What Making an E-Book Costs, Publisher Responds

Expert publishing blog opinions are solely those of the blogger and not necessarily endorsed by DBW.

Last week, we published an article that got a lot of passionate feedback from both book-lovers and publishers: Consumers Upset and Confused Over E-Book Pricing.

There were hundreds of Tweets, nearly 100 comments and pingbacks on DBW.com and I personally fielded dozens of emails on the article.

There was one email that really stuck out to me and I think it’s worth sharing.

One of the issues I have with reporting out this topic is that the costs of making an e-book vary widely between books and publishers. For some e-books and publishers, the costs can be very low. For others, quite high.

This email was from Trish Heidebrecht, executive director of The Kerygma Program, a Pittsburgh, Pa.-based firm that provides bible-study materials, including books and e-books.

I began to read your article about consumers being confused and upset about e book pricing with some hope.  “Finally!” I thought. “Someone will tell the publisher’s side of the story”.  But no.  Your article ended just as it should have begun.  Yes! Costs of development of an e book are identical to the print version.  Yes! The usual costs of “inventory and distribution” are not the same as for print, but they are real, AND substantial.  And it doesn’t have to do with salaries of extra staff dedicated to this conversion process as you suggest.  We are a small publisher, and our printing company (print and virtual) charges us for storage and/or bandwidth, and for the handling involved in the distribution of  even the virtual books.  Someone still has to process the order and payment for every piece sold.  When we add up the cost of production, plus the conversion fee, plus the virtual storage/bandwidth, plus handling of orders… our costs are almost the same as our print version.  In the end, we simply cannot afford to deeply discount an e pub version of our books to the level the consumer expects.  The simple- but entirely wrong- conviction on the part of the consumer that e books cost “nothing” to produce or sell is extremely damaging to the publishing world.  Two thirds of your article was spent reinforcing that widespread belief.  I am greatly disappointed that you did not take the opportunity to fully explain the math behind the pricing of e books when you have the consumer’s attention.

The message here, to me at least, is that these costs are different from publisher to publisher. A digital executive at a very large publishing house wrote to me, “why didn’t you mention the 30% cut that the bookseller takes?” (This publishing exec was obviously at a publisher that operates under the agency pricing model.)

Consumers, however, may not be aware of this.

After writing me the above email, Heidebrecht and I had a back-and-forth, during which she revealed to me the following:

In a poll, 50% of Kerygma’s readers said they would welcome electronic versions of their books instead of the print version. Only 5% said they would buy the EPUB version for the same or close to the same price as the print version.

“What’s holding us back,” she wrote in an email, “is the disparity between the actual cost to offer EPUB versions of our titles and the lower price expected by the customer for non-print books.”

Heidebrecht worries that with e-books, she won’t sell any more books but she will be selling many of them (the e-books, in particular) at a lower margin.

Typewriter photo via Shutterstock

31 thoughts on “What Making an E-Book Costs, Publisher Responds

  1. Juli Monroe

    I get that things will work differently from publisher to publisher. I think the example you posted is from a non-Big 6 publisher, who doesn’t have to deal with returns. From what I’ve read, half the books printed by the big publishers (on average) are returned and disposed of. E-books have very small returns. There just has to be a cost savings in that. I think the average consumer has some idea of the return process and feels the same way. Are we wrong? Perhaps. But no Big 6 publisher has made an sensible effort to correct that mis-perception, if it is one.

    And don’t forget the corporate earnings being reported on. As far as I know, every big publishers who has to publish their earnings reported flat sales and increased profits. All of them said it was because of digital distribution. If sales are flat but profits are up because of digital, you can’t tell me digital doesn’t cost less.

    1. Jeremy Greenfield

      Thanks for the comment, Julie.

      I think you’re right: No returns is a big part of cost savings for producing e-books. I also think you’re right about how producing e-books costs less than producing print books. But I think it’s becoming clear that it doesn’t cost “nothing,” as many consumers think.

      Now that we’ve gotten that far, here is an additional thing to consider:

      The way a publisher looks at it, what it takes to produce a book (any edition: hardcover, paperback, e-) is counted as part of the cost of each of those editions. So, the editing, formatting, etc, that goes into the print book, if used for the e-book, is then both a part of the cost of the print book and e-book. (I suppose that means that with e-books, fixed costs of producing a print book are, in a way, reduced. Maybe that’s a topic for another blog post.)

      One might argue that publishers should cease to look at their costs this way. My guess is that there are a lot of finance and accounting folks who would disagree.

      1. Juli Monroe

        It’s a fairly simple equation that the financial people should understand. Cost of goods sold. Sure, some of the costs will be different based on the format, but editorial will be the same, no matter the format. That number should be counted once, not once for each edition. Even accounting types would go along with that. Overhead will also be the same. The different costs are author royalty (usually calculated differently from paper to electronic) and distribution.

        Oh, and as for the executive you mentioned who asked, “What about the 30% cut?” Well, the publishers were the ones who imposed that. Not getting any sympathy from me for that.

        1. Jeremy Greenfield

          I apologize if I wrote incorrectly. Those initial costs (editing, acquisition, etc) are counted once, but across both the print-book and e-book.

          So, if it costs me $100 to acquire and edit a book, and I’m producing two editions, a print edition and an e-book edition, then I would put $50 of editing and acquisition cost toward each edition.

          That make sense?

  2. Brian

    It’d be interesting to see actual numbers on that to be better understand. Bandwidth and storage are dirt cheap – it’s hard to think that equates to the costs of physical distribution – hard to say without seeing the #s on what’s being discussed.

      1. Arlen

        Its the bandwidth charges I find funky. An ePub isn’t large, let’s call it 25 MB for the sake of the calculations.

        We’ll use Bandwidth charges from Rackspace, one of the higher-end server firms. For about $200/month, you could serve 40,000 copies of that book per month, or about half a cent per copy.

        Seriously, if a publisher is paying more than a cent or two per book in bandwidth, they’re getting ripped off.

  3. Ruhi Yaman

    The response only shows how lazy and out-of-touch the publishers are. Processing each order individually by hand? There is no reason for even the smallest publisher to do that in our tech-efficient age. All other costs are the same? Of course, they’re not, unless you are grossly incompetent as a manager. There is no delivery cost, no shop front, no rent, no insurance, and the marketing can be customized much more efficiently at the fraction of cost and effort. The writer of the letter is strongly advised to take a course in e-commerce.

  4. Eddie

    Certainly the costs of developing a physical book vs an ebook will be similar. But if a publisher is paying the same for producing and distributing ebooks as physical books, then they’re doing it wrong and/or someone along the supply or service chain is fleecing them (and I need to figure out how to get in on that — sounds like easy money).

    I’m not saying that all ebooks should be sold at a tiny fraction of their physical book counterpart, but they should certainly be cheaper. When I purchase an ebook, I don’t want to feel like I’m paying extra just to make up for the lower profit margins on physical books.

  5. Ellen Bilofsky

    This conversation is taking place as if only fiction books–or, in any case, plain text books–are being published. What about the cost of professional or scholarly e-books, or text books? It’s neither easy nor cheap to produce tables that can be read on an e-reader! What about books that don’t sell tens of thousands of copies? The development costs discussed above are distributed among just a few sales.

  6. Prof. LK Shankhdhar

    I have authrored 5 books on Diabetes for lay patients in Hindi. If any publisher would like to take rights for e-publishing

  7. James

    I agree with Juli. The proof is in the numbers already. Publishers are earning substantially more, even though digital is still just getting going in terms of a percentage of sales. However, thanks to agency pricing, traditionally-published authors are earning LESS.

    Publishers can whine and cry about the disparity between actual cost and consumer expectation all they want. It won’t change reality. The reality is that publishers have to figure out how to match the expectations of consumers, or they need to get into a new line of business and leave ebooks to the publishers who have digital publishing figured out.

    Hearing, \Oh, us poor publishers\ loses credibility when followed by, \Oops, we made more money!\

  8. Kim Richards Gilchrist

    I appreciate including the publisher’s response. I am also CEO of a small press. We have two imprints. For us, ebooks cost more than print for the simple reason, they are time intensive to create. Most distributors have different requirements for an ebook so one file does not fit all. What we upload to Amazon is a little different than what we upload to Itunes or B&N. All of those are different than the file requirements to send to our printer. Our company is fortunate that I do the formatting and so we don’t have to pay someone else to do the formatting and conversions. I have worked for a company in the past which charged $55.00 an hour for this type of work. Additionally the formatting software is very expensive. We use InDesign CS5 and are about to have to upgrade to the CS6.

    There is also something to valuing your product. Often when people see cheap, they equate it with crap. Especially now with all the self-pubbers out there, some of whom are selling crappy books. The public often equates ebooks with a less-than ideal. At my company, we sell our ebooks for less than print but we don’t bow down to the 99 cents model. We need to make enough so that the author gets their share and so do the staff, artists, and editors who worked on the book.

    Speaking of distributor cuts. Most take between 30 and 50%. Print for us is 55%. It has nothing to do with an agency model but what we had to accept to be able to sell our books through their system. For smaller press like us it’s their way or the highway.

    See why we can’t afford to sell ebooks at 99 cents? If half of that goes to a distributor, 40% of what’s left goes to the author. That leaves 10%, after the distributor cut and the author payment, to pay for the editors, the cover artist, the marketing, set up fees for those distributors who still charge one, office expenses and computer/server equipment, and staff.

    1. Linton Robinson (@LintonRobinson)

      That whole idea that consumers turn away from cheap products is pretty obvious baloney. You see people saying it who are trying to sell you on branding consultation or something, but it rather clashes with real world economics. People go down and buy cheap Chinese stuff instead of more expensive Sears stuff and you can see that in the financial press.

      There’s actually more truth to the idea that you can overprice something into perceived value, but that’s a pretty tricky form of marketing.
      Best idea is sell at a fair price and stay competitive.
      Part of that is understanding emerging marketing models. Most people understand that 99 cent ebooks and free ebooks are part of promotional strategies. “Self liquidating advertising” is a term that often applies.
      If you can’t produce something for free and sell it for a couple of bucks and make out, trying to sell it for twelve bucks isn’t going to help.

  9. Linton Robinson (@LintonRobinson)

    Bull, frankly.
    Sure, if a publisher did an ebook from scratch, published it free-standing. But how many do that?
    The ones people are griping about are ebook versions of existing print books.
    So the advance (if any, these days) and editing and legal work and whatever expense the publishers want to claim for why their product should cost $12.95 when indies sell them for 2.99, are already paid out. As I said before, the only expense at that point is formatting. Which should be about $100, unless you’re a big company who can use economies of scale to get it down to $23,000.
    And speaking of those economies, another big lie is that \the print books don’t really cost all that much to print\. Well, no, if you take the per unit cost. Trouble with printing though, is that all copies but the first one might cost 50 cents, but the first one might cost $100,0000. The financing, interest, warehouseing, etc. of print books makes them very expensive to produce. Duh. The fact that the unit cost for an ebook is essentially zero, the storage costs practically zero, and transportation next to free vindicates the consumer unrest.
    But if real life, consumers don’t run around figuring out production costs to decide something is a rip-off. They compare it to similar products.
    And maybe they’re starting to find out that there are a lot of writers out there just as good as Grisham or King or Clancy or whoever, and they can read their books for a buck or so, or even for free.
    This is the same kind of denial the record industry used. \Well, sure, our stuff costs more because we’re US.\
    Nobody is buying these smoke screens.

    BTW, personally, as an indie author, I LOVE seeing big house ebooks selling for fifteen bucks. Make my day. Just don’t blow smoke up my butt about how they cost as much as print books.

  10. Athena Grayson

    I understand the choice to use InDesign, but quite honestly, even Adobe doesn’t presume to charge you for InDesign for every book you use it for. It’s a business cost (and your continued investment/upgrade should only be a fraction of the startup cost), not a production cost per title.

    I am more than ready to believe that the costs to produce an ebook are not that different from a print book in terms of content and editorial, but it’s a little harder to believe that the price of ebooks has to be as high as print.

    I don’t see anywhere where publishers address the earnings lifecycle of an electronic title over a print title. Sure, if your print title has four weeks to earn out your investment, price it at $14.99 and hope you can earn out in the month-long shelf life you have. But ebooks are forever. Your electronic titles will still be sitting on virtual shelves years from now, earning you income long after your production costs have been earned out.

    As a reader, I’m willing to pay a range of prices for ebooks, but I’m primarily focused on assigning the worth of the story or information that I get out of it, not whether or not I can cover a publisher’s cost of doing business. I’m concerned with valuing the author’s work first. I’ve found some great 99-cent reads, and some crappy 9.99 ebooks, and vice-versa.

    Publishers, more now than perhaps ever before, are going to have to start paying more attention to the direct-to-consumer behavior that drives ebook consumption. Up until recently, publishers set a price, distributors took a cut, and it was up to retailers to set discounts, specials, or other enticements to get readers to try or buy.

  11. Paul in NY Publishing

    The cost of an ebook really isn’t that much less than the cost of a pbook. Conversion costs should include proofing for each format. Right now you have various flavors of EPub, plus mobi, plus KF8, plus various formats for which you have to design pages in both portrait and landscape, and all these have to be checked and proofed by both editorial and IT. All that takes quite a bit of time and effort if you’re going to address all the markets. Even if you just go with three versions, you still incur considerable costs. If you think these formats can be created with just the push of a button, then you probably gloss over a lot of inconvenient truths. Then there is the disruption to the workflow from all this additional work, and all for what is currently a fraction of the total book market. Plus, as David Pogue has stated, the current crop of readers is just out of the primordal soup for this technology, so in a sense we could be creating content for the equivalent of Wordstar on a Commodore 64.
    Publishing was never that lucrative a business, and in comparison to other industries, not that many people are getting rich off of it outside of a handful of authors and publishers. Working in NYC, my budget is a rounding error for most of my friends at similar jobs in other industries. Yes, a few publishers have been able to post some nice returns recently due to ebook sales, but look at the trend. We’ve already seen a quarter of employment in the industry go away in the last five years or so, bookstores are going out of business left and right, and many publishers are struggling too. Now the IT industry, with typical salaries far above ours, deems our products too expensive and people just buy into it with nary a thought. Amazon’s 70% market share in ebooks built by undercutting everyone else should be considered fair game for an anti-trust suit. Why isn’t anyone complaining about that? The nerve.

  12. MLM

    I work on the retail side of things in the digital book world. I certainly sympathize with the claim that production for e & pbook are similar. However, I have noticed that many of my non-profit religious publishers sell their ebooks at massively discounted prices. How is this possoble for them to do if production costs are relatively similar, and moreover, how can this be true from non-profit publisher to non-profit publisher if prices, in fact, vary from company to company?

  13. gl2298@columbia.edu

    There are many pieces to the mechanisms that go into digital distribution that you’re not taking into account with your simple breakdown here. The systems cost money, the platform costs money, the programming that customizes it to a publisher’s particular needs costs money. If you’re a smaller publisher and can’t build your own system, you’re probably working with a distribution partner who takes a cut of every sale. I’ve been in IT for 17 years, publishing for 4. Bottom line, if you haven’t been involved in the process of setting up a system to distribute ebooks, then you don’t know what you don’t know and you cannot infer something about the process just by applying basic math equations.

  14. Stuart

    The letter is puzzling. What storage? What processing? If you want your ebook to be on a device, you sell through Amazon, Apple or BandN, and there is no storage or processing If you’re selling it on your own website, as say pdf, then you keep the entire amount and have no epub conversion fees.
    I’m a small publisher of Illustrated Children’s books. We’re converting our best selling series right now for fixed layout. We’re mulling over the price and haven’t come to a final decision, but it will significantly lower than our hardcover price and we’ll make a profit. We’ll be glad to share all our figures once we’re in the ibookstore.

  15. Desiree

    Another thing to note, from a small publisher’s perspective, is that yes, costs vary widely from publisher to publisher, but what are the vendor’s cuts in the sales? For instance, we have to create several different formats in order to have our ebooks available on every reader. Although we do everything through our distributor, our vendors are now taking a percentage of the sales (Amazon being the biggest of these) because ebooks are going up in sales.

    However, I do agree that ebooks should be cheaper, but not by that much. The same amount of work still goes into the preparation of these books – copyediting, proofing, designing covers and interior layouts, marketing, and the rest of the shebang, not to mention labor costs for the people who work for these publishing companies. In the end, the difference to produce is really not that much.

  16. Juli Monroe

    Textbooks, limited-audience books and illustrated books are completely different animals from fiction. The forums I frequent are generally more understanding of higher prices on the former. It’s the latter where they protest the prices.

    As an indie author, I know exactly what my costs were to convert my book to Kindle, Smashwords and Nook format. I did it once, and the result gave me all versions. Proofing was done once. To say (for fiction) that conversions, proofing and layout need to happen for each and every version is a very difficult case to make when indie authors can demonstrate otherwise.

    And not all readers want .99 books. I’m perfectly content to pay $5.99 for a backlist title that sells for $7.99 in paperback. A backlist title should have already sold out the other costs, so there’s no reason not to offer it for less. I’m not rabid about .99. I just want to pay something less for the e-version, especially since I can’t (legally) share or resell it. Or, in many cases, send it to another device if I switch from say, Nook to Kindle.

    And yes, I know how to strip DRM and convert. But the average consumer doesn’t.

    1. Melissa in SC

      Exactly. The value of e-books to consumers is less than that of print books because of all the restrictions on use and the fact that they are merely licensed and not owned. This cannot be repeated enough. The e-book may not be one cent cheaper to produce and distribute (although it probably is a little cheaper) but it is still a less valuable product to the consumer because of DRM and other restrictions.

  17. David Skarjune

    RE: “our printing company (print and virtual) charges us for storage and/or bandwidth, and for the handling involved in the distribution of even the virtual books. Someone still has to process the order and payment for every piece sold.”

    This publisher is using a traditional printer to inventory eBooks and someone has to manually process each order? That is not how the eBook world works, as it costs virtually nothing to store those books and most ecommerce systems are automated. This is not a reasonable example for ebook pricing issues, but a good example of how traditional publishers don’t have digital literacy.

  18. Paul in NY Publshing

    Conversion costs vary widely depending on the standards of the publisher and the complexity of the design. While it’s fine for an independent author to have one proof, it’s not fine for say a medical or legal publisher or a whole host of other publishers. Publishing two titles does not make you an expert nor provide a valid data set. Publishing is a vast and complex industry and while Harlequin can make money hand over fist with ebooks, many other quiet worthy publishers will have an extremely hard time under the Amazon model. While there are only a handful of large publishers, they are fighting the good fight in maintaining a playing field where not only they, but a whole host of mid list, University Press, niche, etc. publishers can survive. Everyone has this misperception that publishers are getting rich off ebooks. I bought cover art rights for a title for $185.00 in print for life of edition. Now I’m asking for ebook rights for the same title’s cover art for the ebook editions, and they want $300.00 even though we’ll likely book most of the sales for this title in print, and our market hasn’t embraced ebooks anywhere near enough for us to come close to breaking even on doing them. We are hoping and praying they do take off some day soon (analytics are worthless in this case), but for now our ebooks are in the red.
    Let me spell out what I was inferring earlier. Publishing has lost 25% of it’s workforce in the last few years. Do you think maybe some of those increases in revenue at a few publishers might not be from better margins on ebooks but from the sweat and toil of those left in the industry who now do 25% more work than they did five years ago? 25% more work would be an understatement to be honest. But to be truly honest, I’m thinking this whole argument may well be a lost cause. People love to grab onto an idea and wrap themselves in it no matter how little they truly know about it. That’s just the way the world is.

  19. Melissa in SC

    I will grant you that the cost of producing the actual content of a print book and an e-book and that there are costs involved in formatting and reproducing both types of books. Formatting a good e-book is not necessarily that simple and I value a well done e-book. However, I will say that what one is actually purchasing in terms of print and e-book is VASTLY different. A print book is owned an may be loaned, gifted, sold or disposed of in any way the owner chooses. An e-book is licensed to a single user and may not be loaned (except in some cases where minimal rights to loan are granted), given away or sold. The file cannot even be transferred from one platform to another because of being locked down by DRM. The end result is an e-book product that is far less valuable to me as a consumer than the print equivalent. I will not pay the same amount for a product that I DO NOT OWN but am merely allowed to use at the discretion of the publisher. It is a largely one-sided deal and not a good value for the current cost to the consumer. Sell me and e-book that I will own with the same privileges that I enjoy with my print books and I will consider paying a similar amount of money for it. Until then, you can keep your overpriced product.

  20. Stephen Tiano

    Obviously way late to the timely commenting here, I just found this discussion thread and the article that precipitated it, as I am considering–as a book designer–pricing for a big ebook project I am likely undertaking.

    This one isn’t merely a “conversion” project, as there’s no print edition. I should back up. I think this is more accurately less an ebook and more of a multimedia project. There will be upwards of 650-700 “pages” on an iPad, plus more than 600 pieces of art to prep (resample for proper screen resolution to get the overall file size to a manageable number, as well as for file type, scaling, and perhaps checking color). There will also be six or more performance videos–I will not be involved in their production, just in using them, however.

    I will have to set up something in a page layout program, so that I can then export to PDF for distribution on CD or DVD. After that I will export to epub to experience in iBook form. All the links will have to be checked and made to work, of course.

    From what I gather in speaking with this client I can see this being a three-month project, filled with changing text with no and updated material. And as I am not a hobbyist or a student, but an adult who has made a good portion of my living as a professional book designer, page compositor, and layout artist for over 22 years and almost 100 books, I am working at coming up with a price for the job.

    But following all the discussion here I get the feeling–when I hear about $100 “conversions” or “formatting,” that the sentiment of the day among those who hire for this kind of work is shifting to one that sees no value to paying the kind of money that allows one to to support him- or herself as a professional doing this kind of work. Is this just the new landscape? Are ebooks not something a designer can make a professional living at? I mean, there are still print designers who can support themselves on such work, all right. But is the liberation from traditional print publishing and it’s gatekeepers going to make design a less-than-professional calling?

  21. Ian L

    I’m sorry but ‘inventory and distribution’ for an ebook are virtually nothing and anyone who says otherwise is either lying, or being lied to and getting ripped off.

    It should cost less than a penny each time they send an ebook to someone. And it should cost less than a penny per month per ebook in storage costs. And when I say per ebook – i mean one whole book. They don’t need to store 10,000 digital copies of the same book like you would for a print book. They just need to store 1 copy.

    If you don’t believe me, just look at what amazon charges if you use their web services.

    They charge 3 cents for a gigabyte of storage per month – 3 pennies. Your average ebook is usually not even 1 megabyte, but lets just say they average 1 meg. If so, then 1000 ebooks would equal 1 gigabyte. So it would cost 3 cents to store 1000 ebooks. Maybe the publishers think it costs more in storage if their accounting systems don’t let them put an amount less then 1 penny for each book ;p

    And transmitting a copy – they charge 12 cents per gigabyte plus HALF of a penny per 1000 requests. Which essentially means to send out a 1000 copies of a books wracks up a whopping 12.5 cents in transmission charges.

    Once the book is formatted and ready for sale, there should basically be no ‘inventory and distribution’ overhead. So like i said, either someone is being lied to or someone is getting ripped off . Actually, both. Since either way someone is paying more than they should.



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