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Tuesday, March 2, 2010

The price of e-books

The New York Times has a great article that compares the costs of producing print books to digital books. It is assumed that publishers save a large amount on digital books but as the article points out there are more costs associated with digital than most realize. Additionally, as digital sales start to replace print sales, publishers will still have the fixed costs associated with print but it will be spread among fewer copies. Other expenses, including marketing, royalties, and overhead in the form of editors and other skill sets, also persist even when the print costs vanish. Publishers argue that this may make it difficult to support new authors. The article also notes that if e-books are priced much lower than print editions, booksellers may be unable to compete. College stores may find themselves in a similar situation as digital sales of textbooks progress – trapped between having to maintain an infrastructure and staff skills designed to sell the old version of content, while transitioning to the new infrastructure and staff skills needed to be successful in a world with digital.

“Publishers also say consumers exaggerate the savings [of e-books over print] and have developed unrealistic expectations about how low the prices of e-books can go.” In the textbook space, some of that may be the fault of publishers themselves. Offering the digital at 50-70% of new in order to gain adoptions of the digital by students leads to false impressions of the cost of producing the textbook. Of course, if the cost of the print new continues to climb rapidly, then by the time a more significant transition occurs the cost of the digital could be equivalent to today's new price. We are already seeing some etextbooks with prices well over $100.

It is probably true that as part of the transition to digital the top line (not just the bottom line, but the top line) revenue will shrink for a period of time as markets and prices adjust. The article notes that this occurred in the music industry. Recent price wars on e-books by Amazon and others does not really produce any winners. If e-book prices go too low, there will be no margins left for booksellers – chains or independents. In the college store industry, those booksellers are committed to the academic mission and giving back to their respective institutions – typically to support tuition sustainability, financial aid, student services, and capital project budgets. Without the bookseller channel, publishers are left with a few giants who can more easily dictate price, and those giants have no beholding to academic institutions or their students to provide a return that improves educational affordability. The article does a fair job of describing in simple terms some of the economics of book production, and the potential unintended consequences of lower e-book prices.

The article ends with a quote from Author Anne Rice, which deserves repeating. She notes, “None of us know what books cost. None of us know what kind of profits hardcover or paperback publishers make.” Rice went on to say, “For all I know, a million books at $9.99 might be great for an author. The only thing I think is a mistake is people trying to hold back e-books or Kindle and trying to head off this revolution by building a dam. It’s not going to work.” And that is the thought for the day – regardless of where pricing goes with digital books, the revolution or transition from print to a new format has begun. Attempting to stick our fingers in the holes of the dyke is not going to save the day anymore. As Clay Shirky might put it, we can no longer convincingly tell ourselves such lies. The more we become educated on the economics of books, the better solutions we may identify to manage costs, or to produce business models that are economically sustainable and beneficial to all parties.

1 comment:

Tom H. said...

Thanks for finding this gem. This is a great article very well worth the read.