Saturday, April 24, 2010

Publishers On Notice

The only time I've ever been involved in a car accident that left a car totalled, I was asleep. A drunk in a Corvette managed to slam into the back of my full-time 4WD Jeep Wagoneer while it was parked on the street at 3:00 AM, pushing it forward about twenty feet. As anyone with a full-time 4WD vehicle knows, this is no easy feat. One of my neighbors witnessed the whole thing, including our arrival on the scene in our bathrobes, and called the police, who arrived to find this drunk guy swearing up and down first that my car had backed into his car, then -- when it became obvious even from cursory examination of the evidence that my car was parked at the time -- that someone else had forced him off the road. My neighbor reported to the police that there was no other traffic at the time, and the police noted that the guy's blood alcohol level was well beyond the legal limit, so I didn't think there would be any problem.

Two weeks later, I got a call from the guy's insurance agent, telling me they were no longer going to pay for my rental car. I pointed out that they still hadn't paid me for my totalled car, and that my return of the rental car was dependent on that payment. They informed me that there was "still some question about whose insurance company would be liable for the payment," as there was "still some question about the possibility of another vehicle that may have caused the collision."

I was livid. I pointed out that the police report -- the OFFICIAL source of information in this case -- held no such question, as a reliable, impartial witness said there was no other traffic, and drunk, extremely partial drivers such as their client, were not typically well regarded for their veracity. I went on to tell them that it didn't matter to me, in any case. Any way you looked at it, I was owed the totalled cost of my vehicle and it would be their company that paid me, regardless of what company ultimately bore the cost. If the insurance companies wanted to play "place the blame" and sue each other
for the costs, how did that concern me?

The drunk driver's insurance company paid up.

The ongoing battle between publishers and retailers -- notably Amazon, recently -- reminds me of that insurance company. They seem to have lost sight of the fact that authors still need to get paid a fair amount.

Some time ago, it dawned on me that there's a disconnect between authors and publishers regarding our words. We authors view the words we put down on paper to be the novel. Judging by the rapidly growing popularity of e-books, readers do, too. One would think that publishers would understand this, yet they seem to view the finished book as their product, one that includes only a minor contribution from the author. That product could be considered the sum of the following parts and services:
  • Words on the page (provided by the author)

  • Cover art (provided by an artist)

  • Saleable quotes (usually on the covers)

  • Excerpts (usually on the back or dust jacket flaps)

  • Author bio (optional; usually only for hardcovers)

  • Author picture (optional; usually on hardcovers of bestsellers)

  • Cover design (to ensure the artwork is pleasing to the consumer)

  • Editing (to ensure the author's words are pleasing to the consumer)

  • Marketing (to help sales staff and retailers to sell the product to the consumer)

  • Distribution (to ensure the product is available to sell the product to the consumer)

  • Sales (to ensure the product is physically available for the consumer to buy

As you can see, those little words on the page are only a small part of the whole package, which is why publishers feel justified in generously granting a mere 6-8% of the revenue to the author of a mass market paperback novel.

To be fair, the way the system works is that an author gets paid an advance against royalties before the novel ever gets to the marketplace, available for consumers to buy. And the reality is that few authors these days (except mega-bestsellers) ever see a dime beyond that advance. Once upon a time, when publishers and retailers were on the same page, books remained on the shelves for a lot longer, which kept an author's backlist of previously-released novels in print and available to the consumer. Sadly, it rarely works that way any more.

So, given that the author's advance is realistically the only payment, the effective royalty rate is dependent on the number of sales. With e-books, that number is straightforward, since e-book sales are non-returnable. With print publishing, the product can be returned, so publishers try to account for that by holding back payment for a projected number of returns, which they call "reserves against returns." What this means to the author is that it's impossible to determine the actual number of copies sold until ALL copies are either sold or returned, the book goes out of print and there's a final accounting. Until that happens, we can only estimate.

Last year, a New York Times bestselling author, Lynn Viehl, posted her royalty statements. I couldn't find her third statement, for the period ending Nov 2009 (which is understandable, as they're just now reaching authors), but the bottom line for her first two statements shows her estimated actual sales copies will be between 44K (net units shipped) and 65K (net units plus reserve, assuming no more returns). She earned $50K up front, and she doesn't seem to expect any additional royalties beyond that (and her statements support that, which -- at the risk of sounding conspiratorial -- seems a bit suspicious) . If she's right, her effective royalty rate on her $8 mass market paperback will be between roughly 10% ($50K/65K/$8) and 14% ($50K/44K/$8).

Compare this to Amazon's current 35% effective royalty rate. If an author with Lynn's numbers were to sell her new e-book at $5, she would only have to sell about 29K to earn $50K. With Amazon's new 70% option, starting at the end of June, the author would need to sell less than 15K copies to earn $50K. That's roughly 1/4 to 1/3 of the paperback audience. Is it reasonable to expect the author to reach that audience and entice them to buy her new e-book? For an established author, it's possible, and the fact that there's no time limit for offering the e-book makes it extremely likely.

Which brings us to the midlist author, a species which has gone by the wayside under the current print publishing model. Advances I've read about recently for a solid midlist author are more like $15K, with net sales of 15K -- about a third of Lynn's numbers, which means established midlist authors only need to sell 5K e-books under the new Amazon model to earn as much as from a traditional print publisher, and they can offer the e-book to the consumer for less.

Remember that list of the parts and services going into a novel? For a midlist author these days, the publisher has been asking (and sometimes requiring
in the contract) that the author provide or perform nearly every item on that list, excepting only the cover art and design and distribution. What added value does the print publisher offer, then? Cover art? For an established author, is that really worth the difference in royalty rates?

Think about it. As an author, which is more attractive: 5K sales to net $15K, or 15K sales to net $15K? As a reader, which is more attractive: $5 for an e-book, or $8 for an e-book?

Publishers, consider yourself on notice. Shape up or ship out. It's your choice. And stop drinking behind the wheel of your Corvette.


Anonymous said...


I need to get out the paints and start doing cover art. The last few reasons to have a publisher are fading fast.

Amanda Green said...

Great post, Dan. A couple of notes to add to what you've said. Add in the fact that the major publishers do not, on the whole, offer even the 35% royalty of Amazon or some of the other e-publishers. Worse, McMillan cut the percentage their authors got for e-books before they started going toe-to-toe with Amazon earlier this year. On top of that, the publishers are passing on the cost of producing the hard copy versions of the books, and the promotion of them, to e-book "creation costs" in a sort of double-dip that does nothing but cost the consumer more for the e-book and cuts even further into the monies the author might receive because, gee, most folks aren't going to pay close to hard cover prices for an electronic version of the book.

Publishers have got to wake up to the fact that can't diss e-books and do their best to kill them with one hand while, with the other, they are relying on e-books to save them. If they don't come to their senses very soon, many -- if not most -- will find themselves spinning rapidly in the whirlpool that is about to disappear down the drain.

Stephen Simmons said...

At what point do authors start making their deals directly with Amazon and B&N, going electronic only and skipping the print version entirely, thereby making publishers superfluous? It seems to me that this could be a real possibility in this mss, at least for authors with established names who have friends that do art-work. (And what con-going author doesn't?) Talk about "killing the goose that laid the golden eggs" ...

Anonymous said...

And take into account that when you buy ebooks some publishers don't even include the pretty cover at all.


Rowena Cory Daniells said...

Interesting post, Dan.

I'm going to have to ask around my friends on various lists to find out who is buying e-books.

It seems from my limited experience, here in Brisbane, Australia, that print books are the standard delivery form for a story.

But I can see the advantages in an e-book.

Dan Hoyt said...

matapam, grab those paints! What do you have to lose? If only I could paint worth a darn, I'd do the same -- but I can't. Fortunately, Sarah can (she did the illustration for Saturday Morning Post), and we know a few SF/F artists at this point. :D

Kate Paulk said...

I suspect a lot of the industry is dead at the wheel and the whole thing is trundling on with the force of its own momentum, there being rather a lot of weight behind the whole behemoth.

The music world eventually learned that if things weren't going well doing more of the same only harder wasn't a viable strategy.

Driving while deceased is the only sensible explanation for publishing following the same worn-out path to oblivion while trying to eliminate innovation.

Dan Hoyt said...

Amanda, thanks for the additional information. I didn't get into the e-book issue with print publishers for several reasons, not the least of which is that I simply don't know what other authors are offered.

As for passing on the e-book "creation costs," you're right on the money. If a book has previously appeared in print format, the costs of editing, electronic typesetting, advertising, product placement and the like have already been factored into the costs of producing the print format book, with complete disregard to the costs of e-book production. How do I know that? Because the contract terms of the other elements haven't changed since the print houses started offering e-books.

What that means is that the additional cost to produce an e-book edition boils down to reformatting and DRM -- both of which are minimal in the total cost.

Now, producing only an e-book edition means that the "creation costs" for a print publishing house will be close to the production costs for a print edition because all that's being saved is the actual printing costs and in rare cases, warehousing -- rarer these days, now that publishers are essentially doing print-on-demand runs for midlist and new authors.

Dan Hoyt said...

Stephen, many authors are already doing it., for instance, is a consortium of women (and two men) doing just that.
There are tons of authors banding together in group blogs like this one -- except for the bestsellers, it's only a matter of time before they start selling direct.
If you already have an audience, what do you have to lose?

Dan Hoyt said...

Laine, you're right about the covers. However, it should be noted that cover-less e-books pretty much shout out "self-published." But the extra costs for an author to include a professional-looking cover are not as high as one would think. Especially if the author knows a struggling artist or two -- and there will be many more available as more authors shift to direct models and the print publishers go out of business.

Dan Hoyt said...

Rowena, Amazon reported over this past Christmas season that e-book sales were higher than print book sales for the first time!

Considering that those sales went not just to the estimated 500K Kindles, but also to a portion of the estimated 35 million iPhones/iPads and countless PCs (all 3 of which now have Kindle apps), I wouldn't dismiss e-books.

As shown in the main post, the Kindle figure alone represents about ten times the sales level for a bestseller, so the potential for connecting with e-book customers is pretty high -- and growing.

Dan Hoyt said...

Kate, publishers would do well to learn from e-music, but they seem to be failing miserably. But that discussion can wait until another Saturday Morning Post....

Mike said...

Dan -- I can't help but think that the distribution (and maintenance of brick-and-mortar stores, staff, etc.) has to be a huge chunk of the cost of a print book, that mostly falls out of the picture with ebooks. So, yeah, creation cost of an e-book only edition may be roughly equivalent to a print book edition, but the "printing, distribution, and sales" costs are vastly different. Not zero -- servers do cost money -- but not nearly as expensive as print distribution and brick-and-mortar stores.

Dan Hoyt said...

Mike, sales and distribution costs can be quite low for an author producing his own e-book, but that's not always the case for a print publisher doing the same thing.

As I noted before, there are no printing costs for an e-book. However, here's an excellent writeup, showing that a hardcover's printing cost is about 10% of the book. What I've read for paperbacks is certainly lower, but still about 10%. That's how much savings there is for producing the e-book.

Sales costs borne by a print publisher on an e-book are probably similar. For print, this would include the in-house publicist (if any), whose services would still be used, and the sales staff, whose service should still be used to ensure that the e-book is available in the Kindle store, the Apple bookstore, Fictionwise, etc.

As for distribution, publishers (and solo authors, for that matter) probably aren't going to host the files themselves, nor are they going to use their own e-tailing system. That means that they'll give up a certain percentage for the distribution platform, which probably works out to be on par with the 10% distributor's take in traditional print.

The thing to remember is that most of the labor costs that would be borne by a solo author outside the word production itself equate to a portion of the salaries of the publisher's staff. Solo authors do this on their own dime, but publishers do all of that on their dime, then pass on the cost in their MSRP. The problem with the current trend is that more and more of those costs that we expect the publisher to bear are being pushed back on the author, with no additional renumeration.

Seriously, if we have to do the sales and marketing ourselves, where's our extra 10%?

Unknown said...

Yeah, well, Dan, I wish I saw it all as optimistically as you. Firstly there is no doubt that most publishers regard all but tiny group of bestsellers as an inexhaustable resource to be exploited as cheaply (and if this means wastefully, so be it) as possible. Personally I believe this is incredibly damaging to customer base, but that's their attitude and I have seen no signs of a sea-change in it.
Secondly, I see no real indication that publishers have any intent of stopping being the middleman -- and their method of doing this is to make deals with the retailers to shut access to them off from authors. You can bet on the big six using their contractually obliged authors as leverage to make it as hard as possible for authors to prevent retail being able to buy direct. And Steve Jobs seems very very happy to play their game by dealing with them and ignoring the authors, and while he's doing that, Amazon is in the position of two (and potentially 3, with Google) fronts of foes. Oddly I've heard a fair number of authors loudly cheering Apple and rejoicing that Amazon lost (the first round)... I'm not very trusting of Amazon either, but I can see nothing good in strengthening the position of the big 6 publishers. Their 25% OF NET RECEIPTS offer is quite simply a sign that they think authors have no alternative as a result of the way things have come out. That's effectively meaning despite large savings, authors will get LESS. Watch for NASTY perpetuity contracts coming soon.
Thirdly - your list of what happens to make a book... just as Ori pointed out a while back - outsourcing your core competancies does eventually leave you valueless. All most new/midlist authors are actually getting is pretty minimal services - with marketing and distribution being well... shall we say limited? That leaves editorial - which varies a lot, and you as an author have no control over, proof reading (same again) and cover art and design (same again) and let's face it, most of us know some competant editors, and proof readers. I also know a load of artists and graphic designers. I suspect I could get reasonably priced work-for-hire and a small royalty of all of those quite easily, but unless I have a big shop window for retail... that's no use to me.

Mike said...

Could be... although I suspect we've grown a relatively complex system, running from publishers/printers through the distributors and down to the local bookstores (and those smiling clerks) that all has to be paid for by the book sales. Switching to electronic distribution and sales may allow some gains through centralization, economies of scale, and so forth. Hard to tell just how it will play out.

Kate Paulk said...

Let's just say there is a reason I occasionally think fond thoughts of an unannounced audit of all the big publishers (even Baen, although I think the problem there is more incompetence than malice).

Kate Paulk said...

And on the general topic of lock in - this is worth a look: Cory Doctorow on iPad DRM

One of the money comments - "write an app and stick a "buy in one click with Google Checkout" button on the screen. Watch how long it takes for Apple to reject it."

Dan Hoyt said...

Dave, I think you're being overly pessimistic. There are several retail outlets available, starting with Amazon. For the ones that require a "professional" publisher, all that means is that the author needs to find a group that has incorporated into a legal e-publishing entity (as BookViewCafe had to).

As time goes by, I'm seeing more and more high midlist and low bestselling authors blogging about how they're releasing their backlist in e-books on Amazon Kindle and making as much as they do for new books with a print publisher. I believe we're close to the tipping point -- within the next year or two, frankly -- where authors will exploit these avenues as the "standard" method for building an audience (especially if bookstores take your book off the shelves in less than a month, and publishers let them go "out of print" in three), and print publishers will become chiefly creators of prestige editions, much like vinyl records today.

The irony is that the publishers are doing all this to themselves. The more restrictive their contracts get, the less authors will be willing to sign them, especially when there's better economic alternatives. Most authors aren't interested in the fame and glory; they just want to make a decent living.

Sarah A. Hoyt said...

Kate, I don't think Baen is incompetent. It's just in a truly peculiar position re: other major houses, since it doesn't control its own distribution. (And we won't go into bookstores that keep Baen out because all Baen books are dangerously right wing. [DST has been called everything from marxist to libertarian but NOT "right wing" -- but do what?]) So their job is almost as difficult as that of the average writer in figuring out "what's really going on".

Da Curly Wolf said...

Ahhhh lets just hit all the high points shall we? Yes the publishers are being INCREDIBLY stupid on Ebooks. They are also incredibly retarded on new and up and coming one of my major gripes to Sarah was..if the publishers don't PUSH the freakin books the stores don't bother to CARRY them. And if you don't PUSH[publishers] or even CARRY[stores] the's a tad freakin difficult to sell them now ain't it.
Dan-your mention of the cars reminds me of when I used to take great delight in riding with the tailgate down on my ford. So those idiots who chose to tailgate me would see their lives flash before their eyes when I hit the brakes.

@Mike- Ahh Brick and Mortar stores. I worked in one for 5yrs. When the big boys like Borders and Barnes and Noble showed was the end of an era. Hell I used to work for Waldenbooks..before and after they got sucked up and destroyed by the incompetence of Borders. Not that Kmart didn't do a good job of screwin the pooch, it's just that when Borders bought them and took over..and started replacing people and bringing in their own people..etc..things REALLY went to hell.
We won't even talk about Borders as they stand today. Barnes and Noble is somewhat better. At least THEY don't lose my special orders like Borders does on a regular fracking basis. Hell I pre ordered a book right before the release date..the retards put it out ON the shelf and sold it. I was soo pissed I went to Barnes and Noble and bought it there off the shelf. A couple of the ones they've pissed me off over in the recent past have been Sarah's books. The quality of people they hire went rapidly down the toilet after they fired me. For telling them they were being f'ing stupid[time has of course proven me right] among other things.

As for Baen..BAEN ROCKS! nuff said.