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Publishing Business Models

I want to start this article by laying out some basic principles.   These I believe are facts.

  • The current publishing business model which relies on advances against royalties and the consignment method of selling cannot be sustained.
  • A robust publishing industry is good for the reader.
  • Yog’s law is not immutable.
  • Writing is a creative act but selling one’s writing and making a living off one’s writing is a business act.

The reason that I advocate for alternative models of publishing is not because I want authors to get paid less or because I only want books for free.   I advocate for alternative models of publishing because democratization of access to distribution can create profitable business models for authors of all positions on the list.   With publishers like Random House claiming erights retroactively and other traditional publishers branching out into digital publishing and subsidy publishing, the landscape is clearly changing.    Authors are signing contracts now for books that will come out in two or three years so it’s good to take a look down the road to see what the evolving marketplace may offer.

Currently I see four basic business models for publishing.

  1. Traditional advance paying publishing
  2. Digital publishing
  3. Publishing services companies
  4. Self publishing

Traditional advance paying publishing

In traditional advance paying publishing, a publisher provides an author an advance against expected royaltiesin exchange for up to 94% of the revenue generated by the author’s intellectual property.   The author receives a guaranteed amount of royalties in the form of an advance  payment from $1,000 per book up to millions per book and a promise that any royalties that exceed the advance will be paid in the amount of 6% up to 15%, with some contracts containing escalating royalty rates depending on units sold.   (Other authors may have a profit sharing agreement with the publisher).    In other words, the author relinquishes up to 94% of the revenue generated per book in exchange for editing, brand recognition, publisher advertising,  and access to distribution channels such as placement in retail bookstores and big box stores and discounters like Wal-Mart, Target and Costco.

Digital Publishing

The current digital publishing model is one that eschews advances in favor of higher royalty rates.   An author receives a higher percentage of revenue generated by her book.   Most ebook royalty rates are between 30 and 40%.   Thus, an author relinquishes up to 70% of the revenue generated by her intellectual property in exchange for editing services, publisher brand recognition, publisher advertising, and access to distribution channels such as placement in etailers like Fictionwise, Kindle, and the like.

Publishing Services Companies

There will be a rising number of publishing services companies when distribution access becomes even more  democratized  than it already is.   Subsidy publishing is a model wherein the author does not get an advance nor does she get any publisher related services unless she pays for it.   If the author wants to avail herself of editing services, some sort of brand recognition, and access to distribution channels, she must pay for it with money up front and some equity sharing.   In other words, the author relinquishes up to 50% of the revenue generated by her intellectual property plus some up front money in exchange for editing services and access to distribution channels.

Another type of publishing services company is like the one offered by Troubador in the UK.   Matador is a publishing services company whereby you can contract with Matador to access a number of different levels of service.   Matador works with only a select number of self published authors per year and actively markets them.

Subsidy publishing makes sense if the subsidy publisher has a reputation for being able to provide the ability to package and sell books in significant numbers (such as 10,000 copies or more).   Jane Friedman’s presentation on Open Road Media continually emphasized ORM’s marketing platform and specifically mentioned self published authors as benefiting from this platform.   While there are no concrete details, ORM could be some type of subsidy publisher or publishing services platform that is paid in up front monies and/or an equity investment or both. (NOTE: this is speculation so please don’t run around saying that ORM is a vanity press).

I would expect to see more publishing services companies in the future and many different variations of this type of business model which could simply be cash payment, equity investment or some combination of the two.   NOTE: I’m not making a moral judgment on the application of the business model which could be predatory or unsavory or unethical.

Self Publishing

Self publishing is a model wherein the author retains all of the revenue generated by her intellectual property but must contract with other entities to gain cover art, editing, and other publishing services.

The difference in the four publishing models is how much risk is the author willing to absorb versus the revenue she would like to retain from her intellectual property.

Because the physical distribution channels make up the majority of book sales, the traditional publishing model is the least risk, highest reward for aspiring and published authors today.   This is changing however.   At least 1/4 of the sales of print books were online in 2008.   There is a point at which the advance is so low that an author should consider other publishing models because print on demand technology serves the online retailing model well.

When the electronic distribution channel makes up a significant portion of book sales and the funnel of distribution widens, the alternative modes of publishing should be given greater consideration because at that time the risk/reward equation will change.

At some point, authors who want to make a living from writing should ask themselves whether it makes sense to continue relinquishing up to 96% of the revenue generated by their intellectual property.     How many existing authors would forego a) an advance and b) actual pay money up front from a publisher to gain 40% more of the revenue generated from each book.   It is true, that there is no publishing services company in existence that has that value but it’s not impossible to think that there will be someday.   Maybe it will be someone like OR Press or Open Road Media.    I don’t think we’ve seen it yet.

I think that self publishing, true do it yourself publishing, will exist but that there will be more authors that move to digital publishing or publishing services model than we can envision today.   Digital publishing which provides no cost of entry by the author may replace the traditional advance model once the digital market hits 35% or greater.   It makes sense for publishers to experiment now with differing models so that the business can be ready to adapt with the changing   market.   Publishing is not likely to go away, but it will be different in five years than it is today.

The benefit of the lack of reliance on physical brick and mortar stores is that there is a greater panopoly of options for authors to make a living writing.   Individual authors should be able to avail themselves of a number of different publishing opportunities that suit their risk level, their need for control over the final product, and other factors.

I’m ever hopeful that the various business models, both traditional and emerging, will provide us readers with the a robust publishing environment that can serve the niches as well as the mass markets.

Jane Litte is the founder of Dear Author, a lawyer, and a lover of pencil skirts. She spends her downtime reading romances and writing about them. Her TBR pile is much larger than the one shown in the picture and not as pretty. You can reach Jane by email at jane @ dearauthor dot com

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