A Reasonable Price for EBooks

 

The other day I read a blog post (February 24, 2012) by the CEO of the Independent Publisher’s Group regarding what constitutes a “reasonable” cost to the reader for ebooks.  The gentleman makes some interesting arguments, but I think his conclusions are open to question, based simply on his own arguments and figures.  Permit me to explain, and I hope you aren’t afraid of a little number crunching.

First, Mr. CEO claims that for a trade paperback costing $14.95, a reasonable eBook publication cost of the same text should be $10.00.  He arrived at the $10/book figure by allowing $3.00 for printing, shipping and handling, and then asserts “A web retailer should be able to work on a narrower margin than a bricks and mortar bookstore, which could lower the price of an e-edition perhaps another $2.00.”  So there’s your $10/book figure, $14.95-$5.00 = $9.95.  Rounded up, one assumes, but OK.

Out of the original $14.95, Mr. CEO asserts that an “average” discount to retailers is “50%”.  You and I have to be careful here, because the word “discount” bears discussion.  To me, a “discount” is a reduction in the list price, i.e., the $14.95 for a physical book or the $10.00 for an ebook that you and I pay at retail.  But in this context it appears that “discount” is simply the percentage of the list price that a publisher offers the book for sale to retailers.  Big chain stores who are expected to sell a lot of units are offered more of a “discount” than small independent booksellers, so the “average” discount of “50%” might be 40%, depending on how you rank in the distribution chain.  But let’s say 50%, because that’s the figure Mr. CEO uses, and we’re using his numbers.

So 50% of the original $14.95 is $7.48.  This 50% is what Mr. CEO figures he can live with as his cost.  It pays his editorial staff, the HR people, building rent, helps buy new computers and software, all that stuff.  And, most important, provides a profit to the publisher.  The retailer now gets the list price minus the publisher’s cost, or $10.00-$7.48 = $2.52 per unit.  This isn’t actually spelled out in Mr. CEO’s blog post but it’s implicit in his numbers.

So my first question is this: why is a retailer in the classical sense necessary at all?  For a digital publication the sales and marketing department is online and nowadays writers tend to do a lot of the marketing work themselves.  And given the incredibly poor work done by sales and marketing departments in the classical sense, are they worth the money?  What if the $2.52 for a “web retailer” is simply fossilized thinking on Mr. CEO’s part?  For decades, if not for centuries, the business model has been “publishers publish, retailers retail.”  That’s not necessarily so anymore, is it?  So as professional writers we must question whether this $2.52 is a necessary cost.  Yes, you’re going to have to spend money to make money.  The question is, how much?  I think $2.52 per unit is way, way too much.  This might be something I as the writer would pay a flat fee to someone to do for me, so let’s just take it off the “reasonable cost” of an eBook while noting there’s room for argument.

Mr. CEO states that an author’s royalty on a $14.95 trade paperback is $1.12 or 7.5%.  The author’s contract for royalties is with the publisher, not the retailer, so it’s reasonable to assume that this $1.12 is part of the publisher’s costs.  This means, exclusive of the author’s percentage, that the publisher’s actual costs are $7.48 – $1.12 = $6.36 per unit.

Can we refine that cost figure a little more?  Mr. CEO asserts that the “publisher’s profit” is about the same as the author’s, so let’s go with that $1.12/unit (the author’s royalty), and we get $6.36-$1.12 = $5.24.  On a per unit basis, then, it costs $5.24 to edit and format a manuscript and make it fit for publication.

I will grant, immediately and without reservation, that a good editor can take a reasonably good manuscript, work with the writer, and polish that manuscript into a thing of even greater beauty and readability.  Almost every time I’ve read “unedited” books (usually published after the author’s demise) my verdict has been that the editor did a hell of a good job.

I’m going to note, however, that over the last five years I’ve noticed a decrease in the quality of editorial work across the board.  I hear a lot of the publishing houses have slashed editorial budgets, so maybe that explains the decline.  I’m equally sure that it’s not every publishing house.  But it raises the issue of value added.  How much of that $5.24 per unit actually adds value to the manuscript?  Because nowadays, for an epublication, you’re going to have to justify cost in terms of value added.  Can you, Mr. CEO, actually do what you say you’re doing, and add value to my manuscript by polishing my grammar, improving my characters, smoothing my plot, all beyond what I’ve done for myself?  If you can’t do that, then what benefit does your editorial staff bring to the product that justifies adding 52.4% to its cost?  And if I’ve done my work as a writer (and you wouldn’t be looking to publish me if I hadn’t!) those editorial changes will be incremental at best – important, yes, but incremental.  So again, your work is important, but is it important enough to justify taking 52.4%?

That question inspires another: the present setup implies that the publisher is essentially a middleman between the writer and the editor, and the publisher charges for that service the way any middleman would, i.e., the $1.12 per unit noted above.  But that means you believe that for simply granting me, the writer, access to your editors, you’re going to charge me the same amount I’m going to get on a per unit basis.

So I question the necessity of that $1.12 going to the publisher.  Here’s a more realistic scenario: I, the writer, go online looking for someone providing editorial services, of which there are plenty and more every day.  I negotiate a flat fee with that person, or perhaps some percentage of sales.  So wherein is the necessity for a publisher to receive $1.12 per unit?

Let’s sum up.  Mr. CEO argues that the reasonable cost of an eBook should include 52.4% of the pie for editorial purposes, and another 11.2% for his profit.  The writer gets 11.2% and the “web retailer” 25.2%.  I’ve questioned all of those figures except the 11.2% royalty for the writer.  Before I look at that let’s consider the reasonable price of an eBook based on the above.

I questioned above whether there’s a place for publishers or retailers in the conventional sense in this Brave New Digital World.  Knocking off the publisher’s $1.12 and the retailer’s $2.52 has the following result:  $10.00 -$1.12 = $8.88; $8.88 -$2.52 = $6.36.  That $6.36 includes $5.24 for editing and $1.12 for me, the writer.  On a per book basis, mind you.  So if you don’t need retailing and you’ve cut out the publisher’s profit, you’re down to a reasonable cost for an ebook of $6.36.

Is it reasonable to charge $5.24 per unit for editorial services?

Editorial services are a one-time, finite cost to the publisher.  The editorial staff gets the book ready to sell, it goes to the printer, and the editorial staff goes on to the next book.  So once the book sells enough copies to cover that one-time cost, a publisher, especially in the digital age, under Mr. CEO’s model, is receiving money for no further value added to the product.  Why else do publishers love a best-seller?  Their profit margin goes from 10-12% to what, something around 62-63% after their up-front costs are paid?  I’ll grant that’s probably oversimplified but the figures support that conclusion.  Why else would a publisher be willing to give a higher discount to a high-volume seller, if not to bring about this blessed event?

Granted, there aren’t that many best-sellers, but consider the paragraph above when you think about the publishing industry as it has been and what editorial costs are worth in the production of your book.  As writers – as professional writers – we must ask ourselves if this product is worth the 52.4% of the cost we’ll charge our readers.  Not the publisher’s readers, make no mistake about it.  Our readers.

That percentage means that, in the production of a novel, given a “reasonable cost” of $10/unit, the editorial staff is worth a little over half the list price.  Does the editorial staff do half the work?

So again we’re at the question, is the editorial product, i.e., the value a good editor adds to your work, worth the cost?  It might be, but how does one decide?  Business types will tell you that requires a cost-benefit analysis which is way beyond the scope of this blog post.  But as professional writers, I believe we must give serious consideration to exactly that type of question.  Editors are not God and their idea of what is good may not match yours – or that of the marketplace.

Here’s another way to look at editorial costs.  The writer gets $1.12.  The editorial staff gets $5.24.  So Mr. CEO believes, rightly or wrongly, that his staff’s editorial expertise is worth nearly five times (4.67, to be more exact) the value of all of the sweat, agony, inspiration and hours you, the writer, have spent writing your book.  And that, later, if your book sells enough copies, he, the publisher, is entitled to collect something like 5.7 times as much as the writer does from the proceeds of sales.

It might be worth pointing out that without writers, Mr. CEO and all his ilk would be running McDonald’s franchises.  And writers will still be writers.  So who needs who?

So we were down to $6.36 as an arguably reasonable price for eBooks.  That’s in the $4.99 ballpark, except I’d say the editorial staff makes the $1.12 and the writer makes the $5.24.  As I wrote above, I question that percentage the writer gets.  But I could simply be prejudiced because I am a writer.

However, the fact that Mr. CEO feels he’s worth that much more than me, even though his livelihood would vanish without writers to make it possible, makes me wonder how far that relative evaluation of worth goes in the present publishing industry.  Evidently it goes as far, at least, as believing that no one can do simple arithmetic.

Especially writers.