Thursday, January 21, 2010

The 70% Solution

Yesterday, Amazon announced a new program offering publishers and self-publishing authors a 70% royalty on eBook sales as long as they agree to a number of rules, including:
  • Pricing their eBooks between $2.99 and $9.99
  • Setting the prices of their eBooks at least 20% below the price of their lowest-priced print versions of the same titles
  • Giving Amazon "most favored nation" pricing status (the price that the author or publisher sells the titles for at Amazon has to be the same or lower than the price offered through any other reseller)
  • Allowing Amazon to offer features such as text-to-speech on their eBooks
Apple is rumored to be offering publishers a 70% cut of revenues on eBook sales for its rumored tablet, and is said to be allowing publishers to set their own prices, so all that Amazon is really doing is matching Apple's terms. However, Amazon's moves are likely to spark a more seismic move in the publishing industry than simply paying more money to a few publishers. It may help spur a mass move to self-publishing, especially for authors who today typically sell 10,000 or fewer copies of their books.

Seventeen years ago, my first book (an introduction to Windows NT) was published by Sams, an imprint now owned by Pearson. The book sold a bit more than 10,000 copies, the minimum sales target for most computer book publishers back then. I earned out my advance ($8,000, as I recall), and made a few thousand more. However, given the amount of time I spent researching, writing and promoting the book, I could have worked at Burger King and made the same amount of money.

Also, I was responsible for promoting the book myself. When people say that one of the big reasons for publishing a book through a major publisher is their ability to promote books, don't believe them. Unless you're one of the publisher's top authors, you'll get little or no promotional support. I had to pay to fly myself around the country to promote the book, and a friend in Public Relations scored interviews for me with PBS' "Nightly Business Report" and other outlets.

So what does all this have to do with Amazon's announcement? I ran the numbers, and the economics are strongly in favor of an author self-publishing eBooks with Amazon or a similar service rather than going with a big publishing house. Here's an analysis that I did, comparing my book, originally priced at $19.95 and selling 10,000 copies in print, against the same title priced at $9.95 and selling 5,000 copies as an eBook:

Print eBook
List Price $19.95 $9.95
Distributor Discount 50% N/A
Royalty Base $9.98 $9.95
Author Royalty 12% 70%
Royalty Revenues Per Copy $1.20 $6.97
Unit Sales              10,000               5,000
Royalty Revenues ($) $11,970 $34,825
Less: Editorial & Design Costs $0.00 ($5,000.00)
Net Author Revenues $11,970 $29,825
Advantage ($)
Advantage (%)

Companies such as Lulu, iUniverse and Amazon's own CreateSpace offer editorial and design services for self-publishers. $5,000 is at the high side of what those companies charge for a complete editorial and design package. Even with the author paying for the editorial and design work that the publisher would ordinarily do, they'd still end up making 2.5 times as much money on an eBook priced half as much and selling half as many copies as the print version. That's amazingly compelling.

Amazon will try to steer as many of those self-publishing authors as it can to CreateSpace, where Amazon gets a cut of the editorial and graphics services as well. It means that the 30% that Amazon gets is just the start...and the fees paid to CreateSpace are paid upfront by the author, no matter how many copies the author sells. In essence, the authors are paying Amazon an advance for its services, and they're hoping to earn back the advance and make more through sales of the eBooks. It's a plan that could make your chin drop.

It's far too early to give the game to Amazon, but in many ways, they're moving beyond Apple in their integration of production services, distribution and delivery devices.
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