Monday, March 1, 2010

e(=mc^2)books

I was thinking a lot about the math behind the sales of e- versus p-books this weekend, mes auteurs, and it just so happens this very timely New York Times article does a much better job explaining the situation than I would.

In short: while it's true that it's less expensive to produce an e-book than a physical book, there's still substantial overhead on the publisher side (read: everything from author royalties to marketing). The combination of the agency model (including the retailer's 30% commission) and the overall lower price point of e-books renders electronic formats only slightly more profitable; in the article, a $26 print book would generate $4.05 for the publisher (note that this is contribution, not net operating profit) whereas a $12.99 e-version of the same title would earn the publisher between $4.56 and $5.54.

Yes, this is a 12.6-36.8% increase in profit, and these numbers would be substantial if sales of e-books were a sizable portion of the market. Since they currently only constitute 3-5% of all book sales, however, their higher profit margin isn't enough to make a real impact on the large trade book publishers entering into agency model deals with Apple. As e-reader technology improves, though, and the prices of the devices themselves come down, it's inevitable that electronic books will begin to assume greater and greater market share. Whether e-books will eventually strike a natural equilibrium with print books (or displace them entirely) remains to be seen.

What do you think, friends & bros? (I like to believe I don't have any actual "foes.") Do you think the current price point for e-books is sustainable? Do you think we may be doomed to a (not so distant) future... without print books?

19 comments:

  1. I believe that you bring up a very good point about volume versus profit margin. The e-book system is poised to overtake print production but it currently lacks some specifics required for the takeover.

    First, while many are aware that e-books provide an inexpensive alternative to the same thing in print form, One must burden themselves with the cost of the e-book reader (in most cases) to derive the greatest benefit from the e-book system. Most e-book readers run between $200-$300 at present. People take the cost into consideration. I can't help but think about all the additional print books I could currently buy right off the shelf for the cost of an e-book reader.

    I love the idea of a portable device that can hold all my favorite reading material. I love the portability and ease of use it provides. But, I Just can't seem to get beyond that feeling I get when I hold a print book in my hands--when I open it for the first time and hear the movement of the pages against one another. I still like the smell of ink on paper and the surety of a physical object in my hands.

    I say this, not only from my own personal experience, but as representation of the populace.

    I think the price point for e-books is fair but the additional cost of associated hardware will have to come down before e-book replaces the print form completely. That's my opinion anyway.

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  2. I think the price point for e-books is fair but the additional cost of associated hardware will have to come down before e-book replaces the print form completely.

    That, plus a lot of people (the ones who prefer paper and ink) will have to die off. I think the shift will be more gradual than people are predicting. And I don't ever see books going away completely, perhaps they will just not be as preferred as they are now.

    3-5%? That's a lot less than I thought it would be by now.

    A friend of mine (who is in no way involved with writing or publishing... she represents Ms. Average Reader) received a Kindle as a gift recently, and brought up a good point: It's extremely difficult to share books with your friends when you don't have a hard copy, which is how many of us are introduced to certain books and authors, and then go forth and spread the word. Wouldn't that affect sales in the long run?

    And that thought also begs the question: If everything is transferred to e-book form, how will we "borrow" books from the library? I'm sure there are ways (and I even thought of a couple now while typing this), but everyone who deals with the business of books will have to make some kind of workable shift, and that takes time. Just a thought.

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  3. One big difference that pricing doesn't take into account is that, with an e-book, you don't own the frikkin' book.

    No matter how many articles co-opted journalists write for newspapers in cities where they unblinkingly pay ten bucks for a fancy-named microbrew that contains some fancy ingredient like cilantro or cocaine, they're not going to convince Americans that they should pay fifteen bucks for a book they can't keep, share, give to the library for their book sale or set on fire (in the case of a James Patterson novel).

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  4. 3-5% of sales? From all the talk about the demise of paper books, I expected a higher number.

    While it is decidedly likely that there will come a time in the distant future when all books are e-files in a device, I don't see that time as very close. I don't know if I even see that time in my own lifetime.

    For all the talk people always make about technology driving out pencil and paper work, I still know people who write long hand (sorry computers) and differentiate integrals by hand (sorry calculators. Things can take a very long time to fade away, regardless of the technological replacement options.

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  5. I don't think we will ever not have printed books. Or at least not in our grandchildren's lifetimes. After that, who can say?

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  6. Some libraries do loan eBooks. I'm not sure how it works but I speculate they purchase a license for x number (like 3-5 or something) at the time and the eBook reverts to the library after a specific time. If all eCopies are out, a waiting list forms just like with paper. Nook will allow you to "loan" a book to another Nook user for two weeks.

    Regarding the loaner issue generating new readers, eBooks often have an entire sample chapter or more available on the author's or bookseller's website. I see ads for new eBooks all the time that say "click here" to read the first 1-3 chapters. If the book sucks, this strategy could backfire but for strong openers this should help sales. It will also drive even more attention to the "first pages" for writers.

    Real books will never go away. I buy a lot more eBooks than paper but the ones I love I buy in print, too. Most of the digital readers I know are like this.

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  7. One thing I find very interesting about the ebook pricing conversation is the assumption that all the costs on the publisher's end ar fixed. Yes, they make up a major portion of the publisher's costs. But should they? Are they spending marketing dollars effectively? Are there cheaper ways to do design and typesetting?

    As is, ebooks are priced about as low as they can get. But why in the world would anyone think that publishers can get away with staying the same when everything else about the industry is changing?

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  8. Today's "Shelf Awarenesss" http://www.shelf-awareness.com/ poked holes into some of the figures used in the article.

    As to libraries and ebooks, companies like Overdrive.com are supplying libraries with both ebooks and audiobooks so there is some income going back to the publishers and authors.

    And, Bill, nobody whines because they don't own a copy of a movie after they see it in the theater. Why should books be any different? And you can reread an ebook as many times as you want, as well.

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  9. that nytimes article is being widely criticized for grievously oversimplifying its description of the market.

    and: no one has ever disputed that editing, layout, marketing, author royalties, making numerous electronic formats available etc. would continue to be part of the equation. i think e-book reading people may be suggesting that publishers would be able to separate from printers and bookbinders; and divest themselves of their warehouse space, which in turn would render the need to insure and power that space obsolete. not to mention forklifts, pallets, shrinkwrap, pallet jacks and shipping cartons. how about shipping all that weight from the printer? how about remainders? how about the fact that no book would ever need to be out of print again, and would therefore have the potential to generate *some* profit until its copyright ran out? and far be it from me to actually suggest this myself -- but if rent for those offices in manhattan really runs to 6 digits a year, maybe a move to cheaper digs wouldn't be misplaced.

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  10. I've been following this issue with great interest. Publishing is a-changin'. But as I read your post today, I wondered whether the question is if current ebook prices are sustainable or whether publishers need to rethink their entire business model and look for different, less costly ways to operate so that ebook prices will be sustainable.

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  11. Price point will be set by what the readers will pay, not what the publishers or bookstores want to charge. In a world of WalMart and 99cent value meals, people can no longer afford a HC without a huge discount.

    Publisher Weekly released this year's sales figures but missed the most interesting questions.
    E-books sales are up of course.

    But what about the following:

    Was total sales of all book formats up or down?

    Did e-books create new readers or did established readers just switch formats?

    HC sales are up. Why? Was it due to "Lost Symbol" or the HC price war between WalMart, Amazon,et al?

    MM (mass market paperbacks) sales were down. Are readers willing to pay more for an e-book rather than wait for the cheaper MM version?

    Could this mean the e-reader is not someone who buys HC but someone who waits for the cheap paperback?

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  12. Great information here. You have inspired me to post my own thoughts (too long and rambling for a comment here!)

    In short, an e-book purchase is not a direct analogy to a physical book sale; it's more like renting a book giving the current DRM schemes that create less value than an owned book. Traditional publishing ratios can't be directly applied, since it's an entirely different product that's being offered.

    Interesting times, to be sure.

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  13. Of course the e-book should cost less; it costs less to make and ship the physical unit. If Amazon or Apple wants to take an additional cut in profits in order to increase sales of their readers, that's up to them. IMHO, since the costs of royalties, marketing, etc. remain fixed, that part of the book's cost should remain fixed, too.

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  14. I'd need a crystal ball to answer this one.

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  15. Pricing may have an impact for certain genre - technical and how-to books that need up-dating on a frequent basis. Low costs for frequent replacements may make the e-book market "marketable", but for top-of-the-line novels and those books a reader will want to collect for personal libraries, the e-book won't do.

    Certain rooms in a home beg for bookshelves or to become that quiet place where treasured books are as important as any other form of collectable art. I look at those on the shelves in my living room or the corner in my dining room set aside for peaceful reading. No e-book could ever replace those hardback Robert B. Parker and Dick Francis books that I will read many more times before passing them on to others in the family. And some of the art on the covers, or colors on the book bindings of those books passed down to me from my gransfather. E-books? Sorry. And pricing doesn't even come into the discussion.

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  16. Right now the problem for publishers (and the industry assocated with publishing) is that the the product is still 90%-plus print books through returnable distribution through bookstores. I include amazon.com as a "bookstore" when they are retailing books-on-paper.

    Bookstores are barely making it.

    To undersell the "same" product as a ebook can hurt actual book sells and definitely put bookstores at risk. In other words, a publisher is threatening her/his own business to offer an e-book so cheap that it significantly reduces the number of paper books sold (or ordered) at laydown.

    It's not so much at what price publishers make profit as it is at what (low) price for an ebook do publishers do harm to their mainstay business. Publishers SHOULD prefer not to behave in a manner that causes bookstores to go out of business.

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  17. GhostFolk.com: Barnes & Noble recently announced they see a better future in e-books than as a print bookstore. I remember when Tower Records asked its store employees to promote the company's website, in much the same way B&N is promoting the Nook in its stores. Few at Tower saw a reason to promote the website when the success of the site could cost us our jobs. B&N explained that they have only 18% of the retail bookstore market and saw little reason to expect that to rise. While the e-book market is exploding and opened for the taking. As a former Tower Records person who ran the book department, I feel the pain of bookstore employees everywhere.

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  18. I recently blogged about an overpriced e-book for nook, and how it lost a sale. I think the business is still sorting this out, but hopefully it will make some sense after a while.

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  19. I always thought I would love my books in print. That I would never get rid of my collection. And to a point I won't. But I was recently gifted with an e-reader. And it kind of shifted the balance a little for me. Now my new love affair is still relatively fresh and only the test of time can truly tell, but I think overall I will reserve hardcopy books to finish my collection I already have, and to collect author signatures (not that I have had much opportunity for the last one). Most new material will be consumed on the e-reader. Economies of space. I don't have much room for more real books in my house. Which is a little tragic. However, due to budgetary restraints I probably will still continue to frequent my library and borrow hardcopies of books there.

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