Wednesday, 3 September 2014

Players, Markets and Pagers

First, A Warning!

I need to add a disclaimer to this post: it is quite technical.

If you hated economics at school, this is probably not the post for you.

On the other hand, if you enjoy understanding people's motivations, well, then this might be of interest. Because economics is really only about understanding why people do what they do - except economists usually view people's behaviour as aggregates, not as individuals.

This post is a very brief summary of today's publishing industry, and how writers can use this knowledge to their advantage.  You should view this as an overview only - if you want to find out more, click on the links embedded in the text.

Okay, here we go...

Fiction Marketplaces are Like Tennis

The writing marketplace is a 'Tournament Marketplace'.

Tournament marketplaces are characterised by
  1. High numbers of players
  2. Low average earnings per player
  3. Very small number generating profits
  4. However, profits for a tiny number of players are extremely high
  5. These extremely high profits act as an incentive for new players to join the marketplace
Other examples of tournament markets could include professional tennis players or (get this!) merchant bankers. Seriously. (I once read a whole economics paper on this. Personally, I would have thought merchant bankers did okay, but apparently not. Poor things... ) So - If you want to get rich, DON'T join a tournament market. Instead, be an engineer or a doctor, where both the average earnings and the profits per player are high.

However, you may still have a dream of being a paid writer. Like me, you may even know in your head that the chances of making any money are incredibly low. So, if you decide to enter a tournament marketplace, do it with your eyes open. You need to have an alternative form of income, at least until you manage to hit the jackpot!

The Product Life Cycle - What the Pager Can Teach Us

Markets generally go through recognised stages. We've all seen this happening - for example, in the personal messaging industry. In the 80s cool people wore pagers. Pagers were a sign that you were important; that people actually wanted to contact you.

Pagers were expensive, available in a wide range of colours and you could get accessories - belt clips and bags and so on. Quite a few companies made pagers.

Image from Wikimedia Commons

In the late eighties, the cell-phone emerged.

 Image from Uncyclomedia Commons

And eventually, the new technology replaced the pager.

The pager lifecycle of growth, plateau and decline, is replicated in most industries. Turnover time is faster in industries that are heavily reliant on technology, because new technology is highly disruptive to a marketplace.

Product Lifecycle. Image from Wikimedia Commons

Industries that depend on human skills are have longer life cycles. Because while it's possible to replace technology, it's much, much harder to train a person. The major disruptors to skill-based industries are social factors: fashion, wages, or demographic shifts.

How Does this Relate to Writers?

The traditional publishing industry is a classic case of an industry in the decline phase.

By 'traditional publishing industry', I mean a little more than just the publishing house. I mean the whole industry: trad publishers + printers + distributors + bricks and mortar stores. 

(I'm also talking about first world publishing of trade fiction. The story for emerging markets is a little different, as is the marketplace for non-fiction. Even within the trad. marketplace there will be variations against the type of genre. For example, children's picture book market is quite different to romantic fiction - picture books require illustrators, they are purchased by adults (not the readers) and generally, kids and playgroups prefer paper.)

Declining markets have the following characteristics

  1. Few players
  2. High barriers to entry
  3. Limited competition
  4. High consolidation (i.e. players are large, complex organisations). Mergers and acquisitions are high.
  5. There is still profit to be made, but only by large players.
Evidence for this decline can be seen across the publishing industry:
  1. Decreasing number of major publishing houses 
  2. Strong differentiation of market - major players stick to their point of difference. This suggests there are major risk factors in moving into another market, suggesting that margins are extremely tight.
  3. Decline of bricks and mortar bookstores
  4. Reducing demand for print
Therefore, profits per player in the traditional marketplace are low

Writers of traditionally published fiction would be wise to consider the following:
  • Traditional publishers are likely to be experiencing shrinking margins. This means that advances are likely to be smaller and royalties will be low. 
  • Publishers will seek to reduce risk (and therefore cost). Therefore, contracts are likely to include unlimited indemnity and liability clauses. Furthermore, if your sales are not up to forecast, you will be unlikely to get a second chance; you may even incur court action if a publisher cannot recoup its advance.
  • Support for writers such as paying for publicity (advertising, marketing) or provision of any other 'value-add' like paying for a book launch, is likely to decrease.
  • Publishers will reduce staff. This means that writers may be expected to participate more in the book-to-market process (for example, checking proofs) and that administration support is likely to be patchy. You would be wise to check everything - the cover art on Kindle, the price on ibooks - because it's likely that there won't be enough staff to monitor this properly. You could even find that your publisher downsizes or closes while your book is in press.
  • Time taken to respond to queries will take longer, as will consideration of manuscripts.

This suggests that for me, in the quest of increasing my earnings from writing, I would be better to focus my energy outside the traditional publishing market. I would be better to look for a market which is in a growth phase. 

And where is this, you ask?

Well, stay tuned. I will discuss this in my next post.

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