Article - Why New Books Don't Sell on the Kindle: The Price of the Intangible

[911jason]

Another Huffington Post article:

http://www.huffingtonpost.com/chip-obrien/why-new-books-dont-sell-o_b_311779.html

While I don't agree with the assertion made in the title of the article, there are some very good points made about the actual costs of publishing books, both physical and electronic versions.

[geko29]

I do have to criticize this point:

The easiest answer is cost savings, but what reader spends $300 and up on a single-purpose machine -- unlike, say, a $300 iPod that also sends text messages, takes pictures, and browses the web -- expecting to save money?

For one, I do.  The $359 I paid for my Kindle will be paid back early next week, purely through reduced cost on books I have read from start to finish on it (It's already paid off 4 times over on just books purchased).

For another, what is this mythical $300 iPod that takes pictures, sends text messages, and browses the web?  Only one iPod does any of those things--the Touch--and it only does ONE of them.  It has no camera and no SMS capabilities.  Or perhaps he was talking about the iPhone (which DOES do all of those things), in which case the cost is more like $2500 once the cost of the mandatory contract is taken into account.  I've got two of 'em and they're great, but I didn't delude myself into thinking that what I paid to walk out of the store is what they cost.

[Forster]

I for one am glad someone finally tried to tie down the actual cost difference between DTBs and Ebooks.  It seems reasonable to me that there should be a standing 20-25% discount between the two. 

[Andra]

Interesting article.  But the publishers are shooting themselves in the foot by ignoring the fact that a lot of Kindle owners do NOT want to purchase paper books any more.
I've gotten back to my library habit to supplement my Kindle reading so I don't have to purchase paper books when an electronic version is not available.

[Ms Deb]

Interesting article.  But the publishers are shooting themselves in the foot by ignoring the fact that a lot of Kindle owners do NOT want to purchase paper books any more.
I've gotten back to my library habit to supplement my Kindle reading so I don't have to purchase paper books when an electronic version is not available.

I like you don't tend to buy DTB's anymore.  I have gotten used to reading with a font size comfortable to my eyes.  I have two hundred books on my Kindle, if a book isn't released electronically, I tend to wait it out, I have plenty to read. I have a stack of Hard Cover books, that I bought in the early stages of Kindle owning, and I find I just never get around to reading them.  I have even repurchased a few in ebook form.

[mwb]

I seriously have to question some of the assumptions in the article.

The article says:  

According to publishers, the majority of a book's ultimate sales price pays for intangible costs as well: preproduction (editing, graphic design, etc.), marketing, and author royalties and advances.  Money Magazine found that these three made up about 77% of a hardcover's production costs. By these numbers, a publisher doesn't save much on an e-book over a paper book: about 23% of existing costs. So maintaining the same profit means a fair price for a $27.95 hardcover in an e-book format would amount to $21.50. Imagine how many '9 99 boycott' tags a Kindle book would receive at that price!

But here's the original article he links to which uses John Grisham for its example thus grossly inflates the royalty share and I suspect several of the other costs:

Based on a list price of $27.95

$3.55 - Pre-production - This amount covers editors, graphic designers, and the like
$2.83 - Printing - Ink, glue, paper, etc
$2.00 - Marketing - Book tour, NYT Book Review ad, printing and shipping galleys to journalists
$2.80 - Wholesaler - The take of the middlemen who handle distribution for publishers
$4.19 - Author Royalties - A bestseller like Grisham will net about 15% in royalties, lesser known authors get less.  Also the author will be paying a slice of this pie piece to his agent, publicist, etc.

This leaves $12.58, Money magazine calls this the profit margin for the retailer, however when was the last time you saw a bestselling novel sold at its cover price.  

So let's look at it this way for an ebook:

Pre-production, I suspect this would be less with e-books and even just an average book but let's leave it at:  $3.55
Printing (gone with ebooks) $0
Marketing (majority of published books get next to no marketing so let's go with 1/2 that for an average book and I think I'm being too generous there since I know many a smaller author having to do their own publicity since the publishers can't be bothered) $1
Wholesalers (folks who get the books moved from publishers to retailers - gone with ebooks)  $0
Author Royalties, Grisham is a top of the line author (sales wise) commanding the highest royalties, but let's be generous and say a more realistic figure for an average book is half that:  $2.10

So instead we get:  $6.65 for an average book.

At $9.99  it's a 50% markup.  At the laughable $21.50 the author of the piece quotes it's more than a 200% markup (close to 225%!!) over actual costs for an ebook.  Man what industry wouldn't kill for more than a 200% profit!

I also call foul at their focus on hardbacks, which have overly inflated pricing aimed at folks who want a fancier edition or don't wait for the cheaper paperback.  There's a reason why some books and some publishers bypass ever issuing a hardback version of a book.

A lot of the pricing claims remind me of the early days of CDs when the music industry claimed the same mythical intangibles were why they had to charge $18 + for CDs (despite the cheaper manufacturing costs.)  

[pidgeon92]

A few other things to ponder....

Transportation: The books don't get to the bookstores by themselves.

Taxes: I know I'm not paying any sales taxes on my e-book purchases.

It's hard to breakdown the cost per hardcover, e.g., the pre-production costs are actually fixed, and thus that $3.55 per book is inaccurate. If you sold 100,000 copies and your cost was $3.55 per book, if you sold 1,000,000 copies your cost would come down to 35.5¢ per book.

[askenase13]

One other point which I like to make.  The initial costs of a book (royalty advance, editing, marketing) are not just spread out over the # of hardcovers sold.  They are really spread out over the total # of books sold- hardcover and paperback.  So, that reduces the cost per book.  Yes, you can add some marketing for the PB, and some conversion costs (not very much), and it still comes MUCH closer to $9.99 than $21.95 (which is why the PB is probably only $11.95.  The article is a joke, and totally is misrepresenting the facts.

I will add that I did NOT buy a Kindle to save money- but to read books in a better, moe functional, greener, and more fun way.  (reading on a Kindle DX is cool.)

[Chad Winters]

If the preproduction costs are so high why can they sell paperback books for so much less which have the same preproduction costs?  Are they really sellign paperbacks at a loss for 7.99?

At most they should compare paperbacks to ebooks not hardcovers.

This sounds like a paid advertisement from a publisher. But then the Huff isn't known for accuracy   

[mlewis78]

Good points, everyone.  I think the content of the article is Chip O'Brien's, whose position is Director of Customer Relations for BookSwim.com, Editor of Thorn Magazine.

We're seeing a lot of articles dissing ebook publishing now.  The writers are supporting the status quo and don't like change.

[911jason]

If you guys get a chance, you should sign up over there and post a comment. There was only one comment posted when I just checked and it was very negative. Here it is along with my rebuttal:

The proper price of an e-book: free. See Cory Doctorow for details.

The Kindle will never work. No one wants to carry a huge, single-purpose device around, despite the fact that it can get newspapers or download new titles. Extra reasons:

1. you can already read books on most new phones. I read CC licensed books on my HTC Mogul all the time. Although Acrobat doesn't work very well due to horizontal scrolling issues, plain text documents are fine.
2. Amazon DRM is ridiculous. People want to OWN books, not LICENSE them. Amazon won't even disclose what the DRM does, how strong it is, and what features Amazon reserves (such as the remote deletion feature which we learned about, in a stunning coincidence, from the deletion of 1984)
3. its just not a very good device. From all accounts people hate holding it, the buttons are awkward and get mistakenly hit all the time

Here's my rebuttal:

>The Kindle will never work. No one wants to carry a huge, single-purpose device around

Speak for yourself! I don't want a jack-of-all-trades device, I want a master of one. Lots of "no one"s have made the Kindle Amazon's single best-selling item.

>1. you can already read books on most new phones

Most avid readers will never be satisfied with a back-lit device as their primary form of reading. It causes eye-strain and is uncomfortable for extended reading.

>2. Amazon DRM is ridiculous.

I think this is a lot like iTunes DRM was in the early days, a necessary evil used to lure reluctant publishers to the electronic format. Eventually, I think DRM will go away just as it did on iTunes music.

>3. its just not a very good device. From all accounts people hate holding it, the buttons are >awkward and get mistakenly hit all the time

Absolutely wrong! The Kindle does what it was designed to do exceedingly well. As with any product, I'm sure there are people who disagree, but it's funny that you say "From all accounts..." as there are thousands of avid Kindle users who have said no such thing. The button design you're referring to was the first iteration of the Kindle (which many love as is by the way). There have been 2 models released since that one, 3 if you count the new "international" version of the Kindle 2.

[JimC1946]

A very nice rebuttal, Jason!

[intinst]

Especially doesn't make sense not to sell an ebook, with Jeff Bezos saying that same book sales, ebook and print, the Kindle version now accounts for 48% of the sales. That's jumping from about a third earlier this year.

[FSkornia]

To further the discussion, I want to point out a response blog post by Steve Ross who is a VP at one of the Random House divisions (http://www.huffingtonpost.com/steve-ross/cant-we-all-just-get-alon_b_313641.html).  Ross provides some insight from the publisher's angle at ebook pricing and the financial realities that the publishing houses have to face, especially since many of them are owned by media conglomerates which expect publishing companies to meet expected demands despite some of the unique difficulties publishers have in relation to other industries.

[mwb]

To further the discussion, I want to point out a response blog post by Steve Ross who is a VP at one of the Random House divisions (http://www.huffingtonpost.com/steve-ross/cant-we-all-just-get-alon_b_313641.html).  Ross provides some insight from the publisher's angle at ebook pricing and the financial realities that the publishing houses have to face, especially since many of them are owned by media conglomerates which expect publishing companies to meet expected demands despite some of the unique difficulties publishers have in relation to other industries.

Just an FYI he is former VP - currently unemployed.

Most of the article adds little to the conversation IMO, but I love this quote:

But at a time when it is in the best interests of everyone who loves books to help the major houses endure, they're being scapegoated, demonized and ridiculed for trying to survive with the crippling business model they've been handicapped with for decades.

Wouldn't that be the business model the publishing industry created?  Should they take some responsibility?

And he continues support the somewhat questionable numbers offered in previous article.

[Forster]

E-readers are going to eventually put a huge strain on DTB printing, I suspect we will see many printing houses closing in the next 10 years or so.  Those publishers who embrace e-formats and adjust their business model should survive, those who cling to traditional formats will go the way of the Dodo.

Take a look at digital photography and the film industry, a decade and film is all but dead.

[FSkornia]

Just an FYI he is former VP - currently unemployed.

Most of the article adds little to the conversation IMO, but I love this quote:Wouldn't that be the business model the publishing industry created?  Should they take some responsibility?

And he continues support the somewhat questionable numbers offered in previous article.

Actually if you read the entire byline it says that he is the former President of the Collins Division at Harper Collins and is the {current} Sr. VP at the Crown Division at Random House.

So he's currently employed, just at a different publishing house and has a different title.


While ebooks are not new, they're growth in the public-consciousness the past couple of years has brought a media spotlight to the somewhat hidden (and still relatively arcane) publishing industry.  It's been talked about for some time before this, though, that the publishing business needs to change and adapt to new economic and social pressures that our increasingly mobile and impatient society imparts.  I remember a couple of years ago, before the rise of the recent e-book trend, that the big discussion was Print-on-Demand (POD) kiosks and how they were going to revolutionize the way we bought books.  Instead of going into a bookstore and seeing aisles with shelves filled with paper books, we could sit down at a computerized kiosk that had a database of thousands of books - purchase the one we want and it would be printed up and bound within a few minutes.  The articles at the time talked about having these kiosks in supermarkets (similar to the Redbox kiosks currently available), coffee shops, airports, etc.  In fact, in Flash Forward (written in 1999 but set in 2009), Robert Sawyer wrote that these POD kiosks would be the standard in bookstores - just an interesting little note of how close our future could have been to his predictions, but changed slightly - a major theme throughout this book.

So the publishing companies know that they need to change. They are facing increased competition from the self-publishing industry as well as having to fend off bookstores (who have their own interests) including Amazon and its Kindle at the same time as trying to pull in books and authors that will capture the attention of an ever-dwindling population of readers.

[BTackitt]

With fewer than half of Americans reading regularly (and those readers averaging a modest seven books a year),

Read more at: http://www.huffingtonpost.com/chip-obrien/why-new-books-dont-sell-o_b_311779.html

----------
He needs to see how many we read just in the month of Oct.

[mwb]

Actually if you read the entire byline it says that he is the former President of the Collins Division at Harper Collins and is the {current} Sr. VP at the Crown Division at Random House.

So he's currently employed, just at a different publishing house and has a different title.
...

It doesn't say current in that you're mis-reading it and putting in a mistaken assumption and yes I did actually read  it and understood it.  He also distinctly says

Despite having lost my own job in the recent economic collapse...

I took him at his word.

And if you check his twitter account it distinctly says:

# Bio (former) president and Group Publisher, Collins Division of harperCollins; 9former) Sr VP and Publisher, Crown Division of Random House

 - both jobs are former.

So he currently holds neither job and his currently unemployed.

[FSkornia]

Hmm, you're right, my mistake. That byline can be confusing though - or maybe out of date,

[geoffthomas]

It is good to have more information on this subject.
We have had threads before to discuss the finances involved in books.
And it is good to have more.

Just sayin......

[marianneg]

If the preproduction costs are so high why can they sell paperback books for so much less which have the same preproduction costs?  Are they really sellign paperbacks at a loss for 7.99?

At most they should compare paperbacks to ebooks not hardcovers.

Paperbacks are cheaper because they've already recovered the bulk of the preproduction costs from the hardback run.  Do you really want to wait until the paperback comes out to get the Kindle version?  Seems like some people were pretty upset about that a few days ago...

[Chad Winters]

Paperbacks are cheaper because they've already recovered the bulk of the preproduction costs from the hardback run.  Do you really want to wait until the paperback comes out to get the Kindle version?  Seems like some people were pretty upset about that a few days ago...

But what about all the books that start directly as paperbacks? Do they have less production costs or are they sold at a loss from the start? That was point, many books never have a hardcover version but appear to make money anyway.

For example, genre books by good writers who get royalties and advances still frequently are straight to paperback.

[KindleMom]

I've gotten back to my library habit to supplement my Kindle reading so I don't have to purchase paper books when an electronic version is not available.

I'm reading a lot more since I got my Kindle and at first I was purchasing more books than I had in a long time and for Kindle.  The more I read, the more I found books that weren't released on the Kindle or didn't have TTS.  For those books I also go to my library.  I hadn't been in over a year because it's more than a 30 minute drive away and so that was a big reason I wanted a Kindle to begin with.  But if a book isn't available on the the Kindle, doesn't have TTS or the K version is as expensive or more than the print version, I'm going to use my library.

I don't like DTBs as much as I do my Kindle but I refuse to give into the confines that publishers are putting on ebooks.  I will not conform.  I'm the consumer and if the product is not to my liking, I won't give that company my $$$.

Also, all three of my kids would have ereaders if someone would come out with a kid-friendly version.  I hope Amazon does this first because I'd love to share my books with my kids but if someone else does it, I imagine the entire family will switch to that type of ereader.  And kid-friendly means parental controls.  Their mobile phones have them, their ipods have them, ereaders should have them too.

[911jason]

Also, all three of my kids would have ereaders if someone would come out with a kid-friendly version.  I hope Amazon does this first because I'd love to share my books with my kids but if someone else does it, I imagine the entire family will switch to that type of ereader.  And kid-friendly means parental controls.  Their mobile phones have them, their ipods have them, ereaders should have them too.

I agree that the kid-friendly e-reader is a must!!! However, I don't know how they would ever have any parental controls, at least in regards to content "ratings" if that was your meaning. I think the best kind of parental control is not having a wireless connection so that the child can't download directly to the reader. Then the parents will have to take some responsibility for which books are purchased and downloaded to the device. Definitely food for thought though...

[KindleMom]

I agree that the kid-friendly e-reader is a must!!! However, I don't know how they would ever have any parental controls, at least in regards to content "ratings" if that was your meaning. I think the best kind of parental control is not having a wireless connection so that the child can't download directly to the reader. Then the parents will have to take some responsibility for which books are purchased and downloaded to the device. Definitely food for thought though...

Which would mean no Whispernet.    I am confident this would be a simple thing to add to Kindles - just like folders would be.  I just think there isn't enough market for it or Amazon doesn't think there's enough market for it. 

It took a few years for cell phones to have parental controls but now they do because kids are a huge market for the cell phone industry.  So I think it'll happen in the ereader genre too, especially as more and more children and teen books are released as ebooks.  Many of our favorites are still not available.

In my mind I see the parental controls as part of the content manager or the "Manage Your Kindle" page on amazon.com.  As a parent I could designate which books could show up on my child's content manager and those would be the only ones s/he could download.  And I would be able to turn off web access and purchasing ability.

[911jason]

That would make sense... When I hear parental controls, I automatically think about the "rating" of the content, i.e. PG, R, MA, etc., and I can't imagine that form of control would ever make it to the book world.

[Bards and Sages (Julie)]

Pre-production, I suspect this would be less with e-books and even just an average book but let's leave it at:  $3.55

Actually, your pre-production costs go UP, not down.  For a publisher you are still paying copyeditors, proofreaders, designers, etc the same rate.  But now you are also having to spend additional money creating different formats.  For example, the typical publisher today designs in PDF format because that is the format the printers use.  However, Kindle and most other e-reader sites do not allow you to upload PDFs, or if they do they convert them to be beyond recognition to your original formatting.  So you now how to create a unique ebook format which often requires a duplicate proofreader and designer to make sure it looks right.

Marketing (majority of published books get next to no marketing so let's go with 1/2 that for an average book and I think I'm being too generous there since I know many a smaller author having to do their own publicity since the publishers can't be bothered) $1

1. If a smaller author is doing all of their own publicity, they are published through a hack publisher and not a real publisher.  Just because someone has a website does not make them a real publisher (PublishAmerica, anyone?)  Publishers, real publishers, do in fact have marketing plans for their books. 

2.  Marketing includes, after all, sending out review copies to reviewers (the majority of whom still expect to get a print copy) placing ads in industry publications like BookPages ($400 for a small ad) which are sold in point-of-purchase areas such as Barnes and Noble and distributed to libraries.  You may think books are not being marketed because you don't see ads on TV, but book marketing is a different animal from other forms of marketing and it DOES go on and it does get expensive.  The bulk of marketing of book marketing is done direct to retailers just to encourage them to stock a book.  It can cost upwards of $15,000 just to get front of store space in a bookstore, particularly at holiday season.  And despite the rise of ebooks, most book sales are still generated from bookstores.  Which means publishers cannot afford to stop engaging in this form of publishing.  And in fact, as ebooks become more popularly, these costs will just shift to e-retailers.  After all, why do you think some new releases get front page display space from Amazon and other retailers?  Because the publisher paid for it. 

At the company's mall stores -- B. Dalton, Doubleday and Scribner's -- end-of-aisle, or endcap, displays cost $3,000 a title for one month; a two-month spot in "New Arrivals" costs $2,500, according to the documents.

And at Borders, publishers pay $15,000 to advertise a book with a 30 percent discount in a 1996 pre-Christmas issue of USA Today. This provides top-tier listing in ads and front-of-store display for the month.

[/url]

Wholesalers (folks who get the books moved from publishers to retailers - gone with ebooks)  $0

Again, not true.  The more titles a publisher has, the less likely they are NOT using either a middle man or additional staff to get books in the distribution chain.  Someone has to upload all of those books to the various retailers, and it will either be a wholesaler (like Mobipocket) or a staffer.  Neither is free.

And none of this factors in the non-book specific day-to-day operation costs of staff, accountants, lawyers, etc.  Each book sold has an overhead cost factored in to it.

Yes, the printing, shipping, and warehousing of books are eliminated with ebooks, but they do not account for nearly as much of the bulk of the price as everything else.  And considering that the average book sells 10,000 or less, no publisher could stay in business selling e-books for a couple of dollars. 

And don't forget that the retailers themselves are eating 40-60% of the retail price.  People complain about paying $10 for an ebook, but the publisher often is only seeing half of that.  It is already well known that Amazon is actually losing money per sale of books sold through traditional publishers, because those publishers couldn't afford to take $4-5 a book and still make money.  Meanwhile, way too many self-publishing authors are more than happy to sell their books for $1 and have Amazon pay them 35 cents on the dollar, creating the illusion that all publishers should in fact be able to sell e-books for such low prices.