Interesting article on book pricing and why it might rise

[FF2]

"That's what I was going to say, so well said. If 20% of the cost no longer exists than why are the books not 20% cheaper."

Originally Posted by DMcCunney

Because pricing is always "what the market will bear". Manufacturers are always trying to cut costs, but they do that to improve their bottom line. They only cut prices if they think they have to, to be competitive and make sales.


Dennis

Now, wait. First we are told the ebooks are not cheaper because they are really not that much cheaper to produce (not said by you necessarily). Then we are told the price is based on what the market will bear. So, if I get this straight, the publishers just pick a cost and then justify it in any manner whatsoever. They make up their excuses depending on the objection.

I can accept that trying to get a brand new publication might cost more - the traditional hardback book. But eventually there were the paperback version and that was a reduced price. But ebooks don't go through the devolution from handsome bound book to knuckle-dragging paperback. So we cannot expect a lower price down the line. Some posted about that nut (German/Austrian?) who raped his daughter and the hardbound was like $3 and the ebook $18.00. Yup, that makes sense.

[DMcCunney]

Originally Posted by Elfwreck

Does that editor include returns in that cost? Those are, I suspect a major part of how the numbers seem skewed; claiming "print/distribution/etc costs are 10% of production"--and then trashing 1/3 of the production--is disingenuous. If there's a 33% return rate, then print etc. is 10% of 64% of the run, and 100% of 33% of the run, for a total of 42% of the production costs.

I know the 100% on those is skewed, because it includes editorial & author advance costs. But you get the idea... if 33% of a run isn't being sold for profit, the margins are drastically different.

Reserve against returns is a thorny issue. I don't know if he was including them or not.

But it doesn't directly affect my point about what costs are incurred before a book ever reaches the stage of being published in any format. Dropping reserve against returns and print/bind/warehouse/distribute costs still doesn't bring costs down enough to allow the sort of ebook pricing people are hoping for. (If a book is returned unsold, what have you lost? You're out the shipping needed to do the returns - negligible in a PB edition where they simply strip and return covers and trash the body - and the total unit cost of manufacture of the unsold books. Manufacturing costs are generally about 50 cents - $1.00 for PBs, and perhaps $2 for HCs.)

And unless the ebook edition is the only edition of the book, reserve against returns will be in the book budget and constitute a cost for the book.

Tens or thousands of readers might buy it if it cost what paperbacks cost. Especially if the competition is insisting on $14 for ebooks. If publishers are going to enter the direct marketplace, they'll need to realize that their competition is a lot more immediate than they've been dealing with.

Possibly. I tend to agree that pricing equivalent to MMPB prices is where things will settle out, though some publishers may be dragged kicking and screaming to that point.

But I also expect tiered pricing. The ebook will cost the same as the paperback, when the paperback is issued. If it's out at the same time as the hardcover, it will cost more.

Publishers who sell to distributors based on long-term contracts (who sell to stores, who sell to readers) are in a very different position from publishers who sell directly to readers with an intermediary who provides only the UI. They need to advertise to those individuals, not to other companies... and enticing individuals involves sorting out what each of them values.

The vast majority of publishers do very little direct sale to consumers, and tend to do it badly. They're still trying to figure out the end user. I had a chat with a Senior Editor at Tor the other night, and she mentioned her house and Baen Books as publishers attempting to understand their market. I agreed. Both are engaged in branding. Baen sells midlist action/adventure SF/fantasy, and understands their market. To a large extent, if you like one of Baen's titles. you are likely to like others. Tor is broader based in their offerings, but is in a similar position. With both houses, you might take a chance on a new book by an unfamiliar writer because they published it, and you trust their tastes.

Most houses don't seem to have a clue about branding, and most readers, if asked who published their favorite books would probably have to grab them off the shelf to look - they'll think in terms of authors and titles.

If ebooks had a used & giveaway market, I'd think this was true. With the current state of things and most publishers trying to push "one purchase = 1 reader," or at most "1 purchase = small handful of readers selected before purchasing, all of whom have access to all your reading material," I don't believe there's added value; it's a trade-off.

Value is what the buyer thinks it is. If a reader thinks that having a book in electronic form adds value and makes it worth more, I understand why and won't disagree. For them, it's a true statement.

Baen's ebooks are more valuable to me than paperbacks; Smashwords' aren't.

What makes them more valuable to you?
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Dennis

[Snibborg]

I am afraid we are in the situation now that the record industry was in in 1999 and it seems the book publishers are destined to make the same mistakes.

By hiking the price of ebooks more people will start downloading. One famous Torrent site already has a top 100 downloaded ebooks list. Add into that a small software package that converts ebooks to whatever format you want and you are just waiting for it to happen.

I can hear the wailing and gnashing of teeth already. You ain't seen nothing yet.

[DMcCunney]

Originally Posted by DuskyRose

Actually, you just might.

Please note that I defined the book's market as the total number of readers interested in reading that book.

I can see lower pricing getting readers who are interested but want other things more to take a flyer and get a book on their "maybe" list. I can't see lower pricing magically getting a lot more readers interested in the first place.

Giving them away free, for example, will not get me to get/read a Harlequin Romance - it's not a genre in which I have any interest, and I have too many unread books I want to read now, without jamming stuff I have no interest in into the queue.

There is a price I'll pay for an ebook from an author I know I love, and a price I'll pay to take a chance on a new author or a new series. If the price is really low, I'll take more of a chance. Freebies on the first book of a series will also get me mighty interested. And if it holds up, and is enjoyable, then I'll have a price in mind I'll pay to read the rest of the series. And that will vary compared to how hooked I get on it.

Sure. Me, too. But there are limits to everything. There are a few authors I buy in hardcover. There are more I buy in PB or ebook. But I'm not going to have tiered pricing in my own purchase decisions. If I like the author well enough, I buy the book. (And a fair bit of what I buy/like is not part of a series, by authors who do things different enough between books that reading one is not a representative sample.)

I belong to an online used book club where you can trade used books for the price of media mail. Because it's much cheaper than buying new books, and in a lot of cases buying used books from a used book store, many people build up credits and find they're trying new authors and new genres they wouldn't have though of trying before, because it's cost effective. They haven't lost much if they find the book they bought is only good for the trash can. Even then, they can trade it back into the site for another book, thus cutting their loss on it.

Everyone's price on taking a chance is different, but if it's low enough you might find a lot more people taking a chance on your low priced book.

See above. Once again, there is a limit to elasticity of demand. There are likely any number of books you aren't likely to buy at any price, because you simply have no interest in that kind of book. The same is true for any book: there will be a total number of readers who will read it, at any price. What no one has the magic spell for is knowing what that number is for any particular book and how to reach those readers.
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Dennis

[DMcCunney]

Originally Posted by FF2

"That's what I was going to say, so well said. If 20% of the cost no longer exists than why are the books not 20% cheaper."

Now, wait. First we are told the ebooks are not cheaper because they are really not that much cheaper to produce (not said by you necessarily). Then we are told the price is based on what the market will bear. So, if I get this straight, the publishers just pick a cost and then justify it in any manner whatsoever. They make up their excuses depending on the objection.

Nope.

Anyone producing goods will have costs. If I'm making widgets, I have costs of raw materials, costs of labor, and costs of the equipment my workers use to turn raw materials into widgets, and the costs of the factory in which manufacture is done. I have additional costs for general overhead unrelated to the direct manufacture of the widgets, and the cost of the capital I had to invest to build the plant to make the widgets. There will be a minimum I have to charge, simply to cover costs.

But I want to stay in business, and open my doors to make and sell more widgets tomorrow. This means I have to make a profit on my widgets, so my pricing will reflect the profit I have to make. How much profit I have to make will depend on who I am, what I sell, and the state of my business, but there will be a minimum I have to make to stay in business.

If I come up with ways to cut my costs, like investing in new equipment that will allow me to make the same widgets cheaper with less people, I'll do it in a heartbeat if I can - lower costs means less of the price I charge will be devoted to simply covering my costs, and more of the revenue will flow to my bottom line. Lower costs also allow me to cut prices to gain market share at the expense of my competitors, but I'll think long and hard before doing so. Any industry is littered with the corpses of companies that got into price wars with their competitors and lost, because the competitors had deeper pockets, and could afford to lose money on lowball pricing long enough to drive weaker competitors out of business.

In the case of books, print/bind/warehouse/distribute amounts to perhaps 20% of the budget of a book. Most of the costs are incurred before it ever reaches the stage of being published in any format. (And part of the problem in discussions in places like this is that there's a lot of wishful thinking about what the costs are and how cheap an ebook can be.)

Publishers will price at what they think the market will bear. They will be like me and my widgets - they will have direct costs to cover, and profit they will have to make to remain in business. Pricing will be predicated on those figures, and on what the competition is doing. They won't want to price significantly above the competition, but except in special cases, they won't want to undercut them either. So everyone, for example, is going to charge a comparable price for a mass market PB edition, and prices will rise for those when one of the big outfits decides that costs are rising, and it has to charge more. The others will watch, see that sales are holding for the first outfit, and mop their brows in relief and raise their prices too.

I can accept that trying to get a brand new publication might cost more - the traditional hardback book. But eventually there were the paperback version and that was a reduced price. But ebooks don't go through the devolution from handsome bound book to knuckle-dragging paperback. So we cannot expect a lower price down the line. Some posted about that nut (German/Austrian?) who raped his daughter and the hardbound was like $3 and the ebook $18.00. Yup, that makes sense.

It makes no sense. But everyone is reading the tea leaves trying to understand what does.

For instance, the standard price of a mass market PB is about $8 USD. Amazon has conditioned a generation of Kindle users that $9.99 is the standard price for an ebook. If I'm a publisher selling through Amazon, tell me why I shouldn't price my ebook edition at $9.99, even though my MMPB edition is a couple of bucks cheaper? I'm likely to assume people who buy and read Kindle editions don't wan't the PB edition, and will pay more to get the Kindle edition.
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Dennis

[DMcCunney]

Originally Posted by asjogren

If this was a true competitive industry, then I would expect at least some of the "savings"to be used to gain market share.

However, after all the mergers, acquisitions, and collusion - I don't see a competitive industry. I see a cartel that can wield power - for a short period of time. And then be replaced.

It's still a competitive industry. You have the Big 6, and a plethora of smaller independents.

And the Agency Model folks aren't a cartel in the legal sense, vulnerable to anti-trust actions. They aren't colluding to set prices - they are agreeing on a sales model for ebooks that varies from the model used for pbooks.

Middlemen are vulnerable in the Internet Age. For example, Amazon could hire a few key employees away from the Big 6 and start a new wave of change.

Don't hold your breath. That would require Amazon to become a publisher, which is a completely different line of business with a different model.

Amazon is a retailer, selling what other people make. They are not a producer, and if they have any sense, will not try to become one. Even the Amazon Kindle can't really count as Amazon becoming a producer, as the Kindle is priming a pump. What Amazon wants to do is sell you ebooks, and lock you into them as the vendor. If you buy an actual Kindle, fine. If you download and install the free Kindle app for various platforms, still fine. You're using them to buy and read ebooks sold by Amazon. But they don't publish the ebooks - they resell what other people publish.
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Dennis

[DMcCunney]

Originally Posted by Snibborg

I am afraid we are in the situation now that the record industry was in in 1999 and it seems the book publishers are destined to make the same mistakes.

By hiking the price of ebooks more people will start downloading. One famous Torrent site already has a top 100 downloaded ebooks list. Add into that a small software package that converts ebooks to whatever format you want and you are just waiting for it to happen.

I can hear the wailing and gnashing of teeth already. You ain't seen nothing yet.

Maybe.

Don't assume the majority of the market that reads ebooks will do this. Some won't know how, and others simply won't want to be bothered.

There was a poster on MR in another thread who knows where to get the pirated versions, and how to convert them if needed. He said he simply accesses Amazon from his Kindle, picks a book, pays, downloads, and starts reading, and can do so at any time, day or night. He could get the books "free", but chooses not to: the convenience and simplicity of buying from Amazon is worth money to him.

Care to bet he's unique? I wouldn't.
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Dennis

[Sil_liS]

Originally Posted by DMcCunney

Publishers will price at what they think the market will bear.

From my point of view it isn't the way that they do the pricing that is the problem; it is the way that they justify it. The argument starts with: we sell the books to the big retailers at half-price, and ends with: so you see, we barely make a profit.

Originally Posted by DMcCunney

Manufacturing costs are generally about 50 cents - $1.00 for PBs, and perhaps $2 for HCs.

So then explain to me the price of a second edition of a public domain book. All they have to do is make a new cover and print it. So the prices will show what the publishers think that the buyers will pay, with no connection with the actual costs. And we see that the hardcovers are more expensive than the paperbacks, because most buyers consider that the hardcovers are worth more, and are willing to pay more.

So now we get to ebooks, and we can fit an entire library on a microSD card, and we know that at least the cost of printing and shipment has to go away, and there are lower risks for the publisher. But now we are told that it was all just a misunderstanding. Hardcovers don't cost that much more to make. It's just the privilege of getting the book faster. But then what is the point of printing hardcovers of public domain books?

And this doesn't explain the price of textbooks.

[Snibborg]

@DMcCunney. I appreciate what you are saying and accept that, at present, it is easier to get ebooks from Amazon than to download pirated versions.

However, until Napster came along, that's what everyone said about pirated music at that time. There was no easy way of obtaining the music you wanted without going down to the record store and buying. The problem is that technology has ways of making liars of us all. It took Napster 6 months to have the record companies running round in circles. They tried to litigate the problem away and spawned the torrent model and Limewire, something they have been trying to stamp out ever since.

The problem is that each time the book publishing companies try to interrupt the flow of information, be that DRM restrictions or price rises, it drives the very people they want to attract into the arms of the pirates. Quite simply it's an unsustainable model in exactly the same way that the music industry was. The difference is that the book companies have the opportunity to learn from the music industries mistakes, the question is: will they?

Time will tell, but mark my words well, the next 12 months will tell whether the book companies can survive the coming storm. Unfortunately they have not got off to a good start.

[DMcCunney]

Originally Posted by EricDP

I think we fully agree here. What we apparently don't agree on is where that sweet spot is. In my opinion, it's lower than what a lot of eBooks are currently priced at. Especially when the eBook is advertised as (for example) 30% off, but they are comparing to hardcover price and the paperback is actually quite a bit cheaper than the eBook. That makes me crazy and I don't buy on principle.

I don't have a particular notion of what the "sweet spot" might be, save that I don't believe it will be as low as a lot of folks will like.

Yes, that's the theory. Until you hit the magic price point...

See my earlier comments about the maximum market for any particular book. There will be a maximum number of people who will want to read any particular title at all. Lower pricing may convert "maybes" to "buyers". It will not magically make people who aren't interested become interested.

As mentioned earlier, for example, I don't care how cheap you price them: I'm not going to buy a Harlequin Romance. I'm not the market they target and have no interest in the genre. I'm sure there are books like that for you as well.

Pricing won't change our views on what we want to read. It will only influence what we buy of what we do want to read.
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Dennis

[Sonist]

Originally Posted by DMcCunney

...

I know why you think they should be 20% cheaper - you're the reader interested in buying the book.

Pretend I'm the publisher issuing the book. I see the chance of selling the ebook at the same price as the paper edition, with the 15%-20% savings of not issuing a print edition flowing to my bottom line. If I believe I can successfully charge the same price as the paper edition and see comparable sales, tell me why I ought to lower it? (The fact that you will then buy it will not sway me. You're one reader. I'm concerned with tens or hundreds of thousands of readers.)

You want to get your ebooks cheaper. I want to stay in business. Guess which will trump?...

LOL, if you are so honest about gouging consumers, how about this:

Pretend I am a consumer interested in a book. I see a chance to buy it, but the publisher wants $27 for it, and because of the Agency Model, I can't find it discounted.

$27 is a lot of money, so I decide to check out a couple of file sharing sites. Oh-oh! It's there! No DRM, so I can keep it forever, and it's mine for free.

The fact that you (the publisher) will not get a penny will not sway me, because now I feel justified (rightly or wrongly), since you tried to gouge me.

You want to gouge me. I want the book, but don't want to feel ripped off. So, I get the book for free. Guess which will trump? And guess who will be out of business?

Since for new titles publishers are generally monopolies, "piracy" is a powerful tool to keep them from gouging the market.

The music industry already tried your model, and look how far it got them.

It's all about the price: When Amazon was selling titles for $6-$7, I was doing a ton of impulse buying, including stuff I may never really read. At over $10, I don't do this. At over $20, for a DRM-ed, poor-quality ebook, I may turn elsewhere. And I am not going to be the only one....

[DMcCunney]

Originally Posted by Elfwreck

I don't think they all work in the industry, although I believe several of them have done so at some point. Watching them dodge around Baen's success is always fascinating.

No dodging is necessary. Baen's model works for Baen. It will not work for most other publishers, especially the big ones.

For reasons why, see Kris Rusch's blog posts on the topic. Kris knows whereof she speaks: she has been a publisher (she and her husband Dean Wesley Smith published an innovative hardcover fiction magazine called Pulphouse back in the late 80's/early 90's), and editor (she was editor of the Magazine of Fantasy and Science Fiction for a few years, before Mercury Press sold it to Gordon Van Gelder), and is a current full time freelance writer.

See http://kriswrites.com/2010/10/28/the...-times-part-2/ and following columns.
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Dennis

[DMcCunney]

Originally Posted by Sonist

LOL, if you are so honest about gouging consumers, how about this:

Pretend I am a consumer interested in a book. I see a chance to buy it, but the publisher wants $27 for it, and because of the Agency Model, I can't find it discounted.

$27 is a lot of money, so I decide to check out a couple of file sharing sites. Oh-oh! It's there! No DRM, so I can keep it forever, and it's mine for free.

The fact that you (the publisher) will not get a penny will not sway me, because now I feel justified (rightly or wrongly), since you tried to gouge me.

You want to gouge me. I want the book, but don't want to feel ripped off. So, I get the book for free. Guess which will trump? And guess who will be out of business?

The fly in that ointment is that I'm not gouging you. I'm simply trying to stay in business.

I publish a book at $27 that you can't find discounted, so you pirate it. I don't get your sale. I'm betting that enough other people will find the book of sufficient value that they will spend $27 to buy it, and that I'll make money on the title.

You are assuming you are representative of the market for that book. I'm assuming you are not.

"Gouging" != "A price higher than I'm willing to pay", regardless of what you might like to believe. Value is relative. A thing is worth what someone else is willing to pay for it. If enough people are willing to pay the higher price to make my numbers, I have no particular incentive to cater to your idea of the value. You pirate it. I don't get your sale. I may not care.

Lower pricing may lead to more sales, but the question becomes one of trade-offs. If I choose to set a lower price, I am making a bet that I'll get enough additional sales at the lower price to not only make up what I lose by not charging the higher price, but to make more revenue and profit overall than if I had stuck with the higher price. Before I'll make that bet, I'll want evidence I will get that benefit from lowering the price. How likely I'll be to do it will depend in large part on what I think the total market for the book is. For a book I expect might be highly popular with a lot of people who will want to read it, I might make the bet. For a niche-market title with a limited audience, I won't.
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Dennis

[DMcCunney]

Originally Posted by Sil_liS

From my point of view it isn't the way that they do the pricing that is the problem; it is the way that they justify it. The argument starts with: we sell the books to the big retailers at half-price, and ends with: so you see, we barely make a profit.

The problem is, that statement is largely true. One of the pressures publishers are under is that many are units of larger outfits, with an expected contribution to the parent's revenue and profit. They are expected to make a 10% return on investment minimum. Good luck. Historically, publishing's returns have been maybe half that.

So then explain to me the price of a second edition of a public domain book. All they have to do is make a new cover and print it. So the prices will show what the publishers think that the buyers will pay, with no connection with the actual costs.

Correct. Value has nothing to do with cost. If the buyer buys a print edition of a PD work, it's worth it to them, or they wouldn't have bought it.

And we see that the hardcovers are more expensive than the paperbacks, because most buyers consider that the hardcovers are worth more, and are willing to pay more.

Hardcovers cost more to manufacture than paperbacks (and paperbacks exist to be a cheaper alternative). But in most cases, I think buyers buying hardcovers are paying the premium to read the book now instead of waiting for the PB edition. The fact that it's a hardcover is secondary.

So now we get to ebooks, and we can fit an entire library on a microSD card, and we know that at least the cost of printing and shipment has to go away, and there are lower risks for the publisher. But now we are told that it was all just a misunderstanding. Hardcovers don't cost that much more to make. It's just the privilege of getting the book faster. But then what is the point of printing hardcovers of public domain books?

Who told you hardcovers don't cost all that much more to make? "Trade paperbacks" exist to provide a cheaper edition than the hardcover, because there are costs in hardcover binding.

And the point of printing hardcover editions of PD titles? Easy enough: there are people who will buy them.

And this doesn't explain the price of textbooks.

I don't see why textbook costs are a particular surprise. First, they are likely to be hardbound, which is expensive to begin with. Then, they are textbooks, which means the content must be fact checked and peer reviewed, so you can feel confident that the textbook is accurate in presenting its subject. This adds costs not in other kinds of books. and last, they are niche market items. Depending upon the topic, the total market for a particular textbook may be a few tens of thousands, it that. There is simply no way a textbook can be produced as cheaply as a standard fiction of non-fiction title, and the price will reflect this.
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Dennis

[GoversAU]

Originally Posted by DMcCunney

....you are assuming you are representative of the market for that book. I'm assuming you are not....

I believe most if not all your arguments are defeated by what we've seen in the music market over the last few years.

I think Sonist pretty well does sum up a large expanse of the market.

And perception is the thing: you'll never convince the book-buying public that an ebook is worth even 50% of the price of a paperback let alone a hardcover. They know they aren't buying a book: they can never sell it, loan it, pass it to their kids. Ebooks make books a disposable commodity and the public will expect them to be priced accordingly.

I've bought nearly 300 ebooks since May, most in the 99c to 3.99 price range from indie authors. Only two cost more than $10, and about 10-15 around $9. Very few of those indie books failed to maintain my interest for whatever reason; I don't think the ratio would be much worse than with big name authors and publishing houses.

Either publishers get rid of agency models and adapt very quickly, or they will be dinosaurs. The ebook leaps ahead very quickly and the Agency 6 are being left behind.