Why do many e-books cost more than paperback?

[Bob Russell]

2. Fixed costs warp e-book pricing due to low sales volumes

Certainly it is true that if the volume of e-books sold is very small, then the fixed costs of preparing an e-book, and the costs of the whole sales and production infrastructure, are going to have a greater impact on the cost of each e-book until they become more popular. And it's the famous catch-22, because they won't get popular fast if they are more expensive than paperbacks.

However, most people find it hard to believe that even these market dynamics are a root cause. First of all, it is not likely that the cost per book is much higher for an e-book sold over a web store in modest quantities than a paperback sold in large quantities, but requiring physical printing and distribution. Even if the e-book sales are so small as to create a cost issue, one would expect that the promise of future business would make it worth the effort.

More importantly, if the fixed costs were really the driving factor, we would see popular e-books priced very low and niche market e-books priced very high. I don't believe we are seeing that.

3. Publishers are just being cautious

Most people realize that e-publishing is going to be a large part of the future market. Publishing executives are also understanding that inevitability. But just as a swimmer first cautiously dips only a toe into cold water before diving in, publishers are approaching the e-book market carefully. They don't want to find that they've committed themselves to technology or market pricing that they will have to live with in the long term. Instead, they want to explore carefully the marketplace, feeling they have something like a monopoly on their particular content, and hoping to evolve slowly into a profitable revenue model for the market.

The danger, of course, is that if they move too slowly, they may missed out. The business landscape is full of fallen giants that have lost their market dominance because they were afraid to aggressively reinvent their business because they were more interested in holding on to, and not disrupting, a withering revenue stream from old technology. Yet publishers may not worry about this because they are so convinced that they have monopoly over their content - no one else can legally publish their material, so they may feel that they can dictate the market approach and time line with impunity.

4. Demand is very "price inelastic"

Actually, I'm not sure I've ever heard anyone mention this, but anyone that's taken Econ 101 should realize that it is quite relevant here. When we say that demand is price inelastic, what we really mean is that buyers are not very sensitive to e-book prices. So why would I say that?

We need to remember that e-book buyers are somewhat locked into particular formats. If you have a Sony Reader, you aren't going to buy a MobiPocket formatted e-book. If you have a Pocket PC, you aren't going to buy a BBeB formatted e-book. If you have an eBookwise reader, you aren't going to buy MSLit formatted e-books. So, the point is that you have limited opportunities for substitution.

But one can always just go buy a paperback at Amazon, right? Well, yes you can, but I would be surprised if e-book fans do that. Probably e-book buyers in this early adoption phase have decided that they like e-books and that's the way they prefer to read.

If you have spent $350 or more on an e-ink reading device, you probably aren't going to have too much of an issue about spending an extra couple of dollars to get the e-book version. Sure, there will be a lot of complaining that it isn't fair, and maybe some of those books will be avoided on matter of principle, but in actual fact, the price is not going to be as great a factor in the purchase choice.

As long as e-books are not the popular way to read, nor the easy way to get and read a book for the average person on the street, we will find that e-book buyers are those that really, really, really want to read an e-book rather than paper. That is what drives the purchase decision most, not price. As we pointed out, price can already be ruled out to some degree because of the large upfront monetary cost and steep learning curve to even get started.

Final Thoughts

We should point out that there really are some e-books that are priced lower than paperbacks. Sony has had some success at the Connect store in working with publishers to keep prices slightly discounted below paperback and other e-book sellers for a number of their books. And readers are going to be discovering more and more the amazing riches of public domain books, such as the nicely formatted free classic e-books available at MobileRead.

But, do these points really explain e-book pricing? There really doesn't seem to be a good consensus. When pushed to give an explanation for e-book pricing, these points seem to make for a reasonable answer. But they don't really seem satisfying. To get the real scoop, one probably has to get inside the mind of the price setters. Not in their public image as publishers in magazine interviews, but in private board room meetings, or from open discussions from insiders. And as we learn about pricing motivation, maybe we also get a hint about the future direction of e-book publishing as well.

[da_jane]

Bob - one of the persons I interviewed at the publishers houses said that the pricing was set without regard for the format. I.e., that they view e forms of books simply another format such as a trade, mass market or hardcover and don't want to reduce the value of the book simply because it is in eform.

I don't think that we can say the publishers want the eform to fail. I think your statements would more correctly apply to authors. Publishers want to make money and their margins would grow tremendously if ebooks were more widely adopted. Further, I can't see the houses making such tremendous financial investment if they wanted ebooks to fail.

[Bob Russell]

Thanks Jane! That's a good point. I would agree that it's hard to believe that publishers want e-books to fail as a whole, and that the large investment is evidence of that.

I probably didn't make it very clear, but the point here was not that these arguments were correct, but that these are the points that are usually thrown about in discussions about e-book pricing across the web.

(Well, with the exception of price inelasticity, which just seemed so obvious that it should be thrown in, an which also could help explain why publishers can expect to keep the price high even in a low-cost format. However, from what you've said, it would imply that a primary driving factor of pricing is the sense of monopolistic power over the availability of a particular book in various forms.)

I think that a lot of people feel that these arguments are the full picture, and I'm hoping to point out that these are the popular culture of e-book pricing, not necessarily what's going on.

By the way, if there are any budding economists out there, I'd say that this topic could be a nice topic for a master's thesis or summer paper. Be sure to share it with us if you do!

[yvanleterrible]

Since every book going to press is prepared on a computer there is absolutely no cost there other than applying a format for which there is a license fee. There can be an added DRM license to pay, that's all. Web expenses would be the distributors' deed. The prices we've seen so far cover those with profit to spare.

I think mainly that publishers are scared of piracy. Period.

[TadW]

Originally Posted by yvanleterrible

I think mainly that publishers are scared of piracy. Period.

As record labels have been scared of piracy. And today, today we got iTunes.

Publishers should have learned a lesson here.

[Liviu_5]

Right now most publishers are afraid of e-books, they know it's a big potential market, but they look at music and saw what happened.

The outside pressure is much smaller for them since it's not so easy to convert print books in e form by regular people, so the amount of illegal content is limited to high popularity/committed fan base stuff by and large, and considering that not that many people are reading e-books, for high popularity it's a drop in a bucket, for committed fan base, they buy the print or legal e-book if they can afford it anyway, while if they cannot now, they may do so in the future.

So overall there is no large market for e-books, hence price discovery does not happen.

If there will be a cool e-book reading device that everyone wants (and it's not going to be dedicated, the odds are against it unless it's ridiculously cheap - more likely a good cheap umpc), and e-books become more popular, current prices will either drop and drm will go away or illegal content will overwhelm the legal one.


The crucial question is can you sustain an industry on that and on what business model? Unclear, and unresolved as of now...

[orcinus]

Why? It's simple - more profit.

As long as most customers are not aware the *should* be cheaper, and perceive them as a novelty, publishers and resellers are free to ramp the prices up as high as they want and scoop up the extra profit...

The moment customer awareness goes up, the prices will drop.

Edit: In other words, ask yourselves would ebook sales, as things are standing right now, go drastically up if prices were more realistic?

[Steven Lyle Jordan]

I spoke to a local magazine publisher recently, who told me that they "know e-books are the future," and are essentially still trying to figure out how it's all going to shake out. So clearly, there are those publishers that are actively trying to work out a way to deliver their material in e-text form. This suggests your Point #3, that they want to do it, but they don't know how, and they're not exactly tripping over themselves to work it out.

Often in cases where technology is pushing a new business dynamic, the established companies move too slowly... while a start-up or small-but-hungry company takes the real plunge and establishes the new dynamic. Then the old companies find themselves forced into adopting the new dynamic as-is, and/or trying to change or co-opt it for their own purposes. (As an example, the American auto industry after the 70s gas crisis found themselves losing market share to small Japanese companies, forcing them to build the compacts that they had resisted, AND to lobby the federal government to create an atmosphere conducive to SUVs, their bid to pass on superior technology and regain American interest through emotional marketing.)

In publishing, established authors maintain the big publishers' access to the market. But a popular enough startup, say, one with a new author or title that becomes very mass-market popular, can induce authors to switch to other publishers. As contracts expire, as old titles lose their luster or market relevance, and as older authors retire, we could see this over time.

Regarding price, there has been much discussion over whether the dominant price of a book is tied up in the institution preparing it, or the process of printing and distributing it. Ultimately, this discussion may turn out to be pointless... because if the market decides on a price that they will accept, the industry will be forced to adopt its business model to accommodate it. Thus, larger institutions may have to cut back on printing in favor of e-distribution, slim down their workforce, farm work to cheaper markets, cut back on services, or all of the above, in order to bring internal costs down.

My take on this--call it Point #5--is that the biggest thing slowing this whole process down is the Tower of E-Babel. Publishers are overly cautious, even the ones who want to act, because they don't know what formats to pick. Reducing the various formats to 1 or 2 good formats (say, one for dedicated readers and one for multi-use devices like PDAs and smartphones) will give the publishers much of the information they need to PICK A PROCESS and run with it.

The recent publisher endorsings of Adobe DE may therefore be the first step in starting the real evolution of e-books into a major market force.

[yvanleterrible]

Could there also be a scare of publishers to loose their hard earned investments in printing presses?

[Robert Marquard]

1. No publisher who has invested in ebooks wants them to fail. Inability to understand that an ebook can be fundamentally different from a paper book is a better explanation.

2. Eric Flint has explained it for Baen rather neatly. The money is earned by the paper book. The ebook is no loss in itself, but the paper version gets a second life in sales.

3. Publishers are a very conservative lot. Baen tried to get Tor aboard Webscriptions (DRM-free ebooks priced around $3 - $6). The deal was almost done when a single manager of Holtzbrinck (which owns Macmillan which owns Tor) decided that the price should be no less than 75% of the hardcover price. So a single point of failure is enough.

I think da_jane has the correct explanation. Publishers think of it as just another form of book.

[Studio717]

I think it's a combination of factors, most of which have been mentioned, but Robert came close with another aspect that I think needs to be understood.

Publishers are a very conservative lot.

Part of the issue (in addition to piracy concerns, etc.) is that only physical books count as units sold in the sense of determining if a book is successful or not. E-books aren't tracked on the NYT bestseller lists, or Publishers Weekly, or USA Today, so far as I know, and until they are, they won't be considered "real" books by the industry. (I may be wrong but I don't recall anyone referencing such a list.)

When publishers want to buy a book from an author, they check their numbers with a book tracking service. I doubt very much if e-books are counted, hence they don't count, if you get what I mean.

[NatCh]

Let's throw one more factor into the mix: DRM actually adds to the cost of a book. Whatever DRM scheme is chosen will have to either be developed in house or contracted out and licensed, for both the books and the reading software. I've heard somewhere from a person or two involved in the industry that the cost for that is not as small as it might seem it ought to be, and it's a fixed cost per unit.

[JSWolf]

Originally Posted by Liviu_5

Right now most publishers are afraid of e-books, they know it's a big potential market, but they look at music and saw what happened.

What happened to the music market was their own fault. They had something that was actually working. And then they changed it and we have what we have now.

Let's go back to when Napster first came out. Napster shared MP3 files made from CDs (mostly) and the RIAA saw this as a bad thing. But in reality, it was a very good thing. CD sales were up 6-8% from what they were before Napster. Because a lot of people would download a track (or tracks) or a CD and decide they liked the music and want to go out and purchase the CD or a CD from the same artist. It was a way for people to preview a CD or an artist before spending money. It turned out that most people who bought CDs after downloading from Napster were overall more happy with their purchase because of the previewing that was done before hand. They even found music available they didn't know was available. Now steps in the big bad RIAA. "No you cannot do this, it's piracy and it's hurting out sales." But it was helping their sales overall. More so then it was losing them. And the big bad RIAA decided to make up for all this phantom loss bu RAISING THE PRICES for CDs. We don't get any more value. We just get shafted at the register. I remember purchasing CDs for about $10 each. Now we are lucky if CDs are $12 on sale. A lot of people have to decide where their money goes. They cannot afford to buy all the CDs they want at $14.99 (12.99 on sale) a pop. Especially if they are unsure of the music on the CD.

An example, Gnarles Barkely's CD. I had heard his hit song Crazy on his debut CD. I admit to having downloaded his CD. After listening to it, I then decided that Crazy was the only song on the CD I liked. The rest I would not want to listen again. If I had paid $12.99 + 5% sales tax I would have been mighty pissed. It's that way with a lot of CDs. One hit song and the rest (or most) are not that good.

One other issue there is with CDs and this is a HUGE issue. The expanded, or anniversary CD. You know, the one with the extra material that you didn't get when you purchased the CD the first time around. And the RIAA thinks it's ok to charge you for something you already purchased just to get this extra material. Sometimes books do this too. For example Stephen King's The Stand is the way he wanted it in the first place.

Books don't tend to have that problem. If you like a given author, generally, you will (in most cases) like other works from that author. But the price structure for books is getting out of hand. We have ...

1. Hardcovers which are seriously overpriced
2. Trade paperbacks again expensive
3. This newish taller thinner format that's also expensive (to get more money then they would for a trade paperback)
4. The regular trade paperback priced about $7.99 (US)

It seems that this newish taller paperback format that offers us nothing but grief is becoming more popular because they can charge prices in between the TPB and the HC. And thus make more profit. a HC might very well cost more to print then a TPB. But, the ebook version of the HC or TPB costs EXACTLY the same to make. So why then do the publishers price the ebook (if the HC is out) at a ridiculously high price? If they took the ebook while it was in HC and price it fairly. More people would purchase the ebook. Take a new books priced at $29.95. At a discount of 30% that comes to $20.97. Now we have this HC at $20.97. The ebook if it was priced at say $10.00 we might purchase it considering we'd be saving close to $11.00. Then when it goes to paperback format (doesn't matter which one) was to be dropped to $5.99 we's purchase it as it would be cheaper then the paper edition still. But, I occasionally get discount coupon in email from Borders. The last one was for %20 off. Now, if I take that coupon and purchase a book costing $7.99 then the price drops to $6.39. Now mind you that is awfully close to the $5.99 price I cited. So lets drop the ebook price to $5.00. Then you'd have a lot more sales then you do now.

When you add in the cost of the hardware to be able to read ebooks on the go instead of stuck at a computer at a fixed location or having to lug around a laptop, you make ebooks a lot more cost ineffective. If I was able to purchase ebooks at the discount I cited above, eventually, I'd break even and eventually come ahead. That would make me a happy customer. I just purchased a paperback book at a grand total of $6.71 including taxes and the 20% off voucher I used. The ebook is not yet out. But when it is out, it will most likely be priced at $6.99. Now, why would I want the ebook at $6.99 when I can gt the paper edition for less? That is what is killing ebooks. People see that this and aren't going to purchase the ebook when the paper copy is cheaper. I would like the ebook to read on my Sony Reader. But I'm not paying more for it then the paper edition.

So all in all, take heed publishers. If you want ebooks to succeed, do not take your business plan from the RIAA.

[rlauzon]

Originally Posted by Robert Marquard

1. No publisher who has invested in ebooks wants them to fail. Inability to understand that an ebook can be fundamentally different from a paper book is a better explanation.

I have to disagree.

The fact that eBooks are fundamentally different from pBooks is so blindingly obvious that only a complete and total moron would think of them as the same.

I think that we can assume that publishers are not morons.

Therefore, they must want eBooks to fail.

eBooks cost almost nothing to produce. They can sell them at a far lower cost and still make the same profit. I would argue that they would make a higher profit because they don't have to handle returns and they will never over "print" an eBook.

[NatCh]

Originally Posted by rlauzon

I have to disagree.

The fact that eBooks are fundamentally different from pBooks is so blindingly obvious that only a complete and total moron would think of them as the same.

I think that we can assume that publishers are not morons.

Therefore, they must want eBooks to fail.

eBooks cost almost nothing to produce. They can sell them at a far lower cost and still make the same profit. I would argue that they would make a higher profit because they don't have to handle returns and they will never over "print" an eBook.

I see your point rlauzon, but you're assuming that the pubs are taking the time and attention to consider the matter and notice that point themselves. I submit that the folks making the decisions are so high up in the rarified atmosphere found in the upper levels of management that they can't see down far enough to get even the most fundamental details necessary to make that distinction.

They don't really have to be morons to miss it, they just have to be far enough removed from the details.

I'm not saying that this is always what happens, but I'm pretty confident that it does happen at least some, if not a lot of the time.

If you've ever worked for a corporation of any size, you already know from your own experiences what sort of bone-headed stuff comes down from 'on high' -- if not, read some early Dilbert strips, the ones Adams wrote from real-life experiences when he was working at PacBell. They'll give you an idea real quick.