I posted this over at NookTalk but wanted to make a few comments here.

This article emphasizes that a structured pricing plan is good all around when it come to eBooks. (My plan says eBooks should cost around 75% of the cheapest retail price available for the print copy. So if B&N sells a Hardcover for $20, then the eBook should be <=$15. If the Mass Market Paperback is available for $7, then the eBook should be <=$5.25.) Here’s the way it breaks down:

Hardcover - $26 (consumer’s cost)
Publisher’s Paid: $13
Author Royalty: $3.90
Printing, Storage, Shipping: $3.25
Design, Typesetting, Editing: $0.80
Marketing: $1
Publisher’s Profit: $4.05 (before overhead operational costs: offices, warehouses, electricity, etc.)

eBook - $12.99 (consumer’s cost)
Publisher’s Paid: $9.09
Author’s Royalty: $2.27-$3.25
Digitizing, Typesetting, editing: $0.50
Marketing: $0.78
Publisher’s Profit: $4.56-$5.54

eBook - $9.99 (consumer’s cost - Amazon model)
Publisher’s Paid: $6.99
Author’s Royalty: $1.75-$2.50
Digitizing, Typesetting, editing: $0.38
Marketing: $0.60
Publisher’s Profit: $3.51-$4.26

All this shows that the Publishers make more money from the eBook market (although Authors are getting reduced royalties). And what the NYTimes doesn’t employ is the change based on when the book goes to paperback. Where Design, typesetting, editing are once again needed for the paperback, the eBook is still ok in it’s current form. Also assuming that the paperback needs little to no marketing as well, prices fall dramatically.

Mass Market Paperback - $8
Publisher’s Paid: $4 (per 50% model illustrated in NYT’s article)
Author’s Royalty: $1.40-$2
Printing, Storage, Shipping: $.8-$1 (assumed % from NYT model, dropped 20% for reduced shipping [arbitrary])
Design, Typesetting, editing: $0.75 (assumed similar, but slightly cheaper since design is reworked for MM Paperbacks)
Marketing: $0 (no marketing done for paperbacks)
Publisher’s Profit: $0.25-$1.05

eBook - $5.99 (consumer’s cost for a $7.99 mass market paperback)
Publisher’s Paid: $4.19 (based on NYT’s 70% price point)
Author’s Royalty: $1.05-$1.50 (based on NYT’s 17.5%-25% numbers)
Digitizing, Typesetting, editing: $0 (done during hardcover release, no changes necessary)
Marketing: $0 (assumed none for paperbacks)
Publisher’s Profit: $2.69-$3.14 (Much higher profit margin!!!)

I think most people here don’t mind the higher prices up front (ie $12-$14 for brand new books) that’s only expected. But sticking to the $9.99 as a blanket need is a joke. And if publishers looked at things in the big picture I can’t believe they wouldn’t see this too. Right now they’d be making more off the eBook than their print books. The only people that get screwed regardless are the authors, which is a shame and I’d assume that they’d renegotiate their royalty structure in eBooks became the dominate form of delivery. Which would put the profits to the publishers once again around what they are getting for print books. The only paragraph in the article I have an issue with is that publishers claim they make up much of any losses from the Hardcover edition in the paperback edition. It’s difficult if they only make ~$4 off of a Hardcover, and expect to make more from a $8 retail paperback…assuming they only receive a wholesale price for those books as well. I can’t see B&N paying $6, $7, or $8 for a book that they will sell at $8-ish.

BUT, again what’s not thought about in any article talking about publishers and eBooks is the market for used books and the ability for eBooks to take market share away from the used book market. I want cheap books. Let me give you a for instance. B&N had Shutter Island for cheap (~$4) the other day. I bought it for my wife to read (and for me later). My wife is a huge library fan so, if it wouldn’t have been so cheap, she’d have found it at the library and read it. But now, B&N, William Morrow (pub), and Dennis Lehane (auth) got a little scratch from me instead of the nothing they’d receive from her library visit. Or if I wanted purchase the book, a trip to Half Price Books or an Amazon Marketplace purchase second hand would have been what I did, instead I bought the book in the way that put money in their hands. I might be a little in the dark, but with the data I’ve seen this is a win-win-win-draw for publishers, retailers, consumers, then authors (meaning authors will need to renegotiate so it’s not a total loss for them). Am I wrong?

My belief…is that this hurts publishers in the end. Look at the movie industry. 2009 was really the first year certain things blew up.

1. Netflix Streaming became really popular (not only from the Roku box, but all the other devices that now support it.)
2. RedBox, DVDPlay, etc. could be found everywhere (including some rural towns)
3. Most movies were released with Digital Downloads
4. Ease of digital renting (iTunes, Amazon, Video OnDemand, etc.)

As a result, 2009 was a turning point in the movie industry’s slagging profits, and movie piracy slowed (not mutually inclusive). Now with the industry forcing Netflix, RedBox, etc to a 28-day waiting period, I would be willing to bet that the industry slows again, and piracy increases as well.

For the book publishers, $9.99 is still in my mind a barrier of entry when it comes to eBooks. $6-$7 is where I feel comfortable in purchasing the book. Now the eBook readers are fairly prolific (ie like the iPod became), people will start going to other sources (ie piracy, etc.) to find their digital books, much like what was done before the iTunes Store. $15 for a digital book is absurd. Take Ozzy Osbourne’s Hachette published book, I Am Ozzy. It’s $14.47 for the hardcover. Printing costs money and binding costs money. $15 for a hardcover is not bad. The Kindle price is $9.99. To me that’s pushing the limits on price, and tells me that I won’t buy it. Digital (which takes little in mass-production costs) should be extremely cheap. Secondly, Take James Rollins’ The Doomsday Key. Paperback from Amazon is $9.99, Kindle edition? $9.99. That’s even more ludicrous. This is one case where book publishers are completely blind. I think new releases are able to be sold (digitally) at around $10. But after a few months time they should drastically reduce, think 1/2 current retail price (not MSRP). Then when the paperback comes out it should be reduced again to 1/2 current paperback retail price (not MSRP). Then when the Mass-Market Paperback comes out, it should go down once more.

What publishers don’t realize is that the reduction in price means more sales. That’s the point of the MM Paperbacks! Why can’t they see this in eBooks? They just don’t understand that digital sales should follow the same model, they feel if they sell it for less than the actual book it cheapens the product…which it does not. Bad writing cheapens the product. I used to by books all the time off of the “Clearance” racks at Hastings, books I would have never purchased and read otherwise. The price was the reason that sale was made, not how it was marketed and original pricing scheme.