How Much For that Book-y in the e-Window?
February 5th, 2010(Note: this post assumes the quoted figures are correct. They may not be. But as they match, or are very similar to, what I have heard from other authors over the years, I am not hesitant to use them or assume they are correct.)
This is why I’m saying publishers and distributors are lying to their authors and to one another. Via a comment by Charles Stross:
…in general, the author gets 10% of the cover price of a hardback. The publisher makes 10% of the cover price in profit. The publisher spends another 10% of the cover price on editing, production, printing, marketing, and so on. The distribution chain eats 60-70% of the cover price — typically 30-40% at the bookshop and 30-40% at the wholesaler. Amazon is both bookshop and distributor, but passes around 20-30% of the cover price on to the customer, thus taking about twice as much money per book sold as the author and publisher combined.
I don’t care about the Amazon bits right now, they can get their own post some other time (or you can infer what I’m going to say from the arguments and data below); instead, I direct you to the idea that 60-70% of the cover price is eaten up by the distribution chain.
This would be the very same broken distribution chain we indie publishers in the hobby gaming field rejected about ten years back, and were jeered at for by big industry names who told us “You have to do it this way! You can’t succeed otherwise! You need us and them! You can’t profit doing that!”, and then were finally told by the very same folks, “Er, um, so you guys were kind of right about all that stuff…so, uh, how do we go about this again?”
Yet the publishing houses in the mainstream continue to use this broken, aging, greedy, overly-costly system to move their wares to the public. I’m not being mean about that, it really is all of those, and it’s not specifically due any one person or company inside that mess, either.
There’s no singular bad guy to blame, though some of the actions of certain players are bad. For example, all levels of the three-tier system lie to one another, and especially to the authors, about why — if an ebook costs more than a paperback — the author isn’t making much more on the ebook than on a paperback or hardback book where the publisher is not incurring most of that 60%-70% expense.
Lying?
…one piece…stated outright that there were no big distribution/wholesaler costs for e-books as there are for print books, because there is no need for warehousing/storage. WRONG! – Absolutely, utterly, 100% wrong. The distribution and warehousing charges for e-books are absolutely as high as they are for print books. For example, the biggest book warehouser in the country, Gardners, who distribute our e-books, charge exactly the same as they do for print books – an average whopping 50% of retail price. Why? Because they argue that there are still large costs associated with the production and maintenance of e-books: they’re just different ones. They relate to building, managing and keeping secure e-warehouses, among other things.
This is from Two Ravens Press, an indie publisher. Yes, lying. The piece being referred to is 100% right, not wrong, and Gardeners is flat-out scamming Two Ravens if they are making that claim, because the costs involved in “building, managing and keeping secure e-warehouses, among other things” are simply not nearly as high as they are for physical books.
The warehouser — and this shouldn’t be a big surprise — just wants the cut they’re used to. It’s about profit — not fairness, not costs. (If anyone in business claims otherwise: you have your proof positive they’re lying right there. If you believed them, stop having thoughts about business because I have a bridge to sell you.)
The truth for authors is: ebooks should not (and do not) cost more than physical books, and authors should be getting paid more for them.
How do I know this?
Well, I sell books in this market, too, as an independent in the hobby gaming field.
Excepting my distributor gives me around a ~85% cut of sales and takes ~15% for salaries, sales, promotion, warehousing, & shipping costs. I use that 85% to pay for printing, shipping to my distributor’s warehouse, and promotion — also for art and editing and so forth for the next book in the pipeline — and hopefully for salary. I also sell ebooks of those products through them, and I get the same deal.
However, retailers who order the title from my distributor demand a 45% discount off the cover price. I know the retailer does this so they can make a profit, given that not every title they purchase will sell, giving them room to maneuver the price around without losing the money they’ve already spent on the book (if you’ve ever wondered and don’t know: that’s how 1/2-price bargain book bins work — they still make the retailer a very small profit so the book isn’t a total loss).
But with the ebook copy of my product, there are no printing, warehousing, or shipping costs for me or anyone else involved. My costs are: art, editing, layout, promotion — which I have to pay for exactly once. For a retailer offering my ebook for sale, it is nothing but pure profit…because a retailer doesn’t have to purchase even one copy of the book and thus risk spending money on a physical inventory item they might not profit on: they have free infinite copies. If the book doesn’t sell, they don’t lose money. If the retailer sells it for 10% of the suggested price, they don’t lose money…they still make a profit.
This is because storing and transmitting an ebook costs next to free, especially when you’re doing a lot of it. Even taking into account the costs of tech support and running the server and tracking sales, it costs next to nothing compared with all the costs involved in dealing with the distribution and sale of a physical book for a retailer. And yet, for some reason, the publishing houses and the distributor chain want authors, and one another, to believe otherwise, and will keep repeating falsehoods to the public, to each other, and to their authors because, generally, no one seems to know better.
So, authors, think about it:
If 60%-70% of the costs of one of your books is suddenly freed up due to e-distribution, which doesn’t rely on those channels or their costs, why are your publishers claiming they need to sell ebooks at costs well-above a threshold that doesn’t include pricing for those costs? Because “or else nobody will make anything”? That you’ll LOSE money if you sell ebooks cheaply? That if you sell a book as an ebook for 70%-off the cover price of the physical book, off 70% of the hardcover price, it will be the end of the world and their (and your) financial stability forever?
Let’s look at some numbers: say your hardback sells for $20. You get (10% or) $2 out of this, the publisher gets $4 (20%). Wholesalers take $7, and then retailers take another $7.
Now let’s say your publisher sells your hardback as an ebook, and also prices it at $20, and you’re still only getting $2 out of the sale…
Someone needs to explain where the money they could be shoveling into your pockets is actually going and why. A whole $14 of extra money, perhaps more like an extra $15, because while the publisher still has the same editing and promotional costs for an ebook, they do not have printing or shipping and related production costs.
And, hell, I’m being generous by not cutting that even more. The amounts spent to print and ship the book over its lifetime are going to outweigh the early costs spent on editing and promotion — yes, I know publishers claim the opposite. Their numbers are well-cooked by the time you see them.
Now, even if you’re giving the retailer their usual cut (around $7), that leaves $8 of that $15 unaccounted for (the costs that would have gone into the distribution chain to the wholesaler and for printing/production) that someone — or someones — is pocketing as pure profit (and it sure the hell isn’t you, dear author).
It is clear — and you may not want to believe this because someone you trust who wears a suit or not and is really business smart said otherwise — that someone is scamming the shit out of you as an author, or as a publisher, or maybe as a retailer even, especially if they are telling you that lowering the prices on the books will cost YOU and THEM money.
Let’s say you drop the price of your ebook to 40% off the hardback price, to $12, but not all the way down to $6 (70% off). What happens?
Amazingly, you still get your $2 cut, dear author! Your publisher gets their ~$3 cut, too, and the retailer gets their ~$7 cut (for the expensive notion of having a hyperlink and processing a monetary transaction on a product they literally can’t lose any money on, because they didn’t spend any to buy/ship/store/display it, unlike a physical book).
Here’s the magic if you didn’t quite follow: you dropped the price on the book and are now getting a 17% cut, instead of 10%. The publisher is getting a 25% cut, instead of 20%. The retailer is getting a 58% cut, instead of 40%. Everyone is actually making more money per unit…and you dropped the price. Ta-DA.
Under the ebook system, retailers have negligible costs to list the item. Maybe they should get $1 or $2 of the profits to be more fair, but hell, we’re being charitable and giving them the usual cut, for just keeping the thing in their electronic library, which is nothing remotely like buying and keeping a physical book on their shelf.
The retailer is getting almost 60% of the profit on a product they don’t have to spend money to get — in terms of stocking and shipping and storing and etc. — and can’t lose money on just for having it, unlike a physical book. They aren’t taking anywhere near the same amount of risk as they are with a physical book…in fact, they aren’t taking a risk at all.
Really, maybe you should be getting 30%…40%…50%? Because your friend the publisher’s costs are still well-covered, and the retailer selling your books to a hungry market is still making a tidy profit per sale, even at a reduced cut.
Yes, I keep repeating this: and you dropped the price for the consumer, and everyone is making as much or more than they were at the higher price for the physical book.
You could, in fact, all split that ~35% the wholesaler isn’t taking out of the pie amongst yourselves rather than giving it all to the retailer, which is bonus profit for everyone.
But here’s the other thing: we’ve been talking about hardbacks above, but most of your books and sales are $7 paperbacks. Keep in mind: the lower the cost, the higher the volume. But you know that already: people don’t buy even close to as many hardbacks as they do paperbacks, there’s often a ten-fold difference, because most of your readers wait for the cheaper book.
So, do you want to sell twenty-thousand books at $20…or two-hundred thousand at $7 (or $5? or $3)? Do the math.
Even with smaller sales, would you rather make, say, 20% on $7 or 10%? Would you rather make 20% on $3 or 10%? Really, you’re not dumb, you know the answer: cheaper ebooks are not only better for the consumer, they are vastly more profitable for you, because while they cost less, they generate more.
It is thus ridiculous for publishers to argue that making the books cheaper will impact their profits on hardcovers. Cutting out the retailer completely, your publisher could sell $6 ebooks and make the same or nearly the same amount as they do on a hardcover sale (so will you), except they will make MORE sales at that same profit-per-item level (meaning more profit total) than they would if those were hardcovers, because cheaper is higher volume.
No doubt they have told you and will tell you otherwise (Macmillan certainly has already).
They’re lying.
Wait…$6? Yes, that’s about 30% of the cover price for our $20 hardback — or rather, what’s left when you take out the 70% of the cover price for the distribution chain. The $6 the publisher and author live on anyways from a hardcover sale, right now. Because normally the publisher gets $4 and you get $2 from each $20 hardback. Your publisher could sell an ebook from their own site at $6 and make as much as you would both make on a hardback sale normally.
Here’s some more magic: your publisher could sell an ebook at $2 — $.10 less than the $6 paperback with the 70% taken by the distribution chain removed from the pricing — and make almost as much as you would both make on the equivalent sale of a $6 paperback. Normally, you’re only getting $.60 and your publisher is pulling $1.80 on a paperback — your largest volume seller — and $2.10 is going to the wholesaler and another $2.10 to the retailer.
A $2 ebook will net you $.50 and your publisher $1.50.
If you want to include the retailer in this, and there are good reasons to do so (see below), you could sell at $6 and get 30%, giving the publisher and retailer 35% each. Absolutely no one loses. Everybody involved makes MORE money, or at least no less, than they would on equivalent paperback sales. $1.80 for you, and $2.10 for the publisher and for the retailer per sale.
(And this is if you’re being nice to the retailer because it isn’t as if he is laying out money per book and needs a 35% share to cover his costs and a reasonable profit.)
However you work the numbers, the reality blows all the arguments — about not selling the ebook of a hardcover right away because they’ll eat up the needed profits from the hardcover sales, and not selling them cheaply because it will cost everyone money — not just out of the water, but out of the damn solar system.
And all that is without looking at whether or not the two markets even compete, ala concerns about hardback sales being lost to ebook sales. Many of the successful indie game companies have themselves discovered over the last ten years, after numerous worries, it is foolish to treat physical book sales as competitors to electronic book sales: they’re two entirely different markets. They are not competitive; they are at best complimentary, and at worst blind to one another.
Like the markets for toasters and butter.
So I suggest the publishers, et al. are making those arguments not simply out of fear of the new market, but because their accountants and CEOs aren’t stupid and they want to make (way) more money than they are now while convincing you they (and thus you) will actually make less money than now if they sell those hardcovers and ebooks at the same time and sell them for less.
And they want you enraged and scared and blindly backing them up on this because they told you it was so. And you, as authors, have powerful voices.
It’s about greed. They want to pocket that ~70% the distribution chain would have eaten and juggle it around into other altogether-too-convenient new costs that do not match the real costs of digital business.
But selling $6 ebooks…is nothing but a money-maker for everyone involved. As long as everyone is being honest. (And let’s face it, they aren’t.)
The only people getting hurt here are authors and readers.
The truth is ebooks completely change the market for everyone involved; they have the potential to turn any so-inclined publishers into the e-retailers/e-distribution points, since there’s no need, on the web, for them not be and just pull those profits for their authors and themselves directly.
At least there is no need other than sharing a centralized information and distribution node everyone knows and uses (like Amazon) to get yourself virtual shelf-space in a large market (which is the real value of Amazon or other digital direct-to-customer distribution nodes in the digital age).
Even so, it is also easy to just “be” that node for your “brand”, especially if you are a publisher name readers know (frex: Tor, Baen, Del Rey); but if you use other nodes to reach your public, it is fair and reasonable to give those e-retailers a small cut for the use of their electronic distribution network.
Oh, and if you’re an author with a following, and you own the rights to your work, and you have a bit of technical know-how: you can also be your own node (though also getting a deal with one of the central nodes is never a bad idea). Really, how many $2 or $4 ebook sales a year do you need to make a living?
Or to at least cover your bills between royalties?