Understanding the e-book pricing issue

With the recent news that Random House was adopting the agency pricing model for e-book sales, I started hearing the, “What does this all mean?!” question from authors again.  When the switch to the agency model happened with the other “Big 5″ last year, I spent a lot of time discussing the differences between the wholesale and agency models of e-book sales.  I’ve sent authors articles that explain the differences and why it matters, both practically and philosophically.  But today, I came across the most succinct, lucid description I’ve seen, from former-agent Nathan Bransford.  The point of the blog post is to explain why you might pay more for an e-book than for a new hardcover–something that seems insane until you understand how both e-books and print books are sold from publishers to retailers.

So please take a look!  And if you have further questions, I’m happy to try to answer them.

8 Responses to Understanding the e-book pricing issue

  1. Oscar says:

    Well, Michael, you’re right: Mr. Wonderbar Bransford does make sense of it. By “it,” I mean only half of the argument. Can we be honest?

    The true story:

    Any product that is distributed from “big” publishing must somehow be able to contribute to maintaining all the Manhattan real estate and Manhattan salaries. Therefore, selling e-books for five dollars would not be able to support the infrastructure of the current business model. Agree? Tis an ugly truth, isn’t it?
    Technological innovations and spillovers are supposed to bring down prices—econ 101—yet that is not the case in the book market. The powers that be of publishing are sitting around in an OPEC-like fashion, attempting to maintain a certain lifestyle through the golden rule (he who has the gold, makes the rules). This attempt by publishing is futile, though, as it cannot fight the science of economics. The consumer will win, even if it must be via the black market. (Although, the reader is a different demographic, a Napster for books could be under construction right now in some dingy dorm room, which could financially injure all of those involved in the publishing world. It took years for the legal system to catch up to Napster. The black market always attempts to level the scales. Are we naive enough to think that readers aren’t the type to steal? I would like to think so. Also, I don’t know if the Kindle or I-pad has built-in programming to prevent pirating.)

    Anyways, maybe I am being too doomsday…but the pricing system of e-books is broken. What if publishing sold all that Manhattan real estate? What if all editors and what-nots worked from home and through video-conferencing? It would cut back on rent and serious overhead, which would create a lower price for the consumer.

    We must evolve.

    • Michael says:

      Sure, overhead is a factor in e-book pricing. That’s why self-published books can be sold for less. But that overhead, in my opinion, brings a lot to the table: editors, copyeditors, proofreaders, art directors, publishers, sales people, marketing, publicity, etc. That costs money, whether the offices are in New York or Wichita. Sure, the real estate is expensive, but most of these companies are owned by large conglomerates that negotiate very good long-term leases.

      (And, not to make too much of this, but…Manhattan salaries? Do you know what editorial assistants make? Hell, even executive editors don’t make THAT much.)

      I’m just not sure the pricing of e-books is quite as broken as some people think. Why weren’t the same people complaining about the price of hardcovers, which have much higher margins?

  2. I’m curious what you think about the different price points. Nathan’s post makes sense, but most people won’t know all that and won’t care. And, really, even people that do know won’t care. On a basic level, paying more for an ebook than a hardback is clearly insane, and all the math and reason in the world isn’t going to change that. (I understand the pricing, but I still refuse to pay more for an ebook.)

    I do think Oscar is right about the Napster comparison. Napster had a few things going for it at once to make it blow up: music was going digital; digital music players were starting to be readily available; and CDs were really expensive–I think around 19 or 20 bucks each. Then the record industry spent years in denial (and possibly they still are) without accepting the fact that the model had changed and there was nothing they could do about it. Yes, it sucks for them that they suddenly started making less money than before, but there was nothing they could do about it. I’m sure the railroad barons felt the same way when Boeing started making passenger jets. How publishing should adapt I have no idea, but I feel pretty confident that raising prices (I think the 9.99 point was pretty firmly established by Amazon) is not a long-term answer.

    (Also, the iPad is really locked down–Apple won’t even let you change the battery on your own, let alone download something they can’t make money off of–but I think the Kindle is pretty open. Before Amazon started offering free classics–they were charging for them–I went to the web, downloaded books like Vanity Fair and Anna Karenina, plugged in my Kindle to the PC, then just dragged them over to my Kindle.)

    • Michael says:

      While I think there are many analogs between the music industry and publishing, I don’t think there will ever be a Napster of publishing. It wasn’t just the expense of digital music that made people turn to Napster; it was that getting digital music wasn’t easy. With the Kindle, nook, Sony readers, Kobo, the iPad, and web browsers and the like, buying e-books is easier than stealing them. As long as that continues to be the case, I think people will buy e-books.

      Now, they might start buying more low-priced e-books; they may bargain hunt. Big publishers will have to adjust to that. I hope that in time, they will. But with any big company, change is incremental and slow. But publishers are experimenting and looking to find the right price. And despite the howling of a few, people are buying e-books priced over the magical $9.99 mark.

      Regarding your parenthetical, I’d argue the Kindle is at least as locked down as the iPad. Amazon makes it difficult for you to read things not acquired through the Kindle store, and Apple makes it hard for you to get things on your iPad that aren’t purchased using an iTunes account. But for me, the great browser on the iPad lets me bypass all that if I want to. Honestly, I think they’re both great products, but I like my iPad more.

  3. Oscar says:

    I respect your fingers-crossed mentality.

    The pricing is totally psychological. You must understand the difficulty for the consumer to shell out ten bucks for something that isn’t hold-in-your-hand tangible. Also, one really only reads a book once—two times if you absolutely loved it. When a person buys a DVD for fifteen dollars, he or she feels like an addition has been added to the collection. If this person were to add a DVD to a hard drive, it wouldn’t feel the same. It’s a psychological fallacy—almost.

    On a side note: Napster was free, which definitely added to its popularity. Honestly, I do not think our beloved readers are the type to pirate—maybe 2%. The only books college students would illegally download would be textbooks….

    • Michael says:

      Do people actually re-watch movies many times? My impression is that they THINK they will, but then never do. I know I have several unwrapped DVDs in my collection. Just as I have several unread print books and e-books in my collection.

      Why is the $10-mark so important? Unless I’m unaware, there’s not psychological study that says people won’t pay more than $10 for something digital. Honestly, I think it’s funny that people keep harping on the physical book being superior and therefore worth more. In my mind, an e-book is more useful! I can take it with me anywhere, highlight passages in a non-permanent way, can carry as many books as I’d like, can look up words without putting the book down, can change the font size, etc.

      But that’s me, and I understand that other people feel differently.

      • Oscar says:

        If the movie is good enough, people will watch it many times. How many times have we seen Temple of Doom, Gladiator, or I Heart Huckabees? Depends on how busy we are, I suppose. Parents and workaholics are probably less likely to have the time to re-watch. The two of us, well, we’re both too busy reading Swann’s Way in our downtime, right?

        I was simply using $10 as an example, not a threshold. We love those round numbers, don’t we? Feel free to use $9 or $11. By mere observation, it seems Walmart (I cringe typing the word) and every other retailer seems to think there are psychological points in pricing, i.e., pound of bananas for .99 cents or a digital camera for $149.79. Maybe $10 has become that cultural pricing point for books…I do not know.

        But, I agree with you: physical does not mean superior. However, the purists will stand behind the hard copy.

    • Mare says:

      Oscar, I’ll agree about the (somewhat) limit on how much we read something. That said, “High Fidelity” is my most favorite book, and I’ve read it, I don’t know, three? five? times. I’ve lost count. And I have a handful of other books that fall into my read-more-than-twice category.

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