[emellaich]

Great comments from all here. In particular, I've added a bit of Karma to Morlac because of his/her specialized insights to the market.

First, I'd like to note that the $1 per paperback book price difference is not necessarily trivial. For a book that sells for $10, that could mean a new selling price of $9. Actually, based on the magic of percentages, the price of $9 could actually result in better margins for the publisher.

Let me illustrate with an example -- I'm sure the numbers are wrong, but the example should still work with the correct numbers. Let's say that a p-book sells for $10 (9.99). Someone mentioned that big publishers typically get 60% or $6. Let's assume that the profit to the publisher is $1 of that.

Now, consider an ebook priced at $9. The publisher gets 60% or $5.40. However, the publisher's costs plus the original profits should only be $5 (the original amount to the publisher minus the $1 savings in printing). This means that the publisher now earns the same original profit ($1) plus an additional $0.40 in profit. This gives the publisher a new profit of $1.40 on the same book instead of $1.

Of course the trick with the math above is that the publisher pushes some of the $1 price cut back on the distributor and retailer. As a result the publisher sees $1 in savings, but take less than that in price reduction.

Instead we can consider a 'fair' publisher who absorbs the entire $1 price cut themselves. Instead of earning $6 they earn $5. In this case, the profit is still $1 per book. However, originally, the profit margin is 1/6 or 17%, and now the profit margin is 1/5 or 20%. Yes, the dollars are the same, but the margin as a percentage actually improved because it took less revenue to achieve the same profit. And, in fact if we believe in the economic laws of supply and demand, the publisher should expect some increased sales because of the lower price thus resulting in increased real profits as well as higher profit margins.

Meanwhile the retailer and distributor should also see higher margins. Yes, the servers do cost something, but do they cost as much as a physical book store? As much as the book shelves that are used to hold the books? How about the physical labor to unpack, sort and shelve books? And, of course there is no capital tied up in inventory.

MLH