(cc photo: Sarah Browning)
There’s a certain category of newspaper article where you’re better off ignoring the text and just looking at the accompanying graph. Such an article is “Math of Publishing Meets the E-Book” (New York Times, 3/1/10), by Motoko Rich.
The context for the article is the fight between publishers and Amazon over how much to charge for an electronic copy of a book; Amazon wants to price them at $10, whereas publishers would prefer to charge $13 or $15. Here’s what you learn about publishers’ profits from the article itself:
In the emerging world of e-books, many consumers assume it is only logical that publishers are saving vast amounts by not having to print or distribute paper books, leaving room to pass along those savings to their customers…. Publishers…say consumers exaggerate the savings and have developed unrealistic expectations about how low the prices of e-books can go. Yes, they say, printing costs may vanish, but a raft of expenses that apply to all books, like overhead, marketing and royalties, are still in effect.
All of which raises the question: Just how much does it actually cost to produce a printed book versus a digital one?… On a typical hardcover…the publisher is left with $4.05, out of which it must pay overhead for editors, cover art designers, office space and electricity before taking a profit.
An e-book [priced at $12.99]…leaves the publisher with something ranging from $4.56 to $5.54, before paying overhead costs or writing off unearned advances.
What’s missing from the article’s account is how much the publishing company makes from a $10 e-book–but you can learn the answer from the attached chart: $3.51 to $4.26, depending on how big a royalty authors end up getting. So publishers get about as much per-unit profit at $10, and quite a bit more at $13 (let alone $15). So it would seem if the question is, can publishers afford to publish e-books for $10, the answer would be “yes.”
Only that’s not the conclusion of the article–whose alternative headline is “Making the Case for iPad E-Book Prices.” Rich follows her financial calculations with a series of unfortunate events that will occur if the publishing industry does not make more money from e-books than from regular books:
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.
Somehow I doubt that the book industry has so much capital tied up in warehouses that their emptiness is going to bring publishers to their knees.
While the piece is framed in studiously neutral Timespeak, Rich’s conclusion seems to be this: “Certainly, publishers argue that it would be difficult to sustain a vibrant business on much lower prices. Margins would be squeezed, and it would become more difficult to nurture new authors.” Funny, you would think new authors would benefit from a switch to a technology where it cost much less to either produce or purchase a book.
The most eye-opening thing about the Times‘ chart–not spelled out in the article–is the shifting contributions of the various players in the publishing business. With the traditional book, the publisher pays an author $3.90 per copy for a manuscript, adds $5.05 worth of editing, printing, marketing etc. to it, and takes a profit of $4.05–about the same amount that the person who actually wrote the book gets. With the e-book priced at $13, on the other hand, they’re paying the author between $2.27 and $3.25, adding $1.28 worth of value and taking between $4.56 and $5.54 in profit–roughly twice as much as the writer gets.
Publishing houses are going to have a tough time in the digital era explaining why they are entitled to so much for doing so little. But not to worry–they’ll always have the New York Times to help them make their case.
What is missing from both the NY Times piece and this Fair article is the reality of the author’s situation. Both blithely assume the author’s royalty to be 15% across the board. Nothing could be further from the truth. The longest section of any book contract is that covering royalties. There one finds all the marvelous ways 15% can be reduced to 7.5% and then 5% and sometimes even 3%. Is the royalty rate to be determined by the wholesale or retail price and under what circumstances? If the wholesale price drops below 40% – as it does more often than not – then the royalty rate often will be based on the wholesale rate and then cut in half. So the 15% of a $25 cover price ($3.75) suddenly becomes 7.5% of $15.00 ($1.12), which turns out to be less than 5% of the cover price, which was the original basis of the now fictional 15% royalty. And with the largest players on the retail end demanding larger discounts on mass buys it is not unusual for the discount rate to drop even further occasioning another cut in the author’s royalty rate. One publisher’s clause I’ve witnessed even demands a 50% cut in the author’s rate for any copy sold directly from the publisher to the consumer. An astonishing demand as under those circumstances they actually earn at least 40% more than if the copy was sold through a retail outlet, yet they still wish to ding the author for 7.5%.
I’d wager almost all books are sold under circumstances that trigger steep cuts in the traditional 15% royalty rate – and it is at those those diminished rates that authors pay back their advances. And let us not forget returns. Publishing is the only industry I’m aware of where the stock can sit on the shelf for months and then be returned for a full refund. The author must make good on any and all royalties paid on those returned copies.
Unlike screenwriters book authors have no union to protect their interests. The author is pretty much alone as only a very few have the clout to exclude the objectionable. Predatory contract clauses must be searched out by the author and then negotiated by their agents. All publishers have to do is say no, which they do very well, and the author is left with the choice of starting over in the search for a publisher or signing. Most sign.
Writers should unionize. Workers of any sort get taken advantage of without being part of a bigger association. U.S. business interests make creating hatred of unions a prime objective. If workers hate their own ability to stand up for fairness in the workplace, then they are fair game for down-sizing, out-sourcing, and mandatory overtime at the employer’s whim.
How can we be so gullible?
Business tends so disgusting. Their contribution to sports teams owners vs. athletes, filmmakers vs. movie studios, musicians vs. recording studios, writers vs. publishers, is so often, almost by default, rapacious. The party producing the content (intellectual, athletic, or betting on such things in black markets) does the lions share and crucial element of the work, while the business side overcharges for its services and pushes it’s weight around as the central entity for getting the content distributed. Their position is used to exact more and more out for less and less of those actually making things, be it manufacturing in a factory or creating intellectual work. Writers could try to unionize. With the advent of e-books, I wonder what place publishers even have? Without the need for a printing press do they become an unnecessary middle man?
It would seem to me that e-books will allow authors to follow the example set by musicians: they will be able to publish their works independently. There was a time when a few record labels controlled the music that was available on store shelves. The increased sophistication of the personal computer, the increased presence of the Internet, and the overall decline in the costs of electonics allowed hundreds of talented musicians (and not a few not-so-talented ones) to put their work on the market through their own websites, iTunes, youtube, etc.
Might we look for the same things to occur for the written word?