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E-Books My 2 Cents

I’ve been reading a lot about e-books most of it quite vague. To state the issue as I see it. The people who read e-books want the price of an e-book to be in line with the price of a paperback and the publishers want the price of an e-book to be in line with the price of a hard cover. The e-book reader reasons that electrons don’t cost anything and publishers reason that they are losing hard cover sales to e-book sales.

So whose right? That depends on a lot of factors. But the biggest factor is how much money is actually saved by the publisher in the sale of an e-book. Let’s look at that.

If we take a hard cover run of 30,000 or more, it’s fairly reasonable that the publisher can get a 250 page book for something in the range of $2.50 per unit. So that’s about ten percent of the cost of the book if it lists for $24.95. Now there’s the cost to get it to the market. That cost is a lot less than most people think in that there are companies that specialize in combining the shipping of books from different publishers to the market thereby saving a lot of money on shipping. Based on my experience shipping magazines that way I’ll assume a cost of about .25 per copy to get a hard cover to market. So the cost is now up to $2.75.

I keep seeing people mentioning the cost of warehousing, but really the Thol Power Tool Ruling has all but eliminated warehousing. That ruling means that if you have inventory at the end of the year you must pay taxes on it, even if said inventory was on hand last year and you already paid taxes on it. As a result of this ruling most book companies stopped warehousing books; this had a disastrous effect on the back list and the mid list, but that’s another subject for another time. So these days most back list books, from most of the major publishers, are listed through Lightening Source and are print on demand thus there is no cost to keep them in print or warehouse them after they have had their initial book store run. But still, there is some warehousing for a major title that is expected to require some reshipping. At most I’d assign .05 per copy to that. So now we’re up to $2.80 per book.

Now let’s figure in returns. For this we’ll assume a 50% sell through. That means for each two books printed one book sells. So the printing, shipping, and warehousing expense for one hard cover sale is somewhere in the neighborhood of $5.60. That’s what it cost the publisher to make the sale before we figure in the publicity budget, the writer’s royalty, layout and design, and the editorial budget, both acquiring and copyediting.

So how much of that $24.95 belongs to the publisher. That depends on who their distributor is. But the big boys typically get 45%. So that means the publisher gets $11.23 for each copy that sells. Now the writer will be owed a royalty of at least 10% bringing us to $8.74. Now lets subtract the $5.60 and were left with 3.17. That’s about how much the publisher has before they do any advertising or pay any bills such as rent, electricity, support staff, or editorial.

Now lets look at the cost of the e-book. This varies by quite a bit as not all e-book platforms pay the same percentage. I’ll just go with Amazon as it currently out sells all of the others. Let’s place the cost of the book at $9.99 as that seems to be a price point that makes most readers happy. Now unless you give Amazon an exclusive, something none of the major publishers can do, they only pay the publisher 35% of the e-book price. That’s right, Amazon has already taken most of the publisher’s savings from not having to print the e-book before it even reaches the reader. So when the book sells the publisher gets $3.50. The writer still gets ten percent, though many writers, especially name writers, are demanding a bigger percentage of e-books because . . . . well . . . they have no cost to the publisher. But we’ll stay with the 10% so the publisher has $2.50 left after paying the author. What does this mean to the publisher? It means for every hard cover it doesn’t sell because it sold an e-book the publisher loses $0.67. Not a huge loss but it ads up over thousands of sales.

For the publisher to not lose money on every hard cover sales converted to an e-book sale using these figures the correct price point would be around $12.99 and that assumes that the writer is only getting 10%.

If e-book readers want e-books to cost less they really have to stop insisting on getting the e-book at the same time as the hard cover. I have no problem with people wanting to read e-books for amounts closer to $3.99 or $6.99. But why should anyone expect publishers to take a loss and give that discount while the hard cover is the only traditional edition that is available? Throughout the entire history of publishing people have paid a premium to read books first. Why should that change now?


( 1 comment — Leave a comment )
Mar. 24th, 2011 01:32 pm (UTC)
I never really liked hardcovers, except for fairly special cases. They mess up my storage space (both too big, and not a standard size), they're hard to carry around (especially without damaging them), they're heavy to read in bed, and they're often badly enough made that they don't last any longer than paperbacks. And they're priced FAR too high.

I was dragged into hardcovers for a while when they stopped publishing much of anything in paperback, and that probably increased my distaste considerably.

The rise of ebooks has lead me to essentially stop buying hardcovers. The publishers can wiggle all they want, but a scheme where I pay hardcover prices routinely is not going to happen.

(I'm taking as a given that hardcopy pre-printed and shipped will be less than 10% of the market when things settle down.)

I expect the final outcome will involve either authors bypassing everybody (yes, publishers do very valuable work in the editorial department, and that will have to be done and paid for), or publishers bypassing distributors and bookstores. Maybe in a decade we'll see more clearly which way things are moving.

The thing most likely to mess up my expectations is that I really have no idea what promotional expenses actually influence ordinary people to buy books, and how that will translate. I and my friends get our information nearly exclusively from non-commercial channels (always excepting ARCs sent to bloggers; but that costs very little in ebook form). I suspect the most important "cost" is the publisher putting their name behind a book sent to big-name reviewers at newspapers. But with newspapers dieing, and a significant chance that currently important publishers will fail to make the transition and be replaced by new competitors, I don't have any idea how that will play out.
( 1 comment — Leave a comment )

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