Tuesday, March 02, 2010

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:


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


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.


Colleen said...

I wonder if authors will have to move toward the model that musicians are going... that the product (book/CD) is simply a platform upon which to sell other products or services (say: speaking engagements or concert T-shirts).

Angela James said...

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.

You mean what digital royalty are we offering? It's not a secret! 30% on cover price for sales direct from Carina, 15% of cover price on 3rd party sales. No net.

M. M. Justus said...

I'm just looking for those new players to show up. Or maybe I'm just not looking in the right places for them.

Sandra Marton said...

You make some excellent points. However, you neglect to mention that Carina is a vanity press and is not part of Harlequin's actual publishing program. Regular Harlequin authors, that is, contracted, non-vanity press Harlequin authors, are not published by Carina.

Angela James said...

No Carina is most definitely NOT a vanity press so she didn't neglect to mention it at all and I'm very grateful that she didn't spread that misinformation.

Sandra Marton said...

Angela, Carina is not an advance-paying publisher. It has no distribution services, no standing orders, etc. Here are its FAQs, taken directly from its website.

The Carina Press contract does not include an advance or DRM, and authors are compensated with a higher royalty.
Unlike Harlequin there is no guaranteed series distribution (no standing order, no direct mail, no overseas translation markets).
Carina Press titles will be sold direct to consumers through the Carina Press website, and we’ll be securing 3rd party distribution on other websites.

Angela James said...

Sandra, not paying an advance does not equate a publisher (any publisher, including those like Samhain, Ellora's Cave, etc) as being a vanity publisher.

From the RWA website http://www.rwanational.org/cs/2010_qualifying_markets

“Subsidy” or “Vanity” publishing means the production of books in which the author participates in the costs of production or distribution in any manner, including assessment of fees or other costs for editing and/or distribution. This definition includes publishing programs that withhold or seek full or partial payment or reimbursement of publication or distribution costs before paying royalties, including payment of paper, printing, binding, production, sales or marketing costs; publishing programs whose authors exclusively promote and/or sell their own books; and publishers whose business model and methods of publishing are primarily directed toward sales to the author, his/her relatives and associates.

You'll see that the definition doesn't reference non-advance paying, as that does not make a publisher a vanity press. Carina does not, at any time or in any way, require the authors to participate in the costs of the book production and we are not a vanity press.

Maya Reynolds said...

Sandra: Angela is correct. Carina is a legitimate electronic publisher. Not paying an advance is a particular bugaboo of RWA, but it is not the determining factor on whether a publisher is considered a vanity press or not--no matter what RWA says.

The reason print publishers gave advances in the first place was because it takes so long to go to print and to begin paying royalties. An e-publisher usually goes to release more quickly. Therefore, there is less reason to pay an advance. By contrast, an e-publisher pays royalties sooner and at a higher percentage.

I think you are confusing Carina with Harlequin's Horizons imprint, which had a name change to DellArte. Horizons/DellArte IS a vanity press and an ill-conceived idea of Harlequin's IMHO. However, it's my understanding that Harlequin has removed its name from the imprint so as not to confuse inexperienced writers.

A far more venal situation exists with Thomas Nelson's Westbow imprint. Westbow is another vanity press created by a large publisher. It takes advantage of the parent TN publisher name and reportedly will pay agents a fee for referring writers to them. My disappointment with Nelson over Westbow is profound.

Thanks for posting.

Sandra Marton said...

Maya, I appreciate the clarification. I do, however, take some issue with the reason you give for the payment of an advance. The reason for the payment of an advance, as I know it, is that many authors (myself included) view the writing of a book as not just a creative process but a business arrangement. The payment of an advance is indicative of that fact. An author agrees to write a book; a publisher says, in effect, here's the money to formalize our interest/acceptance of it. Writing a book should not be something done on chance: will I make money by writing it or won't I? Again, this is simply my opinion but it is how most authors I know feel.

Thank you for an interesting discussion.