Richard Charkin: How Do We Measure Commercial Success in Publishing?

In News, Opinion & Commentary by Richard Charkin9 Comments

It’s ‘the building up of publishing assets,’ not cash reserves, says Richard Charkin, that finally adds up to a publishing house’s worth.

Image: Stocksnap

By Richard Charkin

‘Five Measures, All Important’
Walking the halls of the Frankfurt Book Fair is always a mixed experience. The sheer size of the industry is daunting, as is the unbridled optimism of so many publishers that their stands will attract the business they need to survive. It’s also a tad depressing to realize that most of the books on display will probably prove to be unprofitable.

Richard Charkin. Image: Bloomsbury

On the other hand, the sheer abundance of creativity can lift the spirits. And of course the parties and the friendships make Frankfurt (even after 45 visits) unmissable.

This raises the question of how we measure financial success in publishing. Given all the problems, how is it that publishers rarely go broke? Even if they’re losing money, invariably someone steps in to buy them. Of course the purchaser may be mad, but the big publishing acquirers are themselves still in business and by all accounts performing well.

So what is the trick and how do we measure commercial success? There seem to me to be five measures, all important but all with shortcomings.

When you ask a literary agent or an author how well a book is doing the answer is usually measured in number of copies sold—either large to show excellence or small, the publisher’s lack of marketing effort. Of course numbers of copies is now a fairly meaningless measure, except to emblazon on the covers of bestselling novelists, as it’s perfectly easy to sell tens of thousands of copies as an ebook at one cent each.

Even when the books are sold at a reasonable price, the numbers may well camouflage an outrageously high advance or huge imminent returns from retailers, either of which would lay the publisher low. I remember a distinguished publisher telling me with pride that one of her books had sold 70,000 hardbacks. I discovered later that 65,000 copies were returned and the advance was £400,000 (US$513,000). The resulting loss was greater than the profit made on many a successful commercial novel.

A better measure, of course, is net sales value and it’s certainly true that increasing sales revenue is a good thing in most cases—but not when the increased sales are made by absurdly high discounts to retailers or by dumping stock and destroying a market.

And so we move on to profit, the measure most focused on by publishing managers at all levels and in all departments.

Not everyone understands profit. Highly intelligent journalists and politicians confuse profit and sales when discussing how little tax some corporations pay. The problem with profit as a measure is that it can be subjective. How publishers account for stock, authors’ advances, capital expenditure on computers and warehouses, plus central overhead allocation—all can distort profitability in one direction or another.

Of course, the single biggest beneficiary of overstating profitability in the UK is Her Majesty’s Revenue & Customs agency, and the reason profitability is so important is that governments use it to calculate taxation.

No truly independent business would use profit as the key measure of success.

Peter Rabbit Triumphant

Arguably the only thing that matters is cash generation and publishers are pretty good at generating cash as, by and large, there’s little need for significant capital expenditure. We don’t need to build factories or have huge non-revenue-generating R&D departments (unless we view editorial as that). And so any surpluses generated by sales of books should turn into cash as long as the surplus isn’t eaten up by over-printing and unrecoverable advances.

“It’s precisely because asset value is so hard to measure that it rarely gets the attention it deserves but that doesn’t mean it should be ignored. “Richard Charkin

But building up cash reserves is not in itself an indication of success.

What really matters, in my opinion, is the building up of publishing assets—the author contracts in filing cabinets (or preferably on a secure hard disc), the licenses, the distribution arrangements, the brand value of imprints.

Of course, these assets are hard to value. With a public company, the share price is some indication, but we all know that financial markets are imperfect and are affected by short-term external factors and sentiment. With private companies, there’s not even that objective approximation.

It’s precisely because asset value is so hard to measure that it rarely gets the attention it deserves but that doesn’t mean it should be ignored. Truly understanding asset value is what distinguishes a good publisher.

A favorite example is Penguin’s acquisition of Frederick Warne in 1983. I don’t have access to its accounts back then but I’ll wager that sales were static, profits were minimal, cash generation was zero. Frederick Warne did however have an asset: Beatrix Potter’s Peter Rabbit series and a few others), which Peter Mayer recognized as a publishing jewel ready for commercialization.

The asset value of Frederick Warne was hugely greater than any of the traditional measures of success would have indicated. Both Peter Mayer and Peter Rabbit emerged triumphant.

So do keep an eye on copies sold, revenues generated, profit earned, and cash in the bank. But don’t forget that ultimately the only criterion is how well we’ve enhanced the total assets of our businesses through the commissioning and publishing of great works.


Join us monthly for Richard Charkin’s latest column. More coverage of his work from Publishing Perspectives is here.

And you can review our coverage from the 2018 Frankfurter Buchmesse with free downloads of our Publishing Perspective Show Daily magazines. 

About the Author

Richard Charkin

Richard Charkin is a former President of the IPA and for 11 years was Executive Director of Bloomsbury Publishing Plc. He has held many senior posts at major publishing houses, including Macmillan, Oxford University Press and Reed Elsevier, and has led many other organizations, such as the UK Publishers Association and The Book Society. Richard has an MA in Natural Sciences from Trinity College, Cambridge; was a Supernumerary Fellow of Green College, Oxford; and attended the Advanced Management Program at Harvard Business School; and he is a Visiting Professor at the University of the Arts London.

Comments

  1. Dear John, Up to a point I agree with you but I think we then need to identify the ‘ultimate purpose’ a bit more clearly. It differs from person to person and business to business. For a state-owned publisher the purpose might be propaganda. For an Internet giant publishing might simply be a way of collecting content and visitors in order to buttress another part of its business. For a self-published author it might be to attract the attention of traditional publishers. For many authors the ultimate purpose is to be read . My point is that sales and profit in a going concern are means to an end, not in my view the end itself. Richard

  2. An excellent article in overall thrust and conclusions, but it stumbles badly in one significant detail:

    “Of course numbers of copies is now a fairly meaningless measure, except to emblazon on the covers of bestselling novelists, as it’s perfectly easy to sell tens of thousands of copies as an ebook at one cent each.”

    No, it’s not. This is an irrelevant, fallacious straw man argument (or possibly misguided hyperbole?), because none of the “Big 5” ebook vendors (Amazon, Apple, Kobo, B&N-Nook or Google Play) allow ebook sales at 1 cent.

    They do allow free ebooks, but those are not counted as sales by anyone, least of all the bestseller measures of record (in the U.S., the NYT and USA Today bestseller lists).

    99c is the lowest price an ebook can be set on these vendors, which together control 99% of the retail ebook market. So, a 1 cent price point is functionally impractical, even if technically possible.

    Also, subscription-service “borrows,” which account for many “sales equivalents,” are not recorded for the bestseller lists.

    If you think it’s “perfectly easy” to sell tens of thousands of copies of anything, even at the lowest genuinely available price point of 99c, I invite you to try. Even a coveted BookBub promo usually only results in four figures of sales for the week of its run.

    Yes, a few authors are able to sell five figures–but “perfectly easy,” implying a devaluation of the concept of a “sale”? No.

    The devaluation actually comes in the lack of definition of “bestselling,” without its attendant qualifier, (NYT, USA Today, or some other recognized list). Authors or publishers willing to twist the spirit of “bestseller” in order to claim such a status merely have to briefly hit #1 on some obscure Amazon category. Or, they simply lie. Who ever checks?

    The new democratized digital publishing landscape has been a boon to hardworking independent authors and publishers, but like all new frontiers, it is still a bit of a Wild West, in need not so much of regulation as standardization of terminology. Transparency combined with recognized reference points would go along way toward reducing the charlatans and identifying the genuine sellers, earners and/or award winners.

  3. Dear David, You are, of course, correct. I am guilty of misguided hyperbole. However, my point is still valid. As a measure of commercial success the number of copies sold is the least meaningful, particularly where you might be comparing. $25 hardback with a $1 e-book. Best, Richard

  4. (pasted from my comment on Linked In)
    Great article Richard, and raises an important question. If publishing assets are the way in which publishers can ultimately measure their success, how come so many publishers are so bad at knowing what those assets are? For each product we publish there can be numerous underlying assets, all covered by agreements of different kinds, granting different sets of rights for different periods of time. Publishers are, in the main, appalling bad at managing this, stuffing said agreements into filing cabinets, sometimes scanning them, but rarely codifying the agreements to allow proper management of their core assets, much less a valuation of them. If only our industry could get it’s act together on this, agree rightsmetadata standards and apply them to their content, the opportunity to trade our assets digitally and independantly (not just as part of a book) starts to look quite exciting. Until then much of the real value of publishing’s assets will remain hidden in filing cabinets…

  5. Dear Clare, Spot on. Your question is a great one to add to my Ask Emma list of a few columns ago – https://publishingperspectives.com/2018/07/richard-charkin-questions-publishing-agony-journal-ask-emma/.

    One of the problems, it seems to me, is that rights have been so segmented and complex that writing the navigation software to find an answer has become a major obstacle (and cost). There must be solutions as CLA, PLA, and ALCS have shown and others such as IPR License are targetting alongside several software and industry systems companies. But, as you imply, we have a long way to go.

  6. Clare, Spot on. Why do you think publishers are so slow to sort this? Is it because rights are so complex and fragmented? Thank God for organisations such as CLA, PLS, ALCS for sorting out at least some of the collection issues. Richard

  7. Publishers pull in billions of dollars yearly and yet few writers can even make a living. What’s wrong with that picture?

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