Why E-books Cost So Much
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Here's something that tends to get lost in the debate over e-book prices: Paper doesn't cost very much.
There's a perception among consumers that an e-book should cost very little or next to nothing because there is no paper, printing, and shipping involved.
But in fact, for a new best-selling hardcover, all of the costs associated with print, from the printing to the shipping to the distribution to the warehousing to returns, amount to a mere few dollars per copy, depending on the size of the print run.
The vast majority of a publisher's costs come from expenses that still exist in an e-book world: Author advances, design, marketing, publicity, office space, and staff.
You can therefore imagine the fear that e-book prices instill in publishing executives' hearts. They're only saving a few dollars per copy in the switch to the e-book world, but the prices of books were slashed more than half: from $24.99 to $9.99 and even lower.
That begins to explain why publishers are trying to keep e-book prices high. But it doesn't tell the whole story.
Along came the iPad
Before the introduction of the iPad, publishers sold e-books according to the "wholesale" model. Publishers set a list price for a book, they took roughly half, e-book vendors like Amazon took roughly half, and the vendor could set whatever price they want.
So for instance, for a new e-book, let's say the list price was around $24.99. Amazon paid publishers $12.50 per copy, but then turned around and sold the e-book for $9.99. They took a loss on e-book copies to help sell Kindles and to build a huge early lead in the e-book market.
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This created several pressing concerns for publishers. For one, Amazon was helping devalue consumers' notion of what a new book "should" cost. And two, publishers badly wanted competition in the marketplace, but they were hearing from other companies that wanted to get into the game that they couldn't compete with Amazon's prices.
So along came Steve Jobs and the "agency" model: Publishers set the price of e-books and receive 70 percent. Publishers took that deal and then imposed it on Amazon, as detailed by my colleague Greg Sandoval.
But here's the irony of the agency model: It wasn't about making more money in the short term, even though e-book prices went up. Publishers raised prices and made less money per e-book copy sold.
Take that $24.99 list price. Let's say the e-book would have sold for $9.99 at Amazon in the old days but now the publisher charges the consumer $12.99:
Wholesale model e-book:
Publisher: $12.50 (roughly 50 percent of $24.99 hardcover retail price)
Amazon: - $2.50 (selling at $9.99)
Agency model e-book:
Publisher: $9.09 (70 percent of $12.99)
E-bookseller: $3.90 (30 percent of $12.99)
This wasn't a story of money-grubbing publishers trying to stick it to consumers. They actually left money on the table.
The result: The e-book marketplace competition that publishers wanted began to take place. Rather than competing on price, e-book sellers like Apple, Barnes & Noble, Amazon, and others have, up until now, mainly been competing on user experience.
And if higher prices slowed down consumers' adoption of e-books and kept people attached to print, publishers were OK with that. Here's why.
It's still a print world
Not only are publishers' margins better on higher-priced print books, but when bookstores close it has enormous ramifications for the industry. When Borders went bankrupt, for instance, Penguin Group was its single largest creditor, with $41.1 million outstanding.
And even aside from financial considerations, publishers' entire reason for existence is bound up in print. The major publishers are, quite simply, the best companies in the world at getting print books from authors to readers. Most of the tools at their disposal for making a book a hit are tied to a print world, from buying front-of-the-bookstore placement (yes, publishers pay for that) to book tours.
As the exponential growth of e-books has slowed, some publishers are even whispering their hopes that perhaps the rate of e-book adoption will slow further and print will be viable well into the future.
But meanwhile, on the other side of the e-book price divide are consumers. Whatever the cost of paper, $10-plus e-books look mighty expensive when they're undercut by 99-cent Kindle best sellers sold by authors who don't have a publisher's overhead.
Publishers have a massive problem with perception of value. When you can't hold it in your hands and easily pass it along to a friend, $10-plus just feels too expensive to many people.
And because publishers have been selling print books via the wholesale model and e-books via the agency model, this results in the confusing situation of e-books sometimes costing more than their print counterparts. With print, Amazon and other booksellers are allowed to charge whatever they want. With e-books, the publishers set the price and e-booksellers aren't allowed to discount. So Amazon, for instance, might discount the print books under the e-book price and publishers have little control over that.
Whether publishers want it or not, change may be on the horizon. Three of the publishers named in the Justice Department suit have already settled and have agreed to variable pricing. Lower prices seem inevitable.
Publishers may have bought themselves some time with higher e-book prices, but they won't be able to hold the line forever.
Updated to include information about price discrepancies between e-books and print.
©2013 CBS Interactive Inc., a CBS Company. All rights reserved. Used by permission.
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6 Comments
Add CommentIt appears as though the publishers left money on the table just to change the perception of the value of ebooks by making them more expensive. But wouldn't it be better for them to have directly tackled the reasons why consumers value print more, which is mainly the ability to sell or borrow used books. DRM free books would go a long way to justifying the higher price.
Reply | Report Abuse | Link to thisSorry to say this, but what are you sources for these "facts" about printing, paper and distribution for publisher. I know for a fact that your statement of a couple of dollars is way off for a large majority of books that are in print. For that matter, who is the author of this article.
Reply | Report Abuse | Link to thisIt is hard to take this as a serious bit of journalism with no source mentions and no idea who is the author.
It is very confusing to me what the point of this mis-information is. The issue is real, but not about costs, it is about the model of distribution that publishers have to reconcile—it just is a painful transition that the music industry went through years ago and simply needs to take place to survive.
I agree there are costs associated with publishing an ebook, but really? as much as or more than the paper copy? Yes, 24.99 to 9.99 is a little steep, but I don't pay the 24.99 price! I pay 17.99 from Amazon or Walmart WHO SET THE PRICE not the publisher. publishers should ask for more of a cut from Amazon for ebooks, but still let Amazon set what price they want. Let any ebook provider set the price they want. Let competition decide on the price not a group of publishers! I want ebooks and can't get them cheeper from a different store! Why? The publishers price fixed the ebook!
Reply | Report Abuse | Link to this"The vast majority of a publisher's costs come from expenses that still exist in an e-book world: Author advances, design, marketing, publicity, office space, and staff."
Reply | Report Abuse | Link to thisUm, not so fast. The printing, binding, shipping, and storage accounted for more than half of the cost of each book at the publisher I worked for. And author advances? Those are mainly given by very large publishers to a very select few authors, and that money is recouped from the book's profit - so that's not really a cost, it is a loan.
As we can see by the numbers above, much of the cost of ebooks is caused by the distributors (like Amazon) taking a huge cut simply by allowing the ebook on it's platform. A publisher can save 60% with digital only books, but then half of that savings goes back to the seller. So a $24.99 physical book should sell for $17.49 in digital (if all other costs are equal). But in the agency model the books are selling for only $12.99. Publishers are getting the shaft, while the digital distributors are making bank for little work and no risk.
It would make more sense if the pricing was comparable to paperbacks although I am certain that a lot of the prelim money is made off hardbacks. To give a stripped down paperback experience with a hardback price is not what consumers are going to like.
Reply | Report Abuse | Link to thisI find your article a little hard to accept as objective journalism. Why?
Reply | Report Abuse | Link to this1. Just a few years ago book publishers were telling us book prices must go up because of the cost for paper and the capital in printing process. Now we are told that cost is a very small percentage in the book cost.
2. Why are paperback books more than just a few dollars less than the hardback copies. At times I have paid more for an ebook than for a paperback. How can a publisher still pay for the printing etc. of a paperback at a lower price than an ebook and still make money?
3. As already pointed out when I purchase an ebook I cannot sell it, for most cases I cannot loan it to friends, and this forces the public to buy more copies of ebooks.
Publishers can provided value to ebooks if they want, which would justify higher prices? Such as:
1. Add pictures to all books. I have paid over $12 dollars for ebooks that do not have the photos found in printed books, even paperbacks.
2. Add video via links to YouTube or even by embedding them in the book. For example the biography of Willie Mays had no photos and the author went to. Great lengths to describe specific plays, but with an ebook the reader should be able to watch those plays as well.
3. Allow the DRM to expire after a year allowing selling the book and trans feeing ownership to prevent a user from selling or giving away multiple copies. Limit the buyer to sell or give away the book once, once sold the new user will not be able to sell the book for another time frame.
4. Give the user to trade in their ebook at a reduced price toward another ebook. Bookstores and online book sellers can do this with used books, why not with ebooks?
I am vision empaired and I can't read printed books easily so I am stuck with ebooks. There are many support groups including some publishers, who provide audio books free or at a reduced price for vision empaired people, why can't the same be done with ebooks?
The publishers have created a perception that they simply want to get as much money as possible. Fair competition and supply and demand regulates prices to be fair. When publishers attemp price control and price fixing this is taken away. The publishers are smart (?) and they should make money with out price fixing, if they can't I guess they are not smart enough to stay in business. Where there is a demand there are those who will supply that demand in a fair and completive market!