Publishing Economics I: The real costs come before you print

5.9.11 | | 42 comments

Over the past few years I’ve come across statements that show a misunderstanding of the basic costs and economics that book publishers and producers face. For example, there are regular complaints about the cost of ebooks in comparison to print books, generally suggesting that publishers have priced ebooks unreasonably high. Other statements imply that traditional publishers keep 90% of the profits of book sales, while giving the author just a small part. Still others assume that since the cost of producing each additional ebook is nothing, that ebooks will soon overtake print book sales and publishers will disappear.

As I considered these claims, I realized that they are often based on little or no knowledge of publishing economics. So I thought it might be useful to give a basic overview of the costs and economics of book publishing—something that might help those considering publishing their own ebooks, and that might help consumers decide if prices really are too high and authors understand why publishers don’t give them more money. I’m sure for some readers this is obvious—if so, then you likely agree with me about many of the complaints about publishers aren’t justified, or you will be able to tell me why I’m wrong.

Books, whether digital or print, are economically not much different from a lot of other manufactured goods. To manufacture a product, you first plan the production (design the product and how it will be made) and then actually produce the product.

To give a concrete example, the process is really not any different economically than making hor d’oeuvres for a large party, perhaps one in which you really don’t know exactly how many people will come, or how many hor d’oeuvres they will consume.

To plan for the party, you first figure out hor d’oeuvre you will make and what recipe you will use. You also need to consider what kitchen utensils and implements you need and even how many people will help you make these hor d’oeurves.

All of this planning takes time and costs either money or your effort (since you can’t spend the time you put into the planning doing something else you might want or need to do). You may need to consult with another chef, you might need to find workers to help you put together the hor d’oeurves or you will probably need to go to the store and purchase the materials needed to make the hor d’oeurves. You may also need to find or purchase the utensils and tools needed to make them—rolling pins, measuring cups, bowls, etc.

For what its worth, these planning costs are called by accountants fixed costs—because the total of these costs don’t change with the number of items (hor d’oeurves in this case) that are made. The costs of actually making each item are called variable costs—because the total of these costs changes according to how many items you make. In the case of the hor d’oeurves, all that planning might cost just a little bit, say$50, but the cost stays the same no matter how many hor d’oeurves you make. On the other hand, the cost of the ingredients and the time making the hor d’oeurves changes according to how many you make.

The most important and crucial costs for most books come in this planning or preparation phase. These preparation costs include not only all editorial costs (content editing, line editing, proofreading, etc.), but also design and layout of the book, preparation of the cover, design and management of marketing and sales, etc. At most large publishers, these pre-printing costs, all fixed costs, amount to at least several thousand dollars, and for the largest books they can amount to tens of thousands of dollars.

What large publishers do NOT include (but which most authors who self-publish should include) is the authoring cost—the cost of the author’s time and effort in writing the book. By agreeing to pay the author a royalty, the publisher converts that cost to a variable cost—the total depends on how many books get sold, and if the book doesn’t sell well, then the author’s time and effort isn’t paid for in full. But that fact doesn’t bother the publisher, because he only agreed to pay however much per book. But for the self publisher there isn’t any way to ignore or make into a variable cost the costs of time and effort writing the book.

The implications of the fact that such a large proportion of book publishing costs come up front, before a single book is manufactured, are huge. It means that book publishing is almost always about what kind of sales volume you can get. The basic math is simple: the larger the number of copies you sell, the lower these costs are per copy sold. If it costs you $5,000 up front to write and prepare a book, then selling only 500 copies means these pre-printing costs are $10 per book—quite a lot. But if you sell 5,000 copies, then these costs are only $1 a book, and 50,000 copies are just $0.10 a book!! Volume is everything.

Too often those unfamiliar with these economics ignore the editorial and other pre-printing costs, especially when considering book prices. Somehow, it is widely believed, a 9 x 6 200 page paperback book printed on standard paper should cost the same regardless of its contents. In fact, the most important factor driving the costs the publisher faces is how many copies it can sell. And the public’s belief that books configured the same should cost the same regardless of content, actually allows publishers to keep the price of bestsellers higher than they might otherwise.

These same costs are one of the factors that drive publisher reluctance to reduce prices for ebooks. The actual printing (variable) costs are a relatively small factor in pricing print books (printing for books is usually 1/5 to 1/6 of the cover price), so reducing that small factor to zero (as happens with ebooks) doesn’t save much money, and doesn’t allow you to reduce the price that much. Its not about cannibalizing print book sales, its about covering the editorial and other preparation costs. Unless the publisher is sure he will get a big bump in sales volume, he can’t reduce prices on ebooks much.

This is, of course, just one aspect of publishing economics, although its one of the most important aspects. I hope to address other aspects in the future, including distribution costs, sales patterns, and pricing.

I know this can be a bit confusing or daunting, and I hope I’ve made the concepts clear. In my mind, these concepts explain a lot of what goes on in book publishing, and indicate, among other things, why it is unlikely that ebooks, just because of their format, will have significantly lower prices than print books. If ebooks end up significantly cheaper, it will be because of many other factors.

42 comments: “Publishing Economics I: The real costs come before you print

  1. Wm Morris

    I think that most of the e-book advocates I’ve read understand the fixed costs, but believe that:

    a) those fixed costs are too high and are too much invested in the wrong places and that when cuts have been made, they’ve been made in the wrong places

    b) the author deserves a larger cut

    c) consumers don’t care about the realities of economics — fundamentally, even those who know something about the industry are still going to balk when they see that an e-book costs more than a paperbook, especially when they realize that there is no secondary market for that e-book.

    d) that most of the marketing goes to those authors who already have name brands or to the few titles that publishers think they want

    All of the arguments that are put forth in this post could have been made (and were made) by the record companies.

    That said, self-publishers shouldn’t have stars in their eyes (or dollar signs) either. But most of the self publisher evangelists that have any sort of credibility do say that you should pay (and pay good rates) for editing and cover art.

  2. Katya

    Psst! Speaking of proofreading, it’s “hors d’oeuvre(s).”

  3. Wm Morris

    “But for the self publisher there isn’t any way to ignore or make into a variable cost the costs of time and effort writing the book.”

    But to turn that back around — yes, this means that publishers can lose money on some authors. Which does mean that authors can get some advances that they don’t earn out e.g. they got paid something to write the book whether it sells well or not. But how many times will that happen before the author gets dropped? And how many authors get advances that fully compensates at a decent wage the cost of time and effort writing the book?

  4. Mojo

    I have many thoughts. Following are a couple-three of them, on the assumption that we’re talking about the big publishing houses and not Baen and digital-first houses.

    1. Very often, what’s cited as the leading cost of creating ebooks is the application of DRM, which is maddening for those of us who hate DRM.

    2. From what I have been able to glean over the last three years or so is that the cost of production of the book in all its formats is not amortized over all formats. In other words, the fixed costs are applied *again* to the ebook, thus, double-dipping.

    3. Because of the early success of digital-first publishing houses (Ellora’s Cave, Samhain Publishing, and now Harlequin’s imprint, Carina), the biggest consumers of ebooks are romance readers aka early adopters. We have been trained to expect a certain price point for ebooks. A price higher than the mass market paperback is not it.

    4. As Wm pointed out to me on Twitter, Amazon has skewed pricing, which is true. They also have frictionless delivery, which no other ebook retailer can claim. Asides:

    a) My MIL is thrilled to be able to buy books at $9.99 because she is what I call a Hardcover Consumer. Meaning, no book exists for her if it doesn’t exist in hardcover. This is the consumer big publishers target with their pricing schemes. Unfortunately, she only buys one or two books a year (if that), and the heavy-duty book buyers buy in mass market paperback, which is the pre-ball Cinderella of publishing.

    b) POD makes the entire print debate moot. eBooks will kill the mass market paperback, not the hardcover, and trade paperback will take its place. Very soon, trade paperback will no longer be the sure sign of self-publishing.

    I have argued both sides of the ebook cost discussion between readers and publishers. I’m in a unique position as 1) a reader/heavy consumer of ebooks, 2) being plugged totally into the ebook community, 3) being an actual *part* of the costs incurred in the creation of ebooks, and 4) as a publisher (however niche).

    Of course, eBooks have their own costs that are not (necessarily) print-oriented: formatting, server space, delivery costs (Amazon charges the publisher for each file delivered based on file size).

    My comment is longer than I expected, but I’ve barely touched the surface of them. I’ll stop now.

  5. Mojo

    “But for the self publisher there isn’t any way to ignore or make into a variable cost the costs of time and effort writing the book.”

    Sure there is. Track your time, assign a dollar amount to it, pay yourself (or don’t), and write it off on your taxes.

    If you’ve gotten an advance, you’ve probably spent it on marketing. The entire process of writing a book is a money-losing proposition whichever way you look at it.

    But…people are still going to write. And they’re still going to publish one way or another.

    IOW, it doesn’t matter how much it costs to write the book. It only matters how much it costs to bring the book to market.

  6. Wm Morris

    Or to put it another way: the cost of writing the book is a cost no matter what. The question for authors now is how to best recoup that cost.

    The answer to that question is going to vary widely depending on the target market for the work; the reach/brand/capabilities of the author; the health and practices of the potential publishers that could reach the potential target market, etc.

  7. Mojo

    The question for authors now is how to best recoup that cost.

    Or even if that’s a priority. Some authors really don’t care.

    At the Writer’s Digest conference, a man approached me about what I felt was too much to publish his book. He told me his budget was $30,000 (albeit possibly including a cross-country promotional junket), but he was prepared to spend $30k on publishing the book itself.

    I told him his way upper upper upper range should be about $5,000 if he didn’t intend to have them offset printed (he wasn’t).

    Oh, what I could publish with $30,000…

  8. Wm Morris

    Oops. Forget to refresh to see if anyone else had commented. The “Or to put it another way” is a follow up to my comment #4.

    —-

    Sidenote: ebook formatting is a cost that both large publishers *and* self-publishers need to factor in to their bottom line. And as Moriah will tell you, it takes work to format it right, but you have to do it because ebook consumers are beginning to be able to tell the difference.

  9. Mojo

    The issue of what it costs to actually WRITE the book has cropped up recently in two other elsewheres, one right on top of the other. This may be serendipity. It may be that people who were traditionally published authors, who are now self-publishing either their backlists or their new stuff or both, are starting to take this into account.

    I still can’t get over the fact that self-publishers (ESPECIALLY the ones who’ve been traditionally published) refer to their revenues as “royalties.” They’re not royalties and the fact that this is being perpetuated is part of the “new” publishing problem.

  10. Wm Morris

    That seems like madness to me, but that may be because I sacrifice my personal writing for other things in my life (including a day job) and have no major regrets for doing so.

  11. Mojo

    Well, I can’t talk. I’m one of those people who, when The Muse strikes and/or I’m presented with a challenge (*ahem Monsters & Mormons ahem*), I ditch everything else to write. However, I’m always percolating my current WIP in my head, so…even when I’m not putting words to paper, I’m still writing.

    I would never attempt to calculate what it costs me to write, since I’ve been more than compensated by not having to pay for therapy.

  12. Eugene

    Kent has articulated the biggest fallacy in the publishing business: that fixed costs are fixed. His metaphor is strained at best. With the written word, we are not talking about a physical thing manufactured using physical work (in the Newtonian sense), dependent on a traditional supply chain.

    The one physical thing that is very much involved is the computer. The fixed costs of computing have plummeted since I lugged a 30 pound Kaypro II (64kB RAM, 2.5 MHz Z80 CPU, list price in 2010 dollars: around $3000) to graduate school. (More amazing: I was actually allowed to carry that thing on the plane!)

    The substantial fixed costs of television production, for example, all depend–on the who, what, how, when, where–and can vary many orders of magnitude with no discernible effect on the output (even limiting the discussion to those television people gainfully employed).

    Instead of fixating on fixed costs, it’s time to question the entire publishing business model, which in the U.S. is a mutant mess.

    As Dean Smith points out, adjusted for inflation, a paperback book that cost 35 cents in 1960 would sell for $2.60 today. Something is clearly way out of whack. While the movie industry justifies the price of a movie ticket with color, Cinemascope, Dolby Digital, and 3D, books are still just (e)ink on paper.

  13. Katya

    3.

    I have never remembered how to spell that word correctly.

    This is one of the rare practical uses for my BA in French literature.

  14. Emily M.

    Katya, isn’t it fun to find a practical use for one’s degree? Every time I find a practical use for my Comp Lit degree I am happy.

  15. Wm Morris

    A better metaphor might be:

    Publisher are like a catering company that contracts out the main food preparation to independent chefs (authors) and builds relationships with waiters that attempt to sell their product to hungry but picky consumers with a variety of tastes. The independent chef aka the author buys the raw ingredients and creates the dishes. The publisher aka the catering company then plates the dishes, adds or subtracts some of the garnishes, maybe adjusts the seasoning of the sauces a bit, and then sells the plates to a set of waiters. Some waiters are better than others at finding the consumers who are most interested in the dish. Some waiters carry trays with a variety of plates; some of the dishes may be similar to each other; some might not. Some waiters walk around with plates until the dish is not so fresh and then try to pass them off to other waiters or drop the price on the dish and sell them to less-discriminating customers, but at some point if the plates doesn’t sell, the dish spoils at which point the waiters takes the plates back to the kitchen and receives their money back for them. The plates are then tossed in the trash.

    The publisher has invested in the plates, cooks that can plate the dish properly and do the garnishes attractively, and the space where the waiters can come and pick up the plates.

  16. Wm Morris

    Hmm. Re-reading that it looks a little bit snarky, but I think the analogy is still apt. And there is something to be said for those who can package and distribute creative product. Really, when you get down to it, all this change is the result of technology, but what it’s really about is power and scale. Technology is disruptive. The Internet is particularly disruptive because it both fragments and corrals. Frankly, all of the options — traditional publisher, Amazon, Apple iBookstore make me rather nervous.

  17. Stephen M (Ethesis)

    consumers don’t care about the realities of economics — fundamentally, even those who know something about the industry are still going to balk when they see that an e-book costs more than a paperbook, especially when they realize that there is no secondary market for that e-book.

    I mean, the analysis above implies that a paperback can never be sold…

  18. Kent Larsen Post author

    I’m sorry that I wasn’t able to get to responding to comments yesterday. Let me try to respond now.

    Overall, comments seem to have taken this post as some kind of defense of traditional publishing or of higher ebook prices. That is NOT my intention. I am only trying to describe the economics. I only mentioned the comments about ebook prices because that was my motivation, not my target.

    FWIW, in some cases I do think ebooks are overpriced. In other cases, I suspect that prices aren’t high enough. And I suspect that publishers (especially large publishers) do have structural issues and make cultural assumptions that lead them to erroneous pricing. Likewise, authors and self-publishers regularly omit relevant information when they publish or talk about their books.

    Wm (1) re: e-book advocates on fixed costs:
    a) Perhaps that is what they are saying, but I haven’t seen them actually say so. I see mostly complaints about prices too high. I do admit that they could be right, at least for some titles.

    b) I do think that in the case of ebooks, the author might deserve a larger cut. How much depends on a lot of other factors, and I hope to get to some of those factors in a future post.

    c)”consumers don’t care about the realities of economics” — well, they don’t think about them much, its true. They also don’t think much about the realities of gravity, but those realities affect them anyway.

    I get your point that consumers aren’t going to change their buying habits or perceptions of prices simply because I think that the economics may justify higher prices in many cases. But I’m not sure how that is useful to this discussion. Prices are always a balance between supply and demand, between the views of the consumer and of the producer. As I said above, I intend to address pricing in another post. I do think that ebook prices will eventually be lower than paperbacks, BUT, substantially lower prices will only happen if the structure of the industry changes as I think it will.

    d) “marketing goes to [big authors]” — true, but I don’t believe that changes the economics much. It only means that the books that don’t get that marketing could use it (usually), and perhaps that the book has been overpriced because it is having to bear marketing costs used for other books.

    “arguments… have been made (and were made) by the record companies”

    Well, as I said above, I’m not really arguing that ebook prices are correct, just that the logic for claiming that they are wrong is often flawed.

    I do see that the arguments against claims that digital prices are too high have been made by record companies in the past. So what? Are you saying that the argument is invalid somehow? How exactly? I can think of some ways that it might be invalid — I’ll try to get to those when I address setting prices.

    “self-publisher evangelists… say that you should pay… for editing and cover art” — I’m always amazed that this admission is limited to just “editing and cover art.” Apparently sales and marketing are a waste of time in their viewpoint. That attitude, in general (there are exceptions), either leads to the author working his but off doing the sales and marketing (usually not as effectively as a professional) or to books that are not well known, aren’t available where they should be and that consequently don’t sell well.

    Wm (4): Again I think you believe I’m trying to justify the position of publishers. I don’t know how it sounded, but my comment that “there isn’t any way [for self-publishers] to ignore or make into a variable cost the costs of time and effort writing the book” isn’t meant to suggest that publishers lose money as a result.

    Its actually quite the opposite. By paying royalties, the publisher shifts much of the risk of failure to the author, but giving up a portion of profits IF the book is a success. Paying royalties instead of the costs of writing the book helps the publisher, NOT the author.

    You are arguing against a viewpoint that isn’t the one I’m taking.

  19. Kent Larsen Post author

    Mojo (5):
    1) [DRM is leading cost of ebooks] – I’m not saying that. I’ve never heard it and it sounds unbelievable. FWIW, I think any publisher who is facing a major cost PER BOOK in DRM is being very foolish. They are overpaying. I don’t believe publishers are doing this in general, BUT, I must admit I don’t have any experience at a publisher who has purchased DRM – I don’t know exactly what it costs.

    2) “Double-dipping” While this is certainly possible, I don’t believe it would happen on purpose at any of the largest publishers. Most of them are audited, and an auditor would be obligated to report this activity.

    While I’m not a lawyer, I suspect that double-dipping is illegal, a fraud.

    In my experience pre-production (i.e., fixed) costs are usually allocated to the first edition published – which is not exactly ideal, but is standard practice among many publishers.

    3) “A price higher than the mass market paperback is not it” Why? Are you sure that are NO circumstances where an ebook price might be justifiably higher than the paperback price? In general, yes, I agree. But I wouldn’t want to say never. As I said above, I’ll address price in a future post.

    4) “Amazon has skewed pricing” – I agree. One of the big questions with Amazon and some of the other digital retailers is the issue of who exactly should control prices and how. I dislike the fact that these retailers are often too inflexible about pricing.

    4b) “eBooks will kill the mass market paperback” well, we’ll see. I think I still see horses being used for transportation in central park. Oh, and I hear in Utah that some people even use bows and arrows for hunting–so much so that bows and arrows have seen significant technological advances in the past 50 years.

    I can’t quite make the jump to the death of mm paperbacks quite as quickly as you can.

    “eBooks have their own costs that are not (necessarily) print-oriented” — well, from an accounting standpoint, they are analagous — almost identical, from what I can see.

    Mojo (6):

    “Sure there is. Track your time, assign a dollar amount to it…”

    You’ve missed the definition of a variable cost. Tracking a cost doesn’t make it variable. A variable cost changes depending on how many units you sell. At some point before the book is published, the author finishes writing the book, and the costs of writing the book are then complete. They don’t change after that no matter how many copies are sold.

    The publisher, on the other hand, makes this cost variable by paying the author a royalty instead of the cost of writing the book. The publisher’s cost for acquiring the written book therefore changes based on the number of copies sold.

    “it doesn’t matter how much it costs to write the book. It only matters how much it costs to bring the book to market.”

    This is NOT true. If nothing else, how profitable a book is to the author influences how much the author writes and how frequently the author can write. If a book pays the author a living wage, he or she writes more than could possibly be written when the author has to also make a living by some other means.

    Mojo (10): “I still can’t get over the fact that self-publishers… refer to their revenues as ‘royalties.’ ”

    I’m with you 100% Mojo. They aren’t royalties. And it doesn’t help that some services like Amazon’s create space” do call them “royalties.”

  20. Kent Larsen Post author

    Eugene (13):

    Kent has articulated the biggest fallacy in the publishing business: that fixed costs are fixed. His metaphor is strained at best. With the written word, we are not talking about a physical thing manufactured using physical work (in the Newtonian sense), dependent on a traditional supply chain.

    Hmmm. I hope you are not assuming that I was saying that these “fixed costs” are unavoidable. Far from it.

    I think you may be overreacting to an accounting term “fixed costs” and assigning it the meaning that a general audience gives it – that fixed costs are something that can’t be avoided. I’m sorry that I didn’t clarify the difference as I should have.

    When, in accounting, we talk about “fixed costs” we simply mean that they don’t change depending on sales. If you sell more they don’t go up, if you sell less, they don’t go down.

    In many cases you can reduce or increase the “fixed costs” associated with a book. You can also sometimes change fixed costs (like the cost of writing a book) into variable costs, IF you can get the supplier to accept risk in exchange for a better payoff. Sometimes translators, cover artists, salesmen and even editors and marketers are willing to do this.

    His metaphor is strained at best. With the written word, we are not talking about a physical thing manufactured using physical work (in the Newtonian sense), dependent on a traditional supply chain.

    Hmmm, it seems like you are another person who has read the post and assumed that I’m making some kind of big defense of traditional publishing.

    I’m sorry that you didn’t like my metaphor. Regardless of whether you think it works or not, it is an ACCOUNTING metaphor and as such it works just fine. It is ONLY meant to illustrate the difference between fixed and variable costs. It is NOT supposed to be exactly analogous in all respects to publishing (as if anything could be).

    Instead of fixating on fixed costs, it’s time to question the entire publishing business model, which in the U.S. is a mutant mess.

    I wasn’t aware I was “fixating” on fixed costs — I’m merely trying to explain the economics, and perhaps clear up misconceptions (of which there are clearly more than a few — although they seem to be dwarfed compared to annoyance with ‘traditional publishing’)

    As for the U.S. publishing model being “a mutant mess” I’d be interested to know why you think so. I see some problems and changes that could be made, but I’m not sure I see “a mutant mess” — at least not a mess that can be changed without impinging on the rights of others or free markets.

  21. Mojo

    Before I start in, I just want to say that I wasn’t arguing anything with you, Kent. I was expressing some random thoughts prompted by your post and the fact that I’m seeing things from a whole ‘nother section in the ballpark.

    Mojo (5):
    1) [DRM is leading cost of ebooks] – I’m not saying that. I’ve never heard it and it sounds unbelievable.

    I wish I had a single source to point to, but I don’t; I can only say anecdatally that I hear it constantly, but then, I swim in the stream where I would hear it.

    The screams and shouts of piracy and what it costs is deafening. DRM is part of that fight.

    BUT, I must admit I don’t have any experience at a publisher who has purchased DRM – I don’t know exactly what it costs.

    All the big publishers do, and some of the little ones. Okay, I’m going to ask a question and I’m totally NOT being facetious or anything, but:

    Do you read ebooks? If so, on what device(s)? Where do you purchase them?

    “Double-dipping” While this is certainly possible, I don’t believe it would happen on purpose at any of the largest publishers. Most of them are audited, and an auditor would be obligated to report this activity.

    While I’m not a lawyer, I suspect that double-dipping is illegal, a fraud.

    The “double-dipping” comment is not meant as a legal and/or actuarial term. I’m talking about big publishers being so invested in print and so digital-averse that they will report the cost of creating an ebook as if there are no other formats and the ebook was the only format they created; thus, all the fixed costs to produce the text are applied to the paper and the digital separately for customer-justification purposes, not legal ones. So when you say:

    In my experience pre-production (i.e., fixed) costs are usually allocated to the first edition published – which is not exactly ideal, but is standard practice among many publishers.

    I have to say, then they can’t talk to the consumer about all their costs of creating an ebook, taking these things into account, as if a) the consumer cares [because, no, they REALLY don’t] and b) will change his buying habits if he just knew what a horrible position the poor publisher was in.

    (As for auditing, I’m pretty willing to bet a year’s salary that publishing engages in a bit of Hollywood accounting for the purposes of having the bestsellers subsidize the money losers.)

    “A price higher than the mass market paperback is not it” Why? Are you sure that are NO circumstances where an ebook price might be justifiably higher than the paperback price?

    Please let’s not count angels on the head of a pin. I hear price complaints all day, every day. So do the publishers, since they feel they need to justify their prices.

    4) “Amazon has skewed pricing” – I agree. One of the big questions with Amazon and some of the other digital retailers is the issue of who exactly should control prices and how. I dislike the fact that these retailers are often too inflexible about pricing.

    On the other hand, Amazon got arm-wrestled into position when the big publishers decided to go with Agency pricing after Apple egged them on. So now NO ONE is allowed to discount anything and the publishers set the price.

    think I still see horses being used for transportation in central park. Oh, and I hear in Utah that some people even use bows and arrows for hunting–so much so that bows and arrows have seen significant technological advances in the past 50 years.

    Back to the angels, I see.

    I said the death of the MMPB, not the death of print.

    “it doesn’t matter how much it costs to write the book. It only matters how much it costs to bring the book to market.”

    This is NOT true.

    Nobody cares what a writer sacrifices to write a book. Nobody. Not even the writer. People only start to care when the book goes from your hard drive to someone else’s with an eye toward putting it out on the market. No sacrifice you make is taken into account at the beginning, middle, or end of the writer-to-reader process. Ever.

    Even if you’re under the gun, under a deadline, and you’re writing 18 hours a day for two months to get the next one out–nobody cares that you lost sleep. Nobody cares that you got fired from your day job. Nobody cares that you had to pay somebody to mow your lawn or clean your house or take care of your kids because you were writing. Nobody cares that you racked up medical bills because you were exhausted and sick. Nobody cares.

    And you’re not going to get reimbursed for it, either.

    Conversely, if you’re a writer who’s not writing because you have a day job you don’t want to get fired from, you can’t afford a housekeeper and/or a lawn gu and/or preschool/nanny for your kids, and you kinda like eating and sleeping and you get no writing done at all even if you’re desperate to–nobody cares about that, either.

    It does not matter.

    Nobody cares.

    The title of the article is “Publishing Economics I: The real costs come before you print.” Nothing in the article is about the economics of writing. The economics of writing and the economics of publishing are on entirely different (warring) planets.

  22. Kent Larsen Post author

    Adam (19):

    Refusing to look outside a decades old model is one of the biggest problems with 21st century businesses in general.

    Perhaps, but I don’t think my explanation in the op was either defending or criticizing the “decades old model” of publishing.

    FWIW, this is, IMO, a little simplistic. Book publishing’s model has changed many times over the years. It is very complex, using many different sales methods, many different supply chains and many different production models.

    The book publishing model(s) continue to change both because of new technologies and because of innovations in reaching consumers.

    Please tell me how you think the book publishing model needs to change.

  23. Kent Larsen Post author

    Mojo (23): “I said the death of the MMPB, not the death of print.”

    I know. I was referring to the death of the MMPB.

    Do you know why and how the MMPB was introduced?

    An enterprising publisher saw the opportunity to sell books in drug stores and grocery stores in large volume. The idea depends on impulse purchases — consumers purchasing books as they are shopping for other goods. So the publisher designed a product to meet the opportunity.

    IMO, MMPB will go away ONLY when that opportunity ceases to exist. Amazon’s whispernet does make for very convenient delivery, but I’m not sure that it gives the consumer quite the equivalent. I’m sure that ebooks will eat into these sales over time, as those who purchase in these locations read more and more through electronic devices. But its hard to replace the “cover caught the consumer’s eye while walking through the store or standing in line” effect.

    Now, if someone creates a system that catches the consumer’s eye in similar or the same locations and allows for instant purchase of the ebook they saw (or, if these locations start to dry up from lack of business), then, perhaps, MMPB may die out. But, of course, this ignores that MMPB’s have grown to include other functions also, which would also need to be superseded in some way for MMPB to die out completely.

    Cheaper and digital isn’t everything. Many times the location where the purchase is made is also a big factor.

  24. Kent Larsen Post author

    Mojo (23), I don’t think your “nobody cares” statement really addresses the point I tried to make. I realize that the consumer, and even the publisher largely doesn’t care.

    My point is that how much the author gets does have an important effect. If the author doesn’t have to do other things to survive, he writes more (assuming he cares about living).

  25. Wm Morris

    I know how and why the MMPB was created.

    It’s also a format that’s in decline (down 13% in the past year, and the locations where it had it’s most success seem to be increasingly devoting less shelf space and/or less prominent shelf space to them.

    I don’t know what the future of the format is (well, it will decline, but not die out — the only question is how fast it declines to a level where it’s no longer relevant), but I do know that from a consumer psychology level, consumers are going to continue to be very cranky when they see the prices of ebooks are $2-4 higher than the prices of MMPBs.

  26. Eugene

    It seems that the entire point of this post was to define “fixed costs.” A Wikipedia link would do. Otherwise, let me rewrite it: “There are fixed costs involved in publishing. Those fixed costs have traditionally been amortized over the life of the print run.”

    This is so obvious that I suspect people are trying to read into it depth that apparently wasn’t intended. But you can’t draw attention the subject without taking into account how drastically those fixed costs have changed.

    Just as in video and photography, the digital revolution has lowered many costs to the point of zeroing them out. And shifted the rest from in-house to contracted services that can be bid against each other (this has been true of the former two for several decades now).

    This Slate article sums up the situation: “By teaching a horde of novices the skills necessary to shoot photographs of a quality that was until very recently only within the grasp of an elite few, Hobby has played a significant role in the transformation of the profession. In the last few years, the market rate for many types of professional photographs has dropped by as much as 99 percent.”

    When a “fixed” cost can drop 99 percent, the whole game changes.

    For a different way of doing things (legacy publishing), consider Japan. The standard contract (so standard agents are rarely involved) has long been no advance and a 10 percent royalty based on the list price, paid at the time of the print run. Think about how that changes the economic equation.

    Novel serializations are still common in Japan. Almost all manga are serialized first, with the publisher and writer breaking even on the costs. The profit is made on the compilations, with an MMPB manga retailing for around $5.00 (200 pages, B&W interior, glossy wrap-around dust jacket).

    Subsequent editions for popular manga add value with larger book sizes, heavier paper, more color inserts. In other words, cheap first, expensive later.

    Dojinshi (self-published manga) continue to serve as the “minor leagues” for major league publishers, launching the careers of dozens of best-selling writers.

    Dean Wesley Smith considers this a viable model. In his latest post, besides recommending that writers “Avoid Agents At All Costs,” he believes that writers should “Indie Publish First, Then Send POD to Traditional (legacy) Publishers.”

    I’d also suggest the shareware model for ebooks, beta-tested before official release, and then updated/upgraded along the way.

  27. Roger Billings

    Kent,

    Thanks for the post. While it seems like the sujbect of e-books economics has been beaten to death, it only seems so. I think that the reality is that we are in the midst of a change that is larger than anyone can imagine and extensive discussion is needed.

    Running the numbers is not as powerful to me as the subjective feeling of profound change in the book market and the larger indirect impact of that change. Don’t we all think differently about books, booksellers and publishers, just over the last couple of years? Yes, it is obvious that change is happening when Border files for bankruptcy and Barnes and Noble can’t find a buyer (last I heard), but I still think there is a tendency to undersell the impact of e-books.

    I think that the relative cost of producing e-books and the impact on mass market paperbacks are only part of the picture. What strikes me now is simply the feeling that everything has changed so much that understanding how books used to be published is becoming as relevant as knowing how to operate a DOS driven computer. But no one knows the new rules because they have not been written yet. Hence the value of talking about what is happening.

    When I saw a post stating “HarperCollins CEO:Ebooks are Killing Revenue” http://bit.ly/iSsvZm, it reinforced for me the profound change. Ebooks are making a huge impact, and more important, that impact is changing and will continue to change the way that we inform ourselves, the way we share information and the way we learn. If that is true, then perhaps the question is how we should best respond to those changes?

    I just saw Eugene’s comment and his analogy to digital photography is very helpful in illustrating the kind of changes we might be seeing. Thanks.

  28. Eugene

    Coincidentally, this morning, NPR ran story about Open Road Media, founded by Jane Friedman, who is “very happy to [no longer] be the CEO of Harper Collins,” the company she used to run. “Because as the CEO of a legacy publishing company, you are the CEO of basically two companies: one is physical and one is digital.” And the former, explains Open Road Media vice president Brendan Cahill, means that “you have to have major warehouses, you have to have a fleet of salespeople, you have to have–if you are a big six publisher–a midtown Manhattan office building that has a lot of overheads [sic] that are involved.”

  29. Wm Morris

    I don’t think linking to the Wikipedia entry of fixed costs would have made the point in the same way. By including a metaphor and bringing in some of the attitudes he has seen expressed, Kent adds value to and explores the point in a way that is useful. It may not be satisfactory to those who think the traditional model of publishing is on its’ way out.

    I know this kind of stuff has been talked to death in some circles, but I think that focusing on some of the key factors (fixed costs, distribution, pricing) that are involved in the publishing is a good idea. In particular, because how both national publishing and Utah publishing deal with these issues is going to have an impact on both Mormon literature as a field and the people who are part of it.

  30. Adam K. K. Figueira

    Kent,

    My comment was merely an observation about business in general, not a direct response to your post. It was more related to some of Wm.’s statements, and was only intended to point out that the challenges faced by the publishing industry are to some extent universal. I studied business in college, and your manufacturing metaphor about fixed costs combined with other commenters’ statements that those costs can be changes made me feel like making a broad, and yes, simplistic statement. A true one, nevertheless, as I see things.

    I did have a specific example in mind, but as it was not a publishing company, I thought it would not be relevant enough to include.

    I do not know much about publishing, though I’m learning, so I can’t say how to change the model. It’s not my main industry. I wasn’t attacking it, however. Perhaps I can learn something from you and the others here that will help me find a suggestion.

    If you want to talk video or other such things, however, I can do that. I only wanted to make a small contribution to an interesting conversation.

  31. David J. West

    Kent
    Regarding your comment (26) When I wasn’t working-most of last year, I got very little writing done because I always thought I had more time.
    A malaise set in.
    I dreamt up my Monsters and Mormons submission in March, but didn’t actually write it until September, even finishing the last 4 chapters at the stroke of midnight.
    (sorry William)

    But when I got a job in October, I knew I had to maximize my time. I’ve churned out more short (accepted) stories in the last 8 months than the rest of my writing career put together.

    So my point is (at least for me) less time equals more writing because there is a primal need irregardless of monetary concerns.

    Not that like Moriah said, anybody cares.

  32. Jonathan Langford

    A few questions/comments…

    – Do we assume that ebook sales are replacing print (e.g., MMPB) sales? Or are they an extra add-on market? I think a lot of low prices for ebooks have come from people who feel like they’ve gotten what money they can out of print sales, and now they might as well make some more money from ebook sales — even if it isn’t that much. However, that model doesn’t work if ebooks become the whole universe and/or a substantial replacement for print sales. (I suspect this is an area where things have changed over time as well, as different populations have started using e-readers.)

    – The point about consumer attitudes is that if consumers get mad about buying e-books for a higher price than MMPB, they simply won’t do it. At that point, all the accounting equations in the world won’t do publishers any good. Cost doesn’t necessarily drive the pricing equation if the buyer refuses to buy. Book purchasing is an emotional thing — something people choose to do, not (in most cases) something they have to do. If they get mad at the publisher over what they see as price gouging, that can cause real problems for publishers, whether it’s true or not.

    – Kent, unless I missed something, the only cost you mentioned as going away with ebooks was the cost of printing. But as Eugene mentioned, there are a lot of other costs that go away, too, such as the costs of warehousing, transportation and distribution, and all the costs associated with a physical bookstore (though I suppose sales in an electronic venue also has its storefront costs). I think part of the anger of ebook purchasers is that they feel that given those reduced variable costs, they’re paying more than their fair share for the up-front fixed costs. I also suspect that once all these expenses are counted in, most of the costs of a book *don’t* actually come prior to printing.

  33. Jonathan Langford

    A side-note:

    As I recall, when Allen & Unwin were getting ready to publish The Lord of the Rings, they didn’t think it wouldn’t make any money. So they offered Tolkien an old-fashioned contract: no advance against his sales, and no traditional royalties either as I recall — but he would get half of the profits once (and if) the book paid for itself. Tolkien accepted, because the important thing for him was just to get the thing published. The difference from the rest of us being that it turned out really, really well for Tolkien in the end…

  34. Kent Larsen Post author

    Roger Billings (29)

    What strikes me now is simply the feeling that everything has changed so much that understanding how books used to be published is becoming as relevant as knowing how to operate a DOS driven computer.

    First, I should note again that the ideas I discussed in the op are NOT specific to ebooks.

    Second, I’m not quite sure that “knowing how to operate a DOS computer” is quite irrelevant (I’ll ask my CS-major son). As I understand it the basic functions are largely the same, just not as sophisticated.

    Nor do I think that how books used to be published is quite irrelevant. Published books still need to be edited, designed and formatted, marketed and distributed, just like they always have. IMO, the place where past knowledge is most likely to be irrelevant is in formatting (to a degree) and in distribution IF distribution changes to reduce costs as I think it should in the long run.

    Th (32), I don’t own a dedicated ereader (no kindle or Sony) — I find the idea of dedicated computers like that annoying. I do read ebooks on my laptop (pdf, epub and kindle format) using several different programs, and on a palmtop computer (Nokia N800). I should admit, however, that I don’t purchase many ebooks yet — I’m a little afraid that I’ll purchase the ebook and then lose it on my harddrive and forget that I own it.

    David West (34)

    So my point is (at least for me) less time equals more writing because there is a primal need irregardless of monetary concerns.

    Deadlines are wonderful.

  35. Kent Larsen Post author

    Jonathan (35):

    Do we assume that ebook sales are replacing print (e.g., MMPB) sales? Or are they an extra add-on market? I think a lot of low prices for ebooks have come from people who feel like they’ve gotten what money they can out of print sales, and now they might as well make some more money from ebook sales — even if it isn’t that much. However, that model doesn’t work if ebooks become the whole universe and/or a substantial replacement for print sales. (I suspect this is an area where things have changed over time as well, as different populations have started using e-readers.)

    This is very insightful, Jonathan. Its something that I should address in more detail in a future post.

    But, to give a short answer, I DO NOT think that ebook sales are necessarily a complete replacement. I have heard some ebook advocates say things like “print is dead” which implies that it will not exist anymore, but I think that the rational ebook advocates don’t say that. They realize that consumer behavior is not that simple.

    In my own experience, I want ebooks for some applications, and print books for others. No doubt my age and life experiences influence my preferences. Above all, you have to remember that ebooks don’t do everything that print books do, and ebooks do alot of important, good things that print books can not.

    The point about consumer attitudes is that if consumers get mad about buying e-books for a higher price than MMPB, they simply won’t do it. At that point, all the accounting equations in the world won’t do publishers any good. Cost doesn’t necessarily drive the pricing equation if the buyer refuses to buy. Book purchasing is an emotional thing — something people choose to do, not (in most cases) something they have to do. If they get mad at the publisher over what they see as price gouging, that can cause real problems for publishers, whether it’s true or not.

    Very true. But only as long as the idea that ebooks should be cheaper than MMPBs continues to be dominant in the consumer’s mind.

    Remember, price implies value. It is possible that consumers will one day value books in an electronic format over books in print, and when they do so, they will be willing to pay MORE to get a book in an electronic format than for a book in a print format. After all, if ebooks are superior to print books, doesn’t that mean that they should be valued more?

    I’m NOT suggesting that these should be consumer values, just that such values are possible. [I hope to address this issue a bit more when I get to discussing pricing.]

    Kent, unless I missed something, the only cost you mentioned as going away with ebooks was the cost of printing. But as Eugene mentioned, there are a lot of other costs that go away, too, such as the costs of warehousing, transportation and distribution, and all the costs associated with a physical bookstore (though I suppose sales in an electronic venue also has its storefront costs). I think part of the anger of ebook purchasers is that they feel that given those reduced variable costs, they’re paying more than their fair share for the up-front fixed costs. I also suspect that once all these expenses are counted in, most of the costs of a book *don’t* actually come prior to printing.

    You didn’t miss anything. Since I wasn’t making an ebook specific argument, I didn’t really discuss all the costs that go away (and I was looking at the issue of fixed vs. variable costs, not what costs are there).

    FWIW, to date the warehousing and transportation costs have gone away in the case of ebooks, but I’m not sure that the distribution costs have gone away, or that they will ever go away (depending on what you mean by cost). In fact, I wonder if distribution costs haven’t increased for ebooks — not the underlying costs of servers etc., but the costs charged by the companies providing the distribution and sales. Does Amazon’s cut of the ebook sale really reflect the decrease in distribution and sales costs? (of course, you may mean something different by distribution costs).

    Again, I hope to discuss this in a future post.

  36. Mojo

    Since I wasn’t making an ebook specific argument,

    At this stage of the game, you can’t discuss fixed and variable costs without discussing ebooks. To do so negates the entire discussion.

  37. Eugene

    Sort of like analyzing Blockbuster’s fixed costs without mentioning Netflix, or the old-line Hollywood studios during the 1950s without bringing up television.

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