Agreed. (Though still not agreeing on the net receipts versus royalty on retail price. Electronics is a subsidiary rights market, so if licensed, it tends to be 50% for the author of a royalty on net receipts, with the publisher getting the other half as licensing money, and if the publisher hires a company to make the e-book instead of licensing the rights, it’s likely to be a 5-10% royalty for the author on net receipts. This is what is done on audio books as well. )

And they are experimenting. Penguin with its thing at the convention, Harper, so on. Random House/BDD is slower, but that house is under a worse financial situation and laying off people left and right while consolidating their imprints. The e-market could be much larger for publishers than 3% if they worked at it, but cash, know-how, stability, coordination, etc. — all are lacking right now in the major trade houses. They are losing sales because of it, but it isn’t easily corrected by just saying the publishers should do better. They aren’t capable of doing that much better yet.

Whereas romance publishers who have popped up selling both digital and print offerings have been developing the market much more swiftly. (There are a lot of rumors that many of them are shafting their authors, so that may be an issue for how successful they’ll be.) Remember, paperback and hardcover used to be two different industries and the paperback market was much larger, including comics and magazines as well. So yeah, mass market companies making an effort into e-books are probably going to do better.

What will also be interesting to see is what companies like book packagers, multi-medium publishers, and POD companies do with the market. They may be the ones who come up with the most useful business models. Which is why I suggested that a better make-up for that panel would have been someone from Alloy Entertainment, someone from a firm like McSweeney’s, etc., because these people have been much more proficient at using the Web and building product in multiple formats. (Although again, Alloy has been under suspicion of not so kosher behavior.)

Another probable price dropper — publishers will probably more and more want to license the sub rights to e-publishers and it will be e-publishers who set the prices for e-books.

Consumers will eventually get what they want, but again, it’s not going to be fast. That means publishers lose sales and opportunities, and they need to start taking it more seriously. But book publishing is reactive, not innovative, and again, change is not going to be overnight. They’ll wait and see and make sure it’s safe before they do sensible things, some of them. Not that this is not frustrating.

I do think that while Amazon priced the Kindle way too high and while publishers really need to start bundling print and e-book packages together to expand the market, that the Kindle has overall helped. It’s helped the average consumer feel that an e-reader would not be that strange a thing for them to have. Which is the first step into having such devices become ubiquitous, which will also lower prices.

(At Editorial AssThere was an excellent response to the New York Times article on advances; Moonrat sums up my thoughts on the issue quite nicely.)

However, this still misses the point. Even if other vendors move into ebook sales (and other devices force down the price of the Kindle, which will happen), the acquisition, editing, marketing will still largely fall on the publishers. New entrants into the retail space won’t lower house costs. Business as usual needs to be rethought (and the publishers who are rethinking are leading the way). As you note, retail space for print books is down. Hardcover sales are seeing a decline (is this just a reflection of the current economic condition or a genuine trend?). Attention from readers is increasingly fragmented. They read and write more, but books are only part of that mix.

Amazon is, for better or worse (and I think better for consumers, worse for publishers) squeezing prices for print and digital books lower. Big retailers compete in the physical world thanks to co-op, which is just another way of increasing discounts; small retailers simply cannot compete on that level, but it’s interesting to watch as they are trying to figure out how to change to compete. I think there’s a good chance they will figure it out. All of these pressures exist for publishers and they’re not going to catch a break.

So for these hardcover deals where sales are declining, how can publishers recoup some of the loss? Not just the loss from unrecouped advances (an institutional hazard) but the loss from sales that simply aren’t happening? In a perfect world, digital sales would fill in the gap, but that’s not going to happen, especially at the prices being demanded. Amazon is a single digital retailer, albeit one who has subsidized prices in order to achieve the even more desirable consumer lock-in (people who pay $350 for a device are going to get their money’s worth, generally). Other retailers do better on digital books that cost far less.

As noted in a recent NYT article, 50% of digital sales for Fictionwise are romance, generally a genre priced at mass market levels. We know that science fiction/fantasy does reasonably well in ebooks, again a genre that is often priced for the mass market. Those high-priced ebooks aren’t selling at the same levels.

So again, looking at filling the gap. If the current pricing structure continues, there will be a reasonable number of digital sales at Amazon, especially if a book currently in hardcover is sold electronically for $9.99. If the price is higher for the ebook, consumers will either wait (increasing the chances of them forgetting about the book) or buy something else. If the price is competitive with market expectations — again, readers know what they’re buying here, and I think it’s really important to keep emphasizing this; they get the difference) — then some of those future mass market customers might buy the book at the higher price.

Knowing the expenses, knowing that publishers have a workflow that includes creating the digital edition last (a process which is changing and I think will be better for print as well), knowing that fixed costs and overhead exist regardless of price point, knowing that hardcover sales are down, and knowing that there is a growing market for ebooks — knowing all of these things, it doesn’t change the core issue: if customers won’t pay hardcover prices for digital books, then it’s not the customer who loses.

Author royalties are not publishers’ big problem. Large advances against royalties can be a problem because if the author doesn’t earn back the advance from his share, the publisher still has to pay it and takes a loss. But 75% of the advances aren’t large ones, and if there’s a loss on those, it doesn’t necessarily stop them from making money on a book. Publishers’ bigger costs on print books are print and paper expenses, production, shipping, returns shipping, co-opt advertising and such, which have to be paid whether a book sells or not.

A hardcover costs more to make and ship, so the author gets higher royalties. A trade paper has royalties between hardcover and mass market because it is in between on cost to make and ship. (But the royalties are based on invoice price, not retail, which is retail price minus certain freight costs.) For heavily discounted sales to vendors, for sales like clients like Amazon, publishers often pay authors a reduced royalty or a royalty on net monies received, not per unit invoice price. And I can guarantee you on nearly every e-book sale, authors are getting a royalty based on net receipts, not retail price, even if the author made the deal directly with an electronic publisher/retailer. So that’s not the problem. Print books are suffering much more from a lack of vendors and wholesale market and from returns, plus now the slump in sales.

The problem is that e-books are expensive for publishers to make (convert and code essentially) because most can’t really do it themselves, nor will be able to in the future. And while e-books don’t have to be shipped, they do have to be stored. So if the e-book manufacturers, which includes Amazon itself, are not being accomodating on the costs, then the e-book market isn’t large enough for the publisher to reduce the price in hopes of making it up on volume, and publishers can’t afford that loss, even temporarily, like Amazon can. Publishers can handle large price discounts for retailers, especially if they don’t have to deal with returns, but production costs sink them.

Again, Random House is never going to be Sony. Or to put it differently, when it comes to e-books, Sony is like Random House and Random House is like a small press in New England, so you can imagine what a small press in New England is going through. It won’t be the publishers who build the e-book market; it will be the electronics industry, with e-books being just a tiny part of the much wider electronic media industry, supplying people with newspapers, magazines, webfeeds, games, reference databases, GPS, etc. The electronics companies build the e-readers, and e-readers may just be a transitional stage for multi-device tools that access every possible download, make a great floor wax and can be served as a jam.

Publishers will then just contract to sell e-titles. Right now, they don’t want the e-market to undercut book sales, which is short-sighted, and they’re not sure how the market will develop. They’re waiting to see what Verizon will do, if Amazon stays top dog, etc. When we have more devices and more of the download market worked out, then prices of e-books should drop. So if the electronics companies jump in, you’ll have what you want. But those companies — they expect a much higher return on products than publishers do.

Publishers are going to have to change. But they’ll do it slow and conservatively. And the bestseller mentality you worry about — that’s been going on for some time, but they are also such a turtle industry that they do keep putting out the small books, just some less when times get tight. In order for publishers to survive, they have to have as wide a range of books as possible, and can make use of niches. The tiny sales that publishers get on some books and are happy with would completely blow the minds of those in electronics.

This is a big adjustment to more than one industry, it’s not going to happen overnight. But I expect book publishing to limp along while it’s happening. I am curious to see if publishers use the e-book market, the development of e-readers by the electronics industry and the economic depression to finally browbeat the booksellers into modifying and somewhat dropping the returns system.

I do not believe these retailers (should they all survive) will return to the traditional relationship. Consumers like lower prices for books, and, whether or not it’s the right thing to do (and I can argue both sides), there is a certain price expectation for a large number of book consumers. Still talking physical market. So how do publishers compensate? One way, the way hated by authors, is to change how royalties are calculated. To me, that’s a good first step, but it’s not going to address historical contracts, and it’s going to get a lot of pushback. Authors like the current structure because the royalty on hardcover — and that’s the issue — is higher than on mass market or, I think, trade (not sure about trade). I can’t blame them, even as I see how the marketplace has changed.

On the digital book side, there is a lot of going with traditional pricing/reporting models. Okay, that puts certain demands on digital books — again, not the same thing as print books, at least not with the technology and laws we have — that require a certain return. The $9.99 price point is untenable for publishers if they are paying royalties on a $26.99 list price. Amazon is currently subsidizing this difference, and while there is evidence (price creep) that this practice is fading, there is also a strong sentiment on the part of consumers for a certain price for a certain type of book. The best analogy is mass market paperback: nobody would consider paying close to thirty dollars for that edition. When publishers model ultimates for books, they factor in sales at various price points (provided they acquire them all in a single house). How many units must be sold to recoup expenses, including the advance. Where is breakeven? Where is profitablity?

(At this point in time, I would argue that the 1% digital sales weren’t factored into those projections, though it’s fair to say that some of those sales represent lost hardcover — and that’s what we’re really talking about — sales while some represent customers who would have waited to purchase the even-cheaper paperback.)

There is pressure on the consumer side (see: not the same thing as physical, though there is clear tolerance for paying higher-than-mass market-prices). There is pressure from Amazon who wants the Kindle to succeed, yet is more willing to subsidize the difference between the publisher discount and $9.99 price point than to discount the device (I am wondering if this is because the bulk of purchases fall under the ten dollar threshold, meaning lots more mass market-type purchases?). There is pressure from other retailers who also use low prices as a competitive edge (there are consumers who are very price conscious, especially in this economy, and they tend to buy the “bigger” books as they’re shopping at retailers who stock a limited number of titles). And there is pressure from existing contracts and business practices.

I don’t see an easy way for publishers to meet all these pressures on the physical book side, though I’m sure you can see areas where publishers can improve their position. But we are talking digital books. Right now, there is no digital retailer capable of competing with Amazon on price — as long as the price we’re talking about means the hardcover or sometimes trade price. I think the pressure from other retailers will increase. Once books move into other formats, the playing field among retailers levels. I’ve argued that the first step to success is treating digital books as a new market, creating a new financial model essentially. When a book is acquired by a publisher, the financial calculation should not necessarily (okay should not) be based upon recouping all costs at a single price point when there is market push toward, well, day-and-date physical and digital release. Rethink the model with different assumptions (1%, 2% digital, but base the revenue and payout on the reality of what you can reasonably expect to receive, not a list amount that will rarely be achieved).

This is a really long way of saying that retailers, who answer to consumers, aren’t likely to back off from their demands for deeper discounts. Raising prices would reduce sales (or so I imagine). I’m not sure we can pretend that books are a greater value for consumers than other entertainment media anymore. I’m also seeing a long, difficult transition for the print side (which, frankly, faces far more of a profitability squeeze than the digital side). Right now, digital is showing increased sales (some, again, at the cost of hardcover), and if there’s an opportunity to bring in new customers — either readers who now see digital as a way to get into books or readers who waited for cheaper editions (sometimes, ahem, forgetting about the book entirely due to lack of second wave marketing) — it’s worth rethinking the way business has always been done.

Otherwise, I worry (and yeah, I really worry about this stuff), we’ll see even more emphasis on those “big” sellers and less investment in the books that might not make money on volume.

I’m not sure, but am not disagreeing, that the comparison to games is apples to apples. Different media, different experience, different user options, including resale (to a degree, I’m sure).

Amazon used to lose tons and tons of money. It did so by pricing its books and products so cheap that it built up market share even though it wasn’t making a profit for years. Amazon was funded by venture capital and other income sources publishers don’t have (or for some aren’t given by their corporate parents.) You say that they are dropping profit to keep the prices down, but evidently they don’t want to drop profit that much and use the strategies that made them successful in the first place to establish a large market share in the emerging electronics market. Even if publishers drop their e-book prices — if the people who supply them with e-book versions will cooperate — if Amazon won’t drop their mark-up further and other retailers too, prices won’t drop that much. Amazon and the other companies are the ones selling the e-readers and the e-readers need to be cheaper. Why doesn’t Amazon drop the price of the Kindle significantly in order to make it even more appealing? It’s not the $10 a title I object to; it’s the several hundred dollars for a device that might break down in a month and be obsolete in a year. That’s why many e-book readers don’t want to be tied down to the Kindle.

You’re asking publishers to make all the sacrifices and blaming them for all the problems. And authors too, who are in even a worse money bind than publishers. You’re asking them to be efficient, strategic producers of a product they barely understand and which makes up only a tiny, unprofitable part of their market. The only way the situation is going to improve for e-book customers is if there are joint efforts between publishers, authors, Amazon, other e-reader manufacturers, e-book retailers and wholesalers, and e-book manufacturers. Which is going to take awhile and not just because of piracy concerns.

The good news is that while people are pushed toward the Kindle for the moment, that dominance is going to be short-lived if these other companies all pool into the market. Some of these companies will undoubtedly slash e-book prices to the bone and take the loss, because they have deep pockets and because it gets customers to buy their hardware e-reader and/or use their services. That’s what I expected Amazon to do with the Kindle and I’ve been very surprised that they haven’t done it.

I think people have a perfect right to boycott Amazon if they want to (man, these conversations always make me sound like I hate Amazon which is totally not the case,) but as long as people are paying $50 for computer games that only play on one game system, I think expecting e-books to sell for $3 and be usable everywhere, right now this instant, when the industry is just getting born — that’s unreasonable.

(And speaking of used books, I think it’s instructive to recognize that many readers patronize secondary markets, including markets that sell books at such low prices that they might as well be free, because they cannot afford (or find) books in traditional retail outlets; this are legal purchases, but might offer some insight into the motivation of customers who frequent pirate sites for books. Just a thought as I consider your comments.)

And the anger exists. It’s not my job to subsidize investments in technology made by publishers; it’s my job to buy books legally. Luckily for the publishing industry, I am really, really good at that. However, using your BMW example, I know a few things about my purchase of an electronic book: a) I cannot buy it used to reduce the price I pay; b) I cannot negotiate a price with the retailer; c) if I choose to pay full amount because I believe the price is equal to the value I get from the book, I do not have any rights to resell the book should I decide to invest in a new model. The dawn of the digital era has lead to some great advances for readers, but it’s also lead to a loss of rights and privileges.

This is not a brand-new market that emerged with the Kindle. I’ve been buying and reading ebooks for over ten years, and I’m not unique nor was I early-early to the game.

I would suggest that the digitization process started long before the Kindle was introduced. Publishers knew they had to make this move, and even at their (agreed!) glacial pace, they were making sure they were positioned for the future. I am happy and proud that they’ve made so many books available in a short period of time (and am even happier that the digitization of backlist is proceeding rapidly; while the per-title money may not be huge, there is long-tail value in older titles).

Finally — and thanks for letting me argue back! — I think the reason there isn’t demand for a lower price on the Kindle is that most readers don’t read digital books on the Kindle. In fact, I think many in the industry would be shocked at the mish-mosh of devices used for reading. I know I was, and I’m pretty clued into this business. The frustration from non-Kindle readers comes from the fact that while Amazon is able to use market clout and “subsidization” of prices to keep many books at the $9.99 price point, other retailers cannot do this. It actually pushes people toward the Kindle, when they can afford it, meaning it thwarts competition for devices and retailers. I’m not crazy about that. You think the Amazon customers are crazy angry? Go outside that ecosphere and listen to what customers are saying, doing, enduring.

Piracy is bad. If you love books, piracy is the worst thing you can do for them. As I said in reponse to Deb and Megan, publishers have done a lousy job of making the case for the prices they charge for ebooks. They’ve done a bad job of listening to the customer perspective. They’ve done a horrible job in ensuring that it is easy to read books that have been legally purchased. I think book customers, somewhat unlike music customers, are willing to give publishers as much benefit of the doubt and encouragement as possible. But we need to acknowledge issues now.

While I respect the technological frustrations – and feel etailers should immediately honor their commitment by providing a new digital file – I can’t buy into the pricing argument. I happen to really want the new BMW at the dealer’s down the street, but feel the price is too high. Does that validate the argument that BMW is then turning me into a car thief for not lowering their prices?!

Buying is a conscious choice no matter the purchase – show me any product and I’ll point out pricing that doesn’t seem to make sense. However, I have the right to buy what I can justify as a sound price or not buy that which I feel is exorbitant. But I don’t have the right to steal it as a result.

Choice is more important to me than price and that’s been improving in leaps and bounds. While I can agree that the response to the Kindle has challenged traditional print publishers, I also recognize that they have responded to demand by a large degree. Kindle launched a year and a half ago with just the Top 20 publishers onboard and 85,000 titles. It now claims 250,000 and most of publishing is onboard. I’m willing to give publishers the benefit of the doubt that in order to achieve such rapid results (in a glacierly-paced industry) there were costs involved – and an expectation of a return on investment. There’s no such thng as gravy in an industry that’s been stagnant for years and finally sees a 1% glimmer of recovery through digital sales.

When it comes down to it we’ve decided to be digital readers because it’s a fascinating merging of our love of reading and technology – and, let’s face it, we like being in on the ground floor of the future. The arbitrary expectation that we should be immediately rewarded for that – and that if we’re not we’re perfectly entitled to take what we want – doesn’t square with me.

Also, why isn’t anyone demanding that Amazon lower the price of the Kindle? $199 sounds good to me – and if I can’t get it at that price, I’ll steal one.

I have been wanting to complain — in writing — to St. Martins about their twice-the-print-book pricing since last year, but the only contact information I could find online was a general address, no contact. Now Simon & Schuster is charging 9.99 for books being released as 7.99 paperbacks.

I work for a big company and un-directed mail goes every where and no where — but seldom makes it to someone who can actually make a difference.

Fictionwise (and the other ebook sellers) say the pricing is controlled by the publishers. And even though Fictionwise often offers these badly priced books with good micropay dollars, I’ve decided to not buy them even then. SM and S&S don’t know I got it at a deal, they only know some other sucker paid their insulting prices.

So where can we find good contact information for those publishers?