Wednesday, September 30, 2009

Stop Saying That!

There's an idea about that ebooks do not cause any costs to their publishers. (Every person who works in publishing is now laughing, hollowly.) This is a lie. Here's one manifestation of that lie, but it's common on the Internet.

Creating an individual ebook format -- one of the current suite of them -- costs roughly as much as creating a print-on-paper edition; the costs of the actual paper and ink are vanishingly small in this equation. Some ebook formats, such as the currently fashionable one, have a baroque process of creation that involves multiple transformations and iterations of quality control, which drives up costs further. And the cost per unit is massively higher for ebooks than for printed books -- infinitely so in some cases, since there are plenty of ebook editions that have never sold a single copy.

So: stop saying that ebooks should be cheap to buy because they don't cost the publisher anything. It's not true in the slightest. At the moment, they're a huge money sink, and the only reason publishers do it at all is in the hope that someday they might only cost as much as print editions.

14 comments:

evan said...

It's a pretty common confusion, though. Standard economics says that in a perfect (or at least healthy) market, the cost of purchase will fall to near the unit cost of production, which is still very near to zero in this case, once the initial work is done.

It's obvious that this doesn't hold for digital goods, but very literally no one has figured out how to price these things correctly yet, so there's still some space to argue.

Your specific argument, which might be stated more clearly, is that ebooks do indeed cause *additional* cost to their publishers over and above the cost of production of physical copies. You're absolutely correct there, and there is no valid argument that they do indeed impose additional costs. However that doesn't mitigate the 'price to zero' market pressure on prices I mentioned above, nor does it change the fact that people don't feel that they're getting as much for a digital copy.

There are a lot of angles on this stuff, and it's very much early days for all of it. I think that your positioning of this as an open and shut sunk-costs case is over-confident. A lot of other digital distributors have seen that by lowering their costs below the 'what the hell' threshold, they've seen multiple order of magnitude increases in sales, even in markets with much-higher fixed costs than publishing. Who's to say that a 2.50 ebook wouldn't sell 100x better than the 10 dollar version? It doesn't seem to me that anyone has tried it, or really that the market is ready for that kind of experimentation, as digital books are still in their infancy. But it's coming, and it may pay to keep an open mind.

Andrew Wheeler said...

Evan: I started to write a long, point-by-point disagreement, but that would just be a waste of time.

You're misunderstanding my argument, failing to realize that making books has intrinsic costs that will not go away, assuming economic laws that would make no sense applied to most consumer goods, presuming a vaster audience for long-form text than has been shown to be the case, ignoring twenty years of ebook history and the plethora of poorly taken-up free ebooks, and generally Not Getting It.

So: no. I disagree with you, pretty comprehensively.

Anonymous said...

Straw man argument right there.

Those who argue about the price don't say that ebooks cost *nothing* to create. Obviously, there's an initial, significant cost (the same way there's a different initial, significant cost with print.) However, once the publisher has paid the initial ebook creation cost, it costs next to nothing to create and deliever ten, a thousand, or a million copies of that master.

Creating and delivering ten, a thousand or a million physical book copies is a whole different level of cost.

Ebook masters aren't free to create any more than print masters are. However, compared to physical print copies, ebook *copies* cost virtually nothing to make, ship, house, or destroy after the fact.

Andrew Wheeler said...

Anonymous: No, actually, that's not true -- hosting and selling digital files is not free, and producing physical books is cheaper than you think. The differences in price are not always in the direction you expect.

Copying a file may be virtually costless, but selling an ebook is not the same thing at all.

evan said...

I should have been clearer. Two comments because it's so long labled by point, with an apology at the end.

My three-ish points were:

1) that economics says digital stuff should be cheaper. I realize that none of us work in efficient markets, and I've certainly worked for a company where 90% of the cost to the consumer was margin. I didn't mean to imply that this was my position, though, but that this might be where the argument you're seeing comes from, in addition to partial or total ignorance of the market. Repeat, I do not hold this position, except perhaps in the very weak form that free to copy digital instances will probably see some level of downward price pressure from the ease copy.

2) That your argument is valid, books are a short cycle consumer good with very high fixed costs (I'm also aware that even a smallish printing of books is in the neighborhood of dollar per book and that shipping is still cheap).
2a) I suppose, is that I don't think that people feel they're getting as much for their dollar when they buy an ebook. This may be personal bias.

3) That, broadly, this is a developing market, that there's a lot of lock in from big vendors charging high rents, that readers kind of suck right now, etc. etc. Maybe the technology isn't ready, maybe it never will be. I personally don't think that the pricing debate is over, which was the only point I really meant to make. I don't think that it's settled anywhere, not games, not songs, and not movies. I will certainly be stunned if the next decade, say, doesn't sharply change the business models of iTunes and Amazon music and Netflix and all of the other big digital media distributors. That I extend my doubt to ebooks is only natural.

evan said...

Additionally:

4) I may be too hopeful about the future of long form text, that's true. It's certainly possible that it will always be too niche to make lower prices to expand the market feasible.

5) I'd disagree that I'm ignoring 20 years of ebook history because I'm not sure there is 20 years of it to have. I'm not even certain that I consider ebooks a going concern at the moment. It's a nascent market if anything, and perhaps it'll never take off. It wouldn't be entirely surprising to see that ebooks are one of those technologies that are perennially five to ten years out. I stated this too strongly in my initial, hurriedly written post, and it doesn't really reflect my position. Sorry for that.

6) Most of my argument about digital distribution comes from another short-cycle, high fixed-cost industry, gaming. It costs several million dollars at this point to make a AAA game that sells for 50 dollars online. I am pretty sure that as a ratio, their costs are higher than the publishing industries costs. Valve, for one, has had a lot of success dropping its prices for games from the customary costs to lower levels, often making more money in extra costs than if they'd not had the sale, which to me suggests that the customary price for that market is too high, and that they might do better lowering it from the very start, at least for digital distro.

That said, it's PC gaming, and as such, none of the possible lessons there apply if the ebook market never takes off.


End points. Like I said above, I was in a hurry before and I worded many things much too strongly. But as I also said, I don't think the game has even started yet, so pretty much everything is speculative at this point, which is why i think it might be premature to declare the pricing debate over. I meant to start a conversation, not an argument, so sorry if my tone control was (more than) a little off.

In response to your response to anonymous, it's unclear to me what people are currently paying per book to amazon or whoever else because I've never looked into it. That said, it seems likely to me that publishers are getting screwed by the ebook sellers right now and that the cost is likely to decrease over time (again, assuming that there ever is a healthy market for ebooks) as more vendors enter the field and the big early investors stop being able to charge what look like monopoly rents.

Blue Tyson said...

Pricing them double is a pretty good strategy to sell zero, certainly.

Charles said...

I'm agreeing with Andrew Wheeler here. In fact, another pet peeve is when people say "I'm not willing to pay for a public domain eBook" (I'm not saying it should be expensive, but what you're paying for is the service of converting it into your preferred eBook format.)

Here are articles on the subject matter:

A Brief Drunken Comment on the Cost of Making Ebooks.

The Difficulty of Pricing eBooks

The Price of eBooks

The Kindle—Igniting the Book Business.

Francis Turner said...

I have some thoughts on this at my blog.

Part of the problem is that, intrinsically, electrons that you can't (legally) resell have lower value than sheets of cellulose that you can. It seems blindingly obvious to anyone that ebooks have a lower unit cost than paper ones and given that books come from electronic documents it seems peculiar that there would be more than trivial costs involved in their creation.

It would help a lot of publishers explained where the money went - at least in general terms. Right now publishing is a black hole where we readers pay money in for books and our authors, who are basically the only peple in the industry we care about, get a minute proportion of it.

Ross said...

I should think that most of the price of my $8.75 mass market paperback is NOT paying for the initial costs of creating the ebook, but rather (a) feeding the distribution chain, or (b) feeding the publisher's fat pocketbook.

Certainly it costs money to make digital editions, and to distribute them, and (not least of all) to run the totally un-needed DRM that encumbers them. But given that the cost structure supports releasing mass market paperbacks at significantly lower prices than first edition hardbacks ... well, I think you see where I'm going.

Possibly the problem with pricing is that ebook buyers are not hardback buyers, and could not be convinced to pay $40 for a new book. And without that $40 hardback release, most books (that sell well) would take much longer to reach the payback point where it's practical to release MMP.

Just my thoughts, from a person who reads all the formats discussed above, and pays for them, but is not in any way involved in the industry except on the consumption end.

KatG said...

Yes, well, that's because you're assuming publishers have fat pocketbooks. Book publishing is a small sales, low money, low profit margin business with, these days, a very limited range of distribution and limited staff. It has neither technological resources nor the money to develop them for the industry. So that means it has to contract all aspects of the conversion out, and are held hostage to those contractors. Publishers have to pay unit costs, file storage costs, file transfer costs, etc., as well as initial conversion, not to mention licensing rights issues, and that e-book sellers take a giant hunk of the money because they have a solid oligarchy on the customer base.

Since the e-book market is only 3.5% of the industry, it's a loss leader for publishing. It's attempted in hopes that it will be a bigger market down the road. But the publishing houses are not like music or film studios -- they don't own the means of production. And when e-books really does become a big market, it's going to be companies like Microsoft and Sony that make the majority of the profit. Book publishers will have their usual tiny profit margin as one slice of the bigger electronic pie.

People get mad at publishers because they think they're flush with cash and don't understand what publishers can and cannot do, and that their speed in a technological market is going to be limited out of lack of money and knowledegable resources. There is no way for them right now to feasibly do most of the things that regular electronic users want them to do about e-books, nor do publishers have much control over what is happening with e-readers and e-book technology. You're just going to have to frigging wait.

GordonVG said...

Good post, Andy.

Did you see this account of trying to launch an e-publishing outfit http://booksquare.com/how-i-spent-my-summer-vacation/#more-3397 ?

---Gordon V.G.

jim kosmicki said...

I know I'm late to the game here, but came via a link on a Scalzi posting. It certainly seems from your description that a lot of the costs you decry are because of DRM and there being multiple formats. How much savings would there be if a publisher forgot the DRM and released only in the formats that DO sell, whatever they might be?

I may be completely naive here, but if Amazon insists on DRM for books to be on Kindle, formatting the text should be on them, not the publisher. Do music publishers have to provide their music already DRMed for Rhapsody or iTunes?

GordonVG said...

Andy---

C. J. Cherryh has let the secret out:

http://www.cherryh.com/WaveWithoutAShore/?p=1833

Making an ebook is actually . . . WORK!

---Gordon V.G.

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