
Amazon loses about $2 for every e-book - prakash
http://www.tbiresearch.com/e-readers-should-drive-profits-for-both-distributors-and-book-publishers-2009-11
======
cstross
Money shot: _In any event, in order for the e-reader market to thrive
publishers must lower their wholesale prices so that distributors can turn a
reasonable profit. We believe that if the price is lowered enough publishers
may earn less per unit, but could ultimately earn more in overall revenue and
profit through a greater number of sales._

Except they can't.

I gather (can't cite my source) that amazon were leaning on British publishers
to give them an 80-90% discount off list for Kindle books. Normal trade
discounts are in the 40-55% range; anything over 60% is harsh, 70% has the
publisher losing their shirt (making a loss). Remember, about 10% of the cover
price of the book goes to the author, and the publisher takes another 10% to
cover editorial/marketing/production costs, even if you don't include covering
chunks of dead tree with ink (another 10%). (Unfortunately, the "physical"
production costs don't go away if you switch from paper books to ebooks --
publishers still have to run a royalty accounting system for authors who
expect to be paid a percentage cut per book sold.) The other 70% of the cover
price goes to the supply chain, or is split between the supply chain (aka
Amazon.com) and that nice 30% discount Amazon gives you, the customer, for
shopping with them. If they're lucky, the publisher can keep 10-15% of it for
themselves -- and that's the profit their shareholders dine out on.

The major publishers are between a rock and a hard place over the ebook
discount setup. Relatively nimble small players and startups such as Baen's
webscription subsidiary (www.webscription.net) can add new boilerplate to
newly signed book contracts that free them to pursue more ebook-friendly
business models, but how do Penguin re-negotiate every contract for a backlist
of on the order of 40,000 titles?

Amazon have built a business model on disintermediation -- they've replaced
wholesale distributors _and_ the bookstores they feed with a single hybrid
entity, and therefore take the tranche of profit that would formerly have
fuelled both those earlier types of business. But there isn't enough slack
left in the supply chain to let them cut prices further -- not without eating
into the author's cut (long-term fallout: fewer books get written), the
publisher's cut (long-term fallout: fewer books get published) or the reader's
wallet (books cost more).

I bloviated about this back in 2007 ... much less has changed since then than
most people seem to believe:

[http://www.antipope.org/charlie/blog-
static/2007/03/why_the_...](http://www.antipope.org/charlie/blog-
static/2007/03/why_the_commercial_ebook_marke.html)

~~~
patrickgzill
Your percentages are WAY off.

Bookstores get 40% off, distributors such as Ingram or Baker and Taylor get
60%. So distributors have to run all aspects of billing and order fulfillment
and shipment in return for 20% .

Anything over that you have to buy non-returnable or do via special sales
(book clubs for instance get more of a discount but buy non-returnable and
minimum order size 5000 or 10K books at a time) usually direct from the
publisher.

10% of the cover price does NOT go to the author, unless he is a bigshot
(famous/celebrity) or has a surefire franchise (Stephen King level).

Usually, assuming the publisher is fair, the author gets a percentage of the
NET amount the publisher gets. Royalties are easy to calculate these days
thanks to software for publishers that keeps track of that. Example: $19.95
retail, publisher gets $12.00, author at 10% gets $1.20 (not $2.00 ).
Sometimes foreign language rights are handled differently, sometimes they are
the same.

Amazon is making the argument that ebook pricing is highly elastic - that if
ebooks on LISP programming were 1/10th the price, I would buy 10 times as many
of them.

Yet books and ebooks have to compete for time and attention against TV,
Internet surfing, movies, and my need to sleep; which no doubt explains
publishers' wariness.

~~~
michael_nielsen
You might want to check who you're replying to. cstross isn't as famous as
Stephen King, but in science fiction he's one of the best-known contemporary
authors.

Personally, I'm in a very different sector of the book market than cstross,
but what I know is entirely consistent with what he said.

~~~
patrickgzill
My parents were in the book business as both retail and book distributors; my
sister is a published author, my brother owns a 30-employee publishing
company. I left the book industry for my first love, computers, a while back;
but the numbers I threw out are still the norm for the industry.

------
mattmaroon
People always apply the laws of supply and demand oblivious to other factors.
They say "well if we just lower the price, more people will buy these books".

That isn't necessarily true because people can only devote so much time to
reading. Much of the investment a person makes in a book isn't money (at least
not directly) it's time.

It's entirely possible that the price of books is set by other factors, such
as competing books. People may largely decide they want a book, then shop
around, and buy one. Which one they buy may have to do with pricing, in fact
that may be the key factor in pricing (if I'm on the fence about two books,
I'll go with the one that costs lest).

So you can't simply assume that "if the price is lowered enough publishers may
earn less per unit, but could ultimately earn more in overall revenue and
profit through a greater number of sales." It's quite probably untrue.

I'd actually argue that if you want to sell more books, you should make them
shorter. Fewer pages will get the reader through it faster. I'm sure this will
only work to a point, as nobody wants to pick up a "book" that feels more like
a "pamphlet" but perhaps digital media (where all of your ebooks weigh the
same as the Kindle you read them on) will change that too.

~~~
bokonist
Part of the risk in buying a book, is in buying a book that you don't want to
invest the time in, and that will end up sitting on the shelf. What Amazon
really should to is charge by the page read. This will allow people to have a
more enjoyable experience per page read (since they'll start reading books
they might not have bought otherwise, and will not feel obligated to finish
books they bought but do not like). If they have a more enjoyable experience
per page read, they will be willing to spend more. $.05 a page read for non-
fiction, and $.02 a page for fiction would be a good price.

------
anurag
We ran some numbers comparing Amazon's ebook pricing to BN, Sony and other
retailers, and found that Amazon's prices were the lowest (or matched the
lowest) for 74% of the 11K ebooks we looked at:
[http://inkmesh.com/blog/2009/11/30/amazon-barnes-and-
noble-s...](http://inkmesh.com/blog/2009/11/30/amazon-barnes-and-noble-sony-
ebook-pricing/). So not only is Amazon losing money on ebooks, it is also
competing mostly with itself in pushing ebook prices even lower.

Also worth mentioning - 92k of the 350k Kindle titles available on Amazon.com
are priced above 9.99, so Amazon might not be losing as much money as the
original study suggests.

------
xcombinator
In the next years, any good book is going to be pirated in the net.In fact, it
is today for those that know how to search.

Finding books are going to be easier as copying a book is made simpler and
more people want to do it because they have e-reader hardware(people in the
hundred of millions instead that in the thousands).

So people will have two options: 1)Decide to pay what the publishers want.
2)Decide it's too much and pirate it.

In the publisher wet dreams people don't have objection to pay the same
quantity of money for something that has distribution cost, material cost,
manufacturing cost that for something that has virtually null copy cost.
People are not stupid.

What I think it will happen is this: Authors will start selling directly, as
with music there is no need for publishers now.

~~~
Estragon

      any good book is going to be pirated in the net.In fact, 
      it is today for those that know how to search.
    

How?

~~~
araneae
Google. You can usually find a torrent or something on megaupload.

I just got a bunch of e-books I had been trying to take out of the library for
years, unsuccessfully (all the copies were missing or somesuch; they were kind
of rare.)

------
chl
That'd help explain why they aren't paying affiliate commissions for e-books.
Apparently being able to sell at $10 is seen as more effective at building a
customer base.

------
ktrough
This article says that as wholesale ebook prices drop (the predicted trend)
authors will as a result make less money. I'd like to point out that this is
an incomplete statement. They should have said authors will make less money
PER UNIT. It is unknown if the overall ebook price reduction will result in a
similar overall number of units sold, or whether the ebook price reduction
will allow the author to penetrate the market more effectively getting
improved sales numbmers. This could easily result in MORE money to the author
for the title even though the royalty per e-unit is less.

I'd rather sell an ebook to everyone who reads english for $1/e-unit royalty
than have a New York Times number one bestseller print book with a good
contract even with the massive royalties that go with print. Electronic
distribution simply cannot be beaten.

------
eagleal
Don't Amazon covers the loss from ebooks with Kindle (ca $250)?

If Amazon sells 500.000[1][2] Kindles at $250, and sells 1 million ebooks with
a loss of 2$ at piece:

$120m in Kindles

-$2m in ebooks

1\. [http://mediamemo.allthingsd.com/20090203/citi-says-amazon-
so...](http://mediamemo.allthingsd.com/20090203/citi-says-amazon-
sold-500000-kindles-last-year-12-billion-business-next-year/)

2\. [http://www.businessinsider.com/2009/2/amazon-
sold-500000-kin...](http://www.businessinsider.com/2009/2/amazon-
sold-500000-kindles-in-2008)

------
psyklic
I don't understand why it is assumed that the author's royalty should DECREASE
for e-books. If anything, the author's words are even more important than
before! I suppose that e-books give publishers an opportunity to renegotiate
contracts in their favor, but won't author royalties creep back up again?

------
socratees
I also think eBooks piracy is rampant. Unless people consciously choose to buy
eBooks rather than download them illegally, it is difficult for the eBook
industry to make profits.

tl;dr: Ebook piracy is everywhere. Its important for the industry to figure
out a way to monetize eBooks.

------
billswift
The article was pulling at least some of the numbers ($2 loss per ebook,
authors take 10%) out of thin air (I almost wrote somewhere less polite),
which destroys any value to his "analysis".

------
nraynaud
Don't worry, they will make up with the volume :)

