How print on demand and e-books with social DRM could revolutionize the publishing industry

Everyone knows that POD means vanity press, right? Say that to any reputable indie publisher and you just might end up with a black eye.

I’m holding a trade paperback POD in my right hand—well, I put it down to type, but I had it in my hand; and it looks to me indistinguishable from the offset printed book I had in my left hand except for the price, which is about a dollar higher. I’m sure that’s a red flag for some right there, but bear with me.

The same book, published electronically, sells for half the retail price online, a significant difference. That’s not always the case. Purchase an e-book copy of a hardback bestseller still on the NY Times list and you’re going to pay the same price.

The P/E price mystery

Why? Just why is an e-book the same price as a hardback? I was first annoyed and then amused when I read a comment posted to Engadget’s recent report about Amazon’s Kindle. The gist of it was:

When you buy a book at least 50% more like 90% of that cost is going to actually fabricating the physical book (UNLESS your making zillions of them then the numbers change big time) with an ebook 100% of that expense goes POOF yet they want to greedily keep all that money. [sic]

If that’s what everyone thinks, no wonder e-books aren’t burning up the market. No one likes to be ripped off.

I don’t know the numbers for offset printing, so I’m not going to go there, but let’s take a straightforward look at the POD I was just holding in my hand. It’s the upcoming Still Life with Devils by Deborah Grabien, and I admit I think it’s pretty good. I ought to since I’m publishing it. I’ll also admit that there’s a typo in the very last few pages. Sorry about that.

Behind a $15.95 book

The book’s retail price is $15.95. Of that amount we had printer set up fees, and some other associated costs, but the book itself cost almost $4.50 to print. That sounds like a pure profit of about $11.50, right? Except, of course, that it’s not. Because, in order to be stocked on bookstore shelves, we have to provide it to our distributor at a 55% discount of the cover price and, to be taken seriously as a publisher, we have to agree to take returns of any the bookstores can’t sell. We’ll get to returns in a moment.

So, the distributor pays about $7.00 per book and out of that we have to subtract the cost of printing, and we end up with $2.50 each. Out of that $2.50, we pay the author’s royalties, pay the printer’s set-up costs, pay for the ISBN (about $30.00 each, purchased in lots of 10 or more), cover the printing costs of any returns, pay the editors, artists, typesetters, pay for the shipping and printing of review and author copies, and pay the usual business expenses, like keeping our Internet access.

Remember that comment I mentioned? The commenter believes our printing and binding expenses leave us somewhere between $7.98 and $1.59 to pay for everything else. I guess he’s not far off.

Returns

Now seems a good idea to talk about returns. In the current system, if a bookstore orders 25 copies of our book and sells 10, we have to pay the printing costs of the other 15—which end up in the dumpster, the incinerator, or going home with an employee—a total of $67.50, plus shipping. That hurts, and if you magnify it to the grand scale of a major publisher it hurts a lot more, not just in dollars passed on to the consumers (painful enough alone) but in sheer waste of resources as well.

Is our commenter right about e-books, though? I am firmly of the belief that no e-book should cost the same as a hardback (then again I don’t believe a hardback should cost $30.00 either, but to net the same amount as our trade POD, we would have had to charge 24.95 for a hardback version), but neither do I believe that all the costs go “poof.”

Behind the E price

Let’s consider our example book’s incarnation as an e-book. Its cover price is $7.95. It’s already been edited and given cover art so that’s out of the way, but it still has to be formatted for all the different types of readers out there. We format for Microsoft Reader, Adobe, and Mobipocket. In addition, we offer HTML and plain text for the handhelds and readers that can’t manage one of those and we’re about to add on E-Reader for Palm.

Each of those formats requires a different software. Thankfully the Microsoft Reader and Mobipocket software is free, plain text is free, and HTML doesn’t cost anything unless you feel the need to buy a WYSIWYG editor. There are free PDF makers, but if you’re creating a print book you have to buy the real thing.

We sell the books on our Web site but that’s not really our focus. If that’s all we did most of the world would never know about them and we want to sell books, so we also send them to e-book distributors who require a percentage based on the cover price and often a set-up or listing fee. Some of them won’t accept books from small presses, but that’s another digression. (It might seem that I’m slamming distributors here, but I’m not. They have to pay their people, stay abreast of current technology, and make a reasonable profit as well. )

$3.60 net from E

So, of the $7.95 cover price for the e-book, after distribution we net about $3.60 per book. Out of that $3.60 per book we have to provide a different ISBN than the print book; pay the person with the time and skill to format the book in the various reader software; pay the listing and/or set-up fees; and we have to pay the author’s royalties. Thankfully we don’t have to worry about returns. Of course, we still have to keep our Internet access and upgrade our software.

All of this might seem like I’m painting a bleak picture, but I’m not. This is all good news and it could easily get better. If every publisher went to a POD/e-book model, the technology would follow and POD costs would come down. Books people wanted to read wouldn’t have to go out of print, which means that publishers wouldn’t have to guess whether or not a certain book would sell 500 copies or 50,000, thus they wouldn’t be required to come up with the initial outlay to pay for the printing of that 500 or 50k, and they wouldn’t have to arbitrarily limit sales to avoid losses. The returns system, an outdated system of ensuring books on the shelves, could be abolished or, at the very least managed better, so that returns didn’t kill publishers and disallowing returns wouldn’t kill bookstores.

E as a gap-filler

In addition, e-books could fill in some of the gap. Since there is a slightly (depending on the publisher) greater return on e-books, the costs of both could be cushioned by e-book sales. Finally, the production cost of e-books could be lowered if there were a standard format, and readers would be happier to have them if the DRM weren’t so entirely draconian. With all the different formats, and all the different styles of DRM, none of which make consumers entirely happy, someone’s going to end up with the e-book version of a lot of betamax video tapes. Or, as Bob Russell, an editor on MobileRead.com puts it:

What happens 10 years from now to my collection of Sony Connect books and eReader books, and Mobipocket books? They probably get thrown out like the hundreds of cassettes that I got rid of today. It makes you sick to think of the waste.

So for reading, I’ve come to the conclusion that DRM basically rules out e-books if you want to stay legal. That’s pretty sad. And I hate to say it because it’s sort of like the deep, dark ugly secret stink about e-books. I want e-book sellers to succeed wildly. I hate to tell the ugly secret out loud. But it’s real and it affect you the reader, and we need to acknowledge it.

He’s right. That’s why the books we sell on our Web site don’t include DRM, though that’s a problem for some authors and most software manufacturers. The authors want to be sure they’re getting their fair share of that $3.60 and the software companies want… what? All the pie? I don’t blame the authors, but stopping real, avid readers in an attempt to stop thieves isn’t the answer, and I do blame the software companies. It seems to me that settling on a standard format and a simple DRM system that allows readers to really own their e-books just isn’t that hard to do.

Maybe that commenter isn’t far wrong. Cory Doctorow says his income has risen since he started giving away electronic versions of his books.

I wonder if my authors would go for that…

Moderator’s note: Deena is publisher of a wonderful little house called Drollerie Press, and I hope that other publishers, big and small, will pay close attention to her words above. The TeleBlog, by the way, welcomes from-the-inside accounts from other publishers, large and small. No press releasy items! But essays like Deena’s we’ll cherish. Note: I’ve added the links in the first paragraph. – David Rothman