Apple says it has written $ 6.5 billion in royalty checks to iOS apps developers in the last few years. While my book had a section which shows the distribution of those checks is uneven, and this NY Times article in its series on the iEconomy confirms “A quarter of the respondents said they had made less than $200 in lifetime revenue from Apple. A quarter had made more than $30,000, and 4 percent had made over $1 million.”, the total payout is pretty impressive especially when you consider so many of the apps are free or at price points under $ 2.
It made me think about how much the more established book industry pays out in author royalties at its much higher product price points (from $ 5 to 40). Actually it made me even more curious why so many authors have told me “You don’t make money writing books”. Or why so many publishers encourage authors to think there is no money in books “You will make more from speaking revenues, additional consulting etc”. Part of me accepts the bell curve that few make it big like J.K. Rowling or Tom Clancy. But part of me also wonders how THEY, the publishers, stay fairly healthy in business if there is no money in the book itself.
Apple’s model allows for some benchmarking.
Apple takes 30% of the apps revenue. In contrast, the average book publisher takes 80 to 90% of the net book revenues. For its smaller take, Apple still manages to provide plenty of marketing at the store level, commerce functionality to the developer (so insulation from credit card/bank charges), and certainly, to a selected few a high level (TV, highlighted web) of individual marketing exposure.
Book publishers have some unique costs like the editing process and the paper and printing costs of the hard copies. That justifies a higher take but not sure it needs to be 50-60% more. As I have found they have become very good at managing their production costs. They outsource the copy edit, so it is a variable cost. And often it is to the cheapest destination somewhere in the world. In my last book, the copy edit introduced so many errors into the manuscript that I had to ask for a re-do. (The publisher grudgingly agreed with no apologies for the additional review time I had to put in) Similarly with the artwork and the print, the publisher has learned to manage that pretty tight. They print small lots to avoid inventory and writeoffs. They pump more books through their manufacturing process (which explains why it takes them 6, 12, 18 months to get a book out when the workplan shows tasks which lined end to end should only take 6 to 8 weeks). They mostly buy stock cover art. Best I can tell, my 400 page hardbacks cost my publisher less than $ 3 a copy to produce (compared to list prices on Amazon in the high 20s and low 30s)
Publishers have also become cautious about author advances – smaller amounts, more focus on authors sticking to time and other commitments. Yes, some authors can be unpredictable “artists” that need micro-management – but there are also plenty like me who bring a business work ethic to the craft.
Perversely, with their lower investments per book, publishers feel less pressure to market the product, so even that cost has shrunk. I have never managed to talk live to the publisher’s PR person assigned to my books. Not once in 3 years. She has many other books to manage. On the other hand, my publisher encouraged me to hire a PR firm on my own budget. My two books with them have had a 100 or so substantive media/blogger write ups. By my estimate, less than 5 came from the efforts of the publisher. When a $ 2 billion company can generate so little attention to a product where it has 85+% equity, you have to wonder about its marketing investment and quality. In fairness, as with Apple, some books/authors do get special attention but the average author is encouraged/expected to make their own marketing investment. I did for the first book, but dramatically scaled it back for the second one. With just a 15% stake, I had little incentive to, and asked the publisher to free up a specific marketing budget. They said they would but if they did it was not transparent.
What this points to is a huge disruption opportunity for a new generation publisher with the attitude that books should not be loss leaders for authors. And those who think a predictable price like $ 9.99 for an eBook will build tremendous customer loyalty.
Or for an Apple or a Google, or for Amazon to accelerate its own book publishing efforts. The 50 to 60% difference in publishing margin above is a definite reason to. Many authors are setting up their own self-publishing companies even knowing they cannot scale beyond their own titles, so there is a definite opportunity for someone that can bring scale.
Now, I can imagine some of you must wonder why I even waste my time writing books or writing blogs about them. It’s a dying medium, after all.
Guess again. In the last few years I have become much more aware of the huge number of people who bring along books and Kindles on planes and trains. They easily outnumber the people who play games or watch movies on their flights/cruises. I am always impressed how difficult it is to find a seat at Barnes and Nobles. When I travel overseas, I see the ease with which I can clear immigration when I show my occupation is “Author”. I am always touched to see people line up to get an author’s autograph. The scene is almost from a Norman Rockwell painting, except it is happening all over even today. There are plenty of book readers and budding authors who deserve a newer publishing model.
(Cross-posted @ DealArchitect Full)
Dear Mr Mirchandani,
I, as a longtime bookseller-turned-publishing professional, sincerely appreciate your commentary. It is very frustrating to be one book in a world where everyone and their mother can now “publish,” and where people freely berate traditional publishers, often with only a novice’s knowledge of the industry. I find your figures to be off the mark, and in order to do a true comparison of digital app benchmarks to print book publishing, you need to be accurate in your assessment.
To start with, the 80-90% net taking you claim a publisher makes. If you factor in the cost of expert editorial, production and marketing staff, the significant and ever-rising costs involved in printing and shipping, the immense cost involved in distribution, advances, and the ever-rising trade discounts publishers are compelled to offer (thank you Amazon, Target, and the like), and yes, marketing dollars (because we do market our titles the best we can, and in fact, feel more compelled to do so to ensure our line’s discoverability and exposure increase in this vast market) it is far more accurate in estimating that most publishers run, for an average-selling title, around an 18-25% profit margin.
And this margin means nothing if the books are returned to us, which due to the archaic “consignment” model the industry abides by, any book can be returned by a trade partner at any time, for whatever reason, for a full refund, with publishers oftentimes eating the return shipping costs. That seems a slim share, considering the commitment, time, and money publishers expend to bring the book to an audience-yet-unknown. Too, publishers discern to add titles to their line not for any egotistical or individualistic reason, but because the title represents who the publisher is, their mission, their history and their aesthetics.
The only fair and accurate statistic you cite from the New York Times–4% of apps make over a million–is exactly right for books, as well, and it’s a reality-check we should all pay attention to, because the figure probably applies to the success of painters, musicians, actors, and the like: approximately 4% of a publisher’s books will find extraordinary success and profit in the marketplace. I believe, in the current marketplace, acknowledging this seemingly grim figure has made publishers smarter. We’ve increased our discernment of what we choose to publish, we spend our marketing dollars wisely to ensure the largest bang for our buck, and we continue to experiment with new ways to bring our books to a larger audience. In this ever-changing, yet vibrant, climate nothing a publisher brings to the table can be a loss leader, and we’ve known that for some time now.
I agree a new publishing model, one planned and put into place by industry professionals, could be devised that benefits us all–authors, publishers, and readers–with more moderate discounts, and a distribution chain that doesn’t end up at a publisher’s feet, but how is flooding the marketplace with a bazillion unedited, books going to improve or better anything for anyone? How is that a solution for overcoming the 4% wall we all face, be you an app developer, or a self- or traditionally-published author? Discernment, expertise, and a commitment to quality, is what is needed in this new generation of publishers. And a sincere love of books.
Sincerely,
Steven Pomije, book industry professional
Steven, thanks for taking the time to post a long comment. You make a good point about the logistics of paper copies, and some of the arcane industry practices of returns etc. But not sure you can generalize. Most of the hard copies of my business books have been in the hundreds of copies by case studies in the books or for speaking events. Very few returns there. And I have been amazed how cheap the USPS media mail mode is to get bulk cross country. Sure most publishers have, like Amazon, learned to optimize costs of storage and shipping. The balance is also shifting away from print to eCopy so tough for me to see that much margin difference between the Apple or Google models and the book publishing model.
On the bell curve of book success – that as you say applies to most products. What is bothersome is publishers double down on the 4% that probably do not need the marketing and do hardly anything for the majority of the other 96%. It is considered an author’s onus. Most authors will certainly do so with pride, but logically, a $ 1, 2, 5 bn publishing house has more marketing muscle than an author, no matter how respected or well known. It’s the apathy of most publishers to not do any marketing which annoys most authors.
Also, Apple and other electronic media marketplaces provide their own version of “editing” to ensure submitted apps meet technical and other standards. Additionally, Apple last year got its attorneys involved when a patent troll went after some iOS developers. If all that can be done for 30% take, I think publishers will have to start thinking more in the 50 to 60% range versus their preference for 80 to 90%.
I think you hit on one of the dirty little secrets of the publishing industry. The margins made by the corporate entity that owns these publishers is far higher than what is claimed by the publisher itself. I’ve seen it done first hand. I worked for an independent magazine years ago that was bought by a large corporate media company. I won’t name names, but suffice it to say that they are easily recognizable as one of the four or five largest media companies in the country. Being that the magazine was a startup I was involved with from the very beginning, I was intimately aware of the actual costs of doing business. When we were bought, they talked up how their in-house things like printing was going to be considerably cheaper because we were all one big company. But the budget sheets after our first year under their banner, which technically, I wasn’t even allowed to see, told a different story. Every actual cost of business was tracked to within an inch of its life on these budgets, broken down into subgroups to the penny with one exception. On each of these budget sheets, there was a vaguely or completely undefined category called “management fees” or something similar that was the second or third highest expense on each list it appeared. Despite the fact that our actual costs of production fell significantly from our last independent year, mostly due to print costs which show a nearly 25% decline, somehow, we managed to spend close to 30% more than we did at the higher print costs. To be sure, we could state the profitability and the margins we made according to our budget sheets as 12%, and be basically truthful. But the larger corporate entity that owned us had that 12% plus the 20% they skimmed off the top in bogus management fees and whatever profits their also-owned on-house printers made on us, giving them an effective margin between 30-40%. When a corporate owned publisher says their margins are razor thin, most people don’t realize that its only their subgroup that’s showing that, and the central corporate entity is showing much higher margins, mostly due to charges like management fees and the fact that large amounts of what you’re counting as expenses are being paid to another company under the same umbrella. A sizable portion of those production costs never leave the corporate parent, even though they get deducted as expenses from its satellite entities.
[…] that building an app was the road to riches. Although apps certainly aren’t going anywhere, and according to Vinnie Mirchandani, “Apple says it has written $6.5 billion in royalty checks to iOS apps developers in the last few […]