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David has already remarked upon the “bathtub” quote from Deborah Solomon’s New York Times interview with Jeff Bezos. I thought that was cute, but not the most interesting part of the article.

The most interesting parts were also the most annoying parts, as Jeff Bezos coyly sidestepped a number of questions about digital content and the Kindle that consumers and pundits have been asking for a while.

For example, when Bezos talked about his dream of having every book in every language available within sixty seconds, Solomon brought up the issue of authors who refuse to authorize electronic versions. But when she asked whether J.D. Salinger was one of those, all Bezos said was “You’d have to ask him.”

And when Solomon asked about the 65% rate pocketed by Amazon for self-published works—a matter of controversy in some e-book discussions—Bezos asked her, as an author herself, “Are your royalties 35 percent?” (She declined to comment.)

In fact, it is lucky that Bezos talked about book-bathing at all, because that was one of the only places in the interview where he said anything straightforward.

Loss Leader

One particular point where Bezos was less than forthcoming was when he said that, for those books that have Kindle editions available, Amazon now sells 48 Kindle copies for every 100 printed copies. “It won’t be too long before we’re selling more electronic books than we are physical books. It’s astonishing.”

But what he did not say was that for every not-self-published e-book Amazon sells, Amazon continues to lose money. This is the subject of another interesting article about Amazon, an in-depth look at the economy of Kindle sales by media-industry research firm TBI Research.

This piece does not mince words, pointing out that Amazon loses at least $2 per Kindle title because the publishers price the e-books at the same $12 wholesale rate as hardcovers. Amazon is using these cheapened e-books as loss leaders: selling cheap to get people hooked on e-books (and on the Kindle in particular).

However, Amazon cannot continue doing this indefinitely. Unless something changes, sooner or later Amazon will have to raise its prices—and if that happens, you can bet it will no longer be selling anywhere near 48 e-books per 100 paper.

Cost Comparison

TBI estimates that manufacturing and authors’ royalties make up over half of the production cost of a paper book, and these can be dramatically reduced for digital copies. (The manufacturing cost by the lack of paper, ink, etc.; the royalties because they are pegged at 10% of a book’s price, and if the manufacturing cost falls so should the price.)

It backs this estimate up with figures, too, comparing an itemized list of print vs. digital production costs for a typical book. These are certainly more solid-looking figures than we get from the publishing-industry advocates who claim that e-books are not as much cheaper as we think.

TBI believes that, under the dual pressure from Amazon and consumers who like Amazon’s prices, the publishing industry will have to give in sooner or later.

Publishers should be able to sell e-books to distributors like Amazon at $5 and still maintain the profit margins they enjoyed on print book sales.  In turn, distributors like Amazon should be able to sell e-books at the current $9-$10 price and still enjoy a healthy profit.

However, authors may come out the losers in this equation, as they will see their royalties per book decrease (unless they renegotiate royalty terms with their publishers, who undoubtedly will not be keen to do so). On the other hand, if the number of units sold increases, perhaps the hit will not be as bad as might be feared.

It is a provocative analysis—and it has certainly provoked a number of people who have left comments disputing with parts of the report’s conclusions.

But regardless of whether you quibble over the figures, or over the “100% flip” from paper to digital on which the report seems based, one simple fact remains: if Amazon is losing $2 per e-book, it cannot continue to do so forever. And the ripples from when the irresistible force finally smacks into the immovable object could have profound implications for the e-book industry.

 
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