Archive for March, 2010

Sarah Palin Book Income Update

March 23, 2010

Why is Sarah Smiling?

Publishers Weekly just came out with its list of the best selling books of 2009.

For all of you readers out there who thought that Going Rogue by Sarah Palin was a joke, the joke is on you.  Sarah’s publisher, HarperCollins is laughing all the way to the bank. And so is Sarah.  Yes. Going Rogue was the #1 non-fiction best-seller of the year. It sold 2,674,684 copies. Nobody else came close.

Ask The Agent made an educated guess that Palin received a $6,000,000 advance for the book.  Truthfully, we were blowing smoke. We have no idea what that advance really was. But for comparison, it was reported that Senator Edward Kennedy’s received  an $8,000,000 advance for his autobiography, True Compass. It was  #5 on the non-fiction best seller list selling 855,843, about a third of Palin’s sales.

Now that the sales are in, it is a lot easier to calculate how much Palin actually made on the book and how well her publisher did.

Whatever Palin’s advance was, it was an “advance” against royalties. Royalties are based on actual sales of a book. An author doesn’t receive royalties until the advance is “earned out”, i.e. royalties exceed the advance that was paid. Typically the royalty rate is 15% of the list price, which, in the case of Going Rogue, was $28.99. So Palin made $4.34 on each book or a total of $11,608,128.56. Not bad for a book she didn’t even write.   She may have paid some of this out to her hack ghost writer. We don’t know how much, but $1,000,000 would be a lot for this kind of work. And shabby work it was!

But  wait! It gets even better. The numbers we are talking about are for US sales of the hardback version only. It doesn’t include the following: world English sales, translations, e-book sales, electronic apps, movie options, audio books, condensations, serializations, and merchandise (calendars, t-shirts, mugs, video games, and posters). And let’s not forget book club sales. And the Conservative Book Club is a huge driver of sales, frequently in the seven figures. We don’t know these numbers and probably never will.

But wait! It gets even better. Those numbers are only for sales in 2009.  Going Rogue is still a best seller juggernaut. Her Amazon ranking is (as of today) #266 and her Kindle ranking is #573. Trade and Mass Market paperbacks will be rolling out sometime this year. By comparison, the best-selling non-fiction trade paperback in 2009 was Glen Beck’s Common Sense selling over a million copies.  Assume 8% royalty on a $16.00 paperback (that is conservative), Palin stands to reap another  $1,250,000 plus change on these sales.

Feel sorry for the publisher, HarperCollins, for shelling out all that dough for royalties? It’s ok. Don’t worry. Let’s look at publisher costs. Typically a publisher will receive about half of the retail price of a book which would be for this book $14.47. HarperCollins out of pocket costs would be approximately $3.00 for preproduction (editing and the like), $2.50 for manufacturing, and $2.00 for marketing. Add to this Palin’s $4.34 royalty. The publisher’s profit  should net out at $12,383,786. (This does not account for publishers fixed overhead costs). And they also stand to make lots of money on continuing sales, paperback sales and other subsidiary sales.

I wish I was Palin’s agent. Let’s see….15% of author’s net income. That’s $1,741,219 and counting.  Sweeet!

Battle of the (E-book) Titans

March 21, 2010

Ask the Agent has been covering the developing story of the changing models for selling e-books and the struggle for market share between  Amazon and Apple.

An article appeared in the New York Times on March 17 that adds a new and troubling wrinkle to the story.

90% of the retail sale of e-books is now done by Amazon. This would be a monopoly by any reasonable definition. Amazon is cementing its dominance in the marketplace by offering  e-book downloads that can only be read by the Kindle, a media device that is manufactured by Amazon and sold exclusively  through Amazon. Thus if you own a Kindle, you can only buy e-books from Amazon. If you buy e-books from Amazon, you must buy a Kindle to read them.

Amazon has come to dominate internet retailing by aggressively discounting products in order to increase market share. They did this to great effect with books from the very beginning. They have been doing the same thing with e-books. Publishers have been selling e-books to Amazon for approximately $12.50. Amazon has been selling below cost at $9.95 for their  e-book  best- sellers.

If you ask the  major publishers how they feel about this, they will tell you privately, as they have told me,  that they are profoundly troubled by the market power of Amazon and are concerned that the deep discounting practiced by Amazon will devalue  what the marketplace thinks is a fair price for books. Last month the sixth largest American publisher, Macmillan, announced that it was changing its retail terms for e-books to the “agency model” which would not permit Amazon to discount titles. Amazon retaliated by pulling  “buy” buttons for all Macmillan books both electronic and physical.   This lasted only a week, but it should be a cautionary tale regarding the dangers of monopoly power in the distribution of ideas in a society or, in the case of Amazon, in the world.

Enter Apple and the iPad. It is difficult to imagine that Steve Jobs can be considered the friend of the little guy and a force against monopoly. Certainly the clout that Apple exercised with  the music industry in forcing them to accept   the iTunes model has done considerable damage to the music companies and artist royalties. But in publishing, as in Mid-East politics, the principle that “the enemy of my enemy is my friend” rules.

Five of the six largest book publishers fell into the arms of Apple and negotiated a new  sales model that allows the publishers to control the retail price sold to consumers of the book. But Steve Jobs is not Mahatma Gandhi and has imposed his own stringent conditions on the publishers. Under the new agreements with Apple, publishers will not be permitted to allow any other retailer to sell books below the price that is sold by Apple.

Amazon has reluctantly gone along with the new model, but is insisting on having a 3 year contract that would lock publishers into the current arrangement and guarantee that no other retailer will get better terms. Publishers are reluctant to agree to such a contract. The whole e-book market is in flux. Nobody knows what the e-book firmament will be like in three years.

But according to the New York Times, it gets a lot worse. Amazon has only agreed to the new “agency model” for the six largest publishers. The other 10,000 smaller publishers have not yet signed on with Apple. Amazon  has been speaking to them and telling them that they prefer to stick with the old model where Amazon can sell books for whatever price it chooses.

 These same publishers have spoken to Apple and have been told that Apple will only work with them if they sell to all other retailers under the same terms as  they are selling toApple. In other words, there is reason to believe that in order to do business with  Amazon, publishers will not be able to do business with Apple –and vice versa. A tough choice for the smaller publishers and a distressing possibility for the consumer.

The message Amazon sent forth during  last month’s negotiation between Macmillan was eloquent and persuasive.  That message was that  a publisher who doesn’t agree to Amazon’s terms risks having their books not be carried by the largest book retailer in the world.

Book publishers, and particularly smaller book publishers, are clearly getting whip-sawed by the two giants. The stakes are high for both Apple and Amazon. But the stakes are even higher for book buyers and the free marketplace of ideas.

Amazon.com and Tax Evasion 10 Years Later

March 9, 2010

This has been getting my goat for 10 years.

According to Publisher’s Weekly today,  Amazon. com dropped all their Colorado “Associates” because the state passed legislation requiring internet retailers to collect local sales tax.

The Amazon “Associates” program is the very clever system in which anyone can post book titles  on their websites which click through to Amazon where a sale is made. The Associate will receive a very generous sales commission (5% and sometimes more) for the transaction. This program drives considerable sales to Amazon and also builds good will, strengthens the brand, and creates loyal customers. And it raises a lot of money for the  Amazon Associates with very little effort. Many of the most effective Associates are non-profits and PTA’s that raise considerable money for schools and other worthy causes through this program.

So to all those PTA’s, to all those local chorale societies, to all those homeless advocacy groups and orphanages, Amazon is saying –”if Colorado is going to make us collect sales taxes, then Colorado, FUC….,” ok I better not say it, but you get the picture.

The issue here is all about Amazon’s vigorous and consistent opposition to collecting local sales tax which allows them  to maintain a competitive advantage over local booksellers. I’ve made a number of blog posts on this subject in the past.

Let’s back up a little bit. I realize that ranting about the Supreme Court position on tax venues pursuant to the Commerce Clause of the Constitution might  deaden the senses of my blog fans who have gotten used  to my   snarky and satirical commentaries on the foibles of commercial publishing. But I’ll keep it simple. In 1992 in the decision of Quill vs. North Dakota, the Supreme Court ruled that under the Commerce Clause, absent federal legislation, a state could  not regulate the   collection of  sales tax by an out of state corporation that had no physical connection to the state in which the buyer resided.  Even though the decision was handed down before internet retailing  existed, it continues to be the law today.

I’m proud of the fact that I have been fighting this abomination for years. Back in 2000, a group of independent booksellers in the Bay Area that included myself, Bill Petrocelli of Book Passage and the local independent booksellers association, began a campaign to end these anti-competitive and illegal practices. We actually got a bill passed through the state legislature in spite of  spirited opposition from Amazon, Barnes and Noble and the entire high tech industry. Even though it received unanimous support from the Democrats in the legislature, it was later vetoed by the venal then  Governor Gray Davis (also known  as “Governor Ka..ching”) , a shameless sop to his fat cat Silicon Valley funders.

On the federal level, an organization was formed to influence similar legislation in Congress. The money for the organization mostly came from big  commercial real estate interests and mega- retailers like Wal-mart. It wouldn’t make  a lot of sense having a Wal-mart executive make the case for tax fairness for community based mom and pop businesses,  so they enlisted me as the public voice of the organization.  As the Arabs have said: “the enemy of my enemy is my friend.”  I was sent to Washington to debate the extremely evil anti-tax nut, Grover Norquist, at the Federalist Society. The check for my expenses came from Wal-mart. There. That is my dirty little secret. Tell my enemies if you must.

 I also was featured on PBS’s Crossfire where I was grilled by Mary Matalin and accused of being a liberal stalking horse who, whenever I saw something new and good (the internet),  I wanted to tax it. I’m proud I whipped the asses of these guys in debate. I even got Grover Norquist to start spitting in fury when I equated his position on tax policy with John Calhoun’s argument for nullification (ok, that was a  pretentious cheap shot and misdirected but a memorable event to tell my grandchildren).

I even got into an argument with former governor (and hopefully future governor), Jerry Brown, then mayor of Oakland. He said all I wanted to do was tax the internet. I responded in my most patronizing tone, that of course the mayor understood that the issue was not taxing but requiring collection of tax. Unlike Norquist, Brown appreciated a worthy opponent. He made me sit next to him for the rest of the event and engaged me in conversation about his passionate interest in the thought of  Jürgen Habermas and other German philosophers. After that, I decided that Brown was wrong on tax policy, but otherwise ok.

This was back in 2001 when the country was gripped with internet frenzy. The high-tech lackies were hyping the New Economy with the most shameless humbuggery imaginable. In the course of debate, I heard  more than once that the internet was the most important invention since the wheel. I responded that it was considerably less important than the invention of the plumber, particularly when your toilet was overflowing.

So why did we argue that this was illegal. After all, according to the Supreme Court in Quill, out of state companies didn’t have to collect sales tax. Well, fair enough. But the Court had also ruled in a number of cases, that even the most tenuous physical connection to a state could trigger the requirement to collect taxes. Even a commission sales rep wandering into the state occasionally was enough to create the necessary connection to the state. Well, what was different about the existence of tens of thousands of  Amazon Associates in  a state actively driving sales to  the internet retailer in exchange for  generous commissions? How was this different from a commission rep? You don’t have to be Antonin Scalia to answer that question. The was no difference.

This whole theory was devised by Bill Petrocelli. Of course, back in 2001 we were the only people arguing it. And, of course, we were just a couple of Luddite mom and pop retailers fighting the  juggernaut of the inexorable Hegelian dialectic of history with our sling shots.

Come the collapse of the economy in 2008. The states start looking for more ways to collect taxes. And Bill’s theory becomes extremely attractive. New York passed a law to begin collection and now Colorado. Of course, if Amazon dumps its affiliates, then their connection to the state disappears and Amazon doesn’t have to collect. Amazon maintains its unfair tax break. Schools and services pay for it by getting less tax dollars; and the PTA’s lose a valuable source of funds.

I end this blog by paraphrasing the unforgettable words of Joseph Welch as he destroyed what was left of Senator Joseph McCarthy’s reputation in the Army-McCarthy Hearings:

Jeff Bezos,  “have you no sense of decency, sir, at long last? Have you left no sense of decency?”


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