The Book Publishing Startup Problem

January 11, 2014 by Thad McIlroy

Two years ago at the Tools of Change conference in New York I was on a panel called “Startups to Publishing Companies Ripe for Expansion: What Are Investors in the Publishing Sector Looking For?”.

Sophie Rochester was the moderator and she offered a balanced write-up of the session soon after. Her account of how the session began unmasked me to be the only negative voice in a crowd of boosters, “McIlroy…feels it’s a very tough market. He explained that there are lots of companies looking for funding without success and believes that publishing is not a fertile ground for VCs, because publishing is not generally profitable. ‘You’re going to have to fight for the investment dollars and you may need to give up a lot more than you want to, to get that money.’”

Overview of the book publishing startup investment problem

On the panel with me were two investors, Henrik Werdelin and Brian Rich, and two startup CEOs, Christophe Maire (txtr) and Valla Vakili (Small Demons).

Both investors have enjoyed some success in the publishing industry, although their portfolios are diversified well beyond book publishing. I could find only one publishing enterprise supported by Brian Rich’s Catalyst, F+W Media, the force behind Digital Book World and Writer’s Digest (and many other communities). Werdelin has been involved with Issuu and Readmill.

On the startup side, txtr.com seems to be busy, but based on the activities described on the site it’s difficult for me to imagine that it’s raking in the dollars. (Update, January 2015: txtr goes bankrupt.)

On the other hand, after attracting over $5 million in investment dollars, Valla Vakili’s Small Demons appears to have shut down.

I also pulled together a slide deck that highlights my observations, both in the slides and in the notes below each slide (you need to download the presentation to see the notes). And so, two years after that TOC session I’ve put some effort into organizing my many files on publishing startups and plotting them on a spreadsheet to see where things have gone. The news is not rosy. There is activity, just not much money being invested in or extracted from publishing startups.

I don’t think that there’s a need to suggest that the problem of publishing startups is difficult to get a handle on, as you see on this “Brief Overview” slide. I have another slide pairing, “Judging Investment Value,” and “Condemning an Investment” that try also to put the book publishing venture opportunity in context. It’s not so difficult. There are today numerous solid investment opportunities in a very wide range of industries (which I illustrate in a couple of slides). Book publishing doesn’t happen to be one of them (and if you think that’s bad, try the printing industry!).

Some people reasonably argue that we’re seeing enormous growth in self-publishing and in ebooks. This is absolutely true. It’s just that the income is spread to hundreds of thousand of self-published authors, a few aggregators such as Smashwords and Lulu, and course, Amazon.

Here’s the slidedeck:

And here’s Excel spreadsheet, which is essential to understanding the situation as it exists today. It doesn’t seem to display well on Scribd but can easily be downloaded.

PS: Publishers Weekly (January, 2013) offered a solid profile of 33 publishing startups, and again for 2015.

PPS: Last November I offered a precis of Arthur Attwell’s trenchant observations on the problem of publishers and startups. A good read: his original blog entry.

PPS-2: While it’s tough to become and remain a successful publisher, and it’s tough to launch and remain a successful publishing startup, there’s a sustainable industry in providing consistent high-quality services to the many companies that are striving for gold in them thar hills. I finally found a good way to express it: “What’s always true about a goldrush is this: better to be the person selling the pan than the person panning the river.” (It’s from the February 2014 issue of Harper’s, from an article (behind the firewall) on romance writing.)

PPPS: Based on the initial response I think that a couple of quotes might be in order here:

1. An optimist is only a pessimist who has not yet heard the bad news.
— old Russian proverb

2. People hate pessimists. Not because they’re pessimists but because they’re right most of the time. They hate them because they’re downers and they’re right.
— Jeremy Smith

 March 31, 2014: Readmill to Close

July 30: Hugh McGuire: “The book publishing industry is very strange, very conservative, very slow, and not the best place for startups.”

Tags: , , , ,

Comments

  • The Book Publishing Startup Problem – Thad McIlroy – Future Of …

    Jan 12th, 2014 : 5:31 AM

    […] Read more here: The Book Publishing Startup Problem – Thad McIlroy – Future Of … […]

  • Meri Pentikäinen

    Jan 12th, 2014 : 8:12 AM

    Hi Thad, I’ve just come across your blog through Alltop.

    I’m interested in publishing startups as well and not always understanding why they don’t take off on a grander scale. This post was very useful, thanks! In the UK, Unbound, who do crowdfunded books, has done fairly well and attracted investment, although I understand they had some money to begin with, the founders being old hands at publishing. I can’t think of other successful ones.

    So – investors aren’t interested in publishing because it’s not very profitable. Do you think that that’s fixable? The book is a good product – cheap, accessible to nearly everyone, comes in a million different varieties, etc. Could publishing be profitable if done differently? I’d be interested to hear your opinion.

  • Thad McIlroy

    Jan 12th, 2014 : 1:14 PM

    Hi Meri,

    The problem with publishing, as with all creative industries is that it’s hit based, and no one can guarantee a hit. Beyond that a strong backlist pays dividend, but it takes years and lots of capital to build a backlist.

    The other way to make money in the industry is to have a service offering. Over time that can offer a consistent income.

    When it comes to book, music and film, doing it for love provides a more consistent return thandoing it for money.

  • xist publishing

    Jan 13th, 2014 : 10:20 AM

    Hi Thad-

    Thanks for this article- it confirmed many of my suspicions. As a publishing start-up founder, (Xist Publishing- children’s ebooks), we’ve spent what feels like 90% of our efforts on building that backlist. After being in business for the last 3 years, we now have close to 200 children’s ebooks and we’re finding that, more than anything, quantity is the way to compete in this market. We’ve bootstrapped to this point and every once in a while, I consider going after funding but keep coming back to publishing great books, expanding our distribution network, and making our titles available in markets that are underserved. – Calee Lee, founder, Xist Publishing

  • Thad McIlroy

    Jan 13th, 2014 : 1:44 PM

    Glad to hear that a backlist strategy is working for you. Just took a look at your site and I’m impressed. I’d enjoy having a look at a few of your most successful titles if you can arrange for review copies. Thanks.

  • Thad McIlroy

    Jan 13th, 2014 : 1:48 PM

    Glad to hear that a backlist strategy is working for you. Just took a look at your site and I’m impressed. I’d enjoy having a look at a few of your most successful titles if you can arrange for review copies. Thanks.

  • BitLit Media

    Jan 12th, 2014 : 11:13 AM

    Great post Thad. As a publishing start-up, we’ve run up against many of the challenges that you describe. Many angels and VCs think that publishing is dead or at best dying. However, I have a regional sampling bias: BitLit is based in Vancouver, where most angels made their money cutting down trees, refining bitumen, or blowing up rocks.

    What’s interesting about all start-ups, is that the vast majority will fail. Even of those which get funding, about 70% will fail, 20% will limp along as the walking wounded, and only about 10% will achieve an exit and return for the investors. This is simply the reality of start-ups and angel/venture investing (see: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1028592).

  • Thad McIlroy

    Jan 12th, 2014 : 1:20 PM

    Good point about the broader success rates of startups…it puts things in perspective. Thanks.

  • John Pettigrew

    Jan 14th, 2014 : 3:03 AM

    That’s actually a crucial point. It seems to me that the problem isn’t that publishing has a lot of startups but that, compared with many other industries, we have hardly any. So, whenever one goes under, it’s news – leading people to bemoan the perils of publishing startups when, in fact, it’s startups in general.

    Of course, this has the opposite problem as well, which is that true successes are correspondingly rare. :-)

  • Thad McIlroy

    Jan 14th, 2014 : 1:37 PM

    Thanks, John,

    I informally track startups in the magazine and newspaper publishing industries, but also in music and movies, and none of those industries appears to me to have more startups per (what would the metric be?) than book publishing. I think the cost of entry to declare “we’re a startup!” is very low in book publishing because much of the technology is low cost and (relatively) low tech.

    I’ve heard as an argument for “this time it’s different” (vs. the late ’90s startup craze) in that Internet infrastructure has been built out significantly since that time. Just two examples: (1) much improved web standards permit more elaborate functionality in the browser and (ii) cloud services provide startups with a lot of storage and programmatic power. Keeping with the two sides of the coin approach, the good think about this is that startups can come to market with lower funding and a lower run rate. The downside is none of this makes for better business plans or business management.

  • Welcome to the Digital Book Era | Digital Book World

    Jan 13th, 2014 : 8:57 AM

    […] The Publishing/Start-up Problem (The Future of Publishing) Several years after publishing consultant predicted a tough road for some publishing start-ups, it appears that at least some of his prognostications have come true. […]

  • Sol Rosenberg

    Jan 13th, 2014 : 1:09 PM

    Hi Thad,

    Great post – wonderful analysis and critical thinking as usual.

    I venture to say (pun intended;) that it is the startups who are defining the new paradigms for the sales/usage of content, rather than the traditional ‘ebook’ container and the existing sales outlets..

    New models, new outlets, new packaging, new containers – all leading to new customers and new markets.

    It is, in my opinion, precisely this kind of experimentation we need to move forward what I call “the future of storytelling.”

    What sayeth you? Agree? Disagree? Thoughts?

  • Thad McIlroy

    Jan 13th, 2014 : 1:41 PM

    Hi Sol,

    As I say in my post, I tilt towards pessimism. “New models, new outlets, new packaging, new containers – all leading to new customers and new markets,” is to me an optimistic view. As far as I can tell books and publishing weren’t broken when the current wave of startups overwhelmed us. Yes, it turns out that lots of people wanted the option to buy books digitally, for convenience, price, etc. Lots of authors have learned how to access the ebook market, with widely varying results. Projects like Wattpad prove that for many readers dividing a longer narrative into easily digested chunks (usually on a mobile device) is a fun way to follow a story, not so unlike the serial approach employed by Dickens et al. starting in 1836. With the enormous range of media choices we have today (encompassing audio, video, and words in print or digital, are we lacking for stories?

    That being said, I’m always eager to try new forms. If “the future of storytelling” is something quite different than we have today, bring it on!

    Thanks for writing.

  • Thad McIlroy

    Jan 13th, 2014 : 2:02 PM

    My goodness: what a saga! You seem to have encountered just about every roadblock that’s out there. At the most fundamental level a strategy of competing with Amazon appears to me to be a waste of energy. I’m not happy about Amazon’s dominance, but I know that I can’t change it and that Amazon is only becoming stronger, clearly at the expense of its competitors. At the most fundamental level the Amazon ecosystem has become far too convenient for a huge number of readers: you can’t beat that: you’ll have to join.

  • Theresa M. Moore

    Jan 13th, 2014 : 3:31 PM

    As a matter of coincidence, today I marked my first direct sale through my site. It means that my advertising efforts are beginning to bear fruit. I don’t have to join Amazon. I simply have to wait for them to come to me. Bwahhahaha. By the way, I direct you to a salient article I read today: http://www.salon.com/2014/01/12/amazons_bogus_anti_apple_crusade/ which points out the reason why I don’t work with Amazon, and many other publishers don’t either.

  • Thad McIlroy

    Jan 13th, 2014 : 3:46 PM

    Thanks for the link to the Salon article: nice to see spelled out what many of us have felt for the past year. Good luck with your plans” lots of authors will be rooting for you.

  • The Book Publishing Startup Problem « P U B L I S H I N G

    Jan 14th, 2014 : 2:13 AM

    […] more: thefutureofpublishing.com […]