ARTS & FARCES internet

“Way New Publishing” outlined the traditional publishing model and offered a solution to the first of two major problems with the way publishing happens today, editorial and design workflow and the publishing agreement. This article addresses the remaining problem with modern publishing: the distribution model.

Here’s a look at a graphical representation of the traditional distribution model outlined in “Way New Publishing.”

Pretty standard fare and likely familiar to anyone in any form of retail business.

For the uninitiated, here’s how the numbers break out (or, more accurately, break down):

1. Author and publisher sign an agreement to publish the author’s work. The problems here were discussed in Part One.
2. Big publishers generally handle their own distribution. Small publishers traditionally use distributors. In the latter case, publisher and distributor enter into an arrangement whereby the distributor receives books at about a 65% discount.
3. Distributor sells to wholesaler (or, in the case of big publishers, publisher sells to wholesaler) at about a 55% discount.
4. Wholesaler sells to retailer at discounts of about 40% - 50%.
5. Retailer sells to customer at discounts ranging from 0% - 40%.

What’s wrong with this picture? Well, for an author and a publisher, a lot. At each step in the traditional book distribution model, books are fully returnable for 100% credit. If that weren’t bad enough, something I’ve come to call the wholesaler two-step makes things at least an order of magnitude worse. Here’s how it works:

1. Publisher (or distributor) sells books to wholesaler on 90-day terms.
2. On day 89 or so, wholesaler returns all unsold books to publisher. The retailers usually pay on 90-day terms as well, so many of the books returned to the publisher are unsalable: they’re dirty, scuffed, torn, have cookie crumbs, coffee stains, etc.
3. On day 90 or so, wholesaler reorders books from publisher.

Books are basically sold on consignment.

If a publisher sells two million books into the channel, it looks like a runaway best seller. Until one million of them come back like rubber biscuits. But even that net sale is pretty good, except that the publisher has already paid the manufacturing costs of the whole two million books.

Oh, and did I mention that the publisher usually gets stuck paying the freight into and out of the channel?

Why should a distributor, wholesaler, and retailer each get the same amount per book sold as the author? Distributors and wholesalers move boxes from here to there and back again, generating an environmental strain. The retailers actually sell books to customers from time to time, but at virtually no risk.

Is this fair?

Is this sustainable?

I don’t think so.

Deep discounts by themselves are not as much the problem as the harmful—yet standard—return policies in the publishing industry. When the deep discounts are combined with this return policy, disaster is essentially assured.

Lots of excuses are used for the policies that allow any link in the distribution chain to return any number of books for full credit at any time. There are two common reasons given.

One is that during the Great Depression in America during the 1930s, publishers extended the return policy to bookstores that couldn’t afford to stock books. The practice has continued long past its questionable usefulness—and we are not living in the Great Depression.

The second favorite excuse is that the unlimited returns policy helps bookstores stock a wide diversity of titles. Most bookstores, so the story goes, would be reluctant to stock especially challenging books if they couldn’t be returned. Ask your favorite bookseller about this the next time they don’t have that “challenging” book you want in stock.

Here’s a snapshot of the distribution model employed by ARTS & FARCES.

ARTS & FARCES publishing distribution model.

ARTS & FARCES sells books to anyone who wants to buy them at a maximum discount of 20%. All orders are prepaid, just like a special order from your favorite bookstore. Unlike bookstore special orders, our books are fully returnable for 30 days.

We do only short print runs. We lose some of the economies of scale of larger print runs, but in exchange for much less risk and environmental impact. Most of our books are sold directly to customers, over the Web.

Lowered risk and short receivables combined with a higher gross return allows us to offer sweeter royalty escalators to authors.

Here’s the standard royalty escalator paid by the most generous traditional publishers:

• 10% of net receipts on the first 5,000 copies sold
• 12.5% of net receipts on the next 5,000 copies sold
• 15% of net receipts on all sales over 10,000 copies sold.

But remember that most of these publishers pay a discounted royalty rate (usually of 0.0%) on what they call “special sales.” And 95% of all sales are “special sales.”

Do the math and you can see that we don’t have to sell millions of books to maintain sustainability.

Best of all, our business model allows us to offer authors a more equitable royalty escalator. We’re still working it out. It will likely start the same as the standard one but paid on cover price (instead of net receipts) and with two additional escalators for sales over 15,000 and 20,000 books.