Author Chuck Windig, GigaOm’s Mathew Ingram, and TechDirt’s Mike Masnick all took on the question of ebook pricing recently, arguing that production costs (you know, minor details like advances, editors, etc.) don’t or shouldn’t factor into the end price.
Ingram writes that “It doesn’t matter what e-books cost to make,” and Masnick follows with “Nobody Cares About the Fixed Costs Of Your Book.”
But nobody cares about the fixed cost of your car, either. And yet, it matters, in theory as well as in practice.
But as author Chuck Wendig notes, what e-books cost to manufacture or distribute is irrelevant to everyone but the publishers themselves. All that matters is what book consumers are willing to pay for an e-book — and the same principle applies for any form of digital content.
In fact, an ebook’s production cost is directly related to the decision to make it at all. Just as buyers may decide that a $12.99 ebook is too dear, sellers may decide that any price below that level doesn’t justify the cost of writing, editing, and publishing it.
If demand were all that mattered—reader heaven—ebooks would cost 99 cents and you could impulse-buy them like an iTunes song. In book-business heaven, ebooks could charge some big number, and readers would have no choice but to pay up.
In reality, as in theory, the market for books is only so big—we only have so much time—so a 99-cent price point might move a lot of units but not enough to justify the cost of production. Obviously, a $50 price point would crush sales and also bring in much less revenue overall.
With either, the ultimate outcome would be a hollowing out of the books economy. With far less prospect for making back their upfront costs, publishers would only bankroll sure winners, and even those would make less money than before. Writers would have less incentive and less ability to write books. Authors who are capable of producing quality books would do something else.
The fixed-costs-don’t-matter argument hinges on your conception of the nature of the product.
Wendig likens a book to fast food:
An e-book is a digital good. Ephemeral and intangible. Sometimes we don’t even have access to the e-book itself in the form of a file — in the case of Amazon, we’re just “renting” the e-book the same way you rent Taco Bell food. You bought it. It’s inside your device. But if Amazon decides you don’t need it anymore, one snap of the wizard’s fingers and the e-books are poof, gone, siphoned from your reader like gas from a gas-tank. E-books have no supply — if I buy one, it doesn’t reduce how many remain, because theoretically infinite copies remain. No cost to reprint. No cost to remake. It just… sits out there, attempting to be the very embodiment of the Long Tail.
This is what the audience sees and believes.
It matters little what the e-book actually costs.
It only matters what the audience thinks they should cost.
If you want to buy fast food, though, you have many options. If you want to buy The Big Short, there’s only one.
This is a fundamental disagreement over the value of cultural production, in the end. We think it’s intrinsically valuable and believe cultural consumers do, too.
Let’s take another example, this time in software:
If I want to buy a copy of Final Cut Pro X, for instance, Apple will sell it to me digitally through the Mac App Store for $299. The marginal cost of that copy—what Apple pays to shoot the 1s and 0s over the intertubes—is almost nothing. Apple charges $299 because it believes that’s the sweet spot in the market and, presumably, because video editors actually buy it at that price. If you don’t like it, you can go buy Adobe Premiere or Avid’s Media Composer, steal the software and live with the potential consequences (and your conscience), or do without.
If “the pricing on the individual item is entirely about the marginal costs,” as Masnick says, Final Cut would cost 99 cents. But it doesn’t, and it sells.
Simple answer: the publishers must rethink what they can or can't sell a book for, and adjust their costs accordingly. The world has changed drastically for them. Already, a lot of authors are skipping them altogether; more will follow. Cheaper lunches, lower rent, lower salaries.
#1 Posted by bg, CJR on Wed 16 May 2012 at 03:31 PM
This is really just Micro-Economics 101. The absolute value of the price elasticity of demand should =1 for the optimal price. I think that's all this author is trying to convey. Also, remember Porter's "threats from substitutes"... etc. So of course "The Big Short" won't sell for $1. This isn't corn.
#2 Posted by Jake Nady, CJR on Wed 16 May 2012 at 04:39 PM
Please stop saying Amazon used "predatory pricing" unless you've suddenly been hired as a PR rep for Penguin books or something. The ebook business at Amazon was profitable, not all ebooks -- even remotely -- were sold below cost, discounting of best sellers is standard practice in book selling, I could go on and on.
#3 Posted by Aaron Pressman, CJR on Thu 17 May 2012 at 06:43 PM
Oh, ugh.
"In fact, an ebook’s production cost is directly related to the decision to make it at all. Just as buyers may decide that a $12.99 ebook is too dear, sellers may decide that any price below that level doesn’t justify the cost of writing, editing, and publishing it."
Except that, according to MANY SOURCES, ebooks are far more profitable at a lower price range. Because ebooks don't need to be individually manufactured, one needs to look at how the books can and will perform on a large scale. Smashwords released data that said books priced at $5.99 sell 2.2x more copies than books priced at $10. Those who aren't business-savvy will say, but that's FOUR DOLLARS LESS for the publisher per unit--except, it isn't. Through the magic of retail and wholesale, it's only two dollars less per book, which they make up through a lot of volume. Authors should be in arms about this, actually, because they make LESS money at higher prices, as do publishers.
How do I know they make it up? Because Curt Matthews of IPG posted some rough numbers on his blog about book publishing. Here's where they're doing some sleight of hand: They say, oh, ebooks, there are editing costs, the proofing costs, the x y z publishing costs! Actually? Those costs are in the MANUSCRIPT, which then gets split into a variety of formats. So when they point to those costs, but they're also selling print runs of the same book, it's as though they're expecting us to pay those costs TWICE. But they don't edit the book separately for the ebook edition; it's all the same manuscript, right? So, really, ebooks are allowing each copy of EVERY format to become a little cheaper for the publishers, because every ebook unit moved lowers the editorial cost of each book, spreading it over a greater number of units sold.
And if it's costing them more than $1500 to add the ebook edition to their arsenal, they need to start outsourcing that to companies who can do it cheaper and more efficiently. Compared to the $30000 that Matthews claimed it takes to print 10000 books? $1500 to sell as many copies as you can is pittance. ($1500 is a HIGH estimate, too. That's for books that need scanning or very complicated manuscripts. A straightforward work of fiction might cost a quarter of that to make into an ebook, based on companies that specialize in ebook production.)
"If the price is too low, .. still lose money." Oh really? Ask Paulo Coelho. Apparently, at $0.99, he sold enough books that he blew right through the needed number of copies to maintain profitability, by 4 - 6 times. Ebook profitability needs to be treated as aggregate rather than per copy, as there is no limit to the number of copies one can make. Find the number where you sell the most copies for the most money and stick with that point, because you will walk away with the most *overall* money if you do that. Who doesn't want to walk away with the most money possible? That should be the goal with ebooks.
#4 Posted by Susie [InsatiableBooksluts.com], CJR on Fri 18 May 2012 at 12:01 PM
The myth of volume continues apace. If an item costs x amount to produce, it takes more sales at a lower price to make up costs. Not everything sells enough to recoup costs. Blockbusters do not make up for those losses because there are many more middle of the road sales than there are large ones.
Ebooks still have a great many base costs including paying the author or authors; editing the manuscript; formatting the manuscript and any ancillary and support images, videos or other bells and whistles; creating and maintaining the software engineering that goes into making the many versions of many devices; hosting services; data storage services and their backups; secure distribution and payment systems;customer care representatives; plus accounting and regulatory and legal costs. That doesn't even consider how much the Ereaders cost plus the electricity needed to power all this or the electronic waste generated.Besides, the printing costs still exist, they're just now paid by the consumer when s/he wants something outside electronic formats.
Outsourcing only spreads the labor and cost to other companies, but those costs don't disappear. Besides, sometimes outsourcing creates more problems than it solves.Yes, different editions are edited differently because not all devices can use the same formats or convey the same information in the same way. The medium is part of the message, remember?
Publishers do a lot of vetting for veracity of non-fiction work and a ton of market research to figure out whether particular content in fiction or non-fiction will sell enough to recoup losses and to look for future contributors.
The devaluation of writing as a profession, of writing as skilled work has given a sheen to the illusion that great work is being hidden from the public by greedy publishers instead of good writers being mentored and their work distributed. There are few blockbusters in any field, but big isn't the same as high quality any more than popularity is a sign of veracity. Most of what we use is good enough content, but the distinction between good enough and excellent is hug and meaningful.
Do you want a doctor who has taken a free on-line course or one who has keeps up with validated, peer-reviewed studies and current techniques? Do you want an engineer who watched videos about how to build a bridge or one with a comprehensive education supported by excellent information and personal experience? Neither of these professions have blockbuster selling journals or class material that recoup publishing costs with volume, but the information and textbooks must be out in the world.
Same is true for fiction.Yes, someone might buy half a dozen $1 books, but after a short time, realize they're mostly lousy, self-published stuff and stop frittering away money. Despite the publicity about self-publishing, the hourly rate of most writers who do the writing, uploading and publicity for their work is less than that $1.
#5 Posted by MCM, CJR on Wed 23 May 2012 at 05:09 PM
Masnick is another one of those "Information must be free" idiots, who know a little bit of economics and delude themselves into thinking they know enough to give good analysis: they don't. It is moronic to say that fixed costs don't factor into pricing, as the investment decision is based on pricing. Any product has to recover its fixed costs and with electronic goods, fixed costs are everything. Therefore, you have to hit that sweet spot with pricing where (price * books sold) is maximized, which is incredibly hard to figure out because the market is changing fast. It might be $1 for low-quality romance novels, it might be $15 for weighty economic books. That number is ultimately complex and somewhat subjective, so I agree with Ryan that it's best for everybody to test the market with their own preferred price and see what happens.
#6 Posted by Ajay, CJR on Thu 12 Jul 2012 at 07:38 PM