The E-Book Experiment: Pricing

* If it’s not a price the customer is willing to pay, they will compromise and go with another product that they are willing to pay.

Look at Wal-Mart. They are taking over retail by using to their advantage the truth that smaller profit but bigger sell-through equals more profit.

And they do it extremely well.

Okay, we’re in a recession (no matter what the dunderheads in the media say on a particular day of the week to make themselves feel better). That means more people are counting their pennies. So, to attract and keep customers, you better be watching the price point and make it worth their while to spend what little money they have on you.

But what has been happening in the publishing industry?

The big NY publishers have decided that the current price of e-books is too low. That is it devaluing the books. That they aren’t making any money (for fun, compare the New Yorker calculations on how much profit per hardback they make, and then the one at Bnet.

I do understand why the publishing companies are worried. If Amazon (or anyone else) were able to become dominant, then they would have the clout to control the price they were willing to buy product wholesale, and the publishing companies would be in a tight spot. Brick and mortar booksellers are dying off in droves. The places to sell are becoming fewer and fewer.

However…

The same Bowkers report mentioned in a previous post also mentions that the average price for a book continues to rise. This is for dead-tree books, not e-books.

But, let’s talk about e-books. After Amazon showed that there was a market out there for e-books, the publishers finally took notice and became concerned about the perceived loss of value for their books priced at $9.99. It didn’t matter that Amazon was paying them the full wholesale price and eating the loss themselves.

So, the publishers, with the release of the iPad, demanded full price control. This resulted in what is called the “Agency Model“. The booksellers are no longer in control of their businesses, they are merely the deliverer of content. The publishers are now the retailers.

What was their first priority? Get most of the books within the $12.99 to $14.99 price range. Along with the price increases, some publishers are ‘windowing’ e-books by as much as 2 years. The Big Publishing companies promised they would pay attention to the pricing of the e-books and adjust them as needed. Do you believe them? I don’t, not after finding so many instances of the e-book version costing more than even the mass-produced paperbacks.

Readers are revolting against the Agency Model that is increasing the prices of e-books and not allowing them to buy the books they want by leaving onestar reviews. There are now indications publishers realize that this is bad business and some titles are now falling below the $10 amount (oh, and making less than if they had just let Amazon and Kobo do what they do best: sell books).

Oh, and let’s cripple what your honest paying readers can do with the book, too. DRM anyone?

Ugh, no thanks.

DRM, or Digital Rights Management, and the other restrictions (such as the inability to re-sell a used book, easily share, no printing, warehousing, shipping or returns) on e-books is one of the reasons consumers feel a perceived loss in value. All of this adds up to a lot of people who do not think they should be paying more for an e-book than for a mass-produced paperback.

Oh yeah, that’s knowing your market and giving them what they want in exchange for their dollars.

The excuse for the price is that the publishers don’t want e-books to bite into the purchases of hardcover, which is where they make the most money.

There is a faulty presumption there.

That the e-book buyers would EVER buy a hardcover. Again, we have a problem with market research, as there are a lot of indications that this is not necessarily a broad truth.

Which means, the publishing industry is losing sales they may never get back again by neglecting and putting off the e-book versions. Where did I come up with that? Kobo has found through its research that if an e-book is delayed 90 days past the print version, that it has permanently lost 40% of its e-book earning power. For the rest of its existence!

It doesn’t get it back! These are not sales that translate into more hardcover or paperback sales. These are sales that disappear forever.

Book sellers are in the business of selling to the general public. They study data on how to do that in the most profitable fashion. In the same Kobo talk there were several slides showing the price points that sold the best. Yes, some books sold at a higher price point, but not as well. So, those books were making more per book, but making less per title total.

Isn’t the over-all total profit the most important?

Now, if the publisher really does know best about price, why didn’t they do this kind of research and started making changes to fix this financial problem? Answer: they didn’t do the research.

Now, e-books are a small part of the market at the moment from the point of view of the major publishers. But there is one big statistic they should be paying attention to. While the dead-tree book market has shrunk 1.8 to 5% (depending on what source you look at), the e-book market has increased 176%.

And the e-book market is continues to grow.

In January alone, the Association of American Publishers (AAP) reported hardcover sales dropped 8.1%. Meanwhile, the cheaper paperbacks increased .8% while e-book sales increased a whopping 261.2%.

Did you see that last statistic? In the month of January 2010 alone?

A market is growing at a phenomenal rate, a market ready and willing to buy. The market shows no signs of decreasing or leveling off. Instead, the percentage of increase keeps getting bigger.

And the publishers are trying to inhibit it with a lack of availability, convenience, quality and high prices? Do they really think this is going to work?

I would say ticking off your readers, the source of your income, is not a wise thing. It pushes people into doing things you really don’t want them to do, such as pirating.

So, how about cost-cutting, such as moving out of New York where the office prices are so high? Or streamlining the process? How about not paying ridiculous amounts of money for Celebrity contracts?

As J.A. Konrath said: “Write a good book. Make a good cover. Use a good description. Then sell it for cheap and make the money in volume.”

And what does this mean for authors?

It means that they have to be diligent and willing to learn. They need to pay attention to what their publisher is doing before signing up with them. Pay attention to what rights they are demanding and put a proper value on them (especially for e-rights). An author needs to decide which way makes the most financial sense, all while keeping as much control for the success of their book as possible.

From the above, when it comes to the fastest increasing market the Big Publishers are a Big Fail. And what they do reflects badly on their authors because a vast majority of readers do not understand how little power the authors have in their creations by going the ‘traditional’ publishing route.

How does this affect me?

I want to share my writing WHILE making a living.

I need to connect with readers and make it worth their while to spend money on my writing. To have a successful career, and business, they need to feel the writing is a good value and be willing to come back for more product (books) time and time again. That means a reasonable price that will boost the title over-all profit even if the per unit might make a little less.

And the Big Publishers are not looking like the way to go. So far, they just don’t get it. This is my career. I don’t want them to ruin my career while they figure this out, if they ever do. That wouldn’t be a good business decision.

And this is a business.

So, where does that leave me? Thinking outside the ‘traditional’ box, that’s where.

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“The E-Book Experiment” chronicles the business and creative side of an experiment with the business opportunities new technology and creative outlets now afford content producers. Will it fail? Will it succeed? The only way to know is to approach it with a solid plan and try. No regrets!

I hope the details of this journey will be a help to other authors. As the process proceeds to selling the final products I will also share hard data that might be useful in the decision making process of other authors who recognize that only they can take charge of their careers. For a listing of all the posts in this series, please click here.

If you find this information useful or interesting, please encourage others to come on by and visit.

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3 thoughts on “The E-Book Experiment: Pricing”

  1. Sounds like the traditional publishers don’t understand the long tail. EBooks cost pennies to keep in stock forever. It can be a very long tail indeed. However, long tails that start out fat stay fatter, and the fattest part of the tail is the beginning.

    They also need to keep up the quality. I’m willing to pay a bit more up front if I know it will be a good read. When I buy a book, I expect it to be true to the author and the imprint. If I’m willing to settle for junk, I can get that for free.

    • I agree that if we wanted junk, we can get it for free. There are plenty of original works archives (like fanfic archives. Um, in fact, FF.net has a site for original works only) and individual websites to get that sort of thing for free.

      Some of the big publishers are starting to understand the Long Tail in ebooks now. You can see it in the rights grabs and some of the contract language coming across. If a writer isn’t careful of the working, they could sign away their e-rights for 10+ years, possibly their entire life.

  2. Pingback: The E-Book Experiment: Product Availability | JA Marlow

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