What could make me froth with rage, you ask?

Well, here you go. It’s called “Publish or Perish: Can the iPad topple the Kindle, and save the book business?”. I read this article in the paper edition of the New Yorker Thursday night, and some of the quotes from publishers made me want to tear my hair out. (Also, the author is woefully misinformed about royalties and other topics, as some other websites have already pointed out, but we’ll get to that).

This is a LONG post, I’m going to put most of it behind a continuation tag…

Some information summarized from the article:

  • Digital/e-book sales increased 177% in 2009; the industry forecasts they’ll eventually equal 25-50% of the total market.
  • At the end of 2009, Amazon accounted for about 80% of all electronic-book sales, establishing $9.99 as an acceptable e-book price, even though Amazon was taking about a $4 loss on each, buying them from the publishers at about $13. (Don’t forget, too, that buyers had something to say about the prices, staging “tagging boycotts” at Amazon, etc).
  • “[Steve Jobs] said that Apple, through its iTunes and Apple stores, had access to a hundred and twenty-five million credit cards, which would make it easy for consumers to buy books on impulse. The iPad was clearly a more versatile device: it would provide color and full audio and video, while the Kindle could display only black-and-white text.”
  • Amazon makes it easy for publishers to generate ongoing revenue from their book backlists; this is crucial for smaller publishers in particular.

I’m a big Apple fangirl, and that I have a Kindle as well. The ultimate problem with this article, for me, is not about the format war, it’s about the attitude traditional publishers are taking. If you want to support independent designers who would like to publish COLOR knitting and fiber arts books at a price point we all can afford, buying an iPad, or any other color e-book reader that comes out, would not be a bad idea. (More on that shortly).

Here’s how Auletta summarizes the pricing issues:

Traditionally, publishers have sold books to stores, with the wholesale price for hardcovers set at fifty per cent of the cover price. Authors are paid royalties at a rate of about fifteen per cent of the cover price. A simplified version of a publisher’s costs might run as follows. On a new, twenty-six-dollar hardcover, the publisher typically receives thirteen dollars. Authors are paid royalties at a rate of about fifteen per cent of the cover price; this accounts for $3.90. Perhaps $1.80 goes to the costs of paper, printing, and binding, a dollar to marketing, and $1.70 to distribution. The remaining $4.60 must pay for rent, editors, a sales force, and any write-offs of unearned author advances. Bookstores return about thirty-five per cent of the hardcovers they buy, and publishers write off the cost of producing those books. Profit margins are slim.

(There is a note in the digital version of this article that states, at this point, that the original — i.e. print — piece described publishers’ costs incorrectly. See the link to this article above).

Though this situation is less than ideal, it has persisted, more or less unchanged, for decades. E-books called the whole system into question. If there was no physical book, what would determine the price? Most publishers agreed, with some uncertainty, to give authors a royalty of twenty-five per cent, and began a long series of negotiations with Amazon over pricing.

Ok — but wait — that 25% royalty was not exactly an easy sell to the publishers. For one, it’s double what the midrange royalty rate is (a 10-12-15% royalty agreement, with the author receiving higher rates the more copies of the book are sold, is a lot more typical than the flat-out 15% Auletta presents in his example above). Read this article in Publisher’s Weekly on the position the Author’s Guild took on e-book royalties. It is VERY interesting.

Amazon had a profound effect on publishers’ business, creating a place where customers could reliably find books that were no longer being promoted in stores.

Oh, you mean like most knitting books, always? Take a look at my royalty statements sometime, I’ll tell you just how many people are buying their printed books at full price in a bookstore, and how many are getting them at Amazon or another discounter. You certainly wouldn’t have gotten the impression that electronic book sales would have gone up 177% percent last year judging by my publishers’ overall response to a letter my agent and I sent in 2008 practically begging them to exploit the digital rights.

Publishers’ real concern is that the low price of digital books will destroy bookstores, which are their primary customers.

Seriously. Is the bookstore the customer or is the reader the publishers’ customer? Whose needs are getting met by the status quo? How many of you — come on, ‘fess up — go to Borders or B&N to check out the new books and then promptly go home and order them from Amazon? (This is also why so many yarn stores are stocking fewer books these days. In some instances, LYS owners buy copies ON AMAZON to resell at full price because the Amazon price is better than what they can get from their distributors. Really).

Tim O’Reilly, the founder and C.E.O. of O’Reilly Media, which publishes about two hundred e-books per year, thinks that the old publishers’ model is fundamentally flawed. “They think their customer is the bookstore,” he says. “Publishers never built the infrastructure to respond to customers.” Without bookstores, it would take years for publishers to learn how to sell books directly to consumers. They do no market research, have little data on their customers, and have no experience in direct retailing.

But who does, you ask? Amazon. Amazon, my friends. They know your shoe size and everything you’ve ever ordered, ever. BEHOLD THE UNHOLY POWER OF THE ALGORITHM!

Last year, according to several literary agents, a senior Amazon executive asked for suggestions about whom Amazon might hire as an acquisitions editor. Its Encore program has begun to publish books by self-published authors whose work attracts good reviews on Amazon.com. And in January it offered authors who sold electronic rights directly to Amazon a royalty of seventy per cent, provided they agreed to prices of between $2.99 and $9.99. The offer, one irate publisher said, was meant “to pit authors against publishers.”

Hey Irate Publisher, newsflash — you already pitted yourself against your own authors long ago.

Asked to describe her foremost concern, Carolyn Reidy, of Simon & Schuster, said, “In the digital world, it is possible for authors to publish without publishers. It is therefore incumbent on us to prove our worth to authors every day.” But publishers have been slow to take up new technologies that might help authors.

AHEM. See above. I think I proved that point back in 2008.

But here’s the money quote, the one that made me want to throw things, and which did cause me to unleash a Germanic-style series of expletives that wasn’t so much a series of expletives as one big long word…

Madeline McIntosh, who is Random House’s president for sales, operations, and digital, has worked for both Amazon and book publishers, and finds the two strikingly different. “I think we, as an industry, do a lot of talking,” she said of publishers. “We expect to have open dialogue. It’s a culture of lunches. Amazon doesn’t play in that culture.” It has “an incredible discipline of answering questions by looking at the math, looking at the numbers, looking at the data. . . . That’s a pretty big culture clash with the word-and-persuasion-driven lunch culture, the author-oriented culture.”

Madeline McIntosh, I hope your ears were burning Thursday night, because most of my invective got launched at you. Would you like to know why? It’s the proceeds from books like mine that are funding those lunches of yours. (And yet she’s supposed to be The Great Digital Hope at Random House).

The Knitgrrl books (published by Watson Guptill, which has since become a part of Random House) have sold approximately 30,000 copies. Their cover price is $9.95. Judging from information I have at my disposal, I would be shocked if they cost more than $1.50 to produce, and probably far less, as they’re printed overseas. If you’re selling them to bookstores at $5 each, you’ve got $3.50. Theoretically, my share of the royalties should be about a buck. (It’s more like 50 cents). However, I have not seen dime one of royalties, which means you’ve got more money kicking around somewhere from my work than I paid for my first house.

Oh wait. I forgot. Subtract the enormous advance you paid me per book (FYI: that was sarcasm). Now you’ve only got tens of thousands of dollars to spend on lunches at La Grenouille. I know I certainly haven’t seen anything since those advances five years ago, and your royalty department isn’t returning my emails. As for all your nurturing and marketing and author-oriented culture and whatnot (the publicist who chomped gum into the phone when speaking with yarn industry people I know personally was a big favorite), I’m not so sure it’s worth it. If you want an “author-oriented culture,” then it needs to help your authors pay their bills and make money from their work.

Now, multiply this situation times several more books.

This is why I am now publishing through my own company.

The major challenge in our particular book niche (books which are image-intensive as a general rule, and require color, unlike a copy of Twilight), is printing color in a cost-effective way. Even with sizeable print runs, it is difficult for an independent author to procure the kind of pricing a Random House has at its disposal. If you’ve wondered why so many independent authors do pre-orders, it’s usually to fund their initial print runs! This is why I say the iPad, despite its stupid name, and other color e-book readers which will likely follow, will be the ones to truly save the industry from the independent publishers’ perspective.

You, the readers, have the power to make sure that the kinds of books you want to see are actually available for sale at a reasonable price. Let technology help us create new and amazing things for you to read and use! Support independent authors and publishers wherever you can. Break the hold of the ladies who lunch.

One final note: There are exceptions to every rule. I need to go on record and say that Interweave Press is a notable exception when it comes to putting out a book — working with them feels more like a partnership with other talented, creative people and less like you’ve mortgaged your firstborn to Satan. Ten Speed Press was like that, too, before Random House bought them. They allowed me to offer contract terms to my Alt Fiber contributors that would have NEVER been approved post-merger. Most of the publishers referenced in this New Yorker article are not in the craft publishing world: Random House gets to be the target here because they are, and because I have personal experience with them.

18 thoughts on “What could make me froth with rage, you ask?”

  1. I worked at an independent bookstore for 11 years. I’m familiar with many publishing houses but I had no idea about royalties. Thanks for the info.

  2. ::CHEEEERS::

    And this is *exactly* why tradtional print media is dead. It’s too big, too set in its model of screw-the-author/screw-the-reader, to be agile enough for change. This blog post should be mandatory reading for all traditional publishers, as if they even know what the internet *is*, beyond a way to find new authors to exploit.

    I (heart) you.

  3. Thank you for everything you are doing. I for one am constantly clicking that “Tell the publisher you want to see this book on Kindle” button and appreciate the fact that I was able to download your “How to Knit in the Woods” among others.

    I know that a craft book on my Kindle isn’t perfect, but I am willing to forgo perfection for convenience. Again, thanks for your fight.

  4. Shannon, your arguments are basically sound. Something has to change to improve authors’ incomes or it will become even less feasible for anyone to write a book . . . I say this as both writer and very small publisher (I never have time for lunch at all, except what I grab on the run, and I only dream of conversation over lunch).

    The math for small publishers is less favorable than either the article or the “corrections” in other locations indicate. For books sold to bookstores, this small publisher ultimately receives about 35% of the cover price, not 50%. It takes a full year for that amount to trickle in. Returns are too often unsalable (i.e., are significantly damaged and yet returned for a full refund) and the distributor’s fees for handling the original sales are still against the publisher’s account. Publisher is in negative income on each of those copies already, and to replace them in inventory requires additional printing PLUS freight, which can be $1/book, even with massive discounts available through an industry association. Remaindering? This small publisher does have some books that could be remaindered, but not large enough quantities to interest a remainders house. So those costs can’t be recouped, and the books continue to take up space in the garage (still counted as inventory, and still on the tax return as an “asset” . . . can’t write the printing costs off until sold, which they may never be).

    Interesting, with all the fluff about pricing on Amazon, that Amazon itself does not permit some publishers to price e-books below the cost of the print versions. That includes this publisher.

    I do small publishing because I love books, love the topics, think these titles need to be in the world and wouldn’t be otherwise (and yes, they sell respectably well). But the entire system is flawed, and under it neither authors nor small publishers can give up their other, primary income sources.

    The digital delivery of books fascinates me, because it could close some holes in the system, reduce waste, and recoup more money for authors and publishers. I do love books as physical objects. So far I have not been able to afford an electronic reading device to see what I think of that technology. I’d rather not read a book on my regular computer: I spend too much time looking at its screen already. Reading on the computer feels like more work, not relaxation.

    There are many serious questions in this entire discussion. The suggested math sequences don’t work. But the real math doesn’t work, either, so fiddling with percentages doesn’t change the basic problems. (Leaving out entirely the consideration of electronic piracy, which returns nothing to either publisher or author.)

    We do live in interesting times.

  5. Good piece. I agree with most of what you say but I have to admit as a manager of an independent bookstore I do feel a bit slighted. Handselling as a form of marketing cannot be dismissed and while I am not afraid of ebooks I do think we dismiss the bookstore as a venue for books to be discovered far too easily. If I’m being honest I hate Amazon, I used to buy from them but they have done far more to kill my business than any chain before them. The losses they accept by selling books, ebook and hardcopy, at such such low prices simply devalues the intellectual property of the authors which at some point will allow the publishers to rationalize doing more of the same. The author will become the least important part of the equation as customers only think they should pay for the cost of production on a book not for the content.

  6. Interesting, with all the fluff about pricing on Amazon, that Amazon itself does not permit some publishers to price e-books below the cost of the print versions. That includes this publisher.

    I would be curious to know, Deborah, if that has recently or is about to change — with the new 70% royalty system Amazon has put in place for e-books.

    If you adhere to their conditions, which are reasonable in my opinion (including pricing the e-book at least 20% lower than the list price for the physical book, plus pricing the e-book itself between $2.99 and $9.99), you get a much higher royalty than you would have previously.

    Also (and yes, we’ve pretty much ignored the very real issue of returns above, so thanks for bringing that up) — no such thing as returns on a digital book!

  7. Hi Nancy —

    I do think we dismiss the bookstore as a venue for books to be discovered far too easily.

    That was not my intent — I love independent bookstores, and I think they provide valuable services to the serious reader.

    (I feel the same way about libraries — I know some craft book authors are frustrated people take their books out of the library instead of buying them, but that’s shortsighted, since libraries as a group tend to have really strong buying power, and probably end up buying more copies of a good book than many other outlets do!)

    The losses they accept by selling books, ebook and hardcopy, at such such low prices simply devalues the intellectual property of the authors which at some point will allow the publishers to rationalize doing more of the same.

    We’re already there with the publishers, Nancy. The craft books authors in particular — you should see some of the newer contract clauses I’ve seen floating around out there — they want the rights to break up and repackage your work in every possible way to maximize THEIR profit while neglecting yours (as the author). And they’re so technology-resistant.

    The final straw for me on a recent book contract was the publisher’s outright refusal to allow pattern sales on Ravelry.com, on a book that wasn’t even intended to be a pattern book in the first place! I saw it as a great way to build an audience for the book, akin to having 15 free full page ads on a website with 600,000+ crafters — they did not.

    (After all, who’s going to buy 3-4 patterns individually at a higher cost each when they might as well buy the whole book? Yet you can still earn money from the people who ONLY have an interest in one pattern from the book and wouldn’t have bought the whole thing anyway).

    The author will become the least important part of the equation as customers only think they should pay for the cost of production on a book not for the content.

    The question for me, really, is how can both you — as a bookstore — and me — as an author — make money here? Right now, you probably make more per copy selling one of my books than I do. (Good on you — no sarcasm intended — because such is the system right now).

    In my opinion, bookstores need a better way of working directly with quality independent publishers and authors. I think the model we’ve established at Stitch Cooperative with our digital affiliate program would translate well — you can sell digital books, too! It’s not limited to Amazon! And then you wouldn’t have to deal with stock, returns, etc…

    Heck, keep one print copy in the store for people to peruse (and buy, if they want) and make a shelf tag that says “also available digitally on our website” — you never know what book might take off and sell 10 copies overnight when you’re not even at the shop!

    My primary interest here is, of course, self-centered. I want to earn more money from my work. I think I deserve it, given the time and effort I put in. The system is fundamentally flawed, but I don’t want you to go out of business as an independent bookstore — I want to come up with new ways of working together that help both of us! It’s just that Amazon is currently offering some ways for me to earn more money on the digital editions of my book and access to millions of consumers all over the world. So what can we do to make changes in the system that will help both of us? How can we use new technology together? How can we make the best of both our strengths?

  8. I’m with Nancy all the way, although I have only worked briefly in our local independent bookstore (during its start-up phase, I offered to work for minimum wage to get the stock unpacked and shelved; my daughter is a regular employee).

    As a publisher, I have found most of our local independent bookstores think they need to focus their attention on titles from the big publishers and compete with the chains: i.e., put the bestsellers from New York up front and feature those books’ authors. One of our semi-local independents (local enough that I shop there, although it requires an afternoon’s trip) will now work more closely with local authors–for a fee http://ow.ly/1CPqZ . Payment for bookstore placement is routine in the industry, a practice started by the chains and one where small publishers can’t begin to participate because of the high costs.

    Shannon, the changes in Amazon’s e-book terms will not shift the terms for the titles I publish unless Amazon changes its requirements for all publishers handled by my distributor. I haven’t heard rumors of that happening. Amazon does discount the prices for our titles that are available on Kindle–which is okay by me in this situation. The higher “cover” price means both author and publisher make a few more pennies on each sale, and the discounted sale price means that people who want an electronic copy of the book are not paying for the printing and freight.

    Interestingly, Amazon was able to convert three of our books for Kindle but failed (after six months) to convert the other three (because of tables, primarily, that are crucial to the books’ structures). Those three titles have just sold electronically for the first time via Sony, whose e-format seems to be able to handle the tables. iPad results yet to be determined.

  9. (Interesting note on conversions for digital, by the way — it’s very much like working in early 90s, verrrrrry simplistic HTML. You’re better off doing it yourself than entrusting it to someone else, or so it seems).

    That’s a really interesting link (http://ow.ly/1CPqZ), by the way. I found the comments hilarious, though — especially the one about payola. Hello? How do you think books end up on those endcaps at Borders? It’s not out of the goodness of their heart! It’s like readers who think authors have a choice in their cover and final book title (for the record: you usually don’t, at all).

  10. Some rich parallels between print publishing industry and the yarn industry!
    For example, in my experience so far, the *quality* of content and the needs of the *customers* are preserved when designers and yarn shop owners cultivate direct relationships with each other. The benefits are mutual and the full value stays in house.

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