Potpourri Readers Corner

Publishing Industry Explained (sort of…)

Occassionally you will hear me gripe about the book publishing industry, but here is an opportunity for me to explain why. And please read all the way to the bottom cuz that’s the important stuff.

First up, is a Dear Author post, commenting on a Wall Street Journal article and breaking down the current publishing industry model. (there’s a lot more to this post aside from what I’m quoting – please read it in its entirety)

Publishing operates under the Pareto concept. 20% of the titles generate 80% of the publishing houses’ profits. But reliance on the 20% of books to provide a successful and growing book market will inevitably miss whole segments of the reading public.

In 2006, Netflix offered 60,000 DVDs. Out of the 60,000 titles in Netflix’s inventory, I ask, how many do you think are rented at least once on a typical day? Well, the actual answer is 35,000 to 40,000. That’s right: every day, almost two of every three movies ever put onto DVD are rented by a Netflix customer. “Americans’ tastes are really broad,” says Reed Hastings, Netflix’s chief executive. So, while the studios spend their energy promoting bland blockbusters aimed at everyone, Netflix has been catering to what people really want — and helping to keep Hollywood profitable in the process.

Publishing needs to learn more about its consumers. This is where microtargeting can come into play. If publishing spent less in advances and had better POD technology, it could provide more targeted sales. Wouldn’t it be less of a risk to try to make money off of 80% of the publishing list rather than just 20%.

Then we have this little gem which walks you the ‘business’ of owning a bookstore, and explaining how disasterous it is that booksellers can order books from the publisher and then return the unsold copies whenever they please (FYI, books are the ONLY industry where this happens):

However, the big boxes — Borders, Barnes & Nobles, even Amazon, now…had purchasing power…They’re talking potentially in the thousands, even millions [of a single title]

As for Borders, part of their business model is something called churning [returning unsold books]

The usual terms with distributors are 1 week, 30 days, 60 days, and 90 days, depending on your credit history with them.

Order $1000 worth of books. Note the payment says, “since you are fancy massive bookstore with lots of buying power, you have 90 days to pay from the date the order was delivered in full”. However, you still only have 60 days before you can return without a restocking fee & tax-surcharge. So on day 59, let’s say you return $500 worth of books, and get $500 credit from the distributor for books you have not even paid for yet.

That’s churning.

Borders killed (literally) a couple of small presses recently and hurt many more by doing this and here’s how:

They did not return to the original distributor but to Ingram’s [according to this poster, if a bookseller accidentally send to the wrong distributor, they will generally credit the account, then return the books to their proper distributor and get their money back from them]

Now, thing is about small presses: if you order a lot of books from them, it’s going to be hard for them to fill the full order, sometimes…if they [Borders] order 500 copies and only get 100, they don’t pay for those 100 until the other 400 have come in.

Borders is busy ordering, doesn’t have to pay, AND is returning books to Ingrams instead of to the original, small, publisher-distributors. So the publisher/distributor is sending the rest of the order while the first half is being RETURNED FOR CREDIT, and Borders can then use that credit to get books through Ingrams, who carries a helluva lot more than just that one small press.

It’s like, “I ordered 500 copies of the Book of Vacuum Cleaner Hoses, only got 250 so far, then immediately returned those 250 not to Hose Press but to Ingrams, got $5,000 credit, and turned around to use that to purchase from Ingrams 500 copies of Dan Brown’s latest tripe, on which I’ve now made $5,000 on top of the money I didn’t actually even pay yet.”

Notice that Borders has not paid out a single penny yet. Basically, they ordered something, returned it elsewhere, and used that return to buy something else which was sold at a profit.

In case the dots weren’t connected, these small presses, when hit with all these returns went bankrupt. One small press is actually suing Borders for this mess. (whether EC is the ‘right’ press to be suing them is another topic altogether)

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