Tuesday, March 2, 2010

On the pricing of ebooks and why publishers want readers to pay more

Motoko Rich wrote a very interesting article yesterday on the New York Times, presenting the costs involved in producing books and comparing the revenues publishers make from hardcover books and ebooks.

The data presented in the article was simplified and based on rough averages, but the bottom line was quite surprising: publishers can make even more money of e-books priced at $12.99 than they make on hardcovers priced at $26. And not only that, but even with a price tag of $10 for an e-book, the revenues are quite similar to those made of hardcovers.

Here are the profit figures (before overhead):

For a hardcover book with a list price of $26: $4.05

For an e-book, consumer price $12.99: $4.56-5.54

For an e-book, consumer price $9.99: $3.51-4.26

So, it definitely makes sense to see publishers fighting to sell e-books in $12.99, or even up to $14.99, instead of $9.99, as we saw in the case of
McMillan and Amazon, and as we learn from the negotiations of the big publishers with Apple on the sales of e-books on the iPad. But it seems that publishers don't feel too comfortable to base their willingness to see higher pricing of e-books just on a pure economic basis (aka making more profits), so they are presenting another reason why e-books shouldn't be sold in lower prices: The implications on bookstores.

The article explains:

Another reason publishers want to avoid lower e-book prices is that print booksellers like
Barnes & Noble, Borders and independents across the country would be unable to compete. As more consumers buy electronic readers and become comfortable with reading digitally, if the e-books are priced much lower than the print editions, no one but the aficionados and collectors will want to buy paper books.

“If you want bookstores to stay alive, then you want to slow down this movement to e-books,” said Mike Shatzkin, chief executive of the Idea Logical Company, a consultant to publishers. “The simplest way to slow down e-books is not to make them too cheap.”

This is definitely a better cause than just making more money, but is it really the story here? does it really matter to the publishers if their books are sold on BN.com or on one of Barnes & Noble 777 bookstores? I don't think so. Somehow it looks more reasonable that their own good and business success are the first priority when pricing is at stake.

Just take a look at the statement John Sargent, Macmillan USA's CEO, has issued on the Amazon deletion of an appreciable fraction of all of English literature from its store. He writes the following:

In the ink-on-paper world we sell books to retailers far and wide on a business model that provides a level playing field, and allows all retailers the possibility of selling books profitably. Looking to the future and to a growing digital business, we need to establish the same sort of business model, one that encourages new devices and new stores. One that encourages healthy competition. One that is stable and rational. It also needs to insure that intellectual property can be widely available digitally at a price that is both fair to the consumer and allows those who create it and publish it to be fairly compensated.

As you can see,there's no word there about the current bookstores and their survival in the digital age. It's true that higher prices can help smaller retailers, but I still don't think that's what's on the publishers mind when they negotiate the pricing.

In all, we still have to remember that e-books represent only 3%-5% of the market and will take sometime before they'll have a significant market share. Nevertheless, the digital era is here and the publishing industry is changing. Business models are changing. And those who won't know how to adopt to these changes, whether they're bookstores or publishers, will find themselves eventually lagging behind.

And what about the green element? Well, I believe that going green will be part of the new business model for anyone involved in the book industry. As we mentioned here many before, many of the components that don't work well in the current model are also not eco-friendly (for example, the fact that 25% of the books that are printed are not sold and returned to the publisher by booksellers).

Many other components, such as using virgin paper that is responsible for the larger part of the books' footprint will make less and less sense from an economic point of view with the expected regulation that will put a price tag on carbon emissions and with the growing demand of readers for eco-friendly alternatives. The bottom line is that making your business more sustainable is equal in the book industry to making it more economically viable, no matter if it's a hardcover book or an e-book that you're publishing or selling.

Raz @ Eco-Libris

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