Your Time Is Gonna Come
This past Tuesday, Simon & Schuster shut down an entire publishing division.
The publisher, editor in chief and three additional editors of The Free Press are leaving the company. The other editors and support staff were transferred to the remaining publishing groups—The Simon & Schuster Group, The Scribner Group, The Atria Group and The Gallery Group.
What were once five opportunities for a novelist or nonfiction writer to have their work published at the S&S conglomerate are now four. The Free Press will transition into a “backlist” operation, meaning no new acquisitions will be published under that imprint name. Over time, The Free Press will join the ranks of other publishing concerns and colophons that only exist in second hand bookstores.
I’m sure that no one over at Simon & Schuster is jumping for joy over this. Every one of the editors asked to leave the company is highly skilled and from my estimation, profitable too. When I say profitable, I mean that the dollars they bring in from the projects that they acquire pay for their salaries and overhead plus leave a little left over to contribute to the corporate bottom line.
These aren’t lazy people who weren’t holding up their end of the employer/employee relationship. And the decision makers who were tasked to slash expenses and reduce overhead aren’t nasty mustache twitching suits either. They are hardworking pros who had to make extremely difficult choices.
So if you have qualified editors capable of returning a profit margin to an umbrella organization that takes care of keeping the lights on, dealing with payroll, managing inventory etc., why cut production?
The short answer is that the return on investment for book publishing is just not enough for a corporate empire. (It’s like that great movie SLAP SHOT…the owner shuts down the Hockey team for the tax write off, the fact that Paul Newman has miraculously turned the team into winners and an entire blue collar town will have one less reason for getting up in the morning matters little. I’ll not quote the Newman character after he learns of the owner’s decision.)
Simon & Schuster is a division of CBS, which is a division of Viacom. While the people at Simon & Schuster are absolutely book lovers from the CEO and COO all the way down to the guys in the mailroom who earn far less money than they would if they chose another career, the finance people who oversee S&S don’t have the luxury of doing anything for “love of the game.”
They have to keep Wall Street happy. And the only way to do that is to make their quarterly profit numbers. Money that they invest in a business that returns 4-8% is money they could be investing elsewhere…in businesses that contribute far more dollars than books.
I’m not anti-Wall Street or profit, far from it, but I think that there are industries that would be better served if funded privately. Book publishing is definitely one of them.
John Paulson, a hedge fund manager who made 7 billion dollars for his fund betting against mortgage backed securities, just gave 100 million dollars to New York’s Central Park. For that kind of green, he could have bought at least two of the big six. Two of those corporate overseers have been open to a sale for a long time…they’d be happy to do it if didn’t hurt too much…they’d even take a haircut to make it happen. So why doesn’t someone like Paulson jump in here and do a solid?
It’s because owning a book publishing company is not as heart-warming as keeping Central Park a feast for the eyes. Big book publishing is a monster headache that only crazy people would even consider devoting their limited hours on this planet to serve.
So if publishing is not well suited to corporate America or as a plaything for big wheel billionaires, what business model could keep very skilled professionals from unemployment lines and increase the quality of a wider range of work?
Over ten years ago I had very long discussions with a number of big book publishing decision makers about trying a new publishing paradigm. As book publishing does not require the massive on spec capital investment that other art forms require…movies, Broadway plays, magazine launches etc., I thought it would be a perfect environment to test a Darwinian kind of model.
Why not kick out some intrepid editors from the citadel (I was volunteering), give them a budget to buy books of their choosing, and then give them a cut of the action for their successes. Let them eat what they kill…like movie producers.
Hold on! This just in!
I’m going to stop here for now because as I was writing this, the news just hit the wires that Penguin and Random House are in talks to merge. This isn’t a rumor, it’s Pearson PLC (the corp. that owns Penguin) confirming a rumor. Needless to say if RH and Penguin merge, the big six become the huge one and the big four.
How long before two or three of the remaining big four get together and make another huge house? Probably not until after the Penguin/RH merger gets through Washington’s anti-trust laws… Hasn’t anyone else made the connection with the music business? There are now just two huge players in music. There used to be a ton of powerful independent labels.
Not to pat myself on the back here, but I predicted this development last March (“Deja Vu All Over Again“) . . . as well as the dead reckoning and inevitable fall of the agency model last October (“Leveling the Playing Field“).
I wish I could tell you that I possess otherworldly gifts, but alas I’m no genius. Just a shallow dive into book publishing’s business history and the revolutionary effects of digital distribution would make just about anyone draw the same conclusions that I did.
So what does all of this mean?
It means that big publishing is beginning to cede a lot of market share to The Long Tail. The Long Tail was coined by Christopher Anderson in his book of the same title. What it means is that digital distribution methods have pushed quite a bit of money from the sale of just a few big brands to a slew of upstarts. Steve and I have talked about this a lot.
Instead of almost all of book buying dollars going to the brands that the big six publish (most dollars going to a manageable list of titles), a very big chunk of dollars are being spent on just a few copies of a ton of titles. Amazon saw this coming in 1996 by the way. They’ve been buying up bandwidth (copyrights) on The Long Tail ever since.
Big publishing realizes that it can no longer serve the majority of the marketplace. So it can either move toward “brand name only” publishing like the two big record companies that put out big star records in 360 degree deals, or it can exponentially increase its number of books and spread out over a huge swathe of interests.
Guess which option they are choosing?
All of this goes back to those discussions I had with some big Kahunas ten years ago. At that time I put forward a theory that publishing corporations would be far better suited to adopt the Hollywood studio business model.
The way studios work these days is that they have a very small number of employees. Having only a minimal workforce keeps the overhead low. Instead of spending gobs of money developing projects inside their corporate walls, studios rely on a big pool of entrepreneurs to bring them fully cooked properties.
These entrepreneurs are called Producers. In order for a Producer to sell a project to a studio and/or an international financing arm of one sort or another, they have to do a lot of work.
1) They have to find a great piece of material.
2) They have to convince a writer, director, star etc. to agree to “attach” themselves to the project…meaning they represent that if the Producer gets the money together to actually make the film, they will sign on for the work.
3) In most cases (there are big exceptions like Jerry Bruckheimer, Dick Wolf, and a bunch of other big players) producers have to pay for all of the early work out of their own pockets. This forces producers to be very particular.
I think that Editors could be the Producers for a new publishing paradigm. Traditionally publishers keep editors in-house and cover their lunches, medical expenses, and their modest salaries. In exchange editors pound the pavement looking for projects that will profit the publishing company. Essentially publishers pay for development.
Instead, what if publishing companies employed just a small cadre of “studio heads?” These book studio heads would take meetings and buy book rights just as editors do now. But they’d only buy the very well cooked…books with impressive track records as independent properties, like 50 SHADES OF GREY. They’d pass on Joe Schmoe’s self published book on HOW TO MAKE APPLESAUCE.
The book studio heads are fine with Joe Schmoe cornering the market for Applesauce recipes. If he has the wherewithal and love of applesauce to make a go of it alone, he very may well build a profitable business. Probably not a big enough one to buy a Gulfstream jet, but one that could trickle a few bucks into his savings account. I mean who doesn’t like applesauce?
Where the book studio heads would get the well cooked properties would be from entrepreneurial writers, editors and/or agents (many agents today are former editors anyway) that find the talent, develop the project and publish the books themselves.
Sounds like a solid plan, right? Penguin, Random House and Simon & Schuster think so.
What happens though when the entrepreneurs who build emerging big brands themselves learn that they are capable of selling as compelling a number of units that a big publisher could? But for each copy they sell, they make five times as much per unit as they would with a big publisher?
One of two things will happen.
1. The entrepreneur (Writer, Editor, or Agent) will do the math and decide not to sell the book to a big publisher because they will make more money and have more control over the property if they keep it themselves.
2. The big publishers will have to offer a better deal than 25% net of eBook sales and $.75 per unit on paperback sales.
Here’s my next prediction. Within two to three years, one of the big publishing conglomerates will go above 25% net for eBook to land a property. A case could be made that the big six have a gentleman’s agreement that keeps them from sweetening the royalty now.
Anyone who listens to music today could care less about who was responsible for distributing the zeros and ones to iTunes or Spotify or Pandora. If they love the song, they’re going to buy and support it. Yes, Taylor Swift has her music handled by a major label, but does Mumford and Sons?
Is there any doubt that the exact same thing will happen with book publishing? Yes, John Grisham will still be published by Doubleday or one of the other big boys, but will you?
How much are you willing to give up just to be tapped to have a Penguin on the spine of your book? Hey, there is a guaranteed advance number that makes sense to do so. I’m not advocating that a writer should not work with a big publisher. There are advantages. I’m just saying that a writer needs to understand the business of books today so that they can make an informed choice.
What if a week after you signed your contract, the publisher fired the editor that you were so excited to work with? What if that editor decided to go out on her own, find writers like you, and publish them herself within her own new publishing concern? That would be pretty cool, wouldn’t it? Getting to know the gatekeeper and learning how gatekeepers choose the books they publish could be innovative, couldn’t it?
As the window to land a big book deal gets smaller (fewer publishers, fewer titles, fewer big deals), dollars ceded to The Long Tail get bigger and bigger.
This change is what you call opportunity.