E-book Pricing

[jimhines]

My post on royalties earlier this week generated some interesting responses, particularly with regard to e-book sales.  My e-book sales were, at best, 4.3% of my total sales (for The Stepsister Scheme).

Several people said my e-books were priced too high.  The printed book cost $7.99 (U.S.), whereas the e-book was available for $6.99.  If the price were lower, I’d sell more e-books.¹

Well … sure.  And if the price of the paperback were cheaper, I’d sell more of those.  That’s basic economics.

Beneath those responses is, I think, the belief that e-books just aren’t worth $6.99.  We’re still arguing over the value of an e-book, meaning both how much does it cost to produce, and how much are people willing to pay?

There’s an assumption that e-books should be cheap because there’s no printing cost.  But printing costs are only about 8-10% of the overall cost of producing a book.  Shipping and storage are also a factor, but the majority of the costs aren’t about the physical book.

For the sake of argument, I’m talking about professional, commercially produced books.  You have to pay the author’s advance and royalties, the cover artist, the editor, the copy editor, the typesetter, the sales force, and that doesn’t even get into distributor costs or the percentages taken by retailers.

“But then how do you explain all of those cheap/free e-books on Amazon, Jim?  If they can do it, why can’t you?”

I can, actually.  I’m planning to re-release Goldfish Dreams as an e-book, and it will be significantly cheaper than my other books.  This book has already been commercially published once, and the rights have reverted to me.  So a lot of the professional work has already been done.

When the rights revert to me for my other books, I may consider doing something similar.  Cheap e-books seem like one good way to keep an author’s old backlist in print.

But those initial production costs have to get covered somewhere.  Sure, I could skip straight to self-publishing for my next book and bypass the publisher, but I don’t have the expertise to produce a good product, and I don’t have the sales force or distribution to get that product out there.

One thing I’ve considered is that it might be cool if the e-book price dropped 50% a year or two after a book came out, assuming the book earned back most of its costs in that first year.  But then, why couldn’t you do the same with the print book?  (I’m sure there are reasons; I’m just letting my mind wander a bit now.)

I don’t know what the “right” price for an e-book is, or if there’s one correct, fixed price point.  $6.99 seems reasonable to me, but it’s obvious some people disagree.  I’m personally reluctant to buy an e-book for more than $10 … but if the alternative was a $25 hardcover or waiting a year for the paperback, I might go for the e-book.

I know this is an old and ongoing debate.  But I wanted to put a few of my thoughts out there as to why “Just make the e-books cheaper!” doesn’t strike me as the answer.

Discussion welcome, as always.

—

1. Please note that I have no control over my book prices. Those are set by the publisher. ↩

Mirrored from Jim C. Hines.

Comments

[georgmi]

The short answer is, nobody knows what the "right" price for an ebook is. They just haven't been around long enough to do the analysis on maximizing ebook revenues, especially with the complicating factor of possible cannibalization of print sales. And, as you note, the sunk costs of bringing a book to market are a very high percentage of the total costs, and each copy, whether physical or digital, needs to cover its fair share of those costs, no matter the relative marginal costs of each format.

There's a well-established relationship between hardback and paperback sales, which appears (to this observer) to say that generally a paperback should come out about a year after the hardback. This is a classic*, and relatively benign**, case of what we economists (BA 1993, University of Washington) call "market segmentation".

That relationship has yet to be established for ebooks. What we can expect over the next several years is to see a wide variety of price points, marketing strategies, and probably DRM strategies, which will slowly converge to a new equilibrium that incorporates all formats. Complaints from readers about ebook prices today should be taken for what they are--individual data points about individual consumers' preferences, and not for what they are not, which is actual information about the aggregate market.

Yes, that really was the "short" answer. :)

*Classic because it allows the publisher to extract extra revenue from the market by artificially dividing it between people who are willing to pay extra to have a book earlier, and people who are willing to wait a bit longer to save the hardback premium.

**Benign because in the vast majority of cases, every potential customer knows that a hardback will eventually (and in a predictable timeframe) be made available in paperback at a lower price point (and if there is not going to be a followup paperback, then market segmentation is not happening), so if they still elect to purchase the hardback, they are doing so from a position of full information. (Malignant market segmentation*** prevents the customers from having information about where or when a product might be available at a lower price point, and tends to be illegal.)

***"Market segmentation" is a technical economics term, and is Google-able if you want to learn more about it. "Malignant market segmentation" is my own modification of the term, and Googling it is not likely to find you anything very interesting.

[jimhines]

"Nobody knows ... yet" is the sense I'm getting too. Which is one of the reasons I get cranky when I run into people trying to proclaim This is the One True Way/Price to sell e-books.

The market segmentation points make sense, even to me and my liberal arts brain :-) How would you feel about segmenting e-book prices by release, so that for example if the hardcover is out in print, the e-book is pricier to keep up with that hardcover, but then when the paperback comes out, the e-book price drops too?

[georgmi]

Well, part of the implicit agreement that makes print book market segmentation acceptable (and here we are moving out of the economics of the question* and into legal interpretations, where I am not particularly competent, let alone authoritative) is that "a reasonable consumer" expects that s/he can wait for the paperback if that's preferable, so we'd have to figure out whether "a reasonable consumer" would have a similar expectation with ebooks. I think an argument could be made that such would be the case, though, either by extension of the hardback-paperback model where some of the price premium is the more durable format, but some is certainly the value of having it earlier, or of the consumer-electronics model, where the early-adopter market is specifically leveraged to offset a disproportionate percentage of the (sunk) development costs so that prices can drop closer to the marginal costs of production sooner.

Now that I lay it out like that, probably the consumer-electronics model is the more appropriate comparison, as there is additional tangible value in a hardback over a paperback, but with both ebooks and consumer electronics, you're talking about two different prices for exactly the same product, with only intangible time as the differentiator. (Actually, I don't know whether time would be considered "intangible" to an unfair practices court, but you get the idea, yeah? :) )

Those considerations aside, I think you have come up with a pretty neat idea, and now that you've mentioned it, I would be surprised** if our eventual equilibrium point did not settle on something similar.

*Because the pure economics answer is one "should" segment the market as much as possible, to the theoretical limit of charging each individual exactly the maximum they are willing to pay for the good or service in question, and thereby extract the maximum possible revenue from the market. And that's why we have antitrust and unfair practices laws, because free-market economics are totally amoral, especially when power imbalances appear.

**To be fair, lots of things surprise me that, when seen through the lens of hindsight, are actually pretty obvious.

[elialshadowpine]

Actually, I tend to believe that e-books should be priced lower because buyers don't have the right to resell the book or share it with friends (with the exception of certain devices that allow this feature -- but it would be copyright violation to just e-mail a copy to my friends).

That said, I think $6.99 is actually a really good price point. The above objection, I have made when publishers were putting e-book price points at an equivalent cost to trade or hardcover. That, I think, is pretty ridiculous.

[jimhines]

On the other hand, the e-book lets you resize the font (for those with visual trouble), some include the ability to read out loud, and the books eliminate the need for all of that storage space. Do those benefits balance out the inability to resell or share? (Along with the other shortcomings, like DRM, needing an electronic device to read it, and worrying about whether it will still be a readable file 10 years from now...)

Not necessarily disagreeing with you, and I personally like 6.99 as a price point. But I don't know where all of the pluses and minuses balance out.

Re: the higher prices, I know one of the worries is that if they release a cheap ebook right away, it's going to badly undercut hardcover sales. One option is to release a comparably priced e-book. Another would be to wait and not release the e-book until the paperback comes out.

Like I said, I don't know what the answers are here...