Amazon's $9.99 eBook Attacked as "Predatory Pricing"

[jasonkchapman]

Relating to all of this, Peter Ginna has done a nice two-parter on his Dr. Syntax blog pulling all of the different pieces of the recent shots fired in the e-book wars together. I hadn't realized that, in going to Amazon, Covey is publishing with Rosetta Books! That's a cut with added salt.
http://www.doctorsyntax.net/2009/12/...lly-begun.html

[omk3]

Originally Posted by ChrisR1970

When we began to construct a cost analysis for the electronic format and its distribution we realized something that most people do not think about; both the Fixed and the Variable cost portion of each book almost disappear for the electronic format. When a physical book is sold there is fixed cost consisting of Factory overhead for printing, distribution and warehousing mostly. Then there is a variable cost associated with each book sold that includes the materials and labor for each book. At the end of the chain the retailer adds both types of cost also. For an electronic format and distribution book these cost are not associated. Almost all of the cost of the book is incurred at the beginning before the first book is sold. The entire printing and distribution chain is almost erased. The result is that after initial costs are recovered for the Author and Rights; every book sold is 99% + pure profit.

You are exactly right of course. The problem for publishers I suspect is that neither the market nor the publishers themselves are ready to move exclusively to ebooks. This means that they will keep having all the costs of traditional printing/distribution/etc for their paper books, while gradually fewer and fewer of them will be sold, as people will be buying more and more ebooks instead. I believe in some years from now (no idea how many), most books will be published in digital form primarily, with a few special edition hardcovers for a much smaller market, like vinyl LPs today.

[calvin-c]

Originally Posted by Nitrousoxide

Ebooks have a higher profit margin than paperbacks. I fail to see how selling them over a paperback will hurt your bottom line. If a publisher is concerned that 9.99 best sellers are hurting their profit margins for their hardbacks they can just refuse to sell through retailers that only offer 9.99 best sellers, or they can delay their release in ebook format like S&S is going to do.

If the market pressures from producers are large because the price elasticity of supply is high and the price elasticity for consumers is low then the situation we will end up with in due time is a world where only ebook retailers who offer variable pricing will get the deals to sell the best sellers.

On the other hand, if the market pressures from consumers is high because the price elasticity of demand is high then we'll find that consumers will just refuse to buy from stores that offer variable pricing for best sellers, and publishers will loose out on both the ebook and hardback sale from more and more people as ebook readers increase in popularity like MP3 players did.

I'm personally betting that the price elasticity of demand is fairly high and that trying to charge more to "save books" will only result in publishers charging well over the price equilibrium, and thus LOOSING sales and profit.

And a low retail price only hurts publishers' profits if they lower the wholesale price accordingly. If (as reported) Amazon is taking a loss on its $9.99 books, then that price is hurting Amazon's profits-not the publishers'.

Somebody mentioned that they'd only accept the publishers' claims if the publishers opened their books, and I think that's a great idea, but I don't expect that to happen. Mostly their arguments make sense to me, so I accept their claims-but always with some doubt because they don't open their books.

And in any case, the real question is how this affects consumers/readers-I really don't care about the publishers' profits (nor about the authors') except that I believe that denying them profits will result in fewer books being available in the future.

Assuming the reports are correct that Amazon is losing money on its $9.99 books, that can only be explained as an attempt to corner the market in ebooks (i.e. become a monopoly, if totally successful) and if so then that price will only continue until they're successful. Once successful they'll either raise prices (hurting consumers) or lower expenses.

If Amazon is the publisher, then those expenses will be the editing & proofing-and I don't see how they can reduce those very much. The only expense I can see being reduced is what Amazon pays authors-and that will result in fewer books being available in the future, again hurting consumers.

If Amazon is simply the distributor, then the expenses they'll lower is what they pay to publishers-and if Amazon is the only major vendor for ebooks, that will result in the death of ebooks, again hurting the consumer.

Overall, I think the problem is that the publishers are trying to simplify the issues, making it appear that their only concern is for their profits. Which it probably is as, if Amazon corners the ebook market (which it appears to be attempting) they will lose whatever profit is to be made from ebook publishing.

So, either come up with a different business model (which still allows profit to the author, hopefully based on the 'quality' of their work-and as I stated elsewhere, I consider quality best judged by popularity) or agree with the publishers' opinions that the $9.99 pricing is too low.

One possible new business model is self-publishing, but that currently requires significant technical work on the part of the author(s), most of whom (as far as I can tell) are not technically competent. At least in publishing technology. Can they learn? Probably, if given the incentive. Most of them strike me as at least fairly intelligent, but like anybody else faced with learning something new, they need incentive-so far I don't think that'll be offered until after Amazon does corner the ebook market.

[jasonkchapman]

Originally Posted by calvin-c

Overall, I think the problem is that the publishers are trying to simplify the issues, making it appear that their only concern is for their profits. Which it probably is as, if Amazon corners the ebook market (which it appears to be attempting) they will lose whatever profit is to be made from ebook publishing.

It's way too late for that (cornering the market). That ship has sailed. Unless somehow Amazon ends up being the only one who can stand the $9.99 price for an extended period of time, which I sincerely doubt, there won't be any market cornering going on. They would have had to have started a good five years earlier.

[bob315]

Originally Posted by Mycropht

I don't think authors are the problem and I don't think the readers are the problem. For $9.99 both authors and readers could get what they want but with an extremely simplified distibution chain a lot of inbetweens are not needed anymore...

If enough readers got together and offered writers a better deal than their current publisher, this could become a reality. If there were *enough* such readers, the price could be well below $9.99 and still leave a very tidy sum for the writer.

[BearMountainBooks]

Originally Posted by bob315

If enough readers got together and offered writers a better deal than their current publisher, this could become a reality. If there were *enough* such readers, the price could be well below $9.99 and still leave a very tidy sum for the writer.

I think there will be a wave of authors going direct. There are already a few doing it and a few more asking about it (Anne Rice posted to the amazon Kindle forum basically asking several questions about Kindle and back list. Her backlist is currently in contention with Random house and it's recent land grab.) Charlotte Elkins is working with a company to get her backlist on ebook form. Any author that clearly owns the ebook rights would be crazy if they didn't take advantage of going direct. And if their backlist sells...guess what? Some of them are going to take their next new book direct.

For an author with even a small following, taking one book and taking a chance with direct ebook sales (kindle and other)...it's only a matter of time before it catches on more than it has.

All that said--I am not belittling editors or the ability of a publishing house to market books. I do believe that process is going to either streamline quickly or die.

See? And everyone says that the publishers aren't learning from what happened to the music houses. This shows that that just isn't true. They took a very valuable lesson away:
"Don't let people come to accept as reasonable a lower price than you want them to."

This seems mighty similar to what happened a few years back with the music factories on one side and some little company called "Itunes". Once Itunes had established a lower (and consistent) price point consumers started to reach the consensus that it WAS the correct price. When the industry tried to split off and (eventually) start offering the music online at fluctuating prices (often between $1 to $3 a track) they found themselves with empty storefronts and unable to reset customer expectations.

This same situation could be applied to Amazon and ebooks. As more people become used to ebooks (and the Kindle especially since it always seems to be trotted out as the representation of a dedicated ereader) they will come to see 9.99 as THE price a book is supposed to be. Wait to long and it will become the standard price. Something the pubs probably won't want to see.

[jasonkchapman]

It should be noted that Stephen Covey, whose Kindle exclusivity deal got lots of press, did not go direct. He just took his e-rights to a different publisher--Rosetta Books.

I suspect that a l lot of authors will do something similar, rather than handle the icky side of distribution, marketing, and PR themselves.

[eGeezer]

Originally Posted by calvin-c

Lots of pbooks have ads in them. Of course these are ads for books. But what do you think the 'other books by this author' page at the front of many books is, if not an ad?.

So, IMO it depends on the ads-what they're for & how they're handled. Do it right & I've got no problem with it. Do it wrong & I'll quit buying books from that author/publisher/store.

This may be a day late and a dollar short, since I am only reading page 4 in what is a 7-page thread at this tiime, but wish to take this moment to agree.

When someone first mentioned ads, my first thot was pop-up ads, or randomly inserted ads that break the flow of reading, since at this time pop-up probably doesn't work in ebooks, yet. That's a great big "won't buy this author again".

I would fully expect to continue to see "other books by..." lists -- hopefully even delineating ebook availability. And I wouldn't have any problem with the carry-over ads from pbooks already mentioned: excerpts from forthcoming editions, or just random ads in the back for genre authors. I seldom read either one. Typically when I read the conclusion, the book gets closed.

I used to read the "coming attractions" excerpts, but by the time I finally saw the pb on the shelf and read the synopsis, I would find the story somehow familiar and think I already read it.

Would I be willing to pay more for ebooks without ads? No. And shame on anyone for suggesting the notion as a bargaining chip. But I'd stop buying if random ads started appearing INSIDE the book.

I tolerate ads at movies (and I don't mean the trailers) because there is a myth that it helps keep the ticket prices down -- and because booing at the ads for a year didn't make them go away. And as much as I love going to the movies, if ads started interrupting the movie, I'd be saving money there, too. (Although I love the clever ways they sometimes find for inserting product placements.)

I firmly believe an ebook should cost significantly less (30% less seems reasonable to me) than a pbook. Of course, we can't stop them from upping the price of a pbook so a $10 ebook looks reasonable, but that's a different rant bordering on Machiavellian.

[TallMomof2]

Originally Posted by llreader

Now that is interesting. Do you know why that is? Do they just delete them? Do they "license" them? It seems a lot easier to keep a catalog of ebooks than pbooks.

I haven't asked but over the last few years they've kept about 500 titles. Some seem to stay longer than others. I'm guessing that it has to do with licensing and fees. The selection is pretty sparse, limited to bestsellers for the most part. But I do have access to Safari Tech Online and Audiobooks.

[calvin-c]

Originally Posted by jasonkchapman

Unless somehow Amazon ends up being the only one who can stand the $9.99 price for an extended period of time, which I sincerely doubt, there won't be any market cornering going on.

That, of course, is the question. Amazon apparently disagrees with you, but it rests on two points: how long they can stand the $9.99 price (I'm sure they know that better than you) and how long it will take for them to corner the market (I'm not at all sure that your opinion on that isn't better than their's.)

FWIW I expect Amazon's attempt to fail & for them to abandon their $9.99 price point on most books. But much of that does depend on whether or not they go into publishing for themselves.

Here's a thought, maybe Amazon is working on better tools to help authors 'self-publish' their books. If so (and assuming they can restrict those tools to only authors who 'publish' thru Amazon) then they can lower their expenses without lowering payments to the authors. That might give the best result, but I'm not really hopeful. I think it's too innovative to occur to an MBA-but I'm not sure of Bezos' background, nor of how much direction he, personally, gives to the ebook effort. (Most CEO's would hire an MBA to manage the area, unless it was their 'pet' project.)

Geezer: FWIW I think we're in agreement on principle, our only disagreement is probably in the area of how much less ebooks should cost. I suspect it's more in the realm of 10% less than 30%, but am willing to be wrong.

[eGeezer]

Calvin, I base my "best guess" of 30% on the availability of pbooks at 25-30% discounts, which puts them in the neighborhood of $7.50, and many times even $4-5. If retailers can discount pbooks that much and everyone still makes their money (albeit less for the retailer than at $full), then 30% off the pbook price for an ebook is more than an a reasonable expectation. But who knows?

As for the Amazon $9.99 price, I see that as the "hb equivalent, first release, hot off the presses, never seen the light of day before" price. I might actually see myself buying an occasional first-release book at that price. After all, I paid $16.99 for the last Harold Patterer book -- probably the first first-release hb book I have ever purchased. Of course, I bought it for my sister-in-law and only just happened to read it cuz it took her a while to come get it (wink wink).

Therefore, I then see the "later release" ebook price as being lower just like pbacks.

This is a different reasoning than that used originally to reach the "30% less" mentioned earlier, but it supports my expectations.

Of course, this is the very thing it appears the publishers fear, as mentioned many times in this thread and others -- arbitrary price-setting establishing an artificially low price in the minds of the angry villagers carrying torches and pitchforks up the path to the castle.

Btw, I have no problem with the higher hb prices because like any industry, first release of a product pays for the research and development (authoring, in this case), and initial manufacturing setup (printing).

I also waited for Blu Ray players to come down in price before purchasing.

[mrmikel]

Part of the pricing dynamic is the shift to large corporate ownership of publishing houses.

The corporate types don't like to take risks. So they stay with and promote established authors. There aren't so many of them, so this relatively small group gets bid up.

The small publishing houses can't compete in this competition so they drop out and many get absorbed or fail.

So there are fewer publishing houses and bigger and they all act the same and the bidding for the established authors keeps going up and up. The corporate types have to make large money to feed their large overhead. Both of these combine to raise the price without changing the product one iota, except to pressure authors to write for a wider group.

Customers object, but have no choice until electronic technologies come along and change the game. Neilmarr and the like can offer works at lower prices because he doesn't have that overhead. He has to take a chance with new authors in order to differentiate his authors from everybody else.

This is what they call the creative destruction of capitalism. Sometimes it is just plain destruction, but it looks like the capitalist system is working as it should. It is messy and slow, but it better than having things dictated by a bunch of aparatchiks in a government office.

[delphidb96]

Originally Posted by Moejoe

I would if they were both alive. Dickens was a hack and the only work I've ever enjoyed of his was A Christmas Carol, and then only because of its cultural resonance (I thank him alone for allowing Scrooged with Bill Murray to happen). Everything else by Dickens bores me to absolute tears.

Heinlein I despise even more. A libertarian bordering on fascist, mysogonist with little to no skill who somehow hit a chord with the post 60's pseudo-intellectuals who raised him up as a master. Dull, dull, dull.

If you're going to give examples use someone like Max Brand who was actually talented, wrote for money and only money and despised the audience who bought his work. He would make your argument more compelling to me, but not much more.

Oh puh-lease! Max Brand??? Perhaps you might be better served sticking to Cat in the Hat. I'll grant that later works of Heinlein showed his failing mental capacity, but the early works, well, you might as well claim Roth and the rest are trash writers. And as for Dickens, there's not a book of his that doesn't show master-level story-telling.

When you're done jumping the shark, please rejoin the conversation.

Derek

[delphidb96]

Originally Posted by Mycropht

I don't think authors are the problem and I don't think the readers are the problem. For $9.99 both authors and readers could get what they want but with an extremely simplified distibution chain a lot of inbetweens are not needed anymore and they are the ones who are crying out loud. Well, my heart bleeds for them and for the music agents and for every worker replaced by a robot and for all those expert makers of horse chariots and... Maybe it is not a good thing but it cannot be stopped.

I know one thing: if I could somehow pay $9.99 for an e-book where $5 would go to the author and the rest to Amazon to cover less creative work (editing, formatting, marketing, distribution,...), the author would get more then (s)he gets now. Same goes about music.

Pretty much what happens with author-direct DTP. An author submits his/her work directly to Amazon through their Digital Text Publishing (DTP), and gets a hefty share of the price. It's at least 35%, if I remember correctly. And I think it's more like 50%. (Nope. It's 35%, but still, that's $3.49 for each copy sold at $9.99!) Of course, at the current level, the work pretty much has to be ebook-ready. I'd like to see more offerings for cover art, layout and editing.

Derek