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Author & Publisher Strategies

Digital edition price flexibility is not optional

I’m not saying price e-books the same as paper or hardcover editions, but, in response to Rex Hammock, I do think publishers should be thinking in terms of the benefits of greater investment in the production of e-books. Likewise, this posting is a reply to Slate‘s Jack Schafer, who argues that, unless publishers embrace the […]

I’m not saying price e-books the same as paper or hardcover editions, but, in response to Rex Hammock, I do think publishers should be thinking in terms of the benefits of greater investment in the production of e-books. Likewise, this posting is a reply to Slate‘s Jack Schafer, who argues that, unless publishers embrace the $9.99 price point, they will be “Napstered.”

As I’ve argued before, the future of business isn’t a price point, but management of value delivered and the cost of delivering it.

Rex responded to a comment of mine the other day, on his posting “Yet one more mystery about the enigmatic book publishing industry,” thusly:

Thanks, Mitch. I appreciate your deep knowledge of this topic. However, I don’t believe you can equate the investment necessary to improve the design of an e-book text with the costs outlined… (read it all, the whole comment thread is worthwhile).

In my reply to Rex, I wrote:

Rex, I’m not suggesting they are the same costs, just that the publishers shouldn’t be looking at this solely in terms of how cheaply they can get an electronic version out. Better copy and enhanced reading experience will make a positive difference in the marketplace.

But, to make my point, let’s take a hardcover as an example….. The paper and printing costs of a $24.95 hardcover are somewhere between $4.60 and $6.00. Except for huge bestsellers, at least a third of the copies produced at that cost will be returned, so the real cost per book because it is in paper and distributed through physical channels is close to $9.50 (including shipping costs both ways). If I sell the books at a 45 percent discount, I’m making $13.72 per copy sold before any costs (incidentally, this is about what Amazon pays publishers for bestseller Kindle titles sold for $9.99). After accounting for returns and the cost of production, my top-line profit is roughly $4.22. I still haven’t paid my G&A, editors, author advances, or for marketing. I might spend less than $2,000 for marketing (there goes the profit from 500 copies sold) many of the titles on my frontlist.

Publishers run a very slim margin, on the first 10,000 copies of that hardcover, they will lose money. Sanford S. Bernstein analysts estimate publishers earn only 26 cents per paper book sold and $2.15 per electronic copy sold. But that doesn’t mean they’d make money on the first 10,000 electronic copies of the same book because the cost structure is different. It’s only when both books make it past their first season and become backlist titles or, if all the stars align, become runaway bestsellers, that I make money. It’s the fact e-books can sit in an eternal backlist and be sold in dribs and drabs for years that make them truly economically magical.

Now, if I chose instead to produce the book as available in electronic format with substantial enhancements (a fully hyperlinked index and TOC, as well as a style sheets for multiple formats and screen geometries, for example), it might take a designer and editor an additional $5,000 to $10,000 to produce the electronic book for the “major” electronic platforms.

For argument’s sake, let’s say I did spend $10,000 on the electronic designs. Compared to the cost of the first 10,000 hardcover books, it looks cheap, but unless I have real clout as a publisher or a proven bestselling author I am still getting only about half the revenue for e-books sold on Amazon. If I sell in other venues and formats, I have to spend some of my own money on marketing to get attention that Amazon delivers simply by being listed in front of so many potential buyers. The typical publisher, then, will probably see top-line revenue close to the $2.15 per copy sold in “earnings” identified by Bernstein’s analysts.

In the end, I only get a margin that after I market my book and the sales channel “dips their beaks” comparable to the physical book top-line, so if I reduce my list price from $24.95 to $9.99, I make less per copy sold before any other costs. Therein lies the reason that open formats, self- and on-demand-publishing, and competing channels are critical to the evolution of publishing, because the price of selling digital stuff remains prohibitively high despite all the prevailing thinking that it is “free.”

In electronic copies, there are no returns. There probably ought to be, since a lot of books and magazines ship for Kindle with egregiously bad unproofed copy (why The Atlantic, which I wrote about today, would not proof its Kindle edition, is beyond me). I get to keep more of my top-line profit as an electronic publisher, but it will still take sales of several tens of thousands of copies to break even on an e-book, particularly if I’ve paid an advance to the writer.

This all supposes there is a reason for the publisher to participate in the process, that there is a good reason for authors to work with editors and marketers. That’s a separate debate, one publishers need to recognize no one takes for granted anymore.

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