One issue that constantly crops up in the ebook discussion is pricing. Common sense tells us that ebooks cost less to make and distribute than paper books. According to an indepent epublisher, Sony charges $200 to have a book converted from a PDF to a digital BBeB (Sony’s proprietary content). In order for an epublisher to break even on this, assuming that the publisher gets 60% of the retail price, 56 units would need to sell. This seems to be quite a low cost for a self published book.
Let’s take it one step further. Samhain Publishing sells its books through its own bookstore. Let’s assume that overhead is approximately $1.00 per book. This would include website maintenance, formatting, marketing/promotion/conference fees, contract negotiation fees (read: lawyers ;), hosting, design, customer support, admin, etc.). Let’s also include costs for art, editing and formatting at approximately $5,000.00. (This number is half the cost of the art, editing, and typesetting for a NY Published book). Assuming an average cost of $5.99 per book and 40% royalty rate, Samhain needs to sell 2506 units to break even. For a new epublisher this may be pretty good hence the need for a $5.99 price.
Going one step further, Meljean Brook’s book, Demon Angel, has a print run of 44,500 according to publishers weekly. In order for the publisher to break even, the book would need to sell 19,522 copies in print format, assuming a $1.40 per unit cost. If the ebook was available and the publisher put some advertising dollars into ebooks in general, the book would need to sell only 17,727 books overall. (12000 print and 5727 in ebook format).
The real savings comes if you reduce the print run. A book with a print run of 30,000 needs only sell 13,962 books (12000 print and 1962 ebook) or 12,782 copies (7055 print and 5727 ebook) to break even or any variable in between recognizing that the total books necessary to break even are inversely proportional to the ebooks sold. I.e., the more ebooks sold, the lower the break even point.
Any book sold above that number is a profit for the publisher and royalty for the author. If the ebook is sold at the publisher website for greater than 40% off the retail price, the ebook savings are even greater. Harper Collins, for example, sells books at 20% off. I used the 40% off figure by Simon&Schuster as it shows that the publisher can still make money and lower the cost to the consumer. A lower cost to the consumer, of course, encourages the consumer to buy more. 🙂
Essentially, with ebooks, a lower number of books need to be sold in companion with the print copy in order for the publisher to break even. By utilizing ebook economies, publishers would be able to take greater risks. Ebook sales are up 45% from last year and six times what the sales numbers were in 2002. The ebook market is obviously a growth industry. It makes sense for traditional print publishers to move toward ebooks in addition to the traditional print publishing format. Ebooks can be a win, win situation for the reader, the publisher and the author.
(For this example, I used numbers extracted from articles here and here on profit and loss for a mass market book. In this example, we assumed a $.55 cost per unit to print; $.40 for corrugation and shipping; $2000 for publicity and marketing; $10,000 for an advance; and $8000 for copyediting, proofing, typesetting and design, and art; and $1.00 per book for overhead. We also assumed $6.99 as the retail price. You can see the math in the attached PDF).
Dear Author 
Jane, I really like this posting, very interesting, especially for someone who didn’t no zip about the business but adores her PDA *g*. I personally think that a 10 or 20% rebate as Harper Collins and Harlequin offer it is still a joke, considering what I am NOT allowed to do with the ebook. But I also think that conventional epubs like Ellora’s Cave & Co are way over the top with their prizes, some ebooks are more expensive than their equivalents (in word count) in print.
I always thought ebooks should be CHEAPER than paperbacks due to the lower costs associated with it (no print runs, no distribution costs etc.). Unfortunately, quite a few of the ebook publishers charge very high prices for their ebooks which has really stopped me from buying them (since you can’t return them if they SUCK!).
Just to be clear–Jane is making assumptions about the overhead of an ebook, not working with actual figures.
When she asked me about this article I told her (and the comments here already support my theory) that I believe people think there’s a very large profit margin on ebooks. In fact, there is not as large a profit margin as assumed.
So yes, I agree that some publishers’ prices are too high for the product–I’ve made that arguement myself. However, since Jane used Samhain as the example, I’ll do the same. Our prices are mostly lower than print book cover prices. And new books are discounted each week. But prices cannot reasonably be any lower and still 1)produce a quality product–good content editors, final line editors and cover artists need to be paid 🙂 and 2)make it difficult for the publisher to both pay their overhead (which is still in existance despite belief otherwise) and make any profit.
I believe that so many people believe the profit margin is so large on ebooks, that this is why we see so many new ebook companies popping up–and then subsequently folding. Because the profit margin is actually not as high as one might think, especially for a company interested in growing and building themselves.
Of course, I’m only speaking of ebook companies here because I can’t speak for the more traditional publisher’s and their production of ebooks, since I’m not familiar with how things work on that side, what it costs to produce the ebooks and how many ebooks they’re actually selilng.
What appeals to me about ebooks as a reader is the idea that they never go “out of print” — so if I want to pick up an older book, I can still provide the author with royalties and get a “new copy. For Angie or anyone else in e-publishing, does it cost anything to maintain an ebook “in stock” after the initial investment? Maybe the profit margin for ebooks gets larger over time because of the longer shelf-life of ebooks?
Well, I’ve lost out on buying some ebooks because I decided to just “think about” a purchase then when I was ready to buy, the epublisher had gone out of business. What happens to those books? Do the rights revert back to the author who then tries to sell it to another publisher?
As Angie already said, the profit margin on ebooks isn’t as huge as it might seem. As with any business, making a profit and staying in business isn’t easy. If it was, more new businesses would succeed!
Jayne, on your question the answer varies depending on the contract terms. An author’s work can be tied up by a company in bankruptcy, etc., unless the contract specifies that all rights revert.
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