It seems to be the general thrust behind a lot of articles and publisher's new contracts and policies. E-books are going to demolish print book sales, and leave publishers swinging in the wind, and they're anxious for us to know that producing an e-book isn't that much cheaper than a print one. A New York Times article even has a nice article comparing the relative cost of ebooks, concluding that where a publisher can expect about $4.05 from a $26 hardback, their e-book revenue is from $4.50 - $5.50 - more, but less than the general public expects.

Which is a nice bit of statistical chicanery, really. Good for an article, but utterly useless for a realworld comparison.

All books have fixed costs to produce, no matter what the format. The books has to be edited, typeset (whether for print or electronic), marketed, the cover has to be designed, staff salaries, electricity and building costs have to be paid, other overheads have to be covered, etc. These are upfront costs that no book can avoid, but they're shared over the whole print run - each book sold contributes a tiny amount to this figure. But the printing is calculated to cover these costs assuming a certain sell-through. most books won't sell out, so the publisher aims to cover costs if about 60-70% of the first print-run sells. That means if the book sells out, and a second print run goes on the shelves, these costs are already covered, and the publisher's profit margin increases.

Print books also have a per-book cost - the cost of producing the physical book. Paper, ink and glue. If you want to print more books, these costs do need to be covered a second time. Usually, the publisher has a much greater proportion of profit with a second or third print run, as the fixed costs have already been covered by the first print run. Unless they failed accountancy, I suppose, but there's no helping some people.

The unit cost fallacy

Print books can have a unit cost. The publisher decides how many books are going to be printed - how many will be brought into existence - and then all the costs of marketing, distribution, printing, warehousing etc are spread over those books. If we're going to print 10,000 books, and it's going to cost $20,000 all-up, then it's obvious that that costs $2 per book. That doesn't mean that to print just one copy would only cost $2, it's just spreading the total cost of production over the total number produced. Because the publisher decides how many books will exist, it's a (relatively) meaningful statistic.

But it's a load of pants with e-books. E-books don't need to be printed. They're just converted once, uploaded, and then the public decides how many copies are brought into existence. Every time someone decides to purchase an e-book, one more copy exists. So, if it costs that same $20,000 to produce the e-book version, that first e-book sale has a unit cost of $20,000. With the second sale, the unit cost of each is $10,000. As each person buys a book the unit cost goes down, and the relative profit of the publisher increases. The publisher has absolutely no control over how many e-books exist, so dividing fixed costs over an arbitrary sale figure is, well, arbitrary. And therefore meaningless.

Furthermore, e-books don't have production costs. The publisher pays no one to produce another copy of an e-book (as opposed to arranging another print-run of a print-edition). So the only costs behind e-books are fixed costs - the ones that divide themselves into infinitely small amounts with each subsequent book purchased. And they'll continue to divide, all the way into the long-tail of backlist e-books which make a small but steady profit in the background. In the end, the 'unit cost' of a successful e-book may approach a mere handful of cents. Or, if it was spectacularly unsuccessful, may well stay at $1000 per copy. For e-books, unit-cost is not a relevant calculation; you need to be looking at the sales, costs and revenue of the project as a whole. But that involves thinking very differently about the whole process, and business doesn't like being forced to do that.

E-books doom us all!

What really struck me about the article, however, was the note of fear by the publishers. Instead of embracing this new medium, they're being advised to put the brakes on, as hard as possible:

“If you want bookstores to stay alive, then you want to slow down this movement to e-books,” said Mike Shatzkin, chief executive of the Idea Logical Company, a consultant to publishers. “The simplest way to slow down e-books is not to make them too cheap.” 

This has to be one of the most ridiculous things I've ever heard. You have a business model that is fundamentally broken, and instead of embracing a new model that may well grant you a far higher profit margin, you want to hinder the chances of that new model accruing public interest as much as possible.

E-book sales still only represent 3-5% of print sales. Publishers fear that, should this margin grow, they'll be left with warehouses full of print books that they've paid to print, distribute, market, ship back and store, while people only buy the e-book - the price of which doesn't cover the print-edition costs.

Oops, there's that pesky unit-price for e-books again. But let's ignore that little logical failure, there - if your market's desires shift, then you shift your product to match. If e-books creep to 10, 20, 50% of the market, do you really expect publishers are stupid enough to print the same number of print editions? True, there's a lot of discount to be had in bulk-printing, and print-runs below  a certain threshold just aren't worth it. But then there's print-on-demand services to fill that gap.

What's called for is a new business model. Not just the old model in fresh sequins, but a whole shake-up and revamp of how they approach business. Print books might well be a luxury. Bookstores might carry 'display copies', allowing consumers to browse, and then either order their own print copies printed (the Espresso machine already allows this), or download an e-book in the store. And that's just the first solution that came while my fingers were typing the words 'approach business'. The world of e-books opens up a thousand different ways to make money, but all publishers would rather do is cling to the Titanic and admire the icebergs.

Print books aren't going anywhere

The publishing industry is famous - at least amongst those who care - for its complete disregard for market research, and ignorance of its own market's desires. It boggles my mind how any industry expexts to stay afloat if it doesn't even try to find out what its customers want, and instead spends millions making shiny, glittery darts to fling with blind abandon toward a dartboard that might even be in the next room.

But one thing is clear, from dozens of market surveys. The majority of print books are bought as gifts. The biggest sale periods for books are, in order, Christmas, Mother's day and Father's day, when people buy books for people when they can't think of what else to get (or, occasionally, because they genuinely feel that person would actually like the book.).People buy books for their parents - for generations older than them, who (traditionally) aren't as hip with the new tech, and aren't as likely to be switching to a Kindle over a nice, paper book. The publishing industry still has forty to fifty years before that group of bibliophiles die off.

As a seconday point: our society is not yet at the stage where intangible gifts are worth as much as tangible ones. Even if you give someone an experience - tickets to a show, for example, we still expect those tickets to be a nice object in themselves. They're often in a special envelope, for example. I have yet to see - even among my tech-addicted, gen-Y friends - anyone happily rock up to a birthday party, hand the birthday-boy or girl some empty air and say "oh, I sent you a [insert electronic gift here]. Even when my partner gifts his friends games on steam, they're invariably accompanied by another physical gift.

Until we reach the stage where we value information and experiences at the same level as we value things (which i think would be a marked step forward in our evolution as a society), print books really have nothing to fear. People will still buy books. They may buy less books, because there are a hell of a lot more entertainment choices these days, and people are time-poor, money-poor and attention-span-poor. When games finally get to the stage where they can tell a story that rivals a book, we might be in trouble. But that will not be the fault of e-books.

Making your product less accessible or desirable to your market because you want to cling to an old, dysfunctional business model, when you could leap forward and carve your way into the future ahead, is just boot-headed idiocy, coupled with the fantastic arrogance of believing you can control your market without a true monopoly. Publishers already risk obsoletion at the hands of self-publishing authors - it's time to reinvent the industry.