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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  • Reggie

    Thanks for the great post, Michael. What do you think the chances are of there being a standard file format in the future that all eReaders can read? And if this does happen, I’m assuming the digital preparation and QA costs would go down. How much of an effect on the price would this have, if at all?

    • http://www.michaelhyatt.com Michael Hyatt

      I doubt that will happen. Amazon has a vested interest in controlling the format. So do many of the other online retailers. The last thing they want is for this to become a commodity. Having said that, I do think many of the peripheral formats will go away.

  • http://www.twitter.com/emmacunningham Emma Cunningham

    I think this is a great article. I work in ebook production, and felt that this did justice to the process.

  • A.M. Thompson

    Do publishers have a plan to deal with piracy?
    The music industry appears to be redefined by the digital age.
    And how are authors faring?

    • http://www.michaelhyatt.com Michael Hyatt

      Piracy with eBooks is minimal. Some big books get pirated but the biggest investment in any book is the time required to read it. It’s not like a song you can steal and consume in three minutes.

      I don’t think authors or publishers need worry about privacy. For most authors, obscurity is a much bigger danger than piracy.

  • http://www.oldsaltblog.com RickSp

    I am highly skeptical of the figures quoted. The 12% quote for production and distribution seems far too low.

    In Ken Auletta’s New Yorker article this year, “Publish or Perish” in the New Yorker of last April, he quoted the cost of printing for a hardcover with a retail price of $26 at about $1.80. He included $1.70 for distribution costs. So printing and distribution, using Auletta’s figures, are about 13% of the retail price. Of course, publishers are not paid the retail price. They are paid wholesale and get roughly $13, which makes the printing and distribution costs around 26% of their net proceeds. But publishers allow returns, which according to Auletta average 35%, so grossing up the costs as a percentage of the books actually sold, printing and distribution costs rise to over 40% of the revenue received by the publisher per book.

    Printing and distribution costs are a significant portion of the costs of dead tree books and are costs simply not incurred with ebooks. This savings should be reflected in the price structure.

    • http://www.michaelhyatt.com Michael Hyatt

      I can’t speak for all publishers nor do I know where Mr. Auletta got his numbers. At Thomas Nelson, manufacturing, inclusive of obsolescence, is about 9% of the retail price. Distribution costs, inclusive of returns processing, is 2.5%. I am pulling these numbers right off my year-to-date financials, so this isn’t theoretical.

      Second, our returns are less than 20%, but the religious publishing category doesn’t run as high as general trade. Even then, we turn around and resell these books, so you can’t simply add the returns percentage to the overall costs. Worst case is that we double our distribution costs on these returned books to 5% of retail.

      With the already adjusted retail prices of eBooks and the added costs I outlined in the article, I stand by my assertion that the costs are roughly equivalent as are our margins. (By the way, subsequent to this post, I looked at the pricing of Amazon’s top 100 paid [not free] eBooks. The average price is $8.81.)

      • http://www.oldsaltblog.com RickSp

        Except for returns our numbers are not so far apart. According to a footnote I know that Auletta’s original figures have been revised at least once, so I suspect that they are reasonably representative of costs in the US. The figures you quote are similar to Auletta’s. Your printing costs are higher and distribution costs lower than the figures he quotes. Your returns are lower than the average quoted for publishers in the US, which is great. Nevertheless, adding up your costs and assuming a 50% markup on wholesale pricing, which may not reflect your practices but is pretty typical of many publishers, the cost of printing and distribution is still approaching 30% of net revenue.

        My point is that e-books, even with all the associated costs do avoid significant printing and distribution costs, and should be priced accordingly. As a consumer I do get annoyed by some publishers who price e-books at or above the market price for hardcovers. For example, Amazon is selling Ken Follett’s “Fall of Giants” hardcover for $18.00 while Penguin has set a Kindle price of $19.99. Not only won’t I buy the book at that price but I am thinking twice about any book by Penguin these days. E-book readers are good customers and a tremendous potential market and should be treated accordingly. Some publishers, and I am not necessarily including Thomas Nelson in this category, haven’t gotten the message.

        • http://www.michaelhyatt.com Michael Hyatt

          I was basing the 12% cost number on retail. If you convert that to wholesale, even allowing for returns it amounts to 22–24% of wholesale. I am arguing that this is offset by the additional costs we have incurred.

          Regardless, I don’t disagree with your main point. I think it is absurd for publishers to price eBooks about the price of their printed versions.

          Having said that, I don’t subscribe to a cost-based pricing model. A book is way more than the hard costs. The value is in the content. I subscribe to a market-based pricing model. At the end of the day the “fair price” is whatever the market says it is.

          If publishers overprice their books, demand will fall. Eventually, they will get the message or be out of business.

  • Jem

    Simple question, though I’ve not read any other comments so it might already have been said. Why can’t we pair the two items together? Much like Blu Ray has with “digital copies”.

    I have yet to delve into eBooks simply because I like having my hardback on my shelf. This hardback I generally purchase on sale, unless it’s something I have to have on release day. This being said, I would quickly snap up an eReader and be buying hardbacks far more quickly after their releases. I can justify $20-$27 for both the hardback and the digital copy, but not $35.

    I am pretty stubborn, so I can guarantee you that I will not be nickled and dimed for something I already own one copy of, but toss it in as a bonus for free or a small bump in cost and you might have me hooked to this new craze.

    • http://www.michaelhyatt.com Michael Hyatt

      Actually, I think we can. I believe you will see more bundling of formats for people like us who want it more than one way. (I’d also like to see audio as an option, since I consume so many books while I run.)

      • Jem

        Well, simply put I think you made my day. Thanks.

      • http://mwlfblog.com Caleb Griffin

        That is great news. I wish more titles were released in audio format and bundled with other formats.

    • http://www.vampireacademy.org Marie

      This is also one of my biggest complaints when it comes to e-books. I talked to an older gentleman a couple of months ago, explaining to him the benefits to e-books, but also discussing the drawbacks. And for some reason it just hit me then: Why can’t we just buy bundles, exactly like with DVD/Blu-ray? Then if you’re just interested in the physical book, you can buy that, and pay full price; if you’re interested in the e-book, you can buy that, and pay full price. But if you want both you can get a discount. I simply don’t have the money to buy the same book twice, full price, for the convenience of it, but I’d love to be able to bring my book everywhere on my iPod.

      It makes me happy when you say that’s the way we’re heading, because it just seems like it’s obvious that we should, and I don’t know why it hasn’t happened yet. I think it would end a lot of book piracy.

      • Rob

        But I would think that Piracy could actually be kept at least at the level it’s currently at(which let’s face it, is alot) by taking preventative measures. Use scratch off pads for the code numbers on the inside of the hardback, like a phone card. Or just seal the book in plastic like a magazine. There are methods to minimalize piracy. Then once you’ve obtained your DL code from the book you could just DL it from the publisher’s website.

        • http://www.michaelhyatt.com Michael Hyatt

          There’s actually very little piracy. This is a problem largely promoted up software vendors selling Digital Rights Management software. I haven’t seen a study yet that demonstrates there is a significant problem. As I said in another post, for most authors, obscurity is a vastly bigger problem for them than piracy.

          • http://www.sarajhenry.com Sara J. Henry

            Did you just say “very little piracy”? Are you talking digital files of books? Writer could spend hours a day tracking down copies of their books posted on the internet for free download – completely illegally, of course. It’s a huge problem. You could argue that those people downloading free illegal files wouldn’t have bought the book anyway, but there’s no way to back that up.

          • http://www.michaelhyatt.com Michael Hyatt

            Yes, “very little piracy.” There have been several industry studies done, and we are participating in one now. It is just not a big deal overall. Like I said early, most authors have more to fear from obscurity than privacy. Thanks.

        • http://www.vampireacademy.org Marie

          Yes, I think there are certainly ways of preventing those kind of things (although, that’s more like shoplifting than piracy if the code for example can only be used for one download).

          What I was talking about was more the moral aspects. There are heaps of pirated books out there, regardless of scratch cards or sealed books. By creating bundles you could prevent the piracy that happens when a person buys the hardcover, but still wants to be able to read the book on the bus without having to have a bigger bag just to take the book with them.

  • http://dimsumthinking.com Daniel Steinberg

    I hope the following does not sound disrespectful. I learn a lot from your posts but disagree with your conclusions today.

    I don’t want ebooks to come down in price, I want authors to get a greater share of the pie. I’ve been an author for 25 years and have published books with half a dozen publishers. I’ve also worked for two decent sized publishers. Your world as a publisher is changing but so is mine as an author. I would say that you’ve left out a crucial piece of your costs — the cost of editing the material and bringing it to market. The cost of targeting the different formats should not be the highest part of targeting ebooks.

    I’ll grant you that the publisher’s share of the total pie has decreased as the channel has squeezed the publisher. Amazon and the channel take nearly 2/3 of the cover price of a physical book. Amazon began the kindle with the same pricing model. The iPad forced Amazon to adopt two pricing models but it’s not clear to me how a book sells to both platforms and gets the better deal from Amazon as both sides insist they not be underpriced by anyone else.

    For some titles, a good publisher is the only way for me to get my book onto the shelves at B&N and Borders which helps get it noticed at Amazon. Publishers are not marketing books in any meaningful way.

    I don’t know what percentage you pay authors but a traditional publisher often pays 10-15% of net. This amounts to somewhere around 5% of the cover price. For digital publications that seems wrong to me.

    So again, I don’t think eBooks cost too much, I think the publisher’s share is too high.

    • http://www.michaelhyatt.com Michael Hyatt

      First of all, your comment is not disrespectful in the least. I don’t expect everyone to agree with me. In fact, I don’t always agree with me. ;-)

      I can’t speak for other publishers, but at Thomas Nelson, I want the eBook royalty rates to be comparable to physical book royalty rates. Because, as I have argued, our costs are roughly comparable, and because we are certainly not making any more money on the digital editions, I think it is fair to maintain roughly the same print rates.

      Based on my experience, the royalty rates you are quoting are WAY low. I don’t know of any authors who settle for 5% of the cover price. I can’t get into the specifics without creating issues with my own authors but suffice it to say that we pay much, much more than that. Maybe you need to challenge your agent. 5% is not standard even for first-time authors.

  • Nora

    I have really mixed feelings about his issue. It’s good to better understand the process- I like that.
    However, I have found several ebooks that are priced higher than the Hardback Edition and quite a few that are more than the paperback.
    As a retailer I bought products from wholesalers- not one of which told me what price to charge for the products I bought from them. I could choose to lose money on them if I wanted to. In my view, the publisher is the wholesaler and Amazon (an example) is the retailer. Once the books are sold by the publisher, the books no longer belong to them.

    As a retailer and consumer, I want to be fair to everyone including my self. I absolutely love my Kindle. The funny thing is, since having my Kindle, I have purchased some books both in the Kindle edition and the paper edition. My husband does not use an ereader.

    In the end, the consumer will decide. We either buy the books or not. I have discovered many free books and some wonderful indie authors since having my Kindle. I evaluate each book, its price and how much I want or need it individually, but I resist those higher ebook prices whenever I can. That is how I cast my vote on this issue. No bad feelings, just my thoughts. I just want to read.

    • http://www.michaelhyatt.com Michael Hyatt

      I just did a quick analysis of The Top 100 Paid Books (not free) on Amazon, the average price was $8.81. Of the 100 titles, 21 were priced at $9.99; 50 were less than $9.99; and 29 were more than $9.99.

      I totally agree that in the end the customer will decide. I am all about letting them vote with their wallets!

      Thanks for your comments.

      • Nora

        I see your point and still have mixed feelings about the subject. I’m obviously not reading the most popular books on Amazon. It isn’t every book but it isn’t a rare thing for me to find that the paperback edition and some hardcover editions are cheaper than the ebook. The funny thing is, I’m buying more books since having my Kindle, than ever before. I follow a Kindle forum where many others have stated the same thing. Surely, this is beneficial to everyone including the publisher. I don’t want to be argumentative. Really, I want it to work for everyone. Have a great evening and thank you for giving me something to think about.

      • Nora

        Ugh! I just tried to buy Tribes by Seth Godin. The hardcover is $14.25, the paperback is $10.19 and the Kindle edition is $16.99. Sigh!

        • http://www.michaelhyatt.com Michael Hyatt

          I just checked this myself, because I couldn’t believe it. You are right. This is really dumb. I don’t know what the publishers i thinking. (Perhaps they are not!)

        • http://tatumweb.com/blog/ Rich Tatum

          I see it as $14.25 currently.

          • http://www.michaelhyatt.com Michael Hyatt

            That link didn’t go anywhere for me. If you go directly to Amazon, you get the $16.99 price. However, that look like it may be Amazon’s pricing issue since the print list price is $20.95.

          • Nora

            Barnes and Noble– Ebook $16.99. Hardcover price $15.08.
            Hastings Hardcover price $20.95.
            Oh well!
            It’s interesting to follow but I’d rather be reading the books. I’m patient. Either way, reading your post Michael has been good for me- I learned some things I did not know. I follow your blog and Seth’s. Happy Sunday evening.

  • http://yamabe.net Brian Yamabe

    While I can appreciate that the publishers’ costs are agnostic, until digital resale is feasible, the consumers costs are not. I’m not buying a digital book above the impulse buy price of around $10. Why? because if I buy a $19.99+ ebook and it’s a stinker or not reference worthy, I have no way to recoup even a part of that. I’ve bought plenty of $24.99+ physical books from Amazon, found them lacking and sold them used been out less than $10.

    Until publishers and platforms solve the resale issue my main source of ebook purchases will be the various ebook “deals of the day” (even then O’Reilly lost me with their new pricing policy).

    • http://www.michaelhyatt.com Michael Hyatt

      But doesn’t the sampling program that Amazon and Apple use solve that problem. You can read part of it and see if you like it purchase it.

      With regard to resale, I am a bit prejudiced since neither publishers or authors participate in the second sale. I would be happy to see it go away. (Just being honest.)

      • http://www.myfriendamysblog.com Amy

        I understand but what about giving away books? It’s impossible to keep every book I acquire. Also surely you’ve sold a used car or participated in used goods in some way. Buying things new simply isn’t an option for everyone.

  • http://www.passionaustralia.org/blog Dave Quinn

    Thanks for explaining that. I have often wondered about that question. I (like most people) thought that the printing and distribution was more than 12% of the cost.

  • http://ModernServantLeader.com Ben Lichtenwalner

    Thank you for this very informative post, Michael. I would still have the following questions (apologies if someone asked these already – I did not see them in a quick scan):

    1. Publishing Support Services: In researching self-publishing service providers, like WestBow Press, many of these services are available for self-publishers. This post could also be a selling point for using these services. Are there any key differences to watch out for with these service providers?

    2. Text-to-Speech Readers: As a long commuter, I was excited to learn of the text-to-speech capabilities built into Kindles. However, I found many authors (publishers?) opting out of permitting this capability by book. Any thoughts on this? I am excited about how TN is leading the way with NELSONFree, but do you foresee TN broadening this program or other publishers pushing to open this up more?

    • http://www.michaelhyatt.com Michael Hyatt

      Thanks, Ben. With regard to #1, I am really not that familiar with the support services offered by other providers. I would ask for references and then check them out first.

      Personally, I don’t like text-to-speech. I just don’t think the quality is there yet. However, having said that, I think publishers should include it, especially for the sake of the visually impaired. It opens up a whole new world to them.

      The results from NelsonFREE weren’t very positive. It didn’t appear to move the needle much in the limited testing we did. However, we do think bundling is great tool, and plan to experiment more with that as the CHristmas season approaches. I think you will see this from a lot of publishers.

      Thanks.

      • http://ModernServantLeader.com Ben Lichtenwalner

        Thanks Michael. I’m bummed to hear that NELSONFree results are not more impressive (yet?) and hope future results are more impressive. It seems to me, if you buy one format, you should get the others as well, at least at a less-than-full-price point. However, perhaps I am not the norm here. As always, thanks for sharing.

  • Beth

    Fine. I understand. But why then was the most recent ebook I wanted to buy a dollar more than the HARDBACK? It seems ridiculous to me.

    • Beth

      I want the author to earn what he/she deserves but without the cost of ink, paper and distribution, I think the ebook should be cheaper!

      • http://www.michaelhyatt.com Michael Hyatt

        They are cheaper in almost every case. Occasionally, you find an eBook that is priced higher than the physical one. This doesn’t make any sense to me either. However, of Amazon’s Top 100 paid eBooks, the average price is $8.81. I check yesterday. Almost 50% were priced at $9.99 or less.

      • http://www.bookbrewery.com Bjarne Bjerklund

        Seems ludicrous doesn’t it?

        The answer is quite simple really. When you buy a paperback or hardcover book at amazon, you’re buying the book from amazon. When you buy an e-book you’re buying it from the publisher.
        Amazon gives you a significant discount due to their deals with the publishers.

        Sad, but true.

        • http://www.michaelhyatt.com Michael Hyatt

          Actually, yes and no. Many publishers (like my company, Thomas Nelson) sell eBooks to Amazon under the same terms as print books. In other words, they buy at a discount off the retail price of the print version and then price the eBook at whatever price they want. We do not set the prices. Other publishers have moved to an agency model with Amazon, so they are, in effect, setting their own prices and selling the books themselves with Amazon acting as the agent.

          However, even in the “agency model,” as it is now called, publishers don’t have absolute freedom to price the books however they want.

          If this seems complex and confusing, it is because it is. I am sure it will ultimately get sorted out. But for now, we are in a state of flux.

  • Jennifer

    I work in the college textbook market and this idea of bundling is actually the most popular way to receive an ebook in our market. They CAN be purchased as a stand alone to replacement the print product, but then it can also be ordered bundled with a new book at minimal, or in most cases, no extra cost. Right now these Ebooks are web based and include other activities, study tools, and media. I’m sure the model will adapt as reading devices become more popular with students. Another option most publishers provide in this market is the Ebook and study materials packaged with a less expensive 3 hole punched version of the text for only a slight additional cost over the Web Only option- the idea being that these versions will not enter the used book market so the savings comes at the beginning of the semester instead of at buy back. I think it’s a win-win business model for the publisher and student.

  • http://blog.cyberquill.com Cyberquill

    I’m wondering why books never seem to contain any advertising except for little teasers about other books by the same author or publisher in the back of the book. But why not include a paid ad every 20 pages or so? Perhaps that way, a publisher could “sell” books for free and live off the ad revenue. (Needless to say, I know nothing about book publishing, so I’m sure there’s a very good reason why this isn’t done.)

    • http://www.michaelhyatt.com Michael Hyatt

      I think that will be tested in the future. The problem previously is that the ads became obsolete faster than the book. Imagine opening a book you bought five years ago, seeing ads for outdated products or companies that no longer exists. However, in electronic format this can be fixed. The book can ping the cloud and load relevant ads each time the book is read—kind of like a Web site.

      • Jem

        I see this all the time in graphic novels (comic books). That being said, I’m not a fan of ads. If I’m buying the book I don’t want to see an ad in the middle of it, the product had better be free for me to watch/ read ads.

        Cable was designed to pay and not have ads, much like HBO and the “premium channels” do now. We’ve become so commercialized that even products that we pay for are now having ads, and the cost hasn’t been subsidized one bit.

        If ads are brought in, then what prevents publishers from doing the same thing? Not all companies out their have the Christian principles like TN.

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  • Gary

    I was self-employed for a number of years and I know that there are costs associated with production/manufacturing that the end-user does not even realize. Further, in a capitalistic society there is this thing called profit. The question that each producer faces is how much profit can I squeeze out of this before someone else jumps in, which presents opportunity to others. I own a Kindle and love it, one day someone may compete with them because of profits oh wait we have the ipad, the nook and etc. That what keeps most areas at and “honest” profit is competition. I don’t like paying any more than I have to, but the cost of e-books is not that unreasonable. There is something to be said for the convenience of sitting in the park and download the latest.

  • http://stevenahill.com/ Steve Hill

    Thanks for taking some time to explain this. I would imagine that a company like Amazon has quite a bit of bargaining power over the publishers of ebooks, because they seem to be the place to go to get them. Do you find that is in fact the case?

  • Chris

    Thank you for being willing to discuss this topic so openly. It is definitely of great interest to anyone who loves books. One question that I have is whether or not the authors are seeing increased royalty rates for ebooks. You touched on royalties in your list of costs but did not provide too much detail. Just trying to understand if that might explain the lack of lower pricepoints for EBooks.

  • http://burleyblog.blogspot.com Lisa

    I work in an academic library and we get this question all the time. Thank you for giving a concise answer from the publisher’s perspective. I hope that with time, we will have some standardization of format so that purchasing an e-book will not be device specific. I also like the idea of including a digital copy with the purchase of a physical copy, but that is probably cost prohibitive for all but the largest publishing houses.

    But thanks. I will probably be referring people to your explanation rather frequently.

    • http://www.pastorbrett.com Brett

      I love the idea of getting the digital copy with the physical copy. In fact, I have really appreciated it when a book includes a CD or DVD with it. I would be willing to pay a dollar or two more for a physical copy if it means I could also have access to read it on my iPhone when I’m out and about.

  • Eduardo Grandio

    After reading your blog I got a Kindle. Now I am finding difficult to find classic works of literature and other books for free. I though these were available. Are they? If so, do you have any recommendations on how to find them? I am also very interested on leadership books.

  • Greg

    Michael, Thank-you for the informative post. I’ve noticed a few blog posts lately about POD (print-on-demand) as a method for authors to receive a higher proportion of the cost of the product and to make these products accessible through the Kindle or the iPad. A few asserted that many of the functions of traditional publishers can be assumed by well-informed authors or through service providers. I’m still inclined to believe that working with a reputable publisher will result in a higher quality product that has to clear more hurdles and meet more stringent requirements to make it to market. I would be interested in your thoughts on this issue.

    • http://www.michaelhyatt.com Michael Hyatt

      The problem is that the book market is very fragmented. I think authors have to assess how they want to spend their time. Do they really want to be interfacing with myriads of retailers, negotiating discounts, collecting accounts receivable and fulfilling orders? Or do they want to create and let someone else handle “the ugly stuff”?

  • http://tatumweb.com/blog/ Rich Tatum

    Excellent post!

    One reason why some ebooks are more expensive than the physical book is that as lower-priced physical editions are released, the physical price comes down while the digital price remains the same. The industry is still young enough that publishers are not always in control if the digital price and when they are, they fail to issue price changes to the various etailors distributing their digital titles.

    I’ve seen discussions about pricing discrepancies where authors and consumers speculate that publishers are doing this intentionally in order to discourage sales, but I don’t believe this to be the case. The reality is that once price points get set, then the publisher likely moves on to the next project, rarely revisiting the price points for digital product. OTOH, physical book prices get reviewed all the time. When additional print runs are ordered the price gets reviewed. Same for When cover art or packaging gets updated, when production costs increase, when alternate formats are issued (hardcover-to-softcover), and when subsequent editions are released.

    There are many opportunities for physical book prices to move around, but rarely do ebooks come under that kind of repeated review.

    Regards,

    Rich

  • http://thoughtsaboutnothing.com Kyle Reed

    It just seems like for the pricing point they should be taking advantage more of the e side of things. You know, very interactive with media, music, art and interaction.

    I just wonder where that is?

    • http://tatumweb.com/blog/ Rich Tatum

      Most publishers are still just trying to get in the game with standard electronic facsimiles of their print products. There’s no agreed-upon standard yet for what consumers wnt with interactivity in their content. Do, rather than spin up a lot of expense and infrastructure for features (and cost) the market may not bear yet, they’re taking a wait-and-see approach to learn what shakes out.

      Publishing houses are very conservative when it comes to this kind of innovation. The profit margins on books are small enough to discourage a lot of risk in pioneering untested formats.

      Regards,

      Rich
      AKA BlogRodent

  • http://www.twitter.com/jodyfransch Jody Fransch

    Mike, I’ve always wondered why ebooks were so expensive, so thanks for sharing some insights about the whole process from a publishers perspective.

    I believe that in this digital age we are living in…ebooks are the way forward.

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  • http://twitter.com/NowInANutshell @NowInANutshell

    I used to think authors choose ePublishing because its relatively lower cost. But now I get an understanding of the process can be as rigorous as traditional publishing, I’ll value my eBooks as I do hardcovers and paperbacks. But I’d like to know, what some factor/s will make eBooks price go down, will there be, like new technology?

  • http://twitter.com/NowInANutshell @NowInANutshell

    I used to think authors choose ePublishing because of its relatively lower cost. But now I get an understanding that the process can be as rigorous as traditional publishing, I’ll value my eBooks as I do hardcovers and paperbacks. But I’d like to know, what some factor/s will make eBooks price go down, will there be, like new technology?

  • http://curtismarshall.tumblr.com Curtis Marshall

    The explanation about the cost of e-books is great! I never realized such a small percentage goes into the printing and distribution.

    So what about audiobooks? I know this diverges a little from the topic at hand; but why do audiobooks cost so much? I understand that there is some additional cost to having someone read the book, but all the formatting issues with e-books should be minimized by the singular format.

    Honestly, I get most of my audiobooks from the library due to the cost, but I would love to buy more if I could find them cheaper.

    • http://www.michaelhyatt.com Michael Hyatt

      The reason audiobooks cost so much is because of the upfront production costs. You have to hire a good reader, plus an audio engineer to record and edit the final product. In general, we will only sell 5–10% of what we will sell in print, so we can only afford to create audiobooks for the most popular books. Thanks.

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  • http://www.shortthoughts.com Jeff Short

    I realize I am late to comment on this post, which is kind of like shouting into the Grand Canyon. I really appreciate this explanation. It is very helpful to hear it from this perspective. I do think this may not resonate completely with the typical book consumer, because we probably do not pay the cover price for new books. I’ll admit that I have very rarely paid the cover price for a new book. At the very least, I have probably paid 20% less than that price.

    I am not saying that the current price of eBooks is not justified. I am just stating a reason why I think many consumers still think it feels too high. I would love to hear your thoughts on this.

    • http://www.michaelhyatt.com Michael Hyatt

      Jeff. This is a good point. Of course, as publishers we don’t feel that, because the retailer is taking the discount out of his or her margin.

      • http://www.shortthoughts.com Jeff Short

        The other thing I would add is the price of the paperback release. When the paperback hits the shelves it is nearly half the price of the hardcover. So e-books are very close in price to the paperback edition.

        Do you foresee e-book prices following a trajectory similar to DVD’s in the future? When a film first becomes available on DVD, it is around $20. With six months or so the price drops to about $12.

  • upneguy

    The financials all depend upon the context of the publisher. In the University Press world our total sales of a book, on average, are under 1000 copies. At that rate plant costs (fixed costs) are 60-65% of the total costs. This can easily mean $6-$8 of fixed cost PER BOOK sold. We do not believe that pricing a eBook at $9.99 is magically going to increase our sales by 300%.

    And don’t forget at this point publishers are still issuing print and electronic simultaneously. That means print-only fixed costs are still in the budgets and must be paid for. There are plenty of book designers, production managers, and typesetters out there that hope their jobs don’t go away in the digital realm. If we had a digital only delivery system it is true that many of these costs would go away but not while we are running dual production operations. Personally, I don’t believe print will go away any time some.

    Then there is the erosion in return. When you lose $29.99 print sales to $9.99 electronic sales and your fixed costs remain the same it is a significant financial burden to the publisher.

    There’s lots to consider in book pricing.

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  • http://www.simon-royle.com Simon Royle

    I appreciate that at least one major publisher is taking the subject of eBooks seriously. I do have a couple of question marks over the 3 added costs.
    Using available software formatting is not a very time-consuming cost. I can format a straight text eBook in about an hour (roughly 120K words book). I can then take that file and convert to the different formats.
    Most of the QA I have done takes maybe another hour tops.
    Distribution to 20 outlets? Surely that’s a template canned email and an attachment or six (what 30 minutes with a coffee break?).
    At least you didn’t claim the high cost of digital storage as one of the CEO’s of a major publishing house did.
    Kudos to you for your efforts at being online and explaining your position clearly.

    • http://tatumweb.com/blog/ Rich Tatum

      For most publishing houses (all?) physical book production drives the creation of a new title. The digital versions come *after.* So, creating an ePub (source format) of a new book is not as simple as converting straight text to a given format. The source file for an ePub will likely be a finished InDesign file, or something similar. *Lots* can go wrong and invariably does. Running heads, page numbers, soft-returns, soft-hyphens, and physical page breaks all have to be stripped. Then you have to decide what to do with extra-textual features like pull-quotes, sidebars, inset text, epigraphs, and images. (if you’re using images you also have to verify that you have digital rights to distribute those images in perpetuity.) Initial caps (those decorative letters used as the first character in a chapter) have to be re-integrated into the text.

      There are dozens of thing that have to be remediated to make a book suitable for conversion into an ePub. It’s not easy.

      When digital begins to drive the production process, this will change. But it doesn’t yet for *most* houses.

      Sending that file to etailors is easy, certainly, but many of them insist on creating their own versions of consumer-facing files (Amazon, for example, creates the .mobi/Kindle version), and each requires QA. If there’s a problem, you have to fix the source file, not the etailor’s version, and resend and perform more QA.

      Despite the presumed ease of conversion, every ebook I’ve ever read from major publishers had artifacts and errors owing to the conversion process. It’s definitely not state-of-the-art yet. It’s still time-consuming, and it’ not cheap to scale. 

      Regards,

      Rich
      AKA BlogRodent

      • http://www.simon-royle.com Simon Royle

        Yes I understand your point, which is, and please correct me if I’m wrong: formatting, QA and Distribution are expensive because we start the process in the wrong place, using the wrong tools…

        Would that be a correct assessment? That’s a poor excuse to pass on to the consumer as to why the product is expensive.

        • http://www.michaelhyatt.com Michael Hyatt

          No, that is not a correct assessment. We use the latest tools including InDesign, Calibre, etc. We also resigned our workflow a couple of years ago to optimize the eBook development process. I am sure we will continue to adjust, but our tools and process are state-of-the-art—for today.

          • http://www.simon-royle.com Simon Royle

            I didn’t think it was, judging from the comments that you had made earlier.

        • http://tatumweb.com/blog/ Rich Tatum

          Publishing houses are in the middle of changing processes to accommodate ebooks In general, though, while your assessment might handily summarize what I said, your conclusion is not what I implied

          Publishers focus their time, processes, and infrastructure to produce the product that runs their business best. Right now that’s not the ebook–so giving physical books a lot of attention is not the “wrong place” to start from (yet).

          Regards,

          Rich
          BlogRodent

    • http://www.michaelhyatt.com Michael Hyatt

      How many eRetailers have you actually worked with? The formatting is much more time-consuming that that what you have described. The QA process is also not something you do solo. You have to submit the file to the eRetailer, get their modified version back, and then QA that. It is an iterative process.

      I don’t know of a single eRetailer that would accept emails with attachments. (We would we sending scores each day, and we’re just one publisher.) Instead, we have to submit the files, using their back-end system, along with the metadata.

      Producing eBooks in a production environment is much more analagous to software development that traditional book editing and manufacturing.

      Thanks.

      • http://www.simon-royle.com Simon Royle

        I’ve “actually” worked with three. I know that you are more experienced in publishing than I am, which I why I phrased the points as “question marks”.
        Funny that you mention software development, I am a CEO of a software company. In software our primary costs are development, and testing. Distribution cost (excluding physical product) is negligible.
        Thanks for your answers.

        • http://www.michaelhyatt.com Michael Hyatt

          Thanks for clarifying that. Imagine shipping thousands of products (eBooks) that have to work on numerous operating systems. That’s a bit of an over-simplification, but it also explains how digital publishing is similar to software development and why it’s harder than you might think.

          I am sure that the tools will improve as well as our process. Regardless, overall eBooks are still less expensive than traditional print books. I realize there are exceptions, but as I pointed out above, of Amazon’s top 100 paid books (not free), the average price is $8.81 per book.

          Thanks for your comments.

          • http://www.simon-royle.com Simon Royle

            What you describe (which is the difference between my “one-man-band” and your giant publishing) it is very similar to developing software for mobile. In Indonesia, one of our primary markets, we have over 20 million subscribers to our software products. There we have to format for each operating system and in quite a few cases adapt to hard-code in phones.
            I am sure that eBook prices will fall further, I’m also sure that you’re ahead of your mainstream compatriots in this field.
            As I said earlier Kudos to you for taking the time to talk to your customers via this blog, and answering questions personally. For that alone, if it means anything, you have my respect. Oh and thanks for visiting my site – isn’t technology great :-)

  • http://www.kathyfannon.com Kathy Fannon

    Wow, I had no idea! Thank you for sharing this, Michael. I never really thought about all that is involved in publishing a book. I learned a lot from your post and the comments. I’m not a fan of eBooks because I like to have paper in front of me to make notes, draw arrows and circle things…I’ll stick with paper (as long as I can)!

  • Jenny H.

    Thank you for sharing this. It was helpful from a consumer’s perspective to understand the nuts and bolts impacting the prices we’re paying.

  • http://papajoesfantasticworld.com Joe Vadalma

    If it costs so much for you to do these tasks that you cannot sell below ten bucks, how come my small press publisher can sell my ebooks for five bucks and make a profit.

    • http://www.michaelhyatt.com Michael Hyatt

      Honestly, I don’t know. It all depends on the publisher’s cost structure. Do the provide all the services I outlined above? Editorial? Marketing? Distribution?

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  • http://www.christopherscottblog.typepad.com/ Christopher Scott

    As ebooks become more popular and more widely read, they should become less expensive, right? Or will the price increase because there will be more demand.

    Just my preference, but I only read nonfiction books in paper books. If it’s fiction, I don’t mind ebooks. But anything nonfiction I like to be able to write in the margins and file away quotes for future reference.

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  • Tiffany

    The physical book will eventually go out of style, like the cassette player, the typewriter, and various other things our grandparents used to play with. Is it say to assume that when book eventually become digital in distribution that the price of the existing ones will increase?

    • http://www.michaelhyatt.com Michael Hyatt

      I think the market will determine this, depending on what consumers are willing to pay.

  • Greg

    I think one obvious flaw in this analysis is in the volume of sales.

    With physical copies, the manufacturing and distribution costs are going to be ongoing costs for each copy, albeit somewhat diluted by volume. From my understanding (which is that of a layman and may be incorrect), such costs come in batches. In other words, for 10,000 copies you would sustain a cost of $25,000, which for accounting purposes you would then break down to the per unit cost. For certain tiers of purchasing, you will pay reduced costs per unit for these batches. Regardless, every unit will mean a sustained cost.

    With Electronic formats, the extra costs you describe are a one-time expense. I expect it is a significant expense, but once you have taken it selling a thousand copies will cost the exact same amount to you as having sold a million copies. Anything past the point of meeting these expenses will be pure profit.

    Which means that at a certain level the costs will be approximately even, as you say. Past that point, the costs for E-Books goes down sharply while the physical books will remain relatively stable. This goes for most of the other costs as well, of which I’ll accept the point of being the majority of the costs associated with publishing the given book.

    For example the editing will similarly be a certain level of expense, and the more copies of the book you sell the more diluted this cost becomes because the expense never rises. I understand that there are a few expense that will not fall in this category (i.e. author royalties), but most of the expenses you describe would presumably fall here. This, however, is outside of the scope of the article so I will leave it be.

    The short of this is that while smaller publishers may never reach far beyond this peak with the sales volume, an E-Book copy of a NY Times best seller will have the given costs reduced to the point of being pennies on the dollar you describe. In the experience I’ve had, this has not affected the cost of the E-Books to the end consumers. In fact, the highest volume sellers, in my experience, have been amongst the highest cost E-Books to purchase. While I, coming from the business world, understand the need to make a profit, I feel reduced costs should be at least partially reflected. This reticence to adjust to the E-Book market appears to me, unfortunately, to be the primary reason the expansion of this market is growing as slowly as it is despite the book in electronic readers and larger awareness by consumers.

    • http://www.michaelhyatt.com Michael Hyatt

      Thanks for your thoughtful response.

      One thing to keep in mind is that this is the FASTEST growing segment of the publishing industry by far. It is nothing short of astonishing. Our own eBook sales are up almost 300% over last year. The rest of the market is similar, so I don’t think that price is slowing down growth.

      Second, there are indeed fixed costs that, once you have recouped them, go away. But this is really no different that physical books. They are just different.

      I am confident that the market will ultimately determine the right price, regardless of the arguments made. At the end of the day, people vote with their pocketbooks.

      • Greg

        I’m always looking to learn about things, and I found your article very interesting despite having some argument over the details.

        The boom of E-Books is definitely amazing, which can be attributed to several factors including the number of newly released E-Readers (along with presence in physical stores, as well as price reductions), more awareness of them in the public consciousness, and more widespread acceptableness (for lack of a better term) in the public eye. They really have come along way from the geek’s toy of a couple of years ago.

        That said, my point was that pricing was holding it back from the growth it could be sustaining. From my subjective experience many people I know are hesitant of or avoiding E-Books because with the lack of significant pricing differences they don’t wish to spend a chunk of money on a relatively expensive electronic device. Frankly, there is a $200 or so buy-in required before you can even start reading E-Books (unless you wish to read on a computer, which the vast majority of consumers don’t wish to). Even I have found myself purchasing a few physical books rather than their E-Books, despite having almost entirely switching over to electronic format. While exploring hypotheticals is always a fool’s game, I think it is fair to say that given a larger markdown for the format the growth could be significantly higher. How much higher? Impossible to say, but my subjective experiences suggest that it extremely large.

        As far as the pricing, the difference is really in that physical books sustain all the volume based costs, while the E-Books only absorb some of them. Once you get past that magic volume number where you’ve essentially paid off your fixed costs, the electronic format will be primarily profit while the physical copy will be comparatively more expensive.

        Without having realistic numbers, it’s hard for me to explain properly. To give an example, though, in my industry we have manufacturing costs that have fairly significantly varying production costs. We have some product lines, and customers for that matter, that we sell at very thin margins just to increase volume. That increased volume will actually dilute costs across the board (including to our more profitable lines/customers) thanks to shared labor, administration, overhead, etc. It seems to me that the publishing industry is subsidizing the costs of the physical copies by having wider margins with the E-Books, and thus increasing profits. While this is hardly an immoral strategy (companies are in the business of making money, after all), this seems to more be ingrained more in resistance to the new format than in directly making profit. Regardless, I can’t help but feel that the matter is being intentionally obfuscated by the publishing industry. Whether that is still due to resistance to change or in trying to protect the new high margins that the industry is suddenly realizing it has, it seems counter-intuitive to me since it is undoubtedly inhibiting growth to some extent (though how much is up for debate, as above).

        Regardless, I do agree with you that supply/demand economics will eventually have its way with the concept, one way or another. Personally, I feel that the prices will eventually have to go down in order to maintain the growth that we are seeing now. I hope that, if I am correct, the publishing industries allows more give before the concept is crippled or before new potential readers (drawn to the new convenience of books) give up.

        Time will tell.

  • Christian

    Great post, Michael, thanks for sharing. Very nice to see how it works from the perspective of someone inside the industry. There are definitely lots of costs involved in publishing, much more than a customer can usually figure.

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  • Mary G

    If publishers end up publishing in 20+ digital formats — why don’t publishers and ereader companies develop a digital standard for publishing?

    • http://michaelhyatt.com Michael Hyatt

      Mostly because eRetailers want to control the platform. However, having said that, I think we will eventually get there. Consumers will demand it.

  • http://twitter.com/PatrickBMiller Patrick Brian Miller

    Thank you for the very interesting insight into the costs of ebook preparation. It’s fun to watch this revolution playing out. Digital books are the historical equivalent of the printing press replacing hand-written books, and we get to live through the initial experience.

  • http://fghart.wordpress.com/ FGHart

    This post is very thought-provoking. My initial reaction is concern for the trees. In a paperless society our tree farms will be replaced by parking lots & malls (or something like that). Fortunately the move toward “paperless” has been slow, indeed.

    I’ve owned a Kindle for all of 2 weeks now. I immediately downloaded well over 200 classics (which are free). And last week I bought a new hardback from my favorite author (impulse buy, yes. Maybe habit).

    I just finished writing a novel and I uploaded it onto my Kindle. Now I need to figure out the easiest way to tweak the formatting. I understand the challenges you mention on that front.

    All of this is to say: I read, I write and I’m curious (& conscientious) about the industry and trends. I’d wondered why an e-book costs so much. I appreciate the insight you’ve offered here.