. Plus, I wouldn't know if he's playing games or actually reading. Seems to me MG might be slower moving to digital. But, what's your opinion?

Robin Sullivan said...

Ridan has one book in the 9 - 13 age range and there are not very many ebook sales for this but as the price comes down I think we'll see more. I'm also thinking that one day - all text books will be on an ebook platform and sold on a subscription basis.

Merrill Heath said...

Robin, where did the name Ridan come from? Is it Nadir backwards?


Robin Sullivan said...

Merrill Heath said...
Robin, where did the name Ridan come from? Is it Nadir backwards?

Gold star - yes it is!!