The race to the bottom of ebook prices

Posted on Thursday 20th September 2012 10:02

Earlier this week the news broke that Amazon was matching a price promotion on the Sony Reader ebook store which saw backlist titles by bestselling authors such as James Herbert and Jeffrey Archer discounted to just 20p from the recommended price of £18.99.

While it’s common practice for Kindle to price-match offers in other stores, the steepness of these discounts (97%) is viewed by some as a sign that in their quest for dominance over the digital reading market, ebook stores will end up inadvertantly killing the publishing industry. Offering books for 20p, they argue, can certainly help sales in the short-term, but will in the longer term devalue the book to consumers, who will no longer see the point of paying more than the absolute minimum for their next holiday thriller. This will wipe out the profits that support a healthy publishing ecosystem, thus reducing the number of high quality books available to the consumer.

Cheerleaders for discounting take the view that in a rising market such as digital reading, the challenge facing retailers is to capture as large a part of that market is possible, and quickly. Adroit use of price promotions now, they contend, is a key part of encouraging consumers to lock themselves into the Kindle or Sony ecosystems, and establish a platform from which both companies can sell ebooks to huge audiences. In this vision of the future, consumers may pay less for backlist titles, and popular new books will still be steeply discounted as they are in supermarkets now. The difference is that the infinitely scalable nature of the ebook will make this market bigger, and much more profitable for all involved.

As always with these things, the ebook market of the future will probably end up lying somewhere between these two poles. For publishers, I would argue that the guarantor of their future success is much more likely to be intelligence as to how, why and where their ebooks sell, rather than blind dependence on retailer-driven price offers.

Steeply discounting ebooks could indeed be a highly effective way for publishers to monetise the backlists of bestselling authors. Wise publishers, however will be analysing their sales data to see definitively whether cheap backlist sales increase the pool of readers, or cannibalise sales of newer titles. Publishers also need to take a data-driven approach to applying and experimenting pricing. For example, is a temporary price drop as effective at driving sales as a 3 for 2 offer, or bundling, and on which type of sales does the publisher make the greatest profit?

A sophisticated approach to collecting, analysing and acting on sales data is the publishing industry’s single greatest bulwark against the increasingly powerful platforms it depends on to deliver its product to readers. Armed with the right information about the way its products perform in the marketplace, a publisher can make informed decisions about how to price and sell them. Without this, a publisher will find themselves falling back on retailer-driven shock tactics that bring in revenue rather than profit, and ultimately leave them dependent on the crack cocaine of steep and unsustainable discounting.

A publishing market where sales are driven by loss leaders rather than special offers is a race to the bottom. It doesn’t need to be that way, but to guard against it publishers must be able to tell the two apart. And that’s why it’s never been more important for them to get a grip on their data.

Feedback from readers:

  • “Interesting. To be honest with you, I only do business with Amazon because I have a responsibility to our authors. I have a huge issue with Amazon and what they are doing to this industry. 400 books are released a day. This industry is going to implode on itself. Companies cannot sustain running at a loss forever, and Amazon is forcing companies to operate at a loss. To wholesale ebooks to Amazon they take just shy of 60% of the sale, readers on Kindle are becoming accustomed to books priced 9.99 or less. Here’s what a self-published author is going to encounter – I’ve seen a number of people believe the right price point is between .99 and 2.99. So for this example we’ll run right in the middle with 1.99. Amazon pays out 70% for each book sold in the US. The author receives 1.39 per book. We won’t factor in time to write and format the book – we’ll just use overhead costs. A wise self-published author will hire an editor. Going rate for a freelance editor is variable, the Freelance Editors Association shows a manuscript will be 250 words a page. For basic editing it’s 5-10 pages an hour at 30-40 bucks an hour. We’ll run on a low side of 50,000 word novel. That’s 200 pages (250 words a page) and 10 pages an hour is 20 hours @ 35 bucks an hour is 700 bucks for basic editing. Heavy editing is 2-5 pages an hour – 5 pages an hour is 40 hours @ 40-50 bucks an hour (we’ll use 45 for sake of argument) 1800 bucks. So we’ll go with about a 1000 bucks for editing. At 1.39 a book an author has to sell 720 books before paying off the editing. That doesn’t include contracted cover design, licensing, ISBN (if they decide to do it) Copyright (if they decide to do it). For publishers it’s worse. When readers can get a book for 1.99 and a publisher releases a book for 6 bucks, which are they more apt to buy? (Recommendations and stuff taken out of the equation). With 400 books released a day, Amazon taking 60% of sales unless a publisher uses Amazon’s platform directly – You get the point. Paperback is worse. Publishers have other overhead that self pub authors don’t. We do, anyway, so we can stay within the confines of the definition of a traditional publisher and not be dubbed a vanity press or black balled for other deceptive practices. Amazon is not a good thing for the publishing industry. Even if the big six jumped on board with evolving technology right away. My opinion also doesn’t come from being a publisher, it’s basic economics. In the race to the top Amazon is running at a loss – forcing everyone else to run at a loss too. If Publishers don’t do business with them, they do a disservice to their authors. If they do conduct business with them they do a disservice to their own business and livelihood.”
  • “In days of yore, authors wrote and a publisher did production and marketed the book. In the end profits were basically split between the author and the publisher. Today the author does everything including laying time and money and Amazon makes the work available. In the end, the vast majority of authors earn bupkis and Amazon makes all the money”
  • “The value of an ebook is taking a hammering in this battle to establish device dominance. Consumers are being led to consider the book has little more value than a music track … maybe they’re right?”
  • “This is absolute lunacy for publishers. If you only charge 20p, then the work is only worth 20p. Has nobody learned from the huge inflation in discounts to bricks and mortar retailers?”
  • “Very, very bad news for publishers though the lunacy lays with Amazon and Sony – they’re loss leading these titles by taking a massive hit to drive device sales. Amazon and Sony still pay the publisher the discounted price and the author is still getting his royalty. Let’s say they’re getting 50% discount, the publisher gets £9 and Amazon/Sony are in the hole by £8.80 for every sale. the consumer however thinks an ebook is worth what they pay for it – not even 10% of a cappuccino.”
  • “Once consumers get used to the idea that books can be this cheap, they won’t pay more, and once the online retailer has built up a big enough market they’ll soon start squeezing publishers about prices. Already the research seems to be showing that UK consumers will pay 33% less for ebooks than US buyers. If your comparison of books having little more value than music tracks is true, should we be placing individual chapters for sale as ebooks as well as an overall book (album) price?”
  • “It’s a scrabble for market share in a developing channel. You’re probably correct about the next market maturity phase. But after that, who knows? I suspect consumers will pay for what they want, so publishers still need to drive that demand along with all supply partners in that channel. Not sure the chapter as an album track comparison has legs, not many albums were concept albums, a few singles and some filler more like. So only the chapters of academic product could really stand alone. For a typical trade novel you might give away chapter 1 to sell the rest perhaps? The immediacy of a download onto the Kindle (or other reader) is fantastic. I look forward to browsing in bookstores, finding a title and sipping my coffee on the leather sofa whilst using the stores’ free WiFi to download it at a fraction of the cost. The bookstore will need to make good money from its coffee …”
  • “This is why academic publishers are not getting involved in this sort of discounting. Mass markets can destroy as well as create … We are losing business for various reasons but there are no academic publishers that will let go of the IP that easily. It doesn’t usually take a musician years to write a song … And there is no real comparison in our business to music except the economic model. Publishers have to stop selling to retailers who do this sort of loss lead selling … As you say it has no place in our industry.”