Who’s the Biggest Loser in E-Books?

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The e-book explosion is for real, and growing. What’s interesting is that most of the complaining you may have read in recent months is from the publisher side — that it will be ever harder for them to stay solvent in an e-book world. But the latest edition of the Authors Guild bulletin, reprinting a recent e-mail alert to Guild members, shows that under current royalty configurations, the real losers aren’t the publishers; it’s the authors.

This is plainly an opportunity for literary agents to exercise whatever muscle they can muster, as they have in past decades when formats changed. Here’s how the Guild (hardly a disinterested party) puts it:

Among the ills of this radical pay cut [lower prices for e-books than for hardcovers] is the distorting effect it has on publishers’ incentives: publishers generally do significantly better on e-book sales than they do on hardcover sales. Authors, on the other hand, always do worse.

How much better for the publisher and how much worse for the author? Here are examples of author’s royalties compared to publisher’s gross profit (income per copy minus expenses per copy), calculated using industry-standard contract terms:

The Help, by Kathryn Stockett

Author’s Standard Royalty:
$3.75 hardcover; $2.28 e-book.
Author’s E-Loss = -39%

Publisher’s Margin:
$4.75 hardcover; $6.32 e-book.
Publisher’s E-Gain = +33%

 

Hell’s Corner, by David Baldacci

Author’s Standard Royalty:
$4.20 hardcover; $2.63 e-book.
Author’s E-Loss = -37%

Publisher’s Margin:
$5.80 hardcover; $7.37 e-book.
Publisher’s E-Gain = +27%

 

Unbroken, by Laura Hillenbrand

Author’s Standard Royalty:
$4.05 hardcover; $3.38 e-book.
Author’s E-Loss = -17%

Publisher’s Margin:
$5.45 hardcover; $9.62 e-book.
Publisher’s E-Gain = +77%

So, everything else being equal, publishers will naturally have a strong bias toward e-book sales. It certainly does wonders for cash flow: not only does the publisher net more, but the reduced royalty means that every time an e-book purchase displaces a hardcover purchase, the odds that the author’s advance will earn out — and the publisher will have to cut a check for royalties — diminishes.

What’s tricky here in the publishing world is that an awful lot of writers do not write for the money. But I can guarantee you that the agents of the books listed above — and the authors themselves — aren’t happy knowing that they earn a little bit less money every time they sell a copy of a book that nets the publisher a little bit more money.

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  1. J. R. Tomlin says:

    You might want to mention that “authors don’t write for money” thing to Barry Eisler. He isn’t the first to walk away and you can bet he won’t be the last. As for that “little bit of money” it ain’t such a little bit.

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  2. Allen Varney says:

    The ebook revolution will make publishers substantial losers, but the biggest losers will be agents. This is because more and more authors are self-publishing. Bestselling author Barry Eisler just turned down a half-million dollar advance for a two-book deal with St. Martin’s Press in order to self-publish. His dialogue with self-pub guru Joe Konrath comprehensively discusses the many reasons why authors now find self-publishing more attractive than legacy publishing:

    http://jakonrath.blogspot.com/2011/03/ebooks-and-self-publishing-dialog.html

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  3. bobby says:

    But are more people buying the books now that they’re available as e-books? Why would an author care about this if the increased number of purchases made up for (or surpassed) what they’d lose in terms of their share versus the publisher’s?

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    • Christina says:

      Because that “authors don’t write for money” is nothing more than hypocritical nonsense! Authors are not ascetics, and want to be paid for their work like someone else.

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    • Jeff says:

      yea you are right, the ebooks are way cheaper so their sales should increase and make up for the fall in same book margin! freakonomics is skipping on the economics here

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  4. James Curran says:

    But the real question is, why is the author’s royality different between the e-book and the hardcover (and the paperback)? The author’s contribution to each is identical, and the traits of each format that makes one more valuable/costly to the reader is purely in the publisher’s realm.

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    • moc says:

      Exactly! This is the agent’s fault. They should have negotiated so that the pay per copy is the same for each format.

      The only way I see they can justify this lower pay/copy is to show that their profit/copy sold is also smaller, perhaps due to things like piracy. I am pretty sure this is false.

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  5. cordell says:

    It’s funny how industry norms tend to outlive thier usefulness. My initial impression is that the agents aren’t making the right argument. If the content (the book) is what’s selling then why does thier royalty vary by delivery mechanism? In fact, I’ll plead ignorance to industry numbers here, but shouldn’t they argue that since ebooks have higher demand they should get higher royalties, not lower? The operational cost only makes that argument stronger.

    Of course it’s likely that the publishers are in a stronger position to demand terms – if they don’t publish it the author gets nothing – but certainly some of the more popular authors mentioned above have more leverage.

    So why are agents negotiating such bad deals?

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  6. Tom Maguire says:

    Friends and relatives who are book dealers, book store and library employees are pretty worried as well.

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  7. dvan says:

    The publisher benefits only if the author has a publisher. Can you say disintermediation?

    Check out Amanda Hocking, a twenty-six-year-old junior college dropout from Austin, Minnesota, who couldn’t get a publisher, despite trying for eight years. Last April, she self-published 9 of her rejected novels as Kindle ebooks. Between then and now, she’s sold over 1 million ebooks.

    Check out the Konrath/Eisler discussion.

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  8. Dave Morris says:

    Does seem like there is an opportunity here for a new kind of venture that would offer to partner with authors and bear the cost of editing, production and marketing, then share out profits in proportion to each partner’s investment. But what would that kind of JV vehicle be called, given that the word “publisher” has already been taken by an altogether less transparent type of company?

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    • Bill McGonigle says:

      >>>>bear the cost of editing, production and marketing, then share out profits in proportion to each partner’s investment.

      In music, that would be called a ‘producer’. The label fits, I think.

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