Sunday, October 26, 2014

Do Publishers Deserve to Exist?

This week’s screed against book publishers comes from Matt Yglesias at, who proclaims, “Amazon is doing the world a favor by crushing book publishers”--a headline that shouts clickbait but fairly reflects his piece. Yglesias, whose work I have often admired, notes that he’s the child of two authors and has published a book himself, so his hatred seems to be honestly earned. Writing of the “fundamental uselessness” of publishers, he says they are going to be “wiped off the face of the earth soon” by Amazon “and readers will be better for it.”

Book-business types rolled their eyes at Yglesias’ hostile tone and ignorance of some key facts, but I saw it cited as smart and “thoughtful” by a number of media people and others who I’d have hoped would know better. So at the risk of repeating points that have been made many times before (but seem still to be widely un-apprehended), maybe it’s worth briefly reminding ourselves just how publishers do add value in connecting writers and readers. So, pace Matt Yglesias, here are some of the services publishers perform.

Curation. The function of choosing what work is most worth presenting to readers is derided by some as a retrograde, “elitist” notion. Why should publishers appoint themselves as selectors of what people ought to read, when everybody can  put their work online and let readers judge for themselves?

For starters, think about the staggering number of books released every year: in 2013 it was close to one million--304,000 traditionally published and more than double that number of self-published books (precise figures are hard to collect because many self-pub titles, including those produced on Amazon, aren’t captured by standard industry measures). A customer going into a bookstore confronts what may seem like a dizzying number of titles. But all of them have been through a multi-step screening process where agents, editors, marketers, and booksellers have determined these books have value. 

When I was a publisher, I probably turned down a hundred books for every one I published--and most of those had already been screened by agents who filtered another hundred for each one they sent me. Imagine the bookstore--more like a mega-warehouse--where all of those titles are on the shelf.  A warehouse choked with millions of books, with no sales clerk to steer you to what you’re looking for--and  no quality control over what got in there. Where for every Michael Connelly novel there were a a hundred Michael Connelly wannabes, which would range from the mediocre to the truly illiterate. To put it another way, the marketplace of books would be one gigantic slush pile stretching as far as the eye can see. 

Some argue that book selection can be crowdsourced, and reader reviews can take the place of editors. But if you have spent much time reading Amazon reader comments, or even reading top-rated self-published titles, you may share my doubt that crowds do as good a job as the people at Penguin, Melville House, or University of California Press. In short, if we ever attain the publisher-less world Matt Yglesias is so eager to embrace, I think readers will readily see what value was added by those old-fashioned “gatekeepers.”

Development. Everybody understands that publishers provide editing—and as I think most authors would agree, it’s a vital contribution, but let’s concede that it might be hired on a freelance basis.  However, editing is only part of a larger process that takes place as the book goes from an author’s proposal to a published work. That development process might include fundamental shaping of the structure at the outline stage, long before there is a manuscript to edit; picture research and clearing permissions (a huge task on some books); line-by-line legal vetting of a manuscript; creating maps, drawings, or tables; and coming up with typographic and jacket designs that will express the essence of the text and attract readers to pick it up or click on it—a whole panoply of tasks that go into presenting the author’s work professionally. Couldn’t authors outsource all these services as well? Maybe. But unless an author is truly an obsessive DIYer, there’s a big advantage in having one “solutions provider” take care of all of this. Publishers have evolved to do this pretty efficiently and effectively.

Investment/Venture Capital. Publishers pay advances against royalties, taking substantial risk that enables authors to undertake time- or money-intensive reporting, or sometimes just to feed their families, while they’re working on their books. Even novels sometimes require travel and research. This point has been made by several other writers (such as Franklin Foer and Evan Hughes) so I won’t go into depth on it here. Suffice it to say that unless someone is willing to risk substantial advances, the only authors who’ll be able to devote months or years to their work will be those who are independently wealthy.

Yglesias suggests that “If advances don’t make financial sense, then they will die off regardless of what happens to Amazon. If they do make financial sense, then they will live on as financial products even as the rest of the industry restructures.” This presumes some other investors would be willing or able to take the risk on projects that might seem pretty unpromising at first glance.

Publishers were willing to take risks on these books for a couple of reasons. (First, they are incurable optimists, but let’s leave that aside.) Second, they have long experience seeing ideas developed into books, even odd-sounding ideas. Third, they are spreading their risk across a wide pool of titles. Even if eight or nine of 10 advances don’t earn out (and they don’t), one or two of them can make up for the bad bets.

If publishers didn’t exist, would this risk/reward ratio attract other investors? The payouts on most books are tiny compared to venture capital returns, though the risks are just as bad. And it’s hard to imagine a Kickstarter campaign funding a multi-year stint in Mumbai or a few decades plumbing the archives of the LBJ Library and interviewing thousands of people. 

Finally, quaint as this will sound, publishers sometimes invest in books that they know won’t earn out, simply because they believe in supporting talented writers. They also know that bringing a promising author to the list may pay off further down the line. This is true even of big conglomerate houses, and even more so of the many excellent independent publishers at work all over the country—the Grove Atlantics, Graywolfs, and Tin Houses—whom Yglesias would cheerfully consign to oblivion. If all these houses are “wiped off the face of the earth,” do we imagine the algorithms that replace them will have the same concern for literary culture?

Marketing. “Publishers are terrible at marketing,” declares Yglesias, but his argument for this assertion is full of strange leaps and assumptions. Referring to the Amazon-Hachette standoff, he says that if Hachette were any good at marketing, they could boycott Amazon and force consumers to buy their books elsewhere. This ignores how consumers really behave and the fact that books are discretionary purchases. If you couldn’t buy milk at your supermarket, yes, you would go elsewhere to shop. But if you don’t find a given impulse purchase at the supermarket when you’re already shopping there--Pumpkin Spice Oreos, or even, say, a book!--you’re not going to leave your shopping cart and walk out. At Amazon your “cart” might already contain office supplies, appliances, or indeed books from several other publishers. You may well be a Prime member, who gets free shipping and 2-day delivery of any book he orders. So if you can’t find a given Hachette title there, maybe you shop for it elsewhere (with all the hassle that might involve of setting up new accounts, etc); maybe you figure you’ll try again another day; or maybe you just choose a different book, with a nudge from Amazon itself (“people who bought The Goldfinch also bought...”). Hachette’s power to manipulate you is limited compared to that of an “everything store” where you are already a committed customer.

Yglesias develops his point with an example that’s meant to show the superfluousness of publishers. When George R.R. Martin puts out a new volume of Game of Thrones,
“If I can buy it as an Amazon Kindle book, I will buy it that way. If he decides that the only way people should be able to read the book is to get Powell’s to mail them a copy, then I will buy it that way. And I am not alone.”
Yglesias says Martin could simply sell the book off his own website, with no need of a publisher-middleman. “Nor is Martin,” he notes, “the only author with the clout to not worry about the terms of distribution.”

There’s no disputing that Martin, or other bestselling authors, could now self-publish with great success. The key word here, and the one that refutes the useless-publisher argument, is bestselling. George R.R. Martin’s --like Donna Tartt’s, or David McCullough’s--status as a bestselling author was built up over years of publishing. It is not solely a function of his undoubted narrative genius, but also the product of the efforts of editors, jacket designers, marketers, publicists, sales reps, and others who helped generate excitement about Martin’s books and put them in the hands of millions of readers (long before HBO’s TV series multiplied that fan base).

When authors who have not already captured the public’s attention publish themselves, by and large the results do not prove the uselessness of publishers. The average sale of a self-published title is under 250 copies, somewhat less than the average number of friends on Facebook. (I say this not to bash self-publishing, which is a fantastic opportunity for some authors and demonstrably a route to stunning success and riches for a few. But just because some authors achieve stunning success without publishers does not mean the latter add no value.)

The tragedy of publishing is that publishers are never as good as marketing as they would like to be. Any thoughtful bookperson is all too aware of this, even before disappointed authors like Yglesias remind us. Blockbusters aside, the revenues generated by any individual book are barely enough to cover much more than the cost of mailing review copies, maybe a couple of online ads or a handful of author appearances. That every new book is a unique product, whose audience won’t be quite the same as any other book, means that each marketing campaign is a matter of inventing the wheel--horribly inefficient.  And for these reasons, the time and attention of publishing personnel are also limited resources that are typically stretched too thin.

All this makes it difficult to turn most books into the bestsellers that their authors are always convinced they should be. As an editor, I was constantly frustrated that my own books often didn’t get the marketing budget I thought they should have to reach their fullest potential, and disappointed when I had to tell authors their work hadn’t sold as well as it deserved. Does this mean, though, that those works would have sold just as well without the involvement of me or the house? I have to doubt it.

Marketing a book is a far larger and more complex process than just listing it on Amazon or buying a New York Times ad. In a publishing house, the marketing process begins even before a title is acquired, with an editor kindling enthusiasm among colleagues. As the process gathers steam, word is spread out to the world by publicists, sales reps, e-mails and personal letters, schmoozing, and gossip, plus advertising, review copies and free advance e-books, social media, and paid promotions with bookstores and online sellers. 

As soon as a manuscript enters the publishing pipeline, the house is communicating with retailers, reviewers, media producers, movie scouts, foreign publishers,  and all the other channels by which readers hear about books, telling them what makes this title worth reading. One of the oldest publishing truisms is that word of mouth is the most effective way to sell books, and in some ways a publisher is a large group of people organized to generate word of mouth and amplify it as widely as possible.

Doing this effectively requires framing the book in a compelling way and identifying all the potential audiences for it (tasks that take considerable skill and at which most authors are surprisingly weak). It also depends on relationships with all the aforementioned actors in the marketplace and on credibility with them.  If you were a bookstore fiction buyer, would you rather sift though ten thousand self-published novels or a few hundred published by houses whose track records you know?  If you are a news producer being pitched on a memoir, will you pay more attention to a publicist who works for the author, or one from W.W. Norton?

Distribution is one absolutely critical component of selling books, a fact that Yglesias acknowledges while ignoring its implications. “In the traditional book purchasing paradigm, when a reader bought a book at the store....the publisher...was doing very real work as part of the value-chain. Transforming the manuscript into a book and then arranging for it to be shipped in appropriate quantities to physical stores around the country is a non-trivial task. Digital publishing is not like that.”

He is absolutely right that getting books on shelves--not just in bookstores, but in supermarkets, newsstands, craft shops, school book fairs, and so on--is an essential task performed by publishers, who devote enormous resources to managing the supply chain. When you buy a Dr. Seuss for your niece in a bookstore, or grab a novel at an airport kiosk for your flight, you’re benefiting from all the infrastructure that that put those volumes in front of you--and so is the author whose book you bought.

It’s true, most of that machinery is irrelevant in a digital marketplace. And here is the crux of the matter: most books are still not digital. Most people still love printed books, even those who happily read on their Kindles and phones, and a significant percentage read only print editions. (One recent survey finds that 46% percent of American readers read printed books only; a vast majority read both print and e; and only 6 percent read e-only.) 

All these readers are served by the current ecosystem, where you can instantly download a book you just heard about on NPR, or spend a Sunday afternoon browsing in a wonderful bookstore for a great biography, or pick up a baking book that catches your eye at Williams-Sonoma.  Furthermore, as I have argued elsewhere, the vibrant market and high visibility of all their printed counterparts is a vital component of the marketing for e-books. In a world where you never saw a printed book in a store, or in a reader’s hands on the bus, it would be harder for any book to gain the kind of “mindshare” that a hot title does today.  

There are many flaws in this system, to be sure, and they result in prices that are higher than they might be in a purely digital marketplace. But book prices, even for hardcovers, are not unreasonable compared to the costs of other entertainment or information goods.

Yglesias, and many other pundits, strike a pose of hardnosed realism by telling us the Amazon-Hachette dispute “is just about price.” (In fact it’s really about profits, which isn’t the same thing. Amazon wants to pry some of Hachette’s margin away for itself. Low prices happen to be part of Amazon's business model.)  But more important, what these pundits overlook is that the dispute is also about what kind of marketplace we want to have.

If lower prices are good for readers, so is diversity in the marketplace of ideas. If Amazon were to "crush" publishers, first of all, book sales would plunge as printed books, and thousands of sales outlets for them, largely disappeared. The publisher-less world Yglesias imagines will also be a bookstore-free world, totally dominated by one seller that will have even greater sway over what gets promoted than it does now.  It will also have the ability to change at whim the terms it offers to authors, in their disfavor, as it already has more than once. That’s my idea of a dystopia, not of readers being better off.

It is naive to imagine that trading many different publisher-gatekeepers for one or a few massive retailer-gatekeepers would result in authors "seeing their total income rise." As for readers, the serendipity of browsing bookstore shelves and of discovering a book you didn’t know you were looking for, or of getting a great recommendation from a clerk who knows your taste, will be nostalgic memories-- replaced by a search function and algorithms completely controlled by one or two companies who make the “giant conglomerates” that own publishers look puny and who may tilt the playing field for their own purposes. 

Amazon is a brilliant company and it has unquestionably done readers and authors a favor by making books available in so many convenient ways. It has also forced publishers and other retailers to up their game.  But admiring the value of Amazon shouldn’t preclude us from recognizing the value that publishers add, at both ends of the writer-reader pipeline. A marketplace where publishers and Amazon compete for authors’ loyalty, and Amazon and physical bookstores compete for readers’ dollars, is a healthier one for all parties.

Images: Wikimedia Commons;   pictureitnow; Genista from  Flickr 

Friday, June 6, 2014

Why Are Publishers Telling Us E-Books Are So Profitable? Another Book-Business Fallacy

Coverage of the Hachette-vs-Amazon dispute has recycled various misconceptions about what’s happening, as Michael Cader noted Wednesday in Publishers Lunch. But one of the most widespread fallacies you may hear, and not just relating to Hachette/Amazon, is that “e-books have been more profitable for publishers than print books,” as Evan Hughes put it in Slate. The chunky margins generated by e-books, the thinking goes, are what the publisher and the 600-pound gorilla of bookselling are tussling for.

Even before this dispute, some industry voices, led by Mike Shatzkin (echoed by Hughes in the piece just cited, and of course the agent community), have argued that in a sense publishers have been asking for trouble by maintaining such high margins on e-books—like kids walking back from the candy store, their pockets bulging, past the local bully. Shatzkin proposed that publishers raise their royalty rates on e-books so that they could gain some advantage by sharing the “extra” profits with authors before the retailers could zero in on them.

Mike’s suggestion was prescient, and there are other good arguments for passing along more e-book revenue to authors (starting with, "they could use the money"). Nonetheless I believe publishers would have been better served by pointing out, long ago, that the notion of e-books as a magical cash cow is wildly misleading. Because the supposedly greater profits from e-books—when published alongside traditional print editions—are an artifact of accounting. The margins that both Amazon and Hachette find in e-books are only as high as they are because of all the resources Hachette devotes to hardcovers and paperbacks.

Today in mainstream publishing, e-books are almost invariably published alongside a hardcover or paperback edition. This means the e-book edition floats on top of a huge investment in whatever that title is, which in most houses is not charged against the e-book edition.

Consider the following costs incurred in publishing a new title:

The advance—frequently the largest single line item in the investment in a given book, and in many houses charged entirely to the first print edition. Even when it’s allocated otherwise, there are many other costs that are charged the print book, such as:

“Plant” costs—such as copyediting and proofreading, typesetting, design, illustrations, legal vetting, maps. These are typically charged to the hardcover edition, even though the paperback or e-book editions benefit equally from them. (Side note: for the same reason, even in pre-e-days, paperbacks were often seen as more profitable than they "deserved" to be.)

Furthermore, marketing costs are also charged to the hardcover even when the e-book is published simultaneously. These include promotion (catalogues, advance reading copies, BookExpo displays, etc); advertising; and publicity (review copies and ARCs, author tours). Obviously all these efforts are working to sell the e-book just as much as the print edition.

And alongside those expenses are the heinous, eye-watering costs of producing and distributing physical books:  Printing, sales commissions, warehousing, shipping, and all the hideous inefficiencies of taking returns.

Wait a minute, you’re saying, now you’re going too far. Why should the new, innocent e-book be charged for costs of the bad old dead-tree "legacy" (shudder) business?
Because the existence of printed books, the trafficking and display of them, is still a critical marketing tool for e-books!

What is the currency of advertising? Impressions. Every physical book you see as you go through your day is an impression, just a like a Coke ad on a bus shelter or a Coach logo on a handbag--each of those glimpses is a little hit of marketing. Think about the millions of printed books out in the world--displayed in store windows, piled on tables, racked at the checkout in supermarkets and drugstores. Or seen in the hands of people on airplanes and buses; given as given as Christmas or Mother's Day presents to people you know. 

We know that one of the reasons people buy books is that they see other people enjoying them (hence the enduring popularity of bestsellers, even in a long-tail marketplace). There is no question that many of the titles on the e-book bestseller list are boosted by the visible popularity of hardcovers and paperbacks. The thankfully still-robust presence of printed books contributes significantly, I would argue, to the “mindshare” enjoyed by any e-book--not to mention the overall "mindshare" of "book" as a category of entertainment.  

There are, to be sure, e-only bestsellers—works that achieve significant sales without riding the coattails of a print edition. I would guess, though, that very few titles which have achieved true blockbuster e-book sales—tens or hundreds of thousands of copies—have done so without a blockbuster print edition helping to spread the word. (Fifty Shades of Gray, a bestseller as an e-book, became a megahit when Random House published a print edition.)

Perhaps I’m pressing a point if I go from there to arguing that the cost of trucking a new title to a Barnes & Noble distribution center ought to be spread across its e-book edition. But the larger point is that it’s arbitrary at best, and again, misleading, to think we can neatly separate print from e-book costs, when publishing any title is a multi-platform campaign. And it leads to fuzzy thinking about the business if we look at the P&L spreadsheet for a given book and say “wow, the e-book is really profitable” when the poor hardcover is carrying 80 or 90 percent of the investment load. What’s really happening, if you look at this another way, is that the print edition is subsidizing the e-book!

My point here is not to bash the e-book business. It is true that e-books have an enormous economic advantage over print when it comes to manufacturing and distribution, because the incremental unit cost of creating & delivering an e-book is virtually nil. (Even better, no warehousing and no returns.)  You need no publishing expertise to see this, and it’s one reason why it seems intuitive to say e-books are more profitable.  

Some publishers, I’m afraid, have encouraged this misapprehension. Corporate houses in particular like to trumpet the profitability of their digital businesses because it makes them look “innovative” and tech-savvy and gives Wall Street an easily-grasped, upbeat story of a growth driver in the industry. Trade publishing companies have historically thrown off quite modest, not to say anemic, profits and have for decades been caricatured as quaint, retrograde, etc. so maybe we can’t blame them for bragging about better margins that seem to come from new technology.

But for all the reasons above, it's wrong to consider the profitability of an e-book edition separately from an accompanying print title. And it makes no sense for publishers to boast of wonderful margins on e-books, unless they are also going to apologize for the lousy margins they get on print titles.

Publishers are straining mightily to maintain a healthy publishing ecosystem that includes print and e-books, online selling and brick-and-mortar bookstores. This is not out of nostalgia or an inability to grasp the digital future, but because they understand, as explained above, that print and e-book sales boost each other.  And if they give away too much of their revenue from e-books, whether to retailers or to authors, they risk making that multi-format marketplace unsustainable.