By Light Unseen Media
BLU~Media Blog

January 31, 2010

A small publisher’s thoughts about Amazon and Macmillan’s standoff

Filed under: Amazon.com,e-book,Kindle,Macmillan,small publishing — admin @ 7:03 am

Like everyone else who is seriously invested in the current publishing industry (as publisher, author or both), I’m following the latest skirmish in the e-book revolution. Although none of us rubes on the outside know anything more than we’re being told, apparently Macmillan has been demanding that Amazon raise its Kindle prices, and apparently Amazon has responded by removing the “Buy” buttons for every edition (not just Kindles) of every title of every imprint that Macmillan publishes. This includes a lot of genre fiction, since Macmillan owns Tor Books. This naturally hurts authors and readers more than Amazon and Macmillan, and the shock waves are just starting to reverberate.

The e-book price controversy has been boiling for a while now, and I have to admit something: I just don’t get it. I absolutely cannot follow the logic behind the arguments of the MegaConglomerate Publishers when they claim “low priced” e-books are hurting their profits. I am baffled when MegaConglomerate Publishers call $9.99 Kindles “loss leaders” for Amazon. The protests from these dinosaurs make no sense to me whatsoever.

By Light Unseen Media is a small press. We release every title simultaneously in hardcover (with dust jacket), trade paperback, and multiple e-book versions, preferably with no DRM if I can control that. We were among the first publishers to make all our titles available for the Kindle, back in 2008. Our books are available for the Sony Reader and the Nook via Smashwords and we published there as soon as Smashwords opened its publishers’ portal for managing multiple authors. If Apple contacted me tonight we’d be signed up for the iBookstore tomorrow (I am not, however, holding my breath on that one). When I see a new way of reaching potential readers, I go for it.

I love bound books–love them with fervent passion. But I also love computers and do a lot of reading online and onscreen. I want to meet, not fight against, the expectations of the new generations of readers. I have no reason to feel threatened. So far, e-book publishing has been the most cost-effective, efficient, and profitable way to distribute our books–and I just don’t believe that By Light Unseen Media’s production costs are that different from MegaConglomerate, Inc. In fact, By Light Unseen Media risks far less money on print books than the unsustainable “traditional” model.

But don’t take vague generalities for it. Let’s crunch some numbers. Here are the expenses that go into releasing a By Light Unseen Media title.

Advance to author–$100
ISBN number–averages to $10 per number
Editing, book design, and cover design handled in-house, by me, cash outlay negligible. It’s all built-in costs of labor and computer equipment, chiefly.
Print and order Advance Reading Copies–roughly $150 including proof copy and shipping
Ship Advance Reading Copies to reviewers–$25-$50 postage
Set up fees for hardcover and paperback editions–currently about $210
Proof copies of hardcover and paperback editions–currently $65, assuming I don’t need to order more than one proof
Order short runs of hardcover and paperback editions for reviews, promo and direct sales–this is my biggest single expense, usually around $800 for the initial print run. As inventory gets low, I order more, but the whole idea is to minimize waste by printing small numbers at a time.
Mail out review copies and comp copies to author, advance readers, copyright office, etc–variable, but averages around $150 in postage.
Register copyright for author–$35
Expenses of promotion, marketing, advertising–variable because so much of it is free, aside from what my time and labor is worth. I’ll spend maybe $50-$100 on ads

Now, after the above has been taken care of for the print books, what is the additional cost of producing the e-book editions?

Well, a couple of them get an ISBN number of their own, so that’s $10. Kindle editions don’t, because Amazon assigns Kindle books a unique ASIN. Kindle editions are proprietary and can’t be sold anywhere else.

And that is all. It costs me nothing to produce an e-book edition. Oh, there’s some labor on my part. I need to edit the book block slightly differently for each e-book, and create copies with certain specifications to be converted to the different e-book formats. But I’m very computer-savvy, so there’s nothing to that, from my point of view. And it’s a very small amount of work compared to the number of hours that go into editing the manuscript, laying out the print book interior and designing the cover. There’s nothing new to produce: everything for an e-book is just being recycled.

Once the e-books are created and uploaded, what does it cost to reproduce and distribute them to readers?

Nothing. Nothing at all! If I sell an e-book through Amazon, or Smashwords, or By Light Unseen Media’s Lulu storefront, or if a reader sends me money and I e-mail him or her a PDF, it costs me absolutely nothing. Whatever I make, whether it’s the full price or some percentage, is pure profit.

I can’t say that for print books. In order for By Light Unseen Media’s titles to be available wholesale to bookstores and libraries–which they are–I have to give wholesalers industry-standard terms. That means a 55% discount on the cover price plus making the books fully returnable. The down side to digital printing (in another post, I’ll explain why I never use the term “POD” and you shouldn’t, either) is that it costs more per book. After I set a cover price that is within the average range, give Ingram its discount and pay the printing costs, my profit margin per bound book is less than $2.00, and I split that with the author.

The big difference between me and MegaConglomerate, Inc. lies in the expense of producing the print books. MegaConglomerate, Inc. is enslaved to the “traditional” publishing model, which is incredibly wasteful and rigged against the publisher at every point. MegaConglomerate, Inc. prints a large batch of books up front and sends them out to bookstores, which have carte blanche to return all unsold books for full credit at any time, regardless of their condition. MegaConglomerate, Inc. hedges against this by withholding author royalties against returns, sometimes for as long as two years.

MegaConglomerate, Inc. usually doesn’t give a wholesale discount of 55%; no, the Big Boys have to give distribution companies and big box stores discounts of 65% and 70% off the cover price. (That’s why those retailers can turn around and sell the books to you for such heavy discounts.) So, MegaConglomerate, Inc.’s profit margin per book is even smaller than By Light Unseen Media’s, with the added burden of hundreds, or thousands, or hundreds of thousands of copies “remaindered” and sold off at a loss when the book goes out of print, which it may do in as little as three months after the release date. Over 90% of MegaConglomerate, Inc.’s titles never make enough profit to offset the advance paid to the author, let alone the costs of producing and printing the book.

How can MegaConglomerate, Inc. make any money this way? It can’t! The entire “traditional” publishing industry depends on that tiny handful of blockbuster best sellers whose sheer volume of sales subsidizes the other 90% of the company’s catalog, all its expenses, all its overhead, all its author advances, everything.

And this may be the reason that big publishers like Macmillan are fighting so hard to set a high price on the e-book editions of their biggest potential sellers. They’re terrified of crippling those few golden geese on which their financial survival depends. If that tiny little upper echelon of blockbusters doesn’t rake in enough money, fast enough, the whole house of cards collapses.

Which, I think, is very obviously in the process of happening.

What Macmillan and the other Big Publishers can’t see is that e-books and print books have completely different markets. E-books don’t cut into hardcover book sales because e-book buyers wouldn’t buy a hardcover book to begin with. Unlike us small publishers, MegaConglomerate, Inc. is paralyzed by its own business model. It can’t afford to change its methods and creatively target new markets individually. It treats every new market as another liability, another dependant to be subsidized by those blockbuster best-sellers.

MegaConglomerate, Inc. has no “wiggle room” in its game plan. If it takes one bad risk, it’s out of business. By Light Unseen Media has no such problems because diversification is the foundation of our business plan. I’m in the business of delivering content by any means that people will pay for, and when I make money, so do my authors. That’s why I have to stay as nimble as possible. When a new delivery method becomes available, I have to be ready to adopt it immediately. The Big Publishers can’t do that, so their response is to do everything they can to block and monkeywrench innovations. “Class action lawsuits” are a favorite ploy in this war.

But aside from the fiscal insanity of the “traditional publishing” model as a whole, I absolutely refuse to believe that the Big Publishers lose money on $9.99 e-books (or $7.99 or $5.99 e-books) in an absolute sense. It’s not possible to lose money on a product that has no overhead costs whatsoever unless you’re doing something very wrong. The Big Publishers are trying to protect their status quo by ignoring their readers and screwing their authors. They forget that there are thousands of us small publishers who aren’t afraid of change and know what readers and authors mean to our bottom line (everything).

Come to think of it, maybe I should just let the Big Publishers continue on their current suicidal path–it can only benefit me, after all! I guess I just care too much about all the readers and writers who will be caught in the implosion.

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