What you leave out of your litany of costs, Jay, is that more than half of the cover price of the book goes to the middlemen — the distributor and/or retailer — *not* the publishers or editors or printers or authors.

That cost is potentially unnecessary with ebooks. Amazon, for all its vaunted desire for low ebook prices, is still trying to take both the distributor *and* the retailer percentage, and then some … even though they don’t actually have to warehouse ebooks or ship them around anywhere.

Amazon’s response was posted on the Amazon Kindle Forum on Amazon’s site, apparently by someone who has absolutely no grasp of how publishing–or anything else–works. OF COURSE Macmillan “has a monopoly on its own titles,” you moron! And Nabisco “has a monopoly on Oreos” and Ford “has a monopoly on Mustangs and Shelby Cobras!”*

The book business in general is tanking. How bad? Bad enough that almost everyone I know saw their royalty checks plummet to 50% last year, some going down to 10%. Well duh, you can’t buy books when you don’t have a job. (I am often forced to roll my eyes when I tell people that and they look at me bewildered and say “But I see tons of people in the bookstore when I go, how can that be?” I have to explain patiently that “Tons of people in the store does NOT equate to sales.”)

Amazon has the publishers by the short and curlies. Unlike traditional bookstores, the One Ton Gorilla can demand a discount of 50% on the cover price and get it (as opposed to the chain-store’s 30% and the Indie’s discount of 20%). This is why a new HC, with a cover price of $25 is Amazon Priced at $15. And this is why the price of books has gone up, so publishers can keep their very slim profit margin. (And believe me, it is slim).

Macmillan’s desired pricing model is not as draconian as it seems. They want $15 for the e-copy of a Hot New Bestseller–same as the heavily-discounted price of the dead tree copy, so that the e-copy does not compete with the same book in dead tree, and Macmillan can recoup their substantial investment in the book. This does NOT mean that MY new book in e-copy would be $15. Mine would likely be, oh, $12. And Joe Schmoe’s would be–you got it–$9.99. Plus, in Macmillan’s model, over time that $15 per e-copy would start going down. In 6 months, say, it would be $9.99. And in two years? Probably $4.99, same as a paperback.

So if you JUST CAN’T WAIT–you pay a premium. Same as with any other product.

* Now here is some irony. Amazon is claiming to be a publisher when it comes to obtaining exclusive rights to e-copies of books. Yet not that long ago I actually approached them to write Kindle-exclusive content. I wanted the same terms I would get from any of my other publishers; advance against royalties, half on signing, half on publication. I was told then, in exactly these words, “Amazon is not a publisher.” (But of course I “should feel free to write the content and publish it via the Kindle platform at their generous terms of 30% royalty”**).

So…..three months ago, they WEREN’T a publisher. Now they suddenly are. Oh, except when it comes to treating an author like a professional.

** Lest you wonder why I didn’t take advantage of such GENEROUS TERMS, another author ran the numbers for a series of his that was abandoned and discovered rather quickly that he would be making less money than a first-time writer.

(Oh, and one more thing. The “Advance against royalties”, often shortened to “Advance” is a essentially a no-interest loan, paid out over time to an author, so that he can write the damn book without worrying about where the mortgage payment is coming from. Most of us (especially now) absolutely require these advances to keep writing. It’s a gamble on the part of the publisher that your book will be profitable, because if it is not, YOU don’t have to pay it back.)

This is the only English language write-up I could find.

And Cory, I wouldn’t say that Kindle users are price-insensitive, but rather that they’re selectively price-sensitive. Hence they see no problem paying 260 dollars for a Kindle, but balk at paying more than 9.99 for an ebook. In that respect, they’re similar to those people at the supermarket who buy groceries for 100 dollars, but will endlessly argue at the check-out over a 10 cent price difference on a jar of yoghurt.

With the wedding invitation example, I only meant to suggest that paper is damn expensive, not that all of the non-physical costs are irrelevant.

Instead, the fiduciary duty of corporate directors and officers is to the overall value of the corporation. Those who worship at the feet of Graham and Dodd will say “but that’s the same thing as you said in your first point!”… and they’d be wrong. Timescale matters; size of asset base matters; timing of recognition of investments matters; and Graham and Dodd were wrong anyway, as fifty years of securities research demonstrated pretty conclusively even before the 1987 market hiccups. And even so, it’s not a breach of fiduciary duty to be wrong about the ultimate effect of an action (or inaction) on a corporation’s value; it’s only a breach of fiduciary duty if you’re wrong and reckless or knowing in being wrong. Those are legal terms of art… and under Delaware law, they essentially mean “you’ve got to get caught holding the smoking gun, profit from a clear conflict of interest, or have the IQ of a rattle to be found reckless, let along knowing.”

In this little morass, hiding behind the fiduciary duty of corporate officers and directors is not a strategic justification for Amazon’s course of action. Consider, for example, a different strategy: One that says “We’re not just going to say ‘Don’t Be Evil’ — we’re actually going to Do Good.” Under this strategy, Amazon decides that it will demand no more discount than offered to any other vendor, for any purpose*; it will do everything in its power to meet author and indendent publisher demands; and it will send a bouquet and basket of puppies to midlist authors who place their out-of-print books on Kindle, in addition to the royalties due (and a holiday bonus). Such an alternate strategy would not breach corporate fiduciary duties, because there are plausible business justifications concerning long-term value and expanding the asset base and growing goodwill (both the real kind and the accounting kind), and those justifications are good enough… even if they would eventually prove incorrect.

So don’t hide behind corporate governance rules. Blame the banks and bond markets instead, and the vagaries of UCC Article 9; if there’s an “outside demand” at work here, it can be found there, not in fear of breaching duties to shareholders.

* N.B. One of the best tests of whether a particular business strategy runs afoul of antitrust law is to determine whether that strategy can be imposed on the marketplace even if it is inconsistent with industry custom. That’s a tiny little hint about what was really going on in the Amazon UK/Hachette situation not so long ago… and in this one.

And the info about paper costs being fractional to book production comes from several trade press sources, though I don’t have the links to hand, so please treat it as anecdotal.

I will note that wedding invitations don’t include author advances, editorial costs, copy editing, art direction, production editing, warehousing, etc… Not really a comparable example, I don’t believe.