Mike Shatzkin has a new post up discussing how the transition to online sales changes the legacy publisher approach to marketing. If you’re interested in the legacy publishing view of such things, you should go read the whole thing. I’m going to focus on one paragraph because it really clarified a curious aspect of the legacy mindset (emphasis added):
And the economics of big book marketing were also different, although it is not clear how much this has been taken into account. Because books that publishers and agents know will be big in advance tend to have advances calculated to be too high to earn out, a publisher can figure that all the sales margin on those titles creates a margin contribution to the publisher; the royalty is, in effect, already paid. But that’s not true further down the list, particularly on backlist, where each incremental sale can trigger an incremental royalty payment. That can confuse an ROI calculation and would tend to discourage a publisher from freely allocating money to promote backlist.
Now, I knew that blockbuster books typically had advances like this, but I hadn’t ever thought about how that affects the mindset of folks at a big publishing company. Let’s say you have an author who has a track record of selling 400,000+ copies in hardback + ebook sales. And the split between hardcover vs. ebook sales was 50/50 (usually bestsellers sell more in print than ebook, but this makes the math easier). The author gets a $2 million advance. You order an initial print run of 250,000 copies and price the book at $27.99. Unless sales wildly exceed expectations (i.e. you have to order another print run), the book won’t earn out, but the publisher still clears a few million dollars. Other than the copies you hold back to supply Amazon (and other online retailers of physical books, if any), you will ship almost all of those books to bookstores. Manufacturing, distribution, and royalties are essentially fixed costs.
Here’s the interesting thing. The only big variable cost is the cost of returns. For the manager budgeting for this project, the marginal value of a copy sold in a bookstore is pretty close to the full retail price. You get the revenue from the sale, about 50%, and you reduce your potential returns by the same amount. A hardcover sold at Amazon, which doesn’t do returns because they don’t have to, is only worth half that in your project budget. And an ebook is probably only worth about $11. Where would you put your marketing effort?
Think about the psychological impact of the last few years as more and more sales have migrated from print to ebooks and from bookstores to Amazon. The legacy mindset was always behind the curve, underestimating the change. Every legacy publishing manager probably ordered print runs that were a little bit too big and sent too many books to bookstores. In big corporations, your performance is typically measured against your boss’s expectations. It doesn’t take much to throw off your spreadsheet and ruin your bonus for the year. I think I understand where the antipathy towards ebooks and Amazon is coming from.