Tue, Apr. 12th, 2011, 12:33 am
EBook Pricing – my yearly brain dump

So, yet again the wonders of ebook pricing have built up in my brain meats and need to be expunged, lest they cause my eyes to bleed any further. This is partly inspired by reading shouty arguments on CNet talking about the rights of Amazon buyers to give 1-star reviews to ebooks they consider expensive – I don’t want to get into the concept of right to review, but the things they were using as arguments for ebook pricing in the comment stream were a lot of the things that I used to consider truisms, just said with a slab of bile and uninformed anger.

If someone invokes the Libyan, Egyptian and Tunisian uprisings in a discussion related to none of them then they lose the argument, á la Godwin. This I decree. Idiots.

So, how much does it cost to produce a hardback book? How much does it cost to produce a paperback book? How much does it cost to produce an ebook? It doesn’t matter. This was the point that I’ve got stuck on in the past, but as I’ve looked into book pricing more and more the price of the underlying physical materials (and editing, and author fee, and admin, and advertising, and transport, and storage, etc, etc) means very little – books are sold at the price which the market will bear. This jumps up by a pound or two on paperbacks every few years and hardbacks bounce all over the place based on how well the publisher thinks the book will sell, but no matter how much the book takes to produce the price stays the same.

The actual physical costs of producing a book, the bit that varies between ebooks and papperbøks, is something that it’s difficult to get out of people. I’ve heard estimates of everything from 2-5% up to 75% of the overall cover price of the book, and as far as I can tell all of those numbers are probably correct – the price of the book is not to do with how much it costs to make.

Unfortunately it is here that we hit on the problem – people know that nicer things cost more money. If you have a flimsy, fall apart, US edition mass market Mills & Boon novel you don’t expect it to sit on your shelf for years in pristine condition (unless you are one of those special collectors – well done…in a scary kind of way) and they are not constructed in such a manner. If you have a hand-bound, engraved edition of one of Neil Gaiman’s books, signed in quill pen by the man himself while Amanda Palmer serenaded him on the way to their wedding then you are probably expecting it to last a while. At those two extremes the manufacturing cost will most probably impact the asking price, but probably not as much as you may think. The normal books, the ones that are £15-18 undiscounted in hard back and £7-£9 in paperback when they appear, probably don’t cost all that much different per unit (considering all the associated costs, not just physical) in the long run and almost certainly not the 2x multiplier that the cover price suggests. But the hardback is demonstrably a ‘nicer thing’ that people are more happy to pay more for, because there appears to be a reason why it costs more. The real reason is that the publisher wants the early adopters to pay a premium, before the cheaper, less profitable, paperback appears at a time in the future. Windowing, I believe this is called.

Anyways, now we come to ebooks – £15 for a newly released ebook, £14.99 for the hardback version. At the back of our lizard brains we immediately cry “No!”. Why should we pay more for an ebook, with “no production” costs and no physical object to fondle in a way that shows our money was spent wisely? There are several pieces to this, but in general I agree – if the price is just a made up figure then the publishers, understanding human psychology (as they should – if not, there are books about it), should probably tweak the price to be below the physical book price. However there are a couple of bits:

  1. Ebooks have VAT charged on them, paper books do not. This will hopefully stop soon, as I’ve heard tales of changes being pushed through european law to classify ebooks as books (although that is a legal minefield open to manipulation if they don’t get it right) but at the moment in the UK 1/6th of the cover price of an ebook is tax. So, our £15 ebook is actually £12.50, rather than £14.99 for the paper book. The ebook looks a little bit better now.
  2. Discounting. Amazon are the main place that ebooks are actually being sold in a reasonable quantity at the moment (the reason I have a Kindle is due to the woeful state of non-Kindle ebook sales, including availability as well as price) and they were originally very good at offering ebooks at a lower price than they did a physical copy (whether paperback or hardback was currently the standardly available edition). However, at the end of last year they introduced the ability of publishers to set the price of an ebook, which meant that in many cases the price then rose to above the physical copy’s price. I’m not sure if Amazon allow publishers to do this for physical copies (as I suspect the price setting was a bargaining chip used to get more ebooks into the Kindle store in order to make it a worthwhile proposition to book buyers) but Amazon do discount a lot of their physical books, cutting their margins in order to ship more units – being an online seller they can do this and it’s why brick and mortar book stores are closing all over the country. So, the £14.99 for our hardback copy was probably an RRP of £18, making our ebook look even nicer in price.

These two points don’t justify the high initial pricing of ebooks, but it does give a couple of extra reasons why it’s not as unreasonable as the shouty people on the internets think. In the end though the price of a book is really just a number plucked from the air. For physical books that go through the publisher system a large number don’t make any money (again, the percentages I’ve seen that say how many do make money vary as wildly as almost any stat publishers produce seem to) but in the end it all balances out so that some cash is finally made. Over time the publishers are learning, and some have already done so – look at the top of the non-free Amazon chart and you will see authors who you wouldn’t normally expect, all with ebooks priced at less than the regular going rate; at the time of writing there are two sub-£3 Stieg Larssons, a £5.99 Wilbur Smith and 7 books at less than £1 by authors I’ve not heard of (apart from Stephen Leather, who I know as “the guy who’s books are in the Amazon top 10 because they are sold for 71p each”).

Vote with your wallets, that’s the only way I think we’ll manage to get the publishers to change their ways. If people don’t buy the books then the publishers will either be forced to raise or lower prices to cope. However, I don’t think necessarily that book prices should fall. If I’m happy to pay more for an electronic version of Iain M Banks’s latest novel, which I was, due to the convenience of having the electronic copy delivered to me immediately and not having another hardback to find space for in my book-filled flat then I think I should pay the asking price. Paying a decent price for a book in order that the publishing industry has enough money to continue, helping to get the work of new and smaller authors into distribution channels is another thing that I’m broadly in support of, despite the spectre of easy self publishing that hangs over things at the moment (there is still a place of publishers, in my opinion. That may change over time, but that’s the way the world works), and the strange feeling of people that we should be entitled to cheap books (especially with the restricted forms that ebooks are delivered in) is one that alarms me. I can understand why most people ebooks should be cheaper (although the restrictions on them that people complain about – resale, lending, etc – are things that I don’t care so much about) and can see that over time the publishers will probably start honouring that even more than they are doing now, but as with other media that have gone digital, it’s a hard road on the way there.

 

Tue, Apr. 12th, 2011 04:59 am (UTC)
drplokta

Amazon didn't "introduce" the ability of publishers to set a price; it was forced on them by the publishers, quite possibly illegally. My main problem with ebook pricing is that the publishers are busy colluding with each other to give most of their money to the distributors, by forcing the distributors to take a 30% margin, which is just ludicrous for electronic distribution -- 5% would be more reasonable, making eBooks 25% cheaper at a stroke, without affecting the amount of money that the publisher receives.

Tue, Apr. 12th, 2011 06:43 am (UTC)
billyabbott

I agree that 'introduce' is a slightly weak word for 'do or otherwise the publishers won't let you sell their ebooks'. I need to have a look into the Amazon/Macmillan (I think it was them) disagreement that happened last year.

I didn't know about the distributor margins, but the vague point I was trying to get out of my head above was basically 'ebooks will cost the same as papery books...until they don't'. Where that cash goes under the covers isn't really that important right at the moment, imo, but will become more so as publishers start squeezing the margins and need to find places to reduce payments. Hopefully they won't start at the author end...

Tue, Apr. 12th, 2011 06:46 am (UTC)
boris71

Sir Billy, I am thinking few thinkings here:

* Personally, I don't buy eBooks. Yet. Mostly due to the fact that I am not living in UK or US of A. Eventually I might start buying them, but not having read the forums, I should point out that I am a bit apprehensive about the longevity thing.

You see, even a cheap paper back 'unit' is preserved reasonably well on a reasonably well positioned bookshelf. Thus, when it strikes me I can always return and re-read the book. With eBooks the story is different, and if Kindle 2.0 won't be compatible with Barnes&Noble 1.5, I may be in trouble as I sincerely hope Amazon will not emerge as the sole monopolist of eBook market.

* Again, likely exposing my illiteracy I am thinking that perhaps a bundle can be introduced. Consider this, please. You buy an eBook and together with it comes an 'option' that will allow you to actually get a printed copy (soft or hard cover) of your book should you so desire. Admittedly, it may cause a lot of logistical trouble to the seller and publisher, but as a customer - this is likely what I would like to see happening, at least presently. Naturally, this suggestion needs to be worked out, including issues of timing (no one is going to keep your favorite novel in print for so many years should you decide to exercise your option for the physical book) and may be other limitations (some of which may be legal).

* It seems to me that eBook industry is in the state of flux. It is being formed as I am typing this message. To that end it would stand to reason to hold one's horses and credit cards in order to let the dust settle. But I digress as just like with music I mostly read older stuff, not freshly printed (electronically or physically) items.

Finally, it was a pleasure to read your write up.

Tue, Apr. 12th, 2011 09:01 am (UTC)
billyabbott

When deciding to buy ebooks it is important to look at them for what they are - a distinct medium in addition to traditional paper books. They don't work the same way, as you say: the formats could disappear, incompatibility issues may arise, you can't lend them, you can't resell them. That knowledge is an important part of making the decision whether you want to pay money for a product, especially as often there is a cheaper physical product without the restrictions. Most of the time I think that the convenience to me of having an ebook version (rather than fill my house with more paper books that I am not going to resell, lend or [in a lot of cases] read again) outweighs the restrictions, but I still buy paper books in situations where that isn't the case. Or the paper book is going cheap :)

Bundling - some people have been doing it the other way: buy an paper book and get an ebook for free. The folks at Baen are especially doing this. It's an attractive idea for the consumer, hence why some producers are using it, but it is essentially selling two products for less than the price that you'd get for both individually, which can be a sticking point. I very much like the idea of paying one price (which may go up or down depending on the 'windowing' I mention above) and receiving the versions of the book you want - paper and/or digital. It applies the price to the content of the book rather than the delivery medium, which appeals to me :)

The ebook industry is very much in flux - as with movies and music beforehand (and still ongoing...) it's shaking down at the moment and hopefully soon we'll have something a bit more static. For now I'll just choose carefully and try and back up my purchases just in case.

Tue, Apr. 12th, 2011 06:55 am (UTC)
haggisthesecond

My evidence for this is only anecdotal but there's also a concern that ebooks are much easier to pirate and that publishers are factoring this into their pricing model.

Tue, Apr. 12th, 2011 08:54 am (UTC)
billyabbott

I reckon that's a factor. I'm not sure entirely how it's incorporated into the pricing of movies, games and music (the traditionally pirated media), but I suspect it's just a part of the decision making process in dividing up the money after it's come through the door, rather than a big factor in deciding the final price.

As an outside to the industry I'm just making up stuff based on limited knowledge though :)

Tue, Apr. 12th, 2011 09:27 am (UTC)
vatine

I suspect it's a case of "all of the above" (as a somewhat-outsider, that is; I have yet to become an insider to the exciting world of paid-for published writing, although I have a publishing credit in a webzine).

Some are using "free ebooks" as a method of roping in new readers and making new sales (release the first in a series as a free book, the chances are that someone who reads it will go buy the rest of the series and maybe more by the same author).

Some are using only heavily-DRMed formats, due to fears of piracy (then the DRM is stripped and the contents made available on torrents).

Some are using only DRM-free formats, due to fears of future incompatibilities.

It's a big and complex quagmire, ebooks.

Tue, Apr. 12th, 2011 09:34 am (UTC)
billyabbott

> It's a big and complex quagmire, ebooks.

That's about the only sure thing that I know about them :)

Tue, Apr. 12th, 2011 10:50 am (UTC)
rjw1

bob mutters about the fact that there is already an entire market for second-hand books from which the publishers see no money.
At least with most piracy the people doign it arnt making money.

Tue, Apr. 12th, 2011 02:00 pm (UTC)
gaspodog

I wrote to my MP about the whole VAT on eBooks thing, and got a response back from the exchequer secretary at the Treasury. He didn't mention anything about any impending changes. Have you a source for this?

Wed, Apr. 13th, 2011 06:02 am (UTC)
billyabbott

No sources - just some random things I thought I read. Looking around the webs it looks like it'd be a decision that our government could make if they want, but haven't.

There's definitely an undercurrent of 'that is silly, it should be changed' but at the moment I can't find anything concrete.

Wed, Apr. 13th, 2011 12:55 pm (UTC)
gaspodog

My understanding is that the EU law would have to change before we could make any changes ourselves. It forbids us from creating additional exemptions (beyond a few reduced-VAT categories we can fiddle with iirc), and specifically excludes electronically-delivered goods and services from the VAT reductions we can create.

So, step one is to change the Principal VAT Directive.

(You can have a copy of the letter HM Treasury sent me if you like ;)

Wed, Apr. 13th, 2011 01:10 pm (UTC)
billyabbott

This page (http://bookseller-association.blogspot.com/2009/03/eu-votes-for-e-books-vat-cut.html) suggests that while we can't exempt them we can drop them down to the low-rate (5%) without tweaking EU law.

Wed, Apr. 13th, 2011 01:28 pm (UTC)
gaspodog

Article 98 of the Principal VAT Directive says:
2. The reduced rates shall apply only to supplies of goods or services in the categories set out in Annex III. The reduced rates shall not apply to the services referred to in point (k) of Article 56(1).
which says
(k) electronically supplied services, such as those referred to in Annex II;
which includes
(3) supply of images, text and information and making available of databases;

Wed, Apr. 13th, 2011 01:51 pm (UTC)
billyabbott

You win. Perfect. :)
VAT or not, I suspect we'll see ebooks drop in price over the coming years. Probably not by much and I dread to see whose cut is the one that gets squeezed - I suspect it won't be publisher or distributor...

Wed, Apr. 13th, 2011 03:02 pm (UTC)
gaspodog

Whatever publishers and distributors decide, you can be sure life is going to suck for the people actually doing the creative work.

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