As the Department of Justice faces off with the major publishers and Apple, I want to offer up a simple statement that likely contradicts what most readers believe: Making e-books is harder than it looks.
As a literary agent, I fell victim to the same false conclusions I think most readers do, that e-books are easily produced from paper books. But that's not quite true. For older books, publishers didn't own the typesetting file (the typesetter did) and those files were not usually maintained forever. So publishers often have to physically take an old book and have it scanned and then converted using OCR -- optical character recognition -- which is far from perfect. So publishers -- good ones at least -- then have the resulting file professionally proofread for scanning errors. And in a perfect world, they also ask the author to proof it again.
Then there's the question of rights. For older books, the publisher may not have the right to use the cover art in an e-book. Granted, these would have to be much older books, as most publishers started asking for display rights a longer time ago than the Kindle has been around. These display rights are generally interpreted as allowing publishers to display the cover online or on the screen of an eBook reader. But if the publisher doesn't have those rights, it must acquire them or create a new cover. And new covers cost money.
Then there's the question of originals. Originals are books that are first appearing in eBook form and are not reprints of previously published books. And here the argument that eBooks should be cheaper and easier to produce than paper books really fails. To produce a quality eBook takes just as long and costs just as much as producing a quality paper book. Yes, you save some money on paper, printing, and binding. And you save some money on warehousing and shipping. But you incur other costs. But first let's look at the commonalities.
Both paper books and e-books require a huge investment in time and effort by the author. There is no difference there. Both require developmental editorial work. Someone has to remind the author that he's writing for an audience and not just him or herself. Both require copyediting and proofreading. Both require cover art and design. And both require a publicity and marketing effort. In all those areas, there is absolutely no difference between an original eBook and an original printed book. And when published by a traditional publisher, that process costs many thousands of dollars and all before even one copy is sold.
But e-books come with their own unique expenses in software and infrastructure or hosting. Adobe software, used to create e-books, doesn't come free. In fact, one copy of InDesign is $699. Add in Photoshop and other software required to create and edit e-book files and you'll easily be spending thousands just on the software.
Then, of course, you have to host the e-books somewhere so they can be sold. Large publishers may be able to buy servers and maintain them themselves (more tens of thousands of dollars), but many publishers and small publishers in particular use third-party hosts with experience in ecommerce and pay four- or five-figure set-up fees and then a piece of every eBook sold (twenty percent to twenty-five percent is not uncommon) via that host. Now this does not include Amazon or Barnes & Noble or other sellers. This is just for sales directly by the publisher using a third-party hosting service.
So when folks talk about how cheap e-books should be compared to paper books because there are so many cost savings, I have to shake my head in disagreement.
Recently, I became a publisher when my company, Author Coach, LLC, began publishing e-books from out-of-print titles (we also have a few originals in production) as Endpapers Press. As a small press, I'm mostly viewed in the "self-publishing" category by Amazon, B&N, etc., since I don't have hundreds of titles. Amazon keeps a bit over 30 percent of every book, because it also charges a "delivery fee" above and beyond the percentage it makes. B&N keeps about 35 percent. Google kept 48 percent on my last report.
The vast majority of publishers are paying 25 percent of the net amount received as a royalty to authors. What this means is that if you, the reader, buy an e-book from Amazon for $6.99, the publisher receives about $4.89 and from this the author receives $1.22. Let's compare that to printed books. Standard print royalties are actually based on list price. On a $6.99 paperback, the author will receive between 4 percent and 8 percent of the list price, depending on the rate negotiated when the contract was done. That's 28 cents at the low end and 56 cents on the high end. So authors are benefiting from e-books, but the e-book of a $6.99 paperback is more likely to be $4.99, as publishers recognize that readers expect eBooks to be cheaper. But they don't recognize the real deal they are getting, I think. Because the paper, printing, and binding cost of a paperback is less than one dollar, but the publisher is knocking off two dollars for the eBook. At $4.99, the author makes about 87 cents per book. Still better for the author than what he makes on the printed book, but also still a very small sum compared to what the publisher and even Amazon make. Amazon makes about $1.50 on that $4.99 eBook. The publisher makes about $2.62. So who is getting rich here? No one, really. And are readers being overcharged for e-books? No.
However, have readers been led to believe that eBooks should cost less than they do? And far less than printed books? Yes.
Two forces are at work here. On one side was Amazon's sale of e-books at prices less than it was paying publishers for those e-books. This was a classic "loss leader" to help build the market for the Kindle. Publishers responded by adopting the agency model, which required Amazon to honor the publishers' stated prices. But readers already had it in their heads that the eBook of a $25 hardcover book should be $9.99. With the introduction of the agency model, that e-book might now be a one-half to two-thirds the price of the hardcover. Still a significant discount, but also higher than $9.99. And this frustrates some readers and clearly led the DOJ to think that something must be done!
The other force at work is the self-publishing market. Amazon's CreateSpace and KDP, as well as Ingram's Lightning Source, and Barnes & Noble's PubIt! program all allow authors to self-publish at a reasonable cost. And while there are guidelines on pricing, Amazon, for example, pays the maximum royalty to authors who price their eBooks in the $2.99 to $9.99 range and requires that the eBook price be lower than the lowest-priced printed edition's price by 20% (see Amazon's terms and conditions here). This has led a lot of first-time self-publishing authors to price their books at $2.99 or $3.99 in hopes of attracting more readers. In fact, I'd venture that there are far more new books coming out down in that range than in the $14.99 to $18.99 range, where the eBooks of many new hardcovers may be priced.
So, where does this leave us? Well, for starters, it would seem that arguments that agency pricing has resulted in higher prices of e-books are lacking substance. Certainly some publishers' e-books may now have higher prices but not e-books in general. And just as publishers have always run promotions for print books, there are plenty of opportunities to grab up eBooks at lower prices or for free. And, last but not least, this entire brouhaha has led at least one publisher -- Tor Books -- to decide to open a DRM-free bookstore online. "DRM-free" means no Digital Rights Management, so the e-book will not be tied to any specific reading platform. Got an iPad and an iPhone, read the book on both. Got a Nook and a Sony Reader, read the book on both. Many readers want the option. Some will argue DRM-free will lead to greater piracy and publishers will have to increase prices to police the web more aggressively to shut down pirates, but others will argue that books are already fairly inexpensive, so pirating them electronically isn't really worth the trouble. Only time will tell.
In the meantime, the next time you pick up your eBook reader, keep in mind that just because the book doesn't weigh four pounds doesn't mean that the author didn't sweat blood and cry real tears writing that book, that an editor didn't stay up late in the night providing notes to that author to make the book better, and that copyeditors and proofreaders and other production people didn't put the same effort into that eBook as they would a printed book. And each of those individuals deserves to make a living from their hard labor. So buy e-books, pay a fair price, and enjoy!