The Bookends, Pt. IV

….continued from previous entry

In this maddened and maddening stream of real-time communication, from which occasional works of startlingly genuine value do surface, are authors required to engage a community? Is this community-building a keystone service for publishers seeking to survive by adding real value for authors? Can publishers thrive by providing community-like engagement with the book, even if the author moves on to other works? The answer to all these questions is that there is no single approach to writing a book, marketing a book or building an enthusiastic word-of-mouth community. Many authors and publishers will find the investment in engagement pays dividends, perhaps with increasing returns for each title that builds on initial success. Publishers can offer to take up the technical and financial burden of these communities, which can be slight when aggregating dozens or hundreds of audiences, as part of the new service they provide authors, who naturally want to focus on the books they write (books, however, will not be just text, as we’ll see later).

To our peril, we live in the golden age Erasmus described as he joined Aldus’ Academie and reveled in the revival of culture and humanist debate of the early decades of the 16th century: He felt world peace and prosperity was at hand because of the energetic dialogue erupting all around him, very much like techno-utopians see the Internet-connected world in 10 to 20 years. As Erasmus found out by the 1520s, when the Reformation had wrenched his world apart, launching the schism that would kill millions during the 30 Years War, freedom was a messy and dangerous business. After learning that his friend Thomas More, the progenitor of the concept of “utopia” latter canonized a Catholic saint for his refusal to declare Henry VIII the head of the newly formed Church of England, had been beheaded, Erasmus lamented that his times had become “the very worst century” ever, a declaration that anticipated the ironic critique offered up for contemporary contestants for pop cultural supremacy by Matt Groening’s The Simpsons.

The Shack may be the last of a new incunabula, print books that succeed wildly based on online word-of-mouth without providing its own branded online experience. Publishers have discovered how to market with the Web, but not how to extend the experience of reading on the Web. This time around, because technology has distributed opportunities to innovate in authorship, publishing and marketing, there will not be one Aldus, there will be many Aldi.

Even though William P. Young had built many Web sites as a part-time developer, his personal engagement with community once the The Shack hit the best-seller lists has been cursory at best. Yes, his book rocketed up bestseller lists on the tidal wave of emails sent by readers, but the greatest contribution to the word-of-mouth phenomenon was the more than 3,200 customer reviews on Amazon.com, and comments posted on his blog and at the book’s Web site, which is primarily a place to order The Shack with a forum where approximately 9,000 readers have posted 135,000 times about more than 5,300 topics related to The Shack, individual chapters and personal testimonies. Even the 500+ bad reviews on Amazon seem to have helped propel the book forward, because they are cast as polarizing responses to the 2,500 or so positive reviews that a browser must test by reading The Shack themselves. And it doesn’t hurt that, as Motoko Rich of The New York Times put it, “Sales have been fueled by a whiff of controversy.”[i] Young is surprisingly quiet online, investing much more of his time in traditional book promotions, such as television and radio talk show appearances. Where some authors might get lost in arguments, Young doesn’t engage critics, choosing to dismiss them as “not getting” his book and the fact it is a work of fiction and not theology. The online community, on the other hand, argues quite a bit about his book, keeping them engaged with the ideas, the book itself and the author, the publisher and the other titles they have or might publish in the future.

Publishers responding to The Shack took the safe route, choosing to believe that Windblown has proven its ability to generate hits. Hachette Book Group signed a deal to partner with Windblown Media to advertise, market and distribute The Shack in order to claim a share of revenue earned by the three-man operation. The May 2008 deal, which helped Windblown fulfill demand for its one hit book, includes future titles Windblown may publish, along with Wayne Jacobsen’s library of titles. Making a hit is tricky business, one that is seldom repeated.

Publishing economics compound the difficulty of placing bets on “star authors.” Larger print runs and deep discounts for a “big book” increase the risk associated with the title—after all, the publisher invests heavily in advertising and sales to ensure all those expensive hardcover copies will sell—while lowering the potential profit the book will produce, if it is successful. In the Spring of 2009, two-time hit author Dan Brown’s The Lost Symbol is being heavily marketed in advance of its release. Placards in book stores, billboards and full-page ads in major newspapers and magazines are appearing, suggesting a multi-million dollar marketing expenditure before accounting for the cost of a first-print hardcover release of hundreds of thousands of copies. The cost of getting this one book off the ground would cover the budget of a small publisher producing 10 or 20 books in a year, the marketing expense is many multiples of the total advances paid to nine out of ten authors his publisher, Doubleday, will pay this year. Factor in discounting, which reportedly will be as deep at 48 percent off the cover price at Amazon.com and Barnes & Noble, the two biggest booksellers in the U.S., and there is precious little left after this big book sells well. If it does not sell, Doubleday will take a financial pounding. But that is what publishers sign up for, the chance to make a huge profit on an unexpected best-seller, for which they pay little up front, or on a well-managed launch of one of these “big books.” ““I don’t think anybody’s going to make money on The Lost Symbol. For The Da Vinci Code he was embraced by the independents. We sold 2,800 hardcover copies. We were one of the stores that had him for a signing. It’s going to be like Harry Potter. Everybody’s going to have Dan Brown. I’m very concerned about the price war,” bookseller Joe Drabyak, of Chester County Books in West Chester, Pa., told Publishers Weekly in the weeks before The Lost Symbol was released.[ii] Writing and publishing books, like every other business, once one learns its intricacies, is not a sure-fire route to riches.

Underscoring the sense of a crisis in publishing is the fact that Hachette certainly paid a premium for the rights to market and sell The Shack, giving Windblown at least 10 percent more of the royalties than Hachette would have paid if, instead, it had signed Young when he shopped his manuscript.  Hachette’s Christian inspirational imprint, FaithWords, must find a less expensive way to discover new authors and titles, as well as listen to and serve readers, in order to survive as a profitable entity. The company has reduced itself, with this particular book, to a pure marketing and sales organization, which is one of the cornerstone services on which publishers will compete. What, then, are editors to do? Work as freelancers, become a breed of agent who signs talent and works with them to create hits, or something new involving facilitating reading communities?

Even if, as many have pointed out in order to dismiss The Shack, it is as a phenomenon of the fundamentalist/evangelical Christian movement, the book owes its success to the fact it told a story that grabbed the attention of a well-defined market. It is a shocking case of an industry chasing its customers where they could not lead them and where they failed to follow as readers pointed the way. Hachette bought a relationship with Windblown, placing their bet that the audience will remain engaged with Young, Jacobsen and other authors they may publish. This buy-not-build approach has choked the life from early leaders in many industries, most notably in recent generations, mainframe computing, personal computing, telecommunications and the Internet, where Netscape, Yahoo and others have acquired “sure bets” only to find they overpaid and would not get the same growth from new products.

A first-time author will typically receive eight percent to 12 percent of the revenue her book generates. In a niche market, such as religious books, it can be less. A proven author, on the other hand, can command 15 percent, even 20 percent or more of revenue calculated by the mysterious mathematics of publishing, which can include lower royalties on books sold at discount. Established writers can also retain more of their rights to exploit their success in other countries and formats, such as e-books and audiobooks. Young and Windblown sold the rights to market and sell The Shack, not all the rights a first-timer would concede just because they are grateful to be getting a publishing contract. Windblown sold the audio rights separately, a right most publishing contracts allocate to the print publisher.[iii] Even in the worst-case situation, they must have pulled 10 percent more of the sales than Hachette would have paid six months earlier.

In publishing, 10 percent of sales represents more than the average annual profit margin on any book, which ranges from six percent to nine percent at the successful large publishing houses. Paying any premium over the standard royalties offered first-time authors wipes out most or all the profit the publisher can expect from that author’s first book and, perhaps, their second book, as well. With such narrow margins, all the budgetary wiggle room a publisher normally plans on across all its titles in a year is eliminated by the premium paid to acquire a relationship with an established author, because so many books fail commercially. Even books by well-known authors, all but a few of who have notoriously erratic records from one book to the next, are risky.

The economics of publishing don’t work now that markets are accessible to anyone with an Internet connection. Tired as that insight may be, since it has been applied to virtually every industry since the commercial Internet and World Wide Web appeared, publishers are not willing that it is true for them, too.

So the publishing industry is in a “crisis.” Editors, marketers and salespeople are being fired while publishers cut back on their lunch tabs and entertainment expenses. Oddly, for those outside publishing, this is actually the normal state of publishing, an industry that perpetually complains that margins are too tight, at least when negotiating with authors and setting budgets for new author discovery. For example, in 1997, HarperCollins, the book publishing division of News Corp., cancelled 106 book contracts to cut expenses as publishers in a “crisis” and a “malaise” [iv] reacted to the increasing use of the Web, which they perceived as competition for books. “If we steer away from a vocabulary of crisis and loss, and if we think instead about the historical basis of book publishing, we will be in a much better position to understand the recent changes and to shape the future of publishing,” wrote Marc Aronson to The New York Times in 1990, after the paper printed another Publishing-In-Crisis story. During the early 1980s……

“Publishers must find a means of publishing some first novels,” wrote a correspondent for The Age, a London newspaper, in 1919. The price of paper had driven production costs so high that publishers were opting to print only authors with a proven track record. They had to make a profit but were doing it without investing in the future through support of new authors. “Various suggestions to overcome the ‘crisis’ have been made by publishers. One is that new authors could not expect a royalty on their books but should consent to a division of the profits with the publisher, when there was any profits to divide.” That placed most of the risk back on the author’s shoulders without adding to her potential upside, authors believed, because writers were reliant on publishers’ accounting and could be cheated, though publishers did not see fit to offer a higher share of profits when demanding authors share their risks. A new ratio that gave authors a greater share of profits could be placed on the table today as part of a “Web 2.0” publishing service. Transparency in accounting is far greater than a century ago.

“Perhaps publishing is once again losing a certain protection from its financial side, and that hits some people and some houses very hard. But that is not a loss of innocence; it is a recovery of an essential identity,” Aronson urged in 1990, and the sentiment is as true today, because publishing is decidedly not in a crisis. The industry is bigger than ever, even without the revenues of many small publishers who do not get counted by publishing research firms.

More readers than ever are buying books. The market is global and increasingly real-time. A title like Harry Potter and the Half-Blood Prince, the sixth book in J.K. Rowling’s young wizard series, is released simultaneously around the globe with an initial print run of 10.8 million copies—that massive volume was considered a safe bet by publishers. The first Harry Potter book has sold 25.1 million copies in all editions since its release. By contrast, in 1975 the biggest bestseller was E.L. Doctorow’s Ragtime, which sold only 232,000 copies, one forty-sixths of Half-Blood Prince.

Granted, the mainstream of publishing as measured by most financial and industry analysts is growing more slowly than the economy as a whole. Between 2002 and 2007, revenues from consumer book publishing rose 3.8 percent, less than one-percent annually, according to investment bank Veronis Suhler Stephenson. Publishing is expected to continue to grow at about the same rate through 2012, despite the economic downturn, to reach $28.1 billion in revenue. The Book Industry Study Group confirms the annual one-percent growth rate, but estimates a much higher revenue number for the publishing industry, $40.3 billion in 2008.[v] The problem with these projections, or any other estimate based on book publishing, is that books will not be solely paper products in the future and should not be counted in isolation from the online and other digital revenues a title might generate. The mix of media used by readers, and what constitutes “reading” itself, is changing rapidly.

The statistical growth in paper publishing is still more startling, because the market has exploded into thousands of niches, with more publishers than ever before competing for readers’ attention and money. Total output of book titles in the United States in 2008 was up 38 percent, according to Bowker’s Books In Print, to 560,626 titles. As noted, short-run and on-demand titles made up more than half of the market (counted by titles released, not revenue) for the first time in 2008; 285,394 titles were offered by small publishers and individual authors. In 1990, only 46,728 books were published[vi], 2008’s total 560,626 titles represents 1,200 percent growth in choice during the past 18 years. Self-publishing and small publishing, made up of more than 100,000 publishers with revenues of less that $50 million annually, at the end of the first decade of this century dwarves the publishing industry, accounting for 32 percent of total industry revenue, $12.7 billion. The “crisis” of the 1990s turned out to be very good for publishing, just as the current one will.

Is the publishing industry experiencing another bout of its perpetual crisis or is it the comfortable order that defined the publishing industry that is on the verge of collapse? Publishing hierarchies giving way to subversion by innovators who undermine every aspect of the production and distribution process invented since Gutenberg. Events much more dramatic than the perpetual squeezing of margins are underway. Books are changing, taking electronic form. Paper publishing is shifting to on-demand print and production systems that eliminate one of the largest risks in bookselling, inventory. Authors are finding the help they need with manuscripts from online communities, then selling their books to those waiting audiences, they are not waiting for editors to accept their work.

The outcome of the current crisis will be a new ecology of skills and services, so that the world of William P. Young’s The Shack will be as unrecognizable to Young in ten years as his world was from Fra Franceso Colonna’s. The choices available to authors in the next 10 years will demand greater business and technical knowledge than many writers will want to deal with, which leaves plenty of room for publishers and new entrants to compete for a share of the growing revenue generated by the publishing of information, entertainment, about news and current topics, and through many combinations of paper, online, digital downloads and community services that radically redefine the reading experience. It’s going to be a circus-like market, one that could be tremendous fun to compete in and very painful for companies and writers who refuse to experiment and change.

E-book hardware and software are two faces of a machine not fully invented, to which we must now turn before addressing new business ideas in publishing. The press has declared a horse race between Amazon.com, Google, Apple (which isn’t even interested in dedicated e-book readers, according to CEO Steve Jobs, who is really interested in making e-book reading a part of his “digital hub” strategy for Apple[vii]), Sony, Plastic Logic, and many others. The battles between these technology companies is a side-show to the evolution of publishing, albeit an important one that will determine when new publishing models will begin to become predictable and easily repeated. Oh, to live in interesting times.


[i] “Christian Novel Is Surprise Best Seller,” by Motoko Rich, The New York Times, June 24, 2008. Web: http://www.nytimes.com/2008/06/24/books/24shack.html

[ii] Ermelino, Louisa, “BookExpo America 2009: The Big Books of the Show,” Publishers Weekly, May 30, 2009. Web: http://www.publishersweekly.com/article/CA6661807.html

[iii] Andriani, Lynn, “Oasis Audio to Release ‘The Shack,’” Publishers Weekly, May 9, 2008. Web: http://www.publishersweekly.com/article/CA6568351.html. Also, author’s conversation with Donald Katz, CEO of Audible, Inc., June 2, 2009.

[iv] Foer, Franklin, “Book Publishing,” Slate Magazine, Dec. 7, 1997. Web: http://slate.msn.com/id/1082

[v] Milliot, Jim, “Number of On-demand Titles Topped Traditional Books in 2008,” Publishers Weekly, May 19, 2009. Web: http://www.publishersweekly.com/article/CA6659193.html

[vi] “The Evidence in Hand/ Report of the Task Force on the Artifact in Library Collections,” Statistical Abstract of the United States, November, 2001. Web: http://www.clir.org/PUBS/reports/pub103/appendix1.html

[vii] Jim Lynch, “Steve Jobs Announces the iBook eBook Reader,” ExtremeTech.com, February 5, 2008. Web: http://www.extremetech.com/article2/0,2845,2255830,00.asp

About godsdog

Mitch Ratcliffe is a veteran entrepreneur, journalist and business model hacker. He operates this site, which is a collection of the blogs he's published over the years, as well as an archive of his professional publishing record. As always, this is a work in progress. Such is life.
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