The Business Rusch: Challenges for Big Publishing
(Changing Times Continued)
Kristine Kathryn Rusch
Misinformation presented as fact irritates me. It always has. My training as a journalist came at the hands of the World War II journalists—the guys who essentially invented television and radio news—as well as some hardcore investigative reporters. Thirty years ago, even the smallest news organization wouldn’t print (or broadcast) information that didn’t come from at least two verifiable sources.
Nowadays, with the 24-hour news cycle, such caution is almost laughable. But it means that so-called journalists report assumption, opinion, and rumor as if it was fact. Sometimes the correct information is hard to find; it’s not often served up in an organized form so that everyone can locate it. But often, the correct information is just a mouse-click away—should anyone bother to look for it.
The true news junkie like me knows that she must vet her own sources of news for accuracy—going with the companies, newspapers, and organizations that still rely on the old model, the one that requires verification. But a true news junkie—or information junkie—should care about fact-checking and accuracy. A true news junkie should also know when a source has an excellent area of expertise, and when that same source has no expertise.
Why am I telling you this in the middle of my series on changing times in publishing? Because I’m trying to get a handle on the blogosphere, which is what led me to do these posts in the first place.
There are a number of bloggers who report their own statistics well. They’re experts on the new wave of publishing. They’re making changes in the publishing industry by being honest about things like sales figures on Kindle and money writers can earn. However, most of these bloggers (including the most well-known) know nothing about the actual publishing industry, even though a number of them have published books with Big Publishers for years before deciding to publish books in the new electronic publishing model.
I am going to refrain from going on a long rant here about writers failing to understand the very business they have decided to work in. My husband, Dean Wesley Smith, is already tilting at that windmill by writing, on his blog, an entire book length series called Killing The Sacred Cows of Publishing, designed for new writers and established writers alike. If you don’t understand traditional fiction publishing and you work in, or want to work in, that field go to Dean’s blog and read. You won’t agree with everything—I find a lot of the comments in the comments section unnecessarily strident—but you will learn something.
No one vets blogs. Blogs, even more than the 24-hour cable news cycle, are filled with misinformation snuggled up against absolutely essential information. Bloggers are less afraid of lawsuits than the people who run the mainstream media, so even more misinformation gets through. And blog readers seem to accept all of it—even the contradictory information—as truth instead of realizing that most of what’s being written about publishing out there by established, professional writers is often wrong.
How you filter the information? Be wary. Double-check the facts yourself. Or ask yourself this: Does the writer have experience in the area she’s writing in? Or does she only see it from one angle?
Before I go further in this post, let me give you my credentials in publishing. I co-owned a publishing company twenty years ago. I’m part owner of another, and I advise a few more on a regular basis. I edited books and magazines with national distribution for ten years. I worked in the lower levels of a textbook publishing company. I worked sales for my own companies. I have been a professional writer of both fiction and nonfiction for thirty years now.
And I’m a studier. I gather information from various sources and present it. I believe in learning. When possible, I’ll link to the source of my statistics. I will do my best to state my opinions as opinions. When I’m discussing the future of publishing as I am here, I am guessing, like everyone else who writes on this topic. My guesses are based on experience in many corners of the industry. (Not all—I don’t think anyone has hands-on experience in all aspects of the industry.)
Does that mean I believe I’m right about these upcoming changes? Of course. Does that mean you should believe I’m right? Of course not. As I said above, take everything you read with a grain of salt.
There is no question about it: Big Publishing is in a bind right now. Times are tough for every industry, and publishing is no exception. Most of the problems in publishing, however, don’t come from the new technology. They come from old habits, customs, and ways of doing things that have locked Big Publishers into expensive business practices which have needed changing for a very long time.
Before you read any further, remember that this is the third post in a series of posts. If you haven’t read my first two posts, please do so now. (Post One: Changing Times; Post Two: Understanding Publishing). For one thing, you’ll need to go back just so that you’ll know what I mean when I’m discussing Big Publishing.
Many bloggers, particularly the well known pioneers in electronic publishing, are predicting the death of Big Publishing. They believe Big Publishing will collapse and many are so convinced, they give a date—December of 2012. This whole idea has many flaws, the first being the Big Publishing is a monolith—a single stupid entity that can’t incorporate change.
First of all, Big Publishing is not a monolith. Every publishing company is different, and every publishing company’s agreement with every writer is different, not counting the agreements with the subcontractors and the others involved in the business.
What writers—and readers—forget (or, indeed, don’t know) is that the publishing industry is a large, multibillion dollar worldwide industry. Many of the major publishers here in the United States are owned by conglomerates based in other countries. These conglomerates are huge and often have other branches to their business: in other words, they don’t make all of their money on publishing. They have other divisions, which enable one division to take a loss during a period of great change without bringing down the entire conglomerate.
Often, you’ll see these large conglomerates sell parts of their businesses that are no longer profitable according to the conglomerate’s standards. By the standards of another conglomerate, that part of the business is profitable, which is why so many corporations get bought and sold or merged or acquired or whatever the term is for that particular deal. Again, we’re not dealing with a monolith here, which is why I’m being so general.
Why is this important for readers and writers? Because large conglomerates have cushions. They’re designed to absorb losses in one division while that division makes changes because profits from another division cover the expense. (Of course, we all know that large corporations can fail—witness Enron and Bear Stearns—but such failures are usually caused by something outside the corporation combined with mismanagement [and often malfeasance] on a grand scale. To my knowledge, no company in publishing faces such issues—and if it did, it would be an isolated case, just like Enron was.)
Big Publishing will weather these changes, but internally, many of the publishing corporations might look different ten years from now.
Why is Big Publishing facing a challenging decade? It’s not just the rise of electronic books. Electronic books, when looked at as a unit, are really just a tiny portion of the changes that Big Publishing has to face.
Big Publishing faces challenges for the same reason other large corporations are facing challenges. The economic climate is the most difficult one publishing—indeed any business—has faced since the 1930s. The 1930s forced publishing to make all kinds of changes, some of which we’re still living with, and I’m sure this new economic climate will force even more changes.
Right now, Big Publishing spends too much money on the wrong things. Overhead and expenses are too large—not because Big Publishing is stupid, but because it made some bad choices and some terrible gambles. It also has history weighing down its balance sheets.
First, let’s talk about the terrible gambles.
Contracts, Rents, and Mortgages. Those of you who work for corporations understand that corporations don’t negotiate short-term deals with important suppliers. Corporations want to lock in the best deal for the longest time.
Publishing corporations have deals with all of their suppliers and jobbers, companies that supply everything from paper to typesetting services, from shipping to warehousing. These deals, in the form of contracts, were made before the bad economic climate hit and may run anywhere from two to ten years. In 2003, the two-year contract (renewable on the same terms) was considered a bad deal; the ten-year contract was the good deal.
But publishing is changing rapidly, more rapidly than anyone could foresee. The contracts made seven years ago are out of date, expensive, and unnecessary. Worse, printing and binding contracts often specify amounts. Meaning the publisher has to guarantee that it will print at least x amount or the prices will go up. (If a publisher prints less than the guarantee, the printer has the right to raise the price.) The publishing company is not just locked into a long-term contract for a rate it no longer wants to pay, it also is locked into a certain amount of production which might not be realistic in today’s economic environment.
Many of these contracts have a fee for canceling the contract. That fee is often equal to one third to one half of the total amount the publisher would pay over the life of the contract. It’s easier (and cheaper) for the publisher to wait until the contract comes up for renewal and decide not to renew than it is for the publisher to cancel the existing contract.
Realize now that all jobs in publishing that are not done inhouse have such contracts. These jobs vary from publishing company to publishing company. (For example, some own their own printing presses, others have their own shipping divisions.) But every (Big) publishing company uses outside services for some aspect of their business, and every (Big) publishing company is tied to long-term contracts for those services.
The same goes for rent/mortgages. Most of Big Publishing, at least for fiction, is located in New York City. Worse, most of Big Publishing is located in Manhattan which, at last check, had some of the most expensive real estate in the country. It’s easy for outsiders to say that Big Publishing needs to move out of New York, and occasionally companies do. But those are the lucky ones. Because the leases on some of the big buildings in Manhattan run on 30-year cycles—again, to lock in good rates. And of course, mortgages are just as bad if not worse. New York’s real estate market lost more than ten percent of its value in the past two years, so the publishers who thought they were smart when they bought their buildings instead of leasing them could be (and I don’t know this for certain) as underwater as many small homeowners throughout the United States.
Add to all of that the weight of history. I should really call it the cost of history.
Remember that I mentioned above that this is the worst economic crisis to hit publishing since the 1930s? And remember that I showed you last week that publishing’s function is not to make books but to distribute them so that they reach the most possible readers?
Well, in the 1930s, the Depression hit bookstores hard. People had less disposable income, and didn’t want to spend it all on hardcover books. Pulp magazines had their heyday in the 1930s partly because they were a cheap way to consume fiction—and most respectable bookstores would not let a pulp magazine cross their threshold.
Rather than lose the distribution source in outlying areas like Iowa or Oregon, publishers hit upon a great idea: they offered bookstores the opportunity to return unsold books for full credit.
That sounds counterintuitive, especially in a depression, but it’s not. Big Publishing works on something I call the produce model. I’ll explain this in detail in a later installment, but here’s the short version:
Every month publishing comes out with brand new product. Shelf space is limited in every single brick-and-mortar bookstore. Big Publishing makes the bulk of its money during the first few months of a book’s existence. So if a book sits on a bookstore’s shelf until the book sells and that sale takes six months to a year, the bookstore and the publisher lose money.
Better to dump the old inventory on a monthly basis—for full credit for unsold items—than it is to have the inventory sit on the shelves and grow “stale.”
This returns policy—so shiny and innovative in the 1930s—kept bookstores alive. Publishers did not decide to do this in a unified fashion. One publisher did it, followed by another, followed by another. The policy allowed publishers to distribute their books all over the United States and made sure the publishing industry survived the Depression.
The problem is that getting rid of the returns policy has proven to be nearly impossible. Bookstores like the policy. In fact, the bulk of their business is built upon it. And Big Publishing cannot unilaterally stop the returns policy.
Because, as I said above, Big Publishing is not a monolith. If publishers were to have a meeting and decide to discontinue the returns policy unilaterally, they would be subject to anti-trust lawsuits as well as other suits.
In the past few years, several publishers have experimented with no-return books. One publishing imprint was even based upon a no-return idea. But it hasn’t worked. Publishers keep hoping that someone will be successful selling books without returns, so that they could then follow along, just like they did when they instituted the policy in the 1930s. So far that hasn’t happened.
What does the returns policy mean for readers? It means this: Returns, for the sake of accounting, are figured at 50% of the print run. So every book sold must carry the expenses of one other book. In other words, the expenses of each book sold are twice the actual cost of manufacturing and distributing that book.
Because of the weight of history and the terrible gambles that the publishing industry has made over the past twenty years, the publishing industry’s costs spiraled. When costs increase, you can only cut so much before you lose quality. Publishing first responded by trimming book lines (but they were limited from doing too much by production contracts). Then publishing cut nonessential personnel. Then it cut editorial staff. And then it couldn’t cut any more.
So it made a bad choice.
The purchase price for a paperback book has risen dramatically in the past decade. In the late 1990s, the average paperback sold for $5.99 and people complained. Booksellers in particular believed that the best price point for a paperback was under five dollars, but publishers believed that readers wouldn’t notice the difference so long as they saw that five right after the dollar sign.
Now the average paperback sells for $7.99. Some recently purchased paperbacks on my shelf have prices as high as $9.99. The latest John Grisham hardcover has a list price of $28.95 which is much too close to $30 for my tastes. I usually buy Grisham in hardcover, but I did not buy this book because of the price, nor did I buy his short story collection in hardcover because of the price. I bought his short story collection in paperback and I just bought his latest hardcover in a Kindle edition.
I do fork out too-close-to-thirty-dollars for the occasional hardcover for an author whose work I know I want to keep, like the latest Peter Robinson mystery, but I’m getting very selective. And I’m a voracious reader.
The higher the price the more cautious people get about their purchases. It’s a never-ending cycle, proven in pricing studies time and time again. Add to that limited availability, reduced distribution, and less diverse book lists (meaning fewer unusual books), and publishers still saw a decrease in revenue despite the price increases.
Now do you understand why Big Publishing is in trouble? The publishing industry has been on this precipice for the past twenty years and believe me, the smart people who run publishing companies have been struggling to find solutions. Some companies have moved out of New York when their leases came up for renewal. Others updated their technology or reduced the quality of their paper product (thinner paper, cheaper boards for the hardcover, changing bindings).
Until recently, no Big Publisher changed its business model. And honestly, a change in business model was what Big Publishing had to do to stop the slow strangulation that was occurring within the industry. Again, anti-trust considerations came into play, but more importantly, the heads of the publishing companies report to stockholders. And a change of business model would cause catastrophic losses in the first few years of the new model, losses that the conglomerate would have to absorb.
Enter electronic publishing—which is, as the bloggers say, a game-changer. But it’s not a game-changer the way that the bloggers believe it is. Electronic publishing will enable Big Publishing to change its business model. In other words, electronic publishing won’t cause the demise of Big Publishing. Electronic publishing will save it.
And…I’ll defend that controversial statement next week.
I wasn’t kidding when I called this topic the elephant in the room. I didn’t use that phrase just because I was ignoring the obvious; I also used it because of the word “elephant.” This is a vast topic, one that needs discussion in detail, which I’m going to try to do.
As I’ve mentioned in the past, I’m using the new publishing model to write these blogs. I rely on you readers to keep me at the keyboard instead of getting an advance from a Big Publisher. This new method allows a lot of give and take. So, in addition to donations to keep me in tea and chocolate, please forward or link to these blogs, and send me your comments and e-mails. I appreciate it all.
“The Business Rusch: Challenges For Big Publishing” copyright 2010 by Kristine Kathryn Rusch.