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Friday, May 2, 2008

An Unappealing Byproduct, Part 2

As I noted in part one of this series of posts, the confluence of technology and buying habits is affecting the industry from top to bottom. This post explores pricing structures, and how it affects many publishers, authors, and in the end, buyers.

Many publishers (usually the big guys) manage their own distribution. Many more (especially the smaller and niche publishers) do not, and so contract with a distributor to handle some or all of their access to the market (think general book trade--Amazon, Barnes and Noble, Borders, and so forth). Our distributor is Casemate Publishing. They know the military and general history market inside and out, and handle our distribution into the book trade only. We manage and oversee all other sales.

Technology and Dollars. In the not-so-distant past, a sizeable chunk of any print run sold at full price, or darn near retail. The advent of big box stores, the internet--eBay, Half.com, Amazon--and varying technologies has changed that dramatically--for the better and for the worse. Let me explain.

Let's say we publish a book with a suggested retail price of $30.00. If we sell it at full cost, fine. If we sell it to a book dealer (bypassing the distributor), they go from 25% - 50% off retail. Again, acceptable discounts with few or no returns. But usually the largest percentage of a print run goes into the book trade via the distributor. The division is rather ugly.

The original $30.00 price is cleaved in half because the bulk of books leave the warehouse at 50 percent off. That leaves us with $15.00. The distributor has to take a slice of the revenue, and depending upon your distributor, it can be anywhere from 25% to 55% of the $15.00. (Yes, you read that right.) I am not going to reveal our contractual details, but let's take a middle ground and use 35%. So, $15.00 less 35% ($5.25) leaves us with $9.75 from a $30.00 title.

Book wholesalers who pick up from the distributor (Baker and Taylor, Ingram, Barnes and Nobles, Amazon, etc.) pay months after the shipment, and we receive our check four months plus 15 days AFTER the month of shipment. In other words, if 100 copies of a $30.00 book ship in January 2008, the funds ($975.00) are paid to us in the fifth month thereafter: JUNE.

It gets worse.

These same wholesalers and stores allow patrons (that would be you) to read them in-store, eat over them, spill coffee on them, tear or fold pages, bump the corners, etc. and then put them down so they can go find a used copy on eBay or a cheaper copy on Amazon. These copies (and others--some that never get out of cartons) can be returned for FULL CREDIT to whittle down the outstanding debt to the distributor. So using our example, when June comes around, and the stores return 50 copies, that is immeediately deducted from our check, which cuts the payment from $975 in half. These same stores can the very next day reorder new books, and the cycle starts again.

What does this mean? It means that publishers must pay everything--authors, printers, storages, taxes, shipping, design, formatting, editing, utilities, wages, etc. out of the $9.75 we receive for each $30.00 book.

This model is seriously flawed. Publishers (and by extention the authors--more on that in the next post) shoulder the debt. Put another way, Savas Beatie is carrying the paper--making us creditors for booksellers. We do not rely upon the book trade for our survival and dedicate significant energy into marketing outside the book trade. Success, therefore, requires the right product and very active, and understanding, authors.

I will continue this post by addressing the impact on authors and a follow-up post on how this impacts you, the reader.



John Fox said...

Ted, You gave an excellent explanation of the problem. I have been in business as a publisher for 4 short years and continue to be amazed by this screwed up system. However, I bite the bullet and play the distribution/wholesaler game because after expending lots of time and dollars on marketing I want my books available to a customer who walks into any bookstore in the country. I'm not sure how to do that w/out playing the game. Trying to figure out how to pay all the bills plus pay royalties to an author makes things interesting. Since all books shipped to wholesalers are virtually on consignment you never know what payment for your books will come in from month to month. I keep hoping enough fed up publishers will band together to stop this situation.

Theodore P. Savas said...

Hello John

Thanks for the post. Make sure you sign up for SPAN (Small Publisher's Association Network), which is priceless for small to nearly large publishing houses. I find their newsletters and benefits to be priceless.

I am on the road in the Midwest, but will post when I return.

Keep reading and please keep contributing.

Best of luck.


newtbarrett said...

What percent of your sales go through online channels?
Is that number high enough so that you could eliminate bookstore sales, reduce your discount to 20%, refuse returns and make more money for yourself and your authors?
I'm curious since I'm about to publish a book via Lightning Source and will be attempting that approach.