No Bailout For Self Employed

If you make your living in publishing by doing contract work outsourced by trade publishers, watch out. December's Book Business magazine featured an interesting article of tips for how publishers can cut costs without cutting staff. I was amazed to see one publisher publicly admit that he's telling their freelancers that they'll have to accept 20% to 30% less than this year for the same work if they want to get any work at all. I applaud his honesty, and he wasn't alone amongst the publishing execs fingering freelancers as expendable. Most publishers will attempt to increase productivity by simply telling their salaried staff to do the work that was previously outsourced. Don't expect a government bailout for self employed publishing freelancers, unless you've taken out a big SBA loan, in which case you might get a break.

Many publishers boasted about flex hours and telecommuting options while the market was hot. If you telecommute to your job, you better watch out also. You've essentially become a freelancer who still collects a salary, but however good your phone or video conferencing skills, not being there in person every day makes you easier to let go. It's counter intuitive, since telecommuting employees are less expensive to maintain (no office space) than in-house employees, but when times get tough, managers want to see their employees with their noses to the LCD, and ideally working plenty of free overtime. When it comes down to it, no matter how productive you are at home, your boss will always be suspicious that you aren't putting in a full week. And a company can fire offsite employees simply by turning off their e-mail account and telling them over the phone, without that awkward cleaning out of the desk, a security escort to the door and the ceremonial handing over of the key card.

But there is a difference between the telecommuting employee and the self employed freelancer. The telecommuting employee qualifies for unemployment and the ability to extend certain benefits, including insurances. Unemployment benefits may last six months to nine months or longer, depending on the political will against passing extensions. And six or nine months of income is a lot more than most freelancers keep in an old pickle jar under the bed. One of the joys of self publishing is being your own boss, being self employed. But it comes with a responsibility, particularly for those of us in our middle age or nearing retirement age, whether we plan to stop working or not. Self publishers must be responsible for their own financial well being, and there isn't going to be any bailout for the self employed.

I frequently try to talk finance with the successful publishers I know, but I generally get a limited picture of their contingency plans for the future. Hopefully that's due to a reticence to talk money with a relative stranger, but I worry that many are simply living from year to year, as if they had a salaried job. (If you're living month to month, or day to day, you aren't successful yet in business, even if the path feels right). I'm particularly taken by the lack of interest most publishers show in discussing tax issues. It could be that they're using accountants and don't really understand the relationship between taxes and self employment, it could be that modern software has changed taxes into a mindless "fill in the blanks" exercise that leaves no impression, or it could be that they don't file taxes and hope that the government will leave them alone. So I'm embedding a condensed version of a graphic showing the tax rate for self employed from an article I'm writing about taxes and retirement savings.

Most of the self employed individuals I talk to in all fields don't realize that the maximum tax rate is paid by those with an adjusted gross income between about $32,000and $102,000 a year. In Massachusetts, where I live, the recent legislation to try to force the population into HMO's (major medical insurance is prohibited from sale in Mass) changes the tax system from mildly progressive to regressive, with the poor schmo who comes in just over $32,000 after the standard deduction and personal exemption paying a higher percentage than somebody making $10K or $20K more due to the health care penalty. The only thing self employed individuals can do to lower their tax rate (other than spending money in the business and showing less profit) is to put a percentage of their income into a tax deferred retirement account. It boggles my mind that some individuals buy health insurance and save nothing for retirement or food for a rainy day, as if this is a responsible position to take as a member of society. Note also that health insurance is not a deductible business expense for self employed individuals in the US.

If you want to survive as a self employed entrepreneur, whether in the publishing business or any other business, your first goal should be to live and conduct your business debt free. I've heard of some very successful entrepreneurs who built their business on a credit card, but I'm not one of them and I can't believe the statistics are in their favor. Your second goal should be to save enough money for any emergencies that may come up, from a drop in sales, to a lawsuit, from health problems to writers block. Unless you can convince Social Security to give you disability payments for running out of creative juice, you don't want to be in a situation where you'll need to get a job as a supermarket bagger if things go badly for a couple months. I worked more minimum wage jobs as a young man than I care to remember, and I don't remember any of them being conducive to creative work when I got home at night. Now that I think of it, most of those jobs required working at night, so it's not surprising.

We all know somebody who complains about their financial condition, and adds how hard it is to keep up with the car payments (on their $50,000 car). We all face different challenges in life, and nobody expects somebody in their twenties or a young parents in their thirties to have it all worked out. But at some point in your life, you either start saving for the future or you can acknowledge that you're one slip away from needing a bailout or giving up your business and going back to working for the man. It would be nice if there were a lobby for the self employed to represent the inequities we face in the tax code, but the only organizations I've come across appear to be fronts for selling - you guessed it - health insurance:-) If I don't get going on a new book this year, maybe I'll start my own lobby for self employed folks.

Returnable Books Are Good For The Publishing Industry

This week, Borders announced that they will purchase books from HarperStudio on a nonreturnable basis. HarperStudio is an experimental imprint of HarperCollins that is trying to change the traditional big trade model by cutting back on author advances and returns from booksellers. I'm in favor of giving authors the option of trading off lower advances for higher royalties and I tried talking McGraw-Hill into giving me a higher royalty in return for no advance when I was writing for them, without luck. But the idea of ending bookseller book returns by selling on a nonreturnable basis is wishful thinking on the part of all parties involved. Bookstores and publishers are businesses that need to make profits to survive. The main profit drivers for large publishers are bestsellers and evergreen titles. The main profit center for bookstore chains may actually be cooperative advertising dollars from large publishers, but their main retailing activity is pushing those same bestsellers and evergreen titles.

Large publishers fantasize that bookstores will continue to give a most of their titles a chance on the shelves if they increase the trade discount to bookstores from 48% or 50% on a returnable basis to 58% or 60% (or more) on a nonreturnable basis. While a large bookstore chain may be willing to experiment with a nonreturnable list from a small imprint, it would be suicidal for them to gamble on a large number of nonreturnable titles. The majority of books in the large superstores function primarily as wallpaper, to make a warehouse sized store look and feel like a bookstore. Most of the new titles coming into a superstore get a few months on the shelves, don't sell well, and are returned to the publisher for credit towards a new batch of titles. Currently, bookstore chains can sell the small number of nonreturnable books they stock at bargain prices when they fail to move, taking a small loss. If the majority of the books in a superstore were there on a nonreturnable basis, the store couldn't stand selling them at a loss. Those books would simply remain on the shelves year after year, filling their wallpaper role and eliminating the chance for all but the most heavily promoted new titles from the trades to ever get in the door. Eventually, the bookstore chains would all come to resemble airport booksellers, with a stock of fast moving bestsellers, crossword puzzle books and timeless classics they could afford to sit on.

Bookstore owners, the large chains in particular, fantasize that they can add 20% to their gross margins by purchasing nonreturnable books. Of course, these profits only materialize if they can sell most of the books they purchase for their usual price. The only way bookstores can hope to achieve this is to cut way back on titles that aren't proven sellers, or at least backed by huge promotional budgets. Instead of a superstore chain cycling through tens of thousands of new releases in the course of a year, they will only gamble on a few thousand new titles. I predict that Barnes&Noble, the chain that has proven itself the most business savvy, would continue to increase the number of books they publish in house under a nonreturnable paradigm, until half the books in every Barnes&Nobles store are out-of-copyright classics, how-to, self help and reference books, published by Barnes&Noble and kept on the shelves until they sell.

Small publishers are likewise deceiving themselves. The small publishers who count on distributors to handle their books are currently giving up a 60% to 70% (or more) discount on returnable basis, since the distributor takes a cut. If the distributor was forced to sell to bookstores at a nonreturnable discount of 58% to 65%, the publishers would be selling books to the distributor at a 70% to 80% discount off the cover, and I'll bet the publishers still couldn't expect to get paid promptly because the distributors are always cash poor. Imagine being a small publisher with frontlist titles priced around $20 and having to sell them for between $4 and $6. Most would go out of business, and that doesn't even get into the original problem that bookstores will be less willing to try new books from a distributor if they can't get credit at the distributor for returns.

Small bookstores may have it hardest of them all. The whole business model of returnable books was created back in the Great Depression because bookstores didn't have the capital to purchase new books and publishers had to choose between stopping the presses and basically providing the books on consignment. Times are harder for small bookstores today than at any other period since the returnable model was introduced. The only small bookstores that could afford to take a chance on new titles other than bestsellers and specialty titles are those that are run as hobby stores by retired professionals or trust fund babies.

So let's set the record straight. Returnable books are good for everybody. They allow bookstore chains to stock a real variety of books, and they allow trade publishers to offer a chance in the sun to far more authors than would be otherwise possible. Returnable books allow small publishers to make a living on books sold through distribution, and they allow small bookstore owners to follow their instincts and order the titles they think their customers will come to love, rather than stocking nothing but sure things. Returnable books are even good for self publishers like myself, whose books would never have been given a chance on bookstore shelves at a short discount if the bookstores didn't know they could return them. Returnable books are even good for printers, who would lose as much as 30% of their business it weren't for the print and pulp model. Returnable books are what differentiate the publishing business from the grocery business.

The only loser in the returnable book business model is the environment, with the extra trucking books back and forth that goes on, and the paper production process. But trees grown for pulp are a renewable resource, and as soon as the trucking companies are all driving George Jetson trucks, the last objection to book returns will be put to rest.

Retraining Newspaper Editors and Reporters for Internet Work

Last summer a friend and I discussed starting a retraining program for downsized print media employees - editors and journalists, whose jobs aren't going to come back. Newspapers and magazines have entered a circulation death spiral, and while there will be some survivors at the other end of the recession, the age of the universally available daily newspaper or weekly print magazine is clearly at an end. The main strategy that current media moguls and their advisors are following is to ramp up their Internet activities, but I have bad news for them. There's only room for a few branded newpaper websites to make any hay reporting on national and international news, ie, the New York Times, the Wall Street Journal, maybe the Washington Post and a west coast paper like the LA Times. The rest can only hope to draw traffic for local news, and it won't pay the bills for an extensive staff. In fact, the small advertising supported weekly newspapers that are given away free in many regions may be in better shape to survive with the help of a website than the local flagship newspaper.

The reason writers and editors who worked in newspapers and magazines need retraining is that the move online requires a new mindset, not just a different wordprocessor. The number of "newsroom" jobs for these jobseekers will be extremely limited. The two main options will be to transition to working directly for businesses or institutions maintaining their web presence, or to go into business for themseves as information entrepreneurs. Since the latter career path invoves working on spec and a long start-up period with little or no returns, it's not an option for a breadwinner watching the time run out on unemployment benefits. But the transition to writing and managing web content for businesses and other orgainizations with websites should be relatively easy and lucrative.

The main goal of a retraining program would be to instill belief in the universal value of a freely accessible resource for every type of entity that serves people - whether customers, citizens or anyone inbetween. The reason for instilling this belief is to make it possible for the out-of-work reporter or editor to make a convincing case for why the potential employer should hire that individual. In order to instill that belief, I would show how a single individual can achieve the same circulation (daily visitor count) as a small town newspaper without the overhead of, for example, a small town newspaper:-) And circulation that is driven by search becomes highly targetted, which means those visitors are the ones who are most likely to be interested in the products or services offered by the organization.

There's a lot of resistance on the part of "journalists" to the idea of becoming "technical writers", but Internet content is much better characterized as journalism than technical writing. And unlike the print media, which is characterized by a "few to many" model, where a small number of individuals communicate their ideas and biases to a very large number of individuals, the Internet is characterized by a "many to many" model. I'm not talking about the feedback mechanism of comments on blogs, it's the publication mechanisim that depends on search ranking that drives the "many to many" aspect. As long as search ranking gives heavy precedence to the number and quality of incoming links, as it does now, the visibility of websites truly is driven by the wisdom (or voyeurism) of crowds.

The Internet is all about specialization, which is why the website model won't work for a large number of overhead laden newspapers magazines hoping to monetize through advertising. The only local print advertising that really makes sense for merchants these days is space ads for local retailers. The whole classified category is better served by specialist sites, from Craigslist to Ebay and Trulia. One day somebody will come up with a one-stop website for announcements that will meet the legal requirements for advertising probate or bankruptcy auctions, and that will be the end of newspaper classifieds altogether.

Trade publisher employees face similar lay-offs and retraining requirements, but they have a headstart over journalism types, in the sense that they are used to thinking about information as content rather than news.

DVD Movie Published and Sold Through Amazon's CreateSpace

Let this be a lesson that comments can be dangerous. A couple of readers said nice things about my YouTube videos in comments on a post about writing for money last month, and I let it go to my head. After discovering that I still had all the original AVI files from my FlipCam, I decided to try out Amazon's CreateSpace service for publishing movies. Three weeks and quite a bit of fooling around later:

I have to give CreateSpace credit for the basic DVD publishing process. It was pretty painless and flexible. For example, as this experimental movie consists of videos that have already been published on YouTube and are available free to anybody, I wasn't going to charge any more than I had to. But since I'm not making money on the movie, I wasn't going to invest the time and effort in creating artwork for the cover or the DVD itself. CreateSpace has a plain text option where they just label it with the title and stick the catalog description on the back. All you have to do is send them an original with your order number scrawled on it and the packing slip, and you get back the movie:

That's my original to the left in the picture, they added the bar code sticker. They also added a copyright notice to the published movie DVD. CreateSpace advises movie producers to use Dolby audio, rather than MPEG, so the first challenge was finding movie creation software that would do it. I downloaded a few trial versions of software that didn't cut the mustard, and then found that the InterVideo Win DVD Creator which came pre-installed on my Toshiba laptop could do it. Then I experimented with navigation (I hadn't even known that DVD's had navigation) and probably made a bad choice. Another mistake was not using transitions. The software supported a couple dozen transitions (fades, flips, swirls, you name it) that can be inserted with a single click, but I never liked them so I went without. A few test viewers have already commented that they would have liked some sort of transition or title page in between the videos. Another problem with the lack of transition breaks is that if you skip back and forth in the navigation on a computer using the Windows player, it sometimes plays the last fraction of a second of the previous video along with the one to which you're moving.

There's an option to sell your DVD movies through a CreateSpace store to maximize profit, but if I wanted to sell movies outside of the main Amazon store, I'd sell them direct off my own website. For movies produced by CreateSpace and sold through Amazon the economics were pretty simple. They charge $4.95 for each DVD copy, and take 45% of the list price. I priced my DVD at $9.95, which means I should net $0.52 each, and if I should sell 34 copies, I'll make back the cost of the FedX 2nd day I used to send them the original. If any of my readers don't have broadband and have been waiting on tenterhooks for me to publish a movie version on DVD, it's here. I'd also like to point out that if you click on my name when you get there, I'm not actually in the other movie that comes up. Really.

I did record an introduction for the movie, which is embedded below.

Should Authors Buy Borders Or Start A Cooperative Bookstore Chain

At the market close on Friday, the day after Thanksgiving, the market cap (total stock value) of the Borders Bookstore chain was less than 65 million dollars. No, I don't have 65 million dollars I can spare, but self publishers do. I'm not thinking about self publishers like myself who have started their own publishing companies, but those authors who have paid fees to get their books printed. Nobody has an exact count on how many authors have published books outside of the traditional system since the triple zeros came up on the calendar eight years ago, but it's on the order of a million individuals in America alone.

The biggest complaint I hear from those authors is that their books never got a fair chance to compete with the big trade books on bookstore shelves. If those authors could organize and pony up a hundred dollar each, they could make an offer for the entire Borders chain. I suspect that Borders main stockholder wouldn't be too happy with the offer, and it wouldn't be the ideal match in any case. For one thing, Borders is losing money at a rapid pace, and while returning all of the current inventory may offer a bit of revenge for authors who were never stocked on the shelves, the returns may only be good for credit towards new titles from the same trades. And I don't think the superstore format would work very well for the title mix that the newly empowered shareholders would chose to stock. Imagine walking into a warehouse sized bookstore split into three equal sections: memoir, fiction, poetry and sundries.

Kidding aside, it seems to me that all of the author services companies, or self publishing companies as some style themselves, have large and active communities of authors who are interested in gaining wider readership for their books. Many authors have already put their money where their hearts are, paying thousands of dollars for promotional campaigns which primarily benefit the bottom line of the company they've paid to get published. If just one percent of those authors clubbed together to form a bookstore cooperative ten thousand members strong, at just $100 each, they'd have a million dollars in seed capital to open a mini-chain of small bookstores to exclusively stock their books. I'll even volunteer a loaded name for the chain, "Imagined Memories."

It's not a business model for an outsider. But given tens of thousands of authors who are willing to spend money to see their books on shelves, I can't think of a more efficient way of doing it. While authors could invest the same pool of money in buying shelf space at the existing bookstores through cooperative advertising (the same way the major publishers purchase premium shelf space), the number of titles that could be displayed at any given time would be small, and the atmosphere, competing with classics and name brand bestsellers, would be wrong. If there's any potential in working with the existing chains, it might be leasing space for a store within a store, but I doubt a new cooperative would come away with the long end of the stick.

Starting a small bookstore chain may sound crazy, but I think it has more upside than downside. For starters, it would help give the most active advocates of the fee based self publishing approach something concrete to invest their efforts in, rather than remaining trapped in an endless circle of discussion list postings. Handled properly, the new venture would get plenty of free publicity in the media, a value that might even exceed the cost of setting up the cooperative. Perhaps most importantly, it would give a large number of human beings a reason to work together on a positive project - setting up some small bookstores at a time when they're a vanishing breed. Stores might even be partially staffed with volunteers, and could go the coffee shop route to provide a nice public space and help pay the rent. Even the downside, losing the small amount of money invested, has a potential upside. It could be an investment loss rather than a hobby loss on taxes (I think:-)

Just watch out for scam artists and cooperatives that are set up to provide a living to the executives.