I’ve been pondering the ebook situation with respect to the upcoming (Friday) launch of the iPhone App Store. One of the problems hardware devices like the Sony Reader and the Kindle have to contend with is competition with other reading platforms like the paperback book, or the library book. It’s hard to spend $300 on a book replacement that is fragile and runs out of electricity and doesn’t do well in dirty environments like beaches, when $5 paperbacks are available at the used book store — or worse yet, free books from the library.

But the iPhone might be kind of different. Buying a book to read on the iPhone isn’t about buying the iPhone. The reader already has the iPhone, and they bought it for a different purpose. So paying $5 for a book to read on the iPhone would be much more reasonable to the consumer. Sure, you’ve got all the same fragility concerns, but now it’s about your phone, not your ebook reader. The direct competition of the $300 reader with the $5 paperback isn’t there; it’s more of an oblique competition.

I dug out this article by Anna Louise Genoese to see if a $5 book on the iPhone could compete. And it turns out to be an interesting price point.

Of that $5, Apple will keep $1.50, and give $3.50 to the “publisher”. Compare that with a paperback: For a typical $6.99 paperback, the publisher might get about 60% of the cover price for the book from “direct outlets” (Barnes & Noble, Borders), or about $4.19, but only 40% from “indirect outlets” (airports, gift stands at hotels, grocery stores, Walmart), say $2.80. Actually a little bit less for the direct, because of something called “coop” (for co-operational advertising), say $4.15. And the indirect is the lion’s share, say 2/3. So the revenue to the publisher for that $6.99 book might average $3.25 per copy, or less. Before returns.

The cost structure is a bit different, too. In a typical print-book mass-market paperback deal, a starting author might get royalties of 8-10% of the cover price (perhaps a bit more if the editor misjudges the advance, and the book doesn’t sell well). Suppose the author got 10% of the $5, or $.50, from the $3.50 that Apple will send to the publisher. That would leave $3.00 per book, to handle editing, art, promotion, “printing” (conversion to an iPhone format), etc. With a paperback, the publisher might have to spend $.40 - $.60 per book for printing, paper, binding, and associated costs. With an iPhone book, that cost might shrink to $0.05. So in the paperback case, the publisher would have $3.25 - $0.70 royalty - $0.50 PPB (printing, paper, binding) - $0.40 art, promotion, etc. for a not-so-grand total of $1.65, and in the iPhone case the publisher would have $3.50 - $0.50 royalty - $0.05 PPB - $0.40 = $2.55 from a $5 book.

So by selling books as $5 iPhone books instead of $7 paperbacks, the publisher makes $0.90 per book. And, of course, if the publisher charged $6.99 for the iPhone book, the numbers would be $4.89 received from Apple - $0.70 royalty - $0.05 PPB - $0.40 art, promotion, etc = $3.74, or a profit of $2.09 over the paper book.

But now suppose the author decides to self-publish the book at $5.00 on the iPhone App Store. Suddenly that $3.50 is going directly to the author, who we’ll assume has spent some money on a book-”printing” program that takes their (proofread, edited) manuscript and turns it into an iPhone app. Suppose this still translates into a $0.05 “PPB” cost for the author (x 8000 copies sold would be something like $400 to cover the cost of the program). Suppose, too, that the author has much higher costs for the equivalent cover art, promotion, etc., say 5X higher, for a cost of $2.00 instead of the publisher’s $0.40. The author still makes $1.45 per book, instead of $0.70. More than a two-fold increase in profits from self-publishing.

The iPhone App Store might be very, very interesting…

Posted: 07|7|08 at 7:52 pm. Filed under: Bookstores, Mobile Web, Publishing, Reading, eBooks, eReaders. New here? Follow this entry via RSS 2.0. Pinging is currently disabled.