NEWS – Data Points for Predicting the Future of Publishing

I am thrilled that New York Times bestselling author David Farland has given me permission to republishing the following article. The publishing industry, as we often discuss on the podcast, is changing very quickly. David Farland, writing in his newsletter, emailed the following to his subscribers on Saturday, May 28th. I love every edition of David Farland’s Kick in the Pants, but this one was so interesting that I sought permission to share it with all of you.

If you don’t subscribe to David Farland’s Daily Kick in the Pants, I high recommend you do. You’ll find both priceless writing advice and fascination industry analysis, as you’ll read below.

Data Points for Predicting the Future of Publishing.
by David Farland

A couple of weeks ago I wrote about the future of publishing. I’m afraid that some people felt that I was too gloom-and-doom. I really do hope that you understand that I’m not predicting a gloomy forecast. I’m telling you that things look as if they are going to change dramatically and that there are great opportunities ahead, but you have to seize them, and you can’t blithely go down the same old path we’ve always used, or you’re going to run into quicksand.

However, there are those who argue against my predictions, and I can’t say that they’re wrong. As Yoda said, “Always in motion the future is.” One author (whose works and intellect I admire) disagrees strongly with my notions, and basically said, “To all those folks who argue for the rise of e-publishing, what are your data points?” He then reasoned against my beliefs—using very outdated information. As they say in computing: “Garbage in, garbage out.” If your data is bad, it doesn’t matter how well you reason.

So let me first just reiterate my position, and then let me talk about why I think we’re headed for a massive change. I said two weeks ago that I suspect that traditional publishing is going to dwindle over the next few years, facing some very tough times, and I said that authors should exercise extreme caution when looking for agents or publishers. Instead, you should look to e-publishing and enhanced books. Specifically, you need to figure out how to market yourself at a time when every other author is also going to be out publishing his own books, creating a massive amount of white noise. (It’s already happening. According to Bokwer’s the number of self-published titles last year rose from about 1.033 million in 2009 to 2.766 million in 2010).

Please note that I’m not saying that you should NEVER take a publishing deal. There are great deals to be had. But you should recognize that we’re going to be facing a splintering market over the next few years, and that as an author you will be having income streams from several sources. What you want to do is figure out how to make it as a writer during this transition period. Is it worth it to take a small advance from a paper publisher now, knowing that you may be losing out on electronic rights income for the next 150 years? You’ll have to make those tough choices yourself.

But here is what is going on. First, for those who argue that electronic books are an insignificant share of the market, WAKE UP! Watch the news on Publisher’s Marketplace and elsewhere.

My friend argued, for example, that e-books were insignificant and made up only about 1% of sales. That data is way out of date.

Four years ago in January, electronic publishing did bring in about 1% of sales. Three years ago, it brought in about 3% of sales. In January 2010, that number rose to about 13% of sales, and currently, as of May of 2011, we’re at about 27% of sales. Now, that’s an estimate. The major publishers are claiming somewhere between 22 and 26% for fiction sales, but that doesn’t count the self-published e-books. Right now, says that for every 100 books they sell in hardback and paperback combined, they’re selling 105 books electronically. As of the middle of May, they say that e-book sales are exactly 300% higher than they were a year ago at this time. Do you see what’s happening on the bell curve?

In February, electronic books outsold hardcovers. This looks as if it might vary for a few months, but expect e-sales to climb.

My friend argued that e-readers aren’t taking off. He noted that fewer than 2 million Kindles sold last year. He noted that fewer than one percent of the population had Kindles. But Kindle is not the only platform in town. Nooks are selling well, too. IPads sold more than four million devices last year, and another 44 million are in production for this year. Sony e-readers are doing well, as are Xooms, but most teens who are reading are doing it on their cell phones.

Also, one needs to take into account the fact that the people who buy e-readers are heavy readers—the people who normally buy hardbacks because they just can’t wait for a book to come out. It makes sense for them to buy e-readers because they’re spending a lot on books. By purchasing electronically, they save money over the long run. Hence, we’re seeing a rapid decline in hardback sales.

The truth is that not everyone needs to buy an e-reader. Many people NEVER read. Some 20% of the people in the US won’t read a book at all this year. Another 20% might only read 1. However, it’s said that the top 20% of all readers buy 50% of the books.

How many frequent readers need to buy e-readers before we lose half the market? Fewer than 60 million people in the US. How soon will that number of e-readers be on the market? By February of 2012, the heavy readers should have their iPads, Nooks, Kindles, and so on.

Now, as the market competition heats up, we’ll see prices on e-readers to drop, and more infrequent readers will begin to buy devices. Some schools began purchasing e-readers last year instead of text books. Why? Because it is cheaper. If you give a student an e-reader and purchase licenses from someone like MacMillan for all of the student’s textbooks, you’ll most likely get a “student discount” that will make the e-books cheaper than buying textbooks. These will be lighter of weight than regular textbooks, which gives the advantage that students no longer have to lug heavy books around, and the text can change each year to keep up with the newest trends in science, history, sociology, and so on. In short, students will be trained to read off of e-readers, beginning now.

Oh, and how will those students buy books? Off the e-readers that the school provides, of course! Kids want to save money, too. Expect the YA and middle-grade e-book markets to go ballistic in four years.

So I think that we’re facing a massive, game-changing revolution in the way that people read, and I expect to see it mature over the next three to four years. Do I love books? Sure. Do I love e-readers? Yep. They’re just systems for delivering stories. I’m not pro one and anti the other.

The big question is, where will the bell curve end? Will e-books stop at 40% of the market? 50%? I don’t think it will stop there. Much will depend upon the price of e-readers and the comparative cost of paper books.

Will there be $20 e-readers for the very occasional reader in five years? I’m reminded of the early calculators. In 1967, I saw the first calculator in a school. It was larger than a typewriter and cost about $2000. Five years later, you could get a calculator that did the same job for free in your box of breakfast cereal. Expect prices to drop.

What is the future of e-books? As more people switch to e-books, then publishing paper becomes a very dicey proposition. As publishers face higher returns, they will need to raise prices. Anyone for a $12 mass-market paperback, or a $40 hardcover novel? As prices rise, even just a little, readers will begin to wonder if they should be buying electronically. After all, book prices are much lower online, even for your favorite authors.

Beyond that, we may well face a stigma against the reading of paper books. I recall well the first time I went into a warehouse and saw how many trees I’d killed with my novel STAR WARS: THE COURTSHIP OF PRINCESS LEIA. I felt a tremendous amount of guilt. Entire redwoods had died to make my novel. (Okay, they were probably pines, but you get the idea.) So imagine yourself on the beach five years from now, and everyone is reading books on e-readers, and they’re giving you the evil eye because you bought a hardback.

Just buying paper books could get harder. I like to go shopping at my local bookstore on date nights. But many book stores are going out of business. What if sales in my area drop 50% in two years. Will my bookstore survive? Or will I feel pressured to start shopping online?

So we’re facing some changes. I’ve already given the data points about how this will affect New York publishers. Last month, they got hit with a 40% decline in hardcover sales from just one month to the next. Now, part of that was due to the loss of a major chain. Another part was due to incursions by e-book sales. But there seemed to be other reasons. One publisher in England went so far as to say that it may have been reflective of a “weak publishing schedule.”

The publishers lost money that month. There’s no way around it. For their big titles, they most likely ordered their copies from printers in Korea or China some five or six months earlier. So now the books sit, unsold. Worse, the publishers have pre-ordered print runs ahead for the next four or five months already, and in some cases, the books are on the ships, making their way to US ports. A lot of money is going out the window.

This means changing the way that publishers work. The publishers will want to order books from US printers, who require a shorter lead time. That way, they can decide how to react to volatile markets. Costs will be a little higher for printing domestically. More upward pressure on price points there. Oh, and if we’re now nudging the print runs down, the cost per book rises.

So the publishers are going to have to figure out how to stay afloat, and they’ll make grabs for e-rights. Look at the blogs for Kris Rusch and Dean Wesley Smith. They’re telling you some of the news about what is going on, and there is plenty of ugly information that we can’t share without violating confidentiality agreements. As I said before, the book stores are selling fewer books, and they can’t pay their distributors. The distributors can’t pay the publishers, and so the publishers are trying to stay afloat. The only way to do that is to try to get more money out of the authors.

With that happening, literary agents are doing the same thing. Lots of them are offering new plans, in which they publish your e-books. So they’re trying to figure out how to skin their own authors.

That’s you and me, folks. When you’re out swimming and your partner begins to drown, you know what happens. Instinct kicks in, and the person who is drowning tries to grab onto anything that floats. Right now, the authors are the only things that float.

So publishers are going after our e-books. Even if they aren’t in trouble, they’ll go after our e-books. Why? Because they’re potentially very lucrative. When you sell an e-book, it’s pure content. There are no costs for printing millions of copies, no costs for shipping, no high overhead for retailers and distributors, no copies damaged by mildew or ripped during shipping, and so on. You’re just transmitting information electronically, virtually for free.

Bill Gates became the richest man in the world because he was selling raw information. That’s what e-books are, a commodity with very little production costs and no shipping or handling fees. If you’ve already got the files for a book sitting on your computers, then producing the e-book is almost pure profit. Now, you might not sell tens of thousands of copies in a month, but what if a title sells just a thousand copies per month—for the next hundred years?

Every e-book is a potential goldmine, and every publisher is going to demand that they get the author’s e-rights. Some publishers have already simply begun the strip-mining process, putting the books online and selling them, even though the author’s rights reverted long ago. In other cases, the publishers are claiming that they own e-rights to any book that they’ve ever published.

So I expect that this is going to lead to a long and lengthy legal battle. Remember that your publisher isn’t necessarily your editor. I like most of my editors. But your publisher is a company owned by a mega-corp that handles dozens of other companies—movies studios, television networks, record companies, book publishers, and so on. These are entertainment empires. The empire builders have their own way of thinking, and they don’t give spit about you. You are a manual laborer in their eyes. They just want to figure out how to make as much money as possible off of your sweat.

As Kris Rusch points out, agents are finding that publishers are refusing to negotiate e-rights. The publishers are offering only 25% of net to even their biggest authors, and of course “Net” is undefined. The book sales are then being under-reported, according to many authors. So what we’re seeing looks like pure theft of rights from authors.

It’s not just the publishers that we have to worry about! The agents are also facing shrinking revenues, and they’re trying to get in on the publisher’s act. Many agents that I used to consider reputable are now introducing “exciting new publishing programs” for their authors. As Dean Wesley Smith pointed out in his blog last week, the agents are touting themselves as publishers or packagers and are asking for more than 50% of the profit from an author’s sales.

But if the publishers won’t buy your new book without demanding the e-rights, isn’t your agent hurting you by offering to become your publisher? Of course he is. It’s a conflict of interest. You might need to look at suing your agent.

Because of this, you have to be very careful right now in choosing an agent. Since the publishers are refusing to negotiate on e-rights, the agents are finding that their own power base is eroding. There are NO super agents like we had in the 1970s. They can’t do for you what they once did. The agents no longer have their own private contracts on file with the major publishers. Hence, many savvy writers are leaving their agents.

I’ve heard from a number of authors that many agents “aren’t even reading works by new authors.” They don’t see the point. I’ve heard from established authors that publishing agreements are “moving very slowly.” A book that used to sell in four weeks now takes six months. Checks that would have been cut in two weeks now take an additional six months. Advances for major authors are taking a nose-dive. All of this indicates heavy cost-cutting measures by the publishers.

Agents are losing both negotiating power and money in this fight, and we can expect that to continue.

My writer friend pointed out that we need agents in order to negotiate our foreign sales. My question is, “Really?” You mean I can’t go to the Frankfurt Book Fair and sell them myself? Or contact publishers online? Or put my books up for sale electronically in foreign markets?

Of course I can do those things.

The bad news is, we’ll have to deal with these changes. But the publishing industry has always been in flux. Don’t start chewing your nails or lighting up cigarettes over it.

But do be wise. Don’t sign contracts with agents who seem . . . questionable. I spoke with a writer on Sunday who was going to talk with a movie agent, and he had some worries about the agent’s contract. I advised him to talk to an entertainment attorney friend. The writer mentioned this to the agent, who instantly decided, “I’ve decided to focus on my other clients.” The writer was lucky. He found out that he had an agent who was trying to rip him off, and once unmasked, the agent walked away.

In particular, when you sign with an agent, make sure that they charge standard rates and that they have a reasonable escape clause. If you want to part ways with an agent, you should be able to do so within sixty days or so. You don’t sign up for life.

Your agent is not your publisher. Don’t give them 50% of your e-rights.

Your publisher doesn’t deserve all the money from your e-book either. If they demand it all, then maybe your publisher shouldn’t be your publisher. Having said that, I hope you realize that nearly ALL publishers are demanding your e-rights—every major publisher in New York.

Which is why I have to warn you that ANY publishing deal that requires you to give up so much of your e-rights is a terrible deal. It may well be that this is the time to walk away from the traditional publishing model altogether.

Remember that publisher in England who complained about lower sales this quarter due to a weak lineup? What do you think the cause is? Maybe it’s because authors are already walking.

As an author, I know that there are some huge untapped audiences out there. There are 1.4 billion people who speak English in the world, who might want to read my books, but only about a third of them are serviced by traditional publishers. With e-books, I might be able to tap into huge markets in Asia and Europe. If I can reach my old audiences, I should be able to make more money even with fewer readers.

So I might look at ways to transition into these new markets, rather than sell my new books to traditional publishers.

Self-publishing isn’t easy, but it is doable. You can hire editors to line edit your novels, even handle content editing. You can hire artists to create covers. You can hire book designers and marketing writers. In short, you can probably put out a very nice book for a few thousand (say $6000 to $10,000). I’m sure that you’ll want to do it cheaper, but let’s be honest: getting a good cover and some decent editing isn’t free. You can hire line editors pretty cheaply, but content editors cost more. You might get a decent cover for a small amount of money, but getting great art is expensive.

The advantage of doing it yourself is that you get to keep a higher percentage of your profit.

But you also realize that there are disadvantages. You might become a no-name author just freezing out in cyberspace, where no one can hear you scream. So you’ll have to advertise and work your tail off to get some recognition. Maybe, like Amanda Hocking, you’ll make it. But just having one book out there isn’t the way to do it. Amanda made a lot of smart choices, and it’s going to take a lot of perseverance, work, talent, and luck for anyone to break out in this business. So making a gutsy choice to self-publish isn’t for everyone.

I’m a firm believer that quality will rise to the top. Selling books is simple: all that you have to do is to write beautifully from the depths of your soul and demonstrate genius consistently. If you do that, you can make a lot of money, even in today’s tough market.

So I’m going to go back to giving advice on how to write well. I know that everyone wants to know how to succeed in the changing markets. I can’t tell you that for sure. I’m just making my best guesses based upon what I see happening. I may be completely wrong. The publishers might decide to make reasonable concessions on e-books. The markets could all settle down tomorrow. Maybe people will find that they hate e-readers, and sales will go flat.

Heck, maybe the world will go flat, too.

I don’t know for certain what the markets will do.

So let’s concentrate on the fundamentals of how to raise the quality of our work.

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