Understanding the Cost of eBooks

Recently I had more than one spirited conversation on a popular eBook forum about the value of an eBook.

A vocal number of posters stated that it was a digital file, and, like the air we breathe, it should be free and available to all.

Others stated that people work hard to produce an enjoyable eBook, so it was only fair that they be compensated.

Since I make a living from my eBook sales, rarely sell in print, and believe that I should be paid like anyone else who works for a living, you can easily imagine which side I was on.

I'm not going to extend that debate here. I'd rather state the facts of the matter and let anyone speak their minds in the comments section.

I'm here to write about what goes into creating an eBook file. For the most part, it's much like any conventional book.


Writing
The writer puts the most time into the work, any where from a few months to a few years. Finding and agent or submitting the book to publishers costs money, and there's no reason why a conventionally published author shouldn't be compensated for that as well. When the book is accepted, a publisher may issue an advance against royalties, which can be anywhere from $1.00 to $100,000.00 or more. What's important to remember is that the author won't receive any royalty payments until that advance is "earned out." So, if the author received a $1,000.00 royalty, then the book has to earn $1,000.00 in royalties to cover the advance, THEN the author starts seeing royalty checks with their quarterly statements. Royalties are one of the continual costs to an eBook. They never go away and they're due every time an eBook sells. Most Authors receive between 15% - 25% of the eBook's suggested retail price as of this writing. That MAY increase, but there's no guarantee. (Note: Most authors only receive 6-9% of the suggested retail price of their printed books. eBooks have the potential to increase the incomes of many writers who cannot currently afford to write full time).

When you pay for an eBook more of your money goes into the author's pocket. He/she has to cover their living expenses while they churn out their next masterpiece. Most authors also have to pay an agent with their creative earnings, and some have other people on their payrolls like an assistant or publicist.

Editing
Quality editing costs a great deal of money, but every publishing house or indie author should have access to a good editor's services. The typical best seller has passed through the hands of one or more editors and several paid proof readers who pass notes on plot, character, setting, and other details back to the author, while they smooth out any grammatical bumps. Most of the typos and such are also caught. There's a whole staff just in that stage of development, and most Indie Presses treat books the same way with more than two or three sets of eyes on a single work. All these people have to be paid. This isn't a continual cost, but a high initial investment in any book.

Licensing
Another step involved in getting a book ready involves acquiring the rights to any songs or copyrighted quotes that may be contained within. Some licensing agreements are satisfied with a one time fee, but others require continual royalties to be paid for several years. I'm not a licensing expert, so I don't know how often either method of payment is employed, but I've seen examples of both. That can be another continual expense to publishing an eBook, especially if said book is part of a larger franchise, such as Star Wars or Star Trek.

Cover creation and design costs large publishers thousands of dollars per book on average. It's true that they've found many short cuts and some have staff artists who come at a lower price per cover, but it's a consideration whether they paid $1,000.00 or $5,000.00. Some publishers buy limited license rights to an image, costing just a few dollars at first and requiring an extra license fee as the book sells more than 500,000 copies. (I entered several agreements like this for some of the more recent Spinward Fringe covers). This can be very cost effective, but most publishers still have to pay an in-house designer even if they do get a steal of a deal on their cover art.

Publisher's Expenses
They have to keep their doors open if they want to continue providing the books they publish to the public. That means a portion of every sale goes towards just keeping the publisher in business. Publishing is very expensive, a lot of Indie pubs don't make it through their first year and many others close before their third anniversary. Even Indie eBook companies. If the doors close and the publisher still has the rights to all those books, they will disappear. That's right. All the books they provide would be pulled from the digital shelves and could simply live out the rest of their contracted rights in the dark, where you can't get to them. Under ideal conditions another publishing house will swoop in and buy the rights for a bargain price, but the chances are that those books will disappear for several months or years while the new owner accounts for the property, ensures it's up to their standards and sets it up with their distributors properly.

Advertising
Do I really have to go into detail here? It costs a ton of cash for a conventional publisher and includes advance review copies, magazine, newspaper space etc... Publicists also fall into this category as far as I'm concerned, even though there has been one who disagrees with me on this point. She saw herself as more of an event manager, and hype builder. Maybe she is, who am I to disagree? Still, I'm sticking publicists here because I don't know where else to put them.

Formatting and Quality Assurance
Finally, we've come to one of the last steps. Formatting. A few publishers already outsource this step to cubicle farms in India and other parts of the world, but even then it costs quite a bit of cash to format a single eBook. Most of the pubs, big and small, have designers or outsource to formatting companies that cost hundreds if not thousands of dollars per title. At this point it's almost a continual cost. As new readers and formats come out some publishers format their entire catalog to fit. I'm assuming this won't be a continual cost, since we've (Apple) pretty much agreed that ePub is an acceptable standard.

Customer support
This is rarely a large part of a publisher's infrastructure, but since the arrival of eBooks support staff has increased exponentially for some. Most of the new support teams are dedicated solely to eBooks. For most publishers this growing support staff generally speaks only to retailers who forward problems their users have had with the files they provided.

Distribution and Sales
The biggest continual cost to an individual eBook is distribution and retail sale. Based on the new model introduced by Apple and partially adopted by Amazon in June, 2010, the retailer will be taking 30% of the retail price. Until recently, 65% was standard. Regardless of the size, the vendor wants their cut, and part of what you pay for an eBook keeps their doors open as well. We like to think that "there will always be book stores," but the closure of many brick and mortar stores has orphaned entire communities who have to order online now. Those stores employed people who are now out of work.
Online retailers who sell eBooks aren't invincible either. They employ people, sometimes just a hard working few, other times there are dozens or hundreds people who ensure your books are available when you want them, how you want them.
These retailers often provide the customer support services that the publisher doesn't. Indie Authors, Indie Publishers and large Publishers as well as customers all benefit from a good retailer, and maintaining a quality sales site costs a great deal of money from the development to delivery stages.

A Note On The Indie Author
Hi. I'm an Indie, in case you didn't already know. In fact, I'm a full time Indie, which is rare! Every morning I remind myself of how fortunate I am that I have readers who pay for my work and that there are enough of them enjoying what I do so I can keep at it full time. I do the writing, publicity, rights acquisition, legal work, digital formatting, accounting, publicity, artwork purchasing, and customer support solo. I don't have any help on that stuff, but it's fantastic that readers pay for the time I put in and I enjoy most of it, believe it or not. I get help with editing (which I will be paying for later this year), and my beta readers are intelligent, kind volunteers who took over a year to find. It would be nice to some day provide printed copies of the books they helped with or maybe even something like a poster, or T-Shirt, or a arty! For now they just enjoy reading, thank God, because I can't afford any other reward.

I don't pay for advertising since I can't afford to, and that's fine, but there are a lot of peripheral things that cost cash, and they often have to be put off to the side until I receive a larger royalty check (it's happened once so far! It could happen again, right?), or have a personal windfall. Since I don't have an advertising budget, I have to invest time, and I'm not complaining since I get to meet other authors and many readers that way.

The downside to being an Indie writer is that there's a common perception that I "sit around and make stuff up all day." I wish! Most days I only get to work creatively for 2-6 hours, while the rest of the day is spent on administration, direction, peripheral content creation, design, and many, many necessary evils and joys online. In the last week the evils outweighed the joys, however, and resulted in the issuance of legal notices to sites that were hosting pirated copies of my work. Thankfully, both sites removed the pirated copies.

The Paper eBook Argument
I'll touch on this briefly. All of the above time and money expenses apply to eBooks and paper or just eBooks. eBooks are less expensive to produce, but they do carry continual costs (such as writer royalties - we've gotta eat too!) and start up costs.

The Pricing of an eBook
I'm not going to go into what an eBook SHOULD cost, as the readers will have very little to do with the price they pay for eBooks. That's difficult to hear, I realize, but in the end the big six publishers and their equally large distributors will determine the cost of non-independent works regardless of what readers and indie authors say or do. Recently, MacMillan Publishing (one of the big six, and owner of TOR), forced Amazon to allow them to sell their new releases at $14.99. There'a s lot to this story, which is explored very well here.

Another example: Amazon.com is forcing Indies into repricing their books in June. If I price my book at $0.99-$2.98 I'll receive a 35% royalty, but if my book is priced between $2.99 and $9.99 my royalty will be 70%. This will lead to the near disappearance of the $0.99 eBook. I'm assuming that the main reason behind this is because big publishers can't keep their doors open while selling their eBooks at a big loss, and they're angry at the Independents who leap up the top 100 charts with a book priced at $0.99. There could be other reasons, and keep in mind that no one at Amazon or a major publishing house has made a statement verifying my previous assumption, but the fact remains: In June, few Indies will offer their books at $0.99 on Amazon.com. It's good for authors, who will be encouraged to get a fairer payment for their work, but readers, who didn't have a say in the decision, won't be happy.

I hope this has been informative, and that some of you feel better when you're paying for a digital file in the future, whether the cost is $0.99 or $9.99. I don't have a huge book budget myself, and I look for bargains. I don't regret paying for a book I've sampled, however, since I know the money I sent out keeps the books coming.

RL

Please share your thoughts with me on anything mentioned in this article.