Wednesday, March 16, 2011

The Economics of Publishing 0.0

     Economic systems have four components:

     1.  Production;
     2.  Consumption;
     3.  Communication; and
     4.  Distribution.

1.  Production.

     Theoretically, the author is the only one engaged in production, but we do not live in a theoretical world.  In practice, the author is the major engine in production.  He also needs draft readers, an editor, and--in today's market--an artist to create a jacket.

2.  Consumption.

     Theoretically, the reader is the only consumer.  But in truth, the purchaser is the consumer, be he only one or the agent for many; that is, a library.

3.  Communication.

     When communication flows from the publisher to the public, it is called marketing.  "Hey, we printed this book.  Check it out and buy it."  At the low end, communication just puts the book on the shelves or on Amazon.  At the high end, communication trumpets the book's arrival in the press and launches the book (think Harry Potter VII).  If your name is not J K Rowling or James Patterson, any promotion your book gets it gets because you do it.  And J K Rowling did not get it either with her first book
     When communication flows from the public, it flows to the writer who maintains a website.  Writers with websites build communities of readers and fans who talk back to their favorite authors.  Are writers using this to deliver to readers books based on reader input?  I don't see anyone doing that, but I'm sure it can be done.  What I see is that readers become attached to a continuing protoganist (think James Bond or Stone Barrington) and tell the writer they want more.  The writer obliges, but he was going to do so anyway.
     As far as I know, no publishing house pursues reader input.  This may be because publishers are somewhat insulated from readers.  They have no direct contact with the readers.  What concerns them is input from their distributors.  That is where they see their money.
     Can communication generate revenue for writers?  So far the revenue from communication has been indirect, via increased sales, but it seems that there is an oppotunity here to generate revenue directly. 

4.  Distribution.

     Distribution means getting the book from the writer to the reader. 
     This is the point where the old-form publishing houses outmuscled the writers.  This is where the old-form publishing houses added value to the product:  distribution.
     In the 20th century, distribution was a major obstacle for writers.  The big publishing houses had the majority of the shelf space in bookstores.  Random House could penetrate thousands of bookstores with its products, 'cause it had staff dedicated to getting books to those stores.  How many stores could a solo penetrate each day?  One.
     That changed in the 4th quarter of 2010.  Amazon announced that eBooks outsold mass-market paperbacks for the first time.  It won't be the last. 
     Amazon also announced profits of $415 million on $12.95 billion in sales.  Amazon will be with us for a few more years.
     Any writer can get shelf space on Amazon.  It is the same shelf space that Random House and Harper Collins gets. 
     To make it clear, the tide has turned in distribution.  The largest value-added contribution of the old-form publishing house has disappeared on Amazon--and make no mistake, Amazon is the largest book retailer in the world. 
     The old-form publishing house do not like this situation.  They rebelled at Amazon setting eBook prices.  Amazon retreated and made peace.  And attacked the old-form publishing houses where they were weakest:  at the point of sales.  Brick-and-mortar bookstores are failing.  Will they survive?  I think they will in some form.  But we will soon see the dawn of the day when Amazon can dictate terms to Harper Collins.
     The old-form houses never improved the efficiency of their distribution.  They didn't have to.  With wireless delivery of eBooks, Amazon has cut out the need for the old-form's inefficient distribution net.
     Distribution generates revenue.  As badly managed as it was, distribution was the strength of the old-form houses.  By controlling the means of distribution, they controlled writers. 
     If you don't believe distribution generates revenue, ask Amazon.  Their business is distribution.

     Okay, so where are we?

     1.  Production.
     Those elements of production that the old-form houses used to do--proofreading, editing, formatting, creating cover art--have been severed from the publisher.  Many publishers now outsource as much as they can.  Writers have access to those same sources.  And others.

     2.  Consumption.
     Things have never been better for readers.  Oh, yes, there is a flood of crap out there, but there was a flood of crap before.  Now the crap is cheaper.  But so is the cream.

     3.  Communication.
     Again, things have never been better for readers.  Writers are online and accessible to their readers. 

     4.  Distribution.
     For the first time since the 18th century, writers have access to a viable means of significant distribution.  Advances against royalties are gone.  This means that the crap that is published will not earn anything.  The old-form houses paid advances for crap and did not earn it back.  They took a risk with every publication.  But the new model risks nothing. 
     Under the new model, when a book wins, the distributor wins; but when a book loses, the distributor stands pat.  This model fits the book publication dynamics better than the old advance-against-royalties model.
     Under the old model, the publisher won with the winners and lost with the losers.  Publishers wanted to diminish their losers, so they tended to ride the winning horses more and more.  If a winning horse was not available, they looked for a horse that looked like a winner they knew; that is, a writer whose subject and style mimicked some famous writer's.  It is no accident that Dean Koontz and Dan Brown (Flight of the Old Dog) followed soon after Tom Clancy.  Unconsciously, the gatekeepers narrowed the gate.
     Under the new model, the writer is often the publisher.  His distributors win with him but they don't lose with him.  The gate has widened.  Writers no longer have to fit into what's fashionable.  What they have to do is find an audience and keep that audience happy.


  1. Nice summary. This new model suits writers with an entrepreneurial spirit--as has been widely noted elsewhere. How long before the shoe is on the other foot, and traditionally published writers are condescended to, as people who don't have what it takes to make it in the entrepreneurial world of indie publishing? Think we'll see the day?

  2. Azarimba

    "How long before the shoe is on the other foot, and traditionally published writers are condescended to, as people who don't have what it takes to make it in the entrepreneurial world of indie publishing? Think we'll see the day?"

    I hope not. I hope we are better than to condescend to anyone.

    Some of my friends have published with the old-form, including one who pulled down a six-figure advance.


  3. It's human nature to condescend. I'm always wanting people to overcome human nature. One can only hope.