By Jeremy Greenfield, Editorial Director, Digital Book World, @JDGsaid
Publishers are making a killing on e-books because they cost nothing to produce, distribute and sell and are almost 100% pure profit. At least, that’s what many consumers think.
“E-books cost almost as much as printed books but are phenomenally cheaper to create,” said Trevor Doyle, 39, a teacher from Ione, Calif.
“There’s so much less cost involved – no material, relatively low distribution cost, no inventory costs, transportation,” said Michelle Barrineau, 42, a sales analyst from Ft. Lauderdale, Fla.
While consumers understand the basic costs involved in the bricks-and-mortar retail world, they don’t understand the costs involved in selling something that is, well, much, much smaller than a bread box.
“With today’s pricing, the profit in e-books is crazy,” said Greg Harris, 49, who lives in San Carlos, Calif., and is a vice president of sales and marketing for an electronics company. “Without the need to stock inventory and move paper all around the country, there should be a significant discount in the pricing model.”
“When I saw how much these e-books cost, I was amazed,” said Heidi Barron, 48, a public relations professional from Atlanta. “There is no printing, no shipping, no warehousing, no retailer. There is simply the transmission of the content through the Internet. Someone is making a ton of money.”
On that last point, Barron may be on to something. Publishing companies that publicly reported earnings for 2011 followed a similar pattern: flat sales, increased income. Digital Book World and others have speculated that higher profit margins on e-book sales are the culprit.
With the recent news about the Department of Justice lawsuit against some of the largest U.S. publishers and Apple alleging an e-book a price-fixing scheme, consumers are more aware than ever that there is a price battle going on in the e-book world. They just may not be aware of who is on what side, what each party wants and why, and what is really at stake.
“Why the frick-frack do these major publishers think it’s okay to put out a paperback at half the price of an e-book they can upload and forget?” said Diane Castle, 36, a writer from Dallas. “To me, this defied logic – until I stumbled upon a news article about the Justice Department’s price-fixing law suit yesterday. Now it all makes sense.”
“I do read e-books and am disgusted with the price that is usually charged,” said Sarah McGill, 37, a freelance writer from San Antonio. “I truly believe that the larger companies participated in some sort of price-fixing.”
So, How Much Does It Cost to Produce an E-Book?
What many people in publishing know that consumers generally don’t is that most of the cost of a book, even an e-book, comes from the cost of acquiring and developing the content – which, if the book is trade fiction, is mostly words.
“We still pay for the author advance, the editing, the copy-editing, the proofreading, the cover and interior design, the illustrations, the sales kit, the marketing efforts, the publicity, and the staff that needs to coordinate all of the details that make books possible,” said Bob Miller in February 2009 on the HarperStudio blog (which has been defunct since April 2010 when the publishing start-up folded) when he was president and publisher of that company; he is now president and publisher of Workman Publishing. “The costs are primarily in these previous stages; the difference between physical and electronic production is minimal.”
The same holds true today.
“It’s still true that publishers have all those costs whether a book is physical or digital,” Miller said this week. “There is a savings in printing or not but we still have all the costs leading up to and then supporting the book’s publication.”
E-book production “costs 10% less” than print book production, said Molly Barton, Penguin’s global digital director. Hardly the vast savings that many consumers imagine. “But the largest expense is author payment and always has been.”
“You can’t take the e-book in a vacuum,” said Adam Salomone, associate publisher at The Harvard Common Press, a cookbook publisher based in Boston. “If publishers are being honest about the process, it actually doesn’t cost less.”
To be sure, the production costs of e-books vary depending on a number of factors. A simple EPUB conversion can cost as little as $200 and a full-blown book app can cost up to $100,000, according to Andrea Fleck-Nisbet, head of digital publishing at Workman.
At Aptara, a major e-book production company, the cost can range from $0.20 to $0.90 a page for a simple conversion, according to Sriram Panchanathan, senior vice president for digital solutions at Aptara. Due to a large volume of titles to convert, many of Aptara’s clients have hired teams of project management professionals who help manage the process of working with Aptara as part of their job. (These teams also attend to tasks like digital rights acquisition, design and e-book distribution management.)
“Some of the larger publishers have entire teams of ten to fifteen people dedicated to managing this relationship,” said Panchanathan. “Smaller publishers have two or three people managing the process.”
The median salary across the U.S. for a low-level digital project manager is $73,678, according to Salary.com. Counting benefits and taxes to employ such workers, the cost to a small publisher in having a two-person project management team starts at around $200,000 a year.
If a small publisher employed such a team to manage the e-book production process, and that publisher converts, say, 100 books a year, that’s another $2,000 added to the cost of each e-book. More senior project managers often have salaries over $100,000.
At a large publishing company with a dozen or so product managers at various levels, the costs can easily be estimated at over $1 million a year. Of course, larger publishing companies are more likely publish more books and could have a lower cost-per-book.
Another hidden e-book cost is that of distribution. According to Panchanathan, e-book distributors typically take a cut of 2% to 9% of every sale.
While it differs from book to book and from company to company, all these costs are a far cry from reader expectations.
“I had expected e-books to cost about 10% of their published counterpart,” said Doyle, the Calif.-based teacher.
Write to Jeremy Greenfield
Profit pie-chart image via Shutterstock