More from the e-book front

Regular blog-reader Maria made some good comments on my last post.

Why don't publishers sell their own e-books directly? I haven't the foggiest idea, because it seems to me that this is something that should have been happening ages ago. One reason could be brush-back. Whenever publishers have gotten too aggresive about selling hard copies off of their own web sites, the established retail channels haven't been happy about it. In the dawn of the e-book age, before the Kindle, it might have been easier for the publishers to stake that turf for themselves. Now, for that same brush-back reason, it might be harder. This also depends on if the market leaders for e-books are the Kindle and the Nook, where they have to worry about people also vending print books, or if they're annoying retailers who can only hurt the publishers on the e-book side.

Why are some books in series missing? Part of it is that publishers did not sit down ten years ago and start working in a programmatic way on which books meant money if digitized and get to the task of doing it. And some still don't. Though at this point in time, the bigger issues could be contractual ones. Simon Green's earliest Deathstalker novels are covered under contracts from the early 1990s that pre-date the specific inclusion of electronic book language and royalties. Whether or not it's Simon or the publisher that has those rights, that's the exact kind of thing that Random House sued over when Rosetta Books started selling William Styron e-books in 2001. The question hasn't been resolved definitively. Considering how much flux the business is in right now, when we're not sure who'll be selling e-books on what terms for wat author royalty rates, per my last post, should I or Penguin be in any great rush to come to some kind of agreement on the question? Sadly, I'm not sure it's in anyone's interests to do that until the wild west of e-books gets a little tamer. I'm not encouraging publishers to do e-books that they ain't doing of their own accord because long term, I think I'm better off if they forget and the rights can come back ultimately to my clients.

Finally... E-book royalties have trended down over the years, and that trend may now finally start to end as a result of the recent action in the marketplace. In the earliest years, Random House started out offering 50% of net proceeds, became very lonely, and started to ratchet those royalty rates down, first to 50% until a book earned out (i.e., when it's all money on paper) and then 25% after (when it's actually necessary to pay), then to the 25% of net many others were doing. Ever lower. British publishers started asking for e-book rights, their starting royalty was 15% of net, which will NEVER be better than 15% of cover, and also much much worse. They can be bargained upwards. And Macmillan, which is being hailed as the hero in the Great Amazon War which is still going on (still no "buy new" button for The Gathering Storm) rolled out a new contract boilerplate last fall where the asking royalty rate on e-book was 20% of net. It seems clear that Macmillan is now openly acknowledging they have to push those back up some.

What's been taking so long? The downward creep didn't make sense when it was becoming ever easier for authors to be their own entrepeneurs in electronic publishing and capture two or three times the revenue that the publishers were offering. That could never be done very realistically in the print publishing world. Before Print On Demand, the barriers to entry were so high for distribution and fixed costs of copy #1 that Vanguard Books was never a great option. But over my 25 years in the business the fixed costs and distribution obstacles have slowly come down, and publishers may ultimately have to adjust their royalty offerings if they're going to keep major authors from doing it themselves with increasing frequency.

Royal Tease

As publishers had to establish royalty rates for e-book sales over the past ten or fifteen years, two basic models emerged, at least with agented contracts: 15% of cover price (because 15% matches the highest hardcover print royalty in traditional publishing contracts), or 25% of net receipts, which is the actual money the publisher receives, and a bigger portion of net proceeds than found for any actual print edition.

In an indirect way, a client and I were discussing this week which of those royalty rates is better. Complete with very thorough spread sheets. Let us explore...

Let us assume a $10 cover price; a $13 cover price changes the numbers but not the percentages, which are more intuitive with a $10 starting point.

First we have the Kindle Classic model. A publisher says the e-book has a list price of $25, Amazon pays the publisher kind of like it's buying a hardcover at traditional retail discount, maybe $12.50, and then sells the book for $9.99. 25% of net could be $4.125, which is over 41% of the actual cover price and over 15% of the publisher's list price. That business model is crazy. After a while, no matter how many Kindles you sell at no matter how high a profit margin, you can't keep losing $2.50 on every e-book sale. But clearly, 25% of net could be a lot better than 15% of cover.

Normal examples: An e-book costs $10, the e-retailer gives the publisher one half of that, or $5, and then at 25% of net proceeds gives the author $1.25. The effective cover price royalty is 12.5%, and the 15% of cover is better for the author. But we're being told that Apple is offering 70% to the publisher, which means the publisher gets $7, and the author gets $1.75, and now 25% of net proceeds is effectively 17.5% of cover price. The net proceeds royalty is better.

And the thing that's always been in the back of my mind is the scenario where the publisher sells e-books directly to the consumer, maybe gets 90% or 95% of even almost 100% of cover price, and the effective royalty to the author is now 22.5% to 25% of cover price.

My guess is that most publishers offering 25% of net felt they were doing better than the ones offering 15% of cover, but you can see why that's not such a sure thing. Thus, I was very agnostic on which model was better for I and my clients.

So should I have been gunning for 25% of net? It sure does look higher, doesn't it.

Well, not so fast. You pay Amazon $10 for an e-book that is delivered wirelessly to your Kindle at no charge. Well, maybe not to you. What if Amazon insists that thirty cents come off the top of the $10 to pay for their delivery charge? You pay by credit card, and there's some kind of commission for that. What if Amazon insists that thirty-five cents come off the top of the $10 for that? Now, the 70% is based on $9.35, so Macmillan gets $6.55 from Amazon, and your 25% of net becomes $1.64. This is still 16.4% of cover, and that's still better than 15% of cover, but it's not very much more. Another deduction or two off the top, and we're at parity.

And let's look a little further into the future. Right now, with 40 e-book devices supposed to go on sale in 2010 and the iPad looming as a major threat on the horizon, no e-reader retailer can afford to be without huge swaths of content. But is the market really going to support 40 or even 20 devices? Not forever. We will have a shake-out, we will have a handful of devices or formats, and there will be a concentration of market share. And 30% is not such a big margin for a retailer. A printed book retailer gets the book at 40% or 50% discount, not 30%, so what happens when the survivors of the shake-out start to take advantage of their stronger market position, no different than Walmart putting the squeeze on a toothpaste maker? The 70% share being talked about by Apple and Amazon may not be 70% in five years.

So in 2020, will you be better off with a 15% cover royalty, or a 25% net? Anyone who claims to know the answer to that is lying.

Bad Gertrude, Bad Bad Gertrude

I'd linked a while back to a PW report that Simon & Schuster was downsizing its sales force. Now PW reports that the New Atlantic Independent Booksellers Association, the regional group of indie booksellers, sent a stern letter of protest. The field reps are a crucial part of the book business, and without them our book culture will disappear.

Well, good luck with that.

It isn't that NAIBA isn't right to protest, for I believe that they are. Publishers as a rule under-invest in selling books, this move by S&S the latest little piece of it.

It's just that solutions NAIBA offers aren't very helpful either.

Among their alternate suggestions:

Eliminate multiple ARC mailings. If this means NAIBA thinks publishers can consolidate and do fewer mailings with the same number of ARCs, good. But if they mean sending out fewer ARCs of fewer books, these are the same people who happily fill bags with galleys at BEA, and we send galley copies to get people reading and talking about new books.

Do away with promotional gimmicks. Well, OK, maybe, kind of, except that with all of those galleys publishers do want theirs to stand out. Though this may be the best idea, because I think most of these giveaways are kind of silly.

Cut celebrity advances. Not gonna happen. This is a cure-all that a lot of people throw out. But publishers pay those advances because they expect to earn them back, and there isn't a perfect way to predict ahead of time which ones will and which ones won't.

Publish fewer titles. Now, film studios have actually cut back on titles, and the world isn't exactly suffering for new movies to see. And publishers do publish an awful lot of books and can't attract attention to all of them no matter how hard they might try and more often don't. So I agree with this in theory, but fear the reality of it would disagree with the theory. Because this is a creative business, it's hard to tell which books will work and which will not. If you take too many fewer chances, you have fewer chances to win. Some of the titles that are published, are published because there are arrangements in place at various ID outlets to take those books and put them into supermarkets and drug stores and truck stops hither and yon in places many of us may never even see. The world doesn't need a 298th Jake Slocum or Long Arm novel, but I guarantee you if Berkley gives up that slot somebody else will fill it.

And one big difference between film studios and book publishers. Any major studio movie represents an outlay of many millions of dollars and is huge in absolute terms and perhaps even in proportion to the overhead for running a big company like Paramount. A book with a 12,000 copy print run can cost under $20K, not counting allocated costs like a proportion of overhead. One editor can easily shepherd 25, 30, even 40 of those books a year for a salary of $100K, perhaps even less. If Penguin cuts back on titles, it's not going to say "no" to the next Charlaine Harris, which will actually have a big investment if for no other reason than you have to spend more money printing hundreds of thousands of books than 12,000 of them. It's not going to say "no" to a celebrity title it is reasonably sure it will make money on. No, it's going to cut at the middle or bottom of the list, with a title with an insignificant marginal cost. It could cut five of them and maybe pay to have another rep in the field, and the rep will have five fewer books to sell.

So that idea of NAIBA won't save any money.

So no, publishers should not cut back on field reps. My answer is "spend more, make more," which is not how the publishing industry works. Theirs is "spend less, make more," which is just another NIMBY way of saying the fat in the budget isn't where their money comes from.

Oh -- Gertude is the kangaroo's name. And don't ask me which kangaroo.

Show me the Locker

I suspect I'll be pulling hard for The Hurt Locker at the Academy Awards this year.

There are two films with a lot of nominations that I haven't seen. Inglorious Basterds is one I was kind of lukewarm about seeing, kind of leaned toward seeing, but as busy as things were most of last year, I wasn't making time for the lukewarm. There's a decent chance the studio will find a theatre in NYC for a movie with this many nominations, and I'll see if there or on video. Precious, from its Sundance reception a year ago I was rapturous to see it but the more I read about it the more "enh"-y I got about actually going to it. There's a good chance I'll cowboy up and do my duty. I will not see A Serious Man, but I do recommend A Single Man. The Last Station, I probably can see. If I catch the three of those four films that I'm willing to see, I'll have caught the lion's share of the nominees in all of the various categories.

Big picture, the big battle looks to be between The Hurt Locker and Avatar. For those of you who don't know, there's added intrigue because Hurt Locker director Kathryn Bigelow is an ex of Avatar director James Cameron, though the two are on good terms with one another. Avatar did very well at the Golden Globes, but the Directors Guild and Producers Guild both voted for Hurt Locker. Hurt Locker could also benefit because actors are the biggest contingent in the Academy, though the motion capture technology of Avatar is much more actor friendly than in the Bob Zemeckis movies or Lord of the Rings. So there is some potential for a really tight race.

I did not like Avatar so much, while I liked The Hurt Locker very much. So far as I'm concerned, Avatar can pile up all of the technical awards it wants to its very utmost hearts content, but please let Best Director and Best Picture go to the soldiers fighting on Earth. The Hurt Locker is one of those all too rare films that is both riveting, dramatic, compelling, taut movie-going and simultaneously a work of genuine art. It does revisit some war movie cliches, but Avatar visits all those and more. As much a technical triumph as Avatar might be, any movie with the "at first, it was just a job/mission/assignment, but then it became love" line in it ought to get a DQ for Best Picture.

After those two pictures, Up in the Air was my favorite of the other eight nominees. I'm glad to see District 9 in the mix because it shows you can do good science fiction without drowning the story in blatantly CGI effects that turn cinema into a video game. The Blind Side joins Avatar in being among the most popular movies of 2009, with rock steady box office as a result of good word of mouth, and if that helps it to get a spot on the expanded roster of ten Best Picture nominees, I'm all for. An Education and Up, I saw both, and can't say I liked either as much as some other people.

I've seen all five nominees for Best Actor, and they're all amazing. This is a tough category. If the Academy wants to give it to Jeff Bridges, fine by me, but any of these performances would be deserving. The other acting categories, I need to catch up on more of the performances.

A few other quick comments:

The White Ribbon is kind of stuck on itself, but it was very nicely photographed. That's a category where I might root for a movie I didn't actually like.

Once again the Feature Documentary category is filled with documentaries nobody actually saw. Howls of protest should commence momentarily. On the other hand, this wasn't one of those years when any documentary did really really well at the box office, so the howls will only come from the critics rushing to the side of their overlooked darlings.

I wish Michael Giacchino had picked up a second nomination for his score for Star Trek. James Horner and James Cameron were a great team on Titanic, but Avatar's probably the spot I wish had gone to a second nom for Giacchino.

And overall, while I'll happily see Avatar picking up a slew of technical awards, the fact is that Hurt Locker has excellent technical work in places like sound editing. Movies like Star Trek and District 9 were really good. Will voters find consolation prizes for them someplace, or will Avatar conquer all?

If you haven't seen The Hurt Locker, please do so right away. Move it to the top of your Netflix queue, Redbox it, rent it, one way or another, see it right away.

An Onion a Day

On the lighter side from some other recent posts...

we've all heard of the dreaded pulled hamstring and other pulled muscles, and now The Onion has its laugh-out-loud take on this subject. I wish I'd thought of this one, and I don't think you'll read another article about sports injury in the same way ever again.

Planned Outcome?

For all the sturm and drung over Amazon's battle with Macmillan...

Amazon has been paying most publishers for e-book content based on the publisher's list price for said content, while charging a price chosen by Amazon. If Macmillan sets the list price to match the print edition, and Amazon pays a 30% royalty, we might have a $25 list price, and Amazon pays the publisher $7.50 out of $9.99 Amazon Kindle price. That leaves $2.49 for Amazon to enjoy. And if Amazon is paying the biggest content providers a bigger royalty, maybe not even $2.49.

Macmillan now establishes a $14.99 list price, and Amazon gets to keep 30% of that as Macmillan's agent for this sale. Suddenly, Amazon goes from getting $2.49 or less to getting $4.50.

Places, everyone? Are you ready for your close-ups?? Lights, camera, action, and then a few days later "Cut!"

Maybe from a very long term perspective Amazon would still prefer to sell the e-book for $9.99 so there's a bigger gap between the $25 print edition which Amazon sells at discount for $16.75, which makes the Kindle more attractive. But all the long term perspective aside, how angry can you be when your big customer forces you to take $4.50 instead of $2.49?

The E-Book Revolution

So, the iPad! While I type in one window, I'm watching the keynote speech on the Apple web site.

Though I used the Kindle for over a year, I'm not the hugest fan of it. It allowed me to do things I couldn't do before, and I loved it for that. But it didn't allow me to do many of them very well. I could read a manuscript without carrying it around but not in cold weather and take notes on the same device but not easily and the relay to the author was cumbersome. I could read the Washington Post every day without schlepping into Manhattan to buy a hard copy, but the reading experience wasn't very good. I liked the Sony Reader less, because the note-taking interface was cumbersome and the glare on the screen distracting to me. And the Nook was surprisingly bad to me for how much learning curve should have been curved.

I've never been a big laptop fan. They're portable, but not fun. When I live-blogged the Oscars last year, I had to sit at a desk instead of perch in my recliner because it's just too cumbersome to sit with a laptop in a recliner.

I have no complaints about my iPod Touch. I read manuscripts quickly, in colder weather than the Kindle. The limiting factor is whether I have to wear gloves or not outside, which is a much lower temperature than when the Kindle started to degrade. I can take notes fairly easily and send them to my clients right from the device. And it plays music. And shows off photos. And does video. And has a calculator. And when I'm traveling and curled up with it in my hotel room with wireless, I can lose hours to surfing the web just like when I'm at home.

So Apple seems to get it. You have a kind of giant iPod Touch, and Steve Jobs demonstrates it sitting in a comfly leather chair which is exactly the place that I might envision perching with it. It has a dedicated iBook reader. I can pay a fairly reasonably priced $14.95/month to AT&T to have a limited amount of wireless access, or $30/month for as much as I please. All the time, or for thoee trips when I can't hook up my Touch into the hotel wireless?

So I like the idea of the device, but time will tell how the actuality of it works.

Now, what does this mean for publishing?

Fun Times!

In either a good or a not so good kind of way.

Publishers are not fond of Amazon's control over pricing and terms of sale for the Kindle. Apple is willing to give the publisher more pricing power. This led to a dispute over the weekend with Amazon not selling titles by Macmillan USA, which includes Tor, St. Martins, Farrar Strauss, Holt and other imprints, in a dispute over the sales arrangements. And then maybe backing down and agreeing Macmillan could price its own books. I say maybe, because the seeming concession may have come with conditions we don't know about. These kinds of things happen. Not that long ago Costco pulled Coke products from their stores in a pricing dispute. Amazon UK has had some big publisher disputes. Apple is Apple, but Amazon sells a lot of physical books that are still 90% of publisher revenue. But Amazon isn't the only internet store in town. If I were Borders, I'd have done an e-mail blast right away with promo code AMZN24 to say "hey, can't buy [bestselling Macmillan title here], we'll sell it to you and give an extra 10% off your entire order."

I do think Macmillan's position in the matter (CEO letter here) is the better one, which may be why Amazon ended up seeming to cede. The world is full of variable pricing for the same thing at different times and different places, from bargain matinees vs. Saturday night at the movies, the paperback vs. the hardcover, the last-minute fare deal vs. the prepaid reservation vs. the regular rate. Just because Amazon woke up one morning and decided a bestselling e-book should cost $9.99 doesn't mean an e-book should forever cost $9.99 or less.

Also making things interesting... the Amazon iPod Kindle application will work on the iPad. I do my manuscript reading using Stanza, which is now owned by Amazon, and that will work on the iPad. Will Amazon continue to want to add value to Apple's iPad even while Apple is trying to squirrel in on Amazon's e-book business? Then again, how will the Apple Pages application work on the iPad? When I use Pages on my iMac, I can do track change and comments right in a manuscript, export to Word, and send away to a client. Will I be able to do that on an iPad? And will anyone care what Amazon does or does not do to support the iPad when they can iBook?

As I said, Fun Times. I think there's a lot of potential in the iPad, but I think the arrival of Apple as a major player in e-book retail is going to lead to a lot more shoving matches like what we've seen between Amazon and Macmillan as all of the different e-tailers and the publishers all jockey for position.

Our client Tobias Buckell is among those who've done particularly good commenting on the Amazon/Macmillan dispute.

In the midst of this, JABberwocky is starting to explore how it can best enter the e-book world. We've spoken in recent weeks with people at Amazon, BN.com and Rosetta Books and are starting to think seriously about all of this. Lots of interesting questions. Do we go with a third party vendor like Rosetta or eReads? Do we become our own eReads? Depending on that, where do the costs of cover art and scanning/converting reside? How much upside do you trade to reduce the investment in those costs? Do you go one way for some books and another way for others?

Those are just the back-end decisions. At the front-end of what we actually show to the world... Since Simon Green has the most enticing out of print backlist do we start out with a single author-based promotable program and see what happens? Or do we look for original content, short story collections perhaps, from half a dozen top authors and make that the launch? Or go with that, and the top two dozen other backlist titles? Or make our entry with 100 books or 250 all at once? Feel free to vote!

And we'll start to explore these questions just as Apple, Amazon and the other publishers jockey for position. With as many as 40 different e-book reading devices scheduled for a big unveil over the course of 2010. With different permutations of format, exclusivity, cross-compatibility, etc. etc.