Thursday, April 5, 2012

Even though I'm still puttering around writing my 'first' book (or at least the first one I have real hopes of getting published, however grandiose those hopes may be), I still like to keep an eye on trends in self-publishing and the growing e-book market. Every once in a while, I'm reminded that not all of my acquaintance (both online and offline) are doing the same, so I thought I'd talk a little about the realities of e-books and the shift to digital content. For the purposes of this entry, I'm only going to look at traditionally published material. Self-publishing is an entirely different kettle of fish, and follows a few different rules. I'm also going to do this in three parts. Historian that I am, these parts will be in chronological order. Hopefully you will find this illuminating and thought provoking.

While electronic books have been around in various formats for decades (yes, decades) it wasn't until 2009 that they really began to represent a noticeable market share in the publishing industry. In part, this was thanks to companies like Amazon and Sony aggressively marketing dedicated e-book readers. Since then, more devices have entered the marketplace and e-book sales have grown at an exceptional rate. While print sales have also grown during this period, e-book sales are a growing percentage of total sales. This overnight jump in sales, as well as a shift in American culture, has sent a few shock waves through the publishing world over the past few years. These shock waves will affect how you buy your books (whether print or digital), and what price you pay for them, for the rest of your life.

First, how much should an e-book cost? This article in the NY Times from 2010 does a good job outlining the costs of publishing. In essence, digital publishing only saves the publisher about 30% of the price of traditional printing, which is only the actual cost of physically printing the book. Cover art, editing, formatting, and overhead (I hear offices have electricity bills to be paid), are all still in effect for e-books at the same prices they are for print books. The cheaper a traditionally published e-book is sold for, the less the publisher makes in profit. The less they make in profit, the fewer advances they can afford to pay for new work, and so they publish less in the future.

Books in the United States were sold under a wholesale model until 2010. What this meant is that the retailer paid a wholesale price (50% of what the publisher decided was it's retail list price), and then was free to sell that book for whatever price it wanted. Large retailers like Barnes and Noble could offer their special membership prices, or massively discount bestsellers, because they could sell these items in massive volumes. But these price cuts all came out of Barnes and Noble's profits, not the publishers'. In 2009, in order to push Kindle sales, Amazon took this a step further, and started listing e-book prices below the wholesale price. This is called loss-leading. Amazon was taking a loss on smaller products in order to encourage sales of a higher-profit item, the Kindle. Amazon felt, and was likely correct, that the key to triggering an e-book revolution was price. With the Kindle initially introduced at nearly $300, consumer's were not likely to buy a $26 book to read on it.

This created concern in the publishing world. While it was Amazon taking the loss on those $9.99 bestselling e-books, it was a loss that even Amazon could not maintain indefinitely. Publishers were worried that eventually they would be the ones called upon to take the long term losses associated with a $9.99 e-book price, which they were not prepared to do. Publishers were also worried that if given a choice between a $9.99 e-book and a hardback print edition at $26, they'd take the e-book. This becomes even more problematic, because those hardbacks are priced with a high profit margin. Loosing that profit margin means that the payback on publishing a book takes more sales, and more time. It could mean less profit in total. Publishers were faced with diminishing profits on all fronts should Amazon be allowed to set prices that were good only for Amazon, and not for the makers of their products. This is a similar scenario to what's happened to several companies who produce product for Walmart.

In 2010, Apple arrived on the scene with the iPad and the iBookstore. In Part II of this series, I'll talk about just why that's so important.


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