NPL Publishing Consultants

I won’t go into great detail about this just here and now, but reality is, the trade distribution system is in trouble. Yes, many have said it before and the stores are still around, and so are Ingram and the others… but the failure rate for distributors is growing, independent bookstores are failing, and if you ask B & N or Borders, they’ll tell you they get a fair chunk of their sales from the Internet. Oh, let’s not forget one of the big retailers… Amazon… who is 100% internet, not one single store.

The ‘why’ is complicated, but a few points do stand out:

1. The trade distribution system with product returns and a small wholesale pipeline is a model that is at least one hundred years old. Now, so is the Rolls Royce, and it is doing fine, but counting old marketing models to work properly in new marketing worlds, is taking an amazingly high risk. And, to allow those ‘in the know’ to tell you, particularly as a brand new publisher, that “you have to be in with Ingram and B&T, and in the B&N and Borders” is the only way to make money in publishing, is delusional. And if you listen, you get what you deserve. (The game is rigged, see #3 below.)

2. Any product that relies on “distribution” of any kind can only be successful when the pipeline is protected. Otherwise, those in the pipeline (wholesalers, distributors, retailers) run the risk of being blindsided by others in the pipeline or by the manufacturer (publisher) himself. Translation: The high rate of behind the back, over the top, direct sales to cut out middlemen, and the number of ways you can buy a book these days either as a consumer or a reseller, simply means there is no “order” to the industry.

Meaning, why should a bookstore protect one publisher over another, when selling fifty copies of a book to a school, when that publisher will think nothing of selling the fifty copies directly, if they could, and cut out the bookstore in the process.

As we all know, it doesn’t matter how “good” a book is, the way the big chains promote, or face out titles, is the same way canned corn is sold in supermarkets… the space is paid for.

When the pipeline places no value of one product over another (commoditization), the consumer is going to react in exactly the same way.

3. The game is rigged. Watch carefully… (and yes, if you haven’t figured it out by now, I do have a bias against trade distribution that goes far beyond rational reasonability… and this might be one of the reasons why). You print a book… you’ve been pre-promoting it, now that it is out, you’re promoting it, selling everywhere and to everyone you can… the budget is only so deep and you’ve got six months to get all the sales on the book you can to keep promoting it or it goes on deep, dark backlist forever.

So… let’s assume that all the promo will sell 10,000 books, and will cost a dollar a book. The retail is $10., and it cost you a dollar to print. You are one amazing salesperson and manage to sell 9,000 books to Amazon, B&N, and Ingram, and you have given at least a 55% discount, maybe more depending on your program with each of them. You’ve kept 1,000 books to sell direct. The clock is ticking now.

So, you promote some more telling customers, ‘in your favorite bookstore or at our website’. Website my tootle… unless you’re offering it for the 35-40% discount that Amazon does with free shipping, is there some specific reason a customer will pay you MORE for the book than they have to? Now, you’re COMPETING with your own distributors! Forget selling the thousand books at retail and making a couple extra bucks to pay the rent and phone bills… idea out the door in this program.

Now we’re six months down the line. Altogether, your sources have sold 5,000 books. Keep in mind that unless you were on Today or Oprah or reviewed in the NYT… you did ok (at least that’s what the industry bean counters will tell you). Now the returns start coming… you now have 4,000 unsold books plus all of the thousand you started with. Promotion has now cost you TWO dollars a sold book. Oh, something strange has happened… though they aren’t holding inventory (maybe a dozen copies or so) B&N and Amazon will still list your book for a while, since it did sell decently for them… and maybe, just to screw you up some more, at a 20-25-or 30% discount. Doesn’t matter, whatever the discount, you have to sell for less to get the direct sales. Imagine your own distributors and sales outlets forcing you to sell your own book well into the future for a discounted price, and these guys aren’t even stocking or supporting your title any more (yes, technically they have a few, but they haven’t promoted or done anything for your title since the beginning anyway).

Quick Math: After discount, shipping, packaging, and processing and counting returns… your $10 book is now grossing you between $3.70 and $3.90. Assuming roughly $4.30 as the selling price, you pay your author another $.43, unless you have, God forbid, a ‘retail’ royalty deal, in which case you don’t belong in this business anyway. Give or take you’re at $3.27 to $3.47, less the dollar for printing and the two dollars for promotion… you’re at $.27 to $.47 gross profit… before contributing the first dime to the operation of the business.

Hey, hey, if you don’t sell through the trade, you’re not making money. Oh yes, and everyone in the industry will ‘know’ your products are inferior and you’re a small timer, if you don’t have a ‘presence’ as they like to call it, so you play along, and boy, did you ever make money! You made somewhere between $1,350 and $2,350. and now you’re stuck with 5,000 books for future sale, so if they don’t sell, you have actually LOST MONEY!

OK… you know what’s coming… I said the game is rigged. You mean you thought it was rigged in YOUR favor, as one of the insiders? (Here’s one of the places in the newsletter where I sprinkled humor.)

Instead, go back six months… promote your title and let the whole world know it is ONLY available through your 800 number or on your website. You DON’T sell to any distributors unless YOU control the deals. So, you’re not selling to distributors. Let’s be honest, you would not have sold 5,000 books with your own promotion… some people came into the bookstore looking to browse the book from your promo and then bought… which they wouldn’t have done at your website. Let’s assume that the bookstore function is worth half the sales.

You make 2,500 sales at your website and through your office. Shipping is a non event, the customer pays for it. You get your retail of $10. on every book, except for any bulk sales you might make at a discount, but these weren’t made at the bookstore level either, so they are a no count for now. You’re ready to count beans.

Quick Math II: After discount, shipping, packaging, and processing and counting returns… your $10 book is still grossing you $10. You pay your author $1.00 and smile, net or retail royalty deal. You’re at $9.00, less the dollar for printing and the four dollars for promotion… yes, four dollars for promotion, though likely eliminating the trade from your promotional efforts reduces your budget by half, but let’s not go there just now. You’re at $4.00 gross profit… before contributing the first dime to the operation of the business. So, you have netted $10,000 for your troubles… you have all 2,500 customer names and addresses so you can sell them your other titles (didn’t get that from the trade did you?)… and you can continue to sell this book for $10. until hell freezes over.

Now I admit there are a few ‘adjustment arguments’ that could be made, the main one being you would only print 5,000 books if you felt you would sell 2,500… OK.. so increase the print cost to $1.50 per book, and see what happens: Your net is now $8,750. If you NEVER SELL another copy, your after print net is $5,000. In the trade example, if you never sell another copy, you are losers roughly $3,250. No, no, you HAD to print 10,000 in that example to get 9,000 out to the various distributors and bookstores to make the sales at all.

Maybe it’s just me, but I would rather make $10,000 and have 2,500 customer names and a future with the book on backlist, than be in the hole, with no customer names, and having to discount future sales just to get rid of the rather substantial inventory left in the warehouse.

If I did something wrong in my math or thinking, I know there are plenty of you ready to send me emails… I am not holding my breath.

Sidebar… I am NOT the only person in the industry who thinks the way I do…

In the November, 2006, issue of INC Magazine, they did a spread piece on Barefoot Books, a children’s book publisher started in 1993. Seven years the two partners worked from home and built the company to approximately $3MM. In 2000, they opened offices and went whole hog. They are now doing $6.5MM. Oh, they do NO Trade distribution, but they used to. Here is that part of the story, told by one of the partners:

Our books don’t sell in the chains. If you go into a Barnes & Noble or a Borders, no one tells you what’s a great book. You buy what your kid pulls off the shelf — usually whatever is face out or on the table. That means someone’s paid a lot of money to get that real estate; it doesn’t mean it’s the best book. The whole chain model is a nightmare: 60 percent or 70 percent returns and you don’t get paid. So at the beginning of the year I said to the Barnes & Noble and the Borders buyers, “I really can’t sell to you anymore.” They said, “Fine, we’ll put our money behind other publishers.” And they cleared their shelves. One buyer took it particularly badly. She told me she’d read every single Bareboot cover to cover. I said, “That’s wonderful, but it’s not the point.”

She didn’t have to be hit over the head with reality. Nor was she going to accept all those industry homilies about success. What’s funny to me is that the big players WANT you to keep playing by their rules, so they can keep ruling. As long as the major publishers keep the pipeline filled with product, it matters not what the mid and small sized publishers do… so why play a sucker’s game? Do as you wish, but do think about it seriously when considering your direction for 2008.