Who makes the most profit on created content?
(arranged in order of highest profit to lowest profit)

1. The online bookseller/media seller
2. The publisher
3. The content creator (author, artist, musician …)

The emerging system:

Who makes the most profit on created content?
(arranged in order of highest profit to lowest profit):

1. The content creator (author, artist, musician …)
2. The publisher
3. The online bookseller/media seller

One hundred years from now, people looking back on these archaic times may shake their heads and wonder in amazement how and why the content creators (of our era) could fail to appreciate their own importance, and settle for such a small share of the publishing pie.

Michael Pastore
50 Benefits of Ebooks

Compare that to the same scenario of a book selling for $10 on Amazon. If, as you estimate, AMZN gets 55%, then for a $10.00 list price book the publisher is netting $4.50, so the 25% net to the author is only $1.12, or about half of Smashwords.

Of course, if an indie author publishes directly with Smashwords, they get the full $8.00 to themselves.

It’s not all apples to apples, because as you note, even if AMZN reduces the book price, since they paid the same amount the discount doesn’t affect the publisher or author. At Smashwords, the author/publisher sets the price. Let’s say AMZN offers a flat 20% discount off of list. The publisher can match that on Smashwords, in which case the new net to publisher for an $8.00 book is $6.35 and the 25% of that to the author equals $1.59, or 42% more than AMZN.

Looked at another way, if the publisher wants to make the same net as they do at AMZN but juice sales volume by offering the book for even less, they can price the book at Smashwords for $5.76 and the publisher still nets $4.50.

Anyone who wants can play with our numbers by registering for the site, then click “Publish” then scroll down to the pricing wizard and play with different pricing scenarios. There’s a dynamic pie chart that clearly discloses the net to the author/publisher, smashwords and paypal at each price point.

I don’t advocate publishers abandon Amazon for Smashwords, I’m just saying if someone publishes with Amazon, it’s kind of a no-brainer to publish with us too. And of course ALL our books are DRM-free and multi-format, so readers appreciate this.

However the discount off the list price comes from the retailer’s cut of the sale, doesn’t it? And the primary reason the retailers would discount an item is if they believe it will generate enough additional sales to compensate for the lower margins. The Random House/SS author only loses out when a retailer discounts their book in order to generate sales of another author’s item (i.e., a loss leader).

I suppose Amazon is the real motivator behind this change. Amazon’s cut is supposedly in the range of 55% of the list price, so the publishers increased the list price to keep their amount per sale about the same, the author’s cut then went way up (even though the revenue per book was about the same) and needed correcting.

At least, that’s my perspective.

Since the store wants to maximize profit, as well, this situation doesn’t immediately seem like a change for the worse with respect to authors. The major problem I see is that the lion’s share of the profit, the publisher’s, is set, and based on, the list price which the author and the store cannot control.

With the old economics destroyed, organizational forms perfected for industrial production have to be replaced with structures optimized for digital data. It makes increasingly less sense even to talk about a publishing industry, because the core problem publishing solves — the incredible difficulty, complexity, and expense of making something available to the public — has stopped being a problem.

I think that there will be upheaval in the industry but apocalypse will be delayed by the continuing popularity of paper books. Yet pushing up fees will practically force disintermediation of a company.

$0.80 to author, $2.20 to publisher.

On a $10 ebook, author got 15% list, and the publisher got 50% list, out of which there is a fee for the DRM, say $0.20 (another reason why DRM is bad!)

$1.50 to author, $3.30 to publisher

And now, on a $10 ebook, author gets 25% net, publisher gets 50% list, and pays DRM of $0.20

$1.20 to author, $3.60 to publisher

Looks good for the publisher, especially with no cost for returns, etc.