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Why McGraw-Hill is selling iBooks for $15

The announcement this morning that textbooks would be sold through the iBookstore wasn't especially surprising. But the price was; full-featured multimedia electronic textbooks being offered for no more than US$15 is exactly the kind of disruptive shakeup the industry needed. While only the K-12 education market is on board so far, I'm looking forward to a future where universities sign up too, and students' book costs drop from the nearly $1000 dollars a year I paid as an undergrad to much more reasonable and manageable levels.

One question on many people's minds has been how Apple and the textbook publishers were able to agree on such a low pricing scheme for textbooks. After all, high school textbooks usually cost $75 each, and thus far publishers haven't been well-known for offering electronic versions of published works at a discount; in fact, in a lot of cases ebooks have cost more than their paper versions despite presumably lower distribution and production costs. So, not that anyone's complaining, why the lower prices?

AllThingsD asked that question of McGraw-Hill CEO Terry McGraw, and it turns out to have a simple answer. Schools will usually hold onto the paper versions of textbooks for about five years, meaning the publishers are only recouping about $15 per year anyway. Via the iBookstore, textbooks can be sold directly to students (who may or may not be offered payment vouchers from their schools), and from the publishers' perspective, the beauty of this arrangement is that those books can't be re-used or re-sold.

After Apple takes its 30 percent cut, publishers will only take $10.50 from a $15 textbook sale, but that's $10.50 they can get from every student, every year, and without the heavy production and distribution costs associated with making and shipping the often giant-sized paper versions of textbooks.

It's obviously too early to tell whether this will work out to be a lucrative arrangement for textbook publishers, but just looking at the way the numbers shake out, at the very least it seems that, contrary to initial appearances, $15 isn't such a shockingly low price for textbooks after all.

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