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26 May 2010

What are e-books worth? (Part I) Copyright Law

For us authors who have been writing paper books, e-books are the savior of the industry, or a a disastrous pact with the devil, or maybe both at the same time. The splashy launch of the Apple iPad, of which there are now over a million in users' hands, has coincided with a power struggle among Amazon, whose Kindle makes them the dominant retailer of e-books, Apple, who wants to muscle in using the iPad, and the major book publishers. Google also plans to enter the market this summer through their Google Editions store, selling copies of many of the books they've scanned in Google Books.

There are two main problems with the e-book market--e-books are not much cheaper for a publisher to produce than paper books, but they are for the buyer a far inferior product.

The economics of book publishing have been discussed at length elsewhere so I will just say that the first copy of a book costs several hundred thousand dollars to produce, and subsequent copies cost about $2 to produce. For an e-book, the first copy costs the same amount, since the avoided printing and binding costs turn out to not to be very much, and subsequent copies cost nothing to produce.

People unfamiliar with publishing often confuse an unedited manuscript with a book, but having sent dozens of manuscripts through the publishing process, and having been told by my publishers that my stuff is easier to edit than most, there is still a huge difference between what I send in and what ends up on the printed or or displayed page. Publishers have acquisition editors, development editors, copy editors, tech editors, layout and production people, all of whom add real value to the books they publish. The publishers I know have already automated everything they can, so that the entire process from manuscript submission through editing, layout, and production is done on line. To save significant money they'd have to cut people out of the editorial process, which would make the books worse.

For reasons I don't entirely understand, publishers are no good at retail book sales, and book retailers are no good at publishing, so nearly all books go from a publisher, perhaps through a distributor, to a retailer, to the customer. The wholesale price is traditionally about half of the retail price, which seems high until you consider the alternative, of which there isn't one. (You can buy any book direct from the publisher, which is invariably slower and more expensive than Amazon or B&N, so why bother?) These days a lot of books are sold through big box, office supply, and even grocery stores, all of whom have a limited selection at a lower markup, but it's still retail and despite their volume, they don't get a vastly lower wholesale price.

Contrary to what one might expect, electronic books haven't changed this distribution structure at all, because the only way to get an e-book into a Kindle or an iPad is through Amazon or Apple. There are other reading devices and other booksellers, but they're much smaller and don't have the range of books.

If the publisher is going to stay in business, it needs to make back the several hundred thousand dollars it cost to publish each book, and that's the main component of the book's wholesale price. This means publishers can't afford to charge much less for e-books than for paper books. Although e-books are a little easier for retailers, no physical inventory and no returns of unsold copies (a surprisingly expensive part of the book biz), their cost to sell you an e-book isn't that much less than to sell you a paper book. Amazon has been selling all their e-books at $10 to try to make the Kindle's market share impregnable, but to do that they've often been selling below their own cost.

So from the publisher's point of view, making and selling e-books is nearly the same as paper books, so they cost nearly as much. In the next installment we'll look at how e-books differ from paper books for the people who buy and read them.

  posted at: 16:22 :: permanent link to this entry :: 0 comments
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