How to Break the Publishing Malaise

Malaise

More people are reading now than ever, especially young people, more options are available to reach readers than ever before, and yet publishing is in a deep malaise.  Why so glum? Well it turns out that despite record-breaking sales for some books, most books' sales are well below the industry's high-water marks in the late 90's, and the mass-market paperback has continued its steady decline. A pervasive attitude exists in publishing that our glory days are behind us, and that the future will hold greater consolidation in the big houses, and further dominance of the marketplace by online media conglomerates.  

Like the rest of America in this glorious recession of ours, publishing professionals have been told to do more with less (in most cases a lot less).  Staffs have shrunk in editorial, contracts, and rights departments at every major publisher. Imprints have been shuttered, or absorbed into larger imprints. Several small and mid-sized presses have simply gone bankrupt. And things just seem like they're getting worse.    

In addition, there's an outright hostility among some authors in some corners of the internet against publishers, editors, and agents. It's hard not to feel a bit of malaise when the most lauded view of publishing is that it is bureaucratic, cumbersome, exploitative and, worst of all, unnecessary.

While most criticism borders on the abusive and misinformed, sadly, a lot of it is warranted. And, while the publishing industry has been more adaptive to the upset of digital distribution systems on media content delivery than the music industry or film and television industries have been (an admittedly low bar), it still has more adapting to do.  There are challenges out there that need to be overcome, but there's also a lot of nonsense that needs to be dismissed as such.

The first big issue at the heart of this malaise is the pervasive belief among those in publishing that the digital marketplace is usurping the physical marketplace.

E-book Conflation

Though it's a popular notion, there's no credible evidence (and hardly any circumstantial evidence) to point to the notion that e-book sales have cannibalized print sales in any meaningful way. The decline in print sales predates the introduction of the Kindle, with sales peaking in 1999 and a steady decline that can undoubtedly be tied not to the rise in e-books but to the leveling growth of the big bookstore chains and larger trends in the retail economy in general.

The rise of Kindle just happened to coincide with the demise of Borders, which may have resulted in the conflation of the dip in print sales, with the rise in e-book sales. The tremendous growth in e-books is a separate phenomenon from the decline in print books, and is, despite popular belief in publishing circles, not a mixed bag at all.  E-book growth has an unreservedly good thing; in fact, it may be the only good news for publishing in the past decade.

88% of e-readers (according to Pew Research) are regular readers of physical books as well. The corollary that these 88% are buying less physical books now that they have an e-reader is also not supported by the evidence.  In fact, these e-readers are still reliable print readers, who have now been transformed into e-book super consumers.  They read twice as many books than the average physical book reader, now that they own an e-reader, and they are more likely than average to have bought (rather than borrowed) their books. The remaining 12% of e-readers are also not former physical book readers, but new readers enticed by the convenience (and coolness) of e-readers.

In short, publishers are not losing print sales, because those sales are being taken by e-book sales, they are losing print sales, because they aren't trying to change their strategies to sell more print books after failing at it for over a decade. The retail conglomerates pushed out the indies, consolidated their shelf-space, and now are contracting, which means fewer opportunities to sell in the physical marketplace.  None of this has much to do with e-book consumers who now find it more convenient to buy books wherever they are.

Many in publishing (and certainly many self-published rabble-rousers) are laboring under the illusion that the future of bookselling is digital, and that physical books are bound to become publishing's vestigial limb.

Well it's not the case.  Turns out people still love books.  Shrinking from the physical marketplace because of a poor retail economy, and the contraction of overextended chain bookstores in lieu of an e-book market that, after a period of extreme growth, appears to be leveling out is a mistake. Publishers need to recommit themselves to physical book publishing, and that means learning from past mistakes, investing in print as a growth opportunity, and pushing forward with a smarter strategy that will allow them to capitalize on the digital marketplace as well.

Owning Mistakes

Most of the publishing industry's self-inflicted injuries are about empowering the wrong people.  In the 90's that meant forfeiting most marketing functions to the book retail conglomerates, and allowing them to price independent book retail institutions out of business. In the '00s, it's been turning over vital marketing functions to Amazon and letting them do the same in the digital world. When publishers found they had created a monster in Amazon, seeking an even larger corporation (Apple), with even less interest in bookselling, as a bulwark against Amazon's predatory pricing was also a huge mistake, one that plunged them into an internecine battle between vertically integrated device manufacturers/digital distributors with anti-trust implications.

When publishers weren't backing the wrong horse, they were buying the wrong properties.  Nobody forced Penguin to buy Author Solutions, nor did anyone force the publishers to spend money on the joint venture Bookish, when all that money would have been better invested in buying the already extent (and quite successful) Goodreads (which later was bought by Amazon). The wealth of consumer data housed in Goodreads, and types of marketing opportunities provided by the platform (provided publishers didn't change things) could have meant a fortune for publishers, had they decided to acquire it jointly.

Most mistakes have just been a matter of priorities. Publishers prioritized stopping piracy, over increasing access to digital content, which further put them in the thrall of Amazon, Apple, and Barnes and Noble by pricing other DRM free e-reading formats and devices out of the market. DRM is bad for Publishers, independents, and, most importantly, consumers. It also doesn't work. Recent experiments with abandoning DRM have proven quite successful, and yet most imprints still cling to the notion that the key to holding the line is treating every customer as a potential criminal.

Meanwhile, publishers have been consolidating their publicity and marketing departments, at a time where marketing is their one most valuable asset, and the one most likely to actually earn them money. Publishing marketing is in a sorry state.  They do tremendous work, but they do it blindly.  In a world awash in consumer data, publishers are completely in the dark about the lifeblood of their business, and willfully so. By having a single-minded focus on the wholesale business of publishing, where their main concern is the retailer as customer, they've lost sight of who really matters: the end users (see: readers). 

What publishers ought to have done a long time ago, and ought to devote themselves to now, is marketing directly to readers, and making partnerships with a larger variety of physical and digital retailers.  That means dividing promotions, and co-op buys equally between the large accounts and the indies. Promotions directed at indie bookstores that agree to host in store events, rather than lazily relying on merchandising provided by the big box stores, is where the future of the physical business is.  

The strip mall big-box stores are dying out. Malls are the ones most "disrupted" by large online retailers, not necessarily bookstores.  Since malls are no longer the most convenient shopping experience, they need a new strategy to get people into the stores. That strategy is to make the store a destination for more than just shopping. Independent bookstores are utilizing the same strategy and seeing a resurgence. The ABA has nearly twice as many member stores as Barnes and Noble has stores, and yet co-op buys increasingly go to B&N.  It's certainly harder to buy co-op and run promotions without the help of a central executive authority, but that doesn't make it less worthwhile an investment.

Likewise, working with smaller device manufacturers, and e-tail book platforms (including subscription services) to make exclusive content available on the condition that they share user data, rather than paying Amazon to administer promotions is probably worth trying. Amazon is getting fat off publishers' content, discounting it to undermine the publishers' sales elsewhere, and using the publishers' own customer's data to do it. So why should publishers continue to encourage them by devoting their budgets to pay Amazon to run promotions? 

Diversity is the spice of life, and publishers should be looking to empower as many different partners as they can possibly empower. Growing the pie means making more money in aggregate, it also grants one better leverage over the big retailers without the attendant anti-trust litigation. And that is certainly a good first step towards breaking the current publishing malaise. The second step is, of course, to...

Sell More Books

…And I don't mean more e-books, though, that's certainly a swell idea too. I mean more physical books, mass-market paperback books to be specific.  If we accept the notion that physical book sales are in decline, and that attendant raise in e-book sales is largely unrelated to this, then we can start to look towards a solution to the problem of the shrinking of the physical marketplace. 

The biggest impediment towards the sales of physical books, publishers will tell you, is that there is limited shelf space.  They say that as if shelving weren't a renewable resource.  The real problem here is not that there are too many books and too few shelves; it's that there are too many potential readers out there who will never encounter a book where they live, where they work, or where they shop.

Waiting for retailers to increase their capacity to receive your books is not a winning strategy. Limiting the options available in order to fit the "new reality" of less shelf space is also not a winning strategy.  Yet, that's exactly what publishers have been doing for the past decade, while blaming the decline in print sales on the twin phantoms of e-book cannibalization and online piracy instead of on poor selection, decrease in foot traffic, and pricing inflexibility. 

The response to the decline in mass-market edition sales across the industry has been to decrease first-printings for all mass-market editions. The whole point of the mass-market edition is to cater to the mass-market.  It's not really a mass, when you cut first printings in half or more and are absent from marketplace in most areas where you used to have a presence. Arguably, those old readers didn't disappear, and they weren't hijacked by cannibal e-readers, or lured into the pirate's life, they just stopped shopping where publishers used to sell their books.  It's high time that publishers be brave, and attempt to find them again. 

In addition to finding those old readers, it might be helpful if the only options for the growing number of young readers (NEA reports a 21% increase in young adult readership from 2002 to 2008) to find books weren't Amazon, Apple, Google or Nook. 

In short, it's time to go big or go home (so far publishers have opted to go home). Publishers need to once again, wield the weapon of the mass-market paperback to fell their foes. It's time to look for new vistas, rather than hoping to do more with less. If publishers retreat from the marketplace, then they diminish themselves.  A myopic focus on individual book performance is a coffin nail.  You can expect that most books will fail spectacularly in mass-market, but the ones that succeed will cover the losses.  The worst thing publishers can do is continue to retreat from this marketplace. The reason for the diminished sales in mass market has been diminished expectations. Mass-market editions shouldn't be an afterthought. Treat them like the primary edition, and they'll sell that way. If the bookstores chains don't buy that, then find other options.

That means going with sales agencies that specialize in non-standard retailers for books, and look to place book displays wherever people shop, wherever people wait, wherever people go.  There should be more books at the supermarket checkout line, book vending machines at the DMV, and in cardboard displays with books at the hair salon.  Ubiquity is a necessity when you acknowledge that book discovery is the one clear advantage the physical marketplace still maintains. Publishers should be looking to expand their reach, regardless of what the bookstores are doing.

It also means, as I stated before, dividing promotional money between the big boys and the independents.  You want more shelf space? Help the small fries so they can expand, and get them to work for it by holding in store events for your authors. The small fries will be happy for your business, the big box stores will squeeze you dry to pay their creditors, and offer you less every year.

In addition, more could be done with the shelf space already available, by pressuring buyers to cycle books out more frequently, and to offer more variety. Putting up the same five best-selling thriller authors in hardcover on a small display is a waste of everyone's time. Everybody shopping has already bought that book, and they probably got it for cheaper on Amazon. Publishers could just as easily replace that hardcover with two mass-market paperbacks from two different genres, one a bestselling author, and the other a debut (even better: package them together and sell them for a bundled price). The mass-market is your friend when it comes to limited shelf space.  It leads to greater variety and better pricing competition compared to the online retailers (and other forms of media like DVDs, CDs, & video games). If Sales can treat the mass market like a primary edition, so will the buyers, and so will customers.  Especially if you get creative with sales strategies, like bundling.

The spike in e-book sales should tell you that people are interested in reading more and interested in buying lots of books with greater frequency across a more diverse selection, provided that it’s convenient to do so and that there is...

Competitive Pricing

Another lesson Publishers can learn from the e-book marketplace is just how sensitive readers are to pricing. Again, the mass-market paperback is designed to be competitive in this arena. You want readers to pull the trigger on the first book from a new author of a new series, put it in front of them in a cheap paperback, and mark it down. 

Trying to match pricing with online retailers is a fools' errand, but that doesn't mean publishers should be inflexible on price, or unwilling to run pricing promotions with greater frequency, and across a greater number of titles. Sure, the margins are lower, and will be made even lower by pricing promotions, but it beats the diminishing returns publishers are seeing now. What would you rather have 20,000 full priced mass-market paperbacks of which you only sell 10,000 or 100,000 mass-market paperback sales, only 10,000 of which you sell at full price?

Amazon's already set pricing expectations low, publishers can't help that. But they can attempt to compete, rather than to surrender.  In the process, they'll be creating the next generation of stars by lowering the barrier of entry for new and upcoming authors.

Today's discount paperback author is tomorrow's best-selling hardcover author. The way things are going for debuts, there are authors who can make sales regardless of price, and then there are authors with the best-reviewed $30 hardcover no one is going to buy.  Apart from being ruinous for authors' careers, it's ruinous for publishers as a whole. Relying on hardcover/trade sales as a major tent pole is a risky proposition.  Having a more even distribution among hardcover, paper, and e-book debuts (as well as a healthy backlist, more on that later) is a much better strategy.

A publisher that is reliant on a few authors who can command the sort of readership that will pay for the premium edition, and that ignores the power of pulp, is going to circumscribe itself and become vulnerable to increased competition among other publishers and disruption from online retailers. They're also going to send a message to the midlist, whether they mean to or not, that midlist authors would be better off self-publishing, which simply isn't the truth.  Everyone is better off by having a publishing industry that's prepared to sell books to the mass-market and make more money. And when it comes to money, publishers should really be using it to...

Invest in Authors

In addition to selling more books, publishers need to buy more books, and they need to be more flexible when it comes to deal making.  Publishers need to be broadening their offerings, not shrinking their lists. Readers are voracious, and they're looking for expansive selections, and more diversification within genres. The single-minded focus on retaining top sellers is turning publishing into a zero-sum game.  Resources are being wasted on inflated advances that could be put to better use broadening the pool of potential future bestsellers. Nobody in this business has a crystal ball, and often books bought with little fanfare succeed far beyond expectations, while books with six-figure advances go down in flames.  If the publishing CEOs want to lay down a cost-saving policy, what they ought to do is cap the budgets available for auctions, and allocate the savings to new acquisitions.  The voracious e-book reader has increased demand, and unless publishers want to see that gap filled with self-published authors selling their wares primarily on Amazon, they need to step up and start buying.

Another major obstacle is publishers' attitudes towards successful self-publishers. There's a tremendous opportunity to parlay the success of self-published authors into physical sales, but publishers are leaving these deals on the table, unless they can get a hold of e-book rights in addition. 

Self-published authors would love to have an entrance into the physical marketplace.  They have nothing to lose, and publishers could have rights cheaply for books that have a proven sales track record, and a legion of online fans willing to recommend the paperback to their antiquarian book-buying friends.  It used to be publishers made money by publishing paperback runs of popular small-press hardcovers.  The same paradigm can work here, and it shouldn't take a Hugh Howey level sales, and permission from the CEO, to convince a publisher to offer a print-only paperback deal to a self-published author.  

While publishers are doing short-term thinking, Amazon is playing long ball, and consolidating their power.  Publishers meanwhile are withdrawing from the physical marketplace that is the fulcrum of their power, and contributing to their own irrelevance by writing off self-published authors, effectively ensuring that a whole group of potential customers can only find the authors they like on their Kindle.

The rationale behind the e-book-rights-or-nothing attitude is that this will somehow frighten the publishers' big-ticket authors away from trying to self-pub their own e-books, and seek print deals separately. Publishing executives who think this strategy is wise are communicating to their staffs that they have little faith in their judgment and abilities. Acquiring editors should be empowered to negotiate these sorts of deal terms without corporate preconditions, and based upon their own calculations and knowledge. Publishers are also giving short shrift to the real work that goes into creating a fine digital product (interior design, coding, cover design, editing). 

This amounts to an admission that publishers really do have nothing to offer authors when it comes to the digital marketplace, if the only way to get an author to agree to hand digital rights over is by holding print rights hostage.  If nothing changes regarding royalties for digital rights, this attitude is only going to become more pervasive.  And as publishers continue to reduce print runs, the bargaining chip of print rights is going to be severely diminished.

Consider the author whose sales numbers are beginning to look pretty lopsided in favor of e-books: what power do the publishers think they are going to have over them when there's no longer a financial advantage to selling a print edition as compared to the serious advantage of going e-only for a 50%-70% royalty?

On that note, there is a simple and elegant solution to the issue of e-book royalties, and it's one that should be familiar to publishers already. That solution (as mentioned by me many times before) is...

E-Book Royalty Escalators

It costs money to make a good e-book product.  It costs money to edit, it costs money to design, it costs money to convert to multiple formats and distribute across multiple platforms, it costs money to promote and optimize for search. And this money is not for nothing, it's why publishers, despite supplying only about 8% of the total e-book titles nonetheless take in 50% of total e-book revenue.  For the first 1,000 to 5,000 sales, the publisher is really earning that 75% of net receipts.  After that? The per-unit overhead cost of an e-book begins to shrink to nothing, and that's where the author’s share of income should start to rise proportionally.

For those of you unfamiliar with the e-book royalty escalator, it is not an actual set of moving stairs comprised of sales data, but rather a graduated raise in revenue splits based upon number of units sold.  For hardcover copies, the standard royalty escalator looks something like: 10% of the list price of a book for the first 5,000 copies sold, 12.5% for the next 5,000 copies sold, and 15% for every copy sold over 10,000 copies.   In e-books, there's a flat royalty based upon net receipts, and that flat royalty could probably use a few more steps.

Exactly how much to raise the e-book royalty, and at which levels of sales, I can't say with any great authority, but it suffices to say the publishers should start doing the math to figure out what the standard escalators ought to be, and then they should be prepared to negotiate fairer revenue splits on a case by case basis (some authors sell a lot of e-books as compared to physical books, some don't). The deficit between their royalty of 25% of net receipts, and Amazon's 70% royalty is simply too staggering to ignore for published authors.  Even if they appreciate the value their publishers impart, and they love their editor, and they want to reach their print readership, they also have bills to pay, and you can't pay them with the satisfaction of holding a well-designed hardcover.

Likewise, if publishers want to make a strong case for successful self-publishers to grant e-book rights to them, they need to be able to compensate them for those rights in a way that at least pretends to be competitive with self-publishing platforms' generous royalties.  

Finally, publishers missed a terrific opportunity to shore up a windfall in long-tail backlist e-book sales by being penny-wise and pound-foolish when it came to negotiating e-book royalties, and devoting resources into backlist curation and cultivation. 25% of net receipts flat for a backlist title is too little, and though publishers have made concessions for popular backlist editions and famous estates in the past, they've been less willing to give a square deal to every author and estate with a sizable e-book backlist to offer up.  In the interim businesses like Open Road Media, Rosetta Books, Constellation (run by Perseus), and Premier Digital Publishing, have been drinking their milkshake by offering more competitive royalties. Opening negotiations with reasonable escalators, and noting the advantages big publishers have when it comes to negotiating distribution fees, and distributing across all platforms is a surefire way to stem the tide. 

The e-book royalty escalator would be a great boon to publishers in retaining top talent, enticing new and exciting authors from the booming self-pub world into the fold, and welcoming back authors and estates to share their backlists with new generations of readers.  E-book royalty escalators, in addition to being fair, will also do little to hurt the publisher’s bottom line, and may even help it by adding more e-books to their catalog.

The Long Tail (or more appropriately The Long Tale)

Hyperion apparently hasn't been reading its own books, because despite publishing The Long Tail in 2006, it is now divesting itself of it's sizable backlist to focus on "synergy" (see: Disney movie/TV tie-ins).  For those publishers without a powerful media dominating parent company, relying on synergy isn't going to save them from consolidation.  The long tail is a simple principle, one that should be familiar to publishers, since it's the business model Amazon is currently using to thwart them.  Too many publishers treat a big list like a burden, when, in fact, it's their greatest asset. The problem is making it work for them.

An inert long tail isn't good for much, you've got to shake that money-maker.  That means ramping up conversions of out-of-print but under-contract books into e-book (Publisher's Weekly notes that when they looked back at previous best-seller lists, only a fraction of those old best-sellers had been converted into ebooks) and getting the metadata right. It means devoting marketing resources to target whole groups of books based upon market conditions (i.e. around the time Osama Bin Laden was killed in a Navy Seals operation, books about Navy Seals suddenly became a hot commodity, and backlist e-books about Navy Seals seemed to be popping up out of nowhere, some by publishers but many uploaded straight to Amazon by the authors themselves). And it means exerting at least as much effort on their backlists as their frontlists.  

Publishers are trying, but they could be devoting more resources, both to curating the backlist from an editorial and marketing standpoint (serving up e-books to readers based upon current market trends at prices designed to move copies) and to obtaining the digital rights necessary, or amending agreements to include fair royalties in order to exercise rights. At each of the major publishers there are a handful of contracts associates charged with sending out thousands of boilerplate amendment letters. I've gotten several for authors who were not interested in handing over rights, and never received a follow up from the publisher to see whether the author was indeed interested, much less to negotiate for better terms. 

Institutionally, publishers need to treat the backlist like the major revenue generating power center of their business, and devote resources to retaining rights, and promoting backlist titles (both individually and by theme, subject or category) in ebook. There's terrific amounts of money on the table here that just requires the publishers to make the appropriate amount of investment. 

Summation

Just to recap, publishing is in a funk, but it needn't be.  There are things that can be done to correct this slump.  Reading is becoming more popular, and publishers should stop conflating the rise in e-books to the decline in print sales. They're separate phenomena.  E-books are nothing to lament, but should be pursued with gusto as part of a two pronged approach to maximize sales in the physical marketplace as well. 

In order to manage this publishers should not give up on the mass-market, and should be pioneering ways to make books ubiquitous and affordable. Publishers need to break themselves of their reliance on big box stores and big online retailers. To do this publishers should be divvying up their marketing and promotions budgets to serve a larger and more diverse set of retailers, and targeting smaller retailers for exclusive promotions in exchange for customer information about the habits of readers as end users.  As part of this effort in the digital realm, publishers should drop DRM, and look to empower smaller distributors, rather than allow online retailers to use publishers' content against them.

On the acquisitions side, publishers can truly do more with less by capping the amount of money available for auctions, setting a target for increasing their acquisitions of debut authors and assigning a budget appropriate to the task. In order to attract talent, in lieu of big advances, publishers should offer more competitive e-book royalties, using escalators as a method of compensating authors fairly, while reducing the risk of potential overcompensation.  Increasing the number of new acquisitions will help increase the chances of finding a hit, spread the risk of failure, and eventually aggregate more books to add to a publishers long tail backlist. 

Publishers should cultivate their long tail by being comprehensive in their approach to retaining rights, being flexible when it comes to negotiating, and looking for creative ways to sell backlist titles using the market data available.  

There are real opportunities for growth out there that publishers are uniquely positioned to take advantage of, and they should start seizing those opportunities now.

Mostly though, I want to leave those in publishing with the following message:  You are needed.  Be fearless.

Change can be hard, but it doesn't have to result in malaise. Despite the naysayers, the world is not marching on without publishers, and publishers do have real value to impart.  Readers want superior products (both in the physical and digital worlds), and publishers can deliver.  Authors want better ways to connect to their readers and publishers can deliver. Bookstores want better merchandising, and pricing flexibility, and selection, and publishers can deliver. It's time to stop feeling sorry for yourselves, and do the hard work of making that happen.  I believe publishers can do better.

For those working in the trenches, it means having the courage to tell your bosses when they're doing something wrong, and presenting them with options on how to do things better.  For those of you who feel stuck, get unstuck.  Shake things up, make noise, and if that doesn't work then consider going with an employer who values your work, and your input. Life is too short to waste doing shoddy work, or promoting a failed strategy, or reading a bad book. You owe yourself better than that, you owe authors better than that, and you owe readers better than that.  If you can do that, I believe things will get better.

For those in charge, it means making bold decisions, listening to staff, and consulting outside experts in areas of potential growth.  It means trusting the evidence, but it also requires having a bit of faith in readers, and in authors, and in your staff. Most of all it means looking at the future as a great opportunity, rather than threat.  If we can all do that, I believe things will be better.

Go forth, and sell more books. Malaise is for the people who would stand in your way.