Mark Coker

My last post tried to lay out a comparison of royalties paid by big publishers to agented authors on ebooks against what they pay on print books. What it showed is that the authors suffer a bit on ebook sales that substitute for hardcover print sales, but that they do pretty well selling an ebook instead of a paperback. And the numbers also showed that a publisher selling ebooks under a wholesale arrangement pays the author a higher royalty than an agency publisher when the print is in its hardcover life, but that the agency publisher is actually paying more royalties if the printed edition is a mass-market paperback.

But this comparison has its limits. It helps an author or agent compare their economic prospects with an agency publisher as opposed to a wholesale one. But it doesn’t help an author understand the next comparison she’ll want to make, between doing her book with a publisher and doing it herself without a publisher at all

Fortunately for authors and agents, the benchmark for self-publishing revenue is clearly established by the ebook platform Smashwords, which I first wrote about at the end of a post 16 months ago. There are certainly alternatives to Smashwords: web-based solutions like Scribd, full-service offerings like our clients at Bookmasters, and things in between like Author Solutions. But Smashwords is the most automated, least expensive, and, at this point, most heavily used self-publishing solution for ebooks.

Smashwords pays authors 85% of the sales price for ebooks sold on its own site, and about 85% of the receipts for sales made through iBooks (Apple), Sony, B&N, Kobo, and the Diesel eBook Store. In other words, an author would get more than three times the “old” standard 25% ebook royalty offered by the big publishers and double the “new” possible 40% royalty implied as the new ceiling by the Random-Wylie agreement announced last week.

It is worth noting that Mark Coker of Smashwords says that all their deals will be agency going forward because control of the retail price is very important to their authors and publishers. The net to the author or publisher through their existing deals is 42.5% for sales made through Sony or B&N, 46.75% for sales made through Kobo, and 60% on their agency deals with Apple and the Diesel eBook Store.

And although Smashwords does not (yet) have an agreement to distribute through Kindle (though they’re working on it), the authors and publishers that use Smashwords would be free to make a separate deal with Kindle, giving them a possible 70% of their retail price if they can keep the potential discounters in line (that would be B&N, Kobo, and Sony.)

One thing very much in Smashwords’ favor is that the barriers to use them are very low. All you need is a doc file and a bright person to pay attention to quality control as you work through your conversion. They make metadata management simple.

What might give big authors pause about using Smashwords is that they distribute DRM-free (although the retailers listed above will be adding their own unless the publisher tells them not to) and that they depend on trust. Each retailer selling Smashwords titles has the content file and the metadata file in their possession and the sales reporting cannot effectively be audited.

But whether or not Smashwords is everybody’s solution, they certainly are establishing that pure automated ebook conversion and distribution services are worth 15% of what is collected from the consumer or from the intermediary selling to the consumer.

Smashwords is already pretty big and growing fast. They have 18,000 titles on offer from 8,000 different authors and publishers at the moment and Coker says they’ve added 2,500 titles in the past 30 days!

And I can personally attest to the fact that Smashwords has some books people will want. I found a title on iBooks called “A Year in Mudville” about the Mets first season — baseball history being a subject I know well and read broadly — which is terrific. It is well-researched, well-written, and well-edited. I found some presentation glitches (type fonts changing for no apparent reason) and pointed them out to Coker. He showed them to the author who then corrected the file. (The glitches didn’t interfere with reading the book at all.) And that book was priced at $8.99 on iBooks, which means the author was getting $5.40 from the sale! Look at that against the chart in my prior post! On a $9 list-price ebook, the author would be getting $1.125 from a wholesale publisher and $1.575 from an agency publisher at 25% royalty; $1.80 and $2.52 at 40%. (And, assuming they did an Amazon deal separately and could meet the restrictions required for the 70% royalty, that author would be getting $6.30 for each sale on Kindle!)

At per-unit revenues from ebook sales anywhere from 2.5-to-6 times what they could get from a publisher, and ebook sales rising inexorably as a percentage of total sales, authors and their agents are ultimately going to be doing their math against this option for each new book they have to offer. Some may be doing it already.

There are a few things publishers can tell authors to try to keep them from jumping.

1. “Don’t forget: we give you an advance!” That is the first, and for many authors the most powerful, argument. Agents like advances too, so they’re likely to be sympathetic to the publishers’ point here. But, of course, with that advance comes the publisher’s claim to more than half of what would otherwise be the author’s ebook profits.

2. “Don’t forget: print books are still 90% of your market!” This is really the reason established authors will be reluctant to jump to Smashwords. And as long as print is 90%, or even 80% (and it is falling to that level on many immersive reading books now), getting a multiple on the ebook sales still leaves a shortfall of revenue to the author unless they figure out how to also have the book available in print. The big publishers won’t be doing print-only deals for quite a while, but smaller publishers will certainly be available to work with brand-name authors on that basis. And when the print share falls to 50% of the total sales, which many of us believe it will over the next few years, this argument won’t be effective anymore. (There are many ways for the author to self-publish print too, but only the print-on-demand solutions don’t require big investment or risk, and you aren’t going to get what a publisher would deliver with POD alone.)

3. “You’ll have to do your own publicity and marketing.” This is true, but it is also true that publishers have wanted authors to do a lot of their own publicity and marketing already. From here, it would seem that the author’s marketing efforts will be critical either way. If the author is already big and branded (likely due at least in part to the prior efforts of a publisher, but that’s not necessarily relevant here), it’s less of a barrier than if they’re not. It might be no barrier at all. This is an uncomfortable point for publishers because the authors who need the least help are the ones they want to publish the most.

4. “If we publish you, you’re legitimatized.” I think this point carries almost no weight with any author who has had a bestseller already or has already had more than a couple of books published by established houses. I think it will carry less and less weight with everybody else. I just found my first great book by an unknown author on Smashwords. Sooner or later, you will too.

5. “We’ve built email lists and other direct contact with the consumers you want to sell to, plus we have relationships with the book retailers to get you more attractive placement and promotion through them than you can get without us.” Now, that would be attractive. Can any big publisher justify that claim?

6. “We will pay you 70% of receipts on ebooks to keep you in our stable. It isn’t the 85% you get from Smashwords, but with our advance, our print book sales, and taking all the admin and management off your hands, it’s a better deal for you.” That will probably work, but no publisher wants to let it get to that point.

Publishers better work on number five.

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As part of the program-creation process for Digital Book World, I had a round of conversations with the top executives of the Big Six companies to discuss the agenda, mostly with the CEOs. The purpose of the check-ins was to find out what topics the CEOs wanted their companies to speak about and, of course, which they wanted to avoid for reasons of diplomacy, commercial politics, or legality.

One topic I had left out of our program initially was “piracy”. Some of the executives I met with found this a very troubling omission. My first reaction was “what’s there to discuss? We’re all against piracy and there isn’t much we can do about it. So what else do we say?” Although there are two of the big houses where that view is, to some extent, shared, most of the others disagree, some vehemently. In fact, Macmillan has a “seven point program” to confront and combat piracy, which will now be the topic of a presentation by Macmillan president Brian Napack on the first morning of Digital Book World.

The topic of piracy is a part of the conversation about “digital rights management”, software that manages how a file can be used. DRM is a pretty standard aspect of software and DVD distribution but it comes in for a lot of complaint and criticism from very knowledgeable observers and participants in the ebook scene.

There is a “first sale” doctrine in copyright law that gives the purchaser of a book (or sound recording or DVD) the right to give away or re-sell that good. It does not give the right to sell or give away a copy, but it does allow you to “share” your book or CD or DVD with your mother, your sister, and your aunt and then to sell the used copy on eBay. Those rights have never really extended to software, which often knows if you’re trying to load it onto a second computer and won’t let you. Attempts to control sharing of music through DRM are commonly blamed for the piracy that became rampant in that sphere (although I don’t buy that; there are other explanations I find more compelling.)

The question of DRM-or-not in the ebook world is a very complicated one, although opponents of DRM often paint it as very simple. O’Reilly Media sells its ebooks “DRM-free”, as do some upstart ebook first publishers. The ebook self-publishing site, Smashwords, also sells only DRM free from their own site, although Smashwords-originated files might have DRM added by intermediary resellers, with which it is making more and more deals.

The opponents of DRM point to the incontrovertible fact that its existence does not stamp out piracy, which is transparent at a time when you can type just about any book title into Google with the word “file” after it and be directed to sites that offer you a free pirated download. In fact, even not publishing the book digitally is insufficent DRM to keep it from pirate distribution.

Mark Coker of Smashwords, despite the fact that he sells onlyDRM-free ebooks from his site, is an avowed opponent of piracy, and even of sharing. He suggests a boilerplate notice in his ebooks that tell you that you should go buy another copy of this book you’re about to read if you didn’t buy this one, or else you’re cheating the author. Mark believes the key to combating piracy is education; he admits to an unusually strong faith in consumer integrity.

But despite the lengthy introduction, this post is not about DRM; it’s to propose what is the ultimate defense against piracy: ebooks that aren’t static; ebooks that change.

The secret sauce behind O’Reilly’s DRM-free policy is that when you buy an ebook from them, you are entitled to the updates to that ebook…forever. The implicit message there is there will be updates.

There is no better antidote to piracy than this. If the pirated or peer-to-peer edition of a book is yesterday’s, or last week’s, and the book is changing, then it’s yesterday’s paper (which the Rolling Stones noted long ago, “nobody in the world” wants.)

This is beyond wrenching to publishers; it completely changes the workflow and it completely changes the business model. The rhythm of a publishing house is based on the fact that books are, at some point, finished. There is a Henry Ford assembly line aspect to how things have always worked. Whether you’re an editor, a marketer, or a sales person, new books have a pretty reliable “cycle” for you: their existence in your life has a beginning, a middle, and an end. The conveyor belt moves the book away from you so you can’t spend too much time on it and can move on to the next one. Having authors not stop adding to or changing a book, even after it’s published, is totally disruptive. And what would we do about the ISBN numbers?

Yet, the possibility for ebooks to be totally up-to-date is one publishers can’t ignore. The Little, Brown division at Hachette has just announced that on December 1 it is publishing a 2,000 word update on the H1N1 (swine flu) virus in the ebook edition of “The Vaccine Book”, which was originally published in 2007. If something startling happened that should change that text on February 1, wouldn’t it make sense for them to update the book again? In October, Wiley published, as an ebook only, “The Swine Flu: The New Pandemic” because they wanted to get the most up-to-date information out quickly. By that logic, wouldn’t they also want to update their ebook if what was up-to-date in October isn’t in March?

And if they did that, what possible value would a pirated edition of yesterday’s ebook have?

Of course, swine flu is a dynamic subject. It isn’t a novel; it isn’t history. It isn’t even programming or software development or technology, the subjects O’Reilly publishes (and often updates.) But every editor knows plenty of authors of non-fiction books that wanted to keep writing and changing and adding past every deadline the house presented. Let the new process start with those; there will be plenty of candidates.

Furthermore, the biggest threat from pirated ebooks is to the most established franchise authors. I believe Tim O’Reilly is responsible for two cogent and pithy observations about piracy: that obscurity is a greater threat to most authors than piracy, and that piracy is “progressive taxation.” Both express the reality that the marketing for most books fails to reach most of the book’s potential audience. That Henry Ford assembly line conveys the book away from the marketers before the task of informing the entire potentially-interested public is anywhere near complete. So piracy, or file-sharing that may fall short of actual piracy, can serve the purpose of spreading the word about a book and triggering more sales. Except there are some authors, and those are the ones that sell the most books for the biggest publishers, who don’t need marketing to inform their audience; their audience, in effect, informs their audience! And those are the ones who would surely lose sales if there were no DRM and books could be freely shared or are made available through illicit channels.

But those authors are also the ones who have the biggest personal followings. They are the most capable of adding material: notes about what they’re working on, correspondence with fans or critics, even observations about other people’s books, that would add some value for many of the readers of their stories. In fact, a regular “update to my readers” from a top-flight author that is available only in their ebooks, or to purchasers of their ebooks, would be an attraction to many and could serve as a constant reminder that downloading their books from illegitimate sources is cheating them.

I’m not against DRM in principle and I’m all for combating piracy any way we can (and I have a couple of thoughts on that subject I’ll save for a subsequent post.) But I am far from certain that piracy represents the same existential threat to book publishers that it did to record companies, although we have others: the music business isn’t nearly so threatened by the shift to vertical.

One of my favorite people in the digital book business, who once worked in the music business said to me: “I don’t worry about piracy. I did in the music business because music was bought by kids. My customers are 53-year old ladies. They don’t go to pirate sites. They’d be afraid of getting a virus!” She’s right about that, at least for today. But for those who are concerned about piracy, I am not sure this problem can be attacked with toughness and muscle as effectively as it would be with creativity and delivering to the market something the pirates just can’t keep up with.

We have observed previously that the day will likely come when Big Authors will go straight to electronic distribution for some ebooks, bypassing the publishers to collect bigger royalties. What could be the first shot of that battle, and a reflection of the ideas in this post as well, may have been fired in the UK where Sony has announced a special edition James Patterson ebook which will contain the new book, “Cross Country”, a month before its general release plus other excerpts and a special letter from James Patterson. Of course, that deal was probably made by the publisher with Patterson’s cooperation, but it points to possibilities that should make publishers nervous.

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