MobileRead Forums - View Single Post - Why do many e-books cost more than paperback?

Bob Russell · 06-24-2007, 10:45 AM

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.

06-24-2007, 10:45 AM	#1
Bob Russell Recovering Gadget Addict Posts: 5,381 Karma: 676161 Join Date: May 2004 Location: Pittsburgh, PA Device: iPad	Why do many e-books cost more than paperback? 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.