Why Do eBooks Cost So Much? (A Publisher’s Perspective)

At least once or twice a week someone asks me, “So why do eBooks cost so much?” This is a fair question. After all, digital publishing eliminates the costs of physical manufacturing and distribution. What expenses do publishers have left?

3D Rendering of the Word “eBook” Using Conventional Type - Photo courtesy of ©iStockphoto.com/Franck-Boston, Image #12661284

Photo courtesy of ©iStockphoto.com/Franck-Boston

As it turns out, plenty.

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Let me begin by putting things in perspective. First, the retail price has already been adjusted. As you are probably aware, Amazon is selling most eBooks for $9.99. That is already roughly half the price (depending on the format) of the typical physical book.

While Amazon is currently buying these books from some publishers at a discount off the physical retail price of the book, this will ultimately change. When it does, publishers will net approximately 70% of the retail selling price or $7.00. (This is often referred to as “the agency model.”) This will fluctuate up or down, depending on where retail pricing levels ultimately land.

Second, physical manufacturing and distribution expenses cost less than you think. Some people assume that these two items represent the bulk of a book’s costs. They don’t. Together, they account for about 12% of a physical book’s retail price. So eliminating these costs doesn’t do much to reduce the overall cost structure.

Publishers still have to pay for acquisitions, royalties, editorial development, copyediting, cover and interior design, page composition, cataloging, sales, marketing, publicity, merchandising (yes, even in a digital world), credit, collections, accounting, legal, tax, and the all the usual costs associated with running a publishing house.

In addition, publishers have to incur at least three new costs:

  1. Digital preparation. Granted, most new books start out as a digital file. If they aren’t already digitized, then they have to be scanned or manually keyed in. But that’s only the beginning. Publishers must then format the books, so that they work on all the various eReaders.

    Currently, there are about six major formats. Some are similar, but each has its own nuances and quirks. In addition, publishers must collect and add all the relevant metadata, so that customers can actually find the books when they search for them.

  2. Quality assurance. Once the publisher gets the eBook formatted for a particular eReader, he then as to take it through a quality assurance process (often referred to as “QAing” the book) to make sure that each of the major eReaders renders the pages correctly. This is a time-consuming and laborious process.

    This is fairly easy with books that are straight text. But few are this simple. When you add epigraphs, pull quotes, tables, charts, graphs, illustrations, footnotes, etc., it quickly becomes complicated. In this sense book publishing has become much like software development. At Thomas Nelson, we have seven full-time people managing this process, and we’re currently looking for three more.

  3. Digital distribution. Once publishers have finished the QA process, then they have to distribute the files to the various eRetailers. You might think Amazon, Barnes & Noble, Apple, and Sony are the only ones out there. They’re not. We are currently distributing our eBooks to more than twenty separate accounts.

    Each of these has a different upload protocol and digital asset management system. When something changes in an eBook (e.g., simple corrections or a new edition), publishers must re-distribute the new file and ensure that each eRetailer has the current version. Publishers must also collect payments from these accounts, ensuring that they are getting paid for each download, so they can, in turn, pay their authors.

So far in our experience at Thomas Nelson, the elimination of manufacturing and distribution costs are being offset by retail price reductions and the three additional costs I have outlined. The good news is that we are making about the same margins, regardless of whether we sell the book in physical form or digital.

As a result, I don’t expect eBook retail prices to come down any more. If they do, then publishers will have to figure out how to make it work. But for right now, I think the pricing is fair, based on the associated costs.

Question: What questions do you still have about eBook pricing?
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  • Redreader

    Your initial assumption is a bit off for most readers. You say that “As you are probably aware, Amazon is selling most eBooks for $9.99. That is already roughly half the price (depending on the format) of the typical physical book.”

    That bit, “Depending on the Format” is REALLY important.

    As an example, “Ghost Story”  by Jim Butcher on Amazon currently retails for $17.04 hardback.  Kindle version is $14.99.  Paperback will be $9.99 (This price just went up a few months ago, one wonders if the publishers raised the price on paperbacks $2 to help justify ebook prices.)

    There is no justification for the ebook version being more than a paperback. If the publishing costs really are so much more than every other aspect of printing a book, then it goes to show, time for the publishers to evolve or die.

    We saw book prices suddenly all jump a few months back from 7.99 for a paperback to 9.99. At the same time all six of the big publishers all priced ebooks at no less than 9.99. In many cases the prices were the same as the hardback prices. (Which by what you say here, were already inflated!)

    The cost of printing a book and distributing it is only 12%? That might be true of a perfect bound paperback, but hardly true of a hardback, and hardbacks are what you’re basing your ebook prices against.

    This whole ebook price thing stinks. I’m not the only one who thinks so either. The DOJ is currently investigating into charges of conspiracy against Simon and Schuster, Hachette, Penguin, Macmillan and HarperCollins.
    I look forward to seeing where this goes in the next few months.

  • Davidtoth

    What your talking about maybe true, but bear in mind what started out as an idea, turned out to be a major profit for the publishing companies eliminating the cost of printing productions. But not to worry, the Justice Department is investigating price fixing by Amazon and Publishers, even though the wheel of justice turns slowly, they do turn.

  • Vince ba Bince

    How much do Ebook websites pay to own a book that they can rent to their customers?  Is it a pay per rent, or do they pay a one time fee and tailor prices accordingly to make back their money?  What is an average profit margin for the ebook renter on a textbook?

  • http://twitter.com/WilliamNyikuli William A. Nyikuli

    It just seems a little off (and the Department of Justice appears to share that view).  I mean why can’t book publishers follow the model of the music industry? Look at Apple. Their prices of digital music are lower than prices of physical albums in stores. Also music piracy is down.  There’ll always be a loss to piracy/stealing, but at the same time, there are many honest customers who don’t want to get ripped off and who don’t want their intelligence insulted either. 

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  • CRave

    It doesn’t matter what the publisher thinks it should cost.  Price elasticity is what matters.  And managing risk.  Let me explain:
    1) Price Elasticity:  regardless of what you want to sell the ebook for, I don’t want to pay it; and, therefore, as a consumer, I will choose not to buy it (some may even pirate it).  Either publishers aren’t thinking straight, or it’s a misguided attempt to preserve print.2) Managing Risk:  with printed volumes, you have to engage in demand forecasting:   how many will people buy a copy of a book?  Take a guess, then print a certain quantity.  If you run out, then you can’t sell as many as you’d like.  If you make too much, then you’re stuck with inventory.  And, storing inventory cost money.  So does discounting for clearance.So, while an interesting read, the author’s opinion means absolutely nothing in terms of managing customer value.  Ignore customer perception and microeconomics at your own peril.

    • http://michaelhyatt.com Michael Hyatt

      Thanks for your comments. We are watching price elasticity and demand very carefully. By the way, this article was written over two years ago. A lot had changed since then.

  • Sterks

    Utter Rubbish, Amazon sell mots books at $12.99 and above.  Secondly your distribution cost are cheaper than conventional books. So thats also rubbish.  Also the publisher has already got the book in the format required for publishing.  

    Its just a price fixing rip-off

  • Tom

    Hi Michael,
    Have you noticed what guys like bookboon.com are doing? If your pricing example is true how should that then at all be possible? According to publishing Perspectives they expect 50 million downloads this year.
    Best regards
    Tom

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  • http://www.facebook.com/jphoenix3 James Phoenix

    I see an eBook at 9.99 or 12.99 for example. Then I look on Amazon and see the book price is the same price or close to it. So the question becomes why should I purchase an eBook if I can get the physical copy of the book for near price? Sure I get an eBook immediately, but how will eBooks survive if they are not cheap enough?  

    • http://michaelhyatt.com/ Michael Hyatt

      eBooks are doing very well. Evidently, people are willing to pay this, otherwise the price would come down.

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  • Bookworm

    I understand what you are saying here, but it does not add up. For starters, we are talking about ONE book file, that has all the non-printing costs, which is then spread over hundreds, thousands, possibly millions of individual books. More digital books are sold, because there is no second, third, etc hand market. The same applies to loaning or lending in most countries. You don’t have to worry about returns for non-sales or damage, etc. Paper may be cheap, but let’s not forget ink, glue and labor. Storage and transport costs are not really all that negligible when you consider everything from warehouse space (temporary and permanent), then there is transport (vans, lorries, shipping, air), and the cost of keeping a book on a store shelf, competing for others for pride of place in many instances.  Thus marketing is more costly for physical copies. Then there is availability, where digital allows for instant purchase always available, so you can sell even more again. Then there is all that waiting for a print run, where you are under pressure to make Xmas sales, etc. I’ve written articles about all this and more on personal forums, but I’m quickly reaching the point where I want to go public about the rorting in a big way. Books on the whole, have been far too costly for too long as it is, and now the greed is going to increase with ebooks. Also consider the fact, that selling two books for the current price of one, may mean two authors get a sale and more are sold because they are cheaper. Publishers seriously need to change their modelling. Do you know how many ebooks I wanted to buy in the last 6 months alone? Heeps, but most of them cost too much, so I didn’t. And guess what. I didn’t buy the physical version either, because I only wanted the ebook one. Now I hope in vain most likely, for the prices to come down. All those lost sales. How foolish the publishers are, especially as I might eventually turn to free DRM stripped downloads, if frustrated and fed up enough.

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  • Mr TRUTH

    this is BULSHIT.  everything this guy portraits as “new” or “extra” costs can be done by a few people in 1 room.  NO transportation costs, NO storage costs, NO fabrication costs, NO unsold stock.  really, this whole article is a piece of rubbish, written by a piece of shit.

  • Frank

    Hey. Mr. Truth, let’s see your general ledger entries for running a
    digital book business. Show us
    how you can start, then run an e-book publishing and distribution business for pennies; paying salaries, web contractors,
    taxes, health costs, regular expenses, and then offer the e-book over the long term. Fifty-percent of of new books generate only $500 per year, less than the typical cell phone plan.

    Why do you think Amazon sells toasters? There’s no way to make a living selling e-books alone. So buy your $49 toaster and get a $.99 e-book. All creative, hard-working authors will gladly eat the burnt crust and crumbs if you care to share.

  • John

    $9.99 is half the pysical book.  What do you buy gold plated books?  I have never read so much BS.  Writers, sell ebooks yourself.  You will make more and the buyer will pay less.   

  • Confused

    I don’t understand why they are still so expensive when companies can shut your account down, and all the books you buy are gone. The purchaser doesn’t even own a book they buy in digital copy, and can disappear in the blink of an eye at the sole opinion of a company such as Kindle and Barnes and Noble, to name a few.

    I will probably never “purchase” ebooks, for that reason.

    • http://michaelhyatt.com/ Michael Hyatt

      No problem. I understand.

  • Frank

    There’s a better chance digital books will be available over the long-term. But why would someone shut down your account? The only reason might be abuse or violation of the user agreement…..and that doesn’t sound like something you’d do.

  • http://profile.yahoo.com/YC6OUMQLN7UCKPZLKGE7M5NDLM Dan

    When people want to know why something is getting more expensive the first thing I hear is shipping is going up because fuel prices are going up and manufacturing is going up because because materials are going up. Its not just shipping the books out to various retailers, its getting the materials to manufacturer. They say in this article that shipping is a small percentage. I don’t believe it.
    Then the three add on he mentions— 
    Digital preparation– why are there so many formats? look that up. Simplify it and make a single format. 
    QA? I do believe that a human has to look over a finished product for even the most advanced automated software but even then– once a book has been reviewed then you are down. Besides- what percentage of books have all the additional stuff that he mentioned?
    Digital distribution?- there are costs involved to don’t try to make us believe they add significantly to price. That is also a highly automated process where software has been available for years to accomplish.
    When a leisure book is first printed– it is typically in hardcover.. and the price is, of course, higher. When it is switched to softcover.. they lowered the price. So why is it when a new book comes out its e-version is still higher until the soft cover is available? There is no change in the way the ebook is distributed!
    Now– he didn’t maintain the one thing I would think would induce the most cost. Ownership tracking and storage. There has been software available to manage ownership tracking available for a long time and storage of a pristine digital copy (and its redundancies) that can be perpetually copied does not use that much digital space.. but the sheer volume of that can be staggering.
    Finally, even after all the digital costs are added.. taking away the physical manufacturing and delivery should leave a gap. A gap that could be passed to the consumer. 

    Dan

    • Frank

      So many armchair critics fail to recognize the combined electronic and human costs. All this jabber about low cost distribution and so forth is naive as well. Software development, servers, maintenance, links, bandwidth, licensing, copyright, business overhead, …on and on and on. The human costs for personnel are no different than any other business, including editing, graphic design, management, healthcare, salaries, …and don’t forget the poor author who needs a and deserves a considerable piece of the action, and rightfully so. The ninnies who expect everything for free or to be at substantially reduced cost like $.99 are simply business dimwits. Good luck getting literary quality when no one can make a fair living. Ask yourself the same question in the mirror  -  does my employer need me in an everything-for- free world? The consumer is getting more choice than ever right now, more convenience, and lower prices, but willing to spend $500 to $800 for an iPad without blinking….yet still whining when an e-book is less than a Starbucks latte.. Give me a break.

  • Steve

    Hi
    If you (UK users) were sensible (like me!), you would return your Kindles (not buy a Kindle) because with my KOBO I can visit my local Library (online) and download a huge selection of books for free.
    When I tried this with a (quickly returned) Kindle it doesn’t allow you to read them! What an absolute deal breaker. i.e. we (Amazon) are going to stop you using this part of your local Library.
    What a shame. The KOBO itself is excellent and the ‘borrowed’ library books sit happily on it for 21 days and then get ‘returned’ to the library for the next person to read.

    Steve

  • hunter

    I think ebook is still expensive because supply and demand.  Ebook doesn’t have much competition yet.  why do they have to lower the price.

    • Frank

       Expensive? A couple slices of pizza cost more than most e-books.

      • http://michaelhyatt.com/ Michael Hyatt

        Now that brings it into perspective!

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  • Nicthalon

    Why does almost every article on this claim $9.99 is half the typical book price?  Half of the typical hardcover, yes, but an ebook shouldn’t cost a penny more than a PAPERBACK !

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  • Slick1

    I hate to say it but I think this whole article is BS. The only part I believed was: “The good news is that we are making about the same margins, regardless of whether we sell the book in physical form or digital.” So what you’re telling me is; as long as you make just as much money you don’t care what the cost is?

    I guess this is why the DOJ sued the major publishing companies on price fixing.

    • Frank

       I agree, the whole article and argument is garbage, and old. But price fixing is illegal; making your margins and earnings stay the same or improve legally is brilliant business. So let’s drop this armchair commentary on whether or not e-books or print prices are fair or not. There are 300,000 companies in the USA alone that claim to be publishers, far more than and other media category except websites. There’s plenty of opportunity for competition – so the DOJ did the right thing slamming those few big traditional book names and Apple for attempting to crush the little guys. But everyone needs profitability, so stop harping how much – let the 300,000 publishers duke it out, and all the consumers will be the beneficiaries.

  • Dave

    Publishing companies see themselves as print book publishers so the cost of creating and marketing the books in e-book format is an additional cost (a nuisance). To the print book publisher, the e-book format is a convenience item for which they are entitled to a higher markup (profit) just as a grocery store would take a higher markup on a cake pan than on grocery items. Mr. Hyatt sells e-books at the price the market will bear. Since they have a monopoly on most of their titles, there is little incentive to discount. There are new businesses coming online who see themselves as e-book publishers and they see printed books as the convenience format. The market will change, but it will take a while.

  • Frank

    Is this topic really still being discussed? Print versus digital….consumers versus publishers….armchair critics versus people responsible for up-fronting the costs? Look, the human costs haven’t changed, except they get higher. Nobody can make a living at 99 cents a book when 80% of new books generate less than $500 in gross revenue per year. Take out production costs, sales tax, local, state, and federal income taxes, healthcare fees, rent, food, and utility bills and maybe then a lucky writer or publisher can make money at 99 cents a book. So please stop this foolish discussion for those who think everything on the Internet should be free. Face it, the slouches out there who want everything free online will pay $15 for a lousy pizza and beer….but a good writer’s hard work and a publisher’s risk is devalued by the same idiot.

  • Rowan

    Could you refer me to any source that outlines the investment costs for digital publishing (purchase of software etc)? For my master thesis, I am researching to what extent supply intersubstitutability exists between printed and digital books. Thank you in advance, Rowan

  • Joey Ebach

    Good article and explanation. But I think the rise of subscription models for books through companies like oysterbooks.com and nokbok.com is going to dramatically reduce what people are willing to pay for individual e-books. Publishers will have no choice but to reduce the cost. I’m not sure these companies will damage physical book sales too much though, because there are still a ton of people who prefer physical to digital, like myself.