The Business Rusch: The Nimble Presses (Changing Times Part Five)

The Business Rusch: The Nimble Presses

(Changing Times Part Five)

Kristine Kathryn Rusch

Last week, I wrote about how I believe e-publishing will save Big Publishing and got a lot of great comments.  I also got some private letters accusing me of being a “defender” of Big Publisher, a “shill” for Big Publishing, and a few very strange things.  (I’m not sure why discussing Big Publishing’s business model is a bad thing. <shrug>)

So let me say it again:  I’m not pro-Big Publishing.  Nor am I pro-Small Publishing.  Or pro-do-it-yourself.  I’m just looking at the changes in the industry from my perspective which is admittedly biased, but it’s biased not in a cable-news kinda way (wherein I have a political agenda).  It’s biased in a I-think-I’m-right kinda way, which I freely admit you may disagree with.

I guess what I’m saying here is that I’m not trying to convince anyone of anything.  I’m just putting my opinion out there, and letting the chips fall where they may.

I do have a lot of experience in the publishing industry, from co-owning a publishing company, working as an internationally known editor in books and magazines, and freelance writing.  I’ve worked in fiction, nonfiction, journalism, and (briefly) textbook publishing.  But I’ve said before, and I’ll say it again, I’m not an expert in all of publishing.  I don’t believe that anyone is or can be.  The industry is simply too vast.

Throughout my responses, I reminded people that I’m doing a series within this blog about the changes in publishing in general (see the subtitle: Changing Times Continued), and asked people to check the links to the previous essays before going into the new one.  I’m going to ask you to do the same for this post.  I’ve arranged this blog into a table of contents , so you can see what you’ve missed.

Before I go farther, however, let me tell you how I see the rest of this series going.  I will deal with smaller publishers in this post, then bookstores, maybe a few other things that come up, and then I’ll deal with the writers.  The writer part of the series will be at least three posts long.  I’ll deal with bestsellers, established writers, and new writers.  I will end this by talking about the changes for readers.

So when I say this is all of a piece, I mean it.  I suspect I’m writing another book here, albeit a shorter book than The Freelancer’s Survival Guide.  (Like that’s hard: the Guide came in at 200K, about the length of two novels or one really, really, really fat fantasy novel.)

A sidebar on the Guide, if you donated to it and didn’t hear from me privately, please e-mail me. Also, the electronic version of the Guide is available for anyone to purchase.  It has hit Amazon.com and Barnes & Noble.com and will hit the other sites throughout the month. (The timing of these things is a mystery to me).  If you need a specific format and want the book now, go to Smashwords.com.

I got my first copy of the paper book and it looks good.  You should be able to order it next week.  Again, the rollout will be slow, and it probably won’t be in bookstores unless they special order. But you should be able to get copies on web-based sites like Amazon any minute now.  As soon as I know it’s there, I’ll let you know.

Of course, the Guide is still available here on my site for free.  The difference between the free version and the book version is that I’ve organized the book by topic, and did some judicious editing to get rid of repetitive material.

Okay…questions answered. (I hope).  Let’s go to the topic at hand.

I defined Big Publishing as multimillion or multibillion dollar corporations that publish books.  I can’t seem to communicate the size of those companies to many of you.  These Big Publishing corporations are part of conglomerates that are worldwide, as big as some of the other media giants you’ve heard of (like AT&T), and flexible within their structure.

The one thing I didn’t convey last week is that Big Publishing corporations plan their futures with an eye toward ten, twenty, and thirty years from now. That’s why they sign such long-term contracts for their rents or with suppliers.  Because these large companies take the long view, they’ll suffer a loss for a year or two or five while they retool their businesses.

Bankruptcies are rare, although corporations within the conglomerates will go away or get absorbed by another part of the conglomerate or get sold off.  A loss can only be sustained for so long before it becomes a liability.  (And if you don’t see any difference between the words “loss” and “liability,” I suggest you look up their definitions.)

Small Publishers—the ones I’m going to deal with here—don’t have a conglomerate backing them up.  These small companies might make millions of dollars in gross income, but they never make multibillions of dollars.

These small publishers might be incorporated—which means they’re corporations—but they are flying solo.  Their corporation is not owned by another, larger corporation.  Small Publishing corporations are not part of a diversified portfolio of corporations inside a conglomerate like Big Publishing corporations are.

So, if a small publisher fails, it will go bankrupt, whether it files for bankruptcy to reorganize its structure, or whether it files for bankruptcy so it can disappear with a small debt load to its shareholders. I can’t express to you how huge this difference is between Big and Small Publishing, except to tell you that in a small publishing company, losses become liabilities a whole hell of a lot quicker than they do in big publishing companies.

Now remember, I’m talking about commercial publishing here.  University presses, textbook publishers, and other noncommercial publishers are not part of this discussion—unless they’ve recently ventured into commercial publishing.  (A few of them have.  I might get to them later as models.  I hope to.)

Small publishers run the gamut from one man operations to companies that specialize in commercial fiction inside a larger independently owned house.  Again, it’s disingenuous of me to lump all Small Publishing into one category. There are as many business models in Small Publishing as there are small publishers.  I have no idea how Akashic runs their business or what Subterranean Press’s business model looks like.  I just know that both companies are doing interesting work, and neither of them are part of Big Publishing.

So I’m going to speak in general here about Small Publishing.  My facts may be accurate for some small publishers and inaccurate for others. Please keep that in mind.

Last week, I called Small Publishing nimble.  They are.  As publishing models change, Small Publishing can change with them.  Instead of dealing with decades-long contracts and high rents, Small Publishing have short-term contracts if they have contracts at all.  A lot of small publishers operate the way that we did at Pulphouse Publishing by doing 90% of the work in-house.  Doing most of the work in-house has gotten easier in the past few years due to the very technology changes we’ve been talking about.

For example, much of work that we did in a two-story building at Pulphouse Publishing—producing, printing, and shipping (everything but the actual binding)—can be farmed out to companies like CreateSpace and Lightning Source for a price per book so low that our prices of twenty years ago from keeping the business in-house seem high.  CreateSpace and Lightning Source and companies like them produce commercial books for Big Publishers as well as Small Publishers, and do so at reasonable prices.

Electronic books are even easier.  They can be purchased, edited, formatted, and uploaded in-house to all the various e-book sales sites. The cost of doing business is primarily the cost of the content, the cost of the editors/formatters/art, and the cost of the uploading.  In other words, most of the cost here is labor, which is very different from Big Publishing.

Overhead in a small company might be next to nothing, particularly considering how many small publishing companies get run out of someone’s home.  Compare that to the extensive overhead of Big Publishing, and you can see why so many bloggers, who don’t understand how Big Publishing works, believe that Big Publishing will die.

The difference between Small Publishing now and Small Publishing just five years ago is in the all-important area of distribution.  If you go back to my earlier posts, you’ll note that I said that publishing companies are really in the business of distributing books, of getting books from the writer to the reader.

In order to understand the changes in Small Publishing, you need to understand how it used to work.  Once upon a time, in the dark ages (which were only a few years ago), Small Publishers had to work their tails off to get national distribution.  The owners of those companies had to meet with the national distributors like Baker and Taylor or Ingrams, and convince those companies to include the small publisher’s books in the catalogue that went to bookstores nationwide.

Even that didn’t guarantee national distribution.  It simply meant that if a customer went into, say, Borders, and asked for Book X, the employee behind the counter at Borders could look up Book X and see if Borders could special order a copy.

Most specialty and small presses developed relationships with individual bookstores.  As the independent bookstores vanished in the past fifteen years, so did many small and specialty presses.  Other presses operated as mail order only.

Many presses stayed alive by doing beautiful limited edition books with high price tags.  Those presses couldn’t do a limited edition book by an unknown author and expect that book to make money.  (Believe me, we tried at Pulphouse once or twice, and failed.)  The presses had to publish a book by an established author, usually one with a cult following or one who had already been established as collectible.

Other specialty presses made a name for themselves publishing a certain type of material not found anywhere else.  (This is particularly true of commercial nonfiction small presses.)

The books were priced high enough that even with limited distribution, the small press made money—sometimes a lot of money.  But the tradeoff was this: The book would never become a New York Times bestseller.  It might not even garner any press.  It would sell to the handful of customers who were familiar with the press, the author, or the independent bookseller who hand-sold the copy.

In fact, fifteen years ago, if a small press ended up with a runaway hit that might become a New York Times bestseller, the hit might bankrupt the company.  Small presses had a limited financial reserve. They often didn’t work with high-volume printers or have high-volume mailers.  They funded everything up front, and suddenly they were faced with an order 100 times their previous order.  They had to lay out money up front that they didn’t have.

To make matters worse, these small presses—which often did not have a returns policy—would have to enter the world of returns, and try to play with the big boys, suddenly funding two books to sell one. That’s not how most small publishers are set up financially.  Plus in the Big Publishing world, accounts pay on 120-180 days after the sale, if you’re lucky.  Until the point of the big hit, the small publisher probably operated on a model that insisted on payment up front.

Those of you with business experience are cringing now because you understand how dangerous this scenario is.  In the middle of a great success, small publishers would have to change their mode of operation and that made many small publishers fail. Some small companies would partner with a Big Publishing company to get the book out, losing part of the profits.  Other small companies would relinquish paperback rights to fund the switch or they would find an investor to help capitalize.  Generally, they could do these things because they had an asset that was making money—that was their problem. But some companies couldn’t, and they would fail

(I went to the internet tonight to find links to the specific examples I know about. The articles I have here at my desk, dated 1997 and 1995 respectively, aren’t on the internet, and I discovered that a few of these specialty presses had skipped over or rewritten this part of their history. Rather than get into a prolonged research and/or pissing contest, I decided not to use names of books and small presses in this part of my blog.  Yes, I’m lazy. And I’m working too damn close to the deadline to be precise.)

These problems and business models that I’m describing are problems of the past. Businesses like CreateSpace and Lightning Source print books for a variety of publishers, large and small.  These businesses have a pricing structure for one copy or for thousands of copies.  They get the books into national distribution networks like Baker & Taylor and Ingram.  All the publisher pays is a small upfront fee to get into the professional programs at these businesses.  Then, if the small publisher has a runaway bestseller, the cost of producing that book goes into the same system as producing a small book of 100 copies.  The small publisher doesn’t have to change his business model.

Suddenly—even without the advent of e-books (which I’ll get to in a minute)—the small publisher can compete on a national level. The small publishers can now get their books into major bookstores like Amazon and Barnes & Noble without a lot of effort.  If the small publisher wants their book on the shelves of a Barnes & Noble chain store, then the publisher must meet with the buyer at Barnes & Noble because shelf space is still limited.  But to get that book listed in the availability catalogue (which was such a huge task a few years ago), all the small publisher has to do now is work with one of these printing/shipping companies.

The advent of e-books has made small publishing even more viable.  Anyone—and I do mean anyone—can make their book available for Kindle or for a Nook.  Anyone can get into any ebookstore anywhere with only a little research and a bit of sweat equity.

Now a small press bestseller certainly won’t break the bank.  A bestseller will reap profits for both the small publisher and the author (depending on the contract between them).

Suddenly, the playing field is a lot more level than it ever was in the past.  This is what the bloggers are seeing, and this is why so many of them think it will mean the death of Big Publishing.  It won’t, because giants are hard to kill [see my previous two posts].  These giants see money in this part of the industry as well, and they will slowly mobilize to make money.

But they won’t prevent the smaller companies from doing the same, which is what happened in the past.  It has become a lot easier to publish a book these days and to do so on a national level.

I think of publishing this way:

In the past, the distribution model looked like this:

__/\__

That inverted “V” in the middle is Big Publishing.  Their books got to a wide variety of readers. (That’s the inverted “V”) The flat lines are Small Publishing.  Their books could never get any more readers than those represented by those flat lines.  Only rarely did books produced by Small Publishing even kiss against that inverted “V” and then it was a fluke.

Now, however, the distribution model looks like this:

__________

In theory, every book published has an equal chance of reaching the same number of readers because all books can go into the same distribution channels.  Small Publishing can finally play on the same field as Big Publishing

Small Publishing has a lot of advantages on that field.  Established Small Publishers have a different business model than established Big Publishers.  Remember, last week, I told you that Big Publishers expect to make all of their money on a book within months of that book’s release.  I called this the “produce” model of publishing.

Small Publishing generally does not work on a produce model.  Small Publishing works on an inventory model.  Small publishers keep their costs low so that they will make a profit at a certain press run.  They then set their press run slightly above that number, and keep the book in print until it sells out.  In the case of the limited edition model, the book will never go back to print.  In the case of, say, a nonfiction house, the book will go back to print until the orders stop for months on end.  In other words, small presses can—and do—keep low-selling books in their inventory for years.

Big Publishing wants to hit the highest number of readers in the smallest amount of time.  Small Publishing wants to hit a certain number of readers within a long period of time.  Both models have flaws. Big Publishing can’t deal with the slow-build book, the kind that sells only a few copies, then gets good word-of-mouth, and then sells even more copies, and then gets more word-of-mouth, eventually selling a lot of copies over a long period of time.

Small Publishing can’t deal with the high velocity book, the one that has a hot topic and attracts a lot of readers who want the book now.

These two things were true until the last year or two.  Now, those things are in flux.

The advent of electronic publishing means that Big Publishers can finally have slow-build books without having to deal with the inventory problem.  And Small Publishing can handle a high-velocity book without worrying about huge out-of-control expenses.

As I said, the playing field has leveled.

Small Publishing is moving into this new playing field much faster than Big Publishing because Small Publishing’s low overhead and tiny number of products make the companies nimble.  Small Publishing can experiment, try new things, explore apps or enhanced content or video content.  Small Publishing can take riskier products, deal with authors who have proven track records but no bestsellers, and can move into new business models.  Small Publishing can and does innovate.

The problems for Small Publishing, however, are simple: they have little or no financial cushion.  If a small publisher puts its money behind book apps, for example, and book apps fail, then the small publisher might fail as well. Small Publishing does not, by definition, have deep pockets.  So this new playing field will be littered with the bodies of small publishers who took a calculated risk and missed.

Some of those risks will be the right ones, but the small publisher won’t have enough money to follow up.  Some of those risks will succeed so well that Big Publishers will buy out the Small Publishers.

A lot of Small Publishers will become more and more successful, eventually having bestsellers and maybe inventing new ways to consume book-content.  Those Small Publishers will eventually become Big Publishers, selling to conglomerates and getting subsumed—replacing some Big Publishers that will fail in the current market.

(This sort of thing happens all the time in media companies.  Much has been made in recent months of Facebook’s Mark Zuckerberg’s unwillingness to sell his fledgling company to media giants when it became clear that Facebook would become successful. That’s because Zuckerberg’s choice is unusual.  The owners of most small companies when offered billions in a buyout take those billions and move onto other things.)

Small Publishing will become more and more important in the modern market.  In fact, it already is.  Just this week, Publishers Weekly had an article about midlist authors moving to smaller presses because Big Publishing’s model is squeezing these authors out.  In that article, Johnny Temple of Akashic Books makes this observation:

“These big companies, every book they do they’re trying to knock it out of the park, and they don’t have the flexibility to publish books at different levels.”

Smaller presses have the flexibility to publish books at different levels, but not the financial resources to pay high advances.  So authors might find themselves moving to a different model of their own, which I’ll discuss in the writer sections.

Smaller doesn’t mean better, however.  Smaller publishers have all kinds of problems that the bigger ones don’t have.  Take a look at the flap that bestseller James Frey is causing in the literary world by starting his own company with its draconian (and invalid) publishing contract.  Or think about the fact that some of these companies might not exist long enough to make a profit on their books or pay promised royalties.

As a whole, Small Publishing will do very, very, very well in this new publishing environment.  Small publishers will innovate. They’ll grow and change. They’ll introduce writers onto the scene, writers whose voices would have been completely ignored ten years ago.

But with this innovation comes risk. While Small Publishing does have flexibility to adapt new things, it lacks the financial resources to survive too many mistakes.  More Small Publishers will disappear over the next five years than Big Publishers.  But the Small Publishers who succeed in this market might be the publishers that change the publishing industry forever.

Of course, I could say so much more about all of this.  Once again, I’ve chosen a vast topic to write about.  I’ll do my best to be thorough, but I do feel like I’m trying to wrap my arms around a hurricane—large, violent, and constantly changing. Thanks for sticking with me on this topic. While I know a lot of you can’t contribute to fund me while I write these series (using yet another new publishing model), I do hope you tell your friends in (and out) of the industry about these posts.  I welcome comments and suggestions.  Please do ask folks to read from the beginning.  And thanks for all the support.

“The Business Rusch: The Nimble Presses” copyright 2010 by Kristine Kathryn Rusch.