On December 8, 2010, after consulting my accountant and an attorney friend, I made a few mouse clicks and entered my credit card information and created a limited liability company called Verbitrage LLC.
It used to be that one had to hire a lawyer and pay thousands of dollars to establish a company. I know because I’ve done this in the past. Today, in most cases, lawyers will tell you just to use an online service, which sets you back a few hundred bucks. That’s what I did.
I chose to establish the enterprise as a so-called “series limited liability company,” although it costs a bit more to do so. The relatively new “series” form makes good sense for holders of distinct assets that keep separate books, such as real estate holding companies and companies that own intellectual property. With a series LLC, so long as the bookkeeping is segregated, legal action against any one asset would not affect the other assets.
In plain English, if someone sues me over the content of one book, they’d have no claim on the economic value of any other book.
Why would I bother with this now?
For one thing, because creative output has economic value, even if society doesn’t assign it value from the get-go. In physics, the energy stored in a body or system is called “potential energy.” Think tectonic plates and the ocean. Think tsunami. Nobody notices that potential energy until it gets released as kinetic energy. When that happens, watch out.
The same might be said for the novel someone just wrote — the someone in this case being yours truly. The potential revenue is hidden, but I intend to take actions that may expose it. While a tsunami remains unlikely, I’d like to keep whatever value does get realized, regardless of whether some crazy person decides to sue me.
(I’m not publishing journalistic exposés or roman à clef, by the way, so the likelihood of a suit is minimal. Then again neither Dan Brown nor J.K. Rowling are writing exposés or roman à clef, and they’ve both been sued. So, should I be lucky enough one day to become a bigger target than I am now, the LLC will limit my exposure.)
I decided to call the company Verbitrage, for a couple of reasons.
First, I like the idea of using a neologism. In a world where we turn first to the internet to find things, a unique word makes an enterprise easier to locate. If I called my publishing venture New Way, for example, your search would turn up dozens of companies, religious ministries, political advocacy groups, and random book titles — and that’s just on the first page of results. Verbitrage — as a newly coined word — stands on its own.
Now, if you take a moment to search for Verbitrage on the date this blog is published you’ll find a bunch of listings for Arbitrage, which is fine, because I haven’t put Verbitrage on the map yet, so to speak. It’s also fine because my second reason for choosing the name Verbitrage was to play it off the word Arbitrage.
The American Heritage Dictionary defines arbitrage as, “The purchase of securities on one market for immediate resale on another market in order to profit from a price discrepancy.” Profiting from a price discrepancy in words is something like what Verbitrage plans to do.
Let me explain by posing a question: what is anything worth? The answer is: what someone is willing to pay right now.
If you sold your house the day before the real estate bubble burst, you got one price. If you sold it a year later, you got another. The expression of value depends upon time, and value is only captured when somebody takes action.
The publishing world has been assigning value to books for many years and in recent decades expressing this value first in the business terms of a publishing contract (advance, royalties, subsidiary rights splits, etc.) and then by setting the wholesale price, and finally in terms of the retail price.
But what if the economic signals get garbled, as they have been by new technology? What if the house you thought was “worth” $300,000 last year today gets only one offer and that offer comes in at $150,000?
This, in some sense, is where book publishing currently finds itself.
I recently heard the story of an author who received an advance offer on her second novel that was way less than the earned royalties on her recently published, successful first novel. The agent tried to convince her to take the advance, explaining that the offer was a good one relative to what other authors were getting at this time. But the author reasoned as follows: It’s not a good time to sell a house, so I’m not selling my house. If it’s also not a good time to sell a book to a major publisher, maybe I should take my book off the market and wait — or find another way.
That’s an example from the supply side. Nearer to the demand side, as has been well documented, some authors are pricing their ebooks at rock bottom to stoke interest in other titles they’ve written. Whether one agrees with this strategy or not, it’s a test of value and illustrates that the price we once put on something is not necessarily the price it will carry going forward. Worse: the price we desire to receive is not necessarily the price that the market will bear.
This state of affairs can have — and is having — great impact on authors. For example, while the market for ebooks lurches toward “price discovery,” the author still has to eat. And wherever price discovery settles, well — he still has to eat! But in a world of two-dollar ebooks, how does he survive on the meager twenty-five percent cut that his old-line publisher gives him?
Falling advances and ebook royalty splits are but two aspects of the current problem. Anyone who thinks about the disruptions being caused by new technologies in the book business — namely, impacts from the internet, ebooks and social media — can come up with a dozen others. The point is that the author, as creator, must take steps to extract value from his work regardless of these disruptions and regardless of the stake other entities have traditionally claimed in his work.
In the world of human aspirations, authors fill the space between intention and action with stories. But in the publishing world there is also a space between intention and action. Verbitrage, if I pull it off, will fill that space primarily to the benefit of a book’s creator.
Does that mean every other player in the traditional equation gets cut out? Not at all. But in this brave new world an authors consortium could possibly restore the economic balance in favor of authors for the first time in a very long time. That may be an immodest goal, but it’s what Verbitrage sets out to do.
NOTE: BEGINNING APRIL 13, THIS COLUMN MOVES TO WEDNESDAY MORNINGS.
Follow me on Twitter: JEFISHMAN
Follow Primacy on Twitter: PRIMACYBOOK