bvlgari.jpegSome months, shortly after the iPad was announced, John Sargent, CEO of Macmillan published a much discussed and influential blog on the pricing of books and the ‘agency model’. This was influential because it articulated the reason why Macmillan (and most of the other large publishers) were going to use the advent of the Apple iPad as an occasion for reasserting publisher control over the pricing of books. Digital books that would be sold through the iPad’s iBook store, but also for reasserting control over the pricing of books that would be sold by Amazon through their Kindle. Publishers through the agency model would set the price of the book to be sold to end users and allocate a set percentage of that price to the distributor/retail channel, or technology partner (30% is becoming the norm for distribution share). Amazon by implication would no longer be allowed to set, and to lower, prices to $9.99. Amazon would have to put up with some loss of control and a higher but pre-determined margin.

The ructions caused by this blog posting are on-going, but the comment that most struck me in Sargent’s blog was an aside and a promise:

I have not addressed illustrated books or books for young children. That will be a topic for the future as the technology advances beyond e-ink screens. John Sargent Macmillan Blog

We have not heard any more about the special case(s) of illustrated books or books for young children. But why should they be different? Why should the pricing and availability of books of different types be subject to quite different considerations? Well no doubt a part of the answer is that illustrated books (and many children’s books are essentially illustrated) will not work well on e-ink screens. Mind you the iPad is not an e-ink screen, but I suppose one could say that the iBook store does appear to be catering for books that would otherwise be suitable for e-ink screens. Illustrated books and some other types of high-design books are evidently not suitable for the iBookstore or the e-Pub format used by most e-ink devices. So illustrated books do seem to be a bit of a special case and more suitable for deployment as free-standing apps directly in the iPad system.

It is surprising that we have not yet seen more high-design books implemented as free-standing apps in the iTunes system. The iPad is eminently suitable for rendering beautiful illustrated books. How will the pricing work when they arrive? Will beautiful virtual books on the iPad be priced higher or lower than other books?

There is an argument for saying that beautiful illustrated books will be much cheaper as digital books on the iPad (or on Android tablets etc) than they will be in print. Perhaps the clever strategy now for a publisher of beautiful books would be to move rapidly up-market, towards a luxury option for printed books, whilst simultaneously making digital versions of the books available at highly competitive prices. This strategy would chime in with a prediction from Alberto Vitale that printed book prices should rise as digital book prices inevitably fall:

“a book that sells today for $27, $28.95 may be selling within the next two to five years at anywhere between $37.95 and $45.”

“Eventually, I believe the market will bear the higher price — publishers will have to experiment with the price. The economics of book publishing are not very good now,” Vitale said, adding he did not expect “appreciable resistance” from consumers to higher hardback prices.

Vitale further predicted that the cost of e-books will drop …….. “E-books will become the equivalent of the mass market. Mass market is not down market, it’s just a market accessible to a larger number of people. That’s why I believe e-book prices have to be lower than they are today. The consumer is not stupid, he knows the e-book is a lot more economical to produce than a regular paper book,” (See full article from DailyFinance).

This is pretty cogent thinking. I think it is especially persuasive for highly illustrated beautiful books. For the following reasons:

(1) Whatever publishers say, the pricing of printed books has something to do with the costs of producing and manufacturing them (the official line is that pricing should be set by market expectations, but in practice all publishers pay attention to unit costs when setting print prices). The costs of printing and manufacturing the marginal, or run-on copies matter to the traditional publisher. Especially is this true for high quality illustrated books which have very good paper and complex printing. Good colour costs if the book is to be manufactured. Colour costs nothing in the digital case. In fact the marginal cost of another digital reader or licensee is essentially zero as it is with any digital book. The run on cost of all digital books is essentially zero. There is no reason that big and beautiful digital books should cost more than any other kind of book, mass market or otherwise. There is no cost penalty for being a big book, or having full colour throughout if the book is digital.

(2) Furthermore the perceived value of a print book will be increased if the standard of production and of reproduction is increased. From which it should follow that the price of the print product should be increased to the point that the ‘exclusive’ and ‘exceptional’ value of the physical object is enhanced. Physical books of high quality should increasingly be priced according to the rules of Bvlgari and Gucci, not according to the standards of Marks & Spencer or the Gap. Publishers of such books: Thames &Hudson, Phaidon, Yale, Rizzoli and so on will find it profitable to improve the quality and reduce the print runs for their best books, because

(3) Selling relatively cheap digital editions will not only increase the market reach of beautiful books, it will also help to sell the more expensive printed books. There are potentially large markets for beautiful digital books at prices in the region of $5-$10, merely for reading, even though the printed book may cost $50-$100. Very attractive physical books will be very attractive digital books, especially as the quality and fidelity of electronic devices surpass that of the iPad, which they will. Larger digital sales will in effect promote the desirability of exclusive and less affordable printed editions. Customers who might like to possess a very expensive book, and to handle it, to put it on their shelves, or to collect it, are more likely to do so if they have already seen and probably purchased a digital version of the book.

(4) For as Vitale so eloquently observes, the consumer is not stupid. The consumer knows that the marginal cost of a digital book is close to zero, just as she knows that the cost of beautifully produced printed volume may be close to the manufactured cost of a Gucci handbag (ie quite possibly less than 10% of the price that may be charged, but a lot more than zero).

Of course this argument does not completely follow if there is a significant degree of substitutability between beautiful printed books and the same book as a digital edition. But there surely is not? If a physical book is valued because it is expensive, because it can be handled, because it is potentially rare and collectible it will not be substituted by a digital edition which is none of these things. I suspect that we shall soon see some quality art publishers putting this thesis to the test and they will do so, because for many of the best illustrated books there is quite a large audience that merely wants to read or consult the beautifully produced virtual object. For the beautiful book that is merely going to be read there is no case for charging more than $5 or $9.99 or whatever becomes the ‘normal’ price for a digital book. I agree with Vitale that this ‘normal’ price will soon be coming down. Partly because consumers are not stupid, but also because competition is at work and lower prices will sell more books. Always has done. Always will. But there still should be a very nice market for the beautiful physical book. Why not? We also like beautiful handbags.

Editor’s Note: This article is reprinted, with permission, from the Exact Editions blog. PB


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