Sunday, January 19, 2014

Questions From Steve Zacharius, CEO and President of Kensington

This blog entry has been updated FOUR times with responses from Steve. If you believe you've read the whole thing, scroll down to make sure.

To sum up, a legacy author recently posted her sales figures, Lexi Revellian blogged about it, Passive Guy mentioned it, and the CEO of Kensington, in a brave and bold move, began to respond in the comments on Passive Guy's blog.

Kudos to Steve. I admire that.

At one point, Steve asked some questions of indie authors. He seemed sincere in wanting answers, so I'm happy to supply them.

Steve: I’d like to ask some questions of all of you self-published authors. For those of you that are starting out and even those that have a few books under their belt….how do you promote your book online? How do you distinguish it from the other 1,000,000 books on Amazon and other ebook retailers? Do you sell your books on all of the ebook stores or only Kindle?

Joe: I'm not starting out, Steve. I signed my first book deal in 2001, and had eight novels published by large legacy publishers.

My advances for those eight books were $265,000 combined, and they earned out and I made an additional $300,000 in royalties. Not bad, right? But over the course of 11 years it resulted in roughly $43k a year. And considering all the travelling I did (I signed at 1200 bookstores in 42 states and attended dozens of conventions, book fairs, and events) there was very little left over to live on.

In January of 2013, I was able to get my rights reverted back to me.

In the past 12 months, those titles have earned me $600,000.

Consider that carefully, as the CEO of a large publisher. Once I was no longer under contract, I was able to make over 10x what I was making with big NY publishers.

Why?

Many reasons. Better royalties, for one. Having the ability to control my prices and put my books on sale. Advertising through companies such as BookBub. Bundling titles together. Tweaking my product descriptions and keywords. Getting new covers. 

Once I was in charge, I turned midlist titles into a cash cows.

Remember that these were old backlist titles, so it wasn't my legacy fanbase buying them (they had already bought them). I wasn't selling because I had a platform from my legacy days. These sales were from people who hadn't heard of me before, and discovered me via Amazon's many paths to ebook visibility (bestseller lists, rankings, also-boughts, email campaigns.)

I'm in KDP Select on Amazon, forsaking other platforms, because I can make more money on KOLLs in a month than I made on all other etailers combined. Now, with Amazon Countdown, I can earn 70% on $0.99 ebook promotions. On a great sales day, I can make between $5 and $15k. On a normal day, I make between $1k and $2k.

I have never been on the NYT bestseller list or the USA Today Bestseller list, yet I have sold over 1 million self-pubbed ebooks. 

How many #1 Kindle Bestsellers has Kensington had? I've had three, and dozens more in the Top 100. And I don't have the experience, reach, deep pockets, and 90 employees that Kensington has.

I'm not the only one doing this. There were over 150 self-pubbed authors who sold more than 100,000 ebooks on Amazon in 2013. 

How many Kensington titles have sold 100,000 ebooks in 2012?

The magic word here is ebooks.

You mentioned Kensington is the "last large independent publishing company in this country that is still in the mass market business."

Hmm, could that last part be the reason? You consider yourself first and foremost a mass market publisher?

Did you know Kodak invented the digital camera? They didn't pursue it because they had a lock on film sales, and didn't want to change their business plan. 

It didn't turn out well for them.

But for Kensington, you really don't have a choice. Mass market is your market. That's something you can do that I can't--get paper books into brick and mortar stores.

For the entire history of Kensington, up until very recently, that meant you were in a position of power. Authors needed you.

But now we don't. 

I made a million dollars in 2013, and my books weren't in any brick and mortar stores. Why would I need Kensington? Why would any author?

And what does my ability to do this say about the future of books (both ebooks and paper books)? And of publishers such as Kensington?

Steve: Now maybe you can answer this question without jumping down my throat….if indie publishing is as good as you’re all making it sound…..why do you think that the biggest and most successful authors in publishing don’t go this route? Why isn’t Nora Roberts, Patterson, Lee Child, etc….going this route? Do you think it’s just the large advances they get? And even if you go down a notch from the megastars….those that are getting above a $50,000 advance for example….why do they stay with publishing houses?

Joe: Do people in happy marriages have affairs? Or do they stick with their spouse?

If I had been making great money with my publishers, I would have stayed with them. What impetus would there have been to leave? And if I'd been given sweeteners like escalators, cover approval, expensive promotional campaigns, widespread print distribution, and large launches at BEA with massive media attention, I'd be defending legacy publishers right now instead of being on the other side of the fence.

But very few authors get that kind of treatment. The vast majority don't. In fact, a lot of them sign unconscionable contracts, are treated poorly, and make very little money (as referenced by the deleted blog post that started this line of inquiry.)

In the past, authors needed advances to live on, and if they were fortunate enough to earn out their advance and get royalties, they were paid twice a year.

It isn't easy to budget for your family when paid semiannually. And why does it have to be that way? It's kind of silly because in PG's thread you said: "Royalty programs are extremely sophisticated and the data is pulled in from sales systems from the biggest magnitude…generally SAP." 

If that's the case, why not pay more often? How about quarterly? Bi-monthly?

Amazon pays monthly. I can track my sales in real time, not 18 months after the sale when reserves against returns are finally counted on a statement. 

But we both know that a book can be profitable for a publisher even if the author hasn't earned out their advance. Which is why a publisher can offer Lisa Jackson big advances and not be too concerned if the book earns out.

BTW, you have heard of Pottermore.com, right? Rowling won't be the first to exploit her own ebooks rights. Other name authors will follow.

Here's how it will happen:

1. Huge names will look at their royalty statements and see the eventual transition from paper to ebook sales. They may not be seeing them now, but when B&N closes, and as ereaders continue to become widely adopted, they will. Because once B&N is gone, it will cause more people to adopt ereaders because they can't get books otherwise, which will mean airports, drug stores, and department stores won't stock mass market because no one is buying them. 

2. Huge names will then demand better ebook royalty rates since ebooks are their new main income source. But with the income from paper diminishing, publishers won't be able to justify huge advances and 70% ebook royalties.

3. So huge names will self-publish, banking on their brand to bring in 70% royalties. 

I'm skipping steps, and it may take a few years, but this is how it all ends. 

How is Kensington preparing for it?

Kensington has one invaluable thing to offer authors: paper distribution.

The rest of what Kensington offers is service-based: editing, cover art, formatting, proofing, marketing, advertising. But all of those are services authors can get without Kensington. And all of those are sunk costs for authors--they pay once, rather than pay forever.

Does it make sense for any author to give up the majority of their ebook royalties to Kensington, forever, in exchange for editing and cover art? Why would any informed author do that?

Right now Kensington can get an author's paper books into thousands of retail outlets. That's worth something.

At least, it's worth something to some authors. Other authors, like me, don't care, because we're doing fine without being in B&N or Walmart or Costco.

Blogs like mine are helping whole generations of authors decide they don't even want to bother submitting to Kensington because they see no advantage to it. There are tens of millions of ebooks being sold entirely outside of the publishing industry. That number will continue to rise.

Is your long-term business plan centered around hoping for writers to remain naive?

Steve: Lastly what do you all think about the power that Amazon has gotten in the marketplace? They currently sell books, both print and e, below cost quite often and are willing to take the loss to build marketshare; predatory pricing. 

Joe: AKA "being competitive."

Well, they did invent the ereader and ap everyone wants to read ebooks on, at huge cost and risk. And last I heard, the DOJ doesn't consider Amazon predatory. But if Kensington does, can't you fight Amazon's unfair practices by removing your titles from their store?

I know that would be risky and scary. When I didn't like my publishers' practices, I got my rights back, which was also risky and scary. But sometimes, when you believe in something, you take that risk.

Or do you see the end like I do? That ebooks will become the dominant choice for readers? If so, I'd worry less about Amazon being predatory and more about how to exploit the potential they're offering.

Steve: They can afford to do this because of the size of their bank accounts. What happens when the other companies go out of business because they can’t afford to match these ridiculous prices? 

Joe: I'm matching Amazon's ridiculous prices without difficulty. In fact, last I checked, I'm getting pretty wealthy.

As for other companies going out of business, I fail to see how that effects me. The system needs two groups to endure: readers and writers. Companies like publishers and bookstores once facilitated this relationship, and took a share of the profit. Now Amazon is doing that. One day it will be someone else in some other way.

My job isn't threatened.

Steve: Do you think they will suddenly change their terms? Are they suddenly going to change your royalty rate to 50% from 70% when there’s no other competition?

Joe: What are Kensington's ebook royalty rates? Are you 70%? Are you 50%? 

Are you suggesting that Amazon may lower their rates to something like (gasp!) what Kensington offers authors?

Should authors be concerned about what Amazon might do, or what Kensington is currently doing?

Can you point to ANY situation where a company or companies who had a commanding share of a media market raised prices? DVDs and Blu-Rays have either remained stagnant or gone down in price. So have music downloads. Cable TV and streaming video have gotten cheaper.

Wait, come to think of it, there were some instances in the past where industries dictated price. The music industry forced listeners to buy $16.99 CDs in 1986 to get just the one song they liked.

Sort of like the publishing industry currently charges $30 for hardcovers.

We know what happened with music. The industry fought change, lost its power, and now a computer company is the number one music retailer in the world, selling cheap digital downloads.

Steve: Do you see any new companies being able to come in and compete with the existing players in ebooks now? Will Apple continue to grow…what about Google…probably the one company that can afford to absorb losses even more than Amazon if they wanted to? Android is an enormous platform; why aren’t they pushing books harder?

Joe: Why is the future of the industry, and of Kensington, based on what others are doing? 

No one wins by playing catch up. No one wins by letting others call the shots.

When ebooks overtake paper in sales--and they will--what is Kensington's plan? Because it seems that your current plan is to continue to invest in a dying paper market, continue to treat authors as replaceable cogs, continue to whistle past the graveyard, continue to do business with the devil who will destroy you (Amazon), and take zero advantage of a backlist that could be making you tens of millions of dollars if you only paid a little bit of attention to authors like me and what we're doing.

I'm going to fisk a few more points you made during the discussion on Passive Guy's blog. I'll try my best to put them in context, because I hate it when I'm incorrectly quoted.

Steve: A contract is a private business transaction between the writer and the publisher and I don’t see why it needs to be shared. 

Joe: Steve, I'm the one to blame for the trend of sharing numbers and terms. I began doing so publicly in 2009, when I first self-published on the Kindle.

That was the first of many posts, and eventually I disclosed my advances and royalties from my legacy publishers and compared them to my self-pub numbers.

I did it to show authors what was possible. I also did it because authors never had the power that came with transparency. We didn't know what each other made, because we didn't discuss it. Any mechanical engineer or podiatrist knows what they can expect, salary-wise. Writers never did. Could be $5k a year. Could be $50m. 

So I showed other writers what a midlist writer earned, and other writers watched as my self-pubbed numbers began to catch up with, and surpass, what I made in the legacy system.

As a result, many authors treat transparency as the norm now. And because of that, we all have a much better idea of how we're all doing.

Steve: A legitimate publishing company works with the writer to improve the story.

Joe: I had an experience that disagrees with that statement. In a nutshell, my publisher, Hachette, rejected the second book in a two book contract, and when I wrote another one for them they wanted significant changes.

I self-pubbed those two books. They've earned me more than $300,000, and have gotten over 1000 Amazon reviews averaging 4 stars. 

My publisher didn't work with me to improve those stories. They worked against me, and I had to buy my way out of the contract, and I wound up making a lot more on my own than I did with them.

Steve: I don’t know of any publishing company CEO from a respectable firm that doesn’t think its editors are its most valuable resource. They are the ones who bring in the new authors and discover them and have a good part of relationship with the author.

Joe: Actually, your most valuable resource is your ability to get paper books onto shelves.

Editors are very important, but they can be hired directly by authors. For one-time costs.

Can Amazon KDP be considered a publisher? They don't buy rights, but they do call themselves Kindle Direct Publishing. 

If so, it is possible to publish without any editor bringing in new authors, having relationships with them, or even doing any editing.

Steve: We have artists that have been paid over $6000 for one time use of their art. I doubt there is one single self-published book where an author has spent anywhere near that amount.

Joe: Yikes.

In fairness, it was in response to the comment: "Better proofreaders can be found than those employed by the Big 6, and definitely better cover artists."

Now, we've all seen some terrible self-pubbed covers. But we've also seen some terrible legacy-pubbed covers. On average, I feel confident in saying that legacy covers are better than self-pubbed covers. But I've seen some knock-out self-pub covers, and I'm pretty sure they didn't cost $6000. I believe, for $6k, I can hire a necromancer to bring Picasso back from the dead and hire him to do a cover, with money left over for a lobster dinner.

So I have to call you out on this, Steve, because what you thought was an honest defense of Kensington's attention to quality came out more like a careless boast about how much money your company wastes on cover art. I'd love to see the $6k cover mentioned and compare it to some self-pubbed covers. It might, indeed, be worth it. But in a day and age where the average author advance is still $5k, is paying $6k for cover art really a wise business move? Especially when we all know that Kensington has offered author advances for much less than $6k?

Steve: If the publisher commits to the books they are required to pay for them even if the first book does poorly. That’s the risk the publisher takes.

Joe: I agree that the publisher takes the risks, and publishers do honor contracts even if the book doesn't succeed (this was in response to a commenter suggesting that "if the publisher wasn’t happy with sales of book 1 they could have cancelled 2 and 3")

But all publishing contracts have clauses that state a publisher can reject book 2 or 3 if they feel it isn't publishable. And, indeed, I know authors who have been dropped from contracts for this reason--a reason that is entirely arbitrary.

And who gets the blame if the book doesn't do well? The author.

The publisher can get out of a contract if it wants to. It won't cite "poor sales of book 1" but it can say "book 2 is unacceptable." Which is especially awful when the poor sales of book 1 were the publisher's fault.

I'm not going to get into detail about all the ways a publisher can hurt a book's sales, but it happens. And a bad sales record haunts an author forever, making changing publishers difficult if not impossible.

Steve: Did you see the recent posts from Writer’s Digest that 80% of self-published authors make less than $1000. That’s from a survey of 9500 writers.

Joe: And that's $1000 more than they would have made if they never were accepted by a legacy publisher.

BTW, why wasn't I surveyed? If I and a few choice friends were asked, we could have really bumped up that average.

The fact is, a lot of self-pubbed authors won't make much money, just like a lot of legacy pubbed authors won't make much money. But everyone has a chance to self-pub. Legacy publishing is an invite-only club. So, if given the chance to make some money over no money, I think most would choose some money.

And I have no idea how skewed the survey was. WD is infamous for advertising lots of predators; companies who charge authors fees for publishing assistance and reviews. A self-pub author who subscribes to Writer's Digest may believe they only way to self-pub is to use Authorhouse or Xlibris. That would put them far behind an author who reads my blog and understands how to self-pub on Kindle for free. If a lot of vanity press authors answered the survey, it's no wonder they're making so little.

Also, how much does the average legacy pubbed author make? Isn't that an important number, too? If we remove the Top 10 highest paid Kensington authors, what is the average advance of the remainder?

Finally, I don't understand the phrase "make less than $1000". Is this annual? Because ebooks are forever, and should theoretically earn forever, so there won't be a cap on how much a book earns.

Steve: With our digital first lines, eKensington and Lyrical Press now, we publish many first time authors as well as others, who do not earn huge royalties. It’s a building area for us….like a farm team. If the numbers get bigger and the authors have good reviews we’re going to try to eventually get them into print. We’ve had many authors published only in e who have gone on to get big publishing contracts from other publishing houses as well.

Joe: Okay, so this seems to be part of your plan for the future. I missed it on the first read-through.

I'm fine with the concept of this, but I'd have to review a contract to see if it's something I'd agree with. I have no problem with farm teams, and you also mentioned paying quarterly, which is a step in the right direction.

Years ago I made up a term called estribution. Essentially, someone would take on all of the jobs of a ebook publisher--editor, cover art, formatting, proofing, accounting, etc--for a royalty percentage (10%-15%). But the rights remain with the author.

I fully understand authors not wanting to self-pub all on their own. And I can understand them willingly giving up royalties to have these things done for them.

But at what cost? 

Amazon KDP offers 70% royalties. No publisher can offer more (because Amazon has to take their cut). So eKensington and Lyrical are obviously offering less than an author could get by self-publishing. If it's a small percentage, that might be worth it to the author--depending on the contract.

Giving up your rights for something you can do yourself (or pay someone a flat fee or a royalty percentage to do for you) makes no sense... until you bring up the farm team analogy.

It's a seductive concept. Play for us, and maybe you'll play in the big show.

I can see how that would temp authors. Sign with a known publisher, let them do all the heavy lifting, and maybe get a shot at seeing your book on the rack at Walgreens.

But farm teams aren't secretive. Scouts know all the names and stats. Everyone is aware of the top prospects. It's all out there in the public eye.

So, Steve, who are some eKensington and Lyrical authors who have gotten into print, or gone on to other publishing houses?

And anyone reading this who is an eKensington or Lyrical author, what are the contract terms (since Steve hasn't mentioned them and apparently seemed reluctant to do so in PG's thread)? You can post them in my comments, anonymously, or email me. I won't mention your name. I did read one author on PG's blog who got a $2500 advance from Kensington. 

I made that much last Saturday.

Of course, all writers have different paths to follow, and I've never said that my success is probable, or even possible, for anyone else. But I do encourage everyone to get informed before you sign away rights to a novel for the price of a flatscreen television. Learn about contracts, and royalties. Research all options.

Steve: What I said was that in MY perfect world that self-published books would be separated from books that were done by traditional publishing on websites so that the reader can make an informed choice as to what they’d like to buy.

Joe: I'm going to let my friend, bestselling author Barry Eisler handle this one, since we discussed it in length and I appreciated his response.

Barry: What I find most noteworthy (and amazing) about Zacharius’s notion that self-published books should be forced to wear some sort of weird scarlet letter is how anti-democratic and paternalistic it is. The philosophy behind it is that readers need to be protected from reading what they like — protected, presumably, by people like Zacharius, who know better than readers themselves what’s good for them.

Beyond its perniciousness, Zacharius’s notion is good for not much more than a chuckle. Because if there really were something “bad” about self-published books (actually, I love Guy Kawasaki’s nomenclature — “artisanally published”) from which readers needed to be protected, wouldn’t readers be able to tell the difference without divine guidance from Zacharius? I remember when I was first living in Japan, and the Japanese government was trying to justify similar protectionist measures and rhetoric to justify tariffs on California rice because consumers needed to be warned that “California rice is inferior to Japanese rice.” In fact, California rice is identical to Japanese rice, and it was precisely this sameness that the Japanese government was trying to protect against. If California rice really were inferior, consumers would have preferred and been willing to pay more for the Japanese variety, and no “protection” would have been necessary. After all, I’ve never heard of a government attempting to impose tariffs on foreign cow flops. The tariffs, and the accompanying rhetoric, are always about something consumers demonstrably want.

For similar such bullshit in still other contexts, see also the history of the dairy lobby’s war against margarine, the evils from which consumers also needed to be protected. Plus ca change and all that.

It’s fascinating how the same old self-interested bullshit just keeps popping up again and again in new venues. The manifestations vary, but the fundamental excrescence is always the same. There are, and I guess always will be, people in the world who don’t trust other people to know what’s best for themselves, and who can’t control the urge to try to decide for them. When I read proposals like Zacharius’s, the novelist part of me always wonders to what degree he senses how neatly his position dovetails with that of protectionists throughout history, and to what degree he’s blissfully ignorant of history and un-self-aware. Ultimately, wondering what’s really going on in the mind of someone like Zacharius is not much more than an amusing parlor game. Far more important is knowing that when someone pops up and says, “I’m from big publishing and I’m here to help!”, it’s a good idea to wonder who the “help" is really for.

Joe: I'd also ask, Steve, if you think debut novelists should be separated from seasoned pros? Maybe debuts could come with a mark on it that says "UNPROVEN AND UNKNOWN AUTHOR". And with pros, perhaps a disclaimer of "THIS BOOK SOLD HALF THE COPIES THE LAST ONE DID" in big letters on the front would be helpful to consumers.

Or we could have some sort of ranking system based on sales, maybe lists that show which ebooks are selling the most, and perhaps some way for readers to rate what they like and don't like.

Nah. Let's segregate. That's best.

Steve: I think the bigger and more successful an author gets, the more likely it is that they are going to want to be with a traditional publisher. I think the facts show that.

Joe: Though some of my blog readers might not believe it, I'd certainly entertain an offer from Kensington for my print-only rights. I've personally advised several successful self-pubbed authors who have gone on to sell print-only.

As far as the facts, I've seen several newbie authors get some self-pub success then sign with legacy publishers, but I haven't seen any former legacy author who has gone all-in with self-publishing go back to legacy. 

That's saying something, isn't it? No one re-enlists.

Steve: If you look at the printed NYT list, how many of the mega authors are self-published? 

Joe: How the NYT list works notwithstanding (hint: it isn't by actual sales figures), I'll ask how many legacy authors manage to get on it? Kensington publishes 450 books per year. How many crack the NYT top 20? How many books are legacy pubbed every year? A few hundred thousand? And how many make the bestseller lists? How many authors make the lists who have never been on them before?

I've sold tens of thousands of copies of a title in a week. But I'm invisible to the NYT and USA Today lists.

If your dream as a writer is to become Nora Roberts or Lee Child, I don't think it matters much which route you follow--you're deluding yourself. What you should do is set realistic, attainable goals, and work toward them while learning as much as you can.

Steve: It’s very hard to become a major author by self-publishing…sure you can make money and some of you obviously make a good living. But you’re leaving out 70% of the market by not being in print and POD just doesn’t cut it….it’s not the same thing as being in WalMart or Target or B&N. 

Joe: I agree that POD isn't the same as being in WalMart.

I do not agree that I'm leaving out 70% of the market. Perhaps that is what your company believes the market is, based on your sales figures, but it doesn't take into account the ebook sales you're missing by not positioning them correctly, and it isn't the market I'm catering to.

I wrote a book called The List which has sold 150,000 ebooks. If you believe that's only 30% of its possible sales, that means I should be able to move 500,000 paperbacks. Call my agent, and we'll sell you the mass market rights for cheap. Her name is Jane Dystel. Since 70% of the market is still untapped, you should be able to do well.

I also have half a dozen ebooks that have sold over 50,000 copies each. I'd be happy to let Kensington take the paper rights from me. As long as I earn more than the $1300 a month I currently make via POD, I'll entertain any offer.

I'm all about authors having choice, and making decisions based on logic, common sense, and facts. Self-publishing isn't an ideology for me. It's simply a means to reach readers.

If Kensington believes it can reach readers that I can't reach, I'll sign with you to reach those print readers.

Have you done print-only deals, Steve? If so, with whom? If not, why not? If you really believe there is money to be made in print, I'd be the perfect guinea pig.

I'll wait patiently by my phone until you call with an offer.

Steve: It’s not the same thing as being able to sell your books in different languages around the world or to sell the rights to large print or the book clubs. 

Joe: My agent has sold rights to my self-pubbed books in over a dozen countries. That doesn't require a legacy publisher.

Large print? Wasn't that a format that used to exist before you could adjust the font on your Kindle? ;)

One of my previous publishers sold book club rights to one of my titles. I still remember that bottle of scotch I bought with the royalty check. Ah, MacCallan. 12 years is far too young...

Steve: Self-publishing is primarily an ebook format and right now, that’s still only 30% of the marketplace and the growth has leveled off for the time being. And yes I am using AAP figures since that’s what’s available. 

Joe: Again, the AAP didn't poll me. Or any self-pubbed author. Or Amazon. 

Perhaps Kensington's growth has leveled off. Mine has not. 

Steve: I’ve been willing and have been having open dialog about self-publishing in my blog and I respond to all emails, probably more than any other CEO in publishing.

Joe: I'll email you a link to this blog and look forward to your response.

Happy new year. And good for you for engaging your critics. If you're smart and determined to take your company into the future successfully, you should be welcoming the opportunities presented to you, and closely monitoring those who are succeeding in this brave, new frontier. It's all about listening and learning and experimenting, not defending and reminiscing.

Failing that, you should sell your backlist to another publisher and get out while you still can.

UPDATE #1

Joe sez: Steve replied. And I replied to his reply. The ball is back in his court.

Steve: Good to make your acquaintance Joe and thank you for answering some of my questions.  I think there's way too many questions for me to reply to in a format like this but I'll try to reply to some of them.

Joe: Good on you for responding, Steve, and pleased to make your acquaintance as well.

Thanks for your time. I understand I asked a lot of questions, and at the end of this I'll repeat the ones you missed. I'll put them all in a row to make them easier to answer.

Steve: First of all I never saw the original post that started this entire conversation.  I wasn't able to see Lexi Revellian's post….somehow I got caught up in this conversation later on and was just willing to give my opinion about the market today.

On my blog I had talked about self-punishing and I guess that's how I ended up here somehow.  I think the overwhelming point of my blog has been missed.  My blog said the media hypes the huge success of authors like you and Hugh.  But my point was for every one of you, there are probably ten thousand that have sold only 100 copies.  That was it….that was the entire point of my blog and somehow the conversation got bigger than that.  But at least you're willing to have an open dialog and I appreciate it. 

Joe: Not sure if you meant self-publishing or self-punishing, but if that's a Freudian slip it's a funny one. ;)

I understand that the media talks about authors like me and Hugh, but that's because industries have celebrities, and success is measured in unit sales and dollars. Though I don't have access to the actual data, I can agree that for every Hugh Howey there are probably ten thousand who have sold only 100 copies.

But for every Lee Child there are probably a hundred thousand who were completely rejected by publishers like Kensington. And you're the one who brought up Lee and Nora and Jim. How is hyping their successes any different than hyping me or Hugh?

The point, as I see it, is that huge success is difficult, no matter which route you take.

But what does that have to do with why authors should sign with Kensington?

Keep that question in mind, because I'm going to repeat it several times, and my blog readers and I will want an answer.

Steve: Some of the replies on the other site were just nasty and there were a lot of misrepresentation of information which I tried to correct.  I've also had many emails from current Kensington authors and some former authors, and a few of them have replied on The Passive Guy blog. 

Joe: I'll try to head off any nastiness here. Commenters are only allowed to insult me on my blog. If they start insulting guest posters, or each other, I kick them out.

I have no doubt you're sure Kensington is a great company, with honorable employees, and you all try your best. I believe you.

But I know Kensington authors who are unhappy. I know this from emails and from this blog and from the years I went to dozens of conferences and bellied up to the bar, talking shop.

I'd rate Kensington's value to authors at 4 out of 10. That's the same as the Big 5, but not as unfavorable as Harlequin (they're a 1 out of 10). 

Amazon Publishing is 7 out of 10. They were once an 8, but their contracts are becoming more legacy-like. Still, their terms and royalties are much better than industry standards.

Amazon KDP is 9 out of 10. The two things that prevent a perfect 10 are exclusivity with KDP Select and their refusal to publish in Epub format. I've been trying to get them to change for years, and cited many reasons they should. So far, no luck. But I keep trying.

As a 4 out of 10, Kensington is not only competing with the Big 5 and Harlequin for authors' attention, along with many smaller publishers, but you're also now competing Amazon. Authors no longer need agents. Some agents are assisting authors in self-publishing (like mine). They realize (rightly so) that they can earn 15% dealing with a publish like Kensington, or dealing with KDP. Either way, the author gets their book in front of readers, and someone else does all the heavy lifting (the aforementioned estributor).

Steve: Kensington is in this for the long haul.  We've been in business for 40 years and hopefully we'll be around 40 more.  My point in stating that we were the last remaining privately owned mass market publisher wasn't to infer that we're not players in the ebook market, because we are….a big player.  We are a top Kindle vendor which is pretty amazing for a company our size and by top; I'm estimating top 10…although of course Kindle would never disclose this information since they're so secretive about everything.

Joe: As opposed to Kensington being secretive about everything, such as contract terms, royalties, advances, and average author earnings?

You're more than welcome to share numbers here. People do it all the time. :)

Steve: My main point again is that obviously self-publishing has been a huge success for you, but that is not necessarily the case for all the other people who have self-published.  Unfortunately the people who are blogging on the site that I was on are probably the more successful self-published authors, although there were some that said they were just getting started.  You're really not going to hear much from the people who don't sell many copies.

Joe: You don't normally hear from legacy pubbed authors who don't sell a lot, either. Not many people trumpet failure. They tend to keep that private, like herpes.

Also, I don't find it unfortunate that the people on PG's blog are among the more successful self-pubbed authors. I find it refreshing. But I can see how could view them as a bit of a hostile audience. 

The thing is, a lot of authors have been badly hurt by the industry you're a part of. Their anger is justified, and it isn't every day that a big publishing exec drops in.

We both understand that some writers are huge success, and some do poorly. Let's move away from that point, because it isn't helpful. The majority of authors wind up somewhere in between billionaire and $50 a year.

Those are the ones looking to publish. Those are the ones who will chose between the traditional route and self-publishing.

And those authors have instant access to information about both legacy publishing and self-publishing. When they Google "self-publishing" they find me and Hugh, talking about how legacy publishers don't measure up, among many other pro-indie blogs..

Steve: Kensington too has many ebooks that only sell under 1000 copies.  And if we have that happening, it's happening with tens of thousands of self-published authors as well.

Joe: If you have ebooks selling under 1000 copies, be a stand-up guy and revert the rights back to the author.

Of course, if they're selling well in paper, you shouldn't do that. That's Kensington's big advantage over Amazon; paper sales.

But do you think your paper sales are enough to lure authors away from Amazon KDP?

On Passive Guy's blog you mentioned Kensington has $100,000,000 in sales, and annually sells 450 titles.

As a thought experiment, let's pretend those are all mass market paper sales.

That means the average theoretical Kensington author (at 8% royalties—are you 8% or 6%?) will sell 25,000 mass market copies and earn roughly $18k (450 titles at $8.99 each paperback).

These are very loose numbers, because they don't take ebooks into account, or backlist sales into account. I'm simply and roughly calculating that 8% of $100m in sales of 450 individual titles works out to $18k earned by the author per book.

$18k is hardly a living wage. And because Kensington has a standard non-compete clause (you said in PG's thread: "Generally we do not want our authors writing in the same exact genre as we are publishing on their own or with another publishing house. We want to control how the books are released to the readers.") it means they likely won't release more than one book per year.

So not only is the money mediocre, but Kensington is preventing the author from earning more by publishing more.

You also mentioned Kensington has 90 employees.

Steve, how many of your full time employees earn more than annually than the average Kensington author?

I'd guess a lot. And if I'm right, I see a big problem. Because Kensington needs authors, but authors don't need Kensington.

Don't you think authors will negatively view Kensington taking the majority of the profit for books they wrote? Authors don't care about your overhead. They aren't considering your salaries or benefits or rent or utilities or all the costs to bring a book to market.

They only know their writing grossed $100m annually, and they only earned $8m. If they sold $100m worth of ebooks, they could have earned between $35m and $70m.

How long do you really think that business model can sustain itself?

Steve: You asked about bestsellers.  I think the Top Kindle list is really not the way lists should be prepared.  As I've said numerous times, the lists should be based on revenue, not unit sales because there is an enormous difference when people are selling books at $.99 versus a publishing house selling them for $9.99 or more.  (I'm not saying you did this by the way, I have no idea)….but most of the books that climb the Kindle list from self-published authors are very low priced. 

Joe: Steve, you're the CEO and President of the largest mass market publisher in the USA. If you see that ebooks are selling at lower prices, shouldn't you lower your prices?

Unless you're worried that ebook sales will cannibalize your paper sales, which you don't want to happen because Kensington's greatest asset and advantage over Amazon is their ability to sell paper books.

In that case, I probably shouldn't be waiting by the phone for you to call about acquiring print-only rights to my thriller The List, huh? Because I sold 150,000 ebooks, you might be thinking there won't be anyone who wants it in paper.

Hmm. I guess I'll have to be content with only catering to 30% of the market.

Wait… that no longer makes sense, does it?

Steve: We've acquired many books that were previously self-published and when we do, the author always talks about their Kindle ranking.  We always have to ask what was the price point?  How long was it for sale at $ .99 and how long at a higher price.

Joe: So you're acquiring self-pubbed titles that sold well at a certain price point, and then you raise that price point?

Steve, what sense does that make? Shouldn't you be responding to what the market is telling you it wants?

Steve: I'm jumping all over the place here because it's hard for me to look at the blog you posted and I'm doing most of this from glancing back and forth at your blog…so I'm sorry. 

You mentioned there are over 150 authors who sold more than 100,000 ebooks.  This is an amazing achievement, but once again were they at $.99 or $9.99?  I can do the math and I understand that you get 70% of the revenue so you come out further ahead even by selling the books at a low price…but my point is that the top 100 list is very misleading because it's counting units and not dollars sold.  No one banks units.  They bank dollars.

Joe: Authors don't care how much their publisher banks. They care about how much they bank.

If a Kensington author is ranked #52,345 in Police Procedural, priced at $6.99, and sees I'm ranked at #30 priced at $3.99, what is the first thing that is going to pop into their head? Could it be: "Why the hell is my publisher charging so much?"

Let's go back to those 150 authors who sold over 100,000 copies on KDP.

At $0.99 per copy, they banked $35k.

At $3.99 a copy, they banked $270k.

How do those numbers compare to the average Kensington author?

But those were just the 150 biggies. Amazon didn't mention those who only sold 90k ebooks. Or 80k. Or 70k…

At $3.99 a copy, 40k units sold earn an author $108k per year.

At $2.99 a copy, 10k units sold earns an author $21k a year—still more than the fast and dirty $18k Kensington average I calculated.

A self-pubbed author only needs to sell ten thousand ebooks—only 834 copies a month—at three bucks a pop to make more than one of your average authors.

Doesn't that scare you? It should. That's just 1.14 ebooks per hour sold.

Steve: Yes, we are a mass market publisher but we also do trade and hardcover as well and it's tradepaper that is the fastest growing segment of the business in print…not mass.  Ebook accounts for 30% of our sales, which is typical for most larger publishers. 

Joe: Where are you getting your data, Steve? From your own company?

I'd guess that different publishers and genres have different print/ebook ratios than 70/30. And to confirm my suspicion I talked to an industry insider.

She mentioned a bestselling author who sells 95% ebook, only 5% print. Others are 50/50. She mentioned a few mass market bestsellers where print outsold ebooks, but that seemed like the exception, not the rule.

Kensington may indeed be 70/30. But I wouldn't expect it to stay that way if I were you.

Steve: Although you made a million dollars, we have authors and other large publishers have authors, that are making more than that in advances alone.  That is not to disparage your accomplishments because they are amazing.  But there are many big authors who make a lot more than that.  I'm sure you saw the NYT article the other day about the deal that Sylvia Day signed for two books for an eight figure advance. 

Joe: How does that matter unless you're offering authors (or me) an eight figure advance?

Very few writers are going to get rich, let alone filthy rich. Many won't make peanuts. Somewhere in between are the rest of us.

Why should we sign with Kensington?

If you really expect to be in business another 40 years, you need to answer that question.

Steve: In terms of your questions about royalties, I mentioned that on our digital lines we pay royalties quarterly.  The reason we don't do it more often is because it's very time consuming.  Remember we're not doing one author, we're doing hundreds of them.  We're not dealing with one vendor, Kindle…..we're importing data probably in 15 different formats from 15 different ebook retailers.  It takes time to import the data, verify it and report it.  We don't do printed royalties more often because there are well over 1500 books that we're probably paying royalties on in any given royalty period.  Every one of those royalty statements has to be verified and because printed books are returnable, we have to look at the reserve for returns on each and every title to make sure we're paying the author the correct amount.

Joe: Steve, Amazon has tens of thousands of authors on KDP. And they pay monthly.

You expect sympathy from authors because you're a publisher? Paying royalties is one of the things that publishers are required to do. For authors, it may be the single most important thing.

Amazon understands that.

Steve: Your statement that you're matching Amazon's low prices without any harm isn't really an appropriate comparison in my opinion to them selling big author's books at a huge loss to them.  When you lower the price, you're not losing money on each sale.  You're only making less.  When Amazon actually cuts the price below their cost, they are losing large amounts of money on each sale and the other companies like B&N, OverDrive, Kobo, don't have the bank roll that Amazon has from its shareholders to absorb this loss. 

Joe: What exactly are you complaining about?

I'd kill to sell ebooks to Amazon for $12 , which they sell to readers for $5 while paying me the full $12. That sounds like a recipe for printing money. I'd be whistling zipideedoodaa all day long.

You do realize that is your complaint, right? The Marx Brothers used to do that. For fun, they would go out into the street and sell $5 bills for $1. Invariably, a policeman would come by and try to figure out how to arrest them, because he was sure it was a scam, even though they were losing $4 each transaction. There had to be a trick. Why else would they do it?

Steve: This is why I'm saying it's predatory pricing.  They are purely trying to drive the competition out of business and capture market share.  Once again, it's totally different than you just lowering your price and making less money on that sale.  Amazon is not losing money on your lower priced sale.

Joe: Actually, it's called competing. And capitalism allows companies to compete. That's kinda the point of capitalism.

That's why the Agency Model sucked. I was ahead of everyone on that, including the DOJ. But they caught up eventually.

My point: consumers benefit from lower prices, and authors and publishers are still paid on the wholesale price—which publishers set.

Wholesalers shouldn't be allowed to set retail prices. No business does this.

Well, except for books and magazines, which have the price printed on them.  Can you name five other products with prices printed on them?  Can you name one?

What's the reason for this, do you think?

As for predatory pricing, you may have a point. Once digital music downloads became the rage, iTunes lured more people to their platform by selling individual songs for $0.99 to $1.29 and entire albums for $9.99, and paying artists 70% royalties. But once Apple gained a huge market share and began to dominate the industry, they raised prices to $5 a song and slashed royalties to 25%.

Oh… wait. The royalties and prices haven't changed.

Nevermind.

Steve: BTW, I give Amazon tremendous credit for what they’ve accomplished.  It’s an amazing success story and I’m a huge buyer from Amazon.  I buy books from many online retailers as well.  I own Kindles, iPads, Nooks but frankly, I still prefer to hold a book in my hands.  I don’t think it’s an age thing with me, it might be because my background is in printing.  I’m much more a techie than most people.

Joe: Steve, isn't it a teensy weensy bit hypocritical to have Kensington's entire catalog available on Amazon, and to be a "huge" Amazon buyer, and then treat them like they're the enemy?

As for holding a paper book, I debunked that one years ago.

Please follow my links and read them. It will save us both a lot of time in the long run, and will save me from repeating myself if we're both equally informed.

Steve: Talking about cover art….I mentioned that we paid large sums of money for cover art.  This is done for the print books because it's the cover that catches the consumer’s eye on racks and racks of books. Studies show you only have about six seconds to catch a buyers eye in a retail store.  We have a much larger space to design for when doing print books than we have with ebooks, so the art has to be catchier.  We do foiling and embossing and spend a lot of time and money on designing covers.  Ebooks are different.  When it comes to showing the book cover online, you're primarily dealing with a postage stamp area until the potential buyer clicks on a link to see more information about the book.  Artwork also shows up very differently online than it does under lights on a shelf.

Joe: I'm sure I could get my cover artist together with your cover artists to discuss the nuances of vectors and the rule of six and the variance in hue under incandescent vs. florescent, but all that would likely do is make my cover artist overcharge me like you're being overcharged.

I realize the difference between a postage sized jpg (you forgot to mention it also needs to look good in greyscale) vs. a full paper cover that is foiled and embossed, but $6k is too much to pay.

My point: the cover artist shouldn't be paid more than the author. For some reason, that just seems wrong to me. And with Kensington giving out advances under $6k, that's bound to irritate some people.

Know what else seems wrong to me? The publisher netting more than the author. Unless the publisher put in a few hundred man hours on a manuscript like the author did, I feel the author should make the lion's share of the profit.

You know who else feels that way? Amazon.

Steve: In terms of our new digital acquisition, Lyrical Press; that we just announced two weeks ago, I gave some of the terms of the contract.  We are paying quarterly royalty payments and we pay 40% of net receipts.  I imagine that most of these authors will be newer authors and we will not be paying advances, but there will definitely be some that will get an advance based on prior successful performance. 

Joe: I suggest you poll your authors, asking them if they'd prefer an advance or double the royalties.

I bet most of them take the double royalties. If they don't, send them my way and I'll explain why double royalties are much better.

There's a whole generation of authors coming up who don't care about advances. They care about percentages.

Please explain what 40% of net is. What are you selling these ebooks to Amazon for wholesale, and how much does the author earn for each one sold?

Steve: The reason I acquired Lyrical is for the expertise they had in working in a digital world.  It differs dramatically operationally from the way we work as traditional publishers.  Manuscripts are all submitted electronically and editors review the manuscripts online and comment to each other.  They then decide if it’s a book we’d like to acquire.  All the editing is done online and we have a dedicated group of editors that will just focus on this line.

Joe: Amazon does this too. When they sent me a Word doc with track changes, I almost crapped my pants. I called them and said, "You realize you're the only one in the industry doing this, right?"

It was 2009. It's good that the rest of the industry is catching up.

Steve: Off the top of my head I don't know if we've done any print only deals but I am shocked that with your success that a publisher hasn't wanted to publish you in print, unless you've set your expectations much higher than makes sense for a traditional publishing arrangement. 

Joe: Publishers tend to dislike me. Dunno why. I always thought I was rather loveable. Like a fat, loudmouth Muppet, who drinks.

Again, feel free to contact my agent Jane Dystel concerning my backlist. I don't expect a large advance, or outlandish royalty terms. But I need to keep ebook rights and foreign rights, and there has to be a clear reversion clause.

If you want my print-only rights, you could have them for cheap. 

I'll go back to waiting by my phone for your reply.

Steve: I don't see why for the right level of advance a publisher wouldn't offer you a print only deal.  Publishers are in business to make money and if a deal makes sense there’s no reason not to offer just a print deal. 

Joe: That's what I'm saying!

But, alas, I've probably burned too many bridges in the publishing world. It's my lot in life. I try to help authors, and the industry shuns me. I'm a pariah. A leper. A million sales, and all I have to show for it is a lot of money and a smile I can't get rid of.

It's not easy, being me.

Steve: The comment about a publisher canceling a book after the first book…I don't know how often that has happened with most publishers but it's not very common and I know our contracts would require us to pay the full advance if we were ever to do such a thing…and then the rights would revert to the author immediately.

Joe: I'd need to double-check, but I'm pretty sure Kensington has the right to refuse a manuscript if the editor says it is unpublishable. But I don't doubt your sincerity, and I can accept that your company is not nefarious in this area.

Steve: To sum it all up, I know I've skipped over sections here because it was hard to keep going back and forth looking at the article.  I probably should have done it in Word and replied in each section separately.  Maybe we can break the discussion up into separate sections and continue our conversation in different areas.

We are in this for the long haul.  I'm a huge believer in ebooks and that's why we've been expanding our infrastructure in this area.  It's gone from me handling ebooks myself in 2005 to a staff of six people now. They handle metadata, sales, publicity and marketing…and it's expanding by a couple of more people in the next couple of months.  I agree with you that ebooks are obviously the trend on the rise for the future.  There's less and less shelf space available for books.  But at the same time ebook display space is going to get more and more crowded and it's going to be harder and harder to separate one ebook from the rest of the bunch.  Algorithms on what you've bought before will only get you so far. Sharply discounted prices will only get you so far when everybody is doing it.

Joe: When people say things about the new changes in the industry being hard, I like to remind them about how things used to be.

Wasn't it always hard to separate one book from the next? Wasn't there always limited shelf space? Weren't all publishers always doing what everybody else was doing?

This is always been a tough biz, with more failures than successes. Ebooks are more of the same.

Steve: Publishers have far more marketing opportunities available to them to get their books showing on the web pages of these retailers than any single author, just because of the volume of the books that the publishing company offers these companies.  A successful ebook publisher might be making $10,000, $100,000 or even $1,000,000 from Kindle…but Kindle is making many many times that amount from publishing firms.  They offer promotional opportunities to publishing houses that the self-published author just doesn't have.  They allow publishing companies to meet with their editors to pitch the new and important books for a season.

Joe: How about instead of paying Amazon for promo spots, you just lower your ebook prices? You can take the money you saved and give authors better royalties.

Steve: Joe, your success and the 150 other people you mentioned that made $100,000 is truly amazing and kudos to all of you.  But you guys are the anomaly still.  This is not the reality of self-publishing yet.  None of us knows how many tens of thousands or hundreds of thousands self-published titles there are that aren't selling at all.

Joe: And no one knows how many are selling.

But I can guess. I can estimate that tens of millions of ebooks are being sold by self-pubbed authors, and the publishing world is completely oblivious.

While the majority of self-pubbed writers may not make a lot of money, the majority of legacy writers don't make a lot, either. But self-pub allows authors to bring their books to market much faster, get better royalties, a guarantee of publication, and control.

That should be enough to frighten the industry a whole lot.

Steve: Thanks for the opportunity to meet you here online.  I’ve of course heard about your success but I’ve never read any of your books…but I will definitely order one now.  I congratulate you immensely on your success and thank you again for giving me the opportunity to give my two cents.  As I've said, Kensington is in this for the long haul and converting self-published authors to Kensington is obviously going to be an important goal for us going forward.  That's why I want to learn as much about this end of the business as possible.  That's why I ordered The Naked Truth About Publishing when I saw it mentioned in The Passive Guy blog. 

Joe: Thanks for ordering the book. All proceeds go to me living even more lavishly than I already do.

I haven't read Naked Truth, but I recommend Be the Monkey by me and Eisler, and the blogs of David Gaughran, Kris Rusch, Bob Mayer, and DeanWesley Smith.

Steve: One more item…sorry…I didn't do the survey that Writer's Digest was talking about…I only stated what they said.  So for people to attack me about that is really not justified. 

Joe: Steve, it's dangerous to quote stats when you aren't sure of the source. On the Internet, that's cause enough for attack. 

Steve: I've read some of the responses to your blog already.  I've ready every comment on The Passive Guy in response to my comments and people have emailed me privately.  One of the authors who had an issue with reversions emailed me and I'm looking in to the issue.  If people want to have an open discussion, I'm probably the most accessible CEO of a publishing company of any size although Dominique Raccah from Sourcebooks is everywhere I look J  I welcome the discussion and enjoy it as long as people don't make blatant misrepresentations and sweeping generalizations that trashes all traditional publishing or Kensington.   There's no need for that. 

Joe: I concur. No trash talk in the comments, people. If anyone acts like a jerk, I'll warn you, then delete you, then ban you. Play nice.

Steve: Your comments were professional as I thought they would be and I appreciate that.  I take unfair personal attacks about me, our employees or my Company very personally.  Kensington is a family run business, now in it’s third generation with my son working with me.  As I mentioned we probably have close to 25 or so people that have been with us over 20 years.  That’s an amazing feat and shows that we are a good company to work for.  That doesn’t mean that there aren’t areas that we should improve upon. 

Joe: Thanks for the responses and your time, Steve, and I hope you stick around to answer more questions.

And congrats on 40 years and three generations, and to have such a loyal staff.

Steve: Thanks again.  BTW, I know I rambled all over the place here but I have no idea how to make this comment box bigger so that I can re-read what I've already written…

Joe: Here's all of my questions condensed in one section. Many are about numbers and data, which you seem reluctant to offer. But for authors to make informed decisions about which paths to pursue, they need facts and transparency.

If you don't want to answer, that's fine. I'm sure some Kensington authors will chime in anonymously to answer.

UPDATE #2

Steve again replied in an email to my questions below. I'm extremely impressed by this, and again thank Steve for his time and thoughts.

Steve: Joe, thanks again for the opportunity to reply and have this dialog. I’m replying to your questions all condensed at the end.  These posts get so long that we can go in so many directions but I’ll try to respond directly to your questions.

Joe: Is Kensington at all concerned about the amount of authors self-publishing? Why or why not?

Steve: I think any company should be concerned about the amount of authors self-publishing that are successful enough for us to have wanted to publish them traditionally.  We’d be idiots not to be and I can assure you larger publishers are not idiots.

Joe: How does Kensington plan to keep authors as ebooks become the preferred way to read?

Steve: If eBooks continue to grow, as I hope they will, it definitely has a major impact on the existing publishing model.  The only reason to date that advances for authors have stayed at the level where they are is because publishers were making money from ebook sales on their books while print sales were declining. The rate of decline in print sales has slowed down but there is still less and less print space available to sell physical books.  But at the same time, websites are more crowded than ever and the authors have to find ways to break themselves out from the crowd or they never will be discovered.  If everyone is using discount to sell books, no one stands out.  This is a problem for us all to find an answer to.  There have been many articles I’ve read that state that ereader device sales have slowed tremendously.  Those that want one, already have one….so we’ll have to wait and see if sales definitely continue advancing in ebooks.  There has been a tremendous leveling off in ebook sales that I’ve seen on our ebooks.

I don’t think we have done many print only contracts so far.  So if an author wants to come to Kensington we generally are going to want p and e books.  We’ll have to see if we change our policy on this.  But if we’re only getting p rights, publishers can’t continue to offer the upfront money that authors are currently getting and many of the authors, especially the larger ones, want that.  For us to want to compete with indie authors we have to find a way to make our story compelling to you.  This would include have top-notch marketing support for your books and being able to get them into promotions that an indie author wouldn’t normally be able to get into, as I’ve discussed earlier.

Joe: Are Kensington's mass market royalties 8% or 6%? What are Kensington's ebook royalty rates (as opposed to Lyrical's 40%)?

Steve: Kensington’s mass market royalties have been 8% for a long time.  There are authors that have splits as well and some that are higher.  Generally the bigger the author, the bigger the royalty rate obviously.
Kensington’s normal ebook rates on books that we are publishing in print and ebook are generally 25% of net receipts, like all of the other major publishing houses. There are also exceptions to this.  Keep in mind that we haven’t lowered our advances so the ebook sales have balanced the declining print sales which have enabled advances to remain steady.  We also have higher royalty rates in our eKensington (digital) line for many authors with successful past track records.  We’ve also paid advances on eBooks where we feel an author’s previous history would warrant one.

Joe: What is the average advance for a Kensington author? If we remove the Top 10 highest paid Kensington authors, what is the average advance of the rest? What percentage of Kensington authors earn out their advance? What does the average Kensington author make annually?

Steve: I have no idea what our average advance is for a Kensington author.  We have many first time writers that obviously have smaller advances and then we have many that have six figure advances and more. Once again if you remove the top 10 authors, I don’t have any idea what the average advance is.  I’ve never looked at advances that way.  We make an offer for a book to an agent or author and they either accept it or reject it, or we negotiate further.  We do deal with authors that aren’t represented by agents.  In terms of what percentage earn out the advance, I don’t think I’d have this information readily available in any easy to find source.  We obviously want as many to earn out as possible but the bigger the advance, the less likelihood there is a chance that they will earn out.  Of course just because an advance doesn’t earn out doesn’t mean that the publisher isn’t making money though.  Just as a gut feeling, I would think that most advances under $35,000 will earn out….then as you start working your way up, it really depends on that individual author.  No hard and fast rule.  I also don’t know what the average Kensington author makes.  I will try to find answers to some of these questions though.  It’s hard to extract this information when you have to deal with reserves for returns on printed books.

Joe: What does the average Kensington employee make annually?

Steve: In terms of Kensington employees, I’m not going to discuss average salaries in an open forum.  It would be bound to start a fury in the office for those who are below the average.  We pay our employees competitive wages and benefits otherwise they wouldn’t be working for us and we wouldn’t have such a low turnover rate.  We’ve had profit sharing several times over the past five years as well.

Joe: How many eKensington and Lyrical authors have you published? How many of these ebook-only deals have you gone on to publish in print? If you don't want to give specific numbers what is the percentage?

Steve: We only started eKensington in 2012 I believe so we only published about 35 e-only titles.  We didn’t do any of those that I know of yet in print.  They were all made available in POD at Amazon and Lightning however.  In 2013 we will be doing closer to 100 titles and the program is growing rapidly.  I don’t know that there are any plans for these to be in print yet because we’ll wait to see how they perform first in e only.  I know there are some novellas that will be combined into other collections however and will be released in trade.  Our ebook only line has not been out long enough yet to have books turned into print with the exception of possibly a very select handful of authors which we’re examining right now.

Lyrical was just acquired two weeks ago so we haven’t released any titles yet but we will be picking up about 250 titles from the backlist and reissuing them as new contracts are signed with these authors.  We are getting a very large number of submissions for the imprint since we announced are acquisitions including some from the people on your blog and The Passive Voice.  Lyrical will take a while to get ramped up to full speed with new acquisitions so this will be a building exercise.

Joe: Do you still believe segregating self-pubbed ebooks on retailers websites is the way to go?

Steve: The comment about segregating self-pubbed ebooks on retailer websites was sort of tongue-in-cheek….I said in MY perfect world they would be segregated to give publisher’s books greater visibility.  I do think that there is a market for an ebook retailer that just sells low priced ebooks….just like there are stores like The Dollar Store and others that have very low price points for all merchandise.  I’m not saying it should be $ .99 ….maybe its books for less than $3.99….I don’t know.

Joe: Do you understand why authors find non-compete clauses unfair?

Steve: Yes I understand why authors would feel a non-compete clause would be unfair but with traditional publishing we have to look after the investment, which can be very large at times, in an author and we have to protect that investment.  We can’t have an author writing the same genre for another publishing house and coming out at the same time as our books.  We have to be able to work with the author to make sure we’re both doing everything we can to maximize the sales of their book.  We publish many authors where we might do contemporary romances and another publisher might be doing historical romances.  This is very common.  I’m sure we have authors that we’re publishing now that are also continuing to do their own indie titles, perhaps in a different genre though.

Joe: What does Kensington sell ebooks to Amazon for, and how much does a Kensington author earn on an ebook sold on Amazon?

Steve: Kensington wholesale ebook terms are exactly the same for all ebook retailers.  It’s a 50% discount off the digital list price.  No matter what the retailer sells the book for, they have to pay the full amount to us unless it’s a discounted promotion that we sponsored where we lowered the price point for a short period of time.  All the players are on the same playing field.  As I had mentioned earlier there are many many times that some ebook retailers will sell way below the cost of the books and eat that loss to gain market share and get you locked up on using their device because you’ve made an investment in books for a specific device. And yes I know you can read books on tablets in a Kindle or Nook browser.  The author will make the specified percentage of what we receive from the ebook retailer.  No fees are deducted from the receipts. Apple is on an agency model and our digital list prices are the same across all ebook retailers.  Being on the wholesale model allows the retailer to discount the books and promote them more, thus increasing sales hopefully.

Joe: You stated there is nothing in a Kensington contract that an author can't discuss publicly, so why the reluctance in talking contract terms? Agents and your competitors certainly know your terms. The only ones that don't are authors considering submitting to Kensington. Wouldn't it be helpful for them to know these terms?

Steve: I’ve given you the broad outline of our terms.  And as I said earlier if someone submits to us and we want to make an offer for the book, the author will certainly learn our terms.  They’re not forced to accept a deal and they can negotiate certain points with us.

Joe: And finally, why should an author sign with Kensington rather than self-publish?

Steve: The last question is the big one…..why would a self-published author want to sign with Kensington rather than self-publish.  In my opinion, I’ve said over and over that the 150 people that you mentioned selling more than 100,000 books annually (I’m hoping that’s right and it wasn’t $100,000 annually), are definitely in the very small minority of self-published authors.  I don’t know what evidence or data there is to show how many other authors are selling 500 copies, 1000 copies or 50,000 copies.  Bookscan allows us to see what an author is truly selling at point of sale on a uniform basis.  Unfortunately Bookscan isn’t available for ebooks yet because that may be an eye opening experience for everybody to see…..providing that Kindle would ever even consider sharing that data.  Amazon is very secretive about sharing sales information.  For that matter so are most of the ebook retailers.  But Amazon is very quiet about it just like they are quiet about showing their profitability by channels of their business.  You don’t know where any money is being made from Amazon….is it coming from books, distribution of other product, their web services division, diapers.com, zappos……who knows?

We have to make our marketing our strength to attract indie authors that we want to publish with Kensington.  We don’t want to publish all of them.  We want those that have been growing and are successful at selling a respectable level of ebooks.  We don’t want to convince an indie author who is only selling 250 copies of their book to come to Kensington unless the story is just so overwhelmingly fantastic that we think it should go into print immediately and that the writer is an undiscovered talent.

I hope I’ve answered all of your questions.  I’ve gotten a lot of personal comments from readers on your site as well as The Passive Voice thanking me for my opinion and for being brave and sticking in the room with all of you.  I see an open dialog leading only to positive results for all of us.

Joe sez: Again, big thanks to Steve for not only continuing this dialog, but for checking the comments and answering questions. I notice that Kensington has already made some converts here, so in terms of being a good will ambassador, you've done admirably. Especially since the blog is considered waaaaaay behind enemy lines.

I also thank you for your respectful tone and seemingly eagerness to learn.

See, Big NY Publishing People? You can respond here and be treated with respect. I'm not a raging lunatic bent on revenge. I simply want the industry to realize that authors are being screwed, and that you better shape up because they no longer need you.

I'd like to respond to some of the things Steve said in this last bit, and as always, Steve is welcome to reply again via email or in the comments. I believe we might have reached the limit of what Steve is willing to divulge, and I also have noticed some repetition of ideas and themes that indicate some of my comments aren't sinking in yet. But this is a pretty good start, and if Steve is truly paying attention and understanding the breadth of what I'm saying, I can't see any choice for Kensington but to change certain policies, or start losing money.

Steve: I can assure you larger publishers are not idiots.  

Joe: Many are either idiots, or evil. The collusion, unconscionable contract terms, and poor way authors are treated either shows an ignorance of how to treat people and run a business or a deep-seated belief of superiority (which can easily be called evil.)

Steve: If everyone is using discount to sell books, no one stands out. 

Joe: All paper books are priced the same, or very close. The difference between paper and ebooks is that indies quickly learned that discounting is what customers wanted. It wasn't so much "standing out" as "remember the $9.99 Kindle boycott." In a nutshell: ebooks cost less to produce, customers know this, customers want to pay less. And the old meme by publishers that "ebooks cost as much as print" is patently bullshit. (Every time a hardcover sale is replaced by an e-book sale, the publisher makes $2.20 more per copy and the author makes $1.58 less. Barry Eisler, perhaps non-coincidentally, also brought this figure up in his terrific response to literary agent Richard Gottlieb. Go read it. Trust me. It's brilliant.)

The book market has always been competitive, but it has never been forced to compete on price like, well, every other industry. I've made the point, various times, that if all ebooks were under $4.99, there would be widespread growth. Readers have fixed budgets, and many readers are voracious. They'll binge on lower prices. If all major publishers lowered their prices, it wouldn't mean indies had more competition. It would mean readers had more money to spend.

Steve: There have been many articles I’ve read that state that ereader device sales have slowed tremendously.

Joe: Read this one. Kindle sales higher than ever in 2013 holiday season.

Steve: For us to want to compete with indie authors we have to find a way to make our story compelling to you.  This would include have top-notch marketing support for your books and being able to get them into promotions that an indie author wouldn’t normally be able to get into, as I’ve discussed earlier.

Joe: Ebooks aren't zero sum, so there isn't really competition for sales. Only for visibility. 

I'm aware that publishers can do Amazon promos that most authors can't. I really can't say anymore without breaking my word to keep mum, but I'll ask: What if Amazon allowed authors access to the same promotional opportunities that publishers have? How would that change things?

Steve: I’ve never looked at advances that way.  We make an offer for a book to an agent or author and they either accept it or reject it, or we negotiate further.

Joe: Earlier I mentioned that there is a new generation of writers who care more about royalty percentages than advances.

But here's the thing about advances: theoretically, the larger the advance, the more the publisher must do to protect that investment. So getting a ton of money will automatically mean getting a ton of advertising and promotion, which increases the likelihood of success. I imagine a $2500 advance would get a quarter page in the catalog, a press release (worthless), review galleys to all the usual suspect, and perhaps some giveaways at BEA. That won't increase awareness for a title like full page NYT print ads, or a big tour, or getting the author on NPR.

Obviously you're going to pay proven performers more than untested newbies. But this road leads to 8 figure advances and ultimately bankruptcy when paper becomes a subsidiary right. (I predicted that in 2010).

Why not make advances equal for all Kensington authors, and then offer exceptional contract terms to those big shot bestsellers? It will even the playing field, give Kensington more and immediate liquidity to increase promo for all titles, and above all be more equitable to the majority of Kensington authors.

For example, like most bestselling authors, I don't need a huge advance because I already have money. But you can have print-only rights to my ebook The List (150,000 ebooks sold) for ZERO advance. All I ask in return is 10% mass market royalties instead of 8%.

Is that something you'd consider? If so, contact my agent, Jane Dystel. Remember, if ebooks are only 30% of the market, The List should sell 500,000 paperbacks. 

I'll be here waiting by the phone.

Steve: We only started eKensington in 2012 I believe so we only published about 35 e-only titles.  We didn’t do any of those that I know of yet in print.  They were all made available in POD at Amazon and Lightning however.  

Joe: Ouch. So "e-only" apparently is more of a guideline than a rule, since you're making them available in print via POD.

I can see how this still fits in with the farm team mentality, but this is exactly what an author can do on their own (or with an estributor) for sunk costs (or a small royalty fee) and they get to keep the rights. I'm assuming Kensington has the rights to these books.

To me this seems less like a baseball farm team and more like a dairy farm, where cows are being poorly fed and over-milked.

So none of these 35 authors have gotten into Costco as far as you know, but they're making far less royalties than they could on their own, plus they lost their rights and their ability to control prices. 

How is Kensington benefiting these authors? Have any of them hit the Kindle Top 100? Can you see how, when I explain it in these terms, it seems less like publishing and more like exploitation?

Steve: We can’t have an author writing the same genre for another publishing house and coming out at the same time as our books.

Joe: Why not?

I have a rule I abide by: I don't do anything that doesn't work on me. For example, I've never given out bookmarks at conventions, because I've gotten dozens of booksmarks from authors and never bought their book because of it. So I assume if it doesn't work on my, it won't work on others.

Conversely, I do try things that do work on me.

When I read a book I love, I immediately try to find more work by that author. I'm pretty sure I'm not alone in this sentiment. In fact, I'd say it's probably a normal reaction.

I get daily emails from readers asking me when my next book is coming out--and I have 60 titles available. They've read them all, and want more.

Readers want more. A non-compete prevents them from getting more. The clause is archaic and unfair and you should kill it unilaterally. Hint: Amazon has.

Steve: Kensington wholesale ebook terms are exactly the same for all ebook retailers.  It’s a 50% discount off the digital list price.

Joe: So on a digital list price of $4.99, a Kensington author earns $0.63 (25% royalty rate off $2.50). Whereas a self-pubbed author earns $3.50 on a $4.99 ebook.

Steve, for the love of all that is good, how do you expect authors to keep accepting that? I ask again, is your future business model based to the belief that authors don't know any better?

Steve: And as I said earlier if someone submits to us and we want to make an offer for the book, the author will certainly learn our terms.

Joe: I understand the dodge, because you mentioned earlier that terms can change depending on the contract. But when authors are trying to make informed decisions, seeing a boilerplate would help them do so.

As to my point blank question "Why should authors sign with Kensington?" I'm rereading your answer an not finding any real answer.

We already know that an author shouldn't expect huge success like me or Hugh Howey, or insane success like Lee Child or Nora Roberts, so mentioning that no one knows how many self-pubbed authors are doing well isn't a convincing argument. It's like saying, "Bestselling self-pubbers are anomalies, and the rest of self-pubbers are probably selling a whole lot less, so you should sign with Kensington."

But you haven't mentioned how many copies an average book sells, or how much an average Kensington author earns annually.

You said you have to make marketing your strength, but have provided no examples of how you market, or more importantly, how marketing led to a Kensington success where the author made a lot of money.

I appreciate this open dialog, but I get the impression that some of the things you left unsaid might be more important than some of the things you have.

Take a long look at this blog post, and the questions and scenarios I've posed, and the way I've deflected your points and continued to bring up points you've seemingly dodged. 

The future of your company is very much at stake. Amazon KDP is open to all authors. They offer 70% royalties. Companies like BookBub, Kindle Nation Daily, Pixel of Ink, Ebookbooster, and BookBlast can assist authors in making their self-pubbed ebook visible. And Amazon does a great job of helping customers find content. 

Kensington's strength is paper distribution. That's what informed authors submitting to you want.

But that strength won't be a strength much longer, as ebook sales overtake paper. Then where will you be?

Thanks again for stopping by, Steve. And for my readers--keep the comments respectful and to the point.

UPDATE #3

Steve: One more time with the replies….then I really have to do some work. ;)

Ok so I can’t say for sure that most publishers aren’t idiots….I can just assure you that I’m not.
Paperback books are indeed all the same price, or similarly priced and then accounts do discount them; at least some of them do…but they are discounted so the retailers still makes money.  I don’t think I’ve ever seen anybody discount a printed book below cost other than Amazon.  And even though all print books are similarly priced, we have different ways to distinguish books in a physical market.  Cover design, foil and embossing, etc…  minor differences admittedly but still differences.  You also have a lot less competition on the shelves in WalMart for example versus the online world.  And in the clubs, they actually take very few books, generally only books that have big potential since they work on extremely thin margins. 

I agree with you 100% that ebooks cost hardly anything to produce in comparison to printed books.  Of course you have art, formatting, etc….. but in the ebook world these charges are much less.  There is obviously no manufacturing.  We do have other costs that we don’t have with print books though.  We have a digital warehouse, in our case it’s LibreDigital, who stores our files and sends them out to all of the retailers….this is not inexpensive.  We also have anti-piracy companies that troll the internet looking for illegal copies of our books.  BTW are KDP books DRM free out of curiosity? 

Joe: I've never seen a satisfactory study that piracy hurts ebook sales, Steve. I've blogged about piracy at length, and encourage file sharing of my ebooks. Customers hate DRM. Why would I intentionally irritate my fans?

Ditch those anti-piracy companies and DRM and follow Tor's example. Then use that money to give your authors better royalties. ;)

Steve: In the situation where we’re not talking about an advance being given, an ebook royalty should definitely be considerably higher than a print royalty.  This is why for Lyrical Press it’s 40% of net receipts versus a standard of 8% of list price on a printed book. 

Some stats were talked about at DBW last week that said people are buying a lot of ebooks but aren’t reading them…..they can be stock piling.  We can see this type of information from subscription services like Scribd….they provide how long it takes a person to read a book and if they indeed finish the book.  The results were truly staggering.  When I see printed books on sale I buy them and the to be read pile is growing rapidly.  If I wasn’t blogging I could read. :)

Joe: I've known about bingeing since 2010. I called it the buffet mentality. Our to-be-read piles are getting bigger in a digital world.

This is a good thing. It means a market can grow even if there are no new customers.

Steve: Regarding how ereader growth has slowed down….the link you gave me says that Amazon will not release how many Kindles were sold.  And frankly I don’t give full faith in all the promotional hype that comes out of Amazon anyhow.

How many Kindles, exactly? We still have no idea since Amazon refuses to share any actual numbers.

But speaking of tablets, Amazon says that more than half of its customers shopped using a mobile device this holiday season.

Joe: I don't find that Amazon does much promotional hype. I find them to be cagey with information. It may be me, but I find Apple tries to stay in the spotlight, while Amazon is content keeping to itself. They don't even usually respond to widespread public criticism.

I suppose they could be lying, as part of some grand self-fulfilling prophecy where if they say they sold millions of Kindles, eventually they will.

But then I just was on a plane and saw four people with Kindles. So I'd guess they're selling pretty well.

Steve: I agree there is competition for visibility which is getting harder and harder.  Services that promote low priced ebooks by sending out emails are wonderful, and we use them all the time.  But for the first time ever, I’ve seen some diminishing success in our results just last month.

Joe: I continue to see strong results. But we both know that if marketing always worked, every book would be a huge hit.

Steve: If Amazon offered the same promotional opportunities to writers as they do to publishers it would kill the additional revenue they would make from publishers.  They value the hundreds of millions of dollars in revenue they make from publishers so I don’t see this happening but it’s an interesting hypothetical question.  It would certainly change the dynamics dramatically.  But opportunities that the biggest houses have like pitching your books to the Amazon editors will never be offered en masse to indie authors. 

Joe: I cannot confirm nor deny any of this, and have nothing I'm able to offer. It was entirely hypothetical.

Though en masse is an interesting word choice. I mean, offering promotion opportunities en masse makes no sense. If Amazon hypothetically were to offer authors promotional opportunities, I'd imagine it would only be to bestselling authors. 

Hypothetically.

Steve: Yes you are absolutely 100% correct that the bigger the advance for the author the more promotional funds will be spent on that author.  It only makes sense, like you say.  We have to earn a return on our advance and make sure the book sells. 

I don’t think we’d have many happy authors if we made all the advances the same.  I think you’d be hard pressed to find any traditionally published authors that would like that, especially if they’re earning anything substantial in the upfront money.  I don’t think it’s up to the publisher to level the playing field for all of their authors.  Some we pay big money to acquire from other publishers.  Others we invest a lot of money over a period of time and watch the author’s sales continue to build.  We want to keep building the authors that we’ve seen that are working.  Certainly not all books sell well at all.   There are many that are bombs and you just hope you didn’t spend a big advance on that author when that happens.  Then there’s the opposite as well.  You can pay almost nothing for an advance and then sell an enormous amount of copies.  (BTW, I like that scenario).

Joe you are a true anomaly.  To say you wouldn’t want an advance because you already have money is unheard of in this business.  We publish many big authors and I’ve never had one of them tell me that they’ll skip their advance for a higher royalty rate.  We have done deals with a few big authors a handful of times where we split profits 50/50.  But I have to say in all fairness, that these generally have not had the greatest outcome. 

Joe: I've heard Stephen King does that. I'd do it in a heartbeat. Or I'd take 10% mass market royalties on print-only with zero advance, as I mentioned.

I may indeed be an anomaly, but how will you know for sure until you start offering these terms to authors?

Steve: The overall ebook market is 30% of publishing revenue.  Not every title is going to be the same.  So there is certainly no guarantee, and it’s highly unlikely that The List would sell 500,000 copies.  First of all the book was release several years ago I believe.  So many people that would have bought it have done so already.  And if it came out earlier in e, as this did…..and the readers were able to buy it at a much lower price than it would be in print, the sales wouldn’t be nearly as high as if they had come out at the same time.  I mentioned in a reply that I looked up print sales on Bookscan of some big indie authors and the print numbers although good, were not anywhere nearly as high as the ebook edition.  I’m sure this was because of the late release of the print book.  The real test would be to let a publisher publish your book in print at the same time you release it yourself but the publisher can’t be trying to sell the printed book for $10.00 (using a low trade price since there’s no advance) against a price of $1.99 for the ebook.  There needs to be some sort of parity which is what the Agency model tried to do.  The ebook price had to be set with a specified correlation with the printed book otherwise the ebook retailers wouldn’t sell the ebook.

Joe: Here's an interesting fact about The List. It has been in the Kindle Top 100 on four different occasions, spanning four years.

The "too many people have already read it" meme makes no sense. Right now Salem's Lot is #17 in Top 100 Horror on Amazon. King wrote it in 1975. Surely everyone would have bought it by now?

Now you know the paper market better than I do, so if you see parity between ebook sales and paper sales, I believe you. But I'd guess your average shopper browsing for a paperback thriller in WalMart or the check-out line in CVS doesn't have a Kindle. Which means The List is entirely new for them. These are two completely different demographics.

But I get your point, and I'll stop waiting by the phone for your offer.

Steve: Regardless your books should be in print from a traditional publisher.  If there were no advance for these older books you were certainly sell more copies than just making them available in POD on Amazon.  You’d have much broader distribution.  I don’t know what your sales would be, not even a guess, but it would certainly be more than you’re selling now in print.

Joe: Indeed it would.

But if any of my previous publishers had managed to get me widespread distribution and put some major promo dollars behind me, I'd still be with them and not self-publishing.

I always guessed there was a large audience for my writing. Legacy publishers couldn't find that audience. I found it on my own.

If that means giving up the potential to be in Sam's Club, so be it.

Steve: In terms of the e-only approach, most of these authors, but not all, are first time writers or relatively unknown writers so their books can’t go into print immediately.  They first have to have a following built in e.  This could take several books to happen.  As I mentioned earlier very few books get into the clubs regardless.  I’m not sure if any have hit the Kindle Top 100 but we also haven’t been pricing them at $ .99.  Somewhere there’s a crossover point where the number of copies sold times the price will balance out with selling more copies at a low price versus fewer copies at a high price.  With Lyrical Press our price points will be lower but not at $0.99 unless we’re doing a one day promo or something similar.  Perhaps the prices might be $3.99. 

Joe: I did a lot of experimenting with prices, and continue to do so to find the sweet spot between unit sales and profit. It's an ongoing process that involves changing, sometimes often.

If Lyrical wants to succeed, you need to be able to closely monitor data, change quickly when needed, and experiment a lot.

Steve: We will give all of these authors marketing support with blogging, facebook ads, social media exposure, etc….  I don’t consider that exploiting authors at all.  And even if they stay in only POD, they’re available on more than just Amazon.  Lightning would be carrying them which would mean they’re available to B&N, Ingram and anybody who wanted to order the book from an indie store; although these are still small numbers.

Joe: Steve, you saw my figures above for what an ebook author makes through Kensington vs. on their own. Lyrical royalties are better (40% vs. 25%) but an author can make $2.50 more by self-pubbing a $4.99 ebook than they can through Lyrican ($3.50 vs. $1.00). You're saying, in exchange for them giving up $2.50 in sales per unit, you're blogging and doing Facebook ads? 

Are you selling enough extra copies doing this to justify your cut? As these blogs and ads resulting in 3.5x the sales that wouldn't occur if the ads didn't happen?

Authors can use social media without Kensington. And I'd guess that even with an aggressive Facebook campaign which the author personally financed, they'd be better off going solo.

BTW, I sold a million ebooks and never had a Facebook ad. Just sayin'.

Steve: We don’t want to compete against another publisher with our author.  We want to control how often the new books are released and how their backlists are reissued.  We don’t need another publisher coming out with a book by author x at the same time we are.  That’s a disaster for the author and the accounts and the accounts would end up buying one and not the other.  Most authors are writing one or two books per year.  I know there are exceptions and we publish some of those authors more frequently, but it is the exception. 

Joe: Fair enough.

How about a non-compete clause that still allows authors to self-publish?

Steve: In regards to the royalty calculation, the 25% was on ebooks that were published with a traditional print book where revenue is applied from all channels to try and get the advance to earn out and hopefully make some money on the book.  People forget that publishers are not making fortunes; I know some of the bloggers will jump up and down about this and say it’s their shiny buildings and their high salaries. 

Joe: I've seen the parties publishers throw at BEA, in booths that cost a small fortune. I've gone to expensive lunches with editors. I know how much rent in Manhattan is.

Stop the parties. Stop the expense accounts. Move to Jersey. Cut the waste. And pay authors more.

Steve: Publishing companies have overhead, you can’t help that.  A lot of that overhead goes to the printed book in terms of the sales force, production, accounting, lawyers, editors, artists, etc..  On the Lyrical Press model the author would be making considerably more.  They would be getting $1.00 per book versus the self-published amount of $3.50 on the $4.99 book.  However our sales wouldn’t be limited to just Kindle.  We would be selling in iBooks, Nook, Kobo, Sony, etc… and hopefully those other sales will be substantial.  Kindle only represents about 52% of our ebook sales….I think for most other publishers they would represent considerably more.  But since most of our books are in the women’s fiction area, they have broad appeal on all of the e-reading devices.

Joe: I also self-pubbed on all of those platforms. I found I made more in the Kindle lending library than all the others combined.

I wonder why you and I (and other self-pubbers I know) have had such different results. Any commenter care to hazard a guess?

Steve: When we’re talking about giving away a percentage of royalties do you expect publishers to give away 70% of the net receipts like Amazon is giving to self-published authors?  That wouldn’t be a viable business model for publishers.  The numbers just wouldn’t work.  There has to be a hybrid model that works for indie authors and traditional publishers.  But it would involve the books coming out at the same time and at realistic pricing levels so that the print book has a chance of selling.  People have been proclaiming print books are dead for a while now but that decrease seems to have stopped.  It may change again as there is less physical space but it’s still a big business now. 

Joe: I assume you've done multiple experiments and found, time and again, that low-priced ebooks hurt the paper sales.

Could that be why paper is 70% of your sales? Because you price your ebooks too high?

When looking for that sweet spot between units sold and price, shouldn't Kensington try to do more experiments?

In the comments section, Virginia Carmichael Munoz (aka Mary Jane Hathaway) has two books coming out in print this summer from a S&S imprint. What pleases me is that her ebooks are available now, months before the paper versions.

This is reverse windowing, and in my opinion a very smart idea.

Virginia also refutes my earlier assertion that no legacy author has ever gone self-pub and then gone back to legacy. She just did exactly that. Then again, if her publisher was Harlequin, I still stand by my original statement. Harlequin isn't a legacy publisher. They're a blood sucking monster. 

Steve: In terms of what marketing we’ve done to support authors; there’s enormous amounts of work that has been performed by us and other publishers.  We have an author now where we’re working with a company that does house parties; like mini book reading groups and offers the host and guests all sorts of perks.  It’s had great success in building an author.  We’ve also spent loads of money on advertising for print books and ebooks combined.  And what about the library market?  I saw you’re starting a venture to sell indie books to libraries.  The library is a huge market for publishers and they are amongst the most voracious of readeres.  Our relationships with the suppliers to libraries is of paramount importance for ebooks and print books. 

Joe: Those are great ideas, and I wish you every success.

When I get my library gig up and running, I'll shoot you an email. I'd love to offer Kensington ebooks to libraries at reasonable terms.

Of course, our definitions of "reasonable" may vary.

Steve: I didn’t mention averages of sales because I don’t know them.  We don’t look at our sales that way.  We look at all books on an individual profit and loss basis. 

I think stating that no one knows how many self-pubbers there are and how they’re ALL performing is a convincing argument, so I disagree with you there.  The fact that Amazon says there were 150 authors that sold 100,000 copies and at what price they were sold is extremely misleading.  That could be $100,000 and the author earned $ 70,000 or it could be considerably more.  But most importantly it’s only 150 KDP authors.  How many KDP authors are there?

Joe: I'd guess well over a million, looking at some of the lowest ranked titles. As I said in the comments, I describe self-pubbing as a "shadow industry."

It exists, and makes tens of millions of dollars annually (if not much more), and no one knows anything about its size except for Amazon, who isn't spilling the beans.

I find it fascinating that Bookscan--which most publishers subscribe to--was originally rebuffed by publishers. They wanted to keep their sales number secret.

Now publishers rely on Bookscan, even it is clearly not counting a giant percentage of sales. Yet publishers will cite it, and other surveys that don't include indies, as proof of growth or stagnation or sales.

The publishing industry hasn't fully realized that they can't see the whole picture. They can't even imagine the whole picture. The shadow industry of self-pubbing involves thousands of authors who are no doubt doing well but don't appear on anyone's radar.

Legacy needs to worry less about looking at self-pubbed successes as a resource to mine, and more about what is going to happen when those self-pubbers refuse to be mined because there is nothing legacy can offer them.

What professional would leave their job and take another for fewer benefits and less pay?

Steve: And once again this is all promotional material from Amazon…..you or I don’t know if it’s true.  I want to see how much the other 25,000 KDP authors did or whatever the number is.  The people blogging are those that are saying they are making more than they made before or they’re earning more than minimum wage.  An accurate survey of indie authors would be eye opening and enlightening for everyone concerned.  I’ve said it before, you and Hugh are anomalies; you are to be commended and congratulated, but you are certainly not the norm. 

Joe: A study would be eye-opening. And impossible. Only Amazon knows.

But even without a survey, it's undeniable that this shadow industry exists. And even without specific numbers, publishing needs to respond to it.

BTW, Steve, I'm enjoying the conversation, but I have to call you out on your repeated admonition of Amazon for not releasing specific figures, because when I ask you for specific figures you "don't know", "have no idea", and "will try to find answers".

While I'd love to know average Kensington advances, or average Kensington book sales, I don't really expect you to present me with a list of all 450 titles you published last year, and how many each one sold, and what each author earned. Surely you can understand why Amazon doesn't do that, either.

Steve: We need to stop talking units and start talking dollars.  We all bank dollars.  The bestseller lists shouldn’t be based on units, it should be based on revenue when comparing indie books to traditional books.  If that were the case you wouldn’t see nearly as many indie books hitting the lists, which is why I suggested that the lists be broken down by list price and units sold as an alternative.  That puts the whole sales issue into a less subjective light.

Joe: I thought we'd gotten past this, but I'll play.

Perhaps, if you had your way, what you'd see is the majority of Amazon customers looking at the "$3.99 Or Less" lists, and no one looking at the "$4.99 Or More" lists, and legacy ebook sales would plummet.

Also, we don't truly know if Amazon rankings aren't weighted according to price. As a ranking watcher, I've seen a lot of changes on Amazon. It was once much easier to get $0.99 ebooks into the Top 100. Now there seem to be fewer. We don't know what their algorithms are, so right now it could very well be based on dollars, or list price, or money earned. But only Amazon knows. 

That said, I have told Amazon they should try bestseller lists according to price as well as genre. I see nothing but upside to a $2.99 Police Procedural Bestseller Top 100. I don't know if legacy publishers would like that, but I'd love to see it happen.

Both Steve and I have agreed we need to get some work done, so I don't expect to update this blog again unless he asks. But I'm sure he'll stop by in the comments, as will I, and I hope we can all continue to have rational, well-behaved discourse.

And once again, thanks Steve for having the class and guts to respond to my questions.

UPDATE #4

Steve: Final post--hope it fits...

What are you going to do when there's 250,000 indie books that have been published and they're all under $3.00? How are you going to distinguish yourself from the other 250,000 books… and I'm just picking a number out of the air… maybe there's more than that now… we'll never know… since once again, it's secretive from KDP. How is anybody going to find your book? It's going to be a needle in the haystack.

Joe: Again, Steve, how does anyone find paper books now when there are 300,000 published every year?

Granted, the paperback rack at Walgreens or Terminal A at O'Hare only have a few dozen choices, of which several are from Kensington, so choice there is much easier. If someone likes suspense, they see a Lisa Jackson novel, and there's a sale for Kensington.

At least, until those paperback racks disappear, and then Kensington will also have to compete entiremly via ebooks, where there are 250,000 other options, most of them less expensive.

(And I'd guess that there are currently over a million self-pubbed titles on KDP, and many authors are doing just fine. Beverley Kendall just did a very compelling self-pubbing survey, worth a look for all readers of this blog. Check it out here: http://theseasonforromance.com/wordpress/2014/01/the-self-publishing-survey-results-its-a-brave-new-world/)

But mass market racks aside, paper books have always had competition. I've heard Borders and B&N stock hundreds of thousands of titles in each location. (Correction: Borders used to, when it still existed). One of my major laments as an author is that when I had a new hardcover release the bookstores would have three copies (or less), spine-out in the Mystery section. How could anyone find me among the Pattersons, Parkers, Cusslers, Clancys, and Evanovichs, each with an entire shelf to themself? It was just as difficult for my books to be discovered then in bookstores as it is to get discovered now on Amazon.

However, Amazon has an equivalent to a paperback rack at the airport: the bestseller list. Get on some Top 100 genre lists, and your book will sell. It's a similar kind of visibility.

How do you get there? Same way you do with paper. Advertising, promo, blogging, social media, word of mouth. Ebooks are no more competitive than paper. In fact, authors finally have an equal playing field, no longer having to compete with the bookstore front table where 50 copies of the latest Nora Roberts are stacked up at 40% off.

Also, if anyone is worried about the so-called Tsunami of Crap because there are so many lousy self-pubbed ebooks being released, I dubunked that years ago.

Steve: And as I mentioned before there have been discussions that say that people have now stockpiled many inexpensive books on their readers and sales of ebooks might slow down.

Joe: Again, I go by what my habits are, rather than what I think people might be doing. I still own over 5000 paper books. Readers tend to accumulate books. But I had to stop buying books because I actually ran out of physical space. Then the Kindle came along, and space no longer matters. My wife reads more than I do, and buys four ebooks a week. She reads immediately, I tend to stockpile. But our rates of buying and reading have increased since getting a Kindle, and I believe that's the norm. We've always had TBR piles, but now we're no longer limited by space (or budget--those hardcovers were expensive) so it is natural to hoard. I don't believe it is a portend of doom. I believe it is human nature, and it means we'll all sell more books.

Steve: Scribd and other subscription services provide publishers data where you can see how fast a book is being read. Scribd sells their subscription service very very cheap…the price of a few indie books for unlimited reading each month. $9.00 for unlimited reading. Their data has been shocking for me to see. There are a huge number of books that haven't been even opened but they were bought because they were cheap. There are loads of books that are started and read 30%. There are books that people start and never finish and readers that take months to read one book. What's going to happen when the readers are overloaded with low price books?

Joe: I remember Scribd from years ago, and I was underwhelmed by them. Still am. Oysterbooks.com is another subscription service. And I don't see it as the future. I'll explain why.

Netflix was able to capture the subscription market because all it had to do was acquire a huge library of DVDs, which it got by buying them. But Scribd and Oyster can't just buy a bunch of ebooks and lend them to their subscribers like Netflix did. They have to go into licensing arrangements with publishers (or authors) and my guess is they compensate authors by the download. A reader downloads an ebook (and perhaps reads a certain percentage) and then they have to pay royalties.

The Kindle Owner Lending Library is similar. But when Amazon lends one of my ebooks to a Prime member, I get around $2 (that's the average, I'm guessing). I have no idea what Scribd offers authors, but unless it is similar, I can't see them amassing the same enormous catalog as Amazon. Which means readers will have to go elsewhere for a wider selection.

If Scribd and Oyster do wind up becoming huge, and offer me competitive rates per download, I'd go all in.

I realize that took the conversation off-track, but I've gotten emails from authors asking me about this, and it seemed like a good opportunity to mention my views.

Anyway, Scribd's data is hardly indicative of the ebook buying market, because they are a subscription service. It is much easier to download an ebook and not read it, or start it and not finish it, when you have thousands of others to choose from with your monthly fee. It's like cable TV. Don't like a show? Change the channel, there are 300 other options at any given time. It's not like turning off a pay-per-view movie, which I bet happens much less frequently.

But even if Scribd's data exactly mirrors what is happening with ebook sales, I'm still not concerned because of reasons I mentioned above. Readers hoard. That means sales will go up, not down.

Also, I should probably mention I'm starting a company where I monetize free ebooks. Remember what I said early on about not basing your future on what others are doing? I'm putting my money where my mouth is.

Steve: Rather than predicting the doom and gloom of traditional publishing, I think this is what indie publishers should be thinking about. You're making a respectable living now… some a lot better than others… some better than you were before... and there are tens of thousands that probably aren't even making a dime.

Joe: But there are hundreds of thousands who never made a dime in the legacy system, and can now finally make something. And there are thousands of authors who didn't make much in legacy publishing, who are now making more than ever (or at least supplementing their legacy income.)

I'm predicting doom and gloom because I don't see how, as authors become more informed about their options, the majority will choose legacy. Which means publishers like Kensington, while dealing with bookstores closing, will also have to deal with not getting any quality submissions.

Steve: Only time will tell which scenario will play out… but I don't think publishers are disappearing.

Joe: They won't, if they change their business practices. But my prediction is bankruptcies, mergers, liquidations, and thousands of new resumes on Monster.com. But what do I know? It's not like I can see years into the future... 

Steve: Kensington is a little guy against behemoths. How are indies going to compete against mega-billion dollar conglomerates in the future? What happens if other retailers decide they can't compete against Amazon willing to take a loss on every bestselling book that they sell… Tom Clancy for $1.99 and Sycamore Row for $1.99? The other ebook retailers can't afford to do that. Google could if they were interested in turning up the heat. Overstock tried it for a week or two… they matched the prices below cost for a short while… but losing money on each sale is not a viable business model unless you just want to wipe out the competition. At a certain point does the government step in and say it's a monopoly?

Joe: I already spanked James Patterson for asking for the government to step in.

Steve, can you name a business, any business, that destroyed all competition with predatory pricing? Is predatory pricing even applicable here? Where did I hear that meme before? Oh yeah, I debunked it 18 months ago.

BTW, I don't believe Amazon will wipe out everyone. Other business models will arise that will compete. But more importantly, won't destroy Kensington with low prices, they're going to destroy Kensington by luring away all of Kensington's authors with better royalties.

Steve: Maybe… who would have thought the DOJ would investigate the Big 5 and Apple?

Joe: Good point. But weren't there some people, way back then, who knew the Agency Model was bad and defended Amazon when they banned Macmillan titles? Hmm... who was that blogger? :)

Steve: As I've asked before what happens if Amazon is the last guy standing in ebooks and suddenly decides… okay guys the fun is over… let's change the rate structure. You're now only getting 25% of net receipts and you have nowhere else to go?

Joe: It wouldn't be net. Amazon is the retailer as well as the publisher, and authors set the price, so it would be 25% of gross (list). And guess what? That 25% is still more that the 25% Kensington offers. It's also more than the 40% Lyrical offers.

Steve: These are all real possibilities, not pie in the sky ideas. Amazon has never said they make money on selling books. They are not a huge print retailer. They can't compare to Target or WalMart or B&N in print. Do you know that when Amazon distributes other products for other firms that they study how well the product sells and then makes a deal directly with the manufacturer to wipe out their original partner in sales?

Joe: Bad news for publishers, but not for authors.

Besides, Apple offers 70%. If Amazon suddenly changed royalty rates, I could envision a mass author exodus to iTunes. But maybe, by then, we'll actually have a union that represents us and have some barganing power. Because authors have never had anyone on their side, fighting for their rights. The AAR? Ha.

Steve: Did you read The Everything Store about Jeff Bezos about how he was willing to give diapers away for nothing to put diapers.com out of business for as long as it took until they would agree to sell Amazon the company? They've done this with other businesses as well.

Joe: Steve, Amazon acquired Diapers.com for $550,000,000. Bezos may not have given them a choice but to sell (I don't know the story) but they weren't driven out of business--they were bought, and for a substantial amount.

Steve: These are the issues I think you indies should be thinking about. Over and out.

Joe: Steve, it sounds like your premise is, "Sign with us for less than Amazon is offering you right now, because one day Amazon may offer you less like we do right now."

I'm sure you see that's a flawed premise.

Kensington's strength is paper sales. That's how you'll attract authors. I'd be thrilled to do a print-only deal with Kensington, and I could introduce you to fifty of my bestselling author friends who would also be thrilled to do deals with you. If you wanted to, Kensington could be the de facto print-only publisher for the biggest names in self-publishing. You wouldn't get any of our ebook rights, but that should be okay because they're only 30% of the market according to your stats.

As I said, I'll be waiting by the phone. ;)

And thanks again for taking the time to appear here and in the comments, answering questions. It really has been a pleasure, and I have a lot of respect for you. I wish you continued success, and I hope you took away something from our exchange that benefits your company, and Kensington authors.