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Why are e-books so expensive?

E-books eliminate expenses ranging from paper to transportation – shouldn't they cost less than their paper cousins?

By Stacy Johnson Dec 13, 2011 2:44PM

This post comes from Stacy Johnson at partner site Money Talks News.

 

MoneyTalksNews on MSN MoneyI recently got this question on Facebook and it's a darn good one:

Why do your Kindle books cost more than a paperback copy? Electronic books should be cheaper since you have already cut out the cost of paper, shipping and printing. I understand that you and the publisher still deserve a cut but to charge more just seems outrageous. Especially for someone who's trying to sell books about money management!
- Annaka

Like most authors, Annaka, the amount of control I exert over the price of my books is exactly zero.


It may be different for those who self-publish, but when it comes to books published by major publishing houses -- my publisher is Simon & Schuster, and before that, Random House -- prices are set by publishers and retailers. Not authors.


Since I have no idea why e-books are priced at (or sometimes above) their paper counterparts, I went to the Internet for answers. While there are plenty of articles attempting to explain the discrepancy, none I found were particularly satisfying.


For example, Michael Hyatt, chairman of Thomas Nelson Publishers, answered the question about the high price of e-books in this post on his personal blog:

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.
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 percent of a physical book’s retail price. So eliminating these costs doesn’t do much to reduce the overall cost structure.

My response: While $9.99 might be roughly half the price of the typical hardcover physical book, it's nowhere near half the price of the typical paperback. And since we're not getting anything physical when we purchase an e-book, comparing it to the cost of a hardback is silly.


In addition, that $9.99 price will soon be rising. According to this recent article in The New York Times, over the next few months e-book prices are scheduled to go to $12.99 - $14.99.


When it comes to Hyatt's second point about the costs associated with printing and transporting physical books, even if his estimate is accurate, shouldn't the price of e-books be 12 percent lower than physical copies? No, he insists, because there are other costs associated exclusively with e-books. From the same post...

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

  1. Digital preparation. Publishers have to format the books, so they work on all the various eReaders.
  2. Quality assurance. Once the publisher gets the eBook formatted for a particular eReader, he then has 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.
  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.

Hyatt goes on to say that "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." Post continues below.

In my admittedly uninformed opinion, this is hogwash. I've lived through the switch from hard copy to digital delivery in both print and video. While I can't speak to digital book publishing, I can testify that the cost of creating and delivering digital forms of everything I deal with is radically less than the physical version. After all, isn't that one of the primary reasons to go digital in the first place?


I'm sorry, Mr. Hyatt, but you're going to have to make a much better argument before I'll pick up what you're attempting to put down.


If you want to know why books are expensive, follow the money. The lion's share of the retail price of a book, whether in digital or physical form, is going to the publisher. My cut on books I've written depends on where and how they're sold, but an average would be around 10 percent of the purchase price.  And if my publisher is bringing more money to their bottom line by eliminating the expense of printing and transportation, they're not sharing those savings with me.


Bottom line? Book publishers are the ones making the money, and they're the ones controlling the price you pay.  In my opinion, the reason they charge the same or more for e-books is simple: because you're willing to pay it.


There's a recent lawsuit accusing Apple and a group of publishers of price-fixing. You can read about it in this CNET article.


But the power of publishers may be on borrowed time. Pre-Internet, they were necessary because the only way to get a book into national distribution was by getting it into bookstores, and the only path into Barnes and Noble went through publishing houses.  These days, however, I can write an e-book, put it on Amazon, price it competitively, publicize it myself, and earn close to 70 percent of the cover price.  You can bet that's something I'll be considering the next time I write a book.


So when it comes to the cost of e-books, Annaka, I'm on your side. Not only are prices too high, but publishers are making too much of the purchase price. Like other antiquated industries, they'll try to hold on to the status quo as long as they can. But just as the music industry was transformed first by Napster and then by Apple, the publishing industry is ultimately bound to change as well because the gatekeepers are losing their grip.


And while we all wait for a system that will allow author input into the price you pay for e-books, you can avoid paying for books entirely by reading the versions you've already paid for with your tax dollars. They're waiting for you at the library. Check out my post Thousands of E-Books: Free.


More on Money Talks News and MSN Money:

69Comments
Dec 13, 2011 9:48PM
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I dont know jack about the book industry, but I do know a lot about the music industry, and the above article looks extremely familiar.  The book industry should take a look at what happened there before they are struggling like the big record companies are.  Stop ripping off the people before they start ripping you off.
Feb 1, 2012 3:22PM
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I have a Kindle and it is frustrating that I buy books and can't even loan them out with my friends and family unless the publisher says so.  I've already paid for the book.  It should then be my property to do with as I please.
Jan 1, 2012 1:43PM
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This is a great article and is pretty much the most definitive explanation I've found. Thanks!

I have a kindle and so far I've spent very little money on ebooks. I bought a few bargain basement priced books from their store, but otherwise everything else I have has come from the free books on amazon and free loans from my library.
Dec 14, 2011 12:33AM
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That's why I buy used books for a dollar or two on amazon.  Even with $3.99 shipping, I come out ahead and then I pass them on!
Feb 1, 2012 2:16PM
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I call bull.  Cost should be significantly less, this is the companies way of increasing the profit margin while they can.  Eventually ebooks will go down. There are many costs that go away when it comes to e books

Physical cost of making the book

Transportation cost of the book

storage of the book in warehouses

Cost of the Retail space book is kept (Barnes and Noble)

All costs associated with the bookstore.

 

This is typical of any new product remember how much BluRay and DVD discs cost when they first came out now you can get a DVD for $5 thats about an 80% reduction. 

 

I'll keep buying used books goodwill and Half Priced Books.  Plus i like the physical books better anyways.

 

 

 

 

Feb 1, 2012 4:51PM
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I haven't seen any authors post on this yet, so I'll jump in and give an author's point of view.

I was getting angry reading this right up until the author said, "hogwash," because she was right on. A lot of my author friends are walking away from their publishers because of the way publishers control prices, covers, availability, etc. and we're all finding it easy and convenient to publish ebooks ourselves and sell them for a buck, two bucks, three bucks. My first three books were traditionally published, but now I'm doing them myself.

Sure, sometimes you have to wrestle a bit with the formatting, but I'm sure a major publisher could do it with ease and they are blowing the cost out of proportion. And, contrary to what the publishers say, shipping books is expensive, and they didn't even mention remaindered books (ones not sold and returned). If it was so cheap to ship books, they wouldn't just tear off and return the cover. And they don't have that issue at all with ebooks, so one very big cost is totally gone.

Hogwash, indeed.

http://www.normcowie.com

Feb 1, 2012 4:01PM
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I'm surprised the publishers didn't charge for their explanation.  After all, that was a great bit of fiction.  Believe this and you may want to take a look at a bridge I have for sale in Brooklyn.

Feb 1, 2012 3:05PM
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Trying to say it costs more to format the ebook? You need to write one program per ebook type. Then you can use that over and over. So now you have one file per format that is pushed to each distributor. They have it saved on a server (not taking much space), then you buy it. You copy that file and read it. 50 more people buy that same copy of the file and read it.

 

They are price gouging only because the consumer pays for it. People need to take a stand and quit putting money in these people's greedy pockets.

Feb 1, 2012 2:52PM
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In this digital age, authors should cut out the middle men and self publish their works via the internet.
Feb 1, 2012 5:20PM
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Current Kindle e-books are greatly overpriced. One Rough Man by Brad Taylor is priced as follows:. Amazon kindle price is $9.99, same as the full retail price for the paperback. B&N 's paperback is $9.99 with 10% discount to members. At Costco it is $5.59. and at Target & Wal-Mart it is discounted 25% to $6.49. Why is the price so much less for the paperbacks at these stores? With Amazon's volume they should be able to negotiate the price of e-books and paperbacks to match the cheapest price charged by the volume discounters. 

Feb 1, 2012 3:07PM
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This is BS. The costs of printing and shipping a book, not to mention stocking it on shelves and paying people that work at where ever its sold is more that 12% of the cost of the book. But even if it is 12%, the three steps listed about why its more expensive are so easy to do a monkey could do it.  Digital preparation - software related. just click add file and let the software take care of it. Quality assurance - im sure they did quality assurance when they were printing books, how is this any different.  Digital distribution - much easier than shipping it on a truck and having people hand stock it into shelves with inventory and such... just another click and go procedure for ebooks. EASYYYY. They are just making a ton of profit of these new ebooks, I don't believe this article.
Feb 1, 2012 4:06PM
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I can tell you why e-books are more expensive - it's called GREED!
Feb 1, 2012 3:40PM
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I have severe asthma and allergies. Whenever I borrowed a book from the library  I had to "process it". I would vacuum and wipe it down (each page if necessary). Library books are polluted with dust, mold, pet dander and germs. It had gotten to the point where I stopped borrowing books :-(.  I was quite delighted when my husband gave me a Kindle for Christmas. I promptly visited Amazon to "buy" digital books but quickly found out they can be quite expensive. I called my library to inquire if I can borrow via my kindle and they said yes. I may not get the exact book I want at the time I want it, but I'm able to choose another; FREE!. WE HAVE A CHOICE. IF WE DON'T LIKE THE PRICE; DON'T BUY; BORROW FROM YOUR LIBRARY. I believe in a free market. We as consumers have "buying power". Once the publishers realize we're not going to pay "an arm and a leg" for digital books, they'll lower their prices :-) WE HAVE THE POWER PEOPLE ! :-) We could start a campaign against buying digital books for 1 ,2,3,4 weeks?; they would loose MILLIONS!

BORROW FROM YOU LIBRARY, HAPPY READING AND ENJOY! :-) Open-mouthed

Feb 1, 2012 2:34PM
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Because they know some will pay...for now.

Calling the products "books" is simple packaging.

These are e-documents. Packaged to appears as;

so you THINK you're getting your money's worth.

 

Give me a paper back that I can share with a

friend and don't have to worry about copywrite

infringements, or whatever spin publishers

want to put on it. It 's all smoke screens today...

 

Feb 1, 2012 4:13PM
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For over a decade direct to electronic publishers have existed and their ideal pricing for a new ebook is about 5 dollars.  The volume of sales is enough to give the author at least 30% of the profit and the publisher and retailer each get another third and everyone is happy with the profits.  The new etitles from the major publishers are priced at least double the standard epricing models that developed over the years the majors didn't sell in the emarket.  So this means that the major publishing houses are making huge profits on the sale of new etitles because the print author gets only 10% and the retailer gets 30%.   The remaining 60% goes to the publisher and on volume sales the production costs are less than 10%.

 

The cost to convert to etext is usually the cost for one person to covert the print file which is a minute plus the proof reading and corrections.  And the proofing and conversion of the file to electronic takes a small fraction of the weeks for most printing on paper.  Distribution and processing for paper book is between 20 to 35% of the cover price.  Distribution costs are not there for ebooks so that percentage is given to the major publisher.

 

When you look through the details and actual costs the major publishers on new etitles are making more money on the new etitle than they do on a hard cover book.  As long as the major publishers have a near monopoly on the most popular new books they will continue to make those profits.  If we break up the monopoly the new etitle pricing should drop to around the massmarket paperback, if you give the author a bigger percentage of the book, and below the massmarket price, if you keep the current 10% that the major publishers use.

 

How do I know these facts?  I have worked in both paper print and ebook publishing and these are the numbers everyone works with.

Feb 1, 2012 2:15PM
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Great article, especially the bits where you called BS on the publisher's weak excuses.  As if "QAing the book" is any different from "Reading the book."  Publishers have got to adapt or die, and charging $10-$15 for an e-book is not adapting.  As was said below, publishers should look at video games and music for examples as to how to successfully price and deliver digital goods.

E-books' prices don't reflect the fact that you can't lend them or pass them on once you're done reading them.  That takes away 50%-80% of their value to me, and I shop accordingly.  I'd buy 10 times as many e-books as I do if they were $2.00 instead of $10.00.  Publishers must really hate my money.
Feb 1, 2012 4:48PM
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Soon, publishers will only be able to push new, unheard of authors. Once e-readers become the norm, established authors (like Stephen King) can simply sell their newest (digital) novels directly to the consumer. From his laptop to your e-reader. No middle man needed.
Feb 1, 2012 2:26PM
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Why? Because the book companies know  they can rip off the always-stupid lemmings who have to have the latest idiot technology, that's why.
Feb 1, 2012 4:56PM
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The reason I read about a month ago was because the three biggest publishers got together and made a deal that Amazon has to sell their books for at least a certain amount of money. Why? because apple wants in on the e-book business but does not want to compete with amazons low prices. Isn't capitalism great? Although this should be illegal everyone knows you just buy a politician, I hear they are getting cheaper these days, to get what you need.
Feb 1, 2012 3:59PM
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They will charge what people will pay...it's just more profit for them.  I don't like buying digital books or movies....I want the actual book or dvd/blueray in my hand...makes me feel like I'm getting something.  I think they want everything to go digital so they can stop the resale of used books and dvds.   Then they can get the full like new price forever.  I rarely pay more than a few bucks for books or dvds since you can get them from many sources used and much cheaper...just have to have a little patience. 
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