The Big Deal about Big Publishers

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From Publishing Perspectives:

Every July, I head down to the French countryside for a much-needed change from urban cool Hackney in East London. The upsides are the weather, the air and water quality, the wine, the produce, the markets, and being visited by hordes of friends and family. The downsides are rather slow Internet connections, no public transport, the occasional overheating canicule, and spasmodic infestations of hornets or mosquitoes.

In the photo above taken from my garden, you can just make out in the distance the hills of the Grésigne Forest where I frequently walk and test my fitness for coping with steep up-slopes and slippery down-slopes. These plusses and minuses got me thinking about the benefits and drawbacks of large and small publishers. So here goes.

Large publishers, by definition, have scale.

The greater their revenue, the more scale they have. But what does scale really mean? How is it measured? I guess the simplest measure is revenue. The greater the revenue, the more clout they theoretically have with retailers, with printers, with distributors. High revenue allows higher and more cost-effective investment in systems. But does it work?

One argument for the proposed and ultimately failed takeover of Simon & Schuster by Penguin Random House was that it gave them more power when negotiating with that very large Internet retailer with whom we all have a love-hate relationship.

Might it have worked? I doubt it. A publisher even of the size of a PRH/S&S size is a minnow compared with You Know Who in Seattle. It would inevitably be an unfair struggle. Indeed, any retailer is more concerned with the trading terms achieved with the big publishers than the smaller ones. I can’t prove this, and trying to find out would probably be in breach of competition laws in most jurisdictions, but I’d lay money that small publishers are getting a better deal with retailers than the big guns. They might not be able to buy as much exposure but sales they make will be at higher margins. The benefits of scale might just be a little illusory.

An ability to hire the best staff is clearly one of the perceived advantages of being big.

People are keen to join bigger companies, as there should be more opportunities for promotion. And human resources departments are better funded and supported. In particular, larger firms can focus attention on trying to improve the diversity—age, gender, sexuality, race, etc.—of their workforce.

On the other hand, the structures of these companies favor specialization—production, sales, marketing, editorial, publicity, finance, IT, etc.—which works against those individuals who need to learn the whole business rather than the parts.

In addition, the HR departments of larger publishers are involved in making difficult decisions and communicating changes internally and externally. One large publisher’s internal memo I’ve read was 30 lines long, and its sole purpose was to announce in linguistic jargon the departure of a long-serving executive without a word of thanks. There are plenty more examples of such unfeeling gobbledygook. Working in a small office may be a better apprenticeship option or even offer a more secure career.

Large publishers can offer higher advances and thus attract the best authors.

Certainly it’s the case that competition between the major publishers and their ability to invest in intellectual property has led to some very significant earnings for top authors, including large numbers of ghost-written celebrity memoirs. But overall it’s unclear whether authors are the real beneficiaries of the consolidation of the industry.

One clear downside is that the large publishers have increased the discounts they grant to retailers, in some cases massively. Authors’ royalties reflect this by percentage royalty rates based on retail price being reduced for sales over certain discount points. What might appear as a 10-percent RRP royalty [recommended retail price] is frequently only 6 percent as a result of publisher-retailer trading terms. By and large, smaller publishers escape these penal discount terms by flying below the radar or simply being more prudent in negotiation and being less important to the retailer in question. Either way, authors stand to benefit even if their initial advances are lower.

There’s little doubt that the large publishers have extremely professional and diligent leadership.

This has improved markedly over the years. The downside is that when someone reaches the top of such a complex and widespread organization, it’s extremely difficult for them to do much more than try to keep the organization out of trouble and financially stable. The result is that senior management has inevitably become distanced from the real action of the business—the acquisition of the best titles and the marketing of them.

Actually publishing books has been replaced for much senior management by the chairing of strategy meetings; the writing of uplifting newsletters for staff; the supervision of audits to portray the business as forward-looking, inclusive, representative, caring, and human; the nurturing of relations with the owners, whether a distant head office in another country or hedge funds or public shareholders; the management of distribution, logistics, HR, IT and finance—all really important but not publishing, as such.

Small company managers have no such issues. They simply have to manage to stay in business and undertake whatever is required; but most of all, they have to focus on the authors whose work they represent.

Link to the rest at Publishing Perspectives

7 thoughts on “The Big Deal about Big Publishers”

  1. This is yet another misapplication of game theory — one of the corollaries of Monte Carlo processes (that is, repeated intermediate results within a game). That corollary is the “maximum unfavorable excursion,” and determines both the size of the appropriate opening “bet” and whether to continue in the game or walk away. The tl;dr version is that if the maximum unfavorable excursion (the amount that can be lost in a single one of those intermediate results if unfavorable) is on the close order of or exceeds present resources, there’s a predetermined optimal strategy: As WOPR said, “The only winning move is not to play.”

    The mistake made in real-world analysis is presuming that all of the intermediate results are truly independent of each other. Thus the bias in favor of “bigger firms” that have greater ability to absorb either a single large unfavorable excursion, or a longer series of predominantly unfavorable excursions. As to publishing, a publisher that continues to make the same kinds of errors because its entrenched management has a Dunning-Kruger problem with reality epitomizes the non-independence of individual intermediate results… which is precisely what led to trial in US v. Apple (what I infer Frances is rightly referring to), together with a judge remarking that she found the executives noncredible — but the entire industry continues to believe them to this day. Which sort of undermines the independence of later intermediate results, doesn’t it?

    • “If you keep on doing what you aways did, you’ll keep on getting what you always got.”
      Which is stagnation.

      Likewise, “Doing the same thing over and over expecting a different outcome is the very definition of insanity…”

  2. Every July, I head down to the French countryside for a much-needed change from urban cool Hackney in East London. The upsides are the weather, the air and water quality, the wine, the produce, the markets, and being visited by hordes of friends and family.

    He (and his friends and family) don’t seem to be doing too badly, does he.

  3. Being big was an advantage to the dinosaurs too, until they got hit with a big rock. After the smoke cleared, nothing weighing more than fifty pounds walked or crawled.

  4. “…the large publishers have extremely professional and diligent leadership.” The OP clearly did not watch the same trial that I did.

    • Read the author bio: “He has held many senior posts at major publishing houses, including Macmillan, Oxford University Press, Current Science Group, and Reed Elsevier.”

      Expecting him to really be honest about the state of the publishing industry would be a little much.

    • To be fair, he said that there’s “little doubt” about the leadership. This may in fact be true, for definitions of “little” that encompass things like “the Titanic sprung a little leak.”

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