Cost Structure of Ebooks

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A qualitative characterization of the firms cost structure (e.g. high…fixed cost, low marginal cost, etc.). Discuss factors that could cause the firms marginal costs to change. A detailed quantitative analysis is NOT REQUIRED. Cost Structure for Random House E – Books

The exact cost structure of Random House is difficult to ascertain but below is a summary of the costs facing digital book publishers. Some of the costs described will be discussed in relation to traditional books. Publishers of e-books have to pay for the same fixed costs associated with running a traditional book publisher such as acquisitions, royalties, editorial development, copyediting, cover and interior design, page composition, cataloging, sales, marketing, publicity, merchandising, credit, collections, accounting, legal, tax, and the all the usual costs associated with running a publishing house. Additionally, there are 3 new fixed costs that e-book publishers face that traditional publishers do not. 1. Digital preparation and quality assurance – the digitization, formatting and testing of a book. These costs can become high as each e-reader has a unique format. Currently publishers must cater to at least 6 major formats.

2. Digital distribution. Once publishers have finished the QA process, then they have to distribute the files to the various eRetailers. Publishers sell eBooks via more than twenty separate sites. There are almost no marginal costs except for charges such as credit card processing fees.
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