Tag Archives: distribution deals

Should Books Be Discounted?

Should Books Be Discounted? Image from businessblog.winweb.com.

I had a call the other day from David Streitfeld, who often covers the publishing business for the New York Times. He wanted to know if Amazon was discounting the books that IPG distributes at a lesser rate than they used to. There has been widespread concern in the publishing community that Amazons’ game plan is to steeply discount everything until the competition is wiped out, at which point they could put prices way up and start coining money.

It is true that Amazon has discounted very aggressively, and has been content to accept a very low profit margin if this would mean a rapid increase in market share—which it has. If titles are now being discounted less, this might signal that Amazon is turning to Part Two of its strategy, the part where the prices start to go up. In the article that Streitfeld published in the NYT on the 4th of July, one of his sources expressed the view that the discounts were in fact decreasing, especially on independent press and scholarly titles, which would be disastrous for sales.

My take on this issue is quite different. I have no inside information whatsoever about Amazon’s game plan, but I know what I would be doing if I were in their position: I would be experimenting with discounts and mining the sales data to see what effect different levels of discounting would have on the sales of various kinds of books at each stage in their life cycles. Streitfeld quotes me as saying:

“‘They [Amazon] are wondering, “If we knock off only 10 percent as opposed to 35 percent, where do we come out ahead?”‘ Mr. Matthews said. ‘They don’t care how many books they sell. They want to know how many dollars they get.'”

My grammar is regrettable, but the idea is from Business 101: Find the place where the price and volume lines cross on the graph, the balance that yields the most dollars.

Many people are offended by the very idea of discounting books.  After all, books have a list price printed right on the jacket flap or back cover.  Almost no other products have the price printed on them during manufacture. Doesn’t this mean that, for books, the list price is somehow the right price? And aren’t discounted products usually cheap knockoffs of better things? Perhaps Amazon has done a disservice to the special stature of the book as a cultural icon; perhaps all this discounting has convinced many consumers that paying list price for a book means you are a bit of a chump, like the little old lady who pays full sticker price for a new car. Or, it may be that the book is not quite the cultural icon it used to be—for reasons that have little to do with discounting.

I will confess that I was a happier book buyer in the days before they were routinely discounted. The printed list price assured me that the title I wanted would cost the same in any bookstore, and that no one would get a better deal than I did. But perhaps a lower price justifies putting up with a little low-level anxiety of that kind.

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CEO Weighs In: “Authors Sue Self-Publishing Platform Author Solutions”

The big shoe that I was certain would drop just did:

Three authors have filed suit against self-publishing service provider Author Solutions, and its parent company Penguin, airing a laundry list of complaints and alleging the company is not a publisher so much as a “vanity press.” — PW May 1, 2013

I have no special insight into the merits of this suit as a legal matter, but the filing of it brings to light the obvious fact that there are companies out there exploiting the hopes and dreams of neophyte authors. More from the PW article, “Authors Sue Self-Publishing Service Author Solutions”:

The suit, which seeks class action status, alleges that Author Solutions misrepresents itself, luring authors in with claims that its books can compete with “traditional publishers,” and the company offers “greater speed, higher royalties, and more control for its authors.”

The problem here is easy to spot. No doubt in the literature that they show prospective authors, and in the agreements that they execute with them, such “publishers” are careful not to promise sudden authorial fame and fortune. But of course the prospective authors do want some degree of Book authors file class action suit against Author Solutions self publishing platformrecognition, and they would like some remuneration too.

What most people think they know about publishing comes from the utterly anomalous success stories the media finds newsworthy. It used to be “first time novelist gets million dollar advance.” Now it’s “first book by self-published author sells 500,000 copies.” Getting hit by lightning three times on a sunny afternoon is much more likely.

So, aspiring authors have some expectations. What expectations do self-publishing services such as Author Solutions have?  Read between the lines of the following “prepared statement,” quoted in the same PW article.

In a prepared statement, Author Solutions pointed to the fact that it has “successfully enabled more than 170,000 authors to self-publish more than 200,000 titles,” and noted that it has received an “A” rating from the Better Business Bureau.

I am not sure that the 170,000 authors of those 200,000 titles are all that thrilled by their publisher’s “A” rating from the Better Business Bureau. They might have preferred a place on the best-seller list.

Perhaps the authors who are suing were a little naive. Let’s look at two publishing scenarios. In the first, the publisher pays an advance, covers the editing, designing, and printing costs, and will suffer a big financial loss if the book does not sell. In the second scenario the “publisher” charges the author for all of the publication costs and makes a profit even if the title does not sell a single copy. Which outfit will be motivated to sell books? To understand a business deal you need to follow the money.

And now this article, in Friday’s PW. The CEO of Author Solutions has, for some reason, been replaced by a Penguin executive. Here is how they are spinning the change:

Penguin chairman John Makinson said that the appointment of [Andrew] Phillips [the new CEO] will connect Authors Solutions more closely to Penguin. “Andrew’s impressive range of talents and experience equip him perfectly to extend the international development of Author Solutions, to build on our network of publishing partnerships, and to strengthen the ties with Penguin companies around the world.” — PW May 3, 2013

This statement looks like an attempt to blur the distinction between Author Solutions and Penguin—so that the cash register will keep ringing for Author Solutions. But no amount of corporate speak about building on a “network of publishing partnerships” or strengthening “ties with Penguin companies around the world” can bridge the apparently huge gap between these two enterprises.  The big question is why Penguin, one of the greatest publishing companies on the planet, is willing to wrap its name around a dubious proposition like Author Solutions.

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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When It Comes to Authors: Part I

Many people believe that in simpler times authors wrote the books, publishers touched up the spelling and punctuation, designed a suitable package, and published them. The truth however is that you can add books to the famous collection of things that you don’t actually want to see being created, along with laws or sausages.

An author’s manuscript is usually just a promising first draft. All sorts of marketing questions need to be asked and answered even before the editing—which is likely to be extensive—begins. Who is the book for? What is this audience really interested in? Are illustrations needed? What is the right tone, the right length, the right price?

Occasionally, the author’s views on these matters are exactly correct; far more frequently the author’s very closeness to the subject prevents him or her from having an objective, balanced assessment of the material and the market for which it is intended. Most manuscripts need to be cut back here, augmented there, lightened up or made more serious, reorganized or restructured—in short, extensively rewritten by the author according to ideas insisted upon by the editor or publisher.

Some authors object to this process, but anyone who has been at publishing awhile knows that it is usually the new and inexperienced authors who believe that every word they have written is sacred. Experienced authors in fact insist on strong editorial guidance; they often follow suit when their strong editors switch publishing companies.

Independent presses, of course, often publish new authors and have to contend with their inexperience. The time to explain that every word is not sacred, and that extensive revisions will probably be needed, comes before the author/publisher agreement is signed. If the author is uncooperative during this initial phase, find another author.

Perhaps this advice sounds harsh, but consider the likely consequences of going forward with an uncooperative author. A book that is wrong for its market will not sell well. And if you as the publisher or your editor is forced to rewrite the book, you will have so much time tied up in the book that it will almost certainly be a financial failure even if it does sell quite well.

But what if you have signed up an author and despite your best precautions find you have a prima donna on your hands, or else an author who is simply incapable of responding to editorial direction?

The only reasonable course in such cases is to insist to an author that, if the book is to be published, either the royalty rate must be reduced to reflect the work that the author cannot or will not perform, or else that the royalty must be shared with a ghost writer of the publisher’s choosing. To earn a full royalty, an author must do a full author’s job.

In the low-margin business of publishing, there isn’t a percent to spare.
To be continued…

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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E-Book Distribution: What’s the Deal?

“Follow the money” is good advice for anyone trying to get to the bottom of a business dispute. This has been next to impossible in the case of the squabble over the distribution of eBooks; none of the parties can release any numbers. A great many people who have tried to understand this dispute have said, in a state of high irritation, “What exactly are the deals on offer? Who gets what?”

The problem is that publishers and distributors are constrained from providing any hard information by the Non-Disclosure or Confidentiality agreements eBook retailers compel them to sign. Such agreements are required before negotiations begin and become an integral part of any agreements signed. The length of these eBook marketing agreements is about twelve to twenty pages; and their duration is for three to five years, an eternity in the fast-changing world of e-commerce. And many of them require that the publisher never can give any other reseller a better deal.

Is this opacity, and are these intricate agreements, a good thing for the book industry? One thing certain is that this way of doing business is a sharp departure from past practice. Below is a quote from the American Booksellers Association’s Handbook, which shows how the print bookselling business has worked for many decades:

ABA Book Buyer’s Handbook: Online, searchable, and continuously updated, the ABA Book Buyer’s Handbook is an invaluable resource for ordering and returns information, and it is available exclusively to ABA members. This electronic publication features publishers’ trade terms, including discount schedules, returns policies, imprint and ISBN prefix listings, co-op policies and more, as well as timely special offers.

Since the ABA is hardly a secret society, every seller of print books knows exactly what every other bookseller is paying for stock. Everyone is treated the same so long as they operate more or less in the same category of the book business. (There are different terms for wholesalers, chain stores, gift stores, catalogs, and so on.) Publishers still cheerfully publish their detailed terms of trade for print books in the ABA Handbook. This sort of transparency has long been considered a simple question of fairness, an obvious way to keep the playing field level, and a painless way to prevent disputes.

And until quite recently there just weren’t any unmentionable agreements between booksellers and publishers or their distributors. The idea was that long-term, trusted trading partners could be relied upon to keep the business humming along. Yes, there were some tough negotiations, but they were conducted in good faith, guided by the understanding that to keep the industry healthy all the players had to have a fair share of the profit.

But now the agreements that certain eBook retailers insist on are draconian, multi-year, intricate; they have to be negotiated from scratch one by one; and all the parties to these agreements are rendered mute by non-disclosure or confidentiality provisions. There certainly is no “Handbook” to illuminate this murky business.

Try this thought experiment. Your company has signed an agreement with an eBook reseller that specifies particular discounts and maybe also gives up some points for more discounts by another name, such as a co-op or an advertising allowance. You have committed to a non-disclosure or confidentially provision. You also have agreed to not give any competitor a better deal.

Now you want to sign on with an additional reseller. This new customer wants to know the terms of your other deal, but you are contractually prevented from saying what these terms are. You are in a position where you have to say, “I can’t tell you the terms but trust me, they are just as good as the other guy is getting.” What a perfect recipe for misunderstanding, then mistrust, and finally litigation.

Traditional participants in the book business, whatever their size, are in for a rough time. New players now marshal squads of lawyers and MBAs to strive for market dominance. They know nothing about the collegiality that used to be a defining characteristic of the publishing community; and they are unencumbered by any notion of cultural stewardship.

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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