Why e-Books Must Cost More

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Big increases in e-book prices seem like a bad deal for consumers. They may be necessary, however, to keep authors and publishers in business as e-books replace paper ones.

The occasion for this discussion is Amazon's capitulation to Macmillan and others over the publishers' demand for greater flexibility in e-book pricing. Amazon has been selling many e-books for $9.99, while Macmillan wanted to add perhaps $5 to the price.

Amazon gave in and other publishers have been following suit.

The reason for the sudden pressure on Amazon?

Steve Jobs.

Apple made iBooks deals that give publishers flexibility in pricing e-books for the iPad. This is, of course, a complete turn from Apple's firm demand for standardized, across-the-board iTunes pricing.

If you are in the media business or just interested in other people's business models, let me explain how the publishing industry works. The numbers and examples are from discussions with friends in the business and are intended to be fairly non-specific.

Before I continue, let me disclose that in the past I have authored two books, so I am not an unbiased observer. Still, I think I can present the matter fairly.

Here goes:

Until recently, Amazon demanded a 70 percent cut of e-book sales. At $9.99-a-book, that left a whopping $3.00 for the publisher. Compare that to a 50/50 split for a paper book that might cost $26.95 in a store. At that price, the publisher got about $13.50.

Sure, it costs more to print and distribute paper books, but not so much as you'd think. Publishers would much rather sell a hardcover or paperback and get $10-$15 a copy than sell an e-book at get $3.00.

Consider that the author, who might have spent weeks/months/years working on the book, may be paid a 10-15 percent commission on the wholesale price. At $3.00 that's 30-45-cents-per-book. At $13.50, it's $1.35 to $2.00. A huge difference for the author.

Amazon, I am told, recently increased publishers' share of e-book sales to 50 percent. Now our $9.99 e-book delivers $5 back to the publisher.

A new $14.99 e-book price gives the publisher $7.50, a price that according to my publishing industry friends more approaches the actual cost difference between e-books, paperbacks, and hardcover editions. It also makes the e-book a tad less attractive to bargain hunters who'd otherwise buy a "real" book.

At $14.99 with a 50/50 split, writing and publishing e-books looks like a real business. When the bookseller takes 70 percent of a $9.99 sale, it means that a lot of books won't be written or published. Only a blockbuster could possibly make real money at such a low price.

(I have seen reports that Amazon sometimes paid more for e-books and subsidized the price down to $9.99. Not a long term winning deal for anyone).

As a consumer, the price increase upsets me and makes me mad at publishers. As the author of two computer books, I have some understanding of publishing economics and I am impressed that Macmillan stood up to Amazon on their authors' (and their own) behalf.

If the world is ever going to replace physical books with electronic ones, a new pricing model in needed. Macmillan, with an assist from Apple, has pushed Amazon to accept what may be a sustainable business model.

And that's good for authors, publishers, and, ultimately, readers.

David Coursey has been writing about technology products and companies for more than 25 years. He tweets as @techinciter and may be contacted via his Web site.

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