So when someone talks about the cost of producing the first copy, and does not talk about the marginal cost, or about how varying the cover price affects the take, I get the impression that they either do not understand, or do not want to talk about, the whole picture.

And speaking as someone who has been through the process of writing a book and publishing it with a major publisher, it’s stone knives and bearskins from start to finish. The data is re-keyed several times. The programs used (e.g., Microsoft Word) are not even remotely suited to the task of producing books. The processes are all derived from how things were done on typewriters. So again I have trouble believing there’s no costs to squeeze out of the process.

Also, when you count Amazon as buying a book for $13, don’t forget returns, which amount to a significant percentage of that amount. Okay, maybe the $13 book only cost $2 to print, but what about the $2 that went into the 40% of the books that were returned? Doesn’t that come out of the take? If so, it’s not really $2/book.

As for retailing, get together with other publishers and venture fund a store that has low margins. It will be very cheap to build. Get your authors to talk it up – they all have blogs. Give them a higher percentage of e-book sales than regular book sales, and no returns. They will be happy to publicize the store for you.

Or, you can wait for someone else to do it, and leave you with no remaining business aside from your back catalog.

First, Amazon typically buys from major houses at 50% off list. Assume for the excellent book, TALENT IS OVERRATED, Amazon pays nearly $13 for this $25.95 book (list for print and for digital version). They turn around and sell it for $9.99, less than what they paid the publisher (but are making margin on the Kindle device purchase itself or losing $ to build an installed base of Kindleaholics). Other potential players(Best Buy? Apple?)won’t want to enter this market and will have difficulty competing without losing $. Sony is selling this particular book for $18.16…The Sony device costs $60 but also lacks the # of titles you can enjoy and download. BN.com is gearing up to have an e-book store as well but I suspect they are pressing publishers for generous discounting so they can be competitive on prices. When Amazon sells this e-book, the publisher then has to pay a royalty of 15% of catalog list or 25% of list price (this is a contentious area right now with belief that it could change once the market is more than 2% of a publisher’s revenue). Once Amazon has 300K or 500K active e-books with attractive backlist titles and more devices out there with rhapsodic users accustomed to paying $9.99, where does that take the publisher from a pricing standpoint? The perceived value of the content has declined and how do you charge more (bonus or extended features that then drive up the production cost for the publisher?)? Many publishers will use a default figure of $.75 to $1 per book for a marketing budget when they do their P&L since author tours (though debatable in ROI beyond goodwill and buzz) are costly as is seeding the market to accounts with advanced copies/galleys. The PP&B on most straight text books in hc or pb isn’t so high at all and can be saved by going digital but it is the staffing overhead that is a stinger spread across units that aren’t yet anywhere near new bestseller hits not to mention the high advances to acquire the forthcoming book in the first place. Things need to change so publishers will strike collaborative agreements with agents/authors for lower advances and attractive royalty scenarios (as evidenced with Alinea cookbook which allowed Ten Speed to keep the list price lower) to share the risk. A smart play would be to do as many work for hires and let the brand or topic be what matters (ex: Mens Health) but this is not something most publishers can do or do well except in nonfiction niches or series publishing.
Publishers know that B&N and Amazon are publishers now as well as retailers and they need to go direct to the consumer with more fervor and not simply from a company website with (a) a brand that doesn’t resonate for the bookbuyer and (b) has little to no SEO/keywords or marketing spend behind it to pull the consumer in…I could certainly envision publishers banding together on a particular genre to build an audience, consumer data and publish with more analytics behind it rather than chasing trends or entirely following their gut instincts for a jacket/format/pub month etc.

Also you want the Merchants to maintain your purchase history in perpetuity (like Baen, great book store) which will lead to even higher database and backup operating costs. This is especially true when you factor in compliance costs for the appropriate SOX and PII legislations, both domestic and international – or do you really not care what the Merchant does with the list of books you have bought?.

Oops–while this is true of some distributors, the big ones take 50%. This puts eBooks in a similar spot when it comes to distribution as paper books.

And if you want to sell direct, don’t forget about the credit card charges. The % rate gets pretty high when you’re dealing with low-price items (which is one reason Fictionwise sells ‘microcredits’ rather than trying to get you to use your credit card for each purchase). Using BooksForABuck.com as an example, during the first month after I release a book, it’s on sale for $1.00. Of this dollar, I pay PayPal 33.33 cents.

I believe in affordable books, but I’m sympathetic with the argument that book prices are not about the cost of paper and glue–they’re about the cost of acquiring, editing, and working with an author to deliver the best book possible.

Rob Preece
Publisher, http://www.BooksForABuck.com

Anyway — the publishers really don’t get it. Look, whatever Bob Miller *thinks* e-books should cost is moreorless beside the point. The issue is what price will the market actually sustain.

Now he could be right — maybe a price of $24 for the E edition of a $26 print book is going to make him lots of money. Certainly at Fictionwise and elsewhere I see plenty of books that are priced at that level (and laden with DRM as an extra gift).

This is a lot like the games publishers whining when Amazon decided to steeply discount its casual games offerings . . . which are still price much higher than iPhone games.

The reality here is that content is being quickly and dramatically devalued because of its overabundance. You want to sell your historical romance at $24? Fine, I’ll just buy from one of your competitors who is selling its historical romances at $10 (this is clearly Baen’s model … it’s not that I really *love* Baen’s authors, but they’re good enough at the right price). If I absolutely positively must have that one specific book at $24, there are always Torrent sites.

Miller is living in a fantasy world where he thinks customers actually give a damn about how much it costs for companies to produce a product. They don’t, and starting from that point will kill you. Instead they need to face the reality of what consumers will pay and then figure out how to build a business from there.

Personally, I’m betting within a decade all ebooks will have gravitated down to current paperback prices … so $6-$8 each, with maybe some exceptions for “name” authors (though the incentive to pirate a work is so much greater with those folks, it might offset that).

Random House sells print books directly from their website. They do, however, sell them for full list price, more than any other online bookstore. I imagine they have strong incentive not to get in a tiff with their retailers. Which might be why they ultimately won’t give a discount on ebooks when and if they sell those on their website.

And I don’t at all expect any major publisher to release ebooks on their website to the exclusion of releasing them through retailers, because of the realities of distribution that you mentioned. However, it seems odd to me that they don’t sell ebooks on their own website at all.

I think Greg’s right that they’re afraid of beschmutzing their nest with ebooks. They could be giving their customers more incentive to buy ebooks, but instead they’re essentially discouraging it by charging $24 for a DRMed copy.

I also think you’re also conflating the difficulties of running a small press with those of running an epress. I certainly don’t doubt that profit margins are slim with a small epress, but I don’t think they’re any bigger for most small paper presses, and the world is littered with the corpses of those, too.

A major problem remaining with ebooks is that it’s still in the early adoption phase. For all the press Kindle 2 got, there’s still a stigma about “reading books on a screen.”

So I’m kind of surprised you’re not frustrated with Harper Collins, too. I’m sure publicity and awareness are a problem for you as a small epress, but I also think that your potential customer base is inherently limited by the fact that relatively few people will consider reading ebooks.

The sooner major publishers get onboard with digital distribution, the sooner more customers will at least accept the idea of reading ebooks. That’s really what I’m frustrated with Bob Miller about: his whole statement smacks of his company dragging its feet toward digitizing, and that’s not good for anybody.

Promotion and distribution networks, storage and transport, even on a single book basis, is much more expensive than the preproduction side of things.

Its a bit like Micro-soft, that is the size of operation, the amount of capital invested in keeping it running day by day, month to month, actually surrenders a small profit rate and a vunerable one — even though the amount of profit can be staggering.

Mocro-soft looks invuneranle, too big to fall etc.,. However, its size is its weakness — large profit amounts disaapear rapidly with small changes in the rate of profit.

The same with our bigger publishers. I agree that from an accountancy perspective they have to charge big for e-books, just as I am sure they are condemended to go under, given the economic crisis. The time to go slowly, slowly, on this front has dissappeared. By the end of this year, for instance, the prognosis for big publishers will be, for most of them, very short.

Again it is not because e-books are going to wipe them out of business, but because they will be wiped out of business, by the depression that has only just begun, e-books will have much greater room to develop, much quicker and this will hasten the demise of many.

It is the historical context which gives this a more opposed form, rather than simply one of productivity and cost savings of a new technology.

I’m afraid you keep saying that the cost of producing an e-book is trivial but I still don’t understand how you’re coming to that conclusion. Who doesn’t get paid? The author? An editor? Cover artist? Layout/conversion person? Doing any of those jobs is *work* and professionals deserve to be compensated accordingly. Sure, there’s additional bloat with any large organization, but that’s not to say that by virtue of being a small e-book publisher those basic initial expenses go away. I’ve *been* a small e-book publisher for more than 5 years now. It costs less to produce an e-book, but sales volume is correspondingly small, too. Since expenses have to be spread out over a small number of units sold, guess what that does to the price of goods.

Sure, it’s great to think that e-book never goes out of stock and could still be bringing in money 10 years from now. Unfortunately, income 10 years from now doesn’t help when you need to pay for the cover art for next quarter’s release. You said that e-book prices reflect print costs rather than electronic costs, but that’s not strictly true. It’s certainly not true in my case. The price reflects the number of units (print or e) I anticipate selling over a set period. The income is then reinvested for the next book. If I try to spread out my costs over a longer period by reducing the price, that means it takes longer before I can release the next title.

A-ha, you say! But if you lower the price then more people will buy it, so you’re not really losing money. That can be true, but it certainly isn’t directly proportional. Are twice as many people likely to buy a book for a dollar as a $2 book? Price isn’t the only factor that people use when deciding whether or not to buy a book. A compelling synopis, good (or bad) reviews, word of mouth recommendations, a compelling cover–all of these things and more affect whether or not customers will buy a book and how much they are willing to pay.

My business plan works on a 50% for the author, same amount donated on a reduced price basis to Public Domain repositories where appropriate. 25% retail mark-up for anyone on-selling the product, 25% for the publisher (all production costs subsumed within that).

My figures depend on a micro-cash, auto-disbursement, fixed price system, but they seem to pan out well.

A 60,000 word novel would sell for $2.70 and surrender $1.35 to the author on every sale, a 120,000 word novel Twice as much at $5.40 — (prices level out from there) $2.70 to the author per item. Academic works are on a higher rate. Poetry and plays on a much higher rate (reflecting the effort required for much small works and surrendering a larger proportion of the price to the author).

Authors must be paid, and books must be cheap.

That is what I meant by a threat to the capital base — the cheapness of production cannot sustain the huge capital investment, but threatens it — so the price reflects print costs rather than electronic costs, thus reducing the threat as e-books take on the costs of the print side of things.

The degree of difference is profound in cost terms, and it makes print publishers particularly unfit for the electronic market place, they have to overload the prices of the e-product and this is not sa matter of choice.

Meanwhile have a look at Cherry Credits, which seems to be the first viable world-wide micro-cash system (with multiple cashing up options for potential customers). With such systems it is possible to implement a “per item sold” disbursements to authors and publishers. “Under a dollar” works become, for the first time, economically viable.

Against this established print houses cannot afford to reduce the costs of e-books without also embracing restructuring. However, much of these problems will be solved for them by the current credit crisis (which is not going away any time soon), and that will see an end to many publishing houses regardless of e-books.

It is a case of resistance being futile, the technology will not crush the print industry but economic depression will, and as history is resplendent with such examples — that will be for e-books an open door.

What e-books do, because of the trivial investments involved, is provide economic space for hosts of new small electronic publishing houses — my own venture beginning in early 2010 (dependent on software being created) — I would have to have a second mortgage (if I could get such a thing these days) just to publish a single print book, and then be practically barred from distributing it.

The print industry, often dependant on lines of credit (especially some of the bigger ones), are in real trouble whether they know it or not. E-books are having the market place levelled by economic factors as we speak.

Sympathy and tea is perhaps the only practical course for the book publishing industry the current depression will see the vast bulk of them out of business within the next few years.

Publishers want to make money. Honestly. If anything, they’ve been anticipating the cost savings promised by e-books since the 1980s.

The cost to duplicate e-books is nil, but Mr. Miller’s point is that the cost of everything leading up to the point of making that first one is a significant portion of a publisher’s expense. Not printing and associated expenses. The author, editor, artist, sales team, and accountant all have to be paid whether you’re talking about an e-book or a tree-book. As a percentage of publisher expense, those costs are are higher than the cost of printing. That is why it is a fallacy to suggest that making e-books “cost very very little.” Making books of any variety means a non-insignificant investment. The format in which the book is released affects overall expense, but not to the degree that you suggest.