The New Book Publishing Landscape – Part 2 By Mike Farris
The last time I wrote, I said I would talk more about the anti-trust litigation involving the major New York publishers and Apple, with Amazon lurking in the background. Before I get into the specifics, let’s take a minute to understand the background of that litigation.
A. The traditional publishing process.
In the traditional world of publishing, the process starts with a writer – a lonely, anti-social person with little to no social skills – isolated in a lonely room, banging out words on a word processor and hopefully stringing those words together in such a way that, someday, somebody will ultimately pay good money just to read them. For the vast majority of writers, that’s a pipe dream, but who knows? Lightning does actually strike every now and then.
Once the manuscript is completed, writers then engage in a form of torture known as the query process, in which they send out letters to literary agents, pleading with them to read what they have written, convinced that the brilliance of their written words, alone, will convince an agent to find a place to get those words published.
Query letters run the gamut from the professional (“I am seeking representation for my 90,000 word medical thriller”) to the threatening (“If I ever suspect that you have stolen my work I will call my Harvard-trained lawyer to see what my next step should be”) to the grandiose (“When you see how great it is, put it on your schedule to market it; I would like at least $800,000”) to the downright pitiful (“I’m 34, having trouble finding work and am living with my parents.”) (These are excerpts from actual query letters.)
Most agents say “no,” but a few lucky manuscripts get accepted for agency representation. The agents then submit those manuscripts to acquisition editors at publishing houses, who also usually say no, but every now and then a second bolt of lightning strikes and a publishing contract is offered. A deal is struck whereby the publisher agrees to pay the author a royalty (usually somewhere between 7% and 15% of the list price, depending on whether it’s hardcover or softcover), maybe even an advance, and the author agrees to pay the agent a commission, usually 15%. An editor is assigned to work with the author to get the manuscript in publishable form as a book and a release date is set, then the publisher prints, binds, and distributes the finished book. Publisher costs on print books include such things as author royalties, printing costs, distribution fees, and marketing costs. With a little luck, the publisher even commits to putting a little marketing money and muscle behind the book, and it’s off to the races.
B. E-books and changes in the traditional world
The process for e-books starts out pretty much the same way as the traditional world of physical books. However, e-books generally sell for much less than print books, and royalties are typically higher (generally 25% or more), because the associated costs are minimal – no printing and distribution or warehousing fees.
Publishers also usually have their own e-sales outlets for e-books in the form of their publisher websites, but they typically rely on outside retailers to take care of sales, just as they do with physical books. Another difference is that brick-and-mortar stores aren’t needed to sell e-books, which are simply downloaded from various “e-retailers,” such as Barnes & Noble and Amazon, which also sell physical books.
C. The Wholesale Model
The way things traditionally worked for both physical books and e-books was that the publishers set a list price, then sold their books to retailers for a wholesale price that was typically a percentage of the list price. The retailers could then mark up the books as they chose, essentially determining their own profit margin.
The wholesale price was usually 50% off the list price for physical books, but then the publishers typically discounted that wholesale price by 20% for e-books because costs associated with e-books were less, and e-retailers couldn’t justify higher retail prices. So, for example, a hardcover book that had a list price of $26.95 would have a wholesale price of $13.47 and an e-book wholesale price of $10.78. The math was easy, and the e-retailers simply had to decide how much profit they wanted to make from each sale.
But troubles loomed on the horizon. The traditional world of publishing was starting to show cracks that would introduce a new model, called the agency model, that would change everything.
Next time, I’ll talk about the agency model, and introduce the players and their roles in the lawsuit.
About Mike Farris:
Mike Farris is an entertainment attorney with the Dallas, Texas, law firm of Vincent Lopez Serafino Jenevein, P.C. He previously collaborated with television journalist Murphy Martin to write Martin’s memoir, Front Row Seat: A Veteran Reporter Relives the Four Decades that Reshaped America, and with rodeo cowboy turned actor/director/producer Robert Hinkle to write Hinkle’s memoir, Call Me Lucky: A Texan in Hollywood. In the world of fiction, in addition to The Bequest, he is the author of the novels Kanaka Blues, a Hawaiian thriller; and Manifest Intent and Rules of Privilege, both legal thrillers. Mike is also an award-winning screenwriter with two projects currently in development with a Los Angeles-based production company.