Mar
02
2010

Read the Chart, Not the NYT Article, to Get the Straight Dope on Book Profits

Books (cc photo: Sarah Browning)

(cc photo: Sarah Browning)

There's a certain category of newspaper article where you're better off ignoring the text and just looking at the accompanying graph. Such an article is "Math of Publishing Meets the E-Book" (New York Times, 3/1/10), by Motoko Rich.

The context for the article is the fight between publishers and Amazon over how much to charge for an electronic copy of a book; Amazon wants to price them at $10, whereas publishers would prefer to charge $13 or $15. Here's what you learn about publishers' profits from the article itself:

In the emerging world of e-books, many consumers assume it is only logical that publishers are saving vast amounts by not having to print or distribute paper books, leaving room to pass along those savings to their customers…. Publishers…say consumers exaggerate the savings and have developed unrealistic expectations about how low the prices of e-books can go. Yes, they say, printing costs may vanish, but a raft of expenses that apply to all books, like overhead, marketing and royalties, are still in effect.

All of which raises the question: Just how much does it actually cost to produce a printed book versus a digital one?… On a typical hardcover…the publisher is left with $4.05, out of which it must pay overhead for editors, cover art designers, office space and electricity before taking a profit.

An e-book [priced at $12.99]…leaves the publisher with something ranging from $4.56 to $5.54, before paying overhead costs or writing off unearned advances.

What's missing from the article's account is how much the publishing company makes from a $10 e-book–but you can learn the answer from the attached chart: $3.51 to $4.26, depending on how big a royalty authors end up getting. So publishers get about as much per-unit profit at $10, and quite a bit more at $13 (let alone $15). So it would seem if the question is, can publishers afford to publish e-books for $10, the answer would be "yes."

Only that's not the conclusion of the article–whose alternative headline is "Making the Case for iPad E-Book Prices." Rich follows her financial calculations with a series of unfortunate events that will occur if the publishing industry does not make more money from e-books than from regular books:

At a glance, it appears the e-book is more profitable. But publishers point out that e-books still represent a small sliver of total sales, from 3 to 5 percent. If e-book sales start to replace some hardcover sales, the publishers say, they will still have many of the fixed costs associated with print editions, like warehouse space, but they will be spread among fewer print copies.

Somehow I doubt that the book industry has so much capital tied up in warehouses that their emptiness is going to bring publishers to their knees.

While the piece is framed in studiously neutral Timespeak, Rich's conclusion seems to be this: "Certainly, publishers argue that it would be difficult to sustain a vibrant business on much lower prices. Margins would be squeezed, and it would become more difficult to nurture new authors." Funny, you would think new authors would benefit from a switch to a technology where it cost much less to either produce or purchase a book.

The most eye-opening thing about the Times' chart–not spelled out in the article–is the shifting contributions of the various players in the publishing business. With the traditional book, the publisher pays an author $3.90 per copy for a manuscript, adds $5.05 worth of editing, printing, marketing etc. to it, and takes a profit of $4.05–about the same amount that the person who actually wrote the book gets. With the e-book priced at $13, on the other hand, they're paying the author between $2.27 and $3.25, adding $1.28 worth of value and taking between $4.56 and $5.54 in profit–roughly twice as much as the writer gets.

Publishing houses are going to have a tough time in the digital era explaining why they are entitled to so much for doing so little. But not to worry–they'll always have the New York Times to help them make their case.

About Jim Naureckas

Extra! Magazine Editor Since 1990, Jim Naureckas has been the editor of Extra!, FAIR's monthly journal of media criticism. He is the co-author of The Way Things Aren't: Rush Limbaugh's Reign of Error, and co-editor of The FAIR Reader: An Extra! Review of Press and Politics in the '90s. He is also the co-manager of FAIR's website. He has worked as an investigative reporter for the newspaper In These Times, where he covered the Iran-Contra scandal, and was managing editor of the Washington Report on the Hemisphere, a newsletter on Latin America. Jim was born in Libertyville, Illinois, in 1964, and graduated from Stanford University in 1985 with a bachelor's degree in political science. Since 1997 he has been married to Janine Jackson, FAIR's program director. You can follow Jim on Twitter at @JNaureckas.