Samriti Talwar

Paper versus Pixel – what is a word really worth?

It all began with my attempt to purchase a copy of Salman Rushdie’s latest book, “Luka and the
Fire of the Life.” The book being unavailable in Hong Kong, I decided to try and purchase a copy
in UK and get it delivered to my family home. As I attempted to purchase a copy online, it
suddenly struck me that I could simply buy an ebook version and get instantaneous access to
the book instead of waiting for my family’s next visit.

When I tried to buy the ebook from Amazon, I realised that making the purchase decision
wouldn’t be that
RETAILER BOOK LIST DISCOUNTED
straightforward. To a FORMAT PRICE PRICE*
consumer like me who is used Amazon Hardcover £12.99 £7.99
to paying £6.99 for any Kindle EBook - £10.40
paperback in the shops, the Figure 1
price offered by the retailer, *price after discount offered by the retailers
£10.40 for the ebook seemed
far too high. I realised that while I could buy a hardcover copy of the Salman Rushdie novel at
£7.99, the ebook is for sale at £10.40.(Figure 1). All this seemed completely against my
expectations of how an ebook would be priced and prompted me ask the question - how can an
ebook format of a novel be more expensive than its hardcover format?

After all the cost of creating an ebook has to the same as the cost of creating a print book. They
both require a script to be produced by the author and involve the same stages of editing,
proofing and typesetting, by the publishers, all the way up to the stage where the book is
distributed. All that differs is the mode of distribution to the consumers – the former being
digital where once a copy is produced the marginal cost of reproducing it is nil as compared to
the latter where the books must be printed, warehoused, shipped, stored and sold, all expenses
that have to be deducted from the profit margins. So why is an ebook more expensive than its
print version?

One of the arguments given by publishers against ebooks is that, unknown to consumers;
ebooks actually are costly for them to produce. This is because various products like Ipad and
Kindle, used to render and display ebooks, support different kinds of ebook formats. This means
that every publisher has to produce several ebook formats for the same book. Whilst I agree
that publishers have to pay for this additional step required for creating a saleable ebook, its
cost is surely less than all the other steps – printing, warehousing, shipping, storage – required
for producing a saleable print book. Normally a publisher will simply create a word document of
the author’s script and send it to an ebook distributor who then converts it to all the various
required ebook formats and distributes it to the various online stores like Amazon. So does this
mean, in the case of an ebook, I am simply paying a premium for ‘ease of access’? Is this premium
justified or are the publishers simply using this so-called ‘ease of access’ as an excuse to ensure
ebooks stay expensive.

A major part of the problem is the revenue model used in the publishing business. In the print
book scenario there is a publisher-distributor-retailer model that generally works on a
40/30/30 split on the list price. In the case of my book, this would mean that the publishers
would get 40% of the list price £13.00, if a hardcover is sold, which is £5.20(Figure 1).
Samriti Talwar

EBooks work on a 50/50 split model between the publisher and the retailer. In this case, it
means the publisher would have made 50% of £10.40(Figure 1) which is also £5.20. It is no
coincidence that it is exactly the same revenue the publisher would have made from the sale of
the hardcover even though the cost to the consumer is higher if an ebook is purchased. As a
consumer this is a bewildering scenario for me. After all ebooks mean lower costs for the
publishers so why aren’t these savings being passed on to the consumers. Why in spite of
opposition by the consumers, is the price of ebooks allowed to stay so high?

Once again we come back to the publishers’ argument that contrary to what the consumers
think producing ebooks isn’t cheaper for them as compared to producing print books.
Apparently, printing books only accounts for a small part of the publisher’s expenses while
storage and shipping costs are actually borne by the distributors. Discounts on the hardbacks
are normally offered by the retailers themselves rather than the publishers. So in this case,
Amazon is the one taking the hit in its profit margins for selling the hardback copy of “Luka and
the Fire of Life” at £9.30 instead of the list price £13.00 (Figure 1). Also, Amazon is the one who
decides the market price based on the demand from the consumers.

In the case of the digital format the price of an ebook is set by the publisher and online retailers
like Amazon are only allowed to act as their ‘agents’ and have to sell the ebook at the price set
by the publisher. As illustrated above the publisher ensures that the price of the ebook stays
high enough in order for it to generate the same amount of revenues as it would in the case of
the printed version. The reason behind this decision being that a lot of the costs that are
eliminated in the digital version were never part of the publisher’s expenses to begin with. Even
cutting out the distributors in the value chain doesn’t increase publisher’s profit. Money that
would have gone to a traditional distributor goes instead to the online retailer.

This kind of a business model which allows the publishers to dictate the market price for ebooks
means that even though the marginal cost of reproducing a digitised copy is nil the price of the
ebook is not allowed to be pushed down and we the consumers are left worse off. Theoretically
if the publishers weren’t so resistant to change they could actually profit from the ebooks by
simply eliminating the retailer and allowing the readers to buy directly from themselves.

But the publishers have no incentive to popularise ebooks by allowing the prices to lower due to
various reasons. Ebooks undermine the market grasp of the big publishers as these digitised
books are extremely easy to copy and redistribute, impacting their sales. These forms of cheap
distribution channels also promote self publication by authors, cutting out the publishers totally
from the chain. Therefore, it is in the benefit of the publishers to treat ebooks as a niche product
and charge high prices for it rather than embracing the advancement of technology.
Samriti Talwar

References

Waterstones,http://www.waterstones.com/waterstonesweb/products/salman+rushdie/luka+and+the
+fire+of+life+28ebook29/8007298/ (accessed 4th Oct 2010)

Amazon,http://www.amazon.co.uk/Luka-Fire-Life-Salman-Rushdie/dp/0224061623/ref=sr_1_1?
ie=UTF8&qid=1286212241&sr=1-1(accessed 4th Oct 2010)

Amazon,http://www.amazon.co.uk/Luka-Fire-Life/dp/B004071T5O/ref=sr_1_1?
ie=UTF8&m=A3TVV12T0I6NSM&qid=1286212096&sr=1-1(accessed 4th Oct 2010)

Fast Company,http://www.fastcompany.com/blog/chris-dannen/techwatch/what-can-book-business-
learn-itunes(accessed 6th Oct 2010)

Book Square,http://booksquare.com/tis-better-to-lose-a-sale-than-sell-an-ebook/(accessed 6th Oct

2010)

Laptop Mag,http://blog.laptopmag.com/ebook-price-war(accessed 7th Oct 2010)

Discussions with David Pitman, Director, Original Internet Ltd.