Wednesday, March 30, 2011

Publishing Economics 0.1

     I don't know much about the particular costs inherent in paper book publication.  Only the accountants in houses like Harper-Collins and Random House know those, and they ain't sayin'.
     So how can I estimate the price of a paper book?  By analogy.
     The 1970s were the heyday of the boardgame.  Game designers like James Dunnigan, John Hill, and Frank Chapman were each turning out a new game every month.  They produced famous games like PanzerBlitz, The Battle for Hue, and Harpoon.
     At a time when the cost of a new game was $8, the physical content--the box, board, dice, playing pieces, and rulebook--cost $1.88.*
     In truth, the games were underpriced.  They should have been priced $9.40--five times the unit cost.**  This difference between the price they charged and the price they should have charged killed many game companies, including the innovative leader S&T.  How innovative were they?  Innovative enough that their chief competitor, Avalon Hill, hired them to design a game for them.
     So if, as Mr Bransford said, the physical costs total $1.50, then books should be sold to readers for $7.50.  I don't see that happening.
     On Amazon, I see Donald Rumsfeld's Known and Unknown*** marked down to $19.46 from $36.00.  That tells me that the unit cost TO PRINT THE BOOK is either $3.73 (re: $19.46) or $7.20 (re: $36.00).  If those costs are wrong, then 1) the TradPubs practice voodoo accounting or 2) the TradPubs' cost structure is so badly out of whack that it would be easier to replace it with a new model than it would be to fix it.
     Number 1 on the New York Times Bestsellers List in Fiction is James Patterson's Toys, listed for $27.99 but marked down to $14.28.  Did Little, Brown and Company spend $5.60 or $2.86 on the paper?  Who knows?  I don't.  Does Little, Brown and Company know?
     The problem with taking apart the TradPubs' pricing model is that no one knows how they arrive at their prices.  It makes no difference whether you are inside or outside the industry.  Why is James Patterson priced at $27.99 and selling at $14.28 while Donald Rumsfeld is priced at $36.00 and selling at $19.46?  The pricing is illogical and the discounts are unpredictable.
     This pricing structure is inefficient and unmanageable.  It is doomed to fail or to fall.  It will fail whenever and wherever it has to compete against a more efficient pricing structure.  It will fall when the weight of accumulated bureaucracy becomes more costly than it can support.
     Next time:  Lurching Toward a New Pricing Paradigm
* This is the reason I do not believe Mr Bransford's estimate that the paper and distribution costs of a new book total $1.50.  I do not believe that paper costs LESS today than it did 40 years ago.
** This '5x' scheme makes pricing tractable.  Labor costs are subsumed in the markup.  In fact, all costs that are 'amortized' are subsumed.  But management can do cost breakouts and work to keep their labor costs within set goals.
*** You can love Rumsfeld or hate him, but you know his book is gonna sell.

     If you have not read Joe Konrath's interview of Mark Coker, the founder of Smashwords, please do so.  The read was worth my time.  I bet it will be worth yours, too.
     Be sure to read the comments.  Mr Coker's answers to readers' comments are included there.


  1. The only reason anyone other than the beancounters at the Big 6 would argue about the raw materials costs of dead-tree books would be to assert (or refute the assertion) that writers receive their "fair share" of a book's cover price (or in the case of ebooks, the agency price), or in the alternative, that publishers receive far less gross margin on an ebook than on a dead-tree book. This was Bransford's premise.

    He mustn't be an accountant, because his comparison of the 'cost' and gross margin to the publisher from a dead tree book vs. an ebook is so flawed as to be meaningless.

    I attempted to argue the above in a discussion with people on another blog, and they basically ignored me. If one is an accountant and dares to state that people's assumptions about costs are basically useless because they don't have the data to properly underpin those assumptions, people go on with their merry analysis, regardless of its pointlessness.

    Correct me if I'm wrong, but I think that's what you're saying?

  2. Bransford's analysis reminds me of an account reconciliation once given to me by a junior. He tried to work from both ends toward the middle, rather than starting with one number and adding or subtracting numbers to reach an expected/required result.

    The author's revenue is dependent on the cover price for a dead-tree book, and on the agency price (undiscounted or actual/discounted, I have no idea what the standard ebook royalties clause in writers' contracts say) for an ebook.

    The publisher's gross margin -- nearest comparable number to the author's revenue -- in a lot of cases has nothing to do with the cover price, as you note above.

    Assuming ebook pricing is "unfair" to publishers (I think that's the gist of Bransford's analysis) assumes that they have no control over their overheads. When people talk about the anticipated demise of NY publishing, that's basically what they're assuming. I suspect that often may be because the people discussing the precarious situation of the Big 6 publishers have so many friends in the publishing business that overheads (administrative salaries, the non-allocable portions of the salaries of the editorial, marketing, design, and other creative types) are a sacred cow.

    Another aspect to the argument is that no one's about to call Amazon on their 30%. If the publishers are doing it, they're doing it behind closed doors so as not to jeopardize the relationship. No one wants to conduct business negotiations via the press.

    As for the authors (and agents) who are throwing numbers around, only those with a crusade against Amazon will criticize this 30% "platform tax." Everyone else puts up and shuts up, because, you know, for an indie author (the only variety who would have any reason to speak frankly) 70% is a heck of a lot better than 10-15%/17.5% (ignoring agent's percentage, just to be generous).

  3. @azarimba

    Excellent point! You said it more concisely than I.

    Bransford argues from assumed data. Are his assumptions valid? If they are not valid, then his argument fails.

    I do not believe Bransford's assumptions are valid. I did not assert those assumptions; he did. It is not for me to prove them invalid. It is for him to prove them valid.

    When will he do that? I ain't holding my breath.

  4. When someone writes an paragraph he/she retains the plan of a user in his/her mind that
    how a user can understand it. Thus that's why this piece of writing is perfect. Thanks!

    My webpage ... Billigste Ipad