Brian Clegg – brilliant author extraordinaire and all around great gent, commented in a previous post:
What’s interesting is how does the cost of getting an ebook into the shops compare with the cost of physical book, including production, shipping and dealing with returns, on top of all the same costs as the ebook? And how does the net revenue then compare? So ultimately, taking all this into account, how does the ratio of earning per ebook to earning per physical book compare with the ratio of royalties on the two?
I thought it a great discussion, so I decided to make a separate post to discuss these issues. There is a lot of comparing apples and oranges with e-books and physical books in terms of who’s doing the publishing – authors or publishers. So for this post, I’m going to take the viewpoint of publisher and we’re trying to figure out how all e-books vs. physical royalties and advances will eventually wash out.
Of course, it comes down to cost.
Cost comparisons for the bookstores – physical vs. e-book
The eventual resting place with books is, of course, in readers’ hands. The easiest, most efficient way for that to happen is in bookstores. Brian asked how e-book costs compare to physical books in terms of getting them into the shops, using production, shipping, returns as our list of parameters. I’m adding discounting to the list as well.
Well, for starters, e-books aren’t yet being sold in physical shops [at least here in the US], so right off the bat, we’ve parted company in the comparison game. Powells.com is terribly clever in that they sell e-books on their online site. To my knowledge, they’re the only mainstream bookstore who does. I suspect that at some point physical bookstores will offer e-book sales.
Before I can break this down, I need to make a few assumptions. I’m not talking about the self-publisher, but a mainstream publisher who creates physical books and offers the e-book version as well.
Production: The production costs are established with the physical book and runs into the thousands when you consider all the elements I wrote about in my previous post about e-book costs. I’m talking about editing, cover design, ISBN, interior layout and design, distribution, marketing and promotion.
Print Runs: I’m separating this from the normal production costs in order to highlight the case that print runs vary depending on the book. For instance, we may print 2500 units for one title and 8,000 units for another because it has a wider audience potential. So our mileage varies depending on the title.
Shipping: Shipping costs are all a part of doing business with physical books. Everyone has UPS or FedEx accounts and gets discounting because we’re all shipping so much. Still, it’s an expense that rises with the number of books we’re shipping.
Discounting: Any distributor or national account like Borders, B&N, Powells, Waterstones, etc, buys publisher’s books at a discount. The normal range is between 45 -55% depending on the number of units being sold and the company doing the purchasing. So that book whose retail price is $15.95 is being sold to B&N for $7.975 per unit.
So remember, publishers are making money off that discount price, not the retail price. When you add up the production and printing costs, you can see why it’s vital to pick books we think will sell very well because while printing costs may vary depending on the units printed, the production costs are static.
Returns: Ach, the bane of every publisher’s existence and what very nearly killed many publishers a couple years ago and put thousands of editors out of work. We have to allow for the possibility that some books don’t sell within a bookstore’s sell window, and they’ll return them in order to make room for newer books. That’s why it’s so important to hit the deck running when your book comes out. If sales are tepid, they’re going to clear you out for someone else. And yes, publishers withhold a percentage of royalties in order to allow for the possible returns.
E-Books – they ain’t as free as you think
Ok, so here comes the comparison. E-books don’t have returns and they don’t have print runs or shipping costs, so the only things left are discounting – which is the same as physical books – and production. And here is where a lot of people find their biggest issue.
Production: Many people believe that the production costs are tied up in the physical books and that e-books are this marvelous freebie gift from the Great Cosmic Muffin. This is plain wrong thinking from where I sit. Yes, we expended the money to produce the physical book, but had we not done so, the e-book wouldn’t exist. E-books are simply another printing medium, so it goes to reason that our production costs bleed over as well.
E-book conversion: Almost not worth mentioning because it’s negligible PROVIDED the e-book version sells enough units to offset the costs.
Royalties: And this is where the big brouhaha rears its ugly head. Since so many people believe these e-books are free for us that they should have higher royalty rates. It wasn’t that long ago when the royalty split was 50-50, and that’s because e-book sales were negligible. But now with Kindle, Nook, Sony e-Reader, iPad, etc., e-books sales have dramatically increased and become an issue that publishers need to deal with head on.
Now you’re seeing more contracts that have a 80-20 split, and it has agents and authors howling. On one hand I can see why. Publishers were once willing to offer a 50-50 split because sales were weency, but now we’re getting all greedy like because e-books are making a much bigger impact on sales. In other words, publishers saw e-books as a throwaway, but now we want a bigger piece of the pie.
As a publisher, I can’t apologize for that. We fork out thousands in production costs for each title. E-books are quickly becoming a viable reading option, and it goes to reason that we will use those sales to recoup – and make money – from those sales.
Brian asked: So ultimately, taking all this into account, how does the ratio of earning per ebook to earning per physical book compare with the ratio of royalties on the two
Because publishers don’t have to worry about print runs, shipping, and returns [which are the only real costs that can’t be tied to e-books], royalty rates are generally increased from 8-10% to 20% or higher for authors to reflect the decreased risk.
In the end, who knows where and how all this will shake out? We’re in a transitional stage where ideas are being tossed about. And just like the old argument of Beta or VHS? this, too, will have an ultimate winner. The important thing is to always keep the lines of communication open and understand there are always reasons why we do things the way we do.