Business Time: Direct-to-Consumer sales

20 Jul

Recently, HarperCollins announced that they’ve re-launched their site with a complete Direct-to-Consumer (DTC) store, selling physical and ebooks.

Direct-to-Consumer sales are, for many companies, a great way to deal with disintermediation, that being, a disruption of the standard distribution chain. Companies like Amazon practice disintermediation, selling direct as retailers without needing field representatives and by surpassing/superceeding physical retail.

One of the things that Amazon and other retailers that sell direct do very well is capture customer data. They forge direct connections with customers, learn their buying habits, market and upsell based on buying history, and reward loyalty. By selling through intermediaries, it’s harder for publishers to forge those direct connections. This means that publishers, who would very much like to know more clearly whether the market will bear a particular book they’d like to buy, are not as privy to the Big Data anaylses that Amazon and other online retailers can conduct.

HarperCollins’ DTC move makes only the greatest amount of sense, even if it’s about 2-3 years late for what might have been ideal. Angry Robot already sells DRM-free ebooks direct from the Robot Trading Company, and AR among other publishers have made efforts to forge direct connections with consumers through social media, mailing lists, and more.

But what does DTC mean for authors?

Currently, an ebook sale made through an etailer will often be through agency pricing, where the publisher gets 70% of the sale price, the retailer gets 30%, and can discount out of their 30% margin. Other sales are conducted through Wholesale pricing, where the publisher gets 50% and the retailer gets 50%, where the retailer can discount out of their 50%. If HarperCollins is using agency pricing right now, and starts selling more books DTC, the author’s standard 25% royalty of publisher’s receipts (aka Net) could suddenly double.

Here’s the math as I see it:

$9.99 ebook x 70% under agency, x25% for royalty = $1.74825, or $1.75

Under DTC, it would look like this:

$9.99 ebook x 25% for royalty = $2.4975, or $2.50.

It’s only $.75 more for the author per sale, but it’s a 42% increase of per-unit royalty. That’s *very big* in a world where the 25% royalty standard is, barring occasional escalators, pretty much a contract Bridge To Far- not to be crossed or changed.

DTC also makes the publisher $7.49 per sale at $9.99, vs. $6.99 under agency pricing. So there’s a small gain for the publisher, and a larger gain for the author.

 

Side-effects

Now, many retailers will not be happy to see publishers putting more of their efforts into DTC sales. But until that DTC site can prove itself easy to use, and be more enticing for readers to seek out specifically than to go with the ease of a cross-publisher site like Kobo, Amazon, BN.com, etc., DTC will have an uphill battle to fight.

 

How to make DTC succeed

But here’s one way they could stand out: Bundling. A DTC site offering physical and ebooks at the same time could take a page from Angry Robot’s Clonefiles or Amazon’s Kindle Matchbook, and offer ebook bundling with the purchase of a physical book. This would reward readers for shopping DTC, and let the DTC site offer something above and beyond what retailers can easily offer. This bundling could be a free ebook with hardcover purchase, discounted ebook with physical purchase, or perhaps a separate SKU on the site for the ‘deluxe’ bundle, with physical, ebook, and perhaps something Extra, whether that’s an enhanced ebook, a bookplate for select titles, or whatever.

Other options on a DTC site would include ebook and/or physical book subscriptions by imprint (“I love everything from HarperVoyager, so if I buy a subscription, I get every ebook for a year on release date, all at 30% off!”, or the like), exclusive curated content on their site, and so on.

For a DTC site to succeed, it has to offer enough more in terms of content, services, and/or ease of use.

The Big Five have already tried a DTC site at least once before – it’s called Bookish, and it’s still around. It just seemed to have completely failed to move the needle in terms of bringing consumers and readers to its platform over other etailers. (Caveat: I’m not privy to Bookish’s #s, so they could be doing great business. What I do know is that I hear almost 0 about Bookish from my SF/F and publishing acquiantances and contacts, which are not insubstantial).

I applaud HarperCollins for taking the DTC plunge, and I hope that they run it well, including getting authors a bigger slice of the ebook pie, and in giving HC a fallback plan and/or counterbalancing force for ecommerce in case a retail relationship with a major physical or ebook retailer goes sour.

Not like that’s happened to any of their contemporaries in this publishing marketplace. Nope. Not at all. *whistles innocently*

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