E-book pricing: Publishing should learn from the record industry’s mistakes

napster-logo On FutureEBook, Alistair Home has an editorial stating that the publishing industry should learn from the mistakes of the music industry when it comes to pricing e-books.

We’ve heard similar statements before from music-exec-turned-author Susan Piver, whose posts I covered here and here, but where Piver focused on big chain stores’ discounting driving mom-and-pop record stores out of business, or the industries’ tendency to look for “hits” at the cost of lesser-selling but more diverse talent, Home looks at suggested retail price, “double-dipping”, and slowness to adapt to change.

When the compact disc was launched, Home says, it offered the music industry two key benefits: it would cost twice as much per album as vinyl LPs, and it would cause consumers to have to buy their music again (possibly even multiple times).

The MSRP of CDs has fallen since then (perhaps helped by an FTC investigation into record label price-fixing), but the “double-dip” scenario has had a lasting legacy—if customers feel that the industry is taking advantage of them, they will in turn take advantage of any opportunity that comes along to get what they want for free.

Napster, the music-sharing service, came along right when record-label behavior had created a ready-made receptive audience—and by being slow to respond to consumer demand for digital music, the labels simply played into peer-to-peer’s hands until iTunes came along several years later.

Home points out that e-books bring with them a similar set of problems for the publishing industry. Not only is digital content easier to pirate, but there is also a widespread perception that digital should be cheaper because it’s not a substantial physical object like a book, and they just paid all that money for an expensive device on which to read them.

The fact that it doesn’t cost much less to produce an ebook than a print book doesn’t really matter; what matters is that the book-buying public doesn’t believe it. And if readers feel that they’re being ripped off, then that same sense of resentment and entitlement that fuelled the growth of piracy in the music industry will have the same effect on publishing.

Home then notes a few suggestions for convincing customers an e-book was worth at least as much as a paperback, including adding the ability to lend e-books, protecting them from obsolescence if a given e-book format falls out of use, or even bundling e-books together with print books for a discounted price.

(He doesn’t suggest, as some have, that publishers should try to become more efficient to the point where they can afford to charge less for e-books. But it’s another possibility.)

But whatever they do, Home points out, publishers need to be thinking about the issue or else they risk creating the same atmosphere of resentment and entitlement that caused the growth of peer-to-peer that plagued the music industry.

15 Comments on E-book pricing: Publishing should learn from the record industry’s mistakes

  1. Alexander Inglis // July 14, 2010 at 7:46 am //

    CDs were certainly considerably more expensive than vinyl in the early days but as the industry matured, prices dropped and inflation caught up. CDs also generally are sold with more music than LPs typically were — so the cost per minute dropped. And CDs, with little argument judging by every metric (except cover art and liner notes), are a superior product: more durable, better sound quality, easier access, easier to store. Even if the price differential had lasted, it’s simply a better product than vinyl for the average consumer.

    The real story is not so much that going digital made the product easy to pirate, but that iTunes’s revolutionary selling model brought consumers back to the table willing to pay for what they were getting for free. The hook? Easier handling, storage, organisation … and splitting a ten track album, often for sale at $9.99 on CD, to 99¢ per track. You can save money, yes, by buying only the tunes you want — not the duds you were “forced to buy” previously. But the point is you got to buy only the music you wanted and pay a price that was nominal per slice.

    It’s hard to apply that directly to most books: 99¢/chapter? The lessons for publishers remain: consumers WILL pay for stuff they can get for free but the value add has to be something which suits the consumer, not the publisher or the publisher’s traditional way of doing things.

    Ever notice how many authors have their own websites but most publishers have virtually nothing about their authors online? Consumers want to be engaged. iTunes made it possible to share tunes, post “what I’m listening to right now” information on MySpace with little apps that read the the users’ music player in real time, and elsewhere your music list would be read and based on it a personalised “radio station” online would pump out stuff you’d probably like and might not know.

    Maybe for publishers this means paperback prices instead of hard cover prices (duhhh!); new ways to tag data to spur interaction; if not a way to lend whole books perhaps ways to lend or discover chapters; repackaging back catalogue material so consumers buy what they have already purchased but now in a more accessible, portable form, etc. etc.

    Home’s article, btw, is found here:
    http://futurebook.net/content/ebook-pricing-learning-other-peoples-mistakes

  2. Remember that most trade books give the publisher less in contribution to profit and overhead than the author earns in royalties. That’s not what the public, authors, or even most editors think, but trust someone from the publishing finance side . . . It’s very true.

    That restricts what publishers can afford to do to pump up the volume, or to drop the price.

    As for getting more efficient in producing ebooks, that’s not easy. Conversion to epub, Kindle, etc. is still a snakepit, for a lot of reasons. But that will pass. What won’t pass is the fact that selecting books, editing the manuscripts and packaging them with cover art, marketing copy, and so on, is all something that requires a lot of hours from a lot of highly educated and exceptionally talented folks. And even at the slave labor wages that publishing people earn, that’s expensive.

    There’s no way I can see to automate those processes, or even to speed them up. And paying people less is probably impossible. Even back when I was in house, instead of being an independent consultant, my assistant and junior level staff needed roommates, and second jobs, just to make ends meet. I know that the payscales have actually gotten a little worse in the years since. And these were all college grads from good schools and many had masters’ degrees.

    In short, book publishers do have their backs against a wall. They’re very creative folks, and they generally are in the business for the love of it, so most of them will search far and wide for solutions, but it’s going to be a really bumpy ride for them, and therefore for those of us who like books.

  3. Felix Torres // July 14, 2010 at 9:53 am //

    Quote: “but there is also a widespread perception that digital should be cheaper because it’s not a substantial physical object like a book,”

    And why is that perception so wide? Because the publishing industry as a *whole* has spent 50-plus years tying price increases to paper pricing. After decades of hearing that paper is *the* price driver, consumers internalized the sales pitch. (Cry me a river.)

    The publishers built that procustean bed, now they have to sleep in it. (Look out for the blade!)

    True or false that is the standard *they* set.

  4. What publishers are going to have to do, most of all, is cut costs. This probably will mean moving out of New York City, doing extensive telecommuting, contracting out such tasks as layout and design, hiring cheaper cover artists, and so on.

    One of the biggest problems music labels faced is not addressed here at all: they lost radio. AM radio became all-talk, and even the remaining music stations, most on FM, became programmed from afar by the radio chains, which benefited from relaxed rules of ownership. Radio used to be the place where hip local DJs educated their audiences and clued them in on the new music, and where bands used to be able to break through.

    Publishers face an even more daunting task. They never had an equivalent to radio at all, i.e., a massive, nationwide industry devoted to publicizing their products. And while young people (those most likely to try new things and whose tastes remain flexible) still do listen to music, they don’t read anymore. At least, they don’t read books anymore.

    The most important thing publishers can do to save their industry would be to get kids (and adults too for that matter) reading again.

    Right now, books are something like where comics were in 1980: distributed to a small coterie of fans increasingly marginalized, and shrinking. The only way for a publisher to grow in a shrinking industry is by cannibalizing other publishers’ shares. Meanwhile, the whole industry suffers.

    I don’t know how to increase reading. A new Harry Potter or Twilight doesn’t come along every day. But back in the old days, paperback books, including reprints as well as paperback originals, were offered at very low prices as a way of increasing overall sales (volume at least; gross revenue as well?).

    Trying to go the other route, and act as though Dell could have sold pulp mysteries and thrillers in paperback for the same price as hardcovers, is just plain … nuts.

    — asotir

  5. Having spent 30 years in business management and financial management – and having experience in auditing a number of publishers early in my career I find it hard to keep reading the appalling but repeated claims that

    The fact that it doesn’t cost much less to produce an ebook than a print book

    Why people like Chris Meadows keeps repeating it is totally beyond me. He also makes this assertion in the context of reader’s perception of value. Yet he also infers that book distribution costs, wholesale margins, book shop margins etc are all imaginary and ‘really’ eBooks are justifiably the same price as hard copy books. Having also worked in the IT industry twice in the last 10 years, I also know that this whole facade about the costs of conversion of files to eBook formats is also a complete falsehood and is being sold wholesale by the Publishers to willing journalists.

    On the subject of iTunes bringing people back – I take issue here again. Ordinary customers always want to pay for what they use. This is the truism at the heart of commerce. But they want to pay a fair price. Customers were being fleeced by the Music Industry who were seen to be exploiting the CD price increase and failing to provide any additions which came with LPs such as photos, lyrics etc. People are not mugs so they downloaded mega amounts of music, as my son and his friends did.
    iTunes brought most of these people back because they offered a fairer price to customers who wanted to pay. end of story. Mind you I still know many who are still downloading from torrent sites and when I visit local Music stores who are charging more than 20 dollars for recent CDs I am not surprised.

    The Publishing industry needs to wake up to these simple facts from the experience of the Music industry. They need to wake up to the fact that people want to pay a fair price but when they discover (as they are doing now) that they are being fleeced, they will go straight to the Torrent sites. I have seen them and seen friends acquire lots of current best sellers from them. This is already happening and will continue as sure as night follows day.

    Publishers have created a bloated inefficient business model over a century of fat and easy profits – I’ve seen it. We need new players who understand the new business model and have no fat organisations, with over paid executives and middle management to maintain. They need to grasp the basics of added value; the basics of mass web marketing.

  6. Common Sense // July 14, 2010 at 1:15 pm //

    “…digital should be cheaper because it’s not a substantial physical object like a book, and they just paid all that money for an expensive device on which to read them.”

    Sorry, she just doesn’t get it. Those are not the reasons ebooks should be cheaper, it’s that you’re getting less for you money. When you buy a physical book, you own it outright. You can lend it, sell it, and give it away (maybe even for a tax credit). You can’t do any of those things with an ebook. In fact, as technology changes, you may not be able to use the ebooks you purchased in the future.

    For these reasons, ebooks should be cheaper. Why would I want to spend the same price for an ebook as the physical book or even more? Recently, new “paperback” ebooks have been listed for $7.99 at Amazon. I can get the same physical book at Target, Walmart or the grocery store for $5.99 or less. So ebooks aren’t even getting the same bulk discounts even though they have no distribution costs associated with them.

    The end result for me is that I don’t buy them at all because I feel that the publisher is ripping me off. In the past year, I’ve only purchased one physical book at the grocery store because the ebook price was too much. I also have a bunch of books on my wish list, waiting for the used prices to come down. That way, the seller makes the profit, not the publisher or the author.

    Instead, I’m enjoying hundreds of free and low-cost ebooks from indie authors. If my favorite authors want my business again, they need to do a deal with their publishers to have more realistic ebook prices.

  7. Cost to produce (and sell) 1 pbook vs 1 ebook are very close to the same. Cost to produce (and sell) 10,000 pbooks vs 10,000 ebooks are not. And that’s before considering book returns, which the publishers absolutely refuse to mention when they show the math for book production costs. (If the mainstream publishers’ math were accurate, Baen would have long since gone out of business.)

    It’s true that books can’t be sold piecemeal like albums; $.99/chapter is not going to work. But a good ebook store *could* add value to digital books. It could perhaps include metadata of the customer’s choice (set whether the title shows up as “Book Title” or “Series name & number: Book Title” or “Keyword of Choice: Book Title” in your ebook reader; click here to add up to three category tags). It could allow a selection of cover art, or if the publisher doesn’t want to provide alternate covers, could allow user uploads of cover art. If it were *really* customizable, it might allow a choice of formatting–indented vs extra-line-between paragraphs; serif vs sans fonts. The book could be compiled after ordering, the same way DRM encoding is added after ordering.

    Publishers are trying to treat ebooks as another edition of pbook, sold the same way they’ve always sold pbooks, and it’s not going to work. They have to find new business models.

  8. Common Sense // July 14, 2010 at 1:25 pm //

    “One of the biggest problems music labels faced is not addressed here at all: they lost radio. AM radio became all-talk, and even the remaining music stations, most on FM, became programmed from afar by the radio chains, which benefited from relaxed rules of ownership. Radio used to be the place where hip local DJs educated their audiences and clued them in on the new music, and where bands used to be able to break through.”

    Yes, but now indie music has exploded. Musicians are no longer restrained by trying to get a label to back them. With inexpensive software, anyone can record a demo CD to get local gigs, create a MySpace page, etc. That’s just what a local band here did – The Fray – and they made it big.

    There are also things like the Warped Tours that give indie groups a chance to be heard live nationally. The indie music scene is huge in the Denver area with many small venues and lots of groups. My young adults just recorded an 8 song demo that got them a gig next month at a pretty big venue. They also have a MySpace page. They did it all in my basement.

    I see the trend for authors to go the same route. They no longer need the middleman, i.e. the publisher, to reach their audience. All of the publisher services are available via independent contractors, and there are many places to offer your book – Amazon Encore, Smashwords, etc. Authors are no longer constrained by the publisher.

  9. As much as I like the idea of authors “cutting out the middleman”–writing is traditionally a private enterprise. Musicians generally want to perform in front of an audience; the label is a means to that end, a way to create enough popularity to do what they love for a living. Authors generally *don’t* want to make a living on stage; hiring independent editors won’t get them the ability to write, instead of market books, for a living.

  10. Not being familiar with The Fray, I checked out their Wikipedia page. They signed with a label in 2004.

    I have yet to see a band “make it big” that doesn’t sign with a label. Popular examples of “removing the middleman” usually include REM and Trent Reznor. Yet those guys didn’t become famous on their own.

    Don’t think I’m making apologies for the music labels — they’ve used despicable tactics against both their customers and their artists. However, I really believe that the marketing that they do, and that paper publishers do, is required for authors and artists to “make it big”.

    Publishers and music labels have been riding the gravy train for a long time, and the internet is turning over their apple cart. How many bad metaphors can I use? There are big changes in store, but I seriously hope that publishers don’t completely go under. I don’t want to be reading slush pile crap, even if it’s free.

    My hope is that publishers will be able to give up the ludicrous paper returns policy, possibly adjust their advances policy, and continue to act as a gatekeeper for good stuff, while making a profit and allowing their authors to make a profit.

  11. I agree that publishers should not make the same mistake/s that the music industry made. Have to add, however, that it is especially important that publisher not believe that they would *survive* such mistakes. People are *hungry* for music. Reading, however, has been on the decline for years.

    Publishers need to behave more like ‘big tobacco’. Get the kids hooked. (There are ways to ‘get everyone hooked’, but that’s a different discussion.)

    The most practical way of getting to the kids whose *parents* don’t read, is via schools, and their connection to libraries. Publishers angsting about libraries (“aaaaagh! aaaaagh! people can read ‘for free’!!” [never mind the fact that libraries are a pre-paid service.]) seem to be forgetting that parents who don’t read *do not buy books for their children*, who then grow up to be non-readers. Are they trying to kill the future of their entire industry? Wtf?!

  12. … oh yeah. *And* person-to-person lending — and affordable e-books.

    As soon as publishers learn that they will expend *exactly* the same amount of labor and overhead whether 5 people buy a book, or 500,000 (no print/binding-runs to manage, no shipping cartons to pack, no mis-ships, short-ships or over-ships to rectify, no damage in transit, no warehouse fires), they’ll get on it and figure something out. But only if the moment of enlightenment doesn’t come too late.

  13. I agree asphalt.

    People are *hungry* for music. Reading, however, has been on the decline for years.

    I think you have a point here also – but – I just ‘wonder’ if reading might be a case like radio. We all thought radio was a goner back in the day when video came and then streaming music. But radio has now gone from strength to strength …
    I wonder if a change of medium to eReaders and cheaper books allied with some imaginative added value might re-float reading as a habit across the ages.

  14. @Howard

    Libraries in the publishing world may be near-analogues to radio in the music world, in that they create the desire to ‘own’, i.e. have 24/7 access to a work. They also create some desire to *not* own. That song you hate that they won’t quit playing isn’t something you’re going to download to your iPod. But perhaps its very existence makes the heart beat faster yet for the rarely played songs one loves.

    No one can really say for certain what the future of reading will be. But there is a battle raging for our eyes that doesn’t quite correspond with the skirmishes over our ears. In the world there is an overwhelming amount of flashy, shiny easy-to-consume product. It’s about as easy for reading to compete with that, as it is for the produce section at the grocery store to compete with an unhealthy-but-instant-gratification meal from a fast-food restaurant. Also, radio is ‘in the air’. In the car (think about how much time people spend in their cars); at the auto-body shop; Muzak at the mall or grocery store or fast-food restaurant; on the beach; at the neighboring campsite; at the pub. I sought out pop radio so very little as a young adult (bad period for music), that there are still a handful of songs that remind me of being drunk; or working the night shift and slapping myself to stay awake.

    Reading just doesn’t lend itself in the same way as music to safe multitasking; and reading is passed from the older generation to the younger generation in a very different way than radio. In fact, for many young people, choosing ‘their’ radio station is the first real expression of *independence* from the family. Reading, and instilling the love of reading, takes a lot more conscious effort.

    Even so. I don’t have any idea what the future might hold for reading. Is there something inherent in the act of reading that will persist? Only a few years ago, much of the world had never dreamt that reading might ever be a separate act from holding a printed book or page. What does it even mean to ‘not like reading’? Is it that a person really just doesn’t like looking at, and making sense of, words? Do they feel embarrassed being seen holding a book? Are they embarrassed about their reading tastes, and just need privacy? If they tried to read as children, was that a signal to their parents that they ‘had time on their hands’, so picking up a book just evokes feelings of guilt over idleness — or that they’re about to experience a rude interruption and have to go hang out the wash? There’s just a lot that we do not know about this.

    But publishers don’t seem to be trying to find out!

  15. Nice post asphalt.

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