Thursday, July 19, 2012

Pearson Buys Author Solutions

Posted by Victoria Strauss for Writer Beware

Last March, word went out that  self-publishing giant Author Solutions Inc (owner of AuthorHouse, iUniverse, Xlibris, Trafford, WordClay, Palibrio, and several others, and contractor for the self-pub divisions of several major publishers) was looking for a buyer.

Now it has one: Pearson, the parent company of Penguin Group.

According to the official press release, Pearson is paying $116 million in cash for ASI (which, frankly, doesn't seem like all that much, given ASI's dominant position in the self-publishing services market).
Penguin’s chief executive John Makinson said: “Self-publishing has moved into the mainstream of our industry over the past three years. It has provided new outlets for professional writers, a huge increase in the range of books available to readers and an exciting source of content for publishers such as Penguin. No-one has captured this opportunity as successfully as Author Solutions, which has rapidly built a position of world leadership on a platform of outstanding customer support and tailor-made publishing services. This acquisition will allow Penguin to participate fully in perhaps the fastest-growing area of the publishing economy and gain skills in customer acquisition and data analytics that will be vital to our future.”

In 2011 Author Solutions generated revenues of approximately $100m, growing at an average annual rate of 12% over the past three years. Its business is split broadly evenly across three key areas: publishing, marketing and distribution services, with revenues generated primarily from services to authors.

The company has approximately 1,600 employees, located primarily in Bloomington, Indiana and Cebu City, the Philippines. Pearson will be expensing integration costs relating to Author Solutions in 2012 and expects the acquisition to enhance adjusted earnings per share and to generate a return on invested capital above Pearson’s weighted average cost of capital from 2013, its first full year. Author Solutions will be integrated into Penguin’s back office and technology infrastructure but will continue to be run as a separate business.
I tweeted this news this morning, and got several responses along the lines of "publishing is changing rapidly." But I don't think this is about shifting publishing paradigms so much as it is about Pearson seeing the profit potential in a lucrative consumer service that is a good lateral match to its core business. While I'm sure there will be those who feel that Pearson--and by association, Penguin--has sold out (again), publishing companies increasingly need to look for alternative ways to support their bottom lines.

There's a brief breakdown of ASI's output and profitability here. Among other interesting facts, ASI estimates "the 'lifetime value' of an author relationship to generate $5,000 for the company"; and although it sold only 15 more publishing packages in 2011 than it did in 2010, it's predicting a rise in package sales of over 3,000 for 2012. ASI also claims " a 90% satisfaction rate," with 20% of sales coming from repeat customers.

There are many open questions here. Here are some of the most pressing, in my opinion.

- Under new ownership, will ASI manage to improve its customer service? Despite ASI's claims about customer satisfaction, the comments threads of my posts about ASI's acquisition of Xlibris, Trafford, etc. (see the links in the first paragraph of this post) are replete with complaints from unhappy authors, and I receive many more via email. Others can be found online (author and editor Emily Suess is one of those who has been keeping track).

Amazon faced a similar problem years ago when it acquired self-pub service Booksurge, which at that point had a terrible reputation for quality and service. Under Amazon's management, Booksurge (which eventually became Createspace) was overhauled and improved, and was able to shed its negative image. Will Pearson be able to do the same with ASI?

- Will the payment glitches that currently seem to be plaguing the ASI "brands" be addressed? Over the years, I've gotten a steady stream of complaints from authors who've used one or another of the ASI brands, and believe they aren't being paid what's due them. Often enough, this turns out to be the result of unrealistic sales expectations or other misconceptions about sales.

Lately, though, the volume of payment complaints has increased significantly. I've also heard from agents whose clients are experiencing similar issues; ditto for authors in the Authors Guild's Back In Print program. While I don't think ASI is deliberately witholding and hoarding authors' money (as some of the authors who contact me believe), it does look as if something is seriously wrong with ASI's payment systems, and urgently needs to be fixed.

- Will ASI begin to advertise itself more transparently? So far, the company has put out two whitepapers that promulgate the misleading claim that it is an "independent publisher" (along with other inaccuracies about the publishing industry). Other less-than-transparent marketing efforts include maintaining sites like Findyourpublisher.com, which purport to be utilities to help writers choose a publishing company, but which all default to ASI brands.

- Will ASI continue to offer--and to aggressively promote--all those overpriced, dubiously useful marketing services and incentives? One of the most frequent annoyances reported to me by authors who use ASI brands is the constant email and phone solicitations to buy ASI's hugely expensive marketing services. I'm guessing that, like liquor in a restaurant, these are a major profit center for the company, since many can be provided at low cost and sold at a high fee (according to PW, for instance, ASI's "Hollywood services" generated over $3.5 million for the company during 2011). Still, it would be wonderful if Pearson would rein in this aspect of the business--if only just to downplay the hard-sell sales tactics that exploit the ignorance and inexperience of many new authors.

- Is this really a good investment for Pearson? Will ASI's customer base and profits continue to grow? Or, with all the free options out there--not to mention the fact that the main action in self-publishing these days is in ebooks--is its high-priced, POD-centric business model already on the way out?

All in all, an interesting situation to watch over the coming months and years.

18 comments:

Lisa Spangenberg said...

I wonder how much interest Pearson has in the ability to POD backlist titles? They have an incredibly rich backlist, and a super textbook business.

PT Dilloway, Superhero Author said...

It's a lot harder to look down on self-published authors when the "real" publishers start getting involved.

Bridget McKenna said...

I'm not sure acquiring a company that's been featured on Preditors and Editors and Ripoff Report, as Author Solutions rather famously has, is really so much of a feather in Pearson/Penguin's cap, either financially or from the standpoint of goodwill with authors.

Ruth Madison said...

Ha!

I deeply regret using iUniverse back when I did. They charged $800 for something that I now can do for free myself. They continue to take money out of every sale and the only way to order my own book is to buy 100s of them at a time.

The worst though is the calls from their workers offering me more services!

They call me at work and try to talk me into giving them even more money for marketing or something.

Every time I tell them that I wiped out my entire savings to publish with them and that is going to have to be enough.

Victoria Strauss said...

Just to emphasize, since there seems to be a lot of confusion out there, as well as some inaccuracy in the media: it's not Penguin that's buying ASI, but Penguin's parent company, Pearson.

This may seem like splitting hairs, but it's actually a meaningful distinction. Pearson owns not just Penguin but a slew of other publishers and educational and technology companies, and has actively acquired and sold a large number of companies over the years. This looks to me like a strategic investment decision by Pearson--not some nefarious plan by Penguin to become a stealth vanity publisher by directing all authors to pay-to-play publishing and then cherrypicking the successful ones (as some conspiracy theorists are already suggesting).

That said, ASI will apparently be "folded into" Penguin, so Penguin will obviously be heavily involved. So it really behooves them to address the problems that currently plague ASI, not to mention the wide perception of ASI as a predator. If they can clean things up at ASI, that would be great. If they can't or won't, some of that sh*t is going to be sticking to them.

Jeff Hecht said...

Lisa Spangerberg may have the answer - Pearson Prentice Hall already use POD for small runs of textbooks.

J. R. Tomlin said...

That may be true, Ms. Strauss, that it is Pearson's buying them but it is "A Penguin Company" that is NOW on their logo. It is the Penguin name (such as it is) that they are trading on.

http://www.authorsolutions.com/

Take a look.

Morgen said...

Being in college right now, I'm inundated with Pearson offerings, and find them to be cobbled together abridged and bastardized versions of the original books put out specifically for a single course. I don't like them at all.

This also explains what happened to Penguin. Too bad, they were a good imprint for many years.

Jenny said...

Another report I read said that 2/3rds of AS's income came from selling their [obscenely overpriced] marketing packages. So it isn't likely they'll stop selling them any time soon.

One statistic we don't see cited in the trade press is the ratio of book buyers to book writers. My guess is that some bean counter looked at THAT graphed over time and saw that within another few years there would be more book writers than book buyers, so the obvious way to stay profitable is to sell services to the writers rather than books to the readers.

And there's the price issue, too. Selling a $10,000 marketing package to one deluded fool is a lot easier than selling 10,000 books to discriminating buyers. But earns the same or more profit--especially if the books are e-.

Victoria Strauss said...

According to this article in PW, just one-third of ASI's revenue comes from the sale of marketing services, with another third coming from the sale of publishing services and the final third coming from consumer book sales. That made me go "hmmm"...I would have expected that marketing would represent a greater share, and that consumer book sales would be a lot smaller. Of course, one wonders what portion of those book sales are to the authors themselves.

John F. Harnish said...

One vital piece of information would be: of the 190,000 books published by ASI, how many authors have had significant book sales necessary to surpass the critical breakeven point and produced a financial profit for the author. Considering the outrageous prices of “marketing and publishing services,” it’s a sure bet that more than 95% of their authors aren’t even close to earning a return on their cash investment to publish their books. In recent years the POD publishing model has changed to one where the publishing service makes a profit even if no books are sold.

Stijn Hommes said...

Wow! 116 million. That has to be the worst buy I've ever seen. I can only hope they will turn things around and turn it into something that's worth what they spent.

Anonymous said...

So is Penguin trying to compete with Publish America. It looks that Penguin is going into competition with Publish america. They are all a bunch of whores in my opinion. Penguin will charge the masses to publish their books that no one will read, and then they will publish their own self interest groups and friends and political cronies and only promote their friends. The rest of you will not sell any books at all, just pay penguine for their "services."

BuffySquirrel said...

Rather than making me think better of the self-published 'brand', this makes me think less of the Penguin brand. But this is the way things have been trending in publishing for some time, now. Much easier to make money out of being paid to publish any old writing than to continue trying to find and sell good writing.

Is it too much to hope that the profits from AuthorSolutions will be ploughed back into Penguin's core business? Or what used to be its core business, back in the day.

Ellis Shuman said...

This sentence on the Author Solutions Looks for A Buyer article from March bothers me:

"Since its launch, ASI has published 170,000 titles from 140,000 authors, and said it has a 90% satisfaction rate, with 20% of sales coming from repeat customers..."

The average author has published just over 1 book, yet 20% of the sales are coming from repeat customers, proving that after an author publishes with them, he ends up buying more services even though he is not publishing a new book.

Sandra-Lee Hutt said...

This comment comes from a self-published author/Trafford publishers-2008. I paid the publisher in full for a BestSeller package which provided me with a number of free copies of my book and world-wide distribution sales. My book is still currently listed with 23,000 on-line distributors. BookFinder4u.com list my book showing comparison prices to purchase my book through amazon.com I notified Author Solutions via phone & several faxes that I have never received any royalities for the sales of my book, only to be informed that there were not any sales. I investigated by calling some of the book stores asking if my book had been sold. I was told that copies of my book were purchased from Trafford/Author Solutions from book stores to sell copies of my book. I notified amazon.com and I was told to refer to their sales report which showed no sales.
Amazon asked me if I was the sole proprietor of my book and I responded yes because I have proof that I own the copyrights. Amazon notified Trafford publishers to remove all of their inventory of my book from their (amazon) warehouse because amazon believed that Trafford owned the copyrights. I now have a website to sell my book and individual poems from my book as a craft in framed poetry. I have also added a number of poems on my website: Tones In Twilight Collections.com and I have a vendor/seller license to sell. I still have not received any royalties and I have notified the IRS this year asking if any federal/state taxes have been paid or owed for the on-line sales of my book. I await any answer from the IRS and I have sought an attorney who informed me to keep pressure on Author Solutions. Also, the price of my book has not changed since the publication in 2008. Please advise. I welcome any suggestions on what I can do. I also have two complete manuscripts which I plan to self-publish this year through Friesen publishers. I was accepted from Dorrance publishers for a traditional subsidy contract.
I said no to their offer to pay them $8,000 and they are willing to pay $1,000 to publish one of my books.

sandra.hutt@mttaborcybervillage.com

zhochaka said...

I'm not averse to self-publishing, but doing it well is harder than it looks. And, looking from outside the USA, too much of the business (Amazon ebooks for instance) forces you to deal with the US tax system.

Companies such as Pearson have the potential to extend self-publishing services to an international market. If they do the admin right, they can avoid the US tax trap. They can publish more authors.

But buying a brand with a poor reputation may not be the way to do the job. Amazon, they ended up changing the name of the PoD service they bought. This has the feel of a deal done by the accountants, rather than by a publisher.

Kris Cruse said...

Perhaps I am too much a novice here but! could anyone recommend a 'reputable' publishing house? A dear friend of mine is getting ripped off by Trafford and I am trying to help them find alternatives...

Thanks