Tag Archives: Amazon IPG

An Update on Amazon and a New Direction for Gone Publishing

IPG and Amazon have agreed on terms. As of Friday, May 25th, the 5,000 IPG Kindle titles that were taken down in late February have been put back up on the Amazon site, plus an additional 500 new Kindle titles prepared by IPG over the last three months have been added. To help make up for the lost eBook revenue suffered by its client publishers, IPG will distribute Kindle editions at no charge to publishers for the period from June 1st to August 31st, 2012. As for the overall health of IPG and its client publishers, year-to-date sales are up 26% over last year.

These are complicated times in the book business. While IPG certainly does not seek conflict with its customers, it may be that a certain amount of pushing and pulling is inevitable in our industry until settled terms of trade for the new electronic book formats can be agreed upon by all participants. We hope that our dispute and subsequent agreement with Amazon have helped to advance this difficult but necessary adjustment.

The recent news accounts of the way the “Big Six” publishers operate have made it perfectly clear that independent publishers inhabit an essentially different world. This blog will now return to its original purpose, which is to promote a well-informed discussion of that world. Knowledgeable guest bloggers will be invited to express opinions that challenge received wisdom, and IPG will not shy away from posting well-argued comments even if they rock a few boats.

Curt Matthews
CEO, IPG/Chicago Review Press, Incorporated

Curt Matthews is the founder and CEO of Chicago Review Press, Incorporated, which is the parent company of Chicago Review Press and of Independent Publishers Group (IPG), the first independent press distributor and now the second largest. Curt has served on the Independent Book Publishers Association (IBPA) board and has also served as its president.

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The Trouble with eBooks: A Recap

Most of the blog posts put up in this space over the last two months have circled around three very major issues in regard to eBooks. Here they are, together with an account of what if any progress has been made in resolving each of them.

eBook Distribution: What’s the Deal?:
No one who is really privy to hard information about what is going on is able or willing to speak out.

Non-disclosure and Confidentiality Agreements, Most Favored Nation Clauses in distribution contracts, and then out of nowhere, the Department of Justice restraint of trade litigation against most of the biggest houses—all these things conspire to silence any informed debate about the issues. And to be blunt about it, most independent publishers feel abject terror at even the thought of confronting Amazon’s enormous market power. This part of the problem has not improved at all.

Market Share: You’d Be Surprised What the Big 6 Controls:
“The Big Six publishers, who control about half of the entire market for trade books, have been able to drive a better bargain with Amazon than the independent publishers could.”

A structural difference of that magnitude (roughly 20 points of discount) would put the independents out of business in short order (See also At What Discount Should Publishers Sell Ebooks to Resellers). This part of the problem may have eased a bit. The Department of Justice’s litigation could have the effect of largely taking away the discount advantage briefly enjoyed by the Big Six which would level the playing field. We will see.

The Oxymoronic Notion of Digital Content: Part II:
“The 50% plus take that Amazon insists on for distributing eBooks from independent publishers bears no relation at all to the cost of delivering that service.”

A free market and real competition would squeeze out excessive margins wherever they might be found in the supply chain from author to book consumer. So far we have not had anything like a free and competitive market for eBooks. On this issue, however, there is some very good news on the horizon. Microsoft’s investment in Barnes & Noble’s eBook programs is very welcome. Two other eBook programs, which look to be robust and publisher friendly, are well in the works. Of course for the reasons explained in point one above, I can’t tell you a thing about them.

Curt Matthews
CEO, IPG/Chicago Review Press, Incorporated

Curt Matthews is the founder and CEO of Chicago Review Press, Incorporated, which is the parent company of Chicago Review Press and of Independent Publishers Group (IPG), the first independent press distributor and now the second largest. Curt has served on the Independent Book Publishers Association (IBPA) board and has also served as its president.

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Who Will Stand Up for Books as Books?

orig image theamazingworldofpshychiatry.wordpress.comThe word around the blogosphere assumes that publishers are angry about the state of the book marketplace because their superannuated business model is about to be blown away, and that’s a good thing because that old model makes books too expensive, excludes too many fine authors, and makes too much money for greedy owners. Most of this sounds like sour grapes, or misinformation, or as I pointed out in a previous blog, a way for dot-com start-ups to make money.

But what’s really driving publishers crazy is the fact that the big movers and shakers in the book business at the moment—Amazon, Apple, and now here comes Microsoft—are not really in the book business at all. Amazon uses books as a loss leader to sell more expensive things. Apple really cares about electronic devices. Microsoft wants to make Windows an eBook reader operating system. The publishing industry is being batted around like a shuttlecock by players who don’t much care about, or even care for, books. Who is standing up for the book itself?

While it is true that in terms of sales, each of these companies generate more than the total of all of the book publishing conducted on our planet, aren’t books important enough in their own right to be the focus of an industry? Aren’t we courting cultural disaster if books become just a means of selling something else? Is economic power the only legitimate measure of everything?

Despite all the cynical commentary on many blogs, publishing professionals are not just worried about keeping their jobs. Most of them care deeply about books and are easily talented enough to make a better living doing almost anything else. Serious publishers, distributors, editors, designers, booksellers, book reviewers, librarians, author agents: these highly trained specialists bring an enormous amount of expertise to the making and distribution of good books. People who really know and care about books should be in charge of the business of books.

Curt Matthews
CEO, IPG/Chicago Review Press, Incorporated

Curt Matthews is the founder and CEO of Chicago Review Press, Incorporated, which is the parent company of Chicago Review Press and of Independent Publishers Group (IPG), the first independent press distributor and now the second largest. Curt has served on the Independent Book Publishers Association (IBPA) board and has also served as its president.

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Author Royalties and Discount Creep

This post is a continuation of the previous, where co-op, advertising allowances, free freight, and other examples of discount creep were discussed.

Publishers are now increasingly paying authors a royalty based on net sales rather than a percentage of the list price of copies sold. Can a publisher add co-op fees, advertising allowances, and free freight charges to the discount calculation, thereby reducing the net sales on which the author royalty is based? There are thousands of Author/Publisher agreements still in force that simply do not address this issue, just as there are thousands of agreements that are silent on the question of who controls the eBook rights.

That is the easy problem. Here is the hard one: If the royalty is based on list price, it would seem to be the case that the author’s take would not be affected by any of the semantic gymnastics I have described. However, almost all list-price Author/Publisher agreements stipulate that if a book is sold at a discount greater than 50%, the royalty will be based on the amount billed rather than the list price. In other words, a list-price agreement mutates into a net royalty agreement when the discount exceeds 50%. Shipments to chain store distribution centers and wholesalers usually earn a 50% discount to start with. Does co-op, or an advertising charge, or free freight, boost the discount above 50%? If so, the author’s royalty is cut at least in half.

Likewise, for distributors the new practices I have described disrupt fundamental business relationships. Distributors for the most part receive a percentage of their client publishers’ net sales, i.e. a percentage of gross sales minus returns; and usually all, or most, of any co-op fees, advertising charges, or free freight allowances are passed through to the publishers. In the days when co-op and advertising charges actually bought a marketing benefit, passing the cost through to the publishers made sense. Similarly, free freight when it applied only to small customers (who just were not going to bring in books if they had to pay the freight) could arguably be passed through to publishers. But free freight for huge customers?

If what we are talking about here is just a power grab for more margin, publishers and distributors and even authors are going to have to resist. There is just no point in running a business for the sake of making your trading partners rich; and there is even less point in squeezing your small customers so that a big one can become so powerful it can completely disregard your business interests.

Curt Matthews
CEO, IPG and Chicago Review Press, Incorporated

Curt Matthews is the founder and CEO of Chicago Review Press, Incorporated, which is the parent company of Chicago Review Press and of Independent Publishers Group (IPG), the first independent press distributor and now the second largest. Curt has served on the Independent Book Publishers Association (IBPA) board and has also served as its president.

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Co-op, Advertising Allowances, Free Freight, and other Examples of Discount Creep

Co-op used to be a bookseller’s charge to a book publisher or distributor to purchase special treatment for a particular title. “Give me $3000 and I will put your title on the new and notable table in 300 stores.” This evolved into something entirely different: “Give us 4% of your last-year sales with us for co-op and we will do wonderful but unspecified marketing things for you. Otherwise we will take down all of your eBooks.” A fixed percentage fee for co-op unconnected to any particular benefit looks, to a man riding by on a horse, a lot like additional discount by another name.

The old form of co-op practiced by bricks-and–mortar bookstores actually increased sales of particular titles. You could tell this sort of co-op was a real marketing program because booksellers would not take it for just any title. These fees were a way of allocating especially productive display space in the store: end caps, special tables, front-of-store displays, dumps, next to cash-wrap displays. A successful store needed to move a lot of product through these special display spaces, and they were not about to waste them on titles that would not work.

In the early days Amazon developed many special marketing programs for which it wanted to charge participating publishers. (An example is BXGY: if you buy title X and also our suggested title Y we will give you a special discount on the two together.) If publishers or distributors were willing to pay a percentage of last-years sales in addition to the standard discount, they could choose from a cafeteria of special programs. But the price of these programs went up almost every year; and the programs themselves became steadily less defined, less relevant to particular marketing concerns, and almost certainly less effective, supposing they ever did have much effect.

Free freight, the idea that a publisher or distributor pays the cost of shipping books from a warehouse to a bookstore, has been around for many years, but it has been limited for the most part to indie booksellers and other smaller customers. Giving the small customers a break on freight has made sense because the big customers, the chains, wholesalers, and big box stores, are shipped by truck rather than UPS or FedEx, which drastically reduces their shipping costs; and if they do in some cases need small shipments, their high shipping volume has allowed them to negotiate very favorable rates with the carriers. Freight for a small bookshop can easily be above 15% of the invoice amount for a carton of books. For a truck shipment the freight will be pennies a copy. Now, of course, some wholesalers are starting to insist on free freight. Why? Are they bringing something new to the table? No. It is just the 800 lb gorilla making another appearance.

So it would seem that some versions of co-op fees, advertising allowances, and free freight are just demands for increased discount pretending to be something else. But in fact these semantic maneuvers have some important not-so-obvious consequences for publishers and distributors in addition to the obvious hits on their profitability.

These less obvious consequences will be the subject of the next post to this blog.

Curt Matthews
CEO, IPG/Chicago Review Press, Incorporated

Curt Matthews is the founder and CEO of Chicago Review Press, Incorporated, which is the parent company of Chicago Review Press and of Independent Publishers Group (IPG), the first independent press distributor and now the second largest. Curt has served on the Independent Book Publishers Association (IBPA) board and has also served as its president.

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Should Any Ebook Reseller Be the Custodian of Our Literary Culture?

In the last post to this blog I pointed out that the Big Six publishers have about 51% of the overall market for print books, and that this percentage was just fine. The 49% left over for independent publishers is easily enough to support a vibrant literary culture.

But to what extent do the Big Six dominate the market for eBooks? At this point nobody is compiling reliable numbers, but since print bestsellers and eBook bestsellers are usually the same titles, a good guess is that the Big Six have about 50% of the eBook market too.

This degree of dominance in the eBook market is to my mind also just fine: in addition to the Big Six, there are thousands of independent presses keeping every conceivable cultural pot boiling. No, the real worry is that just two or three online resellers are going to be allowed to dominate the distribution of eBooks, and that they will be guided purely by the crassest sorts of commercial considerations: the desire to achieve overwhelming market share; the ability to set prices; the power to crush competition; and a financial interest in keeping inconvenient or unprofitable content from reaching the market at all.

Why should publishers cede all of this power to these new players in the book business? It is obviously true that producing good content is the hard part of making a good book, no matter how that content is captured. How much credit do we give a printer for manufacturing a book we enjoy? Some credit surely, but nowhere near as much credit as we give a book’s author and the editorial team that polished the text. Is the important thing about an eBook the fact that it turns up on the latest new device? The distributors of eBooks have gotten way ahead of themselves when they suggest that their systems or devices are more important than the content they deliver. This is the tail wagging the dog.

We should also keep in mind the danger of censorship. In the case of printed books we have been over this ground time and again. Do printers control what books are printed? Do booksellers decide what ought to be sold? No, they do not, although at various stages in our history they tried to. Should an electronic distributor be allowed to restrict what we read? As a society we have faced these censorship issues again and again, and in all instances we have said NO except for very extreme cases involving pornography or the protection of children.

The real danger may be even more prosaic. Those of us little guys who have had to deal with large corporate entities know that getting inadvertently stepped on is the serious problem. If you are a mouse sharing a stall with an elephant, at some point that elephant will need to scratch its rump against the rough boards of its stall and you may be in the wrong place at the wrong time.

Nothing personal about it, you’re just squashed.

The eBook distributors of this world may intend no evil, but then again they intend no particular good either—except perhaps to generate favorable profit margins for their stockholders and senior executives. But books are not widgets, and a purely commercial standard of corporate virtue is just not good enough when the viability and vitality of our literature and culture are at stake. No monopoly is ever a good thing, even in the case of widgets. A monopoly on book content, whatever the intentions of the monopolist, would be a cultural catastrophe.

Photo: Curt Matthews, CEO, IPG/Chicago Review Press, Incorporated. Courtesy of The Chicago Tribune Curt Matthews
CEO, IPG/Chicago Review Press, Incorporated
Curt Matthews is the founder and CEO of Chicago Review Press, Incorporated, which is the parent company of Chicago Review Press and of Independent Publishers Group (IPG), the first independent press distributor and now the second largest. Curt has served on the Independent Book Publishers Association (IBPA) board and has also served as its president.

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Market Share: You’d Be Surprised What The Big 6 Controls

Independents v Big 6 Market Share
(Based on Nielsen Bookscan Data)

How Much of the Total Market for Books is Controlled by the Big Six Publishers?

I have not seen any sort of figure, hypothesis, or guess in any article or blog about this question, which is odd, because the extent of the market domination of these giant publishing houses is a crucial factor in understanding the issue of the Agency Model versus the Wholesale Model for eBook sales.

There is a quite complete account of this issue previously posted on this blog under the title “At What Discount Should Publisher Sell EBooks to Resellers,” but the short version is that the Big Six used their market power to compel Amazon and other resellers of eBooks to accept 30% of sales while all the other publishers have so far had to give Amazon and most of the others 50% of sales (Apple deals with everybody on agency terms). Obviously, the extent of the market dominated by the Big Six is a fact we need to know.

A week or so ago, I logged on to the Bookscan website (this is a subscription only service, provided by Nielsen to the book industry, that tracks point-of-sale data gathered from most of the booksellers in the US.) I added up all the year-to-date unit sales of the Big Six, and then divided by the year-to-date unit sales for all of the publishers tracked by Nielsen. The answer to this curious math problem turned out to be roughly 51%.

How reliable is this percentage? There are of course many experts who will find fault with any straightforward assertion; the Truth, they will tell you, is always far, far more complicated than you think. Here are some sample objections: Yes, this 51% is units rather than dollars. Yes, many companies that sell books as a sideline are not tracked by Bookscan. Yes, it is probably true that some professional books and text books get counted.

But let’s not allow the perfect to be the enemy of the very good. The Nielsen data is based on sales to consumers, not on shipments by publishers to stores, which used to be the only data we had. The actual market share of the Big Six may well be some points higher or lower than 51%, but so what? All we need here is a reliable generalization.

Is 51% a large share or a small one? I think it is about right. The book industry needs some very large players with big marketing budgets and high-profile authors to keep the American public excited about books. And if the big guys have 51%, that leaves plenty of room for some quite big and well-established independents such as Norton; for quite a few middle-sized prosperous ones like Chicago Review Press; and for the thousands of small houses who are prospecting for the new authors and subjects that will feed our intellectual life in the future.

So if these independents have 49% of the market, isn’t that enough for them to find a way to get a fair deal with the resellers, a deal that does not keep them at such a tremendous competitive disadvantage to the Big Six?

Curt Matthews

CEO, IPG/Chicago Review Press, Incorporated

Curt Matthews is the founder and CEO of Chicago Review Press, Incorporated, which is the parent company of Chicago Review Press and of Independent Publishers Group (IPG), the first independent press distributor and now the second largest. Curt has served on the Independent Book Publishers Association (IBPA) board and has also served as its president.

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At What Discount Should Publishers Sell EBooks to Resellers?

Discounts matter. Here is a little history to illustrate that point:

When the mall stores—B Dalton, Walden—arrived on the scene, followed closely in the 1970s by the big box stores—Barnes & Noble, Borders—the big publishers rolled right over to their demands for better discount and of course the independents had to follow.

For the most part these demands for better discount were justified. Better discount for higher volume is a fair and time-honored principle because higher volume usually leads to lower transactional costs. And the book business in those days was very much in need of more marketing push than the small booksellers, who had long dominated the market, could deliver.

But the result was a very wide discount differential, in retrospect too wide. The chains could command a discount off list price of 48-50%. The small stores had to accept 42-44%, on average about 4 or 5% less. The higher discount allowed the chains to mark down the prices of some titles for their customers. The small stores did not have the margin to afford such markdowns. Thousands of independent booksellers went straight out of business. Most of the independent booksellers went straight out of business. The mistake was not that the chains got too much discount; it was that the independents got too little.

How smart does this discount differential look now, as we survey the gaping hole left in the market by all those empty Borders superstores? Perhaps no amount of discount would have saved Borders. But are independent publishers and distributors willing to give the eBooks resellers such favorable discounts that they can afford to lower prices enough to put what is left of the bricks-and-mortar bookstores out of their misery? Are we willing to repeat this sad discount history with eBooks?

My last note in this space compared print prices with eBook prices to try to arrive at an estimate of what eBooks really should cost. A few people commented that my numbers were not exactly right. Nor could they have been because there is no such thing as a typical book. Now let’s have a look at the costs of running a bricks-and–mortar store versus a web based operation. Here again the actual numbers will be all over the map, and the best that can be done is a rough approximation of the comparative costs.

Barnes & Noble was able to build and operate over seven hundred huge, well appointed stores working on a 50% discount arrangement with its suppliers. And the independent booksellers still in the game run shops, much loved by their local communities, on less discount. These booksellers big and small somehow even manage to collect and pay sales taxes! Shouldn’t an eBook reseller be able to thrive on a much narrower margin?

After all, most of the much-celebrated if exaggerated cost savings for publishers enjoyed by eBooks over print books—no warehousing, receiving, picking, packing, or shipping costs, no title ever out-of-stock, no expensive physical stores to build and maintain—surely also accrue to web-based eBook resellers. Can a website be as expensive to run as a shop on Main Street? Can storing just one book file in the cloud cost as much as shelving thousands of print copies in a store?

The big six publishers have used their market power to insist on an Agency Model that gives the eBook resellers 30% of the action. The independent publishers, lacking that market power, have had to settle for a deal that gives most eBook resellers over 50% of the action.

(Yes, there are some complicated side issues having to do with the Agency Model and the Wholesale Model. But the big six publishers went to the mat to get the Agency deal. Which deal would you want? The arguments for the Wholesale deal are just obfuscations offered up by those who would benefit from it.)

If this discount differential persists, many independent publishers will be driven out of business, just as so many independent bookstores had to close their doors when they were denied equitable terms. And what is at stake here is not just money.

Curt Matthews

CEO, IPG/Chicago Review Press, Incorporated

Curt Matthews is the founder and CEO of Chicago Review Press, Incorporated, which is the parent company of Chicago Review Press and of Independent Publishers Group (IPG), the first independent press distributor and now the second largest. Curt has served on the Independent Book Publishers Association (IBPA) board and has also served as its president.

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What Should an E-book Cost?

The conversation about the pricing and marketing of print books and e-books has not been well informed. Here is information about how the numbers actually run. The place to start is with print books.

What Should a Printed Book Cost?

The royalty rate is usually 10% of the cover price for a hardbound book, 7.5% for a paperback, increasing by a few percents if certain levels of sales are achieved. So an author makes $1.12 a copy on a $14.95 paperback.  A 10,000 copy sale of that paperback—a  very respectable performance in the estimation of most publishers—will earn the author about $11,000; not bad, except it takes a year or two of very hard work to write a book. Most authors have to keep their day jobs.

What does the publisher make? He will sell that $14.95 paperback to the booksellers and book wholesalers at, on average, a 50% discount from the price on the cover–$ 7.48 in the case of this $14.95 book. For 10,000 copies sold this will amount to $74,800.  The printing of the 10,000 copies will run about $1.50 a copy or $15,000 total. We have calculated that the royalty for the author will be $11,000. So the publisher nets $48,000, not a bad day at the office except this income also has to cover the cost of that office, and the warehouse, and the staff. When all these factors are taken into account, the publisher’s share is about the same as the author’s.

A carefully kept secret in the book business is that even the best authors need editing. In fact the good ones insist on help and will follow a gifted editor from company to company to get it. Most books are hugely improved by the editorial process. Nor are the improvements editors make limited to spelling, punctuation, and grammar. Often they are deep structural changes that make a title more engaging for its intended audience, more saleable.

The help that authors get is never mentioned in public because the author is the brand name, not the publisher. Spreading the credit among any more names would just blur the marketing focus. But the cost of editing, designing, page makeup, and proofreading is high, higher in fact than the cost of printing the book.

What Should an E-Book Cost?

What then should you pay for an e-book edition of a $14.95 paperback? Most people would say it ought to be practically nothing because there are no design, no printing, no warehousing, no shipping costs for the publisher to pay. An e-book, after all, is just a batch of electrons, weightless, shippable through a wire.

But this is to misunderstand what it takes to make a successful book. An e-book still needs all of the expensive editorial services noted above; and if it is going to sell, it has to be marketed, distributed, and publicized, just as a print edition must be. And the author royalty on an e-book sale is usually about the same as it is for a print book, even though the list price of the e edition is lower. We have noted that for our $14.95 paperback the printing amounts to about $1.50. Warehousing and shipping will add another $1.50 to the real cost of selling a printed book. A web retailer should be able to work on a narrower margin than a bricks and mortar bookstore, which could lower the price of an e-edition perhaps another $2.00.

Deduct these specifically print related costs from the price of a printed book and the minimum price for a straightforward e-book comes to about $10.00—less than the price of the print version but not some small fraction of the print price. Certainly not 99 cents, and not $5.00 either.  E-books, as they become more important in the book trade, will have to carry their full share of the editorial and marketing costs of producing them.

Amazon’s Terms

At the moment there are two very different ways publishers can work with Amazon: the Agency Model and the Wholesale Model. There has been a lot of fancy dancing around these models, but of course it all boils down to how the money is divided up between the parties. Only the six biggest publishing companies have had the market power to compel Amazon to accept the Agency Model, which allows the publisher to keep 70% of the e-book list price. Independent publishers have had to accept the Wholesale Model, which has let us keep only about 50% of the suggested price. That is a 20% difference.

Now Amazon is insisting on terms for both print books and e-books that are even less favorable for independent presses. How will such presses be able to afford to publish good books when they receive so little of the sales price? They won’t be able to. And is it obvious that independent presses should have to work at such a huge competitive disadvantage to the major publishing houses?

Independent publishers are crucial to the vitality of our culture. They are the reason why in America almost no good author goes unpublished.

Curt Matthews

CEO, Independent Publishers Group/Chicago Review Press, Incorporated

Curt Matthews is the founder and CEO of Chicago Review Press, Incorporated, which is the parent company of Chicago Review Press and of Independent Publishers Group (IPG), the first independent press distributor and now the second largest. Curt has served on the Independent Book Publishers Association (IBPA) board and has also served as its president.

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