The Business Rusch: Pushing The Envelope

The Business Rusch: Pushing The Envelope

Kristine Kathryn Rusch

Monday morning, I ripped off the previous page on my Pearls Before Swine 2011 Day-To-Day Calendar to find Pig and Rat, sitting at a table.  On the table, a steaming cup of coffee and an envelope.  Pig’s hand (paw?) is on the edge of the envelope.

Rat asks him, “What are you doing?”

Pig says, “Trying to see why everyone thinks this is so risky.”

Second Panel:

Rat says, “Why what’s so risky?”

Pig says, “Pushing the envelope.”

Final panel:

Pig sits alone, bruised and covered in coffee, his ruined mug next to him, and the rolled-up envelope stuck in his nose.  “Now I see why,” he says to himself.

I laughed hard when I saw that and thought of both Barry Eisler and J.A. Konrath.  They made an announcement at midnight on Sunday PDT.  I hadn’t yet gone to my computer to see what the fallout from their announcement was, but I suspected they were dodging rolled envelopes while wearing their Gortex to make certain they didn’t get too drenched in coffee.

For those of you who don’t know, this has been another one of those crazy news weeks.  I was privy to the Eisler/Konrath news before it broke, because they asked my husband Dean Wesley Smith to blog about it.  They sent him their announcement in advance and with him, I read all 13,000 words on Saturday at lunch.  I’ll explain this in greater detail below.

But first, let me hit a few other high points of the last few days.  The Association of American Publishers released its monthly sales estimates on Monday.  The report covers only January, but everyone had been anticipating this because it’s the first sales report to have actual numbers since the big surge in e-reader sales in December.

The AAP says its numbers aren’t a complete picture of the industry because only 85 companies report to them.  But those 85 include the major publishers (what everyone calls “The Big Six,” a term I loathe, but which apparently is in the lexicon now, whether accurate or not).  The numbers are fascinating, and Publisher’s Weekly has a nifty chart so that you can see them all.

Here are the highlights:

•Adult Hardcover sales are still larger than e-book sales across the whole industry.  The AAP says this is because independent and smaller publishers do not have the e-book volume of larger publishers.  I say this is probably because many smaller publishers have been slow to convert books into the e-format and don’t have the resources to add formats when they become available (which will be a future topic on this blog).

•E-Book sales jumped 115.8% in January to $69.9 million. The sales are measured against the same time period in 2010.  So that means that since January, 2010, e-book sales have risen almost 116%.

•Mass market paperback sales were down 30.9% in January.  Unlike hardcover numbers, this one is much more accurate because the nine publishing houses that account for the bulk of mass market paperback sales report to AAP. 

The surprise in the report is this: “The combination of soaring e-book sales and declining sales of print put e-book revenue [emphasis mine] ahead of both adult hardcover and mass market paperback sales in January.” [Publishers Weekly]

The difficulty with summaries of reports like this is the ease with which reporters confabulate “revenue” and “sales” which are not the same thing.  So keep in mind that this report does not say that sales are higher.  It says that revenue is higher because of growing sales.  There are no actual sales figures in this report, only the sales revenue figures.  So right now, e-books are earning more money than mass market paperbacks, but I’m not sure if the actual number of copies sold is higher or if that’s a function of the different costs of each product.

(If you’re not following me, you might be more familiar with this in Hollywood terms.  Several years ago, Hollywood stopped counting opening weekend ticket sales in exchange for opening weekend earnings.  The difference is simple: ticket sales were declining while revenue (from increased ticket prices) was going up.  Mass market paperback books have a different price structure than e-books from traditional publishers.  Hence my uncertainty about actual copies sold versus the amount of money earned.)

The AAP reports, which in previous years have been the cause of much undeserved handwringing (The Sky Is Falling! The Sky Is Falling! Even when it wasn’t), are now interesting to follow.  They chart the growth of e-books. This month’s report is particularly fascinating for Publishers Weekly’s conclusion:

“A year ago, when PW asked mass market executives when they thought e-book sales would surpass mass market, the earliest date was 2012.  While sales of mass market paperbacks are likely to rally later in the year, it still appears that e-books will become the third largest trade format in 2011, much quicker than anyone anticipated.”

(Try as I might, by the way, I can’t find why PW thinks mass market will rally.  Apparently that’s one of those things traditional publishing assumes.)

Anyway, I led with this, and not the Eisler news because it’s relevant to the Eisler news. For those of you who are in some way involved in publishing and live under a rock, here’s what Eisler announced on Monday:

He turned down a $500,000 deal with St. Martins Press to self-publish his next John Rain novel. He explains his thinking behind this choice in a long dialogue with J.A. Konrath.  The dialogue is exceedingly interesting and worth reading.

There are assumptions in it that I disagree with.  (For example, both men think some writers should pay a percentage to get their books online—although neither man would do so  himself; we’ve discussed the folly of paying a percentage here.  [Although I have no problem with hiring anyone.  I believe you should act like a businessperson and pay a salary or a flat fee, instead of a percentage. The percentage is a writer take-care-of-me model that has no place in this part of the business.])  I will, however, be using much of what they discuss as a riff in future posts.  There is a lot of value here. Go read it.

As I mentioned, Dean and I got to read this early.  And I regrettably did not realize the one small mistake Konrath and Eisler were making until Monday morning when I saw all the reports.

The men did not prepare a press release for this dialogue. They did not give the news in a format easily digested by the 30-second sound bite. As a result, they got hammered worse than they should have because most people would rather discuss a headline than get their minds dirty by actually reading the article.

Since I know many of you did not jump immediately to the link (but you’re all going to when you finish reading this, right???), let me summarize.

Barry Eisler, a New York Times bestselling thriller writer, turned down a $500,000 two-book deal with St. Martins Press to self-publish the next John Rain novel.

Eisler decided to do this after the success of one of his self-published short stories.  This year he is “on track” to earn more than $30,000 from “The Lost Coast.”  He paid a flat fee of $600 to have the cover designed and the book formatted.  So that fee, plus his time, are the only costs against that $30,000.

He examined the short story sales, the loss of control of his rights to the Rain books for years to come, and did the math.  He decided he would earn a great deal more money from self-publishing the next novel than he would ever earn from St Martins or any other traditional publisher even if he sold significantly fewer copies.

Got that? It would take fewer copies to earn the same $500,000 that St. Martins would have paid him.

And here’s the kicker: He will start earning money on this book, titled The Detachment, in June of this year.  St. Martins hadn’t finalized the deal yet, which meant that the book wouldn’t come out until January of 2012 at the earliest.

Most of you who read this blog know that an advance is a loan against future royalties of the book. What most of you probably do not know is this: The advance is not paid in one lump sum.

So here’s what Eisler was looking at: earning significant money on e-book and in POD starting in June (at a minimum of 70% of the cover price) or getting the installments of the advance over the next three  years.

Here are two ways the advance could have been paid out.  I do not know the details of the St. Martins deal, but I have seen a lot of six-figure deals.  They differ in every contract, but there are similar patterns.

If he was lucky, he would get the money in three payments: half (or $250,000) on signing of the agreement; a quarter on acceptance of book #1 ($125,000); and the last quarter on acceptance of book #2 ($125,000).

On-signing money usually comes two-to-four months after the contract is finalized. So say he signed the deal this week and it only took two months instead of four (boy, am I being generous), he would receive a $250,000 interest-free loan in June.  Minus his agent’s 15% commission. So Eisler would receive $212,500 in June.

His turn-in date would be a year from now.  So slate the next $125,000 minus 15% for next August.  (His editor has to read the book and accept it before Eisler would get any money.) That’s $106,250 in August of 2012.  The remaining payment would come up in August of 2013, and would be another $106,250 if the last book of the contract is accepted.

The second—and more likely way—that the St. Martins contract would be structured in these rough economic times is in five payments. The books would be accounted separately at $250,000 per book.  Then he would get three payments on each book.  One at signing, one on acceptance, and one on publication of the hardcover.  So the payment structure would look like this:

June, 2011: $166,667 on signing (2 payments) minus commission = $141,667.

August 2012: $83,333 on acceptance of book #1 minus commission = $70,833.

June 2013: $83,333 on publication  of book #1 minus commission = $70,833.

August 2013: $83,333 on acceptance of book #2 minus commission = $70,833.

June 2014: $83,333 on publication of book #2 minus commission = $70,833.

So instead of earning $500,000 in 2012, Eisler would receive $141, 667 in 2011; $70, 833 in 2012;  $141,667 in 2013, and $70,8333 in 2014.  And keep in mind: that money he would get is an interest-free loan, repayable should the contract get broken.  Got that?

(By the way, I’ve seen contracts for $500,000 that divvy the payments into as many as six per book.  Often it’s four per book: signing, acceptance, hardcover publication, paperback publication—which stretches out the payments now into 2015 or 2016 depending on the speed of the publishing schedule.)

Suddenly the fact that Eisler is turning down a $500,000 doesn’t seem so dramatic, does it?  Particularly when you figure he’s earning $30,000 on a self-published $2.99 short story.  Imagine what he’ll get from a higher-priced novel that his fans have been waiting for.

Think of it this way: he’s going to start earning money that he will be able to keep even if something goes wrong rather than receiving an interest-free loan that he would have to pay back if something went wrong in the business relationship with his publisher.

Earned money versus a loan.  Which would you take?  Especially when he’s already earning $30,000 on a $2.99 short story.  Okay, for the sake of speculation, let’s say he prices the new John Rain novel at $6.99 and the novel sells the exact same number of copies that the short story sold (it won’t; novels sell better than short stories, even short stories by bestsellers).  That means he would earn $90,000 in the first year of publication, only $51,000 short of what he would have gotten as a loan from St Martins Press.

The difference here, however, isn’t the short term money, the loan versus the actual earned income.  It’s about the long haul.  Eisler wants the book to earn over its entire life.  Traditional publishing wants to earn back its investment plus a 4% minimum profit within the first six months of the book’s life.  (I call that the produce model—traditional publishing acts as if books can spoil on a bookstore shelf, and those books must be moved aside for the next big thing.)

Eisler is going to invest less than $1000 to earn a minimum of $90,000 within a year.  All by walking away from a loan that he isn’t sure of keeping.

If Eisler and Konrath had given some of this analysis in bullet points on Monday morning half of the kafuffle that greeted them would have dissipated.

I retweeted both of them just before I went to bed early Monday morning.  After I got up and read my Pearls Before Swine cartoon, I opened Twitter and found dozens of responses to me saying that Eisler was crazy.  I asked every one of the respondents if they had read the dialogue between Konrath and Eisler. The respondents hadn’t bothered to look before weighing in.

Some of that is a function of Twitter, but  much of it is human nature. And had I been thinking like the journalist I used to be instead of the fiction writer I am, I would have told Dean in his correspondence with the two men to make sure they had a short (500 word) press release summarizing the main points.

But I didn’t think of that until the coffee was spilled and the rolled envelope got inserted into nostrils.

In the next week, please read the Eisler/Konrath dialogue.  I will be discussing parts of it for the next month.  They make a lot of good points.

At the same time as the Eisler story hit, Julie Bosman, a blogger for the New York Times, cited two unnamed publishing executives who claimed that Amanda Hocking (whom Bosman snottily called “the darling of the self-publishing world”) was “attracting bids of well over $1 million for world English rights.”

That’s it. That’s all anyone said or could confirm, until Hocking herself admitted in a blog post on Tuesday that yes, indeed, she was contemplating a traditional publishing deal while continuing to self-publish.  Her post makes me sad for her, actually, because it’s clear what a toll the sudden fame has had on her.  She wants help dealing with it, and hopes that help will come from traditional publishing.

As a person with nearly thirty years of experience in traditional publishing, let me tell you that “help” is not something they readily or even competently give.

But she needs to learn that herself, and if she makes this deal, which at the time of this writing is, in my opinion, a big if, she’ll still be publishing her other work—provided she doesn’t sign those sneaky non-compete clauses that are showing up in more and more contracts these days.  There are a lot of pitfalls ahead of her in traditional publishing, and I hope she has good advice to help her through them.

The timing of the New York Times blog, coming as it did on the same morning as the Eisler news, made traditional publishing thumb its nose at Eisler.  See? They all seemed to say in unison, Even Amanda Hocking is coming to our side of the table.

Only…that’s not what the blog said. And anyone who has been around news and publicity and negotiation knows what happened in that single, well-placed paragraph.

These unnamed publishing executives are losing the negotiation. Either they’re being outbid by their competitors, or more likely, someone—probably Hocking herself—is balking at some of the terms of the deal.  I can tell you now that she’s not balking at the 1 million dollar advance (although I do hope someone explains to her that this is a loan).  She’s probably balking at the e-book rights clauses.

Other self-published writers have been flirting with New York publishing deals. Some of these writers suck up the terrible e-book terms, and some have completely turned the deals down because they couldn’t get NY to budge on e-rights.

Personally, I hope Hocking makes this deal by getting traditional publishing to bend to her will on e-book rights.  That would be a victory for all of us.

But I’m putting a lot of pressure on a beginning writer who at 26 has gone from a crappy job one year ago to earning more than a million dollars on her writing without traditional help.  She’s also become famous in a small way, and that fame monster is a terrifying thing, especially if you’re handling it alone. Go read my posts in the Freelancer’s Guide about the problems with success.  These things are what Amanda Hocking is dealing with right now.

Hocking’s deal isn’t finalized.  Eisler’s is. And honestly, Eisler’s is the more interesting deal.

Because he shocked traditional publishing.  Hell, he shocked me. I thought it would take more time for bestsellers to leave the traditional publishing community.  I didn’t expect someone to depart this year.

The response he has gotten from traditional publishing has been amusing to say the least.  They’re shocked, and as a result, they’re making a lot of stupid and ignorant statements about  his move.  Like this one from yet another unnamed publishing executive reported in Publisher’s Marketplace, “Can [Eisler] get the word out, does he have the fan base, and will people go looking for a new John Rain/Barry Eisler novel, to make [epublishing] at least as financially successful? He’ll have to sell a lot more copies than he ever has before.”

Um…what?  Clearly this unnamed publishing executive is mathematically impaired.  When a writer makes 70% of cover price instead of 15% of cover price (hardcover) or 25% of net retail (e-book), then the writer makes more money.  Even with fewer sales.  In fact he can have half the sales he had before and make more money with almost no upfront cost.

The unnamed publishing executive is suffering from two problems in his mathematically impaired brain.

1) He doesn’t understand that Eisler only needs to earn $250,000 to make the same amount of money on the first John Rain book.  Eisler does not have to earn the additional $200,000 to $500,000 the publishing company will spend to get the book out to the public.  Clearly our friend the unnamed publishing executive either doesn’t know this or forgot it.

And

2) the unnamed publishing executive doesn’t understand his own business.  His company or one just like it spent millions of dollars creating a demand for Eisler/Rain novels, a demand that doesn’t go away just because Eisler has decided to become his own publisher.  Readers don’t care who publishes the next book.  They just want the next book so that they can read it.

Finally, if Eisler really needs help getting the word out about his next book, he can hire someone to do it for him.  A publicist (like the publishing company does) or an ad agency (like James Patterson makes his publishing company do) or a single person on salary whose only task is to mail review copies and press releases.

Because the detail everyone seems to have forgotten here is that Eisler has had big deals before.  Unless he’s bad with his money (and I see no evidence of that from the outside), he can afford to hire help.  Hell, even if he takes his short story revenues and designates them to promoting the next John Rain novel, then he will get as much promotion as a traditional publisher will give a medium range bestseller, which is what he is.

Finally, on the promotion side of things, all of publishing as well as Entertainment Weekly and The New York Times has spent much of this week discussing the next John Rain novel which will appear in less than two months.

Think Eisler needs help with promotion? It seems to me that he just did quite well without spending a dime.  (Although that coffee-dumping on Monday morning must have felt costly.)

Now, let’s go back to my first bit of news, the AAP sales figures for January which shows that sales of print books are down across the board.  Adult hardcovers were down 11.7% compared to January of 2010.  Adult trade paper was done 19.7%.  Mass market was down 30.9%.

Then take into account this snide comment about the Eisler deal, also from an unnamed publishing person, also quoted in Publisher’s Marketplace: “One person notes that Nielsen Bookscan figures show Eisler print book sales, which have always been driven by mass market editions, declining steadily from book to book.”

Just like every other print book in the publishing industry.

Sales of electronic books are up 115.8% in that period.  Eisler has given up a print deal to self-publish his own work and get 70% of the electronic book money instead of at best 17.5% (see the analysis he does to see how he came up with that number).

Looks like Eisler, and not the mathematically impaired nameless publishing executives, actually has his finger on the future of publishing.  If you look at the deal with cold hard reality, and you do so using publishing’s own numbers, you realize that Eisler has made an extremely smart decision.

And that’s probably what made the traditional publishing establishment dump coffee all over his head on Monday morning.

As I’ve been saying, it’s an exciting time to be in the publishing industry. Things are changing on a weekly and sometimes daily basis.  I’ve decided to use this blog to help writers and others in publishing through the change.  I’ll try to explain what I do know and find out the answers to things I don’t understand. And sometimes, I might even change my mind [gasp!]  So if you’re enjoying the ride, please continue to support this blog.  I do it sometimes at the expense of my own fiction writing, so good words, good comments, good emails and (yes) donations help keep me motivated.  Thanks for all the insight and links.  I expect we’ll travel this new road together.  Heaven knows where we’re going to end up, but the journey is certainly fun.

“The Business Rusch: Pushing the Envelope” copyright 2011 by Kristine Kathryn Rusch.