Business Musings: All Romance Ebooks & Visions of The Future: Part One

All Romance Ebooks and its sister website Omnilit did something incredibly awful on December 28, 2016. It sent out a handful of emails, letting writers, publishers, readers, and others know that it was shutting its doors four days later.

The letter WMG Publishing got said this,

On midnight, December 31, our sites will go dark and your content will cease to be available for sale through our platforms. This includes any content you are having us distribute to Apple.

We will be unable to remit Q4 2016 commissions in full and are proposing a settlement of 10 cents on the dollar (USD) for payments received through 27 December 2016.  We also request the following conditions:

  1.     That you consider this negotiated settlement to be “paid in full.”
  2.     That no further legal action be taken with regards to the above referenced commissions owed….

It is my sincere hope that we will be able to settle this account and avoid filing for bankruptcy[KKR: all bold mine]

 

I have no books on that site. Hadn’t for a long time. If any of my work is there, it’s there through other publishers or as part of an anthology. WMG pulled its books off All Romance Ebooks (ARe) almost a year ago, because of problems dealing with the site, the people behind the site, and just some really unsettling business practices.

How unsettling? Nothing concrete. It looked (from the outside) like their interface was breaking down. We knew of sales on our account that never were credited to our account. I believe WMG even tested the site by buying (or having someone buy) a book, and seeing if we got credited.

We didn’t. Then we tried to track down what was owed, what payments had been made, and communications issues. We had a handful of truly incompetent employees (nice people; terrible workers) in 2014, and at first, we attributed our ARe problems to them. But after some dealings, we realized that, nope, the problem wasn’t ours. It was ARe’s problem, and that was a very, very, very bad sign.

We pulled all our titles off ARe, deactivated our account, and moved on to other sites.

So when we got this ridiculous letter, we knew it would have no effect on us. But as Allyson Longueira at WMG noted, ARe (a major Apple portal) made its announcement while Apple is shut down for annual maintenance, and writers who have to switch from ARe to Apple direct can’t do so.

Not only that, authors will lose any algorithm from Apple, and probably any revenue from them.

Those are the least of the problems.

ARe is a distributor, mostly, and so it is dealing with its writers as suppliers and unsecured creditors. I’ve been through a bunch of distributor closings, many in the late 1990s, with paper books, and they all happen like this.

One day, everything works, and the next, the distributor is closed for good. In some ways, ARe is unusual in that it gave its suppliers and creditors four days notice. Most places just close their doors, period.

I’m not defending ARe. I’m saying they’re no different than any other company that has gone out of business like this. Traditional publishers have had to deal with this kind of crap for decades. Some comic book companies went out of business as comic book distributors collapsed over the past 25 years. Such closures have incredible (bad) ripple effects. In the past, writers have lost entire careers because of these closures, but haven’t known why, because the publishing house had to cope with the direct losses when the distributor went down.

The difference here is that ARe wasn’t dealing with a dozen other companies. It was dealing with hundreds, maybe thousands, of writers individually, as well as publishers. So, writers are seeing this distribution collapse firsthand instead of secondhand.

To further complicate matters, ARe acted as a publisher for some authors, and is offering them no compensation whatsoever, not even that horrid 10 cents on the dollar (which, I have to say, I’ll be surprised if they pay even that).

Then, there are two other aspects to the business. Readers downloaded books directly off the site or, conversely, stored the books in their online library, the same way that the Kindle or the Nook or any other ereader does. The wise reader who wants to keep the book needs to transfer the title to their own computer—if doing so is even possible with the license given to these sites.

And note: If you try to post a comment here, telling people how to do that, I will not put that comment through. In some cases, a reader who moves the book from the online library to their own computer is actually stealing that book, and I’m not going to tell anyone how to do that.

On ARe, readers also had only four days to use their credits and to save what they could of their libraries.

Then there was this fascinating tidbit. According to some reports, ARe did an major request for advertising from authors as recently as December 23, 2016.  Authors bought 2017 advertising without knowing that the site will shut down. As of December 30, when I’m writing this blog, no one knows how that part will play out.

Because this is a quickly changing story, with many twists and turns ahead, I’m not going to deal with most of the details. There are great places that are offering advice to readers  as well as to writers caught in this mess. As of today, both Romance Writers of America and Science Fiction Writers of American are gathering information with the idea of taking action against ARe.

If you have any connection to ARe, and need current news, I suggest you hit the links above.

Now, let me give you all some advice.

Lawsuits cost time as well as money. I know a whole bunch of angry writers are banding together to go to war with ARe. Which is good, on the one hand, because these kinds of things should not ever happen.

But on the other hand, it’s not good, because a whole bunch of writers are going to lose a year or more of precious and irreplaceable writing time to go after this company.

Some writers have that time; others do not.

Frankly, if the writers’ organizations put together some kind of lawsuit, sign on to that, because it will be more effective. They can afford good lawyers and they will have a huge number of writers that they represent.

I know you’re angry. I know you may have serious financial problems because of this shut-down.

You need to take a deep breath, and look at the impact ARe’s shutdown and the loss of fourth quarter earnings will have on you. Then you need to understand that any lawsuit will take a year or more (courts are slow). ARe might settle; they might not.

They are threatening bankruptcy. Since authors are unsecured creditors, most authors will see no money at all in a bankruptcy.

In fact, I expect the writers who opt for the 10 cents on the dollar solution will not be paid either.

Why do I expect that, besides experience with this kind of thing? Primarily because of the ad blast. The blast wasn’t ARe being venal. It was their last-ditch attempt at raising enough capital to save their business.

Guessing now, purely guessing.

ARe had run ahead of their money since they started. They used today’s money to pay yesterday’s bills. They had no profit. So they were floating money—payments to authors, payments to creditors, payments like website and rent.

That’s why ARe’s technology grew antiquated, why they weren’t keeping up with the times, why payments in some cases were late or impossible to get. They probably got a line of credit too late or they didn’t have one or they were borrowing off credit cards.

This fall, book sales went down. I discussed some of that after the election, but I’ll be discussing it more and in a different way later in January. Like its authors, ARe was counting on a certain level of revenue. That revenue went down, starting in July (maybe sooner), and continued downward all fall.

ARe paid writers and publishers 45 days after the close of the quarter. So they had to have made the Q3 payments by early November. That probably used most of their capital. They figured the holiday season would save them, along with holiday ad buys.

I’ll wager those were below what ARe expected—significantly below. So, they tried the 2017 ad buy the week before Christmas, hoping that would save them.

The problem is when you get far behind, it’s almost impossible to catch up. We learned that at Pulphouse. The thing is, it can happen very fast, especially when a company is juggling hundreds of thousands of dollars.

Recently, Dean was talking with a friend who has a slew of rental properties throughout the country. The friend has a policy—no delays on payment. Even the best renters have to pay up by some date (the 5th? The 10th?) or risk having the lease terminated. Dean asked why. After all, good customers usually expect some goodwill.

The friend, who is in his sixties, shook his head. He said he had learned the hard way that once someone gets behind on their rent or their bills, they almost never catch up.

That sentence came from long hard experience. And Dean discussed it with me later, because we realized that we’d seen it a lot too. That was another lesson of Pulphouse: the bookstores that owed us money kept promising to pay, or they would pay pennies on the dollar, promising more, but they never caught up.

We had become more draconian about accounts receivable with our later businesses just like our friend had.

I am not making excuses for ARe. They were piloting a sinking ship, and something happened this past week—a denial of credit, a complete inability to raise any more funds—to make them take this action so very fast. They were cutting their losses and running for the hills.

Those writers who believe that ARe has money stashed in a bank account somewhere and the owners are planning to head to the Caribbean to live out a John Grisham fantasy are probably wrong. ARe was probably spending every single dime the moment it came in.

Now, they’re facing end of the quarter payments to authors—in the hundreds of thousands if not millions—and are unable to meet those obligations. That 10 cent on the dollar thing was pretty specific. That means the revenue they have on hand is tiny.

Chances are ARe will go bankrupt. They will probably be forced into bankruptcy, which will have all of the legal issues that a large bankruptcy causes. The Passive Guy (a lawyer), on The Passive Voice blog, has a great post on what bankruptcy generally entails and how it might impact the writers involved. Here’s a warning: The realities PG discusses aren’t pretty.

In fact, if you read what he writes, you’ll see that even getting money out of ARe at this late date might not be the end of it for you. You might have to repay that money to a bankruptcy court.

So, given that it will take a huge fight to get paid, assuming that ARe will be forced into bankruptcy, what do I advise? I’m not a lawyer, nor do I play one on TV.

I am, however, a small business owner who has lost tens, maybe hundreds, of thousands of dollars as an unsecured creditor when other companies have gone out of business.

I’ve been there, folks, and I’ve see what it does.

Here’s what I think you should do:

First, if you bought an ad in the past two weeks, and paid with your credit card, call your credit card company immediately. Explain to them what’s happening, and see if they can reverse the charges. Credit card companies have entire fleets of lawyers for this kind of thing, and they will happily go after some company for knowingly selling services that do not exist. The more of you who call, the more likely the credit card companies will take on ARe in a rather significant way.

If you can afford to swallow the loss, I recommend that you do so. If you are an American and you understand tax law, you might be able to get some benefit by writing this loss off on your taxes.

If you belong to one of the organizations that will go after ARe, then sign onto any action they take on your behalf. Chances are that will make ARe accountable, and give a group of writers an actual chance at getting some money (months/years from now) from this devastating blow.

If you cannot afford to swallow this loss, if this will have a large impact on your own bills, then you need to take action now to replace this income stream. You won’t be able to do a like-to-like replacement. You might have to get a short-term day job or cut your expenses to the bone until you find some way to get your income back up. Realize that it might not ever return to the same levels, because ARe had a particular ecosystem, with its own customers, and that ecosystem cannot be replicated.

It can only be replaced.

Those of you who published with ARe and were offered rights reversions, take them. Now. There’s a good chance your books will become assets of the bankruptcy, and will get entangled in the bankruptcy court. Right now, ARe is not in bankruptcy court and is actively trying to avoid it.

Get your books out of their clutches now before the inevitable bankruptcy.

Bottom Line:

Protect Your Writing. Protect Your Writing Time. You need to act decisively and you need to act fast. Do not do something because your friends are doing it. Do what’s best for your business.

If You Are Being Significantly Harmed By This, you do not have the time to spend all day screaming on social media. You need to take a step back, assess your situation, and figure out what you need to do for your business.

Plan that the Q4 money from ARe is lost forever. It’s gone. Even if you get all of it, you might have to pay it back if ARe is forced into bankruptcy. Plan for that. Even if it doesn’t happen, you’ll be better off.

If you’re one of the lucky ones who escaped, like we are, or only had a handful of sales on the site, then think about what’s going on here. Because if you’re getting most of your revenue from one place, even if it looks healthy (cough, cough: Amazon), any sudden change could send you on this same kind of spiral.

What if Amazon decides to shut down KDP next month? How would you fare?

We would have a downturn in our income, but all of our businesses would survive. We would make immediate cuts, and find other ways to bring in revenue, but we’re prepared for that. Our main business model is set up for multiple income streams, so if one goes down, our business remains intact.

You need to see this as a warning bell. You need to work on changing your writing business so it has multiple income streams. Yes, one stream will bring in more revenue than others. But over time that will change.

One thing you can do is concentrate on growing the other income streams. They may be smaller than your Big Stream right now, but what happens if the Big Stream cuts back or goes away. Then your smaller streams might become larger—and you’ll already be there, with algorithms and an understanding of the site or the business or whatever.

You need to plan for continual change. Because that’s business in the modern era. (Any era, really.) What’s true in December of 2016 wasn’t what was true in December of 2015, and it certainly won’t be what will be true in December of 2017.

I was planning to use this ARe scenario to explain what’s going on in the current world of publishing (traditional and indie). That’s why this is part one. Because what you see here was just the introduction to some thoughts I have about 2017 and the upcoming publishing marketplace.

That will be next week. (I hope it won’t be the week after, but who knows?)

Until then, stay steady, and plan for 2017. Do your best to make it as good a writing year or a better writing year than 2016.

You can control your time and your writing. Focus on those things, and you’ll have a good foundation for the future.

And that’s all we can ask.

I have a list of blog topics that’s very long, and many of them came from news in the past week. Who says the end of the year is slow? Seriously!

For those of you new to the blog, it’s pretty interactive. I found out about ARe on my own, but shortly after I heard, I got a dozen emails from folks making me aware of the situation. (Thank you all!)

Please share this blog with your writer friends.

The blog also needs donations to survive. If you can’t afford to donate, that’s fine. That’s the reason this blog is here for free rather than behind a pay wall.

I do have a Patreon page, so if you feel like supporting the blog on an on-going basis, then please head there.

If you liked this post or the short series I’ll be doing for the next few weeks, and want to show your one-time appreciation, the place to do that is PayPal. If you go that route, please include your email address in the notes section, so I can say thank you.

Which I am going to say right now. Thank you!

Click paypal.me/kristinekathrynrusch to go to PayPal.

“Business Musings: All Romance Ebooks & Visions of the Future Part One,” copyright © 2017 by Kristine Kathryn Rusch. Image at the top of the blog copyright © 2017 by Can Stock Photo / vivalapenler




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11 responses to “Business Musings: All Romance Ebooks & Visions of The Future: Part One”

  1. The end of a distributor is traumatic for all involved. But I want to second the recommendations that Ms. Rusch is making. I’ve seen quite a few of these (and worse) over the years.

    It’s very, very, very rare that there are any assets to seize, or that there will be any significant assets in the future. If you sue, and if you win, it’s extremely likely that you will be unable to collect enough to pay for the legal bills, let alone to recoup the loss.

    The good news: you’re only looking at lost revenues, from one single revenue stream. You aren’t looking at seized print inventory (which regularly happened in the 90s type of distribution failures). You’re not going to have to pay a printer for the books you just lost, as well as losing the revenue.

    Whatever your losses, they won’t get smaller if you devote time to chasing recovery. Instead, they’ll get larger, because of the loss of potential future sales elsewhere.

    It’s hard, I know it is, to give up the idea of making those who have hurt you pay. But it’s for your own good.

    Move on. Really. Just turn your back on the whole thing, and move on. That money is GONE.

  2. Robin D Roberts says:

    Passive Voice addresses some of the issues of bankruptcy but frankly, were I advising authors affected, I would discuss the advantages of forcing them into bankruptcy. For one thing, the bankruptcy court would appoint a trustee who would chase down money. Bankruptcy trustees are experienced in these sort of suspicious shutdowns.

    Perhaps unsecured creditors would not see much but there would be transparency and as PV mentioned it’s possible that those who agreed to the “settlement” wouldn’t keep their funds if bankruptcy commenced anyway.

  3. Rachel Leigh Smith says:

    Blog Critics did an eye-opening expose post about ARe after discovering some court documents in Florida. In 2014, Lori James kicked her business partner out of the business and began paying herself a salary. Which was against the terms of incorporation. That’s when all the accounting funny business started, according to the authors I know who’d distributed through the site since at least 2012. One of them owns a small press and had been distributing titles there since at least 2010.

    The post is here, http://blogcritics.org/court-documents-regarding-all-romance-e-books-disturbing-business-practices-surface/ The listed ARe physical addresses are either post offices or a UPS store. There’s no actual physical address anywhere that’s legitimate.

    I started putting stuff up there in 2015, but quickly abandoned it because it was so difficult to use and so out-dated. When the closing hit, I only had one book up there and I took it down immediately, then deleted all of my files. I never promoted the fact I was on there, so I never got any traction. So glad now I made that choice.

    The site is also not really down. The main page can’t be accessed, but as of 5:49 pm CST January 5, 2017, the publisher portal is still active. It’s accessed at the main URL with /publishers added to it. If the site were truly down, it wouldn’t work. There’s also no longer any way to delete or suspend your publisher account. For that reason, I went in and deleted all of my EFT info.

  4. antarespress says:

    Kris, Pretty good advice. My compliments.

  5. E. Ayers says:

    I knew this about to happen because word spreads quickly in this business. I’m so thankful that I’m not financially tied to them. I appreciate your thoughts on this subject. I’ve seen so many publishers go under since I started in this business. This sort of thing is scary to independents.

    Many years ago I met the founders of ARe when they were an unknown company. I promise they were lovely women, the type of people that you might have shared a cup of coffee with after putting your children on the school bus. They were not evil people and I can’t imagine that they have changed. BUT…this is a dog eat dog business and only the strong survive! Part of me feels sorry for them, but as an Indie, it is up to us to protect ourselves. Your insights help us to remain armed for the next set of closings because it’s inevitable. Thank you for all that you do to help.

    • Teri B says:

      Something I’ve learned: you don’t have to be evil to do great harm. All you have to be is incompetent, and in a position of power or authority. One’s original plan or intentions don’t make a jot of difference when you start making big mistakes that affect people’s lives profoundly.

  6. A.Beth says:

    Know what’s funny? I didn’t bother jumping through the hoops to be on that site… because there were typos on their website. It’s/its confusions, as I recall. It looked sloppy to me, so I never really bothered with the place.

    Good luck to those who did have their books there, though. I kept thinking I should be diversifying my channels…

  7. Terrifying, and sad. This is exactly why I haven’t dared to quit my day job–but my dream of living off my books is looking less and less likely. Thanks for all your hard-won tips and advice. And best of luck to all the authors injured in this disaster.

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