Thursday, April 5, 2012

Thoughts on E-book Pricing: Part I

0 comments Posted by Unknown at 12:17 PM

Even though I'm still puttering around writing my 'first' book (or at least the first one I have real hopes of getting published, however grandiose those hopes may be), I still like to keep an eye on trends in self-publishing and the growing e-book market. Every once in a while, I'm reminded that not all of my acquaintance (both online and offline) are doing the same, so I thought I'd talk a little about the realities of e-books and the shift to digital content. For the purposes of this entry, I'm only going to look at traditionally published material. Self-publishing is an entirely different kettle of fish, and follows a few different rules. I'm also going to do this in three parts. Historian that I am, these parts will be in chronological order. Hopefully you will find this illuminating and thought provoking.

While electronic books have been around in various formats for decades (yes, decades) it wasn't until 2009 that they really began to represent a noticeable market share in the publishing industry. In part, this was thanks to companies like Amazon and Sony aggressively marketing dedicated e-book readers. Since then, more devices have entered the marketplace and e-book sales have grown at an exceptional rate. While print sales have also grown during this period, e-book sales are a growing percentage of total sales. This overnight jump in sales, as well as a shift in American culture, has sent a few shock waves through the publishing world over the past few years. These shock waves will affect how you buy your books (whether print or digital), and what price you pay for them, for the rest of your life.

First, how much should an e-book cost? This article in the NY Times from 2010 does a good job outlining the costs of publishing. In essence, digital publishing only saves the publisher about 30% of the price of traditional printing, which is only the actual cost of physically printing the book. Cover art, editing, formatting, and overhead (I hear offices have electricity bills to be paid), are all still in effect for e-books at the same prices they are for print books. The cheaper a traditionally published e-book is sold for, the less the publisher makes in profit. The less they make in profit, the fewer advances they can afford to pay for new work, and so they publish less in the future.

Books in the United States were sold under a wholesale model until 2010. What this meant is that the retailer paid a wholesale price (50% of what the publisher decided was it's retail list price), and then was free to sell that book for whatever price it wanted. Large retailers like Barnes and Noble could offer their special membership prices, or massively discount bestsellers, because they could sell these items in massive volumes. But these price cuts all came out of Barnes and Noble's profits, not the publishers'. In 2009, in order to push Kindle sales, Amazon took this a step further, and started listing e-book prices below the wholesale price. This is called loss-leading. Amazon was taking a loss on smaller products in order to encourage sales of a higher-profit item, the Kindle. Amazon felt, and was likely correct, that the key to triggering an e-book revolution was price. With the Kindle initially introduced at nearly $300, consumer's were not likely to buy a $26 book to read on it.

This created concern in the publishing world. While it was Amazon taking the loss on those $9.99 bestselling e-books, it was a loss that even Amazon could not maintain indefinitely. Publishers were worried that eventually they would be the ones called upon to take the long term losses associated with a $9.99 e-book price, which they were not prepared to do. Publishers were also worried that if given a choice between a $9.99 e-book and a hardback print edition at $26, they'd take the e-book. This becomes even more problematic, because those hardbacks are priced with a high profit margin. Loosing that profit margin means that the payback on publishing a book takes more sales, and more time. It could mean less profit in total. Publishers were faced with diminishing profits on all fronts should Amazon be allowed to set prices that were good only for Amazon, and not for the makers of their products. This is a similar scenario to what's happened to several companies who produce product for Walmart.

In 2010, Apple arrived on the scene with the iPad and the iBookstore. In Part II of this series, I'll talk about just why that's so important.

 

Labels: , , , , ,

Tuesday, April 13, 2010

My take on the E-Book Extravaganza

0 comments Posted by Unknown at 6:11 PM

I must admit, I’m a bit at a lost over this whole e-book revolution and the buzz it’s constantly generating on the web.  Don’t get me wrong, I’m not a fifty-year old woman who doesn’t know how to use a computer and doesn’t have internet.  I’m typing this on a laptop with all the bells and whistles, and I live in a household that subscribes to cable internet which is the fastest option available in our area.  Thanks to one of my roommates, we even enjoy a flat screen tv, X-boxes and the PS3.  We also have MP3 players, and two of the people I live with have smart phones.  Only one of us has an e-reader, and I don’t think that’s going to change in the near future.  Here’s why:

First, e-readers are expensive.  The three name brands of the moment are the Kindle (made by Amazon), the Nook (Barnes and Noble) and the new IPad (Apple).  Three other companies sell mass market e-readers: Sungale, Sony, and Irex.  The cheapest is Sony’s Pocket Edition, $199.  The Nook and the Kindle are both available for $259, and the IPad is $499.  Sungale’s is $199 as an outlet item from Best Buy, and the Irex is $399.  Now, I will grant you that the IPad is actually a full computer on which you can do a heck of a lot more than read books.  So for the rest of this discussion, I will ignore the IPad.  I’m also going to ignore the Irex (as the most expensive dedicated e-reader) and the Sungale, as BestBuy.com does not offer a lot of information about what kind of item this is.  Is it a recondition reader?  Factory reject?   I don’t know.

Next, e-books are released in multiple file formats, and no e-reader on the market reads all of them.  Sony’s Pocket Edition reads two formats: .epub and .html.  The Nook reads four formats: .epub, .pdb, .pdf and .mp3.  The Kindle reads four formats as well: .azw, .mobi, .txt, and .mp3.  Newer additions also read .mobi, and .pdf.  If you haven’t noticed, there is no format all three of those readers agree upon.  In fact, the Kindle is the only reader on the market that can read .azw.  So, with its limited functionality, I’d pass the Sony Pocket Edition by and shell out the extra sixty bucks for the Nook or the Kindle.  With this comes the realization that from now on, my e-reader has determined which major store I can get my books from.  Neither Barnes and Noble nor Amazon state on their websites which format their e-books are in.  I’m going to take a wild stab in the dark and say that BN is publishing in .epub and that Amazon is publishing in .azw, but I don’t know that.  So if I buy the Nook, I’m locked in to BN.  Same with the Kindle and Amazon.  No more shopping for the lowest price between competing stores, unless I buy both e-readers.

Now, how many e-books would I have to buy at a discounted price in order to pay off my e-reader?  Both the Kindle and the Nook are $259 (a coincidence?  I think not).  I’m going to assume that most people who have e-readers are reading New York Times Bestsellers on their e-reader.  Amazon offers these titles from $5.50 (Steig Larson’s Girl with the Dragon Tattoo) to $14.99 (James Patterson’s 8th Confession).  Most are $9.99.  Barnes and Noble’s spread is between $2.50 (Jayne Rylon’s Kate’s Crew) to $14.99 (David Baldacci’s Deliver Us from Evil).  There is no standard price on BN, but my rough unscientific impression is that most books are at Amazon’s $9.99 or lower.  To even things out, let’s say for argument’s purposes that the average price of a bestselling e-book is $9.99 across the board.

The print editions for New York Times Bestsellers (Hardcover) are between $14 and $20 on BN with member discount.  Let’s ballpark it to $17 on average.  Amazon lists the same titles from $9.99 to $17.  We’ll wave a magic wand and say that the average is $13.50.  So, at Barnes and Noble I would have to buy 37 e-books at $9.99 to make up the difference of the $259 initial buy of my e-reader.  That’s a whopping total of $629 without tax.  At Amazon, with the given assumptions, you’d have to buy 77 e-books at $9.99 to make up the initial cost of the e-reader.  That’s $1039 total, without tax.

Granted, I’ve made a lot of assumptions about price, and I haven’t factored in shipping and handling, or the fact that both BN and Amazon offer e-titles for less than $9.99 and also give you free books from time to time.  I haven’t factored in the cost of accessories for either reader.  I also haven’t factored in the fact that my local library offers e-books for timed download (the file expires and removes itself from your reader after a specified date) for free.  (Yes, my library circulates e-books.  Niffty.)  But if I’m going to download a book from my local library, why not just get the print edition?  I still haven’t paid for the book other than through a millage that I’m already paying regardless of whether I use the library or not, and I won’t have to buy the e-reader.  Huzzah!

Oh, and if you were wondering, the library millage is about $50 - $75 a year on an average value house.  On the same assumptions as earlier, if I buy only NYTBs, I’d have to buy 4 ($54) to 6 ($81) books in one year from Amazon to equal that amount.  From Barnes and Noble: 3 ($51) to 5 ($85) books.  Now, if you’re worried about getting a book the day it comes out, libraries are likely not for you.  But then, neither is Amazon’s e-book store, since it’s still having negotiation issues with the major publishing houses.  But libraries offer you a) the cheapest books and b) the ability to not dedicate huge amounts of physical space in your house to books you’ve read only once.  Oh, and did I mention you’re likely already paying for them?

And one more thing.  These e-readers?  They only read books, or play audio books.  My library also lets me check out movies and TV shows (in VHS, DVD, and BluRay) and CDs as well as books and audio books (in tape, CD, MP3, and digital download).  The library also circulates materials that are out of print, and are thus unavailable in e-book format right now.

The moral of this: save your money and leave the e-readers alone until they either a) dramatically drop in price, or b) become something more like the IPad, which is more useful.  Until then (and even after then): support your local library.


 

Labels: , , , , , ,

;;
Subscribe to: Posts (Atom)