There was an article in the New York Times today analyzing the costs to publishers of producing and selling ebooks compared with hardcovers. It's worth reading.
But here's the thing. They totally lose me in the math:
On a typical hardcover, the publisher sets a suggested retail price. Let’s say it is $26. The bookseller will generally pay the publisher $13. Out of that gross revenue, the publisher pays about $3.25 to print, store and ship the book, including unsold copies returned to the publisher by booksellers.
For cover design, typesetting and copy-editing, the publisher pays about 80 cents. Marketing costs average around $1 but may go higher or lower depending on the title. Most of these costs will decline on a per-unit basis as a book sells more copies.
Yep. Those costs will definitely decline as more copies sell, but the $3.25 for printing, storage and shipping don't.
Let’s not forget the author, who is generally paid a 15 percent royalty on the hardcover price, which on a $26 book works out to $3.90.
And now for the epub costs:
Under the agreements with Apple, the publishers will set the consumer price and the retailer will act as an agent, earning a 30 percent commission on each sale. So on a $12.99 e-book, the publisher takes in $9.09. Out of that gross revenue, the publisher pays about 50 cents to convert the text to a digital file, typeset it in digital form and copy-edit it. Marketing is about 78 cents.
But like the typesetting and editing on the print version, these are one-time costs, and there are no printing, storage and shipping costs on additional digital copies. And if they are also doing a print version, they've already paid for the cover art. So that 50 cents should also decline as more copies are sold.
The author’s royalty — a subject of fierce debate between literary agents and publishing executives — is calculated among some of the large trade publishers as 25 percent of the gross revenue, while others are calculating it off the consumer price. So on a $12.99 e-book, the royalty could be anywhere from $2.27 to $3.25.
All that leaves the publisher with something ranging from $4.56 to $5.54, before paying overhead costs or writing off unearned advances.
A chart accompanying the article lists the publisher's profit on a $26 hardcover as $4.05, on a $12.99 ebook as $4.56-$5.54, and on a $9.99 ebook as $3.51-4.26. All of these figures are derived with static digital conversion, typesetting, editing and copy editing costs deducted, not accounting for the decline as more copies are sold. And even with that, the dreaded $9.99 ebook is still, at its high range, more profitable than the hardcover.
Would a more accurate handling of those declining conversion and editorial costs put the profitability in the ebook's favor or the hardcover's? We don't know. But my first-hand knowledge that digital-only publishers make an excellent profit at prices far lower than $9.99 and author royaltys at 35% certainly nudges me in the direction of the ebook.
After the price comparison, there is a lot of hand waving which basically amounts to two arguments: our current business model can't compete with ebooks, and, the business model of our associates can't compete with ebooks:
At a glance, it appears the e-book is more profitable. But publishers point out that e-books still represent a small sliver of total sales, from 3 to 5 percent. If e-book sales start to replace some hardcover sales, the publishers say, they will still have many of the fixed costs associated with print editions, like warehouse space, but they will be spread among fewer print copies.
So rather than seeing a fundamental flaw in relying on people shelling out $26 bucks for a hardcover, they apparently want to subsidize their less profitable model by pressing readers to purchase their most costly product. Big-three auto company, anyone?
Moreover, in the current print model, publishers can recoup many of their costs, and start to make higher profits, on paperback editions. If publishers start a new e-book’s life at a price similar to that of a paperback book, and reduce the price later, it may be more difficult to cover costs and support new authors.
This was the part that totally pissed me off, and if you notice an encroaching tone of snark to my post, this would be why -- this veiled threat to authors. The fallacy of this assertion is that they are supporting new authors now. Of course I'm not contending that no new author is getting published these days, but I will say it's happening less and less, and that the practice of the top sellers subsidizing the new and experimental authors has been on the decline since the '80s when they adopted the blockbuster model which is now making them dependent on the new-release hardcover like a junkie for a fix.
And to back up a sentence or two: why is it only through paperback sales that they can recoup their costs? Why can't ebooks perform the same function? Maybe this is why:
“If you want bookstores to stay alive, then you want to slow down this movement to e-books,” said Mike Shatzkin, chief executive of the Idea Logical Company, a consultant to publishers. “The simplest way to slow down e-books is not to make them too cheap.”
Well we wouldn't want books to be affordable for just anyone, would we? Not if it means the demise of top-heavy conglomerates who've been systematically narrowing the field of literature by treating books like groceries for the past umpteen years.
Another reason publishers want to avoid lower e-book prices is that print booksellers like Barnes & Noble, Borders and independents across the country would be unable to compete. As more consumers buy electronic readers and become comfortable with reading digitally, if the e-books are priced much lower than the print editions, no one but the aficionados and collectors will want to buy paper books.
Which frankly, is exactly where I think things will wind up eventually, no matter what the big publishers do. And for the record, I don't think that the few independent book stores that have survived this long are anywhere near as vulnerable to ebook encroachment as the big box stores are. If they're still around, they have a loyal customer base and there is value added to their service through the unique environment they provide.
Right now, the $26 hardcover is already a specialized market. That's not a price point on which a thriving mass market can happen. Certainly not in this economy. I happen to think that trying to block customers from getting what they want and herding them into high cost options is a terrible idea. But are there in fact any alternatives for established New York publishers? Obviously, I'm not in a position to answer that, so instead, I'll close out with a few questions. Consider them potential scenarios:
What would happen if the big print publishers stopped printing costly hardcovers, and just did digital and paperback instead?
Or what if they did just hardcovers and ebooks, and no mass market paperbacks?
Or trade paperbacks and ebooks and no hardcovers?
What if book stores installed Espresso Book Machines and instead of costly (to publishers) shipping and warehousing of mass quantities of books, they printed one or two sample copies of their inventory and then printed a customer's books on the spot, while the patron in question enjoyed a cup of coffee in their cafe?
Can you think of any other alternatives?
The New York publishers are trying So Hard to convince people that they have to charge some ridiculous price for e-books, preaching doom and gloom and the downfall of literacy. I remember another article (I don't have a link, but I think it was also NY Times) where some publisher's rep was trying to explain how the base cost of a book -- after you subtract out all the physical production/storage/shipping costs -- was about three dollars less than cover price. And the example was a hardcover.
Umm, yeah. I'm supposed to believe that if they're selling a hardcover for $25, that they'll be losing money if the e-book is less than $22, and actually that $22 is just a break-even point. Plus it costs a lot of money to do the conversion to half a dozen different electronic formats, so the e-book should cost even more!! They're also using these arguments to convince writers that an e-book royalty of 15% of net, or something like that, is perfectly reasonable.
Sure. No wonder all the big publishers are in trouble, losing that much money on every paperback sale. [cough]
I don't know whom they think they're convincing, but anyone who's familiar with the current e-book market knows they're spouting garbage. I have a novel coming out in May. It'll cost $5.95 on my publisher's site, probably a bit less on some of the third party vendors' sites, and my royalty is 35%/25% -- of cover price, not net. My publisher is doing just fine, thanks. Maybe the little e-press people should get together and give seminars to teach the big New York publishers how to make money on product. :P
Except the big publishers are in such financial trouble, they wouldn't be able to afford to pay for a seminar. Woe. I guess they're doomed.
Seriously, though, the market is changing and they're not going to stop it. Their choices are to adapt and thrive, or go the way of the manufacturers of buggy whips and oil lamps.
Angie
Posted by: Angie | March 03, 2010 at 01:58 AM