OK, back to my example figures of $6.50 and $6.75. Lets say the printing costs are half the base margin (a roughly accurate estimation), so $3.25 per. Our print run is 10k copies. We will assume that 10k copies are sold in total between HC and ebook. Thus every ebook sold is one less HC sold.
10k units @ $3.25 each is $32,500. This is our fixed expense.
So we sell all 10k copies and no ebooks. That's $65,000 in revenue, minus $32,500 in expenses, for a profit of $32,500.
Now lets say we sell 5k of each. That's 5k times $6.50 is $32,500, plus 5k times $6.75 equals $33,750 for a total revenue of $66,250, making a profit of $33,750.
Wait, did we just make more money, even though half the print run was remaindered? Yes, yes we did.
Now lets assume we sell 10k ebooks and ZERO hardcovers. That's $67,500 in revenue, minus $32,500 in expenses, for a profit of $35,000.
Even though they spent the money printing all those books, and every single one ended up pulped, the publisher still made MORE money on the "cannibalized sales", because the margin on the ebooks was higher.
That's why I don't buy the "cannibalized sales" argument. Plus this scenario is unrealistic, because the lower price point of ebooks will result in higher sales.
For every 1 hardcover not sold, there will be 1.x ebooks sold.
And for the record... smaller print runs would be a high cost per unit, but still a lower total cost overall. If you only print half as many copies of a book, at a 50% higher cost, because you know the other half of the sales will be made through ebooks, then you're actually saving money.
10k units at "1" cost is 10k 5k units at "1.5" cost is 7.5k, a 25% savings.
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timeasmymeasure
no subject
Date: 2010-02-13 06:28 pm (UTC)OK, back to my example figures of $6.50 and $6.75.
Lets say the printing costs are half the base margin (a roughly accurate estimation), so $3.25 per.
Our print run is 10k copies.
We will assume that 10k copies are sold in total between HC and ebook. Thus every ebook sold is one less HC sold.
10k units @ $3.25 each is $32,500. This is our fixed expense.
So we sell all 10k copies and no ebooks. That's $65,000 in revenue, minus $32,500 in expenses, for a profit of $32,500.
Now lets say we sell 5k of each. That's 5k times $6.50 is $32,500, plus 5k times $6.75 equals $33,750 for a total revenue of $66,250, making a profit of $33,750.
Wait, did we just make more money, even though half the print run was remaindered? Yes, yes we did.
Now lets assume we sell 10k ebooks and ZERO hardcovers. That's $67,500 in revenue, minus $32,500 in expenses, for a profit of $35,000.
Even though they spent the money printing all those books, and every single one ended up pulped, the publisher still made MORE money on the "cannibalized sales", because the margin on the ebooks was higher.
That's why I don't buy the "cannibalized sales" argument. Plus this scenario is unrealistic, because the lower price point of ebooks will result in higher sales.
For every 1 hardcover not sold, there will be 1.x ebooks sold.
And for the record... smaller print runs would be a high cost per unit, but still a lower total cost overall. If you only print half as many copies of a book, at a 50% higher cost, because you know the other half of the sales will be made through ebooks, then you're actually saving money.
10k units at "1" cost is 10k
5k units at "1.5" cost is 7.5k, a 25% savings.