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Publishers justify $13-$15 e-book prices for Apple iPad

After the introduction of the iPad gave publishers leverage to raise e-book prices on the Amazon Kindle, a new report states that consumers have "unrealistic expectations" about how low e-book prices should be.

This week, The New York Times provided a breakdown on the economics of producing a book from the publisher's perspective. It noted that while printing costs go away when a book is reproduced in an electronic format, a number of expenses remain, including royalties and marketing.

The report said that while the average hardcover bestseller is $26, the cost to print, store and ship the book is just $3.25. That cost also includes unsold copies returned to the publisher by booksellers.

Publishers get roughly half — $13 — of the selling price of a book. But after factoring in payments to the author and the cost of cover design and copy editing, only about $4.05 is left. And, the report noted, that doesn't even include overhead such as office space and electricity.

Under Apple's agreement with publishers for the iBookstore, the hardware maker will keep 30 percent of each book sale, leaving $9.09 for the publisher on a typical $12.99 e-book.

"Out of that gross revenue, the publisher pays about 50 cents to convert the text to a digital file, typeset it in digital form and copy-edit it," the report said. "Marketing is about 78 cents."

Author's royalty can range from $2.27 to $3.25 on an e-book, leaving the publisher with between $4.56 and $4.54, before paying overhead costs. For comparison, under Amazon's $9.99 e-book model, publishers would take in between $3.51 and $4.26 before overhead.

"At a glance, it appears the e-book is more profitable," the report said. "But publishers point out that e-books still represent a small sliver of total sales, from 3 to 5 percent. If e-book sales start to replace some hardcover sales, the publishers say, they will still have many of the fixed costs associated with print editions, like warehouse space, but they will be spread among fewer print copies."

Publishers are also wary of making e-books too cheap for fear of killing off booksellers like Barnes & Noble.

Apple will serve books for the iPad through its iBookstore, due to be a part of the iBooks application for iPad. The software features a 3D virtual bookshelf displaying a user's personal collection, and allows the purchase of new content from major publishers. Like the Kindle, it will offer content from the New York Times Bestsellers list.

The introduction of the iPad has driven publishers to force Amazon into higher prices for new hardcover bestsellers. While books are currently priced at $9.99 on the Kindle, that is expected to rise to between $12.99 and $14.99 by the time the iPad launches later this month.

The charge was led by Macmillan, which was followed soon after by Hachette Book Group and HarperCollins in renegotiating with Amazon.

Last week it was revealed that Amazon frantically phoned publishers as Apple co-founder Steve Jobs gave his keynote introducing the iPad in July.

While publishers had their way and Amazon reluctantly agreed to higher prices, not every bestseller will carry the new, higher premium price. It has been said that while higher prices are an option for publishers, and most new titles will be between $12.99 and $14.99, publishers can also choose to lower prices on select titles.