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Posts Tagged ‘e-readers’

Expanding e-books to mobile

Mobile devices come with us everywhere these days — all the more reason to load those things with e-books!

Convincing people to buy — or haul around — another electronic device these days proves a hard sell. Pocket space is limited, and no matter how big purses grow — their ballooning size probably isn’t a coincidence, in my opinion — having to keep an extra device with you is a hassle. So, it seems extremely intuitive to have e-books work on a platform people already carry.

Amazon’s Kindle seems to have caught on to this concept. The e-book retailer has already come out with applications for iPhone and iPod Touch, Windows PCs, and Blackberry. Now they’ve announced a content partnership with devices running the Android operating system, bringing e-books to many main-stream smart phones.

Expanding to mobile devices should have been an easy call. What remains to be seen is how dedicated e-reader devices will fare after the same functionality becomes widely available on devices users already have or offer multiple functions. Will people prefer a device that only displays e-books? That question probably depends on the quality of the device experience. History has shown that fanism sprouts around devices that offer something unique or extraordinary. All the pre-order iPad hype could indicate such potential. For now, however, on-the-market e-readers may not have the experience edge to make buying and carrying an extra device worth the trouble. If so, the Kindle brand could be on the verge of a much-needed transition to mobile.

Doing the Math: NYTimes details price of publishing e-books

New York Times writer Motoko Rich did something my j-school professors nostalgically refer to as “doing the math.” Rich’s article, “Math of Publishing Meets the E-book,” lays bare the costs publishers face in the evolving world of e-book sales. The main question Rich tackles is this: do publishers save enough through eliminating printing costs to justify reducing the price of e-books? While on its face, the answer appears to be yes, Rich still reports that publishers are weary of shifting costs during the print-to-e-book transition.

Here’s the much-simplified price layout:

For an average, $26 hardcover, a retailer typically pays the publisher $13. Of this, the publisher pays:

  • $3.25 to print, store and ship the book
  • $0.80 for cover design, copy-editing and typesetting.
  • $1 for marketing (may be higher or lower depending on title)
  • $3.9o in royalties to the author (about 15%)

Out of the remaining $4.05, the publisher must pay overhead for editors, designers, office space and utilities before taking a profit. Any profit may then be used to recoup unrealized author advances.

For the e-book, Apple has agreed under the proposed “agency model” to act as a agent/retailer, taking 30% commission of the price determined by the publisher. So, for a $12.99 e-book, the publisher starts with $9.09. From this they pay:

  • $0.50 to convert text into a digital file, typeset and copy edit
  • $0.78 in marketing
  • $2.27 to $3.25 in royalties to the author (debate rages on over whether the 25% royalty should be calculated using the gross revenue or the consumer price)

This leaves $4.56 to $5.54 for the publisher before any overhead.

Doesn’t that make e-books more profitable? Maybe. This simplified snapshot leaves out revenue recouped in sales of paperbacks and shifting sales margins. Remember, e-books only make up a small percentage of publisher revenue — 3 to 5 percent — and if that begins to increase, publishers could be trapped with the printing costs of their old model and the revenue of the new, e-book model.

Where have I heard that one before? Oh yes, in newspaper industry printing costs. In the near future, publishers may face the same dilemma many newspapers are grappling with now: at what point do you stop the presses and go entirely digital?

Macmillan's 'agency model' victory over Amazon = publisher pricing power?

February 21, 2010 1 comment

The past couple weeks have been ripe with speculation over the new pricing model for e-books originally proposed by Apple: the “agency model.” The model would essentially give publishers power over the pricing of e-books instead of retailers like Amazon — a dream for publishers.

Well, the agency model could be more than a dream soon. Last month, publisher Macmillan demanded power over pricing in their dealings with Amazon, leading the key-market retailer to pull nearly all Macmillan titles from their store. But a few days later, Amazon reneged on their position, announcing that they would yield pricing power to the publisher — setting a ground-breaking precedent in the e-book retailer-publisher relationship. A week later, Hachette USA followed suit.

Summed up by IdeaLogical’s  Mike Shatzkin, the agency model lets publishers sell directly to consumers with retailers acting as more of a cut-taking conduit.

“The ‘agency’ model is based on the idea that the publisher is selling to the consumer and, therefore, setting the price, and any ‘agent,’ which would usually be a retailer but wouldn’t have to be, that creates that sale would get a ‘commission’ from the publisher for doing so.”

This model would set a new standard for book pricing, giving more power to e-book publishers than in the current physical-book supply chain. Success would also provide a powerful incentive for publishers to promote the e-book market, particularly larger publishers that own the most titles (i.e. Random House, HarperCollins, Hachette Book Group, Simon & Schuster, Penguin, and Macmillan).

It remains unclear, however, how all this would work in reality. Would publishers keep and serve e-book files? What will the not-Amazon retailers do? How will smaller publishers with less leverage fit into the market? And most importantly for consumers, what will determine the price of an e-book?

For now, speculation reigns. Pricing power is a powerful weapon, but the model’s success ultimately rests with consumers, who must decide what an e-book is worth and whether publishers’ expectation of value matches it.