Tuesday, December 04, 2007

How Not to Innovate

In a previous post, I lamented the uncertain future of the written word and begged for a new innovation to rejuvenate the publishing industry.

Meet Kindle, Amazon.com's "answer" to my prayer. Sony has a similar device.

Now, it's true that Ebooks have been around for a few years and they've never really caught on. The difference between older versions and Kindle are the features (instant wireless downloads, readability, etc.) At first glance, it looks like something I would buy.

At first glance only.

First of all, Kindle costs $399.99. That's a hell of a big pile of dough, but it's well within the range of what I spend on books each year.

What's really bothersome is the price of a Kindle book. Check this out:

The hardcover edition of Sacco and Vanzetti by Bruce Watson costs $17.13.

The Kindle edition of Sacco and Vanzetti by Bruce Watson costs $15.42.

That's a savings of just $1.71. For an electronic version that, compared to an actual paper book, costs almost nothing to produce. Sure, the technology is bound to have associated costs - licenses and whatnot - but compared to the cost of printing and shipping 10,000 hardback books, 10,000 Kindle books probably don't cost more than a couple of cents per book.

In my opinion, few people are going to spend $400 for an electronic book reader (no matter how cool) and then have to turn around and pay almost as much for an electonic book as they'd pay for the real thing. I know I wouldn't. If I'm slapping down $400 for a Kindle, I wouldn't pay more than $4 for a book. If that much.

The only thing I like about the Kindle is that it removes the giant corporate publishers and distributors from the publishing model. With technology like this, all that would be needed from a publishing company is a good editor, a copy editor, and a typesetter. Which means that eventually small publishers will be able to compete with big publishers. Once that happens, more books and better books will become available. And that's a good thing.

But before that can happen, a Kindle book (or its equivalent) has to reflect the real cost of production. The real cost is about 40% of the cover price - that is roughly the price the distributor pays the publisher for each copy of a book. The other 60% that you pay for a book goes to the distributor and the bookseller.

Of the first 40%, the author gets anywhere between 4% and 12%, on average. Bigger authors get a bigger cut. So take 12% off, leaving 28% going to the publisher to cover the costs of editing, typesetting, printing, and promotion, with something left over for profit or they go out of business. With an e-book, you get rid of the cost of printing, and since most publishers spend next to nothing on promotion, and since you lose the cost to the author of the return reserve, you end up with an ebook costing maybe 25% of the cover price to produce to the electronic file stage.

Bookstores take their cut of the cover price, but since Ebooks cost next to nothing to store (since all you're really housing is one copy), and since Ebooks don't require employees to sell, the seller's cut of the price should drop, too. So let's give them 25% of the cut to run the website, pay for bandwidth and wireless capacity, and make a profit. That brings us to 50% of cover price.

But since hardbacks and trade paperbacks are priced by quality of print production, the real value of an electronic book should be based on 50% of the cover price of the cheapest edition - the mass market paperback. Average price of a mass market book is $6.99, therefore the base price of an e-book should be $3.50. I can see paying a bit more for more popular authors to cover their larger cut of the royalties, because they are more in demand and therefore can command a higher price (or negotiate with the publisher for a lower price in the hope of increasing number of sales). Thus my $4 top price.

$15 for an e-book is certain, in my opinion, to kill the technology before it has a chance to get off the ground. Not to mention the fact that a $400 Ebook machine limits your customer base to the upper third of readers. It won't do a thing to get more people reading, and getting more people reading is where we should be headed with new technologies, not excluding potential new readers by pricing them out of the reading market.

If I were Amazon, I'd practically give Kindles away and then sell e-books significantly cheaper than paper books. You do that and you'll corner the publishing market, especially if Amazon publishes the books and take the publisher's cut for themselves. It's almost like they don't want to succeed, or they're afraid of succeeding, since success will utterly rewrite the way books are produced. And that's a scary thing for everybody - booksellers, publishers, and authors alike.

1 comment:

Morgwyn said...

I <3 used paperbacks. And I'd starve if you could buy them with food stamps.