The current round of reporting from major publishers contains some danger signs. Their ebook sales are declining (in dollars and even more dramatically in units) in an ebook market that is probably not declining. The “good” news for the publishers is that print sales are pretty much holding their own, or even growing. And profits are being maintained, which is probably the most important metric in their board rooms. But the bad news is that total revenues are down. And print sales have been buoyed by the consumer excitement for adult coloring books (now spreading to adult “activity” books), so the combined results for many author-driven titles don’t necessarily reflect growth and total unit sales of print plus digital for many titles are almost certainly falling behind expectations
In a complicated marketplace with large unknowns around indie authors and indie books, particularly those that are Amazon-only, it is hard to be definitive about what the cause of this is. (Author Earnings does yeoman work trying to put the two overlapping markets in context.) Certainly, barriers to entry have come down and there are many more books in the marketplace competing for readers that don’t come from the companies the publishers think they’re competing against. But the publishers’ “success” in establishing agency pricing — where the price they set is the price the consumer pays — combined with Amazon’s decision to “respect” agency (at first with no choice but subsequently, after contracts were renegotiated, with apparent enthusiasm) and offer no pricing relief from their share of the book’s sales revenue is almost certainly a major component of the emerging problem.
Amazon doesn’t need big publisher books to offer lots of pricing bargains to their Kindle shoppers; they have tens of thousands of indie-published books (many of which are exclusive to them) and a growing number of Amazon-published books, that are offered at prices far below where the big houses price their offerings. That probably explains why Amazon can see its Kindle sales are rising while publishers are universally reporting that their sales for digital texts, including Kindle, are falling. (Digital audio sales are rising for just about everybody, but that is not an analogous market.)
This is putting agency publishers in a very uncomfortable place. It has been an article of faith for the past few years that there is revenue to unlock from ebook sales if only the pricing could be better understood. Just a bit more revenue per unit times all those ebook sales units is a very enticing prospect for publishers. After the agency settlements liberated publishers from the price limitations Apple had originally insisted on, the immediate tendency was for publishers to push ebook prices even higher.
And since ebooks are sold in a less price-competitive market than we had before agency, Amazon can devote its marketing dollars to cutting prices on the print editions. This undercuts the publishers’ intention to support a diverse (and store-based) retail network and, at the same time, often embarrasses them by making the print book price (set by Amazon) lower than the ebook price (which Amazon makes very clear was set by the publisher).
The fact that this is reducing publisher revenue and each title’s unit sales is concerning. But it is also making it much more difficult to establish new authors at the same time because lots of competing indies are still being launched with low price points that encourage readers to sample them.
It is maintained by many people that there has been a reduction in the rate of surprise breakout books over the past few years because of this pricing as well. This perception would be explained by the fact that price attracts readers to try new authors, and so the new rising talent would more frequently come from the lower-priced indies. Higher ebook prices reduce the speed with which a book can catch on in the marketplace. It feels like there is a consensus in the big houses now that it is harder to create the “surprise” breakouts. (This is a very difficult thing to actually measure.) The “Girl on the Train” phenomenon is always unpredictable, but big publishers still could count on it coming along often enough to keep the sales revenue trend line rising. That doesn’t seem to be the case anymore.
High ebook prices — and high means “high relative to lots of other ebooks available in the market” — will only work with the consumer when the book is “highly branded”, meaning already a bestseller or by an author that is well-known. And word-of-mouth, the mysterious phenomenon that every publisher counts on to make books big, is lubricated by low prices and seriously handicapped by high prices. If a friend says “read this” and the price is low, it can be an automatic purchase. Not so much if the price makes you stop and think.
This puts publishers in a very painful box. When they cut their ebook prices, they not only reduce sales revenue for each ebook they sell; they also hobble print sales. (Although if they cut prices as a promotion, and they market the promotion, apparently higher-priced print will also benefit from the promotion and see a resulting sales lift.) And singling out some of their ebooks for an ebook price reduction strategy could also raise a red flag with an agent. It is easy to understand a temporary price reduction that is promoted; as an overall pricing strategy it could be seen as a bite out of the author’s ebook earnings at the same time their print sale is threatened with the low-price ebook competition. And while an ebook price-reduction strategy would probably make at least Amazon and Apple, very important trading partners, quite happy, it risks angering others, including perhaps Barnes & Noble but certainly including all the indie bookstores.
On the other hand, the current “strategy” has plenty of risk.
An unpleasant underlying reality seems inescapable: revenues for publishers and authors will be going down on a per-unit basis. This can most simply be attributed to the oldest law there is: the law of supply and demand. Digital change means a lot more book titles are available to any consumer to choose from at any time. Demand can’t possibly rise as fast and, in fact, based on competition from other media through devices people carry with them every day, might even fall (if it hasn’t already). So publishers are facing one set of challenges with their high ebook prices; they’ll create another set if they lower them.
But, unfortunately, lower them they almost certainly must. With more data, we may learn that developing new authors absolutely requires it, particularly in fiction.
Here’s a suggestion for a new pricing routine that might be worth trying in the near term recalling a prior practice from quite a while ago.
There was a period earlier in my career, probably ending in the 1980s, when publishers priced new hardcovers like this: $22.95 until October 1, $24.95 thereafter. The books had the price on a corner of the jacket that could be snipped diagonally on October 1, so that only the $24.95 price would show.
Frankly, in this case the pricing device was not primarily intended to entice the consumer to buy the book before the up-pricing deadline. It was really designed to get the store to place a bigger advance order, for which the applicable discount would be based on the promotional price.
Now big advance orders are not nearly as important as they used to be, nor nearly as common. But there is still a huge dependence on consumers taking a risk on an author, particularly in the first moments after a book comes out. Two or three decades ago, this was the “secret” behind publishers moving an author from a star doing “mass-market originals” (low prices) to a hardcover bestselling author.
So what might be worth a try from the big publishers now would be “promotional ebook pricing” on launch. Make the ebook $3.99 until date X, and then raise it to the “normal” level (which for major publishers, when the hardcover is in the marketplace, would be $12.99 and up.) This is a very painful experiment to try because it will compete against the hardcover at launch, when the publisher is trying to pile up sales to make the bestseller list. It will annoy print booksellers as well.
But publishers have to find a way to put new authors into the market without a millstone of pricing that requires a significant commitment by the reader before they know the author.
Of course, that strategy suggests an even more disruptive reality about ebook pricing: it doesn’t have to remain “set” the way print book pricing does. Because of our convention of printing the publisher’s suggested retail price right on the book’s jacket or paperback cover, it is not really practical to change a book’s price except, occasionally (and less often in these low-inflation times) when a book is reprinted. (In higher-inflation times, we did sometimes employ the practice of “stickering” to increase price, but that was clumsy and impossible to conceal.) But with ebooks, prices can change pretty much as often as you like: up, down, and up again.
In fact, that already happens with promotional pricing such as has been pioneered by the email service, BookBub. The BookBub idea — emailing a subscriber list with notice of price promotions on ebooks — has been copied highly successfully by HarperCollins with their proprietary version, BookPerk, and to a lesser extent by other publishers as well. It is becoming established practice to temporarily lower the price of a title to get it ranked higher and then to raise the price and try to capture higher-revenue sales with the hyped “branding” the promotion created. So far, this is done with a clear game plan, such as discounting the first book in a series, or the most recent book in a series when a new title is about to come out.
But uncoupling the ebook pricing completely from print pricing, which seems to be where we will inevitably go, may also mean — it certainly can mean — all ebook pricing becomes dynamic. All of this definitely raises the bar for publisher knowledge of how consumers react to prices in different situations. It has been a widespread article of faith that retailers “understand” this behavior and publishers don’t. To the extent that retailers do understand it, they see it through a different lens; they almost never care about the impact of price changes on the overall sales curve for a single title. Titles are interchangeable for retailers and not for publishers. So while it is true that publishers have a lot to learn, it is probably not true that retailers already know it.
The points I wanted to make in this post were that publishers should contemplate uncoupling ebook pricing from print pricing, learn more about consumer behavior around pricing, and master the skill of managing (strategically and operationally) LOTS of ebook price changes all the time. There is another point herein, made in passing, that is worth deeper consideration on another day. Big publishers are seeing their revenue decline but their profits rise. Does that point to a strategy? For how long can publishers cut costs faster than revenues, particularly per-unit revenues, decline? Maybe for quite a while…