Who’s the Biggest Loser in E-Books?

by: Stephen J. Dubner

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.

from: Freakonomics