HarperCollins’ New Business Model – Same Old Wine, New Bottle?

Robert Milller HarperCollinsRecently, HarperCollins announced the establishment of a new imprint that is structuring its business model in an effort to lower two key areas of risk.  According to the New York Times, the new imprint, headed by Robert Miller, will not offer advances to authors and will not accept returns from bookstores.  (Miller, 51, was the founder and publisher at the Walt Disney Co. publishing unit Hyperion.) 

Miller, speaking about the mission of the new unit, said:

Our goal will be to effectively publish books that might not otherwise emerge in an increasingly ‘big book’ environment, an environment in which established authors are under enormous pressure to top their previous successes, while new authors are finding it harder and harder to be published at all.

Advances and returns represent two of the largest financial risks with which a publisher must grapple.  Both risks originate in the uncertainty about whether an author can build an audience for his or her work.  If not, an advance is wasted and returns will follow. 

In lieu of advances, the unit will offer authors a share in the profits.  This sounds attractive, but there are potential issues.  First is the marketing investment made by the publisher.  Typically, less well known authors have used some or all of their advance to market their title.  According to comments by publishing consultant Laine Cunnigham, quoted in Book Publishing News:

A high profit split on top of zero advance means [authors] have to sell twice as many copies to achieve the same reach. If they have no money in the kitty from an advance, the book sinks without a trace.

While the new HarperCollins unit indicated it would utilize more online publicity, advertising and marketing for its titles.  But it is unclear whether the company’s new business model includes an overall increased investment in marketing to offset the loss of marketing dollars represented by author advances.  Cunningham believes more of the authors the new imprint wants to attract might instead opt for self publishing.  Another issue with the new advance policy is the fact that it is based on a percentage of profits rather than a percentage of revenue.  To put it politely, profits are easier to fiddle than revenues.  HarperCollins could wind up opening a new Pandora’s box of litigation and distrust if authors disagree with them over how profits were calculated.  Pub Rants weighed inwith some suggestions for HarperCollins to tune its model and make it more author friendly, including more timely royalty accounting and a faster cycle time for non-fiction works.

The proposed policy of no returns has, not surprisingly, been criticized by many booksellers.  Oren Teicher, the ABA’s chief operating officer, said:

. . . [bookstore] owners would likely want bigger discounts in exchange for books not being returned.” But he said he would be willing to listen to any ideas that might spare “the colossal waste of books being shipped back and forth.”

pile-of-booksReturns have been a drag on the industry.  It is estimated that 30 to 40 percent of books are returned by bookstores each year, at considerable expense to publishers, who wind up having them remaindered or pulped.  The practice originated during the Great Depression as a way for publishers to help keep bookstores afloat in difficult times.   According to an article in the Souther Review newsletter, ending returns has been tried before – without success.  In 1980, Harcourt Brace Jovanovich Inc. announced it would provide retailers with larger discounts and end returns. When orders diminished, the publisher reversed itself.  Miller subsequently has waffled on the policy, saying non returns may not always be the case.  Not all the reaction from booksellers was antagonistic.  The story quotes Robert P. Gruen, executive vice president for merchandising and marketing at Borders Group, as saying in a New York Times article:

We generally support the idea of looking at potential solutions to a return system that is not working well for the industry as a whole.

It also recalled that several years earlier, Barnes & Noble Chief Executive Steve Riggio had said that he would prefer to mark down books rather than returning them.  Eliminating returns, he said at that time, would “revolutionize the book business and revitalize the book business.”

HarperCollins is running an intriguing experiment with its new imprint and the industry will certainly watch with interest to see whether and how its new policies work.  But does its new business model address the ultimate source of risk for publishers?  That risk is whether an author can attract an audience for their work in the first place.  Here is another way that the experiment might be conceived.

  • Go with authors – whether previously published or not – who can demonstrate their ability to build an audience.  Blogs, podcasts and the other forms of consumer generated media may offer the simplest and most measurable way to do this. 
  • Partner with these “investment grade” authors early to help them tune their content and better understand their audience.
  • Use a marketing ramp for titles that builds on the audience the author has already established.  The ramp starts with lower cost, lower risk marketing initiatives and uses success there to fund higher cost, higher risk marketing campaigns.

balancePublishing is a constantly shifting balance of power between authors, publishers and booksellers.  Technology and the evolving economics of enteratinment are altering that balance.  HarperCollins’ new imprint is no doubt the first many experiments with established book publishing models that we’ll see int he coming years.  Think of it as the industry’s version of climate change.


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