Friday, August 06, 2010

The Beginning of the End?

Dorchester just announced it is cutting its mass market paperback line and focusing on ebooks.

A few months ago, Medallion announced the same thing.

I've heard, through sources who asked not to be named, that sell-through for paperbacks is as bad as 20%. In other words, out of ten printed, only two sell.

Now what's going to happen if more publishers follow this business model?

Here's a possible scenario.

1. Fewer paperbacks are published. Publishers either eliminate their paperback lines, or begin publishing more selectively, in smaller numbers, to cut costs and losses.

2. Bookstores have fewer books on their shelves, and sell fewer books as a result. Which means less money to the publishers.

3. Publishers downsize, since the ebook market, though growing, doesn't bring in the same money as print does. In order to maintain positive cash flow, they bill their accounts to pay up.

4. Their accounts--bookstores and distributors--can't pay up. They don't have the money to pay for the books they've sold--which they bought on credit. So they begin returning other books on the shelves to get credit for those.

5. Now there are far fewer books on the shelves, which means far fewer sales.

So when publishers stop printing as many books as they are now, the delicate balance will shift.

What does this mean to you, the author?

The main reason we need publishers is for distribution. We can't get into Wal-Mart or Borders on own own. They can. So we accept 8% royalties in order to sell a lot of books. But if publishers are no longer printing books, there is ZERO reason to sign with them, because they no longer have that advantage. Especially when we can earn 70% royalties on our own.

If you do sign with a publisher, make sure it contains a clause that states they MUST release it in print, or revert the rights back to you. Make sure there is specific wording for "out of print" that doesn't include ebook sales.

But, if you do sign with a publisher, do you think you'll ever get your rights back?

Let's say I'm running a publishing company. I see ebooks are the future, and I've got three new authors coming out in print. I gave these authors healthy advances, and there's no way they'll earn out these advances with print sales.

Their contracts state the only way they'll get rights back is if the books go out of print. But if I'm making all of my money on ebooks, and I'm still not close to earning back the advance money I gave the author, I simply can't allow the books to go out of print.

What should I do, as a publisher? If a book is selling very few print copies, but a lot of ebook copies, what are my options?

Now, we all know that publishers are honest, and their accounting is always truthful. But what if, when facing bankruptcy, some unscrupulous publisher (as opposed to all the honest ones) decide to artificially keep a book in print in order to keep earning ebook royalties?

Here's an imaginary example.

Joe Blow gets a $50k book deal with Publisher X. Publisher X cuts the print run because they're having some money trouble, and ships out 30k copies. The book does so-so, and has a 30% sell-though. Of those 9000 copies sold at $6.99 each, Joe Blow earns $5040.

So the publisher is in the red for $45k (probably more, but we'll stick to the advance..)

However, the book is doing well as an ebook, and has sold 5,000 copies. And unlike the print books, which dwindle down to a few hundred per year, the ebook stays strong.

5,000 ebooks sold, at $6.99 each, equals $6,100 in royalties.

Let's look at the royalty numbers for the first few years.

Year 1
Print: $5040
Ebook: $6100

Year 2
Print : $1020
Ebook: $7,200

Year 3
Print: $302
Ebook: $9,000

Year 4
Print: $51
Ebook: $12,500

Now the publisher has a problem. Joe Blow has earned out $41,213 of his $50,000 advance. By year 5, he'll certainly earn it out. But his book is pretty much out of print, which means the publisher has to revert the rights back to the author, on a book that is earning money.

The publisher may be reluctant to do that, for obvious reasons. So what should Publisher X do?

Maybe, incredibly, they sold more print books in Year 4 than they originally thought. Maybe they tell Joe Blow they owe him $1500 for print sales--which is enough to say the book is still in print, and then they still have the rights.

Will Joe Blow ever get his rights back?

Now let's look at what would happen if Joe Blow never sold the book at all. He self-pubs at $2.99, earning $2.04 royalty per book.

Using the same sales figures as above, let's see what he makes.

Year 1: $10,200

Year 2: $12,039

Year 3: $15,049

Year 4: $20,901

Looks like Joe earned $41,213 through his publisher, and $58,189 on his own. Plus he still owes the publisher $8787 on his advance.

Chances are, Joe will earn out his advance in Year 5, and then make a steady $10k per year off of this title, through his publisher.

If he'd kept the rights, he'd be making $20k in Year 5, and every year after that. But my numbers assume he'd sell the same number of books at his publisher's $6.99 price as he would at his own $2.99 price--which is doubtful. The $2.99 price will sell a lot more, based on my experience.

So how much money is Joe Blow losing in the long run by signing with a print publisher? Will Joe ever get his rights back when "creative accounting" comes into play?

Now, I know this scenario takes a lot of liberty with reality. None of us can imagine a future where publishers would knowingly fudge numbers. And we all know that print will remain the dominant force in publishing for years to come, even if publishers are printing fewer books and even dropping their print lines completely.