A Publisher’s Perspective on Profits: ebooks vs print

In early June 2013, Harper Collins held an investor’s day where it presented financial data through the company’s third quarter. The CEO, Brian Murray presented more than 100 slides but the most interesting one was the following:

profit

 

Why is this slide so interesting?  Well if you are an author you’ll immediately see the disparity between author and publisher with regards to the net income split.  For years, authors have been saying that the 25%/75% split was treating authors unfairly, now we have a publisher proving this publicly with data they are providing.

For those who don’t immediately see the issues lets break it down a bit: First let’s back out the author’s royalties so we can see exactly how much profit there is for sharing.  Also keep in mind that in both comparisons all of the COSTS have been factored in – so we are talking about pure profit.

  • A $27.99 print book produces a profit of $9.87 the author gets $4.20 (42.5%) and the publisher keeps $5.67 (57.5%)
  • A $14.99 ebook book produces a profit of $10.49 the author gets $2.62 (25%) and the publisher keeps $7.87 (75%)

 

What we see is that publishers earn 135% more than the authors do for print books, but for ebook this increases to 300%. Now one could argue, and I’m sure many publishers have, that when ebooks represented a small amount of the sales so this disparity isn’t such a big deal.  For instance when ebook sales were 5% the amount of money lost wasn’t    Today, industry wide ebooks make up more than 20% of the total books sold. But consider this, in genre fiction that number is MUCH higher. In a June 26, 2013 article with Wired Magazine, Allison Dobson, Random House’s VP and digital publishing director put the ebook sales at 60% to 70%. I can confirm that for my own books (which are in the fantasy genre) ebooks are 55% of my total sales.

So what kind of money are we talking about here?  Well let’s look run the numbers under the current royalty rates and what might be deemed a more equitable distribution.  For this comparison I’m going to take a book that earns $100,000 and has sells 50% in print and 50% in ebook.

Under the current model the publisher would receive 50,000  x 57.5 + 50,000 x .75 = $66,250 while the author gets $33,750.  If the ebook rate were adjusted to equal the print royalty share, then the publisher would receive $57,500 and the author would receive $42,500 which is another $8,750 in the author’s pocket or an increase of 20.6%.  I don’t know about you, but I don’t like taking a 20% pay cut.

What other are saying

Not unsurprisingly, this data…especially since it is now coming from the horse’s mouth that is setting the rates, upset authors and agents alike. Brian DeFiore (Member of the Board of Directors for the Association of Authors Representatives),said:

This chart illustrates very clearly something that agents have been arguing for several years now, and that publishers have been saying just isn’t true: that their savings on printing, binding and distribution make up for the lower revenue from lower e-book prices– and that increased profitability is coming entirely off the backs of authors.

He concludes his post with:

How can anyone in this industry see that as defensible?

 

I would love for any publisher maintaining the 75% / 25% ebook share to address Brian’s question.

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Michael J. Sullivan

Michael J. Sullivan is a speculative fiction writer who has written twenty-five novels and released nine. Eight of his fantasy books (The Riyria Revelations, and The Riyria Chronicles), were published by Hachette Book Group’s Orbit imprint. Hollow World, a science-fiction thriller was released by Tachyon Publications. The first four books of his new series, The First Empire, has sold to Random House’s Del Rey imprint, and the first book is scheduled to be released in the summer of 2016. He can be found on twitter, through his blog www.riyria.com, and on his facebook page and his publisher’s page for the series.

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