What should an e-Book cost?

Pricing in the middle of a technological revolution is always tricky. Opportunities, expectations, tradition, fears, idealism, and greed all collide, trying to strike a new balance on a moving train.  The current situation with e-books is no exception.

Currently, the main e-book distributors/manufacturers (primarily Amazon), are pressuring and “bribing“  publishers to accept prices which will spur and spread adoption of the new technology.  In actively trying to make e-books more attractive to consumers, the ebook vendors have ended up striking a balance between consumers who say “copying is nearly free, so e-books should be really cheap” and publishers who say “production costs haven’t changed a bit, so e-books should be priced close to p-books (physical books).”  But the story isn’t so simple.

P-books (the artifacts) are also cheap. The cost of producing and distributing the physical book itself is generally a fraction of the sale price, with notable exceptions for art books and some text books.

Publishing is a hits-based business where a few titles do well and carry the rest of the titles which break even or lose money. Prices reflect the cost of producing books which didn’t end up doing well. The uncertainty of “what will do well” is compounded by some publishers’ laudable desire to contribute to the public good by disseminating important ideas and works even when the profit is marginal.

Publishers are (part of) society’s solution to Sturgeon’s Law that “90% of everything is crud.”  The cost of this social function is built into the cost of books.

Marketing costs can be significant as in most consumer goods where part of the price is paying to convince people to pay the price.

Book production costs are largely up front and by the time the book is out for sale, the publisher has already put down its money for editing, production, graphics, rights clearance, etc. This is part of the reason that books start out expensive and get cheaper as costs are recovered. Part of publisher’s beef with Amazon’s $9.99 best-sellers is that it disrupts this traditional method of cost recovery.

Production processes remain print-oriented and do not always taken advantage of technological improvements; the e-book price thus reflects the costs of p-book production. This isn’t because authors and publishers are technophobes (most aren’t), but because their key differentiator is the addition of editorial value (design, layout, organization) for which print is still the dominant paradigm.  It’s not clear how to make an e-book better and publishers differentiate by improving their product which currently needs to focus on ink on paper.

Most e-books are licensed rather than sold conferring substantially fewer rights than the sale of a p-book. This is based on both the e-book vendors attempt to lock in market share and the publishers’ desire to protect their IP.  On the other hand, licensing gives consumers good reason to pay less for e-books than p-books, and they will become more sensitive to the difference as vendor lock-in, DRM woes, and the other perils of licensing become more prominent.

Consumers don’t like paying for the same book twice, whether the second copy is an e-book, an audio-book, or a print book.  Author contracts often separate out these items, but consumers don’t generally see them this way.  (Adaptation rights are another story).  Paul Graham does a great job of discussing this issue (among others) in his essay on post medium publishing.

What should an ebook cost? Given this complicated mix of factors, the better question is how can the useful enterprise of publishing be sustained as information goes digital?

Despite the claims of the more radical digerati, publishers play an important role in the ecosystem of ideas and editorial added value is a very real thing.  ”Crowd-sourced” editorial value doesn’t generally improve content or address Sturgeon’s law because the law applies even more to crowd-sourced metadata, which is amplified by (what might be called) the “RTFA law” that for everyone who has read a published item, 10 people have opinions about it.

The challenge is that editorial value needs to be sustained while the underlying exchange mechanism (physical books for money) is disappearing.  Consequently, the question of e-book pricing is not just about setting a price for another format; it is about reimagining how the added value created by publishers is monetized in the digital domain.

I’m not going to answer that question here, but here are some starting places:

• develop e-centric production processes that inject editorial value into e-books directly, making them more valuable than p-books; think about how to make e-books beautiful;
• emphasize e-book “ownership” rather than “licensing” as people will pay more for something they own; find ways to add more benefits to ownership (access to ancillary materials, etc)
• consider bundling e-books (and even audio-books) with p-books, at no or nominal markup, as a way to spur adoption (and an alternative to $9.99 pricing);
• look at alternative models for timely recovery of production costs; for example, selling “book futures” or transparently dynamic pricing (so a hot item will go up (a little) in price and people know that ahead of time);
• explore alternative marketing strategies, including viral approaches or counter-intuitive ideas; e.g. suppose that every hardback included 4 discount coupons for the same title to pass on to friends (with barriers to abuse);
• commoditize the routine aspects of e-books (formats, distribution, DRM (if you have to)) so that competition is based on real editorial added value, not ephemeral accidents of technology.

The point of these ideas is not that they’re sure-fire prescriptions, but that the shift to digital will require a radical reinvention of publishing.  As a self-serving notes, the technologies and ideas that we’re developing at sbooks.net are designed to create an infrastructure for just these kinds of innovations.  If you’d like to try something, drop us a line!

Tags: Amazon, e-books.publishing, economics, Kindle, sbooks