Publishing…Welcome to Business 101 and Twinkies

I have a bee in my bonnet about business. Why do you care? Because if you plan on selling your book to the marketplace, you better understand how things work.

The goal of any business is to stay in business, which means you make decisions that keep you financially solvent. Most businesses follow a linear line – they sell a product that people want to buy. Let’s say the product is Twinkies because they are the coolest invention evah. The wholesale price consists of the Twinkie manufacturer’s production costs and profit. In turn, the retailer bumps the retail price so they, too, can make a profit.

The idea is to keep all those costs in line with what the end user – the consumer – is willing to pay. The Twinkie manufacturer grows larger when demand for more Twinkies goes up, and he has the money to expand his plant and hire more employees. If he gets big enough, he may feel he has enough capital to risk creating even more flavors of Twinkies, even though I can’t imagine such a horror.

The burden is always on the manufacturer to keep production costs down, or to drop the idea altogether because they realize the retail price would be too high, and few would buy the product.

It’s pretty basic stuff.

But with Publishing, the laws of gravity don’t apply, which means that there’s a lot more room for failure…which is what we’re seeing with Houghton Mifflin Harcourt’s bankruptcy announcement to the tune of a cool $3 billion dollars. They place most of the blame at the feet of the global economy, competition from e-books, and bookstores going under. I’m willing to buy into that to some degree.

First and foremost, you have to work smart, and you don’t do that by spending money like a drunken sailor on a three week bender without realizing there will come a time when you sober up and see that your hair’s on fire and you lost your pants somewhere between the bar and gutter.

Publishing is a manufacturer of many-flavored Twinkies. They don’t have the luxury of waiting to see if the first Twinkie sells well so they can go on to manufacture another flavored Twinkie. They shove lots of different flavored Twinkies out the door at the same time, hoping they all sell well, so they can cover their production costs and make a profit in order grow.

And here’s the thing; retail prices in the book world are fairly static, meaning they only increase by page count. So no matter how high the production costs are, or how huge the advance, the Twinkie is still going to sell for a fairly set price, predicated on what the consumer has gotten used to paying. After all, how many times have we mocked publishers who routinely charge $5-$10 over standard retail price, or charged outrageous prices for a book with a small page count?

This means the manufacturer is shouldering the risk of producing the Twinkie AND paying out an advance for that Twinkie, with no guarantee it’ll sell well enough to earn out that advance…and the retail price won’t vary much.

I Want!

Publishing is a game of “I Want!”

  • I want a great manuscript!
  • I want a great publisher!
  • I want a great agent!
  • I want a great advance!
  • I want to sell a boatload of books!
  • I want great royalties!
  • I want great distribution!
  • I want to make LOTS of money!

I want, I want, I want. It’s easy to say, and few stop to consider whether it’s sustainable. Agents make money from selling their clients’ books. Publishers make money from selling lots of those books. Authors make money off their advances and royalties.

For all this to happen, the first thought has to be, “Can we afford it?” Old publishers like HMH have made a boatload of money, but rather than treating this like a business, they (and practically every other Big Six publisher) treat it like there is no tomorrow. No advance was too high, no publicity and promotion cost was too outrageous (“You want a book tour? Sure! We can do that for you!”), no print run was too high. $pend, $pend, $pend.

Until the bottom dropped out.

You can’t pay a single author $8 million dollars in an advance and expect to make that money back. Ever. And yet large publishers lay out huge sums for advances in order to attract the big authors, or what they hope is the next big author. If a book is that big a seller, then everyone (including the author) will make money in royalties (at the back end).

No one’s hands are clean here. Agents, seeing that editors were shelling out more and more money for advances adopted the “I want mine, too” attitude, and would only settle for large deals. The big deals get big airtime, and those involved get lots of street cred.

And while the advances got more and more outrageous, no one ever thought about tomorrow. Smaller trade presses were scoffed at for being provincial with their smaller advances and inability to compete with the big boys. And they’re right. Smaller trade presses don’t have the bankroll, the long history, or the established names that the Big Six do. However, small trade presses have to do one thing the Big Guns weren’t/aren’t doing; they run their businesses like a business, and they have to keep their finger on the pulse of the economy and the marketplace.

So while the Big Guys are having serious trouble, the smaller trade presses are enjoying expansion and success.

Advances

I understand the notion behind advances – they got their start in order to give the author a wage while he wr0te his book, so he wouldn’t have to get an outside job, thereby taking time away from his writing. While it’s cool for the author, it can be ruinous to the guy paying you if your book doesn’t sell. It’s cool if you got $1 million advance, but you have to think about how many people will be laid off from your publisher if your book only sells 10,000 books.

And this is exactly what is, and has been, happening for years. Finally, Publishing has to pay for their three-week bender. Add a fickle economy, massive book returns, and you’re going to see more companies than Dorchester and Houghton Mifflin Harcourt making appointments with Bankruptcy Court.

It’s a harsh fact, but publishers simply can’t afford to pay out huge up front costs (advances) and expect to remain solvent because there are too many unknowns that could blow a book out of the water. While the author may not sell well, the publisher may face going out of business.

Can We Afford It/Will It Sell?

And this is why smaller trade presses don’t pay out the big advances. If an agent is asking for $10,000 advance, publishers have to determine whether they’ll sell 10,000+ books. Depending on their distribution, the subject matter, and the author’s platform (nonfiction), smaller trade presses don’t always have that kind of reach, so they aren’t going to pay out that kind of advance.

Trade presses always have to have their eye on the bottom line because they won’t see any remuneration on those front end costs for five months to a year downstream. If you multiply that times 50 authors, 1oo, 1,000, you can see how easy it is to put your company at risk if the Twinkie doesn’t sell. What invariably happens is that the few great-selling Twinkies end up carrying the other Twinkies that didn’t sell well…sort of a robbing Peter to pay Paul. It’s too easy to fail.

There is no doubt that publishing is evolving, and I’m totally good with that. There are more options for authors to take (that carry their own headaches and risks), but what every author needs to understand is how the business works to stay afloat…because we’re all on the lookout for the next best Twinkie.

6 Responses to Publishing…Welcome to Business 101 and Twinkies

  1. That was one big ol’ bee!

    You might have addressed the issue here before, but what about the used-book market? That’s got to hurt. It’s not like reruns where the artists get residuals. People buy used, which means they’re not buying new, and there go the royalties.

    In the horror department…Twinkie has to be losing money on their chocolate-filled monstrosities. Even my teenage boys won’t eat them.

  2. I don’t see the used book market as a threat, since there aren’t that many around. We have one around where I live, and they charge just a few bucks off the retail price on those used books. Given that, I don’t see how they can afford to remain viable, when someone can go to Amazon or B&N.com and pay nearly the same price due to their discounting.

  3. Just a comment here…if you make up an email address – especially using my name – I’ll delete your comment, no matter how compelling. Own up to your comments, please.

    Additionally, if you would like to engage in a conversation, please do so with respect…otherwise your comments will melt into the ether.

  4. Frank Mazur says:

    At the Lexington airport’s book shop, they sell hardcover bestsellers at full price, but will take them back and return half the price to the original buyer. They then sell the book a second time at half the price. Is this unique or is it becoming standard practice?

  5. Paula says:

    Thank you for the blog – well put!

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