Why do e-books cost so much?

E-books don't involve costs like paper, labor, and shipping, so why do they often cost more than their paperback counterparts? Here's the answer, and why e-book prices may be falling in the future.  

Here’s a question I got on our Facebook page. Maybe you’ve wondered about it too.

Why do your Kindle books cost more than a paperback copy? The Kindle version of Life or Debt on Amazon costs $9.73, but they’re selling the paperback for as little as $6.00. Since e-books should cost much less to produce, why do they cost more to buy? This seems unfair, especially when you’re writing about how to save money to pay off debt.
- Ted

I got a very similar question a little more than a year ago, published in a post called "Why Are E-Books So Expensive?" I’m going to answer it again, however, because since then things have happened that shed more light on this subject.

As I said in my earlier post, I have no control over the price of my books. When you work with a traditional publisher (mine is Simon & Schuster), you have no input – they set the price.

Whoever establishes the price, however, you’ve still got to wonder…

Why are e-books so expensive?

The first time I attempted to answer this question, I quoted an article called "Why Do eBooks Cost So Much? (A Publisher’s Perspective)" by Michael Hyatt, CEO of Thomas Nelson Publishers. Here’s how he justified the high cost of e-books…

…physical manufacturing and distribution expenses cost less than you think. Some people assume that these two items represent the bulk of a book’s costs. They don’t. Together, they account for about 12 percent of a physical book’s retail price. So eliminating these costs doesn’t do much to reduce the overall cost structure.

Even if this is accurate, shouldn’t the price of e-books be 12 percent lower than physical copies? No, he insists, because there are other costs associated exclusively with e-books, like formatting them to fit e-readers. He goes on to say…

“The elimination of manufacturing and distribution costs are being offset by retail price reductions and the additional costs I have outlined. The good news is that we are making about the same margins, regardless of whether we sell the book in physical form or digital.”

E-books cost as much to produce as hardcopy? Hogwash.

Despite this publisher’s claim, the reason e-books are as expensive, or even more expensive, than traditional books isn’t because they cost as much to produce and distribute. Anyone who produces anything digital that was formerly physical knows digital is cheaper. A website is cheaper than a newspaper. A digital version of a video costs less to deliver than a tape. An e-book costs less than a physical book. Anyone suggesting otherwise, like this publishing executive, probably has a dog in the fight.

If you want a single answer to why e-books are more expensive, it’s in the last few words of this publishing CEO’s explanation: ”The good news is, we are making about the same margins, regardless of whether we sell the book in physical form or digital.”

The lion’s share of the retail price of a book, whether in digital or physical form, is going to the publisher. And what’s good news for him is bad news for you. Want cheaper books? Eliminate the fattest fingers in the pie – the publisher’s.

Publisher price-fixing?

Another reason e-book prices might have remained stubbornly high: According to a lawsuit by the Justice Department, their prices were fixed by five major publishers, along with a major distributor, Apple. From a recent DOJ press release…

The five publishers and Apple were unhappy that competition among e-book sellers had reduced e-book prices and the retail profit margins of the book sellers to levels they thought were too low. To address these concerns, the department said the companies worked together to enter into contracts that eliminated price competition among bookstores selling e-books, substantially increasing prices paid by consumers. Before the companies began their conspiracy, retailers regularly sold e-book versions of new releases and bestsellers for, as described by one of the publisher’s CEO, the “wretched $9.99 price point.” As a result of the conspiracy, consumers were typically forced to pay $12.99, $14.99, or more for the most sought-after e-books, the department said.

As I write this, four of the five publishers sued by the Justice Department have settled. The remaining defendants are Apple and Macmillan: They’re scheduled to go to trial in June.

My e-books are about to get cheaper. Here’s why:

As with the music industry, when it comes to publishing, the power has never been with the artist, or the consumer. It’s been with the distributor. In the case of music, the label. In the case of books, the publisher. But thanks to the Internet, that’s changing now.

When I wrote Life or Debt three years ago, there was no way around publishers: If you wanted distribution, you went to a major publisher. It was the only way into bookstores or onto Amazon.

A short three years later, however, the landscape has changed. The publishing industry – the gatekeeper between writers and readers – is collapsing under its own weight. I no longer need to surrender up to 90 percent of the price of a book to the publisher. Today I can self-publish an e-book, put it on Amazon, spread the word on the Web, and price it however I like.

And I’m about to do exactly that. We recently partnered with other voices in the personal finance space to create books about money. We’re going to publish them ourselves, promote them ourselves, and price them so they’re more affordable.

While you wait, avoid paying for books entirely by reading versions you’ve already paid for with your tax dollars. They’re waiting for you at the library. Check out my post, Thousands of E-Books: Free.

Stacy Johnson is the founder and editor-in-chief of Money Talks News, a consumer/personal finance TV news feature that airs in about 80 cities as well as around the Web. This column first appeared in Money Talks News.