Yet another thumb of the nose from publishers

[Fbone]

Originally Posted by DMcCunney

How? Price below cost and take a loss on every sale to build market share? There's a limit to how much any retailer can afford to do that and stay in business. And the dedicated book chains are under heavy pressure as it is, and many are showing losses. Lots of folks are placing bets on how long Borders will survive, for example. (And there were rumors Barnes and Noble might buy them that foundered on the question of where B&N would get the money. It would be a case of betting two sick companies would make a healthy one, which is not a bet lenders are enthusiastic about making.)
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Dennis

I don't know how but with thousands of business and marketing majors graduating each year there must be a way.

Bookstores are failing now. What do they have to lose by not trying something creative? Bold? Daring?

The booksellers in the UK cant compete with Amazon on hardcovers so all that's left are ebooks. They need a physical store, device or app with superior shopping and reading experiences. Without those what is left?

[DMcCunney]

Originally Posted by Fbone

I don't know how but with thousands of business and marketing majors graduating each year there must be a way.

What if there isn't? That's the unpalatable choice a lot of people are looking at.

Bookstores are failing now. What do they have to lose by not trying something creative? Bold? Daring?

That depends on what it costs them to do it. Most of them don't have a lot of spare cash to lose. I'm not sure any can afford to do the "Lose money on every ebook sale to gain market share" tactic. And even if they do, how long do they do it? What happens when they decide to raise prices? (Which they'll have to at some point.) One of the criticisms publishers leveled at Amazon was that they were accustoming the market to unrealistically low ebook prices. You can argue over the truth of that claim, but you'll still face a backlash if you get your customers accustomed to a lower price, then raise it dramatically. (And it would be a dramatic raise if you were pricing low enough to compete with Amazon, and simply wanted to stop losing money, let alone make any.)

The booksellers in the UK cant compete with Amazon on hardcovers so all that's left are ebooks. They need a physical store, device or app with superior shopping and reading experiences. Without those what is left?

I can't speak for the bookstores in the UK, but in the US, the majority of shelf space goes to paperbacks, and they generate the majority of sales. Not all books have a hardcover edition. Most are published only in paperback. I'm betting the same is true for the UK.

And ebooks are a problem for the brick and mortar retailers. Sony, for example, was talking in the early Sony Reader days about partnering with retailers, and having the reader sold in bookstores. (Barnes and Noble is doing that with the nook.) My question was "That's fine, but how do you create a continuing engagement with the customer? Once they've come into the store and bought a reader, what will get them to come back, if they can order and download the book from the reader, with no need to come into the store?"

B&N is attempting to address that with the nook by using the built-in networking to browse in the store and read ebooks, the same way you can pull a physical book off the shelf and start reading.
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Dennis

[murraypaul]

Originally Posted by DMcCunney

No, it doesn't. But fixed costs are allocated across the production run, and become unit costs. There is more to unit costs than the simple incremental cost of making one more of whatever it is.

And you do not know what that proportion is until you know how many units you have actually sold.

There is certainly a measurable minimum cost. It will be what you must charge to cover your costs and make enough to remain in business. How large that number is depends upon what your total cost is and how many of whatever you are making that you expect to sell. If your total cost is $100,000, and you expect to sell 1,000 of whatever it is, you must charge $100 per copy simply to cover your costs, and will probably have to charge twice that to make enough money to remain in business. If you expect to sell 10,000, your minimum cost drops proportionately. But you will have an ultimate limitation on how far your price can drop based on the total number of copies you can sell.

There seems to be an all encompassing pessimism that no books will ever actually cover their costs. Only in the last sentance does 'expect to sell' become 'can sell'.
My point is that once you have covered your costs, it is always a good thing to sell more eBooks, it is not like a physical object where it there is a minimum price forced by the manufacturing process. I'm not saying you start at a low price, but that there is nothing preventing you from ending up at a low price.
There is also a vicious circle problem. If you only expect to sell 1000, and so charge $100, you probably will only sell 1000, because you are charging so much.
Once you've exhausted the market at $100, you can try selling some more at $75, then $50, and so on. This is exactly the model that pBooks use, with hardback, trade, mass market then sales.
Retailers know that demand is elastic, that is why they have sales, BOGOF programmes and so on.

[murraypaul]

Originally Posted by DMcCunney

What if there isn't? That's the unpalatable choice a lot of people are looking at.

Yup, pretty bleak for bookstores at the moment.

That depends on what it costs them to do it. Most of them don't have a lot of spare cash to lose. I'm not sure any can afford to do the "Lose money on every ebook sale to gain market share" tactic. And even if they do, how long do they do it?

The ePub bookstores have the problem that they can't buy themselves market share, they can buy ePub marketshare, but that doesn't guarantee them any more sales in the future, because there are many ePub stores people can buy from. That is the advantage Amazon have with the Kindle.

[Fbone]

I still feel there needs to be a synergy between device manufacturers and epub retailers. It would benefit them both. At the moment people in Europe have to pay a premium for an epub device in addition to paying a premium for ebooks. What would happen if Amazon entered the mainland aggressively? It would place enormous pressure on the others.

I suppose if agency pricing went global it wouldnt matter to the manufacturers.

[Szumo]

Originally Posted by Lady Fitzgerald

So the ease of getting illegal books justifies it?

Who says anything about justification? I'm talking about cause and effect.

Originally Posted by Freeshadow

Szumo, people regarding an illegal copy as an option of choice will always head for it. Thus they are out of the comperative schemes here.

Not true - which was clearly shown in the music and video business. When legal, convenient (easy to buy and easy to use) and reasonably priced alternatives appear, piracy levels decrease. There will always remain those who will prefer free illegal copy over legal cheap one, but they are not the majority.

[murraypaul]

Originally Posted by Szumo

Not true - which was clearly shown in the music and video business. When legal, convenient (easy to buy and easy to use) and reasonably priced alternatives appear, piracy levels decrease. There will always remain those who will prefer free illegal copy over legal cheap one, but they are not the majority.

A good example of this would be Microsoft's pricing strategy in China.
They were trying to sell at the same price they would in the West, and to quote from one report:
"Microsoft spent millions of dollars advertising its next generation OS 'Windows Vista' in China, in fact the IT juggernaut threw up the biggest Vista Ad on the 421 meter high Jin Mao tower in Shanghai China. However after 2 weeks (Jan 19 to Feb 2) from launch Microsoft managed to sell a mere 244 copies of Windows Vista. "

They've now slashed prices so that a student edition of Windows and Office is $3, and government licences less that $10. Now people are buying legitimate copies. Are they making a massive amount of money? no, but they are making some rather than none, and they are getting people to buy legitimate software. Over time they will try to push the price up while still keeping the sales.

http://blogs.techrepublic.com.com/hiner/?p=525

[DMcCunney]

Originally Posted by murraypaul

And you do not know what that proportion is until you know how many units you have actually sold.

Correct. And for paper books, the distribution system is convoluted enough that you may not know that until a year after publication

But for any product, when a producer is creating a budget, they have to factor in a best guess as to what they will sell. For books, publishers arrive at this figure by looking at previous sales of other books by that author, or sales of comparable books by other authors if they haven't published this author before. That "how many do we think we'll sell?" guess determines things like the amount of the advance offered to acquire the title in the first place.

There seems to be an all encompassing pessimism that no books will ever actually cover their costs. Only in the last sentence does 'expect to sell' become 'can sell'.

Nope.

The goal of any book is to "earn out" - to generate enough revenue to cover costs and the amount that was given as an advance to acquire the title. Once the book has earned out, the author will see additional royalties detailed in quarterly statements. Most books do not earn out, and the initial advance is all the author sees. And the agent wants to make as good a deal for the author as possible, so the agent's goal is likely to be to negotiate an advance high enough that the book won't earn out.

In any year, a publisher will publish a number of books. A few might go on to become best sellers. More will sell enough to justify publishing them, but will never reach any best seller lists. A lot won't even cover their costs, and will be net losses. The publisher is betting that enough will sell well enough to cover the losses on the ones that don't, and make enough money for the publisher to stay in business.

My point is that once you have covered your costs, it is always a good thing to sell more eBooks, it is not like a physical object where it there is a minimum price forced by the manufacturing process. I'm not saying you start at a low price, but that there is nothing preventing you from ending up at a low price.

Contracts may prevent you. The publisher's contract with the author will specify royalties per copy as a percentage of the sale price. They are generally written assuming a sale price for an edition (whether HC, TP, or MMPB) that doesn't change over time. If I'm a publisher and I want to implement something like what you suggest, I better have that possibility detailed in the contract when I acquire the book.

And my authors may not be enthusiastic. They expect me to try to sell their book, and might just view the fact that lower pricing is kicking in and they are seeing less money per sale as evidence that I wasn't really trying to sell the book in the first place.

There is also a vicious circle problem. If you only expect to sell 1000, and so charge $100, you probably will only sell 1000, because you are charging so much.

If I only expect to sell 1000, it's because I am creating a product for a limited market. I have a pretty good idea of what my market is going in, or I wouldn't be investing the time and money to make the product.

When establishing pricing, I know what I have to make to justify doing it at all. I'll establish a target price based on the number I'll expect to sell. When I look at the possibility of boosting sales by lowering prices, the question becomes how many I must sell at the lower price to make my required return. I may say "I expect to sell X copies at price A. To make my numbers, I have to sell Y copies at price B, and Z copies at price C." Whether I go with a lower price will depend upon whether I thank I can sell the additional copies needed at the lower price, balanced against the fact that if I don't, my losses increase, because I'm not making as much on the copies I do sell. I want to stay in business, so I'll be quite conservative in my estimates.

Once you've exhausted the market at $100, you can try selling some more at $75, then $50, and so on. This is exactly the model that pBooks use, with hardback, trade, mass market then sales.
Retailers know that demand is elastic, that is why they have sales, BOGOF programmes and so on.

See my earlier comments about elasticity and total demand for any product, and my comments above about contracts.

Hardback, trade, and mass market do differentiate on price, but I don't believe they work the way you seem to think. Each will have a separate budget. Hardcover and trade paper editions generally get released about the same time. Mass Market editions are delayed. Most books don't get hardcover or trade editions, and are only issued as mass market. "Sale" books aren't a factor.

A long time ago, I worked in retail, and I saw the model you propose for things like clothing. The store would buy clothing from manufacturers and put it out on sale. They would then monitor the progress. Clothing that did not sell at the original retail price would be marked down after 30 days, marked down again after 60 days, marked down a third time after 90 days, and finally go to clearance. They did that because they were stuck with what they ordered. They couldn't just return it for credit. It was on the buyers to make accurate guesses about what would sell.

Publishing doesn't work that way. In the US, publishing has historically operated on a 100% returns model. If a book doesn't sell, the retailer can return any unsold copies for credit. In practice, hardcovers are actually returned. Paperbacks have the covers stripped off, and the bodies of the books are trash (though all too often, they wind up getting sold on the gray market for a tiny fraction of the original price.)

Sales happen when publishers clear out unsold copies of hardcovers in the warehouse at a fraction of the cover price to make room for new stock. This usually happens when the mass market PB edition is released. The publisher decides the hardcover has sold as many copies as it's going to. Sometimes the timing is gotten wrong, and the remaindered hardcover winds up at the retailer competing with the just released mass market PB edition, at a lower price.

The fact that retailers can simply return unsold copies for credit accounts for the "reserve against returns" numbers in book budgets, and has been a source of agony for the industry for as long as I've been paying attention. We are finally seeing experiments where publishers are offering retailers higher discounts, in exchange for limits on the amount that can be returned and acceptance of risk by the retailer when ordering because they won't simply be able to return the books if they guess wrong on what they can sell.
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Dennis

[murraypaul]

Originally Posted by DMcCunney

See my earlier comments about elasticity and total demand for any product, and my comments above about contracts.

Hardback, trade, and mass market do differentiate on price, but I don't believe they work the way you seem to think. Each will have a separate budget. Hardcover and trade paper editions generally get released about the same time. Mass Market editions are delayed. Most books don't get hardcover or trade editions, and are only issued as mass market. "Sale" books aren't a factor.

Huh? Sale books prove that demand is elastic. How are they not a factor?
Hardback, trade, paperback, sale, bargain bookshop, second hand bookshop, charity bookshop, library sale, library. Books are available in many ways, at decreasing prices as they pass through their sales lifecycle. At each stage they pickup more readers.

Publishing doesn't work that way. In the US, publishing has historically operated on a 100% returns model. If a book doesn't sell, the retailer can return any unsold copies for credit. In practice, hardcovers are actually returned. Paperbacks have the covers stripped off, and the bodies of the books are trash (though all too often, they wind up getting sold on the gray market for a tiny fraction of the original price.)

None of this applies to eBooks.
Publishers need to adapt or die.

Sales happen when publishers clear out unsold copies of hardcovers in the warehouse at a fraction of the cover price to make room for new stock. This usually happens when the mass market PB edition is released. The publisher decides the hardcover has sold as many copies as it's going to.

...at the original price, but will sell more at the lower sale price. Sort of my point, really.

The fact that retailers can simply return unsold copies for credit accounts for the "reserve against returns" numbers in book budgets, and has been a source of agony for the industry for as long as I've been paying attention. We are finally seeing experiments where publishers are offering retailers higher discounts, in exchange for limits on the amount that can be returned and acceptance of risk by the retailer when ordering because they won't simply be able to return the books if they guess wrong on what they can sell.

Again, simply doesn't apply. eBooks are only 'printed' when they are sold, the concept of returns doesn't exist.

[DMcCunney]

Originally Posted by murraypaul

Huh? Sale books prove that demand is elastic. How are they not a factor?

Easy. They don't make money for the publisher.

Hardback, trade, paperback, sale, bargain bookshop, second hand bookshop, charity bookshop, library sale, library. Books are available in many ways, at decreasing prices as they pass through their sales lifecycle. At each stage they pickup more readers.

Yep. But if I'm a publisher, my concern is sales that will actually make me money. Books resold on the secondary market don't generate revenue for me.

None of this applies to eBooks.
Publishers need to adapt or die.

They are attempting to. The publishers are all asking "How can we make money selling ebooks?" The first part of any answer to that question will be "How do we price them?" The asking price must be enough to cover costs and generate a return.

Pricing that drops over time may help, but ultimately, any book will have a maximum total market. How big that market will be will depend upon the book. And buyers have demonstrated that they will wait in many cases for the price to drop and be able to get the book cheaper. What happens if the majority of people interested in reading a book do wait for the price to drop to the lowest level? If I'm the publisher, what I'll see is a loss on the title, as the lowest price will be one at which I can't make money.

...at the original price, but will sell more at the lower sale price. Sort of my point, really.

How much more? See my earlier comments about elasticity of demand. I think you are assuming far more potential readers for any given title than I am. You mentioned buying several Steig Larsson titles because you could get them cheap. Larsson has become an international bestseller, and there will be more elasticity of demand simply because more people have heard of him, and might "take a flyer" as you did, if they can get the books cheap enough. Most authors aren't in that happy place, and most titles won't have that sort of elasticity of demand.

Again, simply doesn't apply. eBooks are only 'printed' when they are sold, the concept of returns doesn't exist.

I never said it did. I was talking about the assumptions made when generating a budget for a book. If you are issuing print as well as electronic editions, returns are a factor, and reserve against returns becomes an element in the book budget. If you are issuing only an electronic edition, you don't have returns, but you still have all of the other costs involved in producing a book.
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Dennis

[Lady Fitzgerald]

Originally Posted by DMcCunney

If you are issuing only an electronic edition, you don't have returns, but you still have all of the other costs involved in producing a book.
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Dennis

Actually, that isn't quite true. Layout is simplified since you don't have to worry about pagination, "warehousing" is dramatically reduced (servers, which don't have to be owned by the publishers, vs. physical buildings and the infrastructure to run them), shipping is essentially nil, no printing and paper is required, etc.

Writing, editing, and marketing (including promotion) would remain the same or equivalent.

[tompe]

Originally Posted by Lady Fitzgerald

Actually, that isn't quite true. Layout is simplified since you don't have to worry about pagination, "warehousing" is dramatically reduced (servers, which don't have to be owned by the publishers, vs. physical buildings and the infrastructure to run them), shipping is essentially nil, no printing and paper is required, etc.

I would say that layout is harder since you have to make sure it works properly (typographically) on different readers using different font size. Publishers do not own warehouses from what I remember. Also it would not suprise me at all if the DRM/server cost is higher for an ebook than the physical handling cost for a physical book.

[DMcCunney]

Originally Posted by Lady Fitzgerald

Actually, that isn't quite true. Layout is simplified since you don't have to worry about pagination, "warehousing" is dramatically reduced (servers, which don't have to be owned by the publishers, vs. physical buildings and the infrastructure to run them), shipping is essentially nil, no printing and paper is required, etc.

Writing, editing, and marketing (including promotion) would remain the same or equivalent.

I've talked about this elsewhere. Printing, binding, warehousing, and distribution amount to perhaps 20% of the total cost of a printed book. An electronic edition drops those costs, but the others remain. Layout and pagination are simplified, but costs don't drop that much because they are.

Current industry practice is to get Word documents as the manuscript, edit those till an accepted final form is agreed upon, then import that into Adobe InDesign for typesetting and markup. Pagination and layout can be changed in InDesign or other DTP program a lot more easily than in the old days where you used rubber cement to paste up typeset galleys onto a mechanical that would be photographed and turned into a plate by the printer's prepress operation. Changing layout and pagination required running off new galleys and redoing mechanicals. (I used to do stuff like that for a living, in the days before DTP.)

The output from InDesign is normally a PDF that is sent to the printer. The printer feeds it to an imagesetter to make the plates from which the book will be printed. Current versions of InDesign can also output ePub files, but do so poorly. One wish is for better support for ePub in InDesign, so producing the ePub becomes a Save As operation when the book is ready to publish.
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Dennis

[Lady Fitzgerald]

Originally Posted by DMcCunney

I've talked about this elsewhere. Printing, binding, warehousing, and distribution amount to perhaps 20% of the total cost of a printed book. An electronic edition drops those costs, but the others remain. Layout and pagination are simplified, but costs don't drop that much because they are.

Current industry practice is to get Word documents as the manuscript, edit those till an accepted final form is agreed upon, then import that into Adobe InDesign for typesetting and markup. Pagination and layout can be changed in InDesign or other DTP program a lot more easily than in the old days where you used rubber cement to paste up typeset galleys onto a mechanical that would be photographed and turned into a plate by the printer's prepress operation. Changing layout and pagination required running off new galleys and redoing mechanicals. (I used to do stuff like that for a living, in the days before DTP.)

The output from InDesign is normally a PDF that is sent to the printer. The printer feeds it to an imagesetter to make the plates from which the book will be printed. Current versions of InDesign can also output ePub files, but do so poorly. One wish is for better support for ePub in InDesign, so producing the ePub becomes a Save As operation when the book is ready to publish.
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Dennis

Still, it isn't the same. And it sure has heck doesn't add to the cost.

[DMcCunney]

Originally Posted by tompe

I would say that layout is harder since you have to make sure it works properly (typographically) on different readers using different font size.

Well, you have less options.

A friend does DTP for a major publisher, and has expressed an interest in getting into ebook production. I told her "You will have limitations based on the device. If the book specification from the designer, for example, says that body copy is '11pt Monotype Bembo on 12', that won't be what the reader will display - it doesn't have Monotype Bembo as an installed font, and doesn't have that fine a control over line spacing." She understood.

You will need to understand the limitations of the viewing devices, to produce a file most likely to be "one size fits all", and readable on all devices that display that particular format.

Publishers do not own warehouses from what I remember.

Nope. Nor printers. They produce content. They contract with others to manufacture, warehouse, and distribute it.

Also it would not suprise me at all if the DRM/server cost is higher for an ebook than the physical handling cost for a physical book.

I would be. What about DRM will make the server costs that much greater?

DRM produces a locked file. You unlock the file on your end with a key. From the server's view, it's just a file. Is a password protected Zip archive you download any more costly than an unprotected one for the server?
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Dennis