Article on ebook profits

[Fbone]

I don't think you can accurately calculate ebook profit until you can determine hardcover losses. How many hardcover sales did the ebook steal?

The publisher earns about $7 less for every person who purchases an ebook instead of the hardcover. ($9.99 @ 70% as compared to $28 @ 50%)

It's probably easier to calculate profit/loss per title than individual formats.

[Dark123]

Why don't the publishers (for old paperbacks) just get the best copy of the eBook in ePub, HTML or Mobi format from Darknet and just make it 100% perfect and sell it.
Who is going to argue with the Publisher? They own the rights to do it, and the original creator of the eBook is not going to say anything.

[Steven Lake]

No publisher will openly take anything from the darknet. Why? They're afraid that if they do and they get caught, it'll give more ammo to the pirates, and the don't want that. They'd rather spend the time and money doing it themselves than give any ammo to the people they most hate.

[catsittingstill]

Originally Posted by DMcCunney

(snip)

I am suggesting that you won't see ebooks from major trade publishers at the kind of prices a lot of folks here might like, because they can't sell them that cheap and make money.

(snip)
______
Dennis

Baen can.

Baen has been selling e-books in multiple formats, without DRM, two dollars cheaper than a mass-market paperback, from the hour the hardback comes out. And it has been doing this for, what, a decade?

If Baen can, why should I buy the idea that other publishers can't?

Am I supposed to think Baen is secretly funded by the Venusian Coalition to Destroy Terran Publishing, or something?

[Fbone]

Originally Posted by catsittingstill

Baen can.

Baen has been selling e-books in multiple formats, without DRM, two dollars cheaper than a mass-market paperback, from the hour the hardback comes out. And it has been doing this for, what, a decade?

If Baen can, why should I buy the idea that other publishers can't?

Baen sells direct to consumer from their website thus saving costs.

They don't have to give retailers their 30-40% commission. A $6.00 Baen book would have to sell for $7.99 and above at Amazon and B&N. The same price as their MMPBs.

Any of the big 6 publishers could in theory sell ebooks direct from their websites at lower costs but current contractual agreements may prevent this.

[Notre Dame]

The bottom line really, is that publishers don't want it to change, but are going to have to, and they will learn producing hardbacks will become a niche market so they'll learn to cost it separately. Nobody here seems to have mentioned the huge capital investment in static stock and the huge cost of warehousing, without factoring actually delivering the book to the shops & distributor costs too. The ebook is Amazon's dream, not the publishers'. http://www.chrisscottwilson.co.uk

[catsittingstill]

Originally Posted by Fbone

Baen sells direct to consumer from their website thus saving costs.

They don't have to give retailers their 30-40% commission. A $6.00 Baen book would have to sell for $7.99 and above at Amazon and B&N. The same price as their MMPBs.

Any of the big 6 publishers could in theory sell ebooks direct from their websites at lower costs but current contractual agreements may prevent this.

Okay, so since Baen sells e-books in multiple formats without DRM 2 dollars cheaper than the MMPB from the hour the *hardback* comes out, and makes a profit, that means by your own estimate the publishers could sell their ebooks in multiple formats, without DRM for the price of the MMPB from the hour the hardback comes out, and make a profit.

But instead of $8 they're charging me $12 and even $15. And the price they said was going to drive them out of business? Was $10.

Which is why I don't believe the "$10 books will drive us out of business" argument, and why nobody else with any sense should either.

[Elfwreck]

Originally Posted by catsittingstill

But instead of $8 they're charging me $12 and even $15. And the price they said was going to drive them out of business? Was $10.

Which is why I don't believe the "$10 books will drive us out of business" argument, and why nobody else with any sense should either.

I agree.

I'm not buying the argument, "but Baen knows their customers, has a smaller operation in a less-expensive location, and outsources a lot of their labor." What, big companies are so inefficient and clueless that we should pay an extra 50-150% for their products? That's not the way economy of scale was explained to me in school; big companies produced *cheaper* products because they could combine production costs.

I know not all of Baen's methods will work for other publishing companies, especially those that only produce ebooks--but those companies should all be looking at Baen and Harlequin (which is also *raking* in money, at $5/ebook... for books with DRM, without an active backlist) and saying "how much of their model can we copy?"

As much as I despise DRM, I have to acknowledge it's not the sticking point. The crucial point seems to be "costs less than lunch at McDonald's," at which point, the book can become an impulse purchase. (Also, "company provides customer service of a type that gets people to return to the site." Baen is friendly and in-crowd geeky; Harlequin has subscriptions and free books posted a chapter at a time.)

[DMcCunney]

Originally Posted by catsittingstill

Baen can.

Baen has been selling e-books in multiple formats, without DRM, two dollars cheaper than a mass-market paperback, from the hour the hardback comes out. And it has been doing this for, what, a decade?

If Baen can, why should I buy the idea that other publishers can't?

Because it's true? You're forgetting scale. Size matters.

Am I supposed to think Baen is secretly funded by the Venusian Coalition to Destroy Terran Publishing, or something?

Nope. But you have to recognize the differences. Baen's model works for Baen. It won't work for a big house.

Baen is a small publisher. I think there are about 6 full time Baen employees. The ones I know of include Toni Weisskopf, publisher, Jim Minz, senior editor, Hank Davis, assistant editor, and a lady named Marla (whose last name I've forgotten) as office manager.

Baen's website and the Webscription's program are done on a contract basis by Arnold Bailey, D/B/A Webwrights. (I believe Arnold gets a cut of Webscriptions sales, and does niceely, thanks.) Book markup and typesetting are contracted out. (That use to be done by Nancy Hanger, who had the title of Managing Editor, but was paid on a per book basis. I'm not sure who does it now. Possibly Arnold, since he does the ebook editions.

While Baen is an independent, their paper books are manufactured and distributed by Simon and Schuster. Books are actually manufactured by Quebecor, who does Simon and Schuster and Bantam titles, among others.

And Baen is located in Wake Forest, North Carolina, which has much lower overhead than NYC where most major publishers are located. Baen used to have office in Riverdale in the Bronx borough of NYC, but moved south for lower costs.

In addition, Baen is a specialty publisher. The specialize in mid-range, action/adventure SF/fantasy. They are working ground formerly occupied by DAW Books back when founder Donald A. Wollheim was alive and running it. Wollheim was in turn doing something like what Harlequin does in romances: if you like one of their books, chances are you'll like the others.

Baen has clear branding, and a good understanding of their market. While they aren't going to have many best sellers (save for David Weber's Honor Harrington series), they are also likely to have a far lower rate of returns. (I believe Baen has something like a 70% sell through rate.)

Baen does it through small size, low overhead, and focus. Tell me how you expect a major trade house to emulate that model?
______
Dennis

[Andrew H.]

Originally Posted by Elfwreck

I agree.


I know not all of Baen's methods will work for other publishing companies, especially those that only produce ebooks--but those companies should all be looking at Baen and Harlequin (which is also *raking* in money, at $5/ebook... for books with DRM, without an active backlist) and saying "how much of their model can we copy?"

Where's the evidence that Baen is "raking in money?"

[Elfwreck]

Originally Posted by DMcCunney

Baen does it through small size, low overhead, and focus. Tell me how you expect a major trade house to emulate that model?

1) By studying their target sales audiences, and coordinating smaller publishing groups as necessary to reach them. Some additional costs would be expected in the coordination, so maybe they have to produce $8-10 ebooks, instead of $4-6 ebooks.

I really don't get the argument, "they're so big that everything they do costs more and you have to pay for that." I thought the idea of getting big, was that production would cost less and there'd be more profit at the same price level.

Originally Posted by Andrew H.

Where's the evidence that Baen is "raking in money?"

I may have misphrased. I was thinking that Baen is plenty profitable, and Harlequin is raking in money. I remember hearing that Baen makes more selling ebooks than their entire line of non-US pbooks, and that they have a 70% sell-through rate on hardcovers. I don't have links for those numbers.

There's an interview earlier this year with Toni Weisskopf, publisher of Baen Books, where no hard numbers are mentioned, but there's certainly none of the "how will we *ever* manage to pull a profit from ebooks?" attitude that many other publishers manage to convey.

[DMcCunney]

Originally Posted by Fbone

I don't think you can accurately calculate ebook profit until you can determine hardcover losses. How many hardcover sales did the ebook steal?

The publisher earns about $7 less for every person who purchases an ebook instead of the hardcover. ($9.99 @ 70% as compared to $28 @ 50%)

It's probably easier to calculate profit/loss per title than individual formats.

I don't think the math quite works that way.

One question is exactly what Amazon pays the publisher. Hardcovers generally list between $25 and $30. Amazon gets a 50% wholesale discount, and pays the publisher between $12.50 and $15.00 per title. What are they paying the publisher for an ebook edition offered at the same time as the corresponding hardcover?

Before the Agency Model pricing took effect, they were charging $9.99 for such ebooks. Under Agency Model pricing, they are charging higher prices for ebooks, with a 30% commission on the sale.

Some folks think they were paying the hardcover wholesale price, and eating between $2.50 and $5.00 per copy, using the ebooks as "loss leaders". Another possibility is that they were paying under a different price schedule, and remitting less to the publishers.

If Amazon was taking a loss on each Kindle edition sold instead of hardcover, it was still less revenue for the publishers, because less hardcovers were sold, and returns would be greater. If they were paying under a different price schedule, remitting less, the publishers were seeing even lower revenue. Since hardcover bestsellers may mean the difference between a profit and a loss on the year, the publishers were be unhappy.

The question is this case is precisely " How many hardcover sales did the ebook steal?" Apparently, enough to cause a showdown with Amazon and the move to Agency Model pricing.

Another question is what happens when the mass market PB edition is released. Those still average about $8. If Amazon retains the $9.99 price, ebooks are more expensive than the MMPB edition.

Agreed, it is easier to calculate profit or loss on the title as a whole, but you can still make plausible guesses. Part of the fun will be deciding how to allocate costs common to all three formats (All the costs involved in acquiring and preparing the book for publication before it's actually published.) to the various editions. The same will be true for allocated corporate overhead.

The big unknown will be sales in any format. Publishers make a guess at what they think a book might do, but may not know for up to a year in the case of a paper edition whether they guessed right.
______
Dennis

[DMcCunney]

Originally Posted by Elfwreck

1) By studying their target sales audiences, and coordinating smaller publishing groups as necessary to reach them. Some additional costs would be expected in the coordination, so maybe they have to produce $8-10 ebooks, instead of $4-6 ebooks.

Ever worked for a really big company with multiple divisions to be coordinated? Think of herding cats...

I really don't get the argument, "they're so big that everything they do costs more and you have to pay for that." I thought the idea of getting big, was that production would cost less and there'd be more profit at the same price level.

How well that works depends on the products.

The idea behind getting big is achieving market share and being a low cost producer, but how well size translates to lower costs depends on what you sell. You need to sell an awful lot of something to achieve the desired economies of scale. Apple can make bundles on the iPod/iPhone/iPad, but they're selling millions of each. The biggest cost in consumer electronics is the money required to build the factories to make them, and the more you make and sell, the larger a base you have over which to amortize those costs, and the cheaper each can be. While there are different models of iPod/iPhone/iPad, they share many common components, and the added cost of making a particular model is a relatively small part of the total costs.

Along the line, there were questions back when the Sony Reader came out about Sony's long term commitment to it. Sony is a big outfit that has to sell a lot of something to make it worth doing. Sony had previously offered the popular Clie line of Palm OS PDAs. Clies were profitable, but not profitable enough, and Sony decided better returns could be had investing the funds elsewhere and folded the line. The question was whether the reader market was large enough to address profitably. It apparently is, since Sony is still in it.

Books are a different matter. Yes, publishers sell a lot of books overall, but each book is in some respects a unique product, with its own development expenses. And with the possible exception of the international best seller, no book will achieve sales in the millions.

Book publishing resembles film production. Studios producing major films are making enormous bets when they green light a production. The cost may exceed $100 million. They cross their fingers that they'll have enough releases that do well in the box office to cover the losses on the ones that tank and make them some money. Sometimes they don't, and the studio folds.

Publishing is similar, with bestsellers helping to cover the loses on the books that don't earn out (which is most of them.)

The biggest problem from our perspective is that big companies have big overhead that must be allocated across product lines. When you are based in NYC, and employ thousands of people, that overhead becomes a rather large number. (And when you are a company that size, you don't just pick up and move to the lower rent district in another part of the country. It costs an incredible amount to do so.)

I may have misphrased. I was thinking that Baen is plenty profitable, and Harlequin is raking in money. I remember hearing that Baen makes more selling ebooks than their entire line of non-US pbooks, and that they have a 70% sell-through rate on hardcovers. I don't have links for those numbers.

Harlequin is doing well, thanks, but they aren't immune to the doldrums affecting publishing. They've been diversifying beyond the core romance market. Consider the Gold Eagle PB line, aimed at men, and featuring action/adventure, paramilitary, and SF lines, things like the Executioner and "Mack Bolan" books.

I believe the 70% sell-through rate for Baen hardcovers originally came from this Eric Flint post on the Baen site.

You might also see a New York Times article from 2001, here. Back then, Jim Baen had a dim view of pure ebook publication.

There's an interview earlier this year with Toni Weisskopf, publisher of Baen Books, where no hard numbers are mentioned, but there's certainly none of the "how will we *ever* manage to pull a profit from ebooks?" attitude that many other publishers manage to convey.

Small size, focus, and low overhead. Also, Baen is privately held, so it isn't under pressure to produce the sort of numbers and ROI the big guys are. I've no doubt Baen is making money on ebooks, but I suspect the amount they are making would be considered insufficient by larger publishers. Those guys have stock market demands for rates of return publishers generally can't achieve.

I'm also willing to bet their hardcover sell through rate is where they make their biggest money. What happens if ebooks take over, and Baen no longer makes and sells paper books? Think they'll be able to retain that $6 ebook price and survive? I don't.
______
Dennis

[Fbone]

Originally Posted by DMcCunney

I don't think the math quite works that way.

One question is exactly what Amazon pays the publisher.
______
Dennis

Thanks, Dennis, for your comments. I realize it takes a lot of time to think them through and type out here.

I try to look at these things from the publisher's perspective as regards pricing. And they are more concerned (or at least the shareholders and owners are) with overall profit. We are seeing reduced HC sales. We are unable to know why precisely but all possible reasons negatively affect publishers.

The publishers don't receive the full $28 HC retail price nor the $7.99 MMPB or the $9.99 ebook. When we subtract out the retailer's cut, royalties and printing/shipping costs there isnt much left for the publishers. Probably only about $3-4 for the MMPB. Can the publishers survive on that?

Also, I noticed this week that the latest bestseller MM paperbacks were starting to come in at $9.99. Patterson as an example. And it is possible that a year from now this may be the standard price for most paperbacks. The current $9.99+ ebook price may already reflect future MMPB prices.
Customers waiting and hoping for the cheaper MMPB may be disappointed.

[DMcCunney]

Originally Posted by Fbone

Thanks, Dennis, for your comments. I realize it takes a lot of time to think them through and type out here.

Part of it is making sure I've thought them through properly, and have clearly explained my reasoning.

I try to look at these things from the publisher's perspective as regards pricing.

I do as well, in regards to how prices come to be what they are.

And they are more concerned (or at least the shareholders and owners are) with overall profit. We are seeing reduced HC sales. We are unable to know why precisely but all possible reasons negatively affect publishers.

Yep. The Big 6 are all publicly held corporations with shareholders that expect returns, in capital gains (the stock price went up), dividends, or both.

And some are parts of media conglomerates also active in films, TV, and music. Management of such organizations are custodians of Other People's Money, with a responsibility to preserve and grow the shareholder investment. Resources will be allocated where management thinks they will yield the highest returns. This puts enormous pressure on the book divisions, because they can't achieve the sort of returns possible in other forms of media.

We're seeing some of these acquisitions coming apart in consequence, like when TimeWarner sold the Warner Books division to Hachette, who relaunched it as Grand Central. The imagined synergies of having all forms of media under one roof were elusive, and the underlying business models were too different.

The publishers don't receive the full $28 HC retail price nor the $7.99 MMPB or the $9.99 ebook. When we subtract out the retailer's cut, royalties and printing/shipping costs there isnt much left for the publishers. Probably only about $3-4 for the MMPB. Can the publishers survive on that?

Yes, if they sell enough of them. At a 50% discount rate, the publisher gets about $4 on a PB with an $8 MSRP. All of their costs, including royalties, and print/bind/warehouse/distribute, plus any money they may make come from that amount.

Each book is a bet made by the publisher, that it will sell well enough to cover its costs and make money. Most times, they lose the bet, but are making a larger bet that they'll make enough money on the ones that do sell to cover the losses on the ones that don't.

Also, I noticed this week that the latest bestseller MM paperbacks were starting to come in at $9.99. Patterson as an example. And it is possible that a year from now this may be the standard price for most paperbacks. The current $9.99+ ebook price may already reflect future MMPB prices.

Okay, that's not a surprise. Prices have been rising steadily in any case, and there's a limit to how long the MMPB could have stayed at the $8 rate. A $2 rise makes sense: $10 will be a psychological barrier they really won't want to cross, but up to that point, might as well raise the price there now on titles they think are popular enough, to gain the benefit of the added revenue.

My feeling all along has been that when the dust settles, we'll see ebooks available when the MMPB is, at prices roughly those of the MMPB. The bigger question is what the price of ebooks issued at the same time as a corresponding HC edition will be. It won't be at the MMPB price. Want it cheap? Wait for it, the way you wait for the MMPB. Want it now? Expect to pay a premium.

Customers waiting and hoping for the cheaper MMPB may be disappointed.

Customers waiting and hoping for cheaper MMPBs will be disappointed. Prices on printed books do not go down, unless they hit the remaindered table.

The bigger issue is people waiting for cheaper ebooks. I don't see those appearing from the major publishers at the rates people would like to see, because I don't believe they can publish them that cheaply.
______
Dennis