Thursday, February 11, 2010

Michael saves the world, or at least may have a solution to the eBook price problem

Todays' New York Times has an article titled, "E-Book Price Increase May Stir Readers’ Passions."

Here are some excerpts:

In the battle over the pricing of electronic books, publishers appear to have won the first round. The price of many new releases and best sellers is about to go up, to as much as $14.99 from $9.99.

But there may be an insurgency waiting to pounce: e-book buyers.

Over the last year, the most voracious readers of e-books have shown a reflexive hostility to prices higher than the $9.99 set by and other online retailers for popular titles.

When digital editions have cost more, or have been delayed until after the release of hardcover versions, these raucous readers have organized impromptu boycotts and gone to the Web sites of Amazon and Barnes & Noble to leave one-star ratings and negative comments for those books and their authors.

The angry commenters on Amazon and online message boards could just be a vocal minority. But now, with e-books scheduled to cost $12.99 to $14.99 under new deals that publishers negotiated with Apple and Amazon, a broader swath of customers may resist the new pricing. The higher prices will go into effect within the next few months.

But some e-book buyers say that since publishers do not have to pay to print, store or distribute e-books, they should be much cheaper than print books.

Just what e-books are worth is a matter of debate. Publishers argue that printing and distribution represents a small proportion of the total cost of making a book.

“There are people who don’t always understand what goes into an author writing and an editor editing and a publishing house with hundreds of men and women working on these books,” said Mark Gompertz, executive vice president of digital publishing at Simon & Schuster. “If you want something that has no quality to it, fine, but we’re out to bring out things of quality, regardless of what type of book it is.”

To consumers who do not pay much attention to the economics of publishing, though, such arguments are trumped by the fact that e-books have been available for $9.99 for more than a year.

One reason consumers may be sensitive to pricing is that they have so many other types of entertainment to occupy their time.

I've published just one eBook so far. It's an abridgement of a $19.95 pBook. The eBook sells for $5, and I collect $4 of the $5. I spent about an hour abridging and formatting. Most of my writing and editing work is done between 3:30 a.m. and 7:30 a.m., when I am officially "off the clock." Since writing is at least as much fun as it is business, I don't pay much attention to how much I make per hour. The eBook very quickly sold enough copies to net me $60 for the hour's pre-breakfast work, so I have no complaints. The eBook continues to sell with little or no new effort, and some purchasers of the eBook later bought the $19.95 pBook version.

Since this was not an original title, and my publishing business bears scant resemblance to the operations of book behemoths like Simon & Schuster, McMillan or Random House, maybe my tiny eBook experiment does not qualify me to make comments or suggestions.

However, because I've been a royalty-receiving author of traditional publishers, and the operator of a tiny publishing company, and a purchaser of zillions of books, I do feel entitled to speak up.

Since the cost of manufacturing, storing and shipping a sequence of bits is somewhere between zero and nothing, the cost to publish an eBook depends on the costs of editing, designing and promoting the book, author advances and royalties, and the basic overhead of keeping a publishing company in business.

Importantly, with eBooks, there is NO WASTE. eBook publishing is even more efficient than POD, where some books must be re-shipped if UPS loses one or re-printed if a book is not manufactured properly.

Unlike offset-printed pBooks, there are no eBooks with wrinkled pages, misaligned pages or off-color covers that must be paid for -- and scrapped with minimal revenue.

Unlike pBooks, there is no cost to return unsold books to the publisher, and no markdowns of unsold or obsolete books. No eBook has to go onto the buck-a-book table. As with POD pBooks, eBooks are produced on demand. The books don't exist unless and until a reader has made a commitment to pay for it.

  • The author's main financial concern is with the royalty, and 8% is a typical number. If a book has a $24.95 cover price, 8% is just shy of $2.
  • If the author is satisfied with earning $2 per copy, and an eBook sells for $9.99, that would leave $7.99 to be split by the bookseller and the publisher. There is no need to provide a piece of the action for a wholesale middleman, as with pBooks.
Lulu is satisfied to keep $1 from the sale of my $5 eBook. From that $1, they pay about 15 cents (3% of the $5) to the credit card company. The other 85 cents covers overhead and profit. Lulu is an extremely fucked-up and inefficient company. If they can survive on 85 cents per eBook, I assume Amazon and Barnes & Noble can do it, too. With this book, the $4 I receive gets split between me-the-publisher and me-the-author.

Traditionally, retailers calculate their markup (gross profit) as a percentage of the retail price. While it's nice to make more money from selling a beautiful $50 necktie than an ordinary $5 necktie, in reality, the cost of selling the tie does not vary much with the price an item is sold for. The cost could relate to the effort involved in selling an item (and with online sales or a self-service store there is no human effort), or storing an item (one cubic yard of gravel takes up more warehouse space than a pack of Band-Aids), but there is no storage space required for eBooks.

However, since it would require a major upheaval for retailers to move from a business model based on keeping a percentage of the selling price to collecting a handling fee for each item sold, I will, for now, allow the eBookseller to keep a generous 20% of the cover price.

So, from the $9.99 eBook price (which I'll round up to $10):
  1. In my system the author gets $2 (a 20% royalty, which is a higher percentage but the same dollar amount as the 8% royalty on a $25 book).
  2. The bookseller gets $2 (also 20%).
  3. The publisher gets $6. That $6 is 60% -- a higher percentage than publishers keep with pBooks. It should easily cover the costs of production and promotion, and overhead, and taxes, and provide some profit. Publishers already make money on $9.95 paperbacks. And of course, with pBooks there is no cost to ship, store or recycle.
And just as Walmart and Costco and Amazon and Vizio and Hyundai have proven, when prices come down, sales go up.

It seems highly likely that many more copies of a book can be sold at $9.99 than at $24.95, and the higher sales volume means MORE MONEY for author, bookseller and publisher -- with NO ADDITIONAL EFFORT OR COST.

It seems obvious that the only reason that publishers don't want to have $9.99 eBooks is because they don't want to hurt sales of more expensive pBooks -- not because they can't make enough money on the eBooks.



  1. I come here for the literary mudslinging and the vanity publishing smut. And now you are getting all "Green-the-World-Save-The-Trees" on me?

    Ah, Micheal, there is a "softer side" to you after all!

  2. To Christy:

    >>I come here for...the vanity publishing smut.<<

    Well, I did say, "Lulu is an extremely fucked-up and inefficient company."

    >>Ah, Micheal, there is a "softer side" to you after all!<<

    Actually, I have more sides than the Pentagon. I'm a sextagon.