Cheaper e-books will kill us, says publisher

[Alexander Turcic]

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:

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

[Argel]

Originally Posted by Alexander Turcic

[*]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.

Please accept this posting as formal notice of my intention to sue Mobileread for substantial personal damages. After reading the above line I was unable to stop laughing and my wife had to call an ambulance. I am only able to write this as a result of heavy sedation.

"Comparable... costs". Snort. Giggle. Guffaw. Oh no, the pain is starting again!

[kacir]

Dear Mr. Justus

Thank you for a valuable insight.

Please have a look at www.Baen.com
They have managed to sell DRM free books for very atractive prices for years.

Also please consider several reasons why we (the readers, the potential customers, the e-book enthusiasts) clamour for cheaper prices for e-books.

1. We feel that there are significant costs - like handling, warehousing, transporting physical objects (books), pulping unsold paper books that shops return to the publisher that are not present in an e-book bussiness model.

2. We feel that with an e-book we receive less value when we ... aehm ... "purchase"(**) an e-book. When I purchase a physical book I own it. Period. I can sell it to a second hand shop. I can lend it to a friend. My grandchildren will be able to read it. I have certain fair-use rights that are taken from me when get an e-book instead.

(**) understand: pay for a licence to read a DRM crippled file on a limited number of approved reading devices, for a limited time.

[Jellby]

Originally Posted by Argel

"Comparable... costs". Snort. Giggle. Guffaw. Oh no, the pain is starting again!

Yes, you can compare them... and it's much lower

[kacir]

Originally Posted by Argel

"Comparable... costs". Snort. Giggle. Guffaw. Oh no, the pain is starting again!

This is not funny.

$1 < $10 000

See?
I was just able to actually compare one dollar to ten thousand dollars. Those sums clearly ARE comparable. And i personally do not believe that the difference between the two distribution models is greater than 1/10000

[Bob Russell]

You could say similar things for just about any transformation of an industry, couldn't you?

But the winners are not going to be those that won't transform their business and infrastructure. The winners are those that can adapt and find a revenue model that works. Markets are tough - you have to continually reinvent yourself to survive. That's one of the signs that markets are efficient.

If Mr. Justus doesn't feel that he can find a way to succeed in a digital age, I'm sure someone else will be happy to do it in his place.

[zelda_pinwheel]

that is a very long list and a substantial article, which i don't have time to respond to in depth, however something which strikes me is that many of the costs he mentions are setup / creation / upgrade costs ; that is, one-time initial costs to develop systems and infrastructure to handle ebooks. every business has these and there are always operating costs involved in running a business, particularly if you try to evolve along with a changing industry, technology, or situation. but Mr. Justus seems to think that these costs should be able to be recovered immediately by charging high prices for ebooks from the start, rather than conceiving these costs as typical costs to be amortized by a long-term strategy.

here is an analogy to show why this is unreasonable : recently, i had to replace my computer, which i use to do my job as a webdesigner. this cost me about 650€. to follow Mr. Justus' reasoning, i should have told the client whose project i was working on at that time, "sorry, i've had to buy a new computer to finish your website, so i'll have to charge you 650€ extra to pay for that cost. you can understand why, right ? i need this computer to do your project, so you should support the full cost." this sounds ridiculous, i'm sure even Mr. Justus would agree. but for some reason he thinks that in publishing, this is a reasonable way to operate.

if i tried to recoup every cost involved in running my business instantly, on the back of whatever client i had at that time, instead of saying that i am investing in my business and over time i will recover the costs of the new computer / upgrade to a new version of a graphics program / time spent training myself in new techniques or keeping abreast of the evolution of the industry / whatever by doing many projects with it, then whatever project i was doing at the time i incurred the costs would likely not look very profitable to me, and i would think "well, there is clearly no way to make a living as a webdesigner !! the cost of my new computer / time spent learning this new technique / etc. is eating up all the money i'm making on this project !" and i would be very shortsighted indeed.

perhaps because publishing has not substantially changed in a very long time, publishers seem completely disconnected from any realistic vision of what is involved in keeping a business relevant in a changing professional landscape. if they don't change their perspective, then yes, they will probably not survive the next few years and the emergence of ebooks. but it will be their own fault for not having a reasonable business strategy, not the fault of ebooks.

[Mr. Goodbar]

Originally Posted by Bob Russell

You could say similar things for just about any transformation of an industry, couldn't you?

But the winners are not going to be those that won't transform their business and infrastructure. The winners are those that can adapt and find a revenue model that works. Markets are tough - you have to continually reinvent yourself to survive. That's one of the signs that markets are efficient.

If Mr. Justus doesn't feel that he can find a way to succeed in a digital age, I'm sure someone else will be happy to do it in his place.

I think you've nailed it with this one. We're talking about transformational change to an industry. If you want to survive you transform, period. You figure out how to offset your new costs in the short term by savings in other areas.

He also doesn't seem to realize that although there are start up costs with switching to "e", his other costs related to physical books will decrease as "e" increases. They're will obviously be a delay factor, but it will incur. He also seems to be under the mistaken impression that he will be able to maintain the same business margins as he did previously. This is not always the case when industries transform. Sometimes margins stay the same, sometimes they increase and sometimes they decrease. Good leaders get ahead of the curve.

If anyone owns stock in this company I would suggest selling now! Obviously not a very forward looking and thinking leader.

[RWood]

This sounds a lot like the reasons given many, many years ago for why paperback books will kill the publishing industry. Later it was the rise of chain bookstores that would kill publishing and more recently it was Internet bookstores that were to kill publishing. Any change is bad for them from their point-of-view.

[ProDigit]

I think I agree with about anyone above here.

I haven't read the article in full neither;though great topic to get our frustrations out!

How much do they say it differs in cost to set up an office with 5 employees and a server (director, IT data, 2 Book design and formatters, and someone to handle the finances),compared to hiring a Library sized warehouse, packaging and handling, still buy an office for 3 employees, ...

Don't you think most books of writers are digitally created in the first place?
It takes more time to format a book into a paper design, then it does to format it to fit the ebook reader screens!

=========

1- So one gets rid of the electricity and property costs of a large building,in exchange for a slightly larger office equipped with a server (if not,one can order server space and a domain name quite cheap)
2- One gets rid of shipping and handling
3- Every book sold does not need to be re-ordered, but can be uploaded as many customers there are that want this book once it's on the server, so one gets also rid of re-ordering or resupplying stock
4- The employee that normally works in the warehouse sorting out the books,is being replaced by an IT technician that keeps track of updates.
5- The company consists of less people with less strenuous work,and less ability to have 'accidents',so insurance costs go down as well.
6- The statistics are Bull SH##O.o ,, since they all happen automatically. No longer is there anyone needed to input the data in SAP, since the end user does practically all the administrative work by ordering the book online..

7- I'm sorry but I couldn't read the post any further, since I'm in a bad mood already...


=========

Then my question would be, where the F@?# does he thinks all these costs went to? Comparable? Don't make me laugh!

Posts (/Lying comments) like this just make me more pissed!

Not to the original poster of this thread, but the sales guy who's going to teach us that ebooks should cost more than pbooks....

[TwiSteDCBloSsoM]

That actually kinda urked me about how they assume people are buying ebooks instead of regular books.

I don't know about most people here but the ebooks I have so far since I got my reader are exactly the same books I own... and to even finish my collection of ebooks I'd need about 400$... not exactly fair when you already OWN the books.

Maybe there should be some thing where each books has a serial code and when you go to download an ebook you either pay the normal price or you get a really cheap price for offering the serial code of the book you already own.

[JasonWalton]

There was an interesting article on Ars Technica today which talks about it from the other side of the fence. The article was written by a former employee of Palm Digital Media/Peanut Press, and talks about their attempts to get content from publishers. Page 4 is particularly relevant to this discussion:

This makes absolutely no sense until you look at it not as a way to sell e-books, but rather, as a way to ensure that e-book sales do not eat into hardcover sales. That, in turn, makes even less sense, given the comparative profit margins of hardcover books and e-books, but, well, there you have it.

[Mycropht]

...the publishers like Mr. Justus will face extinction. While he is talking about all the costs of e-book publishing, guys who know next to nothing about paper book publishing will start publishing e-books like crazy - in a garage for a start.

I will not cry for the old publishers as I believe the publishers who adapt to the New Publishing World will be giving a bigger pie slice to the authors (instead of some leftover crumbs like today).

<naive mode> Let's face it. Author could e-mail me a copy of his/her book and I would gladly pay him through Paypal double the amount Justuses would pay him. It would be so cheap that piracy would be waste of time. </naive mode>

Btw, I am a bit under influence of reading the following article: The once and future e-book: on reading in the digital age:

http://arstechnica.com/features/2009...ure-e-book.ars

[pilotbob]

wow just wow. This only demonstrates to me how clueless this guy (industry?) is about technology.

It is "comparable" cost to set up a physical warehouse as it is to set up a digital infrastructure? Did he mean "equivalent"? Because if he did there is no way you can tell me building (or renting) a 10,000SqFt warehouse (for example) and staffing and maintenance costs the same as renting a Virtual Server at GoDaddy.

As far as setting up the "infrastructure" this can be bought of the shelf from Adoboe and I assume from eReader too. Or you could plug into the Kindle Publishing System and I assume Sony has a similar one. The commerce systems are allready well established. Digital delivery of software is pretty much the norm these days. Once again, this is off the shelf software. Most likley there are open source systems. If they go DRM free this can be done more quickly and less expensivly also.

Also, the first company that creates a system to source all documents in ePub and from them create pbooks and ebooks will be able to sell/lease that system to other publishers. Heck the software I work on the same doc source is used to create the help file and the printed manuals. It is called single sourceing and it is done all the time in the software industry.

Imagine if Ford said that it will take money to modernize our line from using people to using robots. So, for the next 5 years cars built on the automated line will be 30% more in order to pay for this. Well, no one would buy those cars. Then they would say, see no one wnats cars built by robots.

BOb

[TheJohnNewton]

Originally Posted by kacir

Dear Mr. Justus
1. We feel that there are significant costs - ...

2. We feel that with an e-book we receive less value when we ...

What does the cost to produce a product have to do with the value to a consumer of product? Isn't the value to the consumer what should set the price?

Number two makes sense if you really feel, after weighing all pros and cons, an ebook is less valuable than a paper book. Personally for many books I'd much rather have the ebook than a paper copy which to means it's more valuable. The only thing ruining the party for me are ebooks that are tied to just one platform that I may or may not have in the future. Those ebooks are relatively less valuable to me. In fact I avoid them.

Now of course as a consumer I wish every product were as cheap as possible but I don't think the cheapest possible price is always the "correct" price.