Wednesday, August 12, 2009

Essay: The Difficulty of Pricing eBooks Part II

Every Wednesday, I have an essay or feature article on any topic that catches my fancy!

Two weeks ago, I talked about the problems surrounding eBook pricing and why big publishers are reticent to sell them. Today, I want to talk about solutions, and how people can profit from them.

I. How publishers are profiting from the current model:

1) Negligible Sales - In the case of some publishers, their eBook offerings only comprise a small chunk of their customer base. Their profits are not dependent on eBook sales but on their dead-tree books. eBooks is merely an added value for their customers.

2) eBooks as Publicity and Marketing Tools - Here, eBooks are either given away for free or are sold very cheaply because it's part of the publisher's strategy to sell more copies of their print books. eBooks aren't expected to earn a profit, but rather boost the sales of another commodity.

3) eBooks as Offerings of an Independent Publisher - For various reasons, from low operations cost, being more nimble and dynamic, to not needing as much sales as a major publisher to earn a profit, some independent publishers are actually doing well selling eBooks.

II. Possible methods of earning a profit from selling eBooks:

1) Be Your Own Publisher - The problem with big publishers and eBook pricing is that the breakdown of costs can become convoluted (especially when you have a line of books). If you publish your own eBook and sell it on, say, Amazon, you're in a better position to keep track of expenses. You just need to pay the distributor (in this case Amazon) and yourself minus any expenses incurred during the production of the eBook (editing, cover art, etc.). You might even implement policies a larger publisher might shy way from, such as using a profit-sharing model with your contributors (i.e. author gets 2/3 of the profits while the editor gets 1/3) or relying on donations to keep you afloat.

2) Be Your Own Distributor - A different route publishers might take is to distribute their own titles. This enables them to keep 100% of gross eBook sales instead of splitting it with another company. And with the Internet, this is probably easier compared to the distribution of print books where you need to coordinate scheduling, storage, deliveries, and contacting various retailers. However, this also isn't as easy as it sounds. There are actually different methods of storing and selling eBooks, and as a publisher, you might not be willing to spend the money investing in talent and developing the infrastructure (which I'll discuss in III).

3) Build a Business on the Concept of Selling eBooks - The problem with many publishers is that they sell both print and eBooks, and most of them started their business with the former in mind. The eBook business then becomes a supplement of being their core market. If you want to profit from selling eBooks, you need a business model that revolves around it. In my previous essay, the difficulty of pricing eBooks stems from the fact that it has costs associated with print books. If you focus on pricing eBooks based on actual cost of producing an eBook, you'll end up with a more viable model.

4) Focus on Shorter Content - Related to #3 is this: why sell novel-length content as eBooks? Novel-length books are being produced because arguably that's what the market is willing to pay for when it comes to print books but that's not necessarily the case with the Web. You could sell shorter content: short stories, novellas, novelettes. For example, the serial format is more viable in the eBook format (it's easy to maintain a "backlist" for example). Customers might be more willing to spend $1.00 for the short story you wrote in a week as opposed to the $10.00 novel which took a year to produce.

III. What needs to change in the industry:

1) Find A Common Format - Not that I'm asking for one format to rule them all (I could live with two or three dominant formats), but it's difficult talking about eBooks when there are several formats circulating: The MobiPocket format for example is very different from a PDF. It doesn't help publishers or consumers that there are several formats lying around, and the device that they use, unless it's a PC, might not be compatible.

2) Drop DRM - When everyone finally figures out a common format, they should discard DRM, mostly because DRM disables a lot of the features of the electronic format i.e. (the ability to make copies of the document).

3) Develop an eBook Infrastructure for Selling eBooks - When we talk about selling eBooks, there are actually several methods of doing so. Arguably the simplest (if you're a one-man outfit for example) is emailing customers the PDF once you verify payment, to the more complex one holding it in storage on a server so that customers can re-download it on a future date, in case they lose the digital file. This is actually the problem a distributor will face, and why some publishers don't distribute their own eBooks.

4) Think Globally - With eBooks, the entire world is your market so why limit it to a specific region? (Well, the real answer is because of laws which brings me to my next point...) The Amazon Kindle isn't a revolution for me because it's an America-centric device and loses a lot of its advantages if I bring it here in the Philippines. There are also some merchants which restrict the selling of their eBooks to specific regions. Why turn down customers willing to pay for your product?

5) New Laws and Terms of Service - This is the legalese aspect but they need to be tackled. Publishers and distributors need to produce terms of service that are transparent and beneficial to the reader. For example, when it comes to libraries, the existing policies isn't beneficial to them and hampers the propagation of eBooks in such institutions. Then there's the actual laws of various nations that need to be taken into consideration. Why do vendors limit selling eBooks to a particular region? How about the Google Copyright settlement? Public domain? These are issues need to be tackled as the old paradigm clashes with the new.


Nicola Griffith said...

It's my understanding that most trade publishers are only making a profit on, say, Amazon Kindle sales because Amazon is subsidising the $9.99 price point. At some point they'll stop--yet the customer will refuse to pay more. The publisher will start losing money.

I am, of course, only talking about traditional trade publishers.

Kristan said...

I'm one of those who is experimenting with being my own publisher -- via Amazon's DTP (Kindle) platform. And in fact, I'm also doing as you suggested and focusing on shorter content: a serialized "chick lit" series about 3 twenty-something best friends trying to find their own ways in the world.

(All my Amazon offerings can be found here.)

It's been a really fun interesting experiment, teaching me a bit about pricing, marketing, creating book covers and teaser copy... Of course it's not the same as getting a publishing deal, but I think it's helping me to prepare.

Unknown said...

Could you clarify this point:

2) Drop DRM - When everyone finally figures out a common format, they should DRM, mostly because DRM disables a lot of the features of the electronic format i.e. (the ability to make copies of the document).

I'm wondering why you say drop DRM and then say add it.

I do know that many readers of ebooks despise DRM because of the many ways it frustrates their ability to actually use and maintain purchased books.

Charles said...

Sorry, my mistake. I omitted the word "discard".