Dominique Raccah

Three weeks ago, the community had a big discussion about the timing of ebook releases which was triggered by Dominique Raccah’s announcement that Sourcebooks would hold back the ebook of Bran Hambric for some period after the hardcover release. The expressed concern was to insulate the $28.95 hardcover from the price competition currently taking place in the ebook space, where Amazon has started working to establish a $9.99 retail price for new commercial titles, forcing BN.com to match them.

This post doesn’t quarrel with the suggestion that there’s a problem; it is a quest for a better solution.

Although Amazon has pushed some smaller publishers to a different discount structure, the established commercial houses usually sell ebooks to retailers at about 50% off the publisher’s retail price, about the same terms they have established for print books. But ebooks, title for title, add more margin (i.e. profit) to the publisher at the same net revenue because the books don’t have to be manufactured and shipped and there is also no cost of returns. (They would also generate more margin for the stores than print books if they the stores sold them at the same price as the print book, but, as I pointed out in an earlier post, under current practices, they never will.)

Both my “current commercial” and “futurist” instincts say that cutting off the ebook market from purchase at the time the book comes out, is being assertively marketed, and when interest is probably highest, is the wrong strategy.

There are non-pecuniary reasons for publishers to protect the print book sale. Except for the USA Today list, which records Kindle sales but no other ebooks, only print book sales are reported to determine “bestsellers.” And enlightened publishers, including Dominique Raccah, want to protect print book sales to protect brick-and-mortar stores, who are still the most important merchandising and marketing tools publishers have (even if many of them don’t know it.)

To the most avant garde digerati, who advocate eliminating DRM and pushing prices to the consumer down as the antidote to piracy (which the most conservative defenders of the old model would liken to putting a bullet in your brain as an antidote to having taken poison), keeping the book off the market to maintain higher content prices is multi-faceted anathema. Among the inevitable consequences of this, they would tell you, is that there will be more pirated editions available and otherwise-inclined-to-be-honest consumers will be “forced” to the pirate editions because a legitimate ebook edition is not available.

I am not a 100%-no-DRM guy. (Actually, I’m a nearly-100%-social-DRM guy.) And while I believe that the price of content is in an inexorably downward spiral, to the point that the day will come some years from now that it won’t be much of a business to control and sell it, I also believe publishers (and authors) need to preserve content margins as effectively as they can for as long as they can to finance the transition to the new publishing economy where eyeballs and human bandwidth, not IP, are the currency of the realm.

I was surprised recently when a Very Smart Friend defended the Sourcebooks strategy by saying, in effect, “what’s so special about the ebook consumer? The paperback reader waits for the book to get it cheaper; why not have the ebook reader wait for the book to get it cheaper?” My argument that the ebook readers and print book readers are two separate markets carried no weight. First of all, there’s also a split between paperback readers and hardcover readers. But also, my debate opponent simply didn’t buy my paradigm, and frankly, it is currently unprovable.

But I still find the Sourcebooks solution very unsatisfying. I think it hurts the overall sale of the book and the profits of both publisher and author in the long run. Although I think the impact is marginal, I have to agree that ebook readers will more frequently obtain a pirated edition if no legitimate edition is available. And it is “unnatural”. The publisher’s job is to get the author’s work in front of as many paying eyeballs as possible and to generate as much revenue as possible in the process. This strategy works against those objectives.

So here’s another solution, one that:

1. Allows the publisher to sell the ebook at the same time as the print book;

2. Makes it much harder for retailers to discount the ebook way below the print book price; and,

3. Increases the profit to the publisher and author on every ebook sold.

For the first six months of a hot new book’s life, publishers should establish “debut pricing”: reducing the discount at which they are sold to the trade to 20%. And, at the same time, the publishers should sell these ebooks as digital downloads from their own site at full retail price. After the early “debut pricing” period, the discounts are restored to normal, but the publisher’s own site should still continue to sell at full retail (except as part of bundle or subscription offers, of course.)

In the Bran Hambric example, where the book is $28.95, let’s say the ebook were priced at $26.95. Then a retailer (Amazon) buying at 50% off would pay Sourcebooks $13.475 per copy and have to take a hit of $3.485 per copy to sell the book at $9.99. But under my suggestion above, the retailer would be paying $21.56 per copy for the book and the cost of subsidy would jump to $11.57 a copy. That’s more than 3.3 times the amount per copy in the cost to the retailer to support the $9.99 price.

The math for impact on the publisher and author is a bit more complicated. How much additional profit over print books this would represent depends on what the print books cost to manufacture and what the split of revenue is between publisher and author. But it is likely that a change to this policy would mean that each ebook sold would generate  more than twice as much profit to the publisher as a printed book for the period of “debut pricing” discounting.

“Debut pricing ” is not a tactic that will work forever. We’re going to see accelerating change in the way ebook publishing works, including enhanced editions subsequent to the first one that will differentiate the ebook from the print book as we proceed into the digital age. But for the next couple of years, as we start to see ebooks take more and more share from print, this is a way for publishers to keep the pricing of ebooks closer to print books and earn more profits, for themselves and for their authors, at the same time.

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The Wall Street Journal was the first to announce, on Monday, (behind a pay wall, but Google “Publisher Delays E-book Amid Debate On Pricing” and you’ll get it) that Sourcebooks CEO Dominique Raccah was holding back the ebook publication of a new hardcover YA novel, Bran Hambric, scheduled for release this September. Raccah’s explanation to the Journal was that she was trying to preserve the perception that the $27 hardcover price was reasonable. Since she knew that any ebook would hit the street at just under $10 (the Kindle promotional price is $9.99 and B&N has suggested that their promotional price will be $9.95), Raccah felt that sales of the hardcover would be undermined.

What was left unsaid in the Journal piece was that Raccah might have been leaving money on the table with this decision. After all, the publisher still sells ebooks on roughly equivalent terms to printed books and has lower costs. So, depending on the royalties Raccah is paying the author, she is (most likely) realizing more margin for Sourcebooks on the ebook sale than on the printed book sale, regardless of how the retailer prices it.

Even more startling (in this day and age) is the possibility that the author’s royalty is higher per copy on the hardcover, so Raccah might be protecting author royalties, to the extent that withholding the ebook restrained cannibalization and resulted in more hardcover sales. I mention that possibility because the agent for author Kaleb Nation is Richard Curtis, one of the most ebook-friendly agents in town (and, indeed, the owner of an ebook publisher called EReads), who was quoted in the Journal supporting Raccah’s decision.

On Wednesday, Motoko Rich and Brad Stone published a piece in the Times on the same story (in which I was very briefly quoted.) Rich and Stone added some nuance to the story. The Journal said that agent Robert Gottlieb resisted simultaneous ebook publication “when he can prevent it.” In the same graf, they said that only one book of the Times’s Top 15 fiction bestsellers was not available in the Kindle store. Of course, that doesn’t mean that the Kindle editions were available at any particular time in relation to the first release of the hardcover, just that they are available now.

The Times reporting went further than the Journal, speaking to several publishers of upcoming major books about their ebook timing plans. Doubleday hasn’t decided yet about Dan Brown’s book but acknowledges that the impact of ebook sales on the hardcover was a consideration. S&S won’t reveal their ebook release plan for Stephen King’s November novel, Under the Dome. Ditto from Hachette imprint “Twelve” on the Ted Kennedy autobiography, True Compass, coming on October 6.

So the fact that everybody is thinking hard about this is confirmed by the Times’s reporting.

But Cader, who as an industry expert and blogger has more scope and credibility to report unattributed information than reporters at WSJ or the Times, went further in Publishers Lunch on Thursday. He ridiculed the notion that Doubleday was (according to a spokesperson)  ”[more] worried about…security…than particular vendors” and he sees the motivation from publishers being to control the behemoth, Amazon. As Cader reports it, Kindle sales surged when the new device(s) came out, becoming as much as 50% or even 70% of Amazon’s sales of many important books.

Everybody (in the industry, but maybe not outside of it) knows that Amazon pays a standard discount for ebooks, which is about 50% off publisher suggested retail, and that Amazon actually takes a loss on a $25 or $27 hardcover book it sells through Kindle at $9.99 (as B&N will do if they follow through to sell books like this as ebooks for $9.95.) Nobody expects Amazon to do this forever although, as Cader points out, they are temporarily subsidized by the profit they make selling the Kindle devices. The widespread fear among the big publishers is that Amazon will soon demand lower prices for the books they put on Kindle so they can keep the $9.99 price point profitably.  As the Kindle unit sales grow, of course, the muscle behind such a potential demand would grow right along with it.

Cader makes the very important point that sales migrating to ebooks, and particularly to Kindle, weaken the brick-and-mortar channel that publishers depend on for most of their sales and profits. The Times reported that publishers could well be making bigger unit profits on each Kindle sale than on each printed book sale (a fact that I explained to them when I was interviewed and which appeared not to be clear to them before I did). Cader (who of course knew that without needing to be told by me or by the Times) makes the point that publishers do this because they are “looking out for what they believe to be their long-term interests — and are trying to protect the entire system of physical book retailing which supports the whole industry.”

While this was happening, Dominique Raccah posted her thoughts to Peter Brantley‘s Amazing List and Kassia Krozser, on that list and proprietor of the Booksquare blog, turned her space over to Dominique for a version of that post. Dominique made it clear that she considered what she was doing with Bran Hambric to be an experiment. Her focus was on a “sustainable author/publisher model”. She made the point (again, clear to most people in publishing but perhaps not to those outside) that the music business continues to present inapplicable analogies, but one of the most egregious is that authors should give it away like musicians to get performance bookings: in publishing, there are no performance bookings (and few t-shirt sales…)

Raccah made it clear that she supports early ebook releases and her house is going to a workflow that will enable that. But then she gets to what is really the heart of the matter. “Etailers are suggesting that the ‘right’ price point for an ebook is maximally $9.99.  And they are proselytizing the price $9.99.  We can’t control what retailers charge for books or ebooks.” The publisher’s choices are whether and when to make it available and whether to sell to any particular retailer.

From there she explains that exploiting formats with “windows” is an old book business strategy (hardcover, trade paperback, mass-market paperback) and a common film strategy (theatrical precedes DVD release, with TV licensing once part of that picture as well, but not anymore.) And she concludes by saying that publishers need to make these decisions on a book-by-book basis (“strategically”, she says, although I’d call that “tactically.”)

My quote, by the way, was to the effect that ebook readers and print book readers are increasingly separate markets, which I believe to be true but cannot prove. A C-level friend at a large house disagrees with me, as I’m sure many others do, and my evidence on this is highly anecdotal (including myself: I have read one printed book of the 50 or so I’ve read in the past 18 months.) But my friend would have no more evidence than I to support his contrary position, so publishers will have to make decisions without really knowing, for now, whether they can push a Kindle or Shortcovers or Ereader consumer back to paper by denying or delaying a book.

That concludes the summary. I have a few thoughts of my own to add on this. I’ll be posting those shortly, probably over the weekend. I hate going much over 1000 words on any single day, and I’m already past 1200.

An  earlier version of this post had a couple of errors misconneting agents and authors which have been repaired. So if somebody tells you about a mistake they saw that you can’t find, that’s what it’s all about. Thanks to Michael Cader for setting me straight.

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