This morning's New York Times includes an article indicating that Vivendi Universal intends to cut the list price of CDs for the first time in two decades. According to the article, the wholesale price will be cut from $12 to $9, resulting in an anticipated cut of list prices from $19 to as low as $13. This appears to be a belated reaction to the music piracy issues; had the step been taken proactively (and more aggressively) instead of reactively, however, there is at least a decent chance that piracy might have been controllable.
What this leaves unanswered is how the price is set in the first place. This leads into the question of how books are priced. There are two traditional formulae for determining the list price of a book.
- Ten times the estimated per-copy printing cost. For a 480-page casebound book, printed on 50lb natural house stock (440 pages per inch), in a print run of 20,000, per-copy costs (August 2003) hover around $1.97, leading to an estimated list price of $20 or so. At the ordinary "long discount," this implies a "wholesale cost" (remember, the books legally are on consignment, not wholesaled) of about $12.
- Six times the per-copy fixed cost. This includes not just the printing (and warehousing) cost for the entire run, but the per-copy cost of editorial, overhead, advertising and marketing, publicity, production, fulfillment for the anticipated sell-through, and the author's advance. For that same 480-page casebound book, editorial costs (which, these days, is largely a joke), overhead, typical advertising/marketing/publicity for a commercial book of this print run, etc., can vary a great deal depending just upon manipulation of the cost-sales worksheet used to price the book (some publishers call it a "profit-loss worksheet," but that is a misleading name). My seat-of-the-pants guess is that total per-copy costs would probably run not more than $3.50, assuming relatively "average" treatment of the book and no manipulation of the numbers. This implies an estimated list price of $21.50 or slightly less. The long-discount price would still be under $13.
So why do the current list prices on casebound fiction as described run closer to $27? At least as implied for CDs in the NYT article, there is a lot of room for cutting while maintaining profitability. <SARCASM> Is it possible that the formulae are being manipulated to justify prices that do not correspond with costs? </SARCASM>