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The shifting sands of traditional publishers

30 March 2012

From Kristine Kathryn Rusch:

I have known for decades that collusive behavior exists in publishing, although I have not personally been involved in any “at the highest level.” I’ve seen it at lower levels, from editors warning each other away from writers because the writers are litigious or business minded or just terrible people to work with, from publishers discussing troublemakers with each other, and other things. Whether or not this rises to the level of collusion under the legal definition, I have no idea (although I have my doubts), but it exists and has for a long time. I suspect such behavior at the higher levels for everything from the development of the returns system in the 1930s to the high discounts for chain bookstores in the 1990s, but such things are old, stale, unimportant, and probably unprovable.

What matters for today’s blog is this phrase: when you see…

Behavior like that which [US Justice Department antitrust official] Pozen referenced was invisible in the past.  Traditional publishers had no great competition, so no one had a vested interest in bringing bad behavior to light.

. . . .

Traditional publishing has been Big Business for decades, bringing in billions (yes, with a “b”) of dollars in this country alone. But traditional publishing has presented the persona of a mid-19th century shopkeeper, there for the good of the field. All those articles you see about defending quality and about the importance of publishers toward “literature” come from this projection that traditional publishers’ spokespeople put out into the world.

But traditional publishers haven’t cared about literature in more than 130 years, if they ever did. Sure, they wanted to keep the difference between high-brow and low-brow writings alive in the late 19th century because they wanted to have different price points for their products. A high-brow product (literature) came out in expensive hardcover, sold only to those with money. The low-brow product (that nameless stuff the unwashed read) came out in broadsheets and daily newspapers and in dime-novels, cheap reads for cheap folk.

As is so often the case, the myth never meets the reality. Since I’m quoting favorite movies tonight, let me quote yet one more—The Man Who Shot Liberty Valance: “When the legend becomes fact, print the legend.” Yep. And then people believe the legend as truth.

As they have with traditional publishing for years.

. . . .

Traditional publishing isn’t afraid of its readers or its writers. It still behaves like the Great and Powerful Oz, expecting us to fall to our knees. The thing is, most writers and many readers will continue to accept the myths.

. . . .

Random House, which is a corporation in and of itself, is owned by a multinational media corporation called Bertelsmann. Bertelsmann operates in 50 countries and had 15.3 billion dollars in revenue in 2011. Nearly 80% of that revenue comes from Europe. It made only 14.3% of that revenue in the United States.

In other words, Bertelsmann is huge. Or as it says in modest tiny type on its website “Bertelsmann AG is the world’s most international media company.”

We writers never think that the CEO of a traditional publishing company like Random House has to answer to someone in an even larger organization. But they do. And in this case, the new chairman and CEO of Bertelsmann AG, Thomas Rabe, put Random on notice that changes would happen within the company or else.

In a statement released with the earnings report, Rabe said, “Our primary goal is to grow the company faster, and to make it more digital and international. We plan to achieve this with four strategic approaches: first, by further consolidating and strengthening our portfolio. Second, by accelerating the transformation to digital of our core businesses. Third, by establishing new growth platforms. And fourth, by expanding into new geographic growth regions. On this basis, we will reshape Bertelsmann over the next five to ten years.”

. . . .

[From  Richard Alan Dickson] “When all those writers conceded all those e-book rights to NY, Bertelsmann noticed the profit margin. Boy, did they notice! … NY may have told them why they can’t have more rights…. It doesn’t matter. Bertelsmann isn’t listening.

“Bertelsmann is shocked by the money pouring in from the e-book ‘platform.’ They see all the years that the money was NOT pouring in. They have no confidence that NY isn’t missing many other opportunities on many other ‘platforms.’ There’s gold in them thar hills, and plenty of writers who’ve proven willing to sign it over. Expect contracts to get even more convoluted with rights grabs into more new areas.”

. . . .

Right now, most places in traditional publishing are like Random House: they need to clear out the old to make way for the new. And the way to do that is not to collude with a single company like Apple to control pricing and force consumers to behave in a certain way. The way to do that is to understand the digital marketplace, transform the company to take advantage of it, and to move forward with a new vision in a new way.

The writers who have said that traditional publishing will go away simply do not understand business on this vast scale. What we’re seeing now, in all of these examples, is traditional publishing struggling to not just stay alive but to thrive in the new marketplace.

Traditional publishing no longer has a monopoly, so its business practices must change to reflect that. Those companies that do make the change will become stronger and healthier businesses.

Some of that strength will come on the backs of writers. Note Rick’s mention of convoluted contracts and the desire to own more rights. We’re already seeing that.

But when you’re looking at business on this vast a scale, writers are merely cogs in a gigantic machine, just like employees are, just like certain companies owned by the parent company are. We are figures on a balance sheet, folks, and we need to understand that if we want to stay in business with traditional publishers.

Link to the rest of this must-read essay at Kristine Kathryn Rusch

 UPDATE

Dean Wesley Smith has a blog post that discusses this topic at greater length.

Big Publishing

32 Comments to “The shifting sands of traditional publishers”

  1. I’ve been reading Kris’ blog for a while now and she keeps saying that traditional publishers will never die but I just don’t see how they are going to be able to survive, let alone thrive, under the new business model. As print dwindles, publishers are not going to be able to make up that revenue loss with e-book sales alone, especially if e-books will be selling for much less than print. Even if they take everything from the writers, they will still not be able to function under this loss.

    I don’t know. Maybe I am totally wrong but this is also what Konrath says and I trust his knowledge of the business as much I trust Kris.

    Any thoughts?

    • In a way it doesn’t matter to me–however they work out, I think the relationship with writers is going to be very different, and people will automatically self-publish first.

    • In aviation it’s called the backside of the power curve. It happens when the plane doesn’t have enough power to climb out of a dangerous situation. It’s solved really easily. You point the nose down, pick up some airspeed and then you can fly out of the predicament. Unfortunately the most common time this happens is when you’re so close to the ground you don’t have the ability to point the nose down without hitting a house.

      Publishing is at the limit of their power now, full throttle, and they’re unable to save themselves. They must try something different or they’re going to drill into the ground. However, they are in denial, looking out the window and commenting on how pretty the scenery is off the wing tip without realizing the houses are getting bigger in front of them.

      So, yes, I agree with Melissa. Eventually arithmetic wins. It always does.

    • While I agree that I can’t personally see some of these Trad publishers surviving, I certainly believe they won’t survive in the same form.
      However it is important to note that they are, right now, making much higher profits from eBooks despite selling at lower prices. The rub is that although this is helping them in the short term earn more than before, huge swathes of writers are going to be abandoning the traditional publishing model over the coming 3-7 years and going to self pubbing. At the same time today’s high priced eBooks are not sustainable in the medium/long term.
      The result, imho, is that the massive international publishing conglomerate model simply cannot survive. It’s very existence is predicated on the business model of paper, massive distribution, low royalties and control over the supply of writers. How can it survive when all of those factors disappear?

      • “However it is important to note that they are, right now, making much higher profits from eBooks despite selling at lower prices.”

        My question is, how does anyone know this? I ask because I really don’t know. As far as I have read, even on Kris’ blog, the traditional publishers have not made their “cookbooks” transparent to anyone and all we have to go on is the AAP numbers.

        • Well compare delivery models. Paper requires printing, distribution margins, retailer margins etc. eBooks requires uploading.

          • This is true but there are still costs to e-books – editing, formatting and artwork. Not to mention all of the old print books that need to be translated into e-books. That’s not a small task.

            Also, they will still have to deal with Amazon, so that will be interesting to see.

            • “but there are still costs to e-books – editing, formatting and artwork.”
              Yes but these costs are the same whether paper or digital. Think of the margin bookshops take out of a 14 dollar book. And the margin the distributor takes. Then think of the warehousing costs out of that 14 dollars and the paper and printing. What does that leave the Publisher ? yet the same title sold for 8 dollars yields the publisher 70% off the top.
              Old books – what translation ? writers have been submitting Word documents for years, and all books for decades have already been digitised in preparation for printing anyway. For really old books there is an extra cost of scanning and converting. But this is a fixed cost and spread over thousands of sales it is reduced to a tiny amount.

          • I read some of the PW article and it also said they attributed the increase to cost cutting at RH.

            The article is here:
            http://www.publishersweekly.com/pw/by-topic/industry-news/publisher-news/article/51254-earnings-rise-at-random-house.html

            • “Cost cutting” a vague term that can cover all kinds of things. If I don’t have to pay a printer or a teamster, well, that’s a form of cost cutting.

              People are making the argument that e-books are more profitable for these companies because most of them (not just Random House) are making more or the same profits on dwindling revenues, and at the same time, they are selling more e-books. That suggests something has happened to reduce their costs, and that “something” is likely the lower costs of e-books.

              And those costs, while not zero, are dramatically lower–Dean Wesley Smith mentioned once that, when he was running a small traditional publisher, the cost of driving books from the printer to the warehouse was more than his total costs self-publishing now.

    • I think that this particular post is a great argument — proof, even — that publishing companies will survive.

      Note that I didn’t say “publishers” — because individuals within publishing, particularly in management, have been lazy and they won’t survive.

      But the company will. They have to ditch paper. (Or at least realize that it will be a mere niche, and not at all a priority.)

      Dean just posted the overall post from Richard Alan Dickson which she based this on — wonderful stuff — and Dickson said something toward the end of it that was really pertinent: He describes the new leadership at Bertelsmann as saying to Random House, “Step aside, little boy. We’ll show you how it’s done.”

      The parent companies are going to intervene, and they’re not set on retaining any old traditions or anything like that. They’ll run it like a modern media/entertainment company. They won’t care about what indies are doing or be threatened by it — they’ll see us as fodder. A source of properties they can buy up.

      • Hmmm, I’ll check that out on Dean’s blog.

        I’m interested to see what Bertelsmann has planned and how Amazon is going to react to it. If Bertelsmann has something in mind, they better act on it quickly because they are already behind.

        I have my doubts as to what will happen with trad publishers. But for now, I’m just going to sit on the sidelines and watch the battle take place over the next few years.

        • Frankly, I suspect Bertelsmann has a chance of realizing that Amazon is someone to work WITH, not against.

          It’s the idiotic old fuddy-duddies who think Amazon is a threat. A smart company will see them as an opportunity.

          And I suppose that, in a nutshell, is what is going to decide who survives and who doesn’t in traditional publishing. Do they “get” Amazon?

          • Ah, that’s right!

          • Yes – this.

            I’m pretty sure I saw someone make that observation before (if they didn’t, then I made some sort of cognitive leap while reading something they wrote along the same lines).

            It means cutting out at least one of their middlemen and substituting Amazon in favor – but doing that will give them significant profits on perhaps allowing them to establish a “no returns” policy alone.

            If they wisely reinvest that money in the products (the books) themselves, then they might gain back their golden reputations again as being “the” avenue to pursue for writers. Especially if they consider upping the royalties to the authors even by a bit.

    • Why on earth would you trust Konrath’s knowledge of publishing as much as Kris’? He doesn’t have anywhere near the amount of publishing experience she does. His experience of traditional publishing is extremely limited, a rather small amount of time and books as a traditionally published author. Whereas Kris has worked successfully in publishing for decades not only as a successful author, but also as an award winning editor and as a publisher in a small publishing house. Her knowledge and judgement of the business is much more reliable than Konrath’s.

      Konrath, honestly, strikes me as a very short sighted individual, incapable of seeing beyond his own massive success. And just because someone has been successful, doesn’t necessarily mean they know their own industry.

      • Though he hasn’t as much experience and I agree that at least sometimes he operates on what I see as a short-sighted path, his blog posts can be great fun to read.

        I suppose I can take this stance more easily because a brother of mine is similar – intentionally choosing the most shocking way to say something whether or not he really believes it, just to get a reaction. Hopefully, it makes you think. (Even if you end up disagreeing.)

      • For me, Kris provides very useful analysis based on deep publishing knowledge. Joe and Dean are very good at picking out implications of indie developments and both are good rabble-rousers, which is important for a disruptive technology.

        I don’t feel like I need to choose one over the others. I find them all very useful.

      • Why do I trust Joe’s opinion as much as Kris? Because Joe has been right many times when Kris has been wrong. If you go back and look at their blogs from 2008 and 2009, Joe has been right quite a bit.

        I’m like PG, I don’t choose one over the other. All their input is useful. I listen to Kris, Dean, Joe, and Barry, but in the end, I come to my own conclusions.

  2. Bertelsmann understands the world better than any of the Big 6 seem to. Did you notice how their statement is about what they are going to do? Instead of trying to hold back the tides of change, they have decided to surf. They may not succeed, but the dominant NY approach is about managing the gradual decline of paper publishing. The only problem is that decline is not likely to be gradual.

  3. The only real disagreement I have with Richard Alan Dickson is that he took the president of the German insurance company to Red Robin for a burger instead of In-N-Out.

    This is what many of us have been saying: traditional publishing’s business model is broken. The Big 6 themselves seem to have trouble understanding and addressing this, but it looks like one of the parent corporations has noticed this, and they don’t care about how things have always been done. I wonder if they’re going to be all that invested in propping up bookstores, either.

    • I’m just interested in what Bertelsmann plans to do. How are they going to catch up?

      • They don’t have to catch up, really. All they ahve to do is ditch the deadwood, and act like a major media company.

        That means, as Dickson said, they’ll stop fiddling around with writers, and only go for properties where they can grab up all rights. (They may pay well — just as Hollywood does — because they do want to keep hot properties, but like Hollywood, they need to have control of the product.)

        They will likely start doing more in house content, hiring staff writers and ghost writers for branded properties.

        They will not feel in the least threatened by the success of indies, or Amazon. Indies will cover a part of the business which is less profitable – so they’ll leave it to us, and they’ll dangle money and movie deals and spiffing translations in front of those that attract their attention.

        But mostly they’ll start with getting rid of the deadwood. Print will be history, as will three-martini lunches with powerful distributors. eBooks and apps are the future.

  4. Yeah. When Bertelsmann took over Berkley they killed my Wish You Were Here series, so they’re not my favorite people. I guess I was deadwood.

    • By “deadwood” I meant (among other things) the publishers — you know the head folks at Berkeley who were stupid about your book.

      That’s the irony here — Bertelsmann may be a predatory super-company, but they are interested in doing business well. Again, you have to read what Dickson said in its entirety. One of the things they said right up front in its strategic statement was about holding on to intellectual property (like your book) rather than throwing it away and wasting it and not exploiting it.

      That isn’t to say you should be happy if you got those rights back on your book, because you can expect them to put the squeeze on any author they can to grab and retain all the rights they can possible get their mitts on.

      The other “deadwood” of the industry is, well, are the dead tree elements. Sure there will always be room for books as premium items, gifts, collectables, but all of the infrastructure devoted to supporting that aspect of the industry is weighing it down.

      Bertelsmann is not going to shoulder the burden of keeping physical books around for the good of literature or society. That stuff is going to have to pull it’s weight, or it’ll be gone.

  5. Absolutely Bertelsmann considered my series deadwood. They inherited it from Berkley who was going to make a big push on it and Bertelsman told my agent they decided to go in another direction. So that’s a smart business decision for them.

    That’s what happens to writers in legacy publishing. I wasn’t taking what you said personally, Camille. I’m still annoyed about the whole thing–my editor skedaddling after book 2, no one editing book 3. Waste of my time. Theft of expectation, as we discussed here last week.

    I do have the rights back but won’t publish it myself because it was too unpleasant of an experience. So when I see people so excited about being traditionally published, I have to cringe inside. Gee, is this who is going to validate your work?

    • Okay gotcha.

      Not that the new leadership would treat you better, but that was one of the things implied in the statement to stockholders – that letting IP get away (or go un-plundered) was not going to be looked on kindly any more.

      But yeah, one of the reasons I stopped seeking traditional publication quite a while ago was because your story is not unique. As a matter of fact, I never met an author who did not have that happen to them at one time or other.

      And when I say I expect corporations like Bertelsmann to survive just fine, that doesn’t mean I expect to like them. I expect that smart authors will stay away from them, except in taking work-for-hire jobs for cash. The not-smart authors? I expect to feel bad for.

    • That sucks, Barbara! I’ve heard of this happening to other people, too. No wonder authors are getting sick and tired of trad publishing. The frustration of it!

      I’m glad I decided to avoid them. I’m glad I read Kris’ blog from the beginning!

  6. “Konrath, honestly, strikes me as a very short sighted individual, incapable of seeing beyond his own massive success.”

    I couldn’t disagree with this more. Before his massive success as a self-pubber, he wrote predictions on his blog about the state of publishing that have come true. He did this when Kris and many others were saying that self-pubbing was not a viable option and that they didn’t see publishing changing anytime soon.

    Short-sighted? I wouldn’t say that.

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