Why the Sony Reader will be successful

[NatCh]

I disagree, slayda, with the notion that there aren't any retail costs for e-books. Even if the Pub or Author, for that matter decides to sell the e-books themselves, they'll have to have some infrastructure to handle that. Even if they purchase pre-made e-commerce package and run it off-the-shelf, there'll be the cost of the package and hardware to run it on, and folks to keep it all running, etc.

Would it be greatly reduced? Surely, but it'd still be there.

[slayda]

Originally Posted by NatCh

I disagree, slayda, with the notion that there aren't any retail costs for e-books. Even if the Pub or Author, for that matter decides to sell the e-books themselves, they'll have to have some infrastructure to handle that. Even if they purchase pre-made e-commerce package and run it off-the-shelf, there'll be the cost of the package and hardware to run it on, and folks to keep it all running, etc.

Would it be greatly reduced? Surely, but it'd still be there.

What I meant, Nathan, was that the muptiple retail stores could be elliminated. Ebooks would, IMO, be web based stores. Yes there would still be some retail cost but much reduced.

Don

[BuddyBoy]

Originally Posted by rlauzon

Huh?

That's not what the people in the publishing industry are telling us.

They are saying that of that $7.95 paperback, the author gets about $0.70.

So, if it only costs $1 to print a paperback, costs for the publishers are up to $1.70. That means that the retailer and the publisher are splitting $6.25 per book.

That doesn't seem correct.

Ok, here's how it generally breaks down:

A $7.95 paperback wholesales to the retailer for $3.50 - $4.00, and may even have been supplied to a distributor first for $2.80 - 3.40.

Of that, say $3.50, the publisher pays $1 for printing and shipping, $0.75 for royalties, leaving a marginal gross profit of $1.75 per titles. Out of that needs to come the costs for development, formatting, publicity, administration, an allowance for returns and remainders, and profit.

Now, an ebook publisher, producing only ebook titles, can save on the printing and shipping. Unfortunately you cannot eliminate the retail channel, since most readers want a selection of books from multiple publishers, and won't be interested in visiting each publishers' website to find their titles. And, if you are using ANY retail channel, then as a publisher you cannot undercut your retailers and sell for less on your website, not unless you want to alienate your dealers.

The amortized costs for publicity, development, editing, formatting and administration have to be spread across the entire "print" run - and at the moment, ebooks are a niche market and as such have fairly high shared costs compared to print books because there are fewer electronic copies being sold.

But, don't take my word for it - start up your own publishing company and give it a try.

[rlauzon]

Originally Posted by BuddyBoy

A $7.95 paperback wholesales to the retailer for $3.50 - $4.00, and may even have been supplied to a distributor first for $2.80 - 3.40.

Of that, say $3.50, the publisher pays $1 for printing and shipping, $0.75 for royalties, leaving a marginal gross profit of $1.75 per titles. Out of that needs to come the costs for development, formatting, publicity, administration, an allowance for returns and remainders, and profit.

OK. I see how you are coming up with your numbers now.

Originally Posted by BuddyBoy

Now, an ebook publisher, producing only ebook titles, can save on the printing and shipping. Unfortunately you cannot eliminate the retail channel

Here's where you are (partially) wrong. You are right in that you cannot eliminate the retail channel. But the costs of retail are greatly reduced for eBooks.

Retail costs for a physical product are for shelf space, stocking fees, taxes for stock on hand, etc. Most of those costs disappear for eBooks, and the rest of those costs are greatly reduced. So instead of taking a $3.50 cut, a retailer takes $1 for an eBook.

Originally Posted by BuddyBoy

since most readers want a selection of books from multiple publishers, and won't be interested in visiting each publishers' website to find their titles. And, if you are using ANY retail channel, then as a publisher you cannot undercut your retailers and sell for less on your website, not unless you want to alienate your dealers.

You're in pBook mode still.

Since copying of an eBook is effectively free, an author can offer it through many retail channels at once. There is no shortage of copies like there is in the pBook world.

Originally Posted by BuddyBoy

The amortized costs for publicity, development, editing, formatting and administration have to be spread across the entire "print" run - and at the moment, ebooks are a niche market and as such have fairly high shared costs compared to print books because there are fewer electronic copies being sold.

Yes, that's today. We are talking about tomorrow when eBooks are the norm.

Also related to this is the selling of eBooks today at greater than hardcover prices.

[rmeister0]

Originally Posted by rlauzon

Retail costs for a physical product are for shelf space, stocking fees, taxes for stock on hand, etc. Most of those costs disappear for eBooks, and the rest of those costs are greatly reduced. So instead of taking a $3.50 cut, a retailer takes $1 for an eBook.

If I were a retailer, I'd take issue with that statement. I still have to pay for office space, employees, operating facilities, server hosting, bandwidth, electricity, cooling, disaster recovery services, benefits and health care, legal fees, city taxes, county taxes, state taxes, federal taxes, fica, local telco, long distance telco, cleaning services, office equipment services...the list goes on and on.

We don't handle any physical inventory at our office, and still running the office and the data center alone is pretty expensive. I don't think Fictionwise has ever fessed up to their sales figures, but I somehow doubt they're selling millions of titles a month.

[BuddyBoy]

Originally Posted by rlauzon

Here's where you are (partially) wrong. You are right in that you cannot eliminate the retail channel. But the costs of retail are greatly reduced for eBooks.

Retail costs for a physical product are for shelf space, stocking fees, taxes for stock on hand, etc. Most of those costs disappear for eBooks, and the rest of those costs are greatly reduced. So instead of taking a $3.50 cut, a retailer takes $1 for an eBook.

I agree that marginal retail costs for ebook are significantly less than pbooks if only in storage and retail space. The problem is that, for now, because the market size is slight, the amortized fixed costs are much higher on the per item basis. Ebook stores sell fewer copies than pbook stores. Granted, they could lower the price and hope to make it up on volume, but the current total market size versus the total purchasing market size would have to be a great deal larger to recoup the loss.

As ebooks mature and the market grows, I would expect to see $3.99 or $5.99 ebook "paperbacks" a la iTunes. Even so, you would need to have a large reading market, and I'm just not that confident that in the future the percentage of people who read for pleasure will stay even at its current rate.

Originally Posted by rlauzon

Since copying of an eBook is effectively free, an author can offer it through many retail channels at once. There is no shortage of copies like there is in the pBook world.

Not undercutting your dealer is not an issue of supply, it's an issue of business survival. Trust me, you do not want to undercut the people who are selling your product for you or they will simply stop carrying your line. It's one of the ultimate no-nos in business. The only way you can ever do it without burning your bridges is by "fencing" your deal so that casual customers are unaware or ineligible. And that can offend customers. Ah life!

Originally Posted by rlauzon

Also related to this is the selling of eBooks today at greater than hardcover prices.

I agree, but I can also understand some of where the publishers come on this. If a book is not selling very well, the publisher may not want to bother with releasing a "paperback" priced version, if only because of the cost of a new ISBN number.

One of the downsides of ebooks is that, unlike pbooks where unsold copies are "remaindered in place" - i.e. sold for a fraction of their list price in order to save the cost of shipping them back - it's actually more expensive it terms of time and labour to reduce the price of an existing ebook. And since there is no anticipated savings on shipping or remaindered copies, there's little incentive to decrease the price.

Personally, I wish the publishers would get smart and adjust their ebook prices in line with whatever their current market price is for the same title. I know I'd buy more books if that were the case because I hate feeling ripped when buying a book.

[Liviu_5]

Originally Posted by rmeister0

I don't think Fictionwise has ever fessed up to their sales figures, but I somehow doubt they're selling millions of titles a month.

There was a discussion on the yahoo e-book community group about that and Fictionwise takes 50 or 55% of the "cover price". The e-authors posting there felt it was acceptable for the exposure, since Fictionwise is to a large extent the e-book retailer of reference for now at least for unencrypted stuff.

So I tend to agree that it's going to be very hard to make a living (authors, retailers...) in the e-book business at low price points, and conversely, people do not want to pay too much for e-content. That to me is the ultimate dillema for e-books, more than drm and the Tower of Babel in formats.

Liviu

[rlauzon]

Originally Posted by BuddyBoy

I agree that marginal retail costs for ebook are significantly less than pbooks if only in storage and retail space. The problem is that, for now, because the market size is slight, the amortized fixed costs are much higher on the per item basis. Ebook stores sell fewer copies than pbook stores. Granted, they could lower the price and hope to make it up on volume, but the current total market size versus the total purchasing market size would have to be a great deal larger to recoup the loss.

*Sigh*

Author writes book (probably on a word processor). Provides file to publisher. Publisher clicks twice and - viola - eBook.

Where's the "amortized fixed costs" for an eBook?

If the publisher wants to set up their own eBook store, then that is their decision based on whether or not they think they can make money. It's like McDonalds saying "we are going to charge double for a hamburger for the next year cuz we need money to build a new restaurant."

But those costs are avoidable since they can rent someone else's infrastructure. They do so today at places like eReader, but the prices that they charge for the eBook is more than the price of the hardcover paper version.

There's no excuse for that.

Originally Posted by BuddyBoy

One of the downsides of ebooks is that, unlike pbooks where unsold copies are "remaindered in place" - i.e. sold for a fraction of their list price in order to save the cost of shipping them back - it's actually more expensive it terms of time and labour to reduce the price of an existing ebook. And since there is no anticipated savings on shipping or remaindered copies, there's little incentive to decrease the price.

I'm sorry, but are we in the same reality?

There is no such thing as an "unsold copy" of an eBook. Copies are made as people buy them - for almost no cost. Reducing the price of an eBook is as simple as going in to the web interface to the database and changing the price.

[rlauzon]

Originally Posted by Liviu_5

There was a discussion on the yahoo e-book community group about that and Fictionwise takes 50 or 55% of the "cover price". The e-authors posting there felt it was acceptable for the exposure, since Fictionwise is to a large extent the e-book retailer of reference for now at least for unencrypted stuff.

So I tend to agree that it's going to be very hard to make a living (authors, retailers...) in the e-book business at low price points, and conversely, people do not want to pay too much for e-content. That to me is the ultimate dillema for e-books, more than drm and the Tower of Babel in formats.

pBook - Author makes $0.70 per book sold. Let's be generous and say $1.00.

eBook - Most Fictionwise books that I've seen are about $4. If Fictionwise takes 50%, then the author gets the other $50 or $2 per eBook sold.

It seems to me that $2.00 > $1.00.

Now, I agree that today it will be impossible for an author to make money off an eBook but that's simply because the market is small today.

When eBooks start selling like paper books do today, then that's a different story.

[BuddyBoy]

Originally Posted by rlauzon

*Sigh*

Author writes book (probably on a word processor). Provides file to publisher. Publisher clicks twice and - viola - eBook.

Where's the "amortized fixed costs" for an eBook?

I don't wish to belittle you, but your concept of "publishing" an ebook is ...um... a little simplistic.

But I think you know that, and at this point your are arguing for argument's sake.

If you really don't know what is entailed in the publishing process, well, I just can't help you. I'm not up for delivering a graduate seminar in publishing.

Originally Posted by rlauzon

I'm sorry, but are we in the same reality?

There is no such thing as an "unsold copy" of an eBook. Copies are made as people buy them - for almost no cost. Reducing the price of an eBook is as simple as going in to the web interface to the database and changing the price.

I guess you didn't grasp the concept I was trying to highlight. With pbooks, because there ARE unsold copies, you will often see the titles on sale since it is cheaper for the publisher to drastically reduce the price and have the retailer sell them ("remainder in place") as opposed to shipping them back to the publisher for credit ("remainder return"). You do know, I trust, that most physical bookstores operate on something of a consignment system?

What I was trying to point out is that since that issue doesn't pertain to ebooks - i.e. there are no unsold copies to be shipped back - there is often no incentive to radically reduce the price. Since leaving the book out there floating in the ether costs so little, why bother reissuing an ISBN number for a new lower-priced version, or giving the retailer a huge discount in hopes that a few more copies would sell. The marginal profit on the new copies would need to recoup costs and time spent, and, until the market grows, those additional sales are not particularly spectactular.

[rmeister0]

Originally Posted by BuddyBoy

Not undercutting your dealer is not an issue of supply, it's an issue of business survival. Trust me, you do not want to undercut the people who are selling your product for you or they will simply stop carrying your line. It's one of the ultimate no-nos in business. The only way you can ever do it without burning your bridges is by "fencing" your deal so that casual customers are unaware or ineligible. And that can offend customers. Ah life!

There is a reason that Disney is the only studio selling movies on iTunes, and the grapevine says that reason is called "WalMart". If by selling a few million on iTunes you give up selling tens of millions at retail, you're gonna go retail.

Furthermore, has anyone done any market studies to see if reducing the price of ebooks would actually increase sales? Sounds counter-intuitive, but I'm willing to bet that if the current $25 hardcover best seller were sold for $1 as an ebook, there would be a big discussion about what under-valuing a product does to its market perception.

[Liviu_5]

Originally Posted by rlauzon

pBook - Author makes $0.70 per book sold. Let's be generous and say $1.00.

eBook - Most Fictionwise books that I've seen are about $4. If Fictionwise takes 50%, then the author gets the other $50 or $2 per eBook sold.

It seems to me that $2.00 > $1.00.

Now, I agree that today it will be impossible for an author to make money off an eBook but that's simply because the market is small today.

When eBooks start selling like paper books do today, then that's a different story.

Leaving aside the volume issue, the problem with this argument is that it assumes that the author publishes directly through Fictionwise, and that's not the case. You gotta be published somewhere else even if only electronically, to list at Fictionwise unless you list lots of books as far as I know. Maybe someone like Lulu would be a better choice for your argument, they take 20% I think and you set the price, but then it comes back to filtering. Who is going to find out about your book? People go to Fictionwise for a reason...
Unless there is a coop system or an "universal ranking" based on preference, or something, as an unkwnown author you need a filter through which you get exposure. Publishers do this, mostly not that great, but still right now is what we have.

Liviu

[maccoul]

Originally Posted by Bob Russell

Experts already give four primary reasons why the Sony Reader will be a niche player and not reach the mainstream readers:

1. The price of $350 is a steep up-front investment when paper books cost nothing up-front.
   
   
2. There is no backlight
   
   
3. The e-ink display may be gorgeous, but page turns are slow, and it also restricts the interface functionality.
   
   
4. The Sony Connect store uses a DRM'd format controlled by Sony, and therefore without a huge discount on books, people will avoid the Reader.

I've had mine for a little over a week and I'm already into my second book, The Second Confession by Rex Stout. I think the Sony Reader can be successful if its marketed right and if they expand the library of titles. Only 4 of Rex Stout's Nero Wolfe series is available while Random House has the entire line available in paperback, conversion should be simple. I emailed Random House asking if they had plans to do this but no response yet.

As for the points above:

2. Backlight, what everyone else has said, its better without it.

3. I've had to adjust to making sure I actually read the very last line before I turn the page, in a real book I read it while I'm turning. But I consider that small potatoes. Reading is the slowest medium and the fact a page turn takes a half-second instead of an 1/8 of a second isn't a problem.

1 and 4 are directly related. Yes there is a cost if you're buying new books but older books actually run a little less than paperbacks. There's also the fact that there are thousands of works of classic literature available for free through Project Gutenberg. Plus, while the PG files work on the reader, you can get them more 'reader friendly', through manybooks.net. There's a major selling point here: Parents with junior high students. If they buy their kid this now thats 8-10 years of free access to all the classical required reading they'll face through high school and college. Another major selling point is the Renaissance. Everyone wants to have that big leatherbound collection of classical works. Few people have the space or funds to have it. Now they can and who knows, they might actually read some it. The only drawback here is hopefuly newer models will let you store really large collections on the device (without a memory stick) and be able to sort it easily.

[Laurens]

Originally Posted by rmeister0

Furthermore, has anyone done any market studies to see if reducing the price of ebooks would actually increase sales? Sounds counter-intuitive, but I'm willing to bet that if the current $25 hardcover best seller were sold for $1 as an ebook, there would be a big discussion about what under-valuing a product does to its market perception.

Regardless of the actual cost and profit, a significantly cheaper ebook version will make the pbook look expensive by comparison, which is not the kind of impression a publisher wants to make. And as you rightly point out, reducing the price might not yield more sales, let alone more profit.

[Cthulhu]

@ Maccool:

I think that you are dead-on regarding this being a wise investment for parents--provided that children can be trusted with a $350 electronic device. Of course, it seems a glut of junior high schooler now own/want their own cell phone &/ iPod, so there could be hope.

Wonder if SONY would be willing to give group/bulk discounts. If the marketing department sought out PTA's and Departments of Education, they could carve out quite a large niche. That is, providing that they do not step on the toes of the publishers. Maybe a tie in with Scholastic Reader? They could have a RSS feed for the the Reader....

At any rate, Great point Maccool