Archive for March, 2008

The Amazon-Booksurge Flap

Saturday, March 29th, 2008

There’s a story doing the rounds that Amazon is telling small presses to do their POD printing with Booksurge, enroll in Advantage, or Amazon will no longer directly sell their books, leaving them to Marketplace sellers alone.

Regardless of why they’re doing this, we small presses would be better off if they stopped. Legal action takes quite some time, if there’s any legal avenue to pursue. We’d be better off if we could persuade them that it’s not in their best interest either. So, why might they be doing this?

I see a whole bunch of possible reasons, including the recent trend toward non-trade discounts on some types of books sold through LSI/Ingram, a grab for vertical integration and larger market share in an evolving marketplace, or a mis-guided bit of executive hubris.

Let’s start with the discounting: There has been a trend lately for smaller presses to take advantage of the range of discounts that LSI allows publishers to set, and still sell their books through Ingram.

Instead of using the standard 55% discount for wholesalers, small presses have begun to tell LSI to sell their POD-original trade books at 20% discount. Amazon has been buying these, but it can’t be happy about the deal. Could it be that they’re trying to force this practice to stop?

It might be easier if it simply announced that it will only purchase trade books on traditional trade terms. When you think about that, however, its current actions are having that effect. Either they print through Booksurge, which offers only trade-type discount schedules, or they join Advantage.

If this is the issue, then, if LSI forces similar terms upon its clients, Amazon will relent.

An enormous proportion of the books printed using POD are sold through Amazon. They’re generally in the “long tail” and Amazon is one of the few booksellers to have mastered the techniques and built the expensive infrastructure required to sell such small numbers of so many different products cost-effectively.

I’ve blogged before about how the book business may be about to undergo a radical shift, as mass paperbacks in some genres are replaced by ebooks on something like a Kindle. If Amazon’s vision of the future is something like mine, they may be making a bid to establish significant barriers to entry in delivering ebooks or print on demand books.

It’s already going to be very expensive to try to duplicate Amazon’s search capabilities and their branded presence in consumer consciousness. But possible competitors, such as eBay or Barnes and Noble, both of whom have much of the infrastructure already, might be tempted in the coming evolution of the book business.

When bookselling is more about moving bytes than bits of paper and binding, what is to keep Amazon on top? Perhaps if they can push most of the on-demand printers and the “publish on demand” vanities out of the arena, they can make it that little bit more difficult to attack their supply line as well as their base with readers.

If this is their motivation, they’ll fight tooth and nail, because it’s a survival issue.

On the other hand, it could just be that some new executives don’t know what they don’t know. Never underestimate the possibility of cluelessness even in a small group of otherwise smart folks.

So, what’s your pet theory?

Chart of Accounts and Plant Costs

Tuesday, March 18th, 2008

I was recently asked how items like ISBN and copyright registration costs should be handled: what accounts should they be in, how should those accounts be tied to the particular title, and how they should get into COGS. (Cost of Goods Sold)

I’m going to start answering this at a simpler level: COGS comes in 3 types. PPB, Royalties, and Plant Expenses. PPB means Paper, Printing and Binding. It usually includes everything on your printing bill. We all know what Royalties are. Plant expenses are those costs where the total expense doesn’t change when the number of copies sold or printed changes. (NB: Plant means something very different outside of book publishing!)

ISBN and copyright would be plant items. So are design, editorial work, etc.

Plant expenditures are recorded as a current asset, until the book is published. At that point, you begin to amortize the total over the expected life of the title. This reduces the asset by a certain amount each month, and moves that amount over to the COGS — Plant account.

Assets accounts usually begin with a 1, liabilities with a 2, equity and retained earnings with a 3, revenues with a 4. Many publishers also assign their COGS accounts to the 4s. Then selling, distribution and marketing are usually in the 5s.
Operating expenses are usually in the 6, 7, and 8 ranges. Extraordinary items, interest and taxes are in the 9s.

If your accounting program allows long enough account numbers, you may want to assign the second through fifth digit to describe the type of item, and the sixth through tenth digits might designate the title.

For example, your chart of accounts might show an account number 1 3510 67890.
This could be decoded to read: 1 = asset.

Next digit: 3 = inventory or plant. (2, 3 or 4 = current asset, 5 through 9 = long-term asset.)

Then comes 510 = ISBN registration. (There’s no common arrangement for these digits, this is just an example!)

And last, 67890 = title id. Usually the end of your publisher prefix, and the title identifier. (Omit the check digit or not, according to taste.)

Let’s suppose, though, that your accounting program doesn’t allow such long account numbers. Then, you may need to employ sub-ledgers. These expand the level of detail you track for a particular summary account. Plant asset records are often kept in a subledger, and only the totals are entered into your general ledger account. Then you can use Excel or something in your accounting package to track individual titles’ accumulated expenditures, and the offsetting amortization.

Combining the information tracked by title for sales, subsidiary rights revenue, PPB, Plant and Royalty expenses, as well as marketing and distribution expenses, will give you a very good handle on which books were successful and which were not. They can help you understand whether or not your projections before the project launched were accurate or not, and sometimes they can even help you pinpoint why one book succeeded and another did not.

All of this is pretty complicated, so please do ask questions in the comments section. You do NOT have to register, just comment away.