Publishing venture capital style – or, how most publishers throw money at the wall to see what sticks

Thanks to “The Wolf of Wall Street” for this inside shot from a typical Manhattan publisher’s commissioning meeting …

This post comes courtesy of some comments by publisher Hugh Andrew, Managing Director of Birlinn Limited, in the course of the debate on the future for writers after the Scottish independence referendum at the Edinburgh International Book Festival – as well as from my former life in Hong Kong as Managing Editor of the Asian Venture Capital Journal. Hugh Andrew pointed out how most publishing is a matter of paying off a plethora of loss-making works with a few big wins – which, as it happens, is a very similar approach to the classic venture capital model.

The accepted wisdom in venture capital, here neatly summarized by the Wall Street Journal in the article “The Venture Capital Secret: 3 Out of 4 Start-Ups Fail,” is that, out of every ten start-up companies a venture capital fund invests in, three to four will fail and will lose the money invested in them. Another three or four will make back the money put into them without making breakout returns. And only one or two will pay off big time – but those one or two successes, if the venture capital firm has done the sums right, will pay for all the failures and mediocrities, and much more besides.

To judge from some commentators, though, the situation in traditional trade publishing may be much worse. Here, in a Forbes article, Lee Ballentine claims that “99 percent of titles printed will never sell enough copies to recover all the costs associated with creating and publishing them.” Ballentine has actually jacked up that figure substantially by pulling in titles never published to make money anyway (company catalogs, yearbooks, etc), but also makes the points that small publishers and self-publishers are disadvantaged by (lack of) economies of scale, and that most books would be hard put to recover the authorial development time (read: the author’s entire life) put into them. Even with less extreme assumptions, though, a fairly feasible trade press calculation is that things are at least twice as bad in publishing as in venture capital. Only one book out of twenty will break big; most will lose money, and just a couple more will break even. But that one big win should cover the costs for all the rest.

How is that possible? With the kind of returns that come in from bestsellerdom, movie rights, global syndication, etc. etc. When you see the kind of Celebrity NetWorth-hogging incomes that bestselling popular novelists trouser, which represent just a portion of what the publishing and media groups make out of their wares, you can see how hitting the right breakout status can catapult you into an entirely different economic realm. Although if you’re not one of the charmed big firms with access to the major media networks, you can likely forget all of that. And this certainly does a lot to explain the prevalence of remainder bookstore chains: they’re selling off the other money-losing nineteen-twentieths.

I can buy the fickleness of public taste, but is there really an excuse for an industry with a 95 percent failure rate in its business forecasts? Is the distortion towards bestsellers actually subsidizing waste and inefficiency? After all, where’s your incentive to work too hard on getting the other nineteen publishing calls right if you can live fat off just one? Questions the Big Five and their bestseller author co-dependents should be answering, instead of moaning about the threat that Amazon and media industry change pose to their conspicuous waste.

1 Comment on Publishing venture capital style – or, how most publishers throw money at the wall to see what sticks

  1. There’s a story in publishing, perhaps apocryphal, about one of the first meetings between the staff of a privately-owned publisher and its new corporate owners. One of the corporation’s accountants announced that the best way to make money was to only sell bestsellers.

    The original staff burst out laughing because of the stupidity of the statement.

    No one, absolutely no one, can determine whether a particular book will be a bestseller or not. An author or a series that has been successful is a good bet to do all right, but books like Waller’s second novel after the mega-success, THE BRIDGES OF MADISON COUNTY, can sink like a stone into obscurity and failure.

    Books which have been marketed as the next big thing and hyped with lots of promotional bucks will fail, and a book no one thinks will do anything will become a mega-seller.

    Mega-bestsellers are a great thing, you need only read the annual financial reports of publishers who profited massively because of a recent JK Rowling or Dan Brown novel that year, but publishing is a massive gamble and that will never change.

    The real problem with corporate publishing is their unwillingness to support midlist authors and their series. In the old days, publishers allowed book series to gain momentum and sales with each book and accepted that those first books would not make a profit or much of one. That was the beginnings of most of the major popular writers of the last century. These days, once or twice and done, is the rule of thumb so that great writers and series disappear without a chance to build audience.

    If you can figure out a way to guess bestsellers, Paul, your future is made, but, since no one else can, good luck with that.

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