Sunday, January 31, 2010

Selling Paper

Remember my last blog entry, where I talked about Ebook Piracy? During the Digital Book World conference, the president of Macmillan, a very large publisher, called for all publishers to fight piracy, citing some of the same tactics that were unsuccessful for the MPAA and RIAA.

Since then, Amazon has stopped selling Macmillan titles.

The reason seems to be that Macmillan wants Amazon to raise their ebook prices, and Amazon refuses to.

This is being discussed in more depth on the Amazon Forum.

As it currently stands, Amazon buys ebooks from the publisher at 50% of the hardcover price, then prices those ebooks at $9.99 or less.

In other words, Amazon is losing A LOT of money on every ebook sale.

As far as I know, Amazon hasn't come out and said why it has decided to take a loss for each ebook it sells. If I were to guess, I'd say there are several reasons for this. They want to get a large share of the growing ebook market. They want to sell Kindles. They want to price competitively, and charge what they feel their customers are willing to pay.

Personally, I think Amazon knows that $14.99 for an ebook is too much, especially considering it costs nothing to distribute and manufacture.

So, since the Kindle first appeared, Amazon has been losing a lot of money by selling ebooks.

Macmillan wants Amazon to operate like Apple, which offers publishers a way to set their own price.

But shouldn't Amazon be able to sell things for whatever they decide to sell them for?

The loss-lead has been a mainstay in retail since the beginning of retail. Black Friday doorbuster sales are a perfect example of that.

So Macmillan tried to tell Amazon what to do, and Amazon stopped selling their titles, and now the Macmillan authors are suffering.

But let's take a closer look at why Macmillan wants Amazon to charge higher prices for ebooks.

It would have really sucked to have been a buggy whip manufacturer when Henry Ford introduced the Model T. But technology changes things, and it isn't always fair.

As far as technology goes, print has had an incredible run. This single format has lasted hundreds of years. Contrast that to music. In my lifetime, I've seen reel to reel, 8 track, LP, cassette, digital audio tape, CD, mp3, and now a host of lossless formats like flac, ape, aac, wav, etc. Go back to my grandmother's time and there were 78s and Edison cylinders. Lots of format changes in just a hundred years. And during each change, there were those who lost and made money.

Print has reigned since Gutenberg. But now the times are changing.

Publishers need to figure out what it is they do. Is it ship and sell paper? If so, that costs money, and they need to price books at a high cost and pay the author a fraction of the retail price.

But if a publisher's job is to help storytellers reach a readership, through vetting, editing, formatting, cover creation, and distribution, that can now be done in a much cheaper way, digitally.

So let's look at what a publisher does, and some of the costs involved.

Print publishing has a lot of overhead, and a LOT of waste. A 50% sell through (the number of books printed vs. sold) is acceptable, and returns are acceptable (any book shipped can be returned for a full refund.)

What if Chevy only sold 1 car out of every 2 it produced? What if Costco could ship back any old bananas it couldn't sell and get a full refund from the banana grower?

This is a very bad business model, and it is what publishing uses.

Publishers acquire manuscripts, and spend a lot of time, money, and energy doing so, because acquiring and publishing a book is a big investment (an investment that often fails to earn a profit.)

In the current model, publishing is NOT about connecting storytellers and readers. It's about selling as much paper as possible. They print paper, ship paper, use paper to advertise their paper. Paper, paper, paper.

In an ebook world, there's no paper. No printing. No shipping. No catalogs. No ARCs. No print ads.

Editing, proofreading, cover art can be outsourced. How much would this reduce costs?

No expensive Manhattan offices. No editor expense accounts. No sales reps or marketing department. No employee benefits.

Print publishers see this future, and are trying to use the current system as a pricing structure for the future system, because they don't want to change.

That won't work. People don't want to pay $9.99 for a DRM restricted ebook that can only be read on a single device. That's why ebook piracy is on the rise.

Rather than figure out a strategy that will work, publishers are instead circling the wagons, making the same mistakes the RIAA and MPAA did.

Because publishers are in the business of selling paper, and they think a digital book is just another type of paper.

Why are they doing this?

One reason is because of history.

Historically, we were told what to read, watch, and listen to.

In the past, artists needed big companies behind them to manufacture and distribute their work.

When I was a child, there were three television networks. If I wanted to watch something at 7pm on Thursday, my choices were limited.

Radio and record companies decided what we listened to. Hollywood told us what to see in the theater. And publishers printed what they deemed fit for public consumption.

Gatekeepers (the few) chose what the masses (the many) got to experience.

Then along comes this internet thingy.

YouTube is one of the top ten most visited sites on the net. Why?

Because the viewer actually IS the gatekeeper.

We decide what we want to watch. We create videos ourselves.

It is an entire media empire built around the viewer. A video can get ten million views without any gatekeeper at all, because there is no cost and no risk.

Why not the same for ebooks? If the cream rises to the top on YouTube and goes viral, what is to stop an ebook from doing the same, if there was a forum for such a thing?

But instead of embracing the future, print publishers are going to try to fight to preserve the past. That's why they charge Amazon, Sony, and other retailers 50% of the price of a hardcover for an ebook. They don't want things to change. And they're inflating the price of ebooks to try and prevent that change.

That won't work. Formats change. New technology always comes out the winner. DVD beat VHS. CD beat cassettes. Cable TV beat network TV. Cell phones beat Ma Bell. And ebooks will someday beat print books.

But all isn't lost for publishers.

If I were a publisher, I'd start by acquiring out-of-print backlists. This is where Google and Amazon both dropped the ball. Google tried to scan copyrighted material without permission, and Amazon concentrated on public domain, rather than going after name authors and actually making some money off of ebooks, rather than losing money on each one sold.

There is a 4 billion dollar a year used book industry. The majority of everything ever published is out of print, and a good portion is still under copyright.

Acquire those rights (and not try to retroactively grab them like Random House did.)

A smart publisher or retailer with deep pockets could acquire thousands of books that have already been vetted and edited.

Once they did that, they'd be responsible for formatting and distribution, which is cheap and/or free. Pay fixed costs upfront, then earn forever.

But publishers can't think this way. That would mean they'd have to entirely restructure their business, and probably downsize dramatically.

Right now, rather than consider changing its business model, Macmillan wants things to stay how they are now. That makes sense. Why wouldn't they want things to stay the same?

But they're no longer the ones who decide what people must read. They don't have that control anymore in this new world. Now people have choices. One of the things that helps dictate choice is price.

Amazon understands this, and prices accordingly.

I feel terrible for Macmillan authors. Several of my close friends are being hurt by this. And I wonder if other publishers are going to desperately band together and attempt to do the same thing. I'd be deeply upset if Amazon stopped selling my Jack Daniels novels.

But then, I did figure out that I could earn more money than Hyperion is earning for me, if I had the rights to those titles back.

But that's because I figured out you can make more money selling cheap ebooks than selling expensive ebooks.

Here's a screen shot of my January sales on Amazon Kindle to emphasize my point (and it isn't fully accurate because it's only 10:40am and I'm thinking I'll make a few more sales by the end of the day.)

In June, my Amazon royalty rate will go from 35% to 70%.

So I'll be looking at 40k per year on these old titles that NY Publishing didn't want.

I'll earn almost as much on a $2.99 download than I earn on a $24.95 hardcover.

And why shouldn't I? I'm the writer.

I don't have any benefits. No heath insurance. No retirement fund. No 401k. No expense account for lunches. No holiday bonuses.

I live off of advances, and bi-annual royalty checks, and I'm one of the lucky ones. I actually am making a living at this, whereas the majority of my peers cannot.

And let me say, for the record, that I love paper books. And I've loved the publishers I've worked with, and think many of the folks in publishing are some of the smartest and coolest people I know.

But I believe publishers need to switch their focus from selling paper to connecting storytellers with readers.

Unlike the buggy whip, publishing isn't a niche market. It can change with the times. But it will be a painful change.

You can stack up sandbags against the tide. Or you can ride the wave.

C'mon, Big NY Publishing. Put down the sand, and grab your surfboards.