Publishers Having Their eBook Cake and Eating It

A reader sent me a link to this article last week. Money (literally) quote:

Among the ills of this radical pay cut [lower prices for e-books than for hardcovers] is the distorting effect it has on publishers’ incentives: publishers generally do significantly better on e-book sales than they do on hardcover sales. Authors, on the other hand, always do worse.

How much better for the publisher and how much worse for the author? Here are examples of author’s royalties compared to publisher’s gross profit (income per copy minus expenses per copy), calculated using industry-standard contract terms:

The Help, by Kathryn Stockett

Author’s Standard Royalty:
$3.75 hardcover; $2.28 e-book.
Author’s E-Loss = -39%

Publisher’s Margin:
$4.75 hardcover; $6.32 e-book.
Publisher’s E-Gain = +33%

Hell’s Corner, by David Baldacci

Author’s Standard Royalty:
$4.20 hardcover; $2.63 e-book.
Author’s E-Loss = -37%

Publisher’s Margin:
$5.80 hardcover; $7.37 e-book.
Publisher’s E-Gain = +27%

Unbroken, by Laura Hillenbrand

Author’s Standard Royalty:
$4.05 hardcover; $3.38 e-book.
Author’s E-Loss = -17%

Publisher’s Margin:
$5.45 hardcover; $9.62 e-book.
Publisher’s E-Gain = +77%

So, everything else being equal, publishers will naturally have a strong bias toward e-book sales. It certainly does wonders for cash flow: not only does the publisher net more, but the reduced royalty means that every time an e-book purchase displaces a hardcover purchase, the odds that the author’s advance will earn out — and the publisher will have to cut a check for royalties — diminishes.

Since people don’t own their digital book content (both in the sense of the First-Sale doctrine and the current content licensing agreements), then it’s a double win for publishers. They get a bigger slice of the eBook sale AND retain ultimate control and ownership over an eBook. What’s not to like when you carve out of a new revenue stream out of content creators (authors) and the end user (people and libraries) and retain control of the content?

Consider this in the light of the HarperCollins decision of limited checkouts. For each additional sale of an eBook (even at the lower price point) once it hits the magical 26th circulation, it generates the same revenue equation above. Yes, it does generate another author royalty payment that they would otherwise not get with perpetual access but authors are not the main beneficiaries of this re-buy system. The greater publisher margin gets the biggest boost out of the system. I believe it is an incentive that compels this idea of artificial scarcity in eBook lending.

From the library end of things, I find it rather disheartening for the future of collections. With a profit motive like that one, I’m wondering when the other publishers will follow suit. I respect the fact that they need to make money for this equation to work; editing and talent scouting is not without cost. My concern is for one hundred years from now when the question of the future generations will be about the literature and prose of the 21st century, not the yearly revenues of the publishers who existed then. It is a matter of the cultural record and what is collected or preserved versus what licensing can do for people now.

I may be bordering on hyperbolic so I’ll try to take a step back. There is nothing to say that this is the way it will be in the future, even six months from now. The eBook market (both content and devices) is still in transition as we move ahead with innovation cycles and consumer inclinations. But I still find the math above rather askew when looking at the HarperCollins oft quoted statement,

We have serious concerns that our previous e-book policy, selling e-books to libraries in perpetuity, if left unchanged, would undermine the emerging e-book eco-system, hurt the growing e-book channel, place additional pressure on physical bookstores, and in the end lead to a decrease in book sales and royalties paid to authors.

What are your thoughts?

3 thoughts on “Publishers Having Their eBook Cake and Eating It

  1. Can someone clarify how the Guild quoted above reached the royalty figures it did? If an average-ish hardcover retail price is $20, isn’t the standard author royalty 10% of the sales price? The figures above are more like 20%. Now it is possible that these particular authors receive a bigger royalty as best-selling authors, but I’m just not sure these numbers are replicable beyond the bestsellers’ list.

  2. Pingback: ePublishing HQ

  3. Pingback: Where’s the Logic? « Agnostic, Maybe

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