A History of Book Publishing: How Profits Flow, Why Publishers are Slow to Innovate, and How Authors Get Rich

I recently sat down with Eric Jorgenson to share my deep dive into the history and economics of book publishing.

As someone who worked in strategy consulting at places like McKinsey and BCG, I can’t help but occasionally scratch that analytical itch (as exemplified by this 70+ page slide deck). What I found shocked me and confirmed many of my suspicions about the industry.

Here are the key patterns I discovered:

1. Books have steadily increased in production since the 1400s
2. Starting in the 1800s, steam-powered presses radically increased production and gave birth to a robust industry
3. The distribution of profits has shifted dramatically since the 1800s, but retailers and distributions have historically captured the largest share of profits
4. Publishers consistently devalue new formats and options
5. Authors often got rich by retaining rights, not selling them all

At first, Publishing Was Expensive and Risky and Most of the Money went to Retail and the Cost of Goods Sold

In 1872, here’s how a $1 book sale was divided:

• 40 cents to the retail bookseller
• 15 cents to paper production
• 15 cents to the bookbinder
• 10 cents to printer and stereotyper
• 20 cents split between author and publisher

The majority of the costs were in production (40%) and retail (40%). This made sense - printing books was expensive and complex. You needed special plates, high-quality paper, and a skilled bookbinder.

Since there was so much risk on the publishing side of things, authors were not able to get very good deals. As written in History of the Book, Vol 3:

“While they sometimes purchased a manuscript outright or asked authors to share in production costs, these publishers usually financed the books they agreed to publish and coordinated their manufacture and production. Authors typically received a royalty, usually a percentage of the retail price, on each book sold. Terms varied, but 10 percent was common.”

A standard example was Edgar Allan Poe, who in 1848 received a 10% royalty for his poem “Eureka.” But another example was Longfellow, who co-invested with the publisher and got a better deal

“in 1856 Ticknor and Fields paid Henry Wadsworth Longfellow royalty of 20 percent of the retail price for copies of Evangeline bound in boards, a number that reflects not only his popularity but also the fact that he had the capital to invest in his own stereotype plates”

These kinds of deals were “more common in England than the US” but did shift over time:

Herman Melville entered into such agreements with Harper & Brothers: he and the Harpers split the profits after the costs of manufacturing
the book had been paid. With the publication of Pierre in 1852, however, the Harpers converted to a royalty agreement under which Melville received one-fifth of the retail price after the first 1,190 copies had been sold

But remember, the publisher was only getting a small percentage too. Only 20% of the price of a book was available to the publisher and author after all costs and retail payoffs.

But now, publishing a book is not as expensive and does not require as much upfront capital. Despite this, retailers and publishers still extract most of the profit.

Paper, made by hand up to 1800, formed more than 20 percent of the cost of a book in 1740; by 1910 it had fallen to a little more than 7 percent.

Fast forward to today to a theoretical hardcover with a list price of $27, with two different scenarios: one sold for about $21 at retail and another sold for $13.50 on Amazon (prices based on real book examples:

Here’s how it breaks down (numbers are rough estimates based on private sources).

Hardcover book sold for $21 at retail

• Retail Income: $8.85 - retail minus 55% discount of $27 (42%)
• Cost of Goods Sold: $4.50 (21%)
• Publisher: $4.28 - after royalty payment (20%)
• Author Royalty: $3.38 (16%) - this is 12.5% of the list

Hardcover book sold for $15 on Amazon

• Amazon/Distributor Income: $2.85 - Margin after 55% discount of $27 (19%)
• Cost of Goods Sold: $4.50 (30%)
• Publisher: $4.28 - after royalty payment (29%)
• Author Royalty: $3.38 (23%) - this is 12.5% of the list price

What happened?

In the first scenario, retailers are still able to extract a lot of value from the supply chain - and about the same percentage, 42% versus 40%. However, Publishers and authors combined increased their share as manufacturing costs declined. The publishers were able to capture slightly more of the value, but not by much and the authors still having the smallest share.

Amazon has also changed the game too, as it has become one of the biggest global distributors of books. It acts as a retailer in this instance but is far more aggressive with its margins. I suspect that heavy discounting for them works because they are pursuing enormous scale.

In this second scenario, the author likely gets more books sales due to the laws of supply and demand but still is second to the publisher. The Publisher and Amazon are extracting almost half of the value of the book (Assuming a $15 book).

This is actually very hard to compare to self-publishing, mostly because the cost of self-publishing hardcover books is much more expensive on the manufacturing side. This means prices from $15-21 are hard to set as they don’t leave much profit to the author.

If I was to sell a $15 book on Amazon, I’d only make $0.71 per book and for a $21 book I’d only make $4.31 (though this is better than the max 15% an author gets from $27 list book).

It breaks down as follows:

And so Traditional Publishing when you look at economic value is a better deal at similar price points for authors of hardcover books!

But This is Why I Mostly Focus on Paperbacks Because the Low Costs (about $3.44 a book) enable me to price competitively in the market and sell a lot of books

For paperback, my print cost per book is about $3.44 and if I price them at $19.99, I end up making about $8.50 per book. For me, this breaks down:

• 43% to author
• 40% to distributor (Amazon)
• 17% to manufacturing/cost of goods sold

For self-published authors, paperback print-on-demand books are the best books to push as you can extract the most value.

And even if you aggressively compete on price (down to $10 for example), you still extract more value out of the chain than a traditionally published authors.