Can publishers turn a profit on e-books?

by Jason Preston on May 18, 2009

You’d think, from the complaints about e-books that publishers are currently wrapped up in, that digital books are set to kill the industry. But as far as I can tell, that’s not (even remotely) the case.

If I were a book publisher, I’d be thanking Amazon profusely for setting up an easy-to-play model where readers are trained to expect at $10 price point even when, from their perspective, they’re paying for something that costs $0 to produce.

If you make a few reasonable assumptions based on the New York Times article linked above, what you find is that digital publishing opens the doors to unholy profit margins for successful book publishers, even if all books cost just $9.99.

OK, let’s do the math. First, we know from the Times that the cost of printing a book is roughly equal to 12.5% of it’s list price (which they also provide: $26).

That’s means it costs roughly $3.25 to print each individual copy of a book. Cool. Now we can calculate how much money it costs to print (and just for fun, we’ll assume also to distribute) any number of books.

First assumption: let’s take a wild guess and say that the bringing the typical book to market involves about $100,000 in fixed costs. That includes editing, marketing, and paying the author advance. I think this is probably high.

That gives us enough information to start doing some calculations, and figure out how profit margins differ between a printed product and a digital product.

First, let’s break out the costs & revenue of classical print publishing for a run of 25,000 books:

printcost

That’s pretty good. If you put in $181,000 and you sell all 25,000 copies, you walk away with $325,000.

Now let’s assume that in a digital world, the publishers adapt the same half-price strategy for selling their books to retailers: $5 for a digital copy. How do the numbers look – with the same fixed costs, but none of the variable printing costs?

compare print and digital costs

It’s not as good, but it’s still pretty good. Put in $100,000 and get back $125,000. Now let’s have some fun. Say the publisher has a good book on their hands, and demand immediately takes off; they sell 75,000 copies:

compare print and digital costs

The story is starting to look pretty different, isn’t it?

And what if—just go with me here—the publisher had sold Harry Potter and the Half-Blodd Prince as a digital book. It moved 11 million copies in the first 24 hours. Again – the spreadsheet:

if harry potter were an e-book

Basically, it looks like digital publishing is perfectly viable. It may take a couple thousand extra copies to break even, but once you’re past that point, it’s *pure profit* – how can you not want that?

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Ekonomin bakom en läsplatta - Swedmedia Utveckling | Internet, trender & analyser
05.21.09 at 10:51 am

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1 rmmason 05.18.09 at 5:05 pm

Good to see the numbers…now if they could get their IP issues sorted out so eReaders could share, as we do with books…they might get a wider acceptance.

2 Jason Preston 05.18.09 at 11:13 pm

rmmason – unfortunately web-based metrics are utterly fracked, as far as I can tell. I think we might end up seeing the adoption of a “new” web architecture driven by companies that want a good system for precisely things like this.

Or you can adopt the “Steam” approach from Valve Software, and simply tie content to a user account. If you want to loan a book, you loan your account information…

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