Value chain and risk managment in publishing upside down.

Posted on: January 29, 2009

Since I began working in the publishing industry, I never stopped asking myself what value a publisher brings to an author and how traditional publishing houses manage the risk of signing with an author. After talking to a couple of more experienced collegues, I came up with four dominant arguments why publishers are believed to add value to an author and how publishing houses manage some of their risk.

Lets first look at what authors are looking for in a relationship with a publisher:

1) Prestige. A renowed publishing house is something authors are proud of and increases their credibility.

2) Editorial services. Experienced professionals can fine tune and improve any script.

3) Marketing. Not all published authors get this benefit, but if the book is promising, the publisher might spend money on marketing.

4) Upfront financing. If a publisher thinks a book will sell, he is willing to pay authors a sum of money in advance.

From a publishers perspective the deal pays off in the following way:

For a publishing house, apart from the prestige, all these services are significant cost positions. It is the expectation of the sales potential of a given book that determines the budget for these services. Great expectations = big advertising budget, many hours spend on design and editing and also large upfront payments to the authors. The question now is to what extent can we predict a bestseller? I used to be a stockbroker and part of my job was to identify undervalued stocks. You can apply numerous approaches in doing the analysis to find these stocks but in the end of the day, a significant risk persists and often enough I was wrong.

Given the current state of the economy and also of some publishing houses, there are reasons to believe that some of these benefits will become less accessible for authors and that traditional publishing houses will have a close eye on how much risk they want to take on. Headcount and budget reductions at almost all publishing houses will result in a decrease in editorial services and marketing activities. The consequence will be that the perceived value for authors is diminished, hence fever authors will be able to sign with traditional publishing houses. From the publishers perspective, less risk appetite will also result in fewer relationships will authors.

From a publishers business perspective this is not such an appealing case. Unless we are able to make more money with less authors. Ann Kingman wrote on my last post a comment on product life-cycles of books. This would be definitely one way. Another way would be to use a different model of risk management. Crowd-sourcing could do the trick. I’ve been reading a lot about who let the audience decide whether a book is worthwhile publishing or not. A similar model can now be observed at youtube. In a deal with The Willian Morries Agency, youtube will put the self produced content from actors and celebrities on-line. From a risk management perspective this is a smart deal because if the crowd will like the content, both parties will benefit, and if not youtube has not lost anything.

Back to the publishing industry. Eventhough my predictions are bearish in therms of how many books will be published through traditional publishing houses in the future, the overall desire to write books or produce content will not decrease.  Authors will consequently look for alternatives. Self-publishing is one of them. The NYT wrote an interesting article on this yesterday.

The traditional model of the publishing industry will loose appeal to many authors. Left alone the prestige that still persists with many publishing houses, many of the attractive benefits for authors will vanish. Already today the possibilities of on-line marketing are quite powerful and more print on demand and on-line distribution channels for content will define a new value proposition for authors. And from a risk perspective,  the possibility of crowd-sourcing will significantly diminishes the risk for whoever is going to provide content in the future.


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