andrewducker | Interesting Links for 9-10-2011

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It’s a truism that the price of a thing tends to fall towards to the long term marginal cost of production.

For books the costs are strange. They divide into two. Manuscript costs and distribution costs. The fixed cost to develop a new book is substantial i.e the struggling author sweating over her keyboard to produce a manuscript. Compared to traditional publishing it is a significant but not the largest part of getting a paperback into my hand. I think the other costs of editing, printing, distributing and marketing have been well understood and pretty fixed for a while for print books.

I think for ebooks author effort might be the largest single element of the costs of getting a new ebook onto a Kindle. Which makes the transition all very unclear when coupled with the fact that many people will write to a high standard for free. Also there are many rights free books out there with more being added every year.

So we have a situation here where the fixed cost of developing the book remain the same and the marginal costs of producing one extra copy become almost nil. For new authors you probably don’t find out if you have a million seller until after you have made the sunk cost investment in the manuscript.

I think an analogous industry is pharmaceuticals. Lots of sunk costs in R&D, very low marginal unit costs and many products already in existence that are better than nothing.

There are interesting interactions with other markets and interesting elasticities at work here. I do think something potentially fundamental might be happening to the book industry.

As well as publishing houses competing against other publishing houses and authors competing against other authors and (the real fight) authors competing against publishing houses the whole book industry is competing against the music industry, the television industry and the going to the pub with your mates industry for limited money and limited time. Selling ebooks at $0.99 might encourage me to buy so many books that I don’t end up buying a cable subscription.

Cheap ebooks might significantly shift the market for domestic entertainment away from TV toward reading meaning that authors enjoy a much larger overall market for their work and that more can live or make significant pocket money from their craft.

If we allow a shift in the allocation of the $0.99 price per book so that the author takes $0.50 (for the sake of my mental maths) and suggest that $50k per annum is a comfortable material standard of living then an author needs to sell 100,000 copies per year every year or about 2 million over 18 months in order to retire.

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Interesting Links for 9-10-2011

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