Get your Geiger counter out (e-book royalties are back, and this time they're toxic)

E-book royalties have been fixed at around 25% for a few years now. The unanimous position of publishers has been that that was what was affordable.

I've generally left this topic alone because a) it was well-covered elsewhere and b) I was prepared to accept pro-tem that the digital transition was expensive, that it had arrived rather suddenly (if you allow a definition of "suddenly" which embraces "a lot of people were telling you about it and you chose not to believe them"), and that no one would actually be daft enough to try to deceive the golden goose about the availability of grain.

Because sooner or later—especially in an environment where grain sources are becoming less centralised and where the flow of grain is scrutinised rather intensely—the goose was going to find out and might get a bit pissy. Geese are almost as sensitive about grain as they are about unanticipated Gaulish invaders.

So what did I know? As it transpires, not much. Brian DeFiore smartly spotted a rather telling bit of information in HarperCollins' "Investor Day" presentation (thanks to Porter Anderson for the link).

There are lot of different ways of expressing the numbers in the various articles discussed here, but the burden of the whole thing is neatly expressed by DeFiore:

$27.99 hardcover generates $5.67 profit to publisher and $4.20 royalty to author

$14.99 agency priced e-book generates $7.87 profit to publisher and $2.62 royalty to author.

So, in other words, at these average price points, every time a hardcover sale is replaced by an e-book sale, the publisher makes $2.20 more per copy and the author makes $1.58 less. If the author made the same $4.20 royalty on the e-book sale as he/she would have on a hardcover, the publisher would STILL be making an improved profit of $6.28.

Let's assume for a moment that this holds roughly true across the industry. Absent some really powerful, clear, and unhedged explanations, authors are going to be miserable and furious. The question is how they will respond. In general, we're not a very organised or proactive bunch, especially in the UK, but there are limits to that indulgence (or you could call it apathy, if you want).

Publishers, meanwhile, have put themselves in an interesting position. E-book sales are rising against paperbacks, and many authors are becoming—encouraged by their editors—their own best advocates in the online setting. On the one hand, such authors may be less willing to carry this weight if they're not being properly remunerated for digital sales. On the other, those who are most effective in this arena may feel less and less interested in being published by a major house.The red lines drawn by publishers—we MUST have e-book rights, you WILL accept 25%—start to look both shaky (as they are crossed by writers coming into a publishing deal from a self-publishing success) and demonstrably unfair.

This is not a good game to be playing when self-publishing has never looked so plausible or so profitable. It only requires a few successful transitions to put a very large hole in the traditional publishing bucket and see writers come pouring out, and appearing to be unfair in dealings with authors guarantees a few will try to become those successes.

I've been wrestling with a sense of confusion for a little while now. It all seemed to be going so well for the traditional trade, and yet so many of the things I think are important in the digital transition remain completely untouched. I would have expected to see publisher-branded e-reading software by now, direct sales and reading clubs, bundled digital and physical copies with deals on audiobooks, loyalty schemes, communities, discovery engines, price experiments, more DRM-free books, a faster transition of manuscripts to books and a partial end to the seasonal nature of the trade, with at least some books coming to market when they're ready.

These things just don't seem to be on the menu, and yet the profits are decent, and you can't entire;y explain that with tentpole books like Fifty Shades (tentpole movies are not helping Hollywood, either, and haven't done for years). I might just be wrong about what's important—maybe you can just get away with commercial skeuomorphism in the book world, and replicate the paper experience to suit your pre-existing models, perception and infrastructure, and have readers put up with it—but I couldn't help but ask if this was a walking ghost phase, like the moment of apparent physical recovery seen in the victims of acute radiation poisoning. A short while later, the body starts to collapse and everything goes downhill from there.

If the industry is achieving this happy stasis through a perpetual blood transfusion from its authors, that would explain a lot, but it would also leave open the possibility of a sudden collapse as disenchanted creators demand a better slice of the action or find other ways of doing their thing. That sounds a bit over the top, perhaps. Armageddon scenarios make great reading and can usually be ignored—no one's ever actually seen one come true. But that's the point about armageddons: no one sees two of them. As Iain Banks put it, you encounter them in much the same way a sentence encounters a full stop.

It is now time for that 25% to shift, and shift properly. Taking a bite out of authors is neither a long-term answer nor an acceptable one.

Comments

50% The Norm?

AUK's picture

We have been paying authors and publishers 50% of all income with no deductions since we started doing eBooks many years ago?

www.andrewsuk.com

 

Allocation of costs

As a publisher, I think this looks like a misunderstanding of figures that were intended for a specific purpose, to impress investors.

Firstly, I know that HC, like most publishers, still allocates all the creation costs of a book (advance, editing, setting, design, proofing etc) to the physical copy. This kind of makes sense because physical is still 85% of the market, so it is easy to treat the ebook as an extra income stream with no costs. However as the ebook share of the market increases this way of costing projects will no longer be valid. In fact it is already invalid for many of the fiction titles we publish.

If you reallocated the costs across the ebook and physical book, showing the real cost of making the ebook (eg the costs that will continue to apply even as physical sales decrease), the profit share would be very different.

So, in other words, at these average price points, every time a hardcover sale is replaced by an e-book sale, the publisher makes $2.20 more per copy and the author makes $1.58 less. - See more at: http://www.futurebook.net/content/get-your-geiger-counter-out-ebook-royalties-are-back-and-time-theyre-toxic#sthash.NQSNCWio.dpuf

If it was in HC's interest to make ebooks look less profitable, or to show a fair spread of the costs, they might think to present these figures differently. But  investors are looking to the future and may be impressed by figures showing ebook publishing to be more profitable, so there is no reason for HC to allocate the costs differently in this particular case.

Basically, any attempt to uinderstand the real costs of ebooks from figures like this is a waste of time. Unless you can see the actual costings for individual books, you can't understand how the costs have been allocated. And a business model where there are "no costs of creation" allotted to ebooks is clearly unsustainable, so a big hike in the authors' royalty really is unsustainable within the traditional publishing model. Whether that means the trad model survives or fails I wouldn't like to say, but best if you judge it on a clear understanding of the figures, not someone getting in a tizzy about something in some figures designed to impress investors.

Oh, and to put this all a bit more basically - DeFiore claims that every time a physical sale is replaced by an ebook sale the publisher makes more. This would imply that if all the sales were ebook the publisher would make loads more. The problem is that at that point all the costs currently allocated to physical would have to be transferred into the ebook costing and suddenly all that "extra profit" would disappear in a puff of accountancy smoke.

So, in other words, at these average price points, every time a hardcover sale is replaced by an e-book sale, the publisher makes $2.20 more per copy and the author makes $1.58 less. - See more at: http://www.futurebook.net/content/get-your-geiger-counter-out-ebook-royalties-are-back-and-time-theyre-toxic#sthash.NQSNCWio.dpuf

What?

"Ebook royalties have been fixed at around 25% [of publisher's net] for a few years now"

They have? Apparently no one told Jeff Bezos, because he's still paying 70% of the full retail price.

 

 

Hardback vs paperback

John Pettigrew's picture

Good point, well made. But bewareof  basing all your assumptions on the hardback figures. Most sales are paperback, where the selling price is a lot lower. Indeed, given that ebooks and paperbacks are generally around the same price, authors are probably doing rather better (rather than worse) than those particular figures suggest.

For example, selling a paperback at $14.99 and 15% royalty would give the publisher $3.03 and the author $2.25 (assuming costs scale directly, which likely isn't true - manufacturing and distribution don't scale that way, so the publisher's costs may be proportionately higher and their profit lower).

Compared with those ebook figures, then, the author's actually getting more with the ebook. Of course the publisher's getting twice as much, so there may still need to be adjustment. But it's not quite as simple as you suggest.

However, I completely agree with you about the need for innovation... :-)

Oh, yes...

Nick Harkaway's picture

Hi, John -

yes, there's no question it's more complex than this, though it's always nice to get a sense of the bottom line before you go into the nitty gritty. Your point about paperback is well-taken, especially since many PB royalty rates are lower than that. In the same way I'd be keen to know how the maths works with non-agency sales. I'm not persuaded that paperback doesn't have sins to own up to, though.

The big sticking point is going to be that these are Harper's own numbers, so either the authors or the investors have reason to object - one or other of them is being given a somewhat rosy picture of their own involvement. Would you care to risk a glass of Italian red on which is more likely? :)

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