The Kindle and Questioning the Economics of eBook Publishing…the Conversation Continues

By • Feb 11th, 2009 • Category: 26th Story, Big Ideas, Book News and Publishing

kindleRich Mintz is someone who understands the Internet. As a Vice President of Blue State Digital (the team who handled Obama’s now-famous online campaign strategy), he’s a good person to talk to about how new technology is forcing the book industry to evolve. Yesterday, we asked Rich what he thought about the recent New York Times story on the Kindle and here’s what he had to say:

Why should e-books cost the same as physical books, just because some publishing company’s profit model would be disrupted otherwise?

As a heavy consumer of books (and a former independent bookstore owner), I’m not particularly interested in what publishing executives tell me books should cost — what matters to me is what the market tells me they actually do cost.

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, revenues, and profits.  Simon & Schuster, and everybody else, will either get with the program or be left behind.

I’m afraid that the publishing industry is at just about the point where the music industry found itself in 2004: insisting on an old pricing model, even as the rest of the world routed around them and created a new one. There’s nothing magical or eternal about the old economics of book publishing, any more than there was anything magical or eternal about horse-and-buggy transportation, or the telegraph.  When a new model came along that the market decided was better, the new model won.

None of this is to say that the coming adjustment won’t be difficult or disruptive or painful.  But, on principle, I have no sympathy for business executives who tell me that the price of something “should” be higher than the market says it is.  Amazon is already selling enough e-books at $9.99 (presumably without losing money either for itself or for the publishers) to demonstrate that e-books can be sold for less than hardcover retail; ergo, they will be.  End of story.

In the traditional questioning model of HarperStudio, Bob doesn’t entirely agree:

I agree that e-books should be priced lower than physical books.  But I don’t agree that being profitable at $27.99 translates to being profitable at $9.99.  It only costs us about $2.50-$3.00 less for us to publish the e-book, not $18.00 less.  The right price is certainly one that a consumer will pay, but we won’t have books for them to buy if authors and publishers can’t make any money.  So we need to find the right pricing somewhere between the hardcover list price and the money-losing $9.99 that Amazon is teaching consumers to expect.

What do you think?

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  • bowerbird

    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

  • http://www.bookstolistento.com bookstolistento

    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!

  • Kathleen E

    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.

  • Jezza

    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.

  • http://mentatjack.com Steven Klotz

    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.

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  • Jim

    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.

  • Jack

    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.

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  • wilbertb

    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.

  • http://www.toughestschoolsintheworld.com/ JohnScott

    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.

  • bob

    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.

  • tbutler67

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

  • Travis Butler

    “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.

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    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.

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  • Sampathkiyengar

    I intend publishing hard copy edition of my book in India priced around US$ 8 and am also planning to offer the ebook edition under US$ 2. It is a self published adventure thriller 400 pages. Any comments

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    this is surely a wonderful news for everyone ”
    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, revenues, and profits. Simon & Schuster, and everybody else, will either get with the program or be left behind”..thanks for sharing

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