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Originally Posted by murraypaul
But again this seems be ignoring the cost of retail, at around 50% of the sale price. The agency agreement for eBooks has saved 20% here straight away.
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No, it hasn't. I think you misunderstand what those numbers refer to.
First, the discount given to the retailer or volume purchaser by the the publisher or wholesaler isn't fixed. It varies depending upon the source and the volume purchased. Amazon, for example, is huge, orders a
lot of books, and will get a better price on a volume purchase than a bookstore that most deal with a wholesaler like Ingram or Baker and Taylor, who will take their own cut.
And publishers have been tweaking the discount schedule recently anyway. One of the problems for publishing has been that historically, it has had a 100% returns model. The retailer can return
any unsold books for full credit. With hardcovers, the physical books are returned. With paperbacks, the covers are stripped off, and the body of the book is (supposedly) trashed to become landfill somewhere. (In fact, many such coverless books wind up being sold for a fraction of the cover price, producing another problem for the industry.) Given the nature of the distribution channels, it may take a year before you even know if the book has sold, and what the returns have been.
Some publishers have been experimenting with offering
higher discounts to the retailer, in exchange for dropping the 100% returns model.
So the discount to the retailer or volume purchaser isn't necessarily 50%.
When the typical discount to the retailer is 50%, the retailer's markup is 100%. The retailer can choose to accept a lower margin on a title and charge a lower price. The difference comes out of the retailer's discount. For bestsellers, the retailer may chose to to accept a much lower margin per sale, expecting to make it up on higher volume, or position the book as a "loss leader" and
not make money on the sale, just to get the customer in the store where they will likely buy other thinsg while there are at it.
The agency model casts the publishers as the sellers, and the retailers like Amazon as "agents" in the sale, who get a commission for doing it. But the whole point of the agency model was to
protect the hardcover best seller. Those are the industry crown jewels. They generate the highest revenue and yield the highest profit. The presence of hardcover best sellers may make the difference between whether an imprint makes money or shows a loss on a year.
Amazon was selling Kindle editions at the default $9.99 price at the same time as it was selling the bestselling hardcovers. Lots of folks simply wanted to read the book now, had the capability of reading an electronic version, and didn't care if they didn't have a paper copy. Guess which they bought? The publishers saw lower revenues, because they didn't get as much from the sale of a Kindle edition as they did from a hardcover sale.
The agency model essentially tells Amazon "You want to offer the ebook at the same time as the hardcover? You have to charge a higher price and give us a bigger payment, to compensate for what we lose on not making a hardcover sale. If you want to charge your standard price, you must wait several months to give the hardcover time to sell before you compete with it."
Publishers don't issue the mass market paperback edition of a book until a year after the hardcover for a reason, and the same considerations apply to ebooks.
The
publisher will set the retail price, and Amazon will get a
lower discount. They will be required to charge
more for the ebook, and have less margin to cut into to drop prices. I believe that 30% you quote is the retailer's
markup. Instead of paying the publisher 50% of the price of the book, they are paying the publisher
70%.
That does
not constitute a
savings.
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This was what i didn't believe, that only 20% of the sale price of the book was related to production, distribution and retail.
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I said about 20% of the cost of
producing a book was bound up in manufacturing, warehousing, and distribution. A book is printed and bound (manufacturing), stored in a warehouse (warehousing), and shipped to the wholesalers and retailers who will stock it (distribution). This all happens before it
reaches the retailer.
The cut taken by the wholesaler and retailer is another matter.
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Dennis