Established authors from mid-listers to the ranks of NY Times bestsellers are increasingly mulling over a tough question: do I re-up with a big-six legacy publisher for a multi-book deal (assuming one was offered) or sign a one-off with a big-six to publish an E-Original or do I take control and launch an E-Original on my own? I’m so confused… and where’s my drink?
Why the ruminations? Well,… even rising mid-list authors are seeing advances dropping and the number of titles per contract falling –while other terms remain flat or slide even further in the publisher’s favor. Thus, basic market forces are causing some authors to consider E-Originals. Those who have been paying attention have known this for a lonnnng time.
In a recent blog post my industry colleague and kindred spirit Richard Curtis pointed out the challenges facing the big six publishers in this area. I agree with what he had to say.
Let me elaborate and do the math… suppose a mid-list author is offered a $10,000 advance for an e-Original by a big-six publisher. After much wrangling, the author accepts the deal despite feeling like Ned Beatty squealing like a pig in the movie Deliverance. Important note: you never ever want to be Ned Beatty. Anyway, the author collected the advance, delivered the manuscript and waited a year for the first statement. It arrived along with a check for $2.61 (rough estimate) which included the usual set of nefarious deductions.
Alternatively, suppose the author publishes an E-Original (full-length novel at 120,000 words) at let’s say, $7.99 retail, and earns approx. $4.00 net per eBook copy sold from a digital publisher. At sales of only 2,500 books, the author will earn approx. $10,000 – which is the advance and the party has only just begun! Assuming the author is at least midlist and regularly attends to their audience, these numbers are not difficult to attain.
We can talk all day about math, and it’s a good exercise, but to me there is a much greater question: control of the author’s content IP. A digital publisher (full disclosure: I am CEO of PDP) can provide a better royalty (PDP gives 75% to the author and pays monthly), better term (PDP gives 3 to 5 years vs. a life of copyright) and allows the author to keep my ancillary rights such as Audio, TV and Film (be sure you keep those gems). Content is where the value is – publishers are not purchased for their teams. An author with a reasonable level of success that controls his or her IP for the long term will be in a much better position.
So, to me, the answer to the question “To E or Not To E” is not as much about E-Originals alone as it is about the authors deciding to take in control of their content library and demand better business terms along the way.
Don’t be Ned Beatty.
Happy Monday. Recently I was thinking deeply about something. My colleagues refer to such a preamble as a signal to start another pot of coffee and hide the white board markers.
I am now convinced that the eReader / tablet device war is heating up too fast and the orange that is about to be squeezed is content. The market is headed toward “free” devices and it is not far off. There you go.
Bear with me for a moment… Let’s look back at the history of mobile phones in the USA, something that I lived through and know in excruciating detail, free phones changed the game – and the consumer did not benefit in the long run.
Free Devices Drove Market Penetration.
This cannot be under-emphasized. Suddenly there were 2nd phones at home and college students could afford them. These happy entrants were not previously paying to be in communication with friends and family anytime & anywhere. The inflection point can be seen in the stock prices and M&A activity from 1999 – 2004 which was the golden era of the wireless industry in the USA.
It’s Not Free – It’s a Lease.
The free phone came with a 2-year contract and minimum monthly cost (a hidden lease). For those that used fewer minutes per month –OR– wanted a more economical monthly cost, they simply chose a basic phone vs. a high-end phone. Great for the consumer… and great for wireless carriers who now enjoyed the fruits of recurring subscription revenue. Subscription also leads to addiction – in some neighborhoods we call this “crack.”
Fallout – A Price War, Then Consolidation, Then Less Competition.
The free phone bonanza triggered a price war among carries and the victim in the mix was the price per minute. Minute plans grew to well-over 1,000 minutes for $50 per month – and eventually unlimited plans arrived. The carries eventually became less profitable and started consolidating (remember Cingular, VoiceStream and Airtouch?). This week MetroPCS and T-Mobile announced a planned merger followed by Softbank buying a massive piece of troubled and debt-ridden Sprint. The number of options available to the consumer is dropping. And, if you have been paying attention, the unlimited monthly plans are going away.
There is no magic or devil here – this is how the market works and sorts out the intended and unintended consequences of competition.
Now, let’s look at the eBook space and play out a scenario.
There are a ton of new eReader and tablet devices in the market and getting them into the hands of consumers is key to driving sales of content (duh). Causing this to happen faster will assumedly drive content sales faster (double duh). Free tablets with an associated monthly fee for content, anyone?
What if I offered you a free Kindle Touch and it came with a $19.99 monthly content plan that was a slightly modified Kindle Prime deal with a cap of 5 books a month? All the elements are in place today: devices, billing plans and content revenue sharing arrangements.
Now let’s say Barnes & Noble responds with a free Nook and $19.99 per month for 10 books?
There you go – as they say, “It’s On!” and the imputed average price per piece of content will quickly be squeezed.
When the financial war gets too bloody, as it certainly did in wireless, the giants will enter into a M&A phase to gain economies of scale and slow the erosion of profit margins. There will be fewer players in the eBook space and me thinks the fallout will happen MUCH faster.
It all starts then the first free eReader hits the market along with a monthly plan to buy books.
There is a lot more to this story and that’s for another day. Stay tuned.
The DBW eBook bestseller (this week’s list available here) list continues to underline a key point: content is king and people will pay the retail price for it.
Only a few books in the top 25 were available at ‘bargain” prices of $1.99 or less. Yeah, yeah, Scholastic’s Hunger Games and Random House’s 50 Shades of Mommy Porn take up more than a few spots. But Penguin deserves credit for 3 individual books in the top 25 (2 at $12.99 and 1 at $7.99). These legacy publishers are offering content that the consumer is willing to pay “full retail” ($9.99 or more) to read.
I’ll say it again, content is king and people will pay for quality books. I need to qualify that statement about quality because 50 Shades of Grey is the singularly worst written bestseller series of all time (that little fact is something MANY people in the industry wish someone would say out loud). Regardless whether the mob is following the fad or seeking a truly wonderful book, they are paying full retail for the top sellers.
PDP (my company) experienced this firsthand with the release of Greg Dinallo’s latest book – The German Suitcase. It cracked the DBW list (here) during the two-week launch phase when heavy marketing and channel promotions were in play. The bestseller list is a self fulfilling perpetual motion machine of sorts. Once on the list, books continue to sell which tends to keep them on the list. This, in turn, leads to PDP sending Greg a five digit check along with the first royalty report (ahem, PDP pays monthly).
Beyond the bestseller list, however, there is the ever-present line in the sand; discovery. Beyond this demarcation point, lies a treasure trove of great books at bargain prices (under $4.99). The trick is to get the titles noticed and that’s exactly where a violent two-pronged debate is raging. The first and sharpest prong is whether an author should perpetually encumber the rights to their next book unto a legacy publisher in the first place (the sub points in this debate include diminishing advances, accuracy of obtuse royalty reports, the rancid royalty rates themselves, returns, etc.). This invariably leads to the second prong: marketing and promotion (the sub points being that authors are increasingly pissed that they give away perpetual rights and don’t get perpetual marketing – well, at least effective near-term initiatives AND at the same time are expected to carry the bulk of the marketing responsibility).
At PDP, we don’t think there is much of a debate. Any fair minded person with a background in IP management will tell you that the legacy publishers continue to offer legacy deals that fall short of what many would call fair and reasonable compensation. That’s a whole other topic that I have written about before (here).
The inevitable fracturing and roll-up of the legacy publishers will eventually reach full pitch (Thomas Nelson was only the beginning…). Until then, the rules will change slowly but the authors DO have choices today.
I had a meeting and then a conference call recently with the head of a very successful production studio. They have several series on the air and are enjoying high levels of success. The topic was eBooks and how they can extend the on-screen brands to a line of eBooks that augments the experience. They also held title to a fairly large backlist of previously published books that could be revived as eBooks.
The meetings went well but the executive did not see the value that partnering with a publisher could bring to his business. The read we got was that production studios think about producing and being the producer. They had the budget and space with which to embark on building an eBook business from the inside of the media organization. Along the way, the executive had established some level of relationship with Amazon, presumably through the video side of the business. He felt that they can go it alone and achieve results.
The point that was seemed to be missing was this: businesses should do what they are expert at doing and seek expert partners for everything else. Establishing an eBook division using media teams is possible – but is is the highest best use of that talent and does it represent the fastest path to market and ensure the highest level of expertise? That answer is an emphatic NO. The studio will very likely achieve some level of results but they will have no way of knowing the relative status of their performance. A publishing partner can provide that data.
Discussions continue on-n-off and I remain hopeful that we can work with this studio as they have some exciting content.
Not long ago I had a meeting with a different studio, a smaller one without nearly unlimited resources and the deal efficiencies seemed to enable them to see the benefits very clearly and we quickly reached verbal agreement on all key deal points. In short order we had a very significant library in production with a great partner and are driving toward 2012 the holiday selling season.
There’s a lesson in there…
Recently I was chatting with a well-established, successful literary agent at the London Book Fair. A sharp guy who has seem much come and go in the industry, he was nonetheless somewhat perplexed by the confusing calculations that hide among the reeds in the swamp that is eBook royalties. For the past couple years dedicated literary agents have been navigating mire as they negotiate with traditional publishers and take meetings with a new crop of eBook publishing enablers. Some agents and authors have also connected with Premier Digital Publishing, a multi-format digital publisher (full disclosure: that would be me).
Whenever I meet an agent, the conversation quickly turns to the fog of numbers and percentages that are flying around the industry and the resultant challenge in figuring out the actual royalty an author receives. I typically suggest a simple question, “Why don’t you just ask, ‘What is the net dollar figure the author receives on a $9.99 book and how often do we get a royalty report and remittance?” Before you know it, we are huddled over a white piece of paper deconstructing percentages into cash royalties.
First, traditional publishers. To understand how astonishingly bad these 75/25 eBook deals can be, one need only start at the beginning:
A traditional publisher employing a wholesale deal garners something in the neighborhood of 45% (+/-) of the agreed-upon suggested retail price. On a $9.99 book, this is $4.50. 25% of this is $1.14. Not too impressive. If the publisher is employing agency pricing (which is a whole other story involving conversations with government law enforcement), the publisher receives $7.00 on the $9.99 book and pays 25% which is $1.75… better than $1.14 but certainly not case for celebration.
There’s another category that fits between wholesale pricing and agency pricing in which publishers receive approximately 35% of the suggested retail price along with promises of certain promotional or merchandising benefits. In this case, the publisher receives $3.50 on the $9.99 book and pays 25% which is $.87. The obvious assumption here is that the publisher took this deal anticipating that the number of books sold will be higher.
Now, all of the foregoing assumes a $9.99 price point. At $.99 all the above numbers get cut in half. A 50/50 deal is better (and some publishers are offering such to decidedly Tier 1 authors) but it still does not address the key point:
Content is king and without good content there is no business (ask the movie studios). The creators of content must be properly rewarded for the content they produce. Inefficient business models, horrifying levels of overhead and legacy systems are, essentially, a massive tax pad by the content creator who waits at the end of the line for what’s left over. These creators are not assuaged with statements like “Oh, you need to understand this is just how it is.” How is that fair?
When discussing percentages with potential eBook partners (or your existing publisher), the numbers can be confusing. Authors, Agents and IP holders should ask this simple question; “What % of the retail price do I receive?” If the answer isn’t over 50%, give us a call. In our view, a “50/50″ or “70/30″ deal that yields the author or IP holder only 25% – 35% of the retail price isn’t such a good deal. Then ask how often you get paid. We pay monthly because we get paid monthly by eBook retailers. If you are not being paid monthly… who is being permitted to sit on your money?
“When the amount of time spent properly characterizing a problem approaches zero, the amount of chatter and Scotch employed solving the problem approaches infinity.”
Just ask “”What % of the retail price or net $ do I receive and how often do I get paid? If the economics are satisfactory, then it’s time to dive into deal duration (why lock-up for 10 or even 5 years?), ancillary rights (why give up non-eBook rights?) and recoupable or non-recoupable costs. Those conversations are irrelevant if it’s a weak financial deal in the first place.
At Premier Digital Publishing, we deliver 50% of the retail price to authors, estates, IP holders, studios and small imprints. That’s 75% of what we receive from our distribution partners.
I will now go answer my hate-mail.
I live in Los Angeles. I get up early – usually by 5:30 AM. Still, that’s 8:30 AM on the East coast and before I was awake my inbox was already brimming with news and questions about Microsoft and Barnes & Noble forming “NewCo” and stocking it with Nook, College Textbooks, access to Windows 8 and, oh yeah, $300 Million.
What’s up? Whaddayya think? What’s your take?
OK, rather than send 100 emails, I figured it was easier to just make a post…
My response is fairly straightforward: Barnes & Noble have made no secret about plans to spin out Nook. This makes sense and we’ve seen this play before: Kobo split from Borders in the aftermath of the unfortunate collapse of the retail division. Kobo was summarily acquired last November (2011) by a Rakuten, a Japanese e-commerce company, and they are now growing, particularly in international markets.
What we didn’t see coming was Microsoft. Why not? First, the Nook technology team is located in the SF Bay Area not far from Google HQ and Nook, as we all know, is now essentially an Android Tablet. Second, Google is making a play (ha, ha) in all forms digital content dubbed Google Play. So, the logic goes, when Barnes & Noble opens the window and lowers Nook to the ground, Google would be there as prince charming (and, for dramatic effect, holding one of those oversize checks that golfers get for winning a tournament.).
That could still happen… maybe… or not.
Microsoft owns 17.6% of th new enterprise which has an implied valuation of approximately $1.7 Billion. Now, Google could buy the remainder with less than 3% of it’s current cash. One would assume, however, that Microsoft has a placeholder option in the form of a right of refusal to buy the rest of “NewCo” if another bidder comes along. Either way, Nook is in good shape to keep driving and be a formidable force in the digital publishing space.
So, for now the story is this: Barnes and Noble receives a welcome capital infusion to the tune of $300M, and Microsoft receives a Windows 8 partner – and it badly needs such partners.
Time for coffee.
James Scott Bell asked on his blog (see it here): “So does the Eisler Sanction feel like a “tipping point”? What do you think it means industry wide? What does it mean to you?”
First, what do I think it means for the industry:
The simple truth is the publishing industry is undergoing the same digital evolution as seen in music, with the same disruptive, cataclysmic effects upon the incumbent gate-keepers. The proxy in music occurred in 2007 as EMI, one of the big-4 music labels, saw Radiohead go direct.
If it seems similar to the Eisler decision, well, it should. In my opinion, guided by experience in two previous digital shifts, the “tipping point” comments are correct. It has happened. For better and for worse you (the authors) and the publishers, respectively, are now on the other side of the tip. The rate of change that is being referenced in the comments is in fact “mainstream market momentum.” This momentum is not being driven by the ability to self-publish to digital. Technically, that has been here for over 10 years. It is being driven by device penetration (consumer purchase of Kindles, Nooks, iPads and Android tablets) and access to a large library of CONTENT created by YOU the AUTHORS. The same market momentum was seen with color phones in 2002 as mobile games and ringtones became a $2B+ industry almost overnight as a large content library was made available. It was also seen in the DVD market when DVD player prices hit sub $99 (December 2003) and the massive library of old movies on DVDs became available at $14.99 and $19.99 vs. $29.99? Goodbye tipping point, hello mainstream market.
Today, musicians and writers have been empowered. Yes, the door is open to self-publish and many are walking though it (Eisler, Konrath, Radiohead, Nine Inch Nails, etc). While many artists can self-edit, convert digital files, and submit to digital stores such as iTunes and Kindle, many artists simply desire to create their art in word or song. Some are capable or staffed to self-publish, while others are seeking partners to help with the process.
Second, what does it mean to me?
We have built Premier Digital Publishing, PDP, to help established authors successfully navigate the digital waters and garner their fair share of the pie. Our opinion and the mission of PDP is for the creators of IP (Intellectual Property, not Internet Protocol, ha, ha) to be deservedly rewarded for producing the art forms THEY created. Sure, the ebook storefronts (new retailers) do deserve a share of the pie, but the old publishing model and its revenue splits is fatally encumbered by the weight of legacy systems, overhead, bloated staffs and prevarications a.k.a. royalty reports (wicked wink).
As the story goes, I can go to Lowes and buy $500 worth of equipment to mow my lawn each weekend, but why not pay a “group of guys” to do it for a reasonable cost? (If you live in California – don’t translate “group of guys” into its politically incorrect term). You get the point.
“Readers need writers” – true that. Writers also need self-publishing expertise and weapons to wage war in the new era of digital distribution and reach their readers. This is not limited to clicking a mouse and converting a file. PDP is here to help those who want assistance in merchandising, marketing, etc. and don’t want to “mow their own lawn.”
Welcome to the other side of the tipping point. Radiohead and Eisler are now perpetually famous.
Or is it Infamous?