P&Ls and how books make (or don't) money

[alg]

Profit & Loss/Profitability & Liability: How Books Make (or Don't Make!) Money

A basic outline of what happens when an editor buys a book and wants to publish it. This is very much a basic look at publishing and publishing finance, with some explanation of terms commonly used by the marketing and sales departments.

Comments

[vonandmoggy.livejournal.com]

Good, solid article. Having run a bookstore (www.perfectbooks.ca) here in Ottawa, Ontario for a number of years, it's always fascinating to see articles done from the publishing side of things. Most of it I knew (and I'm a BIG believer in P&L statements) but it's nice to see it posted regardless.

And now that I've left the bookstore to work on my graphic novel, it's all the more interesting (especially if I wind up self-publishing). The Direct Market (diamondcomics.com) operates on a non-returnable basis (all sales are final - yay! The discount you need to give is between 60%-65% off cover - boo!) so I'm trying to pay quite a bit of attention to the numbers side of things right now.

Good insights. Thanks!

Von

[alg.livejournal.com]

I don't know anything about graphic novel publishing, despite that we're doing one or two in our trade list. That is a steep steep steep discount, though. Whoa.

[vonandmoggy.livejournal.com]

It's very different from what I'm used to, as well. Even the distribution system is different as all companies use one sole distributor for North American distribution (Diamond Distribution (diamondcomics.com)). Diamond gets the big discount (that 60%-65%) and then sells non-returnably to comic book stores (this system is known as the Direct Market - as opposed to the ID or newstand distribution system).

The retailers can get upwards of 57% off cover price (though this varies widely depending on the publisher) but own the stock forever. The advantage for the publisher is all sales are final - no returns save damages. The disadvantage is the whopping discount to Diamond. And a whole bunch of other sundry details I won't get into here.

The Direct Market is changing rapidly. The discount and non-returnability structure was initially set-up in the 1970s to deal with periodicals only. It wasn't created to deal with trade paperbacks and their perennial nature. So there's a disconnect right now between what's called, in the Direct Market, the "bookstore model" and how comic shops have historically operated. How this plays out will be quite interesting to see. And just a tad scary!

Von

[(Anonymous)]

Are you saying that Diamond operates at 3%-8% margin minus costs? That seems pretty slim. Surely I'm misunderstanding you?

[vonandmoggy.livejournal.com]

On the brokered publishers (Marvel, DC, Dark Horse and Image) Diamond never actually owns the title they distribute. In this sense they are actually a freight forwarder. The brokered deal outlines Diamond's margins but ensures that there's no competition. The brokered publishers are exclusive to Diamond.

Retailers earn a rolling discount based on the volume they order. The largest retailers earn a very high discount (again, around 55-57% off retail) and Diamond's margin is quite small. I'm not positive, but it should be around 6-8% for the highest volume retailers. But note that for most retailers Diamond's margin will be higher than this - the rolling discount varies from account to account depending on each retailer's volume. So probably closer to 10%-12%.

With the NON-brokered publishers (i.e.: everyone else) things become quite different. Diamond does purchase the titles outright from each publisher (and earns a discount of around 60%-65% off retail) but the discount retailers earn is lower. In some cases, only 40% off cover but usually no higher than 50%. Diamond's margins are then higher, but the lower discounts becomes a discentive for retailers when purchasing non-brokered titles (and if you want a reason why indy comics don't have a better sell-in to retailers, you just found a contributing cause).

It actually gets better for Diamond on re-orders (and worse for retailers). There's generally a 3% re-order penalty (and if you're from the book world with "just in time" ordering this seems particularly weird) on any re-order. So a retailer earning a 40% discount from a publisher who does well with a title actually receives a lower discount (37%) when they re-order that title.

So yeah, on the brokered publishers Diamond's margin is thin. On the non-brokered publishers, it's higher.

Von