Before you read the below post, please vote in the following poll. For a brand new book that is also available in hardcover at $25.00, what do you think the e-book should cost? (People who subscribe via e-mail will need to click through to see the poll).
Did you vote? Cool.
(and let me pre-empt my not-interested-in-ebook friends: I know. There’s no option for backlighting grayscale look feel smell DRM you’ll go blind bathtub. Just vote for the option you feel sounds about right)
Now. As I’m writing this post, I have no idea how that poll will go and what consumers think a new e-book should cost, but I can confidently guess it’s less than what publishers think they should cost.
As everyone knows, once the first e-book copy is produced it doesn’t really cost much extra for the next million to be shipped electronically. When they sell e-books, publishers save on printing, binding, warehousing, shipping, returns, etc. etc. etc. Therefore, e-books save publishers money and consumers expect that e-books should be cheaper than paper books (and agents and authors expect that their electronic royalties should be higher than with paper book royalties).
So. How much do publishers save with e-books?
According to HarperStudio publisher Bob Miller, the printing/binding cost of most books is about $2.00. Let’s just say for the purposes of this post that the other incidental costs relating to print books (shipping, warehousing, returns) comes to another couple of dollars, so, let’s say, print costs translate to roughly $4.00 on a $25.00 hardcover. (I’m not a publisher and thus this number should be taken with a grain of salt. Also it varies from book to book).
Thus, assuming the discounts to booksellers and e-booksellers are the same, in order to preserve the same profit margin on an e-book for this $25.00 hardcover, an e-book would need to cost roughly $17.00.
(The math: $25 x 50% discount = $12.50 to publisher, minus $4.00 print costs = $8.50; $17.00 x 50% discount = $8.50. Note that the $8.50 is not profit – that is the chunk out of which they have to cover costs and pay authors. Also see this post and this post for more info on how revenue is broken down between bookseller, publisher, agent and author.)
Where do the other costs of producing an e-book go? Paying the author, marketing and publicity, editorial, sales, production, overhead, accounting, etc. These are fixed costs that exist whether it’s a print book or an e-book.
Now, I understand that lower prices result in more sales, and that publishers might need to recalibrate their pricing model to best utilize electronic sales. Margin per copy isn’t everything if publishers are able to make it up in volume. Also bear in mind that for now, as I explained yesterday, major publishers (with the exception now of Macmillan) are being paid for Kindle e-books on the basis of the hardcover list price, not the price Amazon actually charges.
But what we’re seeing from the Macmillan/Amazon spat is great anxiety on the part of the publishers about a (for now completely theoretical) future in which they receive income based on a $9.99 price point. This was never a business with huge profits. If publishers are ever paid on the basis of a $9.99 price point for their blockbuster books rather than $24.95 the pie will have shrunk by over half. And that is striking fear into the heart of publishers. Publishers want to push up from $9.99 so badly some are willing to accept less money per copy sold just to make that happen.
And yet, underlying all of this nuts and bolts reality for publishers is a cold fact. When it comes to a publishers’ fixed costs and margins and legacy business models: consumers don’t care. They have their own idea about what an e-book “should” cost. An e-book feels like it should cost a lot less than something tangible like a paper book. And in a digital era consumers can ruthlessly enforce the perceived value of a digital product with their dollars and with piracy.
You can plainly see the dilemma the publishers are facing, especially if/when e-books grow to be bigger than print book sales. There’s a gap between their margins and the e-book expectations of consumers. Right now Amazon is filling that gap by taking losses on e-books in order to sell Kindles. But publishers worry that can’t last forever. The pressure is building, and someone is likely going to feel the squeeze, as authors already are.