In our last Ebook-troversy post, I ran some numbers based on figures given out by Independent Publishers Group, who, if you recall, decided not to renew their ebook contract with Amazon because they couldn’t come to an agreement over ebook prices. That last post was pretty mathy, but it showed some important points; namely, that digital copies can be profitable at lower price points, and a variety of lower price points at that. Curt Matthews, CEO of IPG, popped by our blog to leave his comments; I have to say, his response leads me to believe I’m onto something. (See his arguments and the rebuttals here.)

While I was going back over the calculations, I realized something that gave me a moment of “whoa” revelation: Ebooks should also be lowering the price on print copies.

(Cue the publishing industry having a collective hemorrhage.)

I promise to make this post a little bit less numerical where I can. Unfortunately, though, I may have to explode y’alls brains with a little more math. Just a little.

One of the things publishers point to in the production of ebook copies is the cost in preparing a book for sale. Editing costs. Marketing costs. Paying the author. Paying the overhead. This all makes sense; of course it costs money to polish a manuscript. Even the most famous authors need editors and proofreaders. The people who work at the publishing company need to be paid salaries, and they need to keep the lights (and computers) on. I get that, but here’s the thing: all of those costs that go into getting a book ready for sale are not format-specific. The manuscript has basically the same text from edition to edition; if an ebook is released concurrently with a hardback or a trade paperback, the information in both formats should be exactly the same. Beyond the translation of the book into a digital format–something that could be done for a few hundred dollars, based on my checking around various companies like 52 Novels or Novalis  that will transfer your manuscript into ebook format–no extra editorial work should apply to the manuscript itself.

“Yes, yes–but the manuscript itself needs professional work! You can’t just discount that! Making ebooks isn’t free!”

No, I can’t, and I won’t. The numbers, though–they still don’t add up quite right to me.

Let’s start with the title–the content of the book before it gets distributed into any format, digital or print. In the last post I wrote, I put an estimated price tag of $22,800 for editorial services and other overhead for a title, based on the numbers that IPG published in regard to print book costs. We will link this $22,800 into the manuscript itself, since we’ll be, in our hypothetical quest to publish a book, be using that manuscript in every format in which we choose to publish a book.

I’m going to go ahead and make a supposition here, because I don’t know exactly whether the $22,800 is the full overhead cost or if it’s already been split; my guess, based on the available evidence, is that he was referring to the full editorial cost. I base this on the fact that I haven’t seen list prices for print books drop much since ebooks came on the scene. (I used to work in a bookstore, so I’m fairly familiar with print book prices. They’ve gone up, if anything–mass market books are definitely one or two dollars more than they used to be, for example.) For the list price of a trade paperback to end up being at the same $14.95 that it generally has been, allowing for the price to have crept up a tiny bit due to inflation, publisher profit margins either have to have gone up or that’s the same cost/price model that has generally been used since before ebooks became popular.

So, we have our $22,800 manuscript. I’m going to ignore the author advance for a  moment, since it’s just that–an advance on royalties that will be made later. Even though the author has the money, that money will have to be earned out by sales, and thus, isn’t attached to the manuscript itself. Now, we have to put it into formats that allow people to purchase them. The costs that Matthews calculated were based on a 10,000 book print run; so, we have now 10,000 units among which to spread out those editorial costs, along with the $30,000 price tag of actually printing the books. That’s format #1.

Then, we add an ebook. As I said above, the cost of adding an ebook shouldn’t be more than a few hundred dollars–if publishers are spending a lot more, I would be skeptical as to what, exactly, they’re doing to produce the ebooks. Even the cost of scanning in an older book for which a digital file is not available rarely exceeds $200 for scanning, based on my nosing around companies that specialize in such a thing. Even if I am generous and allow them $2000 for total ebook production and distribution to various online retailers (which they could get less expensively if outsourced), that’s still 1/15 of the cost of producing print books. Further, by now, I would think that a publisher could roughly estimate the amount of ebooks that will sell based on past data; with the ebook business climbing steadily, I can’t imagine that they would overestimate this number very often. If anything, estimates would grow over time. So, when settling on an overall pricing scheme, I would think that a publisher would be able to price their books based on 10,000 print copies produced + x number of ebook copies projected to sell.

X is the magic number here. I don’t know what X is. According to Lulu.com, a print-on-demand service, having books in both print and digital formats increases overall units sold. Based on Matthews’ comment that a 10,000 book print run is still a very respectable figure, and ebooks steadily gaining share in total books sold, I’ll toss out a guess that they might expect 5,000 e-copies to sell while in their first print run. This number could be high or it could be really low, I don’t know. I imagine that it’s not too high, if it’s high at all. I just need a figure to show the concept; really, any number would do here.

Back to the $22,800 manuscript. If a publisher knows it will print 10,000 copies, and uses past sales numbers to estimate another 5,000 (or whatever number) of ebooks will be sold on top of that, then the cost that has been sunk into the manuscript should be split: $15,200 to the print run, and $7600 to the ebook project sales. Each print copy would then cost $0.76 less per copy to produce, which would lower the retail price by about $1.50 per book. If a publisher estimated more ebook copies sold–say, 7000 or 10,000–then the cost to produce each unit would be even less. Based on the 5000 ebook estimate, that original $14.95 trade paperback could retail for $13.45, and the ebook could retail for $8.30; the costs would still be covered, including the author royalty and maintaining the publisher profit.

How does this work? It works because adding the ebook format would basically be akin to being able to add an unlimited number of print copies for only a small amount extra; if you could shell out a few hundred dollars–or even a couple thousand dollars, if we want to be extravagant–to have an unlimited supply of books, you would shrink your marginal costs considerably. The costs to produce the manuscript itself should then be stretched over all of the copies sold, print and digital alike, because the same manuscript is used to produce both formats. Publishers don’t send the manuscript through the editorial and marketing, etc, process twice, yet I feel that we’re being asked to pay these costs twice when they point to them as being the reason that ebooks cost as much as a print book.

Further, ebooks have the ability to provide steady long-term revenue, which I think also should be factored in–as well as it can be predicted from past data–into the price of all units sold. Lowering the price on ebooks when they’ve become backlisted, for example, can help move a lot more units. Smashwords released some data that indicated the “sweet spots” for selling ebooks are around $3 and $6. Other data revealed that ebooks maintain a healthier lifespan than paper books, which often go out of print–not surprising, given the hefty cost of additional print runs. (You can find the slides here, starting at slide #30. These figures are for self-published authors, so the actual numbers sold would not necessarily reflect those of a larger publisher; given the ability of publishers to market their books more effectively than individuals, I can’t imagine that publishers would do worse.) Lowering the costs on initial runs, both print and ebooks, would help move more units when the book first launched, which would generate more buzz as more people read the books, which would contribute to long-term profitability for the title.

Factoring in the enormous potential for added profit generated by the ebook portion of the title itself, I think this absolutely means that we could get print books at a lower price as well as ebooks. I also think that if publishers who are complaining about “devaluing” books would take a basic economics class, they would see this for themselves. Their issue of pricing based on legacy models and based on what they think their costs should be–rather than finding ways to cut costs to meet the price that would bring them the most profit–hurts their sales far more than piracy and Amazon price-slashing combined. It hurts authors, too; based on the Smashwords numbers, at the $5.99 price point, authors would earn more than at the $8.30 price point due to increased volume if the royalty percentage held steady; it also stands to reason that the author could, potentially, make more if more print books were sold at a lower price point. (Another fascinating link to check out–see what happened when Paulo Coelho posted his ebooks for $0.99. Very interesting stuff. Thanks for the tip-off, @grawrded!) So, if it’s hurting the publishers, and it’s hurting the authors, and it’s hurting the readers, exactly what is this pricing model doing for anybody? Bueller?

(I probably got some of these links from @popqueenie over at Book Snobbery. Big thanks to her! She helps me stay in the loop.)

How do you feel about the price of print books? Think they’re okay, or too high? Would you buy more books if you could get them a few dollars cheaper? Leave your comments below!