e-books and the amazon saga
A great deal has been said about the battle between Amazon and Macmillan and the role of Apple's new reader and agency model (which BTW generally leaves authors poorer - and is superficially not good for publishers either.) What hasn't really been said is WHY it's such a big fight. The nearest some people have come is 'it's about control' and 'e-books are growing'. Both of these are true. Both in fact rest on the real reason why this is such a bitter fight which has so much potential effect on books, writers and the entire industry is the fixed cost/variable cost equation, and the effect e-books have on this. Traditional publishing - the interface between the writer and reader - or at least the retailer is a little unusual compared to most producer to user middlemen, in that a substantial part of the cost was not affected by volume - the fixed costs - if a book is to sell 5000 copies or 500 000 copies - it makes no difference to these costs. The editor and proof-reader still get paid the same. They still need an office, and it still takes much the same time to do the job, and the same equipment. On the other hand for paper-books, the costs per book (variable costs) are quite substantial (paper, shipping, returns, ink, warehousing, and royalty payments), and while there are bulk savings these costs get added up with every book printed. In one very elderly eg. I have for 5000 books - the fixed and variable costs are much the same (excluding the royalty payment to the author). Now let's put some totally hypothetical figures to all of this to see why it is all a big deal. Twoman publishers fixed costs are $15000 per book. The print run is 5000 books and for the purposes of this we assume zero returns (returns just makes everything more expensive) - the fixed cost is $3 per book, the varible is $3 per book, the retailer wants 40% off the cover price and for ease of calculation the author gets 10% royalty (can be as little as 6% and as much as 15% for over certain volume). Basically Twoman Publishers cannot really sell for less than about $12 and make a profit. Hence publishers often say that newbies cost them money (which is true, but fails to consider capacity - without newbies bestsellers could lose money).
Now let's assume that Twoman publishes a book which sells 500 000 copies. It still costs 15000 in fixed costs. Which means that fixed cost per book is now 3 cents. The variable costs have also dropped with volume - and now come in at $2.50 a book. Twoman's costs before royalties are now down to $2.53 as opposed to $6.00. The book comes out in paperback at $7.00 (or first in hardback and then in paperback making more) Costs are $3.23. Twoman is getting $4.20, and making 97 cents on the book, or $485 000 for the same amount of work as they lost money on the 5000 copy book. You understand now why bestsellers are worth investing money for publicity and distribution and yes, vast advances, and why newbies and midlisters aren't. It's not that their books are very much -1000% worse. That's just not where the money is.
Now lets get to really scary part, and what all midlisters should be quaking in their boots about. Let's do the same for an e-book. Twoman do an e-book which sells 5000 copies. It still has fixed costs of $15000 - same process, same costs, same staff. The fixed costs are $3 per book. They offer a royalty of 20% (it varies, but with creative phrasology some companies have this as low as 10%) The e-tailer wants 40%. Like that sensible company, Baen, Twoman sell their e-books at paperback prices - call it $7 so we can compare with the figures above. Their costs are per book $4.40 -- BECAUSE VARIABLE COSTS ARE SO SMALL AS TO BE NEGLIGIBLE. They're only losing 20 cents - good compared to 5000 in paperback but still a loss.
Then they do an e-book which sells 500 000 copies. Fixed Costs per book are 3 cents. The author gets $1.40 in royalties. The publisher gets $4.20. And makes 1.385 million in profit for the same amount of work as they lost money on the 5000 seller. So the newbies and midlisters might not be as expensive in e format - but bestsellers are nearly 3 times as profitable as in paper.
So e-books are NOT going to free up the midlist and offer a myriad new opportunities to the newbies. They're going to INCREASE the spend on bestsellers (which has a bad effect on the business and reading - but that's where the money is)
Which loops back to fight between Amazon and Publishers. It IS about control - but it's not about control of authors. Just the cash cows with low fixed cost per book ratios. Amazon was - under draconian terms - offering to let them break free of publishers - cover their own fixed costs and smile all the way to the bank (yes, Amazon will let anyone do it. But for most of the unknown, it's a losing proposition, and costs Amazon nothing). And if that happens publishers are dead. So: it's not about prices, or (helpless laughter) looking after creative artists, or cheaper books for readers -all claims that have been made about this, but about who 'owns' the bestsellers who have low fixed costs and large audiences.
Now let's assume that Twoman publishes a book which sells 500 000 copies. It still costs 15000 in fixed costs. Which means that fixed cost per book is now 3 cents. The variable costs have also dropped with volume - and now come in at $2.50 a book. Twoman's costs before royalties are now down to $2.53 as opposed to $6.00. The book comes out in paperback at $7.00 (or first in hardback and then in paperback making more) Costs are $3.23. Twoman is getting $4.20, and making 97 cents on the book, or $485 000 for the same amount of work as they lost money on the 5000 copy book. You understand now why bestsellers are worth investing money for publicity and distribution and yes, vast advances, and why newbies and midlisters aren't. It's not that their books are very much -1000% worse. That's just not where the money is.
Now lets get to really scary part, and what all midlisters should be quaking in their boots about. Let's do the same for an e-book. Twoman do an e-book which sells 5000 copies. It still has fixed costs of $15000 - same process, same costs, same staff. The fixed costs are $3 per book. They offer a royalty of 20% (it varies, but with creative phrasology some companies have this as low as 10%) The e-tailer wants 40%. Like that sensible company, Baen, Twoman sell their e-books at paperback prices - call it $7 so we can compare with the figures above. Their costs are per book $4.40 -- BECAUSE VARIABLE COSTS ARE SO SMALL AS TO BE NEGLIGIBLE. They're only losing 20 cents - good compared to 5000 in paperback but still a loss.
Then they do an e-book which sells 500 000 copies. Fixed Costs per book are 3 cents. The author gets $1.40 in royalties. The publisher gets $4.20. And makes 1.385 million in profit for the same amount of work as they lost money on the 5000 seller. So the newbies and midlisters might not be as expensive in e format - but bestsellers are nearly 3 times as profitable as in paper.
So e-books are NOT going to free up the midlist and offer a myriad new opportunities to the newbies. They're going to INCREASE the spend on bestsellers (which has a bad effect on the business and reading - but that's where the money is)
Which loops back to fight between Amazon and Publishers. It IS about control - but it's not about control of authors. Just the cash cows with low fixed cost per book ratios. Amazon was - under draconian terms - offering to let them break free of publishers - cover their own fixed costs and smile all the way to the bank (yes, Amazon will let anyone do it. But for most of the unknown, it's a losing proposition, and costs Amazon nothing). And if that happens publishers are dead. So: it's not about prices, or (helpless laughter) looking after creative artists, or cheaper books for readers -all claims that have been made about this, but about who 'owns' the bestsellers who have low fixed costs and large audiences.