Is Self-Publishing a Ponzi Scheme?

Throughout history speculative bubbles have whipped people into such a state of euphoria that they lose all prudence and set themselves up for the collapse of their dreams and fortunes. It happened with investment as disparate as tulips in Holland, England’s South Sea Company, dotcom madness and American mortgage derivatives.

Ewan Morrison, describing the self-publishing craze in The Guardian, thinks this phenomenon perfectly fits the classic signposts of an incipient bubble.  He even suggests it smacks of a Ponzi scheme. “There is now,” he writes, “a boom industry in ‘How to get rich writing ebooks’ manuals, as well as a multitude of blogs offering tips and services, and a new breed of specialists who’ll charge you anything from $37 to $149 to get your ebook into shape. This all seems like a repeat of the boom in get-rich-quick manuals and ‘specialists’ that appeared around blogs and etrading.”

Drawing on the economic theorizing by twentieth century economist Hyman Minsky, Morrison develops parallels between such bubbles as the US stock market of the 1920s and the one shaping up in self-publishing. The following are direct quotations from Morrison’s article The self-epublishing bubble

Stage One – Disturbance.  Every financial bubble begins with a disturbance. The creation of Kindle led to a new generation of ereaders which, with Apple, launched an economic boom in a previously non-existent market.

Stage Two – Expansion/Prices Start to Increase. The ebook explosion is coupled with the rise of the e-reader… A brand new market of consumers for these products has appeared from nowhere. The change to cheap ebooks and self-published ebooks is a “change in underlying fundamentals”.

Stage Three – Euphoria/Easy Credit. Every financial bubble needs fuel; cheap and easy credit is that fuel. Without it, there can be no speculation… “Easy credit” in this case relates to the plummeting costs of digital content… The whole point of self-epublishing is that the market “brings in people who would not normally be there”. Like the promise that we can all have an affordable home with a cheap mortgage, we are being told constantly by digital businesses and the media that we can all be writers and even be successful as writers.

Stage Four – Over-trading/Prices Reach a Peak. As the effects of cheap and easy credit dig deeper, the market begins to accelerate. Overtrading lifts up volumes and spot shortages emerge. Prices start to zoom, and easy profits are made. This brings in more outsiders, and prices run out of control.  This is the point that amateurs – the foolish, the greedy, and the desperate – enter the market.”

Blogs now give advice to start-up writers, telling them to give their work away for free to gain audience share and get reviews, and only then attempt to raise their prices. The zooming prices here refers to the zooming down of prices. For example self-epublishers are now giving books away for free – see the Kindle Top 100 Free books. Furthermore, in this ecstatic push to self-epublish, there are hundreds of thousands of new ebooks for which there are almost no readers at all because they have zero visibility.

Stage Five – Market Reversal/Insider Profit Taking. Warnings sound that the boom will turn to bust; that the models on which success is based are unrealistic and overblown…The models of Doctorow or Hocking are misleading to say the least. For the hundreds of thousands of newcomers to self-epublishing to believe that they can become as successful as [Doctorow and Hocking] is a dangerous delusion, and one capitalised on by companies who have an interest in maximizing internet traffic and selling e-readers and internet advertising.

Stage Six – Financial Crisis. Just as the euphoria consumes the outsiders, the insiders see the warning signs, lose their faith and begin to sneak out the exit. Whether the outsiders see the insiders leave or not, insider profit-taking signals the beginning of the end. Already the stars of self-epublishing are leaving the system that launched them. Hocking signed a deal with Macmillan that gave her a $500,000 advance on four separate books in a series – a total reversal from the way self publishing is done (with zero advances being paid and all work being done on “spec”)… And then comes the collapse – if you work for free and have to slash your costs to be competitive – to, say, undercut the vast 99-cent market…, then your chances of ever seeing a return on all the free labor you’ve put in diminish accordingly. Add to this the fact that hundreds of thousands of others are competing with you in this pricing race to the bottom and the possibility of any newcomers making any money from self-epublishing vanishes. The bubble bursts.

Stage seven – Revulsion/Lender of Last Resort. Panic starts and euphoria is replaced with revulsion. Outsiders start to sell, but there are no buyers. Panic sets in, prices start to tumble downwards, credit dries up, and losses start to accumulate. After a long year of trying to sell self-epublished books, attempting to self-promote on all available networking sites, and realising that they have been in competition with hundreds of thousands of newcomers just like them, the vast majority of the newly self-epublished authors discover that they have sold less than 100 books each… They come to see self-epublishing as a kind of Ponzi scheme – one created by digital companies to prey on the desires of an expanding mass of consumers who also wanted to be believe they could be “creative”. The “Lender in the Last Resort” cannot really step in to save the “investors”, as these are the hundreds of thousands of hopeful and now-disappointed first-time epublishers.

Richard Curtis



5 Responses to Is Self-Publishing a Ponzi Scheme?

  1. Kevin R. says:

    Interestng take, but the difference here is the investment vs. potential. In a ponzi scheme, money is pumped into the system and flows to the initial investors until the last in are left holding the bag. Self-publishing now can be done for virtually nothing but an investment of time. Anyone who’s paying for “get published now” stuff need look no further than someplace lie Smashwords for free info on all the technicalities (even ISBNs are free, now). What’s necessary is the work itself, so anyone getting into self-publishing with nothing to actually publish would be missing the point. Selling 100 books is actually pretty awesome considering that 8 out of 10 traditionally published authors may not even do that well (and have even less to show for it).

  2. Phil Roberts says:

    Interesting article but I don’t think self-publishing is going to burst anytime soon. Writers have always wanted to get their works published, so the rise of self-publishing companies is just supplying the demand. I’ve used AuthorHouse to publish and it’s up to the author to make or break a book.

  3. Sam says:

    I agree with Phil. I self published my first book and sold roughly 2,500 copies. It wasn’t easy, but it was do-able. If people like your work, it’s going to sell with or without the help of others. We write because we feel the need to write. And most of us are tired of waiting to get published, so we found another route. I’m glad the market is turning this way. I just wonder how long it will take for the authors who have a massive platform to go this way and stop using the middleman. For example: Nicholas Sparks.

  4. For most writers the financial investment is low or zero, so the risk is low or zero. True there are predatory middlemen who charge a fortune for services that offer no promise of return, but what’s new there?

    “Already the stars of self-epublishing are leaving the system that launched them.”

    Hardly. Hocking, Locke and indeed ourselves have signed print deals while still maintaining our self-publishing options. It’s not an us and them issue. Self-publishing and trad publishing are not mutually exclusive.

    “Stage seven – Revulsion/Lender of Last Resort. Panic starts and euphoria is replaced with revulsion. Outsiders start to sell, but there are no buyers. Panic sets in, prices start to tumble downwards, credit dries up, and losses start to accumulate.”

    Who are these outsiders selling and who is not buying? We’re talking about ebooks, not shares. Products, but with an infinite shelf-life and an ever expanding market.

    If trad publishers have managed to produce countless millions of new print books year in year out into already full bookstores why will self-publishing and digital books be any different?

  5. If you have a strong marketing plan and quality book, an indie author/publisher can stand out and do quite well. We’ve sold close to 10,000 copies of our four books–and this from someone who once was under agent contract. Indie publishing is not a Ponzi scheme; it’s the future. Period. And I’m definitely excited about it.

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