There is a strong history of companies resisting the electronic distribution of their wares.
Ultimately that resistance to the electronic distribution of their properties has resulted in people figuring out how to otherwise distribute the same media (illegally) regardless. The result inevitably is a loss of income for the companies owning copyrights to the media.
Years ago record/music distribution companies didn’t like the idea of electronically distributing music. They had a system that they thought protected their copyrights, made them money and they wanted to stick with it.
Here’s a breakdown of the costs for a $15.99 CD:
This breakdown of the cost of a typical major-label release by the independent market-research firm Almighty Institute of Music Retail shows where the money goes for a new album with a list price of $15.99.
$0.17 Musicians’ unions
$0.80 Packaging/manufacturing
$0.82 Publishing royalties
$0.80 Retail profit
$0.90 Distribution
$1.60 Artists’ royalties
$1.70 Label profit
$2.40 Marketing/promotion
$2.91 Label overhead
$3.89 Retail overhead
As you can see, a vast amount of the price is split between the record label and the retail overhead. (Note that the artists only get around 10% of the total fees.) Electronic distribution would eliminate most of the retail costs and packaging and manufacturing costs, leaving the primary costs going into the record labels’ pockets. And it’s no surprise that the prices stayed high because the record labels didn’t want to give up that easy money.
But the original Napster enabled people to get electronic copies of music easily in spite of the record companies’ desire to keep business as usual, and although a court order eventually shut down Napster, the genie was out of the bottle.
Eventually the record distributors conceded that they needed to come up with their own method to distribute music electronically and did so. But initially their online music prices were too high, with the cost of an entire downloaded album costing as much as a CD, and with the hassle of restrictive Digital Rights Mangement (DRM) schemes thrown in for good measure.
Over time the music industry is finally accepting reality and “getting it”, continuing to drop the price for music so it’s affordable. iTunes recently even gave up on it’s Digital Rights Management (DRM) schemes.
But ever since the original Napster the Recording Industry Association of America (RIAA) has felt forced to spend lots of time and money pursuing illegal distribution of music through litigation, mostly because their long denial of the reality of the Internet resulted in them getting well behind the problem.
In like fashion, now that electronic versions of books (eBooks) and eBook readers are getting popular, the book publishers are denying the reality of the Internet.
Between restrictive and poor Digital Rights Management (DRM) schemes and overpriced eBooks, all the book publishers are doing is giving extra incentive to people to seek alternatives (i.e. get copies of eBooks illegally); the same thing that happened to the music industry.
Amazon tried to set its eBook pricing at $9.99, but the publisher Macmillan decided that price point “devalued” its bestseller books, which sell at $30 for hardcover versions. Macmillan believes that its eBooks are worth $12.99 to $14.99. (I think that $9.99 is still a bit steep for an eBook.)
So this book publisher believes that it makes sense to charge customers half price for an electronic version of a hardcover book that can’t be given to someone else (like a real book) or resold (like a real book), and has to be read on an eBook reader that costs hundreds of dollars.
This article puts the publisher profit for a book at 30% or so with retail costs around 45%.
A Simple Model of Book Costs and an Example
The very simple break-up is -
- Author – Creation. 8-15% Royalties.
- Publisher – Being the Curator, Polishing, Manufacturing, Marketing. 45-55% (includes Author’s Royalties). Note that Printing accounts for just 10% of the book price.
- Distributor – 10%.
- Retailers – 40%.
- Consumers. Just the paying part
An example found at BookFinder states a cost break-up that closely matched what my research turned up -
- Book Retail Price: $27.95.
- Retailer (discount, staffing, rent, etc.) – $12.58. That’s 45%.
- Author Royalties – $4.19. Exactly 15%.
- Wholesaler – $2.80. Exactly 10%.
- Pre-production (Publisher) - $3.55. That’s 12.7%.
- Printing (Publisher) – $2.83. Translates to 10.125%.
- Marketing (Publisher) – $2. That’s approximately 7.15%.
Note that the 3 Publisher Costs add up to approximately 30%. There doesn’t seem to be an entry called Publisher Profit.
That puts total retail and publisher costs for a real book at 75% of the book price! One could theorize that eliminating the retail and various publisher costs should put an eBook at 40% or less of the cost of a book, and that’s even throwing in 15% for electronic distribution costs.
Instead the prices for eBooks remain high at 60% or more of the price of a real book.
Just like the record labels, the publishers don’t want to see the easy money go away.
This is the sort of logic that cost the music industry millions; sticking to old pricing models based on traditional distribution schemes.
Exorbitant eBook pricing likely will lead to people seeking alternative methods of acquiring those eBooks (i.e. stealing them).
That’s not to justify theft; but the reality is that with the Internet if the price isn’t right people will find the media elsewhere. If however there is an accessible and reasonably priced legitimate distribution scheme many will pay and avoid the hassle of those alternatives.
The cold hard reality is that the days of the record and book publishers, at least in their original form, are numbered (and the record companies and book publishers know it). In the past they controlled the market because they had the means and access to control the media creation (the CD duplicators and book printers).
There wasn’t really an affordable or viable way for the artists and writers to create and then distribute their works to their audiences.
But now because of the Internet both writers and musicians don’t need the middleman. Musicians can actually burn their own CDs and distribute them, and book printers will print small batches of books for writers or distribute their work as an eBook. They can set up websites to advertise and sell their work.
The publishers are thereby losing the leverage they once had so they must adapt and find a new purpose. Trying to prevent or hinder online distribution schemes won’t change that.
Eventually I suspect traditional publishers will go the way of the dinosaur, as I’m sure eventually companies like Amazon will enable artists to distribute/sell their products directly to a large audience.
J.K. Rowling refused to allow eBook versions of her popular Harry Potter books. That decision has likely cost her and her publisher millions because those popular books were scanned and put online in spite of that decision.
It’s head in the sand thinking and it’s amazing the book publishers haven’t learned a thing from the music industry’s hard lessons.
