Publishing: Making a Killing or Just Plain Getting Killed?
There is a story on today’s (June 11, 2007) Reuter’s newswire about the release of the final Harry Potter book. The subject is not the Potter phenomenon, but the sorry state of the publishing/bookselling business.
It seems the largest booksellers are discounting bestsellers, like the Potter books, so deeply that the profit margins are razor thin. Wal-mart and Amazon are discounting 40% off cover price and Borders and BN are discounting nearly 50% off. The intention is to sell in huge volumes to make up for the tiny profits per book and, thereby, to create a market/customer mindset that drives loyalty and additional sales over time.
This is making it virtually impossible for independent bookstores to compete. What’s the point of buying 5 books at $6 each when you have to sell them for $6 or $6.50 to compete with Wal-mart? The most you can make is 50 cents each, $2.50 if you sell all 5 books. Sure, the cover price is $10 and, in theory, a store could earn as much as $4 per book, $20 for 5 books. But with the behemoths on every corner selling the same books at 40% and 50% off, the mom and pop stores just can’t survive by selling books at full price…unless they have some other unique selling proposition to entice customers.
Sadly, this is making it even harder for authors to get published (as if it wasn’t hard enough already).
So let’s do the math. Say a book has a $10 cover price…
The big distributors like Ingram’s and Baker & Taylor buy books at 45% of the cover price or $4.50 each. They, in turn, sell the books to retailers like Borders and BN at 55-60% of the cover price ($5.50-6.00). In the case of our $10 book, the distributor earns between $1 and $1.50 per book (10% to 15%) just for passing the book from the publisher to the retailer.
Keep in mind that the author, who slaved for months if not years to write the book, makes between 8 and 12% of the cover price, maybe 15% for the bestselling authors, while the distrubutor, who merely touches the book, makes 10-15%.
In order to sell books at 40% off the cover price, Amazon and Wal-mart must have negotiated a deal to reduce their costs somehow. Perhaps they have gotten distributors to cut their markups so they only make 5%, which would mean that Amazon and Wal-mart could buy books for $5.00 and sell them for $5.50 (40% off cover), making a profit of 50 cents per book. More likely, especially in the case of Wal-mart, they have made deals to buy direct from the publishers, acting as their own distributors. If that is the case, then a Wal-mart could potentially buy books at the distributor price of $4.50 and make $1.50 per book selling them to customers at 40% off the cover price ($6.00).
I HAVE to assume that Borders and BN have gone direct to the publishers as well, if they are selling books at 50% off cover. The distributors get 55% off cover, so they have to be out of the loop. But in order to make even 50 cents per book, these megoliths must be buying books for $4.50 or less from the publisher.
Reality checkpoint #2: Remember, the author is lucky if he makes $1.00 per book, while anywhere between $1.50 and $5.50 per book goes to the distributor and retailer (depending on how much discount is given to the customers buying the book).
So what about the $4.50 per book that the publisher earns? Well, first, you have to deduct from that the author’s advance and royalty, which is our 80 cents-$1.50 per book figure. So now the publisher earns between $2.00 and $3.70 per book, depending on what percentage the author earns in royalties. That measly amount must pay for the cost of printing the book (can you print a 400 page book for $2 or even $3.70?), plus overhead (offices, staff salaries, utilities), shipping, marketing and promotion, etc.
Oh, and did I forget to mention that books aren’t actually SOLD to bookstores, they’re CONSIGNED? Yes, book stores can return any unsold books…at the publisher’s expense…and receive a refund or credit for those books. So out of that $2.00 to $3.70 earned per book, the publisher must also reserve some money to repay or credit the booksellers for returned books AND pay to ship those books back to the distributor. It doesn’t take long for the publisher to start losing money on this deal.
That’s why, after not too many of these cycles, the publishers will have the books “remaindered” and sold in bulk for a couple of dollars (of which the author gets nothing). Twenty or so years ago, bookstores would strip the covers off the unsold books and send only the covers back to reduce return shipping costs. I saved more than a few of these poor, coverless books from the trash heaps behind stores in my younger days. (For a great discussion about remainders, check out Joe Konrath’s blog at http://jakonrath.blogspot.com/2006/06/remainders.html .)
The only way a publisher can even HOPE to see a profit, even measured in pennies, is to print and sell humongous quantities of books. That brings down the cost per book. It doesn’t change any of the other factors, it just takes a little bit of the cost burden off the publisher. That’s why publishers are not really interested in midlist authors and newbies…unless you have the potential to become a blockbuster (and can do it fast). They can only make money on volume sales. And volume sales come from: (a) well-known, bestselling authors like Stephen King or J.K. Rowlings, (b) celebrities whose notariety can sell bazillions of books (even if they are crap), and (c) books (even if they are crap) about the hot topic/scandal du jour.What’s the bottom line? I guess it’s that while most writers are struggling to make ends meet, their publishers are not making a killing either. Looks to me like the business to be in right now is either book distribution or retail book sales.
How longer will this crippled business model survive? Something innovative is bound to emerge either from the electronic media or driven by it. The question is: Will we creative types still be able to make a living providing content?
