Are eBooks A Rip Off?

wpid-Photo-4-Jan-2013-0940-PM.jpgThere’s been a number of reports over the last two-and-a-half years talking about the slight reduction in ebook sales, and the increase in traditional dead-tree copies. In fact, the paperback market is booming right now, in part due to the increase in the mainstream publishing industry’s dramatically improved production and distribution channels. As I’ve noted before, in the last few years, the likes of Penguin Random House and HarperCollins have invested in these processes by an order of magnitude and are understandably reaping the rewards.

I wrote quite a while ago about how more and more of my own ebook sales were outstripping paper-based sales. This is certainly a movement that’s changed in the last year, with the books I’ve written published by these mainstream titans allowing for more sales and better margins. I wrote that the establishment will do things to slow the move towards ebooks, and maintain their hold on this market. I’ve also written about some of the other reasons why the ebook revolution hasn’t moved as quickly as many had hoped. I think those things are true, but what I didn’t anticipate, was the size and scope of the entrenchment, which has encouraged a return of the traditional paperback for readers in such volume.

Sure, many readers just decided on average, that they prefer paperbacks rather than ebooks. But many – maybe most – really don’t feel this way. However, when there’s comparative price differences between paper or electronic versions of books they want, they might be inclined to by paper. Especially if ebooks prices are over-inflated.

I think this over-inflation continues in part. But also in opposition to that, the way things work at the moment does mean that many authors are not being paid the right amount for their work much of the time.

Let me try to explain with an example, based on 2017 – now I guess 2018 – prices: Imagine there’s a new book out, both in paper form and ebook. We’ll dispense with the hardcover market now so as not to over-confuse things (though this would also work with that market).

Here’s the very basic breakdowns on the paperback version, on sale in the UK for, say £8.99 (which I’ve rounded-up to £9.00 for ease):

9 pound paperback

£9 Paperback Breakdown

As you can see, We’ve got about 40% of the total RRP (Recommended Retail Price) reserved as markup for the retailer. That’s £4.00. Very typical. Many retailers will charge the full amount (after all, they’re taken the risk in buying a lot of stock, etc., and often the deal means they can’t sell all of it back if it doesn’t sell). But many larger chains and online retailers (hello Amazon) can cut into that markup and sell it for less. So a £9.00 book with a high street retailer making £4.00 is sold on Amazon for, say, £6.00 with Amazon making just £1.00, but happy to do so because they sell so many.

The cost of manufacture and distribution for the Penguin Random House/Simon & Schuster’s of this world has never been proportionally lower. They’ve made big investments and it’s paying off. That’s why the cost of physically making each book (allowing for scale) and distribution is just £1.00.

That leaves £4.00 for the publisher. The author will get a bit of that, as will the typesetter, cover designer, etc. That’s essentially the “intellectual cost” of the book. Remember that £4.00, it’ll be important later in this article.

Now let’s look at that same book going on – for example – Amazon on the Kindle platform. It’s the same book, but in eBook form. And you can get it for £4.99 (again I’m saying £5.00 for simplicity’s sake):

5 pound ebook

Typical £5 eBook Breakdown

As you can see, the breakdowns are different. But that’s fine, they should be for the most part. The retailer is handling most of the actual “distribution”. But that’s a tiny cost (don’t let the technical illiterates in the publishing business tell you otherwise), so I’ve been very generous with the 20p cost there. Though I haven’t written it this way, there’s an argument that the 20p cost is mostly for the retailer rather than the publisher, which is fine.

Speaking of the retailer, they don’t have a big risk any more. If the book sells one copy or a million, they just need an electronic copy on a server (or probably several to be safe) and can distribute that as needed. There’s no advantage to economy of scale, but no disadvantage to low sales either. The book-selling business in the ebook world is a low-risk game. So their markup is significantly lower to reflect that. I think that’s fair.

Where there’s a slight problem, is the revenue for the publisher in this model. Just £3.30. Now, there’s lower costs here which is fair. The retailer doesn’t have to make as big a risk on producing thousands of physical copies of a book that might not sell. And they don’t have to pay lots of money for a typesetter either. But they still spend time and money investing in the author. They’re still the big promoters and backers of talent. In the future, I hope that they stay as a significant force in this area. They’re brilliant at it, and I speak from experience. And they still have to pay for someone to design and produce the actual ebook file. Where a typesetter will work full-time for two weeks to finish a typical book (burning the candle at both ends), a finished and edited manuscript can be made into a perfect and standards-compliant ebook format in a couple of days easily. Hell, even I could do it to a decent standard in one afternoon with some of the software out there.

And of course, the author needs to get paid. Sadly, in the current system, the author is the tiny bit of that £4.00 that gets squeezed the most when it goes down to £3.30.

A publisher doesn’t need to make £4.00 from an ebook. But under the current way of doing things, an author often gets financially penalised when someone buys an ebook over a print edition because of the overall lower revenue per-sale that goes back to the publisher.

The quickest, and – based on where the industry is now – the most practical current solution would be to charge a little bit more for ebooks. The sales are what they are, and may not be affected too much (but I understand how the economic theory of ‘dynamic scoring’ could lay waste to this idea, which I readily admit), but this example breakdown could work better in the short-term. Imagine if instead the ebook sold for just a  tiny bit more; £5.70:

5.70 ebook

Example of a Typical £5.70 eBook Breakdown

Now things are a tiny bit different. The manufacture/distribution cost is unchanged. Because the overall price is higher, the percentage markup for the retailer is a bit higher. But the publisher (and therefore the author and everyone else) is left with almost the same as they would have with the £9.00 paperback book.

£3.80 is less than £4.00, yes. But not by much. And that 20p drop is just to account for now having to pay a typesetter as much, and an ebook designer for two days over that two-week typesetting job, and of course not having the risky investment of mass-producing a physical book, which is the big cost. This price would, arguably, disproportionally reward the publisher themselves, but at least it means the author would get what’s owed to her in full.

The best example that I can come up with to highlight the problem right now: Imagine you hire an accountant to do an audit of your finances. They spend a couple of days going over your accounts. Your income, expenditure, savings and investments, Then they publish an almost scholarly-assessment, where they write up with graphs and detailed references, what extra savings they think you should be making, what investments you should consider, and what expenditure you could do without.

Imagine then that they printed that 10-page report out, and put it in an envelope, bunged a stamp on it and mailed it to you with an invoice for the work they’ve done: let’s say it was £300.

Question: If they emailed the report and invoice to you instead, would you expect them to have only charged £230?

Sure, maybe taking the cost of the stamp, the envelope, the ten pages and the ink together, they could have only charged £299 for the emailed copy. But anything less than that, and they’re basically being paid less for the same. Is that fair?

Anyway, that’s my view, and I’m sure even I probably disagree with the oversimplification in this article. Besides, I love, dear reader, you regardless of which format you buy my books – and they’re available in both ebook and paperback form right here!

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