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Old 10-13-2009, 12:20 PM   #1
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Future of Ebook Sales - Cost of Ebooks to Amazon

http://www.moneymorning.com/2009/10/13/amazon-kindle/

Interesting article - rehashing a lot of information released previously.
What I found fascinating was:

"Even though e-books are heavily discounted compared to their hardback equivalents, they are wildly profitable – costing Amazon just $1.50 per book, Credit Suisse Group AG (NYSE ADR: CS) analysts estimate. And that margin is expected to improve as Amazon’s costs come down by 2012, when its profit on e-book sales alone will soar to $31 million."

This is the first time I've seen an actual figure quoted for what ebooks actually cost Amazon - and how much Amazon (and the publishers) are really making from ebook sales. WOW!
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Old 10-13-2009, 12:25 PM   #2
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I'd like to know where Credit Suisse Group gets their numbers. Everything I know about it tells me Amazon (and other retailers) pay for books based on a percentage of the publishers list price.
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Old 10-13-2009, 12:25 PM   #3
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And the publishers are complaining about Amazon selling too cheap? That arguably is cheaper than the price that retailers are spending on paper books (we know paperbacks cost around 70 cents to produce, and about double for hardbacks, but those are production prices not retailer cost).
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Old 10-13-2009, 12:30 PM   #4
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I suppose it's possible that Amazon's average ebook cost is $1.50, but only because of the very large number of $1.99 retail ebooks, which only cost Amazon $0.70

Amazon are paying small publishers 35% of the list price, and large publishers are probably getting 40% to 50% of the list price.

This is still an amazingly large profit margin for something they don't need to stock or ship.

Quote:
Originally Posted by poohbear_nc View Post
"Even though e-books are heavily discounted compared to their hardback equivalents, they are wildly profitable – costing Amazon just $1.50 per book, Credit Suisse Group AG (NYSE ADR: CS) analysts estimate. And that margin is expected to improve as Amazon’s costs come down by 2012, when its profit on e-book sales alone will soar to $31 million."
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Old 10-13-2009, 01:38 PM   #5
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The $1.50 might also be the amortized cost in infrastructure, staff, advertising and all that. Some of this remains, but you're removing a lot of infrastructure. There's no warehouse, nobody unpacking shipments in the warehouse, nobody packing shipments to consumers at the warehouse. No inflatable thingies or invoices in the box. No return shipping costs. No books lost to damage or whatever.
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Old 10-13-2009, 01:46 PM   #6
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Thanks for that link, poohbear. I noticed one error.

Last week Bezos said that for a title available both in paper and digitally, Amazon sells 48 eBooks for every 100 paper books. The article says that translates into 48% digital sales, when actually it is 32% digital sales.
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Old 10-13-2009, 02:27 PM   #7
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Quote:
Originally Posted by GA Russell View Post
Thanks for that link, poohbear. I noticed one error.

Last week Bezos said that for a title available both in paper and digitally, Amazon sells 48 eBooks for every 100 paper books. The article says that translates into 48% digital sales, when actually it is 32% digital sales.
This came up once before here. The article linked from the Times read:

Quote:
Mr. Bezos declined to offer specific information about Kindle sales. But he said Kindle titles were now 48 percent of total book sales in instances where Amazon sold both a digital and physical copy of a book. That was up from 35 percent last May, an increase Mr. Bezos called “astonishing.”
Do we have a verbatim quote from Bezos saying 48 per 100? If so, this is two news outlets who have misquoted him.
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Old 10-13-2009, 03:57 PM   #8
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Amazon

I deal with Publishers and eBook related negotiations and deals on a daily basis and I can categorically confirm that Amazon do not pay an average of 1.50 per book. They pay the publisher a percentage of the srp of each book.
Perhaps if Credit Suisse factor in the free or very cheap ebooks, the average figure may come down, but Amazon are certainly not paying 1.50 for your average 9.99 bestseller.
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Old 10-13-2009, 04:47 PM   #9
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so what ARE they paying?
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Old 10-13-2009, 05:06 PM   #10
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Quote:
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so what ARE they paying?
Anywhere from 30-50% of the publishers list price or so. Big publishers are on the higher side of that and lower side is small pubs and self pubs.
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Old 10-13-2009, 05:07 PM   #11
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substantially more than 1.50 per book then?
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Old 10-13-2009, 05:14 PM   #12
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Quote:
Originally Posted by kindlekitten View Post
substantially more than 1.50 per book then?
Depends...

For example if someone who self publishes like Steve Jordan were to publish book XYZ with a list price of $10 Amazon would pay him around $3.50 for every book sold. If Penguin or Harper Collins were to publish that same book for $10 list price Amazon would pay them around $5 for every book sold. Out of Amazon's cut comes any discounting the book gets.

Dan Brown's latest has a list price of $29.95 and Amazon pays the publisher (50%) based on that even though they sell it for $9.99


I suppose the $1.50 could be an unrealistic, but accurate, average if taking into account all the really inexpensive self published books in the Kindle catalog.

Last edited by AnemicOak; 10-13-2009 at 05:18 PM.
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Old 10-13-2009, 05:17 PM   #13
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Quote:
Originally Posted by kindlekitten View Post
substantially more than 1.50 per book then?
For the new best-selling $26 ebooks, Amazon probably pay the publishers $13. So yes, the $9.99 best-sellers are loss-leaders for Amazon.

Baen get by selling the ebook version of $26 hardbacks for $6. But then, they're not paying silly money to DRM suppliers. And they have a clue about ebooks, unlike most publishers.
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Old 10-13-2009, 05:19 PM   #14
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I'd like to see what they pay for the average bestseller or John Grisham novel. That is where the bulk of sales occur, if Amazon are taking a good margin there, they are well off.

With the current prices of e-books, 'someone' is taking a very nice chunk of profits for the sale of a virtual product that can be stored on a USB thumbdrive and shipped for 0.0001 dollars internationally direct to the customer. I think the publishers take the lions share but I say that without any proof!
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Old 10-13-2009, 05:21 PM   #15
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Quote:
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substantially more than 1.50 per book then?
I think the cost on higher profile books like best sellers and new releases are much higher. There are a lot of inexpensive books also being offered, many of them self published. I think the authors of that article were probably aware that most people would read that snippet and think, "Wow! Amazon sells books for $9.99 and they only pay $1.50! They're ripping us off!" When people think of the Kindle store, they think of the $9.99 new releases and best sellers. They don't realize how many books are on there for $0.99. I wonder if they factored all the free books into that cost. That would be particularly sneaky.

What I would find more interesting than the average cost per title is the average net per book sold. The figure in the article is pretty meaningless if you don't know how many books sold at the various margins. Unfortunately Amazon doesn't release that kind of data.
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