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.

This is why publishers (and authors!) love hardcover books. The margins are high because the industry has control of a fine-tuned production and supply chain process (and has been able to extract value from owning that.

But, why do publishers love Hardcovers so much? Is it the best way to think about books in 2024?

History tells us we might be missing something…

Publishers’ Slow Dance with New Formats

One of the most fascinating patterns I found was how consistently publishers resist new formats.

Take paperbacks as an example. Historically, the hardcover book was seen as the most prestigious. This is the version that publishers would push out first. Even now, publishers will wait 12+ months to release a paperback, if at all.

The reason this state of affairs exists is that for a long time, paperbacks were seen as lowbrow.

In the 1940s and 50s, traditional publishers wanted nothing to do with paperbacks. They saw them as beneath them – paperbacks were for pulp fiction and romance novels, not “serious” literature. They were worried paperbacks would “cheapen” their authors’ reputations. From History of the Book Vol 5:

Trade publishers were initially leery of paperback publication, fearing it would cheapen authors’ reputations and cut revenues. Both authors and hardcover publishers were sometimes reluctant to see their books between the lurid paperback covers in favor in the 1940s and 1950s. Some hardcover houses even included the right to approve paperback covers in their reprint contracts.

Basically, they didn’t want their author’s books sitting next to ones like these

Despite this, paperback sales exploded:

• 1947: 95 million paperbacks sold, $14 million in sales
• 1959: 286 million paperbacks sold, $67 million in sales

And eventually, traditional publishers had to pay attention, either by acquiring paperback publishers or starting their own paperback lines. (Does this sounds eerily familiar to the hesitance to see ebooks as “real” books?):

These objections evaporated as paperback houses issued both classic literature and high-quality contemporary work. A serious novelist might object to seeing her books on a rack next to a pulp western, but sharing a shelf with the Signet Shakespeare, William Faulkner, F. Scott Fitzgerald, and Edith Wharton was hardly embarrassing. By 1955 NAL was publishing not only Mickey Spillane but Norman Mailer, Truman Capote, Flannery O’Connor, J. D. Salinger, and Ralph Ellison. By the late 1950s, having a paperback edition of one’s book had become a source of pride as well as income

At the time, however, many authors could capitalize on the fact that paperback rights were separate from hardcover rights.

And so after initial success with a hardcover, they could get rich selling their paperback rights.

Authors often get rich from books by retaining rights, especially in emergent formats

As paperbacks exploded, authors were able to cash in:

Authors and publishers were also won over by profitability: although early advances had been in the range of $500 to $2,000, NAL paid a $35,000 advance for paperback rights to Mailer’s The Naked and the Dead in 1951 and $101,000 for James Jones’s From Here to Eternity in 1953. Advances for potential best sellers rose rapidly. Mario Puzo received an advance of $410,000 for The Godfather in 1968, and several books broke the million-dollar mark in the early 1970s, including All the President’s Men, by Bob Woodward and Carl Bernstein

You’d think the major publishers would have pushed to acquire paperback rights but that’s not what happened at all.

Instead, the paperback publishers tried to obtain ALL rights and then license the hardcover rights to other firms:

Hardcover houses objected strongly at the time, but by the late 1950s several paperback houses were signing contracts with authors for all book rights and then selling hardcover rights to trade publishers.

When these new formats are emerging, authors are often to extract a lot of value. There are many examples of authors retaining rights and then selling them later. Some examples:

• Stephen King: After success with his hardcover, he sold paperback rights to Carrie separately for $400,000 when his initial advance was only $5,000
• Harper Lee: Retained film rights for To Kill a Mockingbird, which made her wealthy through the film adaptation
• Tom Clancy: Kept film and international rights, earning millions from movies and global sales
• Hugh Howey: Self-published first, then only sold print rights to publishers, keeping digital rights

Even today, this pattern continues. I turned down a $70,000 offer from Penguin Portfolio for lifetime rights to The Pathless Path, plus $130,000 for a second book. Since then, I’ve earned over $200,000 from the book and retained complete control. Sometimes the best deals are the ones you don’t take.

A Prediction For the Future: The Great Flip

Here’s my bold prediction: we’re about to see a complete flip in how books are released and valued. The traditional sequence for traditional publishers has been:

1. Hardcover (prestigious lead format)
2. Paperback (6-12 months later, if at all)
3. Ebook (treated as an afterthought, priced too high)

I believe this will flip to:

1. Ebook (immediate release, author controlled)
2. Paperback (print-on-demand, widely available)
3. Hardcover (special collector’s editions)

We’re already seeing this with internet-native writers. People like Balaji Srinivasan with The Network State and Tim Urban with What’s Our Problem? Both went digital-first, then expanded to print.

I’m betting on this flip myself. Next spring, I’m releasing a high-end collector’s edition of The Pathless Path with Otterpine Press. Instead of competing with publishers on their terms, I’m going to leapfrog them with a truly premium product – color pages, lay-flat binding, cloth linen cover.

The Future is Author-Centric

The current system is built around serving retailers and publishers, not authors or readers. Consider these inefficiencies:

• Authors can’t bundle ebook and print versions
• Pre-sale campaigns are optimized for retailers, not generating hype from actual readers
• Publishers artificially keep ebook prices high ($14.99-16.99)
• Authors give up control and pricing and rights for lifetime

But change is coming.

Brandon Sanderson, with his $42 million Kickstarter, showed that massive inefficiencies likely exist. When he bundled ebook and print versions,

52% of people, when given the option of a free ebook with their print copy, have chosen to get the print copy. Compare this to the 25% or 17% of my recent New York publisher releases…Bundle the ebook with the print book, and of course more people will buy the print book.

We’ll likely see more authors experimenting, including starting their own imprints or publishing houses. The infrastructure is getting cheaper and more accessible. The hard part isn’t printing or distribution anymore – it’s writing a great book and finding your audience.

Takeaways: What Modern Authors Should Do

Personally, I love self-publishing. It suits me. But I’m not dogmatic about it.

I want to keep writing for years. And I need traditional publishers too (I’ve signed rights deals for foreign traditional publishers, of course, but I have a reversion of rights after five years).

The publishing industry isn’t broken – it’s just operating on outdated assumptions and incentives, and exploiting real inefficiencies. However authors no longer need to accept those terms. The tools and technology exist to chart your path and more people should at least attempt to push for more creative deals.

Here’s my playbook for thinking about publishing and sharing writing in the 2020s:

1. Think carefully before giving up your rights. Push more aggressively to keep things like digital and audio rights.
2. Get books in the hands of readers as fast as possible. Actual readers who will love your stuff. The 9-12 months pre-release timeline for traditional publishing may eat up all your motivation without getting real reader feedback.
3. Consider starting with digital to build momentum, then expand to print.
4. Be open to all publishing formats, especially if you want to write in different genres
5. Look for creative ways to bundle formats and pricing, these options will shift over time
6. Build direct relationships with readers when possible.

As I told Eric, this isn’t about being anti-publisher. It’s about understanding the real economics and opportunities in today’s market. Traditional publishing still makes sense for some authors and books. But we need more experiments, more options, and more author-centric models.

The next decade will bring massive changes to publishing. The winners will be authors who understand these shifts and position themselves to benefit from them.