Careful reading suggests a different explanation

This article about the large screen Kindle that Amazon is about to introduce suggests that the real market that Jeff Bezos wants to capture is not newspapers or magazines but textbooks. It’s not clear to me why the current Kindle is deficient in that area, but the article goes on to note that the textbook market is very lucrative, and that eliminating the physical book could lead to major cost savings.

Well, the market is indeed very lucrative. Just poke around on Amazon’s textbook site and you’ll see some heart-stopping prices. In fact, we once carried the college text version of Joseph Williams’s book on writing style, but dropped it because it not only listed for three times as much as the shorter but just as good consumer version, but we could only get a 5% discount from the wholesaler, as opposed to the usual 40%. Textbook prices are very much a scam, depending on a captive audience which is forced to buy whatever book a teacher chooses, and is probably using student loan money to pay for it.

But the physical cost of the book is negligible. Here’s a breakdown of where your textbook dollar goes, courtesy of the National Association of College Stores (you’ll find a fancy graphic version here).

  • Publisher’s paper, printing, editorial costs: 32.2%
  • Publisher’s general and administrative costs: 10%
  • Publisher’s marketing costs: 15.4%
  • Publisher’s income: 7%
  • College store operations: 7.3%
  • College store personnel: 10.9%
  • College store income: 4.5%
  • Author’s income: 11.7%
  • Freight expense: 1%

So many different categories make for misleading numbers. Summing them up, we see that two-thirds of the money goes to the publisher, one-quarter to the bookseller, one tenth to the writer, and one one-hundredth to freight expenses. But given that freight expenses were broken out separately, why were the printing costs hidden in the “paper, printing, editorial” category? Probably because they are so low. I would estimate that it costs between three and four dollars to print a $100 textbook.

Assuming four percent for printing, we see that the physical costs would run about 5% of the list price, an amount that is probably lower (at least in the beginning) than the expense to Amazon to get folks converted from physical copies to Kindles, and even then not all that much a cost saving. Whatever the reason that Amazon wants to conquer the textbook market, it almost certainly isn’t to capitalize on the absence of shipping and printing costs.

For extra credit: does the two-thirds to the publisher, one-fourth to the seller, one-tenth to the author distribution of income seem fair to you?

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8 thoughts on “Careful reading suggests a different explanation

  1. One possible factor to throw in there is that the publishers and authors get nothing from used book sales. Book stores and used book distributors get that money. A Kindle book with DRM would presumably be hard to sell to anyone else. This might motivate publishers to discount the electronic version more than just for the printing costs.

    For extra credit: does the two-thirds to the publisher, one-fourth to the seller, one-tenth to the author distribution of income seem fair to you?

    For textbooks, the authors are often professors for whom writing the book fulfills “scholarship” expectations. Part of their salary is for the time they are expected to work on such things, so they get paid for writing whether the book ever sells or not. Often the main reason for doing it is some reward other than royalties, such as tenure or promotion. They may have even had an entire year off with salary (sabbatical) to write the book. And at least in technical fields the authors are often working with a publisher from very early in the process. Accreditation processes make undergrad textbook requirements look very similar across many schools, and textbook publishers know what they need and actively recruit authors. Not alway, but often. All in all it’s a lot of work, but often a pretty sweet deal for the author entirely independent of whether the book ever sells.

    Bookstores also have it pretty good with textbooks, because professors have to specify the books they are selecting with enough lead time for the bookstore to order the books. So bookstores know what the demand is going to be before they order. And if they order a few too many they can send them back to the publisher and get their money back. They can predict fairly accurately what they’ll make from textbook sales each semester. Much less risk than for a regular bookstore.

    Publishers are the ones who are risking capital, for printing and marketing and so on. So I don’t know about the exact percentages, but it does seem fair that the publishers who are taking the most risk should get the most reward.

    With non-textbook books it’s a much different story. The authors, or at least the non-famous ones, risk a lot of their time to produce something for which material rewards will be nil if they can’t get a publisher to publish it, and small if they do get a publisher but the book doesn’t sell remarkably well. No salary, no sabbatical, no promotion, nothing of the sort. Bookstores give it shelf space without knowing in advance whether there will be any demand, so they’re taking a risk. Publishers have low printing costs, and often don’t put much money at all into marketing books by new authors. So a similar profit breakdown would seem very unfair in that sort of situation.

  2. dj,

    One possible factor to throw in there is that the publishers and authors get nothing from used book sales.

    Thanks for pointing that out; it hadn’t occurred to me that the Kindle might be a used-book killer, which ought to excite the publishing industry.

    One student commenter on a tech-gadget website mentioned that he would be willing to pay a high premium to switch to the Kindle simply because it would eliminate the weight of the physical books, which is outrageously high for college texts.

    Publishers are the ones who are risking capital, for printing and marketing and so on. So I don’t know about the exact percentages, but it does seem fair that the publishers who are taking the most risk should get the most reward.

    Perhaps. But I find it hard to wrap my head around the idea that a publishing company has earned the $65 it gets from the sale of a $100 textbook. It may have spent that much to secure its market, but it didn’t provide anywhere near that value to the customer.

  3. I don’t think I’d like using a Kindle for a textbook. So much of my learning in college is detailed in all of the underlines in my old books, the notes in the margins, that sort of thing. I relished interacting with the book physically, noting my questions or thoughts. I do a lot of online reading because I cannot afford to buy every book that catches my fancy, and it is a constant source of frustration that I cannot underline my favorite passages so as to easily revisit them later. The Kindle technology cannot replace this, I don’t think…

    For extra credit: does the two-thirds to the publisher, one-fourth to the seller, one-tenth to the author distribution of income seem fair to you?

    If the “costs” listed are actual costs, meaning money that has been spent (wisely or not might be up for debate) in connection with the book, then it looks like the publisher makes 7% while the author makes 11.7%, which seems fair enough to me as far as comparing the two incomes. As the wife of an author I can assure you that many authors make far less than 11.7% per book, plus they do not have the guaranteed market that comes with the territory for textbooks.

  4. Brandy,

    It is a constant source of frustration that I cannot underline my favorite passages so as to easily revisit them later.

    The Kindle apparently has some sort of highlighting/annotation feature, using its built-in keyboard for entering the text. I’ve never used one and don’t know whether that feature would solve your problem.

    it looks like the publisher makes 7% while the author makes 11.7%, which seems fair enough to me as far as comparing the two incomes.

    Keep in mind that the writer’s expenses have to come out of that 11.7%, whereas the 7% is what is left after the publisher has taken out all its expenses, which include employee salaries.

    Gene Logsdon, in his article “Amish Economics”, makes the point that for the farmer (or, really, for any self-contained economic operation, such as a self-sufficient family) wages are not entered on the expense side of the ledger, but on the income side. That is, wages are not an expense charged to some mythical individual called a “business,” but income to the real person who uses his labor to produce something of value.

    Put another way, there is a perfectly good reason to keep a business such as a publishing house running even if there is 0% income left after expenses are covered—namely, it still provides its employees with a living.

  5. But I find it hard to wrap my head around the idea that a publishing company has earned the $65 it gets from the sale of a $100 textbook.

    The way the profits are divided up may be roughly fair in terms of percentages, but I totally agree that the prices are absurd. Back when I was teaching I found an O’Reilly book I could use a couple of times. Mostly the best texts were in the $90-120 range.

    Put another way, there is a perfectly good reason to keep a business such as a publishing house running even if there is 0% income left after expenses are covered—namely, it still provides its employees with a living.

    Makes a lot of sense for an electronic-only publishing house, more than for a paper-based publisher that has expenses for printing, warehousing, distribution, restocking returns, marketing (which is mostly sending out lots of sample texts to profs), etc. With the kindle, amazon would handle the distribution. Profs could download a DRM’ed sample copy for any book they want to consider adopting. There are few up-front costs except editing, layout, illustrations and so on, and it’s no longer a capital-intensive kind of company. No printing presses or warehouses and so on. An employee-owned company that did little more than pay salaries and benefits could be a very worthwhile business to run on those terms.

    It could end up being analogous to the way app prices on the iphone have ended up being so cheap. Individual developers or small companies have a real chance to compete with the big companies, because Apple is doing the distribution and making the product available to every iphone owner. Maybe some textbooks will end up being sold directly by the author (via Amazon) the way iphone apps are sometimes sold directly by an individual developer (via Apple).

  6. My best friend says it best: Textbooks are a racket. [smile]

    And I think you’re absolutely right: This is an opportunity to make loads of money.

    ~Luke

  7. I used to work part-time in a University bookstore, my retired husband still works there at the beginning and end of semesters.

    I’ve seen Freshman students break down and cry when they saw the total for their books. I’d say the average student pays about $700.00 with engineering, science, and management students reaching up to $1,000 according to their semester requirements.

    That’s more than my husband paid for each semester of college (back when the earth was new). :)

    It’s not only the published books that are high, the management professors are known for creating their own materials which have been put together in book form and charging huge amounts. They will also require small changes in actual textbooks so the publisher will make an entirely new book and the students can’t sell back their old ones. Has to be a combined self interest action of both.

    Since we taught our youngest child at home, we sent him to the community college his senior year of high school and freshman year of college. That was to insure he had all the advanced math and science needed to transfer into the University this fall. His books there were the same cost as at the University.

    The bookstores do make a profit, the same as with any bookstore. However, the publishing firms have to be receiving huge profits (at the expense of students not at times to be able to pay for them). The brick and mortar stores are losing out to online shopping.

  8. “For textbooks, the authors are often professors for whom writing the book fulfills “scholarship” expectations. Part of their salary is for the time they are expected to work on such things, so they get paid for writing whether the book ever sells or not. Often the main reason for doing it is some reward other than royalties, such as tenure or promotion.”

    We should be careful of generalizing, here. At my campus, where there is a $3,500 salary bump for publishing a monograph, there is no salary award for textbooks, as the university’s position is that the author is compensated for that work by royalties. And textbooks may not be considered for P & T, either. There may be some campuses where textbooks are considered in P & T, but major research universities want major research.

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