Assuming a publisher has a book in the necessary digital format(s) and possesses all the necessary legal rights to sell the ebook in any territory, the publisher must still have the means to deliver the ebook to readers. This article explains some of the business challenges that publishers face in ebook distribution. (Part 4 of Ebook (un)availability. A version of this article was also published in the IBPA Independent for April 2011.)

Distribution of print books

Book distribution is not easy even for print books, especially for new entrants. The main channels are:

  1. bookshops – chain (eg Waterstone’s in the UK, Barnes & Noble in the US, Dymocks in Australia) , independent, or mass market (think Walmart, K-mart, etc);
  2. online bookstores (eg Amazon in the US & UK, Booktopia in Australia);
  3. library suppliers; and
  4. direct to the customer (via catalogue marketing and publisher websites, for example).

Each of these channels has its own set of trading terms, and publishers have to negotiate the terms of trade with each individual seller in the various sectors. (Terms such as “sale or return”, credit periods, discount off the recommended retail price, minimum stock quantities and so on.) Large publishers are able to do this with significant bargaining power. Smaller publishers often have to accept much less favourable terms, or join with a collective of other publishers to increase their bargaining power.

If favourable terms cannot be agreed, or if either party fails to meet their trading obligations (eg bookshops not paying their bills, publishers failing to supply books on time or in good condition), trading ceases. For example, Amazon requires publishers to have books warehoused in the US (for good reason), bank accounts held in a handful of countries (Australia is not one of them), and a tax ID, requirements that many “foreign” publishers cannot meet. Amazon also demands an incredibly high discount from publishers. Publishers have to weigh up the advantages of selling through Amazon (high visibility and exposure) compared with the disadvantages (low margins and, for foreign publishers, US or UK set-up).

Ebook channels

In ebook distribution, the players are not really that different, though there are far fewer of them:

  • ebook retailers – a merger of (a) and (b) above: Barnes & Noble, Waterstone’s Dymocks, Amazon, plus ebook-only players such as Stanza, Kobo, ebooks.com, Apple and now Google eBooks); and
  • ebook library suppliers (eg EBL, MyiLibrary, NetLibrary).

The principle is also the same – publishers need a trading agreement with each individual seller. However, there are some fundamental differences. In the print world, publishers generally draft the terms of supply; in the ebook world, ebook vendors have been setting the terms. I’m not going to cover the pros and cons of the various vendor agreements here, though some particular aspects are discussed briefly below. My point is simply that publishers’ cosy little world of dealing with bookshops has been overturned by new entrants who:

  • know little about the “standard discount”, nor care;
  • hold virtual monopolies in some markets and only the biggest of the big publishers can stand up to them; and
  • impose new conditions and restrictions on book supply that are bewildering to many publishers.

Pricing terms

Pricing has been particularly contentious: in the print book world, the publisher sets the recommended retail price (the “rrp”, also known as the “list price”), and offers the bookseller a discount off that price, usually in the range of 10% at one extreme to 50% at the other extreme. The bookseller then sets its own price (which may be more than, less than, or exactly match the rrp). By contrast, ebook vendor terms tend to start at 50% and get higher. For example, Amazon keeps 65%. (Meanwhile authors are demanding 25%-50% royalties; as they say in the US, you do the math.) Hence Apple’s 30% agency terms and Google Book’s 33% share of revenue look not only modest in comparison, but downright attractive and in keeping with current publishing margins.

Technical factors

Another complication is that ebook vendor contracts generally cover all sorts of hosting, back-up, digital rights management, IT security, and intellectual property issues that are not normally found in print book vendor agreements. Publishers are also wary of signing away too much: they realise that if they aren’t happy with a digital vendor they can’t stop supply in the same way they can with a physical bookstore.

Size matters – location too

The above assumes that the publisher can even begin talking to ebook vendors. All the ebook vendors tend to take a tiered approach to publisher negotiations: major publishers are wooed to some extent, involved in vendor product testing and pricing discussions (such as they are), and generally included in the development and marketing processes; whereas smaller publishers receive the ‘take it or leave it’ approach, or are ignored completely. The situation is worse for foreign publishers. Speaking just of Australia, Apple has only recently begun talking to the major Australian publishers (mainly local branches of multi-national publishers) and launched iBooks here. Small publishers do not get a look-in at Apple, unless you sell your book as an app and get in via the App Store. Google Books is US-only still (Google are at least talking to Australian publishers, but they still focus on larger companies). I’ve already mentioned the restrictions on foreign publishers with Amazon. Kobo has done significant groundwork to launch with Australian content in Australia, but only with the major “trade” publishers; approaches from other publishers have been ignored.

Publishers are a challenge too

To be fair, many publishers are not easy to negotiate with. Specific difficulties vendors have in negotiating with publishers include:

  • finding the right person to initiate discussions – many a vendor has been fobbed off because they approached someone unaware of the company’s interest in ebooks or because it is simply not in their remit;
  • finding the right person to conduct the negotiations – those with the appropriate knowledge do not always hold the power, and vice versa;
  • obtaining sign-off on the negotiations – many an ebook vendor agreement has stalled at the contract signing stage because the right procedures were not followed or the right people not approached early enough;
  • after sign-off, discovering the publisher does not have any ebooks, or ebooks of the requisite standard, to sell (see Parts 2 and 3 of this post).

Bypass vendor channels?

The other option for publishers is to sell ebooks direct to the public, which some publishers are exploring (and some, such as Safari Books, have been doing for some time). However, with the public fast becoming comfortable with buying ebooks via the major sites, it will become harder and harder for a publisher’s own website to become noticed without significant and effective marketing efforts – beyond the budget and expertise of most small publishers. Most publishers will have no choice but to join at least one mainstream vendor site (if they can open talks with them).

The outlook

In short, ebook selling is currently the site of a power struggle between publishers and vendors.  The upshot is that the vast majority of books available in print will not be available from ebook vendor sites any time soon. With any luck, Google Books will eventually change this aspect of the landscape for the majority of publishers, as Apple has for a handful, and at least force the other vendor sites to negotiate more reasonably with publishers, regardless of their size or location.

© 2010 Linda Kythe Nix. All rights reserved.