The ebook market is a separate, new, market focusing on those who are inclined to own a reader device of some sort. These types are not the usual browser in the romantic bookstores of our towns and cities. They are a generation brought up in the digital age and expect their world to be digitised.

The decline in the traditional book market cannot be laid at the door of ebooks. Neither for that matter should traditional publishers have hegemony over publishing in the digital world. To date the penny has not dropped for traditional publishers as they cling to their stores of backcopy rights and tranform them into digital form expecting still a similar price to paperbooks.

The paradigm has changed utterly – a terrible beauty is born! The modern writer will retain control over his/her work and will go direct to digital bypassing the ‘publisher’.

I’ve heard your comparison of the electronic/hard copy transitions of music and books before. You make some good points–music isn’t as digital as we sometimes think.

However, one thing that is different between the two is transferability. I can buy a CD and still use it in a digital format by ripping it as an MP3 or AAC. Likewise, songs that I purchase electronically can be compiled and burned to a CD. Books currently allow neither, as each format must be purchased separately.

I’d be interested to hear your thoughts on how this difference will affect eBook sales growth. Readers who want to get the electronic version will be forced to commit to the format far more than music listeners were, but that commitment will also likely discourage some from testing the waters. Thoughts?

When I referred to the marginal cost of the book, I was referring to the costs of producing, warehousing, transporting, and selling one additional unit of the book. For an e-book, that is only about 30 to 35 cents (the fixed cost of the credit-card validation process). It costs essentially nothing to produce, warehouse, and transport an e-book (less than a penny).

So when an e-book is sold for 99 cents, the marginal costs are less than the sale price. This means that it is possible for the distributor and the publisher to earn a gross profit on the sale.

The marginal costs for printing that same book would probably be between 1 and 2 dollars for paper, ink, and the printing process. The marginal cost to warehouse it would probably add at least few cents (don’t know the exact number). The marginal cost to ship the product is going to be a few dollars (some of which is charged to the buyer, but some of which is borne by the publisher). The marginal cost to sell the book online is the same as for an e-book, 30 to 35 cents. So a p-book sold for 99 cents earns less than the total marginal cost to produce it. The distributor will almost certainly make a profit on the deal, which means that the publisher loses money.

Returning to those pesky upfront costs for creating the product in the first place, those have to be amortized over many copies, and they add an extra cost to each unit sold. So in my comment yesterday, I was explicitly leaving those out of the calculation. A unit sale may sometimes earn a gross profit but not a net profit.

There’s a related posting on “Who Needs a Publisher” by Jeff Gerke on the Northwest Christian Writers Association blog at http://nwchristianwriters.wordpress.com/

The people of Gutenburg’s time witnessed a sea change in the way books were published. Looks like we’re witnessing our own.

Sounds as if you know how to pick your way through this mine-field.

I agree that the popularity of e-books may not rise as fast as some predict, but I tend to think when today’s tweeners are adults, they will be more comfortable reading from a screen than from a page and will most likely favor e-books. The shift will come … eventually.

Becky

For example, say I sold a book to a publisher in English for North American rights only. At the same time I included in that contract all foreign language licenses, except for Korea. Then I sold the same book to a Korean publisher for Korean translation rights. THEN I sold the same book to a UK publisher for English rights in the Commonwealth (which includes England, Australia, New Zealand, and South Africa). (By the way, this is an actual series of deals done by our agency.)

Then which publisher gets to enjoy the ebook sales in which countries?

There is the rub. If you are in Australia and have a Kindle and try to buy it from the US Amazon web site, you should not be able to do so because you should be buying the book from the Australian Amazon web site so that the right publisher gets the revenue.

This get extremely complex among the European languages. Imagine if I had retained German, French, Dutch, Italian, Portuguese, etc. rights and sold those to the publishers located in those countries. Each country licenses the rights to sell the book in their particular language.

Entire digital software and IP tracking has to be monitored to make sure this is done appropriately and recognizes international borders.

My point is that it isn’t quite as simple as it first sounds.

However, I could have to disagree slightly on the economics of that 99 cent book. The publisher does have costs associated with the e-book. The only thing eliminated is printing cost, warehousing, and returns. But everything else is in place (digital rights management, legal, accounting, marketing, administration, editorial, cover design, etc.) All those costs have to be covered somehow, somewhere.

I’m thinking of a series of posts on the economics of book publishing to help explain some of these nuances.

I wish it were as simple as “e-books have no associated costs” and “p-books only kill trees.” LOL!!!!

Nor do I watch the same movie twice (well, maybe one romantic comedy in the 80s), but I do not own movies, have never re-purchased music in updated formats, just always moved on to the Next New New Thing. Okay, Michael Lewis might just be one author I would read twice. But only when I find myself in a POW camp and I’ve already read everything else in that nice library to which they are going to allow me access. Seriously, there is so much new to read that I don’t want to go do any repeats. I sorta wish I were the type who could re-read and re-cogitate and enjoy the way most people do.

Note that if e-books continue to increase at a rate of 168%, then in 2011, we’d see a market share of 10.72% and in 2012 we’d see a share of 28.73%. At some point, those numbers won’t be sustainable, obviously. Adoption of a new product often follows an “S-shaped curve” where there is exponential growth early on and then the market saturates.

It’s anybody’s guess what the saturation level is. Will books be like music, where (as you pointed out), electronic sales have not yet reached 50%? Or will books be like e-mail, which probably has more than 90% share of the mail market? (I get no more than 10 letters per day in the US mail but I get at least 100 emails per day).

My hunch is that books will be more like e-mail. Note that there are several ways to get music electronically other than by downloads: you can turn on the radio; you can watch it on YouTube; you can listen via Pandora.com or other streaming outlets. In some sense, they count as e-downloads. For example, I rarely buy on iTunes anymore because I mostly listen to Pandora on my computer.

It’s very hard to make predictions, but my gut instinct is that things will level out with e-books above 50%. Part of that is based on my recent purchase of an iPad. It’s a far better reading experience than my Kindle. The iPad, for fiction at least, is even a nicer reading experience than a p-book, because I don’t have to bend the spine on my iPad and I can change the font size as needed on my iPad. And also I can read my iPad in the dark. I have the book Pride & Prejudice as a p-book, a Kindle book, and an iBook. Last time I read it, I chose to read it on the iPad because that was most comfortable for me.

I’m quite certain p-books will never die. I’d be sad if they did, but I just don’t see that happening.

I welcome the rise of e-books. When shipping charges don’t matter, I can deliver an e-book to customers in South Africa or Australia or China or Israel as easily as to customers in Topeka. That’s huge in a low-margin industry like books. When warehousing costs don’t matter, my book need never go out of print. When shelf space doesn’t matter, my book is never out of stock. When the cost of paper doesn’t matter, an author can set the price of a book to its natural value — which I define as “the price that earns the most money”. If that is a dollar, then so be it. I have a p-book that is currently on sale on CBD.com for 99 cents, which means the publisher lost money on that copy in terms of marginal cost to produce and deliver the book. The publisher wouldn’t lose money if that were an e-book.

It’s going to be an interesting few years, but I believe authors, agents, and publishers will all come out of it just fine, and the majority of us will do better than we had in a p-book-only economy.