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Doing the Math: NYTimes details price of publishing e-books

New York Times writer Motoko Rich did something my j-school professors nostalgically refer to as “doing the math.” Rich’s article, “Math of Publishing Meets the E-book,” lays bare the costs publishers face in the evolving world of e-book sales. The main question Rich tackles is this: do publishers save enough through eliminating printing costs to justify reducing the price of e-books? While on its face, the answer appears to be yes, Rich still reports that publishers are weary of shifting costs during the print-to-e-book transition.

Here’s the much-simplified price layout:

For an average, $26 hardcover, a retailer typically pays the publisher $13. Of this, the publisher pays:

  • $3.25 to print, store and ship the book
  • $0.80 for cover design, copy-editing and typesetting.
  • $1 for marketing (may be higher or lower depending on title)
  • $3.9o in royalties to the author (about 15%)

Out of the remaining $4.05, the publisher must pay overhead for editors, designers, office space and utilities before taking a profit. Any profit may then be used to recoup unrealized author advances.

For the e-book, Apple has agreed under the proposed “agency model” to act as a agent/retailer, taking 30% commission of the price determined by the publisher. So, for a $12.99 e-book, the publisher starts with $9.09. From this they pay:

  • $0.50 to convert text into a digital file, typeset and copy edit
  • $0.78 in marketing
  • $2.27 to $3.25 in royalties to the author (debate rages on over whether the 25% royalty should be calculated using the gross revenue or the consumer price)

This leaves $4.56 to $5.54 for the publisher before any overhead.

Doesn’t that make e-books more profitable? Maybe. This simplified snapshot leaves out revenue recouped in sales of paperbacks and shifting sales margins. Remember, e-books only make up a small percentage of publisher revenue — 3 to 5 percent — and if that begins to increase, publishers could be trapped with the printing costs of their old model and the revenue of the new, e-book model.

Where have I heard that one before? Oh yes, in newspaper industry printing costs. In the near future, publishers may face the same dilemma many newspapers are grappling with now: at what point do you stop the presses and go entirely digital?

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