What is the true cost of publishing an eBook? Among all the disputation about eBook selling prices, one major misconception persists: that because the reproduction cost of eBooks is very low, then the cost to the publisher is low, and therefore the selling price of an eBook ought to approach zero. Whether this misconception is honest ignorance or lobbying in the court of public opinion on the part of Amazon, it deserves to be stamped out. It deserves to be stamped out because saying it is the same as saying than an author’s years of atrocious labor, or a publisher’s investment of tens of thousands of dollars in the title, ought to be priced somewhere approaching zero.

Don Leeper

Don Leeper

The confusion about the cost of eBooks is not limited to those outside of publishing. I have heard arguments about eBook pricing related to their cost basis between two publishing partners with many years of experience: one arguing that all the up-front costs involved in publishing book ought to be amortized equally between the total of all print copies and eBook copies sold, the other arguing that eBooks are incremental income like rights sales. So what are the real costs of eBooks vs. printed books? What does that imply with respect to setting an eBook list price? Let’s figure this out.

First, let’s dispose of the fantasy that the marketplace will by magic set a price that compensates all parties fairly. In a simple marketplace where the parties in transactions have no other stake than the simple exchange of books and money, no seller of eBooks would ever price them below what they cost to produce or acquire at wholesale. An equilibrium could be reached. However, in a marketplace called the Real World, where Amazon is quite willing to sell certain goods, including eBooks, below cost in order to gain market power, the price to the consumer need not bear any relationship to the cost of producing the eBook. The costs to authors, publishers, and, ultimately, to consumers are externalities to that retailer: it is quite happy to torpedo an entire industry for its own future benefit. (Not current benefit, for it makes no profit to speak of. And, of course, any future profits depend on continued, if not escalated, pricing pressure on publishers and authors.)

It is clear that printed books have costs associated with their production and distribution that eBooks don’t: printing, warehousing, shipping, and the costs associated with holding inventory. But the question at hand is how to attribute other costs associated with publishing a particular book. We can identify those other costs by looking at what functions publishers actually perform themselves or subcontract:

  • Editorial (manuscript review and selection, substantive editing, copyediting, etc.)
  • Design and Production (cover design, interior design, page composition, eBook conversion, etc.)
  • Marketing (metadata creation and dissemination, publicity, etc.)
  • Sales (sales management, sales to resellers, customer service, rights sales, etc.)
  • Manufacturing (printing and binding)
  • Distribution (warehousing, order processing, shipping, returns processing, etc.)
  • Accounting (accounts receivable, accounts payable, royalties, etc.)
  • Overhead (office expenses, support staff, etc.)

I propose a test by which a cost ought to be amortized across all printed books sold, all eBooks sold, or across the total of all eBooks and all printed books sold, to wit:

  • If the publisher were to publish the book only in print, and the cost in question was required in this print-only model, then it should be amortized across print copies sold, obviously.
  • If the publisher were to publish the book only in eBook format, and the cost in question was required in this e-only model, then it should be amortized across eBook copies sold, obviously.
  • Finally, any cost that would be incurred in both of the scenarios above should be amortized across the total of all books — print and eBook—if the book is actually published in both formats.

Let’s look at some examples:

eBook conversion
This cost occurs in the eBook-only model, but not in the print-only model, and therefore should be amortized only across eBooks sold, if the book is in fact published in both formats.

This cost occurs in the print-only model, but not in the eBook-only model, and therefore should be amortized only across printed copies sold, if the book is in fact published in both formats.

These costs are incurred in the print-only model and in the e-only model, and therefore should be amortized across the total of print and eBook copies sold.

Here it starts to get tricky. Some marketing activities may seem to be print related, e.g., printing and mailing ARCs; but because the consumer may choose either format after reading a review stimulated by the ARC, the costs should be amortized over total units, not just print units. Same with a Net Galley or Edelweiss digital ARC. In general, it seems that marketing should be amortized across total units sold regardless of format.

Design and Production
Another tricky one. The cover design is created for the print edition, but is also critical to marketing the eBook. Typesetting the interior of a print edition accomplishes not only the pleasing and readable formatting of the print edition, it also encompasses a continuation of the editorial process in the checking and correcting of multiple rounds of page proofs. The eBook is in fact normally only created after a great deal of work has been accomplished in page typesetting. I’m going to say that 50 percent of the preparatory costs of the print edition should be amortized across the total of both print and eBook copies sold. This can be fine tuned, obviously.

Now let’s look at the whole list:

Print only eBook only Amortize across
Editorial Required Required Print + eBooks units sold
Marketing Required Required Print + eBooks units sold
Design & Production,
excluding ebook conversion
and printer’s prep charges
Required 50% required 50% across print units sold,
50% across all units sold
Ebook conversion Not required Required eBooks units sold
Printer’s prep charges Required Not required Print units sold
Editorial Required Required Print + eBooks sold
Sales Required Not required Print units sold
Printing and binding Required Not required Print units sold
Warehouse charges Required Not required Print units sold
Accounting Required Required Print + eBooks units sold
Overhead Required Required Print + eBooks units sold

Now, every publisher handles their title P&Ls a little differently, in my experience. And there are accrual issues related to costing printed inventory as it sold. But you get the gist: if a publishing process is an essential part of publishing an eBook, the cost ought to be attributed to eBooks sold. When this is done, the true cost of publishing an eBook is measured in dollars per copy sold, not pennies. Add in the fact that the publisher gets less than half the list price for each sale, and suddenly a $2.99 eBook price shows its true aspect: a dagger pointed at the heart of publishing.

Bestselling thriller author Lee Child summed it up in his comments on the Hachette/Amazon dispute:

It’s staggeringly naïve to think the current KDP [Kindle Digital Publishing] landscape is anything other than a short-term tactic. Note well–I am NOT saying don’t get into it now just because it will get worse in the future… instead I say, hell yes, make hay while the sun shines. Exploit Amazon’s game plan for all you can get, as long as it lasts, and more power to you. But understand that today’s KDP is a pressure point, designed to suck authors out of the established system, along with sucking out money and margin by other routes. Truth is, it ain’t working great so far–no significant authors have jumped ship, and publishers are still profitable. But Bezos never gives up.

And if he wins…then we all have a problem. Note well–I am NOT talking about nurturing or culture or curating or any of that kind of non-existent crap. I’m talking about money. Amazon is a tech company. The basic tech paradigm says content is always the smallest part of the cost. Those guys really believe that. Storytellers will be working for whatever few pennies they choose to hand out. (Or some will. I’ll be doing something else by then. I don’t work for pennies.)

In this strategic environment publishers should be paying attention to their real ebook costs, and not delude themselves that ebooks are “extra” income because of their low reproduction cost. Ditto authors. Ebook pricing is a wedge in a winner-takes-99% kind of game.