Analyst: Amazon Is Losing Its Shirt

[Leep]

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

[DMcCunney]

Originally Posted by Boston

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.
______
Dennis

[neilmarr]

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

[Crowl]

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.

[DMcCunney]

Originally Posted by Leep

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.
______
Dennis

[DMcCunney]

Originally Posted by pwalker8

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.
______
Dennis

[DMcCunney]

Originally Posted by Crowl

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.
______
Dennis

[Boston]

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.

[Kali Yuga]

Originally Posted by Boston

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.

[DMcCunney]

Originally Posted by Boston

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.
______
Dennis

[DMcCunney]

Originally Posted by pwalker8

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.
______
Dennis

[Rob G.]

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.)

[rhadin]

Originally Posted by Leep

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.

[rhadin]

Originally Posted by DMcCunney

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.

[markbot]

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.