Daily Archives: December 18, 2011

This is an interesting companion piece to the one on self-publishing that I posted earlier. If interested in writing, this is also a good blog to follow. Tom Dupree has many years experience as an editor, and it would be worth your time to tap into that knowledge.

http://tomdup.wordpress.com/2011/12/15/e-customers-creeped-out-by-price-creep/

E-Customers Creeped Out By Price Creep

By Tom Dupree

There’s a piece on page 1 of today’s Wall Street Journal about e-book sticker shock, another good job by the Journal’s book-beat reporter Jeff Trachtenberg. I’ve been railing about this issue ever since Apple persuaded the six major publishers to disallow any discounting by retailers on e-books. As Mr. Trachtenberg points out, this restriction doesn’t apply to print books, so you have the increasingly common phenomenon of e-editions equaling, and even surpassing, the discounted print edition at retailers like Amazon.com. In at least one instance (emphasis on “at least”), Ken Follett’s doorstop FALL OF GIANTS, the publisher’s e-book price is $18.99 – but the paperback edition can be bought new for $16.50.

Let’s re-emphasize what’s actually going on here. The major players in an industry which faces massive headwinds, book publishing, is deliberately overpricing its most promising and fastest-growing revenue stream, specifically to dampen e-demand and reduce “cannibalization” of “higher-margin” hardcover and trade paperback editions. Mr. Trachtenberg points out that under the “retail model,” by which Amazon was charging $9.99 for new bestsellers, it was the retailer who took the loss; the author and publisher still received roughly half of the full retail price. But under the current “agency model,” the publisher retains 70%, and the retailer gets the rest. No more “loss leaders,” and essentially no more $9.99 bestsellers.

But look closer at the Follett. Dutton’s suggested retail price for this 985-page tome in hardcover is $36. Under the “retail model,” it collected $18 per e-copy, just as it did for a hardcover, and Amazon could give it away if they liked. Of course, that’s no way to run a business: “How do we do it? Volume!” What Amazon was trying to do was to jump-start a nonexistent e-book market and worry about coaxing it into profitability later; they’ve always been forward-thinking in that way. But under the “agency model,” Dutton gets 70% of $18.99, the highest price I’ve encountered for a commercial trade e-book, which is $13.30 per e-copy, and all retailers receive the same $5.70 (I rounded both numbers to the next penny). $13.30 — and remember, this is the absolute Beluga of e-pricing — is $4.70 less than $18. But who’s counting?

My point exactly.

Now let’s consider Apple’s motives. It’s a wonderful company, but it’s no less ruthless just because its antagonizer-in-chief has passed away. When Apple was the “first mover” in digital music, it used the leverage of its huge installed iPod base to oppose the big record labels by dampening the retail price from $15-$16 for a whole CD to 99 cents for an individual song (boy, that price rings a bell. And it’s increased since then, too). But in e-books, Apple found itself, uncharacteristically, in Amazon’s wake (Steve Jobs had infamously sniffed at the Kindle’s launch: “People don’t read any more”). So now what it had to do was eliminate Amazon’s price advantage – and, amazingly, in a reversal of its effect on the music business, it succeeded in propping up the retail price of e-books! Justice is now looking into whether preventing discounting constitutes illegal collusion among the major publishers (as are European authorities), and I don’t know much about the law so can’t speculate, but it does sound fishy, and it protects retailers (guaranteed profit) at the expense of consumers (higher prices).

I have some friends in the book biz who’ve read my previous musings and have some pretty good arguments that nobody seems to be considering. For example, it’s an age-old fact that for big bestselling authors like Mr. Follett, or Stephen King or John Grisham or Danielle Steel or Nora Roberts, publishers pay way too much up front as an “advance,” otherwise known as a “guarantee against royalties.” First, it’s necessary because everybody else is waving huge paychecks around, and you have to be there to compete. Second, a major author can be a tentpole for the rest of your list: if you, Ms. Retailer, want the new Grisham, you’ll have to hear about all the other great stuff we have. Third, there’s the intangible prestige factor, as authors and agents want to be with the house that publishes XXX. But these millions represent a nonrefundable guarantee which has to “earn out” before a book realizes its true potential for perennial profit down the road. (I’ve heard that Mr. King has a deal which plays down the guarantee in favor of a larger participation on the back end, like major movie stars sometimes do.) A surprise hit like THE HELP is very profitable immediately, but big bestsellers from well-known authors always start out deep in the red, and I’d love to know what Kathryn Stockett’s agent has in mind for her next contract.

That means you have to scramble for every penny you can find during the hot new-release period with the ads and the DAILY SHOW spots, very much like movie studios do. My question is: why aren’t the big publishers doing so?

Mr. Trachtenberg quotes a publisher as saying people are realizing the advantages of e-books and are willing to pay a premium for them. I’ve heard that too from some consumers. But $18.99? (P.S.: Book prices never go anywhere but up.) He shares more ominous quotes from others. A reader says it’s hard to justify a $10-$15 e-book when you can pick up a used print copy for $2 or $3 on Amazon. If that was the Ken Follett, the author and publisher made no money on the used-copy resale, when they could have received $18 for a “retail-priced” e-book. Also, the ability to self-publish and shop online is hitting the major publishers from the low end. As an industry consultant says, some e-buyers may opt for “five-star-reviewed” self-published mysteries or romances which are going for $2.99 or $3.99. Plus, if it’s digital it’s stealable, and remember that millions of otherwise law-abiding kids believed downloading from Napster was justifiable because CD prices were too high.

I think it’s fair to say that most e-reading devices have been purchased since “agency pricing” went into effect about two years ago, so possibly it’s only the early adopters like me who recoil against $12.99 and $14.99 books, or e-editions which cost more than paperbacks. Most new e-reader owners may think that’s the going rate you pay for not having to lug the physical book around, being able to read it on damn near every mobile device there is, etc. Yet as a “veteran,” I’d still be willing to wait, even a whole year, so the publishers have time to sell every hardcover they possibly can, if they’d only then give me a fairly-priced e-edition so I could fairly pay the author and publisher instead of ignoring them.

As it is, I have a list of saved backlist books that I’ll never buy in print editions; I just want to read them once. Every month or so I check on them, and every so often a publisher will experiment with a temporary lower price (this is why the publishers will probably survive any accusation of price-fixing; each one is free to charge anything it likes). I will either get the price I want, or the publisher will lose a sale which I would guess is sorely needed. It’s as simple as that.