E-Readers paying the freight for paperback … hmmm

TakeAway: Book publishers have created a new pricing strategy to cover their fixed costs of printing…… increase their prices on e-books.

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Excerpted from WSJ: 
E-Book Prices Prop Up Print Siblings

As physical book sales fall, publishers are having a harder time covering their fixed costs.

One area where major publishers can cushion the blow is by keeping e-book prices higher.

The six major publishers have adopted a new pricing model, known as “agency pricing,” Publishers agreed to set the consumer prices of their digital titles. Under this model, retailers act as the agent for each sale and take 30%, returning 70% to the publisher.

For example, the digital wholesale price was often $13. If Amazon sold the book for $9.99, it lost $3.01 per sale.

But a back-of-the-envelope calculation of a new e-book priced at $12.99 under the 70%-30% agency pricing model suggests a return of $9.09 to the publisher in the form of sales. The publisher then typically has to pay the author 25% of net sales in the form of a royalty, or $2.27. This leaves a gross of $6.82. Subtract 90 cents for digital rights management, digital warehousing, production, and distribution, and that leaves $5.92.

By comparison, a hardcover book priced at $26 and sold under the traditional wholesale model will return $13 to a publisher. Subtract 15% for the author royalty, or $3.90, and that leaves a gross of $9.10 then deduct about $3.25 per copy for shipping, warehousing and production, leaving a gross per unit sold of $5.85, from which publishers must pay for returns and inventory…

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