Friday, December 31, 2010

The Death Spiral

This today from PW:

Still reeling from record losses and a continuing drop in sales in the third quarter, the Borders Group announced that it is delaying payments to some publishers.

The whole article is HERE.

This is something that has concerned me for a while. Here's how it could play out.

1. Publishers insist on being paid.
2. Borders begins returning books for credit, to pay what they owe.
3. Fewer books on the shelf means fewer sales.
4. Fewer sales means more bookstores closing.
5. More bookstores closing means fewer sales.
6. Repeat.

If Borders closes a lot of stores, or closes their doors completely, it will mean publishers will make less money.

If they make less money, they won't be able to publish as many books. Fewer books published means fewer books sold, which means even less money.

I've heard a lot of anecdotal evidence from my writing peers about authors being dropped by their houses, or being offered smaller advances. I've heard more anecdotal evidence that it has become harder to sell books to publishers.

So what are authors going to do if they can't sell their books to publishers?

The smart ones will self-publish.

Here's a broader possible forecast:

1. Borders withholds payments.
2. Publishers demand to be paid.
3. Borders returns books.
4. Fewer books means fewer sales, which means smaller profits.
5. Publishers tighten their belts and don't buy as many books.
6. Fewer books published means fewer books sold.
7. Bookstores close, meaning fewer books sold.
8. Fewer books sold means fewer books bought by publishers.
9. Authors, unable to sell to publishers, decide to self-publish.
10. Self-pubbed books means fewer books sold in bookstores, and fewer sales for publishers.
11. Repeat.

Things don't look good for bookstores.

They don't look good for publishers either.

But could the skyrocketing ebook market save publishers?

It depends. If the majority of bookstores close, the print midlist will probably disappear. Bestsellers will still be sold in big boxes and non-bookstore outlets, but if a book isn't a blockbuster, it likely won't be released in print.

The reason publishers are so important to authors is because they have a lock on distribution, and they get those print books onto shelves and into stores. Everything else--editing, cover art, marketing--can be outsourced by the author. But the author can't get their book into Sam's Club or CVS or every Borders store.

If publishers stop printing books and focus on ebooks, authors have to ask themselves what are the benefits of signing with a publisher? Why let a publisher take 52.5% of the cover price of an ebook, while an author takes only 17.5%? Especially when an author can do it themselves and make 70%?

This death spiral may not happen for a while. It might not happen at all.

But authors should be thinking about all of the changes happening in the industry right now. If you sign a book deal which states the first book won't be released until June 2012, will there be any chain bookstores still standing? What if it's a three book deal, with the last book out in 2015?

In the past, publishers could be counted on for stability. But in the last year, we've seen Leisure and Medallion stop their print lines. I have friends who haven't gotten their latest royalty statements or checks.

Here are some things for writers to discuss with their agents to protect themselves:

1. Make sure there is a reversion of rights clause based on the book being in print and selling a certain number of copies per year.

2. Look out for "non compete" clauses, which wouldn't allow a writer to release ebooks on their own during the duration of the print deal.

3. Make sure there are clauses that protect the writer in case of a publisher's bankruptcy.

4. Look out for clauses that state the publisher can release the ebook without releasing the print book.

5. If ebooks become the dominant format (a possibility if the death spiral ensues), then the 17.5% royalty rate publishers currently offer needs to change. A "most favored nations" clause along the lines of "if the publisher ever offers another author more than 17.5%, that rate will automatically be applied to this contract" is a way for authors to avoid getting locked into a lousy royalty rate for life.

6. Get as much money up front as you can.

In my previous post, I said that authors should self-publish because they can make more money.

Looking at the current publishing climate, I'd be really hesitant to sign a deal because I'd be afraid bookstores, or publishers, won't be around much longer.

In the past, it made monetary sense for publishers to allow books to go out of print.

Today, a savvy publisher would want to hold onto those rights as long as possible, to exploit the erights.

That scares me more than a little.