The Numbers Say Amazon is On the Writers' Sides

There’s been quite a flurry about Amazon and IDG not coming to terms, with a number of writers thinking Evil Amazon is trying to hurt them.  Sciece Fiction Writers of America have been very involved in this, and have pulled all links to Amazon (unless a book could only be purchased from Amazon)  in support of IDG. You can get details of the whole story various places, starting with Sarah Hoyt here and Amanda Green here.  And full disclosure, I am starting up some ebook lines through Sarah and Amanda’s Naked Reader Press.  But that doesn’t mean I can’t work the numbers.

I’ve been reporting on eBooks versus traditional publishing for years, and I was writing about it predicting a lot of this stuff before the first Kindle came out.

Here are some facts for you:

1. cost of a traditional book comes down like this: first, the book is discounted 50 percent or more to the bookseller; they get their margin out of that 50 percent. So we *know* the production cost of the book is less than that. In the mean time, the bookseller has to pay for millions of square feet of shelf space, utilities, people doing the shelving, and so forth. We know those costs are substantial, that’s part of why Borders is gone.
2. based on the major publishers’ financial statements, it appears that of that 50 percent, about five of that percent goes to the writer — when the publisher eventually pays it after the Hollywood accountants get done with it. The publisher has to pay for printing the books and shipping them, which by far dominates their costs. — taking possibly 30 of that 50 percent.
3. The remainder of their costs involve making up the type and loading up those high-volume presses. Press time is expensive, so they don’t like to do it for small runs. Thus they can’t afford to print a book unless they expect fairly big sales — say 5000 copies. But to get to that point, they need to
4. design, copy-edit, and set the books. Here’s a clue. A good paperback cover for a midlist book pays the artist between $500 and $1000 . A good copy-edit of a whole book, and the time spent using modern tools to prepare it, is about the same. Total, usually about a grand. Add to that an amortized part of the overhead cost of picking a good book to publish; it’s hard to estimate, but considering what a junior editor, editorial assistant, or first reader gets paid, it ain’t damn much.

That means the cost of typesetting etc per item for 5000 copies is between 5 and 10 cents. Add to that the 35 to 70 cents a copy the author gets for an $8 paperback, and the total cost of the book — as opposed to shipping and selling the pulp brick on which it’s supplied — is less than a dollar for 5000 copies. The pulp brick costs about $2.40 each. And if the sales exceed that first 5000 run, the costs of preparing the book are already amortized; it costs effectively zero. But the pulp brick still costs $2.40 each, and then you have to pay the book seller.

What Amazon did to start was realize that with cheap shipping and centralized storage and packaging — what’s called, together, “fulfillment” — they could buy books with that 50 percent discount, sell them wih only a 20 percent margin instead of 50 percent, and still make a hefty profit, while making it easy for books to be advertised and for people to find them. This was a Good Thing For Authors.

Now, where does IDG come into that? Basically, they present books from smaller presses to bookstores. They’re Amazon as middle man: they take their cut, but they pay for advertising to bulk bookbuyers. They get their cut out of the book stores’ side.

So let’s compare that to ebooks.

Of ALL those steps, something less than 12 percent, INCLUDING THE ROYALTY, is being paid to produce the book contents, and the marginal cost of making and delivering a copy of an ebook is literally one ten billionth yes that’s billion with a B, of that $2.40 for making and shipping the brick.

Also note that IDG has no place in that whole process; the real question here is why IDG should get a cut at all. Their ONLY contribution is in the distribution of the bricks. That’s why they’re called a “distributor.”

Here’s a piece I did on the “agency” model when it was first proposed:http://pjmedia.com/blog/kindle-ipad-macmillan-and-the-death-of-a-business-model/

Here’s what I said then:

Who is going to win? Bet on Bezos. The mainstream publishers can hold on for a while, based on reputation and while e-readers aren’t widely available; there’s still some prestige to being published by a reputable publisher like MacMillan. But eventually, some publisher will realize that a book that would have sold for $29.95 in a physical edition can be sold for the cost of the royalty, plus a small markup for production and administration. Our $29.95 novel would sell instead for $3.95. When that happens, except for coffee table books and an occasional print-on-demand hard copy, the physical book is dead.

SFWA is just playing Monte Python “I’m not dead yet!”