Wednesday, January 18, 2012

Amazon Out To Kill Legacy Publishing?!

Pandodaily is an interesting site devoted to digital business news. What are Apple, Amazon, Samsung up to, etc. Very interesting and I recommend you take a look. I heard about an article they posted about an "alleged" leaked e-mail from the traditional publishing world.

Now, grains of salt here, this is completely anonomous and from an (originally) unknown source so who knows?

What I will say is that it's damn interesting to read and seems a pretty spot on, brutally honest overview of where the publishing business currently stands. BTW, for the duration of this post ENS. Ricky (above in red) is a traditional publisher in the new digital world.

Originally released here with a brief and funny overview of the "prestigious" industry as it stands now.

And here's the damning e-mail:
So Amazon, pretty much since they started selling books, has been selling them for razor thin or zero margin. We sell them books at 50% of the retail price. You’ll notice that popular books are usually selling for more than 50% off. So they’re actually losing money on them. For years Borders and Barnes and Noble maintained that this was unsustainable, but the tactic succeeded in putting Borders out of business, putting BN on the ropes, and destroying hundreds of indie stores. It also lowered customers’ perception of what a book *should* cost.
When ebooks started, we were pricing ebooks at the same price as the print book, and Amazon was selling them all for $9.99. So they were losing like $3-$4 per book. And they weren’t doing it simply to move Kindles, since they don’t actually make any money on the Kindle unit sales. Now with the “agency model” we get to set the ebook price and Amazon simply takes 30% of that.
We all kinda assumed that Amazon was either using books as a loss leader for other things (like getting people to sign up for Prime or simply gathering customer data), or was maybe planning on raising the prices they sell books for once BN and Borders were eliminated as competition. But I think they actually intend to keep print books at their current prices, and they want ebooks to be even cheaper. What they’re actually targeting is the publishers’ margin.
Long-term there’s no future in printed books. They’ll be like vinyl: pricey and for collectors only. 95% of people will read digitally. Everybody in publishing knows this but most are in denial about it because moving to becoming a digital company means laying off like 40% of our staffs. And the barriers to entry fall, too. We simply don’t want to think about it.
Amazon is thinking about it, though, and they’re targeting the publishers directly.
Publishers like to pretend that we make our money from discovering unknown talents for small advances  and selling millions of their books. That’s a very small part of our business. The bestselling books are all written by celebs, by people with huge platforms, by fiction writers with a long history of bestselling books, or by people who do a proposal that’s on its surface brilliant. In short, there’s a bidding war among the publishers over the big books. We all know what the good books are–it all comes down to how much of an advance we’re willing to pay for them. The hotly fought-for books are the ones that sell. And while we might not make huge profit % on these, we make big profit $ on these. They keep the lights on by covering overhead. Better to cover our fixed costs by going all in on a few big books than trying to buy dozens of mid-list books. 
But in recent years, as book sales have declined, the advances for the biggest books have gone down proportionally, too. What used to be a $1 million book is now a $400,000 book. Publishers are thinking, “OK, we’ll move less copies but we’ll pay less for them, so we’ll survive.” Enter Amazon’s print publishing arm. They hired this guy Larry Kirshbaum to run it–he’s a savvy vet with 30+ years of publishing experience–and they have some editors, too. And they’ve been paying a ton of money for books.
I saw this [redacted] proposal a few weeks back. It was okay–[same redacted author] is an asshole but [redacted] has a certain following and it would probably be a bestseller. Bestseller now means selling 20,000 copies, so I was thinking of offering like [hundreds of thousand] for it. But Amazon had already bid $1 million for it. A similar thing happened with a [redacted] memoir a few months back. Traditional publishers are snickering, “Look at stupid Amazon–overpaying for books!”
But Amazon isn’t stupid. They’re overpaying intentionally to keep advances high (and high advances will bankrupt publishers). And they’re also taking away all the authors who actually move units. They gave Seth Godin really favorable terms on a deal. Only a matter of time before they snag a James Patterson or some other big genre fiction name.
We can’t pay $1 million for books anymore. Amazon could probably afford to lose $20 million/year in their publishing arm just to put the other publishers out of business. I think that’s what they’re trying to do–throw money around in an industry that doesn’t have any, until Amazon becomes not only the only place where you buy books, but the only place that publishes books, too.
So rather than getting a 30% of an ebook (with the other 70% being split between the publisher and author), they’ll be getting a 70% cut (with the other 30% going right to the author). Funny thing is that it’s actually better for authors.
To be honest, publishing is a quaint little industry based on romance and low profit margins. But now we’re in Amazon’s sights, and they’re going to kill us.
Regardless of where this came from and/or if it's a genuine "insider" statement can of course be debated but the substance of the message is very, very relevant to the future of traditionals. Could amazon be this predatory towards the Publishing industry, who they've partnered with since their very begining as an online book seller? Why not?

Their business model is proven to be profitable, especially in the e-book realm. They take loss leaders and the aformentioned "razor thin margins" but their volume is more than making up for it as they contune to expand with the advent of thier own genre imprints, clearly in direct competition with traditional publishers.

They're the clear winners of the E-reader war, for now albeit, with the rampant success of the Kindle family over other platforms and with KDP in place...why not take over publishing? whether that's a good or bad thing is clearly another issue but Mr. Bezos has put himself in that position.  

I always liked going to Borders and still enjoy B&N when I can get there (and if you can find a decent book among the nick-nacks) but I don't feel sorry for them. They had no regrets over the dozens and hundreds of smaller fish (smaller chains and Mom & Pop book stores) they buried during their ascents.

Despite having life long "paper dreams" I share the same indifference for the future of traditional publishers.

Friday, January 13, 2012

The Future of Barnes and Noble?

I was somewhere in my early twenties when a Barnes and Noble opened in Vorhees NJ. I was probably a year out of the Army and was probably just getting around to going out with my Mom on a book hunting expedition like we'd done when I was younger. There's no doubt I inherited a love of reading and books from good ole' Mom an although our tastes varied severely we both enjoyed going to bookstores and libraries together. A Borders opened around the same time in the same part of South Jersey, I forget which was actually first, and I still recall hearing about them first when I was overseas in Germany.

"Oh Dave, you have to check this store out. It's ten  times the size of the B.Dalton and Waldenbooks! You're going to love it!""

And when I got home we did go and it was amazing. Aisle after aisle of sci-fi, fantasy and military books. Virtually every single thing King, Clancy, Rice or Heinlen had ever written. Magazines I didn't even know existed. As a young, idealistic Communications Major at a local Community College dreaming of transferring to a 4 year school with a "big" film program I was able to actually touch, buy and read the fabled magazines called Variety and Hollywood Reporter.

I discovered Science Fiction Age Magazine there and fell deeply in love with its magnificently illustrated pages and would later subscribe to it for four years before their demise. I had read King's "The Dark Tower" in High School and was completely blown away by it. While I had heard of follow up novels I'd never seen them overseas (real small Army Exchange in Budingen, pre-internet folks) but I finally found them in the massive, sprawling aisles of these book cathedrals. I held the gleaming, brilliant paperbacks of "The Drawing of the Three" and "The Wastelands" and was truly happy.

They were (and can still be) wondrous places for readers and book lovers but times have very clearly changed. In the wake of the demise of Borders (which usually is of extreme benefit to a direct competitor) B&N is clearly on the rocks.           

The Wall Street Journal released an online article discussing how B&N is seeking "the next chapter", both a play on words regarding them as a book store and cynical predictions that B&N is doomed to follow Borders into a Chapter 13 demise.

Quick tangent: Flash forward some 18 odd years since that first trip to a B&N and my family had moved to Baltimore MD in 2007. We had our third child soon thereafter and although my Navy Officer salary was very nice there was little dough to spare. I had for years been in the habit of buying my books off Amazon, usually "used" ones. This practice rubs some authors the wrong way because the used book seller and not the author profits but one book or a tree maybe? Don't throw stones folks. In short, I generally did not go into the local B&N and there was no local Borders.

Just before this past Christmas my older daughter had a Girl Scout function where they were wrapping presents in stores. One night I took her to the B&N, realizing it was the first time in about two years I had been in one. I had heard and read about how the retailer had changed up their store scheme. And then I saw it for myself.

Aisle after aisle of mugs, stuffed animals, nick-nacks and decorative desk top crap.

The giant, three aisle Lego display was pretty cool but they didn't have the deluxe Millenium Falcon though.

Basically, they had about a third less book space then they'd traditionally had.  

I had a B&N gift card burning a hole in my pocket for about a year, the previous X-mas, so I did pick up some crisp, new books, something I said I no longer did regularly.

The picture here is, obviously, from the New Yorker and I don't think it takes an analyst to deduce that they're parodying the current B&N store makeup. Credit where credit is due: I first saw this cover on Kris Rusch's page and she makes an interesting point that B&N regularly advertises in the New Yorker (pays their bills) yet the NY'er couldn't resist taking a poke at them.

I guess they felt that strongly about it.

I think the marginalization of their book space (which is supposed to build retail sales) is but a symptom of the bigger problem. Poor and increasingly lower paper sales. Nook is a good seller but the WSJ article highlights how B&N is now admitting, in addition to poor paper sales, that their investment in the Nook technology (which I imagine was substantial) is not quite paying off for them, especially not in the face of brutal, exploding Amazon competition.

In short there's trouble on the horizon. If B&N were to go under that would leave roughly 200 Books-A-Million stores, a smaller retailer call Atlantic Books and your mom-and-pop store, unless I missed any others.

Like I said: 2012 is the year of change. The year to watch.

Good times

Wednesday, January 4, 2012

News Flash: Traditional Publishing Model is Broken!

For those that purvey sites and blogs regarding independent e-publishing this news may be more of an epiphanic admission than a dazzling headline. The ranks of authors who have either forgone or abandoned traditional publishers for the numerous independent channels in recent year has swelled and, perhaps, hit a landmark plateaus this past Christmas shopping season (in conjunction with record e-reader and tablet device sales) as evident by some very high profile success stories.

In a Digital Book World interview released today Hyperion CEO, Ellen Archer makes a statement about the traditional publishing business model: This business model, while it’s never been great, is broken; 2012 is going to be about finding new business models.

Read the full Digital Book World article here

Some key points from the discussion and other admissions are below. My cynical thoughts in red:

- Royalties will likely continue to go down if not disappear for authors. Big payouts are still happening for select books but Archer admits that they "don't generate revenue". In short, they're not seeing returns on their investments. Expect those investments to diminish or disappear altogether.

Then the list of reasons to pursue traditional publishing just got smaller by one! 

- Big 6 publishers, as part of larger media conglomerates, will look to find and develop multi-media properties, IE; novelizations of films and TV shows and vice versa. Archer cites the success of Tie-in Novels on the ABC "Castle" TV show.

Not every book will get this treatment. Will they survive by only publishing tie-in or "movie" books?

- Managing both print and digital production will require restructuring of staff and personnel. Right now they're figuring a lot of things out.

Work fast. Your NY rent and overhead costs aren't going to shrink.

-  The successful "book" publisher of the future needs to move away from the concept of producing "books" and in producing a "reading experience."

Which is what independent authors are delivering to readers by themselves now...without giving away 50-70% royalties for editing and cover design. Just saying.

What we can take away from this as aspiring authors? My take:

- As a "Newb" with zero track record, zero readership and zero marketability (IE: ZERO contractual negotiating leverage) Stay the hell away from traditional publishers and their contracts.

- Publish independently and start earning now!

- When I say "Earn" I'm not talking only about dollars: start earning your readership...start earning your branding as an author and start earning your marketability.

- I'm not against signing with any Legacy publisher (I think Amazon is quickly becoming the top choice for Newbs) but I consider it only prudent when one has the leverage to omit punitive terms such as no-compete clauses and to possible secure higher digital pay out rates.

- The Big 6 need to figure out (and stake out) what their place is going to be in the new digital market. Right now my opinion is that they're grasping at straws with still-born attempts at royalty grabs like "Book Country Fair" in the face of disintegrating paper sales and are getting lucky in the short term with back lists of titles that are abhorrently overpriced on digital but are still selling.

If anything I give Mrs. Archer credit for having the insight (and the guts) to come out publicly and say: "We're failing at this new digital thing. We're broken and we need to get fixed."

For writers and publishers 2011 was historic but 2012 will be the year of change.

This is the year to watch. Very closely.

Good times.