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Will $9.99 Kindle bestsellers lead to the equivalent of a housing balloon in publishing?
May 17, 2009 | 2:18 am
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By David Rothman
Will $9.99 Kindle bestsellers lead to the equivalent of a housing crisis in publishing?
How long will the so-called good times—for book shoppers—roll before Amazon stops subsidizing bestsellers in hopes of selling more Kindles? Or before Amazon’s “cheap” books drive down prices to the point where publishers suffer grievously, if you’re looking at it from that perspective?
Here’s an excerpt from Steal This Book (for $9.99), by Motoko Rich of the New York Times:
The doomsday scenario for publishing is that the e-book versions cannibalize higher-price print sales. Publishing houses, already suffering from the recession, could be forced to cut author advances or lay off more editors.
“It’s like a flood of cheap houses onto a real estate market,” said Michael Norris, senior analyst at Simba Information, a market research firm. “Sooner or later it’s going to affect the prices of all the properties around them.”
On the other hand, it is not inevitable that publishers and authors will have to relent. As Amazon faces competition from devices like the widely expected tablet from Apple, “then the book publisher of Obama’s next book can say ‘O.K., which of you is going to offer us the best deal?’ ” said Fiona Scott Morton, a professor of economics at the Yale School of Management. “I don’t think the content providers have to be in a worse position.”
But then again, what if Amazon uses its proprietary Kindle format—spread out over different platforms—to try to lock in consumers accustomed to shopping there?
Or suppose it takes advantage of its vast resources to become a major publisher, going far, far beyond the current experiment with AmazonEncore?
We might just see a different kind of unsustainable bubble. Amazon could buy up the books of major writers, cement its position in the market, then reduce the advances to authors and publishers once it dominated enough of American publishing.
Simply put, whether from an author’s perspective or a reader’s, Amazon deserves lots and lots of watching by anti-trust agencies—informally, and perhaps in time through a formal investigation.
Detail: Many customers of Fictionwise and other stores would say that even $9.95 is too much. I myself think with enough volume, the $9.95 would seem high. When e-reader hardware prices fall and screens improve, volume will pick up.
Meanwhile, despite the slightly problematic headline over the New York Times piece—is the $9.95 really a “steal”?—I was pleased to see Motoko Rich end the article with the example of a Kindle owner who was buying more books.
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Comments:
You have got to be kidding me. $9.99 for digital content is a rip-off. I have no sympathy for them.
Publishers will sell fiction ebooks at $9.99 while the hardcover is out and then drop the price when the softcover comes out, even though nothing about the digital content has changed. This is a rip-off and they deserve all the piracy they get.
Publishing is doomed because they can’t see past old pricing models.
@David (of the singular name): I’m going to have to disagree with you here. The publishers charge more when the book comes out because it is worth more to some people to buy early (or did you really think it costs $18 to create and ship a hardcover?). You see the same in video games and DVD where there is no format shift later in life.
As for cheap eBooks destroying the market, it’s hard to say for sure, but I sincerely doubt that eBook sales will increase so fast, and pBook sales drop equally fast, that publishers can’t adjust to the changing sales base.
I will point out that we saw similar arguments a few years back concerning movies. The argument is that enough people now have home theaters and the patience to wait for a movie on DVD that cheap DVDs won’t allow the movie studios to recover the costs of production.
Basically a retread of the story I posted the other day about how Amazon is reportedly losing money on $9.99 e-books—just that this one was sourced from the New York Times rather than Publishers Weekly. Both places do note that Amazon is apparently paying the full publisher-demanded half-price on its books: a $26 book costs $13 and is sold for $9.99.
Interestingly, some of the comments in the discussion thread on my story insist that, no, that isn’t so, Amazon actually isn’t losing money because they have already dictated the prices they will pay to the publishers. I wonder where they get their information, and why both the NYT and PW disagree with them?
In any case, it only changes the timetable, not the actual facts of the matter…
As for the “problematic headline,” if you click through now you’ll find that the New York Times has changed the headline since the story was originally posted. They often do that.
As for whether $9.99 is or is not a “steal,” well, if you compare it to the full-hardcover prices that non-Amazon e-book stores charge for the same e-books, it starts to look better and better.
Chris Meadows said “As for the “problematic headline,” if you click through now you’ll find that the New York Times has changed the headline since the story was originally posted.”
When I click through the link (at 4 PM Eastern time) the article title is “Steal This Book (for $9.99)”; an allusion to the 1971 work Steal This Book by Yippie Abbie Hoffman.
An ebook priced at $9.99 for an otherwise hardcover book is an excellent deal, with or without DRM. For example, my last Kindle purchase was Woodsburner by John Pipkin: retail price is $24.95, or, with a 40% discount, $14.97; the best used price is (Very Good condition) $11.46 + $3.99, or, $0.48 more expensive than new at Amazon. Of course, the price of the hardcover new and used may fluctuate in coming weeks, but $9.99 is fine with me for the ebook when I bought it. Other books will have better or worse savings, but as a general rule, the Amazon price point is still a good deal.
If you think $9.99 is too expensive: read public domain, creative commons, older books, or independent publishers with low prices–there are plenty around so you don’t ever have to pay more than want.
Garson: When I synced it to InstaPaper, the headline that came up was “How much should an e-book cost?”
“As for cheap eBooks destroying the market, it’s hard to say for sure, but I sincerely doubt that eBook sales will increase so fast, and pBook sales drop equally fast, that publishers can’t adjust to the changing sales base.”
They are increasing fast! Amazon now says that they account for 35% of sales when an electronic version is available. This is fast growth being that it only took a year or 2 to accomplish. The problem now is that publishers are either terrified of losing sales, or more likely holding the line in order to have people like Greg M., foolishly set the market equilibrium price high. On that note Greg M. said
“An ebook priced at $9.99 for an otherwise hardcover book is an excellent deal, with or without DRM. For example, my last Kindle purchase was Woodsburner by John Pipkin: retail price is $24.95, or, with a 40% discount, $14.97; the best used price is (Very Good condition) $11.46 + $3.99, or, $0.48 more expensive than new at Amazon…If you think $9.99 is too expensive: read public domain, creative commons, older books, or independent publishers with low prices–there are plenty around so you don’t ever have to pay more than want.”
This type of user determined value idea is an absolute abomination when it becomes the default position of consumers. The folks boycotting get it, that by not allowing manufacturers/publishers to dictate market terms, means that the consumer wins. Not a cent more I say! As far as free content goes we must ask ourselves the following “How much longer will we have access to it?” With some of the moves being made by Amazon and Google I say not much longer.
But David, Amazon has already done this with its cheap new and used p-books. Why do you think so many booksellers have gone out of business (including me, when I was doing my online store back in 2004-5, and the last used book store in my neighborhood two weeks from now)? Amazon and its third-party sellers have flooded the market with discounted books.
There is a huge difference between this situation and the housing crisis, however. House prices were artificially inflated 100% and more because of speculation, greed, and exploitation. They *should* come down. In my area, you still can’t buy anything but a tiny nothing house for less than $600k. Amazon notwithstanding, publishing has never been like that in any way.
Paula, your bookseller experience counts a lot, and I respect you for it. You could well be right. That said, Amazon is doing what it can to reduce consumer choice in areas such as format (and perhaps selection of e-readers, if the worst happens in the case of the Stanza purchase), while increasing the number of Kindle titles. A pattern here? And the possibility of lower consumer prices now and higher ones later on? Perhaps. Same even for p-books ultimately–with widening margins? Jeff will both pay and charge what the market will bear, in his efforts to keep the shareholders happy. Thanks for your comments! David
Much of this article is laughable. For example, ““The concept that because a book is an e-book it should automatically be priced significantly lower than a paper book is one we don’t agree with,” said Carolyn Reidy, chief executive of Simon & Schuster. “What a consumer is buying is the content, not necessarily the format.” ” Well, they are then going to have a hard time explaining why the paperback with the exact same content has always been priced substantially below the hardcover.
And “Publishers are caught between authors who want to be paid high advances and consumers who believe they should pay less for a digital edition, largely because the publishers save on printing and shipping costs. But publishers argue that those costs, which generally run about 12.5 percent of the average hardcover retail list price, do not entirely disappear with e-books. What’s more, the costs of writing, editing and marketing remain the same.” Well, first, the 12.5% is totally deceptive. It doesn’t consider the cost of warehousing, which is not a problem with e-books. It doesn’t consider things like the huge cost of remainders, which is also not a problem with e-books. It also doesn’t consider that you don’t have to have salespeople go to convince the B&Ns to order a certain number of copies of an e-book.
I’ve worked in publishing, and I’ve written/edited numerous books. The idea that Amazon (or anyone else) should be paying the same for an e-book as for a new hardcover is absurd. The costs of distributing a physical product are far more than the costs of printing and shipping.
I am not writing this to endorse Amazon, the Kindle format, or a universal $9.99 price point. But this article, and most of the publishers that are quoted in it, are full of it.
I’m not sure why the industry is keying off print publishing as a yardstick on how to price digital publishing. These are two different technologies and they compare only if we are stuck on the past definition of printed media and its business model.
A digital copy of The Great Gatsby is a different product than the printed version. If it’s not, somebody in the e-book space is not doing their job.
Lastly, I find it odd in the new digital world that creators and consumers would allow middlemen to price their terms of exchange. The power of digital is to break these distribution hierarchies. Do travel agents set airline prices or real estate agents set house prices? Of course not. The scary thing for publishers and distributors is that pretty soon they will be price takers, not price makers.
It’s a brave new world and it’s ours to make.
@Logan: The movie industry is very different from publishing and has its own problems and fallacies.
I’m aware at how hardcovers are marked up beyond cost. When I buy a hardcover, however, I’m also getting a book with sturdier binding, better paper, larger type, and so forth. There is more physical value. When moved to digital, the only extension of value is in timing. Plus, I don’t really own it.
David,
If Amazon charges lower prices now, they will drive publishers out of business as they have booksellers. If they then raise the prices, they will be providing an opportunity for competitors to undercut them.
Paula, given that Amazon itself is getting into publishing, maybe it won’t be as flexible with publishers as it might have been. Remember, Jeff is probably thinking like an MBA, not a promoter of literature. So he isn’t as tied to “legacy” books.
As for raising prices, yes, competitors could try to undercut him. But then he’s got people accustomed to buying books from him for their Kindles or Kindle apps.
Of course he could simultaneously work to keep advances down on bestsellers by building up unknowns rather than paying through the roof for books from the big boys–or at least by not paying as much as the large publishers do.
Simply put, things could go a number of ways. Let’s hope they shake out well for writers, publishers and, of course, readers at large.
As usual, thanks for your perspective.
David
David: I think you’re making a simple comparison between ebooks and print books that doesn’t really hold. With an ebook I can take notes, jump to links inside and outside the book; jump to footnotes and citations and graphics. I can reference a different book and then go back to my original book. No more looking up words in dictionaries. Wikipedia at my fingertips. I can listen to music or audio.
And as far as I know you get licensed access to the book forever – a personal library maintained by Amazon available through the Internet anywhere in the world.
This provides a lot more value than a bound shock of paper. That’s value I’m willing to pay for.
It really comes down to whether or not people will in fact pay that price.
Much like happened with mp3s, consumers want ebooks. If there is not an attractively priced option consumers will get it regardless. Value is in the eye of the beholder. There always will be someone willing to pay high prices.
The quote from Carolyn Reidy, chief executive of Simon & Schuster. “What a consumer is buying is the content, not necessarily the format.”, does that mean that she will throw in hardcover and ebook copies with a paperback purchase?
It comes down to authors will go unpaid as long as realistic options are not available. A publisher that is unable to make money from books priced under $9.99 has a broken business model.