Jeremy Greenfield had an interesting post on Digital Book World about e-book pricing — but focused on the costs. The article tries to basically explain both why consumers think costs (and the price) should be a lot less, and publishers saying, “No, wait, costs are not that far off”.

Here are some excerpts from Greenfield’s post:

Publishers are making a killing on e-books because they cost nothing to produce, distribute and sell and are almost 100% pure profit. At least, that’s what many consumers think.

…

While consumers understand the basic costs involved in the bricks-and-mortar retail world, they don’t understand the costs involved in selling something that is, well, much, much smaller than a bread box.

…

“We still pay for the author advance, the editing, the copy-editing, the proofreading, the cover and interior design, the illustrations, the sales kit, the marketing efforts, the publicity, and the staff that needs to coordinate all of the details that make books possible,” said Bob Miller in February 2009 on the HarperStudio blog (which has been defunct since April 2010 when the publishing start-up folded) when he was president and publisher of that company; he is now president and publisher of Workman Publishing. “The costs are primarily in these previous stages; the difference between physical and electronic production is minimal.”

E-book production “costs 10% less” than print book production, said Molly Barton, Penguin’s global digital director. Hardly the vast savings that many consumers imagine. “But the largest expense is author payment and always has been.”

You can find the full post at Consumers Upset and Confused Over E-Book Pricing. [Edit: The original page has been removed]

Kris Rusch summed it up pretty well — she described it as all bullshit. But as I love to be a gadfly (not in the simple irritating sense, but rather the provocative sense for discussion), let me pull apart the original article. Because there is a hidden truth behind it, or rather, two versions of the truth.

Let’s start in reverse order, and begin with the publisher. They approach books in the modern world, at least from an accounting perspective, as “essentially” one entity. So all the costs that the publisher quoted above is charged to both items — it’s all overhead that has to be paid — regardless of the format of the final book. So they charge front-end editing costs, regardless of format out the back-end. They charge the combined formatting. They charge all marketing costs, etc. etc. etc. to the cost. All of these are considered a “book’s cost”, regardless of the final two sets of costs that diverge — when it is all ready at the end, you press “PRINT” in one business model or “UPLOAD” in the other. Except the publisher adds all those costs in both business models back into the original costs and amortizes it over both. Following that model, it wouldn’t matter whether you went Print or Ebook, the costs would come out the same. In fact, if you compare it to the old process where they only had print costs, the book costs are actually higher now — because they are doing an extra version that they charge to the total as well. It’s a completely wonky way to price what are essentially two separate products, but if your business model doesn’t like ebook transformation, it’s a good way to hide costs and embed them in your ebook world so that the transformation goes slow.

By contrast, let’s look at the consumer perspective. Editing? They know you already did that for the print book. Formatting? Already done. A cover? They don’t care, reuse the same one. Dozens of people to “manage the relationship”? Also don’t care. Nope, they know you already paid those costs which is why publishers are charging so high for print books (hard cover and paperback). Sooooo, ebooks aren’t incurring all those costs again — they are only incurring a small amount of “incidental” additional costs. In other words, once you have the “content”, ebooks only incur marginal costs. And like any good business model, you sell the ebook for the marginal cost of producing that extra format, plus a small profit.

In one vein, the publishers are saying, “Oh, you want an eformat TOO? That raises the overall price of everything” and consumers are responding, “No, unless you’re giving me both formats, I’m only willing to pay the incremental cost for doing an ebook”. And like all other industries where the internet is reducing production costs of virtual goods, publishers can continue to block innovation at their own peril.

The most laughable part is the argument that the biggest expense is for the author. Considering an author gets less than 25% of overall price (and often much less), that’s a pretty good argument for consumers to say “Hey, big publisher? I don’t think you add enough value. I prefer to give more money to authors and so I’ll buy the self-published books they do. And you’ll get zip on the deal.”

After all, in the end, consumers vote with their wallets, and if it puts more money in the hands of the content creator, that starts to look a lot like another economic movement.

Any one want to try labelling their self-pubbed books as “Fair Trade Reading”?