From http://www.tbiresearch.com/e-readers-should-drive-profits-for-both-distributors-and-book-publishers-2009-11


Wall Street can't help itself.

With all the buzz around e-readers, analysts expect big numbers out of hardware sales and e-book consumption. While hardware sales may experience huge growth in the coming years, we believe many underestimate the losses companies like Amazon will need to weather before selling e-books becomes a meaningfully profitable business.

Currently companies like Amazon lose about $2 for every e-book (we discuss this below). So, if it sells one million e-books the company loses about $2 million.

Analysts keep one-upping each other with forecasts of profits in 2012-2014. What they aren't telling you is that this will require publishers to radically reduce the prices at which they are selling e-book licenses.

Will this happen?

It should. Publishers should move to a high-volume model where they sell more units for less. But "should" is very different from "will."
In any event, in order for the e-reader market to thrive publishers must lower their wholesale prices so that distributors can turn a reasonable profit. We believe that if the price is lowered enough publishers may earn less per unit, but could ultimately earn more in overall revenue and profit through a greater number of sales. This, of course, benefits the e-book distributors as well.

...

The marketing strategy will make sense in the long run if what they're doing is to first get everyone acclimated to the convenience of e-readers, then raise the prices of e-books.

"Losing its shirt"? Horsepucky.

Am I the only one that remembers that "We'll make it up on volume" was Amazon's business strategy during the early years when it wasn't turning a profit? It worked then; why shouldn't it work now?

If a paperbook sells for $25 which includes paper, cover, printing, shipping, overstock and point of purchase personnel and an ebook sells for $9.99, how can they possibly be losing money on the ebook which is on demand and only uses an existing website?

Cannot understand the economics unless every paper book sold also loses money. Publishers (and Amazon) cannot be that dumb that they would agree on an unrealistic price that the market has indicated it will not pay. Maybe a couple of publishers and a couple of authors will try to hold out, but if you can deliver and sell a product for a profit, that's good business.

cheers

"Losing it's shirt"? Horsepucky.

Am I the only one that remembers that "We'll make it up on volume" was Amazon's business strategy during the early years when it wasn't turning a profit? It worked then; why shouldn't it work now?

No, I remember it well. It's been their model since day one. The .com boom helped keep them afloat during the many years before their first profit. This time, though, they're in the position to fund the bottom end of the curve themselves.

It's a common marketing strategy, they'll take losses while people snap up 10'000 Kindles per week after seeing the low book prices.

Eventually they will shift prices to a less extreme level, but for now Kindle users can just enjoy the price war.

It may be the case that Amazon is loosing $2 on bestsellers, but it isn't loosing money on backlist ebooks or on specialty categories and these are a substantial fraction of total ebook sales. In any case, as others have said, Amazon can afford to loose money on ebooks for years if necessary to gain market share. However, I'm not sure they would be willing to do this now that a large fraction of sales are presumably going to iPhone or Kindle for PC readers. Amazon's margins on the Kindle 2 and DX have to be much higher than 20% given that they are selling direct.

My best guess is that Amazon is making a huge profit on Kindle hardware and are close to breaking even on ebooks.

It may be the case that Amazon is loosing $2 on bestsellers, but it isn't loosing money on backlist ebooks or on specialty categories and these are a substantial fraction of total ebook sales. In any case, as others have said, Amazon can afford to loose money on ebooks for years if necessary to gain market share. However, I'm not sure they would be willing to do this now that a large fraction of sales are presumably going to iPhone or Kindle for PC readers. Amazon's margins on the Kindle 2 and DX have to be much higher than 20% given that they are selling direct.

My best guess is that Amazon is making a huge profit on Kindle hardware and are close to breaking even on ebooks.

My thoughts exactly. 92k of the 350k Kindle titles available on Amazon.com are priced above 9.99, so Amazon might not be losing as much money as the original study suggests.

It may be the case that Amazon is loosing $2 on bestsellers, but it isn't loosing money on backlist ebooks or on specialty categories and these are a substantial fraction of total ebook sales.

Same goes for books now in paperback. I notice the Kindle price often doesn't drop once the book is in paperback..and if it does it's only by a dollar or two. Once it hits mass-market paperback, it will drop more but only usually the savings is minimal (and at times none at all).

I've had a few incidents where I've wanted a book that was in paperback but refused to buy because the Kindle price was higher.

Amazon hold a monopoly on Kindle books - they have no reason to price them much more cheaply than the paper equivalent, they will set the price to that which the market will sustain. Amazon and the publishers will want the e-book and the paper copy to produce much the same revenue. A business model which when you purchased a paper copy the e-book was included for a small extra fee would produce the most profitable revenue stream as they effectively sell you the same thing twice albeit at a discounted rate.

If a paperbook sells for $25 which includes paper, cover, printing, shipping, overstock and point of purchase personnel and an ebook sells for $9.99, how can they possibly be losing money on the ebook which is on demand and only uses an existing website?

Cannot understand the economics unless every paper book sold also loses money. Publishers (and Amazon) cannot be that dumb that they would agree on an unrealistic price that the market has indicated it will not pay. Maybe a couple of publishers and a couple of authors will try to hold out, but if you can deliver and sell a product for a profit, that's good business.

cheers

You are missing the basic economics of book publishing. If the paperbook has a suggested publisher's price of $25, Amazon has to pay the publisher $12.50 (maybe a little less or a little more depending on the negotiated discount) for each copy of the book that it sells -- REGARDLESS of the price at which Amazon sells the book. Thus if Amazon sells the book for $15, it grosses $2.50 in profit; it sells the book for $10 is has a loss or $2.50.

The same holds true for an ebook. It doesn't matter that the ebook has no paper costs or warehousing costs or some other cost that is associated with a physical item. If the publisher sets a retail price of $25 for the ebook, then Amazon is in the same boat as if it were a physical book and if Amazon sets the price at $10, it loses $2.50.

Remember, Amazon pays a wholesale price that is a percentage of the publisher's retail price; Amazon does not set the publisher's price.

If a paperbook sells for $25 which includes paper, cover, printing, shipping, overstock and point of purchase personnel and an ebook sells for $9.99, how can they possibly be losing money on the ebook which is on demand and only uses an existing website?
Easy: what did the ebook cost to produce?

Having a book in electronic format cuts manufacturing, warehousing, and distribution costs. It does not reduce the cost to acquire and produce the book in the first place, and those can be substantial.

When a book is published, it must first be acquired. An editor will read a manuscript, decide the book has potential, and choose to buy it. The publisher will negotiate with the author or author's agent and if successful, will agree on a price to license the right to publish the book. The price will be paid as an advance against royalties, and how large the advance is will be determined by the publisher's best guess of how well the book will sell. If the book sells enough copies to cover the advance, it is said to have "earned out", and further sales will generate royalties for the author as specified in the contract.

Once a manuscript has been acquired, it must be prepared for production, including line edits by an editor intended to improve the overall quality of the manuscript, and copy editing and proofreading. Once a final form of the manuscript has been agreed upon, it must be marked up and typeset to produce the files which will go to the printer and/or become an ebook. And a cover must be designed and commissioned.

The book will also be charged with an allocated share of general corporate overhead: rent on office space, telephone bills, utilities, salaries of other publishing house employees not directly involved in acquiring and publishing the book...all of which are incurred whether or not the book ever gets issued, in paper or electronic form.

The mere fact that it's an ebook doesn't make those costs go away, and the amount it costs to acquire and prepare the book will tend to set a lower limit on the price that will be charged. Pricing cheap and making it up on volume only works if there is significant volume for a particular title, and price is only one factor in demand.

Some books will sell better than others. A new Dan Browne book may be confidently expected to sell hundreds of thousands of copies. A first novel by a new author may be confidently expect to sell a few thousand copies, if all concerned are lucky, and if all concerned are really lucky, sell enough to make the publisher receptive to acquiring future books from the author.

Being in electronic form won't magically that first novel a big seller, nor will a cheaper price. The book is competing not only for your dollars, but for your time, and if it's not a book you want to read, it doesn't matter what the price is.
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Dennis

I would imagine that as the e-book market strengthens, Amazon and other e-book stores will be in a position to start pushing back on the publishers putting prices more in line with what the consumers are willing to pay, kind of like what happened with music industry and Apple. It may take a couple of years, but Amazon has the money to stay with it.

I also think that Amazon is a lot more interested in the sale of e-books than they are in the sale of kindles. I would not be terribly surprised to see the kindle get spun off as a separate company at some point.

I have read that many authors expect the old publishing model (authors getting advances, etc..) to go by the wayside as e-books become more popular. Part of the reason for the advances is the long lead time from the time is complete to when it hits the stores. That is mostly because there are only a few printing companies (i.e. publishers don't actually own the printing presses as it were), so there is always a backlog. While there will still be a need for editors, and I can see value in publishers who select and market certain types of books, especially for new authors, I think a lot of the current expenses will go away.

The bottom line is that the price has to match what people are willing to pay, not what the publishes want to charge.

Amazon hold a monopoly on Kindle books - they have no reason to price them much more cheaply than the paper equivalent, they will set the price to that which the market will sustain.

My point was that while they may be losing money on hardcover bestsellers, I believe they are easily making it up in other areas.

Agreed that the price for acquiring the book, editing and preparing the book for distribution do not change. However, printing and distributing and physically selling the book are a substantial investment (and risk) per book unit unless you are sure that the book will be a best seller and can mass produce. Comparatively, the cost of selling and distributing an ebook is modest.

Why would a publisher not sell the ebook version for substantially less when his real costs are substantially less? It's almost like publishers expect ebooks sales to help subsidize paper book sales.

cheers

My point was that while they may be losing money on hardcover bestsellers, I believe they are easily making it up in other areas.
Likely. Most retailers have "loss leaders", where they price low enough that they will lose money, but count on making it up in other sales made at the same time. The point is simply to get the customer into the store.
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Dennis

My first naughty word on any forum ... bollocks!

At this point, amazon's main concern is market share, they won't mind losing a bit of money on bestsellers since each book somebody buys makes them that much less likely to change to a different make of reader.

Agreed that the price for acquiring the book, editing and preparing the book for distribution do not change. However, printing and distributing and physically selling the book are a substantial investment (and risk) per book unit unless you are sure that the book will be a best seller and can mass produce. Comparatively, the cost of selling and distributing an ebook is modest.
Well, once the electronic infrastructure is in place it is.

Why would a publisher not sell the ebook version for substantially less when his real costs are substantially less? It's almost like publishers expect ebooks sales to help subsidize paper book sales.
My point was simply that there is a lot of unrealistic thinking about ebook pricing. There are costs involved that don't go away simply because you are producing an ebook. And you price to cover your costs, so an ebook will priced to at least recover what it cost to produce the book, plus make some money for the publisher. How low you can price the book will depend on what it cost to produce and how many copies you expect to sell.

And if you are a publisher doing paper and electronic versions, you don't want to cannibalize your own market. You can theoretically price ebooks cheaper than paper editions, but you want to make the best possible margins.

You can price ebooks really cheap and make volume, at the expense of cutting into sales of paper books where you may make more money per copy sold, and ultimately reduce your total revenues on the title. This is not what you want.

But yes, some publishers are equally unrealistic about ebook pricing. Failing to understand why the buyer might balk at an electronic edition priced higher than the mass market paperback when the buyer knows perfectly well your costs are lower is a regrettably common example.
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Dennis

I have read that many authors expect the old publishing model (authors getting advances, etc..) to go by the wayside as e-books become more popular. Part of the reason for the advances is the long lead time from the time is complete to when it hits the stores. That is mostly because there are only a few printing companies (i.e. publishers don't actually own the printing presses as it were), so there is always a backlog.
Yes, book publishers don't own presses. The contract out to printers who manufacture the books. Some magazine publishers were also printers - Curtis Publishing (The Saturday Evening Post, among others) once had its own plant - but book publishers were not.

But it's a bit more complicated than that, because you have retailers and publishing schedules in the mix. Most publishers produce a certain number of titles per month to distribute to the retail channel.

While there will still be a need for editors, and I can see value in publishers who select and market certain types of books, especially for new authors, I think a lot of the current expenses will go away.
Really? What expenses do you expect to go away, and why?

Don't expect advances to go away. A new author will be expected to submit a complete manuscript, simply as proof that she can finish a manuscript.
Experienced authors with track records generally submit proposals consisting of an outline for the book and several sample chapters. The book is sold based on the proposal, and a contract is issued with part of the advance. The other part of the advance is tendered when the finished manuscript is turned in. (The author has to live one something while completing the book.)

The bottom line is that the price has to match what people are willing to pay, not what the publishes want to charge.
The price has to at least cover the costs and make some money for all concerned, or the book doesn't get published.
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Dennis

At this point, amazon's main concern is market share, they won't mind losing a bit of money on bestsellers since each book somebody buys makes them that much less likely to change to a different make of reader.
With the Kindle app for the iPhone, and the one announced for Windows, they may not care about that, either. Amazon wants to sell ebooks. It's a perfect fit for them, because they were already the dominant retailer in paper books, and had the catalog and order processing infrastructure in place. With ebooks, they can use what they already have, but don't have warehousing and distribution costs.

I think they are making money on the Kindle, but I think it's really about the books and not the ereader hardware.
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Dennis

Dumb question...

If the publishers are making as much on e-books as p-books (with the sellers taking the loss on e-books), why the delays in releasing e-book version for many recent bestsellers? It's not like having it in paper only is preventing illegal e-versions from being released.

If the publishers are making as much on e-books as p-books (with the sellers taking the loss on e-books), why the delays in releasing e-book version for many recent bestsellers?
1) Although the article has some minor errors, there is a lot of expectation (which predated this article) that Amazon and other retailers will try to force publishers to reduce the wholesale prices on ebooks. In which case, in theory the publishers will end up making less money. (The precise effects are actually unknown, as people may use the savings to buy more books -- but could also spend that money on other items, or just not spend it.)

2) Publishers do not want the perception of the price of a book to permanently decline. They want to preserve the value of what they offer.

3) Margins in the book industry are pretty thin. (The analysts' figures are most likely off, as it's pretty well understood that most books don't break even, let alone turn a profit.) Naturally, the publishers are concerned about the potential threats of a disruptive technology like ebooks, just as they were concerned about print on demand, online book sales, various consolidations (including B&N's attempt to merge with Ingram), audio books, paperbacks etc.

Dumb question...

If the publishers are making as much on e-books as p-books (with the sellers taking the loss on e-books), why the delays in releasing e-book version for many recent bestsellers? It's not like having it in paper only is preventing illegal e-versions from being released.
Publishers want to make as much as they can, so timing is critical. An editor at Tor Books, for example, spoke a few years back about realizing it wasn't a good idea to remainder unsold hardcover copies of the last Robert Jordan Wheel of Time novel just as you were releasing the mass market paperback copy of that volume, because the retailers might sell the remaindered HC version for less than the PB...

I think publishers delaying ebook releases are doing so for the same reason they normally release a mass market paperback edition up to a year after the hardcover: they don't want to compete with themselves and cannibalize their own market.

The question is how many buyer only want an ebook edition, wouldn't buy a paper volume in any case, and are simply annoyed by the delay. I don't know. Nor do the publishers, which is why they are still groping for a coherent strategy.
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Dennis

I would imagine that as the e-book market strengthens, Amazon and other e-book stores will be in a position to start pushing back on the publishers putting prices more in line with what the consumers are willing to pay, kind of like what happened with music industry and Apple. It may take a couple of years, but Amazon has the money to stay with it.
It's not clear how much influence Amazon will have. Publishers set wholesale prices they charge to distributors and large retailers. Amazon's leverage will be refusing to stock ebooks if they don't get the price they want. The question is how big an impact that will have on the publisher. Unless the market gets a lot larger and more robust, I suspect most publishers will say "Fine, don't stock the ebook. We aren't lowering our wholesale price."

I also think that Amazon is a lot more interested in the sale of e-books than they are in the sale of kindles. I would not be terribly surprised to see the kindle get spun off as a separate company at some point.
I concur on this. Amazon is the 800 lb gorilla of retailing. eBooks are a perfect fit them, as they already have the order processing and distribution infrastructure in place. But with ebooks, there is no physical inventory to warehouse or ship, so the corresponding costs aren't there.
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Dennis

The book industry is determined to make the same mistakes the music industry did. As eReaders and eReading become more accepted, piracy will also increase. They can either get infront of it and make eBooks cheap enough and convenient enough that a large majority of customers won't bother pirating, or they will try to hang on to a dying business model and allow the pirates to fill the void. The smart publisher would realized the current system's days are numbered and figure something out, but I'd imagine they'll fight tooth and nail to protect something that's already gone, insuring they have to play catchup in the new model (and they probably never will.)

Why would a publisher not sell the ebook version for substantially less when his real costs are substantially less? It's almost like publishers expect ebooks sales to help subsidize paper book sales.

I can still remeber the days when Hondas and Toyotas were the must have cars and dealers were selling the cars on preorder (not from lot) at manufacturer's suggested retail price plus 10%-15%.

No seller of goods will sell the goods based solely on the seller's costs. A seller's costs are the minimum, not the maximum or the set price. Thus publishers, like other sellers, will sell ebooks for the maximum price that they can for as long as they can -- just like everyone else.

It's not clear how much influence Amazon will have. Publishers set wholesale prices they charge to distributors and large retailers. Amazon's leverage will be refusing to stock ebooks if they don't get the price they want. The question is how big an impact that will have on the publisher. Unless the market gets a lot larger and more robust, I suspect most publishers will say "Fine, don't stock the ebook. We aren't lowering our wholesale price."

Five years ago a threat from Amazon such as the one you pose would mean lower prices because Amazon was a major outlet. But today the scene is different. etailers come and go because etailing is easy to set up -- just look at the number of new ebookstores that have been announced in recent months here on MR alone -- and because there are now, thanks to the Internet, multiple other outlets for the books. A publisher could just as easily sell direct or through an Asian or European ebooktailer as through Amazon.

Five years ago, warehousing was a major concern because pbooks have to be stored somewhere and warehousing incurs cost; thus, the need to placate Amazon. ebooks, OTOH, have no warehousing costs so a publisher doesn't need Amazon as an outlet if Amazon gets too demanding -- and I think publishers are wiseing up to this, as evidenced by their starting to think of producing their own ebook devices and platforms and their settling on the ePub format.

Also remember that when Amazon puts the squeeze on publishers, it really has to put the squeeze on the big publishers, the Random Houses and Hachettes, not on the small indies. It is the big publishers that will set the standard. But as it squeezes the Randoms and Hachettes, they may well squeeze back -- Amazon needs product as much as publishers need outlets; perhaps in thsi "war" the publishers, as the content providers, are in a more powerful position than Amazon if they get their act together.

Amazon and Apple make the money on the device not on the consumable currently. This is the reverse of the razor blade model. The key difference is that the consumable is digital and is pirated....thus the price expectations are low on the book/music. Another difference is that AMazon doesn't control the content....so it wants the content cost to be as low as possible so it can sell devices. I think in the future, that Amazon will in fact start making money on selling the actual ebooks.

In video games. Microsoft and Sony have control over content and extract a $10 fee per game....this is why they follow the razor blade model.

I find I am looking at Amazon a lot more since I got my kindle. And since I joined Amazon Prime, with no shipping and no tax, I buy everything there. $6 oventemp gauge? I couldn't get in the car and drive to the store for that amount. And there is no guarantee they would have it that cheap.

See No, Amazon Does NOT Lose $2 Per Kindle Book Sold (http://www.munseys.com/technosnarl/?p=913) for a detailed summary of where Amazon makes money on ebooks. Only Amazon knows is what percentage of sales are in each category, but Amazon has said that backlists (for example) are a very significant fraction of sales.

"Losing its shirt"? Horsepucky.

Am I the only one that remembers that "We'll make it up on volume" was Amazon's business strategy during the early years when it wasn't turning a profit? It worked then; why shouldn't it work now?
If they're losing money on each sale then they can't 'make it up on volume'. The more they sell, the more they lose. The 'make it up on volume' only works when the price of acquisition drops with increasing volume. That might be the case with ebooks, but not according to the article-it says they're losing money on every sale. And there's no way to make it up on volume if that's true.

If a paperbook sells for $25 which includes paper, cover, printing, shipping, overstock and point of purchase personnel and an ebook sells for $9.99, how can they possibly be losing money on the ebook which is on demand and only uses an existing website?

Cannot understand the economics unless every paper book sold also loses money. Publishers (and Amazon) cannot be that dumb that they would agree on an unrealistic price that the market has indicated it will not pay. Maybe a couple of publishers and a couple of authors will try to hold out, but if you can deliver and sell a product for a profit, that's good business.

cheers
Easy. If the cost to Amazon is $15 then they're making a $10 profit on the paperbook while losing $5 on the ebook. Remember that they have no more right to produce multiple copies of the ebook than you do. (That should probably include 'without payment' as I'm sure they actually do produce the copies themselves, but they're required to pay that hypothetical $15 for each copy they produce, no matter what they sell it for.)

My point was simply that there is a lot of unrealistic thinking about ebook pricing. There are costs involved that don't go away simply because you are producing an ebook.

However, if the pbook is being simultaneously produced, those costs are part of an existing business model. Dan Brown's ebook costs are marginal (price of doc conversion & editing, if any, plus a bit of IT/uploading costs), because the advance, edit, proof & marketing costs were assumed to be included in the pbook publication.

Books that go to ebook *only* have substantial costs that many people overlook; books that are being printed by mainstream publishers are almost-free revenue sources added to an active marketing arrangement.

The hard part is convincing the publishers that each ebook sale doesn't represent a lost hardcover sale.

However, if the pbook is being simultaneously produced, those costs are part of an existing business model. Dan Brown's ebook costs are marginal (price of doc conversion & editing, if any, plus a bit of IT/uploading costs), because the advance, edit, proof & marketing costs were assumed to be included in the pbook publication.
Save that you really can't allocate all of the costs to the paper version, and decide you get the ebook free. (Well, you can, but from an accounting stand-point, you shouldn't.)

Books that go to ebook *only* have substantial costs that many people overlook; books that are being printed by mainstream publishers are almost-free revenue sources added to an active marketing arrangement.
Using that logic, you can argue that paper books should be priced cheaper, because ebooks provide a broader base over which to allocate the costs. I don't see any publisher buying the argument, though you are welcome to make it to them.

The hard part is convincing the publishers that each ebook sale doesn't represent a lost hardcover sale.
Especially when it might very well be a lost hardcover sale? :p

I see publishers delaying release of ebook editions for the same reason they don't issue the mass market PB at the same time as the hardcover. Some folks specifically want the hardcover. Others want the book now, and will pay a premium for the hardcover edition to get it, but would not pay the premium if the PB edition was available at the same time.
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Dennis

See No, Amazon Does NOT Lose $2 Per Kindle Book Sold (http://www.munseys.com/technosnarl/?p=913) for a detailed summary of where Amazon makes money on ebooks.

Hahaha, that blog post is ridiculous. Yeah, I'm sure Kindle books are making money for Amazon on some small-press, long-tail works, but the guy himself admits that when it comes to the majors, "The really big guys–Random, Hachette, S&S. Here, Amazon is supposedly losing money. And they probably are in some cases." Guess what? The majors are what count and represent the vast majority of Amazon's throughput. Doh!

If anyone thinks that Amazon's profits are founded on older works and small-press runs that are lucky to sell a few thousand of any particular title in a year, then I have a bridge to sell you.

Actually, Amazon's Q3 earnings were in the plus range. Apparently the departments that sell the Kindle devices (electronics) and the ebooks (included in with regular books) both increased sales and profits. It's not a substitute for hard numbers, but it is reasonable to assume that they aren't losing money hand over fist on the Kindle.

You also have to keep in mind that some paper bestsellers are also loss-leaders, and that Amazon does make a big chunk of sales on "The Long Tail" (all the less popular books that you usually can't get at your local book shop). Plus Amazon eats the cost on a lot of shipping, either via Prime or to encourage you to buy More Stuff with each order. So although it's extremely difficult to know for certain, the situation probably isn't nearly as different from their paper business we might think.

Hahaha, that blog post is ridiculous. Yeah, I'm sure Kindle books are making money for Amazon on some small-press, long-tail works, but the guy himself admits that when it comes to the majors, "The really big guys–Random, Hachette, S&S. Here, Amazon is supposedly losing money. And they probably are in some cases." Guess what? The majors are what count and represent the vast majority of Amazon's throughput. Doh!
Nope. Amazon may well lose money on some major publisher titles. "Loss leaders" are standard practice in retailing. You set an artificially low price on a popular item, where you do in fact lose money, because the object is to get the customer into the store. Once there, you are betting you can sell them other things at a margin that more than covers your losses. You may rest assured Amazon is not losing money on all major publisher titles.

Major publishers are peeved at Amazon's pricing, and several have announced plans to delay ebook releases because of it. They'd like ebooks to be priced higher and give them a bigger margin, because their costs to produce ebooks are lower. Amazon has countered by offering even lower prices on some ebook titles.

At some point, I hope the major publishers will figure out that most buyers will balk at a price on an ebook higher than the cost of a mass market paperback, because the customers certainly understand the publisher's costs are lower with ebook editions. Meanwhile, this reminds me of the tempest in a teapot a while back where various major music labels were threatening to stop selling through Apple's iTunes store - they wanted Apple to charge a higher price and give them a bigger cut. The old fable about the goose and the golden eggs comes to mind...
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Dennis

You are missing the basic economics of book publishing. If the paperbook has a suggested publisher's price of $25, Amazon has to pay the publisher $12.50 (maybe a little less or a little more depending on the negotiated discount) for each copy of the book that it sells -- REGARDLESS of the price at which Amazon sells the book. Thus if Amazon sells the book for $15, it grosses $2.50 in profit; it sells the book for $10 is has a loss or $2.50.

The same holds true for an ebook. It doesn't matter that the ebook has no paper costs or warehousing costs or some other cost that is associated with a physical item. If the publisher sets a retail price of $25 for the ebook, then Amazon is in the same boat as if it were a physical book and if Amazon sets the price at $10, it loses $2.50.

Remember, Amazon pays a wholesale price that is a percentage of the publisher's retail price; Amazon does not set the publisher's price.

I know you are just spit balling here but having once been in the book business...no seller pays 50% of cover price...a seller like Amazon pays 30% MAX probably more like 20-25%. I used to pay 30-40% in the late 80s. And i was a lower volume seller at around $200k/yr in wholesale purchases spread aorund 4-6 publishers.

So I see no chance they are losing, even on best sellers. Maybe breaking even on best sellers considering overhead.

I know you are just spit balling here but having once been in the book business...no seller pays 50% of cover price...a seller like Amazon pays 30% MAX probably more like 20-25%. I used to pay 30-40% in the late 80s. And i was a lower volume seller at around $200k/yr in wholesale purchases spread aorund 4-6 publishers.

So I see no chance they are losing, even on best sellers. Maybe breaking even on best sellers considering overhead.
We have also seen experiments in recent years with lower prices to retailers for a different reason. Publishing has historically been a 100% returns business, where any unsold books could be returned for full credit. In most other retail lines, the retailer is expected to know what will sell to their market and returns will be limited. If the retailer guesses wrong, they eat the cost of unsold goods. Publishers are experimenting with deals that give retailers lower wholesale prices in exchange for lower returns. If they take the lower price option, they can't just return anything unsold for credit.
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Dennis

I don't have any problems with the idea of publishers wanting to protect hardcover sales by not offering ebooks at mass market paperback prices as soon as the hardcover comes out.

What I have a problem with is publishers selling ebooks for significantly more than mass market paperback prices when the mass market paperback is available.

I don't mind the idea of paying hardcover prices (by which I mean the prices to which new hardcovers are discounted online) for ebook versions of hardcover bestsellers that are released simultaneously, so long as I have the same option I do with dead tree of waiting for the paperback release so I can buy it cheaper and knowing the price will come down if I do.

However, if the pbook is being simultaneously produced, those costs are part of an existing business model. Dan Brown's ebook costs are marginal (price of doc conversion & editing, if any, plus a bit of IT/uploading costs), because the advance, edit, proof & marketing costs were assumed to be included in the pbook publication.

My experience is that it is preplanned to do a p and an e version and that the costs are spread over expected sales of both, not just over the pbook.

The hard part is convincing the publishers that each ebook sale doesn't represent a lost hardcover sale.

Very true. The difficulty is that publishers do not divide the market into its component parts -- hardcover buyers, paperback buyers, and ebook buyers. Although there is some overlap in the sense that a hardcover buyer may also buy a paperback and/or an ebook, for the most part people tend not buy outside their preferred format. Thus a hardcover buyer will continue to buy hardcover even if the paperback or the ebook are also available. Price is not the consideration, esthetics and preferences are.

In my own case, I buy nonfiction in hardcover only, very rarely in ebook, and never in paperback. Fiction I buy only certain authors in hardcover and never buy them in either paperback or ebook, but the bulk of my fiction purchases are ebook. If it isn't in ebook, with the exception of a handful of preferred authors who I buy in hardcover, I simply do not buy the fiction book.

My wife, OTOH, buys paperback and only occasionally in hardcover and never in ebook. She dislikes the weight of the hardcovers and is only marginally interested in ebooks and thus doesn't have an ebook device.

In speaking with neighbors and relatives about their bookbuying habits, the scenario repeats itself; that is, they have their preferences and rarely deviate from them.

My experience is that it is preplanned to do a p and an e version and that the costs are spread over expected sales of both, not just over the pbook.
Which is the correct way to look at it, from an accounting standpoint.

Very true. The difficulty is that publishers do not divide the market into its component parts -- hardcover buyers, paperback buyers, and ebook buyers. Although there is some overlap in the sense that a hardcover buyer may also buy a paperback and/or an ebook, for the most part people tend not buy outside their preferred format. Thus a hardcover buyer will continue to buy hardcover even if the paperback or the ebook are also available. Price is not the consideration, esthetics and preferences are.
Yep. People sensitive to price get the trade paperback or mass market paperback edition, and are willing to wait to get it.

Interestingly, hardcovers seem to be an increasingly large portion of books sold, with mass market editions often struggling. I've heard reports of MMPB editions with press runs of 15,000 copies, which would have been unthinkable not that long ago, and leaves me wondering is the publisher is doing more than covering direct costs.

In my own case, I buy nonfiction in hardcover only, very rarely in ebook, and never in paperback. Fiction I buy only certain authors in hardcover and never buy them in either paperback or ebook, but the bulk of my fiction purchases are ebook. If it isn't in ebook, with the exception of a handful of preferred authors who I buy in hardcover, I simply do not buy the fiction book.

My wife, OTOH, buys paperback and only occasionally in hardcover and never in ebook. She dislikes the weight of the hardcovers and is only marginally interested in ebooks and thus doesn't have an ebook device.

In speaking with neighbors and relatives about their bookbuying habits, the scenario repeats itself; that is, they have their preferences and rarely deviate from them.
I'm a bit more diverse. There are both fiction and non-fiction I buy in hardcover, and I'll take most things as ebooks. The big exception will be things like coffee table art books - those don't translate well to electronic editions, due to small screen sizes and thinks like lack of color support in current generation readers.

I'm not normally concerned with the weight of hardcovers because I don't usually carry them around. In fact, I've been gradually replacing some paperbacks with hardcover editions for durable reading copies. If I'm traveling, hey, that's what ebooks are for...
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Dennis