Yet one more mystery about the enigmatic book publishing industry

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I’m trying my best, but I can’t comprehend why book publishers should care what the gross revenue of a title distributed via eBook format is if the publisher and author still receive net revenues (after costs of goods sold) equal to or greater than what they receive for the hardback format. But, according to this article in the Wall Street Journal, there are book publishers who are pushing back on the notion of releasing an eBook version of a new book for a price any less than the retail price of the same book’s hardback version.

Rather than me argue against such logic, here’s a link to a column called “The Kindle — Igniting the Book Business” by Harvard Professors Bharat Anand and Peter Olson — yes that Peter Olson, the former chairman and CEO of Random House, the world’s largest trade book publisher.

According to Anand and Olson:

“Prices of e-books should be shaped by cost structures and customer demand rather than by comparison to traditional paper book pricing.”

Back to my question: Why should publishers care about the retail price of a book if they could increase their margins on each book sold at a lower price but delivered digitially? Here’s the math on that, again from Anand and Olson:

If we assume that the average retail price of a print book is $10, then the average wholesale price is $5 (the $5 difference represents the retailers’ costs for store rent and personnel, including a profit of, at most, only 50 cents for the retailer); the costs of paper, printing and binding are roughly $1, the author’s royalties (15 percent of retail price) $1.50, internal publishers’ costs (including marketing, sales, warehousing, inventory management and distribution) of approximately $2, on average, leaving a publisher’s margin of 50 cents.

About half of these costs vanish in the e-book world since the store rent and personnel that make up much of the $4.50 are unnecessary; $1 of paper, printing and binding are not be incurred; and an estimated 50 cents of publisher costs related to functions such as warehousing, inventory management, production management and distribution disappear.

In other words, if you follow Anand and Olson’s logic (as I do) the publisher’s bottomline is larger on a greatly discounted (from hardback) digital version of a book, even if the author’s royalty continues to be benchmarked to the full retail price of the hardback version.

Sure, there are those who lose out if a book is purchased in an eBook format, but it is not the publisher or author, rather, they are: Printers, binderies, shipping companies, book wholesalers, physical store retailers (both big box and independent).

If the publisher’s responsibility is to maximize the revenues to the author and to his or her company, it makes little sense to raise eBook pricing.

But I do agree, there can be exceptions: As Anand and Olson suggest, eBooks offer the opportunity to experiment with various pricing scenarios. For example, eBook distribution could provide publishers with the opportunity to sell books like music — in albums or collections. Or, perhaps, there could be dynamic pricing with additional premium content for a higher price or for pre-release access.

Just don’t blow it, publishers.

(Bonus enigma observation: The same Anand/Olson pricing argument could be applied to audio books. However, audio books distributed via physical media (price of Jon Meacham’s American Gospel via CD: $24.05) and audio books distributed digitally (the same book on audible.com: $23.07) are roughly the same price. In other words, book publishers have been able to discourage the expansion of the online distribution of audiobooks for years.)