Kristine Kathryn Rusch » Business Rusch, featured, free nonfiction, On Writing » The Business Rusch: How Traditional Publishers Are Making Money
The Business Rusch: How Traditional Publishers Are Making Money
The Business Rusch: How Traditional Publishers Are Making Money
Kristine Kathryn Rusch
Of course, this past week has been just as busy in publishing as the last several weeks. The changes are amazing, especially considering how stable the industry used to be.
Third quarter earnings have come in, and the publicly traded publishing companies must report them. (Or, at least, their parent companies must.)
For those of you who blithely predict that traditional publishers will go away, I suggest you click on over to the links below and look, actually look, at those earning statements. For the rest of you, here are the headlines:
Pearson, which bills itself as “the world’s largest learning company,” reported increased sales (6%) and operating profit (13%) in the first 9 months of 2011. But the interesting part of its statement is about Penguin, the publishing company. Overall sales at Penguin remained flat, but… profit margins were up because of the rise in e-book sales. While paper books declined, e-book sales “more than doubled from last year.” Three months ago, Penguin reported a 128% increase in e-book sales. This little statistic will be important later in this blog post.
Harlequin’s parent company Torstar was down slightly “largely due to foreign exchange rates.” But they expect “lower book returns relative to books distributed which should contribute to improved operating results.” Again, we’ll look at that a bit below.
Simon & Schuster, which has been in the e-book market longer than any traditional publisher, reported through its parent company CBS that sales and profits were up. Once again, we see this little tidbit in the earnings report: “Strong growth in the sales of more profitable digital content was offset by lower book sales.” [emphasis mine] The increased profits, then, were “driven by lower direct operating costs, including expense decreases resulting from the significant increases in more profitable digital sales as a percentage of the total revenue.” [Again, emphasis mine]
This explains Simon & Schuster’s announcement days later that it will create a “dedicated digital sales team” that will have “responsibility for our corporate social media efforts, and continue to develop larger cross-imprint publishing and marketing opportunities.” Of course, buried in this announcement is the fact that in the reshuffling, lots of other folks will lose their jobs as their positions—from the old way of doing things—will be eliminated. S&S is going where the money is, and the money is now in digital sales.
Profits are up in almost every company required to report, except at Lagardère, which owns Hachette, which owns Grand Central and Little Brown among others.
Since Lagardère are behind everyone else getting into the new media world, their profits are down for Hachette Book Group—8% in the U.S., and 10% in the U.K. Even so, the report states this: “The e-books boom continued in the third quarter, mainly in English-speaking countries.” In the first 9 months of 2011, the e-book sales were 21% of net sales in trade publishing in the U.S., and 9% in the U.K. market.
Then the report states this: “The October launch of several e-readers in France should help the French market take off.” Like the companies above, Lagardère is banking on the e-book market as well.
Lagardère is blunter in its statement than the other companies. It states this in the Outlook section of the report: “The [Lagardère] Group is taking a cautious outlook looking forward to the end of 2011, given the highly volatile overall environment.”
In other words, Lagardère is as stunned by the rapid changes as the rest of us. The difference between Lagardère and some of the other companies on this list is that Lagardère was behind the curve—far behind—and is now struggling to catch up.
I want you to notice a few things before we go farther. I have said repeatedly that traditional publishers will not go away. Traditional publishers are part of international corporations. Torstar is based in Canada. CBS is based in the United States. Pearson is based in the U.K. And Lagardère is based in France. I cannot stress to you how large these companies are. Look at their reports, and you’ll see holdings upon holdings upon holdings. The publishing companies are a part of their business, but not all of their business by any stretch of the imagination.
So the people who continually predict that traditional publishing will disappear simply do not understand how multinational companies with holdings around the world operate. Look at the reports. You will start to get an idea.
I haven’t explored the earnings report of all of the major companies, but the ones I’m finding show some uniformity. E-book sales are up. And even in the recession, many of the publishing arms of these multinational companies are profitable.
How is that possible? After all, Borders is gone, Barnes & Noble has decreased shelf space for books significantly, and even though independent booksellers are on the rise again for the first time in ten years (yay!), in no way can they make up for the loss of retail space for paper books. Every grocery store has cut back, Wal-Mart has decreased shelf space, as has Target and many other book retailers.
Similar situations have happened around the world. Indigo in Canada cut back on shelf space, and large book companies in Europe have cut back as well.
And yet, profits are up, by both of the measures that the reports list. The first measure—sales—is up, and so is the second measure—operating profits. This means that not only are the companies selling more books (in one form or another), but they’re making more money while doing so. In the few companies where sales are not up (flatlined or lower), operating profits have still risen.
Normally, when we discuss a rise in operating profits, we mean that the cost per title is down. In the past, decreasing the cost per title happened on the backs of employees who got laid off or took serious pay cuts, or it happened because the company reduced rents on office space or renegotiated expensive printing/labor/other contracts.
This time, the decrease in the cost per title happened mostly due to one thing on the publishing side of these companies: e-books.
In fact, report after report states this, although few say it as clearly as Simon & Schuster. The continual reference to “more profitable digital sales” throughout the report is pretty damn blunt for an earnings statement. What’s missing is why digital sales in general and e-books in particular are more profitable.
So let me break that down for you.
It’s not just that e-books are less expensive to produce. They are less expensive to produce, just not as much as you might think. The massive overhead that traditional publishers have is still charged against an e-book (and if you want to get one glimpse of how massive that overhead is, take a look at this article from The New York Times a few weeks back. Time Warner used the Times article as a bargaining chip to negotiate a smaller rent deal).
The e-book still has to be designed, developed, proofed, and shipped to distributors. Although that shipping word reflects a place where the publisher saves money: no massive shipping costs on e-books—just the cost of the in-house computer and the tech person who researches the various sites and hits “send.” That’s a savings.
As is the fact that the publisher doesn’t have to produce two books to sell one, like they do with their print books. (This is a reflection of the returns system.) Torstar (Harlequin) mentions this prominently in its report with this statement, “lower book returns relative to books distributed which should contribute to improved operating results.”
In other words, Harlequin is printing fewer books and selling more e-books, so each book is making more money than it ever had before.
There are still production costs with e-books, but no paper costs; still art costs, but no cost to print something with four-color. Since e-books are cannibalizing the mass market paperback, that represents a savings as well.
(An aside: I will miss the mass market paperback. It’s my favorite paper format. But as the shelf space for the mass market paperback disappears, so are the mass markets themselves. Romance still thrives on mmps, but many other genres from mystery to science fiction to literary mostly publish in hardcover and trade these days. Very few mass markets at all. It’s getting to the point that if you want to read an inexpensive book, you’ll need an e-reader.)
But the biggest place that the publishers are saving money in the e-book side of things is author costs. Ten years ago, e-book rights got treated like any other subsidiary right. The authors got 50% of whatever the publisher got for that book.
The assumption in subsidiary rights is that the publisher would outsource them. That was especially true ten and twenty years ago, when book publishers published books only. But those of you who went to the links I posted above should have noted that the parent companies were major conglomerates with other holdings. So now, a lot of what used to be outsourced, from audio books to e-books, get produced in some other part of the parent company.
The suits at the parent company put pressure on the book publishers to change the contracts to reflect the in-house nature of the production. Contracts bought rights directly instead of splitting them, particularly in houses that also have a sister company that’s, say, an audio company.
Writers, writers organizations, and agents fought a lot of those changes, arguing that they still required the 50% of whatever the publishing house “got” for those rights. This battle got quite heated, and everyone expected give on both sides.
The battle was fought five to ten years ago (depending on the company), and back then, no one thought e-books would ever make any money.
Not ever.
So the writers, writers organizations, and agents had to cave on something to show they were “giving back” in the negotiation. They agreed to 25% of net or 15% of gross on e-books around that point, because “everyone knew” that e-books would never account for more than one-tenth of one percent of a book’s sales.
Ooops.
In current contract negotiations, e-books are no longer considered a subsidiary right. They’re a major point of sale, along with hardcover, trade, and mass market rights. Traditional book publishers have made e-books rights a deal-breaker in contract negotiation.
Either writers give the traditional publisher 15% of gross or 25% of net, or there is no contract. Some publishers are getting even stingier: 15% of net, not gross, and if you don’t like it, writer person, walk away.
So many writers don’t walk. Hell, I have several contracts with those numbers in them, and back when I signed them—ten and five years ago—I too thought e-books would remain a subsidiary right. I’ve signed contracts with worse e-deals in the past three years, but in a more calculating way, hoping the traditional publisher’s push on the books would have a positive impact on the sales of my indie-published titles.
It was a gamble, and honestly, the jury’s still out on whether that gamble’s paying off.
Anyway, back to the publishers’ profits. The publisher is now paying significantly less in royalties to the writers than the publisher ever paid in the past.
I’ve done this math before, but it’s worth doing again for those of you who fail to get it. This time, let’s just use a $6.99 price point as our example, and a 25% of net e-book royalty rate from the traditional publisher, and let’s ignore the problem of “net” entirely.
At $6.99, the writer is entitled to $1.22 of that book. Subtract the standard agent’s commission of 15% and the writer gets $1.03.
On that $6.99 sale, Amazon gets $2.09, the publisher gets $3.67, the agent gets $0.18, and the writer gets a whopping $1.03. The only person who gets paid less than the content creator here is the agent, and that’s because the agent got 15% of the writer’s take.
If the writer sells that e-book herself, she gets $4.89, without paying her agent. That’s a difference of $3.86 going to the writer.
And that’s assuming that the publisher: a) accurately reports the sales; b) defines “net” as the amount the publisher gets after Amazon (or B&N or Kobo) takes its cut; and c) does not decrease the cover price of the book.
In the past, the past the writer got 50% of cover price on e-books. So even if the publisher or Amazon sold that book at a discount, the writer still got 50% of the original cover price. Meaning that a $6.99 e-book sale gave $3.49 to the writer. No matter if the publisher only sold the book for the discounted price of $3.99.
Cover price is still the gold standard for royalty rates on print books. Only a few smaller traditional publishing companies pay writers based on net receipts, and in those contracts, “net” is clearly defined as what the publisher receives from the distributor (be that an actual distributor or a bookstore).
Most traditionally published print books pay the writer an 8-10-12% royalty rate on the cover price of a mass market paperback (which is what a $6.99 book would be), although many of these publishers have also added a “discount schedule” so that books sold well under cover (like that $3.99 above) would have a different royalty rate.
So on the paper book sold at full cover price, the writer would receive maybe O.55 cents, 0.69 cents, or 0.83 cents per copy. For those of you about to get up in arms about that, remember that the publisher has to produce two paper books to sell one, so the publisher is only getting $3.49 per copy—and must charge off all the various other expenses from that. Before the author costs get figured, a paper book publisher makes about $2.00 maximum per mass market paperback. And then forks out anywhere from 55 cents to 83 cents to the writer.
The writer, then is making anywhere from 27% to 41% of what the publisher makes. Look at it this way, if the writer got those royalty rates on her e-books—27% of net or 41% of net from her traditional publisher, she would be making $1.32 to $2.00 on the book before agency fees. After agent, it would be $1.12 to $1.70.
Those of you who really have no sense of how publishing works are probably thinking, What’s bugging this Rusch woman? She’s talking pennies here.
Pennies that you add up over thousands, tens of thousands or hundreds of thousands of copies of your book. So let’s look at that for a minute. That $1.12 per copy equals $1,120 spread out over a thousand copies sold of that book. Over ten thousand copies, that’s $11,200. Still think that’s chump change?
Now, consider this: Traditional publishers never expect to make a lot of money on one book. They expect to make a little bit of money on every book.
When you look at the number of books that Penguin publishes every year or Harlequin or Simon & Schuster, and you increase the profits made per book by two to three dollars, you’re talking millions, tens of millions, maybe hundreds of millions in increased profitability—by moving to e-books.
You see why, with e-books at 21% of the market and growing, traditional publishing companies are making money with shelf space disappearing. These companies are making money in a recession. Imagine how much money they’ll make next year, with the introduction of all the cheap tablets, and anticipated significant rise in e-book sales.
These publishers are making money on the backs of traditionally published writers.
This change has a bigger impact on the bestsellers than it does on the midlist writer. It’s really simple. Do the math. The bestselling books will continue to sell at hundreds of thousands, if not millions of copies.
In the past, bestselling writers would make sizeable royalties on those sales. With a move to e-books, the royalties are being cut significantly.
Look at it this way, which is best-case. Instead of making $2 per book on that $6.99 ebook, the bestseller now makes $1.22 (this is before agent, remember). That’s 39% pay cut.
Or multiply that by one-million copies. The bestselling writer made $2,000,000 in the old method. Now the writer is making $1,220,000.
Okay, most of you wouldn’t complain about that. Except that the $780,000 is now going into the publisher’s pocket, not the writer’s. And let’s not even talk about the loss that the agent will suffer, making 15% of the writer.
Is it becoming clear why profits are up at the traditional publishers? The profits they’re making is coming out of the pocket of the writers.
And we haven’t even discussed the problem of “net” receipts. Some of the oldest contracts have no definition of net. Most good recent contracts do, but the old ones—negotiated by literary agents without law degrees, agents who have no idea that every word in a contract is important—usually had no definition of “net” at all.
Since this hasn’t yet been litigated in a publishing contract, to my knowledge, undefined net is whatever the publisher deems it to be. If the cases do get litigated down the road, the definition will switch to “industry standard.” But right now, no one knows what “industry standard” is.
I know you guys hate my math posts, but if I don’t do them, you can’t see what’s going on. And here the math is really clear. Simon & Schuster (through parent company CBS) says it all: the increased profits are “driven by lower direct operating costs, including expense decreases resulting from the significant increases in more profitable digital sales as a percentage of the total revenue.”
Imagine what these quarterly earnings reports will look like in 2012 after the increase in digital sales. Imagine what the earnings reports will look like when, like most are predicting, e-book sales hit 50% of the market.
Who will make money? Online bookstores, yes. But the largest chunk of the pie in those e-book figures I gave you above now goes to the traditional publishers. And if writers continue to sign away their profits just to get a book published traditionally, then that chunk of the pie will grow.
I know this made your brain hurt. Print the blog out, look at it carefully, and follow the links. Then think about this very carefully.
The industry is changing, and if a writer wants to stay in traditional publishing, she will make a lot less money that she would have made ten years ago—even with the same number of book sales.
Traditional publishing isn’t going to go away. If anything, traditional publishers will become more profitable in the years ahead.
But the traditionally published writers won’t.
Just sayin’.
I write my non-traditional little blog here once a week, taking time away from my fiction writing to do so. If you find value in this nonfiction blog, please do leave a tip or a small donation on the way out. Thanks!
“The Business Rusch: How Traditional Publishers Are Making Money” copyright 2011 by Kristine Kathryn Rusch.
Filed under: Business Rusch, featured, free nonfiction, On Writing · Tags: Agents, CBS, contracts, Hachette, Harlequin, Lagardére, Negotiation, Pearson, Penguin, royalties, Simon & Schuster, St Martins Press, subsidiary rights, the New York Times, Time Warner, Torstar, traditional publishing, Warner
78 Responses to "The Business Rusch: How Traditional Publishers Are Making Money"
Thanks Kris. You give me more to contemplate as I go forward with my own indie publishing endeavors. I’ve been thinking about pursuing both indie and traditional publishing. I appreciate the info on current developments. I’ll check out those links too. It looks like my most immediate strategy is to get more books and short stories up before Christmas and see what happens in the new year. Again, thanks to both you and Dean. Finding your blogs has revolutionized the way I view my writing career. Here’s to the new world of publishing!
Wonderfully detailed blog post! I’ve been aware of how this all works for some time now. With traditional publishing companies suddenly offering “self-publishing” services as well, for very high prices charged to the authors, they’ll continue to bring in money. Two years ago, my dream was to be published by a traditional publishing house. However, after self-publishing several titles without the assistance of a publishing house, my dream is to continue doing that – seems like a lot more perks and a lot less money taken away.
Excellent analysis, and all the more compelling reason to self-publish. Certainly many of the old traditional houses will survive by embracing ebooks; the thing I’m worried about, though, is whether they’ll find some way to shut out indie writers from the game. Under what scenarios would they be able to do that? We have options now, but will that be the case five or ten years from now?
Regardless, I’m making hay while the sun shines and trying to build a name for myself as an indie writer. The opportunity is wide open, and for the genre I write in, I’d be a fool not to take it.
I don’t hate maths posts at all. This one was fascinating. Thank you!
I’m wondering what effect piracy is going to have on those profits. Looking at what’s happened in the music and film industry, publishers may be rightly concerned about the long term future of that extra margin.
Also what will happen to retailers like Amazon when anyone can sell books over the internet without needing anything more than a server for storage space? I guess Amazon’s thinking is to push the Kindle hard in an effort to protect its market position, but I’m also guessing that someone has already written the code to translate Kindle copies into formats suitable for other types of ereaders.
Spot on, Kris. I wish more writers would read–and *understand**–this post and the math behind the greater profits reports at the tradpubs. I hope that both the big bestsellers and the midlisters (and newbies) realizes that they don’t have to take crappy terms for ebooks. Not only are tradpub contracts trying to wrest terrible ebook terms, but awful or outright claims on other subrights and even on future books. Same for small epress/agent pubs (Trident Media’s outright comment baiting of Penguin’s BookCountry, for one). Writers beware, indeed!
Very interesting. Man, the easy availability of backlist titles in ebook format (rights to which haven’t reverted back to the author, I mean) is in itself gonna take traditional publishers all the way to hefty bank accounts… In a numbers game, those who have the most will always make a nice profit, let alone when it comes to established names with fans waiting to re-read/have access to old favourites…
I wonder what will happen though if authors decide to utilise the legal provision on rights reversion after 35 yrs (for those titles contracted from 1978 onwards)… Or even if many authors would want to get their rights back at all instead of being content with current arrangements…
Excellent post! Very informative, well researched, and filled with loads of excellent data (thanks for the links, I’m checking them out next).
I still dream of a big contract because going it alone is incredibly hard — and I’d love to have the broader reader base… but the downside to a bad contract certainly takes the shine off that brass ring.
I have a question for you, Kris. Have you noticed an increase in sales for your indie titles due to exposure through traditional publishing? I’m indie and right now I turn almost 50% of my profits back into growing my reader base (the rest goes to editing, cover design, and marketing for subsequent books). Granted, this summer with my latest release that figure was significantly more each month than what I’m earning right now, but my agent told me ages back I’d be expected to reinvest most of my advance from a publisher into marketing if I wanted the book to make it, so I figure it’s a wash.
I’ll be posting a link here on FB and leaving you a donation as well, kudos for your effort. Wishing you the best and thanks again for the article.
C.J.
I just bought King’s new ebook…and paid over $17 for it!
Not surprising somebody somewhere is making some scratch. And at that price, I seriously doubt I’ll be buying many more ebooks from the Big Six. If they are seeing huge increases in ebook sales, I’m hoping that it’s a wave of people just getting started in the digital world. Once in and people begin to see prices like these, the next step will be searching out quality digital product for a fair price. Hopefully the next digital trend will be smarter consumers heading to smarter, reasonably priced publishers.
Bottom line: No one is going to continue to pay for 20th century overhead rates.
to increase business now a days is very difficult task because there a huge competition between companies and there a large verity of product and the social media and television channel and others marketing sources are use market your product
I hate doing math, I confess, but I love your math posts — exactly because I would find it very hard to sit down and calculate this out for myself.
VERY eye-opening. Thank you.
Tara Maya
The Unfinished Song: Initiate Grab a copy while it’s free!
I’ll bet you wonder every time you publish one of these numbers posts (which I LOVE, by the way) if this one will be the one that finally gets to those authors who continue to say “But…I really like it where I am. They take care of me!” So maybe this one, huh? I’m an optimist.
“Instead of making $2 per book on that $6.99 paperback, the bestseller now makes $1.22 (this is before agent, remember). That’s 61% pay cut.”
Isn’t that a 39% pay cut? $1.22 is 61% of $2.00. The writer is losing $0.78, or 39% of $2.00.
Not that it isn’t still a heckuva pay cut. Thanks, Kris, for an eye-opening post. (Now if only the right people will read it…)
You’re welcome, Shaun & Tara.
Thanks, Marilyn. Things are certainly changing, aren’t they? I think it’s hard to let go of the old dreams. As I wrote last week, I feel very unsettled about all of this at times.
Joe, they can’t shut the indies out of the market without having all kinds of restraint of trade lawsuits, etc. The market, remember, is retail, and no company–not Kellog’s or Campbell’s–can tell a local grocery store not to carry local (smaller) products. Using that same logic, no book company can tell a local bookstore or Amazon for that matter not to take a local (smaller, indie) published book. It would be stupid for Amazon to do so. It’s making a lot of money from the indie writers. And there are more and more markets–stores–opening all the time. So no need to worry about that.
Cath, my take on piracy is this: first, studies have shown that people steal when something that they really, truly want is too expensive and they can’t get it any other way. Second, some people will never pay for anything. Writers never worried about theft when it was a shoplifter at the local B&N. Now we see it. That’s the difference. Regular readers don’t steal. The folks who are wouldn’t buy anyway. And…the music industry & film industry are doing a great job of educating folks on internet piracy. They’ve fought this battle, and finally settled on the right method, which is education. All of this is a long way of saying, it’s nothing to worry about.
I saw that post & comment, Sam, and what struck me about it is that Robert Gottleib declared Trident Media to be in direct competition with Penguin. When your agent is supposed to be selling your work to them, that’s a clear conflict of interest. If I were a Trident client, I’d be searching for new representation ASAP.
Isabelle, it’ll be interesting to see how many writers take advantage of that 35 year provision (for those of you who don’t know about it, check this on the Passive Guy’s site: http://www.thepassivevoice.com/11/2011/a-get-out-of-jail-free-card-for-some-authors-2/. Right now, the music industry is the one litigating this, and we writers better hope the musicians win. So keep an eye on what’s going on there.
Honestly, C.J., I have seen an increase in my indie sales from my traditionally pubbed books, but not nearly as great an increase as I would have expected. Also, there are other problems, particularly with the traditionally published books that have U.S. rights only. My overseas readers are very, very, very frustrated with this. So for every new U.S. reader I’m getting, I seem to be pissing off an equal number of overseas readers. Right now, it’s a wash. The only large benefit I’ve seen has been from Sourcebooks offering Wickedly Charming for free at the beginning of October. That one is paying off, but only in the e-book side of things, not on the print side. I’ll be doing an analysis of all of this later in the year, because none of it is what I expected.
A.J. Wow! That’s what I paid for the big honkin’ hardcover, because I preordered it. $17 for an e-book is ridiculous. The price will probably drop when the paperback comes out, but still…
Like you, I’m watching e-book prices now, and unless I need the book yesterday, I don’t pay more than $10 for my e-books. If they’re over $10, then I buy the paper edition or wait a year, like I used to do for the mass market. Ridiculous. $17. Just plain silly. But think of the profits there, especially if he has a 25% of net contract. (Which he probably does not., but what do I know?)
I suspect, Bridget, that the authors you refer to will just skim this and think it doesn’t apply to them.
I’m glad you like the math posts, though. I appreciate hearing that from all of you. Thanks.
You’re right, Mercy. I’ll fix it. Dean’s out of town, so he couldn’t check my math. (And I redid that math three times. Dang it! This is why I’m a mathematician’s daughter, not a mathematician.)
I had just started researching publishers in the middle of that e-book royalty switch. After hearing the new standards so often, I’d wondered both if I’d been imagining the old higher rate—and wondering why folks had caved on that to begin with. Thanks for clearing that up.
It’s weird, because math never was my best subject. Yet this is one of the several math things that I’ve understood on my own, only to discover later that many folks don’t understand it even after you walk them through the concept. Like the Smashwords royalty statement; I’m sure you’ve seen folks complaining that the amount paid doesn’t ever “make sense” based on what’s owed them, when the only thing that ever confused me about them were the differing lines for different currencies.
Sadly, I have a feeling that a lot of folks still aren’t going to get what you’re saying, no matter how many folks explain the concepts in this post to them.
This doesn’t even take into account the present value of the money; ebooks have very few returns, so that money (probably) comes in from the retailers regularly. There it sits in the publisher’s account, in no real danger of being wiped out by huge returns, and the publisher doesn’t have to pay it to the author for months. Print book accounts, otoh, as constantly being credited and debited as returns are processed. Even with interest rates where they are now, that’s free money to the publishers.
Great post; every author should understand the math behind their contract!
Thanks, Carradee.
Oh, jeez, Caroline, I hadn’t even thought of that. So true. Great point. Thanks.
Kris — I love your math posts. The numbers make everything more real for me. If I had time and more troll-like inclinations, I’d post links to this type of post on the blog of every agent who’s blogging, asking them how they’re going to protect their clients from this sort of thing in the future. The math is hard to argue with.
But. The myths are stronger. I just ran into this with another writer-type friend this past weekend. Numbers and making a living aren’t as important as “validation.” I’m sorry, but my work is selling and I’m getting great reviews of it. Readers like it and are letting me know. That’s the best validation I’ve ever had.
Leah
Exactly, Leah. I get my validation from readers, and I just love that! Great comment. Wish someone would do what you suggest
I’m beginning to wonder if there’s a “here are publishers who give good contracts (with details)” blog/website anywhere. It seems like it would be a terribly small one.
I love math posts. The devil is in the details, and the math is a key piece of “the details.”
When agency pricing was implemented, I believed (as did many people looking at the numbers) that two things would spell major problems for traditional publishers. The first was that readers would rebel against the high prices. The first thing I thought when I saw the latest numbers from the publishers was that I was dead wrong about that. Although publishers have certainly experimented with pricing, the fact remains that a good chunk of the top selling books are still $9.99 or higher. And these numbers show that those prices are generating increased profits. Might they make more if they lowered prices? Perhaps, perhaps not, but the sales numbers wouldn’t suggest they should be rushing to lower prices.
The jury is still out on the second item that threatened traditional publishers – the departure of big-name authors due to the math that you have outlined in this post. To date, this has not happened in a really meaningful way. For a combination of reasons, many authors still prefer traditional publishing. Of course, more authors are doing both, and I expect that trend to accelerate. But at this point, I’m hesitant to predict that we’ll see a large exodus. Logically, I think we should, but logically more of that should have happened already.
The numbers also assume the traditional publishers accurately report e-books to their writers. Recently, a traditionally-published acquaintance asked for my Amazon numbers and those of another friend who indie-published for the first six months of the year. Even though trad author consistently ranked above 20,000 on Amazon, her publisher told her no e-books had been sold. After the trad author walked away, my friend looked at me and said, “Now we know where the profits are coming from in those corporate reports.”
Traditional publishers are under attack b/c it doesn’t cost $200 million-plus to make a compelling book, as it does for a seat-filling blockbuster movie. Don’t complain about no-brains: they’re competing for the same dollar you have in your wallet. It may cost dough to *market* that book, but trust me, I came to a big pubber from a Deep South advertising background, and even aw-shucks-I couldn’t believe how crude their efforts were, *and that was a generation ago*. Book pubbers are still in the Little League where in-your-face marketing is concerned. Mass-market books SHOULD expire, b/c the pubbers had the effrontery to claim their market as, and convince each other that it was, “mass.”
“Once in and people begin to see prices like these, the next step will be searching out quality digital product for a fair price. Hopefully the next digital trend will be smarter consumers heading to smarter, reasonably priced publishers.”
A.J., I don’t mean to start a big tussle or anything, but I find this a little bit vexing. Please define “fair”, because that’s a word that gets thrown around a lot. Everyone likes to talk about fair, but they never say what they mean by it. Fair to whom? And by what standard?
In the context of economics, a fair price is the price consumers are willing to pay. The fact that you paid that $17 indicates that you thought it was fair; otherwise you wouldn’t have paid it. And by all evidence there are lots of other people who think the prices big publishers charge for their ebooks are fair as well, because they buy them. Not everyone thinks that, of course (see the bad reviews for higher priced ebooks not so long ago).
Now that doesn’t mean everyone wouldn’t prefer the prices to be lower. I’m with Kris on this one: I’m not going to pay more than $10 for an ebook, because to me they are (and should be) on par with a mass market paperback. So I’ve waited on some new releases that I really want to get since I know the ebook price will come down in a year or so (I’ve shifted over to strictly ebook for new purchases now; in fact my wife and I are getting rid of a couple hundred paper books this evening – giving them to a homeless shelter, I think it is. She picked it out, so I could be wrong about what the place does. That’s going to save us a lot of shelf space and a LOT of weight when it comes time to move again in a month or so. The Navy will only pay to ship so many pounds, after all). But that’s MY preference. Others may (and clearly do) have different preferences.
But the fact that I prefer the lower price does not mean the higher price is somehow “unfair”. I COULD pay it. I choose not to.
I really dislike the word fair, at least in its modern use. More often than not, it seems to me that when people say a thing is unfair, they really mean things aren’t the way THEY want them to be. Which is not exactly an objective standard to judge from.
I must admit that I look at those figures and have to wonder why more authors haven’t bolted. I think Dean’s explanation is that writers are just stupid. Maybe he’s right.
Thanks for the maths post.
I just wanted to say thanks, Kris, for another great post. It’s ones like these that force me to take a good, hard look at what I’m doing with my writing career and question if I’m still following the compass pointed north (north meaning a successful living as a writer). Right now all I’m focused on is writing and indie publishing, and that’s exactly where I need to be, but it’s so important to have a finger on the pulse of publishing. Where are things headed? When’s the right time to branch out and try for some publishers who are doing all the right things (like Sourcebooks)? When am I ready to sell direct to indie bookstores?
Letting us know your experiences in both traditional and indie publishing is incredibly helpful – especially how those experiences aren’t turning out in the way you’d expected. No one can predict the future, but the more we understand the publishing environment, the more we educate ourselves, the better we can make adjustments when it’s needed. Knowledge really is power and those of us who are willing to learn will be around (and probably living quite handsomely) in the next couple of years.
Kris, I’m trying to reconcile a bit of your math with a bit of math on Dean’s site a couple weeks ago:
Your math:
Look at it this way, which is best-case. Instead of making $2 per book on that $6.99 paperback, the bestseller now makes $1.22 (this is before agent, remember). That’s 39% pay cut.
Dean’s math:
(Assuming no agent in the mix.)
$6.99 mass market paperback. Author gets 8% of retail of every copy sold. 42 cents.
$6.99 electronic book. Author gets 25% of net. $6.99 x .70 = $4.90 net. $4.90 x .25 = $1.23.
Are you two talking about different kids of paperbacks?
Oh, and Dean’s math was from the comments of this post: http://www.deanwesleysmith.com/?p=5812
Livia, wait. Just realized what I did. That $6.99 wasn’t the paperback number. It was the e-book number. Will change in the copy. D’oh. Good catch. Thanks!
I mentioned that, Suzan. In fact, I’ve done several posts on the inaccurate royalty statements. The link is in this piece. And judging from what I’m seeing on blogs, a lot of writers are beginning to catch these “errors.” They’re egregious and common and a serious, serious problem, particularly when these traditional publishers are also going into “helping” writers self-publish (and getting the money first).
Thanks, Tom. Good point. And yes, the marketing is just nuts. I’m seeing nothing from my traditional publishers on marketing that I can’t do myself, if I want to shell out a few dollars. That seems to be the part that scares other writers–shelling out the money. But it doesn’t scare me…:-)
Good point, Michael. Traditional publishers have justified the high e-book prices by saying that we’re paying to get the book quickly–which is true. And so if you want the book this week, you have to pay for it. It’s like On Demand movies or Pay Per View sports. If you want it now, then you have to pay a premium.
Thanks, Chrissy & JR.
Ah yes, that makes much more sense!
Thank you! You are one of the few people who speak math in a dialect I can understand! I so appreciate how you break these issues down.
I both agree and disagree with you.
I agree that traditional publishers will be making nice profits over the next several years, mainly because of the “25% of net” going to authors on ebooks.
But I don’t think they can keep that up forever.
Ebooks are still new. I would venture to guess that many best-selling authors are still tied up in contracts. But eventually those contracts will run out. I have to think that those authors will then either 1) renegotiate something better than “25% of net” or 2) strike out on their own.
Barbara, I hope the bestsellers will leave or renegotiate. Right now, they’re showing no tendency to do so. In fact, many see piracy as the greater problem (see Scott Turow’s comments from the Author’s Guild). It saddens me because these are the folks with clout. For example, one large agency that shall go unnamed discovered the problems with the royalty statements, and used their biggest author’s name to negotiate a settlement with the publishing house that harmed the midlist writers on the agency’s list, but helped the one huge name. If this author knew what had been done in their name, I’m certain that author would be appalled. So there’s that kind of weird crap going on as well. As you can tell, I’m not happy about it.
[...] The Business Rusch: How Traditional Publishers Are Making Money | Kristine Kathryn Rusch.
Former agent Nathan Bransford posted a poll on his blog yesterday asking if people planned to stick with traditional publishing or “self-publish all the way” (there was no middle option). The results so far are 68% traditional publishing vs. 31% self-publishing. One theme I noticed coming up fairly often in the comments is that people don’t think they can make their writing good enough without an editor. I think they’re going to pay a lot more over the long run for editing services than I do by hiring a freelance editor!
Kris, love the math and appreciate the research into public companies earnings reports. Very nice! I think you’re absolutely right and coupled with Dean’s recent post about ~95% of writers not willing to indie pub I think this will be the state of play for some time.
But I can’t believe it will STAY this way. Eventually, the perceived prestige of tradpub will subside. Eventually the reality of the finances will diffuse through the writing community. It might take a generation, but I don’t see the writer’s coming up today who will be tomorrow’s bestsellers locking themselves into tradpub contracts forever. We’re way too early in the process to predict where the tipping point is, but I’d be interested to hear what you think about this transition and when it might happen . . .
Thanks Livia & Kris for catching that bit of math. I’d read the original on the RSS feed and gotten a little confused myself.
I’ll be sure point a friend of mine to this post because I’ve been having a hard time explaining to her that the publishers are making money hand-over-fist on their e-books, because ebooks are cheaper. She keeps replying that ebooks cost just as much to produce (editor, artwork, etc) and that it doesn’t matter that they’re cheaper to “print”. She’s clearly ignoring the returns issue, which you have highlighted very well here.
Thanks again!