If the market as a whole can produce and distribute printed books profitably for $27.99, it seems to follow that it can produce and distribute e-books (which are logistically much simpler) profitably for $9.99. Empirically, the market is doing so now — and, over time, the prices of e-books will fall further, as book distributors figure out (as Apple did) that lower prices will result in higher volumes,
I think it must appealing.

I rarely if ever buy hardcover books. I'd rather go to the library than spend $25+ for a book that will take me 3 hours to read and then just end up taking space on my bookshelf, or end up in the garbage.

I do not for a second believe that the cost of an ebook should be anywhere near $15. That is pure greed and nothing else. Once produced, that ebook can be sold 1 time or a trillion times. There is no inventory to maintain, no physically transporting merchandise, no excess stock, damaged merchandise etc. If they can make money on paperbacks at $6-$8, then that is all an ebook should cost. Likewise, I'd still rather go to the library so i don't have to deal with storing it.

IF they priced ebooks appropriately, I might buy some, rather than go to the library. Perhaps their profits might go up further. For a song and a dance, I'd buy an ebook. I don't want to buy pbooks at any price. Well I suppose my taxes buy them for the library.

Most people pay extra for convenience and speed. The truth is customers are spoiled and they want everything, now, for free. They often get it with pirated software. Books are books and authors should be paid. When you invite the uneducated public (no business or sales knowledge) to offer pricing advice the answers are useless. The market will figure this out. 9.99 sounds great but there isn't much money there for the various players. The prices will be higher.

I believe that ebooks should be priced lower than traditionally published books. Although, ebooks cost less than traditional books to produce, they should not be priced at $9.99 which would mean a loss for the publisher. They should be priced at rate that would allow the publisher and author to turn a profit.

Everyone here has good points. I agree the publishers should have two different cost models. One for books & one for ebooks. The old way of doing business will not work for e-books. Instead of advances the author should get a percentage of the book. The cost of coming up with one book (e-book) should be a lot lower. As others have said, it's all done on a computer anyway. Seems to me it's just a matter of posting it for sale once everyone is happy with the book.

The cost of an ebook is not free because the editor, cover designer, advertising costs, etc. etc. are incurred by the publishing house - even for the ebook version. That being said, printing and distribution are CLEARLY two areas of savings for the publishing houses and it really annoys many of the ebook readers when they charge more for the ebook than for the hardback! In some cases, even after the paperback is out.

These are the clowns who have learned nothing from digital music and movies...

On Amazon's discussion boards, some profess not to care; that the ebook format is more valuable to them than the "DTB" (Dead Tree Book) but I suspect many of them already benefitting from digital piracy because that argument makes NO sense. One can't share or sell a Kindle-version ebook. The sole benefit is portability and that is dependent on the continued existence (i.e. not stolen or lost yet) and functioning (haven't dropped it or soaked it yet) of your ebook reader. In the case of the Kindle, if destroyed, stolen or lost, you've just lost your entire library of digital books and you're faced with the decision of plunking down $360 for another, or doing without.

One point that I didn't see made here is the actual cost of an eReader. The analysis of Publishing costs from the point of view of a publisher has been put forward to argue that eBooks cost almost as much to produce as physical books. It seems like the same analysis should be applied in the other direction. A person buying $9.99 kindle editions instead of $20 hardcovers has to purchase 36+ before that 50% discount is felt -- or 23 if they go the route of buying an iTouch instead of a Kindle. The argument could be made that most people have computers and so the cost of a device to read an eBook doesn't need to be brought to the discussion, but that seems to be very similar to the argument used by the publisher to say that an eBook has almost the same costs as a Hardcover.

I think that this discussion is lacking if externalized costs aren't brought in ... the cost of eBooks is just one such cost. There are also environmental costs associated with the printing, storing, shipping and disposal of pBooks. I'm sure that there are other costs that publishers don't factor in that may be different for electronic vs print.

I've very much enjoyed this discussion so far.

I agree with bookstolistento in that an ebook must cost less than a paperback, bearing in mind that many books are only issued as paperback editions.

I have not bought many ebooks due to the high cost but don't have the space to keep buying physical books.

At least I can pass physical books to my father or the charity shop. Surely this reduces sales whereas ebooks that can not be passed on does not result in lost sales to the secondhand markets.

I have started to read a lot of 'classics' and enjoyed them. I can download Dickens legally for no cost.

Instead of telling us that ebooks must cost the same as a hardback the publishers need to consider the actual costs or suffer the same fate as the music industry. When CD's first came out they were priced higher than vinyl although the production costs were lower. The music industry said that the quality was higher and therefore a higher retail price was warranted. It just resulted in many people being able to justify piracy on the basis that they were being ripped off.

Once people realise how easy it is to copy music (or any other product such as books) it is almost impossible to undo the damage. The industry needs to make purchasing ebooks easy and affordable in order that the number of people turning to piracy is kept as low as possible.

Perhaps a high price could be charged for ebooks being released prior to the hardback. I am sure that plenty of Harry Potter ebooks could have been sold at Hardback prices if release a month before the hardback. Some of the fans would probably then have bought a physical books as well.

Maybe the first couple of chapters could be free and then sell a book in installments.

1. I don't understand how it can be impossible to publish ebooks profitably unless publishers charge near hard-cover prices for them. The reason I don't understand it is that the industry seems to be able to publish some releases only in mass market paperback format; they never exist in hardcover. I realize that many books don't make money, but it seems to me that enough of the mmpb-only books must make enough money to persuade publishers to keep putting out some books while expecting to charge no more than $8-9. Otherwise, they'd quit.

So ... something that doesn't need to be printed, warehoused, and shipped, and for which publishers don't have to account for returns, has to be thrice as expensive as the commonest print editions? Say what?

If this is so, why is it so?

2. Regardless of what it costs to make a book, I only have so much money to buy them with. I usually allocate my entertainment dollars to what gives me the best return for the money. At mmpb prices, I find it painful to discover that I've bought a book I don't enjoy, and that's happened fairly often in recent years. I also have very little shelf space left. So my buying of fiction diminished drastically a decade ago, and my buying of nonfiction has slowed to a crawl more recently.

Give me $5 books that don't demand any shelf space, and it'll make sense for me to start searching seriously for books again. Until then, in terms of entertainment value per dollar, I'm usually better off buying DVDs of shows I like. I still buy some books, but it's probably less than a dozen a year -- which is far fewer than I want to buy.

Nothing beats a good book, but $9 books only make sense if I hardly ever pick up one I don't enjoy. Back when I first started buying books, I almost always was successful at picking what to buy. Over the last 20 years, I haven't been. On the average, I'm buying two books to get one I enjoy, and 3-4 to get one I'm willing to make shelf room for. I don't know what's caused the change, but it makes it highly unlikely that I'm going to pay hardcover prices for a work of fiction.

Assume I pick badly at the same rate, and have to pay near-hardcover prices. $45-$50 per enjoyable novel?

Not happening.

Maybe there's nothing you can do about it. Maybe the price it makes sense for you to sell at can't be made to intersect with the price it makes sense for me to buy at. If so, too bad for both of us.

3. I'm not buying DRM'd books. Not now. Not ever.

Several years ago I said I wasn't going to buy DRM'd music. And I didn't. The music industry blinked first, and now I get most of my music by buying MP3s.

It seems as if the publishing industry is going to spend the next ten years trying very hard not to sell me books in an open format. Ooookay. Come back in ten years and we can count up how many device-locked books I broke down and bought, to see if this strategy worked.

The fact that paperbacks cost substantially less than hardbacks shows that the cost of an eBook MUST be substantially less than that of its equivalent hardback.

If you start with the COST of the paperback and deduct the costs of printing, storage, delivery and estimated returns (often the highest component of the price with physical books), then THAT should give you the COST of an eBook. Add the same margin a publisher gets for a paperback, sell direct to the customer via the web, cutting out the middle man - and that should be the PRICE of an eBook to the end customer.

Prices will tumble but sales will go through the roof because the market is highly elastic. Publishers will make the same profit margin as now, but will have higher sales and thus higher profits.

The bookshops will scream, but ce la vie!

madison "girl arsonist" mcgraw said:
> I took an old self published manuscript -
> uploaded it to Amazon (in 3 easy steps)
> and set the price point at .99c.
> It cost…NOTHING.
> Time it took to do it…10 minutes.

you _go_, girl! :+)

***

scott mcquade said:
> charge what the customer can, and will, pay.
> That’s always been the golden rule of business.

which is why people _hate_ "business".

it's funny, but i read this 2004 quote the other day,
a walmart executive discussing pricing of music cds:
> The labels price things based on
> what they believe they can get --
> a pricing philosophy a lot of industries have.
> But we like to price things
> as cheaply as we possibly can,
> rather than charge as much as we can get.
> It's a big difference in philosophy,
> and we try to help other people see that.

customers seem to prefer walmart's philosophy.
and the customer is always right. right?

one reason napster caught on like a wildfire was
music fans were sick and tired of being ripped off
by the record labels who put out albums that had
just a couple of good songs and lots of crap filler.

scott concludes:
> Managing expectations is crucial. Indeed,
> Bob, I suggest you do us all a favor and
> package your generic P&L for Kindle (and its ilk)
> and include a primer on the economics of publishing.
> Perhaps you can charge $0.99!

i'd love to see it, because then we could learn
just _exactly_ how publisher's accounting has
been ripping off authors for so many decades...

as far as a "primer" on publishing in the new world,
well, madison just gave us one, and did a nice job.

-bowerbird

Walmart also pays its employees low wages and treats them poorly. Are you sure this is the model you want to be touting?

How can an ebook be cheap when Amazon takes 66% of the book's price just for a tiny bit of storage space?

How can an ebook be cheap when Amazon treats publishers as if their product had a 100% to 500% mark up like most other goods so they can demand price drops?

How can an ebook be cheap when publishing is part of a conglomerate culture that treats books like any other piece of goods?

The shame of this thread, and Amazon's pricing, is that published books are assumed to be a generic commodity.

Such thinking is pulling the industry downmarket. Self-publishers like the 'Girl Arsonist' above believe they can go it alone, and all for 99 cents. Fine, but as Bradley Robb noted, your efforts will be valued accordingly, though only if quality publishers hold their nerve.

My two cents (or more) are with David Nygren and Bob Miller: charge what the customer can, and will, pay. That's always been the golden rule of business. When Michael Bloomberg sells financial data it's not $9.99 for 300 pages. iTunes helped expand digital music sales partly through a simplistic pricing structure. However, few musicians tried to compete directly, and it is notable that Apple is now allowing more flexible pricing in response to demand. Presumably Amazon will change its approach when it is comfortably ahead of competitors.

I have long believed that the killer application for digital books will be piracy. You can, if you look, easily obtain (illegal) scans of current magazines and books online. Bloomberg's customers won't bother, since they pay for things like speed and convenience. But markets such as students - who often buy used texts or (illegal) book extracts from copy shops - will happily settle instead for digital versions on an e-reader: cue Kindle competitors that handle PDFs - the MP3s of books. The illicit market helped to re-shape digital music. Likewise, sales of digital readers may rocket if quality content becomes more accessible. Amazon knows this. Getting in quick with accessible, attractive and affordable content may keep law-abiding buyers happy, and avoid this becoming a repeat of the music industry fiasco.

Managing expectations is crucial. Indeed, Bob, I suggest you do us all a favor and package your generic P&L for Kindle (and its ilk) and include a primer on the economics of publishing. Perhaps you can charge $0.99!

I'm glad someone else brought up "The Sharing Knife" because it allows me to point to my blog posts on the subject (employees of HC may wish to place head in sand instead of reading) http://www.di2.nu/200901/18.htm and (earlier) http://www.di2.nu/200707/02a.htm

I strongly question Bob's statement that it costs him only $3 less to sell an ebook than a HC. This sounds like baloney to me. From my recollection (E&OE) publishers sell HCs to the bookshops/wholesalers at a discount of about 50% of the cover price so a $27 hardcover is sold to amazon for about $14. Then there is the price of paper, cover and other costs to do with the physical paper - perhaps another $2. This means that the publisher's gross income per book is capped at $12 or so no matter whether the hard cover sells 100 copies or 100,000.

For the ebook the paper cost is eliminated (which perhaps is what Bob is talking about) but I find it hard to imagine that he still sells ebooks at a 50% discount to his ebook resellers. However let us assume that he does in fact sell the book to his ebook resellers at a price of $12. If the ebook retailer marks it up to $19.95 he's making $7.95 per sale of a product which requires little more than a standard web storefront and a secure delivery server and a few gigs/month of bandwidth. The margin here compares extremely favourably even to Amazon's warehouse printed book sales model let alone the poor traditional bookseller with his high rent bookstore and so on.

Oh and the fixed costs? Paper books have to be typeset whihc ebooks don't and they can share the editting, proofing costs (and the authorial advance) with the paper versions. My recollection is that typesetting costs a one off fee of about $2000. ebooks don't need this although they may benefit from some layout tweaking and creation in multiple formats. Still I doubt all the tweaking takes more than an hour or two per book per format at most and in fact in my personal experience it takes half a day to create ebooks in HTML, PDF, mobipocket, sony reader, MS reader and epub.starting from a word document. The most complex bit is embedding the cover page and any illustrations.

I took an old self published manuscript - uploaded it to Amazon (in 3 easy steps) and set the price point at .99c.
It cost...NOTHING.
Time it took to do it...10 minutes.

Bob, I'm not buying that ebooks cost 2-3$ less to produce.

Since publishers refuse to see the positive side of this, we've created a boycott website to call out the authors and publishers charging over the 9.99 price.
We know it's not the authors asking for these overinflated prices. Several have responded to us saying they had no idea their pricing was that high.
Hopefully, it will encourage authors to not sign ANY of their ebook rights away. If little podunk me can upload a manuscript in 10 minutes, what's to stop them from cutting publishers out of the loop - as they should when they find out that publishers are scaring readers away.
www.mad4Kindle.com

We've written to all the publishers. How many have we heard back from? NONE.
We've written to all the authors. How many have we heard back from? All but one.

Maya, Seth, and Bradley are spot on with their thinking.

seth godin gave away his e-book for free,
and he made half-a-million dollars off it...

right, seth? or is it up to two million now?

if i were you, bob, i wouldn't give up those
salads quite yet, because before you know,
upstart mammals will be eating your lunch.

-bowerbird

Here is a concrete example of book prices over time, for the series The Sharing Knife, by Lois McMaster Bujold, from HarperCollins/EOS.

The Sharing Knife, Book 2, Legacy
Hardcover available Jun 26, 2007, list price $25.95
Paperback available Apr 29, 2008, list price $7.99

At Amazon, hardcover ?
paperback 7.99
Kindle 6.39
Fictionwise 6.45
Sony eBook Store 7.19


The Sharing Knife, Book 3, Passage
Hardcover available Apr 27, 2008, list price 25.95
Paperback available Dec 30, 2008, list price 7.99

At Amazon, hardcover 18.42
paperback 7.99
Kindle 9.99
Fictionwise 15.26
Sony eBook Store 13.49

Obviously, none of the ebook stores have yet reacted to the paperback availability, or HarperCollins/EOS has not yet adjusted the ebook price.


The Sharing Knife, Book 4, Horizon
Hardcover available Jan 27, 2009, list price 26.99

At Amazon, Hardcover 17.81
Kindle 14.84
Fictionwise 16.06
Sony eBook Store 18.89

When calculating ebook prices, don't do just hardcover/ebook, do hardcover/paperback/ebook. Currently, hardcovers cost $25, paperbacks cost $10 some number of months later. So what should ebooks cost when only the hardcover is available, and what should they cost when the paperback is available. Then consider that there is a physical difference between the hardcover and the paperback, but no difference between an ebook now and an ebook some number of months from now.

It appears that ebooks are much more of a conundrum for hardcover only publishers, or hardcover/paperback publishers, versus paperback only publishers.

Excellent conversation! Mr Nash and Mr Godin provide excellent points.

I think that one of the difficulties that many traditional publishers face during this transitional time is that they're trying to comprehend something that their training and experience hasn't prepared them to understand. Thus all the talk about P&L and setting customer expectations. Mr Nash has it right when he says that the customer 'doesn't care'.

The customer does not care that your operating model can no longer sustain itself. The customer wants your book in the format the best suits their needs right now at a price that they consider reasonable.

Other publishers - younger, independent/alternative ones - will figure it out whether the traditionals do or not.

Saying that the public needs to understand the limitations of your P&L or that publishers have any power to set pricing expectations for the public is the box that traditional publishers need to think outside of.

Once you think that you've set the public's expectations someone will come along and beat it. Be prepared to give your e-books away for almost nothing.

Music publishers give away high quality mp3 files for free with the purchase of the same vinyl LP. That, to me, has set the public's expectations for the digital file pricing.

Publishers need to adapt - and they will. Generally, I would recommend hiring people from outside the industry to help define the future of the publishing business. Publishing needs fresh eyes and perspectives to ensure its relevance as technologies continue to transform the market beyond what anyone could have imagined 10 years ago.

Hey Seth: thanks for betting on me. It means a lot. As I try to make the transition from a large staff and expensive salads to a smaller staff and books as jelly beans, it's good to know you've got my back!

I'm sorry I can't respond fully to everyone else here...but I'm grateful for the discussion. It has inspired me to be bold in this new book world of ours... So, thanks.

Love the headline Brendan!

Two points: One, even though it doesn't really fit the content of the post, it would have been much cooler if you'd called it "The Kindle and the Damage Done." Maybe next time.

Two: Bob, I want to take issue with your assertion that most authors won't be interested in a ten percent royalty on ebooks. I would be thrilled with the ten percent royalty on an ebook that sold well. As you probably know, the standard royalty on paperback sales is less than ten percent.

For most authors, certainly including me, the fifteen percent royalty figure on hardcovers is purely hypothetical because nobody buys hardcovers. Hardcover sales on my one adult novel that appeared in hardcover were so low that I can't actually get a non-YA hardcover published because the chains won't stock it. I'm happy with a trade paperback original because people are more likely to take a chance on a relatively (some, like me, might say criminally) unknown author like me at 13 bucks than 25, and I like ten-buck ebook editions for the same reason. I'll bet that my situation mirrors that of many, if not most authors.

One aspect touched on but not explicitly made here is the expectation on pricing uplift. In print, publishers have retained flexibility on raising cover prices. With Amazons defacto $9.99 pricing and the example of itunes does this represent the end of the publishers ability to raise cover prices year over year. This is important because building a business where you can assume consistent price increases 9.99 to 10,99 to 11.99 etc supports your investment and the payback models. What happens if you can't do that? A number of large media companies (Universal & NBC) have tried and failed to get the iTunes price up. You can argue there is downward price pressure on Music because of free sources so .99cents per song could be a legitimate market rate; however, on Movies and TV it is the platform and the distribution that forces the publishers/producers to acquiesce on price. Is that the book publisher's future especially as it relates to the ability to raise prices over time?

When readers buy a print book, they are not paying $x for a stack of bound paper. They are paying for the content. And evidence shows that they will frequently and gladly pay far more than $9.99 for it if they feel the content justifies it and if they will truly own it.

As Richard Nash points out above, most book buyers do not care about these business metrics. Just create good content, figure out a way for the ebook buyer to own the ebook perpetually and let the value of the content guide the pricing. There's no reason why every ebook, even every frontlist ebook, has to be the exact same price (a la iTunes).

And before you start slashing prices so that they're barely above production and publishing business costs, please consider all of the hours that the author has put into the book. Just maybe there's a way to get them a little bigger slice of the ebook profit pie? Sheesh.

Mike S has it totally right. I'd add one thing: the kindle device creates a different kind of scarcity... player/distribution scarcity. If everyone has one, it's a natural monopoly in a lot of ways, and Amazon does come out the winner, because readers don't have much choice.

I do not know if anyone mentioned this (as I have no time to read everything here closely enough), but all it takes is a JK Rowling offering a book as a Kindle exclusive to drive Kindle sales CRAZY. Moreover, the more author exclusives, the less drive for dead tree books. Eventually, the record album, I mean the CD, I mean the VHS, I mean the LaserDisc, I mean the BOOK becomes obsolete.

First of all, I second Godin's motion on his WWMCD rule.

In the long run, money goes to scarcity. Another way of saying it goes to "value."

I love booksellers, and I look for any way possible to support them (including allowing returns, although I think I'd go to an affadavit model for shared markdown instead in this day and age...). But I don't see how a "bookstore" is any different from an "affiliate" when they sell an ebook. The book is actually being provided by a white-labeled archive. The bookseller doesn't necessarily touch it. In the medium term, there will be only a small markup for retailers selling ebooks because they simply don't add enough value selling them. In the physical world, where they pay the rent, lug the boxes around, and deal all day long with John Q Public, they earn a bigger piece of the pie.

Just like the web makes us all publlishers, in the ebook world we'll all be booksellers too. Actually, in the Amazon (and BN.com) affiliate world, most of us are booksellers already! A "bookstore" will have aggregations of "books" by subject, but you can bet your bippy that ESPN.com (for example) will have an ebook "store" that they link to from stories, etc. all the time.

Decisions about price aren't about fairness or equity, they're about the market. I want to read books on my device. I choose a) from what's available, b) what I like, and c) considering the price. I remember when I first got this ebook habit nearly 10 years ago, I paid $28 for an ebook bio of Grover Cleveland because (a) was very limited, so (b) got down near zero, and I was wanted to read something so I yielded on (c).

The ebook world is going to change enormously over the next several years. We're still in a great period of proliferation: of formats, titles, concepts for the books, retailers, retailing "styles", readers and devices. The Kindle and iPhone have a kind of dominance in the tiny market we have now; they may or may not be number one in what will be a much larger market three or five years from now.

One thing that concerns me (on behalf of publishers and authors, of which I is one) is the proliferation of "free" offers. It will shortly be possible for people to have a large (a) and a manageable (b) choosing among things for which the answer to (c) is zero. That will be when every publisher, untethered from cost in a promotional giveaway, starts using the "free" device all the time. Godin or Cader will create the website for ebooksforfree.com (I haven't checked whether the URL is available) and get the publishers to POST their promotions on it. (Maybe they'll get them to pay.) And I'll shop there and won't have any time to read purchased ebooks because I won't get through all the free ones.

So my advice on pricing is "watch what's out there." EVERY DAY. And don't think you need to stick with the same ebook price tomorrow that you had yesterday (yes, I know the problems of changing data in everybody's system -- start sussing that out.) Monitor the free offers. Know what the books most competitive with yours cost. Don't impose a "strategy" until you've learned a lot through activity. Because the facts around the strategy will change before you implement it.

Two other important points not made.

1. Ebook distribution has been the province of digerati. It needs to move to the sales department. When all the phone and device companies have their own app stores, and all the various developers have their own version of a book (the Stanza version and the Scrollmotion version will look quite different...), you will have to WORK the accounts. You'll have to fight for merchandising and make decisions about coop spending. And you need to do that in conjunction with your p-book sales strategy. This is a big change that has to be made soon.

2. As Cader loves to point out, this isn't 1% of the business yet. It's peanuts. You can do whatever you want. You can't get rich or go broke whether you price the ebook 50% too high or 50% too low. Try everything. You'll never have a cheaper opportunity to experiment.

Different answers to different questions.

Bob is asking, how do I use this new medium to support my current business model?

Here's an amazing riff:

"As was rightly pointed out by Carolyn K. Reidy of Simon & Schuster, it’s not a foregone conclusion that an e-book should be cheaper. It really depends on the upfront costs. The last thing we need is to habituate the consumer to an unsustainable and artificially cheap price point. There will be no going back once their expectations have been set."

Oh my!

Others are saying,

"How do we use this new technology to invent a better business model?"

If there's infinite shelf space, zero distribution costs and no returns, the question is: do you need a NY office, $30 salads, admins, interns, editors, publishers, sales reps, buyers, typesetters, copyeditors, proofreaders, pr people etc. etc.? In fact, in a long tail world, the number of people who need to touch a book before the consumer does goes from 25 to 2 or 3.

I'd challenge the original question, Bob. Someone is going to figure out how to profit on $2 ebooks being read like jelly beans by millions of people. If I were a gambler, I'd bet it would be you.

Until you figure it out, watch the tidal wave of authors beginning to go it on their own. Just watch what happened in music.

PS when in doubt, do what Michael Cader says. That's my rule.

Sure, but does the retailer--which is a website--really need five bucks per download to make a profit? With no inventory or storefront, just servers, software, and a staff to keep them running? (I know I'm oversimplifying.) iTunes isn't making five bucks per download. (Of course, Jobs is the first to say that they make their money on the iPods)

Or maybe it's a Netflix model minus the physical DVDs. Surely Netflix doesn't get five bucks in profit when I download a movie. And maybe that subscription model works--people pay a monthly fee to read books, but the downloads expire or vanish after 30 days, and people know they can get the book back anytime to re-read it. It's not like people are going to leave these digital downloads to their grandchildren anyway, so maybe they don't want to buy them permanently. What would the economics of that look like?

The interesting thing about asking "how could it be done?" is that one can sort through the trade-offs--the winners and losers. Maybe there are no retailers. Maybe publishers sell ebooks directly to readers and there are sites that aggregate various publisher's offerings and sell them for an affiliate commission. Maybe ads help pay for it--you watch a Toyota commercial before your book downloads. (After all, I watch commercials during the online version of the Daily Show.)

So what are the other trade-offs? If authors get lower advances, maybe they write fewer books because they're working a day job or hustling speaking gigs. Maybe books requiring costly research require grant funding or a wealthy spouse. (That's how I do it. Not the wealthy spouse, but the rest of it)

Maybe there's no interior design or typesetting because software does it and all e-books look pretty generic. And cover design (or whatever the graphic is called if there's no cover) has to be done in a few hours of a freelance designer's time or not at all. Do I care what the movie poster looks like when I download a movie from Netflix? Maybe covers become less important than a website promoting the book and other such things.

If there's less money to pay editors, then books that require extensive re-working simply don't get published. If rent and office supplies are too expensive, more work gets done by freelancers working at home and the New York office shrinks considerably.

I don't like all of these options, but it is interesting to me to say, "Well, if it were to happen, here's what it would look like."

I like Amy's reverse engineering exercise. It's a good way to think about new publishing models. Unfortunately, though, most authors won't be interested in this hypothetical ten percent royalty (standard hardcover royalties are 15%, and unearned advances have effective royalties currently averaging 20-25%), and booksellers aren't interested in getting only ten percent of the retail price (they currently get roughly 50%), so we might not have that $8 to spend. Our approach at HarperStudio, alternatively, is to offer half the profits to authors, so they would actually make more money than current standard royalties, if they're willing not to get a six-figure advance. (And we're willing to give booksellers a larger piece of the current standard pie if they're willing to go non-returnable, but that only applies to physical books.) So if we think that $10.00 is the right price for e-books, and that's our only format, let's say we're getting $5.00 from the bookseller. We need to spend money on the following things out of that $5.00 before we have profits to share with the author: editing, copyediting, interior design, typesetting, proofreading, cover design, e-book formatting, legal, accounting, marketing, publicity, office supplies, rent, staff, etc... It's challenging to have money left over after these costs, even if we're keeping our spending to the bone.

I think the more interesting way to approach this question is to reverse-engineer it. Start with the retail price and figure out what the expenses would have to be to get it there. Let's say people will pay $10 for a new ebook and $5 for a backlist title---kind of like seeing the movie right away in the theater vs. watching it later on DVD.

So in that case, maybe the author doesn't get $3.75. The author gets a dollar. (and I say this as an author who would rather have $3.75.)

Maybe the retailer doesn't get $5 (half the cover price). Maybe the retailer only gets a dollar, too. (and I say this as a bookstore owner who would rather have the $5. But people will be buying these from websites and kiosks, not brick-and-mortar stores like mine, so maybe the retailer only needs a dollar to make a profit.)

That leaves $8 on a new title. What amount of editing, copyediting, formatting/design, marketing, overhead and profit can be covered by that $8? How many copies of that title would have to sell before those fixed costs were earned back? Would more of this work have to be done by freelancers living in Iowa City rather than staff in New York? (and I say this as a freelancer who would rather have a steady paycheck in Manhattan than piecework in Eureka, CA.)

And then at some point it becomes a backlist title, available for only $5. Maybe the retailer still gets a dollar, the author still gets a dollar, and the publisher gets $3, most of which is profit, having earned back the initial costs of editing, design, etc.

Of course, this is a hypothetical exercise that ignores the print edition and a lot of other realities. But it's an interesting question regardless. If you were starting from scratch and had to deliver digital books for $10, how would you do it? What would and would not get done? Would advances shrink or go away? Would print-based marketing disappear? Would authors be given a template to submit their manuscript so that it could be formatted automatically?

Bob,

Granted, I don't have the greatest say here, but I agree with you on all three of those parts.

I wonder if we can find some things to agree on here. I propose the following:

1. E-books should be priced lower than physical books. The price should be somewhere between the physical book price and free.
2. The lower we can reduce our development costs (advances, staff, $30 Cobb salads), the lower our prices can go without us losing money. Our costs should be enough to develop great material and bring it to its fullest potential but not so much that we can't be flexible with pricing and distribution.
3. We should experiment with new models. We should give away free samples, give away whole books, offer discounts when people buy more than one format (I don't want to be your mother, Rich, but I do want to try this), try to get authors to go profit-share, try to get booksellers to go non-returnable, try to find out what readers want and how to reach them. We should make interesting mistakes in an attempt to learn something that we can use to replace the current money-losing tendencies of trade publishing with approaches that will work better for readers, booksellers, publishers and authors alike.

Never knew this was such a big issue

I also want to respond to this question by Bob:

"In a hypothetical world where only e-books are bought, can a publisher afford half the revenues on the same number of units? Are we really going to make it up by doubling the e-units sold?"

I suspect that in a hypothetical world where only e-books are bought, we'll far more than double the number of units sold. As an example, right now, even with the extra impetus provided by Amazon Prime (i.e., my shipping for the year is already paid for up front), I buy about 15 new books a year (and about 30 used, and take about 50 out of the library -- and I'm not claiming that I read them all, but I do exercise the impulse to "have" them). I could easily see myself buying 50 or more books a year if the average unit cost dropped to, say, $9.99 -- and more like 100 books a year at $4.99.

All this is in line with my actual behavior with regard to music since 2004 (which I realize, as a previous poster noted, is not an exact analogue, since book-reading is not a passive activity) -- I don't think of myself as a particularly heavy music "user," but I buy almost ten times as much music now as I bought in 2000, and it's not because my income went up materially in the interim (it didn't). It's because music-buying has become a risk-free, transparent-market, low-unit-cost activity. I'm significantly more likely to buy an album on iTunes than a DVD, a pay-per-view movie, or a paperback book, even though they all cost (plus or minus a few bucks) about the same.

Sorry for weighing back in so late in the conversation (busy week). A few of responses:

(1) I agree 100% with Bradley Robb that impulse-buy pricing (and/or ancillary benefits that otherwise encourage impulse buying, the way that Amazon Prime free shipping encourages me to just "go ahead and buy already") is the key to everything. The reason iTunes works is that the price is low enough that a vast swath of the buying public feels emotionally comfortable just going ahead and buying whenever the mood strikes them.

(2) Regarding Bob Miller's comment that e-publishing only knocks a few bucks off the effective cost of publishing: if that's the case, then (pardon my French) where is all that money going, if not to the expensive physical distribution network? If the answer is "marketing," then the whole model may need to change. What seems to have happened (and, admittedly, I'm on the outside nowadays) is that the book industry has slipped more and more into a "blockbuster" economic model, with all the concomitant marketing burden that that implies. But in a deeply interconnected, wired, impulse-friendly e-book world -- especially one in which there's effectively zero cost to maintaining everything on backlist forever -- won't a larger share of the volume come from backlist, which doesn't need to be marketed in the same way? I know the "long tail" model isn't as trendy as it was, say, 4 years ago -- but doesn't it still substantively comport with common sense?

(3) I don't think bundling is the solution for most of us, especially bundling that positions an e-book as an add-on. If I'm not buying hardcover books alone, why would I buy them in a bundle? That's like saying "you can have your pudding if you eat your vegetables." You're not my mommy!

(4) Maya Reynolds points to something that is worth calling out: one of the primary advantage of mainstream publishers is that they vet for quality, they edit and copy-edit, and as a result they put out cleaner product. This is worth more than it might seem -- I have it on my mind after reading a book this weekend (published in 2008 by an independent publisher, widely reviewed in the high-end press) that was really, really poorly edited. The dozens of editing failures that popped out at me as I read (poor word choice, words that weren't words, sentences that got lost on themselves, misplaced commas that changed the meanings of sentences) seriously detracted from the experience. If I had paid the cover price of $26.95 rather than reading a library copy, I would be disappointed. I suspect people will be willing to pay a premium for top-house product even in an e-book world -- but the premium won't be an extra $10.

I'm going to echo the words of a turnaround expert, Dr. James B. Shein of Northwestern University. In addressing fifty of the top newspaper industry execs in November, he said: "'The biggest hurdles to progress [are] the industry's senior leadership, including some of the people in this room . . . I am not sure you can take a look at your industry with fresh eyes'."

When Bob speaks of all the costs remaining the same, I find it ironic. HarperStudio was begun on the premise that it was the returns system (and large advances) destroying publishing. Manufacturing, warehousing, returns and pulping is an enormous drag on the system. All of that goes away with e-publishing.

As far as the rest of the costs remaining the same, that's ONLY if you continue to maintain huge offices, power lunches and all the other accoutrements of big publishing today. To say otherwise is either incredibly cynical or further support for Dr. Shein's premise that the industry cannot look at itself honestly.

Advances originally grew out of the long waits to release date. Those waits can be greatly abbreviated by e-publishing. Advances can begin to shrink, too.

It's time to reinvent yourselves. Take a look at what benefit you DO offer authors and readers and capitalize on that. Quit wasting energy in needless DRM arguments and recognize that Amazon is positioning itself to destroy you. Their vertical integration model frightens the hell out of me.

Instead of nattering on about $3 less cost for e-publishing (an argument only industry insiders buy), publishers need to figure out what they offer that no one else (at the moment) does. I see two things: (1) You vet for quality. E-publishing is improving, but its eye for quality is still not quite what it needs to be; (2) You have marketing and sales expertise. This is huge. Capitalize on it.

Realize the benefits of e-publishing. They take more risks because they can. Their investment isn't as great as yours. Start taking some of those chances.

And take a hard look at your costs. I suspect the industry will begin to unravel into a more decentralized one in which editors and artists can work from their own studios, providing services to multiple publishers. When work is handled digitally, there are lots of ways expenses can be cut.

Bite the bullet. You need to offer higher royalties (and lower advances) to your writers. They are not going to buy the argument that they should continue to be paid 7% to 15% when e-publishing offers so much higher royalty rates. Of course, if you started offering the same level of marketing support to mid-level writers, they might be willing to forego those higher percentages in order to build their careers.

Your house is burning, guys. Stop talking about whether the fire was started by bad wiring or a dropped match. Go find the extinguisher.

Part of the problem in this discussion is that the "product-centric" model is heading into decline in favor of a "community-centric" model. Everybody's right. Bob is right that most of the costs of publishing a book remain even if you don't print it. (Also, most of those other costs are FIXED, unlike the cost of printing, binding, and distribution -- even returns -- which are variable. That just complicates the math.) But the host of others are right that prices are being driven down by marketplace forces and will continue to be. Not mentioned as one of those forces, although it certainly is one, is the huge amount of long tail material available in e-form for nothing or mere pennies. Until we learn how to read more than one book at a time (I'm sure today's Born Digital kids can do it!), the cheap ones from the Long Tail are driving out sales and reading of the newer ones where investments have not yet been recouped.

What this all leads to is that it will not be possible to have as many new profitable products as we used to have. That's just math, as far as I'm concerned.

There are two solutions to this, and they both involve moving to niches. One is to lower marketing costs (customer-acquisition costs.) That is accomplished is publishers operate in digital communities where targeting is easier. But it also is necessary for publishers to start "owning" communities (like the contributor to this discussion, Michael Cader, does.) There are a million ways to get to that goal (out of several billion that will be tried), but the first requirement is to recognize that it isn't just p-books that are endangered by developments, it is ALL static products such as we've been producing for a couple hundred years. We're living on borrowed time, and we have to use the resources we have today (products and their audiences) to create resources we will be able to monetize in the future (communities.)

Hi Bob:

I'm with Mintz and Michael on this. No one is going to buy the P&L, basically, by which I mean, they don't care. The P&L is our problem, not their problem. The books bought by readers will be the books supplied using business models with P&Ls that work at the prices the consumers are willing to pay. A horribly circular sentence I know. But this is not an oligopoly. We do not have price-setting power. Consumers don't "get educated" and all the twittering and blogging in the world will not make the consumer decide to give us more money than they think something is worth. Instead they'll spend scarce dollars, and scarcer leisure time, reading/doing something else. Our belief that because we ourselves can't figure the business model that works with the imminent price point, that it's the price that's wrong, and not us. I know it's bizarre, the leftie indie publisher, taking this viewpoint but it's the only possible viewpoint in capitalism. Price is set at the intersection of supply and demand, not by publishers educating consumers—that's Leninism. To restore my leftie cred, I offer the observation that we publishers are like the government in the poem of Brecht's that followed the 1953 worker uprising in East Berlin: "If the government doesn't trust the people, why doesn't it dissolve them and elect a new people?"

Since I cannot pass my e-book along to another reader, I see e-books more like renting rather than buying. Since I'm renting an e-book, I certainly don't expect to pay the same price as if I were buying it.

Kathryn,

I think you're missing the advantages of a lower price point. As pointed out in other comments, today's media consumers have their dollars stretched between a plethora of entertainment expenses: television, the internet, movies, music, video games, cell phones, books and beyond. Attempting to stick to a higher price point will only make up the minds of potential readers as to wear they should spend their admittedly slim entertainment dollars. A lower price point can actually make the reader choose a book.

Part of the problem facing publishers is pure marketing - how will publishers make reading books, in whatever format the reader chooses, important again? The second part is economical. How can publishers cut margins and make publishing a financially viable mechanism once again?

Kristen, as evident in the passage Bob quoted, is living purely in a reactionary mode. She's worried the passing of the core demographic and doing little (in her comment, I have not interviewed Kristen, nor am I privy to her entire marketing strategy) to look for a means to supplement and eventually supplant that demographic.She is seeing the eBook as something which will challenge the printed book, rather than finding ways to sell them each to differing audiences. A sale of an eBook doesn't mean the loss of a sale of a printed book. The sale of an eBook means the sale of a book. Period. It contributes to covering the X, the cost to produce the book once.

As I've pointed out before, eBooks allow for books to work within the Long Tale. Once you've sold enough books to cover the cost of the initial cost of production, everything after that is profit. And since the book is on sale forever, as opposed to a limited run on the shelf of a brick-and-mortar store, it has a greater chance to reach profitability. A lower price point which creates habitual, impulse-driven readers will lead to greater sales of more books - especially as there is no potential for a used eBook market - thus furthering the potential for books to reach the break even point.

This raises the obvious specter of how to lower the initial cost of the pre-production process. Perhaps publishers will have to take a look at the pay scheme similar to record companies in the 1980s and 1990s, where the author is paid a larger advance, but doesn't earn any money off of sales until the book recoups production costs. Or perhaps publishers will have to do what HarperStudio is currently doing, paying a smaller author's advance in exchange for higher author's royalties from sales.

Right now the publishing industry has two choices, be reactionary or be progressive. The answer is not an easy one, after all, no medium has ever maintained, never mind flourished, when faced with the introduction of a new channel for delivery. Change is hard. Change takes work. Change requires hustle. But the future is wide open.

So people aren't paying for the physical binding, they're paying for what the binding represents as the mark of the curator. As we shift to ebooks, we need to make known that the higher price is for the mark of the publishing team, with or without an actual binding to represent it. How can we do this before people get drawn into a lower price point that doesn't properly distinguish between amateur and professional? It feels like people are willing to sacrifice the work of a publishing team now that it's less visible - we know we have value, but the consumer can't see it anymore.

- Kathryn

eBooks have the same fixed costs but the marginal cost is near zero. So it makes sense to cut the price if cutting the price will sell enough more copies to compensate. Why not sell the first volume of a trilogy for $0.99 or $0.01 and see what happens?

eBooks are more convenient than paper so in a fair world it makes sense to price them higher than paper. For something like fiction there are always a couple of dozen books I want to read and high prices discourage me. For technical books the sky is the limit: http://www.amazon.com/Modern-Petroleum-Technology-Set-6th/dp/0471984116

Is it possible to avoid fixing the price altogether? I noticed in the UK that music albums are much cheaper the first week, to catch early adopters and get a buzz going. Why not start with a very low price and keep it there until there is interest and then jack it way up? Category leaders can sell for very high prices: http://www.bookride.com/2007/01/antique-bowie-knife-book.html

Also in today's Shelf Awareness is this publisher who understands the consumer better:

Dan Poynter of Para Publishing and an author, also had a strong reaction to the ongoing discussion about e-book pricing.

Readers will not pay the p-book (printed) price for an e-book because they know the product has not been printed, trucked or shipped. Most have not been typeset; some have not been proofed. Readers will not let publishers rip them off.

The larger publishers tried charging full price and their e-books did not sell. Their pricing became a self-fulfilling prophecy. Publishers said readers would not buy e-books, but it was because the price was too high.

Could the larger publishers be protecting their p-books? Didn't Bowker do that with the CD edition of Books in Print?

At Para Publishing, our books and reports are available both ways. E-books are priced at around half of the p-book price. Over the years our customers have moved toward e-books. We started offering eReport downloads in 1996. Initially 100% of our clients wanted the eReports mailed to them. Today 99% go electronically.

Clearly, this is a time for experimentation, and above all that's what we'll all need to do to see what works. I can't resist quoting from today's Shelf Awareness, though, since Kristen McClean is doing a better job articulating the issues that I have:

Kristen McLean, executive director of the Association of Booksellers for Children (ABC), writes about Kindle 2 and e-book pricing, as discussed here yesterday:

E-books are here to stay. Consumers are driving the trend, and it won't work to simply dismiss them. They are not a huge chunk of the market, but they are a growing one, and soon there will be a loyal customer who prefers e-books to hard copy. How fast this segment will grow is open for debate, but as an industry we better get ahead of it, figure out a sustainable cost structure and serve those customers or Amazon really will dictate the market terms.

Until now, people have had a tendency to think about e-books as somehow cheaper to produce than regular books. There is definitely some efficiency to be gained by not printing, storing and shipping a hard copy of a book, but a book costs exactly the same to bring to the point of market readiness no matter what format it ultimately takes. There are rights, advances, editorial, copy-editing and proofing expenses as well as set-up and general overhead.

As was rightly pointed out by Carolyn K. Reidy of Simon & Schuster, it's not a foregone conclusion that an e-book should be cheaper. It really depends on the upfront costs. The last thing we need is to habituate the consumer to an unsustainable and artificially cheap price point. There will be no going back once their expectations have been set.

Do publishers really want to be in a situation down the road where they have two products selling side by side in equal numbers, with the same content, and where one is less than half the price of the other? Not good, and a great way to kill the hard copy book for sure. Can our industry support its costs solely on sales of e-books at $9.99? In a hypothetical world where only e-books are bought, can a publisher afford half the revenues on the same number of units? Are we really going to make it up by doubling the e-units sold?

I'm not sure, especially as sheer consumer demographics are on the Baby Boomer end of things these days. We already know that the pool of active readers isn't expanding, and now some of our most committed readers are going to be dying off. If I were a publisher, I'd be thinking not just about the next three years when I price this content, but about the next 30, when all those Baby Boomer book sales go away.

On the retail side, the big question is how to sell e-books--a format that is tailor-made for downloading--in a bricks-and-mortar store. And this is not just a question for indie bookstores, but for all retailers who currently sell books. So far, the best (and perhaps the only viable) suggestion I've heard has come from Bob Miller, head of HarperStudio, who has proposed that anyone buying a traditional printed copy of one of his books be able to buy the e-book and audio version of the same book for an additional $2.

Some folks have questioned whether the consumer wants the extra formats. That's missing the point. One of the principles of retail is to sell customers the things they don't know they want but are happy to have. If the price point is right, it will make sense to most consumers, especially as e-books gain traction, and is an excellent opportunity to up-sell. This is an elegant solution that avoids difficult-to-maintain systems like cards, kiosks and other messy gap solutions. Frankly it's the only solution I've heard that makes sense.

Mr. Miller, I do not want a bundle for most of my book purchases. There are very few books for which I would want a bundle of the print copy, audio book and ebook. I have had a kindle for a year and love reading ebooks on it. I will not pay the same price for an ebook as a paper book under any circumstances...I will go to the library first. You say that the developmental cost for a book is the same no matter what the book is printed on. But we have all come to expect deluxe editions to cost more than regular hardcovers, which in turn cost more than paperbacks.... Is it such a stretch to think that ebooks with no "physical" component should cost less than a paperback?
This is a perfect time for publishers to re-evaluate their costs and be able to decrease print runs and eliminate some of the costs associated with physical books. I have bought a number of titles over the past year as impulse buys when they have been $5 or less. They are authors whose titles I might not have ever tried with the current physical book pricing, but a free or very inexpensive ebook introduced me to their work. I will now buy their future works...at a reasonable price. Bradley Robb made some excellent points about the pricing of ebooks and I hope the publishers listen before claiming that the consumers just aren't ready for ebooks. We are ready and Amazon is leading the way.

Bob

read this. book here?

http://tufts2099.blogspot.com

DANNY BLOOM

Bob Miller said: "For instance, if the hardcover were $20.00 and the e-book was $9.95 and the audiobook was $14.95, why not charge $22.95 or $24.95 for all three combined? Once we know that we’re covering our development costs on a book, then we can afford to throw in the digital formats for just a few dollars more."

The problem I have with this is that treating ebooks as a cog in the same developmental process is counter-intuitive; rather, I tend to think it should be considered as an additional sales channel and not part of the p+l of traditional bound books. Ebooks are not simply a new product like the development of mass markets or larger trade paperbacks were. And they don't have the additional development costs that audio books do. They aren't simply a part of the same equation - they are fundamentally new. From this point of view, then the developmental costs have already been covered in the traditional sales cycle of the bound book - ebook sales are just gravy.

Or to paraphrase Mr. Miller, if the hardcover were $20.00 and that pricing is considered to include the developmental costs of the book, then why not sell the ebook for $2.95 or $4.95?

I think the only way to address all of these comments would be to publish a generic publishing p+l that compares hardcover/e-book, which I promise to do shortly. Meanwhile, while I'm interested in what people think about the right pricing for e-books, and whether or not that price can make money for authors and publishers, I'm especially interested in combining formats into bundles that will encourage the sales of multiple formats. As I've tried to explain above, most of a publisher's costs are in overhead and advances to authors, which don't change if the book is printed on steel plates or paper or pasta or transmitted electronically. While some publishers with very low overhead and low advances (two of our goals at HarperStudio) might be able to make money at lower prices, there are still many more costs in professional publishing than is realized in the comparison of final product formats. So I'm interested in offering bundles that combine the hardcover with the e-book and audiobook downloads. For instance, if the hardcover were $20.00 and the e-book was $9.95 and the audiobook was $14.95, why not charge $22.95 or $24.95 for all three combined? Once we know that we're covering our development costs on a book, then we can afford to throw in the digital formats for just a few dollars more. Not sure if that will satisfy those commenting here, but it's something we plan to experiment with at HS.

Hey, Bob. Absent his speculation about profitability at different price points, everything else Mintz says is completely right. And you must be aware of the irony of arguing for nonreturnable print books because of the cost associated with the production and multiple shipments of excess inventory--even when the inventory can be sold back remaindered--but at the same time saying that eliminating physical manufacturing entirely doesn't save much! (Plus $3 less on your p&l means $6 less at retail just for starters. There are also saving on the retailer's side.)

The thing you say that matters is this: "The right price is certainly one that a consumer will pay."

But there's no foundation for this: "we won't have books for them to buy if authors and publishers can’t make any money," particularly in a world that will be exponentially awash in more books at all price points all the time. Authors can certainly make money in that scenario, particularly if directly supplying e-books to a small set of online vendors (or an e-warehouser like Ingram Digital or Overdrive) is all they need to get market placement. Stephen King is doing it right now as his latest little side project.

Publishers will need to figure out how to adjust their businesses to the market and if they don't other intermediaries will take their place as needed. (See also our friend Seth Godin's "the Internet doesn't owe you a living" post.)

Amazon isn't teaching customers anything; it's following all the data about customers and pricing to their needs. (Canny operator that they are, what they've actually done is taught people to *expect* that $9.99 is the top e-book price, when in fact they carry many titles priced higher than that. It has worked rather brilliantly.) And their sales data, such as it is, would seem to support the idea that frictionless purchasing and lower prices does drive more e-sales, given their contention that Kindle owners keep buying the same amount of print books but add to that 1.7 times as many Kindle book purchases.

Tim O'Reilly has been talking about their success with the iPhone app version of their iPhone Missing Manual book. At $4.95 the app has outsold the $19.95 print book, but the print book is still among the bestselling Bookscan computer books, so they don't believe it's impeding print sales. Smartly, they experimented with price and doubled the app price--whereupon sales fell exponentially. So they lowered it back to $4.99.

Believe me, I'm sensitive to how traditional publishers approach this quandry and it's also clear that in the short term--while Amazon is subsidizing the $9.99 pricing out of their pockets rather than publishers--publishers think they're doing "better" by leaving their e-book prices as is (or raising them back to print parity, per S&S).

But long-term this only empowers Amazon in the space, to the detriment of Amazon's competitors and potential competitors who don't have the resources to deficit finance e-books, and that certainly works contrary to publishers' interest and pricing power. Some of Richard Sarnoff's recent quotes on the pricing issues make clear this idea.

Also, as Rich expresses, publishers have little say in the matter. The real question is how will publishing business models need to change to be sustainable at the prices that will clearly predominate in the marketplace, and the answers are likely systemic.

Plenty of people believe that discount schedule for ebooks will change; that's effectively what Amazon is doing in advance of a change in trading terms. (Again, part of why e-books should cost less is that there is less cost for the publisher as well as less cost for the retailer--no physical inventory to handle, warehouse, and ship; no capital to tie up in purchased but unsold physical inventory; etc.) Whether the "iTunes 30%" sticks remains to be seen, but that's certainly what people are talking about.

But it probably means different accounting and compensation to authors, though publishers will have to prove that the editorial, financing and marketing they are providing justifies their share. Again, a complex world *favors* the publisher as intermediary, as Mike Shatzkin has just posted, whereas a world with one or two strong players (e.g. Amazon) will make it easier for certain authors at the least to bypass full-line publishers.

And it means experimentation with variable pricing models--a limited number of "advance" copies may be worth more money to a subset of readers--and different types of editions/versions/upgrades.

I have had my Kindle for a year now. I am happy to find that I am reading more often, because I always have a selection of books in my purse with me, and with the adjustable font, I can read longer. At the 9.99 price point, I am even willing to spring for some NYT best sellers, which I would not have bought before, because I was not willing to pay for nor manage and store hardcover books. I usually waited until they came out in paperback, and bought them then if the subject was still pertinent and interesting, and I remembered to look for them. I more often just skipped them. I am also interested in getting older books that I always wanted to read but never did. I check the Amazon store, and if they are priced low enough, I buy them. However, I absolutely will not pay more for my Kindle book than the price of the offered paperback version. That is price gouging, and feels like an insult. I think the crux of the matter is this: if I buy the paperback, I receive an actual book - I can read it, loan it to people, sell it, prop up a table with it, whatever I want. If I buy a Kindle book, I can read it on my Kindle. Period. When I see a situation like that, if I really want to read the book, I am inclined to look for a used version. It will be even cheaper, and when I am done I can trade it in at a used book store, or take it to work to put in the 'free' pile in the break room.

How can it only cost $2.50 - $3.00 less to publish an eBook? Sorry, I'm not buying that. And even if the cost is not considerably less expensive than DTB (dead tree books), I expect some type of discount due to the fact that my digital books are riddled with DRM. When I can lend, share, sell, etc. my eBooks I may be more accepting of the argument that both the digital and paper versions should be the same price. Until then, I only purchase books where the price has been adjusted for the limitations of being in digital format.

http://bit.ly/mwJjr

I think the issue all entertainment industries have been failing to grasp and will probably fail to grasp with greater peril in the years to come is that people do not have the money they or the industries wish they had. In the 90s, I regularly bought 5-10 books a month and saw half that many films. In the 90s I was in college and graduate school, and so I had very, very little money, and yet I bought books and saw movies.

I now have post-graduate degrees and a husband who makes a decent salary, but I have a child and mortgages, and books and movies are double what they were in the 90s. Our salaries have increased, but what our salaries buy has not, and in fact has gone down. I sustain cell phone and internet service, and I pay for lessons, and I save for college for my daughter. I would gladly buy books for five dollars or less--five dollars feels like not much, and heavens, that's what two cups of coffee are at Starbucks. But books aren't five dollars or less. They're twenty dollars or less, and hardcovers are more. Movies aren't five dollars any longer. We took a family trip to see Coraline last weekend, and with gas and tickets and two things of candy and one drink cost us over $50 for the three of us. Fifty dollars is a lot of money. Fifty dollars is a piano lesson. Fifty dollars is three trips for milk and sundries from the grocery store. Fifty dollars is three months of Netflix.

Where do my entertainment dollars go? To Netflix, and to iTunes. Netflix means I have to wait to see things, but I cannot afford to get to the theater, so I wait. iTunes lets me buy just the songs I need, or the whole album for ten dollars. It's better than a book, because I "reuse" a lot of music. Many books I only need to read once. Ten dollars is not much, and sometimes I buy an album slowly, one song at a time.

I haven't bought books on a regular basis in years--and I'm an author trying to get published. I would love to show solidarity. I would love to support my peers. However, I don't have the money. I use my library, I borrow, and I go without. And at least where I live, this is the norm. When our library has a fundraising sale, the line on the opening day literally goes around the block. People want to read voraciously. They simply can't afford to do so on first-run.

I don't think it's that people expect things to be free. I think people simply don't have the purchasing power industry wants us to have, and I have to tell you, bullying us or continuing to raise prices which have been too high for too long isn't going to change anything. It's fine to say a book really costs $20 to make and you're only making two dollars in profit. However, if I don't have $20, I still can't buy your book. Or, more to the point, if I have $20 but don't feel the product is worth that much compared to what else I need to do with that $20, I'm still not going to buy it.

As a consumer, I want industry to reevaluate their business models and give me a product I can afford to consume in the volume I would like to (and which they would like me to). As one who would like to be a published author, I'm willing to accept that this would mean I would make less even if I did very well in the field, or even less of a very little if I did as the law of averages said I would, just so I could afford to read again. And, in return, so that more people could afford to read me.

I would actually argue against free in favor of "incredibly low". Why? Because low price still has value, the mind does funny things when offered something for free.

Regarding Bob's numbers, it appears that he's taking the entire backend cost for the book - the advance paid to the author, the salaries of those who worked on the book, marketing costs, the numerous incidentals which arise during the pre-publishing process, and arriving at a big number: X. To determine the cost of the book, X is then divided by the total number of copies which are expected to be sold: Y. $2 is then attached to cover the costs of physically printing. Thus a book is X/Y +2.

Applying that same sense of scarcity economics to eBooks, there's no physical printing, and thus the cost of the eBook is simply X/Y.

The problem is that Y is typically the print run, which is a slight overestimation of the estimated total sales. With electronic publishing, there is no Y. There is no initial run. Theoretically, Y is infinity. Realistically, Y for an eBook can be any differing numbers based on a whole slew of modifiers but is usually bound at the upper limit by the total number of screens available. To put it bluntly, there is no Y.

Thus, the cost of an eBook is simply X.

If you sell one copy of the eBook or if you sell an infinite number of copies of the eBook, the cost of the eBook is still X. Once the total profit of sales surpasses X, then every copy of the eBook sold after that moment is pure profit. Pairing this with the fact that an eBook seller can store a near-infinite number of books, and stretch the timeline out, eventually all books can pass X.

The trick is, making sure enough people can buy the eBook. This means selling them at a low cost. A cost low enough that the act of buying an eBook is an impulse buy, not a planned purchase. Impulse clicking is what has made the internet what it is today. It's what causes people to get lost in Wikipedia for hours on end. It's why a incredibly immature video on YouTube can rack of millions of views, it's why a dinky little iPhone App can net the creator $400,000 over the course of a weekend.

I think the ideal price for an eBook would be $2.99, it's a price point that is so incredibly low that it doesn't feel like the customer is really spending any money, and if they don't like the book, the customer is just out a few bucks. To put it bluntly, $2.99 for an eBook, especially one that is delivered instantly and flawlessly, is as good as stealing.

And I hate to be the one who says that, but that's a very probable price point should Apple get into the eBook game.

"Eventually all books can pass X." Sure. And eventually the sun will go out, too. I don't want to hold my breath waiting for it.

Saying that a book will 'eventually' earn out doesn't help you meet payroll *today*. To survive as a company, you need to cover X fast enough that you can continue to meet your own day-to-day operating expenses, not to mention have enough left over to finance X for the next book.

Also, your model assumes a level of demand that I'm not willing to accept - that a) there's enough demand for all books that they will all eventually earn out; and b) that you can increase the demand more or less without limit by lowering the price to 'impluse' levels. This doesn't agree with my anecdotal observations. There's a certain market for any book on its initial release, but it's limited based on topic, genre, and how many readers have heard of it; past a given point, you're not going to increase initial demand any further by lowering the price. Once the initial surge is past, sales settle down to a much lower level as new readers discover it. My feeling is to address the cash flow issues I'm talking about, X is going to need to be covered in the initial surge, or a reasonably short period after that; day-to-day expenses aren't going to wait two years for a book to earn out.

The marketplace says that content "should" be free. Who doesn't want cheap (or better yet, free) content? And obviously $9.99 is closer to free than $24.95, so of course the marketplace thinks it's a better price for content. But I'd like to see some studies or examples that show how $9.99 would result in "higher volumes, revenues, and profits." Now that the music industry has "figured out" the right price for content it doesn't exactly seem like they're doing swimmingly.

Maybe this is a zero sum game and publishers will have to slash prices to unsustainable places to survive, but it seems like everyone's loses in the end by winning the price-slashing game.

Ah, there has been great discussion about HarperCollins ebooks in the Amazon Discussion Board. Sadly, Kindle readers have noted that Harper consistently prices new releases a good 5.00 above the 9.99 price.

Not sure where Bob is getting his operating costs from, because I used the Kindle to upload a manuscript I was working on. Using my Word program, no conversion was needed and the cost was...absolutely free.

I'm sure there is some cost, and I'd love for Bob to let us know exactly what those costs are - maybe then it will make sense to the consumers.

Until that happens, HarperCollins looks like all the other corporations that care nothing about the consumer; only about the consumer's money.

Also - I did have email communication with one of your best selling authors - she was upset about the recent pricing of her book and stated Harper 'would not budge' when she asked that it be lowered to 9.99.

I know several readers have emailed Harper, complaining about the 14.00+ for new releases; not one of us received a reply.

Seldom did I ever notice who an author was published by, now, however, I'm steering away from HC until they make an effort to listen to their customers/readers, or at least offer concrete details about why they charge so much more and other publishers don't.

I guess if readers stop buying, and authors realize Harper doesn't care about making readers happy and leave when their contracts are up, then, perhaps, charging 9.99 might have seemed to make perfect sense.

Madison McGraw
www.thearsonistaffair.com