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Old 02-02-2009, 06:42 AM   #1
Alexander Turcic
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Cheaper e-books will kill us, says publisher

Many of us ponder this burning question why e-books are typically priced the same or just insignificantly less than their paper counterparts. Doesn't common reason dictate that the cost for producing and distributing e-books is considerably lower and that henceforth part of the lower cost should be reflected in a lower price? Well, many of us believe so, including yours truly. Still, it's worth taking a look at how publishers are trying to defend their current pricing policy. Mr. Michael Justus, CEO of a German publisher, gave an interview in a Sunday newspaper yesterday and summed it up like this:

Quote:
The distribution of e-books on download servers is only half the story. In particular for bigger publishers, it requires substantial handwork to process the text and its meta data, to work on the necessary contracts and contract amendments, to analyze download sales, affiliate fees, etc. It requires a technical infrastructure and perhaps even additional full-time staff. (translated)
To support his argument, Mr. Justus made the following points (translated):
  • Beside having to deal with PDF, the conversion into ePub or Mobi causes additional e-book specific production costs.
  • The extra types of costs for production and distribution of e-books are comparable to the already existing types of costs of the traditional book business.
  • The cost of investment in the technical infrastructure is similar to the cost of setting up a warehouse or a distribution system for printed books.
  • It's required to set up a distribution platform for delivering e-books from the bookstores and middlemen to the customer -- and for sending the resulting revenue back to the publisher.
  • It's required to set up a management system for taking care of the metadata.
  • Larger publishers also require their own webstores to make the order processing for wholesale and retail customers easier.
  • Additional operating costs are caused by the required use of data management systems, interfaces, servers, distribution systems, etc.
  • Additional fix costs are caused by the required conversion into specific e-book formats and the indexing of content for full-text searches.
  • Additional variable costs are caused upon the "delivery" of e-books, which requires sales data to be transferred into the sales and accounting systems of publishers, and fees to be paid to the authors and licensors. The cost for keeping the reproduction and distribution of e-books under control is at least as high as the variable cost of printing, paper, binding and delivery in the traditional book business.
  • Scenario calculations (Edit: done by Mr. Justus) have shown that a number of conditions must be fulfilled so that the gross margin of e-books is equivalent to the gross margin of the corresponding book titles. If the gross margin of e-books is systematically below the gross margins of paper books, from which we currently live, we should better avoid e-books.
  • Since we have to assume that any e-book sold replaces a printed book (Edit: Bezos, do you hear this?), we would have to be able to generate the same margins from the sale of e-books; otherwise, a successful e-book business could lead to publishers going out of business.
  • We can only meet conditions for generating similar gross margins if prices for e-books don't go below prices of paper books, if actually fewer discounts are offered, and if the fee rates (contrary to initial claims by the authors) don't exceed 20% of net revenue.
  • Many expect that e-books should be sold cheaper than printed books. The manufacturers of e-book readers, for example, would be quite happy to use it as a sales argument for the marketing of their (probably quite expensive) devices. Accepting this point of view would be equivalent to suicide from fear of death for the publishers.

Wow. This interview is not for the faint of heart. Anybody care to bite at this?

Related discussions: Why is the price of eBooks still so high?, Outrageously Priced Ebooks- Does anyone actually by them?, Ebooks high prices - the reasons beyond
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