What Should an E-book Cost?

by Curt Matthews

What the general public thinks it knows about the economics of book publishing is almost always wrong. Bestseller rejected by 15 major publishers before one small house takes a chance on a genius and sells 100,000 copies. It has happened, but most manuscripts make the rounds without attracting any offers because they are hopeless. A vanishingly small proportion of titles sell anything like 100,000 copies, even those published by major houses. And almost no good author goes unpublished.

The publishing news that makes the papers is all of the man-bites-dog variety. This is because the real news is, well, a little dull. Advances for all but a handful of authors (the tiny band of bestseller writers and a few famous or notorious politicians) run in the very low five figures, except when they run in the high four figures. Since an advance is an advance against royalties, the author does not get another nickel until the sales of the book have earned back the advance. Most don’t.

The royalty rate is usually 10 percent of the cover price for a hardbound book, 7.5 percent for a paperback, increasing by a few percentage points if certain levels of sales are achieved. So an author makes $1.12 a copy on a $14.95 paperback. A 10,000-copy sale of that paperback—a very respectable performance in the estimation of most publishers—will earn the author about $11,000; not bad, except that it takes a year or two of very hard work to write a book. Most authors have to keep their day jobs.

What does the publisher make? Selling that $14.95 paperback to the booksellers and book wholesalers at, on average, a 50 percent discount from the price on the cover, the publisher makes $ 7.48 in the case of this $14.95 book. For 10,000 copies sold, this will amount to $74,800. The printing of the 10,000 copies will run about $1.50 a copy or $15,000 total. We have calculated that the royalty for the author will be $11,000. So the publisher nets $48,000, not a bad day at the office, except that this income also has to cover the cost of that office, and the warehouse, and the staff. When all these factors are taken into account, the publisher’s share is about the same as the author’s.

It’s the Value Added, Stupid

A carefully kept secret in the book business is that even the best authors need editing. In fact, the good ones insist on help and will follow a gifted editor from company to company to get it. Most books are hugely improved by the editorial process. Perhaps, dear Author (says an editor), we do not need 50 pages devoted to that particular hobbyhorse!

The help that authors get is never mentioned in public because the author is the brand name, not the publisher, let alone people working for the publisher. Spreading the credit among any more names would just blur the marketing focus. But the cost of editing, designing, typesetting, and proofreading is high—usually higher, in fact, than the cost of printing the book.

What then should you charge for an e-book edition of a $14.95 paperback? Many people say it ought to be practically nothing because there are no printing costs, no warehousing costs, no shipping costs for the publisher to pay. An e-book, after all, is a batch of electrons, weightless, shippable through a wire.

But this is to misunderstand what it takes to make a successful book. An e-book still needs all the expensive editorial services noted above; and if it is going to sell, it has to be marketed, distributed, and publicized, just as a print edition must be. We have noted that for our $14.95 paperback, the printing amounts to about $1.50. Warehousing and shipping will add another $1.50 to the real cost of selling a printed book. A Web retailer can work on a narrower margin than a brick-and-mortar bookstore, which could lower the prince of an e-edition perhaps another $2.

Deduct the specifically print-related costs from the price of a $14.95 printed book, and the right price for the e-book version comes to about $10—less than the price of the print version, but not some small fraction of the print price. Certainly not 99 cents, and not $5 either.

The music business has at the moment settled on something like 99 cents for a song download. This price has nothing to do with the cost of producing the music. It is the price set so low that stealing becomes more trouble than it is worth. People in the music business are now saying high production values cannot be sustained at such a low sale price, and that the quality of recorded music is declining accordingly. This could also be the fate of e-books

At the moment, the price for a new title in an e-book edition seems to be about $10. This is high enough to support good editorial and marketing work. But at a not-worth-stealing price, the editorial and marketing support books need would become unaffordable. We must convince the e-book audience that downloading a book for free is just like picking an author’s pocket, just like shoplifting at a bookstore, just like burglarizing a publisher’s house.

Curt Matthews is the founder and CEO of Chicago Review Press, Incorporated, which is the parent company of Chicago Review Press and of Independent Publishers Group, the first independent press distributor and now the third largest. In conjunction with IBPA, IPG has just launched a new trade distribution program called Small Press United for very small and startup publishers.