Publishers claimed the high road in the pricing battle with Amazon over ebooks, constantly denigrating the $9.99 value point. Publishers feared, they claimed, that such a price point devalued ebooks.
That got me thinking. How do publishers decide the value of an ebook? Clearly they think a leased ebook has more value than an owned pbook because we haven’t heard this rallying cry before. Thus the move from the wholesale to the agency model of distributing. Why do publishers think a leased book is more valuable than an owned book? Or do they?
There is a certain lack of logic to publisher protestations. For decades the wholesale model has worked without claims of devaluing even though bookstores heavily discounted the books and forced publishers to print large quantities only to have a significant portion of the print run returned. If I were to point a single finger at a single cause of book devaluation, I would point that finger at print overruns that cause returns.
Think about it. Where do the remainder books come from? They are the remainder of the print run that didn’t sell. They are offered in bargain bins for 20% or less of the retail price, and who put them there? The publishers. Is this yet another case of the kettle calling the pot black?
Until the advent of ebooks, publishers seemed happy to sell books to retailers for the wholesale price and then let the retailers set the actual sales price. What difference did/does it make to publishers if retailers sell every book at a loss? The publisher’s revenue isn’t linked to that sales price — or is it?
The unanswered question is whether the discounted pricing moved more books for which the publisher was paid the wholesale price. Would 100,000 copies still be sold if the book wasn’t discounted to $9.99? Or would sales languish at a significantly lower number. My bet is they would languish.
The second unanswered question — and the one that publishers jump on but have no data to prove — is will the $9.99 ebook price will set a price point in the consumer’s mind above which no book — p or e — can be sold? Publishers point to the music industry, but why not look at their own history? The $7.99 paperback hasn’t done away with the $35 hardcover. Publishers are reacting from fear, not knowledge.
But none of this addresses value. It does address market forces and the likely impact that a lack of competitive pricing may have on the book market, but not value. How do publishers ascertain a book’s value?
We know that there is the bean-counter method whereby someone adds up all the production costs, allows an accounting standard amount for intangibles, applies a percent for profit, and allows for returns, and then divides the total by the print run to establish a value. (There are variations to this bean-counter method.)
But the bean-counter method can’t really be the valuation method publishers are using because that method would work equally well with ebooks — in fact, it would be simpler with ebooks because there would be no print run intangibles or returns. So publishers must be using some other method, one that I can’t put a finger on. (Sure would be nice if they explained it!) The method must somehow be tied to an intrinsic value, a gut-feeling value.
The intrinsic value has to be unquantifiable and based on the content. But isn’t the content of the pbook version and the ebook version the same? Or are the contents different and we just aren’t being told? I expect the content is the same, so explain to me why there is no devaluation of a pbook sold at discount but there is of an ebook?
What makes a paperback worth $7.99, an ebook worth $12.99, and a hardcover worth $25.99 when all the content is identical? We know that production and distribution cost differences are not the answer; the answer must lie in the content or the format. If the content is identical, then content doesn’t account for the valuation difference. The answer must be the format. But that doesn’t make sense because the pricing schemes are reversed, since the value of the format is convenience and ebooks are certainly more convenient than pbooks, which means ebooks should cost more and hardcovers less than paperbacks. But then ebooks are leased and pbooks are owned and isn’t ownership more valuable than leasing? Shouldn’t then the value of ebooks be less than that of paperbacks?
Is this confusing? Yes, because there is no logic to applying the different pricing models — wholesale to pbooks and agency to ebooks — on the basis of value. There is no demonstrable difference in content value to any of the formats. Something is rotten in ebookland!
I don’t want to flat-out state that there isn’t an argument to be made by the publishers about preserving the financial value of books. What I do want to flat-out state is that
1. publishers haven’t made any valid argument to date.
2. publishers need to explain why ebook valuation is different from pbook valuation.
3. publishers need to reassure the nascent ebook market that they truly aren’t trying to kill ebooks.
There clearly needs to be a dialogue between publishers and consumers, especially now that publishers have set the consumer, and not ebooksellers, as their market with the adoption of the agency model. But for this dialogue to occur, publishers need to define how they value books so that consumers can determine for themselves whether the agency model for ebooks is really justified by a need to save books from being devalued. The argument that ebook sales detract from hardcover sales and thus the need for the agency model is less than a weak-kneed argument. The counterargument is simple: Set the initial retail price under the wholesale model of the ebook at the same price as the hardcover and let the ebooksellers sell them for whatever price they wish, including at a loss, just as is done with the hardcovers.
Publishers need to be more forthcoming. They do not need to justify price in relation to costs; that is a business matter. What they do need to do is better explain their valuation excuse for going to the agency model. Consumers are entitled to understand why there will no longer be price competition in the ebook marketplace. Isn’t it the publishers’ own actions that are devaluing books?
I’m pretty sure the prices are high/seemingly illogical for one main reason – many publishers don’t want to sell ebooks.
Why not? I think partly because they think digital copies of books means more piracy (they don’t seem to be aware that most copied of recent books on utorrent are apparently internal leaks (from the digital files used for print), or that physical books can be digitized in minutes anyway). Secondly, because they (individuals within the companies) don’t really feel comfortable with this brave new world, and would rather delay it if possible, so they can keep working in their comfort zone. Shifting to making money off e also requires revamping dozens or hundreds of processes/rules/roles within the organization – something large bureaucracies are just not well suited to doing.
You’re right that there is a lack of reason to their value model. I was doing some research on e and p book pricing last night, and I ran across something interesting and disturbing. I was on Barnes and Noble, comparing the prices of the Twilight saga (because it’s popular). Here was the breakdown, using on-line paperback pricing for the p-book.
Twilight: e-$9.99, p-$7.99
New Moon: e-$14.99, p-$8.79
Eclipse: e-$9.99, p-$10.39
Breaking Dawn: e-$10.99, p-$14.94
I’m assuming the more expensive paperbacks are trade, not mass-market. They appeared to not be available in mass market yet.
But I found that pricing for New Moon to be offensive. They really think we’ll pay almost twice as much for the e-version because it recently was a movie? That was the only reason I could think of that made even a tiny bit of sense.
They sure are acting like they think we are stupid.
The conclusion is obvious. Publishers are bigger pirates than anyone else.
Five years ago, the big publishers were, mostly, interested in killing eBooks. I don’t really think that’s the case any more. In fact, most big publishers realize that eBooks are the (near) future of our industry. That, in fact, is why they care so much about pricing. If eBooks replace hardbacks, and eBooks have a perceived value of $9.99, the traditional publishers are in trouble and they know it.
Given a couple of hours, I could come up with a value model that quantified the benefits of eBooks (convenience, storage savings, semi-perpetual availability, font flexibility for those of us with aging eyes, read-out-loud, etc.) and drawbacks (the bath factor, DRM dangers) and justify just about any price point I wanted but I’d only convince those who want to be convinced, so why bother? Price will always be something that consumers want lower and producers want higher. Why should eBooks be any different.
(Then there are a few crazy publishers, like me, who believe that eBooks should be affordable…but maybe that’s why I’m a starving small publisher rather than a huge conglomerate).
Rob Preece
Publisher
Publishing is based upon the legal monopoly that is copyright. This monopoly, I believe, is what attracts big media conglomerates to publishing.
Monopolists try to charge ‘what the market will bear.’ Hence, higher ebook prices.
Rob Preece makes a good point that, today, publishers see ebooks as the probably future, nearer than they’d like. This makes them hate Amazon’s subsidized $9.99 price — it sells more books, but it is training us readers that ‘ebooks sell for under $10.’ The publishers want to habituate us to paying higher prices for ebooks so that, when the day comes when ebooks outsell print, the publishers can hold onto those higher prices.
The funny thing is, that during this transition, the publishers can’t expect to see big sales of ebooks while print books are sold at discount for prices only marginally higher than the ebook editions.
I don’t see how the publishers can prevent booksellers from discounting print books. Does this mean that, in order to keep ebook prices high, the publishers will have to raise the wholesale prices of print editions?
If they could raise wholesale book prices over $20, then Amazon, Walmart, B&N, Borders, et al would end up selling the books for $20+; and the $12 ebook version would start to look more attractive.
— asotir
I think there is a real confusion here as to what value really is. This confusion leads to confusion about the relationship between price and value.
Publishers will never be able to give a good argument for the value for a book because they have no say in the matter. The value of a book is pragmatic. It lies in how well the book meets the needs of the reader. So it is the reader, the customer, which determines the value of the book.
This is why all the talk about the value of the book is misguided. The publishers lied when they brought up the question of value to begin with, and any communication between the consumers and the publisher about the value is meaningless since the publisher have nothing to add. This, of course, makes Rich Adin’s call for dialogue misguided. Rob Pierce’s value model is also meaningless in a dialogue between customers and publisher. That is why it would fail to convince.
Then there is the question of the relationship between value and price. This mainly consists in value putting a roof on the price, since a consumer won’t pay more for a book than its value. Beyond that the prices are set at the discrimination of the sellers (publishers or booksellers) within the limits of the market. In other words, by competition in the market. Not only competition between books and publishers but competition between everything the consumer spends money on. Now of course the value of a book will vary between different consumers so in reality any specific price point will be above the books value to some consumers above it for others. This determines how many copies are sold. This is why prices in the ebook market are all over the place. It is an immature market with limited competition. The cost of making a book has no relation to its value. It only limits what publishers can do pricewise.
Things are not quite this easy in reality. A consumer can’t know the value of a book before they’ve read it, but they have to pay for it before that. So they are forced to guesstimate, giving the book a perceived value. This publishers can nudge up trough marketing and hype. But once the consumer reads the book the real value will show itself.
Then the question is how can publishers know what the value of a book is? The answer is that they can’t, and are thus forced to guess based on how it sells at different price points. This is what Amazon is an expert at and what publishers have no experience of so they will probably screw it up by the numbers.
There is one other kind of value one often discusses, in relation to how it is priced: How much value a product offers at its price point. This basically means how much below its value the product is priced. This is the same as saying how competitively it is priced.
There is one other kind of value for the publishers: The value of the book to the publisher. This is basically its potential to make money and is an issue between the publisher and its owners and is irrelevant to this discussion.
an e-book is not a hardcover. note the absence from one side of the equation of a hard cover.
i have no guarantee that over time i will continue to have access to the material that i have paid for. that alone makes e worth less than p. and ‘convenience’ benefits publishers more than it benefits me. at least, that’s what my bank account would say. convenience=ability to impulse-buy. publishers should be falling over themselves to attract impulse purchasers of content. especially those downloads that would happen during tv and radio author interviews — if the e version weren’t embargoed as a reward to those people who still have room in their bookcases and don’t like icky technology.
publishers do everything they do out of fear. as a conservative industry, they are reactive rather than pro-active. but they shouldn’t be fearing e-books and e-reading; they should embrace that. what they should be fearing, is what they already feared before e-ink readers began to catch on: the decline of reading.
As perhaps has been described somewhat by other previous posts, I think the argument about publishers setting price based on what they see the value is, as opposed to what the customer sees – only works if the publisher is a monopoly. Once there are at least 2 options (who don’t price fix) over time the publisher value will come closer and closer to the minimum needed to make a margin of profit that keeps them in business.
However in the new world the competition includes quality eBooks with a price of $0. So the question becomes – can you produce something with customer value greater than $0 for a cost below that difference?
I can get a free legal e copy of The Count of Monte Cristo. Penguin sells a copy for $15.50. It’s possibly better formatted and proofed than the free one, but is that worth $15.50 to me (and I’d have to buy it to find out)?
I don’t think Penguin set the price at $15.50 to avoid cannibalizing hardcover sales.
I can’t imagine Publishers really think they can set a high price for e to get it into the customers mind that this is reasonable for the “value” they are getting. Because an e book is obviously cheaper to produce than a hardcover, it immediately opens up the field to competition that’s willing to sell only e at a reasonable margin of profit. Sure, if you have the copyright on an in demand author you can try to charge more, and there may be a “2 tier” system for a while, but over time I think it will be hard to charge $15 for an e Dan Brown when there are hundreds of quality books by other authors on offer for $5 or less. You may sell some, but not enough to be the mainstay of your business.