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January 15, 2016

Profit Engine: The Author Solutions Markup

Posted by Victoria Strauss for Writer Beware

As most of you already know, Penguin Random House dumped Author Solutions at the end of 2015, selling it to a private equity firm for an undisclosed amount. ("A Penguin Random House Company" has already vanished from Author Solutions' logo.)

The sale received quite a bit of media coverage, at least some of which acknowledged AS's troubled reputation--something else that won't be new to you if you're a regular reader of this blog.

One of the areas that I and others have often criticized is AS's huge range of marketing services, which are aggressively pitched to authors who sign up for publishing packages. Most of these services are dubiously useful (email blasts), jawdroppingly expensive (book signings at book fairs), or both (cinema advertising). Basically, they're the equivalent of liquor at a restaurant: relatively inexpensive to deliver, but extremely profitable because of the enormous markup at which they can be sold. (AS executives have actually admitted, in depositions related to class action lawsuits brought against AS, that selling books is not one of the goals of AS's marketing services.)

What's the actual markup, though? How much difference is there between the price for which AS sells a service, and AS's cost to deliver it?

Here's an example. One of my readers drew my attention to this recent ad on Craigslist, in which Author Solutions seeks "freelance coverage writers" to "read self-published books and provide detailed, coherent coverage on the work's potential for film/television/digital adaptation."

The basic pay rate is $110. What does AS charge the idealistic author with Hollywood stars in his or her eyes? $859. Even assuming that pay rates may go higher for some freelancers, and that there's some level of administrative cost involved in getting the coverage from the freelancer to the customer, that's a hell of a markup.

I could go on--AS's genre-specific advertising packages, for instance, some of which are marked up more than 300%, or its Trifecta Review service, which offers three pay-to-play reviews for well over double what you'd shell out if you bought them on your own--but you get the picture. Author and blogger David Gaughran has also looked into the huge profit AS makes from its marketing services.

Now that AS has been sold, might its new owner (which hasn't as yet made any statements about its intentions for AS, apart from continued expansion) take a hard look at these practices? We can hope, but I fear there won't be a lot of incentive to tamper with such a major profit engine.

8 comments :

Pat Dilloway said...

In the end it's up to the consumer to be informed enough to make good choices. If only more of them read this blog.

David Gaughran said...

Pat - The sentiment you have expressed is fine, but the Author Solutions situation is a little more complicated. Can you name all their imprints/subsidiaries/brands off the top of your head? I can't, and I've been tracking the company for four or five years. Also, were you aware that Author Solutions is secretly providing the POD services part of Nook Press Author Services? Were you aware that Author Solutions is secretly providing the marketing services for Lulu?

I'm all for caveat emptor in general, but in such a situation with a company explicitly trying to hide that it is the one actually fulfilling services, and being "informed enough" becomes a full time job, then it's a bit rough for that burden to fall on inexperienced writers.

Yvonne Hertzberger said...

I'm with you, David. For the new writer who is looking to publish for the first time it is extremely difficult to navigate the hype and distinguish fact from deceit.I tried and in 2009 I still got caught.

Gary Hallford said...

The level of corruption noted when marketing someone else's talent is inexplicable and makes it incredibly difficult to entertain being represented. I am in the process of developing my own marketing tools to strategize on how to sell both single issues and serial novels. The complexity of the task is daunting, but the rewards could be sufficient to offset the trouble of setting it up.

Christine Tripp said...

I keep going back to, if AS is generating huge profits (and I am not doubting that each "service" is making almost 100% profit) why did RH decide to sell it off?
Any feeling that though the services are profitable, the client numbers are dwindling every year, due to the ease of self publishing now and the vanity co as a whole is not making the kind of money it once was?

David Gaughran said...

@Christine:

The answer is pretty straight-forward there: it has to spend hugely on acquiring new customers.

Author Solutions generates a staggering amount of revenue every year. I don't have up to date figures, but revenue was $99.8m in 2011 (roughly a third from marketing packages, a third from publishing packages, and a third from "book sales" - but most of those are sales to the authors themselves, rather than to the public.

You might note that Author Solutions was sold for $116m in 2012 - which seems low against that revenue figure, but it has to spend eye-watering amounts on customer acquisition because it has virtually no organic recommendations or repeat business - no word-of-mouth bringing it new writers. Fake comparison websites, fake social media consultants, splurging on sponsoring literary events so they can have their execs come and deliver talks, teams of sales reps who will follow up all and any leads and repeatedly hound authors until they cave. All of this stuff is expensive. Author Solutions spends millions and millions of dollars per year on Google ads alone.

Victoria Strauss said...

I agree with David. Yes, the AS markup on services is huge, but so are its customer acquisition expenses. I'm sure that's just gotten worse, since AS's production levels have been declining--at least through 2013--suggesting that it will have to work even harder to snag new customers (and also giving it an even more pressing reason to upsell them on pricey extras). All in all, despite the large amount of revenue, I'd guess that AS's margins are actually not that great.

Rebecca Lynn said...

Wow. It's scary to see how much money people are making from aspiring authors. Bookmarking this. ~ Rebecca Lynn

 
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