Business Musings: Traditional Numbers
I’ve started this blog four separate times in the past week, and each time, I stopped about 1,000 words in. I have been planning to analyze some bestseller numbers that I found two weeks ago, numbers that truly had me shocked. In doing so, I wanted to check some other numbers as well, because an article about numbers is only as good as its data.
It didn’t seem to matter how many numbers I found, how much data I linked to, or how I did the math, something was confusing me. The harder I worked, the more confused I got.
It wasn’t until I was complaining about this at the weekly professional writers’ lunch that it all came clear to me: Most of the numbers I was working with were suspect in one way or another.
I’m going to explore some of these numbers in depth here. I know some of you find numbers irrelevant (which, I must say, worries me), so if long posts about information and data make your eyes cross, then skip to the last few paragraphs of this piece. Because I had a light bulb moment at lunch this week that actually hurt every single one of us present. We all were blinded by the light.
For the rest of you who want to share a bit of this journey, let me give some examples of confusing information that I explored these last two weeks:
- In an article titled “Real Data On Print Sales In the eBook Era — And the eBook Plateau” Publisher’s Lunch reported that ebooks have “cannibalized” sales in trade paperback editions, not in hardcover editions. The conclusion comes from a presentation that Jonathan Nowell at Nielsen Book gave at Digital Book World last week.
I like numbers, and there are some fascinating ones here, and even more fascinating ones in Nowell’s slide show presentation but they are completely untethered to anything. By that, I mean, I could find no information on how the study was done, how many data points Nowell worked off of, and what he based his conclusions on.
Granted, Nielsen Book is the company that does Bookscan, so in theory, they have raw data, but as I examined the Publisher’s Lunch article (which is on Publisher’s Marketplace, mentioned last week), I found a statement that set my teeth on edge:
[Nielsen Book’s] quiet PubTrack Digital service — the only source of real, granular ebook sales data, based on invoices for ebook sales from participating publishers — shows adult fiction still accounting for 65 percent of all ebook sales.
Um, what? I’d never heard of PubTrack Digital. Where did it get its numbers? How does it track things?
I’m a journalist, trained old-school by the World War II guys, the ones who mandated two real sources for each piece of data, the ones who said that nothing got into their newspapers and magazines without some kind of reliable back-up, and, most importantly, this:
If the reporter couldn’t understand the information as presented, then that information didn’t get into the newspaper/broadcast of record. Period.
I didn’t understand what I found on Publishers Lunch. Not at all.
First of all, what the hell is an “invoice for ebook sales”? Who invoices? Ebook sales are counted in real time, and then paid monthly, no matter what account is being used. Sure, there are probably some small retailers that pay on sixty or ninety days, but would that be called an invoice?
An invoice implies this: that the publisher sent out the ebooks and then invoiced for them, the way that paper books are processed in traditional publishing. Is that how ebook financials work in traditional publishing? I have no way of knowing, and if so, it makes absolutely no sense, because ebooks are not physical items that can be sent—and invoiced for—in advance.
As a publisher, I wouldn’t send out 100 copies of Book A in ebook format along with an invoice. I would send a single data file to the retailer and work with the retailer for real-time information on the data sales. Someone might have to generate an invoice to fit into old-fashioned accounting systems, but the invoice would come after the sales were made…and why the hell wouldn’t someone just update their accounting systems?
I got frazzled, then realized the mistake was probably from Publisher’s Lunch, not in the information itself. When there’s a wording problem in a complicated news story, sometimes it’s best to blame the journalist who didn’t understand the information presented. Often the journalist, in an attempt to “fix” the language of the source, changes a word and blows the meaning all to hell.
So off I went on Friday to find PubTrack Digital. After the name of the company, there is a trademark symbol. This becomes important to what I say a bit later.
Nielsen is a global information and measurement company that focuses on consumers and consumer behavior. It has hundreds of services in hundreds of industries from radio and television to retail markets. It’s a public company, so if I had the time to dig, I could find the information I wanted.
But it would take some digging, especially in regard to PubTrack Digital. A quick search yielded very little.
What I discovered on Nielsen’s site were articles about the service from 2013. Apparently, Nielsen bought this company from Bowker (the issuer of ISBNs) in 2013. But how PubTrack Digital works and how it gathers its data remained (and remains) opaque to me. The only way I could discover how it worked was through non-US websites—one in the UK and one in New Zealand, and even those didn’t tell me how the information was gathered.
The only clue I got was from (believe it or not) the Evangelical Christian Publishers Association or ECPA (and it took me several clicks to find the real name of that organization, not just its acronym). Their website explains PubTrack Christian and PubTrack Digital.
Let’s start with PubTrack Christian, which is a “collaborative publisher data sharing program.” If a publisher signs on to this program, the publisher agrees to share weekly “‘out the door’ sales and returns quantities at an ISBN & channel level” in exchange for the same information from the other participating publishers.
Books shipped and books returned. The language is vague otherwise, but shared on “an ISBN and channel level” makes me assume this isn’t by book title (our John Grisham books sell x copies) but by batch, verified by computer?????? at the ISBN level and sent out at aggregate numbers. The channels are specified here, but are also vague:
The multi-channels include “Christian bookstores, General bookstores, International markets (export sales), Internet/book clubs/catalog, Mass market retail, Publisher/distributor direct, Wholesalers, and all other.” [weird caps theirs]
In other words, this service won’t tell me how a competitor’s Christian novels are selling in the Pacific Northwest or even at Powell’s or Amazon. The service will tell me how those books are selling in general bookstores as opposed to Christian bookstores.
Okay. That makes some sense, I guess. But here’s where PubTrack Digital comes in.
The description for that service isn’t based on a physical product. It doesn’t seem to go by channel either. It uses information from 30 publishers (according to this site) to examine “the top e-book categories, authors, and titles based on unit sales and revenue.”
So, thirty self-reporting publishers send their numbers (unverified, I guess) to PubTrack Digital in order to receive information from the other twenty-nine.
Each time I review this, my brain starts hurting at this point. But my research does tell me that Publisher’s Lunch’s description of PubTrack Digital’s methodology (such as it is) is wildly wrong. No one shares invoices on the digital side. (I’m sure there’s invoice sharing on the retail [paper] side.) PubTrack Digital relies on self-reported information, it seems, with very little in the way of verification.
Given what I know about the way digital sales work, this actually makes sense to me.
Both PubTrack Digital and Publisher’s Lunch also tell me that PubTrack Digital is the only source for aggregated ebook sales in the country. (Maybe the world, again, unclear.)
But the data is self-reporting, which makes it flawed from the get-go.
Now to that trademark symbol. PubTrack is a trademarked logo for an existing business. It costs money to apply for and maintain a trademark. Businesses often don’t use trademarks for things that have little intrinsic value. PubTrack, purchased from Bowker, has to have some kind of system attached to its measurements, a system that Nielsen wants to keep confidential. That explains the vague language on the web.
The other thing that exploring the Nielsen site told me? It costs a lot of money to hire this company. They don’t have a fee schedule on their site. You have to contact them directly to get an estimate for the work you want them to do.
Which is what Digital Book World did. They hired PubTrack Digital specifically for the conference last week.
So…I’m describing this slide show to the other professional writers at lunch, and I (the mathematician’s daughter who grew up on a steady diet of statistical analysis and probabilities [my father’s two favorite subjects]) hear myself say, “Digital Book World asked this guy to examine the impact of ebook sales on hardcover sales, making the study flawed in the first place.”
Words straight out of my subconscious. Of course, the study is flawed. Because we have no way of knowing if ebook sales have any impact on paper sales at all. No way. None.
We don’t know if people who bought paper books in the past are buying more books due to ebook availability while still buying the same number of paper books—or if those people stopped buying paper books altogether, or, if faced with a choice of ebook or paper, choose ebook. We don’t know.
And because we don’t know, looking to see if ebooks have had an impact on hardcover sales by looking at ebook sales and looking at hardcover sales doesn’t answer the question. We don’t know if hardcover sales remained steady (as Nowell reported) because hardcover readers are hardcover readers and have sought out the hardcovers in various markets. We don’t know if the rise of ebook sales over the years is because ebooks are cannibalizing print sales or because more readers have ereaders (or tablets or phones) and therefore have 24-hour access to books and can order easily and quickly.
We don’t know if the reason trade paper sales have gone down (which Nowell reports) because most people don’t like the format or because the number of retail outlets carrying trade paper books has gone down (witness the loss of many chain bookstore locations, where most trade papers were sold) or because given a choice between trade paper and ebook, the average reader will choose ebook.
We don’t know.
So we can’t do a legitimate study of how ebooks impact the sales of paper books until we have done a study that tells us whether or not ebooks impact sales of paper books. Looking at the sales figures of hardcovers, ebooks, and trade paper does not give us that answer, because that data doesn’t address the initial question.
In other words, Nowell’s study isn’t a scientific study, but just some numerical manipulation that, in the long run, means nothing at all.
Whew. I planned this initial example to run one paragraph. Whoops.
But here’s another example.
- Publishers Weekly published a rather startling number. In the middle of an article on bestsellers, PW said this:
We are only talking about bestsellers here—books that make up less than 1% of the total number of titles published annually.
That 1% figure made me stop, and do a bunch of math. And for the life of me, I couldn’t make that number work. PW did not reference where it got that percentage either. I have no idea where that figure came from.
Back to writer lunch. I mentioned that percentage, and that it was of total number of titles published, and got a major talking to from the scientists, accountants, and business minds at the table. Less than 1%? What about all the books that get ISBNs and don’t sell a single copy? Were those books counted in that “less than 1%” figure? Were textbooks counted? Was did that percentage only factor in what’s called trade publishing (marketed directly to consumers) or did the percentage include university presses, small presses, and one-time writers publishing their great-grandmothers’ memoirs? Because if that’s the case, then we’re at .0001% maybe. If we’re lucky.
In other words, what the hell? Where did that percentage come from and why was Publishers Weekly so confident in it that they could blithely mention it unsourced in an article on bestsellers?
Was it because that percentage is common knowledge?
There’s an awful lot of common knowledge floating around in the publishing industry, most of which is not based on any reality at all.
That moment led to a discussion of my comments section from last week, in which William Ockham (his nom de internet) and Data Guy (another nom de internet) talked about the reality of traditional publishing numbers.
I mentioned in comments to both of them (and then in private emails with some other folks) that during my entire career, the “numbers” in traditional publishing have always been based on extrapolations from one piece of evidence.
For example: traditional publishers used to base all of their accounting on books shipped not books sold. Why? Because books shipped was the only number traditional publishers could be sure of. The books sold wouldn’t be known for six to nine months, maybe even for a year or two. That’s because of the returns system. A bookstore could return a book, depending on the account the bookstore had with the distributor or publisher, for as long as a year after purchase.
That’s why all writers’ royalty statements have a reserve against returns, and why publishers often didn’t know what a book sold until two years after the book was published.
So publishers used a formula for returns, based on how the year was going or what the returns were in that particular segment of the market. For example, returns were higher in mass market because it was easier and cheaper for a bookseller to strip the book’s cover off and return it as opposed to hardcovers where the bookseller had to return the entire book (and sometimes pay for shipping). Which mean that returns were higher in mass-market-friendly genres like romance and lower in genres like literary/mainstream that were mostly issued only in hardcover.
So, let’s say this. (Yes, I’m making these numbers up). Let’s say in the year 2002, returns ran at roughly 50% industry wide.
The returns formula for romance might have been:
Books shipped – ¾ of books shipped = ¼ of books shipped will make money.
If a romance novel sold ½ of books shipped, it would then double the expectation ( ¼ + ¼ = ½) and would then be considered an amazing success. A romance novel that sold according to formula did well, but not great, and so on.
The 2002 returns formula for a literary novel in hardcover might have been:
Books shipped – ¼ of books shipped = ¾ of books shipped will make money.
In the case of a hardcover with that returns formula, going back to press would be considered a success. A hardcover with that formula that had half the books returned (industry standard) would be considered a failure.
Does your brain hurt yet?
Because none of those returns formulas were based on any kind of reality. They were all guesses.
In other words, all of traditional publishing from the introduction of the returns system in the 1930s to the early part of this century was based on educated guesses by the sales department in consultation with editorial.
Not based on actual numbers. Not based on real sales figures. Not based on any kind of fact-based system at all.
The traditional publishing industry is in transition because it’s gotten gobbled up by international conglomerates who need real numbers for their own internal reports. Digital book and online sales actually allow for real numbers. Since the American Booksellers Association has taught independent booksellers how to manage their inventory (at the ABA’s Winter Institute), those booksellers have lowered their returns to a maximum of 25%.
So the traditional publishing data is becoming solid, but it’s not there yet. And because so many people in traditional publishing—particularly those in its upper echelons—have been in the business as long as I have, they’re a lot more accepting of wishy-washy numbers and fake statistics. Reports that have lovely graphics and percentages that seem real are still the norm in this industry, rather than studies based on real methodology.
That’s in the process of changing, but it hasn’t yet changed.
So…we were discussing all of this at writers’ lunch, all from the point of view of major corporations, when writer, who has also worked as an accountant for large local businesses mentioned that it’s common practice for businesses that make millions every year to audit their revenue sources.
In other words, million-dollar businesses have it in their agreements with these sources of revenue—and/or the companies that manage the business’s finances—that a full audit will happen every year.
I leaned back in my chair, and around me everyone got quiet. They were all staring at me. Apparently, I had some kind of weird expression on my face.
Because my brain does not work the way other people’s brains do. And in the middle of our rambling conversations at lunch, we discussed how one of our group, a traditionally published writer, has asked his/her publisher to provide him with monthly numbers—and those numbers haven’t been adding up. (Sometimes s/he got them from the sales department and sometimes from editorial, and s/he’s discovering a heck of disparity.)
We were also discussing how one major #1 New York Times bestselling author has a single person managing his/her financial affairs. Just one person, with no back-up, no one to do a double-check, no one to make sure that one person is on the up and up. Apparently that NYT author doesn’t like handling the messy business of money and contracts his/herself. That’s a disaster waiting to happen.
So that free-floating conversation, which also touched on agents, and publishing history, and all these numbers, made me realize something:
I know of no traditionally published bestselling author who regularly audits their agents and publishers. Not a one.
I know of a handful who have audited when something went wrong. But a standard business audit? Never.
Yet all of those traditionally published bestselling authors are million-dollar businesses, just like the local businesses our accountant/writer friend worked for are. These local businesses, these small town businesses, as a matter of course, audited their sources of revenue every year.
But writers, who make millions, and often funnel those millions through a single point—an agent and/or an agency and/or their publisher—never audit that agent, that agency, or their publisher.
In fact, several years ago, when I ran into some glaring errors in my payments from a former agency, I threatened to audit that agency. It was still handling the books my once-agent had sold for me. It wouldn’t release those books or split payments. When I pointed out the errors and demanded an audit, the agency did the literary equivalent of flinging my books at me. The day after my threat, made in December, just before Christmas, that agency decided it no longer wanted 15% of my business, and sent letters to all of my publishers telling those publishers to send any monies owed directly to me. That agency—on its own volition—cleared me out of its entire company.
Within 24 hours of me stating that I wanted an audit, I was finally free of that agency.
This was—and is—one of the biggest, most famous agencies in New York, with several repeat #1 New York Times bestsellers. I found irregularities in royalty reports coming from overseas, irregularities that made it clear someone (probably a foreign rights affiliate agency) was pocketing my money—and, most likely—pocketing a lot more money from all those #1 bestsellers.
Because I personally know that those bestsellers don’t audit their revenue sources. Those writers don’t follow standard business procedures, the kind of procedures that businesses in a resort town on the Oregon Coast follow as a matter of course.
I am shaking as I type this, even now, because—while I’m business-minded, I learned all of my business through reading, being a business reporter for over a decade, through owning several businesses, and through the school of hard knocks. I never thought—until this week—of annual audits of revenue suppliers from a writer/business point of view.
It’s something that I’ve done for other businesses, and something that I’ve asked for as a business owner (not for my writing business).
But I’m stuck at times with common knowledge as well. Common knowledge? If you audit your publisher, you get kicked to the curb. Maybe that common knowledge is true for midlist writers, but who is going to kick a cash cow to the curb? And if your publisher/agent balks at a request for an audit, then there might be a (a really bad) reason for them to hesitate.
Now, realize, that if a writer’s publishing contract with a publisher does not mandate an annual audit, then the writer is not entitled to one. My contracts have always had an audit clause, but I’ve seen many contracts that do not—and it wouldn’t surprise me if some contracts for big bestsellers lack an audit clause as well.
Most agency agreements with authors also lack an audit clause, but there, the author has some wiggle room. Because an agent has a fiduciary responsibility to a client under agency law (not literary agency law, but laws governing anyone who calls themselves an agent [from insurance agent to real estate agent to literary agent]), the agent must allow an audit if requested—at least in most state laws as I understand them. (Realize that I am not a lawyer and I am not giving legal advice here.)
Hundreds of millions of dollars are flowing annually to writers who do not check the source of that revenue. Writers who accept the floaty woo-woo accounting practices of major publishers. Writers who know like I used to that real numbers take years to get, and probably aren’t accurate.
Note too that the industry is changing, but writer-publishing accounting practices are not. Publishers still insist on sending royalty statements once every six months. Those statements are sent three months to six months after the end of the royalty period, so the numbers the writer is seeing are often a year old.
There’s no reason for that now, as my friend who asks for monthly sales figures has told his/her publisher. Except for the traditional publisher to hang onto money longer.
Why change part of the system that pays huge dividends to the publisher, when the writers aren’t requesting the change at all.
Anyway, thanks for meandering with me. I hope this all makes sense to you. Because these realizations—with the help of the professional writers at the weekly Sunday lunch—have left me a little shaken.
I hope they shake up some of you who read this, especially those of you who are running million-dollar businesses, particularly the ones whose revenue floats to a single point (the agent) before coming to you.
I’m having a blast with the blog again, and I’ll be honest, last year, I didn’t think I would. Sometimes rest is necessary.
However, this blog does take time from my fiction writing, which is where I make the bulk of my income. So, if you felt you learned anything or you find this blog worthwhile, please leave a tip on the way out.
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“Business Musings: Traditional Numbers,” copyright © 2015 by Kristine Kathryn Rusch.