Monday, March 21, 2011

Essay: Should eBooks be Cheaper than Print?

If I take a survey now, majority of my readers will probably answer in the affirmative. I've seen the excuse many times: I'm not willing to buy an eBook if it's more expensive--or equal--to the cost of its print equivalent (i.e. "It has to be cheaper than the hardcover or paperback!"). For me, it's an interesting phenomenon, mainly because in this instance, consumers value old technology more than new technology. For example, in the music industry, when CDs came out, they were more expensive than cassette tapes, yet no one claimed "CDs should be cheaper!"

The Rationalization

An often but ill-cited reason by anyone but the publisher really is that eBooks don't have print costs, hence they should be cheaper. This has been debunked numerous times by various publishers, claiming that the actual printing of the book only costs somewhere between 10% ~ 20% of the retail price, but no matter how many times this is repeated, no one seems to listen--or better yet, there is a cognitive dissonance between this fact and how much we value print. A better example is a query from the 90's that I read in a video game magazine: the inteprid fan was asking that because video games were now delivered via CD-ROM (as opposed to cartridges), why did video games cost $50.00 unlike music CDs which cost $10.00 (at the time). There are, of course, many answers to that question, from production costs (theoretically harder and longer to create a game) to marketing (music arguably gets free publicity from radios and MTVs) to economies of scale (music sells more than games). CDs might be dirt cheap (currently $0.15 here), but what you're buying, whether it's software, an album, or a movie, or simply art, is the content. No one is claiming that you should buy Adobe Photoshop for $0.99 because the DVD it's copied into costs $0.20.

"Content is king," however, can be a difficult concept to grasp at times. We're creatures of the physical world and content is intangible. It's easier, for example, to adjucate theft of physical property as opposed to intellectual property. In the case of the former, they either stole your bike or they didn't. With the latter, your "property" needs to be established (i.e. what are its unique characteristics), and then prove that the other party attempted to replicate it. Sometimes, it's clear-cut to experts (but not to the public in general). At other times, there's room for argument and debate.

To be fair, when it comes to the publishing industry, it's not simply a matter of ignorance on the consumer's part. Publishers, over the decades, have fostered the idea that hardcovers should be more expensive than mass-market paperbacks. They've been selling to readers that hey, because this book is larger and printed on better paper, this is significantly more expensive than the mass market paperback (they haven't explicitly stated this but insinuated it). The reality, however, is that a hardcover isn't that significantly more expensive than a mass market paperback to manufacture. The real reason why hardcovers are expensive is that it's being sold at a price than the publisher thinks the public is willing to pay for. Part of this psychological trick is that for certain titles, a publisher will release the hardcover format initially, and then a mass-market paperback one year later (to theoretically entice readers who couldn't afford the hardcover to buy copies of the book). They know that the early adopters--those who buy the hardcovers--are paying for the privilege of reading the book first (or at least before it gets sold as a mass-market paperback). Unfortunately, this fact isn't immediately apparent to most consumers (although it's observable if you notice the publishing patterns). Hence when eBooks started becoming lucrative as a business, publisher expectations were at odds with consumer expectations. Here's one of my favorite quotes from author Paul Cornell:
"Publishers have always thought that when you buy a hardback, what you're paying more for is the chance to own it on the day of publication. Paperbacks are cheaper because they come out a year later. The reading public, on the other hand, always thought what they were paying more for was the extra physical mass and quality. (Actually, a hardback costs, one publisher told me, only from 50p to a couple of pounds more to make.) So obviously publishers think an e-book, out on the day of publication, should cost the same as a hardback. And obviously the reading public think it should cost less than a paperback. From this difference in perception stem all subsequent horrors."
Having said that, there are other cultures wherein it's acceptable of eBooks to be more expensive than print. Japan for example (see slide 12).

The Advantages

Still, you might not be convinced about the price of eBooks, at least in relation to print. Here are some examples of the advantages of each format.

eBooks (or to be more specific, ePub, and I'm assuming they're DRM-free):

Instant Delivery: When you purchase an eBook, you download it in a short period of time (i.e. less than an hour). Delivery time is actually a premium. That's why you pay Amazon an additional fee if you want to receive your shipment faster.

Durability: eBooks don't suffer from wear and tear. That's why HarperCollins is imposing a 26-checkout limit on eBooks for libraries, because they're sturdier compared to print.

Portability: You can store your entire library in your eBook reading device. Or a flash drive. Or email it to yourself. You don't need a suitcase to carry all your books.

Searchability: You can easily look-up words, search for specific passages, etc.

Bookmarks and Notes: While not exclusive to eBooks, it's easier to just bookmark a page or add a note to an eBook.

Free of Organisms and Certain Allergens: I have a special condition--I'm allergic to dust. This makes reading old books difficult. eBooks don't accumulate dust or harmful organisms (your eBook reader though emits radiation so there is that...).


Tangible: A book is tactile. You can touch it, turn the pages, etc. One would argue this is the biggest assest of print.

Flexibility: A lot of creative content can be conveyed in print. You can produce a footnote-heavy book. Or you can create pop-out books. You aren't hampered by technical limitations of code.

Reliability: You don't need an eBook reading device to read a book. As long as you have it, you can read it.

Loanable: You can loan the book to someone else or re-sell it.

Visibility: In the same way that I have allergies which prevent me from enjoying print, there are some people who, for various visual reasons, cannot stand reading eBooks. You can't sell a book to someone who can't read them.

Now the point of that list isn't to say eBooks are superior to print, but each medium has its own advantages. What consumers find value in, however, is relative. Most people right now will probably shell out $9.00 for a book simply because it's tactile and that more than outweighs any of the possible benefits of eBooks. And it's a perfectly valid reason: the previous generation, after all, was raised in a culture that prefers--and understands--physical property. That's not a condemnation of people who aren't willing to pay a lot for eBooks, but it explains their failure to articulate why they're not willing to purchase an eBook when it costs the same as the print version. When they use phrases like "I don't care" or "I just won't", what they really mean is "I'm attached to the tactile element of print and I'm willing to pay a premium price for it." That's why no matter how much logic publishers and critics might throw at readers (see my previous paragraphs for example), a lot of consumers won't budge because they're reacting from gut feelings. Combating emotions with logical arguments doesn't work all the time.

Price Points

eBooks as a format, however, is only part of the story. The bigger issue here is how much eBooks should cost. Magic numbers have been mentioned: $9.99. $0.99. I dislike "universal advice" because it doesn't take into consideration the unique situation of publishers, authors, or simply of the business. Jennifer Mattern, who writes nonfiction, has books priced at $9.97, $17.00, and $37.00. You'd think that no one would buy her books but it all comes down to her game plan.

In genre, a better example is Clarkesworld. Its eBook editions cost $2.99 on Amazon and Barnes & Noble. They're currently experimenting with selling them at $0.99. Is that the right move? Well, here's one problem they have to overcome:
"The logical/mathematical side of my brain is screaming, NO, NO, NO, we would have to sell nearly 6 times as many books at Amazon and 5 times as many at B& to maintain our current income."
This is basic Supply and Demand. At $2.99, Clarkesworld is selling X number of copies of the magazine. In order for them to match the former at $0.99, Clarkesworld needs to sell 6X. Let's assume (for those who find variables too abstract) X is 100. To match the current income, Clarkesworld would need to sell 600 copies at $0.99.

The question--and why publishers and authors are experimenting--is discovering whether lowering the price will indeed give them those numbers (or exceed them). If it does, then lowering the price was a smart move. If it didn't, then reverting to the previous price is the right decision. (And then there is also the question whether this is a one-time deal [i.e. those numbers are valid only for one month] or if it can be sustained.)

And that's what most pundits don't realize: just because you lower your price doesn't mean you'll automatically get more readers--or at least enough readers to match your desired income. Let's say you first priced your book at $9.99 and you get 10 buyers each month. At $0.99, you get 100 buyers each month. Obviously the latter isn't significantly as advantageous, so you try somewhere in the middle, $4.99, and you get 50 buyers each month. Now at $4.99, you don't get as much readers as $0.99, but you are making more money than either $9.99 or $0.99 models. This should be the heart of the argument, at least if what you're interested in is profit and sustainability. It's possible that all you're interested in is gathering a large base of readers, profits be damned. That's certainly a viable long-term business model, and for the record, Amazon was a loss-leader until 2001 so that strategy paid off for them eventually. But if you're solely interested in acquiring a huge following, why not just give your book away for free using the Creative Commons model?

Speaking of the Creative Commons, there's also something we can learn from that particular model in relation to pricing eBooks. Not all books that are released under the Creative Commons license, or even pirated books, acquire a huge following. That's also the case with $0.99-priced eBooks.

If you genuinely think you can sell thousands of eBooks per month (factoring in your production expenses of course) with the $0.99 price, then go ahead. If not, then you might want to rethink your pricing strategy (again, taking into consideration your production expenses; The Blair Witch Project was a financial success after all because of the amount it grossed in relation to how much it took to produce the movie).  Also do not confuse $0.99 with marketing. It's honestly hard to sell tens of thousands of copies of an eBook if you don't know how to spread the word that you exist (or if your reader base is less than that number).

Distributor/Retailer Business Models

Related to price points are the models used by distributors/retailers, specifically the initial ire the Agency Pricing drew. Honestly, Agency Pricing is just one method, and it is not inherently right or wrong. Individual prices--and publishers--can be blamed (i.e. when they set the price too high) but the model itself is not broken as some would like to claim. It's like saying Democracy is a system that is broken (and while there are certainly those who genuinely believe that, a lot of complaints are usually targeted at specific politicians and regimes).

Consumers, at the end of the day, don't care what business model is used for pricing books, as long as they end up paying the amount they think is right for books. If Amazon and Apple were to suddenly dictate that eBooks should cost $25.00, consumers would similarly be up in arms against them.

What Agency Pricing does, however, is shift the power from retailers to publishers. Now when Amazon was still dictating the price of eBooks (and it had good incentive to make eBooks a loss leader since they didn't need them to profit; they were selling Kindles), it wasn't a free market economy. Neither is Agency Pricing (Amazon for example can't suddenly provide discounts for eBooks). And I'm not saying the business should be a completely free market economy. In other parts of the world, there are other bodies that regulate the pricing of books (eBooks or otherwise), such as the government and whatever taxes they impose.

What's beneficial with Agency Pricing is that publishers can dictate the price of their books as represented by the market. Book A might be sold at $4.99 because it's selling briskly. Book B might be sold at $11.99 because it's not projected to sell as much. And sometimes, it's not about the quantities sold but production costs (i.e. Book B was more expensive to make than Book A when they're expected to sell the same quantities). A retailer won't care about these individual factors, as long as they get to sell books, since they're receiving a percentage of the sales anyway no matter which book sells. But that's just my side as a publisher-author.

One Size Fits All

It's not. If there's anything I hope readers take away from this, it's to understand the relativeness of everything. That's why it's possible for eBooks to be priced higher than print. Or why not all eBooks should be priced at either $9.99 or $0.99. Or why some consumers simply won't pay as much for eBooks (or print for that matter). Or what model is best for the industry.


Jennifer Mattern said...

Quick correction. Zoe Winters doesn't have e-books at the three price points you mentioned. I do. I own that site, and you read that in the introduction to my interview with Zoe. ;)

Charles said...

My apologies Jennifer. It's my mistake and it's been corrected now. #mybrainfail

Che Gilson said...

I have to say personally I will not buy an e-book at over $9.99 and it does have to do with the fact it isn't a physical entity.

Video games cost as much as they do because HUNDREDS OF MILLIONS of dollars go into making them and I doubt that any single book takes $100mil to acquire, edit, copy edit, and promote.

Specialized books cost more of course, like text books and those will no doubt stay high even in e-book form.

But for a mass market book that came out 2 years ago I think $4.99-$5.99 from a major publisher is an ok price. And as e-books catch on I do believe publishers will see a savings in regards to printing, paper purchases, freight distribution etc. And that savings should be passed on to the consumer.

Charles said...

No offense Che, but if you're citing video games, then you missed the point of the analogy.

(I'd also like to argue that not all video games costs $100 million, and some books do cost a lot to produce, whether it's marketing or the advance. There is also the magnitude in the price [i.e. $75.00 for a video game vs. $30.00 for a a hardcover]. But at the end of the day, it's not really a cost of production vs. final price argument; not all books or video games cost the same to produce, nor are they all priced identically.)

While there is some savings for an electronic publisher--such as not paying for ink/paper--the difference is not that significant.

Also, arbitrary time ("2 years ago") and arbitrary amount ($4.99~$5.99) is a good example of "gut feeling" without understanding the industry. I'm not saying that's not a fair price, but if I were the publisher, I'd be asking if I already had a return on my investment in 2 years time, and what would be the optimal price to sell the book and still maintain my profits.

Nessa said...

I understand everything that you have said about different cost for different books.

And if what you say about the difference in savings for an ebook compared to a paperback is not that significant shouldn't the price differ slightly. If the publishing saves 50 cents it should be reflected in the cost of the ebook.

I also do not think you adequately explained why the price of ebooks do not normally decrease after time. For example, If I try to purchase a book in a series that came out 5 years ago it is the same price as if it were new. Shouldn't the profits already have been maintained? Are the publishers/authors just being greedy?

Charles said...


And if what you say about the difference in savings for an ebook compared to a paperback is not that significant shouldn't the price differ slightly.

I wouldn't say should. The only law in any business is that you sell a product at a price you can get away with. As a consumer, sure, I think an eBook should be slightly cheaper than its print equivalent. But how much that is varies (and some will measure it using a scientific and empirical formula, while others will rely on gut feel). But production cost is only one part of the equation. If you get more utility from something for example, then shouldn't you charge more for it?

I also do not think you adequately explained why the price of ebooks do not normally decrease after time.

I didn't explain it because that's an entirely different subject matter and can be quite lengthy. Just bear in mind that a) eBooks as a profitable business is still relatively new, b) some eBooks ARE being discounted over time, and c) why should the publisher reduce the price? Lower price for example means lower royalties--you don't expect a pay cut five years into your job (in fact, you expect a raise). Price reduction in print books is usually "damage control" (i.e. unsold stock), and not exactly the most progressive tool.

Shouldn't the profits already have been maintained?

That's a big assumption. It could also have been a total failure and the publisher is just attempting to recoup whatever expenses they have.

Anonymous said...

""""I don't care" or "I just won't", what they really mean is "I'm attached to the tactile element of print and I'm willing to pay a premium price for it." That's why no matter how much logic publishers and critics might throw at readers (see my previous paragraphs for example), a lot of consumers won't budge because they're reacting from gut feelings."""""

It's not just the tactile element but the permanence element. My family has over the years lost many books (we like and collect or hoard them) through moving, flooding and even fire. But in spite of these set backs between us we have quite a lot of books, some of which were salvaged from disaster. On the other hand when it comes to things electronic or computer well I can't even begin to count how many devices have failed, how many "things" have been lost because of it and all of them are just gone, no salvaging possible. Any ebook collection is subject to the same whims of hardware and malicious software that any computer is subject to, not to mention a "recall" like the 1984 situation with Amazon. Having all of your books open to the world requires more maintenance than is required to keep a print version safe and available. And the collection is available to member of the household or friends with out depriving anyone access to what's available.

Anonymous said...

This industry is going the same direction that the real estate industry is...

A realtor serves virtually no purpose, and certainly no longer merits 6% or more of the sales price when all the information is available online and a real estate attorney can do the paperwork for $500.

Similarly, the publisher is no longer relevant for printing, if the distribution is electronic. It will eventually be an electronic forum with the author recouping 75%+ of the sales cost through direct distribution a la Apple App Store, or Amazon e-delivery.

Technology cuts out the parasitic middle-men. There is no rational argument for why e-books cost as much or more than e-delivery.