L'Ombre de l'Olivier

The Shadow of the Olive Tree

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

02 March 2009 Blog Home : March 2009 : Permalink

Pricing eBooks

So there is (again) wibbling on book/publishing blogs about the price of ebooks. This is in part inspired by this post from HarperStudio where the boss claims that ebooks only save the publisher about $2 compared to regular printed books. This has caused some interesting responses. It occurs to me, and I know I am not alone in this, that we might do better working backwards.

There seems to be good evidence that consumers are willing to pay $9.99 for an ebook. There is also evidence (see O'Reilly's iPhone book stats) that many more people buy the book at $4.99 than they do at $9.99:

The book, which sells for $24.99, was initially offered as an iPhone app for $4.99. When the publisher raised the price to $9.99, sales fell 75 percent. O’Reilly quickly dropped the price back down to the lower level.

“This audience is very price sensitive,” Mr. Savikas said.

So even if all content doesn’t have to be free, it may well have to be cheap.

As someone who has been ma jor buyer of Baen ebooks at ~$5 a pop and a major critic of Harper Collins for $20 pricing this is not news to me. As SB Sarah says,

I will pay more than paperback prices for an ebook if I know that I am getting exclusive content not available in print, or if I were to be rewarded with membership points or rebate dollars for paying the extra dollars. The reason I’m ranting about this now, when it’s obviously been discussed before, is that, since Angela James twittered the variations in price for the eBook of JD Robb’s new book ranged from $10 on the Kindle to $20 on FictionWise, all the way up to $24.93 at Powell’s online.

I'll add to her list that I will pay more if I'm buying a book before it is available in hardback (Baen's devious eARCs) and I'm somewhat less interested in loyalty programs but we're in basic agreement.

The iphone evidence above suggests that an acceptable price for an ebook is $5 which, amazingly enough, is slap bang in the middle of Baen's pricing and slightly more than I pay since I tend to get bulk discounts. Even more amazingly enough this is not a million miles from the $2 less than paper estimate from Bob Miller of HarperStudio when you look at ebooks vs mass market paperbacks (Bob unfortunately seems to be talking about HC so he's got himself a problem).

Now in the previous post I just noted that the ebook market is somewhat inefficient with a middleman layer in there to suck up profits. Well it turns out we can figure out how much profit these drones absorb thanks to this post at galleycat:

"The large publishing houses' cut is generally 45-55% of the book's list price (this is split with the author whose cut is 15% of list price). Distributors are generally taking 10% or more of list price. Amazingly, the less expensive the book, the distributor cut can grow pretty dramatically because almost all distributors include a minimum charge. DRM providers are generally taking 3-5% (and in the case of less expensive books even more) of list price. The credit card processors, even with micropayments, take 3-6% of the sales price."

If we take assume that an ebook is listed as $5 and that the publisher/author get 50% of the list then this is how it breaks down:

 %age
 $
Author
 15%
 $0.75
Publisher
 35%
 $1.75
Distributor
 10%
 $0.50
DRM
 5%
 $0.25
Credit card
 5%
 $0.25
Retailer
 30%
 $1.50
Now if the book were actually "listed" at $6 but sold a $5 as a discount then the sums work out at

 %age of list
 $
Author
 15%
 $0.90
Publisher
 35%
 $2.10
Distributor
 10%
 $0.60
DRM
 5%
 $0.30
Credit card
 5%
 $0.30
Retailer
 13%
 $0.80
In this case the retailer's margin drops pretty swiftly. If the CC processor and the DRM provider had minimum charges of $0.50 (which is entirely plausible) and the distributor has a minimum charge of $1 then the retailer cannot sell the book for $5 and make a profit. He can sell it at a $6 list price and make a gross profit of $1.

If there were no DRM and nor distributor then even the list price $6, actual price $5 book makes $1.50 in profit even when the credit card processor takes his cut. If the book sells at a list price of $5 then he makes a $2 even with the CC processor.

So here's a simple way to increase the profits to the retailer (and/or publisher) cut out the DRM and the distributor you foosl!