Friday, October 08, 2010

Wholesale vs. Agency: Sales Models in Conflict

Posted by Victoria Strauss for Writer Beware

One of the big publishing headlines this week (here, for instance) was that e-books from some popular authors were selling on Amazon for higher prices than the hardcover versions. For instance, the hardcover of Ken Follet's Fall of Giants was priced at $19.39, while the digital version cost $19.99. James Patterson's and Howard Roughan's Don’t Blink was going for $14.00 in hardcover, and $14.99 in digital.

Predictably, Kindle-maniacs flipped out, slamming the books with one-star reviews and angry comments. "The publisher expects more for the Kindle electronic version than the hardback. It is unfortunate the publishing industry continues to live in the past...Take advantage of your customers and feel their wrath," wrote one commenter. "It is ridiculous that the publisher is charging more for the Kindle version than the hardcover," wrote another. "The price for this eBook is outrageous (more than the hardcover edition!) Send a message to the publisher that we consumers will not be bilked out of our money to satisfy their greed," wrote a third.

I won't argue that $19.99 or even $14.99 is too much to pay for an e-book--especially since, if you use an e-book reader such as the Kindle, you are buying a license, not a book. And I do believe that consumer pressure will ultimately force prices down (though many consumers who demand low-priced e-books don't seem to grasp that publishers have fixed costs that must be recouped across all versions of a book, even the versions that are cheaper to produce). But it's wrong to punish authors by giving one-star reviews, or claiming that publishers and authors are in cahoots. Authors have no control over the prices at which their books are sold.

In this particular case, it's also wrong to blame publishers, since the pricing discrepancies that have stirred up so much bad feeling are Amazon's doing. What we have here isn't nefarious price-fixing by greedy, backward-looking publishers determined to cripple e-book adoption, but a conflict between two fundamentally different models of book selling.

Under the wholesale model that has defined book selling until very recently, publishers set the list price of books and sell them to retailers at a substantial discount. The retailers then sell the books to consumers at whatever prices they choose, and keep the profit--or swallow the loss. Retailers like Amazon often sell popular books at deep discount, accepting a loss as a way to bring in customers. For instance, Fall of Giants, which at nearly 1,000 pages is a true doorstopper, has a list price of $36.00, but Amazon is selling it for just $19.39. Don't Blink has a list price of $27.99, but on Amazon it costs $14.00.

By contrast, under the recently-introduced agency model that has come to dominate the selling of e-books, retailers become "agents" through which publishers sell books directly to consumers. The agency model doesn't allow for discounting; retailers simply pass books to consumers at the price set by publishers, and receive a commission on sales.

So Amazon can do whatever it wants with print prices--but for e-books, it is locked into the publisher's price. The occasional result: hardcovers that cost less to buy than e-books, even though the list prices for the hardcovers are considerably higher than the list prices for the e-books (a point apparently completely missed by the Follett and Patterson one-star brigade).

In other words, there is a mismatch between Amazon the retailer and Amazon the agent. While I'm sure that the current surge of customer outrage doesn't make Amazon too unhappy, given that it doesn't like the agency model and has been actively encouraging its customers to target publishers by slapping scarlet letters on agency model e-books in the form of disclaimers ("This price was set by the publisher"), the competition between these different book selling models does no one any good. It benefits neither publishers nor retailers to have sales policies that conflict. This is something that will urgently need to be worked out in the future.

(And by the way, for Kindle owners who wax nostalgic for the $9.99 ebooks of yore: that low price point was selectively applied. Ebooks from popular authors sold for $9.99, but ebooks from midlist and obscure authors sold for list price, which was often quite a bit higher.)

48 comments:

Fred said...

The real problem is people who think that a book is somehow unique, rather than the commercial product that it is. Thus, the complaints at Amazon that the book reviews mention price, something that would never be seen in a discussion about reviews of computers or cameras or blenders or shoes. The agency model is insane, and insulates books from the market forces that inure to the benefit of consumers of computers, cameras, blenders and shoes. I'm not going to run over to Amazon and post a bunch of one-star reviews (I just won't buy the book), but I understand why people do.

Peter said...

@Fred How does the agency model insulate books from market forces? Publishers will sell as many books as they can at a given price. Eventually they will lower the prices. There are plenty of lower priced books under the agency models,they are just not recently released best sellers.

A book is like anything else, publishers will sell it for the price they can get for it. I agree with you that if it's too high, don't buy the book.

steeleweed said...

The late Alan Swallow (d. 1966) published whatever he thought was worth reading. He went to extra effort to keep his costs low - doing much of the printing/binding himself - and let his midlist of established authors subsidize new works. My (very) small publishing venture is trying to do something similar.

I am not in the business to get rich or even make a significant profit - I'm happy to break even. I also want to give new authors a chance to be seen, without having them scammed by pay-to-publish.
Almost all net profits go to the authors, since all I want is to cover my expenses and feel good about what I'm doing.

My eBooks are cheaper than the softcover, but still just barely, certainly priced higher than production costs, which are trivial averaged over many copies. This lets the eBooks subsidize the softcover books, in much the same way a mainstream publisher's best-sellers subsidize the rest. My authors get a larger % of eBook sales than of softcover sales. If I were to get lucky and have a softcover book 'go viral', I would probably send the author to a mainstream publisher, just to get the wider audience.

Unfortunately, you cannot expect a mainstream company with huge overhead to operate on this premise. They gamble on 90% of their books and 90% of those are a loss - they have to scramble to cover that loss.

Personally, I think what has damaged the book trade most is when Returns were instituted. It put the publishers at the mercy of the bookstores and eliminated the risk to the bookstores - what they couldn't sell, they could return. This is not the way the business model is supposed to work. If your local grocery store can't sell a particular brand of bread, they may cease stocking it but they can't ship it back to the bakery and get their money back. They just drop the price and settle for a lower profit or even below cost to cut their losses. Bookstores may still have some 'reduced price' books, but nowhere near as many is in decades past. I used to buy a lot of 'cheap' books because my taste didn't run to best-sellers but to the odd books unlikely to find a big market.

I find it ironic that bookstores which benefited from the Return mechanism are now at risk of going under because of reduced in-store sales. What goes around, comes around.

Maggie Dana said...

Victoria:

To those in the book world, your explanation is totally on target, but try running it past the average reader who's angry at paying more for an e-book than a hard-cover and it will elicit shrugs and blank stares.

Even in today's technological world, the average reader has no clue about how a book travels from an author's imagination to a bookstore's shelf. Details such as editing, copy editing, design, and typesetting, to say nothing of promotion and distribution are foreign terms to a reader prowling the shelves of Barnes & Noble or an online bookseller's listings.

Sadly, you and those of us in the industry, are preaching to a deaf choir.

TLH said...

All this is music to my ears. Let people get upset with e-books. Maybe then they'll come to their senses and go back to REAL books. :D

~Tara

Kendall said...

Amazon's artificially low loss-leader discounts for new books seems to be the culprit in the disconnect here, not (just) the competing models. Amazon should pay more attention to prices. (I roll my eyes at a Kindle reader whining about a 60 or 99 cent difference, BTW.)

I mean, occasionally I've seen the Amazon 'bargain' hardcovers (not sure if they're remainders or just absurdly-discounted), resulting in a paperback costing a lot more than the the paperback. No one goes ballistic over that; if they notice, they just wisely buy the cheaper version, and it's not even news. This is similar--Amazon coming up with oddball pricing that makes prices for two formats look wonky when compared side-by-side.

IMHO, anyway. :-)

Akhen1khan2 aka Jack Eason said...

In answer to Maggie Dana:

All the reader really cares about Maggie is whether or not the book is their kind of reading. It is not until you become a published author yourself that you realize that your contribution to the process by writing that novel is just one very tiny part of the whole process.

In answer to TLH:

I love 'real books' to. But we all have to move with the times. In my own case, I soon came to the realization that the Kindle version of my novel will outsell the paperback version, purely because of its lower price, and by the fact that Ebook readers like Kindle and Nook are the way of the future in literature... :)

Jim said...

I had heard people "say" (without doing research in advance) that e-books sometimes sold for the same as the paperback/hardcover. That didn't make sense to me. I'm glad to see that my book's e-book version is about $10 on Amazon for a list price book of $19.99. The paperbacks are selling for $13-$17 or so depending on which online source you go to. I'd rather get the true story told so I'm glad to see the pricing that way for the Kindle readers!

Blessings!
Jim
www.itwasoutoflove.com

Brendan said...

I am unsure if you believe the culprit is either the old retail model or the new agency model for e-books.

If it is the agency model then "backward-looking publishers" are indeed to blame since this was a model forced on e-book traders by predominantly the big six publishers. I can't call them greedy though since to move to this model where an e-book will sometimes cost more than a hard cover and almost always more than a mm paperback they are getting less money from Amazon than they did under the retail model.

Brendan said...

Why do people always mention "typesetting" when talking about the hidden cost of publishing? We aren't in the days of hot lead presses anymore that needed lots of people and took lots of time. Amazing things computers, they can automate so much and save so much time and money.

Mad Scientist Matt said...

Typesetting can still take a bit of work, particularly for illustrated books. They need a human touch to make sure the page layout is OK. Even a novel can benefit from having thing checked by hand before sending the file to the Lintronic (or whatever has replaced those now). It's not as big an expense as it one was, but it's not free. And the fonts aren't always free either, for printed books.

Frances Grimble said...

Amazon started the "agency" model because before, they were forcing publishers to price all Kindle e-books at $9.50 or below, regardless of each book's subject, author contract, production costs, sales figures, or anything else. As the industry knows--but readers don't seem to know--books are by no means identical and therefore should not be priced identically.

A big part of the problem here is the growing reader feeling of entitlement, that all books should be free or super-cheap because in the e-book format, there are "no costs"--and yes, some readers literally do assert that.

They explain away all authors as bobbyists who are thrilled to work for free already, or who are academics or others whose full-time jobs easily support their writing, or people who make so little money from writing they won't feel bad about losing what they already get, and if none of the above, easily replaceable by hobbyists.

Such readers dismiss publishers as "greedy" and services such as editing, graphic design, illustration, translation from and to foreign languages, marketing, and publisher overhead as completely unnecessary. There's a lot of whining about "unnecessary middlemen."

At this point in our industry, it is very important for authors and publishers to present themselves as people who do real, necessary labor, who incur substantial, unavoidable costs, and who are just as entitled to be paid fairly for their work as anyone else. This often requires things like listing all the stages of publishing other than printing, pointing out the labor, expertise, and costs required to write a book and that meanwhile, the author has to pay for living expenses, and so forth.

Believe me, arguing with the entitlement crowd, has made me realize they want their own little Third World, with authors slaving away to produce their entertainment and education for pennies while they themselves earn comfortable livings. Just like they want people in India or China to produce their consumer goods for pennies, but of course, would never follow that kind of lifestyle themselves.

Educating these readers as to the costs and value of books can be very unpleasant. But I believe it needs to be done whenever there's an opportunity. And remember: People who genuinely want and value books will be willing to pay for them.

Frances Grimble said...

Amazon started the "agency" model because before, they were forcing publishers to price all Kindle e-books at $9.50 or below, regardless of each book's subject, author contract, production costs, sales figures, or anything else. As the industry knows--but readers don't seem to know--books are by no means identical and therefore should not be priced identically.

A big part of the problem here is the growing reader feeling of entitlement, that all books should be free or super-cheap because in the e-book format, there are "no costs"--and yes, some readers literally do assert that.

They explain away all authors as bobbyists who are thrilled to work for free already, or who are academics or others whose full-time jobs easily support their writing, or people who make so little money from writing they won't feel bad about losing what they already get, and if none of the above, easily replaceable by hobbyists.

Such readers dismiss publishers as "greedy" and services such as editing, graphic design, illustration, translation from and to foreign languages, marketing, and publisher overhead as completely unnecessary. There's a lot of whining about "unnecessary middlemen."

At this point in our industry, it is very important for authors and publishers to present themselves as people who do real, necessary labor, who incur substantial, unavoidable costs, and who are just as entitled to be paid fairly for their work as anyone else. This often requires things like listing all the stages of publishing other than printing, pointing out the labor, expertise, and costs required to write a book and that meanwhile, the author has to pay for living expenses, and so forth.

Believe me, arguing with the entitlement crowd, has made me realize they want their own little Third World, with authors slaving away to produce their entertainment and education for pennies while they themselves earn comfortable livings. Just like they want people in India or China to produce their consumer goods for pennies, but of course, would never follow that kind of lifestyle themselves.

Educating these readers as to the costs and value of books can be very unpleasant. But I believe it needs to be done whenever there's an opportunity. And remember: People who genuinely want and value books will be willing to pay for them.

Frances Grimble said...

Brendan,

"Typesetting" is indeed a term left over from the days of lead type, as are some other publishing terms such as "galleys."

But books still need to be edited (sometimes signficantly rewritten, and sometimes twice by different levels of editor), designed, laid out, (often) illustrated, proofread (spell check does not do everything), indexed (computers do not index books all by themselves, a human makes decisions and enters codes), translated to and from foreign languages (sometimes), and marketed (publishers have to work very hard and spend a lot of money just to let readers know the book exists). Even e-publishing involves a substantial investment in hardware and software. Then the publisher has overhead: bookeepers, lawyers, secretaries, and on and on.

In other words, printing is just a small part of the equation.

And, it would be very nice if what e-publishing meant is that authors got paid more.

In one discussion about this, someone asserted that "because there is e-publishing and an Internet" books can now be producd at "no cost." I pointed out that I produced a book from which I translated numerous materials from 180s French into 1820s English. This was extremely hard work and required considerable expertise in both languages and the several different subjects involved. That book took me seven years of labor--four of them full time. Meanwhile, I had to pay everyone else for my groceries and all my other living expenses. So, I had to point out that even four years of work is by no means "no cost."

Writing is a real profession, as are editing, illustration, graphic design, and all the other facets of production. And publishing is a real business.

Bob Mayer said...

I agree with much of this, but the reality is that traditional publishing's overhead is too high to compete in the ebook market. The big 6 have had a stranglehold on distribution to the chains for many years. They no longer have that. When they wake up and realize it, big change will happen. But it's happening whether they wake up or not. The future midlist, which the Big 6 are cutting for cost reasons (10% of their books make 90% of their profit), will come out of self-pubbed ebook authors. But when the Big 6 come trying to give those authors a deal, they'll look at 25% of 70% versus the 70% of 100% they already get and guess what? I'm traditionally published and also run my own publishing company, and I accept the reality: The business model as is, is terribly outdated. Adapt or die like the dinosaurs. David Morrell already thew the die. But NY is ignoring the reality

TheSFReader said...

I know I don't have all the facts researched and all (after all I'm only a books reader, not an insider), but I 'm entirely with Bob on that one.

What I see is that SOME publishing company "get it" while some are out of it.

One example is BAEN who definately had it straight for more than 10 years now ! I know it's a niche market, but they still seem to be doing well while selling DRMfree e-books and making it easy for people to buy and read books...

Stacia Kane said...

Excellently said, Frances!


Jim, I'm not sure why you don't believe that Kindle editions sometimes sell/sold for the same price or a slightly lower one than the paperback/hardcover. The Kindle editions of all of my books are the same or slightly lower than the mmp. Most mmp prices are the same or slightly lower for Kindle (it's only like fifty cents, but still cheaper).

I'm not sure why that doesn't make sense to you, either. The actual printing of a book, especially mmp, is one of the least expensive parts of the process; the fixed costs don't disappear because it's an ebook, as Victoria and others have said.

Frances Grimble said...

Bob,

I've worked for midsize publishers, as well as running my own publishing company.

Editing, graphic design, illustration, proofreading, and all the other steps a publisher takes before printing are absolutely necessary to produce a quality book. I do most of mine DIY, and I can attest that considerable training and experience (expertise) is required, as well as massive amounts of labor. Most authors do not have the skills to do all these things well, and it can take a long time to acquire those skills. And, all that is considerable time I do not spend writing books; what an accountant keeps telling me are my "opportunity costs."

Anyone can hire out these tasks to freelancers. Which is what almost all publishers do already. Large and and midsize publishers eliminated the overhead of office space, computers, health benefits, etc., for most of their editing, graphic design, and marketing people decades ago. Most publishers continually look for other ways to save money, and have already utilized most of the opportunties for doing so that they can think of.

I will add that freelancers do not charge a micropress or self-publisher any less than they charge larger publishers. If anything they charge more, to compensate themselves for educating clients they consider clueless and risking that those clients will not pay on time (or at all).

Some people seem to think that all publishers have huge amounts of money they overspend on unncessary tasks, and if they were just smart enough to cut out those expenses, readers could have all books practically free. Or that all publishers have grossly unfair markups.

Not so, folks. It, just, inherently costs a lot of labor and money to write, produce, and market books.

Re Baen, you need to realize that what they are doing is distributing the works of some authors free to promote newer authors and whole lines of books. If I were one of the authors not being paid for my e-books, I'd be very unhappy. If I ever wanted to publish a book with Baen, I'd be reading their proposed contract very closely.

Anonymous said...

I think readers don't really think about how much it costs to produce a product in deciding what is a fair price - rather they think of how much value that product has for them.

I don't have one of these machines that read books but even if I did I would consider a physical book that I can read and reread (as well as share) at will without intervention from some machine to be of greater value than some an e-book.

Hence I would expect to pay more for the physical book (and less for the e-book).

Frances Grimble said...

Anonymous,

Readers deciding whether or not they want to buy a book (or anything else) based on price is fine. What I object to is when they assert that publishers can drastically reduce costs, and therefore cover prices, without having a single clue of what the procedures and costs of the business are.

The reality is that every publisher would love to reduce costs and where they find a way, they almost always either do it or there is a good reason why they don't. And this has been going on since before I entered the business 20-some years ago.

It is also a fallacy that the big publishers in New York dictate what other publishers do in any way. Yes, they do have more money and more clout that midsize publishers and micropresses. However, to stay in business every publisher has to work out what works best for the size of their own business and the nature of their own publications. While publishers often watch the experiments of other publishers with interest, they do not imitate each other just for the sake of doing so. They are just not going to publish or not publish e-books or follow pricing strategies just because the big New York publishers are doing something.

I don't mind readers not knowing how the industry works, except when they start asserting things to then claim they are entitled to all kinds of freebies and cheapies.

TheSFReader said...

@Frances
"Re Baen, you need to realize that what they are doing is distributing the works of some authors free to promote newer authors and whole lines of books. "
Nope, AFAIK, they ask the authors if they'd give out for free some of their older books as samples to "give a taste" for boosting their later works sales... and it seems to work. It may even have a "cross pollination" effect, where one author's work enhance other authors "visibility" and leads to better sales for them as well.

"If I were one of the authors not being paid for my e-books, I'd be very unhappy. "
I have so far haven't heard of any protest about it, loud or muffled ... As far as I know, they ARE paid for their books. Some of them even willingly allow Baen to offer their "Backlist" books for free and DRMless in "bound in" CDs that are sold with the latest books Hardcover version. I don't know of any "arm bending" that could lead to that result without having any audible protest for 10 years ...

"If I ever wanted to publish a book with Baen, I'd be reading their proposed contract very closely."
As well you should ... but I think you should do it with "ANY" publisher... and so far, from a customer's POV, BAEN is one of the best publishers along. I didn't get author's takes on it, but I think some (even the ones which books are the most "freed") are quite happy with Baen.

I know that since I have an e-reader I HAVE changed my reading habits, and have finally been able through their offer to justify spending more for what I read, which means
- more books for me...
- more money to the publishers
- more money for authors too...
I now can afford more books at a better price than before and hence spend more...

So Where is the problem ?

"I don't mind readers not knowing how the industry works, except when they start asserting things to then claim they are entitled to all kinds of freebies and cheapies"
I'm with you on that one, hence when I see something that seems to work better for everyone (me, the publisher, and authors alike), I jump on it.

Frances Grimble said...

SF Reader,

Because "Baen got it right," has become a catchword for "publishers owe readers everything free." It is simply not possible for publishers to work on that basis, and it is exploitative to expect either publishers or authors to do so.

Readers are simply not entitled to get anything they want at the price they want (let alone free), no matter how much they may argue it's good for the author and publisher. They are free to buy or not, but only the author and publisher can determine what is good for themselves.

TheSFReader said...

Yes, I understand that they may be the only publisher for whom their business model may work ...

I also understand that we (customers) are not "entitled" to have such service from every publishers... but what choice WE have is to "vote" with our wallet and be vocal about where we think publishers and/or retailers are in the wrong, and charging DRM-laden ebooks for more than the hardcover's price IS wrong, wether it's the publisher's OR the retailer's OR both's fault ...

Still, while I clearly will step WAY out before buying an ebook at a higher price than it's paper's version and mention the fact to any people engaging a conversation on the subject, I personally WOULDN'T post a one-star review for it as I would find it rather insulting to the author.

I agree that it's the publisher's/retailer's/agent's rights to fix the price, but if I don't like the price, I'll go my way...

Frances Grimble said...

Most hardcover books are not expensive, as consumer goods go, let alone paperbacks. Futhermore, prices have been coming down over the years, especially given the common hefty online discounts.

For example: Currently I am reading Iain Banks' Surface Detail, which is only $25.99 at cover price and $17.15 discounted on Amazon. It weighs in at 640 pages, and they are all, so far, gripping. I am also reading the Martin/Dozois anthology Warriors, which is 736 pages, $27.99 at full cover price, and $18.47 discounted on Amazon. It contains 20 good, never-before-published short stories.

I read fast, and even so, it's going to take me days to finish these two books. I have absolutely gotten my money's worth. I haven't gone to a movie in a long time (I buy DVDs so I can watch them when I feel like it), but I'd probably spend almost as much for two hours of viewing one movie as I spent for one book that will keep me busy for days' worth of my spare time. And, if I had not been so eager to buy these books when they first came out, I could have bought paperbacks for even less.

And really, DRM is essential to prevent widespread piracy. I grant people can pirate print versions, but the easier piracy is, the more people do it. And it also is not a huge burden. Nobody offers to replace your printed books if your house burns down, so why should you have free backups for all your e-books if your e-reader crashes and wipes out your files? One of my most useful books, one I really do need professionally, is my e-copy of the unabridged Oxford English Dictionary. When I bought it, the print edition cost about $1,200 and the CD-ROM cost $250. Its DRM requires me to reinsert the original CD on my disk every couple of months. So what? This takes three minutes, and I saved $950 by buying it. If you pay less, you should expect to get less. Just as, with a paperback, you pay less than for a hardcover but get a less durable book.

I really think complaints that "books are so expensive" are just another entitlement argument.

And, you can absolutely vote with your wallet. But expect that if e-books come to be treated as main sources of publisher revenue rather than as loss leaders, or as sub-rights-books subsidized by the print versions: Expect e-book prices to rise.

Me, I'm just going to buy what I want or need to read anyway.

Frances Grimble said...

Part 1

Most hardcover books are not expensive, as consumer goods go, let alone paperbacks. Furthermore, prices have been coming down over the years, especially given the common hefty online discounts.

Currently I am reading Iain Banks' Surface Detail, which is only $25.99 at full cover price and $17.15 discounted on Amazon. It weighs in at 640 pages, and they are all, so far, gripping. I am also reading the Martin/Dozois anthology Warriors, which is 736 pages, $27.99 at full cover price, and $18.47 discounted on Amazon. It contains 20 good, never-before-published short stories.

I read fast. Even so, it's going to take me days to finish these two books. I haven't gone to a movie in a long time (I buy DVDs so I can watch them when I feel like it), but I'd probably spend almost as much for two hours of viewing one movie as I spent for one book that will keep me busy for days' worth of my spare time. And, if I had not been so eager to buy these books when they first came out, I could have bought paperbacks for even less.

Frances Grimble said...

Part 2

And really, DRM is essential to prevent widespread piracy. I grant people can pirate print versions, but the easier piracy is, the more people do it. And it also is not a huge burden. Nobody offers to replace your printed books if your house burns down, so why should you have free backups for all your e-books if your e-reader crashes and wipes out your files? One of my most useful books, one I really need professionally, is my e-copy of the unabridged Oxford English Dictionary. When I bought it, the print edition cost about $1,200 and the CD-ROM cost $250. It's installed, but its DRM requires me to reinsert the original CD every couple of months. So what? This takes three minutes, and I saved $950 by buying the CD. If you pay less, you should get less. Just as, with a paperback, you pay less than for a hardcover but get a less durable book.

I really think complaints that "books are so expensive" are just another entitlement argument.

You can absolutely vote with your wallet. But expect that if e-books come to be treated as main sources of publisher revenue rather than as loss leaders, or as sub-rights-books subsidized by the print versions: Expect e-book prices to rise.

Me, I'm just going to buy what I want or need to read regardless of price.

Brendan said...

There has been a bit of discussion about the costs that the public aren't aware of and that these are the same regardless of format. But the truth is this doesn't really mean much since those costs are the same regardless of format.

What the public does know is that on the publisher's side there is no printing, no warehousing, no freight and no returns. On the retailer's side there is no storefront and much lower(by orders of magnitude) staffing.

The public know that the total costs of an e-book are less and expect to pay less. Nothing you are going to say will convince them otherwise(basically because they are not stupid).

Frances Grimble said...

Brendan,

Have you considered that publishers are not obligated to produce everything by the lowest cost method, and providing you with all the benefits thereof instead of taking them to fund their businesses or giving them to the authors? This is a business, not a giveaway to readers.

Brendan said...

Frances,

Of course customers expect savings to be passed on. I don't believe you would be asking that question if the product was anything else.

People of course understand that a business must make a profit, but they also want value for money. If they see that savings are being made in the production of the goods they buy they will want those savings to be passed on.

What the public doesn't know(or frankly, care about) is if the previous business model was sustainable or not. They will assume that it was, setting the standard for reasonable profit. If they are wrong, that is a problem for the industry.

Frances Grimble said...

Brendan,

I expect all products to be priced as the manufacturer and retailer choose. I don't pretend to know the costs of producing or distributing cars, groceries, furniture, electronics, soaps, or any of the many other things I buy, use, or consider buying. What I do expect is that the manufacturer is producing the item for profit and that the retailer is selling it for profit. Frankly, we're all probably buying a lot of stuff someone in the Third World made for a US manufacturer at 50 cents a day, and yes, that is exploitation and maybe I should look into it more. However, I don't jump up and down and say, "You're marking up my clothes hugely and I'm going to tell you how to run your business so you can produce or sell them to me cheaper!" I just buy or don't buy whatever I choose. And, as a writer, I don't want to become part of that Third-World-within-the-US system so many entitlement advocates insist they deserve. Anyone telling me I "ought to" make less money so they can enjoy the fruits of my labor cheaper, while they earn comfortable livings themselves, will go nowhere with that argument.

Really, look at your monthly mortgage or rent, your grocery bill, the costs of running your care. And then tell me paying $15 for a book is going to break you, and it's so much more important than any of your other living expenses? No way.

Even with my income, I've been able to buy several thousand books and have at least a couple of hundred new books on my to-read pile. I buy books because I love them, and they are important to me. People who really want or need something are willing to pay for it. People who don't really want or need it should, IMO, not buy it, but refrain from griping that everyone else should accommodate them to give them a lower price on it.

Again: You are free to make choices, but you're not entitled to anything.

TheSFReader said...

NO we don't feel entitled for more bang for the bucks, but since we get LESS, why should we pay more ?

Frances Grimble said...

SFReader,

If you don't like the price of the e-book because it costs more than the print book, or both are priced same and you think the print book gives you more for your money, buy the print book!

Brendan said...

People will pay a premium they feel they are doing so for a premium product. It can be manufacturing, exclusivity or status that make it worth more than would normally considered reasonable. You can see that with the price of hardbacks. They are seen as more robust(manufacturing), have a level of exclusivity(read it before everyone else) and status("I can afford the higher price"). Are they really worth close to double the price of a paperback? No, but people still buy them, seeing the intangibles as being worth the added cost.

No one denies that the publishers and retailer's can and will do as they see fit in the pricing, distribution and marketing of their product. The question a lot of people seem to be asking though is "Is the model they are pushing a viable one for the 21st C, and can they encourage customers that this will best for them?" The number of times you see this issue come up shows that it a concern to many.

Frankly I am worried when I see forums such as this, which when the question of pricing comes up, aren't talking of the best way to encourage customer satisfaction and value for money. The attitude that "I can afford all the books I want. Everyone who thinks books are important also should" is deeply flawed. It assumes a level of entitlement that I find quite scary.

I am on a number of author forums where fans come to discuss the latest or the greatest, and I see the same thing time and time again. People will describe what they gave up so as to buy the latest book as soon as it came out or bemoan that their monthly budget won't allow the extravagance. Some of these people are students or mothers or the disabled or newly unemployed or underemployed. They are working minimum wage jobs and have kids to support. They buy maybe two or three books a year or wait for the paperback releases so they can afford a few more. They hassle their local libraries and haunt the local second hand book store if they are lucky enough to have one close by. These are your customers - or could be.

I have a friend who is quite proud of her collection of around 30 books. She gets most of her reading material from her local library but always finds the money for the books that really matter to her. And for her money is tight. She is one of the people that cheaper books will benefit. She, and her daughter and her son both of whom she wants to make sure see reading as both fun and rewarding.

When I argue for cheaper e-books I am not saying people in the industry need to find new places to pare down the costs of books. I am not saying that authors, publishers or retailers should earn one single cent less. What I am saying is that inherent in the e-book model the savings that could fund a price cut are already there. If the publishers need to put up the price of novels over all to meet rising costs then all prices should go up, but the e-book should remain the cheapest option.

Frances Grimble said...

Part 1

Brendan,

The object of a business is to make the highest profit. That is not necessarily achieved by selling to the greatest number of customers at the lowest price. If it were (and assuming there were no e-books), every book would be printed in huge runs, published as a mass-market paperback, and priced at $7.50 or so as enabled by the huge print run and bestseller sales.

But many books are not. Most books are not blockbusters, and many excellent books do not have an inherently large audience. Prices could be slashed drastically without selling appreciably more copies. So, what publishers need to do to support the publication of most books, is to sell fewer copies at a higher price than for a mass-market book. It doesn't make any difference if print-on-demand or e-book technology enables publishers to produce copies in small batches at need. Nor does the ability to sell books on the Internet mean that more readers will necessarily buy them, even if the book is marketed on the Internet too. There's just a finite audience for any given book--no matter how good it is. Although no publisher can tell for sure in advance exactly how many copies will sell, publishers make their best guess and price the books accordingly.

Yes, you need to give readers something of value, and as you have perceived, the format of the book matters. If a print book, or the high-bulk paper used to make thin books look more worthwhile, or a fancier cover, or a fancy interior design, or anything else makes the book of greater perceived value without unacceptably increasing costs, that is what the publisher will produce. If e-books are perceived as a cheapo format, that cheapo image can cut into sales.

Frances Grimble said...

Part 2
Frankly, a profit-making business is not out for the greater good, although, it is of course undesirable to do harm. But if a greater profit can be obtained at the expense of an unemployed person not being able to afford the book, unless that is the book’s specific audience, the publisher will go right ahead and produce the more expensive version anyway. People who complain about DRM should realize that if the lack of it means that piracy will cut significantly into sales, publishers will either insist on DRM or not produce e-books.

You need to realize that a business does not need to sell to you, personally, to stay in business. Customers matter in the aggregate, not as individuals. Publishers already know there are people not buying their books: Their goal is to find the people who will buy them and pay enough to support publication, not to court every potential reader.

Also, eliminating retailers and wholesalers is just a dream: They and their markups will stay. Even if paper books do not have to be packed and shipped, doing the bookkeeping for thousands of consumer orders per title is an incredible pain. Most bookstores, even, order from only one or two wholesalers rather than several hundred publishers, because dealing with several hundred publishers is a royal pain for bookstores.

And bookstores, whether brick-and-mortar or online, make it a lot easier for readers to find books. You may think you'll find enough books to read nosing around the net and ordering direct from publishers. But overall, publishers will lose sales that way, because their books are much more likely to be purchased if readers have centralized places to buy thousands of books created by numerous publishers and authors.

In other words, centralization helps book sales enormously and is here to stay for the foreseeable future.

So really, it's not reasonable for e-books not subsidized by other sales to be vastly cheaper than print books, and a dollar or two is hardly a deal breaker for most readers.

Also, the e-book format is already evolving into something more than a print book: That is, taking advantage of the inherent capabilities of including movies, animation, speech, music, interactive writing, games, interface with the net, and in short everything technically possible. But all this costs more to achieve than just writing words and maybe drawing some illustrations. Someday the typical e-book may cost more than the typical print book.

Frances Grimble said...

Part 2
Frankly, a profit-making business is not out for the greater good, although, it is of course undesirable to do harm. But if a greater profit can be obtained at the expense of an unemployed person not being able to afford the book, unless that is the book’s specific audience, the publisher will go right ahead and produce the more expensive version anyway. People who complain about DRM should realize that if the lack of it means that piracy will cut significantly into sales, publishers will either insist on DRM or not produce e-books.

You need to realize that a business does not need to sell to you, personally, to stay in business. Customers matter in the aggregate, not as individuals. Publishers already know there are people not buying their books: Their goal is to find the people who will buy them and pay enough to support publication, not to court every potential reader.

Also, eliminating retailers and wholesalers is just a dream: They and their markups will stay. Even if paper books do not have to be packed and shipped, doing the bookkeeping for thousands of consumer orders per title is an incredible pain. Most bookstores, even, order from only one or two wholesalers rather than several hundred publishers, because dealing with several hundred publishers is a royal pain for bookstores.

And bookstores, whether brick-and-mortar or online, make it a lot easier for readers to find books. You may think you'll find enough books to read nosing around the net and ordering direct from publishers. But overall, publishers will lose sales that way, because their books are much more likely to be purchased if readers have centralized places to buy thousands of books created by numerous publishers and authors.

Frances Grimble said...

Part 3

In other words, centralization helps book sales enormously and is here to stay for the foreseeable future.

So really, it's not reasonable for e-books not subsidized by other sales to be vastly cheaper than print books, and a dollar or two is hardly a deal breaker for most readers.

Also, the e-book format is already evolving into something more than a print book: That is, taking advantage of the inherent capabilities of including movies, animation, speech, music, interactive writing, games, interface with the net, and in short everything technically possible. But all this costs more to achieve than just writing words and maybe drawing some illustrations. Someday the typical e-book may cost more than the typical print book.

Frances Grimble said...

Ill leave you guys with one more thought: I know someone who has written a number of nonfiction books, some self-published and some published by large publishers. His first book was for what he calls a "frugal" audience. It described lots of ways to save money and things to do without spending much money. He thought there would be a large audience: students, retired people, the unemployed, people who just wanted to put their money into savings. Expecting that, he priced the book as low as he could, but sales were very disappointing. He says he learned from that, that there is not much profit from appealing to buyers who don't have much money or if they do, are unwilling to spend it.

Another story: With the advent of Amazon, I saw them routinely discount my own books as much as 37% and throw in free shipping to boot. . . and it didn't increase sales a bit. I'm still selling to the same audiences, I'm still spending the same amount of time and money to market to them, they all want to buy on Amazon to get the discount . . . and I still sell the same number of books. This has been true for years, so I doubt it will change. It's a cautionary tale for anyone who thinks lowering prices in a major way will sell more books.

"Happy" customers are all very well, but what counts are paying customers.

Frances Grimble said...

I'm sorry if this sounds harsh, but: Books are just a product, like any other product. Yes, writing and producing good books contributes to the cultural good. But so does producing housing, clothing, and many, many other things. Goods sold are subject to market forces, and that includes books. A relatively recent trend is for businesses to say "We care about you," but nothing has really changed: They care about your checkbook. You can complain all you want about how books, or clothes, or housing, or just about anything else is too expensive. But as long as the business finds it more profitable to sell at a price you personally can't afford or don't want to pay, that's the way it will be.

Hey, housing in my area is very expensive, and I really need a more convenient house. I'd also love to have cheaper groceries, and well, lots of things. However, the local economy is never going to adjust to suit me.

TheSFReader said...

Frances writes :
"People who complain about DRM should realize that if the lack of it means that piracy will cut significantly into sales, publishers will either insist on DRM or not produce e-books."

Do you have data showing how much piracy is cut-down by DRM ? Guess why the music industry has STOPPED using DRMs for their music ? From all I've seen, it's had NEGATIVE influence on sales.

DRM DOESN'T WORK !!! It needs only ONE person to take the book and re-type it for it to be available worldwide ... and once ONE skilled person breaks the DRM-scheme, 10 seconds and a PC is all that's needed to make a book available worldwide ...
By now all the major DRM (not only ebooks ones) schemes ARE broken. For people to be able to read a DRMized book, you have to give them the "key" to that book (in that sense the "reader application" IS a key, while the DRM can be seen as the safe). Once they have the key and the safe, they can EASILY extract the safe's content, and make it available illegaly. The only winning people are the Safe's creators and distributors.
And in the meantime, the customers that bought the book with DRM are the only one penalized by having an inferior product...

Once a Mom is unable to play the books she has bought for her Kindle (which took a plunge in the babie's bath) on her new Nook (or the other way for that matters), she will be tempted to try and find it in illegal places. Once she finds out that it's available and easier (as well as "free"), it'll be that much more tempting for her next time she wants to buy a book ...
That's BAD strategy that leads people to illegal practices instead of driving them to legal/respectful regarding the authors and publishers.

Oh, yes, you're right, Grandma WON'T know how to bypass the DRM, and together with Mom, they Won't give illegally downloaded products for Christmas, but guess what ? The teenagers WILL learn the "bad ways", instead of the good ones, and they'll ask Santa for things that they can't "grab" for free (as in no books and no money for authors and publishers). That fight is LOST before it even begins unless you want to go all the way to Orwell's worst nightmares, and I know you don't want to go that way.

The alternative ?
Show respect for the consumer, not assuming each and everyone is there to steal the goods. STOP using DRMs which makes no sense in the long run. Explain (again and again as you do really well) why You (authors, publishers and distributor) deserve to get paid for your work.

TheSFReader said...
This comment has been removed by the author.
Frances Grimble said...

SFReader, you are presenting an excellent argument for publishers not producing e-books at all. They don't have to, you know, and they won't if e-books are not sufficiently profitable. Yes, I know print books can be and are pirated, but then, the publisher can sue whoever pirates and distributes them rather than participating in the piracy of their own books.

Profit is absolutely necessary for publishers to stay in business. If they can't do something profitably, they won't. And readers just cannot force authors to write, or publishers to publish, on an unprofitable basis.

Readers may, if they work hard, seriously damage the industry that produces books and thereby, harm our culture. It's possible. (I used to be a dancer, and I know that dance is a very marginal art form compared to what it was in the early part of the 20th century, although not for the same reasons.) Readers cannot, however, force everyone to write or produce books for them at no or unviably low pay. We already have a situation where any skilled writer can earn more writing computer documentation or marketing materials for a corporation, than writing a great novel.

As I've often said, the people who clamor for cheap or free books often seem to hate authors and books, making me wonder why they want books to begin with. Saying "I'm going to rip you off if you don't hand me everything I want on a platter" is a major example of that attitude.

Frances Grimble said...

SF Reader,

To put it more clearly, there is every reason NOT to trust someone who says they will steal something if it is not given to them on the terms they dictate. If someone says they are perfectly willing to steal, and claims that everyone else is willing too, they'll probably just copy the book from someone else's Kindle anyway instead of buying it at all. Once someone has announced they feel no legal or ethical restraints, there is no reason to respect them.

TheSFReader said...

Frances, I wonder if your last post was directed at me since I'm a quite fervent copyrights supporter (copyleft too BTW...). I NEVER told you not to prosecute "pirates".
On the contrary, I think you'd better go after them rather than after your customers by selling them DRMized books...

An even greater Idea would be to "educate" them, explaining that your work SHOULD be respected.

I sincirely hope you don't mix me with these individuals you talk about in your last post, since I don't share that kind of thoughts or attitude.

Frances Grimble said...

SFReader,

I hear the argument that "everybody's going to pirate anyway so why bother with DRM" from pirates way too often. But I'm not accusing you personally of ever pirating or even wanting to pirate anything.

I do think customers should stop perceiving DRM as a hostile act and an accusation against them personally. It's like, most people lock their front doors even though they know their neighbors are honest, because they also know that not everyone is honest and that sooner or later, someone will walk through that unlocked door and steal stuff. Likewise, many people have car alarms. The neighbors are not offended by a locked door or a car alarm or a burglar alarm; so why should an honest person be offended by DRM? If it's inconvenient, well, that's part of getting less in return for a lower price.

And by the way, I think e-books should be priced lower than print books, but I think expectations of drastic reductions are unrealistic. If customers maintain those expectations, the only likelihood is an unreal, inflated "list price" versus the real "street price" that practically everyone would pay and that the publishers would expect them to pay. The way some major software manufacturers currently price their products, in other words, to make customers think they are getting a big discount when they are not.

As a side note, Amazon takes their discounts for print books and many other products out of their own pocket. They buy my books from a wholesaler and my calculation is that Amazon actually loses money on my books. This is not my problem, except that Amazon has put a number of my retailer/bookstore customers out of business, which I suspect is the intent of deep discounts, and I fear someday having to rely too heavily on Amazon sales.

With the Kindle, Amazon makes money just selling the hardware.

Frances Grimble said...

I will add, that our legal, religious, and moral systems include prohibitions against theft, as well as against all other actions our society considers illegal and/or immoral. However, gentle persuasion goes only so far. Some people commit crimes anyway, and it doesn't take that many of them to screw up our social systems thoroughly for all the moral, law-abiding people. So, there have to be systems in place to prevent and prosecute piracy as well as other forms of theft. Sure, this may be inconvenient for the moral people, but I think they can get just as used to it as to locking their front doors, having a car alarm, and avoiding walking around certain neighborhoods after dark.

KevinMc said...

Actually, SFReader is quite correct... In every case where it has been used, DRM has been shown to decrease sales and actually tends to *increase* piracy - because pirates see DRMed books as a challenge, they are more apt to put them up on torrents and such.

No one has ever released a DRM system which was not hacked a week or so later. So - DRM encourages pirates to go after *your* book, and discourages honest readers from buying your book. When iTunes dropped DRM, their sales went up - dramatically. DRM is just a Bad Idea. The music industry learned that the hard way, and it seems like big publishers want to relearn the lesson the same way.

As for publishers staying out of ebooks entirely... I think it's too late for that. There are already hundreds of authors effectively self-publishing to Kindle, and quite a number of small publishers who are happy to work the ebook market. All that will happen to publishers that drop ebooks is that their brighter authors will go elsewhere to publish their books.

Despite the delaying tactics large publishers have been using to slow ebook growth, it's likely that in 2011 we'll see ebooks hit a tipping point where most big box bookstores will no longer be financially viable, and will close or move to smaller locations. That will accelerate ebook growth further, doing more damage to traditional book stores, continuing in an ongoing cycle.

I like paper books. I own thousands of them, and no ereader. But I can see the handwriting on the wall, here. I think within a few years print books will survive as a POD market only.

Incidentally, that will probably bring back the small indie bookstore, since tech already exists to print cheap POD books very fast, on site - customers come in, browse for a book in an online catalogue of 2 million books, order the one they want, and come back in an hour to pick it up. ;) That's not necessarily a bad thing.

KevinMc said...

Remember also, the money breaks down differently for ebooks. With a paperback, the retailer gets about 50%, the author about 10%, and the publisher about 40%. So on an $8 paperback, the breakdown is about $4 retailer/$0.80 author/$3.20 publisher.

For Kindle ebooks, the retailer gets 30%, the publisher gets 52.5%, and the author gets 17.5%. So, on a $4 ebook, the breakdown is $1.20 retailer/$0.70 author/$2.10 publisher.

A $4 ebook grosses a publisher only $1.10 less than an $8 ebook. Last I read, paperbacks cost about 95 cents just to print - not including warehousing, shipping, and returns. Yes, publishers have many other expenses, but the way the money breaks down, they will almost certainly earn as much from a $4 ebook as from an $8 paperback - with less risk, because their upfront cost is lower without printing costs.

That said, the big change is actually in the loss of the "blockbuster hardcover". I've seen an unfortunate tendency to focus on blockbusters in publishing today; and ebooks will not sustain that price level. Publishers won't be able to continue on that model - and I think as a result some cost cutting will happen. Some NYC offices might be vacated for new digs in sunny Idaho, or something. ;) The fact that large publishers will be competing for the first time on an even level with small publishers (many of whom are offering twice the ebook royalty right now) who are leaner than them will force change. But life will go on.


(Worth noting one interesting bit... You see ebooks set by publishers in the $12-14 range all the time. Because of the Amazon pricing model, ebooks over $9.99 only earn the author 9%, publisher 26% and Amazon 65%. So a $12 ebook earns the publisher only $3.12, about the same as they would earn from a $5.99 ebook. The sole reason ebooks are being priced over $10 is to slow the growth of the ebook market.)