Mar 222011

New York Times-bestselling author Barry Eisler recently turned down a $500,000 advance from “Big 6” traditional (or “legacy”) publisher St. Martin’s Press for a two-book deal. Now, it’s one thing for indie authors to turn their noses up at large publishers, and it’s even another thing for best-selling indie authors to spurn mid-list book deals (J. A. Konrath comes to mind), but we’re talking about turning down half a million dollars. This is pretty big news.

If I were a legacy publisher, I imagine this would feel like hearing the lookout yell, “Iceberg, dead ahead!” Or possibly like one of the more degenerate Roman emperors realizing the Visigoths had breached the city gates for the first time in 800 years. Maybe they feel like the railroad companies when the Interstate Highway System was announced, or like buggy-whip makers watching the first car drive down the road. Or maybe the more apt analogy is Marie “Let Them Eat Cake” Antoinette wondering what all those peasants with pitchforks were doing outside. I could do this all day.

Anyway, it’s a pretty monumental event. And I don’t think Eisler is insane, or just wants to stick it to “the man.” In fact, by all accounts, “the man” has been generally good to him and he has lots of nice things to say about publishers (albeit with plenty of complaints as well). For him, it was mostly a financial decision: he thinks he will earn more than $500,000 self-publishing these two books. He might even be right; he’s already made $1,600 in a few weeks (and is on pace to make $30,000 this year) on a short story he self-published and released electronically. He clearly has fans, and he’s listened to Konrath’s advice to price his works attractively (under $5). He believes that, in the long term, he can’t see giving up e-book rights to a legacy print publisher forever (which, even if they earn out that hefty advance, would only net him 14.9% on additional e-book sales); he believes the print distribution advantages that publisher would give him will be short-lived and outweighed by the greater e-book royalties (70%) and control (especially over pricing) that he’ll have by going it on his own. Several times, he mentioned that he just didn’t feel right signing away e-book rights to a company that he believes is trying to delay the ascendence of e-books as long as possible, by fighting instead of embracing them.

And I can certainly understand many of those same feelings and concerns … but it is half a million dollars. Of course, I don’t know Mr. Eisler or his financial situation, and I don’t know exactly how well his books sell (obviously pretty well). And I’d imagine, whatever offer the publisher gave, the rights are worth more than that, especially when maximized effectively with proper pricing and customer-friendly policies. But, it’s another salvo in the “It’s easy to get rich e-publishing” meme gaining traction online, which I think is dangerously seductive to aspiring authors the same way the lottery is seductive to people who can’t afford buying tickets and the NBA is seductive to kids who should probably spend more time studying trigonometry instead of the triangle offense.

In any event, this move is a pretty big deal, and has to be a big blow to the legacy publishing industry. I’ve said for a while that best-selling authors will start migrating away from traditional publishers and going it alone (what can a big publisher offer Stephen King at this point that he can’t do on his own?), and Eisler appears to be the first big domino to fall. Sometimes these types of paradigm shifts happen “gradually, then suddenly,” so we’ll see if Eisler is merely an aberration or the start of a trend. Either way, legacy publishers can’t be happy with this news.

For the record, no, I’ve never been offered a $500,000 advance, and yes, I would take it in a hot second. Then I’d live off that money and write a whole bunch more books that I’d probably self-publish. 😉

Mar 222011

I really do think I've heard every one of these.

Author John Scalzi posted this most excellent “Electronic Publishing Bingo” scorecard over on his blog, and, while it’s hilarious in its own right, I think it’s also worth a bit of closer discussion. (As with most humor, it has more than a grain of truth in it.)

While the scorecard includes some funny misconceptions and inconsistencies (“Stop Being Greedy and Also Where’s My Sequel?” is gold), it also includes several references to unbridled e-book success: “Everyone Will be as Successful as these Outliers;” “Amanda Hocking” and “J.A. Konrath” (the aforementioned outliers); “All You Need is 100,000 Readers;” “Anyone Will Read Anything if it’s 99 Cents;” and my favorite, “Publicity? Just Go Viral!” A number of squares also reference how easy it is to be a successful writer or publisher: “Crowd Source the Backend,” “Cover Art? You Can Just Photoshop That,” and “Spellcheck is Really Advanced These Days.”

I am certainly excited about the future (and the present!) of electronic publishing, and have written glowingly of it many times. I’ve even tried to help fellow authors on their path to self-publishing in both electronic and printed formats. And I do believe that authors today (whether first-time novelists or mega-bestsellers) should seriously consider self-publishing as an option — and that, in some cases, it may make more sense than publishing with a legacy publisher who is fighting instead of adopting electronic publishing.

But I’ve never promised easy riches or fame. I’ve never even promised very difficult riches or fame. At the end of the day, there are still way better ways to earn money, and even way better ways to take a gamble and strike it rich (practicing your jump shot or playing the lottery come to mind). Writing has never been a profession of easy riches (just of a very very tiny minority who make a lot of money, a fair number of authors who struggle to make a living, and countless authors who earn nothing or even lose money), and self-publishing is, in many ways, even tougher: part of self-publishing means that you have to do everything yourself (or pay to have it done). That means not only writing, but editing, proofreading, cover design, jacket blurb, author bio, print formatting, e-book formatting, marketing, social media, maintaining a website and blog, sales tracking, income taxes and expenses, etc.

As I’ve mentioned, there are more and more self-publishing authors who are doing well, some even very well, financially by self-publishing. But “more and more” is a relative term: there were exactly 0 people making good money in 2009 self-publishing, 1 or 2 in 2010, and maybe half a dozen so far in 2011. There are probably another few dozen making some kind of living at it. And this is out of about 1,000,000 books that were published last year, about 3/4 of them self-published. I’ve heard stats that claim the average self-pubbed title sells only 200 books. Considering it takes around a year to write and prepare a book, and might cost several hundred dollars or more for cover art, editing, and formatting, most books either lose money, break even, or earn their authors literally pennies per hour. I’m closing in on 10,000 sales, but I’m probably closing in on 10,000 hours spent (between writing 3 novels, all the other tasks I mentioned above, never-ending marketing, and all the research and blog posts I read and write on the publishing industry). So pennies an hour about covers it, and I’ve done better than most.

Even for the success stories, there’s no guarantee that their current sales trends will continue. I’ve seen my own books fluctuate from a few sales a day to 1,500 a month, and back down again. Same books, same covers, same hard work, same everything. I’m glad I wasn’t relying on the income to pay the rent. The electronic publishing future could change pretty drastically: publishers might get on board with low prices, Amazon might lower royalty rates or stop allowing self-publishing altogether, or there might be so many books out there that no one finds yours.

I say all this just to help temper expectations: as the Bingo board above illustrates, the Internet is alive with people touting self-publishing as a get-rich-quick scheme, an easy money-maker, and something you just have to get in on. Many of those shouting the loudest are companies looking to make money in publishing the same way it’s been made for decades: by preying on the dreams of aspiring authors and charging them for questionable editing, marketing, printing, or distribution services. Others are well-intentioned people or aspiring authors themselves who sincerely believe we’re in the midst of a “gold rush.” It is not my intention to throw cold water on anyone’s dreams, but I also don’t want to mislead anyone, and the reality isn’t necessarily as rosy as some would like to hope.

Even J.A. Konrath (arguably the first self-published author to start making good money) will tell you, over and over, that a whole lot of publishing (including self-publishing and electronic publishing) comes down to luck. Let’s face it, the big publishers, with 100 years’ experience and big marketing budgets, can’t predict what the next huge bestseller is — forget about home runs, they can’t even always hit singles, with about 80% of their releases losing money. Sometimes, things get hot, and go “viral” for no discernible reason; it’s just the right thing at the right time that was picked up by the right group of people.

That’s not to say that you can’t increase your odds by writing a good book, editing it until it shines, having a professional-looking cover, doing a good job with formatting, writing a compelling blurb, and pricing your work competitively (under $5, usually $0.99 or $2.99). But even doing all that, the odds of making a living at writing — let alone becoming rich or famous at it — are stacked firmly against you. Yes, electronic publishing offers some exciting new opportunities, and I’ve obviously taken on the challenge for myself. But the advice I’ve given authors all my life — and I still stand behind today — is to write a book only if you want to write it for yourself, and look at any future sales or income only as a secondary bonus, not a sure thing.

UPDATE: Some interesting specific numbers from Amazon here, showing just how few authors “strike it rich” self-publishing.

Mar 032011

One result of the agency model

A couple of days ago, Random House became the last of the “Big 6” legacy publishers to switch over to the agency model. The agency model (described in full detail here) forces e-book retailers (like Amazon and B&N) to sell e-books at the prices that the publishers choose, with no discounting allowed. The retailers receive 30% of the purchase price.

Switching to the agency model usually results in higher e-book prices (for example, bestsellers rising from $9.99 to $12.99 or more once Amazon is no longer allowed to discount them), and should ensure that prices are the same at any e-book retailer. (On the plus side, that means there’s usually little point in shopping around for e-books; on the minus side, that means you’ll rarely find a sale or good deal, everything will be “full price.”)

Part of the reason (perhaps the main reason) Random House succumbed, 11 months later, is to get their e-books on Apple’s iBookstore, which requires an agency model contract (the timing of the announcement coming on the heels of the iPad 2 introduction can’t be a coincidence). And some Random House titles are starting to show up in the iBookstore. But, with the iBookstore struggling, was this a smart move for Random House? After all, before the switch, Random House was the only large publisher still using the retail model (the same model used for printed books), where Random House received 50% of the “list price,” which was often the same as the hardcover price, and Amazon could discount the e-book as much as they wanted without cutting into the royalty. So, instead of Amazon selling bestsellers for $9.99 and giving Random House $13 or so, now they’ll sell them for $12.99 and give Random House $9.09 (70%). (Click here for more on the cost breakdowns of e-books and printed books.)

Will iBookstore sales make up for selling fewer books and earning less on each sale through Amazon and B&N? Consider me skeptical. I thought it was more likely that the other large publishers would switch away from the agency model when their original 1-year terms end next month. Do they know what they’re doing, or is this just another example of large publishers hastening their own extinction? Feel free to share your thoughts in the comments below….

Feb 132011

It may surprise you to know that when you buy an e-book from Amazon, B&N, or pretty much any other e-book retailer, you’re not really buying the e-book in the same sense that you’d buy a printed book or, say, a tomato. You’re actually paying for a license to do certain things with the e-book, such as download it to a certain device, read it, lend it one time for 14 days, perhaps listen to it with text-to-speech (or perhaps not), etc. But it’s quite confusing for a couple of reasons: first, it feels like a sale (not a license) because you pay money, then download the e-book, then it sits on your e-reader or computer and it certainly seems like you own it. Second, neither the publishers nor the retailers have really gone out of their way to explain or market these transactions as mere licenses instead of sales, since they know people are unwilling to pay as much for a license as for full ownership of something (note that the button on Amazon says “Buy Now,” not “Rent Now” or “Lease Now” or “Click Here to Enter into a Complicated Licensing Arrangement”).

But this ambiguity leads to certain problems and misunderstandings. For example, the infamous case of Amazon removing the book 1984 from people’s Kindles — which was actually pretty reasonable when you understand that those e-books were licensed, and not sold. (You know those 50 pages of legal crap you skip over when you create an Amazon account or update your iTunes or iPhone software? It’s in there somewhere … I think — I didn’t read it.) Since Amazon was merely licensing those e-books to you, under their own license from a publisher (who only licensed the right to distribute the book — and did not buy the copyright — from the author), once Amazon realized that one of those licenses was invalid (in this case, the publisher did not properly license the right to distribute the work), the subsequent licenses down the chain became invalid. And since it was a license, not a sale, you never legally owned that copy of 1984, so Amazon did what they thought was right at the time, and removed it.

In the physical book world, you’ve probably heard about the “first sale doctrine.” That means that, once you lawfully purchase or acquire a printed book, you can then lend or re-sell it as you see fit. (You can not make additional copies, but you can sell the one copy you have.) But this is where the confusion comes in — people understand they have those rights with a physical book, even if they’ve never heard of the first sale doctrine. They still know they can lend the book to their sister. And they expect the same with an e-book, because they assume they bought the e-book and didn’t just rent or license it. Of course, to be reasonable, lending or selling a physical book means you lose access to it, and the same is not true of a digital file (which you can keep and email to a friend), so perhaps it’s not fair for the same rules to apply.

Where it gets confusing is that, while no one is going out of their way to point out that you just plunked down $12.99 to only license that new e-book, Amazon is going out of their way to assure customers that they will never remove purchased e-books from customers’ Kindles again. When you buy an e-book from Amazon, you can download it to your Kindle, and it will stay there, whether you’re connected to Amazon or not, whether Amazon even continues to exist or not. You don’t have to log in or authenticate or anything to keep reading it. You can even download a copy of the e-book to your computer and back it up with the rest of your computer data. And if Amazon disappeared tomorrow, you’d keep right on reading whatever e-books you had already downloaded. In short, it sure feels like you bought and own the e-book.

Even those of us who understand that e-books we buy are actually licensed are generally OK with the situation, because of all the safeguards I’ve described above. I own the file, it sits on my Kindle, on my computer, and backed up on an external hard drive, and there’s no way for Amazon to reach into my computer and remove it or stop it from working. I can turn my Kindle’s wireless off and they can’t touch that either. So I’m OK with paying for an e-book under the current system. But I don’t think readers will accept full-on e-book licenses — not without certain guarantees that make those “licenses” act more like traditional sales. For the same reasons, I don’t think customers will accept reading “in the cloud” — e-books you read only while connected to the Internet and don’t download anywhere — since we understand our access to those titles could be cut off at any time.

I know readers are willing to give up owning a physical object, and I even think they’re willing to give up the traditional “first sale” print rights of lending and resale, so long as the e-book prices are lower than physical. This is a key point: whether it’s called a license or a sale, readers do understand that they don’t get all the rights they get with print books, and don’t think they should pay the full print price (also, of course, we understand e-books cost less to produce). But I don’t think readers are willing to give up ownership of the digital file (at least not now or anytime soon). People want to build digital libraries and own those files forever — they don’t want to re-buy them in some other format for some new e-reader / tablet / smartphone / laptop device 5 years from now, and they don’t want to somehow lose access to them. So, call it a license, call it a sale, call it whatever you want, so long as I can download the file to my computer and back it up and keep reading it even if Amazon disappeared from the face of the Earth or wanted to stop all Kindle operations tomorrow.

Of course, publishers would like nothing more than to sell you an e-book today, and in 5 years, when some new e-book format magically appears, sell you that same e-book again in that new format. After all, it worked for the music and movie industries, which made you buy cassette tapes, then CDs, then MP3s (and VHS tapes, then DVDs, then Blu-Ray DVDs). Will they get away with it? I don’t think so. The file is already digital, and there’s no issue of higher quality or resolution — words are words are words. (Of course, “enhanced” e-books, with video and such, would be a different story if anyone wanted to buy such things.) And, there’s no reason why the Kindle 8 or iPad generation 17 can’t read MOBI or ePub e-book files — and even if they can’t, software will exist to convert them into the new file formats. Of course, this is where DRM comes in, and where things get messy. This is why a lot of people are so strongly against DRM, and where the issue of ownership comes to a head: we understand publishers want to prevent copying, but if I own the e-book file, I should be able to convert it and read it on some new device 5 or 10 years from now. And, if I can’t, if this isn’t an e-book sale, but just a strictly-controlled rental that will expire in a few years, then forget $9.99 — people aren’t going to be willing to pay anywhere near print book prices for e-books, nor should they, if they’ll just have to keep re-buying them every few years. And I think the publishers are intentionally refusing to clarify the issue, because they don’t want customers to think about that possibility. But what I think they overlook is that, if they try to get us to re-purchase the same e-books in a different format, people will start removing the DRM from their legally purchased e-books and wonder why they’re paying for them in the first place. Yes, readers have the ultimate trump card here, so long as we are able to download the files.

So I think we need a little more clarity from the publishers and retailers on the licensing vs. ownership thing. We give them our $9.99, and they can do whatever they want with it. It’s theirs. What do we get in return? What rights do we have? What do we own, if anything? And what can we do with it 5 years from now? And if readers don’t like the answers they get, I don’t think publishers will like the readers’ response.

So, how about a new e-book sale/licensing doctrine, one to replace the first sale doctrine from the print book world? OK, we can give up lending and re-selling, so long as we own the digital files and have the right to convert them into whatever formats we need, now or in the future. No copying, no pirating, just me reading the e-book I bought today 10 years from now. Sound fair?

$0.99 is the new $9.99

I bet the big publishers wish they had been happy with $9.99.

As I mentioned in this post about the agency model, 5 of the “Big 6” publishers demanded that Amazon stop discounting e-books to $9.99, and insisted on controlling retail prices — immediately raising many new release e-book prices to $12.99 or $14.99.

Amazon argued that the agency model and those high prices were costing publishers sales, and I knew that readers would vote with their wallets, but for a while it appeared that publishers were doing OK with $12.99 e-books (although $14.99 pricing never really caught on). But a look at the current Amazon bestseller list shows that readers are voting with their wallets in a big way, and what they want is inexpensive e-books.

In fact, almost exactly half of the Kindle Top 100 consists of e-books that are $5 or less. (Additionally, there are several selling for about $5.50 that I’m not counting.) In fact, a quarter of the e-books on the bestseller list are $1 or less.

On top of that, the books at the very top of the list are skewed even more towards low-priced e-books than the whole list. Books $5 or less make up:

  • 4 of the Top 5  (80%)
  • 7 of the Top 10 (70%)
  • 12 of the Top 20 (60%)
  • 20 of the Top 40 (50%)
  • 49 of the Top 100 (49%)

And, more than half of those books are very low-priced: $1 or less. Books $1 or less make up:

  • 3 of the Top 20
  • 9 of the Top 40
  • 25 of the Top 100

And this does not include all the free e-books being downloaded on Amazon.

Further exacerbating the publishers’ nightmare, a decent percentage of these e-books are by independent authors, including uber-indie Amanda Hocking, who has 3 e-books in the Top 12 and reached #2 overall in the Kindle store. She sells as many books in a day as I sold last year, and the big publishers didn’t want her. But in 2011, it’s the readers, not the publishers, who have the power.

Maybe, instead of fighting with Amazon over $9.99, publishers should have been happy that Amazon had ingrained $10 as a reasonable price point for e-books. Instead of thinking they could get even more, maybe they should have thanked Amazon for getting customers to pay that much for e-books that have no printing, shipping, or returns costs. Because now readers are demanding more and more low-priced and free e-books, and don’t even feel guilty about it because they feel that publishers tried to take advantage of them with overpriced e-books, delayed releases, poor formatting, blocking lending, blocking text-to-speech, and invasive DRM. And now big publishers are being crowded out of the bestseller lists by independent authors, and are being forced to lower their own big-name titles to $5 just to compete with indie authors at $1 and $3.

I bet $9.99 is looking pretty good to them now.

I spend a lot of time reading forums related to e-books and e-readers, including the official forums at both Amazon and Barnes & Noble. I’ve seen countless posts by readers decrying (a) high e-book prices (the agency model and $14.99 e-books), (b) delayed e-book releases, (c) publishers blocking text-to-speech, (d) annoying DRM attached to e-books (and the incompatibilities that result), and (e) recently, publishers blocking the lending feature (which B&N has had for a while and Amazon just added).

In this new age of digital reading, readers DO have the power to help shape the new rules of the game. Readers control all the money spent on books, and that’s always been the case. Publishers will try to raise prices, window releases (delaying e-books), block text-to-speech, block lending, institute DRM, and their new frontier will be trying to get us all to read online in the “cloud,” which just allows them to lock down the content more effectively by preventing us from downloading a file.

But the thing to remember is that publishers can only get away with what readers allow them to get away with. Not all publishers are on the agency model (5 of the “Big 6” are, but Random House and smaller publishers are not). If readers refuse to buy books over a certain price, or with certain features blocked, or that do not allow us to download the file we’ve paid for, or whatever, then publishers will have to cave in and give readers what they want. We’ve already seen that readers generally wouldn’t pay $14.99 for new releases, and publishers lowered them to $12.99, which enough people seem to be paying.

Readers DO have choices. There are a million books a year published in the U.S. alone, and most of them don’t go through large publishers. Many books are sold for much lower prices, enable lending and text-to-speech, and don’t have DRM attached. True, you might have to take a chance in finding some new authors and you might not love all the new authors you find, but it is a choice, and the choices that readers make now will shape the way e-books are read for decades to come.

As 2010 comes to a close, it’s a good time to take a moment to reflect on everything that’s happened this year with e-books, e-readers, the publishing industry, and writing. I’ve included plenty of links to posts with more detail on individual topics you may be particularly interested in.

E-Books

In 2010, e-book sales roughly tripled, increasing from about 3% of total book sales to about 9% — a figure that finally seems to have the publishing world sitting up and taking notice. As we transition from paper books to a paper + digital world (and perhaps eventually to a primarily digital book world), we’ll see many changes in the centuries-old print publishing industry: bookstores will close, publishers will struggle, and new companies will step in and pick up the slack. In the digital world, in 2010 we’ve seen a proliferation of available e-book titles (the Amazon store roughly doubled its catalogue to over 750,000 e-books), e-books starting a global expansion (including the launch of the Amazon UK Kindle Store), and we’ve even seen e-book sales on Amazon overtake hardcovers and overtake all print books for best-selling titles.

We’ve also seen a battle over e-book features — with publishers generally fighting some of the very things that make e-books so useful and convenient for many of us. Publishers lined up to block text-to-speech functionality (which lets your Kindle read e-books aloud to you); add restrictive, annoying, and mostly ineffectual DRM copy protection; provide many e-books as poorly-formatted, non-proofread scans of print books; and we’re still stuck in an era where readers in many countries can’t buy the e-books they want to pay good money for, as geographic legal restrictions serve to partially negate the huge e-book advantage of instant, inexpensive, global distribution.

In 2011, I predict e-book sales to continue to increase (perhaps continuing the trend of doubling or tripling each year for another year or two), especially considering the technological advances in e-readers (and lower price points) and how many people probably just unwrapped new e-readers last week. I’d expect slow improvement in worldwide e-book availability and improved formatting of e-books, as publishers realize that they’re losing money and start to take e-books more seriously. But I’d expect large publishers to continue fighting certain e-book features, as they’re still in the mode of protecting print book sales, not fully embracing e-books yet. However, the pressure will continue to increase on them next year.

E-Readers

2010 brought us the introduction of Apple’s iPad, Amazon’s new Kindle 3, a new round of Sony E-Readers, and the Nook Color, among others. We’ve seen improvements in technology, including the new e-Ink Pearl screen with better contrast, and a battle between tablet computers with LCD screens (like the iPad) and dedicated e-readers with easy-on-the-eyes e-Ink screens (like the Kindle); at the same time, we’ve seen prices come down from $259 for the Kindle 2 to only $139 for the Kindle 3 Wi-Fi. This has combined to make e-readers much more affordable and a better value for more and more people. Estimates put e-reader sales from about 5 million in 2009, to 12 million in 2010, and predict 27 million in 2011.

Personally, I’ve tried the iPad, and found it better suited for Internet surfing, movie watching, and game-playing than for reading. I also recently upgraded from a Kindle 2 to a Kindle 3, and I am very, very pleased with the Kindle 3 — I think it’s the best device available for e-book reading, and I am finding it considerably better than the already-quite-good Kindle 2. I especially appreciate the increased contrast (much darker blacks and slightly lighter background) of the e-Ink Pearl screen, which is why I wouldn’t recommend either an LCD-based device (which has short battery life and is harder on the eyes), or an older-generation technology like the e-Ink screen in Barnes & Noble’s Nook. I’ve written a Holiday E-Reader Buying Guide here that compares and contrasts the options available, if you’re still trying to decide which one is right for you.

Next year, we can expect to see (a) more tablet computers being introduced, and many of them will masquerade as “e-readers,” although they are really Jacks-of-all-trades that are better suited for other tasks, (b) continued improvements and refinements in e-readers, and (c) perhaps even lower prices, as we’re approaching the $99 price point for e-readers — remarkable when the Kindle 1 debuted just 3 years ago for $399.

Publishing

As I mentioned above, the continued rise of e-books will have a profound effect on the publishing industry. First, print book sales declined in 2010, being replaced by e-book sales. This shift has strained the margins of publishers and bookstores, who are finding it difficult to adapt to an online e-book-selling world. Publishers have long-entrenched ideas, facilities, processes, and business models that can’t turn on a dime, and they’re seeing increased competition from online retailers (like Amazon and B&N) and smaller publishers, who don’t need the huge economies of scale and financial capital that the print book business requires. Predictably, these businesses have responded by trying to fight e-book adoption, trying to protect their print book business for as long as they can, and squeeze out a few more profitable quarters. They, so far, don’t appear to be interested in making the tough changes and painful downsizing required to succeed an an e-book world, and they (rightfully) fear that their spot at the top will be jeopardized during the upheaval, as newer, leaner, more forward-thinking companies replace some of the “Big 6” publishers at the top of the heap.

To that end, publishers, fearful of Amazon’s e-book dominance, in April embraced the agency model, which stopped Amazon from selling best-selling e-books for $9.99 and allowed publishers to retain control of e-book pricing (most best-selling e-books then increased to about $12.99). This caused a temporary dip in e-book sales, which have since recovered. Publishers complained that low e-book prices “devalued e-books” and were unsustainable, while many independent authors (like myself) argued that selling more units at a lower price was a win-win scenario.

2010 will also be remembered as the year of the rise of self-published authors, with a couple I know of in particular (Joe Konrath and Amanda Hocking) selling over 100,000 e-books and earning a very nice living — without traditional publishers. Several other indie authors joined Amazon’s “Encore” publishing program, competing directly with large publishers. In 2010, we saw e-book royalties for self-published authors (through Amazon, B&N, Apple, and most other outlets) increase from 35% to 70%, which compares quite favorably to the 8% authors used to get from publishers for paperback sales, or the 17.5% (net) they normally pay for e-book royalties.

As large publishers continue to decrease the amount of advances paid, hold the line on e-book royalties, overprice their e-books, block features, and reduce marketing services, my question to best-selling authors in 2011 is: why give 90%+ of the profits to a large publisher, when you can hire someone to do your covers and formatting for you, and keep 70% for yourself? I think we’ll see more and more big authors strike off on their own — and do very, very well. After all, when you buy a Stephen King or J.K. Rowling or Dan Brown book, you’re buying the book for the author, not the publisher (quick: who can even name the publishers for those 3 authors without looking it up?).

Writing

2010 was a milestone year for me personally, as I finished writing and editing my third novel, The Twiller, and released it for sale in June. Of course, being independent, I was also responsible for doing my own formatting and creating my own cover, along with doing my own marketing, which can take more time than actually writing the book! I was very pleased by the launch of The Twiller, which had the following results:

  • Ranked #1 on Amazon’s “Movers & Shakers” List.
  • Ranked in the Top 5 in both “Humor” and “Science Fiction” in the entire Kindle Store.
  • Ranked #188 overall in the Amazon Kindle Store.

My other novels also exploded in sales in 2010 (I only made them available through Amazon for the Kindle in late 2009). I ended the year with several new sales records, selling several thousand copies and earning several thousands of dollars from my writing for the first time — not yet enough to make a living, but certainly a nice start. More importantly, I reached thousands of readers, received dozens of positive reviews, and interacted with many great and passionate readers by email, through my Facebook Fan Page, and more. I sincerely do appreciate all the readers who have read my book, taken the time to contact me, written a review (they really do help!), and generally been supportive in my writing endeavors this year.

For my first novel, Right Ascension, I had the following encouraging and exciting milestones:

The sequel, Declination, also showed encouraging signs:

  • Sold over 3,000 copies this year — so more than 60% of the people who bought Right Ascension went on to purchase the sequel as well.
  • Both Right Ascension and Declination were on the Top 25 best-seller list for “Science Fiction” at the same time.
  • Ranked #827 overall in the Amazon Kindle Store.

As for this blog, its popularity has steadily increased since I launched it in April, with over 18,000 visitors. Average hits per day increased from about 40, to 60 in August, 90 in October, and over 100 a day in November and December. My most popular blog posts from 2010 were:

  1. E-Ink vs. LCD: What’s The Difference? (2,075 views)
  2. E-Book Market Share: Amazon At 75% (760 views)
  3. Kindle 3 Announced: 3G for $189, Wi-Fi for $139 (675 views)
  4. Kindle 3: Hands-On First Impressions (607 views)
  5. E-Book Sales Continue Rapid Growth (483 views)

Thank you again to everyone who visited my blog, left a comment, bought or read one of my books (available in the right nav bar or through Amazon here), became a Facebook fan, or shared some encouraging words this year. I’ve definitely excited to see what unfolds in 2011, and discuss it with all of you. Happy New Year!

Sep 292010

Where is your money going?

I was inspired to write this post by a couple of recent articles lamenting how the e-book revolution is making things tougher on authors: a WSJ article about the plight of authors, and a Futurebook description of a panel discussion about the future of books. My first thought was that the e-book revolution has increased my sales and income almost a thousandfold (OK, so it wasn’t very high to begin with!), and that the lower costs of e-books, the worldwide digital distribution they afford me, and the ability to reach readers without going through layers of middlemen (publishers and agents) has allowed me to price my e-books competitively and sell more books in a month than I used to in a decade. How can this be bad?

My second thought was that the two articles I read, and the dire predictions and “woe-is-me” lamenting therein, were mostly coming from those same middlemen: publishers and agents.

Let’s start off with some facts about where your money goes when you purchase a print book or an e-book:

  • Hardcover: These books retail for around $25, yet cost about 1/10th that amount — about $2.50 to print.
  • Trade Paperback: Retail for about $14, cost about $1.
  • Mass-Market Paperback: Retail about $8, cost about $0.75.
  • E-Books: Retail anywhere from $0.99 to $14.99, but most new releases from large publishers are $12.99. No printing costs, although they share the editing, cover design, and other costs of print books, and do have some formatting costs as well.

One interesting thing is that, as customers have clamored for lower e-book prices — rightfully claiming that there are no printing, shipping, or returns costs for publishers to account for — publishers have claimed these costs are only a small fraction of the cost of a print book (about 10%). Now, I think they’ve underestimated the costs of shipping and warehousing books, and the tremendous cost of accepting returns (for full credit) of unsold books by bookstores — sometimes paying for return shipping, sometimes having the books simply destroyed, and other times selling them in bargain bins for a fraction of the cover price. But I’ve seen enough data to convince me that the printing costs of a book are roughly in the ranges I spelled out above, when printed in large offset print runs.

One thing that jumps out at me is that hardcovers only cost a buck or two more than paperbacks, but can sell for $10 or $20 more. When Macmillan’s CEO John Sargent laments that “the value proposition goes ever downward when on screen … the perceived value decreases without a physical object,” I think what he’s really saying is that publishers can’t rip readers off for paper any more. I don’t think most readers understand that the extra $17 they pay for a hardcover is only $2 for the extra cost of the physical object (the paper and cover) and $15 as a “you want it first, you pay way more” tax. In other words, publishers were successfully able to charge triple the cost of a paperback for the hardcover version by combining the “it’s new, so it costs more” and the “look at how much nicer and more durable the hardcover book is” costs — without people realizing that the vast majority of the extra cost was the former, and the nicer paper and stiff cover was only a small fraction. With e-books, such intermingling is impossible, since the format of the book doesn’t change — not only are you getting the same words, but there’s no longer a different physical format to throw you off. And I think customers have said, “OK, I don’t mind paying a few bucks extra when a book is new, but there’s no way I’m paying that much more.”

Since I believe most readers overestimate printing costs, a related effect is that, once readers understand that printing costs of an e-book are zero, publishers can no longer exploit that lack of knowledge. Instead of being able to combine “new book tax” with “nicer, more expensive to print hardcover” costs, readers now understand there are no print costs with e-books, and can see the new book tax for what it is. Unfortunately for publishers, their industry had evolved to the point that the huge profits of hardcovers were what had kept them afloat.

So, let’s break down where your money goes a little more closely, shall we?

Cost breakdowns for print books vs. e-books

Your typical hardcover book costs around $25. The retailer (Barnes & Noble or Borders) typically pays the publisher about half the list price, so the publisher gets $12.50 (assuming the book sells, otherwise the bookstore sends it back!). Of that $12.50, it costs $2.50 to actually print the book, and the author gets a 15% royalty, which is $3.75. That leaves $6.25 to the publisher, from which they have to pay for their editors, proofreaders, cover designers, print layout people, CEOs, lawyers, advertising, and rent for big offices in New York City. Whatever is left over, is profit.

The typical trade paperback sells for about $13 (maybe a bit more, but this price will line up nicely with e-book pricing), costs about $1 to make, and provides an 8% royalty to the author ($1.04). Subtract the 50% retailer cut ($6.50), and the publisher profit is $4.46.

The numbers for a mass-market paperback book that sells for $8 would include about 75 cents for printing, an 8% royalty to the author (64 cents), and the same 50% ($4) to the retailer. That means the publisher is left with $2.61 for all their costs and profit.

E-Books used to be sold under a similar model: publishers priced them the same as hardcovers (!!!), retailers paid 50% of that price to the publishers, and then sold them for whatever they wished (list price, or some discount from list price, like how Amazon sold e-books at a loss for $9.99). Publishers insisted on the agency model, where the publishers set the sales price (not the retail price), and get 70% of the proceeds. Under this model, a $13 e-book garners 30% to the retailer (like Amazon or B&N.com), 70% ($9.10) to the publisher, and an author royalty of 25% of the publisher’s net proceeds (instead of the cover price), which works out to 17.5% of the cover price, or $2.27 in our example. The publisher has no printing costs, but let’s be generous and include 10 cents or so to account for e-book file creation (which is a one-time cost divided by the number of e-books sold). Subtract the $2.27 due to the author from the remaining $9.00, and the publisher is left with $6.73.

To recap, a hardcover nets the publisher $6.25 (or 25% of the cover price), a trade paperback $4.46 (34.3%), a mass-market paperback $2.61 (32.6%), and an e-book $6.73 (51.8%).

Wait, and publishers are complaining about e-books? They just found a way to earn more money on each $13 e-book than they used to make on a $25 hardcover. The percentage of your money they’re ending up with has more than doubled in the e-book world — and that’s the really important number, because don’t you think they can sell a lot more e-books for $13 than hardcovers for double that price?

And what about the author? Well, I may be biased, but it seems to me the author isn’t getting all he deserves here on e-book sales. First of all, publishers justify giving authors only 8-15% royalties in the print world because publishing a novel includes a lot of financial risk: to get those low per-book printing costs requires large print runs, and that involves up-front capital and the risk of paying for a bunch of books that never sell or get returned. There are also costs of storing and shipping all those books (along with the costs of editing and preparing the book), almost all of which occur before the first sale is made — and the publisher doesn’t even get paid for print sales until a month or two later! On the other hand, with e-books, there will be some editing and preparation costs, but there are NO printing costs or other huge up-front outlay of money for shipping or warehousing. There’s no way to lose money by printing more books than you sell, and publishers get paid much quicker on e-books as well. It seems to me that if publishers deserve the lion’s share of the revenue from books because of all their up-front financial risk, then the corollary is also true, and they don’t deserve as much if their financial risk is lower, as it clearly is with e-books. Instead of doing editing and cover design work, printing tens or hundreds of thousands of copies, and using their vast distribution, storage, and shipping network to get their books into thousands of bookstores across the country (and thus earning their share), publishers are now just doing the same editing and cover design work and a relatively-painless e-book conversion and upload process, and are taking 75% of the proceeds.

Now, I’ve done a lot of proofreading and editing, and designed my covers, formatted my e-books, and uploaded them to Amazon and elsewhere. And it takes a good deal of time and effort — but it does NOT take 3x as long as writing the book in the first place! For a large publisher especially, the formatting effort should be minimal — I know my third book took a lot less time to format than my first once I got the hang of it. More importantly, these jobs don’t require huge publishers with lots of money: authors can hire editors and cover designers by the hour or for flat rates, without giving up the majority of their books’ revenue forever!

I find it interesting when literary agent Simon Lipskar chides readers that they “should feel guilty if they buy a Kindle edition versus a hardcover, but not versus a paperback, in terms of what the author gets.” Whoa. Who determines how much the author gets? Right, the publishers. And, besides, even at 17.5% of gross, an author’s e-book take is still better than their hardcover take, let alone the measly 8% they get from paperback sales. (Of course, for an independent author like myself, I get the full 70% of e-book revenue after Amazon takes its 30%, so I have no complaints — I can charge readers much less for an e-book and still make a higher royalty than on a paperback, which is a win-win in my book.)

The bottom line is, e-books not only cost a lot less to produce (no printing costs, shipping, warehousing, or returns), but also require far less up-front investment and risk. Since those are costs and risks borne by publishers in the print world (and they are compensated for it), it only makes sense that removing those costs and risks should reduce the cut publishers are fairly entitled to take. Instead, publishers want the best of both worlds: reduced costs and risks, and they want to keep more of the purchase price for themselves.

Now, I do understand the publishers’ current dilemma: they’re caught between the new economic realities of e-books and their old business models, and 92% of book sales are still print. So, they may need to do a lot of painful downsizing and re-organizing, but they can’t do it all just yet and abandon their print sales model. But what frustrates me is that publishers aren’t telling us this, they’re not saying, “This is a tough transition time and we need to do certain things for the next few years and then here’s how we see things shaking out.” They’re not offering authors 17.5% of e-book royalties for the first 5 years, to increase to double that once e-book sales overtake print, or whatever. They’re not moving forward with their transition plan, they’re just trying to protect the status quo by fighting e-book adoption. And, like lots of businesses, it seems they’re more interested in protecting their own short-term profits and salaries and bonuses than in working on a long-term, sustainable business plan that’s fair to readers, authors, and publishers in the new digital world.

As I mentioned in my last post, e-books are surging in popularity, and for good reason. I mentioned that the surge in e-books has impacted me as a reader. But it has impacted me even more dramatically as a writer.

I wrote my first novel, Right Ascension, in 2000, and the sequel, Declination, was completed in 2002. While they enjoyed some early success and some sporadic pockets of sales, and received positive feedback from readers, they essentially sold about as well as most self-published books, which is to say: hardly at all. A few hundred copies over the course of several years.

Then, I learned about Amazon and their Digital Text Platform, and I published my novels to be sold through Amazon for the Kindle.

And people started buying it.

Not a ton, mind you, but some. And so I did some research. And I spent weeks learning how to perfect Kindle formatting. I spent time on Kindle boards, getting to know readers and what they wanted. I learned that the stigma against self-publishing is disappearing, just as it did for “indie” musicians and movies. In fact, people were sick of the same regurgitated tripe being spewed forth by the big publishers. Think about the three biggest hits of the past five years: Harry Potter, Dan Brown, and Twilight. Are any of those examples of great writing?

In December of 2009, I lowered my e-book prices to just 99 cents each. I debated back and forth for a while. But they’re worth more than that! I cried. But I did it, as a grand experiment, and it worked. While I had cut the price down from $5 to $1, my sales went up by a factor of 7. Cool.

Then, as I started becoming more active on various forums, and (I hope) started getting some positive buzz and word-of-mouth going, my sales more than doubled. Then doubled again. I sold more in a month than I had in the past decade. Then it happened again the next month. And, guess what? Readers didn’t care that my book wasn’t printed by a big publisher. Heck, they didn’t care if it was printed at all. They didn’t care that it wasn’t in bookstores. Because over 98% of all those sales were e-books. And my e-books look just as good — actually, better — than e-books from big publishers. In fact, mine are meticulously formatted and proofread and have a table of contents, while theirs are often error-filled scans of printed books. Mine enable text-to-speech, while theirs block the feature. Mine are not saddled with DRM (copy protection), and I offer them in multiple formats instead of tying you down to one device. And, while readers feel gouged by publishers raising prices from $9.99 to $14.99 and charging more for e-books than paperbacks, mine are just 99 cents.

Now, for the first time, I feel that there is a possibility — certainly not a certainty — but a chance of actually making a living at writing. For a long time I was told that I had a real talent for writing, and I worked hard at it, but the only option was to send query letters into the black hole of agents’ and publishers’ “slush piles,” sometimes getting a polite form rejection letter, sometimes a scrawled “NO” written in the margin of my own letter and sent back in my return envelope, usually no response at all, and never even once did anyone actually read the book they were rejecting.

So I’ve bypassed the gatekeepers, and am taking my work directly to the readers. Yes, it’s taken a ton of time, but it’s cost me very little money in the digital realm, and my books sit on Amazon’s virtual shelves next to (and even above!) Asimov and Heinlein and Vonnegut. And maybe, if I continue to work hard and hone my craft, write more novels, promote like crazy, get great editors to help ensure the books meet or exceed the quality of “traditionally-published” stuff, and get a bit of luck, I just might eke out a living at doing what I love. And that chance, remote though it still might be, did not exist two short years ago.

I’m excited. Are you?

Apr 012010

If you’ve been following e-publishing lately, you may have heard that today, 5 out of the “Big 6” publishers forced Amazon to agree to an “agency model” when selling e-books instead of the previous “retail model.” Under the retail model, publishers set a “list price” for e-books (usually the same $25 or so they set for the hardcover), and retailers like Amazon pay them a fixed percentage of that price, such as 50%. Amazon would then pay the publisher $12.50 for each e-book sale, and price the book however they wanted: $12.51, $19.99, $25, or even $9.99 (as a loss leader).

As of today, 5 large publishers told Amazon they must sell their e-books under the agency model (physical books remain on the retail model). Under the agency model, the publisher sets the final sale price, and Amazon gets a flat 30% cut of each sale. That means Amazon is not allowed to have “sales” on e-books, and that a particular e-book should be the same price everywhere. This shift was caused in large part by the entry of the iPad (which I am still not convinced will be a popular place for people who actually buy and read e-books) and Apple’s embracing of the agency model (just like in their iTunes Store and App Store).

Apparently, the large publishers weren’t happy about Amazon taking a loss and selling NYT bestsellers for $9.99 (even though they sent the publishers $12.50 per sale), because they are concerned Amazon is “devaluing e-books.” If you ask me, the large publishers are terrified of e-books, since they require a massive shift in their business model (involving costly layoffs, restructuring, reduction of rent and other overhead, changing contracts and relationships, etc.). They know that some publishers might adapt well and stay on top … but not all of them will. So they seem intent on stalling e-book adoption as long as possible (as evidenced by them trying to raise prices in the face of clear consumer outcry, attaching invasive DRM to their titles, disabling TTS access, delaying e-book releases, and generally releasing poorly-formatted scans of physical books).

So, today, most large publisher e-books will go up in price from $9.99 to $12.99 or $14.99.

It’s times like this that I’m glad to be an independent author … while the idea of a huge book deal with a traditional publishing house had always been my dream, I’m thinking more and more of the benefits of being nimble in a quickly-changing e-book industry. I wonder if the big publishing houses read forums and blogs and comments like I do; I wonder if they have any idea what their customers are feeling or how they think. Sometimes I wonder if they “get” e-books at all. It sure seems like they see them as a threat to be fought, instead of an amazing opportunity to be embraced. “Let’s delay releases! Jack up prices to double that of paperbacks! Infest books with DRM! Format them like crap!”

One thing I know for sure is that the vast majority of Kindlers are passionate readers (in a world where readers are an endangered species). In other words, the publishers’ very best customers. Or, as I see it, the reason I write.

I hate to say it, but the big publishers jacking up prices can only make the prices charged by most indie authors look that much better in comparison ($0.99 vs. $14.99 — wow). But, if they succeed in killing the fledgling e-book industry before it can really take off, then we all lose.

© 2010 David Derrico