The Business Rusch: Creative Destruction

Business Rusch Freelancer's Survival Guide On Writing

The Business Rusch: Creative Destruction

Kristine Kathryn Rusch

Here it is: the Business Blog which, thanks to Marina Nelson, is called “The Business Rusch.”  I like the title for a couple of reasons.  First, I’ve had to live with the puns people make from my last name since I was a kid.  I was in high school in the 1970s when the slang phrase, “What a rush!” was in vogue.  You can imagine how often I heard that, and not always in an admiring tone.

In some ways, my last name is appropriate.  All my life, I’ve been in a hurry.  No one has ever called me patient, not even by mistake.  Once I’ve learned something, I’m ready to move on—even if no one else in the room understands it.  Once I know I’m on the right path, I hurry along, trying to get as far forward as I can before I collapse.

I’m the obnoxious kid who finished her homework early—not because I was a suck-up or even efficient, but because I thought about the assignment when I got it, finished it, and moved onto the next thing.  I spent the first week of my 11th grade English class reading the textbook, and the rest of the year reading whatever I wanted.  And that was—and is—typical for me.

The other reason the title “The Business Rusch” appeals to me is that modern business zooms by.  It rushes from one thing to the next, headlong, heedless of the results.  That’s how we got into the mortgage mess, which led us into the Great Recession, and I suspect that’s how we’ll get out.

Changes are happening in my business—publishing—that are so rapid that things which were true in May, when I finished my most recent paranormal romance novel, aren’t true now as I finish my latest science fiction novel.

As I mentioned last week, this blog will be discussing all kinds of business, not just publishing, not just freelancing, but whatever catches my eye.  Before I became a fulltime fiction writer, I was a fulltime nonfiction writer, specializing in business.

My business specialty came because business publications, then and now, need a lot of copy from business literate writers and those of you who regularly read my freelancers guide know this sad truth:  there are very few business literate writers. Even the reporters who get assigned to the Business Desk at major newspapers often do not understand how business works.

I understand it.  I’ve owned a lot of small businesses and still run a few.  I also love business, like I love history, like I love news.  At its heart, business is about human interaction.  Businesses succeed and fail because of the human beings in charge.  You put the wrong people in the wrong place at the wrong time and even the most successful businesses will fail.

How does that go with rushing to get ahead?  Sometimes my desire to hurry is counterintuitive to good business decisions, and sometimes hurrying is just what the doctor ordered.  I couldn’t have written this type of column in my twenties because I didn’t know when to slow down and examine things.  I didn’t understand the importance of it.

I learned that lesson repeatedly in the School of Hard Knocks.

So I’m going to share that knowledge, along with when I believe rushing forward is important and when research, caution, and yes, patience, are the watchwords of the day.  This column will only occasionally have the structure of the Freelancer’s Guide.  I want to keep my options open so that I can examine current events or whatever is on my mind any given week.

Speaking of the Freelancer’s Guide, I’m organizing all 140,000 words now, and releasing short segments as stand-alone books, for those of you who only want one or two topics, not the whole thing.  You can find links to this week’s short book, Turning Setbacks into Opportunity, at the end of this column.  For the next few weeks, I’ll also list this blog under the Freelancer’s Guide so that those of you who have the Freelancer’s Guide on your RSS feed will get the blog.  If you’re interested in getting the blog, I suggest you add the Business Rusch to your RSS feed, since I’ll only do this two or three times.

I’m looking forward to the freedom of this column. The Freelancer’s Guide had a narrow focus: freelancing and freelance businesses.  But right now, business—heck, the entire economy—is going through a huge shift.  In talking about publishing this past weekend, writer Scott William Carter said he felt like he was going through a paradigm shift in the middle of another paradigm shift.  He was talking about the digital revolution smacking into publishing and forcing an industry that has followed the same model for decades to confront rapid and somewhat startling change.

Thirty years ago, my ex husband saw the beginnings of the video revolution and said to me, “If we had extra money, I’d open a storefront and rent videotapes to people.”  We discussed this as a business model for about three days, seeing all kinds of problems with it.  At the time, video cassettes sold for a lot of money (my memory says $60-$80, but I’m not sure if that’s right).  The industry hadn’t yet chosen a format, whether it be VHS or Betamax.  Most people did not own video cassette recorders, because they cost hundreds of dollars.

So my ex and I decided there were too many variables: what if we backed the wrong format? How would we keep people from stealing the expensive video cassettes?  Were there even enough people to keep us in business?

Obviously there were.  By the time I met my current husband, Dean Wesley Smith, in 1986, video stores had cropped up all over the country.  Four years later, Blockbuster had opened chain stores everywhere.  I remember reading about Blockbuster busting the competition in the business section of the paper.  It was quite dramatic here in Oregon because the owner of Hollywood Video, which was a competitor, staged a pitched and ugly battle with Blockbuster, and the papers covered it with great glee.

But had my ex and I started that video store business thirty years ago, we’d have spent the last ten years struggling.  Change came again to the industry, and this time, places like Blockbuster didn’t know how to respond.

In July, the New York Stock Exchange delisted Blockbuster, and its stock trades at about 17 cents per share.  Blockbuster has not survived yet another revolution, one Austrian economist Joseph Schumpeter calls “creative destruction.”

In creative destruction, innovative companies succeed while slower moving, often established companies do not.  My husband likens the transitions to piloting a ship.  If you’re piloting one of those floating cities we call cruise ships, turning it from its set course is extremely difficult.  Cruise ships do not turn on a dime.  They move slowly, and with deliberation, and no matter how quickly you want them to turn, you can’t speed up the process.

Smaller companies—yachts or better yet, cigarette boats—can turn quickly.  They can skim the waves of change and move into uncharted waters with ease.

Not all small companies survive creative destruction, and creative destruction does not capsize all large companies.  Some companies build response to change into their business plan.  Sunday’s New York Times profiled Netflix, which planned for the demise of its original business model as it started the business.  The owners of Netflix saw that DVDs through the mail was a short-term model, just like the video stores were a short term model.  The founders of Netflix thought the web was the next big thing (hence Netflix, not Mailflix), and sketched the business model with that in mind.

Are they planning for the next big thing after streaming video?  Only they know for sure.

Netflix’s advantage, even as it grew, was that it was a young company.  It foresaw the change, and could act upon it.  But two other industries, the music industry and the publishing industry, are much older, bigger, and have a lot more difficulty with change.

The music industry had its initial growth spurt over 100 years ago.  In one of Dean’s piles of collectibles, we have piles of sheet music which acted as the singles of their day.  The art is lovely, the music is still playable, and to collectors, the sheet music has value.

Even though there’s still a sheet music industry, it has shrunk to the point of being a niche market.  It exists for schools and for people who play/perform music.  Like everything else, sheet music has moved to the web and for a miniscule price, you can download sheet music for most titles from the past three hundred years.

But no one thinks of the sheet music industry as the “music industry.”  When we think of the music industry, we think of the big studios, once called record companies.  For decades—literally decades—these companies had a stranglehold over the music we listened to.  The companies controlled the distribution.  A small recording studio like Sun Studios could get its music played regionally, but it took the behemoth RCA to make Elvis Presley a nationwide sensation.

If an artist wanted to make millions, he had to give up millions to his distributor—the record label.  Musicians could tour; they could play bars and concert halls, but they couldn’t gain a huge audience without the backing of a label.

That situation remained the same from the 1920s until the mid-1990s. Sure, the industry went through an upheaval as CDs replaced vinyl. But the big upheaval was still to come—the MP3 player.

As the industry changed, I kept hearing that the music industry was dying. At the same time, my indie musician friends had suddenly started to make a real living—and by that I mean a living off their music.  Five-to-six figures per year, where they’d been making a thousand to two thousand before.

That gave me cognitive dissonance. How could the industry be dying and yet my musician friends were making more money than ever?  I sort-of paid attention, but didn’t really think about it.

Until the same sea-change hit publishing.  Now we’re hearing that the publishing industry is dying, yet midlist writers—the indie musicians of the publishing industry—can make a huge living for the first time in their careers.

What’s true?

Weirdly, both things.

The big publishing companies, like the big music studios, are cruise ships.  Some of them can’t turn fast enough to take advantage of the changes coming through e-readers and constantly available literature.  At the same time, midlist authors, whose early books went out of print, are the cigarette boats of the publishing industry.  We can move so fast that no one will even see us coming.

Some cigarette boats will get lost in uncharted waters, but those of us with some business savvy see opportunity here.  Like the indie musicians whose fans fund the next album, midlist writers can write books without a publisher’s backing and have a similar result.

Or so it seems.

Right now, we’re in the middle of the creative destruction.  Some—like Michael A. Stackpole—believe the publishing industry (the big guys) will suffer their largest shake-out by Christmas of 2012.  Me, I think we’re going to watch a long slow decline, and we’ll lose some publishers along the way.

The ones who can’t turn their ships fast enough will be the Hollywood Videos of the industry—the ones we’ll go, “Oh, yeah, I remember them.” Some of the publishers will become as marginal as Blockbuster. Some are doing everything they can to move quickly.  They’ve seen the changes coming for more than a decade, and have some things in place already.  Whether they have the right measures in place remains to be seen.

Does this mean publishing will go away?  No.  No more than music did.  We consume more music as a culture than we did twenty-five years ago, and the artists who understand that are making a good living.  I recently downloaded music from a group I’d never heard of, who plays only in Australia.  (If you like comics, check out Tripod)  I would never have contributed to their bottom line in 1985, if I had even heard of them.  I would have had to have Australian friends who could find the CD and then ship it to me—if, indeed, they could even find the CD.

Now, I can hear about the group from a friend, hop over to my favorite digital music site, and download as many songs as I can find.  (Which I did, by the way.)

This is just starting to happen with books—and the shake-out will be similar.  The fleet of foot will make money in this change, but the larger industry will suffer greatly.  Dean will be dealing with this a lot in his blog, The New World of Publishing.  I’ll touch on it occasionally.

I’m more fascinated with the little guy twisting in the center of all these trends.  The declining economy is good for book sales; people stay home and read. Books are cheap entertainment.  But the publishing industry has overpriced books, so new books will suffer. They already are; publishers aren’t buying as many new books as they should.  So if new books are costly, the book consumer will turn to other venues—used bookstores, libraries, and cheap downloads.

Dorchester already saw this.  They have been a marginal company for years. Writers have had to push to get payments for some time now, always the sign of a company in trouble. Rather than go bankrupt, Dorchester has moved entirely to e-publishing, and has done it almost overnight.  The nice thing about e-publishing? Small overhead costs.

Only time will tell if Dorchester’s move will save the company, but clearly no move at all would have led to the company’s destruction.

So you and me—the little guys—what do we do in times of creative destruction?  We research.  We guess.  We stay nimble.  We try things.  We keep open minds.

Recently, as the Dorchester made its sudden change and startling announcement, bloggers cried foul. Writers had already invested money in promoting their books (!), and were now worried that all the money they invested was for naught.  Never mind that writers investing in promotion never ever helps a book’s bottom line.  The writers claimed they were screwed by Dorchester.

But here’s the thing: the writers signed a contract with Dorchester.  If Dorchester violated that contract, then the writers can pull their books.  But, I’m pretty sure that Dorchester didn’t violate any contract at all.  I’m sure the company’s attorney checked that.

So what’s a writer to do?  Look at the clauses that allow the writer to cancel the contract. Depending on the contract itself, writers can cancel for a variety of reasons—so long as they repay the advance.  If writers are really upset by this, they can repay the loan that the advance is and “buy” their book back.

But too many writers are afraid to do that.

And fear is the biggest problem in this time of change.  Because fear will keep you rooted to the same spot.  You won’t be a cruise ship or a cigarette boat.  You’ll be a buoy in the middle of the ocean, buffeted by waves, insignificant, forgotten, and ultimately, you’ll sink.

So what do I recommend? What I always recommend.  Research. Figure out your place in the marketplace. Figure out what you want from your career.  Then figure out how to turn your boat—if, indeed, it needs turning.

Right now, most business owners should reassess their position in this economy.  I don’t think any business—great or small, manufacturing or artistic, distribution or service—should assume things are going to remain the same. The changes to the economy itself are too great.  Add the technological revolution that’s happening in many industries (not just the arts), and you have the makings of a great economic upheaval.

Time to look at the future.  Time to figure out your place in it.  Time to figure out how to get there.

I’m scrambling.  Part of this blog will simply be me, thinking aloud as I figure out where I’m going.  I hope it will help you figure out at least part of your future as well.

I decided I’m putting a donate button here.  If I inspire you, get you to forward the link to friends, or make you think, drop a few bucks in the tip jar.  Thanks!

“The Business Rusch: Creative Destruction” copyright 2010 by Kristine Kathryn Rusch.

Here’s the newest Freelancers Guide Short Book:

Kindle, Scribd, Smashwords

26 thoughts on “The Business Rusch: Creative Destruction

  1. Ha! Kris, I couldn’t remember where I ran across the phrase “creative destruction” which seems so apt. THIS is where it was and of course I promptly stole it for my own blog. *grin*

      1. Ah, the joys and tribulations of being an old fart. I thought everybody knew where the phrase “creative destruction” came from.

        “Creative Destruction” was coined by Joseph Schumpeter, one of the great economists of the first half of the Twentieth Century. He used it to sum up capitalist economies, saying they could never be stable because innovators would constantly be introducing new things that would overturn the old business models (except back then, nobody seems to have used the term “business model”).

        He sure nailed that one, didn’t he?

  2. @Kris Which badly formatted Kindle book was it?

    Part of the fun with Kindle editions is that thre are two basic types, depending upon origin. The majority start with electronic files, which Amazon says are supplied by the publishers. But every paper only book Amazon sells has an “I’d like to read this book in a Kindle edition” button. If enough clicks are accumulated on a boom, Amazon will consider offering a Kindle edition. Often, there *is* no extant electronic file to start with. So a paper copy will be scanned, OCRed, and converted by an outsourced operation in Hyderabad. No OCR is perfect, and editing and proofreading are required to catch mistakes and fix problems, but as far as I know, those *aren’t* done.

    And the Kindle uses the ebook format originated by French eBook publisher Mobipocket, who Amazon bought. The Mobi format is essentially encapsulated HTML. The Mobi Creator application can take Word, RTF, plain text, or PDF as input, rips to HTML, and outputs a Mobipocket volume. You can stop at the “rip to HTML” stage and tweak the HTML for better display, but that’s not done either.

    Poor quality on many Kindle editions is a common complaint.

    It isn’t necessarily better elsewhere. The Barnes and Noble nook and the current Sony Readers use ePub as the supported format. Like Mobipocket, ePub is encapsulated HTML, but the format is extensible. ePub is a container, and what it contains doesn’t have to be text. It can include things like video and audio.

    Almost everyone in publishing uses Adobe InDesign to do typesetting and markup. The usual end product of InDesign is a PDF file the printer will feed to an imagesetter to make plates, but InDesign can also output ePub. Unfortunately, it does so poorly.

    Your end result is as good as what you start with, and few are starting with good input because they don’t want to spend the money required to do so.

    As for publisher’s overheads, maybe.

    I’d call the problems a symptom of something that has been the case for decades: there are simply too many books chasing too few readers. Publishers are structured to make a sell a lot more books than the market will buy. Everyone has known it for years, and no one has wanted to be the first to trim their lines in the past due to concerns over losing retail display space. So lines get trimmed in wrenching spasms as one house bits the bullet and their competitors follow suit.

    And as lines are trimmed, the next step is consolidation, as imprints are folded and lines are merged. Less books from fewer imprints has the unpleasant corollary of less people required to produce them, and there are an increasing number of former publishing people around.

    Baen gets held up as an example of doing it right, and in many respects they are, but they are also a special case whose methods aren’t universally applicable. For one, they aren’t really stand alone: they are manufactured and distributed by one of the Big Publishers. If Simon and Schuster should go belly up tomorrow, the effects on Baen would not be good. While ebooks are an increasing part of their business, their real money is still in paper volumes. Also, they are a specialty publisher doing mid-level action/adventure SF. They serve a specific market they understand. While they aren’t going to have many best sellers (save the Honor Harrington series), they aren’t going to have many really expensive bombs, either. Baen isn’t in the parts of the market where you make “bet the company” advances on books you profoundly hope will become bestsellers, and face the risk of going belly up if they don’t.


    1. The badly formatted Kindle books are slowly going away. But I’m an early adapter, and in early 2009, all of Penguin/Putnam’s books had an extra space between paragraphs. I noticed this in a nonfiction I bought, then downloaded sample pages of one of my own books from Roc, then figured they wouldn’t do this to Nora Roberts. But they did. For a while, I didn’t buy any P/P books for my Kindle because I’d get the free sample first and the problems would exist in all of them. Someone finally got wise in fall 2009, and things are much better now. But I haven’t gone to see if they fixed the formatting in the earlier books.

      As for page design–in the Kindle, it’s not that relevant. One of the things I love about the Kindle is that I can bump the font size, thereby inadvertently ruining the page design. I bump the font size because I can’t see all that well any more and reading on the Kindle is easier.

      Now to your other point, Dennis. You wrote: “there are simply too many books chasing too few readers” If you had said “buyers” instead of “readers” I would agree with you. But you didn’t. There are many, many more readers than books because of price and availability. Not every reader even goes to the library. Library hours have been cut so drastically that if you work odd hours, you can’t go. The numbers of readers have increased every year since 1946–that one study from the census a few years back was seriously flawed (it based its conclusions on a statistical sampling of 1000 people). There are enough readers. Price and availability make it impossible for many of them to buy books.

      As for your Baen argument, you’re stuck in the produce model of publishing. Read this post of Dean’s before you go any farther. Baen is in the perfect position to chase the new world of publishing, instead of the old. “Bet the company” advances are silly in good economic times. They’re becoming ridiculous now. So read Dean’s post. Then we’ll talk.

  3. I’m so glad you’re doing this blog, and I love its limber format.

    This entry mentioned the big ships which don’t turn quickly, and it’s also got comments themed “How shall we ever survive?”

    I know one huge ship that turns so quickly you’d think it’s a hovercraft. I’m trying to study why. I think I’ve found a big hint in this Daily Beast article entitled “Why I Fired Steve Jobs.”

    Anyway, I’ll be thinking about the attitudes, choices, and personalities of the people involved, and how they compare with those of, well, myself. And of the current players in the publishing industry.

    Thanks again,

    1. You’re welcome, Jim & Carolyn. Thanks, Jim, for confirming that readers don’t care or remember. Honestly, if I weren’t reading a friend’s novel right now, one that she struggled with and moved publishers for, I wouldn’t know who published that book either.

      Great link, Carolyn. Thank you.

  4. “As for readers, I don’t think they care who published the book. ”

    I have to agree with you here, Kris, at least in my experience. My wife, my friends and family–after I polled them, none of them could remember what publisher published the last book they read.

    My wife only knows about Orbit because the last few books she happened to read all had the same spine logo. When I book shop in stores, I’m looking at the author names, the back cover blurbs, and the first couple pages of text. I may glance at the spine for the publisher, but I can’t remember it ever being a factor in making a purchase.

    Thanks for this new blog series, by the way. As a writer whose boat has only just cleared port and entered the high seas, I appreciate the information and wisdom.

  5. Those of us that write erotica are keenly interested in the ebook revolution because it looks like it may offer us the same opportunities as VHS did for filmed porn. You don’t have to worry about running into your neighbor in ‘that’ corner of B&N when you download an ebook for your Kindle, after all.

    What I hope you’ll touch on is, in an ebook world, what role does the publisher still have? An author can self-publish pretty easily, or pull together a team of freelancers. So, other than saving time, why use a publisher?

    On the other side–can readers really tell if an ebook is self-published or done by a publishing house, and if so, do they care?

    Looking forward to your future posts…

    1. Really good questions, Ed, and you can guess a lot of authors–not just erotica writers–are asking those questions. At the moment, it depends on what you’re writing, and why you’re writing. If you want to be famous, then Big Publishing can do that for you–if you have the right book and if you’re lucky. If you want to make a living, then that depends on your definition of living and how hard you want to work.

      I will touch on this, but not as much as my husband, Dean Wesley Smith, will do in his new blog posts: The New World of Publishing. Things are shaking out so fast that I’m afraid what I write today might not be relevant six months from now. I note that something I wrote (in novel form) is completely out of date before the novel has even come out!

      As for readers, I don’t think they care who published the book. They just want the book. The idea that readers want a NYC publishing house assumes they even know what one is.

  6. @Kris Big Publishing *is* thinking it should withhold the e-edition till the hardcover gains traction, or charge a higher price for it.

    That’s what the Agency model imposed by Macmillan, Simon and Schuster, Hachette and others on Amazon was all about. They are protecting the hardcover best sellers. Those generate the most revenue and carry the highest margins, and the presence or absence of best sellers may determine whether a Big Publisher makes a profit or shows a loss on a year.

    Amazon was issuing Kindle editions at their standard $9.99 price *at the same time* as the hardcover best seller was available. Many people buy hardcovers in the first place because they want to read the book *now* instead of waiting for the mass market editions. Enough Amazon customers had the capability to read Kindle editions, wanted to read the book now, didn’t care about the paper edition, and bought the Kindle edition *instead* of the hardcover to cause significant lost revenue. It’s the same phenomenon that would occur if a publisher released the hardcover and the mass market paperback simultaneously, and the reason they don’t.

    Agency pricing gives Amazon a choice: release the Kindle edition at the same time as the hardcover, but charge a higher price for the ebook and remit more to the publisher to compensate them for the loss of the hardcover sale, or charge their standard price for a Kindle edition, but hold release for a period of months to give the hardcover time to sell.

    Agreed about Big Publisher overhead, but I’m not sure what they could have done to hold it down. It’s exacerbated by the fact that many of them were acquired by multimedia conglomerates who saw imagined synergies to having all forms of content under one roof. These arrangements founder in part due to the difficulty of achieving those synergies, but mostly because you are right about the sort of margins publishers can achieve. Book publishing *can’t* generate the sort of returns produced by things like film and TV, and pressure to do so is one of the major strains people in the industry deal with. So we’re starting to see those couplings come apart, like Time Warner selling Warner Books to Hachette, because senior management at the conglomerates has a fiduciary responsibility to invest shareholder funds where it will yield the best returns, and book publishing isn’t that place.

    eBooks are certainly the wave of the future, and an increasing segment of the market. The challenge faced by *any* publisher is “How do I sell ebooks and make *enough* money?” It’s complicated by the fact that how much *enough* is will vary depending upon the publisher.

    The usual question asked by corporations is “What’s the maximum amount of money we can make?” It’s also the wrong question. The right question is “What’s the minimum amount we *have* to make to survive?” It has a simple answer: “Enough to equal our marginal cost of capital”. The problem is that the answer to the right question is sometimes higher than the answer to the wrong one, and the folks asking the question are in trouble.

    I think a lot of publishers fall into that category, and ebooks won’t save them.

    1. Good points all, Dennis. I think Big Publishing has really missed the boat on e-pub. As a person who has had a Kindle for 18 months, I can tell you the contempt Big Publishing has for e-pub firsthand. So many books are badly published, with extra spaces between paragraphs or big glitches in the middle of the book itself, making it unreadable. One publisher, for a Spanish language title, had a “?” every time there was an accent mark. Considering this was Spanish, that meant an extra question mark per sentence at least. Unreadable. Fortunately, I had downloaded the sample, and not paid for the book.

      As for the price “compromise,” it hurts the bottom line. Most readers don’t care about getting the book now, and often will check for the book online, see the high price, and not pay it. For me, even as a writer who understands this, I rarely pay more than $9.99 for an e-book. However, I–like so many others–buy an e-book, then buy a hard copy when I’m finished to share with friends or to put in my library. Double purchases happen with e-books quite often. The same with audio.

      Getting rid of overhead is relatively simple: decrease the exorbitant salaries at the top, move headquarters out of expensive NYC and into somewhere cheaper like Baen did a few years ago, don’t renew archaic contracts with printers, typesetters, etc. When I became editor of F&SF, I cut the monthly budget for the magazine by 9K per month by changing the way the magazine was produced, with innovations I put into place in 1992 that Gordon is still using. Of course, Ed didn’t give me a 9K raise per month or even per year, but I suspect it was those changes that made the magazine viable when the distribution collapse hit in 1997-1999.

      Big Publishing is facing something similar. If they don’t change their attitudes, a lot of bigger publishers will go the way of the dinosaur. This top heavy model can’t sustain in the current economy, even if they weren’t getting it with the technological change (that they don’t entirely understand).

      Btw, folks, tonight’s CBS news showed a pie chart of July growth in the retail sector. There wasn’t much, and most places only reported growth in gasoline & restaurant sales. But CBS showed it all, including the .2% growth in mail order/internet sales. That growth is just starting, and will continue faster as more and more people get used to shopping online for everything…including books.

  7. I think you’re right, Kris, and we’re about to see the publishing industry go through what the music industry did.

    I think we’re also about to watch the film industry thrash around as well. There’s been a choke-hold on the distribution of films (i.e. movie theaters and cable channels) and that’s starting to crack due to technology breakthroughs.

    A few months ago we bough a new TV, and hooked it up to a blu-ray with WI-FI access, as well as an Xbox. Now we’re able to download niche shows like Top Gear from Britain whenever we want to from Netflix, and surf the web for indie film shorts we want to watch. We’re getting spoiled–being able to choose WHAT we want to watch WHEN we want to watch it–very very quickly.

    I’m noticing an uptick in indie shows like The Guild or Dr. Horrible getting traction with viewers, and being able to generate money through DVD sales and advertising sponsors.

    Major films are so expensive that I don’t see the studios going away. There’ll be a need for big studios once the dust settles. But opportunities are opening up for indie filmmakers and screenwriters to get their stuff seen by the viewers who want them.

    1. Good point about the film industry. I can’t wait to upgrade our TV & computer so that we can stream programs as well. Right now, though, I’m watching the first season of “The Closer” via Netflix. You couldn’t do that ten years ago either. Old TV shows–or old seasons of current shows–were impossible to find. And shows from other countries? What’s that? So it’s spreading out like the music industry has. You could only watch material from the 1960s if you want to. When electronic books really catch on, you can read anything you want, from any time period easily. You could do that before, but you really had to hunt for the old books, and sometimes pay an incredible premium to get them. As a consumer, I love this. As a writer, I see only opportunity. As someone who gets dizzy when things change–well, I’m dizzy a lot. 🙂

  8. In reading your post it occurred to me that the restaurant industry may be going thru a big change. At least in Portland Oregon. There are food carts going up everywhere. There cost to set up is much lower. Parking lots that sat empty for years are now full of food carts.

    1. Good points all, Dennis. I think the biggest problem with paper books is that publishers let overhead and expenses get so high that they had to raise the price. I know I think twice about buying a new mass market paperback at $9.99, although back when I was broke, I impulse bought a lot of $4.99 paperbacks. The biggest worry I see in Big Publishing is that they are thinking they should withhold the e-edition until the hardcover gets traction. I think that’ll just frustrate the readers, who want books at their fingertips at affordable prices. Big Publishing doesn’t see the upside yet–and I’m not sure, if I were them, I would see any upside either.

      Don, great point about restaurants. I know in our resort town, the high end restaurants–usually frequented by tourists who drop $200-$300 per person per meal–are in big trouble, where the mom & pop fish & chip shops are doing okay. Everyone is trying to save money, and I think that’s having a huge impact on some major industries right now. From what I’ve been reading, the food cart trend (tied to Twitter, btw) is happening in many major cities. It’s quick, cheap and fun. In this economy, all three are in short supply.

  9. I’ll sit corrected on the percentage of a book’s costs accounted for by manufacturing, warehousing, and distribution. The editor’s estimate seemed low to me, too, but in the context of the discussion I was having, double his figures would still make my case. I was dealing with people who seemed to believe that those costs were closer to 50%, and had highly unrealistic ideas of just how cheap an ebook could be.

    I’m aware of the other factors you mention, and returns are an especially thorny problem, given the book industry’s traditional 100% returns policy. We are only beginning to see publishers experimenting with higher discounts to retailers in exchange for not being able to return everything they order if it doesn’t sell.

    And whether the overhead is salaried employee time, contractors, or allocated share of other things like rent, the majority of costs are incurred before you get to the point of issuing the book in any format.

    Electronic publishing is certainly cheaper. The question is how *much* cheaper, and whether it will be enough to make the difference between surviving or going under. I don’t think there’s an across the board answer to that question.

    Agreed that Carina’s model is fascinating, and I’m aware that *everything* is freelance – a mutual friend is one of their freelancers. I suspect we’ll be seeing more experiments along that line, and over time, I wouldn’t be surprised if some of the traditional publishers fail, and newer imprints like Carina set up to address things like the ebook market with lower cost structures wind up filling the void they leave.

    As for Dorchester, I wish them the best, but I’m not optimistic.

  10. I’ll be watching this series carefully, for certain. My day job is currently going through a lot of upheaval (public school, special education) and I think the transformation happening there will be bigger than people think. For the positive? Right now I’m cynically saying not.

    Between a day job in flux, and trying to get the writing career going, it’s a bit far too much like the interesting times the Chinese curse talks about in this household.

    1. It does feel overwhelming, doesn’t it, Joyce? We can only handle so much. But for me, knowing that we’re all going through this change together helps.

      Thanks, Adrian and Izanobu. I hope this blog continues to help. And yes, Zach, imagine how the world would be without any change. That’s why it’s necessary. The problem comes when everything changes all at once.

  11. Great post, Kris, and facinating, and oh-so-timely! I plan to be one of those cigarette boats, but I’ve got to know what I’m steering through. Thanks so much for the navigation.

    Musicians are facing these changes too, have been for some time, and are developing a new model for business as well. Trent Reznor for instance, left his label after his contract expired and is doing everything himself. And he’s not the only one.

    I’m looking forward to more Business Rusch!

  12. I’m looking forward to more installments, great post, Kris 🙂

    As someone who grew up on the edge of the computer changes (I’m just barely old enough to have typed my first story on a typewriter), it’s pretty exciting to see what’s happening. I’m optimistic that reading isn’t going to go away, and thus people will still need authors to produce stories for them to read. (Just as you say, music hasn’t gone anywhere, the means to get it has changed).

    Going to be a very interesting next few years and is definitely a weird time to be breaking into publishing… I’m glad for the web though and that people are talking about it. Makes it less scary to have the perspective of pros who’ve gone through ups and downs before. Thanks 🙂

  13. “The nice thing about e-publishing? Small overhead costs.”

    Are they really? I’ve been in discussions elsewhere about this. There’s a lot of wishful thinking about how cheap ebooks can be when you don’t have the costs of manufacturing, warehousing, and distribution.

    Well, yes, you don’t have those costs, but those costs aren’t anywhere near as great as many people assume. One editor I know estimates the costs of manufacturing, warehousing, and distribution at about 10% of the total budget for the average book.

    For any book published, there will be the cost of acquisition, editing, copy editing, proofreading, cover design and illustration, and typesetting and markup, plus an allocated share of the overhead of the publisher, and all of those will be incurred before you reach the point of a final PDF to go the the printer or an ebook to distribute electronically.

    The interesting experiment I can think of at the moment is Harlequin’s Carina Press imprint. It’s an ebook only imprint, and shared risk. As I understand it, they *don’t* offer advances, so the cost of acquisition plummets, as does the risk if the book bombs. But they *do* pay a higher than normal royalty, so if the book does well, so does the author.

    I wish Dorchester well, but I don’t think the reduction in costs by dropping print editions will save them.

    1. Dennis,

      Yes, the costs are small if you manage your company well.

      Let’s assume your numbers are right. They’re not (I’ll get to that in a minute), but assume they are. PUblishing is a marginal business. It only makes (on average) a 4% profit per year. If you can save 10% of your cost in a business where you expect to make 4%–well, that’s a tremendous savings.

      The editor you spoke to seriously underestimates the costs of manufacturing, warehousing and distribution. First, take the returns system (please, as Rodney Dangerfield used to say). Publishers have to make two books to sell one. Returns do not exist in e-pub. So there’s a huge savings right there.

      The publishers I’ve spoken to–not editors–count manufacturing and warehousing at 10%. Distribution is another 10%, counting the double shipping costs, the cartons, etc. As for the other costs you mention, acquisition and edition as well as cover design are part of overhead. Those employees are salaried employees. Salaries are overhead. Contractors, which copyeditors generally are (freelance), writers and artists take 10-15% of the book cost. The last I heard, overhead at most major publishers is 35%-40% That’s a tough number to lower, especially with NY rents and salaries.

      I stand by the fact that e-pub is much cheaper, particularly if you’re a publisher, like Medallion that isn’t in NYC and, as a newcomer, has lower overhead than most places.

      As for saving Dorchester, who knows? The information coming out of there this week is confusing, and if that’s how management is working, then what ails them isn’t cost; it’s the way the company is run.

      Carina is a fascinating case in point. The author costs are low–again, they split, like you say–but author costs are a minor part of publishing’s equation. Where Carina is geared to save money is that they hire freelancers for everything including the editing. They have found a way to dramatically reduce overhead costs as well as getting rid of manufacturing, warehousing, shipping, etc. On top of that, it’s a great way to see which books have legs. If your book sells well for Carina, then they’ll put that extra money into the book, making it a print edition. Great business model. We’ll see if it works.

  14. I love the idea of creative destruction. As a farm kid from Idaho, I may not be up on my Hindu, but isn’t that the reason that Shiva is necessary? That destruction paves the way for new creation?
    I remember what we used to call businesses that were too big to react, respond, and adapt.
    We called them dinosaurs.
    I have no doubt that someone, maybe a lot of someones, will figure out a way to make this work.

  15. Great post! Looking forward to future installments.

    I think it’s an especially scary time for those of us who have no real industry experience (but especially exciting, too). Things are changing so fast it’s hard to know where to grab on, and how many hand-holds to claim. But, as you said, research is the key to making an informed decision.


    1. Thanks, Marina. I think it is a scary time for everyone, but newcomers in particular. I suspect things will shake out in a few years. At least, those with no industry experience, as you say, will be nimble and able to go with the change–if they keep an open mind.

Leave a Reply

Your email address will not be published. Required fields are marked *