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It’s hard to figure out pricing for ebooks from anecdotal evidence

April 25, 2011 by Mike Shatzkin 49 Comments

The Wall Street Journal wrote last week about what we have been concerned about for some time: how hard it will be for publishers to sustain book prices as supply (of books) rises faster than demand because of all the self-publishing being done.

WSJ built their story around John Locke, whose thrillers are 99 cents and who earned well over $100,000 in March selling them on Kindle. Locke himself put the pricing in perspective. If his books are 99 cents and most ebooks from big publishers are $9.99 and up, he doesn’t have to prove he’s as good as they are; they have to prove they’re 10 times better than he is!

I can tell you this. I’ve read one of John Locke’s books. Nobody I can think of is ten times better than he is. By his own criterion, he could readily sell for $2.99 (and be earning a higher percentage royalty) because nobody is three times better than he is, either.

Meanwhile, on a much less signficant level commercially, the ebook of The Shatzkin Files is now out from Kobo for $3.99. How did the price get set? Kobo said, “let’s put it there.” Their first thought was that it should be $4.99 but then they suggested scaling it back because, after all, the entire body of content in the ebook is on this blog, which is available free. (This establishes that anybody who buys the book is paying for the convenience afforded by the container, not for the content itself.)

I don’t know what the dilutive impact on “real” ebook sales is of The Shatzkin Files, but it is, like John Locke’s material, additional competition for books that are issued by legitimate publishing houses. It is more supply competing for the same demand.

Trying to understand the actual impact of price is very difficult. Amazon tells us that books on which they control the prices are seeing share growth over books on which the publishers control the price. That is shorthand for “99 cent and $2.99 books by self-published authors are growing share over $9.99 to $14.99 books published by the big agency publishers.” That would tend (and is certainly meant) to suggest that pricing high (and ignorantly) is hurting the big publishers’ and big authors’ revenues, but we can’t actually draw that conclusion from the data.

Locke makes the point that the $9.99 book needs to be “10 times better” than his to be an equivalent value, but I’d make the point that they need sell only 1/10 as many copies to deliver the same amount of revenue. Penguin is still selling Ken Follett’s “Fall of Giants” for $19.99. Would it sell twenty times as many copies if they priced it at 99 cents? And, if it did, would it do so by stealing sales from the hardcover, which, with a list price of $36, is yielding a margin in the ballpark with that nearly-$20 ebook.

I don’t know if $19.99 is the right price for “Fall of Giants”, but I’m pretty sure 99 cents wouldn’t be.

In other words, the big publishers are not crazy to resist following ebook prices to where the new self-publishers would lead them. To be fair, one should not suggest that Amazon would set their prices at that level, even if they had freedom from agency constraints. For one thing, unless pricing schemes changed completely, Amazon would have “bought” an ebook (wholesale) at a price that would limit their willingness to mark it down. They did scare publishers by taking losses on some ebooks, selling for $9.99 what they bought for $12 or $15. But they never sold those books for 99 cents!

In fact, it would appear that Amazon does not have control of Locke’s book pricing, because the Journal article makes it clear that he will stick with 99 cents even if he can make more money at $2.99. (Amazon pays a 35% royalty for books under $2.99 and 70% royalty for books between $2.99 and $9.99, so Locke would get $2.10 a copy at $2.99 and he gets about 35 cents pricing at 99 cents.) Presumably, Amazon would have priced him where he (and they) get the most revenue, not where they get the most unit sales, which we would assume would rise with every drop in price down to free.

But the fact that publishers aren’t necessarily wrong to try to maintain prices at near $10 and up doesn’t obviate two very cogent truths here that it would be a mistake to ignore.

One is that the downward pressure on price is inexorable, because the number of entreprenurial authors like John Locke will grow and they will be discovered and “branded” so that many readers will find them as substitutes for the more expensive big house authors. And because the number of offerings that come like The Shatzkin Files ebook did — from people who weren’t writing for the profit from the content, but who built an audience and had a book issued anyway — will continue to add supply to meet what is relatively static demand.

And the second — made before here and not long ago — is that publishers don’t know nearly as much as they could and should about how price affects unit sales and total revenues.

Sooner or later, a big publisher or two will start seriously experimenting with this. They will gain knowledge that will enable them to tell an author or agent, “we know things about pricing that are worth real revenue to you if you publish with us.” When that happens, it will likely be more significant to an author than an increase in the ebook royalty rate would be. Maybe a publisher can even add enough value with pricing savvy to pay for their cut!

So far, only one author we know of has turned down a significant advance from a major house to self-publish. That’s Barry Eisler, and we wrote about him when he made the decision to give up a half-million bucks to self-publish. We’ve just booked Barry to speak at our first Publishers Launch Conference at BEA on May 25. I’ll be interviewing Barry and focusing on questions of interest to our target audience of international visitors to BEA and their trading partners. We’ll be very interested in how much he anticipates in the way of foreign sales and how he’ll handle translation rights, but we’ll also be looking for Barry’s thoughts about how he’ll set prices for his books when the power is entirely in his hands.

Filed Under: Authors, eBooks, General Trade Publishing, New Models, Self-Publishing, Supply-Chain Tagged With: Amazon, Fall of Giants, John Locke, Ken Follett, Kindle, Kobo, Penguin, Wall Street Journal

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Mike Shatzkin

Mike Shatzkin is the Founder & CEO of The Idea Logical Company and a widely-acknowledged thought leader about digital change in the book publishing industry. Read more.

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