A year ago on February 11, I posted the following comment on the HarperStudio blog about the economics of e-book publishing here:
I'm going to echo the words of a turnaround expert, Dr. James B. Shein of Northwestern University. In addressing fifty of the top newspaper industry execs in November, he said: "'The biggest hurdles to progress [are] the industry's senior leadership, including some of the people in this room . . . I am not sure you can take a look at your industry with fresh eyes'."
When Bob speaks of all the costs remaining the same, I find it ironic. HarperStudio was begun on the premise that it was the returns system (and large advances) destroying publishing. Manufacturing, warehousing, returns and pulping is an enormous drag on the system. All of that goes away with e-publishing.
As far as the rest of the costs remaining the same, that's ONLY if you continue to maintain huge offices, power lunches and all the other accoutrements of big publishing today. To say otherwise is either incredibly cynical or further support for Dr. Shein's premise that the industry cannot look at itself honestly.
Advances originally grew out of the long waits to release date. Those waits can be greatly abbreviated by e-publishing. Advances can begin to shrink, too.
It's time to reinvent yourselves. Take a look at what benefit you DO offer authors and readers and capitalize on that. Quit wasting energy in needless DRM arguments and recognize that Amazon is positioning itself to destroy you. Their vertical integration model frightens the hell out of me.
Instead of nattering on about $3 less cost for e-publishing (an argument only industry insiders buy), publishers need to figure out what they offer that no one else (at the moment) does. I see two things: (1) You vet for quality. E-publishing is improving, but its eye for quality is still not quite what it needs to be; (2) You have marketing and sales expertise. This is huge. Capitalize on it.
Realize the benefits of e-publishing. They take more risks because they can. Their investment isn't as great as yours. Start taking some of those chances.
And take a hard look at your costs. I suspect the industry will begin to unravel into a more decentralized one in which editors and artists can work from their own studios, providing services to multiple publishers. When work is handled digitally, there are lots of ways expenses can be cut.
Bite the bullet. You need to offer higher royalties (and lower advances) to your writers. They are not going to buy the argument that they should continue to be paid 7% to 15% when e-publishing offers so much higher royalty rates. Of course, if you started offering the same level of marketing support to mid-level writers, they might be willing to forego those higher percentages in order to build their careers.
Your house is burning, guys. Stop talking about whether the fire was started by bad wiring or a dropped match. Go find the extinguisher.