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Tag Archives: market

Articles I Like: Consumers vs. Publishers

The PolyBlog
April 24 2012

Jeremy Greenfield had an interesting post on Digital Book World about e-book pricing — but focused on the costs. The article tries to basically explain both why consumers think costs (and the price) should be a lot less, and publishers saying, “No, wait, costs are not that far off”.

Here are some excerpts from Greenfield’s post:

Publishers are making a killing on e-books because they cost nothing to produce, distribute and sell and are almost 100% pure profit. At least, that’s what many consumers think.

…

While consumers understand the basic costs involved in the bricks-and-mortar retail world, they don’t understand the costs involved in selling something that is, well, much, much smaller than a bread box.

…

“We still pay for the author advance, the editing, the copy-editing, the proofreading, the cover and interior design, the illustrations, the sales kit, the marketing efforts, the publicity, and the staff that needs to coordinate all of the details that make books possible,” said Bob Miller in February 2009 on the HarperStudio blog (which has been defunct since April 2010 when the publishing start-up folded) when he was president and publisher of that company; he is now president and publisher of Workman Publishing. “The costs are primarily in these previous stages; the difference between physical and electronic production is minimal.”

E-book production “costs 10% less” than print book production, said Molly Barton, Penguin’s global digital director. Hardly the vast savings that many consumers imagine. “But the largest expense is author payment and always has been.”

You can find the full post at Consumers Upset and Confused Over E-Book Pricing. [Edit: The original page has been removed]

Kris Rusch summed it up pretty well — she described it as all bullshit. But as I love to be a gadfly (not in the simple irritating sense, but rather the provocative sense for discussion), let me pull apart the original article. Because there is a hidden truth behind it, or rather, two versions of the truth.

Let’s start in reverse order, and begin with the publisher. They approach books in the modern world, at least from an accounting perspective, as “essentially” one entity. So all the costs that the publisher quoted above is charged to both items — it’s all overhead that has to be paid — regardless of the format of the final book. So they charge front-end editing costs, regardless of format out the back-end. They charge the combined formatting. They charge all marketing costs, etc. etc. etc. to the cost. All of these are considered a “book’s cost”, regardless of the final two sets of costs that diverge — when it is all ready at the end, you press “PRINT” in one business model or “UPLOAD” in the other. Except the publisher adds all those costs in both business models back into the original costs and amortizes it over both. Following that model, it wouldn’t matter whether you went Print or Ebook, the costs would come out the same. In fact, if you compare it to the old process where they only had print costs, the book costs are actually higher now — because they are doing an extra version that they charge to the total as well. It’s a completely wonky way to price what are essentially two separate products, but if your business model doesn’t like ebook transformation, it’s a good way to hide costs and embed them in your ebook world so that the transformation goes slow.

By contrast, let’s look at the consumer perspective. Editing? They know you already did that for the print book. Formatting? Already done. A cover? They don’t care, reuse the same one. Dozens of people to “manage the relationship”? Also don’t care. Nope, they know you already paid those costs which is why publishers are charging so high for print books (hard cover and paperback). Sooooo, ebooks aren’t incurring all those costs again — they are only incurring a small amount of “incidental” additional costs. In other words, once you have the “content”, ebooks only incur marginal costs. And like any good business model, you sell the ebook for the marginal cost of producing that extra format, plus a small profit.

In one vein, the publishers are saying, “Oh, you want an eformat TOO? That raises the overall price of everything” and consumers are responding, “No, unless you’re giving me both formats, I’m only willing to pay the incremental cost for doing an ebook”. And like all other industries where the internet is reducing production costs of virtual goods, publishers can continue to block innovation at their own peril.

The most laughable part is the argument that the biggest expense is for the author. Considering an author gets less than 25% of overall price (and often much less), that’s a pretty good argument for consumers to say “Hey, big publisher? I don’t think you add enough value. I prefer to give more money to authors and so I’ll buy the self-published books they do. And you’ll get zip on the deal.”

After all, in the end, consumers vote with their wallets, and if it puts more money in the hands of the content creator, that starts to look a lot like another economic movement.

Any one want to try labelling their self-pubbed books as “Fair Trade Reading”?

Posted in Writing and Publishing | Tagged books, e-books, market, pricing, publishing | Leave a reply

Articles I Like: E-book lawsuit in Canada

The PolyBlog
April 24 2012

Marsha Lederman had an interesting article in the Globe and Mail on April 18th trying to put a Canadian spin on the charges in the U.S. of collusion and price-fixing by the Big Six publishers (Harper Collins, MacMillan, Penguin, Random House, Hachette, and Simon & Schuster) with Apple. Just to be clear, there are TWO lawsuits in the U.S. — a class-action civil suit launched by “consumers” against this group for trying to raise ebook prices above Amazon’s preferred ceiling of $9.99 (targeting all six plus Apple) and a completely separate Department of Justice civil suit that targets everyone in that list except Random House. I’m not including separate state plans in that list.

Here’s an excerpt from Lederman:

A proposed class-action lawsuit filed in B.C. Supreme Court by the Vancouver firm Camp Fiorante Matthews Mogerman alleges that Apple Inc. and a number of publishers engaged in a “conspiracy” to lessen competition and “fix, maintain, increase or control the prices of e-books.” It is the most recent of at least five such suits filed recently in courts in Ontario, Quebec and B.C.

It also alleges that the defendants or their representatives communicated secretly, in person and by phone, to discuss and fix e-book prices, in the lead-up to the introduction of Apple’s iPad, which can function as an eReader, in April of 2010.In addition it alleges that the growing Canadian eBook market is highly concentrated, making it more susceptible to collusion.

“The U.S. case isn’t going to cover Canadian consumers. So it’s the same underlying facts, it’s the same consumer protection agenda, but it is for different consumers in a different country,” said lawyer Reidar Mogerman, who filed the suit in B.C. Supreme Court last week on behalf of plaintiff Denise E. McCabe, a non-practising Kamloops lawyer who has purchased a “significant” number of e-books.

See the whole article at Allegations of e-book price fixing hit Canada (link at Globe and Mail has expired).

So, you’ve seen the U.S. case, this “seems” like a simple matching by Canadian lawyers, should have same outcome, right? Not so fast. There is an underlying premise in law that one act can’t result in two actions for damages — even if Canadian consumers are not included in a U.S. judgement, a Canadian judge is going to look to see if Canadian consumers were either explicitly targeted by U.S. actions (i.e. the American individuals involved in the decision were negotiating in ways that were inherently or explicitly including the Canadian market rather than simply a knock-on effect of American actions) and/or there were additional negotiations / decisions by Canadian actors that create an additional claim of action. In other words, where’s the “Canadian content”-equivalent component of the decision-making? If there isn’t any, and to date there has been no proof offered in any court-room or media story, then the Canadian lawsuits are going to have to fight a much bigger uphill battle. Particularly as there is no “Amazon.CA” ebook store — we all buy from the U.S. site. Which means publishers could get punished “twice” for sale adjustments in one store. I’m a bit skeptical of the outcome, partly as Canada doesn’t have the same class-action lawsuit mentality of our American cousins, including less of a “reward” culture when it comes to judgements, often limiting outcomes to “actual damages” (a couple of dollars if you can prove you bought a book at a price higher than $9.99).

I do, however, find the notation that the Canadian market is more prone to collusion since it is more highly concentrated of interest. It could mean that certain companies might take a larger hit than the others, and with completely different dynamics than in the U.S.

Personally, I think the lawyers missed the boat on the filing. They should have included a NAFTA element where they could show that Canadian consumers writ large were being squeezed by the Canadian publishers as a larger pattern of behaviour. I’ll confess upfront that I have a really strong aversion to HarperCollinsCanada. They don’t price match HarperCollins (U.S.) and invariably when I find a book that is priced way higher in Canada, the publisher is HarperCollins. I’ve even reduced myself to arguing with them on their Facebook page about their prices…I don’t know why I’m even still getting their feeds as it only raises my bloodpressure.

Awhile back, I got very excited about Lawrence Block’s ebooks being available, went to get one of the Scudder series and thought, “What the ????”. It was $13. For a book that had been out for 10 years. Since I’m on his FB feed, I mentioned it to him…to which he replied, “Huh? They’re $7,99 in ebook form”. Of course, if you’re in the U.S., Harper Collins (U.S) was selling it for $7.99. But the Canadian price was $13.99 or so on Amazon. I could find it for $12 something on Kobo and I think I could find it for slightly less than that on Nook (or vica versa). But bottom-line was that Canadians would have to pay more than $11 to get the ebook, a greater than 35% markup. Oh, and just to add insult to injury, the paperback version was available for less than the U.S. Kindle version.

While I normally see this with HCC, it isn’t unique to them. There’s something wonky in the state of publishing when (a) the ebook version is more expensive than the paperback (I don’t care how many times a publisher dances on the head of the pin arguing that ebook costs are not much lower than paper production, nowhere could you ever convince me it was MORE expensive!) and (b) the price you set to sell to a consumer virtually (across the internet, from the same store, with the same process, with the same technology, and the exact same E-version original!) depends on which country they are in and, ignoring currency exchanges particularly when dollars are trading almost equally, there’s a 35% markup!

If that isn’t a pattern of behaviour that gets you slapped by a Canadian court for price-gouging and collusion, it certainly does at least colour your evidence a bit more strongly in your favour in your court filing. Ah, it will be fun to be a spectator.

Posted in Writing and Publishing | Tagged books, Canada, e-books, law, market, pricing, publishing | Leave a reply

Articles I Like: The 99 cent price point for ebooks

The PolyBlog
January 24 2012

Jeffrey A. Trachtenberg has an interesting article in today’s WSJ that deals with ebook pricing models, and the 99-cent “impulse” price point (E-Book Prices Get Slashed — note link may expire). An excerpt from his post appears below:

The book world is discovering the 99-cent special. Nearly two years after book publishers forced a sharp increase in the price of newly released e-books, a new low-price trend is emerging. A growing number of publishers are experimenting with 99-cent temporary prices on e-books, in hopes of persuading readers to sample a wider range of authors.

The latest example is George Pelecanos’s new crime novel “What It Was,” which goes on sale Monday. The digital edition costs 99 cents for the first month, and then $4.99 afterward. While Mr. Pelecanos is known for his work on HBO’s gritty Baltimore series “The Wire,” he has also authored 18 books. But he has never been a big seller.

I’ll eventually get around to posting my own take on e-book pricing from an “economics” perspective i.e. what is an “optimal” price if the economists were tackling the question, but I like the idea that the “big” names are suddenly realizing they’re getting their butts kicked by the mid-listers or the newbies. Why? Because competing on price is a really good strategy. It’s worked for hundreds of electronics firms, car companies, musicians, etc., to shift some of an industry’s revenue from corporate-backed big names to the little guy. So much so that a name like Pelacanos (profiled in the story) is willing to “experiment” with a price point that isn’t much of an experiment — everyone KNOWS it will sell at that price since everyone else is having success at that level. Best quote ever from Pelacanos though:

“It’s a gamble, but I want to be read.”

Welcome to the new digital world…it’s only unfortunate that his cut, roughly half what he would get if he had self-published the novel, might be deemed “unprofitable” to him and therefore a failure — given that his last hardcover had only 25K sales, not clear why he would think 100K digital sales could be a “failure” though.

Posted in Writing and Publishing | Tagged e-books, economics, market, pricing, publishing | Leave a reply

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