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Old 09-22-2009, 10:50 AM   #1
Mare of Earth
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How much cost difference is there really?

This has come up in many different posts of late, but I have not seen a realy clear answer on it, so I thought I would ask the community at large, and try to develop a clear answer.

Exactly what is the cost breakdown between hardcover vs. ebook vs. paperback (vs. trade paperback).

Looking for:
cost per unit breakdown
Author Royalty
Publisher production cost
Publisher profit
Bookseller cost
Bookseller profit
and the difference between the various publishers.

I am very curious about this, as recently I wanted to pick up an ebook copy of Foundation by Mercedes Lackey. An ebook copy costs about $19.00, vs. the local Books a Million had the hardcover marked down to $6. Often, the ebook copy costs more than the paperback copy - with the exception of Baen ebooks. I want to know why the ebook costs so much more, and I want to know how much of the purchase price gets back to the author.

Also, if anyone knows how to contact publishers to get this information, post it here!

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Old 09-22-2009, 10:58 AM   #2
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This is commercial information. No publisher is going to tell you.
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Old 09-22-2009, 11:27 AM   #3
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What is known is that big publishers typically get 50% of the list price from retailers. This is for paper books and ebooks. This is why it has been widely reported that Amazon is loosing money on their $9.99 price for Kindle bestsellers. The 50% deal for ebooks is better than the 50% for paper books, because there are no physical returns (a cost that publishers bear for paper books).

The lowest rate seems to be about 35% to small publishers or independent authors. This is the standard rate for Amazon's DTP. Big publishers are afraid that Amazon wants to pay them 35% of list for ebooks too.

In the romance field, an author can get a 35% royalty on ebooks but no advance money. Paper royalties are much less, but you will get an advance that could end up being larger than your royalties. See Show Me the Money! I don't think there is any other genre offering 35% to authors for ebooks, in part because direct selling to the public isn't common. I don't know what Baen books (which does sell direct) offers for example.
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Old 09-22-2009, 11:55 AM   #4
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Interesting set of numbers you have there. Thank you for posting the information!

Another aspect of the ebook vs. pbook industry - what is the cost difference between physically printing and shipping out a book vs. formatting and hosting webspace with merchant accounts for an ebook?

Mare

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Old 09-22-2009, 12:14 PM   #5
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Originally Posted by Mare of Earth View Post
Interesting set of numbers you have there. Thank you for posting the information!

Another aspect of the ebook vs. pbook industry - what is the cost difference between physically printing and shipping out a book vs. formatting and hosting webspace with merchant accounts for an ebook?

Mare
Well a book printing and shipping in high quantities used by a publisher are typically less than a buck.

Webspace with accounts is only part of the cost of eBooks. There are issues with multiple formats and DRM that add to the costs and then people expect errors to be fixed at no cost so this is an added overhead. Conversion software gets updated and this has to be installed and maintained. IT is not free. Other expenses are tracking the changes vs. the pbooks.

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Old 09-22-2009, 12:15 PM   #6
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Mare here are some posts from a couple of other threads by Charles Stross (cstross) that might give some of the info you want.


Quote:
Originally Posted by cstross View Post
My understanding is that Hachette spent something like EUR 16 million on their ebook virtual warehouse infrastructure.

Because they treat vendors like Fictionwise as virtual wholesale customers, and have to handle accounting for ebook sales exactly the same way they would handle dead tree sales, and in turn allocate royalty payments accordingly. And stick DRM checksums on each outgoing ebook copy; sell 5000 copies, ship 5000 files (which each have to be generated separately on an encryption server).

They've done their best to port their existing business model to the electronic world, because nobody has the authority to say "this business model is obsolete -- here's a completely new one" (not merely because it would screw their career if they made a wrong call, but because there's internal corporate resistance to it: lots of people will lose their jobs if the old business model is junked).

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Well yes: indeed, I've got all the facilities and resources I need to do it myself, if it made sense to do so. (Got a colo server: check. Got a web platform that has been fire-tested through regular slashdotting/boingboing-ing: check. Married to a typesetter with an Adobe DTP workstation: check. Can hack perl: check. Got a Paypal merchant account: check.)

I think, however, that you underestimate the people problems.

And you overestimate the profitability of ebooks, too. Bluntly: yes, Baen have managed to make money at it. But it's nothing spectacular -- their ebook sales volumes are comparable to their hardcover sales volumes, and an order of magnitude below their mass market paperback sales. This is excellent going compared to the rest of the publishers (who in many cases sell so few DRMd/overpriced books that they don't even recoup the cost of paying someone at their typesetting bureau to hit the "Publish" button in Mobipocket Creator), but it's not setting the publishing world on fire. And, more importantly, it's not profitable enough to goad the execs in the big publishing houses to risk their jobs by going contra the received wisdom.

This will change over time (indeed, I believe Tor is making progress in this direction, but not yet publicly). But it's going to take years, not months. Because? As I said earlier: the practices of the publishing industry have evolved, and they're the vector sum of those practices that didn't make some other publisher go bust at some point in the past two centuries. And what you're asking for goes against some of those survival-honed best practices.


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It's all about internal publishing industry politics.

1. All the major publishing imprints are divisions of large multinational media conglomerates these days. For example: if Ace or Roc go bankrupt, don't expect to read about it in the Financial Times -- they're units of Penguin Group, which in turn is part of Penguin-Putnam, who happen to also publish the FT.

2. The execs in charge of the publishing units are, like execs in any other multinational, expected to contribute to the corporate bottom line -- or else.

3. The structure of these publishing units is geared around a production pipeline that takes in manuscripts at one end and ships provisions to a warehouse for distribution via retail outlets at the other, typically processing several books per week. This process is reflected in the rights contracts that their legal departments negotiate with the authors. It is very hard to change this structure because it's How The Industry Works. (Which is inviolable, because the publishing industry works the way it does because its practices are the vector sum of all practices that have not caused some other publisher to go bankrupt at some previous point in the past two hundred years. In other words, it doesn't make sense to look at what it does, you need to understand it by looking at what it doesn't do.)

4. Consequently, ebooks are generated by the same production process as dead tree books, and are "shipped" to an imaginary "warehouse" from which copies are distributed to imaginary "wholesalers" like, say, Fictionwise.

4a. It is worth noting at this point that the cost of paper-and-ink contributes maybe 10% of the cover price of a novel. Another 10% goes to the author (plus or minus), about 10% goes to the publisher in profits, and 70% is gobbled up by the wholesale and retail supply chain.

5. This means that there's little or no flexibility in the process, and the publishers can't easily cut their overheads by redesigning the publishing pipeline to work sensibly.

6. They recognize that they could boost ebook sales by cutting the prices. But if they did that, they'd risk cannibalizing the sales of their dead-tree editions, and reducing their profitability. Their hands are tied so they can't streamline their processes to make a bigger profit on the ebooks; if they cut the ebook prices by even 10% below the dead-tree prices, they're eating into their profits. And that brings us round to point #2 above.

7. Moreover, ebook sales of DRM'd high-cover items are so piss-poor -- figures in double digits are not uncommon, compared to the four to five digit sales expected of a hardcover -- that there's no pay off in sight to act as an incentive for executive risk-taking (like, oh, selling ebooks for what everyone understands is a realistic price).

Finally,

8. You try selling a novel to a major publisher without giving them the ebook rights! I've tried it, and my agent just gets knocked back -- withholding ebook rights is a deal-breaker, because despite all of the above nonsense, everyone knows that ebook rights are going to be worth something sooner or later. So they insist on buying them, even though they can't use them effectively. And at the end of the day, we writers have to earn a living so we can eat and excrete more of the product, so we knuckle under.
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Old 09-22-2009, 12:17 PM   #7
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It is estimated that an ebook only costs 12-15% less to produce than a paper book.

Keep in mind that most titles do not break even; the "blockbuster" titles earn most of the income. Costs that do not change based on the medium include: author's advance, editing, legal, marketing, promotion / PR, and management overhead. Retailers still have credit card processing, database and hosting costs.

Ebooks will cut out printing costs, inventory costs and one middle-man (the distributors, like Ingram). However the retailer now has more server maintenance, higher bandwidth costs, more IT staffing, more backups etc.

By the way, most books I've seen are cheaper in ebook format, especially hardcovers but trade as well -- especially when you add in shipping.
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Old 09-22-2009, 12:19 PM   #8
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I cannot account for the rest of things, but I do know that it costs between 20 and 30 cents per transaction for credit card fees, depending on the company. Other reports I've seen show a 15% best case profit margin for the ebook retailer. 15% for the retailer (who is the one covering the expense of hosting the file), 3% (if you just go with an even 30 cents out of $10) for credit card transaction, then shave off 50% which goes to the publisher. Leaves 32% for the DRM company, if the publisher's cut is not separate on the retailer's end from the author's.

These figures are all rough estimates, pieced together. Really, it seems as if there are some taking a bigger cut than they need to, if you make the same assumptions I did.
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Old 09-22-2009, 12:22 PM   #9
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Quote:
Originally Posted by Mare of Earth View Post
Interesting set of numbers you have there. Thank you for posting the information!

Another aspect of the ebook vs. pbook industry - what is the cost difference between physically printing and shipping out a book vs. formatting and hosting webspace with merchant accounts for an ebook?

Mare
The cost of hosting an ebook on a server is relatively cheap and is largely independent of the number of books you host. Formatting the book, well, that should more or less be the same as it is for the paper book.

Ultimately, there are ridiculous amounts of waste in the paper book industry. Print runs are often much higher than expected sales (Since the more shelf space they can occupy with the book, the more likely they are to sell copies), books get shipped to the store and back to the publisher (and if the publisher needs more copies later, back to the store again) and then are sold to book stores as remaindered stock. The book keeping must be a night mare (Since money changes hands at each transaction).

Honestly, I don't know of another industry where waste is so casually accepted. Frankly, I am surprised Greenpeace and the Sierra Club have not focused in on them for the needless destruction of trees to print paper that will never be read from.

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Old 09-22-2009, 12:57 PM   #10
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Originally Posted by Kali Yuga View Post
It is estimated that an ebook only costs 12-15% less to produce than a paper book.
Bear in mind that while the up front costs are about the same the marginal costs of ebooks is much smaller. Storing and distributing 100000 ebooks is much cheaper than 100000 pbooks.
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Old 09-22-2009, 01:14 PM   #11
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Originally Posted by Kali Yuga View Post
Ebooks will cut out printing costs, inventory costs and one middle-man (the distributors, like Ingram). However the retailer now has more server maintenance, higher bandwidth costs, more IT staffing, more backups etc.
They don't cut out the distributors for the most part, big publishers don't sell directly to retailers like FW and BoB for the most part (Amazon and Sony appear to act as their own distributors). Lightning Source (was part of Ingram not sure if it still is) and Over Drive are distributors, among others and they supply books to the retailers. They get their distribution cut. There is also a fee that goes to the provider of whatever flavor of DRM is being used which gets paid on every sale.
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Old 09-22-2009, 01:41 PM   #12
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I'm in educational publishing, which is admittedly a different sector of the business, since we don't sell to stores but to schools and districts.

I can verify that the cost of paper and ink should be around $1/book, depending on size, page count, and print run.

What I have not seen yet in this discussion is the notion of non-printing production costs. Unfortunately, these are almost all up-front costs and do not change from print to e-ink.

If I want to produce a book, I have to pay an editor to go through the manuscript one or more times. Ditto for a proofreader/fact-checker. I have to pay an artist to lay the book out and another artist to do the cover and any interior illustrations. These costs can easily run several thousand dollars. If I'm only going to sell 3,000 copies of the book over its entire lifetime, I need to make more than $2 each just to cover those costs before I've done any sort of advertising, marketing, etc.

Granted I can do a half-a**ed job on the editing and layout to save money, but that's not particularly attractive to me as a long-term business model.

Now what's attractive to me about e-books as a supplement to paper is that once I've done the above for paper, I can leverage an investment I've already made. That's *If* I'm not just cannibalizing my paper sales by converting them into lower-priced and easier-to-pirate e-book sales. The potential upside is well-known: the ability to make corrections instantly with no inventory loss, much lower storage costs and unit production costs, and the ability to keep my backlist in print where it can generate small profits that could aggregate to meaningful dollars.

But I'm also considering producing some materials as pure e-books. No print edition at all. So the entire up-front editorial and art costs -- which stay the same -- have to be borne by an e-edition. Will I even sell enough copies that way to pay off those costs? There's no question that I'll charge less for my e-books than my print books. The question I'm grappling with is by how much!
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Old 09-22-2009, 02:00 PM   #13
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I can verify that the cost of paper and ink should be around $1/book, depending on size, page count, and print run.
Is that $1 per book printed or sold? Also, what about shipping and warehouse costs?

Quote:
If I want to produce a book, I have to pay an editor to go through the manuscript one or more times. Ditto for a proofreader/fact-checker. I have to pay an artist to lay the book out and another artist to do the cover and any interior illustrations. These costs can easily run several thousand dollars. If I'm only going to sell 3,000 copies of the book over its entire lifetime, I need to make more than $2 each just to cover those costs before I've done any sort of advertising, marketing, etc.
Lets keep in mind though, that you are referring to text books, which are built around facts and also generally have a much more complicated layout than the average novel. A novel doesn't need the fact checker, and frankly, when I consider the layout in some novels, modern software can do as well if not better (And perhaps for some of these books, it already is doing that role).

Ultimately, though, I think that the costs can be trimmed quite a bit from many ebooks.

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Old 09-22-2009, 02:32 PM   #14
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Originally Posted by bill_mchale View Post
Is that $1 per book printed or sold? Also, what about shipping and warehouse costs?
Printing costs are, in general, for paperbacks, a bit less than $1 per book. Hardcovers are more, but not a whole lot more. (Maybe $2-3 per book, maybe less.)

Shipping and warehouse costs are more, and a lot harder to estimate; that's something where volume gets cheaper. Shipping 10,000 books is cheaper per book than shipping 1,000 books; ditto for storage.

Bookstore's cost of shelf space is also part of the equation, part of the money that the store demands. Again, hard to estimate, but much, much cheaper for digital--server space costs something, but not like physical rent does. Hosting 10,000 books, even with a good search engine, is a LOT cheaper than displaying 10,000 physical books. (Plus, of course, the store needs multiple copies of the pbooks.)

Quote:
Lets keep in mind though, that you are referring to text books, which are built around facts and also generally have a much more complicated layout than the average novel. A novel doesn't need the fact checker, and frankly, when I consider the layout in some novels, modern software can do as well if not better (And perhaps for some of these books, it already is doing that role).
Many novels could use a fact checker, or at least a runthrough to make sure there aren't any glaring errors that will cause readers to throw it at the wall or mock it in public. However, a single overview reading by a person familiar with the topic of the book could cover that; individual details don't need to be checked the way they are for textbooks. A novel set during the US Civil War should not have characters visiting a movie-house, and an editor should notice that detail. However, whether or not the coaches are described accurately is not likely to distress most readers.
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Old 09-22-2009, 02:42 PM   #15
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Another point that we, here, like to stress is many of those fixed costs to prepare an e-book should already be sunk costs in preparation of the p-book. If paperbacks cost significantly less than hardcovers we still expect e-books in today's market to cost something less than paperbacks. And we are often disappointed.
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