Worlds & Time

Sunday, February 07, 2010

More on the Amazon/Macmillan Thing

I guess that I couldn't keep away. All the discussion that I've been reading last night and this morning have left me with a few more opinions. First though, I have to say that there are a lot of people screaming about slippery slopes and the end of the world. I just don't understand any of that in this case so I'm going to try to ignore some of it.

Before I get further, I don't think there are any slippery slopes. Amazon winning wouldn't have meant a dystopian future of $900,000 ebooks or authors starving in the streets. Macmillan probably isn't going to keep the cost at $15 forever (check out the "Fictionwise" section of this post out for a counterpoint that is very well written). Also, this is mostly about ebooks (although it temporarily affected the way that Amazon sold real books for a while) not "the future of all books, forever!"

To start with, there are four positions on this subject, none of whom is really wrong or right. They're just looking at things to figure out what would be best for them. They are:

1. Macmillan. Macmillan wants to sell titles for more to make more money. Note the phrase "more money." Not, "some money" because that would indicate that they were making nothing prior to this, which as far as I can tell is just untrue. They just weren't making as much money as they thought the "market could support" so they want to increase prices to that point, and will apparently get to do so.

2. Amazon. Amazon wanted to make more money as well. They were pursuing a different strategy. They were trying to corner the market in ebooks so they wanted low prices so that people would buy all of their ebooks from them. If they controlled the market, they would have the advantage of volume on something that would cost them very little to distribute. However, now that they've basically agreed to do what Macmillan wants, they'll make more money now but slightly less in the long term. Not much skin off their teeth. They'll still make money.

3. The Authors, represented by John Scalzi. They want to make more money too, and won't make the extra money that Amazon would if it controls the market, so they support Macmillan.

4. The Readers/consumers. They're going to pay more now, and would have paid less if Amazon had won. It's not really unfortunate or anything, but it's certainly not a gain for them in the short term or probably the long term. Macmillan has to make a profit, after all, so there's not much of a chance that any of that money would go into more "R&D" development of new writers. Not more than there already is. The reader isn't winning, but this isn't life or death. They're just going to pay a bit more.


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So, as I understand it, there are four major areas of cost that get factored into the price of a book before profit is made (for both the publisher and the author). They are editorial (and acquisition), marketing, printing and distribution.

For the sake of this post printing and distribution can be considered a single unit because that is the major difference between ebooks and printed books. Ebooks have a miniscule and nearly marginal cost of materials and distribution.

Let me speculate on these costs for the moment.

So, if you look at editorial, marketing, and P&D, P&D will cost the most by far. Probably between 35-50% of the cost of any book. Perhaps even more although right now all of the people working for publishers are furiously claiming that P&D is not the "majority" of a book's cost. Everyone that I talked with before this little battle says that it is the single largest cost of book making, so as I'm assuming thirds I'm assigning it the largest percentage.

Then there is marketing and sales, which is probably between 15-25% of the cost. From what I can see, actually selling the book requires a lot of staff and a lot of money suck (sending books to readers, buying advertising, creating promotional materials and events and sending authors on book tours). I haven't seen a company with a smaller marketing/sales department than editorial department, but again I'm simply making up these numbers so many I'm wrong.

Editorial is probably about the same or smaller than marketing and includes design and layout. True, it involves editors and lawyers and designers but sales involves lawyers and designers and has just as much staff to support.

Then, every author gets 5-10% of the list price on a book sold, often up front in the form of advances.

So, there are costs associated with putting out a good product, I don't dispute that at all. But to put out an ebook rather than a physical book removes the largest chunk, even if that chunk is not greater than 50% of the cost. That novel is going to be 35%-50% less expensive to produce at the same level of quality than a physical copy. And most of the cost to do this is shared between the physical and ebook versions. A book really should only need to go through copy editing for both print and digital because that print copy is based on a digital file.

(The only numbers that I've found [through the Ars Technica article below] indicate that 35-50% is in the ballpark or even optimistic. For the first book listed the "PPB" costs are 53.5% without shipping/distribution included.)

When I see an ebook being sold at $9.99 or $14.99 brand new for the early adopters/get it first crowd, I can see how that works. It's about half as much as a new hardcover, the cheapest of which that I've seen published in the last year is $26.00.

But, once a book is published, the cost to create it is fixed, or nearly fixed. If it took $100,000 to get the first printing of a book to the shelf of a bookstore, it isn't going to cost another $100,000 to do a second printing. With traditional publishing, it'll cost a bit more to print and ship more copies out, but the price goes down substantially. So we get trade paperbacks and mass-market paperbacks which cost $15.00 and $8.00, respectively.

Ebooks should be cheaper though. If a book is selling for $7.99 as a paperback, then it really should be selling for $4.99 as an ebook because the cost of printing is still going to be the major source of cost for that mass market paperback. And you can sell more of them, for longer, at lower expense.

If a book has already made it's production costs back, then it could drop even further in an ebook format to make even more money at little expense for the publisher. If it isn't a big seller at $4.99 any more, maybe drop it to a dollar cost somewhere down the line. People will still be buying it and the only thing that you need to do is change the number in a computer system. Authors will still get their 10%, and you can try to make up in volume over time what you never could have made up in traditional distribution. If you continue to offer it, that is, and occasionally do some limited marketing of your backlist.


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The costs for editorial review and novel creation are also dropping. A single person with a computer can do the job that five people with pencils used to do. The tools are getting better. Soon, a person with a computer will be able to do the work that five people with computers used to do because the computer can do things like spell check and auto-format and all sorts of nifty stuff like that.

It doesn't make sense to publish fewer works because tastes are fickle and you can't always know (or decide, as the case may be) what works will be the huge best sellers. The more things that you publish and get people into, the more books that you'll sell. With the cheaper distribution that I mentioned above, the more money you make per sale.

BAEN seems to be doing this right. Digital distribution to the hardcore fans to test out the waters and see what sells before printing the real books seems smart. I'm not saying that digital distribution for first works should be exclusive. If you know a book is going to sell physical copies, printing them up at the same time is fine too.

But pretending that ebooks are the end of the tail and not the tusks sometimes . . . that's not working either. Maybe digital distribution could increase the number and breadth of published works, even under the consolidation of publishers and distributors.

I hope so.


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Here are some other posts by people that are not crazy:

Lynn Abbey
Sean P. Fodera (read some of the comments, too)
Chris Meadows (who is also linked to above and has more comments all over the blogs about this)
Jane Fancher
Also, Cory Doctorow, of whom readers should already know that I am a huge fan, makes a good point about DRM

Not on this exact point, but there is an interesting Ars Technica article about ebooks by John Siracusa here that seems to confirm a bunch of the points that I'm trying to make.

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