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CEO of Deal Architect, a top advisory boutique recognized in The Black Book of Outsourcing, author of a widely praised book on technology enabled innovation, The New Polymath, prolific blogger, writing about technology-enabled innovation at New Florence, New Renaissance and about waste in technology at Deal Architect.  Previously Analyst  at Gartner, Partner with PwC Consulting. Keynoted at many business and technology conferences and has been quoted in the Wall Street Journal, BusinessWeek, The Financial Times, CIO Magazine, and other executive and technology publications.

4 responses to “The big disruption opportunity in book publishing”

  1. Steven Pomije

    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

  2. Vinnie Mirchandani (@dealarchitect)

    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%.

  3. Dan Meadows

    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.

  4. E-Commerce Predictions for 2013 | EvolvingSites Blog

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