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.

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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29 thoughts on "A Publisher’s Perspective on Profits: ebooks vs print"

  1. Pingback: KINDLE BOOKS
  2. @Mark – those are “sunk costs” and if accounted properly should be evenly spread across both print and ebooks. So the relative %’s between the two would be the same. To give you some ball park numbers though, I’m in the process of self-publishing my Hollow World book and I used the same professionals that my big-five publisher does: Marc Simonetti for cover design, Betsy Mitchell former editor-in-chief of Del Rey for structural edits, Two copy editors both of whom work for multiple big-five publishers (Tor, Del Rey, DAW, etc). My total costs ran about $5,500. So you can rework the numbers taking that “off the top.”

    It should be noted that I used only “the best of the best” and paid them very well as I had Kickstarter money to fund it. When self-publishing I’ve produced books on my own for just $50 (ISBN & distribution fees) and usually would spend $500 – $750 per book on average.

  3. Mark says:

    I’m no expert here, but it seems like this chart is missing some costs and is only covering the costs of physically producing and distributing a book. A few I can think of:

    1. Editing
    2. Proofreading
    3. Setup/Formatting
    4. Cover design
    5. Marketing

    Certainly, if I self-publish an ebook, I’m going to incur these costs (in time or money). I wonder how the formula looks if these costs are factored in.

  4. Michael,
    Once again you are giving us pure gold. Thanks for the insight. Having spent quite a bit of time in my life setting margins in various arenas, I’m sure that the publishing houses have no intent to slim the balance. After all they have to report to stock holders. Stock holders don’t care at all about the author. They care about increasing their profits.

    When we see changes in any market, this allows those setting the margins an opportunity to improve their position. Believe me they will drive a bus through that opening. Any chance to grab more margin will not be overlooked. The publishing houses are in it to make money. It is a business. Truthfully they don’t owe the writers anything. Simply put you don’t like the deal then we don’t have to publish you. I can’t fault them for that. It’s just business, not charity.

    It is good to see a few authors who have had the position to negotiate better for themselves, because their market value was high enough. Some authors have even had their Ebook rights revert to them because of how long they’ve been on the market.

    We are in a revolution period right now and everyone is trying to grab what they can. The big houses are trying to keep their doors open and have to submit to pressure to make money. Understandable. Writers don’t have to sign the contract, but they may also be under pressure to do so or face going unpublished. Self-publishing can hand a writer another card to play now in that negotiation, but many don’t have the ability to pull it off.

    As an author, I would like to see the percentages balance out, but I don’t expect it. (Check the music industry and movie industry. Their costs have dropped as well and margins have soared. They now love the digital age.)

    Keeping my eyes open to the shifting industry. It is settling in to try and find the new norm. These growing pains may take years to figure out.

    Greatly appreciate your valuable insight an unique perspective.

    RKT

    1. I agree with everything you say…and don’t expect publishers to change their rates. But…this opens opportunities for others who are more “author friendly” to make inroads. I’m about to sign a print only deal. The advance wasn’t huge (in fact is was 20% of what I was offered by another publisher for “full rights” but I don’t care about the advance because once I earn out, my income is the same regardless of that “temporary loan”

      So for this particular title I was able to….

      * Do a Kickstarter which raised $31,000 for production/marketing of the book
      * Retain the ebook rights such that I’ll get 100% of the profit (70% of sales price)
      * Sold the audio book rights and got a nice advance for that (4 times my first audio contract)
      * Sold the print rights for North America

      I still have non-NA English rights to be sold, and then there are the foreign markets. Both my audio publisher and print publisher are going to make “good money” but not “all the money” This will allow me to fully profit from the ebooks and provide a good partnership with those that have well defined distribution channels.

  5. L Balsam says:

    I rarely buy hardcovers.

    I would like to see the same comparison for e books vs. trade paperbacks and mass market paperbacks.

    1. My guess is they will be pretty similar. The return cost will probably be higher on mass market paper backs as they are not generally returned but stripped. I’ve heard some reports that indicate for every 1 mmpb sold 3 have been shipped.

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