Gloves off

There is a view that publishers become more profitable as more of their sales go digital, leading some to wonder whether they should spread those profits around a bit more. Agents have long questioned, for instance, why they cannot offer higher royalty rates on digital, as Amazon does.

But publishers are not Amazon, and the reality for them may be much more nuanced. Trade publishers, for example, have been becoming more profitable over a longer period than digital has been around to plump up their margins, primarily because they have enjoyed economies of scale around distribution and printing, while taking a tough line on overheads.

Since selling e-books is a higher margin business, a superficial reading of publisher accounts backs the theory that digital accentuates that profit curve. But that only works if everything else remains equal.

And there is the rub. Over the next five years all book publishers will face a realignment in their businesses, as digital takes over from physical, and print becomes less economically attractive. At the same time, publishers face additional costs from mining new markets in new ways, with new types of content delivered on devices not yet seen, controlled by tech companies as powerful as countries.

Perhaps a more profitable publishing model will emerge, but I wouldn’t bank on it. In the music sector sales have only begun growing again now after a decade of turmoil that has left just three big music publishers standing.

It is little wonder, then, that book publishers guard their hard-won profit margins jealously, and in public reject agents’ demands for a greater royalty share on digital. Yet it is in this gap that Amazon operates. The internet company has long offered unpublished authors royalties far beyond those of publishers, and through White Glove, it is extending the offer to agents and those agented authors who either cannot get a traditional deal or baulk at the low royalty rates.

Some would argue that White Glove shows just how far publishers need to travel to begin to compete in digital, but any serious growth in Amazon’s Kindle Direct Publishing business (that White Glove is the calling card of) undermines their ability to do that.
Agents are bullish. But White Glove literally means taking “special care”, and this feels like one of those moments when both sides need to keep the gloves on.