Quote:
Originally Posted by Sabardeyn
Amazon may have been willing to take a loss today as a means of gaining market share tomorrow. Last I heard 90% of all sales in the book selling industry were from 10% of consumers. Capture the early adopters and Amazon might have captured the lion's share of the ebook consumer market.
Also keep in mind that the issue here was only partially about profit. The other aspect was who was going to control pricing. Dune, by Frank Herbert, has a line I remember: "He who can destroy a thing, controls it." (I could be misquoting it, but that is how I remember it.) If retailers were allowed to set prices it would wrest control away from the publishers.
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It is about price control.
The fundamental point to recall about the contretemps between Simon & Schuster, Hachette, and Macmillan vs Amazon that resulted in the agency pricing model was protecting the
hardcover best seller. Those are the crown jewels of the industry. They sell for the highest prices, have the highest margins, and make the most profit.
Most books probably
don't make money. Publishing is a crap shoot. The publisher publishes X titles per year, and is essentially betting that some will sell well enough to cover the losses on the majority that don't, and make them enough money to
stay in business. This has been exacerbated in recent years by publishers being acquired by media conglomerates seeing synergies in having all forms of content under one roof.
Top management at any company are essentially custodians of Other People's Money. They have a fiduciary responsibility to their shareholders to preserve and grow the shareholder's investment. They must invest corporate funds where they will earn the highest rate of return. There are examples in every industry of companies selling off or folding divisions because they determined that they could make more money applying the resources somewhere else.
Publishing has been savaged by this, as book publishing operations have been under pressure from senior management of the corporations that own them to produce higher revenues and greater returns on investment. The problem is, book publishing
can't match the revenues and profits of things like feature films. Other forms of media simply make more money. As a consequence, we are seeing some of those "all forms of content under one roof" deals unraveling, as the conglomerates conclude book publishing can't make the return on investment they require. An example is Time Warner selling off Warner Books to Hachette, who relaunched it as Grand Central.
Amazon was releasing Kindle editions of hardcover best sellers simultaneously with the hardcover, at their default $9.99 price point. There are enough Kindles, and iPhones and PCs with the Kindle reader app, that publishers were losing hardcover sales to the ebook version. (If you want to read the book
now, have the capability to read the electronic version, and the ebook is priced between 1/2 and 2/3s of the hardcover price, which one do
you buy?) Publishers make a lot less on Kindle editions at $9.99 retail than on hardcovers at $25 - $30 retail, and the difference bit hard. Lower prices on ebooks didn't lead to enough additional volume to make up the difference.
"Agency pricing" essentially says "You want to issue the ebook simultaneously with the hardcover? Charge more and give us a higher percentage of the sale, to compensate for what we are losing on the loss of the hardcover sale!" Amazon could choose to not use the agency pricing model, and delay the release of the ebook till some time after the hardcover, the same way the mass market PB edition doesn't hit the stands till a year after the hardcover release, and for the same reasons. But Amazon is a retailer, and wants to make the sale. People who want the title badly enough to buy the hardcover instead of waiting a year for the PB will probably pay a higher than average price for the ebook.
Ultimately, publishing is in trouble. There are too many books chasing too few readers. Publishing has gone through waves of consolidation to get economies of scale, and imprints periodically go through wrenching adjustments as they drop books from contract and trim their lines, made more wrenching by the fact that nobody wants to be the first to do so, and when someone finally does, the rest rapidly follow suit.
I expect to see more consolidation and more attempts at cost cutting. I also expect to see tiered pricing on ebook titles, and some ebook editions being delayed till some time after hardcover release if the prices are kept down.
Unfortunately, there's a lack of realism in the market about how cheap an ebook
can be. Books incur a variety of costs before they ever reach the point of being printed and bound or released as an ebook file. Those costs will place a lower limit on how low an ebook
can be priced and make any money. An editor I know estimated that manufacturing, warehousing, and distribution comprise about
10% of the total budget for the average book. I think his estimate is low, but even if the actual percentage is double that, eliminating printing, binding, warehousing and distribution won't magically lower costs enough to hit the price points a lot of folks hope for.
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Dennis