TenPages.com Makes Book Publishing More Accessible But Buyer Beware

In this post, I’ll discuss TenPages, which I think is a great social platform but presents numerous caveats at the same time.

Description

Last week, Dutch startup TenPages launched. TenPages is a crowdfunding platform that aims to give (aspiring) authors the opportunity to have their book published. Authors can submit a 10-page manuscript that will be publicly listed on the website. To go from manuscript to publication, the author needs to gain the support from the public.

The public can support the author by buying shares of the book. There are 2,000 shares available at a price of €5 per share. All 2,000 shares need to be sold for the book to be published. Once the book is published and put on sale, shareholders also get a slice of the profit pie. Now, there are rules as to the minimum number of shareholders and the maximum amount of shares per person, but I’m not going to bore you with that.

Shareholder ROI Model

Instead, I want to take a look inside the business model. From a social perspective, it’s a great initiative. If a friend of mine submits a manuscript, I’d definitely be willing to help out by becoming a shareholder. However, from a financial perspective, the financial model is very unfavorable to shareholders.

Let’s look at the exact model:

• Price per share: €5
• Immediate return per share when all 2,000 shares are sold: €1.25
• Shareholders’ revenue percentage: 10% of the retail price (ex. VAT) per book sold in retail
• Return on a single share per book sold in retail: 1/2,000 * 10% * retail price (ex. VAT)
• Profit formula: ((PERCENTAGE OF SHARES * SHAREHOLDERS’ REVENUE PERCENTAGE * RETAIL PRICE EX. VAT * NUMBER OF BOOKS SOLD IN RETAIL) + (IMMEDIATE RETURN * NUMBER OF SHARES OWNED)) – (PRICE PER SHARE * NUMBER OF SHARES OWNED)

That looks rather complex, but here’s a simplified example:

• I buy two shares at €5 each so my PERCENTAGE OF SHARES is 2/2,000 = 0.001
• The shares sale is a success, all 2,000 shares are sold and the book gets published. I will get an IMMEDIATE RETURN of €1.25 per share, €2.50 for my total of two shares.
• The book is sold at a RETAIL PRICE EX. VAT of €10 and the NUMBER OF BOOKS SOLD IN RETAIL is 10,000.

I can now calculate my profit using the profit formula above: ((0.001 * 10% * €10 * 10,000) + (€1.25 * 2)) – (€5 * 2) = €10 + €2.50 – €10 = €2.50

This means that 10,000 books sold in bookstores will net me only €2.50. The break-even number for this example is 7,500 books sold. That’s quite steep.

Additional Caveats

The financial model I described above is the true profit model for shareholders. The profit calculator TenPages displays on its website uses the word “profit” but it actually only calculates “revenue”. They’ve recently added the sentence “with an investment of €X” but they still use the word “profit”, which is misleading.

Moreover, the shareholders’ revenue (and subsequent profit or loss) is calculated based on sell-through. I won’t bore you with all the intricacies of retail and distribution but there are two forms of sales that need distinction:

• Sell-In: This is what companies generally put in their annual reports as “sales”. It is the sales to the retailer. In the case of books, sell-in represents what the publisher sells to the bookstores.
• Sell-Through: This represents the sales to end-consumers. In the book example, this would be the actual number of books purchased in bookstores.

Suppose a publisher manages to sell 20,000 copies of the book to bookstores, but only 100 copies are actually sold to end-consumers. As a shareholder, you’ll only get a revenue share over the 100 copies and not over the 20,000.

The other stakeholders obviously also receive a slice of the revenue pie:

• The author also gets 10% over the retail price (ex. VAT) per sold book
• The publisher gets 30% over the retail price (ex. VAT) per sold book
• TenPages gets 18% 8% over the retail price (ex. VAT) per sold book

It’s no shocker that the publishers benefits the most, but flamin’ nora, TenPages gets almost as much the author and the shareholders combined! And they didn’t even have to invest in the books themselves. Edit: Valentine van der Lande from TenPages let us know in the comments that of the 18% TenPages gets, 10% goes to the shareholders. Thanks, Valentine!

Conclusion

I really like the social aspect of TenPages. In fact, in its first week, one manuscript has already managed to sell all 2,000 shares needed for publication.

However, for a shareholder—in essence, an investor—the model isn’t particularly rewarding. These people make the publication of the book possible and the financial gratification is seriously lacking.

What do you think? Should shareholders be rewarded more for their effort?

No related posts.