seawasp | E-Book pricing -- My more in-depth analysis...

The Usenet rec.art.sf groups are currently having one of the recurring discussions on pricing of E-books and other related issues.

First, let's look at how Ebooks impact me, today, personally:
Baen is one of the few sane publishers in this respect. I get a much larger percentage of the price of an Ebook than I do of either a hardcover or mass market paperback. The difference is such that for an E-book sale of a novel I get ~$1.50, I think, while for the paperback I get $0.50 or so. For a hardcover, I get $2.50 or so, but the price of a hardcover is much higher. So AT BAEN, the sweet spot where you pay the least and I get the most is the Ebook.

HOWEVER -- businesswise in terms of how much booksellers want to stock my books, the Ebooks don't count much if at all. Hard copy has to sell. If Ebook becomes the dominant business, that will change a lot of things.

Now, on to pricing:
A lot of the argument on both sides tries to assume some aspects of the business working a given way in order to arrive at their conclusion. Neither side should do this, but both do. So here's MY analysis.

1) Mass-market paperbacks, as a class, make money. This is inarguable, because if paperbacks typically lost money, they would no longer be being printed. Moreover, there are quite a few books which NEVER have hardcover releases, so it cannot be assumed as a general case that a lot of the costs of book production are borne by the hardcover and the paperback is getting off easy. Thus, the current mass-market price is sufficient to support the entire production and distribution costs of the book and leave a reasonable profit for all concerned.
2) To determine a reasonable cost for an E-book, therefore, it is necessary to eliminate the costs peculiar to the hardcopy version of the book, and then add in the costs peculiar to the electronic version, and that should be the price point.

     First, the largest single cost added to the book price because of its nature is the distributor --> retail markup. This is what the COVER PRICE is based on, and it assumes a roughly 45% markup from Distributor's price. Thus, the $8.00 paperback you find in the store cost that store $8.00/1.45 or about $5.50.

     The distributor of course gets to mark up the books; so that $5.50 is higher than the minimum book price. I'm going to assume the distributor's overhead is a LOT lower than the overhead for the retailer, and guess their markup at around $15% (which is probably lowballing, but I suspect it's close). This makes the distributor's cost $5.50/1.15 or about $4.80.

     After that come the printing and distributor costs. The book probably costs a relatively small amount to actually produce physically -- I think about $1.00, but let's be conservative and assume the actual physical cost of the book is $0.50.

    This takes you down to about $4.30. I'll assume there are some other minor costs associated with the book and make that a nice round $4.00.

     THIS IS THE BASE COST OF MAKING THE BOOK. This includes a 7% or so royalty to the author, costs of editing, proofreading, printing galley copies, paying slush readers for the amount of work that's proportional to finding the one book, heat and light in the publishing offices, artists for cover/interior work, layout, and so on.

     The price of a PROFESSIONALLY PUBLISHED Ebook, therefore, cannot go below about $4.00, or someone in the CRITICAL path of publication will have to go.

      Now, we have to add costs for the Ebook production and distribution. There are some -- make no mistake about that.

     First, you need storage space. Not being technically savvy in this area any more, I don't know exactly how many copies of a given file you need on your servers to support lots'n'lots of downloads, but let's take the worst-case (which would also be for business a best-case) scenario. For each book, you need enough capacity to support the downloading of the book fast enough to, let's say, earn out the author's advance in one month (as the highest sales of a book come in the first few weeks of release). Let's further assume that the average author's advance is ~$10,000 (I don't think so, but maybe if you count the advances of the top earners). This means 20,000 downloads a month (remember that right now we're assuming that the author gets ~$0.50 per copy) or about 28 an hour. If we assume it takes a full minute to download a book, we could double this and STILL only need one copy of the book live and available. But to be on the safe side, let's assume you keep 10 copies online at all times.

      Let's say you release 20 titles a month, that's 200 files of, perhaps, 10MB each (assuming fancy artwork, no significant compression, etc). And let's say you want to keep your entire back catalogue available; rights revert to authors after 5 years unless you're still selling books (it's more complex than that, but bear with me). So let's say that this averages out to 10 full years of production. So that's 10 (years) *12(months per year)*20(titles per month)*10(copies per title)*10(MB per file) = 240GB.

    A few years ago, I'd have been impressed. However, my laptop -- far from the top end -- has about half that much. Checking Tiger Direct, I see 500GB drives available for $49.00. Let's have a five-disk RAID setup to make sure there's no failures, that's $250.00

     Downloading bandwidth will be a bit tighter, but still, you can figure that the most recent titles are eating the majority of your bandwidth. Say half your total bandwidth goes to the current month, so your total bandwidth requirement for the server will be 2(times the 50% to get you to the total)*20(number of titles per month)*10(megabytes per minute, under my doubled assumption a couple paragraphs back) = 400MB/minute, or a little less than 7MB/second. This is about the limit of an 802.11g WiFi modem. By modern standards, it's not much at all.

     Supporting this downloading, of course, will require an IT department, a secure shopping/payment application, secure servers, and so on. HOWEVER...

    ... much of that support is included in the basic cost, because your publisher will already HAVE to have its own IT department and network. They would also be paying people in charge of dealing with distributors and so on who would no longer be needed, or whose efforts could be reallocated to supporting the Ebook market. Perhaps you would need to add one more full-time employee to administer the E-sales end of things, but electronic sales technology is a well-known, solved problem which is very inexpensive, reliable, and easy to handle.

    Most of these costs are spread out over all of the titles, also. Each individual book has to pay for its slice of bandwidth, tech support, and so on. To be fair we'll spread the costs over one year (one year ROI), so... let's say you'll buy new equipment for this. $1,000 for a new server machine, $250 for the RAID setup, $50/month for additional bandwidth over your normal corporate needs for $600, and $200,000 for your Ebook person ($100k/year salary, burdened -- let's pay him or her well), plus $1,000 for "other costs" -- maybe you buy a REALLY good secure system. This comes to about $203,000 more or less.

    Per book, that's divided up over 20*12 or 240 titles times 20,000 copies per title or 4.8 million books, or about $0.042 per copy.

    So to meet all costs of selling the E-books yourself, it looks like you could add a nickel to the cost.

    Now, one of the issues around Ebooks is that people don't like the idea of the author only getting fifty cents per copy. Let's say that we want the author getting a bigger cut -- say as much as he makes on a hardcover. That's another $2.00.

    Of course, the publisher may be concerned -- especially as the market shifts more toward EBooks and people can potentially be copying and distributing it themselves -- that they need to make up their costs faster. So they add on another $0.25.

So you have $4.00+0.05 or $4.05 as the base number which would maintain the status quo.

Increasing the author's share and adding a cushion for the publisher risk brings us to $4.05+$2.00+$0.25 = $6.30. Tack on another $0.70 for miscellaneous additional costs (maybe more advertising, additional employees, more insurance, etc.) and we reach $7.00

     In conclusion: I would guess the lowest a PROFESSIONAL Ebook can sell for would be around $4.00 or so, otherwise something, somewhere, will be getting shorted.

    The HIGHEST reasonable price would be slightly below current standard paperback prices.

     I don't see ANY reasonable assumptions which would justify prices even half of current hardcovers. (except the "E-ARC" type which Baen does, in which you're not paying for the book per se; you're paying to read it before other people can, and do so in a convenient electronic format.

   There IS one additional joker in the pack: Digital Rights Management (DRM). Apparently, some of the most effective DRM schemes are extremely processing intensive (requiring more expensive servers and more complex data processing), AND are licensed such that the user PAYS A FEE PER EACH PROCESSED COPY OF A BOOK. So if the DRM license cost is $2.50 per copy, you're boosting the price right there.

   Baen doesn't use DRM, of course, so that doesn't figure in.

So there you have it, my own off the cuff but, I think, reasonably accurate analysis. EBooks cannot -- if you want to (A) pay the author, and (B) have the work professionally edited, proofread, illustrated, etc. -- be sold for $0.25; but they also shouldn't be going for over $10.00 a pop, either.

Flat | Top-Level Comments Only

From:

lwe.livejournal.com

You're making a lot of assumptions here, one of them being that form doesn't affect sales numbers.

Sales numbers matter; I'll pay something like $12 for a big fat Harry Potter hardcover, and $25 for a skinny book you never heard of, because Harry Potter sells a zillion copies and amortizes the fixed costs over that much larger number. Paperbacks are cheaper than hardcovers largely because they sell more copies.

At present, e-books sell at hardcover numbers, not paperback numbers.

You also didn't consider the cost of returns. (Not an issue with e-books, obviously.)

In any case, prices are not determined by cost. They're determined by demand. If demand isn't high enough to cover the cost, the product isn't available. If demand is much higher than necessary, the manufacturer gets rich.

From:

seawasp

I wasn't counting those because they weren't really relevant to determining what price points made sense for Ebooks. Form certainly affects sales numbers, as well as popularity, etc. But I was smoothing over all sales across all books. I didn't try to, for instance, separate out the 20 titles per month into the 1 bestseller that sells 250,000 copies in paper, the ten midlists that average a considerable bit lower, and the new books that turn out to bomb and cost you money. Nor did I try to handle the economics of the book coming out first in HC, then in paper, and whether you release the Ebook at the same time as the HC or Paper or after both are out to avoid cannibalism, etc.

Yes, at present Ebooks sell at HC numbers. This would raise the costs by a factor of 10, but that makes it $0.40 rather $0.04 -- not a terribly huge difference. More importantly, right now they do it as a sideline, so -- in fact -- their costs are VASTLY lower. You have to do all the same Publisher Work to prep the HC and the paperback, and the changes to the Ebook (without DRM) are going to be trivial compared to all the other work you've already spent. At that point, you ARE talking about $0.25 e-book price points being practical. As long as paper remains the main source of revenue and Ebook is a sideline, that is. I was assuming you're replacing your paper book market with ebook markets, as that's the ultimate vision of Ebook purveyors.

From:

mouser.livejournal.com

Uh, not all ebooks are selling at hardcover (or paperback) prices. They're all across the board. As an example Amazon is basically selling them for a buck or two less then the currently available price. (Example)

From:

painoarvokas.livejournal.com

In a perfectly competitive market, the market price is the marginal cost of the most inefficient supplier in the market (and who the suppliers are is determined by demand). So the cost does in fact determine pricing.

Of course, the book market is about as far from a perfectly competitive market you can legally get.

From:

lwe.livejournal.com

In the U.S. it's constitutionally defined as a non-competitive market -- that's the whole point of copyright, to create monopolies.

From:

painoarvokas.livejournal.com

Exactly.

From:

masgramondou.livejournal.com

I think your sums seem fair. Though on the paper side you forgot to divide the ink cost by the sellthrough to get the actual cost for the books sold. Now you've got enough other had waving and rounding in there that this may not matter but it is a key difference as someone with 50% sell through has a print cost of $1 instead of your example $0.50.

The other point is that you need to sell more MMPBs than you do hard covers to make back the fixed costs of editing, proofing, typesetting, cover art etc. ISTR that while HC print runs are often tiny for your average struggling midlist author (10k copies is large) MMPB runs are typically 30k-50k. Your ebook sales of 20k seem to fit the MMPB range. I don't know if anyone actually sells 20k ebooks yet. What vague hints I've seen from Baen (as of a year ro two ago) seem to indicate sales of around 5000 or so though I'd be curious if that number has gone up as ebooks become more popular.

From:

seawasp

True enough. But as I point out to LWE above, if I assume hardback numbers, this adds an order of magnitude cost multiplier (assume 2,000 copies per book instead of 20,000), but that STILL only comes out to a total added cost of $0.40 per book, still keeping us well within the same estimated ballpark.

If you assume a sell-through average of 50% (which is close as I understand it) then you double that. Still only $0.80, and with all my other numbers, STILL you don't get over the current cost of a paperback.

From:

argonel.livejournal.com

There are a lot of assumptions about obfuscated numbers. However the end result seems to come out in a reasonable ballpark. Of course the biggest question about ebooks is how big is the market and how do things like the inclusion of drm or book format affect the size of the market.
From my perspective using drm or a substandard ebook format such as PDF removes me from the market. At the moment epub seems to be the leading format with mobipocket running neck and neck with it.

From:

lwe.livejournal.com

Honestly, I think that costs are irrelevant.

We may know, intellectually, that when you buy a paperback that the cost of the physical object is only a tiny part of the price, and the words on the page are the expensive part, but I don't think most people really believe that.

For many people, I think changing from printed books to e-books feels like changing from a material good to a service, as if instead of buying a chair you're buying the plans to build a chair. People who would happily pay $100 for a chair would never consider paying more than $5 for the plans. When they look at an e-book, on some level they're thinking, "Where's the book? It's just the words!"

So they won't pay as much as they would for a physical book. Which is fine -- but it means e-book sales are going to stay relatively low for awhile, and that in turn means high per-copy-sold costs.

And isn't it amusing that there are people out there who'll happily pay $249 for a Kindle, and then scream bloody murder about paying a few bucks for the e-books that make the Kindle useful?

From:

seawasp

The costs are the only relevant thing to determining what the minimum price is that you can sell something at. If it costs $4.00 per book to get the book written, edited, proofread, etc. -- and while handwavy, I think my guess there is within reasonable distance of the truth -- then you're stuck with that as the minimum price point for reasonable volume of sales AND if you assume the industry has to support itself on those prices.

But if people are buying ebooks only as a sideline, then the higher-price-per-ebook is not justified, because the people ARE right -- they're only paying for the data file; the author's work, the editor, etc., all their major expenses are still being handled by the paper copies.

My calculations give you a figure for sales based on (1) maintaining a reasonable-sized market similar to the current paperback market, and (2) that you're doing all your sales (or all your significant sales) through Ebooks -- no paper market for the customer to be choosing, or a much more expensive "luxury" paper market.

Given that, these costs aren't going to change barring some major shift in capabilities -- assuming you want books of the same general quality. You can make 'em a lot cheaper if you dump the editing and all that stuff, but I've read fanfic, and that's a ... risky route.

In short, while many people -- especially in the general public -- may feel that the proper price point for an Ebook is around $0.25, the costs make that utterly unreasonable unless you either dump the current publishing process entirely, OR you're going to be selling just TONS more books than currently (i.e., average market goes to 100,000 or 300,000 copies per book). On the flip side, if you're assuming anything like the current market for books, those arguing for $10, $15, $20 Ebooks are just as far off base. If the Ebooks are a sideline, they cost virtually nothing to offer; if they're your main market, they cost less than a paperback.

From:

lwe.livejournal.com

If you price them as a sideline, then you can never afford to make them anything more, and you'll be undercutting your primary business.

If they're your main market, then you could price them a little below paperback level, yes, if they're selling as well as paperbacks.

At present, publishers want to treat them as a luxury option, which matches the numbers they sell. Amazon wants to use them as loss leaders to sell Kindle hardware. Thus the stupid war currently in progress between Amazon and their suppliers.

Treating them as a luxury option makes sense to me, because it's much easier to lower the price when sales go up than it is to ever raise it.

As a luxury option, as I've been saying all along, cost is irrelevant.

From:

saintonge.livejournal.com

You're contradicting your own argument.

If e-books aren't selling very many copies, they aren't undercutting anything to any great extent. If they are selling a lot, then they may be undercutting the sales of paper copies. So, which is it you believe? Pick one idea and stick to it, please.

If we assume a hardcover costs $25.00, and use Rick's figures for distributor and retailer markup (15% and 45% respectively), the publisher's theoretical price for the hardcover is $15.00. If we remember that the books are sold on consignment, and take an average sell-through factor 55%, then the actual revenue is around $8.25 per copy printed. The costs of distributing an e-book are trivial compared to that of storing hardcovers, shipping them, and shipping back the returns, and the sell-through is 100%, so at around $8.00 to $8.52, a publisher who's only looking at the bottom line shouldn't care if e-books "undercut" his hardcover sales, because he's making as much per sale as he would per hardcover printed, and a lot more than he would on a paperback.

The insistence of the publishers' on charging $15.00 per e-book is evidence of what's really going on in their minds, namely that they hate the idea of e-books, want to keep the market from growing, and want to punish their customers for buying e-books at all.

From:

seawasp

The problem is that you're reading things that combine theoretical with actual information. My discussion was from a theoretical perspective of "what if Ebooks were to replace paperbacks", while many other people want to discuss, or at least bring up, "but here's how they actually sell, and here's different views of the market approach".

Right now, Ebooks sell relatively small numbers -- about 5% of the paperback numbers in my case, I think (because I get about 10-15% of my income from writing from Ebooks, and the Ebook money to me is about 2-3 times as much as I get per paperback). At that volume, it's difficult to say whether it's cannibalizing the paperback market or representing an add-on to it, or some combination. Also at that volume, the expenses involved change -- the cost=per-unit to make back your NRE goes up by a factor of 20, and other issues will start to show up.

Also at this point in the industry, the effect of DECENT E-Readers hasn't really started to be felt. And most importantly we don't know the effect of people, once E-Reader becomes a major or the dominant mechanism for reading, sending around free copies that they've broken DRM on, or which never had DRM. How many people will actually pay for the book when electronic books are no longer the sideline or an experiment? That's what's really will make or break the industry.

From:

lwe.livejournal.com

That's right, they aren't undercutting anything yet. And they don't want to.

There are economies of scale in printing hardcovers; the $8.00/copy or whatever it is is assuming sales at the current level. If you go from selling 2,000 copies to 500, that doesn't reduce your production costs by 75%. I don't know how much it does reduce them, but it's not 75%.

Also, many hardcover returns are shipped out again; 55% may be normal sell-through (though I believe that's the paperback number, not hardcover), but that's of copies shipped, not copies printed. Paperbacks get pulped; hardcovers go back to the warehouse.

At present, hardcover sales are profitable. E-book sales are profitable. However, if you assume that's 2,000 hardcovers and 500 e-books, you get very different profitability figures than if it were 2,000 e-books and 500 hardcovers. Cost per copy for the hardcovers goes way up.

The theory that publishers hate the idea of e-books is silly. There's no single entity called "the publishers." Some publishers are more enthusiastic than others about the idea, yeah, but most don't hate it; they're just being cautious with an entirely new system of marketing their product.

What they all do hate is Amazon using their e-books as a loss leader in competition with their own hardcovers in order to buy market share to sell more Kindles.

At present, e-books sell in sideline/luxury-good numbers, but everyone expects that to change. When it does change, publishers don't want to be stuck with throw-away prices.

Are you aware that book publishing has one of the lowest profit margins of any major industry? Publishers have to be cautious because they don't have much room for error.

If you don't want to pay $15.00 for an e-book, then wait for the paperback to come out.

From:

saintonge.livejournal.com

Yes, there are economies of scale in printing. There are also diseconomies of scale. E.g., printing more copies means you can spread the cost of preparing the book for printing over more copies(all editorial functions, plus typesetting, and settup for a print run). It also means you have more capital tied up in books, more capital tied up in warehouse space, and more capital tied up in shipping costs. It isn't clear how much various changes in the size of the print run affect the cost-per book printed.

But when I web-search the issue, the answer I keep getting is that the cost of printing a book runs to around 10-15% of the cover price. A moderate change in the cost of printing per copy isn't going to affect his bottom line much.

Meanwhile, everything I can find on the issue says that on the average, a publisher sells 55-60% of all books printed, and only receives 50-60% of the cover price of books sold. So the revenue expected per printed book is around $25.00 * .6 *.6 = $9.00 using the high estimate, to $25.00 * .55 * .5 = $6.88 at the low end. From that, subtract around $2.00 to $2.50 in printing costs, and you get a publisher expecting to cover his costs on acquiring and preparing a book for printing on around $7.00 to $4.38 per copy printed.

Which means that at around $10.00 per ebook, the publisher's net revenue, including a $2.50 royalty to the author, will still be around the same as for a purchased hardcover, and quite possibly more.

So I can't see your claim that:

"if you assume that's 2,000 hardcovers and 500 e-books, you get very different profitability figures than if it were 2,000 e-books and 500 hardcovers. Cost per copy for the hardcovers goes way up."

Give me some figures justifying this, please.

Concerning your statement:

"There's no single entity called 'the publishers.' Some publishers are more enthusiastic than others about the idea, yeah, but most don't hate it; they're just being cautious with an entirely new system of marketing their product," I flatly disagree. There is no single entity called "men," for instance, but one can make the statistically valid statement that men are taller than women. And I think you can make the statistically valid statement that the vast majority of publishers hate e-books, and price them the way they do because they want to discourage them from existing. This should not be surprising. As one example, most of the tube manufacturers didn't get into transistors in a big way. (The four biggest semi-conductor manufacturers are Samsung, Toshiba, Intel, and Texas Instruments. The Asian companies were founded around 1939, the US American companies after WWII).

You say:

"What they all do hate is Amazon using their e-books as a loss leader in competition with their own hardcovers in order to buy market share to sell more Kindles.

"At present, e-books sell in sideline/luxury-good numbers, but everyone expects that to change. When it does change, publishers don't want to be stuck with throw-away prices."

According to what I read, Amazon was paying the publishers as much for an e-book as they were for a hardcover. So instead of paying $5.00 to $6.00 dollars to print two paper books, and sell one, for a $15.00 gross margin on the book sold, and nothing but printing, shipping, storage and capital costs on the book not sold, they were paying a fraction of a cent, plus their DRM cost of rather less than $5.00 to $6.00, to provide Amazon with a copy of an e-book, for the same $15.00 gross margin. Please explain to me how that left the booksellers worse off, because it looks to me like they were making more off each e-book sale than off of each hardcover sale.

From:

lwe.livejournal.com

Amazon is paying as much for an e-book as for a hardcover now, yes, and taking a loss on every one they sell.

They aren't going to keep doing that.

And yes, publishers make more on each e-book they sell than they do on a hardcover with the same cover price. For now.

You keep insisting on 55% to 60% sell-through. That's not the case for hardcovers, and it definitely isn't the case for hardcovers sold through Amazon. Amazon doesn't stack dozens of copies of each bestseller in the window, and then return them all when the copies on the shelves are sold.

Also, cost for printing a hardcover runs about 10-15% of cover when the print-run is over 2,000 copies. There are fixed costs you're ignoring. Yes, the price of paper and ink per copy won't change, but the cost of setting up the presses will, because you're printing fewer copies.

So if you print 500 hardcovers and sell them, and sell 2,000 e-books, the cost per copy of the hardcovers is not the same as if you print and sell 2,000 hardcovers and sell 500 e-books. Say you have a fixed set-up cost somewhere in the neighborhood of $500 for the hardcovers (which I believe to be low), then the cost of printing those $25 hardcovers goes from $2.50 apiece to $3.25 apiece when you drop from 2,000 copies to 500 copies.

Anyway, getting back to Amazon's policies, publishers assume that every e-book sold prior to the release of the paperback means the loss of a hardcover sale. This probably isn't true and they know it, but they don't have any way of guessing just how much e-books do eat into hardcover sales. Yes, they make more money selling e-books as long as hardcover sales remain high enough for economies of scale, and as long as Amazon is willing to take a loss on every e-book they sell, but publishers don't believe that either of those will hold true for much longer. They expect Amazon to return to normal margins eventually, after convincing the reading public that no e-book should ever sell for more than $9.99 and taking total control of the e-book market.

And they'll do it not by raising prices to consumers, but by informing publishers that they're going to pay less.

That is what publishers are trying to prevent.

Publishers start with the assumption that Amazon is evil, which certainly fits with their past behavior. You seem determined to believe that publishers are evil or stupid.

Me, I figure that if you want a book for $9.99, you can bloody well wait until it's out in paperback.

From:

saintonge.livejournal.com

Four times now, in response to your posts, I've done web searches for average hardcover sell-through. Four times, the figures I've gotten are the same: at best, about 2/3 of new hardcovers sell, the rest get pulped or remaindered. You keep insisting on higher figures for hardcover sell-through, but you never provide any sources and figures. So frankly, I think you're just making stuff up.

Here's a couple of sell-through references, for anyone interested:

http://www.beneaththecover.com/2007/03/20/love-hate/ (http://www.beneaththecover.com/2007/03/20/love-hate/),

http://www.ericflint.net/index.php/forums/ (http://www.ericflint.net/index.php/forums/).

Your costs for print run prices track with what I've found on the web. See e.g. http://sfwriter.com/2008/01/remainders-what-do-authors-get.html (http://sfwriter.com/2008/01/remainders-what-do-authors-get.html),
http://www.fonerbooks.com/paper.htm (http://www.fonerbooks.com/paper.htm), and
http://www.life123.com/career-money/careers/publishing/how-much-does-it-cost-to-publish-a-book.shtml (money/careers/publishing/how-much-does-it-cost-to-publish-a-book.shtml). But they ignore sell through and retail pricing. With 36% returns, a hardcover selling 500 copies will have had 281 copies returned, a hardcover selling 2000 copies will have had 1125 copies returned, four times as many (actually, I suspect the larger print runs have higher return percentages, but let's be generous). If the printing cost for the small print run is four times as much as for the large print run (and it's probably less), than the publisher's loss on returns is exactly the same.

But books with small print runs tend toward higher than average prices, and there are no shipping or storage costs on non-existent copies, so the publisher probably made as much or more per copy on the small print run hardcover as on the large printrun. And the profit margin on the e-books is likely much higher too, since they don't have to be discounted heavily from cover price, and since the 'printing' and distribution costs on e-books are literally pennies per copy. Overall, the publisher could easily earn more from 2,000 e-books and 500 hardcovers than 500 e-books and 2,000 hardcovers.

As for what Amazon will do in the future, well, given the essentially non-existent costs of e-book distribution once the book has been acquired and edited, all the publisher has to do is sell it from his own site, and Amazon can't screw him on his profit margins.

I thank you, though, for your demonstration of hostility towards e-books, which comes out in the open at the end.

From:

seawasp

HE is talking about AMAZON. You are talking about "average sell through" which will be strongly affected by Barnes and Ignoble, Boarderz, and so on. Not the same. Amazon needs no display copies and has few space limitations overall, so it doesn't CONCERN itself directly with sell-through; it can afford to keep hardcovers until they DO sell, so it in effect has 90+% sell through.

From:

lwe.livejournal.com

My hostility isn't toward e-books; it's toward Amazon, and toward predatory pricing.

If I didn't like e-books, then why have so many of mine -- including ones I own outright, not stuff going through a publisher -- been available through Fictionwise, without DRM, for years, since well before the Kindle was invented?

If a book is available in paperback, I expect the e-book edition to be available for less than the paperback price. If it's still only available on paper in hardcover, then the e-book price should be higher than paperback.

I don't know whether you're old enough to remember when videotapes used to come out at $79.95 initially, and then, once rental business had dropped off, have the price drop to $24.95 for the exact same product, but I am, and I think that model makes good sense for e-books.

As for hardcover returns, I checked your links, and Eric Flint's examples seem to run about 70% or better sell-through, not 55%-60%. The other site gives hardcover sell-through as 63.7%, and says at least 65% of those returned copies then get sent back out, sometimes as high as 95%. "sell-through" is on copies shipped, not copies manufactured.

And remaindered copies don't count toward sell-through, but they aren't a dead loss, either -- the publisher typically gets $1.00 to $1.50 a copy for those.

Yes, it says 40% of all books manufactured are destroyed, but the vast majority of all books manufactured are paperbacks. Paperback sales typically run five to ten times hardcover sales.

And as Wasp points out, Amazon doesn't do returns in any significant way; they're all from brick-and-mortar stores, and when e-books become as dominant as most of us expect them to, there probably won't be brick-and-mortar bookstores.

From:

saintonge.livejournal.com

lwe:

"As for hardcover returns, I checked your links, and Eric Flint's examples seem to run about 70% or better sell-through, not 55%-60%."

Eric Flint at http://www.ericflint.net/index.php/forums/ for March 24th, 2006, the link above:

"I’m using hardcover figures instead of paperback . . .

"The average sell-through for F&SF titles is probably around 50%, and may even be lower. So the 62% sell-through that 1633 got was quite good, certainly better than average — but the 75% sell-through that GALILEO got was phenomenal. _Very_ few hardcovers get sell-through figures better than 70%."

http://www.beneaththecover.com/2007/03/20/love-hate/

"The industry return rate is 36.3 percent for hardcover and 25 percent for paperback."

Which means the sell-through is 100% - 36.3% = 63.7%.

I'm done trying to talk to someone who makes shit up this blatantly.

From:

mouser.livejournal.com

Uh, your numbers are flawed, actually.

Look at it the other direction - don't start with the existing industry, start with what the author starts with - a blank page.

Author gets $1 per book. Okay, that's a fixed rate per book.

Editor, typesetter, cover artist, etc. get paid per title so if you sell one eBook by email, the cost is going to be $50,001 for that book. (Assumes they only work on that project for 3-4 months each.) After that it's pretty cheap. If you sell 1,000,000 books, the cost for each of them is $1.05 Of course that's not realistic because you can't sell the FIRST book knowing your eventual sales numbers...

(Damn - this needs line graphs!)

Anyway, the COST of making a book doesn't include royalties or advances that are paid out of royalties. It's the fixed amount you'd pay if you didn't sell or actually print a single copy (assuming no advances to make it easier.)

Distribution costs between ebooks and physical books are different too. Your numbers... Well, not so good. Sorry.

You need one copy in eFormat to distribute (they copy it from a harddrive to RAM as many times as needed, average book is less then 1MB in size, servers have TONS of RAM), but after THAT it gets wacky - you need infrastructure to distribute which means bandwidth, servers, I.T. services, eCommerce infrastructure, web designers, etc. etc. Again, like physical books, the FIRST books costs a ton of money. Lots more then you think. Since you have to maintain the physical plant and pay the maintainers, you've got a steady cost as long as you sell the book. So you need to keep adding titles to sell, since you only will sell a title to a person (traditionally) one time. The good news is selling the second title is really cheap. Also, selling more copies in the same time frame is a serious profit. But if you really want to price this, think of the amount of traffic your favorite MMO spends, security they use, and how much you play vs. pay. It's cheaper then you think if you're selling a LOT of them.

You also need some of the same things you need with physical books - advertising. Since some of that's built in to the storefronts the numbers are higher for eBooks. NO idea what they'd cost you.

Given a lot of things, they probably could drop the cost per copy lower then you think. I'd bet that major publishers could go down to $2.00 if they have a good list of titles.

DRM, by the way, hasn't been proved to make money (or reduce lose of money). It doesn't increase the cost significantly, though, unless you're using a bad one. If it's more then a penny per copy of anything you've been sold a bridge somewhere. The smart DRM makers don't sell per unit since you don't know if you're selling copies of the "Holy Bible" or "Polka Love Songs of the 1940s" - it's usually a flat fee and the cost of running it gets folded into your tech infrastructure (negligible unless it sucks REALLY badly).

And I love Baen.

From:

mouser.livejournal.com

Damn - didn't figure in the plant for printing and distribution of a physical book either.

From:

seawasp

You're putting in costs there that I don't look at for a number of reasons.

My favorite MMO doesn't exist -- and won't, until they go to "play forever for one fee (with additional fees for new worlds/modules, but not for just playing)", "I can keep the munchkins from bothering me and any of my friends", and "play style fits my choices, and so does the plot". I have no idea what they do or how they do it, just that everything I know about them doesn't invite me to play any.

From:

mouser.livejournal.com

Actually, some of them are starting the "pay once" thing. Star Trek:Online comes to mind, and I imagine there are others. Of course, it's basically like paying two years in advance.

As for the rest of your criteria... Well - they ARE working on that.

As for the other factors, it's just weird what will add to the cost and what is irrelevant.

From:

seawasp

I'll note my "pay once" would be limited to the cost of one or two new PS2/PS3 games and preferably less unless it turned out to be a game like unto God's, so if they want like $200, ha, no, I think not. Depends of course on my ability to play the game regularly -- I would pay more if I was able to expend more time on it, but being realistic I can probably afford no more time playing such a game than I can on my PS games -- which would be something like 80-100 hours per year.

The Munchkin one is an absolute. As you can see above, I'd have neither the time nor inclination to spend to equal the teenagers with no lives, and I would be UnAmused to have some 14 year old player who's spent 120 hours in the last four weeks to become a 4,000th level DeathBringer crushing me just for laughs.

I also don't want a world that has obvious limits on what the players are allowed to do in-world; the LotR online game looked very pretty, but the idea that it was *impossible* for the players to actually be in on, and affect, the main plotline made it a complete non-starter for me. If I'm playing in a known fictional universe, I want to be in the heart of the action. If I'm playing a good guy, I want to substitute for Gandalf, Strider, Frodo; if I'm playing a baddie, I'd like to be able to happen across these little hobbits and whack them, taking that little trinket!

From:

mouser.livejournal.com

Ah! I see your desires. Yea, that ain't happening. Overhead is WAY too high for that low a cost. And the Munchkin thing is why I don't PVP. It's pointless. PVE is stacked in my favor, and I like it that way.

From:

seawasp

Sounds to me like there must be something wrong with the way they handle the overhead, then. These places are claiming millions of players; charging three million players a one-time fee of $80 would give you $240,000,000; the INTEREST from that would be at least $10,000,000 per year, invested properly, and I'd be very surprised if you couldn't keep everything running forever on that.

From:

mouser.livejournal.com

(Looks at the $80, then scrolls way the hell up to the Original Post. Cost of goods is way north of what it costs for a book.)

World of War Craft claims 11m subscribers, but it's the circus freak dowsed in toxic waste - nothing else is that big.
(old stats: http://mmogdata.voig.com/)

* Basic creation of an MMO = three+ years of work by a team of 30+ people to start.

* Server farm for one "instance" probably costs well upward of $2-3M - most games have 10-15 instances.

*Upkeep, data lines, etc. - No idea, but pricey.

Oh, and the $80 is for the PREMIUM startup. After that, the City of Heroes client (as an example) can be downloaded and initialized for (I think) $10 or less. Probably the cost to validate credit cards, pay the support people, GMs,

And to surprise you, there are a LOT of MMOs that did pretty darn good - and are now gone.

From:

hallerlake.livejournal.com

From:

seawasp

I was just going by what some people had told me -- that DRM costs through licensing etc., were very high (i.e., the license said "you'll pay us $x per book you use our DRM on").

From:

masgramondou.livejournal.com

As a side note, your estimate of DRM costs are really really high. (I've been in digital fulfillment for about a decade.) On an ebook, you're likely to be at a dime or less per unit. Computationally expensive encryption doesn't necessarily mean actually expensive - processing cycles are pretty cheap.

are you sure? I'm not able to find the link right now but I definitely recall from some research I did about a year ago that both Amazon Kindle/Mobipocket and Adobe (ADE) DRM were in the $1/copy range unless you sold many thousands of the same book and you sold even more thousands of all books aggregated together. (Oh and if you sold both ADE epub for Sony and Kindle then you have 2 DRM suppliers to pay because one encryption method doesn't work with the other so that doubled the fixed costs if not the variable ones).

From:

mouser.livejournal.com

If Amazon Kindle/Mobipocket are spending $1 per book, I'm in the wrong line of work.

Searching Google, I found $0.08 per song (which is larger then most books), but the prices are hard to find - mostly because the DRM industry is so fluid (here today, cracked tomorrow) and the overhead (mostly tech support when it fails, actually) is weird.

The secret is that DRM and eBooks (and eMusic) are such new industries they're having hard times pricing it all correctly. So it's going high.

From:

masgramondou.livejournal.com

I decided to have a poke at the Adobe site.

From https://store1.adobe.com/cfusion/store/index.cfm?store=OLS-US&view=ols_prod&category=/Applications/ContentServer&distributionMethod=FULL&nr=0#category=/Applications/ContentServer&loc=en_us&view=ols_prod&store=OLS-US which is the store page for Adobe Content Server - the product you need to use. It isn't as bad as I recalled but you do need to sell thousands to get the basic $1500/year license and the $6500 initial price amortized to a reasonable amount per copy. In addition to those costs it is $0.22/item sold.

If we ignore the $6500 cost and just got on the annual fee if you sell 1000 items (downloads) you will pay $1.72/copy. For 3000 it drops to $0.72, for 10,000 it's just $0.37 and so on. You need to get to 50,000 items to get to $0.25/copy.

(and yes these are list prices you may be able to get discounts)

From:

mouser.livejournal.com

You're payin' for the name, but yea - depending on who you're buying from it seems to be all over the board.

From:

seawasp

Not ignoring the $6500 cost, and saying you'll amortize over 10,000 copies, would put your cost for DRM at $1.02.

Then there's probably upgrade fees every so often...

From:

ross-teneyck.livejournal.com

I have no independent data to do my own parallel calculations, but your results seem plausible enough.

Of course the fixed costs (editing, etc.) amortize over both the print and e-book sales, but I don't think that makes a major difference in your final answer.

I also suspect that what we're seeing now for e-book distribution is what is likely to continue: rather than the publisher hosting their own electronic storefront, servers, etc., they'll farm that out to someone like Amazon or B&N. So you'll get another distribution markup in there.

On a slightly tangential note, for several years one of my standard comments on e-books was that the electronic readers weren't quite there yet, in terms of being a comfortable way to read an entire book (although invariably someone would reply that they quite enjoyed reading books on their Palm or whatever.) I think that hurdle has pretty well been jumped now with the current generation of e-ink devices -- the Kindle, the Nook, whatever the Sony device is called -- although I do look forward to the next device generation to improve on the basics.

So what's happening now is, in retrospect, the logical next step: once the readers become good enough and cheap enough that e-books can plausibly mainstream, the next hurdle is monetizing the product. Until recently, e-books were basically a curiosity; it didn't really matter how they were priced, because sales would never rise to the volume where it made much of a difference. That's no longer true, so the publishers and distributors (e.g. Amazon) are trying to figure out what they can charge that people will pay and will make them money.

Which in turn means that DRM becomes an issue, just like it did in music. The fundamental problem with DRM is that many things that legitimate users would legitimately like to do (make backups, convert from one format to another, move the data freely between all their devices, sell or give away the data when they're done with it) the software can't distinguish from things a pirate would do. Hence, the software ends up restricting legitimate users and irritating them, which lowers the perceived value of the product.

As e-books become more and more mainstream (if they do) this will increasingly be an issue that the industry will have to figure out.

From:

tamahori

It gives some hard numbers to some of those questions I asked a bit back.

I'm assuming that that $1.50 is the same regardless of how much I paid for the eBook from Baen (i.e. buying it separately, vs. as part of a Webscriptions bundle).

Three times that of a paper-back ... I didn't know it was that much, and I can see what you mean when you say Hardbacks are worth a lot more to you then paperback.

One thing I'm curious about, which doesn't strictly relate to this. Do you think having Digital Knight up on the Free Library helped your other book sales or not? I think it's the only eBook of yours I have that I didn't pay for ... I also note there doesn't even seem to be a 'buy this book' link for it, just a Donate to the Library link.

Though if I ever do go though with my vague plan to work my way back though the entire Webscriptions listings (there is some good stuff there, and if I'm going to do something, I may as well do it properly) I note that Digital Knight does show up in one of those. :)

Hmmm, related query: You said that you're getting the rights for Digital Knight back from Baen ... will the current version still be in the library? Will it still be in that bundle? And if so, will you still get money for it if I buy that bundle?

-- Brett

From:

voradams.livejournal.com

I have been looking at ebook prices and DRM in Australia. It is a painfull experience. I will pimp my own crap and point people to an article I wrote: http://delimiter.com.au/2010/04/16/drm-is-clouding-australias-ebook-market/

Some of the publishers (I will not that Aussie book scene is dominiated by English an dnot American publishers) are charging $A20 for a book. Concidering a paperback is priced at that or less, there is no economic imperative to read ebooks.

The DRM used is oppressive, meaning that many platforms can not even READ ebooks, like iPhone and Android phones.

I don't know what the US marketplace is like, I use Books on Board and Baen (love love love BAEN, Mancrush be dammed, I would turn gay for BAEN!). Stanza on iPhone is my reader atm, it will be interesting if I can move Wen Spencer's non Baen books across to another platform....i am starting to hate the iPhone closed ecosystem.

Baen gets it. I would be interested how much of the eArc authors get. Because Lois Mcasters Bujold's new book is coming, AND I CAN'T WAIT DAMMIT!