Publishing. Right. Wrong. Otherwise!

Kleo and Me
Kleo and Me

Some of what I said in the earlier posts was misunderstood. Maybe because I finished the first post, Futurist Prediction: Four years into the ebook revolution: Publishers are Lost in Space – Updated at 4:00 AM. Maybe it’s my off beat style of thought.

I do things differently, and I think differently. I always have, and I always will. I have this tendency to take short cuts, because I see them, and they look obvious to me. I don’t know how many times I’ve later had to explain to management exactly why I did what I did… Not that they were complaining about the sales mind. They just couldn’t understand how I’d made them.

Mike Shatzkin

I am not mad at Mike Shatzkin. I was not insulting him. I was pointing out that he was wrong in several places in that one article from MY point of view. Note the emphasis on the word MY.

I know that Mike thinks I’m wrong. I have no problems with that. I think he’s wrong. At some point in the future we will find out who is right, or more likely that we are both wrong.

Remember, I am a Futurist. Being wrong is a normal fact of life for me. But I’ll also state that I’m pretty happy with my accuracy overall. I think that I do a good job of pulling answers out of thin air with the minimal information that I have.

Mike Shatzkin should be able to extrapolate better than I can, he should have access to more information. Based on what I can see, he’s failing.

And yes, I do get insulting sometimes. I’ll take shots at anyone. If you are willing to publicly state your opinion, you are a legitimate target. So am I.

The thing is that I agree with Mike on some points. From his article Will book publishers be able to maintain primacy as ebook publishers?

Here’s an assumption that is not documentable; it is my own speculation. I think we’re going to see a US market that is 80% digital for narrative text reading in the pretty near future: could be as soon as two years from now but almost certainly within five. We have talked about the cycle that leads to that on this blog before: more digital reading leads to a decline in print purchasing which further thins out the number of bookstores and drives more people to online book purchasing which further fuels digital reading. Repeat. Etcetera.

My only disagreement with his statement is that I think it is going to happen faster.

I projected two years in March 2011, and then changed it to eighteen months. So if I’m right we are talking some time between October 2012 and March 2013.

Mike is projecting October 2013.

Now stop and think. In publishing I’m not that well-known. In Copyright I’ve got a name as a total PITA, who is willing to take on anyone, including the staff at the World Intellectual Property Organization (Doctor Mihaly Ficsor doesn’t like me at all).

I made my original prediction long before I’d ever heard of Mike Shatzkin or he had heard of me (there is a copy of it further down the page – the website it was originally published on is currently down, and I found it while writing this article).

But think – we really aren’t that far apart in our predictions. Mike is in the industry, and has better data than I do. I’m a lunatic futurist, who does crazy things like read corporate SEC filings for fun.

And we are coming out with what is essentially THE SAME ANSWER. We disagree on the time frame, but not by that much. What is a year?

What are the Economic Effects?

Think about this, and think hard. I’m going to list a bunch of media:

  • Video Laserdiscs
  • Betamax Videotapes
  • VHS Videotapes
  • Long Play Vinyl Records
  • Reel to Reel Audio Tapes
  • Eight Track Audio Tapes
  • Cassette Audio Tapes
  • Audio Compact Discs
  • Paper Books

All of these media have a common purpose, to deliver a form of entertainment. They are a  delivery system. Of course the delivery system has to be delivered, and it has to be displayed on shelf space.

The current switch to electronic delivery of electronic files removes the need for a delivery system and for shelf space. This is why Borders went bankrupt in the United States, and it is why Chapters-Indigo in Canada has a smaller and smaller amount of shelf space devoted to books.

Remember record stores? Seen any lately? Didn’t think so.

Own any stock in Chapters-Indigo or Barnes and Noble? I’d suggest checking your portfolio, and depending upon your belief in the abilities of the management at the two companies, either selling or buying. The odds are that they won’t be selling a lot of books in 2014.

What is the Market?

I don’t travel very much any more. I can’t. But a friend up visiting from the United States is in shock. Books, books, everywhere. She can’t buy books at the supermarket, the pharmacy, the gas station, or the corner store in Tulsa. Here you can.

I don’t remember noticing that when I was on sales trips through the Continental 48. But I usually packed the books I wanted to read when I left home, and sometimes I’d pick up something at the airport. That’s where I got a couple of Terry Pratchett paperbacks.

If she is right, this means that the United States is badly under served by the book distribution mechanism. In one of my earlier articles I suggested that EBooks would cost less, but more would sell. One issue is accessibility. I don’t know how many times I’ve ordered a book from Amazon at 3:00 AM, and started reading it a minute or two later.

Another issue is price. When Jane Fancher re-issued her classic ‘Netwalkers series for a grand total of $6.97 for all three books, she priced them in the range that seems to do really well (see the section on Joe Konrath below).

Current paperbacks are about $9.99 US. My personal guess is that if you half the price, making the average EBook price $4.99 for a novel, that the total sales should hit 300% of what today’s sales are.

This is where it gets fun. To quote myself from Futurist Prediction: Four years into the ebook revolution: Publishers are Lost in Space – Updated:

With my Futurist Hat on, I’m predicting that by January 1, 2014, EBook sale revenues will have increased to between double and triple the current publisher revenues, but that the Traditional Publishers share will drop to around 33.33% of the market, with Independent Publishers like myself taking the other 66.66% of the market. The publishers will sell fewer, more expensive books. Us independents will sell more books, with lower prices. My estimate is that the Traditional Publishers will have only 10% of the market by volume of books sold, with the Independent Publishers holding the remaining 90%.

There is a field called Industrial Economics (at least that is what it was called when I took it in High School in the early Seventies). An important part of Industrial Economics is pricing. What is a good price for something.

Let’s take Writer A. Writer A has written a book, and wants to put it on the market as an EBook. A variety of prices are available to Writer A.

$1,000,000.00 per copy
$100,000.00 per copy
$10,000.00 per copy
$1,000.00 per copy
$100.00 per copy
$50.00 per copy
$20.00 per copy
$10.00 per copy
$7.50 per copy
$5.00 per copy
$3.00 per copy
$2.00 per copy
$1.50 per copy
$1.00 per copy
$0.00 per copy

Writer A wants to maximize earnings. What price should Writer A charge?

A lot will depend upon the book. I’m working on a non-fiction technical book on Catalytic Converters. Because a lot of industry people will buy, I can probably sell it for more than I could the book about the Township of Markham School System that I’m working on. Different markets. One market has buyers who can buy it using the company credit card, and justify the purchase, the other is something that you’d probably buy if you are like me, and attended a One Room School House in the Township of Markham.

A lot will depend upon Writer A. If Writer A is J. K. Rowling or Amanda Hocking, Writer A has a huge fan base, and can charge more. If Writer A is Joe Unknown, there is no fan base, so a low price to attract readers is probably a better choice.

To quote Wikipedia on Price Points:

Introductory microeconomics depicts a demand curve as downward-sloping to the right and either linear or gently convex to the origin. The downwards slope generally holds, but the model of the curve is only piecewise true, as price surveys indicate that demand for a product is not a linear function of its price and not even a smooth function. Demand curves resemble a series of waves rather than a straight line.

The diagram shows price points at the points labeled A, B, and C. When a vendor increases a price beyond a price point (say to a price slightly above price point B), sales volume decreases by an amount more than proportional to the price increase. This decrease in quantity-demanded more than offsets the additional revenue from the increased unit-price. As a result, total revenue (price multiplied by quantity-demanded), decreases when a firm raises its price beyond a price point. Technically, the price elasticity of demand is low (inelastic) at a price lower than the price point (steep section of the demand curve), and high (elastic) at a price higher than a price point (gently sloping part of the demand curve). Firms commonly set prices at existing price-points as a marketing strategy.

Here’s a graph for the visually oriented:

Price Points
Price points A, B, and C, along a demand curve (where P is price and Q represents demand)

Joe Konrath says that he thinks the perfect price is $2.99. Joe is a pretty smart guy. He experimented with a range of prices, and he made the most money with his books priced $2.99.

One of the funny things that we learned in Industrial Economics was that unless you had a monopoly and could force your customers to pay whatever price you wanted (Hi Microsoft!), the best option was often to price slightly lower than you thought was the right price. Doing so often drove sales to levels that you would not have believed were possible.

Let’s go back to Joe since he has been so kind as to write about his experiences at length.

As of right now, my ebook The List has sold 10970 copies on Amazon at $1.99 each. I currently make 70 cents per download. That means this book has earned me $7679.

Compare that to my ebook Fuzzy Navel, controlled by my publisher, Hyperion. This book currently sells for $7.19 on Amazon (they’re losing money on each book sold) and I earn $2.25 per book. As of my last royalty statement, Fuzzy Navel has sold 273 copies, earning me $613.

According to publishers, the $7.19 is still devaluing the ebook, which should be higher. $1.99 is certainly devaluing the book, and publishers believe they’ll go out of business selling for so low.

And yet, I made $7000 more, and sold 40 times as many copies, selling for the lower price.

This is a business. If you are a writer, what choice do you make, based on Joe’s experience? Or do you think Joe is lying to us? For those who haven’t read Joe’s books, his website is here.

While I was looking up Joe’s stuff, I got sidetracked by Evil Genius Chronicles, where I found a post titled Ebook Pricing vs Revenue. What is really funny about this is that my Weblit Canada site is down, and one of the posts I made there which I can’t get at now, I had copied onto Evil Genius, and then forgot about. Here it is from April:

This is going to terrify a lot of people. It’s especially going to terrify the publishers and Brick and Mortar book store owners.. ReadWriteWeb reports that EBook sales have passed Paperback sales.

Since the information is taken from a press release issued by the Association of American Publishers, it doesn’t tell the true story. This is the publishers numbers. It doesn’t include the numbers from self published authors, who use EBooks almost exclusively.

Back in January I predicted that Brick and Mortar book stores would be extinct in five years. I may have been overly optimistic. They may be gone in two. With EBooks the reader will be shopping from home.

At the same time, the pressure is on the publishers. Why would an author use a publisher, when they can work directly with IBooks, Kobo, or Amazon, and keep a larger share of the proceeds? Yes, it’s a bit more work, but the payoff is higher. Balance the two out, and the payoff wins.

There is going to be a huge shift in the market. The publishers that continue to exist, will do so by transitioning to become service organizations, which provide editing, artwork, formatting, in other words the drudge work that keeps authors from writing. They won’t make as big a profit, but they will still be employed.

The book stores that remain, will be the specialty shops. Many will own their own presses. Almost all will ship worldwide, and use the internet to take orders.

The world has become flat. It doesn’t matter if your customer/reader is in Tehran, New York, Tokyo, or Timmins. All that matters is that they and you have an internet connection.

Wayne Borean
Monday April 18, 2011

Click on the Evil Genius link, and you can see where I posted it there in April. I’m not just blowing smoke about making predictions back in the spring. I did make them. I may end up being proved wrong, but I’ve got the guts to make a call.

Making Money

One of the things that has really shocked me is how, um, unworldly writers are about money. One of the things that I used to have to do was forecasting. This involved animal sacrifice, and reading the entrails on an altar in front of a large bank…

OK, I’m joking about the sacrifice and the entrails. To a large extent what we were doing was what is known across a wide range of industries as a Wild Assed Guess.

You build up a scenario that looks reasonable, and work out how much money is involved. The best guesser will get the best bonus. Generally. If you guess that the company is going bankrupt, and are dumb enough to tell everyone before you quit, well, you deserve what you get.

When trying to run numbers fast, your friend is the spreadsheet. If you know anything about the history of computers, you’ve probably heard that Visicalc is the killer application that made the early eight bit computers useful and successful office machines. Whatever you’ve heard is probably an understatement.

Visicalc changed the world. Seriously. It may not have survived the changes in processor architecture and operating system, but it’s legacy lives on. Today LibreOffice Calc, OpenOffice Calc, IWork Numbers, Word Perfect Quatro Pro, Microsoft Excel, and other spreadsheets compete for business (Microsoft gets to go last since it holds the largest share of the market).

So I took my spreadsheet from the other day, and overhauled it. Here’s a picture of what it looks like now:

EBook Sales Spreadsheet

EBook Sales Spreadsheet – Open Document Format

EBook Sales Spreadsheet – Microsoft Office Format (XLS)

First, the sheet is now locked. There are only three cells you can change, the C3 – Price per Book, C4, – Sales per Year, and C5 – Costs. This isn’t because I don’t trust you, this is to simplify things. You can’t a wipe out an important cell. If anyone really does want to play with it, talk to me. I’m perfectly happy to give you the password, after I work out which license I’ll be using for it. I think I’ll probably release it under the Creative Commons 2.5 Canada Attribution License, it’s worked well so far, but I need to check when I’m functional. It’s nearly 5:00 AM. Do you know where your parents are?

Also you will notice that Rows 19, 20, and 21 are crossed out. I added in hardcover books, and near the end realized that some of what I needed to do was going to take way too long, so I left them there, but marked them so that you could tell they aren’t really functional.

The basics are this. You pick a price between $2.99 and $9.99 (the current version of the spreadsheet is set up to handle Amazon’s royalties in that price range), and then estimate your sales. Simple, isn’t it?

If you want to get a little more complicated, you can sit down with all of your costs. Cover art, editing, website, 500 cartons of Jolt Cola… Add it all together, and it will take it off the first years sales on Row 14, Column F. If the answer ends up being negative it will carry over to year two, Row 14, Column G. If it carries over to Year 5, Row 14, Column J, I’d really, strongly, suggest that you look into your fixed costs. Maybe that $150,000.00 piece of cover art isn’t really necessary.

This is simple stuff, and indeed I’ve thought of a couple of other possible enhancements since I finished this version. However before going forward, I’d really like to get suggestions from people who have played around with it. What would you like to see? What would help you?

And what did I mess up? I’ve tested it. Shirley Meier tested it. But it was well after midnight, we could easily have missed something. Bueller?


Wayne Borean

Tuesday October 11, 2011


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