The Business Rusch: Shifting Sands
But I grew up in the Midwest. The land is firm there, solid. When someone builds a road it remains a recognizable road. Frigid winters and hot summers may buckle the pavement, but the road beneath remains something you can trust.
I love explaining Oregon road signs to Midwesterners. “Do you know what ‘sunken grade’ means?” I ask.
“No,” they say, looking at me distrustfully. After all, if they drove to my house, they saw several yellow signs warning about sunken grades.
“It means,” I say, “the road can fall away at any minute.”
The Midwesterners reel in shock. Roads are permanent, some say to me. That’s not possible, others say. You’re kidding! most of them exclaim. They look up the terminology, and learn that I’m right.
Roads out here, built on cliff faces, or over mountains, or on ground composed mostly of sandy soil, fall away on bright clear sunny days with no storms on the horizon. And no storms in the recent past. The ground slowly crumbles. The road sinks, or it doesn’t. But one day—preferably when no car is on it—the road will dissolve.
In fact, there are two stretches of highway near my hometown—one to the east, and one to the south—that the road crews have tried for decades to stabilize and cannot. Every time I cross one of those bits of road, the ground beneath me is different than the time before even if my crossings are only hours apart.
For fifty, maybe sixty years, certainly for the bulk of my lifetime as a writer, the publishing industry has been a Midwestern road. Occasionally a flood or a massive tornado will take out a section, but honestly, if a road disappears, that disappearance was something traumatic, an Act of God.
Lately, the publishing industry has been an Oregon road, with lots of sunken grade signs. Almost all of this uncertainty happened because of distribution changes, most of them in the e-book arena. The biggest shake-ups occurred between 2009 and 2011. Then, as big publishing realized they were living in Oregon not the sturdy Midwest, they adjusted their business model just enough to make it viable through the transition.
Bookstores, on the other hand, seemed to be the cars on that sunken grade as it fell into oblivion. Last week, I showed you how the bookstores have recovered. That recovery is continuing. And a whole new revolution is happening.
In fact, at the moment, we’ve left roads filled with sunken grade hazard signs and have taken to driving on the beach itself. The sands of the publishing industry are changing that quickly.
The sea-change—which is what shifting sands are, after all, a change brought by the sea—means different things for different parts of the industry. As I showed last week, it’s a boon to independent booksellers (small, non-chain bookstores). It’ll be even more of a boon as time goes on.
The change is also great for self-published writers (indie writers) who do a print edition as well as an e-book edition. In fact, the news for those indie writers is fantastic. The news will have no impact at all on indie writers who do e-books only, except that it might convince them to start putting their titles into paper as well.
The change will have a leveling effect on books sold through traditional publishers. They’re probably not even aware that this change has occurred, and they certainly don’t know what it means for them. I only stumbled on this change through an odd set of circumstances that I’ll try to explain over the next few blog posts.
However, for the very big traditionally published writers, like James Patterson and Nora Roberts, this change will show up as a negative in their royalty statements. They will lose market share, and will not know why. In fact, they already are losing market share, and the smart ones are worried about it. That’s one of the reasons Patterson believes the entire industry is in trouble; until four years ago, if Patterson’s sales declined across the board, then industry sales were declining across the board. As I showed in part last week, that is no longer true.
It’s not just the statistics I pointed to last week that bear this out. It’s hidden in the reports from the various trade organizations that have come out this spring.
Frankly, I wouldn’t have understood what’s in those reports either if Dean and I hadn’t started Ella Distribution last year.
To understand what we saw and learned, you need to understand how individuals in the publishing industry work. Most people in publishing work in a vacuum. Editors don’t know what’s going on in their own publishing house let alone what’s going on with their writers or book distributors or bookstores.
Writers don’t just work in a vacuum. I’m beginning to think that most writers are vacuum-sealed. They seem to believe that watching what other writers are doing is more important than learning anything about business, career management, copyright, or how the publishing industry is changing. (Think of it like this: writers are like cats. They’re more interested in sniffing the butt of the cat standing in front of them on the freeway of life than they are in the truck barreling down on them at sixty miles per hour.)
Actual publishers pay more attention to what’s going on than editors or agents because publishers, theoretically, should understand marketing and sales. They generally understand marketing and sales to chain bookstores, but little else.
Bookstores understand what’s happening in their stores or in their towns. They also know what’s being published (maybe), but they’re as different from each other as possible. And bookstores generally do not share information with each other about important things, like how to handle accounts or deal with distributors.
It’s really rare for someone in the industry to understand all sections of the industry. Dean and I do because we’re writers first, we’ve owned publishing companies (and advised on others), we’ve owned book and comic stores, and we’ve worked directly with distributors throughout our entire careers, in all capacities. We’ve worked with distributors as store owners, as well as publishers of books and magazines. We’ve also owned companies that distribute things.
Over the last two weeks, I’ve begun to think we’re the only two people in the country who actually see the change on all levels, from writer to small publisher to large publisher to the bookstore itself. And, believe me, we will be sharing that knowledge. I started with last week’s blog and have a hunch I’ll be continuing this in some form until early June.
Such a lead-in, right? A bit of a tease, in fact.
But the information is complicated, and I want you to come with me on this.
What has changed is this: Bookstores now have access to all published print books, whether they come from Createspace or from a big traditional publisher. Bookstores didn’t have access to all published print books before.
There are some caveats, of course. The first caveat is this: The indie writer must put her book into Createspace’s extended distribution program. (Lightning Source has something similar, but I’m not as familiar with it.) The second caveat is this: the bookstore must have a preferred account through its primary distributor.
If both of those things are in place—the writer has her print-on-demand book in an extended distribution program through the POD company, and the bookstore has a good relationship with its primary distributor, then any bookstore can find that book with no help from the writer at all.
Got that? The writer has to do nothing, and still her book will end up in the bookstore’s system.
I’ve emphasized all of these words for a reason, and now I’m going to have to explain those reasons.
In the solid (Midwestern-road) past of book selling, a bookstore heard about a book through publishers’ catalogues, some press on the bigger books, and through the book’s availability in the distribution system. (Distributors had their own catalogues, too.) The bookseller also found out about upcoming books through industry trade publications, like Publishers Weekly for trade or commercial books, Locus Magazine for science fiction books, Romantic Times (which was what it was called back then) for romance books, and various slick magazines for mainstream books. Mystery books had the hardest time penetrating the market because actual trade publications didn’t exist. Those that did, like Mystery Scene (which Pulphouse published back in the early 1990s) came out quarterly, which was damn near useless when books only remained on the shelf for a few weeks.
Booksellers would then preorder the book or order the existing book (if they found out within a few weeks of publication) from a distributor or (rarely) the publisher.
Indie or self-published books had no place in this world because bookstores could not order those books at a discount. And buying books out of the back of some author’s car felt too much like drug dealing for many booksellers. The writers who did so often had the same sleaze-ball reputation as a drug dealer.
For eighty years now, bookstores have run on a strange system, one that almost no other business enjoys. If a bookstore fills its store with inventory from publishers, the bookstore can return that inventory for full credit if the books don’t sell.
Imagine your local grocery store trying to do that with, say, bananas. Nope. Doesn’t happen. Nor could I return any artwork or framing materials that didn’t sell back when I owned a frame shop and art gallery in the early 1980s. It just isn’t possible.
For years, publishers have tried to rescind this practice, called the “returns policy.” It was devastating to publishers. They had to produce two books to sell one, because for decades, returns ran at a minimum of 50%. A book that sold one book for every two produced was considered a success. Think about that for a moment.
Publishers couldn’t talk to other publishers about changing the returns policy because that would be collusion to impact the market in a favorable way toward publishers. Collusion like that is illegal in the United States. Bookstores would have complained and publishers would have either had to change the policy back or would have faced all kinds of legal repercussions.
Publishers were trapped by a policy put into place long before anyone currently working in publishing was born.
Small publishers coped by offering good discounts with no returns. Unfortunately, that policy kept small publishers small, because most booksellers refused to do business with them. And the bookstores wouldn’t buy a self-published book from the author, because not only was there no guarantee of quality but the bookseller was stuck with that book forever and ever.
The whole stuck-with thing is how self-publishing developed a stigma. Before returns became part of the system in the 1930s, self-published books were common. Mark Twain self-published. Virginia Wolf self-published. Benjamin Franklin was the king of self-publishers. The difference was that back then there were fewer bookstores, and those bookstores operated like all other businesses: if they bought something, they were stuck with it, unless it sold to a customer.
The returns policy stigmatized anyone who couldn’t offer returns. But returns were costly and dangerous to a business. When our company, Pulphouse Publishing, changed its returns policy in early 1992, that decision was one of a handful that sent the company out of business. We went from a debt-free corporation to a quarter of a million dollars in debt in less than a year.
The self-publishing stigma started going away with the rise of e-books. Readers found books they liked and didn’t care who published them. The problem with self-publishing remained only with print books and primarily in the book distribution system itself.
Until a year or so ago, an indie writer or a small publisher could only offer credit and returns (like the big guys) by banding together in smaller distribution companies. Those distribution companies they demanded exclusivity. A writer distributed through them had to only deal with them.
Quite frankly, booksellers hate those companies because they don’t give credit easily and they limit returns. (They were also extremely hard for the small publishers to deal with, which was why Pulphouse set up its own distribution system.)
In early 2011, I was the Guest of Honor at Chattacon in Chattanooga, Tennessee. There, I talked with several book dealers, including some old friends, about the difficulty they were having getting my indie published print titles. The booksellers wanted good discounts, and they wanted returns, which I knew that we couldn’t offer.
The bookstores couldn’t order print titles by indie-published writers because those books weren’t in the traditional systems, and had no real hope of getting there. Bookstores also did not want to order direct from the publishers. Too much hassle.
So bookstores needed something new.
Dean and I pursued the “something new” throughout 2011 and into 2012, by researching, as well as talking to book dealers, bookstore owners, and a wide variety of people. We set up Ella Distribution with the terms the book dealers said they would like—a 50% discount for 10 books (not all the same title)—and even with no returns, that would beat the major distributors like Ingrams or Baker & Taylor.
So, if a bookseller wanted three different books from me, two Fiction Rivers, a book from Dean, and books from other big names who were now self-publishing their work, the bookseller could get 50%. At the time, the bookseller could only get 5% on indie=published titles from the major distributors, also with no returns.
Booksellers also wanted the ability to pre-order books, so the books would be in their stores by the publication date. We decided to add that to Ella’s repertoire.
We set Ella up, we hired one of the best people in the country to run it, we made the website live and—nothing. Nada. Zip. Zilch. We talked to booksellers. They promised to place an order down the road. Which was weird, because they had been clamoring for Ella just a few short months before. In fact, the booksellers who helped us design Ella weren’t placing orders with the company either. They were making excuses not to order.
Never in our lifetimes have Dean and I started a business in response to a known demand and gotten no response at all. Never.
We tweaked the site. We got more big names in. And then we published Fiction River. There was a great demand for Fiction River. We have more subscriptions than we expected by factors of 10, in both electronic and print editions. Bookstores claimed they wanted the first issue right away.
But they didn’t order.
Fiction River: Unnatural Worlds debuted on Tuesday, April 23. We published that pub date everywhere.
On Sunday, April 19, I was putting up my Free Fiction for that Monday. I went on Barnes & Noble’s website to get a link, and saw that Fiction River: Unnatural Worlds was already on the site. I expected that. We had released the e-book a few days ahead so that on April 23, the e-book would be live everywhere.
What I didn’t expect to see was the print book. After all, B&N had not placed a preorder with Ella.
Yet there was Fiction River: Unnatural Worlds the print edition, offered for sale at the proper price. I clicked on the link, and the page said the book would be available in 1-3 weeks. Now, anyone who has done print books through extended distribution on Createspace knows that such listings appear on Amazon right away. It takes a few days for the Amazon listing to state that the book ships quickly.
In other words, I expected to see such a listing on Amazon but not on B&N. I thought that odd, and decided to follow up on it.
On Tuesday morning, April 23, I clicked on the B&N listing. The listing stated that the book would ship in one to two days.
A series of mental bells went off. I immediately knew what this meant. It meant that B&N already had the book in its warehouse on Sunday. B&N just followed our company-stated publication date, and didn’t make the book officially available until Tuesday.
How had the book gotten to the warehouse so fast? We had put the book into Createspace early enough so that we could ship the subscription copies early and Ella could ship those preorders that never happened.
And somehow, B&N got the books at the same time as Ella. So did other bookstores.
They had preordered, just not through Ella. Dean and I had thought that impossible until we saw proof of it.
We investigated, and discovered this:
Earlier this year, Baker & Taylor changed its policies in regard to self-published titles. Instead of segregating them to a different part of their website (as if all POD books smelled bad), B&T mixed the books into the general population. Then, B&T changed its discount policy on POD books. Now, POD books qualify for the hassle-free returns policy. Certain bookstores—those with good credit, who ordered a lot of copies through B&T—qualify for as much as a 45% discount on any POD title. These gold-plated bookstores can get another 6% discount off their bill if they pay within 30 days.
And the bookstore can return one copy for the full price if that copy doesn’t sell. Back in the day (say, just a few years ago) distributors did not allow single-copy returns. The bookseller had to return at least five of that title to get the full-price return payment.
This is not a policy offered to all bookstores. But this policy is not offered to all bookstores on titles from big New York publishers either. Distributors look at bookstores the way any other business looks at its clients. Distributors rank bookstores according to credit and volume. If a bookseller pays his bill and does a lot of business through a distributor, that bookseller gets better discounts through that distributor than a bookseller who pays his bill and only does a tiny amount of business through that distributor.
It makes sense, from a business perspective.
In the past, POD titles were 5% no return no matter who the bookseller was. Now on B&T, POD titles are 45% full return plus for select bookstores.
Ingrams, afraid of losing business, immediately followed B&T’s lead. Both distributors offer preorders the moment the POD goes live with Createspace—if, of course, the distributor believes there’s a demand for the book.
With both major distributors now offering titles by indie writers and small presses at the same discounts as regular publishers (if the bookstore meets certain incentives), Ella had no reason to exist.
On April 29, we shut Ella Distribution down. We all have mixed emotions about it, of course. The staff did a fantastic job and built a fantastic website. They did everything right. So did we.
But the business model, viable in November of 2012, wasn’t viable in February of 2013, about the time Ella’s website went live.
Booksellers, even our friends, didn’t tell us that the sands had shifted because those booksellers figured they were the only ones who didn’t need Ella. Writers didn’t see it. Big publishing didn’t see it.
Dean and I didn’t see it either. We both blog. We do our best to keep up with the industry. We spent ten days searching for information on this and finding nothing.
As we got ready to close Ella, the staff told us it was no surprise to them. Our tech people told us that they saw lots of hits on the website, increasing all the time, but no orders. The staff had no idea why this was happening, just that it was. They too knew that something was fundamentally wrong. (Did I tell you these people were great?)
Their comments sent shockwaves through me. I got pissed at myself. I wondered again what I had missed.
I stayed up all night on April 29th, researching even more. And I finally found part of what I was looking for, buried in a Statshot report from the American Association of Publishers. The report, based on information from approximately 1,200 publishers. The AAP relies heavily on information from distributors of trade publishers (i.e. B&T and Ingrams, etc.). I had read this on Publishers Marketplace when it was actual news. The item said:
In adult books, gross shipments to retailers actually declined by one percent, but returns came down by $318 million (with over half of the inventory savings on mass market returns). On a dollar basis, returns comprised 27 percent of gross print sales. That’s the greater efficiency of digital and online sales at work, seen in the positive earnings reports at many publishers.
When I initially read that, I took “the greater efficiency of digital and online sales at work” to mean that more books sold through online bookstores like Amazon and Barnes & Noble. Customers expected those books to arrive in a slower fashion than they would out of a brick-and-mortar store.
What that phrase actually means is that booksellers have changed their ordering habits. Some are learning this on their own, but others are learning it through the American Booksellers Associations various programs, particularly something called The Winter Institute (which I will discuss more thoroughly in a future blog.)
Booksellers no longer order ten copies of a book that they think might sell. They order one, and put it face-out on the shelf. When that book sells, they order another which arrives from the distributor within one or two days.
Booksellers are learning how to run a leaner business. This cuts down on big orders (and we’ll discuss the implications of that in future blogs), but it also cuts down on returns. Returns, which had stabilized at 50% or more, were by the end of 2012, down to 27%. That’s huge, people. That’s an amazing shift.
That report, by the way, which was the only mention of returns and the shift that we were just beginning to understand, came out on April 11. In other words, we had missed nothing. And our decision to shut down Ella was a combination of being informed, having the best people, trying to start up a company right in the middle of this change, and having access to all kinds of information we wouldn’t normally have.
By the way, as I searched for that AAP report again tonight, I found more information on the changes going on in the industry. BookStats released its report on 2012 this week.
BookStats uses different methodology to report book sales. Here’s how Publishers Marketplace explains the methodology:
The BookStats methodology takes real data collected from approximately 1,400 publishers, and uses a series of calculations and hypotheses to posit extrapolations for roughly 59,000 active publishers (the overwhelming majority of which are very small). Consistent with previous years, only about 60 percent of the BookStats data is actual reported data — the rest (some $11 billion worth) is modeled from those reports.
I want you to note the numbers. BookStats extrapolates on 59,000 publishers are doing based on the activity of 1400 publishers. This is a very different measure than the actual numbers coming out of the 1200 publishers for AAP. (In other words, this system compares to the way movie grosses, and Nielsen ratings, and all of those other measures of entertainment are calculated. Not real efficient, but it’s what we’ve got.)
Here’s the quote I want you to see, from Publishers Marketplace’s report on BookStats:
In the AAP data, as we extrapolated, it was clear that the adult trade grew by roughly the gross revenues of the Fifty Shades Trilogy, and the children’s/YA business grew by just a little more ($30 million, or 2 percent) than the gross revenues of the Hunger Games trilogy — leaving the rest of the business flat. But the BookStats models posit that all the non-reporting publishers grew by about $550 million (or 7 percent); and thus that they grew in ways that most of the publishers who report to the AAP did not. Either this is a success story for small and lesser-known publishers, or it is yet another reason to question the BookStats models.
Since the AAP method did not count POD books, books by independent publishers, or books from most of the small press—indeed, did not count books sold by 57,800 other publishers (that PM knows of)—I believe this success story for the other publishers is at least as likely as a flaw in BookStats’ model.
BookStats at least tries to count what the rest of us are doing.
All of this might change next year, now that distributors like B&T have made it possible for indie books to sell side by side with books from traditional publishers.
I’ve given you a lot of numbers here, and shown you in detail how the sands are shifting. But here’s the thing I want you to take from this article:
It is now not only possible, but likely that an indie book with good word-of-mouth will sell as well or better than a book with the same word of mouth published by traditional publishers. Why? Because indie books won’t go out of print quickly. They don’t have limited press runs (see Dean’s post from last week), and they don’t have useless stock sitting in warehouses.
Indie writers, indie books, indie publishers now have the same access to bookstores that traditional publishers do.
The playing field has just leveled.
In the next few weeks, I’ll talk about how this will impact traditional writers and publishers, but I’ll also answer the question all of you are preparing to type into my comments section: How do you get word-of-mouth going on your book so that a bookstore wants to order your book through B&T or Ingrams?
I’ll answer that and so much more in the next few weeks.
I don’t distribute this blog through traditional channels. It’s published here and nowhere else. I put this up for free so that you can have the information, but I do need to have these words pay at least a little bit toward my writing income.
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“The Business Rusch: Shifting Sands” copyright © 2013 by Kristine Kathryn Rusch.