Once upon a time, selling directly to consumers was a rarity in the book publishing business. Now, publishers of all types are doing it, or planning to. This trend has been enabled by the web and complemented by publishers’ parallel social media strategies. It is driven by the desire to connect with readers and the strategic threat posed by publishers’ number one trading partner, Amazon, who has explicitly promised to disintermediate publishers, even referring to smaller publishers as sickly gazelles to be culled. For most publishers, Direct-to-Consumer (D2C) revenue is small, and conflicts with traditional sales channels nag; but a brave few have made it their core business strategy. What have they gained and what have they lost by doing so? This post is a deep look at one such publisher, OR Books.
The OR Books story has been told before, but here I want to examine it in some detail as an exemplar of a pure D2C publishing strategy. OR Books is a client of ours, so I’m pretty familiar with their operation, but I have checked in with the founders, Colin Robinson and John Oakes, where I’ve been uncertain about details.
The OR Books Business Model
OR Books publishes about 20 new books a year. The press, founded by veteran publishers John Oakes (Four Walls Eight Windows) and Colin Robinson (Verso, Scribner), focuses on acquisition, design, and promotion. Their list is a bit eclectic, but most of their titles reflect John’s and Colin’s progressive politics or avant garde aesthetics (or both). Each title is launched with coordinated publicity aimed at driving readers to the OR Books website for direct sales in both print and digital-rights-management-free eBook formats. The titles are available only on the OR Books website for the first month or so. After that period, they are sold on Amazon, but only through OR Books’ Amazon merchant account. Selling as an Amazon merchant means that the publisher is responsible for filling the orders and setting the selling price, while Amazon takes a fee for the transaction—unlike selling to Amazon on a wholesale basis, where Amazon sets the selling price, stocks the books, and fulfills the orders. OR Books does not sell to Amazon or anyone else on normal book trade wholesale terms. They do sell to booksellers at a 50 percent discount on a nonreturnable basis. In addition to book sales, OR has an active rights sales program, which generates income for OR and its authors above and beyond OR’s own sales. Interestingly, they sometimes sell trade publishing rights within the United States, as well as foreign rights.
Key Features of the OR Books Business Model
Pricing and Margins
- Because OR sets the selling price for its books both on its own website and as an Amazon merchant, there is price parity across the web. Sales through their own website are therefore not disadvantaged by discounting elsewhere.
- Margins on sales are much higher than trade sales would be, because there are no distributors, wholesalers or retailers involved, and because returns are far less than 1 percent—mostly due to bad addresses provided by customers. Because returns are so low, OR has zero risk of overprinting for titles in runs through Bookmobile’s Automatic Replenishment Program (ARP), although titles printed offset or in standard short-run digital printing (SRDP) runs do carry risk.
- Because of the high margins, breakeven sales on a new title are a small fraction of the breakeven quantity that would obtain were they selling through the book trade, despite a higher digital unit print cost and the additional marketing costs involved in selling direct. John and Colin estimate their breakeven unit sales at about 1,000 copies, excluding rights sales, versus perhaps 4,000 to 5,000 for a publisher selling primarily through the trade.
Branding and Marketing
Because it drives sales to its own website—and is no slouch at publicizing the press itself—OR Books has created a genuine brand among its audience. In addition, because it has created a trusted brand, it can market new titles to the tens of thousands of customers who have purchased from its website. By the terms of the Amazon agreement, it cannot market to Amazon merchant customers who purchase OR books. Colin and John view their mailing list as a key asset of the press.
Some of OR Books’ biggest successes—including titles about the Occupy movement, Sarah Palin, and Julian Assange—have been published on very short time frames to comment on (or capitalize on, depending on how you look at it) current newsworthy topics. Because OR Books is not attempting to synchronize with the seasonal cycles of trade distribution, it can effectively capitalize on such opportunities. OR’s speediest titles take about five weeks from manuscript acquisition to first retail sale.
Logistics: Orders, Fulfillment and Printing
OR Books uses Bookmobile’s Automatic Replenishment Program to print books and fulfill orders, as follows:
- Orders flow electronically from the OR Books website and from Amazon merchant sales into Bookmobile’s system. OR Books staff can also enter individual or bulk orders through a web interface for office copies, review copies, special sales, et cetera.
- If an order has a North American ship-to address, Bookmobile fulfills the order. If the order has a European or Australian ship-to address it is automatically forwarded to printers in the U.K. or Australia.
- Bookmobile maintains all North American printed inventory in its warehouse, reprinting as necessary based on order flow to keep copies in stock for fast shipping.
- Bookmobile bills OR Books periodically for printing and fulfillment services—printing is only billed when a book ships out of the Bookmobile warehouse. Consequently, for most titles, OR has zero inventory risk, and printing is purely a variable cost tied to sales, just as with a Print-on-Demand (POD) program. A few titles whose printing specifications do not fit the ARP model are printed offset or SRDP and stored in the Bookmobile warehouse for fulfillment.
- Based on the history of the subset of OR Books titles that were printed and inventoried conventionally, we are able to see that while ARP unit costs viewed in isolation are higher than if the books were printed in long offset runs, they are lower when the cost of unsold conventionally printed books is factored in.
While John and Colin were not willing to share specific figures, they say that OR Books reached breakeven this year, five years after launch. That is a typical period for most new businesses, and for one with a business model so different than the norm, it’s pretty impressive, in my estimation. Their current challenges include fostering continued growth and scaling to significant profitability.
While any publisher would envy OR Books’ margins on sales and successful customer list-building, key elements prevent this D2C model from being used simultaneously with the trade distribution model. Making D2C work as a real income generator requires:
- Control over retail pricing: If the publisher sells books on a traditional wholesale basis to wholesalers and retailers, the books automatically enter the world of race-to-the-bottom retail discounting, where the biggest seller, Amazon, is willing to take substantial losses. When that happens, consumers, reasonably enough, will not buy from the publisher’s website or Amazon merchant account at the higher price that makes the D2C model work. Therefore, if a publisher’s D2C efforts are intended to generate significant income, distribution must be limited only to channels where the publisher controls the retail selling price, e.g., their own website and Amazon merchant account. Note that this does not rule out discounting, bundling, et cetera, on the part of the publisher, it just puts such decisions under their control.
- No returnable sales: A key part of the OR Books model is the elimination of the cost of printing books that never sell, including the 30 percent of books that ship to wholesalers and retailers and are returned unsold for credit. This reduces the possibility of selling to bookstores drastically, because they will very rarely order on a nonreturnable basis. Selling only nonreturnable thus closes off what are a traditional publisher’s main sales channels.
However, OR Books’ success does prove the case for a completely new business model, where the incredible power of the web to connect with and sell to readers benefits, rather than threatens, the publisher; it also demonstrates the power of digital printing in the form of ARP to nearly eliminate inventory risk. Surely, we can expect more start-ups—either de novo or as imprints of traditional publishers—to grasp this opportunity.