Ebooks, Prices, Consumers, Choices. Again.

May 18th, 2009 · 28 Comments
by Kassia Krozser

Resolved: digital books will be a growing and important part of the reading mix of the future. Resolved: readers are not monolithic nor predictable and will expect digital books to be as flexible as they are. Resolved: digital versus print is not an either/or decision. Resolved: due to laws and insanity (not necessarily in that order), digital books are not the same as physical books.

Are we seeing that format is as much a choice of need as it is price?

Yesterday, Motoko Rich of the New York Times looked at the price of ebooks, a topic too big for a single article. She touched on reader concerns just enough to make us sound crazy, not enough to offer insight into our positions. She focused on reader reaction to the price of the Kindle edition of David Balcacci’s First Family — there is indeed a vocal contingent who protest Kindle books priced above $9.99 — without fully explaining the reader position.

Rich contends that publishers “..are caught between authors who want to be paid high advances and consumers who believe they should pay less for a digital edition, largely because the publishers save on printing and shipping costs”. Um, this is only partially the reason. Consumers are also fully aware of what they’re not getting when they go with a digital book: they are not “buying” anything, they aren’t getting the same rights that come with physical books.

(Mike Shatzkin dissects this whole issue from another perspective.)

Still, the publishing industry holds fast:

“The concept that because a book is an e-book it should automatically be priced significantly lower than a paper book is one we don’t agree with,” said Carolyn Reidy, chief executive of Simon & Schuster. “What a consumer is buying is the content, not necessarily the format.”

While Reidy’s statement has the look and feel of consumer-oriented policy, she is seemingly unaware that her words are undermined by her colleagues at Random House, who take a proud position on text-to-speech for the Kindle 2:

Do your ebooks have the text-to-speech feature disabled prior to purchase?

Yes, all of our eBooks have the text-to-speech feature disabled. Random House – Help

And, as noted, we’re not really buying the content, either. We’re buying a limited-use license. Consider the fact that Amazon says reading a Kindle edition on any other device is a violation of terms of service (after weeks of wending his way through Amazon reps, Kirk Biglione received confirmation of this from Amazon). Epublishers Weekly adds to this thought with “10 Reasons Why Ebooks Should Be Priced Lower than Paper Books”.

(Note: consumers are far more savvy than publishers are giving them credit for being. I cannot state this enough.)

As long as the publishing industry continues to make inane arguments — content, not format except when we want to control the format and how you read and how you share and device lock-in and, hey, you might lose your books! — consumers are going to vent their anger. If you’ve ever worked in customer service, you know one truth: an unhappy customer talks about the experience with far more people than a happy customer.

The publishing industry as a whole has done a lousy (lousy!) job of explaining its pricing strategy or concerns. I’ve never really price shopped for books before, but now I think about what I’m paying and why. On Wednesday, I purchased the Kindle edition of Mark Helprin’s Freddy and Fredericka, a 2006 book priced at $9.99 — an impulse purchased based on the recommendation of a friend who loved the audiobook so much she also bought a physical book. Had I chosen the paper version, a cool $10.20, I could sell it to a used bookstore when I’m finished; I could loan it to a friend or family member, or, heck, I could donate it to the Salvation Army. Is this pricing only because no mass market edition exists? Or is it because Penguin hasn’t thought much about this issue at all?

Over the past several days, I’ve been privy to a conversation between readers about book purchases. It started simple enough with “hey has anybody heard anything about new book from X author?” but quickly shifted to a discussion about how angry it made them that the first few books in the series were released in mass market paperback, only to have the final book published in hardcover.

Further discussion revealed that many of this author’s hardcore, long-time fans had said goodbye to the series, at least until it’s rereleased in paperback. Given their overall book budgets and the economy in general, hardcover is not a good purchasing decision. Others noted that physical difficulties (size, weight) have them choosing paperback; there were some voices who noted the exact opposite — hardback books were easier to use. Many readers chose the library over making a purchase. We learned that inter-library loan can be a pricey service for libraries.

Are we seeing that format is as much a choice of need as it is price?

(These readers don’t, by the way, blame the author. They see this as the publishing industry jerking them around. Trust? She’s not living here anymore.)

Rich’s article, rather disingenuously, reveals the truth behind ebook pricing. If you’re a publishing professional, particularly an author, surely you cringed at this, the second emphasis of authorial greed, with a twist:

The doomsday scenario for publishing is that the e-book versions cannibalize higher-price print sales. Publishing houses, already suffering from the recession, could be forced to cut author advances or lay off more editors.

One or the other, huh? If we, the consumers, hold our ground and refuse to pay premium prices for something less, then editors will lose their jobs! We will contribute to the overall decline of the economy. It will be our fault.

Color me amused at this bald reality. Publishers are unable to figure out how to realign their business to meet changing consumer behaviors, so they stick with old school models rather. It’s so much easier than facing the realities of the marketplace (cough, realistic advances, cough). Amazon stated that Kindle sales make up 35% of purchases where a book is available in both Kindle and print formats. Michael Cader of Publishers Marketplace did the fieldwork and found this number to fairly accurate.

Right now, Amazon is subsidizing the price of a Kindle book (David Rothman also has thoughts on this topic). It’s in their best interest to do so — owning the customer will reap long-term benefits. This won’t happen forever. Publishers Weekly, jumping on the bald reality bandwagon, notes this and adds a “duh” to the mix:

That Amazon is currently treating the bulk of Kindle editions as loss leaders—items it either breaks even on or loses on to build market share in e-book sales and to fuel the growth of the Kindle—is one of the worrisome aspects of the current system. The concern among publishers is that, at some point, when Amazon sells both the bulk of the digital reading devices and the bulk of digital books, it will refuse to pay the same discount on Kindle editions, forcing publishers to a lower price for digital editions. This scenario, the head of one of the major houses said, poses a major problem. “Right now the entire economic model for book publishing, shaky as it is, is in jeopardy from this low pricing,” he said. In this publisher’s view, lower digital prices will put pressure on publishers to increase royalty rates despite the fact that “there are no margins to do so.” Another option would be for publishers to drastically lower advances, something that would enrage authors and agents, who aren’t happy with the current split of e-book sales.

Other devices, from the fabeled Apple Tablet to the mythical Barnes & Noble device to Rupert Murdoch’s in-house creation to the sea of cheaper ereaders, are only going to increase consumption of digital books. Very few of us see a scenario where consumers will see a price point of over $10 for an ebook — unless that ebook comes with bells, whistles, and something far beyond what we’re getting now — as reasonable. There will be collective pressure to lower prices. In some ways, Amazon’s creation of the $9.99 mentality is a good thing; I can’t believe I just typed that.

Those of us who understand how publishing works also understand how hard it is to think about selling ebooks at a lower price point. Those of us who buy a lot of books understand that higher prices lead to fewer overall purchases. Those of us who have seen this battle play out in different entertainment spheres know that protecting old business models can have unintended consequences (read: piracy).

Right now is the time. Carolyn Reidy, if you really believe you’re selling content over format, then prove it. Other publishers, if you really want to expand this new market, then listen to your customers. Be good to me and I’ll be good to you. My goodness comes in the form of lots and lots of purchases with lots and lots of talking about your books.

File Under: Square Pegs

28 responses so far ↓

  • Pete // May 18, 2009 at 12:33 pm

    What a ridiculously self-serving comment this is: “What a consumer is buying is the content, not necessarily the format.” If that’s the case, why do hardcovers cost $25 and up, while paperbacks cost as little as $10? Why the price disparity? It’s all the same content, right? If so, then why don’t the two formats cost the same?

  • Kassia Krozser // May 18, 2009 at 2:33 pm

    Ps-away from computer, but was informed if good–Carolyn Reidy is Simon. Will fix when I return.

  • BonnieBelle // May 18, 2009 at 3:01 pm

    Agreed, Pete. The format is absolutely the selling point, there. Hardback is more impressive than paperback to have on a shelf and they charge accordingly.

    Kassia articulates one of my sticking points well. I can’t loan my ebooks to anyone, I can’t get money back, if my laptop or reader breaks, sometimes that book I paid for will just be gone.

  • Jenny Ruhl // May 18, 2009 at 3:02 pm

    When I pioneered selling e-book versions of my Technion Books publications in the late 1990s I offered expensive e-books but gave the buyer a coupon worth the price of the e-book against the purchase of the full priced printed book when purchased directly from the publisher. This meant the purchaser of the e-book could by my bestselling $40 trade paper book for $10 if they’d paid $30 for the download.

    I sold a lot of downloads because the book contained information readers needed NOW. I sold a much smaller number of print books via the coupon offer, but the offer made my readers feel they were getting a deal, and enough downloaders did buy the print book to make me feel the offer was worth while.

    Since Amazon wants small presses like me to pay them 60%+ of the download price, that kind of deal is impossible. But with a deal like scribd is now offering, it could be worked out.

  • chrisbates // May 18, 2009 at 3:14 pm

    I’m not entirely convinced the price disparity is founded in content. I think ‘market demand’ would be truer.

    Personally, hardcover books aren’t my first preference. However, I will pay the premium if I really want the book. Simple consumer economics dictates that if I want a product bad enough, I’ll fork out the required cash. Favourite author, new release, hardcover, 25 bucks … done deal. Unfortunately here in Australia a new hardcover is $49.99!

    Of course, if I can wait a few months I will be rewarded with a lower price point, either with a hardcover discount or cheaper paperback edition.

    It’s a shame that the publishing industry players are being far too disingenuous on this ebook pricing issue. Someone should have some balls to be up front and honest.

    How about: “XYZ Publishing is a business. We respect that readers want lower priced consumer products (ebooks, paperbacks) and we are aware that the retail price of hardcover books ensure they remain a luxury to most consumers. Sure, it only costs us half a buck per unit extra to print the hardcover edition over a paperback but the high profit margin after retail sale enables us to recoup our initial investment and hopefully amass some profit. We would love to sell you our books in any format – hardcover, paperback, audio, ebook – but the paperback and ebook formats erode our profit margins too quickly.
    If you are interested in a new title right now please support our business, and in turn your favourite author, by purchasing the hardcover edition. Failing that, feel free to wait a few months when the ebook and paperback edition become available at a lower price.

    Now, as a reader I want cheap paperbacks. If I had a Kindle/Sony (AUD$500) I’d prefer cheap ebooks. And yet I get the ‘business’ side to publishing – which is what most of us consumers are neglecting. Just because I own a DVD player doesn’t mean I’m going to lobby the film studios to sacrifice their box office take because I want synchronized DVD and cinema release. I understand that I have to pay a premium for the new release cinema print … or I can wait for other format availability.

    That said, I have two toddlers – a cinema viewing is an unrealized fantasy … so a synchronized DVD release would garner the studio a lost sale simply because lots of consumers end up with a low-res pirate copy a few days after cinema release.

  • stacy // May 18, 2009 at 8:39 pm

    I don’t think that publishers *are* being disingenuous. When Amazon is using books as “loss leaders” yet still taking 55-65, sometimes 70% of the pie, you can bet there’s little left over for the publisher to dole out among designers, editors, and authors, among all the people necessary for the production of books. Yes, advances really do need to be reined in at some houses–but even at houses that have been better at managing their money, when Amazon demands you give them a good 2/3rds of the cover price, you can bet publishers are feeling the squeeze.

    As an editor who has been recently laid off, I can tell you that there have been about three job openings at my level of experience in children’s books since I was laid off last August. Yes, publishing needs to adapt. But don’t make Amazon out to be the hero in all of this.

  • Kassia Krozser // May 18, 2009 at 9:21 pm

    Stacy — I’m sorry to hear you were laid off. I assure that I don’t consider Amazon to be a hero; in fact, I am generally pretty tough on them. My understanding, for books considered to be current hardcover releases, Amazon takes their traditional aggressive discount. However, even at that level, there is a discrepancy between what Amazon receives from the customer and what they pay the publisher, based on the negotiated (but aggressive) discount. Right now, Amazon has the will to subsidize this difference, but, speaking on the side of conventional wisdom, this will not last forever, and publishers are going to be forced to make tough choices.

    A question I posed last week was “What are they going to do? Withhold their books from the Kindle store to make a point?” That might work for some houses, but it’s certainly not a desirable approach for most. If Amazon starts to play hardball on Kindle prices, it’s going to be tough going for a certain strata of books. This what I call the “getting what you ask for” problem — as with music and iTunes, Amazon gave publishers everything they wanted, but, as with the iTunes model for music, what publishers really wanted didn’t include ceding huge control to one retailer/one device. Now it’s a challenge of creating a business model that allows serious competition to develop.

    On the flip side — and I’m going to keep harping on this, probably forever — consumers are very clear about what they get when they buy ebooks. There’s a reason they aren’t buying into the publishing industry arguments about price, fixed costs, overhead, etc. Consumers *want* to pay money for ebooks (something the industry really needs to nurture as the alternative has already been witnessed), but they (we) are begging the industry to listen to what is being said on their side. Publishing has done an abysmal job of explaining its position, hoping to somehow “re-educate” customers into paying more for ebooks (thought courtesy of Richard Nash). This isn’t going to work because the people who want to give publishers money have a clear understanding of what they’re licensing (not buying), what the risks are, and, frankly, what pitfalls exist when you’re helping to build a new business model (I assure you that if I’d paid more than $10 for some of the crappily formatted books I’ve gotten from big name publishers [books with digital list prices in the twenty-five dollar range], I’d be more than the angry I was…and I wasn’t too happy then).

    I’m really sorry for the people who have lost jobs. Some of them are my friends. Amazon is not a warm fuzzy teddy bear (see: oh, posts from years past where I discussed how the industry was so busy worrying about Google that they let Amazon into the chicken coop). But if these big houses want to succeed in this market, they need to stop fantasizing about re-education and mythmaking about value of content. The value of content is in the eye of the consumer, and, honestly, I can go to small, independent houses and get the same level of quality with a better reading experience (no double spaced paragraphs or random font changes!). I have so many possibilities when it comes to buying books (and I buy a lot of books. I know the value of what I purchase and read.

    And so do other ebook consumers. This is the tough love part of the process.

  • chrisbates // May 18, 2009 at 9:25 pm

    I agree with you, Stacy.

    I think Amazon’s loss leader approach will inevitably force many publishers margins to breaking point if ebook pricing levels out at 9.99. Minus the 65% retail discount on that and we have a whole different ball game.

    I think publishers will have no option but to sell ebooks from ‘home’ if such major discounting remains on low retail price. It’s simply unsustainable on the current commercial publishing model.

    My ‘disingenuous’ remark is aimed at the print industry’s suggestion that ebooks are somehow worth more (sale price) than the PB edition. Why not say ‘our margins suck on the PB. The only way to get some cream is on the HC. Thus the ebook is eating our profit margin if it comes out in conjunction with the HC’.

    Yes, consumers may not understand all the finer points that make up book production, but they’re wondering how anyone can justify selling a hardcopy PB for less than a digital ebook. They can smell a rat.

    It’s a shame about your job, Stacy. Although I do think people such as yourself are going to be very valuable in the ‘new’ industry. You have skills that will be much needed when it comes to self-publishers. I’m paying a freelance ‘ex-bigname publisher’ editor to copy and structure edit my work. There will be more people like me entering into such transactions over the next few years.

    Hopefully people such as yourself can be found easy … it sure was an effort to find my editor. It shouldn’t be that way.

  • Joe Wikert // May 19, 2009 at 6:12 am

    While I agree that $9.99 is an important e-book price point today, I’m convinced there will be much more (upward) flexibility in the future. Here’s a blog post I wrote about it over the weekend: http://bit.ly/10oO95

  • kaigou // May 19, 2009 at 6:16 pm

    *dropping by real quick-like*

    This just occurred to me as I was pondering your post and several others. When I purchase software, it’s just like buying an ebook, really: I’m not buying a product so much as I am a license. When I think of an ebook as a license — not as a ‘book’ per se — then it shifts my attitude significantly. I no longer get cranky about, say, updates or upgrades, because I’ve been trained to accept, per the software world, that you buy it and eventually it’s obsolete, so you buy an upgraded copy (which is usually some discounted percentage as a nod to your original license).

    And that got me thinking about ebooks in that sense, too — that when I want a license for me, I pay X amount. But if I want, say, licenses for everyone in my family, then I pay X – 10% for a bulk purchase, perhaps. (Or some discount amount, usually.) There are similar setups with licenses when it comes to source code: I pay X for the use, but if I were to pay X + Y, I could get the source code and do whatever I want with it. What if, for ebooks, I paid $6 for a single-user license to read — and if I wanted to be able to *transfer* that license, make a copy to a second computer, let my SO read it on his/her computer, I could do so if I paid for a full-use license?

    Just figured I’d toss that out there before I sink back into the mire that is Graduation Week — because if anyone I read on the web might turn it over and point out the good & bad to me, it’d be you.

  • Jesslyn // May 19, 2009 at 7:05 pm

    Great article! Especially in light of the fact that ebookers who use proprietary devices are in essence purchasing a long-term lease on a book. Hopefully as a Kindle user, I’ll have access to the books as long as I keep my Kindle, but what if Amazon goes out of business? Okay, its hard to visualize now, but what if they get out of the Kindle business? Ebook Readers are becoming a dime a dozen and if in a few years the format becomes standardized on some yet to be realized format, my DRM’d .azw books are going to be pretty useless.
    Any industry in business today needs to be able to adjust more quickly to how technology and the consumer mix and the changes and requirements of consumer needs. Lest they forget, they should take a look at the newspaper industry.

  • Joseph // May 20, 2009 at 10:07 am

    The format argument is a blatant lie. A person who buys a hardcover for $25 is not getting three times as much content as a person who buys the paperback for $8.

    And the built-in dangers of the Kindle device require the user (we used to be “readers” as I recall) to take enormous risks. A paperback does not require a $400 device to read, it does not need recharging, it cannot have features disabled remotely by Amazon, nor can it vanish into the ether via technical malfunction. It is a vastly inferior format with a vastly inferior business model built around it.

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  • Anysia (Booklorn on Twitter) // May 20, 2009 at 11:42 am

    Hang on a second:

    “Consider the fact that Amazon says reading a Kindle edition on any other device is a violation of terms of service (after weeks of wending his way through Amazon reps, Kirk Biglione received confirmation of this from Amazon).”

    Sooo, reading a Kindle edition on an iPhone (for which there is a Kindle reader) is a violation of Amazon TOS?

  • Kassia Krozser // May 20, 2009 at 11:54 am

    I think he pushed them on that point, but didn’t get a response (just getting any sort of answer took many long days of effort), but would hazard a guess: as long as you’re confined to their application, they allow it. It’s an interesting form of DRM they have going, even when you buy non-DRM’d books.

  • Anonymous // May 20, 2009 at 1:57 pm

    I think the real question that needs to be asked is, why does Amazon feel like they are entitled to take 60%+ of the publishing/book content/whatever pie? I think that’s what consumers, publishers and authors need to be bitching about, and why we’re letting them get away with it. Amazon is getting a bigger profit than the publishers and authors because they’re distributing the goods?!? What kind of crap is that? Why isn’t anybody talking about that?

  • Blogging Fixations – Amazon, eBooks and the Future of Publishing « Tour’s Books Blog // May 20, 2009 at 2:34 pm

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  • Peter Murray // May 20, 2009 at 11:19 pm

    While publishers are all scrambling to work out how they will survive, I have developed a new product that will keep everyone employed and the industry on a level playing-field. I am approaching the problem from a publishers point of view (I have been in the industry for over 30 years), the consumer, the author, the editors and everyone associated with our beautiful industry. I am also considering the environment. My new GREEN BOOK will be launched in October saving 500 million trees from being cut down each year, selling at bookstores at a slightly higer price than normal, but it is an ereader, packaged as a book and it will keep all book lovers happy – including me!

  • Biblibio // May 21, 2009 at 10:46 am

    “What a consumer is buying is the content, not necessarily the format.” Oh really? Well then, in that case, I’d like the paperback format in addition to my hardcover. And the Kindle version as well, please. If I buy the content in one form, shouldn’t I get it in another form as well?

    Ignoring my over-analyses of stupid statements, this is a very interesting roundup and really made me think of a lot of points. For instance, I hadn’t encountered the idea that publishers will need to fire editors or lower author advances. That one really seems like a no-brainer to me. In general, this post and many others on the matter (including my own poor attempts at understanding the issues) only support the idea that the publishing industry may need a complete redo. Until then, I guess there will continue to be these battles between the publishers, the consumers, and the guys in between – the book-sellers (Amazon, in this case). How exhausting.

  • Nazlah // May 25, 2009 at 6:13 am

    some thoughts on e book pricing….


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  • Mari // Sep 22, 2009 at 10:40 pm

    What is not commented on here is the fact that publishers like Macmillan are asking ebook readers to pay $14.99 retail for a paperback that costs $7.99. It’s appalling. Are we consumers really buying these ebooks at almost double? I hope not. We should be boycotting and send mass emails to publishers like Macmillan. I got my reader because I read a lot and it’s incredibly convenient for me. Now, I’m being punished for not killing trees and wanting to carry 20 books around with me wherever I go. Since I’ve purchased my reader (2 years ago) I actually buy more books then I used to and now the insult that they expect me to pay almost double.

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  • Kendra // Mar 21, 2010 at 6:21 pm

    I got my first ebook reader, a Franklin, in 1999. I bought several books at only a few dollars each. A couple of years later, I upgraded to a higher Franklin product and found that I could not read the books I had purchased for the earlier version on the newer version. They were both Franklin eBookmans, but I had to repurchase my ebooks to read them on the new device. Soon after, Franklin discontinued the product. When I upgraded to a Pocket PC, I lost access to all of the books I had purchased for the eBookman. I have now been using Mobipocket for several years now. Last year, I lost several ebooks because the publisher pulled the books from the ebook market and I didn’t read the email in time to save the books to my computer. Now, I save all my books to my computer, and when I have enough, I transfer them to CD. My point being, is that I have spent a lot of money over the years for ebooks that I can’t access now. When I went to purchase a book that was recently published, I was shocked that the ebook price was $25. That is way too much money to pay for a “limited license” to digital content. I am perfectly willing to wait for the ebook to come out at the same time as the paperback instead of when the book is first published. However, I am unwilling to pay 1st edition prices for a book that I may not have access to in a year. A thought that has occured to me, if publishers believe that ebooks are cutting into their profit margins, is it possible that they believe that if they price the ebooks high enough, ebook readers will be forced to buy “real” books instead. I agree with the points raised in this article and believe that publishers need to move with the times or end up like the newspapers, outmoded, outdated and out of business.

  • R Davis // Mar 1, 2011 at 7:49 pm

    Every discussion I have seen on this topic totally ignores an important factor. I buy a TON of older books in second hand stores and yard sales, and almost never buy books in a bookstore, but would be interested in having them on a reader, and so revenue that was formerly going elsewhere would be going to the people who actually produced the books. Keep charging new book prices for books I bought a decade ago for a quarter? No way. 1/2 price & I’d consider it to get books on a reader. & many of the ‘benefits’ of the reader don’t apply to folks like me…saving trees…nope, somebody else already bought the book…convenience? Sure, if I’m not on a boat, at the beach, camping, or by the pool. I know a lot of people who buy books as I do. So do ya want our money, or should we keep giving it to others?
    Oh, as a side note, my mother buys a huge # of new books, & I have noticed the quality of the printing, design, cover art, and binding has been awful in the last 10 years. I still have books from my childhood in perfect condition, while books she got last month can’t survive 1 or 2 readings. Score 1 for the ebook.