My day job involves looking at what regulated companies should fairly be allowed to charge – mostly companies who provide essential utilities. While this is a world away from books, in some ways, the same principles apply.

As Alisa points out, a business needs to make back its operating expenditure (the costs of running an office, the costs of printing books, paying staff, and so forth). It also needs to make back its capital expenditure (the cost of buying things like computers, vehicles, or anything else used over time). If you’re not even making these back, you’re either subsidising a charity, or about to go out of business.

There’s another thing, though, that we allow companies to include in their charges as part of a fair price. That’s the cost of risk. It sounds a bit vague, but it’s really important, because if you’re the one running the business, you’re the one who’s going to absorb the pain if, say you get screwed over by exchange rates changing, customers not paying their bills, your products being unsellable, or anything else that could possibly go wrong.

The reason regulated businesses are allowed to include an extra bit in their charges to cover risk is because only an idiot would sink money into a venture where they only stay in business if, miraculously, nothing ever goes wrong. You’d put it in a term deposit, or another venture where you’d earn more. Frankly, if the business you’re considering is really vulnerable to things going wrong, but you’re not going to earn enough to compensate you for taking that risk on, you’d even be better burying your cash in the (well-secured) garden, where your only loss will be inflation.

As Alisa explained to me, it’s standard for authors to get paid whether or not a book makes money. A publisher takes on all the risk of the things that might go wrong, causing business to lose money, sheltering authors from that exposure, from having to pay the bills.

So…what kind of idiot would go into a business where they didn’t get paid for taking on that kind of exposure? The only people it makes sense for are charities, religions, or rich cranks who have an interest in something other than running a sustainable operation. And, equally dismally, no publishing businesses would be able to include books in their portfolios that had a cultural or social value, but were unlikely to break even.

All the condemnation to any publishing business that actively screws over its writers, but the solution isn’t railing against decent publishers just seeking to run a viable operation that puts good books out into the world.

On the other hand, I tend to dismiss the 99 cent books as ‘not important’ – although I’ve read some good 99cent books, they’re my fluffy, slightly embarrassing, kind of like reading fan fiction, books. I don’t really see them as ‘books’ unless they’re around $5 or higher.

I wonder if any other people approach digital pricing in a similar way