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Why e-books cost so much

18 March 2016

From CNET:

Here’s something that tends to get lost in the debate over e-book prices: Paper doesn’t cost very much.

There’s a perception among consumers that an e-book should cost very little or next to nothing because there is no paper, printing, and shipping involved.

But in fact, for a new best-selling hardcover, all of the costs associated with print, from the printing to the shipping to the distribution to the warehousing to returns, amount to a mere few dollars per copy, depending on the size of the print run.

The vast majority of a publisher’s costs come from expenses that still exist in an e-book world: Author advances, design, marketing, publicity, office space, and staff.

You can therefore imagine the fear that e-book prices instill in publishing executives’ hearts. They’re only saving a few dollars per copy in the switch to the e-book world, but the prices of books were slashed more than half: from $24.99 to $9.99 and even lower.

. . . .

Not only are publishers’ margins better on higher-priced print books, but when bookstores close it has enormous ramifications for the industry. When Borders went bankrupt, for instance, Penguin Group was its single largest creditor, with $41.1 million outstanding.

And even aside from financial considerations, publishers’ entire reason for existence is bound up in print. The major publishers are, quite simply, the best companies in the world at getting print books from authors to readers. Most of the tools at their disposal for making a book a hit are tied to a print world, from buying front-of-the-bookstore placement (yes, publishers pay for that) to book tours.

As the exponential growth of e-books has slowed, some publishers are even whispering their hopesthat perhaps the rate of e-book adoption will slow further and print will be viable well into the future.

But meanwhile, on the other side of the e-book price divide are consumers. Whatever the cost of paper, $10-plus e-books look mighty expensive when they’re undercut by 99-cent Kindle best sellers sold by authors who don’t have a publisher’s overhead.

Publishers have a massive problem with perception of value. When you can’t hold it in your hands and easily pass it along to a friend, $10-plus just feels too expensive to many people.

Link to the rest at CNET and thanks to Dave for the tip.

Big Publishing, Ebooks, Pricing

36 Comments to “Why e-books cost so much”

  1. *The vast majority of a publisher’s costs come from expenses that still exist in an e-book world: Author advances, design, marketing, publicity, office space, and staff.*

    The point always ignored is that these costs were fully covered by the print versions at the moment ebooks came into being. Thus, at the margins, they were already paid for and the ebook represented new revenue.

    If there’s an allocation to be made, a split of costs between print and ebook, then it should be made.

    The new costs associated with the ebook are trivial: formatting and a little bit of design.

    Instead, publishers try to have it both ways: fully recover their costs from each format or edition… a nice double-whammy in the world of profit… but bad for authors, readers, and books.

  2. So… ebooks cost a lot because trad pub can’t run an efficient business?

    • Ding ding ding, we have a winner! 😉

      (Though you have to work a little greed in there too!)

  3. This is a 4-year-old story, but it’s worth a reminder I suppose.

    The really sad thing is to consider that the horribly inefficient paper book distribution system, with all its costly warehousing and wasteful two-way book shipping, which was supposed to represent such a cost savings when we could get rid of, doesn’t actually cost that much money in the long run.

    • Martin L. Shoemaker

      Heh. When I read the excerpts, I said, “This is so five years ago. Nobody buys these arguments today. They’ve all been debunked.”

      Looks like I was off by about a year.

  4. //Publishers have a massive problem with perception of value.//

    P.G.

    That line is true, the rest is Rowlocks.

    brendan

  5. The vast majority of a publisher’s costs come from expenses that still exist in an e-book world: Author advances, design, marketing, publicity, office space, and staff.

    Let us consider these expenses…

    Author advances: most are puny.

    Design: paper requires a lot more design work. I know, because I do the design work on both my ebooks and my paper editions. Paper requires that each page be placed and designed. With ebooks, you design the front matter and back matter, chose a chapter heading style, chose a text style, and let the text flow.

    Marketing: most books don’t get any from trad pub.

    Publicity: beyond a listing on the info sheet sent to the book buyers, there is no trad pub publicity for most books.

    Office space and staff: move out of NYC and reduce your overhead.

    Cost of paper: it may only be a couple of dollars per book, but a couple of dollars adds up fast when you print 10,000+ copies. Plus there is the cost of press time. Ebooks have zero paper costs.

    Warehousing: that’s more space that must be paid for. Server space for an ebook is much cheaper. Much.

    Shipping: gasoline and trucks and truckers cost money. A lot more money than sending a file electronically.

    I agree with Ryan Petty.

    …publishers try to have it both ways: fully recover their costs from each format…

    When the ebook fully covers the author advance, cover design, marketing, publicity, office space, and staff, and the paper edition fully covers the author advance, cover design, marketing, publicity, office space, and staff… 😉

    • What do you use to create your print versions? Because creating page masters in Adobe InDesign does most of the work for you. You have to create running headers and footers if needed, but then you assign them to each chapter pretty simply. Styles and master pages are your friends.

      • I do use InDesign (love it!), along with master pages and running headers. But I discovered when I designed my first POD that my stories contain a lot of paragraphs that turn out to be 3 lines long, when they appear on the paper page of a book.

        This means that I am often faced with how to split a 3-line paragraph across a page break. Yikes! Do I put 1 line on the first page and 2 on the next page? Or do I do some tricky maneuvering in the prior pages, so that I can move the page break to a different place?

        In practice, some tricky maneuvering (involving 1-line changes in page breaks in the prior pages and making the width of a few judicious lines somewhere between 96% and 99%) gets rid of the problem most of the time (but not always).

        I enjoy the page design and the making of a beautiful interior, but it takes me at least half a day. Longer if I make a mistake or discover in the proof copy that the chapter heading ornaments look better at an 80% opacity rather than the 100% I tried first. Whereas I can format an ebook in half an hour.

        • If that’s the case, you really can’t compare your labor on print books with the average book. Most people do not have three-line paragraphs.

          I don’t think setting up a print book is all that difficult, especially if you are doing it for a living. You have a store of templates that you use and adjust.

          I set up a friend’s novel, and he had 118 chapters, all of which needed a separate master page. Took me somewhere between four and eight hours (can’t really remember). But I’m a former professional typesetter and desktop publisher.

    • You have to double the cost of paper, warehousing, and shipping because of the returns model. If half of the books are coming back, the half that sell have to cover the physical costs of the ones that didn’t.

    • Yes. At least 90% of my formatting time is getting the print version to look decent (e.g. eliminating the most egregious hyphenation and widows and orphans). Creating the ebook at that point is just a matter of running a script and uploading the file it generates.

      Life is so much easier for my pen names that only release ebooks, because there’s no print formatting to worry about.

      • Life is so much easier for my pen names that only release ebooks…

        LOL! I almost think I’m jealous! I love my paper editions, but sometimes they fight me. Like my latest. The ebook came out in November, but the trade paperback of Fate’s Door is still not done! Aargh!

  6. My takeaway from this is that I’m being ripped off on paper books as well.

  7. I wonder if Nathan Bransford thinks the same way today (as pointed out, the story’s from a couple years back)? His fundamental misunderstanding of economics is embarrassing.

    Once Amazon opened the door to everyone, publishers lost the price war. Indie authors were competing with the industry, and because our costs are lower, we’re going to charge less. That’s good business.

    Publishers can talk about how much it “cost” to publish all they want. Consumers don’t care, nor should they unless there’s a fundamental moral value at stake (such as your Chinese products coming from prison labor). Most people care only about price.

  8. “Why Qig5 e-books cost so much”

    Because they drank the Apple kool-ade thinking agency (the gift that keeps on giving) would save them from Amazon.

    They and Apple were wrong.

  9. Poor Big Publishers. Is this the best they can come up with to justify their existence? If it wouldn’t be for those pesky Indie Authors who do not have offices in Manhattan, no overhead, no advances, no buying front window spots, and no big corporate bosses, life would be “normal” again. Boo-hoo!!!!

  10. I don’t object to a ebook priced above $10. I probably won’t buy many at those prices but I don’t object. My issue is when the print book can be bought new for less.

  11. . . . a mere few dollars per copy

    If books were printed on parchment or vellum, you could add the value of these materials and the workmanship to the price. Their would be a market for these books; and how many of these sold would reflect the size of the market.

    The point is, it’s not just about price in the abstract (or the sellers’ point of view). It’s about a market that is heavily dependent upon what consumers want.

    The same market dynamic works for ebooks. If customers don’t want to pay $24.99 minus the cost of paper for novels in ebook format, then publishers have to accept what the market is telling them.

  12. Looks like an advertorial to me.

  13. Someone doesn’t understand margins, and why a product with a 75% contribution margin is better than one with a 41% margin.

  14. They don’t understand the idea that the consumer’s perception of value is based on competing product. I can read free files on my computer from the Internet for the rest of time, why does writing packaged as a “book” cost money? The answer is advertising supports the “free” content on the Internet (and the data mining of my behavior that drives more advertising.). Readers understand that e-books do cost *something* because books don’t have ads… But it makes no sense at all that e-books cost more than mass-market paperbacks. They should always cost less than a mass-market paperback since an e-book is a mass-market paperback minus the cost of paper, shipping, warehousing, and returns.

    • But it makes no sense at all that e-books cost more than mass-market paperbacks.

      Sure it does. If that kind of pricing schedule leads to the maximum profit, then it makes lots of sense.

      • Except that there is no evidence whatever that such a pricing schedule does lead to maximum profit.

        Readers who are looking for cheap editions are, by definition, price sensitive; the demand curve for cheap editions is thus highly elastic. Amazon knew what they were doing when they set up KDP wholesale prices so that the sweet spot (70% range) would top out at $9.99.

        If one is looking for a cheap edition of a book, one will buy a $9.99 paperback in preference to a $12.99 ebook. The profit on that paperback is substantially less than on the ebook; it is less even than the profit on a $9.99 ebook, because of the extra costs involved. The profit from that sale is clearly not maximized.

        There is another consideration from the customer’s point of view. When you buy a physical book, you own that copy. You can lend it or give it away, and nobody is allowed to sneak into your library by night and replace it with a different edition (or remove it entirely). None of these things is true of an ebook. Above all, you can resell a paperback book on the used market, which reduces your total cost of ownership substantially. On a TCO basis, a $10 paperback is roughly on equal terms with a $7.50 ebook.

        All these considerations point to the conclusion that ebooks should be selling at lower prices than mass-market paperbacks.

        • We don’t need evidence to recognize that a higher eBook price can lead to max profits. There is no basis for presuming an ebook price that exceeds a paper price cannot lead to max profit.

          When there are multiple versions of a product, and each has a different price, maximizing profit becomes a linear programming problem. The price of one version effects the sales of another. The seller looks for the mix of prices where that interaction yields the highest profit.

          The consumer bahaviors you list certainly exist, but so do many other behaviors. A limited set of behaviors don’t lead to any conslusions. And they certainly don’t lead to any general conclusion about eBook prices.

          For one title, an eBook price higher than the paper may lead to max profit, while for another title an eBook price lower than the paper may lead to max profits.

          There is no price where anything should be selling. There is only a price where the seller achieves his purposes.

          The seller can be a publisher selling to Amazon, or it could be Amazon selling to consumers. We also have to consider the time frame the seller is considering. He may be looking at how pricing today will affect his business next year.

          • ‘We don’t need evidence.’

            Well, thanks for clearing that up.

            In the absence of evidence, yes, it’s possible that selling ebooks for 30% more than MMPB, or 300% more, or for the national debt of Mexico, would yield maximum profits. But fortunately for us, we are not in a position where we are dealing with the absence of evidence.

            Look, the maximum possible profit from MMPB is painfully small. No other format has such high volume requirements to go to press, or such high return percentages. No other format has ‘returns’ in the form of pulped books that cannot be remaindered. The fact is, the mass-market paperback is an attempt by booksellers to compete on the terms of the magazine industry – an industry that is now very near death. Nobody is maximizing profits by preserving that dinosaur.

            The profit per unit sold of ebooks dramatically exceeds that from MMPB, even at lower retail price points; and the number of units sold also increases as you reduce the retail price below that of MMPB. Higher unit volume times higher profit per unit equals higher total profits, and you simply can’t linear-program your way out of that.

            tl;dr: You believe publishers know what they are doing. I know they don’t. Amazon knows it too, which is why Amazon has been at loggerheads with those publishers for years.

            • The profit per unit sold of ebooks dramatically exceeds that from MMPB, even at lower retail price points; and the number of units sold also increases as you reduce the retail price below that of MMPB.

              Profit per unit on one version of a title tells us little about total profit from all versions of that title.

              So, maximizing the profit on eBook versions of a title can affect sales of other versions of the same title. Maximizing eBook profits can result in less than maximum total profit for the title.

              Maximum profit for a title comes from balancing the prices of all versions of the same title so profits max.

              Note that Amazon’s analysis of price sensitivity of eBooks was limited to the eBook only, and did not consider the total profit to publishers from all versions of the same title.

              You believe publishers know what they are doing.

              Who cares what I believe?

          • “We don’t need evidence to recognize that a higher eBook price can lead to max profits. There is no basis for presuming an ebook price that exceeds a paper price cannot lead to max profit.”

            If done properly …

            As the qig5 are reporting loses and not gains after forcing agency (the gift that keeps on giving), I’m forced to consider that they in fact are not doing it quite as ‘properly’ as Amazon was doing it.

            • Sure. Things can be done right or wrong.

              But one also has to identify all the factors in play.

              For example, how does a decrease in paper sales, and the corresponding promotion of that paper, affect sales of the eBook version of the same title?

              What is the downward pressure on eBook sales from a decrease in paper sales?

              • Or they just shot themselves in the foot?

                The qig5 seemed to have been having increased profits and sales each year — right up until that agency (the gift that keeps on giving) thingy kicked in.

                The only thing they might have done even dumber would have been to agency their other formats as well. No more 40% OFF signs on B&N books, I sure that would have helped. Sadly though (for the qig5 and B&N) if others can discount books, so can Amazon. And Amazon discounting them to near or under the ebook agency price just shows the customers how ridiculous high those ebook prices are. (and it doesn’t help that there are much cheaper in price and just as well written indie/self-pub ebooks sitting all around the qig5 offerings.

                Amazon seems to be identifying all the factors in play, the qig5 — not so much …

                • Perhaps publishers have screwed it up. OK. The ability to develop a price schedule that yields max profits doesn’t guarantee a firm will be successful at it.

                  My point is that eBooks can be priced higher than paper and generate maximum profit. They can be priced lower and generate maximum profit.

                  If the objective is maximum total profits, there is no general solution to how eBooks should be priced without a consideration of all other versions of the same title.

          • It’s interesting that publishers seem to be doing less windowing. Though I haven’t bought new genre fiction in a while, but they seem to have dropped it. It used to be hardback came out first, than mass market paperback six months to a year later. (In the days of my youth, there were no trade paperbacks.). My recollection is when e-books were first introduced they would come out after the trade & mass market paperbacks; and the overall timespan of hardback—>cheapest option remained overall roughly the same. Then an e-book would come out after the hardback, but the same time as the trade paperback, but be pricey; when the mass market paperback came out the e-book price might drop; then Amazon, Borders, and B&N started going crazy with prices… And now there’s no discernible pattern anymore…

            • They used to just slide down the demand curve, trying to pick up as much revenue as possible at all points on the curve. People used to wait until the price they were willing to pay came out. Everyone played the same game, and it worked pretty well.

              My speculation is that independents on KDP screwed that all up by bringing the eBook to market as the first version. People with eReaders didn’t have to wait anymore. There is a steady supply of new books in their chosen format. As a bonus, that supply is priced below all the versions of the publishers’ books.

              So, the independents didn’t play the game of sliding down the demand curve. Competition can be harsh.

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