February 18   On 70% royalties

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One of my favourite TV shows is Dragons Den. A panel of multi-millionaire entrepreneurs (or businesses in marketing, branding and so on) sit in judgment as they get pitched business ideas, mostly for inventions. Some contestants have done prototypes and small-scale production runs. All are looking for cash investment and mentoring in marketing, branding and taking a start up to a fully fledged viable business. My favourite bit is when one of the Dragons decides there is a good idea that they think they could make fly and then they offer X cash to buy in to the company for Y percentage partnership. Almost without fail, the person will reject the offer of lots of money because the deal is for more than 50% ownership of the company.

Their thinking being that an idea is worth equal or more than its execution. Or that having an awesome idea is enough alone to make it successful. The Dragons usually smile serenely. To them, it’s easy come, easy go. They know that an idea is not enough. That there are more ideas in the world than can be developed. The negotiation also tells them a lot about what that partnership might be like. Are they going to be overly possessive and territorial? Are they going to be open to mentorship? Are they going to step aside to let others with experience handle things like packaging, branding, marketing, promotion and access to delivery channels? Where will they decide the line is between “mine” and “ours”?

I think a lot about this show as I watch the narratives about the evolving models of publishing. Publishing is (as always) in a state of flux, in a reinvention of sorts. Small press models don’t look anything like they did when I started my press back in 2007. And it’s not a risk to say it will look markedly different in five years time. I’m very passionate about speculative fiction and about writers. As a small press, we sit very decidedly outside mainstream/big publishing and our role is very distinct. We try to offer the best and fairest deals we can when we acquire manuscripts and we try to offer a value addition of personal care and interest beyond the publication date. I like to think there is a very clear narrative that runs through the books I acquire that embody the ethos, direction, and yes, branding, of Twelfth Planet Press. I’m gradually building an argument, a response, a discussion point and when I read submissions, I’m looking for pieces that will expand, broaden, deepen or emphasise that narrative.

Of course, the other aspect that I look for at acquisitions is whether I think a work is likely, or has the potential, to sell to break even, or, you know, one day, make profit. I’m running a business after all. So far, I’m still waiting for the long tail to kick in and kick back most of my investment dollars. The thing about the old skool publishing model is that it works across all the titles bought in a year – some you win (make profit), some you lose (make losses) and across the board you cross your fingers and hope you come out ahead. This approach is what enables publishers to invest in books they know won’t ever earn out or end up in the black but that they believe should exist.

It’s a different model to self publishing. And like self publishing, it works for some cases, and not others. But I saw a t-shirt the other day that said “What part of 70% royalties do you not understand?” and it took me back a bit. Sure, there is an element out there with a pretty strong hate on for publishers but it strikes me as a bit naive or deliberately simplistic. It comes back to the Dragons Den and the idea that the only person who works to create a book is the writer. And that the only costs are paying said writer. Or that the writing might be the most expensive/only part of creating a book.

I’ve run the maths of going to digital only publishing to play with the business model. I’ve also tried to look at offering our ebooks at that $0.99 or $1.99 price point. I really hope we don’t see this flux in the business model end up with books only costing 99 cents. It’s such a huge undervaluation of what it costs to produce the product. To think that you deserve 70% royalties means you think that the cover artist, the book designer, the layout, the editors, the proofers, the marketers and promoters, the promotion material including launch events, and overheads like electricity, software, website management, bank charges, fees for online sales transactions and so many other costs, as well as publisher reputation and branding should somehow be covered by that 30%. That’s one helluva turnover of book sales. It also suggests that all those people take almost no role in the success of your book. I mean, as we all know, no book of excellent quality has ever been overlooked or failed to succeed, since cream always rises to the top, all on its own.

Which is not to say that 70% isn’t a great deal. I don’t have anything against self publishing. It’s the obvious choice in some situations. But when considering all those choices, that 70% really needs to be viewed honestly – what costs will also need to be covered by that? Editing costs? Proofing? Ebook conversion? Buying a cover? Spending time learning layout and publicity? Advertising and promotion? How much time will be required to be invested in product awareness? There are outdated aspects of the publishing business model. And the changes we are currently experiencing will force that hand. But the changes that will happen, and need to, will happen within the realm of economics and viability.

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  • By Melina D on 18 February 2014 at 8:27 pm

    This is really fascinating stuff – and as a reader it makes me think about how I approach digital pricing. I tend to really, really think about buying a digital book which costs more than $13/$14 – I need to really want it and know it’s not available in hard copy for a similar or just higher price (Usually these are reference type books)

    On the other hand, I tend to dismiss the 99 cent books as ‘not important’ – although I’ve read some good 99cent books, they’re my fluffy, slightly embarrassing, kind of like reading fan fiction, books. I don’t really see them as ‘books’ unless they’re around $5 or higher.

    I wonder if any other people approach digital pricing in a similar way

  • By AlisaK on 18 February 2014 at 8:46 pm

    We (me included) feel we should be able to get everything for free or for small prices on the internet. But the cost of printing a book is not anywhere near remotely the only cost leading towards book prices and dropping it, it turns out, doesn’t dramatically drop the per unit cost price on making a book. It will be interesting to see where the price point ends up.

  • By Helen on 19 February 2014 at 11:40 am

    I’m just going to put this here, because Twitter is terrible medium for discussion financial concepts, and in any case to give a big thumbs up to this post in the comments.

    My day job involves looking at what regulated companies should fairly be allowed to charge – mostly companies who provide essential utilities. While this is a world away from books, in some ways, the same principles apply.

    As Alisa points out, a business needs to make back its operating expenditure (the costs of running an office, the costs of printing books, paying staff, and so forth). It also needs to make back its capital expenditure (the cost of buying things like computers, vehicles, or anything else used over time). If you’re not even making these back, you’re either subsidising a charity, or about to go out of business.

    There’s another thing, though, that we allow companies to include in their charges as part of a fair price. That’s the cost of risk. It sounds a bit vague, but it’s really important, because if you’re the one running the business, you’re the one who’s going to absorb the pain if, say you get screwed over by exchange rates changing, customers not paying their bills, your products being unsellable, or anything else that could possibly go wrong.

    The reason regulated businesses are allowed to include an extra bit in their charges to cover risk is because only an idiot would sink money into a venture where they only stay in business if, miraculously, nothing ever goes wrong. You’d put it in a term deposit, or another venture where you’d earn more. Frankly, if the business you’re considering is really vulnerable to things going wrong, but you’re not going to earn enough to compensate you for taking that risk on, you’d even be better burying your cash in the (well-secured) garden, where your only loss will be inflation.

    As Alisa explained to me, it’s standard for authors to get paid whether or not a book makes money. A publisher takes on all the risk of the things that might go wrong, causing business to lose money, sheltering authors from that exposure, from having to pay the bills.

    So…what kind of idiot would go into a business where they didn’t get paid for taking on that kind of exposure? The only people it makes sense for are charities, religions, or rich cranks who have an interest in something other than running a sustainable operation. And, equally dismally, no publishing businesses would be able to include books in their portfolios that had a cultural or social value, but were unlikely to break even.

    All the condemnation to any publishing business that actively screws over its writers, but the solution isn’t railing against decent publishers just seeking to run a viable operation that puts good books out into the world.

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