Tuesday, August 30, 2011

Ungluing eBooks Progress Report: We Have a Name!

Unglue.It will be the name of Gluejar's ungluing ebooks website. Based on feedback from blog readers and many others, we ditched the horrible-in-retrospect "BookPatrons.org", and focused on names that used the "ungluing ebooks" metaphor, which has no baggage and seems to work pretty well. We then polled subscribers to the gluejar mailing list, and twitter followers, who overwhelmingly preferred "unglue.it" over the two other finalists. Thanks to everyone who contributed!

For readers new to this blog, "ungluing ebooks" is what I'm calling the process of raising money to make creative-commons licensed ebook editions of the books that you love, so that everyone, everywhere can read them. You betcha.

The ".it" top level domain shows every indication of being the next ".ly". I recently attended a session of the New York Tech Meetup which featured presentations from startups "want.it" and "knowabout.it". ".it" is the domain for Italy. We'll want to include Italy in the service as soon as possible. I've never been to Italy. Now that I think of it, the president of any company that wants to use a country's top level domain should be required to show up there sometime. Libya and Tuvalu could use the tourism dollars! (Yes, we have unglueit.com, too.)

After Hurricane Irene.
We're developing the Unglue.it website on the Amazon cloud; in addition to the four full time Gluejar staff, we have three design and development contractors working on its construction. It's a great team, but we're still figuring out how to make our virtual office work. Even when Irene knocks out our power.

Our prototype is using the PayPal payment processing infrastructure, various bibliographic web services, and the Django web application framework. Right now, it looks like we'll hit alpha in October.

Many of the development tools we're using are new to me. I'm still trying to understand Github, and I'm enamored of Pivotal Tracker.

One of our big decisions has been to use an invitation-only rights holder strategy during the launch phase. Since dealing with rights holders (authors or publishers) is likely to be our most human-intensive task to begin with, we need to carefully manage the number of rights holders we deal with. We'll launch with a limited number of rights holders, and thus a limited number of works to unglue. If you're an author or publisher interested in ungluing a work that you have rights to, please fill out the form at the Gluejar rights holder contact page, and maybe we'll invite you. After launch, we'll add rights holders based on interest expressed by ungluers (anyone who registers with the site). Ungluers will be able to ask for any published book to be unglued.

It's an exciting and intense period for us, but rewarding in many (non-financial) ways. We hope you'll agree it'll be worth the wait.

Wednesday, August 24, 2011

Peak Book Value

"Don't be an author unless you can't not be an author" was the triple negative I heard at recent author's panel in my town. The speaker was a literary agent offering scant encouragement to hopeful authors. Making a living by writing books is just so difficult these days, that only pure love and passion for writing can justify such a poorly rewarded existence.

Part of the reason for this is basic supply and demand economics. On the demand side, people will read only a certain number of books per year, and only a fraction of those are purchased in a way that generates revenue for the author. The people who read and buy the most books also patronize libraries and used book stores. While library sales are quite profitable for publishers due to the lack of returns, the author's royalty on a library book read by 50 people is the same as on a book sold through a bookstore. Even so, despite all the nonsense about people reading fewer books because of the internet, book sales keep on rising, year after year. Last, year, the AAP reported US book sales up 2.2% from 2009 to 2010.

It's the supply side that's the problem for authors. As difficult as it is to get published by a reputable publisher, the supply of books keeps increasing. According to Bowker, which publishes Books in Print, 316,480 books were published by traditional publishers in the US last year, a 4.6% increase over the prior year. So if you do the math, the average published book grossed 2.4% less in 2010 than in 2009.

But it's worse than that. Bowker also reports the number of books published non-traditionally. Non-traditional means publishers of print-on-demand books, public domain reprints, author-financed books: LuLu, xlibris, Amazon's createSpace, AuthorHouse, BiblioBazaar, and Kessinger Books. This category increased 169% from 1,033,065 in 2009 to an amazing 2,776,260 books in 2010.

Even if 90% these titles are spam, the remaining 10% equal the number of traditionally published books. If you include these, the average sales revenue per published book has dropped by half over the past 3 years.

This analysis doesn't consider backlist sales, which historically have been the most profitable for publishers. Backlists, as measured by Books In Print, have expanded, even as their contribution to total sales has apparently declined over the years. Books in Print has 3 times as many entries in 2011 as it had 8 years earlier; total revenue increased only 21%.

According to John Thompson's masterful "Merchants of Culture", the decreasing sales contribution of the back list is due to a combination of factors. The "big book" focus of mass market retailers such as Walmart, Target, and the big box book stores concentrate consumer attention on the top list, while competition from cheap editions of public domain "classic" titles has squeezed the backlist. I think another factor is a more efficient used book market enabled by the internet.

If book rights were securities, traders would be short-selling. On the demand side, the pluses come with downsides. eBooks could expand backlist sales by destroying the library and used-book channels; rapidly growing international markets are price sensitive, and particularly vulnerable to piracy.

On the supply side, the downward pressure on book value is pervasive. Public domain books, which include the crowning cultural achievements of humanity, will be free and are worthy of readers' precious time. The mass digitization of in-copyright books means that books no longer go "out of print". But to my mind, the biggest source of price pressure for the traditionally published book will be the creative output of non-professional and semi-professional writers, offering their work for free.

In many ways, the book industry is becoming like the movie/television/video industry. The blockbusters are getting bigger, and established market segmentation is being rearranged by the internet. We're starting to see services labeled as "the Netflix of books". We've not yet seen the emergence of a "YouTube for books", but at least a few readers feel that some blogs are worth reading.

It's undeniable that future revenue streams from books, and thus the worth of a book, have a huge uncertainty. Who knows, ebook rights might turn out to be the next tulip mania.

  1. The effect of an increasing supply of books is not new. The New York Times noted the issue 6 years ago.
  2. A good resource on book industry statistics comes from Foner Books.
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Sunday, August 14, 2011

What's a Book Worth?

Imagine you're an author of a book that was published a few years ago, but you've retained ebook rights. Someone wants to be able to give away digital copies of the book for free to an unlimited number of readers. What sort of fee should you demand? After all, if everyone can get your book for free, they probably won't be buying the ebook anymore, and though some people might still want to buy a print copy, chances are there won't be a lot of them.

This is the central question that I've been asked over and over again when I explain the concept behind Gluejar's forthcoming ungluing ebooks service. How much is it going to cost to unglue a book?

A book industry veteran told me that when publishers sell backlist titles to other publishers, the rule of thumb is to pay twice the previous year's net sales for a backlist title. That seems like a good deal to me. If a book that sold at $15 wholesale was selling 1000 copies per year, a publisher should expect to pay $30,000 to acquire the title (and the associated revenue stream).

But I'm the type that has to understand where these simple-sounding rules come from. In an environment where everything is changing, it's worth understanding whether "rules of thumb" still have hands to attach to.

Here's another thing to imagine. Suppose someone offered to pay you $1000 per year, forever. What would you pay that person in exchange for that (reliable) promise?

If you are not a mathematician or a banker, you might suppose that no amount of money could secure such a great deal. A revenue stream that lasts forever should have infinite value, shouldn't it? It is my duty to tell you that if you thought that, you would be wrong, and the bankers and their mathematicians would be right. In fact, you can easily purchase such a revenue stream. It is called a US Treasury Bond.

For the current discussion, I will ignore the odd fact that the securities markets have for the past few days responded to Standard & Poors' downgrade of US Treasury obligations by making the same obligations more valuable. That says a lot about both Standard & Poors and US Treasury Bonds, but it says nothing about selling books.

New World Disorder, by Stephen Barnwell
Today, you can buy a 30 year treasury bond that pays interest of 3.54%. That means that you can pay $28249 for an investment that pays you $1000 a year for 30 years, and then returns your $28,249 to you. If you want a AAA investment that does the same over a hundred year term, you can buy 100 year MIT bonds at a lower price.

Owning rights to a book that pays you $1000 this year is not nearly as good a deal as owning a treasury bond that pays the same. That's because most books sell fewer copies year after year. Let's suppose that a book's sales decline 30% per year. Then the total revenue from that book will be

R = $1000(1+ 0.7 + 0.72 + 0.73 + 0.74 + 0.75+ ...)

continued to infinity. Here's where math comes in. That infinite sum is equal to a simple ratio:

R = $1000/(1 - 0.7) = $3333

But you'd do better putting the $3333 into T-bills, because very few books have the same sales year after year. If the T-bill interest rate is r and the sales decline is d, then  the value of the book's revenue stream is

R= $1000/(1 - r - d ) 

Finally, it's important to note that revenue is not the same as profit. If a book wholesales for $15, a publisher probably keeps only half that as margin. So if the publisher's margin is m, and this years net sales is N, the revenue stream is worth N * m *(1/(1-r-d)). So, for  
m = 50%
r = 70%
d = 3.54%
the revenue stream is worth 1.89 times net sales. Those thumb guys weren't so far off!

Many authors will look at these calculations with some skepticism. What if a book is discovered by Oprah and becomes an overnight success? There are some things to keep in mind. First, Oprah isn't doing her show any more. If you think of owning a book as a lottery ticket, there are two more things to think about:
  1. You can take cash and buy real lottery tickets
  2. there might be ways to improve the lottery odds of a book. Giving your book to a million people for free, might greatly increase the value of your next book if they love the first. Just hang on to the movie rights!
It's hard to know how rapidly book sales decline. I expect it varies from genre to genre. No one knows how changes in the book industry will effect individual book sales either; I'll write about that in my next post. But the numbers indicate to me that there's plenty of room for new ways for authors realize what their books are worth.
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Tuesday, August 9, 2011

Structures to Build

Being a scientist means asking good questions. A good question is one that you don't know the answer to, but the answer has consequences. In designing experiments, a good scientist can't worry so much about the consequences of the answer, because the truth is more important.

Being an entrepreneur also means dealing with questions you don't know the answer to. But the consequences matter much more than the answer. The entrepreneur does experiments too, but the object is to obtain a good outcome, not to learn the truth.

Experimentation has never been more important for the word of books and the stories they tell. We don't know how books will be distributed ten years from now. We don't even know if public libraries will exist. We hardly know how verbal stories will be told in 10 years. The answers to these questions are of great import to our societies and to the generations that will come. Since I think of myself as both a scientist and an entrepreneur, I have a lot of questions to answer.

The Uni Project- Home Stretch
While I'm busy with the experiment in the business of books that is Gluejar, I can't help but be fascinated other sorts of experiments that are in progress, and which are worthy of public support. While I'm sure that interesting experiments are being conducted in academic and government institutions and that many of these are being supported by foundations and research agencies, the most audacious experiments I know of are being conducted by passionate individuals and being funded by in non-traditional venues such as Kickstarter.

One of these is the Uni Project. Last year, I wrote about the Chinatown Storefront Library. Never intended to be more than a temporary installation, it has left a legacy of understanding of the ways a space designed for reading and books can interact with and enrich a community. The team behind that project, Sam and Leslie Davol, wondered whether structures could designed specifically to be temporary, itinerant libraries- quick to deploy, easy to operate, and dramatic to see. Working with Professor J. Meejin Yoon of MIT’s School of Architecture and Planning, they came up with a concept for a modular system of stackable cubes, each of which could contain a micro-collection of library materials.

I don't know whether this idea will work. But I do know how to help them find out: support them on Kickstarter. The project is currently 90% funded; they have 6 more days to raise another $1900. Update 8/11: The Uni achieved its goal with 3 days to spare!

I learned about another compelling experiment last week. This one aims to have people all around the New York City area contribute to a location based story, using an augmented-reality view of the twin towers as a unifying theme. Founded by Brian August, a New York technology executive who describes himself as "obsessed with the twin towers" 110 Stories will be an iPhone app that aims to both inspire and document the stories of the millions of us who saw the twin towers of the World Trade Center almost every day until they were destroyed on 9/11 almost ten years ago. Although the augmented reality feature gets the buzz, I think the story-telling aspects will be a lot more interesting in the long term. Imagine a location-aware ebook using the technology that Liza Daly demonstrated last year.
110 Stories

As of tonight, 110 stories has blown through its goal of $25,000 with the help of 423 backers, and the fundraising campaign has 4 days to go.

As we build Gluejar's ungluing books website, we're trying to work out whether the "only six days left" aspect of Kickstarter projects is a necessary ingredient for a crowd-funding site. Since we'll be working to "unglue" books that have already been written and published, they won't disappear if a fundraising goal isn't reached by a given cutoff date. A rights holder that's willing to release a creative commons edition of a book for $10,000 on July 31 will probably still be willing to do so on August 15, so there's not the same time-pressure in an ungluing campaigns.

Questions to answer. Towers to build.