L'Ombre de l'Olivier

The Shadow of the Olive Tree

being the maunderings of an Englishman on the Côte d'Azur

04 September 2007 Blog Home : September 2007 : Permalink

Migrating to eBooks

In the whole scribd/SFWA debate one interesting question is brought up by Jerry Pournelle (in my comment thread woo hoo fanboy squee). The question is how does the book trade cope with the migration to electronic readers.

Actually, I suspect that Eric Flint is right in his contention that display on a pirate site or elsewhere does no harm to sales, and may actually increase paper sales. Whether that holds true for EBOOK sales is not so clear, and as EBOOK sales begin to replace paperback the financial picture may change. For the moment it's more a question of moral rights: do authors have a right to control who gets to put up their works for download?

Eric Flint, and others, are relatively unconcerned about the free availability of ebooks in part because their belief is that the day of the affordable yet usable eReader is some way off and that readers will prefer to read paper anyway. I'm less convinced. The expense at present is the (eInk) screen. Beyond the screen, there is very little to stop extremely cheap readers being created. I am sure that the average MP3 player (available for €34.90 at my local hypermarket) has entirely sufficient horsepower and storage to make an excellent eReader and almost every cellphone currently shipping is likewise suitable. The only question is on the screen price, size, readability and reliability. This is exactly the sort of thing that the electronics industry is good at so I'm fairly sure that within a couple of years a sub $100 eReader will be available that is perfectly acceptable to the average person.

[Sidenote - specs for a decent eReader: 6 inch diagonal eInk screen, wifi, usb/bluetooth, min 1gByte memory 72 hours read time. probably also able to play MP3s, surf the internet, optional GPS. Everything apart from the screen and battery can be made in bulk for $10 or so today (it's a handful of chips on a PCB) plus some plastic moulding. Add in a battery and we're still looking pretty good - say under $25. The catch is that the screen needs to be also in the $20 range and right now its more like over $100]

Hence I believe that we do indeed need to consider what life will be like when an affordable reader shows up. One part of the question is pricing of the content. I believe that $20 eBooks are never going to fly. Baen has shown that $15 eBooks, where the $15 book is unavailable in paper, is OK. It is possible that $15 for the first 60 days of hardback availability may also be sustainable. Beyond that I believe that $15 is too much. The costs of eBook production and distribution are far lower than they are for paperbacks, let alone hardbacks so charging an eBook price above that of a paperback version of the same book is always going to cause issues. I think that the $4-$7 range is about right with books likely gradually decreasing in price over time (i.e. start at $6 after one year $5 after 3 years $4). $7 would IMO be best reseerved for megabestsellers and extremely large eBooks which would retail for $10+ in paperback form (i.e. omnibusses and the like).

The important thing to note is that compared to a $7.99 paperback, a $4 eBook in the same volume would make the publisher more money. A $7.99 paperback sees nearly 50% going to the distribution chain (bookseller etc.) leaving between $4 and $5 for the publisher. Assume that it is $5 (to be generous). The cost of paper, printing and cover is easily another $1 and then there is also the cost of transportation, warehousing etc. meaning that for a publisher his gross profit is no more than $4 and more like $3. In other words on a book that has already earned out the fixed costs of marketing, editing, proofing, and typesetting the publisher has at most $3 to pay for royalties, cover his overheads (rent, salaries...) and keep as profit. A $4 ebook would have practically no distribution chain cut, no warehousing, printing etc. costs and hence would easily make the publisher the same $3. Furthermore unlike the paperback there would be no need to deal with returns or anything else and, critically, there is no such thing as the "used" eBook market or the remainder market that can take away sales. In other words a publisher can make as much money on a $4 ebook as he can on a $8 paperback assuming the two sell in the same volume.

It is also reasonable to assume that marketing, editing, proofing, and typesetting are going to be of similar cost. Typesetting is changed to converting the work to a variety of ebook formats and making sure there are no accent gotchas or other fun and should be cheaper but it is not a trivial amount. Arnold Bailey of Baen indicates that it takes him a few days to generate the electronic versions of the average new eBook so he probably charges around $1000 for each book. I've seen figures (I think they came from the SFWA but maybe from Anna Genoese) that indicate that Typesetting a book costs around $5000. If the publisher wishes to cripple his book with DRM then the DRM formats will add to the $1000 conversion costs. In other words getting an eBook to market has similar one-off fixed costs to getting a paper book to market although it should be generally cheaper and most of the costs can be shared between paper and electronic editions (even if eBooks become popular I doubt they will totally replace paper books for quite a few decades).

So ebooks at $4 look like a potentially attractive market assuming they sell in the same volumes as paperbacks and I suspect (again a certain amount of handwavium and WAGium is involved) that a $6 one would generate similar gross profits to a hardback in equivalent volumes - while the rack price is higher, volumes are lower in hardback and the cost of the printing, paper and cover is higher too.

Hence in theory publishers and authors should not fear eBooks because they allow the same gross unit profit even though their cover price is way lower.

The problem is that, as Dr Pournelle states, the fear is that widespread demand for ebooks will make demand for pirate ebooks greater and raise the quality of these eBooks hence reducing the market for eBooks for pay. This is possible. There is only one way we find out and that is to have widespread availability of eBooks and a decent eBook reader. Until that point is reached all we are doing is sticking a finger in the air and guessing. However there are straws in the wind that indicate that people will pay small sums for decent content - Baen books being the most obvious.

I also think it would help if the publishing industry opened its books up a little with regards to how much royalty an author gets. Unlike the recording industry, which looks like a total racket, authors get a reasonable chunk of each book (I seem to recall royalty rates work out at $0.50 - $1.50 or so per book) and given that, unlike a CD, a book clearly has a significant production cost it isn't so hard to justify that level of royalty given the publisher's overall profit (or lack thereof). The key part of the deal is that purchasers should not go away feeling ripped off. I ranted some time back about Harper Collins and their outrageous ebook pricing and I am absolutely certain that I am not alone in objecting to that sort of price, but a price of $4-$6, especially if we can be sure that the author gets a reasonable chunk (at minimum the same as he'd get from a paperback), is much easier to swallow.

Now whether or not everyone feels that way is to be determined, but I believe that it is likely that they will. The key here is not to count the numbers of people who may decide to pirate the book, the key is to count the number of people who pay. If it ends up that 100,000 people pay (this is excellent sales for the average book) then it really doesn't matter whether 50,000 people or 500,000 people pirated it (or that no one did). The hypothetical pirates are the same as the people who borrow print books, buy them used and so on. Charlie Stross found some figures that indicate that an average of four people read every book sold. In eBook terms that means that for every 100,000 paid eBooks we'd see 300,000 pirate downloads. So long as the pirate downloads also have "buy more of this author's books at www.website.com" clearly contained in them somewhere obvious the pirate books probably count as a marketing loss leader.