It’s Not Rocket Science

Posted on March 7, 2010

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But many large publishers act like it is – namely, how to price ebooks.

If the book is solely being released as an ebook (no print versions), it should follow along the same guidelines as would a solely hardcover or paperback release except for some differences in manufacturing, distribution, marketing and royalties. In terms of the difference in manufacturing costs, the cost to take print-ready PDF files and print and bind is significantly higher than it is to take these same print-ready PDF files and tweak them into usable ebook PDF files, and to convert the files into other ebook formats. For my own press, it usually takes me about 10 minutes to take print-ready PDF files and massage them into a single ebook PDF. One simple, low-cost program (http://www.pdftoepub.com/) makes the PDF to ePub conversion easy. What would have been $2-$3 per unit manufacturing costs (for an average trade paperback) are now at most 10% of those costs (if that). Distribution costs would tend to the nil side: there’s no physical package to warehouse and ship to retailers. Ebook distribution costs would be a negligible percentage of server and access costs. Also, since physical books would not be sold in physical bookstores, there’s no need for sales reps. Marketing costs should reflect the shift from making possible buyers aware of the book and driving them to physical stores to making possible buyers aware of the book and driving them to the online outlets (as well as developing new online outlets). In this case, working in an online environment to boost awareness of the book, costs would approach, but still be less than traditional marketing costs. The last category – royalties – depends on the publisher’s whim and the author’s pull. Current pricing schemes give authors a bigger share than a typical print edition, but if you hold to a traditional point of view, they should be even. So, for a single edition that might have been priced as a trade paperback at $15.00 could reasonably be sold at $12.00 in an ebook version.* Overhead, editing, design and composition costs should be the same whether print or electronic book.

It gets a little more complicated if the ebook is an additional version being issued from a single publisher. For example, if the publisher is issuing hardcover, paperback and ebook editions, you need to first determine how to distribute some of the capital costs of the book – overhead, editing, design and composition. If the editions are being released simultaneously, I’d argue for distributing those costs equally among all three editions. Doing so would make any of the three probably slightly less expensive than if these costs were allocated to a single edition. Once the costs are distributed, then figure out the remaining costs and go from there. In this case, too, marketing costs could be allocated evenly to all three editions (since this is a simultaneous release). Distribution costs would be follow the norm for the hardcover and paperback editions. Manufacturing costs would be higher for the hardcover, lower for the paperback and negligible for the ebook. In this case, there could be a $25.00 hardcover, $16.00 paperback and $13.00 ebook.*

If the editions were not simultaneous, then the publisher needs to decide how to allocate these capital costs. One way would be to attribute them to the hardcover edition (usually the first to be released). This approach forces the hardcover to pay for the overhead, editing, text design and composition, which lowers paperback and ebook edition costs and should be reflected in lower prices for those editions. Manufacturing costs would be basically the same, except if releasing simultaneous editions, paperback interior per unit costs could be decreased by piggybacking on hardcover interiors. A publisher may also choose to put the lion’s share of the marketing push towards the hardcover edition since it is justifiably shouldering the capital costs, or marketing efforts can be allocated for each edition. If a book recoups its capital costs in a hardcover edition, it paves the way for subsequent paperback and ebook editions. If not, the publisher can always pull the plug and not issue those editions (and avoid throwing more good money away after bad). In this case, there could be a $29.00 hardcover, $14.00 paperback and $10.00 ebook.* (Key in allocating capital costs is not double- or triple-dipping. If the capital costs are attributed to one edition, you cannot allocate them to another. Uncle Sam does not approve of writing off expenses twice.)

If the editions were not simultaneous, another choice would be to allocate the capital costs among the different editions. In this case, the publisher should make the same allocations and assumptions as if this case were one of simultaneous editions.

In the end, ebooks should just be viewed as any other type of edition. There’s no voodoo involved. Just because an ebook is digital, it does not make it less (or more) a book. Calmness should reign. So should good business sense. But, most importantly, publishers should not view ebooks as a way to gouge consumers. It doesn’t take a rocket scientist to figure out that someone’s getting exploited when an ebook (without bells and whistles) costs the same as or more than a hardcover edition. If a publisher takes that approach, whether to recoup losses from piracy of the ebook (or to recoup the costs of DRM to vainly forestall piracy) or to recoup perceived losses in hardcover (or paperback) sales – or both, in the consumer’s eye the publisher is only coming across as a greedy pig whose only regard for the customer is as a cash cow (my apologies for the mixed metaphor). Ultimately, a business succeeds, or fails, based on its regard for its customers and how well it meets its customer’s needs at a fair price point.

*These numbers are only for illustration purposes. P&Ls should be retooled with
these models in mind and used to determine actual numbers on a per title basis.
Notes: One can also use pricing to develop markets. If a company wanted to
increase ebook sales (for example, Amazon, with Kindle edition pricing), the
retail price can be artificially lowered to stimulate demand. This loss-leader
approach can only work if the losses can be offset by other sales (in Amazon’s
case, though Kindle sales). The other classic capitalistic approach of raising
prices to recoup R&D and retooling until sufficient demand brings down manufacturing
costs, and therefore prices (for example, falling prices for plasma TVs), neglects
to fully take into account that the R&D and retooling costs for ebooks are
non-existent.
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Posted in: book prices, ebooks