The Cost of E-Books
Sunday, December 5, 2010 at 2:23AM in Allison Brennan
Publishing is in a flux for many reasons, the rise in e-books only one--but perhaps the primary reason.
I’m going to separate e-books into four categories for the sake of argument:
1) Traditionally published books that also have e-books as one of many available formats (i.e. my books are primarily mass market, but they are also available electronically, in audio, and large print);
2) E-books published by an e-publisher and primarily available only electronically, though there may be a POD version available or trade or mass market version on sale usually more than three months after the electronic release;
3) Self-published e-books that have never been to market and are published by the author directly to electronic format and available for one or more e-readers;
4) Out-of-print (OOP) books that had been traditionally published, but where the author has retained or regained their rights and has chosen to release the book electronically themselves, and the book is now available only in electronic format and one or more e-readers.
OOP books are seeing a return because authors are finding a great opportunity to publishing these books for their readership. These books all went through a traditional editing process, and while some have to be updated, most of the authors don't need to do anything with the story itself. All the work is in making the physical formatting conform to technology. (Or, for some of the older books, re-tying the entire manuscript. Did you know that in the past, most books were written entirely on a typewriter?)
And self-published books electronically are the same as self-published books in print--the author incurs all the costs, and gets all the profit.
The November issue of RWA’s Romance Writers Report had a very interesting and eye-opening article on the cost of e-books by Sourcebooks CEO Dominique Raccah. The reason it caught my eye was because for so long there’s been this myth that e-books should be much cheaper than they are priced because they are much cheaper to produce. Raccah debunks the myth, and everyone interested in this subject should read the entire article. I’m summarizing some points here.
First, she points out that between traditional, self, and e-publishing, that 2009 heralded a record in books published (to be surpassed this year for sure) – one million. That’s 1,000,000 books.
A million. Books. In one year. Nearly five times the number published in 2008.
One of the big implications of this, according to Raccah, is that it devalues content. There is too much and too little time.
I completely agree.
With all the noise, it’s why my comments here last April still hold water: the bestsellers will continue to do well, but most of us—both traditionally published and self-published-- will be fighting for sales. We’ll be spending more on advertising, more time online social networking, more time positioning our books . . . and less time writing.
What I think is important for writers and readers to understand that there is a cost to create e-books.
Raccah says, “If publishers and authors want the ebook available broadly - everywhere readers might buy their ebooks, rather than just one e-tailer - the publisher has to manage every one of those customers individually.
That also means that we have to manage their technical requirements individually. With printed books, we ship the same product to different retailers. Barnes & Noble, Borders, Walmart, Target - everyone receives the same book. That's not the case with ebooks.
Ebook retailers use different file formats. Despite attempts at standardization, the reality is that if you want ebooks available in as many retailers as possible, you will be creating a minimum of three different file types based off that one original file. The technically savvy among you who've worked with InDesign might say, "easy! I select ‘Export for Digital Editions' from the pulldown menu. Done!" And welcome to the world of broken files, widows, orphans, and stray Cyrillic symbols.”
To be honest, I hadn’t considered the formatting problems with e-books. I’d assume that one “good” electronic file was fine—but according to Raccah, there are a minimum of ten e-tailers and devices to prepare separate files for, and each of those files must be manually checked for quality control.
“Just as "spell check" won't produce a cleanly written text (in lieu of writers, editors and proofreaders) automation and technology are aids but not an all-encompassing solution for ebook production (at least not at this time). You still need human beings to check it all.”
With the rise of e-books, publishers must bring on technically trained staff to handle the new workflow, plus keep up with the constantly changing technology and new e-readers.
One problem area Raccah cited was in metadata—all the information related to each specific book including title, author, ISBN, cover, etc. Each e-tailer has different requirements in how they receive that data, meaning it’s not an automated process to get your e-book up in all available e-markets.
All this is before the book ever goes to market. Editing, copyediting, proofreading, production, cover design is all part of the print process, and while e-covers are generally different formats, it’s only designed once. But even taking out the cost of printing, paper, and shipping, publishers are incurring additional costs on the technology end for each and every book. And that doesn’t even begin to speak to marketing.
I’m happy to take my lower royalties in the traditional market and not have to incur the technological costs of e-book production, in addition to editing costs, cover design, and everything else a publisher does. But if someone else wants to do it, great. I just want everyone to look hard at the costs and not get all dreamy-eyed because they can made 37.5%-70% royalties.
Now, even saying all this, I’m not happy with lower royalties across the board. What I mean is, there are extensive costs the publisher incurs to produce e-books across all e-tailers, just like they incur costs to get books in physical bookstores and mass merchandisers. The first books sold cost the most to the publisher. (For example, a publisher would always prefer to sell 100,000 copies of one book than 10,000 copies each of 10 books.)
It’s standard in the industry to have escalator clauses in publishing contracts. In mass market, the “standard” clause is 8% of cover price up to 150,000 copies sold, then 10% of cover price. In hardcover, the “standard” clause is 10% royalties of cover price for the first 5,000 copies sold, 12.5% for the next 5,000 copies, and 15% for copies over 10,000.
Traditional publishers make their money selling volume—they’d go under real quick if every book they published only sold 10,000 copies. The cost of printing, e-printing, editing, copyediting, cover design, marketing, sales, accounting—and more—for each book would be impossible. That’s why they 1) love backlist and 2) need to sell their frontlist in volume.
Right now, there really isn’t a standard royalty rate for e-books through the traditional publishers. Most houses (Harlequin is the big exception with 6% cover price e-royalties) pay 25% of net. That very roughly works out to be about 15% of cover price.
E-published authors point to the fact that their publishers pay 35-50% royalties. Most e-published authors who go through an e-publisher, like Samhain, don’t incur any editing or publishing costs—nothing more than what a traditionally published author is expected to do (i.e. have a website.) Self-published Amazon authors point to the 70% royalty rate they get for books over $2.99 (this doesn’t include costs the author incurs to sell through Amazon, or the rules of the 70% royalty rate which I tried to understand but couldn’t—if anyone has facts to share, please do.)
Lou Aronica—author, publisher, and incoming President of Novelists, Inc, a professional writers organization—gave me permission to share his numbers for e-books costs and royalties. In light of the Sourcebooks data above—the cost of producing e-books—I think Lou’s numbers make a whole lot of sense.
He extrapolated the cost of ebooks based on firm costs—for example, it costs a “flat” rate to prepare files, metadata, etc for each and every book a publisher offers. He used a $7.99 priced book for the numbers—I can’t remember why, but it made sense at the time he wrote it. (I’ll send him a note and see if he’ll come here and elaborate.)
His conclusions:
25% net royalty: If the publisher sells 2,000 copies, the publisher loses money. The author will still make royalties on each unit sold.
25% net royalty: If the publisher sells 4,500 copies, the publisher makes money, and in fact makes nearly the same dollar amount as the author.
Now, after 4,500 copies, if the author is still making 25% net royalty, the publisher continues to see their numbers go up exponentially because the costs incurred (other than marketing and incorporating new technologies) are fixed whether the publisher sells one copy or 100,000 copies.
Lou’s argument is that, like other publishing models, e-books should be paid on a sliding royalty scale. That after XXXX units are sold, authors get a higher royalty. Based on his numbers, that first threshold is 4,500 copies.
Copies between 4,500 and 10,000 should be paid 37.5% net royalty. (He factors in increased marketing costs for books that sell more copies, and I’m sure he has data that supports this.) But once the e-book sells over 10,000 copies marketing costs don’t increase at the same rate, and thus the author should be getting 50% net for all units sold after the initial 10,000, and that when he extrapolated the data at different sales points (10,000, 50,000, 100,000, etc) his numbers held.
To summarize and compare author royalties
Hardcover
First 5,000 copies sold 10% cover
On the next 5,000 sold 12.5% cover
Over 10,000 copies sold 15% cover
Mass Market
First 150,000 copies sold 8% cover
Over 150,000 copies sold 10% cover
Electronic Books: semi-standard
all copies: 25% net
Electronic Books: what should be standard
Up to 4,500 copies sold 25% net
4500-10,000 copies sold 37.5% net
Over 10,000 copies sold 50% net
I am very supportive of the publishing industry as a whole, because I think they are the gatekeepers. I don’t want to be my own publisher and incur the costs of editing, design, copyediting, technology, and everything else. I’m happy to let them do it, and they should make money off their risk. That's my choice. But I firmly believe that authors need to fight for escalator clauses for their electronic sales like we have for our print sales.
I honestly don't care how people read my books--whether listening, in print, or electronic. I love that readers have options, because that means (I hope) that more people will read more books. I, personally, prefer to read in print, but that doesn't mean I'd never buy an e-book (and I have bought e-books, and own an iPad.) All these changes are scary and exciting at the same time.
My e-book sales have always been a small percentage of my total sales, while I’ve heard that my hardcover thriller friends have been seeing a substantial increase in their e-book sales—20 to 50% total sales being electronic. This may be a factor of being released in mass market—the price point for a paperback ($7.99) is better—especially in this economy—than the price point for a hardcover ($25.) I also think that e-book sales for mass market authors will grow, but most of us who have always been traditionally published in mass market (opposed to authors who started in e-publishing), we're still seeing single-digit percentages.
This may have something to do with the discount on the electronic book for mass market is less (about 15-20% less) than hardcovers (50% or more.) I don't know what the right price point is, but for the most part, publishers and e-tailers are losing money on the $9.99 threshold—as the Raccah article and this article written by industry veteran Bridget Kinsella shows.
"Sargent says publishers are figuring out how to manage that evolution wisely. "The way I see it," he says, "our job is to do two things: make sure we make that transition well, and we also must protect the value of the intellectual property as we go through the transition." Once that's done, he adds, publishing must "make sure, in the end, that the consumer pays a price that is fair and isn't artificially made cheaper."
It is truly an exciting and changing time, but anything we do--as authors, publishers, or retailers--we need to decide only with facts and information, and not on fear and the unknown.
Now, to completely change the topic, my publisher is releasing an exclusive electronic novella on January 24th that’s part of my new Lucy Kincaid series. Both Steve Berry and Dean Koontz have published e-novellas prior to the release of their next big book. I was thrilled to be asked to write a short story (well, not-so-short—Love is Murder clocked in at 25,000 words) to be released electronically between Love Me To Death (12.28.10) and Kiss Me, Kill Me (2.22.11) which are both mass market originals.
After a tough breakup with her boyfriend, Lucy Kincaid needs a different kind of break. So she heads west to join her brother, an ex-cop, for a long weekend of skiing in the mountains. At a picturesque lodge tucked high in the Sierra Nevadas, Lucy finds just what she’s looking for: a peaceful retreat undisturbed by internet, television, and cell phone distractions. She also finds an unexpected group of newlyweds seeking their own idyllic getaway.
But finding one of her fellow guests dead wasn’t in the brochure. And neither was the overnight snowstorm that leaves the lodge cut off from the outside world. When Lucy’s brother suspects the honeymooner’s death was foul play, he’s mysteriously stricken ill. Now, to keep them alive, it’s up to aspiring FBI agent Lucy Kincaid to figure out which of the lovebirds trapped in the lodge is really a bird of prey.
So because I'm very excited about this e-book, and the entire Lucy Kincaid series, and because I believe in giving away books whenever I can, THREE randomly chosen commenters can pick any book in my backlist.
I could ask any number of questions--I probably went too long in this commentary!--but I think I'll just say let me know what you think about this whole thing, and if you have anything to share, please do! If not? Then enjoy this new picture of my daughter's kitten Nemo as he "helps" me write:
Reader Comments (26)
What I don't understand is the "I have to get mine and it better be big" attitude. Even at my low income rate, I've bought a lot of books in 2010 and I have supported the industry because I could at the, say, $9.99 ebook rate rather than the hardcover price or higher ebook rate. A lot more books were sold (without shipping costs) therefore a higher volume per item. If publishers are saying "oh the cost, the cost and I have to make a big margin" and raise the cost per item they're shooting themselves in the foot because in some fantasy land they think they're going to sell the same volume. Not going to happen.
Right now I think they can't see the forest for the trees. People are buying ereaders in record numbers. That's amazing and wonderful for the industry. The volume is there if they don't kill it with high prices.
And authors, I love them, but they chose this profession, no one is making them do this job. Every job has something to suck and every day either you continue to do the job or you don't. And right now an opportunity has opened up to do something differently than previous generations of authors. So do it or don't.
What gets lost in all these percentages, and costs, and margins is that is the consumer, the reader, for whom all this is being done. If the reader doesn't read it or buy it, it all doesn't mean a whole heckuva lot.
This is a comprehensive and very thought-provoking post, and one I'm sure I'll bookmark and come back to. A million books last year? Holy moly... that's a terrifying and also slightly depressing statistic. How to make one voice heard among a million others?
And I second Alafair - the cat looks very cute and warm. I'll bet he's glad you don't write on a typewriter, or every time you hit the carriage return lever, you'd wake him up ;-]
I absolutely and positively believe that books should have value to the reader, that we should keep the price low and add value to e-books. For example, my novella is going to have added content which (if my editor likes it!) will be part of Lucy Kincaid's FBI interview, which won't be published in any book. It's incorporating her backstory in an interesting way for new readers.
But my point is that one of the big problems with publishing right now and a direct threat to the industry and authors is the cost of ebooks that readers might not know about. That if a publisher can't break even until they sell 2500 copies, and MOST ebooks don't sell 2500 copies, but readers EXPECT ALL books to be available electronically (and so do authors) and to be priced perhaps lower than the publisher can support, it's a recipe for disaster--meaning that midlist and new authors really are going to diminish.
Bestsellers are sell WELL over 2500 e-books. But I've hit the NYT list multiple times and I'm not, and I'm sure there are many other authors like me out there.
Now, like I mentioned above, it could be that being in mass market, people who like my books prefer to read a physical paper copy, because I know hardcover authors are selling more. And I think that hardcovers will balance out to between $9.99 and 14.99 for e-books. I also don't oppose the delayed release of e-books, i.e. hardcover out in January, e-book out in April, paperback out in September. But readers have already been united in opposing delayed e-book releases, and I think we should listen to them on that.
Anyway, that was supposed to be the point I was making and obviously I didn't do it well.
Oh, and PK on the the royalty situation, that was directed primarily to authors, and I do think that authors should fight for sliding royalty rates. I also think books should be priced fair and I wasn't advocating making huge profits or margins on the backs of readers--absolutely not. I grew up getting virtually all my books from the library because I couldn't afford to buy them, and in college, and after college I was broke and borrowed books from my mom and friends, buying very few. It's one reason I am a big supporter of libraries and why I don't have a problem with used book stores (physical book stores.)
And I know you love me. :) I'm sorry to say that I can be outspoken but this is what generates discussion. Having a debate is not a bad thing at all. That's how we learn things, not by all of us nodding in agreement and saying platitudes. And I love learning things.
A glut of books. Some authors haven't seen growth. That is called a free market system. You are free to be competitive in this market. It is the effort put into it that decides that some succeed and some don't. Some luck, yes, but luck is also made. Write an excellent book, not just okay. For some authors they're maybe doing the best they can but there are people who are better. Not everybody gets a trophy. It's how we get better. Market the freaking hell out of it and if you have to do most of it yourself, then do it. It's a given that the publishers are only going to do so much, so work with the givens instead of complaining about it.
As I said before, this is an opportunity that few authors have ever had before. Use it or don't. But don't complain about it if you're not going to participate. I don't think JA Konrath is a good writer but he is being hailed as the expert on Kindle self-authorship and his product is selling because he's DOING it.
It is also a unique opportunity because really at this point, you kinda get to make up your own rules about it. It's the frontier and right now you get to do what you want as a pioneer.
Perhaps publishers who release in print incur more costs but lots of teens, people who are bored...have released e-books. I doubt if it were so cost prohibitive, so many ebooks would be flooding the market. Publishers must realize that they would have spent that money anyway so it's not an additional expence, only the formatting and time involved in making the book available increases cost. Author's could be responsible for a final edit just as they are before a book goes to trad. pub. Yeah, I know...more time away from writing but being a published author includes the mundane. For some it's research, for some it's outlining, for others it's editing, the proposal, web presence....
Just a quick reflection on the volume of books released. First, makes me think it's not that expensive. Second, how much is one genre-erotic fiction? How much is ill formatted, poorly edited and/or written? Readers are smart and they'll organize and work out the system. Just as Konrath points out we do already with the myriad of websites out there.
What I see happening is an increase in support--more freelance editors, more copyeditors, more book designers, more tech people who will post your book across all e-tailers for a fee. The publisher puts all these jobs under one roof (and pays benefits and vacation and sick time) but I love self employed people and small businesses, so I think this growth will be great for the economy and great for the business and entrepreneurs as a whole. It's two ways of doing business, and I don't necessarily think one is better or worse. I know one is better FOR ME.
Debbie, there is a cost, and people are investing in themselves, and I wish there were some good numbers out there. I just sent an email to friends on a published author loop who have done some of their own e-publishing with OOP books and I'm hoping they have some cost numbers to share. And I am responsible for the final edit on the print copy--but there's no way I could do it for 10 different copies. When you write it, you often don't SEE the errors because you KNOW the book. That's why publishers always hire outside proofreaders.
I agree that readers are smart and eventually the cream will rise to the top. Right now we're in flux trying to figure out how it all works.
As for Wylie and RH, Wylie basically said he was going to epublish authors that RH said they had the rights to publish. I don't know the details. As far as I know, RH hasn't giving sliding royalties to anyone. But it's a fight getting ready to happen.
I can't wait to see the numbers for 2011 after this big push in e-readers. But in the beginning of any business venture, the cost is probably going to be bigger than the return on that investment. Sometimes all it takes is time (and effort).
Example: I started my newsletter, Premeditated, in August. The big public debut was in October at Bouchercon. I paid $1600 to print the newsletter, not counting travel and hotel costs, that was just the print run. I figured I needed about 60 subscribers to break even on that. Not a big deal at a convention of the target audience and approximately 1500 of them, right? I got 7. Statistically, is it worth my bother? No. But it is early days yet and maybe I planted seeds. Don't they say in marketing that it takes 7 0r 9 "touches" for something to make an impact on a consumer? So, it will go in the LCC bags in March for another cost outlay and maybe that will be more seeds. There's lots of reason the ROI isn't blockbuster as much as I'd like it to be: The economy is bad. People paid a lot of money to be at Bcon and perhaps were tapped out and $25 is too much right now. But I can't make any definitive decisions about it-- if I really believe in it -- until a certain amount of time has passed. I think it's the same for the authors. They could invest the time and effort if they want to in e-publishing and it may just take time to grow. That is a personal decision and the more accurate information the better.
Allison, I think you're awesome for investigating as you're doing. Ok, gotta go work on the January issue. Thanks for letting me play. :)
And having gotten to read the novella already, I just want to say here that people are in for a real treat--Lucy is a terrific series character and I know people will love her.
Also, I had winners from last week, and meant to be clear on my own post that I will announce those next Sunday.
Now, back to the e-book debate: I do agree with Marsha. If many authors can self-publish their books by themselves, why can't publishers do it? Like Marsha said, everything is already done, the last step is to format the book to proper forms using a software. It is not that difficult.
I live with the internet and if you read beauty blogs, it is a wild world out there. People learn as they go and make up the game as they go. At the beginning, beauty bloggers were frowned upon by makeup companies. Now, guess what? The companies ask the bloggers nicely if they want to try out new products. The whole change happened in less than 5 years!
My point is: you don't wait for the companies or the publishers to change. You and everybody else around change and they will follow. Also, don't miss the first boat. It's those who charted the water make the most profit at the long run just because they are the ones who make the rule.
Btw, Nemo looked so cozy and cute. My cat just gives me dirty looks when I write and ignore him.
I've got to play a bit of a Devil's Advocate too, however. I work with numbers in the day job. I know how easy it is to manipulate them (part of my job is to make sure no one does). So of course I'm skeptical. Before I believe anyone's numbers, I'd want to see the raw figures. I'd want to see the breakdown of costs and whether those figures are strictly book production or whether they also include rent and utilities and insurance and whatnot. I'd want to examine whether time and salary costs were accurately assigned to each book and not inflated to cover other expense. I'm not making accusations, I'm just sort of ruthless when it comes to looking at this kind of stuff. Sorry, did I mention I'm a skeptic? From what I gather, overhead is a huge problem for the major (and perhaps not-so-major) publishers right now. Their overhead is killing them.
So for now, I'm taking all numbers -- both those used to argue for and against -- with a big grain of salt. But I do think it's important for writers to educate themselves about this aspect of the business. At some point each of us is going to have to make decisions based on our understanding of what all those numbers mean. And where they come from. Thanks for helping to make it a bit easier.
And good grief, I can't imagine trying to type with my cat draped over my arm. Are you sure Nemo is your daughter's cat? She seems to be rather fond of you...
That said, the other thing I think that has yet to happen, but which should be happening--and I've been saying this for 1 1/2 years now here on Murderati, since March of 09--is that cross marketing and drill down marketing are not being used effectively by the publishers. One example I gave is the fact that text books will soon be obsolete in many school systems--where the textbooks will be downloaded to either a computer or e-reader. Within every subject taught, there could be interesting hyperlinks available for the student (and could be turned off by the teacher if they proved distracting during class), but those hyperlinks could suggests novels on the same subject being studied. Reading about the discovery of the new world? Here's a hyperlink to historical novels as well as popular novels. Reading about spies in the cold war? Here are hyperlinks to spy novels (past and present). Etc.
Basically, a contextual index system at their fingertips, which could list anything from an obscure, but well-regarded novel to the latest blockbuster, on almost any subject.
And that's just one way of cross promoting. I'm still surprised there isn't more cross-promoting / cross packaging with obvious subjects. For example, selling a novel that features a chef? Here are links to the publisher's cookbooks. (Or a partnering pub's cookbooks.) Selling a how-to book on sailing? Why, here are novels about sailing. etc. It's done somewhat by Amazon, but not really well, yet. (If you buy a how-to book, you get more suggestions of how-to books in that category--non-fiction, how-to--not novels.)
There's another way to group books online that I'm waiting to see any day now, and it's going to be the "author" hub -- instead of blurbs, famous authors will start having a "recommended by" set of links that they feel good about recommending, or which match their genre (as blurbs do now), so that the lesser known authors will be able to market by association. (And very likely, there'd be sales kickbacks for those authors creating that kind of hub.)
We're only at the tip of the iceberg here, ebook wise.
However, there is still a finite cost to producing ebooks. Marsha, thank you so much for sharing your experience. What I'd said was the publishers lose money when they sell 2000 copies. Those are based on Lou's numbers as a publisher and factor in copyediting, proofreading, cover design, composition, e-conversion and marketing. I sent him a note that I was posting this blog, and he's usually great about participating, but he's probably not at his computer today! He did the spreadsheet based on what he knows his costs are as a small publisher, so I think those are pretty good.
Obviously, time is money and YOUR time is valuable, but most of us don't factor in the cost of our time because we're self-employed. But if we hired someone to type in the OOP books and convert the data to 10 different etailers and proofread each format, then that is a cost of e-conversion that publishers pay for that we do "for free" if we're doing it ourselves. (I really hope that makes sense!) Ditto for cover design. And having just experienced writing an e-exclusive book, there is an electronic copyediting process that needs to be done even if there was a print book copyediting process because of the file itself. I don't know a lot of the tech stuff on this, but there are steps to production for both print and separate steps for e.
KD, I absolutely agree with you that numbers can be manipulated. And there are costs to everything, whether we do it ourselves or hire someone to do it or have a publisher that does it. I wrote this article primarily because someone said to me that it was "easy" to self-publish an e-book and all it was was a couple keystrokes. After reading the Sourcebooks article where I thought the CEO outlined all the steps of the process that she was being very forthcoming. Quality control is important, and I have purchased self-published books that were full of typos, bad characters, and other nonsense--not to mention poorly edited. If we can agree with Lou's numbers that publishers lose money on their hard e-book costs up until @2500 copies are sold, then that's a starting point. I think it makes sense.
But you're right, everything is changing and it's hard to know what will happen now or later or even just tomorrow. It's exciting and scary. There are lots of opportunities. However, I think that it's going to be a lot harder to earn even a modest profit for authors who epublish on their own unless they already have a large following, or are willing to put in a LOT of time marketing and promoting, instead of writing.
(Thanks for the plug, Toni! You were invaluable in proofing the story.)