[Publishers’] savings on printing, binding and distribution make up for the lower revenue from lower ebook prices– and increased profitability is coming entirely off the backs of authors.

Those are Brian DeFiore‘s words, emphasis mine, in an article important to writers.

The 10 salient words here are suitable for memorization:

Increased profitability is coming entirely off the backs of authors.

DeFiore’s article is headlined eBooks and profitability– What we’ve always said and publishers have always denied.

Here’s what you need to know to understand why I’ve chosen this as our Provocation in Publishing today.

(1) The “we” as in “what we’ve always said?”—is literary agents.

(2) DeFiore is one. His firm is Union Square’s DeFiore and Company, an outfit that has the grace to describe itself on its site as “a mid-sized literary agency.” When was the last time you heard a company volunteer that it wasn’t absolutely planetary in its stride?

(3) DeFiore sits on the board of directors of the Association of Authors’ Representatives (AAR)—the US agents’ professional organization. DeFiore is the chairman of the AAR’s Electronic Rights Committee.

So you’re hearing from the presiding agent for things-digital at the main American organization of literary agents, writing on its official site.

Every time a hardcover sale is replaced by an ebook sale, the publisher makes $2.20 more per copy and the author makes $1.58 less.

Sitting up yet? Let DeFiore put it another way for you:

If the author made the same $4.20 royalty on the ebook sale as he/she would have [made] on a hardcover, the publisher would STILL be making an improved profit of $6.28.

UPDATE: Before going on as written, I want to call your attention to a very generous comment that DeFiore has provided to this post. He wants to clarify that his post at the AAR site is not to be taken “as an official statement or policy of the AAR or its board.” He also writes that the source of discussion here (you’ll see the slide below) is “a simplistic look at a complex issue” because it represents one profit scenario devised for investors’ eyes, an example that can be affected and changed by “all kinds of pricing experiments and price points.” In all fairness, I commend his comment to you along with his point that we are focused here on only one aspect of the “inestimable value to the process” that he says he believes (and I do, too) most publishers add for most writers. Do have a look.

I’m returning now to this post as previously written, with hopes you’ll be sure to check out everyone’s comments and DeFiore’s in particular, afterward.

POST RESUMES:

Publishers have steadfastly maintained that this kind of math is wrong. But this time, the ciphering is based on one big house’s own brag-numbers. It’s how they talk to their corporate parents’ investors.

So that friend from the traditional publisher who just changed the subject and offered to freshen your drink? Don’t fail to notice the wet suit. Listen for a sotto voce shark-jumping “Oooops!” from the bar, over the happy sound of Campari blessing the ice.

Ironically, if it weren’t for DeFiore and Michael Cader, we might have missed this intriguing slip off the board, because it occurred just as the surf was way up for the May 29-31 BEA, BookExpo America.

DeFiore is handily chasing Cader’s big wave at Publishers Lunch. (This requires a subscription to Publishers Marketplace. I highly recommend it.) That original June 4 article is here, in case you do have a subscription: Harper Shares Data on Light Third Quarter; Shows Investors Profitability of eBook.

In that write, Cader provides this graphic from a May 28 News Corp. “investor day” presentation. News Corp. is the parent of Big Six/Five publisher HarperCollins.

Cader explains that the graphic is part of a presentation on “Harper’s strategy going forward.” He writes, emphasis mine:

[The slide] shows that — under Harper’s new post-settlement agency ebook pricing (which raised prices slightly versus their original agency price tiers) — ebooks are significantly more profitable than print books. In the sample case of a new release frontlist title, the ebook edition is 39 percent more profitable, returning an additional $2.20 in profit to the publisher over the hardcover. Authors and agents will immediately note that much of the additional profit exists because the royalty allocation once earned out is $1.58 lower on the ebook than for the hardcover.

A bit more, my emphasis again:

On a hardcover, the author earns 30 percent of the publisher’s gross revenue, and 42.5 percent of the total margin (what the author and publisher together earn). For now, on the ebook, the author earns 25 percent.

Here’s another of our good colleagues, Jason Boog at GalleyCat. His story is headlined Do Authors Deserve a Higher eBook Royalty Rate? And he’s following up on DeFiore’s write, emphasis again mine:

DeFiore and Company founder Brian DeFiore shared the most important stats: a “$27.99 hardcover generates $5.67 profit to publisher and $4.20 royalty to author” and a “$14.99 agency priced ebook generates $7.87 profit to publisher and $2.62 royalty to author.”

Bottom line: in traditional publishing, an ebook gives the publisher more and the author less.

Your traditional-publishing buddy heading back from the bar to you with that drink?—is fully as wet as you’ve always suspected he was.

As DeFiore points out, major publishers have been splashing water on anyone who said this was going on in the past. Now, one has been found strutting this stuff as a point of corporate stewardship.

DeFiore seizes on the moment to champion the author’s interests, which is what our best agents do:

We have all heard…that for a very large percentage of authors this is irrelevant since their advances don’t earn out – effectively raising their per-unit royalty. That may be true, but it logically leads to what seems to me the most unfair aspect of all: That, therefore, the only authors that are financially punished by this system are the ones whose books perform very well. The ones whose books earn out. The big name authors and the celebrities whose books don’t perform to expectation are untouched; the author who gets a reasonable advance and whose book sells much better than expected are the ones who suffer the greatest loss.

This all dovetails with the coming completion of the Penguin Random House merger. Another industry-news subscription service I can heartily endorse, The Bookseller, is doing some nice work on the runup to that union of bird and building.

The lead is sounded in Bookseller editor Philip Jones’ analysis, Taking flight:

One of the more subtle changes over the years has been in those businesses at the top that have reoriented themselves around digital, and those declining enterprises that have not. The challenge for global publishers is how they get from here to there without forgetting the qualities that got them here in the first place. A new study, helpfully about penguins, has concluded they don’t fly because they don’t have to. They found fish in the water and chose swimming. Publishing businesses don’t have this option: they have to do both.

That piece is coupled with a collection of Viewpoint observations from several members of the industry! the industry!

A quick pastiche of what some of them are saying:

Agent Jonny Geller: From the author’s point of view, change is only useful if it improves standards of development, production and distribution…How can a merger of two dominant publishers improve the “rights” of an author? Will there be more flexibility in contracts or less? Agents obviously fear the latter.

Author Nick Harkaway: To compete with a seller of electronics, clothes, and garden furniture, publishers need the help of their own umbrellas. But size alone won’t cut it. The key word will be “clever.”

Publisher Rebecca Smart: I would be looking afresh at Author Solutions [which Pearson-Penguin owns] and thinking about how to use its workflow infrastructure and production network to create a new self-publishing services offering that uses scale to provide low-cost, clear, fair assistance for authors.

Agent Caroline Michel of PFD: To a writer the size of the publishing house doesn’t really matter, some of the most promising books in some of the largest publishing houses fall off the radar. What matters is getting the book they have written into the hands of as many readers as possible in whatever form, print, digital, audio.

Based on the Cader-DeFiore material about HarperCollins’ ebook profitability, which appears to take advantage of authors, I’d like to offer an additional, quiet viewpoint on the advent of PRH:

Surely, one of greatest initiatives that could be made by the new entity would aggressively establish transparent and friendly terms for authors—without whom not one publisher of any size anywhere can function at all.

I could support PRH in a very noisy rollout of a new set of principles for its dealings with the artists of our profession. And, in fact, with such size, PRH is about to feel more keenly than ever, I’m hoping, the burden of its responsibility to authors and their cultivation, in many ways handsomely handled by Amazon.

DeFiore says it well in his write-up and calls the correct question when he looks at what’s washed up onto the beach on HarperCollins’ rising tide of ebook profit strategy:

How can anyone in this industry see that as defensible?

So you tell me: is HarperCollins’ increased ebook profitability defensible if royalties are structured this way? Is this how readers would imagine one of our biggest publishers compensates its authors? How much goodwill do you think another major, such as Penguin Random House, could achieve if it made a solid, clear break with such patterns of author dealings?

Main image: iStockphoto – PixelChik

Provocations in Publishing graphic – Liam Walsh

About Porter Anderson @Porter_Anderson is a recipient of London Book Fair's International Excellence Award for Trade Press Journalist of the Year. He is Editor-in-Chief of Publishing Perspectives, the international news medium of Frankfurt Book Fair New York. He co-founded The Hot Sheet, a newsletter for trade and indie authors, which now is owned and operated by Jane Friedman. Priors: The Bookseller's The FutureBook in London, CNN, CNN.com and CNN International–as well as the Village Voice, Dallas Times Herald, and the United Nations' WFP in Rome. PorterAndersonMedia.com