Romance, Historical, Contemporary, Paranormal, Young Adult, Book reviews, industry news, and commentary from a reader's point of view

Friday News: Authors Guild backs Hachette, Amazon Breakthrough Novel contest, Harper...

Authors Guild Weighs In on Amazon-Hachette Dispute – I know you’ve been waiting for this; the Authors Guild’s Richard Russo wrote a letter to its members, essentially backing Hachette in the current game of publishing chicken. I don’t think this is at all surprising, given the Guild’s history of and perspective on author advocacy, but I have to admit that I find the logic even more mind-boggling than usual:

In closing, Russo notes that the Guild is not anti-Amazon and acknowledges that traditional publishers have not treated writers fairly when it comes to e-book revenues. But, he continues in closing, “To our knowledge, Amazon has never clearly and unequivocally stated (as traditional publishers have) that books are different and special, that they can’t be treated like the other commodities they sell.” –Publishers Weekly

Amazon Announces Five Finalists in the 2014 Amazon Breakthrough Novel Award Contest – Customer voting is currently underway in the 7th annual Amazon Breakthrough Novel Award (ABNA) and will continue through the next week. The winner will receive a $50,000 Amazon publishing contract, while the four other finalists will get an Amazon publishing contract and a $15K advance. 10,000 titles were submitted in the categories of General Fiction, Mystery/Thriller, Romance, Science Fiction/Fantasy/Horror, and Young Adult Fiction, so there’s a finalist for each category. There is a voting link on the page, which allows you to read 3-5K word samples of each book. I haven’t yet checked any of them out, but holy heck could the Romance novel have a less promising and original title?????!

The 2014 ABNA Finalists are:

General Fiction: A Pledge of Silence by Flora Solomon, Southport, NC

Mystery/Thriller: The Dead Key by D.M. Pulley, Shaker Heights, OH

Romance: The Bluestocking and the Rake by Norma Darcy, Canterbury, Kent GB

Science Fiction/Fantasy/Horror: The Mengele Effect by Chuck Grossart, Bellevue, NE

Young Adult Fiction: Seashell, Stork and Apple Tree by Carrie Anne Noble, Montoursville, PA

The ABNA contest takes new fiction from pitch to publication in a much more accelerated path than traditional publishing. –Amazon Press Releases

HarperCollins launches direct-to-consumer sales site – I’m not sure whether to cheer or give this new publisher website the skeptical side-eye. Although only the US site is available now, the UK site is expected to be up and running in August, followed by sites in Canada and Australia. I would LOVE to see traditional publishers actually paying attention to readers as their customers, but given the current Amazon-Hachette situation, and, you know, the whole collusion thing, I’m not particularly confident or trusting at this point. Hopefully I’m wrong.

In a statement, the publisher said: “The capability to sell directly will enable the company to better understand consumer preferences and, most importantly, further extend the global reach of its authors.” It added that authors would be able to use the technology to sell directly through their own sites.

Chantal Restivo-Alessi, chief digital officer said: “We are excited to be able to offer an e-commerce solution to our authors, ensuring their books are always available to their fans. As a publisher, we want to offer as many paths to the consumer as possible.” –The Bookseller

Fat Woman Wears Bikini, World Doesn’t End – You may have seen Trout’s original article on her so-called “fatkini” picture, which has gained tremendous attention and initiated a much-needed discussion about narrow Western standards of beauty and all the ways society consciously and unconsciously colludes to validate them. We’ve had this discussion in Romance many times, as well, and clearly we need to keep having it, since so often “plump” heroines are portrayed either as getting a makeover to win the attentions of a love interest or as beautiful despite their weight.

Trout wraps up her piece this way: “The reason these people do not want to see a fat body in a bikini is because traditionally, that garment is something a woman earns by proving herself attractive enough to exist. If fat women begin wearing them without shame or fear, what’s next? Will they have self-esteem? Will they demand respect? Then what will keep them in their proper place? How would conventionally attractive people judge them?

“As a society, we need to be more honest in our discussions of others’ bodies. If we can’t avoid those totally unnecessary conversations, then we should at least admit the truth to ourselves: That this has nothing to do with health, and everything to do with the control we believe is our right to exert over others.” Amen to that, sister. –Yahoo Shine

isn't sure if she's an average Romance reader, or even an average reader, but a reader she is, enjoying everything from literary fiction to philosophy to history to poetry. Historical Romance was her first love within the genre, but she's fickle and easily seduced by the promise of a good read. She approaches every book with the same hope: that she will be filled from the inside out with something awesome that she didnʼt know, didnʼt think about, or didnʼt feel until that moment. And she's always looking for the next mind-blowing read, so feel free to share any suggestions!

34 Comments

  1. library addict
    Jul 11, 2014 @ 04:16:50

    HarperCollins used to sell ebooks directly to consumers. I have several (now non-openable) PDF and MSLIT books I purchased from them.

  2. Ros
    Jul 11, 2014 @ 04:40:36

    I read the sample. The Bluestocking and the Rake will not be getting my vote.

    It seems to me that the sooner publishers recognise that books are not ‘special and different’, the more likely that they’ll start making good business decisions regarding their products. I’m not holding my breath.

    I do like the idea of publishers selling direct. I hope they have kindle-formatted files as well as epub.

  3. mali muso
    Jul 11, 2014 @ 05:32:39

    Inspired in part by that last item, I purchased my first bikini last week in anticipation of an upcoming girls weekend with friends in Florida. Having been a “chubby” gal since puberty, even after shedding some 70 pounds using Weight Watchers and having kept my new size 8 body for going on 5 years, mentally I still feel very vulnerable. Buying the bikini was for me a statement to myself that I don’t need to get that flat stomach that I’ll probably never have, I can rock this thing and be comfortable and proud in my current body, dammit. Here’s hoping I will have the courage to actually wear it next weekend.

  4. Evangeline Holland
    Jul 11, 2014 @ 05:44:40

    When it comes to body image in romance, it wouldn’t be such a big deal if the genre overall wasn’t so appearance-conscious. I’ve been writing a book geared towards mainstream readers, and as I’ve been learning how to strip my prose of romance “tics,” it’s been astonishing to realize how much space is taken up with describing how the protagonists look.

  5. Kaetrin
    Jul 11, 2014 @ 06:27:11

    Books are different and special? Oh stow it.

    Also Jenny Trout rocks a bikini.

  6. Isobel Carr
    Jul 11, 2014 @ 09:27:22

    I find it really interesting that what seems to have been entirely lost in the discussions I see about Amazon/Hachette is this is a COURT MANDATED negotiation because Hachette BROKE THE LAW. And they broke the law specifically to rig the market and force readers to overpay for books. And all the other publishers who ALSO broke the law are going to have to go through their own negotiation with Amazon, Hachette is just first up to bat. So of course both sides are playing hard ball. This is the most important negotiation because it’s going to establish a baseline for the others.

  7. Darlynne
    Jul 11, 2014 @ 11:01:10

    ” … will enable the company to better understand consumer preferences …”

    Publishers, you idiots. You have had that information from every bookstore around the world since the dawn of the first retail market. I’m all for selling directly to readers–who have always been the ignored and overlooked driving force behind book sales–but FFS, don’t make it sound all shiny and new and special.

  8. Julia
    Jul 11, 2014 @ 12:21:00

    Isn’t Harper Collins in the process of buying Harlequin? Harlequin has sold direct to readers for decades and now Harper Collins will own their sizable database of customers. And we all know how many books romance readers buy!

  9. AlexaB
    Jul 11, 2014 @ 13:08:02

    I’m wondering if anyone else here has read Brad Stone’s “The Everything Store?” Published by Hachette, ironically enough.

    In it, Stone claims Bezos set the original $9.99 price point for ebooks arbitrarily – no research, no modeling, just a gut decision based on Apple’s successful pricing of $0.99 for music singles and because he felt consumers would assume ebooks cost less than paper books. During negotiations with publishers to provide digital editions – Bezos knew he had to launch with a very deep library for consumers to give it more than a cursory look and so Amazon leaned heavily on publishers to create ebooks even though the publishers bore all those costs – Amazon claimed pricing hadn’t been determined even though they knew full well nothing would retail over $9.99.

    And the publishers – at least according to Stone – swallowed that and went on their merry way, no doubt assuming the traditional wholesale model would be used for ebooks and that Amazon would discount 30% – 50%, per usual, but not below. The first time they heard about the $9.99 price point (which would be selling most ebooks in the hardcover window at a wholesale loss – hardcover being the most profitable format) was at the Amazon press conference announcing the Kindle and ebook store.

    Again, the above is all from Stone’s book, and MacKenzie Bezos (who chooses to traditionally publish her novels, btw) has her issues with the book as she details in her scathing review on Amazon, so take it for what you will.

    I don’t condone the collusion that followed. Plus I’m certainly the beneficiary, as a reader and a consumer, of Amazon’s low prices. And Amazon’s business strategies definitely work well for them (here’s where I point out that Amazon recently did the same thing to Warner Home Entertainment – removed the preorder buttons and slowed shipments – that it is doing to Hachette, and nobody cared even though actors and other profit participants make money off DVD sales. Apparently Warners and Amazon have settled, but then Amazon does not own a commanding segment of DVD retail).

    So IMO, no one really knows the true value of trade pubbed ebooks and what the market would bear – the sweet pricing spot on the demand curve that would return maximum dollars to the supplier, which includes authors – because Bezos first (allegedly) made up a price and then the publishers colluded. To me, they’re both guilty of artificially manipulating the market. Amazon wanted to keep other retailers from entering the ebook space and so set prices below wholesale cost, ensuring no one could compete with them long term on price; we don’t know if Amazon would have eventually raised prices if they had been successful and kept their original 80% market share. Publishers, well, their self interests are evident.

  10. MrsJoseph
    Jul 11, 2014 @ 14:01:34

    My major issue is this: readers have long wanted an alternative to Amazon’s ebooks & Kindle. Lots of readers – like myself – went out of our way to NOT buy a kindle. But publishers mostly refused to sale direct to consumer – and in the early days often ignored smaller ebook publishers as well. Publishers also refused to remove DRM from their books – locking hundreds of thousands INTO the kindle system.

    Now they’re upset? NOW I’m supposed to care about the “little guy” (who happens to be a conglomerate)? No. Not at all. My time of caring has passed by a long time ago and all I’m now interested in is getting my (paper or ebook) for the lowest price possible and without DRM. I consistently check prices at a large handful of stores and my only loyalty is to my auto-buy authors and my wallet.

  11. MrsJoseph
    Jul 11, 2014 @ 14:02:49

    That should say “smaller ebook sellers” not “publishers.” *facepalm*

  12. SAO
    Jul 11, 2014 @ 20:37:17

    To me, the problem with trad publishing is that the publishers are sure that *they* are “different and special.” Hence the whole price-fixing scandal where they seemed to think laws against price-fixing didn’t apply to them.

    Rigging the market to rob my wallet isn’t exactly the way to put me on their side.

  13. Brian
    Jul 11, 2014 @ 23:27:48

    @AlexaB: “Amazon claimed pricing hadn’t been determined even though they knew full well nothing would retail over $9.99″

    Tons of books did retail for over $9.99 though. The $9.99 heavy discounting only affected a handful of titles overall. Similar things (loss leaders) have been done with hardcovers over the years too.

  14. AlexaB
    Jul 12, 2014 @ 00:56:28

    @Brian:

    From press at the launch of the Kindle in 2007:

    “Books cost $9.99 unless marked otherwise, Amazon.com said.”
    http://www.macworld.com/article/1061113/kindle.html

    And certainly bestsellers and new releases were priced at $9.99. From Brad Stone’s book:

    “Amazon knew quite well that publishers would absolutely hate the $9.99 price. The $9.99 e-books were considerably more appealing to some customers than the more expensive hardcovers, the industry’s most profitable format, and the pricing pulled the rug out from under traditional retailers, particularly independent booksellers….So Amazon decided not to let publishers know about the planned $9.99 price, lest they object…’We were instructed not to talk about pricing strategy,’ Jeff Steele [former Director, Worldwide Digital Content Acquisition for Amazon] says. ‘We knew that if we priced e-books too low, they would fear it would devalue their product. So we just said pricing had not yet been decided.” p 251-252, hardcover version

    After the launch announcement of the price:
    “Among the gathered publishing execs at the Kindle press conference, there was confusion. Was the $9.99 price a promotion discount for launch? Was it only for bestsellers? Even after the event, Amazon executives told their publishing counterparts they didn’t know or couldn’t say. Soon it was clear to the bookselling industry that the flat price was not transitory at all – Amazon was pushing it as a new standard.” p 255

  15. Laura Jardine
    Jul 12, 2014 @ 11:35:49

    @Evangeline Holland: Yeah, when I first started reading romance 3.5 years ago, all the descriptions of appearance really stood out to me, as did all the lusting (and I wasn’t reading particularly hot books).

  16. Charming Euphemism
    Jul 12, 2014 @ 14:53:38

    @AlexaB:

    I would have a better attitude towards publishers if they weren’t so disingenuous. This part: “and because he felt consumers would assume ebooks cost less than paper books” has been pissing me off for a long time. Plainly, obviously, ebooks do cost quite a lot less than paper books. Even leaving out the paper and binding and shipping, half of the books are returned and pulped!

    So since the publishers are being dishonest about this (and making insulting assumptions about my credulousness while they are at it) I tend to not believe anything else they say. As far as I know, they would make a lovely profit at $9.99 per book. I bet they would – small publishers certainly make a go of it selling books for less than that.

  17. AlexaB
    Jul 12, 2014 @ 16:59:57

    @Charming Euphemism:

    My posts aren’t intended to make people feel sorry for publishers. They made their bed, they’re currently strangling in it.

    However, neither is this a zero sum game in which one side gets fitted for pitchforks while the other sings hallelujah choruses and polishes its halos. It’s not about sides, period. It’s about corporations seeking to usurp consumers’ power.

    Amazon artificially manipulated the market (and mislead its suppliers in order to do so, which is legal although I find it ethically squicky. YMMV). Their pricing actions were also legal – US courts take a liberal view, compared to other countries such as France, on predatory pricing – but they were anti-competitive and motivated by establishing a monopsony in ebooks.

    We don’t know what the optimum, most efficient price point for ebooks is because the corporations involved did not allow the market/consumer behavior to set that price.

    I could go into pricing theory in more depth, but Dear Author isn’t the appropriate place so I’m stopping here.

  18. Evangeline Holland
    Jul 13, 2014 @ 00:56:35

    @Laura Jardine: I’m grimacing with chagrin over how toning all of that down–or deleting it all together–made me panic: “how am I supposed to show their attraction?!”. Really shows what a crutch the emphasis on physical appearance can be.

  19. Brian
    Jul 13, 2014 @ 01:53:24

    @AlexaB: “Books cost $9.99 unless marked otherwise, Amazon.com said.”
    Exactly, unless marked otherwise. Plenty were marked otherwise, as in more than $9.99

    “And certainly bestsellers and new releases were priced at $9.99″
    Bestsellers, yes. New releases, sometimes but not always. Amazon’s message boards and book reviews were riddled with complaints with consumers wanting their favorite new release to be $9.99, often that only happened if the book hit the bestsellers list.

    “Even after the event, Amazon executives told their publishing counterparts they didn’t know or couldn’t say.”
    Maybe they knew, maybe they didn’t, but the $9.99 for bestsellers “standard” didn’t occur across the board right off the bat, although it evolved to that fairly quickly.

    Certainly Amazon played their part, and consumers latched onto the $9.99 price point as something that worked for them, but it never was any kind of defacto standard price. I bought plenty of books that cost more than $9.99 that happened to not make the bestseller list. The loss leader $9.99 pricing is little different from the same type of pricing that’s occurred with hardcovers for years at Target, Wal-Mart, Costco, etc. often with encouragement from publishers. The $9.99 ebook could be considered an evolution of that somewhat. Even at $9.99 Amazon wasn’t always the cheapest way to get a book. Fictionwise’s rebate program had been going on for years by then and could result in getting a book even cheaper in the long run.

  20. AlexaB
    Jul 13, 2014 @ 14:59:37

    @Brian:

    Please forgive me, but I’m going to rely on published accounts of the Kindle launch (a quick Google search brings up dozens of accounts verifying the $9.99 price point for most books and definitely hardcovers and new releases – which are the most attractive to the widest audience and also happen to be the publishers’ most profitable product line.)

    Whist I appreciate your anecdotal memory, it’s rather….unsubstantiated.

    I understand loss leaders. I also understand creating a false price ceiling in order to create a monopsony in a new market – in this case, ebooks – and to create higher barriers to entry for competitors while underselling establishing competitors.

    But you completely missed the point. Bezos had no idea if $9.99 is the more efficient price for new release trade pubbed ebooks. According to Brad Stone’s book, he pulled it out of thin air, with no modeling, no research, no testing, no letting consumers vote with their wallets, no letting the market dictate. He told his team to obfuscate the pricing strategy when holding discussions with suppliers.

    And maybe he was right.

    And maybe he was wrong.

    We don’t know, because Amazon set their pricing strategy pretty much in a vacuum. IMO, this caused the publishers to panic and when Apple offered them a possible solution, they colluded to take back pricing power.

    Meanwhile, much to the pleasure of anyone who is still sticking with this thread, I had a huge long response typed out (once a winner of an MBA program’s marketing strategy competition, always a bore about price efficiency and markets) –

    – but I think the article from the New York Times sums it up much better: http://www.nytimes.com/2014/07/13/technology/amazon-a-friendly-giant-as-long-as-its-fed.html?_r=0

  21. Anne
    Jul 13, 2014 @ 19:37:54

    @AlexaB: FWIW, my saved spreadsheets from 2007 until early 2010 support Brian’s anecdotal memory. Prior to agency pricing I purchased my books primarily from two other retailers but I did track Amazon pricing. You would never pre-order a book that you thought was going to hit the best seller list because it would drop $2-5 once it did hit the list, usually a week or two. Sometimes newly released dropped to $9.99 but that only happened on 18% of the books I was tracking. The backlist was higher than $9.99 for all but one author I was watching back then. Small sample size and all that but it’s what I recorded.

    Also, you have this sworn testimony from the Apple trial regarding Amazon’s pricing strategy: http://www.justice.gov/atr/cases/apple/exhibits/px-0835.pdf This doesn’t seem to match what Brad Stone had to say. I don’t know Stone’s sources and there is a lot redacted in this document but it looks to me that the testimony is saying that the $9.99 price point was not reached arbitrarily but was based upon their experience in selling print. Something that is of note to me is that the publishers were wholesaling digital versions for about 20% less than print versions in recognition of their cost savings. If true, many of these books were probably sold by Amazon at breakeven rather than as a loss leader.

    I don’t know what to make of the differences between Stone’s book and the testimony or that I even care. I’ll think on it for a bit but these days I consult ereaderiq.com and Jane’s daily deals before buying. My book buying habits have changed dramatically in four years.

  22. jad
    Jul 13, 2014 @ 22:48:30

    @Isobel Carr: Excellent point. Context is everything in stuff like this.

  23. AlexaB
    Jul 14, 2014 @ 02:12:27

    @Anne:

    Thank you so much for the link.

    However, regarding the $9.99 price point, here’s Jeff Bezos at the launch event for the Kindle: “We have 90,000 books that you can buy right from the device and have wirelessly delivered. And these are books people want to read, including 101 of the 112 NYT bestsellers. NYT bestsellers and new releases are just $9.99, and are delivered in just a minute.”
    http://www.engadget.com/2007/11/19/live-from-the-amazon-kindle-launch-event/

    From the testimony you linked: “We had made a commitment to customers from the earliest
    days of the Kindle that most bestsellers would be priced at $9 .99.”

    And later, when discussing windowing and Hachette (ah, plus ça change…), the testimony says, “Nouny
    responded that it made no sense to meet in person because he had the feeling that ‘Amazon’s
    decision to price best sellers at $9.99 is a hard point for you.'”

    Also, if $9.99 wasn’t the dominant price point, then why did it receive so much attention then and now, so much vitriol from publishers, and is the focus of the testimony to which you linked (and comes up, again and again, in the testimony of the other Amazon executives)?

    For example, the Amazon exec defended the $9.99 price point by claiming it was the wholesale break even point. He claims that publishers set their digital list price at 20% off print (although he later says, “Some publishers had digital list prices the same as print” – so which was it?), with the wholesale price 50% off that.

    However, according to School Library Journal, the average retail price of hardcover fiction in 2007 was $27.47. (source: http://www.llcoop.org/misc/AverageBookPrices2014.pdf).

    Twenty percent off for digital gives an average digital list price of $21.98. ($27.47 x .8)

    Which means the average wholesale price was $10.99. ($21.98/2)

    Thus, the $9.99 is a dollar under the average wholesale break even point. That’s unsustainable for competitors who can’t pass on the losses to other product lines (someone mentioned Fictionwise – yeah, how did that work out for them?), and creates a huge barrier to entry for new competitors.

    (I just found this price list on the DOJ exhibits, which bears out the above: http://www.justice.gov/atr/cases/apple/exhibits/px-0066.pdf)

    Of course, the question then becomes if publishers are setting their retail prices correctly. And there are certainly lots of inefficiencies in publishing that can be eliminated. However, for all that consumers tend to think that ebooks costs virtually nothing to produce, the sunk costs are the same whether print or ebook. I’ve seen estimates that the physical costs (printing, shipping, warehousing, pulping) of book publication only account for 10% – 20% of the total. But I have no hard evidence to point to.

    In a capitalist, free-ish market, the goal is efficient pricing. Which, to be blunt, means taking all possible money off the table. And low prices might not always be the most efficient. At some point on the demand curve, the incremental revenue from unit sales driven by low prices is not equal to the profit gained by selling less units but at a higher price. There is also value perception – consumers may perceive that the higher the cost of the item, the higher the quality – and that seems to be happening in self-publishing. Mark Coker reported in 2013 that books priced at $3.99 moved more units on Smashwords than any other price but free, despite $2.99 being the most common price point. Self-publishing superstars such as Bella Andre and Liliana Hart can price their books at $4.99, and I bet they didn’t make that pricing decision in a vacuum.

    To go back, again, to my original point: we don’t know what price consumers would have determined to be the most efficient for ebooks, because neither Amazon nor the publishers allowed the market to make that decision. Agency pricing didn’t prevent Big 5/6 books from topping Amazon’s Kindle sales charts despite competing against very low priced self-published and sale books, suggesting that ebook consumers might not be as ultra price sensitive as Amazon makes them out to be.

    I have no dog in the hunt; I am not a published author on any platform, and I don’t work in publishing. I own a Kindle and feed it pretty much daily. I have been conditioned by Amazon to expect low, low ebook prices and now rarely buy a book priced over $5.99, despite once purchasing print books by the armful at local bookstores. This article – from 2012 – pretty much encapsulates my personal feeling on the ebook market : http://gigaom.com/2012/05/03/it-doesnt-matter-what-e-books-cost-to-make/

    However, I firmly believe there is a lot of rhetoric and just plain fallacious posturing masquerading as fact flying around. What some evangelists on both sides know about corporations, business and Wall Street could fit on the head of a pin and still leave room for ten thousand dancing angels. IMO.

  24. Cindy
    Jul 14, 2014 @ 13:32:53

    @AlexaB: @AlexaB:

    I don’t understand this statement: “The $9.99 e-books were considerably more appealing to some customers than the more expensive hardcovers, the industry’s most profitable format, and the pricing pulled the rug out from under traditional retailers, particularly independent booksellers.”

    Hard covers are not the “most profitable format” except to the author, at least according to Bedi Singh, CFO of Newscorp (which owns both HarperCollins and the Wall St. Journal), who told analysts that margins are about 75% for e-books, 60% for paperbacks, and 40% for hardcovers.

    http://www.forbes.com/sites/timworstall/2014/05/24/the-real-story-behind-the-amazon-v-hachette-fight/

  25. AlexaB
    Jul 14, 2014 @ 17:51:51

    @Cindy:

    Interesting! Thanks for the link.

    A few things:

    1) The quote I quoted is in reference to 2007, before the ebook market began in earnest. Also, Brad Stone is the author of the sentence and I’m assuming, since Stone is still working as a senior report for Bloomberg Businessweek and hasn’t been called out for shoddy journalism (well, except by MacKenzie Bezos) that he did his research. I could be wrong, though.

    2) Contribution margin and profit aren’t the same thing.

    Speaking of News Corp, here is the investor presentation that lays out the contribution margins: http://tinyurl.com/newscorpslides). Slide 166 – the slide that caused thousands of authors and agents to rise up and scream “foul!”): does say that hardcover contributes 41.4% while ebook contributes 75%.

    However, not they only include variable costs of physical production. No cost of converting files, maintaining metadata, etc. No cost of editing, marketing, art, etc.

    There are sunk costs and there are variable costs. Contribution depends on variable costs. Here, News Corp is saying ebooks have no variable costs other than author royalties.

    However, there are also fixed/sunk costs involved: editing, marketing, art, etc.

    I have no idea how News Corp figured its paperback margin; nearly everyone I could find via Google (including Wikipedia – I know, I know) agrees that hardcover returns more money than paperback to publishers because consumers will pay a premium price for hardcover (that perceived value thing, again). Here’s a 2010 blog post, from someone who works in the sales department of a publisher, with the general thinking: http://pimpmynovel.blogspot.com/2010/04/tpo-tpo.html

    So I tried to do the math.
    A hardcover returns $5.67 to New Corp, per presentation.
    A paperback theoretically returns $4.28, figured as follows:
    Retail price: $15.00
    Wholesale: $7.50
    Author royalty at 7.5%: ($1.26)
    Cost of production/distribution – let’s halve hardcover costs for sake of argument: ($1.96)
    Return to News Corp: $4.28
    Contribution margin: 57% (hmm…pretty much matches what News Corp said)

    But this doesn’t account for sunk costs.

    The publisher has to sell more paperbacks to recover sunk costs – and thus turn a profit – than it would hardbacks.

    Ebooks – yeah, News Corp makes them look mighty profitable, don’t they, and their royalty might stingy. Of course, they’re speaking to Wall Street and pitching their ability to “drive growth through digital transformation.” Still, didn’t make them look author friendly at all. Greedy, some – okay, most – might say.

    A few other links of interest:
    Mike Shatzin – and some consider him biased in favor of traditional publishers, so grain of salt warning – has another perspective on the News Corp margins: http://tinyurl.com/shatzkinonnewscorp

    Tobias Buckell has a published author perspective: http://tinyurl.com/lyfr2pf

    (Nearly everyone else in publishing was livid about the News Corp presentation and vented accordingly.)

    As a funny/roll of the eyes side note: when News Corp came under fire by authors and agents for those margins, Brian Murray, the HarperCollins CEO, took a very different tack at the UBS Investors Conference six months later. The margin slide was replaced with a slide designed to show that authors earn more, hypothetically, with ebook royalties: http://media.publishersmarketplace.com/wp-content/uploads/2013/12/HCpreso.pdf Hypothetically…

    Sorry for going on and on about this. I just find the whole thing fascinating.

  26. AlexaB
    Jul 14, 2014 @ 20:09:42

    @AlexaB:

    Sorry for the badly edited garbled mess above – I hit “post” by accident while still proofing. Oy.

  27. MaryK
    Jul 15, 2014 @ 21:47:03

    @AlexaB: “However, for all that consumers tend to think that ebooks costs virtually nothing to produce, the sunk costs are the same whether print or ebook. I’ve seen estimates that the physical costs (printing, shipping, warehousing, pulping) of book publication only account for 10% – 20% of the total.”

    This brings to mind a recent gripe of mine. The Jessica Clare billionaire boys club books used to be 2.99 – 3.99. Now they’re coming out in paperback, and the next book in the series? 5.99 What the heck?

  28. Cindy
    Jul 17, 2014 @ 10:32:57

    “But this doesn’t account for sunk costs.” The cost of conversion and delivery of ebooks is relatively nothing, but if the hardcover is carrying costs not correctly attributed to ebooks, then it’s an accounting issue that no doubt benefits the publisher.

    Ebooks account for about 50-60 percent of the market now and is still growing, yet those royalty rates are abysmal. If you really would like an alternate, and rational, view of these issues. thepassivevoice.com blog as much more actual information than Shatzin.

    In fact, this investor presentation posted on PG shows that the dispute is likely to be about agency pricing (read Amazon’s ability to discount) than any other issue:

    http://www.thepassivevoice.com/?s=hachette+investor

    There is tons of information about they digital royalty rate on the Authors Guild website. Apparently, they’ve been complaining about it since at least 2010 and, yet, it remains what the Authors Guild considers to be an unfair rate.

  29. Cindy
    Jul 17, 2014 @ 10:44:21

    @Cindy: I’d fix those typos if I could.

  30. AlexaB
    Jul 17, 2014 @ 12:28:21

    @Cindy

    Sunk costs – I misspoke and actually meant fixed. Sunk costs are costs that have little hope of being recovered; fixed costs can be recovered.

    I suspect your estimate for the ebook market is a bit high; in 2013, Bowker pegged it at 30% of unit sales, 14% of consumer spending. http://www.publishersweekly.com/pw/by-topic/digital/retailing/article/59194-signs-of-stability.html#path/pw/by-topic/digital/retailing/article/59194-signs-of-stability.html

    Whether a book is published in ebook or print, the fixed costs still have to be recovered and still count against the title’s overall contribution to income, regardless of format. And ebooks do not cost zero. There is the cost of file conversion, managing metadata, server maintenance, database management, etc. The variable costs, yes, are pretty much nil, but then print variable costs only account for 10-20% of the total.

    Your suggestion that hardcover should bear all the fixed costs leaves out the fact that a majority of books do not get a hardcover release. In addition, as print sales slow and more books move to digital first/digital only, those costs will indeed need to be absorbed by ebooks.

    The royalty discussion and whether it’s fair is outside the scope of my original pricing discussion. I myself posted links to the HarperCollins/News Corp presentations that suggest they can well afford to raise royalty rates on digital.

    But I also have no interest, vested or otherwise, in the “3v!l publishers must DIE!!!!!!!!!” war of words. Passive Guy is a scraper – he steals content from this blog, among many others – and then usually twists what is said to reflect his own slant toward indie pubs. The people who regularly comment on his scraped IP are even more biased, IMO. At least Shatzin – and I did call out his perceived bias – considers the other side; this site rarely does, I take what little original thought is on PG with entire mountains of salt.

    Businesses act in their interests of their shareholders, period. That includes Amazon, which until lately got a pass from Wall Street because of its explosive revenue growth, which drew attention away from its negligible or even negative operating income. However, that free ride is coming to a close and Amazon is now being pressured to show actual, real profits. Their incursion into video streaming is their new loss leader; they are paying studios ginormous amounts of money (driven by competition with Netflix and, to a lesser extent, Hulu) for access to content while investing in their own original content. Amazon is paying CBS $900,000 per episode for the exclusive streaming rights to “Under the Dome.” No one knows what they paid HBO for exclusive rights to old series, but the informed guesses put it at $200-250 million over three years.

    So now Amazon must lean on suppliers in other areas. They pulled the same stunt with Warner Home Entertainment that they pulled with Hachette, but no one cared. They just introduced a pricing tool for Kindle Direct Publishing, designed to help self-pubbed authors set the optimum, most efficient price based on what the market will bear – and it’s often higher than the self-pubbed author’s original price (thus coming full circle to my original point)! That brings in more money for authors (AND Amazon) but not so great for the consumer. Now they are looking to set up a book subscription service, which has many of the self-pubs running in, if not fear, then definitively suspicion.

    Publishers have their own self-interests, and they act to protect them. Never said otherwise.

    And in both companies’ defense: Making the most profit possible – as long as laws and regulations are obeyed – is, y’know, kinda the name of the game.

    The great news is that authors have choices now. They don’t have to sign that contact. There are other avenues to market. And there are plenty of resources to educate them about the ramifications of their contract if they do sign. Agents are going to have to become smarter and even better negotiators if they wish to survive, and I think that’s an overlooked positive of the shift in the marketplace. Ineffectual agents who lock their clients into unfavorable contracts will eventually be forced out as more and more information is gathered and disseminated. (That’s how the royalty rate will eventually change, IMO, when it becomes a necessity for publishers to sign and retain the most marketable authors).

  31. Cindy
    Jul 18, 2014 @ 15:39:28

    I don’t think that 30% figure include self-published ebooks, so the percentage is likely much higher but I won’t quibble about what can’t be proven.

    “Whether a book is published in ebook or print, the fixed costs still have to be recovered and still count against the title’s overall contribution to income, regardless of format. And ebooks do not cost zero. There is the cost of file conversion, managing metadata, server maintenance, database management, etc. The variable costs, yes, are pretty much nil, but then print variable costs only account for 10-20% of the total.”

    I disagree. We’ve been shown that the publishers’ margin on ebooks (at least Hachette’s) is 75% and is much higher than either hard cover or paperback. If the costs are relatively the same, why the difference in the margins? The only way that could be the case is if publishers are allocating costs to the hard cover that should be shared by the ebook edition. I’m not suggesting that’s what publishers *are* doing, only that it’s the only thing that makes sense of the margins. It seems to me that the only major cost a publisher would have in an ebook edition would be the author’s royalty, and that’s lower for ebooks than hard cover.

    Passive Guy is an IP attorney and I think he’s married to a successful self-published author. He shares issues raised in the media regarding IP rights and self-publishing, with commentary. As an IP attorney, I’m sure he would quibble with your characterization that he is “stealing” something.

    “So now Amazon must lean on suppliers in other areas.” Amazon reinvests profits in expanding its growth. Since neither of us knows what deal points are at the heart of the Hachette/Amazon dispute, I’m not sure you can generalize that Amazon is *leaning* on Hachette. I suspect it may be the agency sales model. If that is the case, I’m on Amazon’s side. The agency sales model isn’t good for consumers in this case, as proven by the settlement made to consumers as a result of the price fixing lawsuit brought by the DOJ against Apple, Hachette and the other traditional publishers involved.

    The business of business is profit maximization. “How” they maximize profit is a key. Amazon is in the high volume, low margin business. How does Hachette maximize profit?

  32. AlexaB
    Jul 18, 2014 @ 20:27:19

    @Cindy:

    “I don’t think that 30% figure include self-published ebooks, so the percentage is likely much higher but I won’t quibble about what can’t be proven.”

    I wish I could find how Bowker Market Research – now Nielsen – measured the market. I’m guessing they used ISBNs (Bowker Identifier Services supplies the market) to track books. And while books published via KDP can use AISNs, many self-published authors chose to utilize ISBNs.

    But I doubt the market size is that much larger. At the end of 2013, Amazon announced that 25% of its ebook bestsellers had come from KDP (which is used by small presses as well as indie authors). B&N said 25% of ebooks sold came from self-publishing. Which are GREAT numbers, but do not imply that self-publishing comprises the majority of ebooks sold. http://www.publishingtechnology.com/2014/07/its-official-the-us-ebook-market-plateaued-in-2013/

    “I disagree.”

    You’re more than welcome to!

    I tried to unravel the train of thought in this conversation, and I’m still not quite sure what your point is.

    First you disagreed when I said that hardcovers are more profitable than paperback (ebooks weren’t really a viable format in 2007).

    However, despite a higher contribution margin for paperback, hardcover returns more hard cash than paperback.

    Then you disagreed with me about fixed costs and said it was an accounting error if hardcovers carried costs that should be attributed to ebooks.

    I replied fixed costs aren’t a part of contribution margin, period, but fixed costs must be covered to return a profit. And, AFAIK, publishers account for sales of a title across all formats: hardcover, paper, ebook, etc when determining 1) when an author earns out and 2) overall profitability of their investment in said title. Profit is based on recouping variable costs AND fixed costs.

    You came back to me about margins again.

    And again, contribution is not the same as operating income. Contribution is a measure of efficiency. It is not a measure of total profit.

    If you decide to visit Wikipedia, if you scroll down you’ll see some mathematical equations and charts that perhaps will explain it better. http://en.wikipedia.org/wiki/Contribution_margin

    Or not. *shrug*

    “Why the difference in the [contribution] margins?”

    Because contribution margins ONLY measure variable costs, ie the costs of producing and selling additional units. They’re called variable because the cost to the business varies depending on how many items are produced.

    Contribution margins do NOT measure fixed costs, ie. the costs of producing and selling regardless of how many items are produced.

    Again, from Wikipedia: “Contribution margin can be thought of as the fraction of sales that contributes to the offset of fixed costs.”

    In other words, Hachette/News Corp/whoever showed their 70% margin to investors to demonstrate that, yay! being in the ebook business is GREAT because the marginal costs of increasing production to meet any new demand are virtually nil. (It was also a very, very simplistic and boiled down example).

    But contribution margin is not total profit, which at its most simplest explanation is revenue – (expenses + costs).

    Put it another way: I pay Big Coder Guy $120,000/year. I spend $120,000/year on marketing. I sell my app in the app store for $1. App store take 30%, leaving me with $0.70. My variable costs are 0. My contribution profit is $0.70/each, and my contribution margin is 100%.

    I sell 5 apps in a month. App store nets me $3.50.
    My fixed costs for that month are $20,000.
    Did I make a profit despite my 100% margin?

    So now I decide to sell widgets. I pay Widget Guy $120,000/year. I spend $120,000/year on marketing. Retail price is $50/each. Retail store takes $25. Each widget costs $10 to produce (variable cost). My contribution profit is $15. Contribution margin is 60%.

    I sell 5000 widgets in one month.
    I net $75,000.
    My fixed costs are $20,000.
    Did I make less money selling widgets than I did selling apps because my contribution margin is 60% instead of 100%?

    Same thing goes for books – and nearly every other consumer good – only much more complicated numbers.

    “Passive Guy is an IP attorney and I think he’s married to a successful self-published author. He shares issues raised in the media regarding IP rights and self-publishing, with commentary. As an IP attorney, I’m sure he would quibble with your characterization that he is “stealing” something.”

    IP lawyers are incapable of stealing/flouting copyright just because they are IP lawyers? Interesting.

    He’s just as welcome to quibble as you are to disagree.

    He’s been called out on his scraping multiple times by multiple people, including other attorneys. Obviously, he thinks it’s okay. I don’t. And I think what he and most of his followers postulate, especially about how businesses work, is laughable. YMMV.

    But I’m glad to see you’ve moved to debating the legality of scraping, which I suppose means you’ve conceded he is biased and nowhere near as rational and accurate as once sold?

    “Amazon reinvests profits in expanding its growth”

    I think you and I define profit very differently. Suffice to say that in the business world, revenue is not the same as profit. And it’s kinda hard to reinvest profits when you don’t have any. http://www.informationweek.com/cloud/infrastructure-as-a-service/amazon-faces-profit-pressure-honeymoon-over/d/d-id/1234891

    “Since neither of us knows what deal points are at the heart of the Hachette/Amazon dispute, I’m not sure you can generalize that Amazon is *leaning* on Hachette”

    You’re right; I don’t know what it at the heart of Hachette/Amazon. I do know Amazon has a long history of leaning on suppliers to get their way, however.

    Here’s their battle with Wustohf knives: http://www.huffingtonpost.com/2014/06/16/amazon-hachette-knife-wusthof_n_5492582.html

    Warner Bros: http://bits.blogs.nytimes.com/2014/06/10/amazon-stops-taking-advance-orders-for-lego-other-warner-videos/?_php=true&_type=blogs&_r=0

    An oldie but goodie battle with M-Edge: http://the-digital-reader.com/2011/12/27/amazon-caught-bullying-suppliers-again/#.U8mxyY1dV0w

    And Hachette isn’t their only current publishing dispute: http://www.independent.co.uk/news/business/news/amazon-likened-to-ryanair-as-publishers-accuse-it-of-bullying-tactics-9569158.html

    Knives and DVDs aren’t sold via agency. They might be sold using MAP (minimum advertised price), which is perfectly legal. Agency pricing is perfectly legal, too, by the way. Collusion to set prices is not. Here’s an article that might better explain the DOJ settlement: http://gigaom.com/2012/09/10/what-the-doj-settlement-means-for-ebook-prices-now/) Read the part under “What are the Restrictions and Exceptions” and you’ll see references to the new contract Hachette (and Simon & Schuster, supposedly also in talks) can negotiate. I have a feeling these, too, might be some of the sticking points. Well, and Kindle Unlimited.

    But perhaps you should tell Amazon agency pricing hurts you as a consumer, because Kindle Direct Publishing is a form of agency. Self-publisher sets the price, Amazon takes a set commission for servicing it to the consumer, self-publisher keeps the rest of the money. Self-publisher decides when and if to discount and/or raise prices.

    Sound familiar?

    Now we just have to wait and see what Kindle Unlimited does to self-publishing…

    As for sides, IMO it’s ridiculous to take one. Amazon and Hachette are two big companies, and they will act as their executives deem is the best interest for their individual long term health and short term shareholder prosperity. Neither one needs or requires my emotional support. And their dispute has zero to do with self-publishing, so I fail to understand why certain Self-Appointed Self-Publishing Grand Poo Bahs feel the need to pontificate and write nonsensical petitions.

    Unless, of course, Amazon gets the Big 5 to buy into Kindle Unlimited, which would take away any price advantage indies have and force them to compete on quality/audience appeal only…

    Oh, and because I am currently irritable due to lack of sleep and bad coffee, and pedantic and annoying always: Laura Hazard Owens of Gigaom has a great article from 2011 on the $9.99 price point: http://gigaom.com/2011/12/16/419-does-it-matter-that-kindle-books-were-9-99-before-anyone-used-e-readers/

    “the average price of a fiction bestseller at Amazon then was $9.99, it was much higher at the other retailers: The average price of a NYT fiction bestseller as an e-book at Sony was right around $15, and over $20 at Palm, Mobipocket, Microsoft and Adobe (NSDQ: ADBE). (This research isn’t online, but e-mail me if you’re interested in more.) Amazon sold $9.99 e-books at a loss, and as the data shows, other retailers could not afford to do the same.”

  33. Cindy
    Jul 30, 2014 @ 17:23:27

    Sony, huh? The “Reader Store is closed” Sony?

  34. AlexaB
    Aug 01, 2014 @ 11:20:00

    You realize Laura Hazard Owen is referring to the price point of ebooks in 2007, right? When Sony was a going concern? Thus proving the point that undercutting prices below wholesale would eventually be detrimental to any retailer save one such as Amazon that could pass on losses from predatory pricing in one line of product to other lines such as diapers? Which was my original point from the beginning?

    And Amazon is STILL trying to dictate the $9.99 price point to this day (see yesterday’s Dear Author News)? But if $9.99 was the optimum price in 2007, thanks to the time value of money that price would be $11.48 today according to the inflation calculator at the Bureau of Labor Statistics? Thus proving that $9.99 is an arbitrary price point based solely on Amazon’s instincts about customer psychological appeal and not because it is the true consumer price and/or optimized by market forces. (I don’t buy Amazon’s math in their post; I’m sure their calculations might be true for one, carefully selected title but not others. Sample size and methodology, pls, Amazon. After all, it’s true what they say about lies, lies, and damn statistics.)

    But thanks for eventually catching on and using Sony to prove my point! Very much appreciated! Cheers!

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