The Future of Publishing …

1. Gutenberg Economics: What Is a Book Worth?

As an author whose career has included book editing, fiction writing, publication with a New York publisher (Baen Books), and now self-publishing on the new digital platforms (Kindle, Nook, iBooks), I have a lifelong interest in the publishing business and where it’s going. I hope to share some insights over the next four weeks, but first it’s necessary to review the economic realities of traditional, paper-bound publishing. Here is what I see, from several viewpoints.

Gutenberg and the Publisher

Ever since Gutenberg and his printed Bible, publishers have had to deal with inventory. The mechanics of printing are that you spend a great deal of time preparing a template—the page form made of raised type or, in the case of offset printing, a sheet of aluminum with the page imaged in ink-adhering varnish—from which many identical copies are struck. In the case of a book, the total preparation effort includes: the author putting the words in order; the editor checking and adjusting them; the designer developing a layout and commissioning a cover; the typesetter rekeying the text;1 the proofreader checking his keying accuracy; the printer laying out the pages and making up the page forms or sheets, mounting them on the press, bringing the press up to ink, running some test pages, and initiating the print run of 10,000 or 100,000 copies.

All of this work goes into making one copy of a book. Say the costs of “make-ready,” including the author’s advance, the fraction of the editor’s, proofer’s, and printer’s salaries attributable to the book, paper and ink, and equipment utilization, amount to $50,000. Then the first copy of that book, if the press run were to stop there, would cost $50,000. If the run stopped after two books, they would each be worth $25,000; after the third, $16,666.66 … and at the 100,000th book, $0.50. After the press run has finished, other costs like binding and warehousing accrue to each copy of the book, and those costs depend on whatever economies of scale exist at that stage of production.

Since the editing, typesetting, and press setup costs are about the same for any novel-length fiction book,2 the way to save money on the process is to print more books. High press runs lower the cost of the individual books in the publisher’s warehouse. Note that these same Gutenberg economics apply to many other “make from a template” production processes. The high cost of a computer chip, for example, goes into its design and the preparation of the mask for printing the complex circuit on silicon wafers. Once the design is fixed, print as many wafers as you can sell the chips.

One of the issues with Gutenberg economics is that errors and last-minute updates become progressively more costly to fix as production moves forward: easy at the manuscript stage, more expensive once the book is in type, unimaginable after the printing press has run. Even after the press run, the printer will want to use the same type casting or aluminum sheets for a second, third, fourth printing, so changes at that point must wait for a new edition.

The economics of holding a large press run in the warehouse became more complicated in 1979 with a U.S. Supreme Court decision in Thor Power Tool Company v. Commissioner of Internal Revenue. The ruling affected how companies account for the cost of goods sold and the cost of goods still in their warehouses when paying their income tax. The economics and accounting practices are complicated,3 but the result is that publishers suddenly found it much more expensive to hold large inventories year over year.

This doesn’t much matter if the book is a bestseller and will sell out 100,000 copies in a year, but many authors never see bestseller status. Over the years, all publishers have acquired a stable of authors in the middle of their catalog—the “midlist”—who might sell a few hundred or a thousand books a month. Other publishers serving specialty markets might have their top selling authors in this category.4 At that rate, a press run of 50,000 copies might stay in inventory for three or four years. Midlist authors and those publishing in niche markets need this time to develop a reputation by word of mouth among their readers.

Gutenberg and the Bookseller

When you walk into a bookstore—either the corner bookshop or the Barnes & Noble at the mall—what do you see? Thousands of books! Books for every interest and taste. Books for everyone. Making so many different books available represents a huge investment for any store. Of course, the latest bestseller will fly off the shelves, but many of the books there represent new authors or established authors whose older works move slowly—the midlist, again. These books may languish on the shelves for months, maybe years. How does the bookstore deal with the economic risk of buying and holding all these books?

First, the bookstore buys the book from the publisher at a deep discount. Terms vary, but the store owner—or the buyer for a national chain like Barnes & Noble—will usually only pay about 60% of the book’s cover price. That allows the store to charge the full cover price and receive 40% of it to pay for shipping from the distributor, holding the inventory, advertising, and paying store rent, salaries, and taxes. But still, if the store had to pay that much to stock all those books, running the store would be a risky business.

Second, the bookstore’s purchase of any book has an escape clause. Almost every book publisher and distributor maintains a returns policy. Again, terms vary, but after a specified minimum time on the shelves, the bookstore can return the books to the publisher and get its money back or a credit against future purchases. If the book is a hardcover or large-format trade paperback, the store returns the books themselves, usually with the publisher paying the shipping costs. If it’s a pocket book or mass-market paperback, the store clerk strips off the covers, mails them to the publisher, and pulps the book.5

Returned books go back into the publisher’s inventory and may be sold and shipped elsewhere. Stripped books are lost to the system and removed from inventory accounting. In either case, the publisher never knows what exact proportion of books in a press run are actually sold, or stay sold, until the returns come back from the booksellers.

If the publisher decides to let the book go out of print—essentially abandoning it—he tells the store manager not to ship back returns. The unsold books are now the store’s liability, called “remainders.” Those are the books on the store’s “bargain table,” where you can pick up a full-color history of transatlantic liners that once cost $90 for just $5 or $10. Some outlets also buy up remainders to move them at ultra-low prices. Remainders that hang around too long move out to the table on the sidewalk as “Last Chance - $1!” The store doesn’t want to hold them in inventory any more than the publisher and will price them to disappear.6 These books are one step away from the shredder.

The main point is that any book in the store really has only limited commercial value—to the store—until you pick it up, go to the register, and pay for it.7 Shelf space is valuable, and bookstores pay tax on their inventory, too. With more books coming out all the time, and with publishers willing to take unsold books back into inventory or see them pulped and still provide a credit against future purchases, the store has every incentive to push the fast movers and send back the slow ones. The pace of turnover on store shelves helps the bestselling author but can be hard on the midlist author of modest sales and brutal on new authors trying to make a name for themselves.

The bookseller returns policy is one of the reasons major publishers have acquired such powerful control of the book business. With large size, they can offer store credits and discounts that smaller publishers struggle to match. They also can average out the profits from fast-selling books and losses of slow-selling and largely returned books. The last thirty years have seen many small houses acquired by large ones, and large houses acquired by conglomerates with other media interests. The economics of paper publishing have also been driving independent booksellers out in favor of national chains that can negotiate volume deals with major publishers.

Gutenberg and the Author

The cost of printing—of turning the manuscript in an author’s hands into a bound book that large numbers of people can access and read—has always been a barrier to publication. Someone must make that investment, and whoever owns or controls the press chooses the content. Publishers have always been selective about which projects they will take on. The number of hopeful writers has always been far higher than the number of published authors.

The number of hopefuls has gotten much higher in the last thirty years with the advent of the personal computer. Before computerized word processing, an author used a pencil, or a single sheet in the typewriter, to draft the chapters. After reworking through several drafts, with lots of crossouts and cut-and-paste, he or she would then type a fair copy with two sheets and carbon paper between. Changes and additions at that late stage mean a lot of retyping.8 I wrote two novels this way even before I began writing seriously for publication. Today, writing is a lot easier: open the file, drag the cursor, start keying. Nothing actually forces the author to go back and deal with the individual words that pour forth.

Many disappointed writers who believe they simply must be published take the self-publishing route with what used to be called a “vanity press.” But any author who buys his or her own books is entering the current chain store environment at a great disadvantage. Bookstores still want the right to return unsold books, and most authors are not prepared or equipped to offer this. And most authors are not prepared to negotiate with a national buyer or move inventory quickly. In fact, the only successes I’ve ever seen in self-publishing of traditional, paper-bound books involved extreme niche markets: The author was writing about local history or a subject with immediate appeal in a certain area where he or she could sell direct to local, non-chain bookstores. And local stores that can make those kinds of buying decisions are getting scarce.

From the author’s point of view, the publisher’s need to account for store returns—which can often be 50% or higher for a new writer—means a delay in sales accounting and distribution of any royalties. The author has to live longer on the advance money. If sales and returns are disappointing, there may never be “sell through” to cover the advance already paid, and so no royalties from sales.

The economics of Gutenberg publishing and bookstore operations greatly favor investment by large corporations in large press runs of books that will move quickly. That’s generally bad news for most writers. Since the accounting pressures created by the Thor Power Tool ruling, the economics of holding an inventory and dealing with returns have meant the death of a lot of writing careers.

1. The book went to a typesetter for rekeying in the old days of typewriters and hot-metal typesetting. Today, the author submits a word processing file, and the editor and designer work over it on page-layout software like Adobe Framemaker or Quark Express.

2. Books with lots of illustrations cost more—and have variable costs—to prepare because more work goes into the design of each page, and the photos and artwork must be processed into screened, color-separated images. New computerized page-layout programs are driving these costs down, too, as they output color-separated files that can go straight to burning the aluminum offset sheet.

3. For a good description of the case’s effects, see Kevin O’Donnell, Jr.’s excellent analysis How Thor Power Hammered Publishing from the SFWA Bulletin.

4. My early career as a book editor was in specialty publishing—first at the Penn State Press, a publisher of academic books, and then at Howell-North Books, which published heavily illustrated books of Californiana and railroad histories.

5. That’s why you see a notice in paperback books about a book without a cover being stolen property. The publisher has been assured that the book was destroyed.

6. Although I’ve not tested this, I suppose if you grabbed one of those books and ran down the street, no one would come out of the store to chase you. But I don’t like to encourage theft in any form.

7. That’s why Barnes & Noble puts in cushy chairs and encourages you to stop and read: Anything that binds you to a book is helping to move it toward the register. And if the pages get a bit dog-eared and you put it back on the shelf to take a fresh one for yourself—who cares? The unsold book in the store goes right back to the publisher.

8. I knew an author who would draft his book on the computer, print a copy, then erase the file. He would then retype the book into the computer to create the fair copy. As I discovered in going from pencil draft to typewriter, as you have to retype you usually find faster, more economical ways to say what you mean. Economical writing is a pleasure for the reader.