The Slippery Slope of E-Originals, Part 1

Expert publishing blog opinions are solely those of the blogger and not necessarily endorsed by DBW.

In the last year a number of major publishers have begun offering authors contracts for “e-originals” – books released originally – and exclusively – in e-book format. Though this is a logical step in the evolution of traditional publishing houses from tangible to virtual formats, the deflationary nature of its business model poses a serious threat to author earning power. Less obvious but ultimately more dangerous is the implosive effect the shift may have on the publishing companies themselves and the people who work for them.

What’s Wrong with Paperback Originals?

The first and obvious question is, what’s wrong with paperbacks books, that publishers are abandoning them in favor of digital originals? The fact is that in the past fifteen or twenty years, mass market paperback books have transformed from a breeding ground for fresh talent to an exclusive club for bestselling authors.

The reasons for this metamorphosis are complex (you can read about them in The Rise and Fall of the Mass Market Paperback: Part 1, Part 2), but in essence the ruthless math of an industry based on the returnability of books has made it almost impossible for fresh talent to develop over time in the nursery of original paperbacks. Though many promising genre authors, especially romance writers, continue to be introduced in mass market paperback, the sales thresholds they must achieve in order to make a profit for their publishers have risen to almost unattainable heights.

Cue e-book originals.

At first blush, e-originals appear to be the perfect way for publishers to pull authors out of this death spiral, for many of the costs of manufacturing and distribution are lower or negligible. You would think that the savings would be passed along to authors in the form of higher advances and royalties. So far, that has proven far from true. Why?

At the present time, the so-called “standard” e-book royalty paid by the Big Six legacy publishers – Random House, Hachette, HarperCollins, Simon & Schuster, Penguin and Macmillan – is 25% of net receipts. Though many independent e-book publishers (including, full disclosure, my own firm E-Reads) pay 50% or higher, the Big Six justify the 25% royalty on the strength of the high cost of manufacturing the print books that serve as the launch pad for their e-book reprints. If it costs X thousand dollars for a publisher to produce and publish a hardcover book, publishers reason, a portion of those costs should be allocated to the production of the e-book.

Though many authors deny that assumption, let’s grant it for the sake of argument. It is, however, much harder to grant it in the case of original e-books. Though the cost of producing e-books is higher than most lay people may think (see Are Publishers Making a Killing on E-Books?, Part 1 and Part 2), it is considerably lower than the cost of producing print books.

Publishers, however, don’t see it that way. They contend that they are not yet selling e-books in sufficient quantities to merit advances commensurate with those paid for paperback originals. Advances for e-originals are therefore dropping by half or more of those paid for print originals, and in some instances publishers are offering no advances at all. To compound the injury, they remain adamant about the 25% net royalty.

Do the Math

It might help to do the math. If a publisher charges $3.99 for an e-original and collects on the average of 60% of the list price from the retailer, that comes to $2.40. 25% of that sum, $.60, goes to the author. In order to make $5000, a reasonable minimum for three to six months’ work, that book would have to sell over 8,000 e-book units. Most publishers would deny that that is a realistic projection. They are therefore offering a good deal less than $5000 advances, and in some cases are offering no advances at all.

From this, as comedian Jackie Mason might say, you cannot make a living. Or, to put it another way, the economics of e-originals published by big houses are so marginal that many authors might now be tempted to jump to on the independent bandwagon, where 50%, 60% and 70% royalties beckon to the self-published.

What is the solution? Obviously, if Big Six publishers want to retain quality authors they may have no choice but to raise their royalty rates and pay decent advances.

In the second installment of this post we’ll look at the unintended consequences facing Big Six publishers who are switching to e-originals

Richard Curtis

7 thoughts on “The Slippery Slope of E-Originals, Part 1

  1. Thalia

    One thing you don’t mention in the article – we mostly do books as e-only publications because we have relatively low expectations of sales. Being on a traditional publisher’s list will still (hopefully) help to get the book some exposure, and may lead on to a print edition, but realistically, if we expected sales in the tens of thousands we would be doing a print edition in the first place.

    Personally I have recently acquired a fair few titles for e-only publication on small advances. These are out of print titles which are currently making the author nothing, so I suppose they feel that 1) some income is better than none from a book, and 2) we will hopefully sell more copies than they would by self-publishing so it’s worth the lower royalty rate. E-only deals at 25% will only continue to make sense from the author’s point of view if we continue to make the second part of that equation work.

    As it happens every book I personally acquired for e-pub has gone on to have a print edition as I work hard to make that feasible, even though the contracts didn’t oblige me to do so. But even so, it’s no good working out “what the author’s time is worth” – the only valid comparison is “what the author will earn” from the self-publishing route, publishing through a company like yours, or through a traditional publisher without a guaranteed print edition contracted.

    Reply
  2. Stephen S. Power

    Richard, you’re math doesn’t work out because it’s mixing the author’s economic concerns with the publisher’s, and they are entirely separate calculations.

    You wrote: \Obviously, if Big Six publishers want to retain quality authors they may have no choice but to raise their royalty rates and pay decent advances.\ My question is: Where does this money come from? Royalty rate x Price x Units sold = Advance. (And if the estimate for units sold is too low, the author still gets the money, just in the future). Your $3.99 price is already pretty high for an e-original. Should that price be raised (leaving aside whether price should be influenced by fixed costs)? If not, where are the extra units sold going to come from?

    Looking at the formula from the author’s side: Advance = Time + Expenses, especially given that half of all advances aren’t earned out so there are no royalty checks in the future. This is entirely rational from the author’s perspective (unless the book is part of a larger enterprise and functions as, say, a business card). If the advance can’t crack the author’s nut than of course he shouldn’t do the book (I’m removing sentiment from the equation, which is to economic rationalism what friction is to high school physics). Now add to the right side of the equation the cost of self-publishing in time and expenses and make the new \advance,\ the money gained over time as a result of higher royalties. Is the latter equal to or greater than the former? If not, what’s the point in doing the book at all from an economic point of view?

    Reply
  3. Francis Hamit

    Where we publish just the e-book, we can offer a lower price. With my current novel, MELTDOWN, we offered it at $3.99 on Kindle and Nook as a \beta\ version (everything is software, right?) . That got us a few reviews and some feedback which allowed us to tweat the text a little. But some reviewers demand a printed galley, even for an e-book. So we prepared a standard advanced reading copy. Having done that, it’s a simple step to producing a trade paperback simply by putting on a revised cover. Because the e-book was already out there, our distributor was unsure of how many trade paperbacks could be sold and suggested an amount far below the minimum run for web offset. The print-on-demand printing cost is about four dollars a unit, so we made the suggested list price $21.00. Barnes & Noble immediately began to accept pre-orders at 33%off, as if I were a big brand name author. The net effect of this tactic is to discourage small independent bookstores from stocking the book because they can’t afford to match that price. We’ve made the book non-returnable and raised the price of the e-book so that we are not undercutting those sales. We won’t sell as many copies that way, but we will make more money in the end. We’ll certainly get more reviews.

    Reply
  4. John F. Harnish

    Content specifically written to be released as an ebook just makes good business sense. When ebook sales produce significant numbers, then, and only then, is the time right for the publisher to consider releasing a pbook edition. Producing an ebook first is more cost-effective and reduces the assumed risk of publishing a pbook that most likely won’t earn out the advance. The “big six” paying authors only a 25% royalty from ebook revenue is grossly unfair to their stable of authors. The reason publishers are taking the lion’s share is to pay a high overhead while trying to maintain a crumbling infrastructure that’s seen better days. Increasingly authors are creating digitally-born content as ebooks without even giving a passing thought to producing a pbook.

    Enjoy often…John

    Reply
  5. Stephanie Queen

    So you think $5,000 is a reasonable income for 3-6 months work for an author? What do you earn in 3-6 months?
    And BTW, it takes most authors 9-12 months to write a novel!
    Publishers who pay 25% net royalties and then reduce advances to Zero for ebook only releases are sending an irresistible invitation to authors to publish their work independently.
    Most authors find the advantage of publishers to be mainly the advance and print book distribution. Take that away and…publishers are not worth the 50+% royalty differential compared to independent publishing.

    Reply
  6. Bob MayerBob Mayer

    I’m rather amazed Bella Andre’s print only deal with Mira is being largely ignored. She made a major publisher her subsidiary rights dealer. I watched the same company courting Marie Force last weekend at NJRWA. I realized it’s no longer a question of an editor liking a submission and pitching it to the publisher so the lucky author can get a deal.

    It’s the publisher seeing the author’s e-numbers and coming to the author, hoping to get a taste.

    The slippery slope is the one the Big 6 are sliding down.

    Reply
    1. Richard CurtisRichard Curtis Post author

      @Bob Mayer

      The Bella Andre deal is a milestone and I hope to have a good deal to say about it in the near future.

      Reply

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