What if Publishers are right about eBook prices?

In the last few days have run into a lot of books priced at $1 and $3 that are worth $10 in my eyes.

It’s quite puzzling as we seem to be diverging to two extremes in Publishing – The independent authors and self-publishing established authors who sell their books too cheap and Publishers who price their books too high.

Independent authors are giddy at the prospect of getting to readers and price their books at the lowest price possible i.e. $1. Established authors are happy to sell their back-list at $2.99 and earn $2 per book. Established authors are also willing to offer up one book for free to entice/hook readers.

At the other end we have Publishers trying to promote $12.99 and $14.99 for new releases and claiming $9.99 isn’t sustainable. It’s in fashion to mock Publishers and by doing things like wildly varying price and availability of a book across different countries they certainly earn themselves a lot of the mockery.

However, they do know far more about publishing books than anyone else – What if they are right about ebook prices?

What if $9.99 really isn’t sustainable?

As a reader it’s easy for me to empathize with the perspective that moving from physical books to ebooks creates a lot of savings and books should therefore be $9.99 instead of $14.99 and higher (the prices we see with hardcover books).

This perspective misses out on two things – the financing and risk taking aspect of Publishing, all the different experts (editors, copyeditors, illustrators, agents, etc.) that work together to polish a book.

In pretty much any discipline the difference between 75/100 and 95/100 is not 20 extra units of effort and time and money. It usually takes double to triple the amount of work to go from decent to exceptional. So there’s one aspect that we definitely can’t get rid of – the endless polishing of a book to make it excellent.

What if the risk aspect can never be removed?

The risk aspect of Publishing includes two huge costs related to failed books – the physical cost of shipping and the cost of returns, the effort put into polishing a book and making sure it has a high chance of success (you have to do this because you never know which book is going to be the big one).

With ebooks there’s no guarantee the second aspect will go away. We might be able to find ways (crowd intelligence, algorithms, evolutionary algorithms, analyzing successful authors) to identify successes accurately or it might be a completely intractable problem.

eBooks eliminate the cost of returns and let us manufacture exactly as many copies as there is demand for. However, they don’t help us figure out which books will have demand and they definitely don’t help us identify the most promising authors. You could argue the latter is more of an art than a science and that it involves a huge amount of luck.

We also wouldn’t have any way of funding promising authors – We’d reduce every author to the same level where the author has to do everything by herself/himself. An author would have to first find success and only then would she/he be able to focus 100% on writing.

Perhaps after ebooks hit 40% of the market $9.99 ebooks just won’t work

Now that we’ve established that it’s not a given that the ‘identifying the successes’ part and the ‘funding the authors’ part is magically solved by ebooks we have to ask ourselves -

Could $9.99 ebooks cover the financial risk and the cost of funding authors?

It’s not a given. You have to make assumptions – that ebooks will sell more numbers than physical books, that authors will be able to get by on less money, that books will be able to succeed and sell with less polish. All of those sound like wishful thinking.

Whatever we might think of ebooks there’s little doubt that per book sold they bring in less money than hardcovers. Which means that if Publishers are right about there being certain minimum sustainable book prices then $9.99 ebooks might not be enough once ebooks are at 40% or more market share.

If $9.99 is a sustainable price we still aren’t home safe – $9.99 is not guaranteed to survive.

What if $9.99 is sustainable but unstable?

Look at the Kindle Store – Indie authors at $1, smaller Publishers and mid-list authors publishing at $3, smaller Publishers and back list books between $3 and $7, lots of free offers, lots of free public domain books.

There are far more books below $9.99 than there are at $9.99.

The minute we set $9.99 as the price for new books we do two things – We guarantee that the average book sale price goes down, we guarantee that $9.99 will become the new $12.99 and be universally reviled.

If Pat Conroy is coming in at $7.99 and Andrew Wylie’s treasure chest of books are at $9.99 each then how dare an author assume her first book is worth $9.99. For that matter how could any except the top 0.1% of authors try for $9.99. The remaining 99.9% of authors should sell for $4.99 and $5.99 since they aren’t as good (or as famous or as well recognized).

$9.99 won’t last for long if it’s established – There’s always downward pressure

The minute you establish $9.99 as the entry point readers figure out reasons it should be less.

The minute you establish $9.99 some authors find excuses to pander to readers’ perceptions. Other authors feel they can gain a competitive advantage by pricing below $9.99 – Theirs will be the only new book at $4.99 and they’ll get money and a spot in the bestsellers charts and more reviews and more favorable reviews.

It’s a very painful truth that it’s in the individual interest of every author to undermine established book prices – even if by doing so he/she destroys whatever sustainable ebook price we’ve reached.

The Tragedy of the Commons

Authors will find excuses and rationalizations to lower prices. When that happens other authors will find ways to justify even lower prices.

Yet other authors will start claiming books should be free. They’ll do this to curry favor with the masses and yet they’ll do it in a way that makes it seem the noble and right thing to do. Because what author in his right mind would say -

You’re a bunch of greedy pigs and you want something that takes money and blood and sweat and tears to make for free. At the same time you don’t want to feel guilty about it. So let me conjure up a justification that lets you steal and still feel good about it.

So the smartest (and simultaneously dumbest) authors will start claiming information wants to be free and that readers are bestowing the pleasure of being read upon authors. These authors will out-compete everyone else. They might even, for a while, profit since readers will be so glad to be freed of the guilt they feel deep inside.

It won’t last though. If you train people your work is worthless they’ll reward you at first for your generosity and benevolence and then stop paying and wonder why the vastness of your ideals doesn’t fill your distended belly.

Surely, great Guru of Free, the happiness of being read is putting food on the table. Spiritual food that sustains your soul for the body is but a vessel and can do without nourishment.

Authors will outwit each other until we get the smartest authors who will outwit not only all the other authors but also themselves.

Training users to not value its product is how nearly every Internet company manages to kill its profitability – it convinces its users that they don’t have to pay in any way other than by using its product.

That’s exactly what authors are in the process of doing.

Is there anything that could stop the race to the bottom? 

We are in a pretty bad situation -

  1. We’re not sure $9.99 is a sustainable price for ebooks. Put aside your distaste for Publishers and your natural inclination (a very justified one) to think that they’re trying to steal from you – We really don’t know if $9.99 is a sustainable price.   
  2. It’s pretty evident that $9.99 isn’t going to last for long. If the best indie authors are pricing their ebooks at $1 and some of the best authors are placing their back list books at $2.99 then new books can’t keep coming out at $9.99.
  3. Not only is $9.99 not a floor for new book prices it’s quite likely there is no floor. Authors are always competing with other authors and now that price is fully flexible it will go to zero. We can pretend all we like that it’s a brotherhood and it still doesn’t change the fact that every author is competing for the same readers and will keep undercutting other authors.

We suddenly go from a pitched battle for fairness -

  • The Fight for $9.99 and fair prices and justice for all.

To the completely opposite concern -

  • Avoiding the race to the bottom and establishing some viable range of prices.

In typical Amazon fashion the Kindle Team is already trying out a solution.

Could Amazon’s ‘$2.99 to $9.99 prices for a 70% share’ gambit work?

Actually, it has zero chance of working.

We see it already with independent authors who refuse to budge from $1. Instead of creating ‘indie books at $2.99 and backlist books at $4.99 and new releases at $9.99′ all it’s done is set the stage for ‘Indie Books at $1, most other books at $2.99, some books struggling to maintain $9.99′.

Getting $2 per book is hugely appealing to mid-list authors and other established authors. It’s probably more than they get from paperbacks. However, these are authors who were successful. All the money spent to make them successful and all the money spent on failures is not accounted. The author seeing $2 per book doesn’t realize that this figure might be enough for him but is guaranteed to not be enough to finance taking risks on future authors.

Is there any way to stop the race to the bottom?

Unfortunately not.

It’s a free market and the brutal competition between authors in itself would have been enough to take prices to zero. We also get some other very interesting factors that accelerate the race to zero -

  1. Authors’ desire to have their books read is often far stronger than readers’ desire to read books. Which means lots and lots of authors will gladly share their books for free.
  2. eReader makers will eventually use free books as a ruse. If they can sell eReaders what do they care about the long term?
  3. A few companies adept at destroying profits are entering the market.
  4. Some of the players are in dire financial straits and are likely to encourage unsustainable scenarios.
  5. Readers are in control and readers are as capable of self-delusion as Publishers. Power definitely corrupts – you see it when readers who paid $15 for hardcovers are turning around and asking for $1 and $2 ebooks.

There is absolutely no solution that comes to mind for stopping the the race to the bottom. The question will keep changing -

Is $9.99 sustainable?

Is $5.99 sustainable? Can we stall prices at $5.99?

Is $2.99 sustainable? Can we stop here?

Is $0 sustainable? Can we sell t-shirts with authors’ faces on it? Can we have a bail-out? Can we use tax payer money to fund authors?

Users have shown with the Internet and with news and with piracy and in numerous ways that when they get total freedom and total power they abuse it just as much as Publishers and Movie Companies and Music Labels do. The real question everyone should be asking is -

Why would books be different?

When faced with a choice between paying $1 or looking to the future and paying a sustainable price like $9.99 what will readers choose? What will readers choose when ruthless companies and desperate companies are trying to gain an edge and selling readers on the idea that $1 really is a sustainable price?

13 Responses

  1. Hi Switch11,
    Interesting thoughts about the pricing strategy in the long run! I think you could have a point in maintaining a reasonable price level for the new books of established writers.
    On the other hand: as a customer, you are willing to pay a reasonable price/quality ratio. This is another element that should be taken into account when discussing price policies.
    In the end, the risk taking is also for the customer: no guarantee that a new book of a bestselling author, will be a very good book…

    I agree that original creators of books, music films etc. should receive a fee. We as customers experience wonderful moments in time as we enjoy their creative expressions! In software their is also the issue of cost. There is full commercial and proprietaruy software, mostly with a big price tag. In this market we have witnessed the “open” software boom. I.e. Linux has made a dramatic entrance and is now the fastest growing OS, including all big companies. For the normal customers there is free software, shareware and full commercial software.
    Maybe this is a sustainable model for ebooks too. In spite of all freeware and shareware, there is still Microsoft, IBM etc selling for billons…

    BTW: The attorney general In Connecticut, Richard Blumenthal, has started an inquiry for the price deals between Amazon and Apple with publishers. He thinks these deals are blockibng price competition in favor of the customers…

    Meindert

  2. Your logic is horribly flawed and the primal factor is in believing that the outdated concept of publishing is the structure we need to survive.
    The old ways of distributing media are dead. The only thing propping them up is the lawyers and talentless middlemen who take most of the profit. The worst paid people in 94% of book deals are the writer and the book seller.
    An authors agent can generally arrange an editor and independent PR firms can handle all the worthless puffery needed to promote less then worthwhile books.
    Books have been dying for a while and the e-readers have revitalized the market considerably and greed of the talentless is what’s trying to keep prices artificially high. I don’t want the old model to remain. I want the new wind to sweep in and produce new stories and writing with the new ways of selling and promoting.
    How much was Jackie Onassis getting paid to read books and offer her opinion, and what was the mark up on her salary passed on to the consumer?
    We don’t need to pay for their phoney prestige.

  3. I have to do two things in this post. First, I would like to thank this site’s -ireadereview.com- authors for their tireless efforts at bringing us great pieces; second, I am going to state quite clearly that I vehemently disagree with this author’s core argument regarding the long term unsustainable nature of $9.99 and under pricing. I have seen pieces from Newsweek to the New York Times that clearly highlight that $9.99 e-books have the same profit spread that $26 hardcovers. At first the assumption may seem counter intuitive until one realizes that in publishing there exist two devilish things. The first concern being the uncertain nature of demand coupled with the wicked price elasticity of books. “How many books will we sell and for how long can we dictate prices before a viable used book market undermines our asking price?” are questions that publishers must always ask when creating works. Second item is the “Law of Diminishing Returns” in which each extra book produced comes with the built in risk that it will not pay for its own production cost, simply waiting around to be sold at a loss. E-books remove both these concerns immediately by doing away with a used market and by also guaranteeing that only as many copies as are needed are produced. The effect from the Law of Diminishing Returns is mitigated while simultaneously the threat of lost revenue posed by a secondary grey market -in the form of used book sales- is obliterated. Both of these items make $9.99 and under not only viable but also profitable. The problem is that producers of content in the 21st century suffer from what is known as the “Innovator’s Dilemma” in which they refuse to restructure due to the short term potential for massive losses that such restructuring entails. Inversely, consumers sensing that the products being sold are over-priced simply begin to steal the product. End result, old-media collapses while explicitly ignoring the potential for safe passage. Bezos and 21st century internet gurus will seek to create refuges for old media in a wise bid to profit from their bleak situation. If I were a media producer I would realize that perhaps the only way to survive is to join these stable ecosystems without delay. For everyday they waste is another day closer to their day of financial judgment.

  4. This could be the saving grace for publishers. People make decisions on art by emotion. Money and power will be able to shape perceptions. That has always been and will continue to be the case. The difference will be that people will no longer be fooled into thinking rubbish is gold. The good news for publishers is that it will become easier for them to find that gold as they watch trends and spot potential from afar. By taking a relatively unknown book that appears to hit the right notes with a small audience, a deal can be struck, money put behind it, propelling it to the stars. That book would command a premium and most readers would not complain about the price.

    The readers who are most price-sensitive will be a crucial
    element in this equation. It is they who will trawl for and find those gems for all of us.

  5. Personally, my laissez-faire view of economics says “let’s ride this and see what happens.” I think it’ll work itself out on its own. As Meindert said, in software, we have free options, and people still buy Windows, MS Office, etc. I don’t, but lots of people do. :)

    I’ll admit, I see no reason why we need anyone deciding what’s good and what’s not. I can find books that interest me without the media or publishers getting involved. In fact, I rarely ever read anything that has much of a marketing budget behind it these days. And the few times I have read something like that recently (usually for book club), I regretted it.

    It will be interesting to watch how things go. I think that Amazon preventing indies from pricing < .99 will keep things from going too fast, but I'd watch for prices to rise a bit over time.

  6. Most books in discussion struggling for more aggressive prices seem non-scientific or not technical. It’s interesting to ask why literary pieces deserve a lower price than those scientific or technical ones.

    On the other hand, if offering for free is the final destination, it’s not too late to learn from Google how to profit without charging the users/readers. As is seen so far, everything digitized by Google is gradually transformed into ad-ware. Combining ebooks and ereaders into another advertising platform may be near in the future.

  7. Hey switch11,

    What about textbooks? These books are priced $100 or more. Who are the winners here? The teachers or the publishers? What prevent us of seeing $19.99 or even $9.99 textbooks? Maybe I’m too naïve, but as I work in a small college, I’m wondering if there is a way to publish e-textbooks and selling them in Amazon or BN.

    • Actually, you could. If you write and publish an eTextbook will gladly cover it. You could clean up the market.

      The argument textbook publishers use is that textbooks cost a lot of money to make and update. The part they leave out is that students are forced to buy the text books their teacher recommends and that education has become overly commercialized.

  8. A natural price will be reached if we allow the free market to work that will be sustainable. It may not be sustainable for the bigger older publishing firms because they’re still operating on old business model. The newer model cut out alot of middle man and reward the author. The author should be able to decide which price is sustainble for her/him and he/she can compete with other authors on the price

  9. For me I still think publishers are missing threee issues (at least) that alter my pricepoint for an ebook: I can sell or lend a paper book whereas I can’t with kindle ebooks, and there can be multiple price books over time.

    If a new paper book is $18 and the ebook is $15 then if I sell my new paper book to Half Priced Books for $4 or $5 I lower my cost to $13 to $14. If I swap with a friend who is reading a book I want, I basically lower the average price to $9. In both of these cases I am saving money over the ebook price.

    Also, I think Publishers could benefit from a downgrade in price over time. There doesn’t need to be the hardback $15 and the paperback $7 price especially if you have the $9.99 fan club sitting in there. Half way between release of the hard back and paper back lower the price and you’ll get more money from some of us that otherwise will wait for the paper back price.

  10. I too am concerned by the “race to the bottom” scenario you envision, but I think the chances are far from 100%.

    True, there will always be a supply of indie authors pricing their books for $1 or free — there’s certainly a desire to be read that transcends money for us. But, the vast majority of those authors will get over the initial thrill of “Someone downloaded my book and is reading it!” and will have to make some hard choices: “I spend a lot of time and energy and sometimes money on producing good novels, but I moved out of my parents’ house and now I have to eat and pay rent.” Most authors who are selling more than a handful of copies eventually realize that, if we want to keep doing what we love, we need to earn some kind of living at it, and the lowest price we have a real shot at that is $2.99.

    I, and many other indie authors, are selling our e-books for $2.99. I think Amazon knows what it’s doing when it tried to funnel everyone into the $2.99 to $9.99 range. I think it’s a very reasonable price and a good deal for readers. Those who can’t sell more than a handful of copies at $2.99 might go back to $1 or free. But, I think $2.99 will become recognized as the price point for quality work — there will be exceptions on both sides, of course — but I think readers will learn they have a higher chance of finding well-written, well-edited, well-formatted books that people are actually buying at $2.99 than for free or 99 cents.

    Remember that the investment in a book is more than just a buck or three: it’s the hours of time required to read it. And many readers would rather triple their chances of finding a book they’ll enjoy than take a chance on a book for $0.99, but have to wade through a lot of unprofessional work to find that gem.

    JMHO, but I am more optimistic about the e-book future than you seem to be in this post.

  11. “We’re not sure $9.99 is a sustainable price for ebooks. Put aside your distaste for Publishers and your natural inclination (a very justified one) to think that they’re trying to steal from you – We really don’t know if $9.99 is a sustainable price.”

    Over on the political blogs, this is known as “concern trolling”. You’re repeatedly saying “how do we *know* that it’ll work? Yes, it’s always worked before, but how do we KNOW it’ll work?”

    Although, in one sense, you’re correct. Publishers are right that $9.99 is an unsustainable price–for publishers.

  12. [...] What if Publishers are right about eBook prices? [...]

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