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On the Economics of e-Books? 30

Posted by Cliff
from the prices-that-just-don't-make-sense dept.
way0utwest asks: "I was searching on Amazon today for Lawrence Lessig's 'The Future of Ideas'. While browsing, I noticed that there was also an e-book version of the same title. What was amazing was that the hardcover copy of the book is $21 and the e-book, which is downloaded, is $24! Now I may be just a simple computer programmer, but it seems to me that there is less overall 'cost' involved with the e-book and it should be cheaper. There's very little 'inventory' to store (how much disk space and electricity cost can there be?). There's no risk of having to 'return' the book to the publisher. There's no labor needed to 'ship' me the book. How can it cost more? Is Adobe charging that much for the licensing of the e-book? Now I'm not sold on the idea of e-books, or electronic books in general (though I am looking forward to electronic paper), however it seems that either the industry is not interested in pushing e-books, or Amazon is not really paying attention (though the list price of the hardcover is $30) OR the publishers are trying to overcharge for the e-book to make up for potential piracy. Am I way off base? Is there anther explanation? Anyone?" It's frustrating to find digital media that is priced higher than the corresponding title in dead-tree form. way0utwest makes a good point in that one reason for the increased pricing is due to piracy, but one has to wonder how often e-Books get pirated? Are such prices justified or are eBooks doomed to failure because they have effectively priced themselves out of the market?
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On the Economics of e-Books?

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  • Gross margin? (Score:3, Informative)

    by xyzzy (10685) on Thursday February 07, 2002 @10:01AM (#2967357) Homepage
    First, Amazon has a set list of discounts, which the hardcover version probably falls into, and the electronic version does not.

    Second, Amazon's gross margin on a hardcover version may be higher, so they have more room to discount. For instance, if the suggested list price of the HC is $30, and the electronic is $24, and they both are "sold" to Amazon by the publisher for $20, Amazon has more room to come down on the HC version.

    Third, Amazon may just not care all that much!
    • Third, Amazon may just not care all that much!

      Seems accurate to me. Amazon choses to use low margins only where there is competition, and then only if they want to "win" in that marketplace.

      The high price ebook business model isn't on a firm foundation, so there's little business reason to try and capture that market.

      Ebooks will take off when the books get much cheaper, and the authors get to keep most of the "cover" price. Textbook authors often get less than 10% of the cover price on paper books.

      Imagine if the author got $4 royalty and the editor got $1 on a $6 e-textbook, they'd both make more money per book, and the students would spend less per book. The intellectual property creators and consumers would win, and the middlemen, the publishers, printers, and distributors would need to find new jobs.

      Alas, the publishers have lots of lawyers and are delaying this as long as they can.

  • Yeah, it's outrageous. But think of it like computer software. Infinitely reproducible with no added cost except for electricity and perhaps medium, yet you still pay $5,000 per cpu. They charge that much because they think they can get that much. It's basic economics. Most people, given a choice between ebooks and dead tree books, choose the later. Why? There's probably a whole lot of reasons, but I like the physical connection, the ability to rapidly slip through the pages for something that strikes my fancy, the knowledge that with good care, it will last longer than me, and that I don't need an expensive piece of hardware that hurts my eyes just to read it.

    That said, there is someone out there who will say, "I'd much rather have it in electronic form, and I'm willing to shell out the extra bucks for it." They've already shown their willingness to shell out a whole lot of bucks for the reader, so what's a couple extra? Having already purchased a questionably useful device, they would feel stupid for not using it (especially after spending so much); they feel compelled to justify their purchase, and if that means having to pay a little more than a dead tree book, well, so be it.

    Also, the first law of capitalism applies here. In a nutshell: people are stupid, and successful companies exploit stupid people.

    :Peter

  • The rate of piracy varies on quite a few factors:
    1) Type of book
    2) Cost of book
    3) Usefulness of book

    But in the end, if it's offered digitally, it will be pirated. even if it's not published digitally, someone will likely scan it in and distrobute it.

    Personally, I like ebooks, at least some (I have issues with PDF's, mainly because of the difficulty I have reading them). Have I purchased many? No, far too few selection, and the price is still a touch too high for my likeing. So I browse through the free books. Baen Books ( http://www.baen.com/ ) , a science fiction and fantasy publisher offers quite a few of books formerly released as "loss leaders" in multiple formats (HTML, RTF, LIT, Palm/Psion/Win CE, Rocket Ebook) for free. http://www.baen.com/library/ for anyone that's interested.

    Of course there's other repositories of literature, Project Gutenberg ( http://promo.net/pg/ ) being the foremost... the others I can't remember off hand.

    Basically, for me free is good, but I'm willing to pay up to around 1/2 the dead tree price if the books good... haven't found any that are that good that I'm willing to hand limbs over though.
    • I've personally pirated many books. I think it's actually some sort of compulsive disorder... every time I read a good book, I can't fight the urge to just give it to someone else so they can read it. I mean, they didn't even pay for it, yet I'm letting them read my copy!

      I know, I know.. I'm going to Hell, but what can I do?

      • Ha ha!

        Yes it is true, I suffer from this same malady.

        What is even more amazing, I have found a secret government program that aids and abets this cursed addiction. Because so few people will be reading this (this is a discussion about reading, after all.), I will pass on to you the name of this institution in special Roman Swine code:

        ethay ibrarylay
  • by Pierre (6251)
    I've been curious about ebooks but not enough to actually investigate them further. Are many people using them?

    Maybe I have the wrong impression but I can't imagine them being better to read from than paper.
    • I've been curious about ebooks but not enough to actually investigate them further. Are many people using them?

      When my Palm III died, I replaced it with a Sony Clié specifically because the screen is sweet for reading books. I wouldn't really want it for reference books, but I love reading novels and the like on it. I always have my Clié with me, so I always have an assortment of reading material with me as well -- for no extra cost in space or weight. Plus, I can read it under any lighting conditions.

      But I must admit, I'm really disappointed with most ebook offerings. They're either way overpriced (More expensive than the hardback? Give me a break!), or in some dippy "digital rights management" format, or both. No, I'm not going to pay $24 for a book in a format that may not survive in two years.

      The absolute best publisher I've seen for ebooks has got to be Baen. They have a great ebook collection [webscription.net] which includes just about everything they currently publish. The ebooks hit the street the same time as the paperbacks, and they're priced about the same. To me, that's a fair price. Sure, they're making some extra dough on the ebook version (no printing or distribution fees), but on the other hand I'm getting the product in a format that I prefer. I'm willing to encourage that!

      But Baen's best decision was to release the books in plain ol' HTML format. They also have a few other formats, but HTML works best for me. And, even if someday HTML is dead and forgotten, I'll still be able to open these things up in a plain text editor and read them.

      Baen also has a library of freebie books. Granted, many of them are the first books of one series or another, just to get you hooked. But the freebies are a great way to check out an author you've heard about, or just to play with the ebook format a little before making a commitment to it.

  • Retailers dont want to be seen my the public as being stodgy and old-fashioned, so supporting things like eBooks has some PR and convenience value.

    As people are mentioning though, There is the competition with the traditional paper format. Add to that, I think, no business enters a risky new business unless there is profit to be made. Atleast if some profit is made, even if the format dies, they havent wasted their entire investment, an investment they are pushed to make, because if they dont, and the format takes off, they will be overtaken by their competitors.

    Like a lot of other commodity products, early adopters of new technology pay a premium. Wether it is worthwhile, all depends on how much the product is worth to you. (Or your business.)
  • Although I agree with a previous poster that there is probably some gross margin shenanigans going on with the pricing of this individual item, this does raise an interesting issue.

    As far as I can tell a technical e-book's only appeal is that you could (in theory) dump a bunch on your laptop hard drive, on cdr's, or into your palmpilot, and carry them around as reference material. Much better than lugging around 80lbs of books to client sites. Of course with all of the digital rights junk floating around this may or may not be practical, and your ability to read the book 5 years from now under such a system is highly questionable.

    Without such DRM type controls, the publishers fears that the books will get freely distributed over the Internet are well justified -- but it's happening anyway as people scan in books and OCR them, or simply crack the DRM schemes.

    Reading a book on a laptop or palmpilot screen is a fundamentally different experience than curling up with a paper book. Although my preference is paper, it is nice to have my Palmpilot loaded up with a good Heinlein novel during boring meetings.

    E-books seem to be stopgap measure driven by short-term profit potential. IMO the publishing industry faces fundamental changes over the next few years as their primary value-add transitions to making nice printed versions of works already freely (although perhaps illegally) available.
  • I think that more people wants to buy the dead tree book!
  • eBook piracy, etc (Score:2, Interesting)

    by Anonymous Coward
    to be blunt... eBook piracy is widespread, I've been to websites listing *hundreds* of titles available for download, organized by author and subject matter; both fiction and non-fiction.

    however, before eBooks were this popular, similar methods unearthed 'digital' copies of the books - many titles are nowadays proofed, and transported between editors, in electronic form making 'leaks' from this media as easy and common as being able to get the latest MS windows finals before the official release dates.

  • you have to look at the volume of ebooks sold versus paper. It may take less to publish and ebook, but how many people actually buy one. I have an REB 100 ebook reader (I love this little toy) and I also read books on my palm phone. But, I have yet to actually buy an ebook. Other than the obvious shady ways of obtaining an ebook, there are thousands available for free. http://promo.net/pg/ for one. These are, of course, public domain books. They are also classics. If you want an ebook cheaper than paper...buy the paper and scan it. I don't think we'll see ebooks cheaper than paper books. I mean how much does the paper for the book really cost....$.50, $1.00? Its the story your paying for. Those damned authors and publishers actually expect to get payed for what the do. how dare them!
  • by swillden (191260) <shawn-ds@willden.org> on Thursday February 07, 2002 @11:58AM (#2968216) Homepage Journal

    When the word "e-Book" is used, everyone automatically thinks of reading books on a computer or PDA screen, probably because that's all most people have seen. There are numerous disadvantages to both approaches, but they all really boil down to "Those devices weren't designed for that." I think many people's preference for paper is just because they haven't seen a really good e-Book.

    There are some devices out there that were designed to be electronic book readers, and they are *far* superior to PCs, Laptops and PDAs for this function. IMO, they're far superior to paper books as well in many ways (though not every way).

    I have a Rocket e-Book, for example. It's a device that is just slightly larger than a paperback book, with a screen that is almost exactly the size of a paperback page. The screen is a very high resolution LCD with a backlight that can be turned on and off. It has 16MB of flash memory for storage of books and the (tiny) operating system. It connects to a computer via either a cable or infrared to download books, which are written in a simplified version of HTML and then run through a tool that packages and compresses them for download. The e-Book reader also has a high-capacity battery that allows it to run for as much as 18 hours on a charge. The UI is well-designed, with thin progress bar down the side to give you an idea of where in the book you're at, support for different font sizes, different orientations, etc., easy-to-use menus (which you almost never touch, other than to switch books).

    This is a superb way to read. What do I like about it, as compared to paper?

    • Hands-free reading. I can read while eating, working out, typing or just about any other situation where there's some kind of surface I can set the reader on. I only have to be able to reach out every few minutes to hit the page down button.
    • Reading in the dark. The adjustable-intensity backlight means I can read in bed without disturbing my wife.
    • Portable reading. I can easily take a dozen novels and a few of technical books with me on a business trip, all in one very compact package. If somehow I run out of reading material, I can store a vast amount of literature on my laptop hard drive. Or, if I really need to, I can always go on-line.
    • Reading in wet, dusty, etc. environments. I've discovered that by placing my e-Book in a sealed plastic baggie, I can read in the tub, on the beach or just about anywhere. The screen can be ready easily through the plastic and there's no trouble manipulating the buttons. For that matter, I don't even have to take it out of the baggie to download e-Books to it, since I use IR from my laptop.
    • No bookmarks required. The reader always keeps track of where I left off, so normally I can just turn it on and read. If I want, I can add other bookmarks, highlight passages, add marginal notes, etc. which is actually something I *don't* do in paper books, because I like to keep them pristine. With e-Books, I can always strip the markup with a single command.
    • Other enhancements. I always keep the free Random House Dictionary loaded in my reader, so whenever I come across a word I don't know I can just poke it with my finger, hit a couple of on-screen menu buttons and a pop up window gives me a definition. Well, that's the theory, anyway. I have a pretty good vocabulary, and the Random House dictionary isn't that great, so usually if I don't know the word the dictionary doesn't either, but that just means I need a better dictionary. The feature is still very nice.

    What I don't like:

    • Poor selection of e-Books. There's just not that much available. The selection was getting better for a while, but the PC-based e-Book reader software seems to have taken the wind from the sails of devices like the Rocket.
    • The charger is too bulky. I don't really have to charge the reader that often, but it does need to be charged enough that I can't take it on a week-long business trip without the charger, and it could be a little smaller, or at least slimmer so that it would fit better in my small laptop case.
    • (The subject of the article) Books are TOO expensive. I refuse to pay even the same price for a downloaded book as I do for a paper book. That's actually a funny attitude, I suppose, because I *like* the e-Books better and prefer them, but it just seems wrong to charge more for a purely electronic book, for all the reasons mentioned in the article. There are, however, a number of small publishers that publish electronic versions of new authors' works, for very low prices. The quality is mixed; I've found some really awesome stuff from a couple of sci-fi and fanstasy authors who haven't yet made it but are clearly destined to be big, but I've also run into crap that I deleted after the first three chapters. Most of these books can be purchased and downloaded for less than $3, though.
    • Airplane reading. They always make me turn the thing off during takeoffs and landings. OTOH, the compact size of the reader is ideal for cramped airline seats.
    • No loaning of books. Most books that you purchase are encrypted for your device (although there's a huge selection of Project Gutenberg texts that have been placed in e-Book format, and they're not encrypted). The DRM technology used is pretty well-done (I do security/cryptography stuff for a living, and I know good from bad), not like the Adobe crap, and breaking it would almost certainly require hardware hacking. So, if I buy a book and I like it, the only way I can give it to you is to loan you my whole reader. There are a number of ways to fix this, though, and some of them have been implemented on newer devices (mine's 3+ years old). Note that if your e-Book gets lost or broken, you can have all of your purchased books recoded for your new device. And, actually, I don't object to loaning being impossible, but if it is that's yet another reason why the price of an e-Book must be *lower* than the paper version.

    As you can see, the upsides are more numerous and more compelling than the downsides. The biggest downsides really have more to do with the fact that publishers haven't decided how to approach this e-Book thing. Here's to hoping they get it. soon.

    • If I had the money I would buy an ebook reader that could deal with plain PDFs.(Linux HOWTOs are a pain to read on the same box you're working on). Does anyone know of eBook readers that can handle PDF and talk to linux?
    • Amen, brother! There are exactly two reasons right now why I'm not using my Rocket as much as I should:
      • Gemstar royally sucks, and has ruined the market. They killed the free library. They try to determine who can publish for their device. Go to fictionwise.com and count the number of new titles coming out that say "Available in every format known to man except Rocket."
      • I've taken to reading more stuff on the Palm. Why? Because the Palm fits in a pocket and I always have it with me. I have to consciously say "Ok, I'm taking the Rocket with me so I can read" which does not fly well in a corporate meeting, or the men's room. But the PDA is always there and I can choose to check my calendar, take notes, or read Larry Niven's Crashlander at the push of a button.
      Poormojo.org is a great source for free stuff in Palm doc format. There are enough tools out there to convert back to text/html, and then down to rb format, that one of these days I should really write a converter. :) The Rocket is still better for times when I'm reading something for enjoyment because I specifically want to take the time to read, not random freebies I picked up just so I have something on me at all times. The Rocket is clearly the better device when it comes to screen size and appearance (the backlighting is wonderful).
  • I tend to scour the bookshelves at the secondhand store whenever I go there, and get most of my pleasure reading for pennies. The material has been read before, sometimes by several people, and it's all completely legal.

    Try that with an ebook.

    - Freed
    • Yeh, luckily the idea of libraries and bookstores were fairly well established before currect copyright laws.. otherwise, we would have no idea of fair use today.
  • Rocket science (Score:3, Interesting)

    by Graymalkin (13732) on Thursday February 07, 2002 @03:40PM (#2969729)
    I'm sorry to burst the collective slashdot bubble but the price of books is NOT entirely dependent on the cost of the medium. The actual physical putting of ink on paper and binding and all that jazz is about 17% of the net amount received from a particular publication. In a business you've got alot of costs before you get to the profit. There's the cost of goods which in the case of a book includes editorial and production costs (books need spell checking, formatting, proof reading, ect), design work needs to be done, and then finally the pesky cost of paying the author for their work. Then comes cost of sales which covers advertising and promotion which suprisingly can be fairly expensive for some books (think about all the cardboard displays you see when a novel comes out from a popular writer those aren't free). Then finally overhead which includes the actual cost of operating a business. Then FINALLY you get to profit but then it is still tricky. When you talk percentages you're talking the net of what you actually make off a product, not the list price. If a particular book sells a thousand copies little to no profit is made. Reducing the cost of goods price by making a book electronic saves you a couple bucks but not so much than you can wipe your ass with a hundred dollar bill. Getting the same content on a different medium doesn't make the cost of that content go down. Suprise suprise this is how most content producers do business whether they print books, CDs, or DVDs.
    • How much promotion has been done on the book in question? Yeah, thought so. Also, how much less expensive is online or electronic promotion vs. in store stuff? What good is a cardboard cutout when I am on Amazon? Zero. Now, how many banner/popup ads can a publisher purchase on Amazon for the price of a single cardboard display stand? Hundreds, if not thousands.

      You mentioned physical costs, but not distribution costs. Distribution costs, while not eliminated, should be drastically reduced with e-Books. Consumer has paid for the transport already via isp fees. Amazon (ie) would have to front a little bit. But there is little or no fee between Amazon and (again, ie) Doubleday. Doubleday emails the pdf/e-book file, and is done with it, except for some monthly accounting/sales reports from Amazon.

      I won't profess to know how much all of this costs, so won't discuss the actual number or percent savings it should engender.

      Then, let's look at paperbacks. Don't have any within reach, but about $7.99 seems about right. And I assume that Borders/Amazon makes a buck (+/-) on them. And that includes a more expensive supply chain (printing and shipping) than e-Books.

      I'm sure the margin on a paperback is less than that on a hardcover. I'm also sure that many of the costs (editing) are paid for by the hardcover sales. So let's assume no hardcover, and all sales need to be covered by paperback and ebook. We still don't get to $21 in costs.

      There is value added beyond the production. You are absolutely correct to reference editing costs. But spellchecking is likely done very automatically. There is not as much need for typesetting an ebook.

      And one final point about editing: some of that time/money is spent weeding out unpublishable/unprofitable books. Because they need to pay for transport, advertising, etc. But I would argue that if you don't need those costs (ie, do a strict ebook edition) you can again cut the costs.

      It is somewhat ironic that you mention CDs and DVDs. It has been shown by those with more knowledge than myself, that CD's, for example, cost less to bring to market than a tape (this is currently. There were costs in the beginning to set up plants, distribution, etc., but these have long since been amortized). IOW, there is more profiteering today with music than in the past. I suspect the same thing of the print publishing industry.

      My mother gave up on her eBook. She had a bazillion restrictions (how to use it, where to use it, blah, blah, blah) and the books cost nearly the same as a hardcover, and 9/10 times cost much more than the paperback.

      IMNSHO, there is no reason for an eBook to cost more than a paperback, and there is no reason for an eBook to cost only 10% less than a hardcover.

      • An eBook is just an electronic print of a physical book in all but the rarest cases. The costs included in the price of the paper book still apply. Editing is a arduous job because you can't just run a book through a spell checker and be done with it. You need to proof read the manuscript several times and correct dozens of errors in every chapter. Like fixing bugs in code the more you fix the harder it is to fix. Editors have to read over stuff several times to catch all the errors. There's continuity errors, spelling errors, grammarical errors, arrangement problems, ect. It isn't merely running a manuscript through spell check in Word and saving it as an eBook file. Adter editing comes setting by a talented person using programs like QuarkXpress that turns your shamefully formatted Word file into something worth printing. Even if the output of the setting goes to an electronic file formatting work still needs to be done on it.

        Advertising electronically is a joke. Books in stores get advertising just being on shelves. Books on Amazon don't get a dozen people a day looking at the covers. Cover art is advertising in itself, a big name in bold gothic letters like Tom Clancy or Stephen King in big Impact letters draws a far amount of attention on a shelf. On Amazon you can't make a badass cover to draw the eyes of store patrons. Sale for Amazon are generally high but many specific prints sell few to no copies at all. The publisher still has to pay the production cost but then doesn't make anything back on it.

        Limiting yourself to thinking about paperbacks is a joke. They don't make much money. Go to a book store soon and wander over to the paperback fiction section. You'll see a handful of books with several copies on the shelf and the rest of them there will be one or two copies at the most. The small percentage of titles with multiple copies available are the big sellers. The rest sell one copy a month if they are lucky (from that particular store mind you). Books that didn't hit hardcover before going to softcover don't make much money for publishers or authors. Margins on paperbacks are horrible. The cost of sales takes up a sizable percentage of their cover price while the cost of goods being recudes by making them electronic isn't nearly enough to drop the price by a signifigant fraction. The 10% discount on a eBook PB over a physical PB is pretty much the production savings by not having to print and ship the book. The savings on the hard cover is pretty similar. There is a reason eBooks don't cost the dime they cost you transfer to you. The costs of their production is usually far higher than the returns they make. Don't admit to not knowing how books are priced only to make an argument that books ought to be cheaper because they aren't printed on paper.
  • Sometimes I think they just screw up on pricing. It happens in paper formats, too: I bought a relatively specialized journalism text last year from Barnes & Noble that was available in hardcover and paperback, and the Web site showed the cost of the the paperback as twice the cost of the hardcover version. There was a discount on the hardcover book, but miniscule compared to the price difference; they were just priced that far apart. At the store, that disparity was confirmed and met with the same puzzled look I had. So I smiled and bought the hardcover.
  • Well, what about fair use? I mean, couldn't the same argument be used on ebooks that is used on the mp3 format. If I own a CD, I am legally allowed to also keep copies of the mp3s of those songs around

    Why can't I have copies of e-books for free if I've already bought the dead-tree version.

    I'm not trying to get out of paying for anything here, I have no problem paying for dead-tree books, but why should I have to pay for something that I already own?

  • The crucial distinction between the hard-cover and the e-book versions of any work drive from the permitted copyright uses. Both works are subject to exceptions for fair use/fair dealing. Where the examples e-book pricing structure falls down is in that it provides less functionality at a higher price.

    Most e-book readers are "locked" to a single device (Microsoft's Reader is trying to fix this... but let's be reasonable... it's crude at best). The hard-cover while physically limited to one form factor, can be both portable and stationary. You can have it on the shelf next to your computer but just as easily take it with you (like a portable). E-books tend to lack this versatility (generally).

    Also, the traditional books generally don't restrict your ability to (a) copy text from them, (b) scribble or mark-up passages or (c) "loan" a book to another person, inter alia. The e-books typically restrict all of those activities to the extreme (with the exception of perhaps post-it style mark-ups).

    These are only a few examples of where you have less "REAL" utility than traditional books when using e-books. Besides the fact that reading from a screen still is less a less than ideal experience, functional utility is one of the fundamental drivers of price from an economics point of view... same content @ less functionality = lower market price.

    Wait and see... but I bet that e-books will take a long time to really catch on... and only when the price is closer to that of a soft-cover will people be willing to pony up the dough for a functionally deficient product.

    CRCates

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