Digital Publishing: Looking at the Business Model

September 14th, 2009 · 20 Comments
by Kassia Krozser

As you might imagine, I am still dissecting the past few months, and today I want to focus on business model. Some of this might seem antithetical to how publishing does business (I actually don’t think so, not if you think about it). It will definitely make some people uncomfortable because it links the actual success of a book to aspects of compensation. Not every part of the model needs to be applied in every instance, but it’s worth considering the merits and possibilities, even if you ultimately choose another path.

Successful digital publishers have been largely limited to genre fiction, romance in particular (to the best of my knowledge, and I know I’ll be corrected on this point!) because there is a significant portion of the readership that is comfortable being an early adopter of technology. The business model has worked because the participants involved understand the risks and rewards. As I’ve noted more than a few times, this model has been evolving for well over a decade, and will continue to evolve. And, as you’ll see when you get to my final point, it’s undergoing the same sea change the rest of the industry faces.

Over time, there have been failures big and small in this marketplace. The reasons vary. The successes all have elements and principles in common. Not surprisingly, most of these principles have to do with cost effectiveness and economies of scale. I’d like to thank Angela James, who has, over the years, written and spoken extensively on this topic. Some of my thoughts and conclusions may vary from hers, and I defer to experience.

  • No/Low Advances — Cash flow, especially in the beginning, will be tight. And while there is a strata of author who will not work with you if you don’t pay advances, there are many excellent authors who, for various reasons, including creative expression, will. But the publisher needs to keep some key promises, outlined below.

    By the way, over the years, I have heard every argument under the sun for and against the no-advance model. I’ve seen authors refuse to consider this alternative (while spending years trying to sell a manuscript that traditional publishers won’t touch, and not because of quality or talent). I’ve seen an organization engage in an at-least annual battle over this stance. And I’ve seen authors succeed, to the point where traditional publishers with fatter checking accounts are not necessarily enough to convince the authors to give up the benefits of writing for a digital publisher (and yes, most compromise by writing for both).

    I believe every author should weigh options and make the right decision for his or her career.

  • Higher Author Royalties and More Timely Reporting — Royalties in this marketplace are generally higher, starting at 35% and increasing. This probably gives many in the publishing industry hives, but it also makes the author an active participant in her book; at the very least, it acknowledges the author’s role in the writing and marketing of the book. Both sides are taking a risk, and both sides share the rewards of hard work.

    Just as important, from my perspective, is the shift in royalty reporting. In the 1990s, it was possible to get a manual distribution statement from Djibouti faster than for a traditional publisher to report sales to an author. That is still the case. Semi-annual statements with 60- or 90-day reporting lags are relics of days gone by. In the digital publishing world, royalties are paid, at the latest, quarterly with a 30- to 60-day window. Many are paid monthly.

    Part of this is the difference in money flow. If you look at it on a per-book basis, it takes a long time for hard dollars to get back to the traditional publisher. Cash for digital sales (and note my use of cash) gets to the publisher much faster, certain laggardly retailers notwithstanding. Paying authors in the most timely manner possible is part of the compact. Authors note they’ve written, published, and been paid royalties for ebooks in the time it takes to get the second and third tranches of their advances from bigger publishers.

  • Completed Manuscripts — In traditional publishing, it is not uncommon for a house to go to contract based on a proposal or even idea. At some point, an advance check is written and the waiting game begins. It’s one of those time value of money things. The longer it takes to get a manuscript completed and available for sale, well, you know.

  • Faster To-Market Time — One of the key reasons authors love advances (other than the it’s guaranteed money that they can’t take away from me not matter how my book does aspect) is that it’s the only money they might see related to their book for years. Publishing is a slow business, and the timeframe from acquisition to book-on-shelf can be stretched beyond the patience of ordinary humans. The digital publishing production frame is compressed.

  • Shifting Participants — This is going to make some people cringe, and I admit it was one of the harder aspects for me to wrap my mind around. Many digital publishers started as, for lack of a better term, mom-and-pop operations. As they grew, additional staffing was required. On the minus side, these publishers did not have the benefit of fifty-plus years of backlist to finance ongoing operations.

    Finding quality editors was a priority, paying them top dollar was not as easy. A few standards emerged, with two basic ideas moving to the forefront: paying per word and/or paying on a royalty basis. Angela James wrote a very good article about editor pay. As with author advances, this is not going to be comfortable for everyone, but it’s worked out quite nicely for more than a few editors. Bonus: fewer meetings, more editing. Minus: unless your book hits big, your hourly rate is, at the end of the day, rather low. Granted, if you’re working in-house at a traditional publisher and already squeezing your actual editing job into your personal time, this might even out in the end. I am, sadly, not kidding

    On Twitter and over time, there have been discussions about the disconnect between editorial and sales and marketing and readers. The people who know the book the best, have championed it, worked with it, invested in it, are very often removed from the process of seeing it succeed. To me, that is unaccountably strange. Of course, as noted above, I’m not sure how the modern editor could add one more task to the schedule. Imagine the culture shift involved in holding fewer meetings…imagine the the number of meetings required to implement such a policy!

    Over our brief lifetime, I was also contacted by cover artists who were also willing to work on a royalty basis. This was not the approach we chose, but, yeah, getting your foot in the door as an artist is all about taking risks. Again, something to think about, especially when you’re starting up.

  • Quality Control — Issues of quality have long been a concern of mine, and I’ve been dumbfounded by authors and publishers who refuse to acknowledge this as a legitimate issue. As you can imagine from the above, there are quality risks a publisher takes in this business model. Poor quality in books turns off customers. The first wave of ebook adopters, readers willing to take a chance because they craved something different, were largely repelled due to poor quality control, including production and editorial.

    There has been much progress in this area, but those early perceptions remain. Quality will be, I believe, a growing issue in this marketplace. Existing publishers, facing an influx of new-to-ebook readers will be going head-to-head with traditional publishers.

    It should make those traditional publishers cringe to know that they are not surefire winners in this battle. I’ve talked before about the appalling quality of ebooks from very big publishers, and I’ve talked about the sheer (only it was spelled shear) lack of editorial attention to some books. Factor in pricing, DRM, and the way online readers connect, and there are definite pain points for traditional publishers.

  • Print Is Expensive — Building an infrastructure for print distribution, especially in this marketplace is insanely expensive, far more so than building a digital distribution infrastructure. While it leaves out many physical retail outlets, I remain convinced that a smart POD or PTO program is the most fiscally responsible choice a digital publisher can make, at least until there is a solid idea of sales and customer preferences. Doing print wrong is bad for everyone.

  • Unit Sales Are Lower — This might be one of those “duh” points. Let’s be frank: the vast majority of readers have not yet adopted ebooks. Publishers who have succeeded have done so by leveraging a growing market while keeping costs low. Luckily, breakeven is a lower dollar value. I will note (though surely I don’t have to!) that low unit sales are not limited to digital publishing. As Daniel Menaker reiterates in the article linked at the end of this post, far too many traditionally published books fail to earn out their advances. One wonders how long this will be possible.

  • Managing Prices — Success comes in many ways, and one is matching consumer pricing expectations. Looking back at my editorial pay thoughts, both payment approaches allow a publisher to better manage certain costs, allowing them more flexibility when it comes to setting prices. Hint: readers are price and word count conscious. As new readers move into the market, they’re going to seek out like-minded readers in their favorite niches. Information will be shared.

  • Direct versus Third Party Sales — To date, this model has been successful for publishers because they have built a strong (and growing) readership via direct sales. This increases the amount of money flowing to the publisher and author. In order to maintain this advantage, publishers need to use marketing tactics to encourage readers to shop at their website and, above all, make sure formats are well-supported.

    However — and if I gave the impression otherwise in my previous post, that was not intended — any digital publisher entering today’s marketplace must factor the increase of third party sales into financial models. They are growing, and they’re going to continue to grow, though estimating the percentage of sales they comprise is a moving target. In a recent post, Mike Shatzkin considers making verticals even more more vertical by aggregating like content, regardless of publisher, aka the tor.com model. This is happening to a degree as eretailers emerge in marketplace and build a solid customer base, but nobody can ignore the hardware/software stranglehold being created by large retailers.

    You cannot expect the readers to discover your website. You cannot expect the readers to want to go through the hassle of figuring out files and formats and how to use them. And you cannot (this will sound familiar to all publishers great and small!) expect readers to know about or care about your business model. What you can do is make the idea of buying direct from your website as attractive and easy as possible. If there is a weakness in today’s digital publishing business, it is right there. Buying ebooks is far too hard, and that goes for all publishers great and small.

    (Interesting: after I’d written the above, word came via Jane at Dear Author that Ellora’s Cave, a noted hold-out in the Kindle store, may be reconsidering this position.)

The above is not a comprehensive look at the digital publishing business model, but I think I hit many key points. Astute readers will notice that there isn’t anything different in this model, unless you count the more careful aligning of costs to sales. As with new business in any industry, starting a new publishing business is filled with risk. I would posit that starting a small print publisher is far riskier than starting a digital publishing company — both from the perspective of infrastructure and ongoing costs.

I still believe this model is viable, and I’m pleased to see others entering the game despite Quartet Press’s lack of success.

Extra credit reading:

  • On Hosting One’s Own Parties and Performing a Bookish Autoposy: Kat Meyer expands upon her thoughts (in the comments below) about digital distribution (warning: she sparked thoughts on my end — we may end up on fire!). Also she mentions the too-fab Peter Collingridge, someone I’ve admired for some time.
  • Redactor Agonistes: Daniel Menaker writes about editorial job satisfaction and other issues. His observations support some of my points. Risk, she is everywhere.

File Under: Non-Traditional Publishing

20 responses so far ↓

  • Jill N. Noble // Sep 14, 2009 at 5:10 pm

    Great article. Couple of thoughts….

    Noble Romance Publishing offers an advance. (Up to $1000). We incorporated this into our business model as a way to alleviate some of the risk authors feel they’re taking when they submit to a new(er) publisher. While we have the financial backing to do this, we still need to keep a close eye on the bottom line.

    Regarding third-party distributors — we had a big discussion about this on our authors’ list. I totally agree with you that publishers need to find ways to bring readers directly to their Web sites to make purchases. But I also think third-party distribution is a necessary evil. Readers simply like the convenience of going to one e-tailer to buy books from a multitude of publishers.

    E-publishers compensate for this by not putting new releases on the third-party sites right away, and by holding sales through their own sites. But new(er) publishers need the added exposure and extra income (volume) some of these third-party vendors can bring in. If no one knows about you, they’re not going to find you.

    And finally, I’ve discovered the need for flexibility. What looks great on paper might not work so well when it’s implemented. What works today might not work so well six months from now. There has to be a willingness to go back, reanalyze and make changes.

  • iamtheangel.com // Sep 14, 2009 at 6:45 pm

    Really good article. Been looking into using Kindle as a selling tool, I’m going to keep this all in mind.

  • Eoin Purcell // Sep 15, 2009 at 12:39 am

    Kassia,

    For one thing, thanks for sharing these thoughts, it is great to see this kind of openness, as unsettling for you as it must be!

    For another, I get the sense that the publishing bug aint out of you yet and I expect to see some form of venture from you before too long!
    Eoin

  • MB (Leah) // Sep 15, 2009 at 10:12 am

    As a reader only, reading through these posts and getting some insight into how the whole epub world works, there is one thing I would like to comment on.

    Getting readers to buy directly through the publisher.

    I’m well aware that buying directly from the publisher is the best scenario all around for both the publisher and author to get the most money.

    And I do try to do that since I’d love for the author to get the most money. But I’ve discovered that many epubs are their own worst enemies.

    If I go to a distributor site- like Fictionwise or All Romance Ebooks, it’s very easy for me to find what I’m looking for. It’s one stop shopping and I don’t have to fill in my info every time to buy a book. They also offer deals and discounts quite often.

    What I find most wrong with many individual epubs is quite often there’s a lack of information about a book– word count/cost, lack of a decent search engine to find what I want, and the biggest pain of all, lack of easy (paypal) payment options.

    When I have to fill in my name, rank and serial # and all credit info every time just to buy one $3 book, umm…no; it’s a PITA. I want to click Paypal and be done.

    I can’t tell you how many times I’ve been frustrated with the search and buying process from individual epubs.

    Lastly, there is the issue of formats available. If I had a Sony, I’d probably go to the Sony store. I have an eBookwise, so it’s far more convenient for me to buy at Fictionwise, since I don’t have to convert the format.

    Some epubs shoot themselves in the foot by only offering DRM’d formats. Why?

    I’m a reader who jumped on board the ebook train as soon as I found out about it. I love it. I’d prefer to read all my books on a reader. But epubs really need to listen to the readers as well and streamline their search and buying options to make it as easy for the reader as possible or most readers will NOT find individual epubs but shop at ebook superstores.

    Since some epubs do manage to do that and make a name for themselves like Samhain, why is it so hard for others to make it easier for the buyer?

  • Kat Meyer // Sep 15, 2009 at 11:02 am

    Ah, Kassia. What can I say? I, too have spent most waking moments (those not occupied by medicinal drinking) in dissection of the past few months. And, my biggest “do-over” on this never ending Monday Morning Quartet Backing — I’m not sure falling directly into the digital replica of old school distribution models was/is the way to have gone/to go. The double-edged sword for a nichey-newbie publisher: you’re too small to catch the eyeballs and drive the volume of sales via your own site. *If* you want to get to a large scale operation quickly, you need to team up with the warring e-tailers — become a slave to their whims– hedging your bets and going wherever the consumers are shopping on any particular day.

    Unfortunately, wanting to be at every e-tailer’s party, means you are at the mercy of the host. Amazon, Sony, B+N, Ingram — etc., etc., etc., oh – GOOGLE — um, they make the rules (in the case of this metaphor, substitute “format” and “DRM” for watered-down drink prices and dress code) and charge whatever they want for admission to their (really crowded) parties. Making the e-tailer scene and “being seen” quickly begins to eat away at a publisher’s ability to do what they set out to do — make really good, high-production value, affordable books that readers can read in the format of their choice with no DRM.

    So, my do-over would be – having the party at our own house. Or, better yet, seeing if we could get a bunch of publishers together to throw one big block party, and invite all the readers over. You know, stop paying the e-tailers all that money to host the book-buying parties, and do it ourselves. That’s what I’d do.

    While I’m at it, I’d also go much more gung-ho into exploring the possibilities of value-added experiences – giving readers even more reason to go direct to the publisher for content that they could not get via the etailers.

    I’ve been spending the rest of my non-medicinal drinking time, reading up on the work of Peter Collingridge. (He’s no doubt obtaining a digital restraining order against me at this very moment — I can’t seem to stop emailing him about how cool the “Bunny Munro” iphone app is). Peter is a big fan of publisher’s “creating consumer demand” and going direct to consumer. He is also an advocate of a idea of publishers banding together to create consortiums and offer more and better to consumers than the Amazons of the world do.

    http://aptstudio.com/timesemit/2007/04/18/why-doesnt-the-publishing-industry-take-on-amazon/

    So, back to the drawing board with it all.

  • Andrew Dobbs // Sep 15, 2009 at 11:31 am

    Thank you very much for the wonderful post. As an aspiring author and a bit of a net geek (I’ve been trolling the net for over 15 years now), the digital publishing world is fascinating.

    For me, the greatest part is a closer relationship between authors and readers, which I feel can bring back a bit of the feeling of telling a story around a campfire rather than shoveling it through a massive corporate pipeline.

    This changing world of publishing is what inspired me to kickstart 12 Books in 12 Months, a project to write and distribute 12 books digitally over the span of a year.

    Shameless plug – http://bit.ly/ZxRBN

  • moonrat // Sep 15, 2009 at 11:47 am

    wait, there was something i wanted to add:

    AMEN!

    ok, that’s all.

  • Theresa M. Moore // Sep 15, 2009 at 12:43 pm

    As one of those authors who has switched from trying to attract an agent and publisher to self-publishing out of necessity, I can tell you that even attracting book buyers to my site is next to impossible in the face of giant retailers like Amazon. Direct email advertising, blogging, participating and social networks and presenting the books for sale with discounted prices do not compete adequately with Amazon’s power to sell with just its name. People looking at my books on my site will just go there instead of ordering from me, no matter that the list prices for the books are higher. So it’s not for lack of resources, it’s educating buyers where they can get a better deal and better customer service.

  • Marilynn Byerly // Sep 15, 2009 at 1:19 pm

    Two non-romance epublishers who have been quite successful are Daniel J Reitz Sr. of Mundania and Deron Douglas of Double Dragon.

    Both started in science fiction, fantasy, and horror and have since moved into romance, erotica and other genre fiction as well as some nonfiction. Both have also bought out smaller epublishers specializing in other genres.

    Every epublisher I’m familiar with who has become successful started out as a “mom and pop” publisher who was willing to put in hundreds of unpaid hours of work.

    They accepted, that like most start ups, they wouldn’t see any profit for a few years.

    Their staff was family and editors, etc., who worked on commission, and they gradually moved into the salaried model and closer to a more standard publishing model.

    It’s easy to see why using the standard publishing model doesn’t work in epublishing, particularly for the start up.

  • Mercy Loomis // Sep 15, 2009 at 2:27 pm

    Thank you for the wonderful article Kassia!

    I for one think that ebooks will really take off as soon as the format wars are over. People don’t want to have to use different formats on different tools – they want to be able to read their books on whatever gadget they happen to buy. And once that is the case I think we’ll see a big upswing in digital sales. I myself am waiting to see what format comes out on top – I don’t want the BetaMax of the e-reader world, and in this economy I imagine many other folks feel the same way.

  • Finn Ha // Sep 15, 2009 at 8:46 pm

    Yes, very good article. One resource, however, that I think people would appreciate is a listing of e-publishers at one site. Maybe this exists already. (If anyone reading this thread knows of one, please give the URL.) Right now e-publishing is obviously in early days, but if contact info about it could be consolidated, I think that would help its growth.

  • Finn Harvor // Sep 15, 2009 at 8:48 pm

    Ahh, my name is….

    (er, er, er)

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  • Literature Crazy // Sep 18, 2009 at 4:25 am

    I find it really interesting that romance has been a front-runner in ePublishing (and I have my own personal reasons why I think these individuals have adopted this technology); however, I wonder if there aren’t other target markets that are ripe for the picking. Most specifically, I notice that hardly anyone is discussing a movement toward ePub with YA books, but I would be inclined to think that the readers of YA are (by and large) very comfortable with technology, and (knowing that they spend several hundred dollars on gaming systems, iPods, etc.) are not naive to the ways of aquiring expensive equipment that outdates itself relatively quickly. (I’m sure begging their parents, whining, and/or throwing fits are involved, but none the less.)

    That being said, focusing on getting ePub to work in the YA market can be crucial to making it work globally because the readers of YA are (by and large) tomorrow’s readers of literary fiction, mystery, SciFi/Fantasy, Romance, Chick Lit, Westerns, etc., etc., etc.

    I think that the youth need to be seen as a key group of reader/stake-holders.

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  • Pepper Smith // Sep 19, 2009 at 1:45 pm

    Finn Ha, try going to http://www.epicauthors.com

    This is the EPIC website, which has a list of ebook publishers (the link to the list is in the sidebar, I believe). This is not a comprehensive list of every epub out there, but there are quite a few on the list.

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  • Anthony S. Policastro // Oct 2, 2009 at 9:49 am

    Hi Kassia,
    You make some great points here. I invite you to take a look at Outer Banks Publishing Group, one of the first publishing houses to use the latest digital printing technologies, social networking, virtual marketing, and the Internet to publish, promote, and sell books in electronic formats as well as in print.
    We offer the following:
    – No Advances
    – Higher author royalties
    – Authors are paid when we are paid
    – 6 weeks or less to market
    – Books are launched as ebooks first and then in printed form based on sales.

    Take a look at http://www.outerbankspublishing.com