Thursday, October 15, 2009

P&L 4 of 4: The Future

In Tuesday's comments, PatriciaW asked about the role e-books currently/will play in the acquisition P&L. A felicitous question indeed, as we are now about to once more explore... THE WORLD OF TOMORROW™. (You'd think I'd make a lot more money with all the trademarks I apparently own.)

Currently, the ratio of e-books sold to printed books is around 5%, meaning it'll probably be a few years before e-books come to dominate the book market (which, admittedly, may never happen, but I expect it will). For this reason, e-book sales don't really figure into the acquisition P&L yet (at least, not as far as I've seen). The sales numbers just aren't significant enough.

But let's imagine the ratio were much higher—say, for every three printed books sold, two e-books were sold—which would mean a print run of 15,000 would also have to take into account an additional 10,000 e-book sales (instead of today's 750). That's a significant difference, and I imagine P&L analyses in THE WORLD OF TOMORROW™ will contain an additional field used to calculate projected e-book sales (based on historical data for that author/genre/&c).

As time goes by, however, I imagine another force will affect the e-book P&L, and that will be consumer demand to lower price point. Since many of the costs associated with traditional book publishing—printing/paper/binding, typesetting, returns, freight—don't apply to e-books, I think the average price publishers will be able to charge per book will drop significantly once the e-book reading market has reached critical mass. It'll eventually creep back up due to inflation, but if e-piracy becomes a major issue, people will be faced with either buying an e-book or simply taking it. As I've said before, I think we humans are decent to a point: we'll pay for something if we think it's worth it, otherwise, we'll either forgo the purchase or take whatever it is we want for free. With the presumed widespread availability of pirated books on the Internet in THE WORLD OF TOMORROW™, I imagine taking books will be sorely tempting unless you could skip the guilt and get said books legitimately for a reasonable price.

These are just my own speculations, but I foresee the P&L changing in the following ways over the next decade or so:

• The P&L will eventually principally consider e-book sales, taking POD sales into account for smaller titles and smaller (by today's standards) traditional print runs for books by major (i.e. bestselling, celebrity) authors.
• A shift from front-loaded advances and relatively small royalties to lower advances and higher royalties, as returns will no longer be as much of an issue.
• Costs not associated with e-books will be considered less and less, unless said costs (typesetting, printing, freight, &c) make a paper version of a book prohibitively expensive, in which case they will be important insofar as they determine whether or not a physical book is published at all.
• Profit margin will temporarily increase while costs decrease and price points stay high, but as price points are driven downward by consumer resistance, profit margin will normalize.

What do you think?

10 comments:

  1. Thanks for addressing my question.

    I think ebook sales will have to be considered as they continue to increase. But the costs associated are going to be different and have to be calculated separately from traditional costs.

    Don't underestimate all the decent folks who would snatch up a pirated ebook in a minute (think bootleg movies). There's no fail-safe in this age of technology and hackers but perhaps ebooks need to be encoded for a password or access-key that is provided upon sale.

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  2. This is a good series, Eric. It really helps demystify the workings of the publishing industry. Thank you.

    As far as e-books go, it does appear they will eventually dominate. As far as how that will play out, I think I'd need a crystal ball. The piracy issue alone is so titchy.

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  3. I think Futurama already trademarked "The World of Tomorrow"...

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  4. I think e-books would be dominating now if the readers were more affordable. I'm one who will never give up my printed books (can't read a Kindle in the bathtub), but I'd love a reader.

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  5. Eric...I have to agree. As much as I love the feel and smell of paper, I think I'll learn to love the ease and versitility of 0s and 1s.

    Remember how we laughed at people with mobile phones, back in the 80s? eBook readers will get smaller and sexier and we'll wonder how we lived without them.

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  6. Hey Eric, Did you see this?

    http://roomfordebate.blogs.nytimes.com/2009/10/14/does-the-brain-like-e-books/

    Wordver: Unsit - wouldn't it just be easier to stand?

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  7. Eric,
    I think your analysis will prove to be prescient. Where do you keep the crystal ball?

    Considering that the YA market is one of the strongest right now, and those readers are more likely to adopt digital-anything, I would think the ratio of e-books-to-print you predict is coming sooner rather than later - at least for that market. But then I can see some markets never going digital - picture books, early readers . . . not sure which adult market would be immune.

    Thoughts?

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  8. Very enlightening set of posts. I'm curious - if someone wanted to generate their own P&L report for their own edification on a book, how would they go about doing something like that? Or would they need too many sales figures to make it viable?

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  9. Much of the production cost savings for e-books by lowering the printing cost may be eaten up by e-book production costs, such as ensuring quality typesetting on every portable device out there. (Of course, that e-book production cost may simply be outsourced to India or elsewhere at a low price, but getting an e-book to display properly on every device doesn't happen by magic.) Plus, the demand to include multimedia content into e-books also has a significant production cost, so the price point for e-books ultimately may be more or higher than print books.

    A high price point for e-books will drive piracy. Yet, at some point, e-books may be stored in a network cloud once we get to a time when devices are always online; in that scenario, piracy becomes much more difficult. Of course, a certain % of works always will be pirated by those who have the technical know-how.

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  10. While it doesn't factor into P&L right now, it most certainly plays a roll in corporate strategy. My former division put its backlist online in 2007 with the expectation to make 500k to a million in profit. It in fact made so much money on backlist titles only, that it's 4% organic growth (a failure that was going to cause heads to roll) turned int 13% organic growth. Instead of rolling heads, it caused spinning heads as people saw dollar signs and scrambled to get anything and everything online as quickly as possible.

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