e-Book vs. p-Book

Sunday's New York Times (NYT) addressed an issue that has been the subject of a lot of arguments: the cost of publishing a p-book versus the cost of publishing an e-book.

The numbers the NYT describe look like this:

-------------------------------Hardcover----------e-Book

Cover Cost---------------------$26.00-----------$12.99

Retailer's Share--------------($13.00)------------(3.90)
50% on Hardcover
30% on e-Book

Net to Publisher---------------$13.00------------$9.09

And here's how they say they spend that money:

Design, typesetting
& copy-editing------------------$0.80------------$0.50

Printing, storing
& shipping-----------------------$3.25-------------n/a

Marketing-----------------------$1.00------------$0.78

Author's Royalty
15% on Hardcover
25% on e-Book------------------$3.90------------$3.25

Overhead & Pub-
lisher's Profit-------------------$4.05------------$4.56

Total Costs--------------------$13.00------------$9.09

The NYT comments:

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.

And therein lies the problem. The Big Six cannot even envision a world without print. Like the mariners of old, they believe if they steer toward the horizon, they'll fall off the edge of the earth.

They are also being very coy with these numbers. There's a lot of room to maneuver in that blended overhead and profit number. The NYT refers to the publisher's overhead as paying "for editors, cover art designers, office space and electricity before taking a profit." However, I'm betting there's a whole lot of other costs related to the infrastructure of a large publishing house included. Electronic publishers don't have the same huge salary and bricks-and-mortar expenses.

I believe they are burdening the e-book side of the equation with all of the overhead for the p-book side. Overhead costs should go down when you're no longer operating a traditional book factory.

I have to say I'm disappointed in The New York Times. I would have expected them to ask harder questions. The publishers gave a range of royalties on e-books with a ceiling of 25% so that the max return for an author on an e-book still fell below the max return on a hardcover. If a publisher presents the above numbers to an author, writers are likely to zero in on that $.65 difference between the p-book and the e-book royalties.

In actuality, a more reasonable number for that e-book royalty would be 30%, making it exactly the same $3.90 royalty shown for the hardcover.

It would be very interesting to know what royalty Carina Press (the new separate e-book imprint from Harlequin) is offering their authors. Since Carina is independent from the traditional Harlequin operation, they will not be burdening their e-books with the p-books' overhead. I'm betting Carina authors are not facing that 25% ceiling.

One of the reasons e-books only constitute 3% to 5% of total sales is that the Big Six are doing everything they can to impede the growth of e-books. The NYT quotes Mike Shatzkin in the article saying:

“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.”

Note: Shatzkin is talking about protecting bookstores. I promise you, the Big Six are not protecting bookstores as much as they are protecting their own bottom line.

To be fair, I'm taking an extreme position. The Big Six cannot release multiple formats without some mixing of costs. However, their stance that the e-books must carry all the costs of the p-book is also extreme.

There are three main players in this game: The author, the publisher and the consumer. New York publishing is not yet playing fair with either the author or the consumer. That's understandable because publishing houses have not yet accepted that their power position is no longer as secure as it once was when they owned the only means of production.

Consumers are pushing back, and the Big Six have started to blink. The fact that they are considering a $12.99 e-book price is a big change from even a year ago. The fact that they are no longer insisting authors should accept traditional p-book royalty rates for e-books is another enormous change.

Keep your eyes and ears open. Innovative new players are going to enter the publishing business offering lower pricing to consumers and better royalties to authors than described in the scenario above. When consumers and authors begin moving away from the Big Six, things will really start to change.

Go here to read the NYT article.