Tag Archives: why IPG is unable to agree on terms with Amazon

An Update on Amazon and a New Direction for Gone Publishing

IPG and Amazon have agreed on terms. As of Friday, May 25th, the 5,000 IPG Kindle titles that were taken down in late February have been put back up on the Amazon site, plus an additional 500 new Kindle titles prepared by IPG over the last three months have been added. To help make up for the lost eBook revenue suffered by its client publishers, IPG will distribute Kindle editions at no charge to publishers for the period from June 1st to August 31st, 2012. As for the overall health of IPG and its client publishers, year-to-date sales are up 26% over last year.

These are complicated times in the book business. While IPG certainly does not seek conflict with its customers, it may be that a certain amount of pushing and pulling is inevitable in our industry until settled terms of trade for the new electronic book formats can be agreed upon by all participants. We hope that our dispute and subsequent agreement with Amazon have helped to advance this difficult but necessary adjustment.

The recent news accounts of the way the “Big Six” publishers operate have made it perfectly clear that independent publishers inhabit an essentially different world. This blog will now return to its original purpose, which is to promote a well-informed discussion of that world. Knowledgeable guest bloggers will be invited to express opinions that challenge received wisdom, and IPG will not shy away from posting well-argued comments even if they rock a few boats.

Curt Matthews
CEO, IPG/Chicago Review Press, Incorporated

Curt Matthews is the founder and CEO of Chicago Review Press, Incorporated, which is the parent company of Chicago Review Press and of Independent Publishers Group (IPG), the first independent press distributor and now the second largest. Curt has served on the Independent Book Publishers Association (IBPA) board and has also served as its president.

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What Should an E-book Cost?

The conversation about the pricing and marketing of print books and e-books has not been well informed. Here is information about how the numbers actually run. The place to start is with print books.

What Should a Printed Book Cost?

The royalty rate is usually 10% of the cover price for a hardbound book, 7.5% for a paperback, increasing by a few percents if certain levels of sales are achieved. So an author makes $1.12 a copy on a $14.95 paperback.  A 10,000 copy sale of that paperback—a  very respectable performance in the estimation of most publishers—will earn the author about $11,000; not bad, except it takes a year or two of very hard work to write a book. Most authors have to keep their day jobs.

What does the publisher make? He will sell that $14.95 paperback to the booksellers and book wholesalers at, on average, a 50% discount from the price on the cover–$ 7.48 in the case of this $14.95 book. For 10,000 copies sold this will amount to $74,800.  The printing of the 10,000 copies will run about $1.50 a copy or $15,000 total. We have calculated that the royalty for the author will be $11,000. So the publisher nets $48,000, not a bad day at the office except this income also has to cover the cost of that office, and the warehouse, and the staff. When all these factors are taken into account, the publisher’s share is about the same as the author’s.

A carefully kept secret in the book business is that even the best authors need editing. In fact the good ones insist on help and will follow a gifted editor from company to company to get it. Most books are hugely improved by the editorial process. Nor are the improvements editors make limited to spelling, punctuation, and grammar. Often they are deep structural changes that make a title more engaging for its intended audience, more saleable.

The help that authors get is never mentioned in public because the author is the brand name, not the publisher. Spreading the credit among any more names would just blur the marketing focus. But the cost of editing, designing, page makeup, and proofreading is high, higher in fact than the cost of printing the book.

What Should an E-Book Cost?

What then should you pay for an e-book edition of a $14.95 paperback? Most people would say it ought to be practically nothing because there are no design, no printing, no warehousing, no shipping costs for the publisher to pay. An e-book, after all, is just a batch of electrons, weightless, shippable through a wire.

But this is to misunderstand what it takes to make a successful book. An e-book still needs all of the expensive editorial services noted above; and if it is going to sell, it has to be marketed, distributed, and publicized, just as a print edition must be. And the author royalty on an e-book sale is usually about the same as it is for a print book, even though the list price of the e edition is lower. We have noted that for our $14.95 paperback the printing amounts to about $1.50. Warehousing and shipping will add another $1.50 to the real cost of selling a printed book. A web retailer should be able to work on a narrower margin than a bricks and mortar bookstore, which could lower the price of an e-edition perhaps another $2.00.

Deduct these specifically print related costs from the price of a printed book and the minimum price for a straightforward e-book comes to about $10.00—less than the price of the print version but not some small fraction of the print price. Certainly not 99 cents, and not $5.00 either.  E-books, as they become more important in the book trade, will have to carry their full share of the editorial and marketing costs of producing them.

Amazon’s Terms

At the moment there are two very different ways publishers can work with Amazon: the Agency Model and the Wholesale Model. There has been a lot of fancy dancing around these models, but of course it all boils down to how the money is divided up between the parties. Only the six biggest publishing companies have had the market power to compel Amazon to accept the Agency Model, which allows the publisher to keep 70% of the e-book list price. Independent publishers have had to accept the Wholesale Model, which has let us keep only about 50% of the suggested price. That is a 20% difference.

Now Amazon is insisting on terms for both print books and e-books that are even less favorable for independent presses. How will such presses be able to afford to publish good books when they receive so little of the sales price? They won’t be able to. And is it obvious that independent presses should have to work at such a huge competitive disadvantage to the major publishing houses?

Independent publishers are crucial to the vitality of our culture. They are the reason why in America almost no good author goes unpublished.

Curt Matthews

CEO, Independent Publishers Group/Chicago Review Press, Incorporated

Curt Matthews is the founder and CEO of Chicago Review Press, Incorporated, which is the parent company of Chicago Review Press and of Independent Publishers Group (IPG), the first independent press distributor and now the second largest. Curt has served on the Independent Book Publishers Association (IBPA) board and has also served as its president.

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