How much should an e-book cost?

Posted on April 13, 2012

iBooks Store on the iPadWith the kerffule this week over the US Department of Justice’s case against Apple and the large publishing houses, it’s interesting to look at what an e-book should actually cost.

Amazon has been selling e-books at around $9.99, which was a price point that created a lot of traction for the e-book industry and saw it taking a large part of book sales, even increasing the number of books bought per reader per year.

However, since the introduction of the agency price model, facilitated by Apple, the price of e-books has risen. According to several media sources, Amazon was making a loss on the sales.

For many, it’s confusing as to how it is possible that an e-book can even cost so much; given that the marginal cost of an electronic book tends to zero given the lack of physical paper. Yet, to get that book to your computer, iPhone or iPad there are a lot of expenses that are incurred.

In the traditional model of publishing, as opposed to self-publishing, there are many activities undertaken by a publisher that go into getting a book ready for sale. Here are some of them:
– manuscript intake and selection
– contracts
– review and redrafting
– copyediting
– typesetting
– marketing and sales

Obviously, there are a lot of costs here that are non-negligible and that don’t tend to zero on an average print run. Also, most books are not great sellers, in fact they lose money because of the cost of publishing. These losses need to be borne by the books that earn money.

Because a book loses money, it doesn’t mean it ought not to be published, indeed if publishers had to make money on every single book they release, they would be very, very conservative with what was published; and the next Harry Potter may never see the light of day.

Traditionally books are printed. According to Mill City Press that cost is about $3.90 for a short run book – but for a large publisher let’s imagine that tends towards $3.50 as they have economies of scale in their business.

According to Sea Hill Press a traditional retailer such as Barnes and Noble, Indigo or Waterstones will take a 50% cut of the retail sale price for a book.

Sea of Poppies bookAs way of example, take a book such as The Sea of Poppies which has sold very well (Amazon Best Sellers Rank: #47,513), but is not a mass-mass market paperback. Its recommended retail price for the paperback is listed on Amazon at $16.00.

Recommended Retail Price: $16.00
Retailer’s margin: $8.00
Printing costs: $3.50
Author’s margin (10% retail): $1.60
Publisher’s margin: $1.90

Let’s turn this around under the e-book model and build it up, taking some assumptions on economies of scale, to see what an e-book should cost:

Publisher’s margin (incl. lower risk of returns): $1.75
Author’s margin (assuming same income and increased volume): $1.20
Distribution costs (assumption): $0.50
Retail markup (agency model – 30%): $1.55
Total Expected Retail Price: $5.00

These costs are estimates and are not accurate, but should be within the expected ballpark and give an idea of the economics of e-book publishing.

Let’s compare that with the e-book cost on Amazon and Apple’s iBookstore:

Amazon: $19.67
Apple: $16.99

So the publisher, Penguin which set the price in both stores, is clearly gouging the consumer and trying to make more profit on e-books than paper.

For comparison, the paperback is being sold on Amazon for $10.88. Even at the recommended price, it makes little sense that a paper book is sold at a lower price than an electronic book. Especially in this case where the e-book is not offering any additional value, such as interactive elements, over the print addition.

At Digital Possibilities we fully support the need for companies and individuals to make a good sustainable profit from their content. However pricing points need to reflect the relative value that the consumer is getting from the electronic content with respect to the paper content, and need to factor in lower distribution costs and lower risk.

What is clear here, even though the numbers are rough estimates, the publishing houses are expecting to make much more profit from e-books than paper books; hence the DoJ’s investigation is definitely worthwhile for consumers.

Read our next post: How to make e-books truly competitive