Making books, whether writing or publishing them, is a crazy business. Margins are low, payment takes forever, the market is fickle, and competition is fierce. Everybody in the business knows this at some level. Still, I believe most authors believe they're getting a raw deal while the publishers somehow make out.
A number of bloggers have written about this issue from the author's perspective. The long silent waits for any response from an agent or editor, the shrinking advance, the inadequate spending on promotion, the fact that even on e-books that cost little to produce the author's share is minuscule... you can find blog posts about all that. The publisher's perspective is a bit harder to find.
This year a group of friends and I started Tumblehome Learning, a small publisher dedicated to producing science-based fiction and activity kits for kids. The core of our products, we decided, would be engaging novels that relied on and encouraged knowledge of science.
We shopped around for printers, looking at printing in the US or Taiwan. The trick, of course, is that printing prices are very driven by volume. The more copies you print of a book, the less you spend per copy. And yet one sure path to failure is paying to print books that don't sell, and it's very difficult to tell how many books you can sell until you try.
Say you decide, conservatively, to print a thousand books. This sounds small. After all, aren't there over 300 million people in the US? Yes, but there are 30,000 children's books alone published in the US each year (all of them competing with books published the year before and the year before that), and the average lifetime sales of any book published by a commercial publisher in the US is only two thousand.
A paperback middle grade book between 150 and 250 pages, we decided, should sell for around $9.95. That seemed to fall in the middle of the competition, though some huge publishers like Scholastic seem able to price books of similar length on cheaper paper at about $6.99.
So let's say 1000 copies of your 250 page paperback book with black-and-white illustrations costs $3 a copy to print. You offer the author an advance against royalties of $500 - small, but better than most small publishers who can no longer afford any advances at all. You spend $800 on interior and cover illustrations, and you spend numerous editorial hours coaching the writer.
In order to get the book into bookstores, you need a distributor. Here's where the pinch really comes. Most distributors buy the book from the publisher for 45-50% of its cover price. They then sell to retailers for 70% of the cover price, and out of the 20% or so remaining for them, you'd think they would cover warehousing and shipping. But instead they slap on another fee of 20-25% of the part coming to the publisher. So, of our original $9.95 price (let's call it $10 to make the math easy), the distributor pays the publisher about $5 minus another 25% of $5, which makes a total payment to the publisher of $3.75 on a book that cost $3 to print.
Okay, you say, that's still a 75 cent profit. But you're forgetting the author's (measly) 8% royalty, which is 80 cents. Now you're at minus 5 cents profit.
Oops. Clearly you have to negotiate a better price with the distributor. That's hard to do when you're new, but say you're lucky and persistent and manage to get the distributor's take down to 58%. Now your per-book profit is 40 cents.
But that's before returns.
That means that 300 of that first printing of one thousand books may be returned, and perhaps half of those can never be sold. Suddenly, the 40 cents a book you made on your first 850 books sold are consumed by the $3 per book you spent to print the 150 ruined books. In fact, at the end of the day, you're down by $110. You have nothing with which to pay your editors, sales staff, clerical staff. And now you have do decide how many books to print for your second printing. If only somehow you could find a book that would be guaranteed to sell 500,000 copies!
That's the economics of why publishers are looking for blockbusters. But what about selling without distributors, directly through Amazon? What about e-book sales? More on that next time.