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Doing the math

GalleyCat recently ran a post about reader complaints that ebooks cost too much; now they have run a rebuttal post that purports to explain why ebooks can't be substantially cheaper than paper books. I'm not saying the rebuttal is wrong, but as an exercise in logic, I find it lacking because it deals almost completely in percentages: for an ebook, the publisher's cut is 45-55% of the list price, which includes the author's 15% royalty; distributors get about 10%, with cheaper books paying a bigger cut because of minimum charges; DRM providers want a 3-5% cut, again with a minimum; and finally, credit card processors (essential for online sales) get 3-6% of the sales price.

To me, the flaw in this logic is that is explains how the pie is cut up without ever discussing how big the pie needs to be. Should a publisher expect that the sale of an ebook will net them the exact same profit that a print book will? I would argue no, because the production model is essentially different. With print books, publishers need to print the book in order to sell it, and once that book exists, the owner can resell it easily. As others have pointed out, the web makes selling used print books easy to do, allowing used books to compete with new books. On the other hand, if the publisher wants to sell more new copies, they have to print more copies. With ebooks, the publisher does the initial set up once and then sells as many copies as the market will bear. And the 3-5% DRM charge mentioned above makes it much more difficult for an ebook's owner to sell his or her copy to someone else after it is read.

Just as the web changed the way we do business, I think ebooks will eventually change the way publishers sell books, once publishers figure out what profit they should expect from an e-book. The wireless feature on my Kindle is great, but one reason I love it so much is Amazon had the smarts to provide a free "taste" with most books in the Kindle store. This try-before-you-buy feature is fantastic! In the long run, I buy more books because of it.

Which is not to say that the change won't be slow and painful. Evolution so often is.

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( 2 comments — Leave a comment )
Jan. 14th, 2009 05:39 pm (UTC)
Dog >>>> manger?

It's back to the 80s and Gordon Gecko saying "Greed is good."

Of course, if I can make just as much money doing nothing, rather than doing something, I'd be all over it.
Jan. 14th, 2009 05:57 pm (UTC)
I'm not sure if it's greed or fear. I think some publishers assume if ebooks are cheaper, people will stop buying print books. I think that's kinda crazy, because people who buy ebooks want to read ebooks. If they're not available, they might well do something other than read.

I buy ebooks because I love always having my reading library in my purse.
( 2 comments — Leave a comment )

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