Saturday, April 16, 2011

Ebook Sales Growth and Pricing

Yesterday it was reported on CNN Money, that ebook sales for February topped paperback sales for the first time. They soared past hardcovers last year, but beating paperbacks is great news for the ebook market and an indication of ereaders growing in popularity, and that ebooks are here to stay! 

But what does it mean for pricing of ebooks? I am in two minds.  On the one hand, I think there are publishers out there who hate ebooks; who think that they'll be pushed out by authors being able to easily self publish and peddle their stories. Back in 2008, ebooks and ereaders were dismissed as too niche to be messed with, that people didn't read enough to care about this market. Yet come 2010 and the advent of the horrible Agency Model (based on the Apple model and pushed by Apple whereby sellers like Amazon and Barnes & Noble are not permitted to discount ebooks) has wielded publishers with some weighted power when it comes to setting prices. The success of ebooks might make them realize they really are here to stay: let's embrace them!

On the other hand, here's a plausible reality of the shift in sales and what it means from a business perspective.

Putting aside the cost of ink and paper, to sell a paperbook, what else in involved?  Clearly there is a camp of people who believe that ebooks cost very little to produce and should therefore cost very little to buy. Forums and blogs all over the internet say so. I am sure I will miss some things but there is at least:
- authors pay (we want our entertainers to make a living, don't we?)
- editors. Ever read a badly edited book? Yeah, good editors are a good thing.
- agent fees. Not all writers have deals like Patterson and King!
- formatting & proofreading.
- marketing & advertising - can get very expensive.
- publishers overheads - staff still need to eat, the electric bill still must be paid even if they are just boring all fixed overheads.

For big publishers, they will also have to offset the cost of the flops... the up and coming authors that a publisher may have taken a chance on but it didn't quite work out. Or even the well known author who just wrote a doozy. At the end of the year when they add up the sales, they have to cover all of these costs - not just paper and ink.

Reportedly, these costs (and anything I have forgotten/ don't know about) amount to around 85 to 88% of the cost to create and promote a book. That leaves on 12 to 15% of the cost on ink and paper & and other paper-only costs. To make this super easy: if it costs say, $3 for the paperbook, then it costs around $2.55 to make the ebook.  That doesn't leave a whole lot of room to discount and make the same profit.   Businesses won't play ball if their profits drop too much!

Let's consider then what happens when ebooks take, say, 80% of the market. That means sales from paper books drop 80%. That means the money needed to pay the writer, the ad-guys, the proofreaders, the janitor, the person who adapts the digital format to 5 different platforms... that money drops 80%. Yet they can't take an 80% pay cut... that money has to come from the new sales. Of ebooks. Not that I am saying ebook prices should go up, or be as high as some of them are. But there's less room to wiggle that price & get as low as everyone wants them to be.

[Obviously the more sales one makes, the less the fixed costs matter. Example: If I buy a computer for $1,000 to write a book. If I sell 10 books, I need to add $100 per book to cover the cost of the computer. If I sell 1000 books, I need to add $1 per book. Ditto rent, staff costs, utilities.]

Despite my comment about more sales meaning less on the fixed costs... it does leave room for low volume self-publishing authors to step in. Without the famous name to back them or the power of advertising, self-publishers have always been at a disadvantage - but without the same big overheads as the publishers, Indie authors may have a little more room to play with the price without eating as much of their profits.  Cost for an Indie author won't necessarily cover an entire building of staff and utilities. At the most basic it could be just the author, an editor, a computer and an internet bill to upload the Amazon - meaning they can drop the price, reach the masses who browse ebook shelves very differently to how they browse the paperback shelves, and so hopefully still be able to earn a living by keeping us entertained!


  1. Being one of the little guys, I have a hard time liking high-priced ebooks and the companies that milk us for every cent possible. Maybe if I knew more about business & economics, I'd feel differently, but as a happy indie, with zero budget for advertising or much else, I love, love, love sites like ereader1! Yay word of mouth! Thank you so much!

  2. Hey Al! I think Kindle and the other ereaders are brilliant for indie authors - for me, I've read at least 20 indie authors in the past 2 years that I never would have heard of before.

    There's obviously still a big advertising advantage with big publishers, but seeing self-publishers do well is very encouraging!

    I'd love to see the prices all lower, but I do still see the business side of it just because of my 'real life' job running 2 small manufacturing businesses. There's far more cost into making a product than the material and the craftsman.

  3. The problem with your argument is that all of those things apply to traditional books. You are in fact eliminating one thing, the cost of producing a paper book. If a paperback can sell for 6.99 and have a profit margin then that same book in ebook will have a greater profit margin. That is why people like myself are having fits over the idea that a product with lower production costs and with limits on what we can do with that product cost so much more.

  4. Hi Jim

    For what it's worth, I hate the higher price points that some publishers have picked. I am 100% against the Agency Model that Apple pushed and the publishers jumped on, and I am all for pushing promotional pricing and always looking for bargains.

    The point of this was to highlight how much of the cost of a book has nothing to do with manufacturing and the cost of producing a traditional book. I didn't ignore the cost of manufacturing - I am a manufacturer myself (of completely unrelated items) so that's always my #1 consideration.

    According to published numbers, the costs that are exclusive to paper books amount to between 10 to 15% of the cost of publishing a book for one of the big publishers. The other 85 to 90% is all the other overheads, marketing, staff costs, writer, editors and covering the flops etc etc.

    From what I read today, since those sales were announced in Feb, ebook sales have doubled again. At some point, when paper sales are truly minimal, ebooks really do have to cover all the other costs involved.

    I agree, there is no way an ebook should be higher priced or necessarily the same as a paper book. But not the 99 cent price point, or even 2.99, that so many people all over the internet are demanding. Though I've seen some Indies make a heck of a lot of money selling 99 cent books, that doesn't work for most and it certainly can't work well with a whole team of staff and overheads to support, unless they are doing a loss leader kind of promotion.

    As I said, ebooks provide a platform where self-publishers can shine - *if* they can get by without the massive & expensive advertising power of large publishing houses.