More on TechnologyTell: Gadget News | Apple News
Sony admits $9.99 book pricing is not profitable
November 18, 2009 | 8:47 am
|
By Paul Biba
I haven’t seen anyone pick this up from the TechFlash interview of Steve Haber, the president of Sony’s digital reading division. When asked about the $9.99 pricing of ebooks set by Amazon, Steve replied:
“Eventually we moved our pricing there. It was the market reality that we needed to be competitive on the pricing … It’s not profitable, quite frankly, at that price, but consumers don’t know what our profit margins are. They know what the pricing is.”
|
Previous
SUBSCRIBE TO RSS
Comments:
And yet Baen has been selling ebooks–without DRM–for $6 or less for *years* now. When Baen first started selling ebooks, I had a chance to meet Eric Flint and urged him (somewhat incoherently) to make sure the price was sustainable. He smiled and said it was *not* a problem.
Or look at it another way: Apple will sell me ~ 2GB of content (i.e., a 720p episode of a current TV show) for $3. If Apple can be profitable at that price point, why can’t the publishing industry make a living by selling for 66x as much per byte?
“We’d be so much more profitable if it weren’t for the darn customers!”
Oops, I misplaced a decimal point. Assuming an ebook is roughly 1MB, my question should be, why can’t the publishing industry make a living by selling for 6,660x as much per byte?
Well, one thing is that Sony is not a publisher, Baen is. Sony is a reseller, a storefront. The question is, can the actual publishers sell books for $9.99 at a profit (or low enough under that for the middleman to make a profit also). Although with the low barrier to entry to setting up an eStore, why the publishers need a middleman in the long term is beyond me. Sony et al probably realise this, and are ok selling books at no profit if it means moving hardware.
Ask anyone at the big publishing houses if they’ve ever heard of Baen and their success with their hardcover-plus-ebook model. Chances are, the answer will be either “no” or “we don’t think that will work for us.”
Fact is, most publishers still believe that an ebook sale is a lost hardcover sale, despite all the evidence to the contrary, and they’re still married to the hardcover-then-paperback model – even though most publishers kicked like the Dickens against paperbacks for they same reasons they’re now kicking against ebooks.
They’re dinosaurs. They have to change or die. Sony’s caught in the middle. Let’s hope that the retailers – Amazon, Sony, Books on Board, and others – can manage enough clout to finally change things.
Sony made a mistake becoming a bookseller in the first place. If they’d concentrated on making the best all-around e-book reader available, they wouldn’t be wailing about the problems of being a middleman in the publishing arena.
But that’s what happens when you decide to morph from a hardware-only company to a media-and-hardware company…
maybe it’s just not profitable if not enough copies are sold. i just don’t see how the thing can continue to cost significant money if it’s just sitting there on a server. paperbacks are cheaper than hardcovers — and many of them are cheaper than 9.99. this is really like saying ‘movies at $8 just aren’t profitable’. no one will never be able to convince me. *ever*. that producing even a printed book is more expensive than producing a hollywood feature film. i can buy ‘the silence of the lambs’, or ‘the mummy’ for my ipod touch for 9.99. *the insurance premium* to cover either of those films would have cost more than hiring a famous actor and studio space to produce the *audio* version of a book. publishers soooo love to ignore the economies of scale — despite the effect on their bread & butter.
if electronic publishing really is that expensive, it’s time publishers downsized and improved their agility — just like the rest of the world is having to do.
I think the publishing industry needs to take a deep look at what it does and improve the process. If Hollywood can produce million dollar features and sell the DVD’s for $20, then the publishing industry be able to do something for a lot less when they don’t have to deal with that kind of overhead. Now I understand that movies get a theater run where they make a big chunk. But there are plenty of direct to DVD productions that cost plenty to make but are still being done for a profit.
Maybe the consumer should be informed about profit margins. I’m a simpleton and don’t have a fancy MBA, but why don’t prices simply work like this:
1. author sets a price for his book. $X
2. publisher adds their costs (which would be minimal for ebooks, presumably, since there is no printing costs) plus a profit margin. $X+Y
3. retailer adds their profit margin. $X+Y+Z
4. customer buys for $X+Y+Z
Every retailer is sold the book at the same price. The competitive advantage of a retailer is how low they can make their profit margin and still remain in business–a testament to their efficiency. I think that’s the basic way it’s supposed to work, though I know that today’s screwy, backward economics doesn’t work that way.
> Sony made a mistake becoming a bookseller in the first place.
Whoa there – lets not forget history here. Sony’s been one of the few hardware suppliers for a long time now, and if that’s all they were, they wouldn’t have been able to sell hardly any devices. If you compare it to games consoles, you need a decent sized games library for a console to sell. The same thing goes for ebooks and ebook readers. Sony had to effectively _create_ an ebook market, as there were no big suppliers around at the time when they started out. As competition has mounted, having ready access to a decent sized library of ebooks is a very big plus point for buyers, who don’t want to search through multiple sites to find what they want.
As the ebook market matures, I think we’ll see Sony moving away from that model however, and most likely sell off their ebook store. They may even ditch the readers entirely and just make vaio like tablets once the multi-function device market takes off.
I disagree: Sony didn’t make music or run radio or TV stations, but they sure made enough on radios, Walkmans and Trinitrons. There are plenty of hardware companies that make plenty of good money selling hardware, even though they don’t create or sell the things that the hardware plays. There’s no reason Sony couldn’t have continued to do this.
In contrast, how many corporations have done well creating content, then selling a proprietary device to play that content (and no one else’s)? Even Sony’s movies can play in any movie theatre… it is not tied to a Sony-exclusive chain.
Frode, you suggest that Sony had to “create” an e-book market. Not at all: There were already numerous e-book suppliers out there, and lots of e-books… had been for most of a decade by then. All Sony had to do was supply a reader that would work well with those, and be a better product than the small-company readers out there… just as it had with the music market… and it would have been fine.
Sony may have boxed itself into a corner by creating a bookstore running a proprietary format. But they can still recover by continuing to produce multi-format-compatible devices, and eventually locking down the bookstore to new material and releasing (de-DRM’ing) any accumulated content to the consumers so they can move to other devices and pursue the content they want from any source.
Ben: the pricing model you list is the old traditional cost-plus model. Nice and simple. Works well for traditional big-ticket hardware sales; say TVs and washing machines. Not so well for really *big* items with long tails (maintenance or service contracts, consumable supplies, or content players) like airliners, printers, or copy machines, though.
It is an old-school manufacturing pricing model.
There are, however, newer and more sophisticated models that produce *retailer* profits under conditions that the simple cost-plus model fails to deliver.
Supermarkets and high-volume deep discounters (like WalMart and, yes, Amazon) use modern computerized inventory tracking to use loss-leader products to draw in customers and then make a profit on the aggregate “basket” that the customer buys. In other words, they don’t *need* to make a profit on every single item in the basket as long as they make a profit on the *total* sale.
Retailers who aren’t sophsticated enough to play this game, properly mixing in loss leaders with high-profit items, end up losing customers because of higher average prices or lose their shirts by under-pricing the wrong items.
In the case of the Amazon bookstore, they *might* just be doing this for two reasons:
1- all reports are that Kindle buyers are heavy book readers who don’t particularly care about DRM and value the convenience of online buying
2- some Kindle books are priced higher than the competing stores; if Amazon were simply tacking on a fixed margin to all their books then the price difference should be the same across the board (assuming the publishers give Amazon competitors the same prices they give Amazon) *or* the publishers are giving different discounts to different retailers and only occasionally charging Amazon more than they charge other ebook retailers. The first case isn’t happening and the second is possible but unlikely. The opposite is more likely, in truth; the publishers simply give Amazon a better price. And then they whine about the low retail price. (Go figure.)
Either way, once you add in Amazons known efficiencies, even cost-plus pricing would still let them undercut the opposition. They are simply better at retailing than anybody this side of WalMart.
Of course, these days a retailer’s pricing algorithms are proprietary and in constant flux so their is no way short of an FTC investigation into Amazon’s accounting “books” to *know* if they are in fact practicing basket-pricing but given the buying habits of current Kindle reader customers, it is quite likely that they are.
Sony, being a hardware manufacturer more than a retailer, is used to the classic cost-plus fixed pricing scheme and probably doesn’t have the data needed to implement basket pricing on an online store. Hence they lost their shirt at it.
Modern retailing is not for the faint of heart or the weak-kneed; it is a business for sharks, not guppies. And Sony is anything but a shark. These days they are more tuna than barracuda.
Ah, but Sony does make music (Sony Music is the second largest record company in the world even), games, movies etc. There were some suppliers of ebooks back when they released the Librie, sure, but Sony knows that if you want to drive hardware adoption, you sometimes have to supply the software as well. In addition they’ve also traditionally been against open formats, preferring their own (Atrac, MD, etc) proprietary ones that they can control. You make a lot more money if you control every step of the production and distribution chain, than if you’re just making hardware devices.
I think people are doing them a disservice if they claim that they’re small-fry and don’t know what they’re doing. They’re number 2 for sales of reader devices after Amazon, and you don’t get there if you don’t have a strategy that works.
Sony is number two now but don’t forget they started with 100% market share in the e-ink reader market.
The strategy that got them to number two frittered away a multi-year lead in months.
And last I looked, they *bought* Sony music rather than build it up.
Add in that Sony divisions don’t work well together and you can’t use Sony Music (nee Columbia Records) which is in serious decline as a guide to what Sony can do in ebooks. Not if you think Sony has a future in ebooks, rather than reader gadgets.
In the market share game, Sony is a net share donor in pretty much every market they play in.
Oh I agree they’ve wasted some opportunities – it’s taken them too long to come out with a reader that competes with the kindle and wireless downloads. They haven’t really been willing to invest the kind of money that’s needed, until now that competition is heating up.
Buying a content provider is building up by the way
. It’s also a very smart move. I’m actually kind of surprised that Sony haven’t gone to that step for ebooks, but I guess it comes back to them not being willing to spend that amount of money.
> Add in that Sony divisions don’t work well together
That’s actually changing. There’s been a lot of cooperative activity between the movie and console gaming divisions for Blu-ray for instance. There’s a lot of cross-promotion going on there.
Regardless, their ebook front-end is a deliberate strategy to help push their reader hardware, and vice versa, so cross-division cooperation or not is irrelevant. They’re selling some books at a loss because they figure they’ll make it back on not only other books, but also in the long term. All the article tells us is confirmation that Amazon is making things harder for non-publishers to run competitive ebook storefronts. The big publishers don’t want a devaluation of their content and cannibalizing sales of hardcovers, so they’re obviously only offering ebooks of hard cover editions at a price that’s equal too or higher than 9.95.