Brokenomics

Generally speaking, if a business is to make a profit, it must first cover its costs. The world’s conglomerates didn’t get to where they are today by bringing products to market at a loss. Where they spend millions of dollars researching, developing or manufacturing, these costs are baked into the end price they charge their customers. And in the months and years that follow, as these fixed costs are recouped, the price falls.

But there is one industry where this principle doesn’t seem to apply at all. A book takes planning and research to pull off effectively, and most writers self-edit their work multiple times before they are even comfortable enough to show it to someone else. Writers spend months, if not years, crafting their end product and honing their skills. And throughout this time, they earn nothing at all from their manuscript.

To this point, it could be argued that the writer’s journey follows a similar path to that of the multinational corporations; without a product in the market, there can be no financial reward for effort. However, from hereon in, their paths take different directions. When a business brings a product to market, the selling price is built around generating a return on this effort. But in the case of a writer, this effort is simply excluded from the pricing model.

In any other industry, it is also common for middlemen to add value to a product as it works its way through the supply chain. This value takes into account the initial cost of production—the supplier isn’t expected to make a loss on the goods they produce and, likewise, the middle man also claims a reward. It is accepted that at these early stages of the supply chain, everyone must cover their costs, as failing to do so puts the entire supply chain at risk.

In the fiction market, it is the publishers who add value to an author’s work. They bring their knowledge of the market and a suite of professional editors and designers to lift the product to the highest level possible. They also provide the capital injection required to give the book a voice in the market. But in the same way that the author is undervalued, the efforts of publishers are not assigned the value they deserve.

The economics of publishing are upside down. Rather than cost-plus pricing, or value-based pricing, what we see in the publishing industry is something more closely related to target pricing—where a price and a desired profit margin are set, and what’s left pays for production. However, it differs in one very significant way. Usually, with target prices, the costs along the supply chain are taken into account. If the costs are too high to achieve the desired price and margin, the project cannot go ahead. In the publishing industry, there’s a simple way around this: ignore the costs incurred by a writer and a publisher during the creation of the book.

The impact is felt most deeply by writers. When the time spent writing a book is considered, almost all writers operate at a loss. In a society where the cost of living continues to rise, this is simply unsustainable. And this is why more than half of the full time writers in the US—and no doubt the rest of the world—are unable to earn even the minimum wage.[i]

The publishing industry is built on outdated economic structures that prioritise profits over creativity and sustainability. Writers, the very foundation of the industry, are often the last to be compensated. Publishers fare little better; despite carrying all the financial risks of bringing a book to market, they too remain at the back end of the royalty queue. At the front, stand the faces of the industry; the physical and online retailers. The former deserve their place. They face a constant battle for high-street survival, and this comes at significant cost. Any store—no matter how large—can physically only supply a limited selection of books. Select the wrong ones, and it could spell disaster; get the right selection and create the right environment, and it could position the store right at the heart of the community.

But when it comes to online retailers, the story is different. Their costs are comparatively low, and their claim for reward is disproportionate. What’s more, they have driven down the wholesale cost of physical books while continuing to rake in the profits. By the time the hat is passed down the line via the wholesalers and printers, all that remains for the creators is small change.

As with any rule, there are exceptions that prove it. We are all aware of the bestsellers that go on to make significant sums for the writer and publisher. But these are certainly not the norm. More than 90% of traditionally published books fail to reach a sustainable audience, and even those that do often leave their creators with little by way of reward.[ii]