Dominique Raccah took a very brave and unpopular stand to launch a very necessary and important conversation for the publishing industry. It is interesting that none of the "big guys" seem willing to take a stand, and a shame that the WSJ and NYT zeroed in on the "cannibalization" issue instead of the pricing issue. The real story here is what Amazon has done to establish customer expectations and cement their dominant market share position, not to mention how publishers have just played along. Until now.
Amazon pays publishers a percent of the digital LIST price for ebook sales, often sale pricing books at a loss. Amazon even encouraged publishers to set their digital list prices to match highest available print edition to help reinforce the value position for the consumer getting a $25 book for just $9.99, for example. Publishers gladly went along, realizing greater revenue as a percent of the higher list price. Amazon also cornered the pricing game by insisting that publishers’ digital list prices be the same across all channels. Sony, for example, sells most ebooks at 10% off the digital list price. So, an ebook with a $25 digital list price might be on sale for $9.99 at Amazon and $22.50 at Sony, and generally $25 (no sale pricing) at ebooks.com, booksonboard.com, deiselebooks.com, etc. If the publisher lowers the digital list price so the other retailers can be more competitive, Amazon reserves the right to match the lowest digital list price in the market. Publishers don’t dare lower digital list prices on the risk of losing revenue with the one retailer who is selling the most books.
Amazon’s willingness to take a loss on ebook sales these first few years has established a consumer expectation to buy ebooks for $9.99 or less and cemented their dominant market share position. Now Barnes & Noble says it will follow a similar pricing strategy but they won’t be paying publishers according to the digital list price, and so starts the slippery slope. $9.99 is not a sustainable price for retailers or publishers but the customer expectation is already established. And, as a consumer, I get it. I'm not paying more than $9.99 for an ebook. I've wanted to buy What Would Google Do? for at least three months and it still hasn't gone on sale for less than $14.99, so I wait.
Raccah is the first of the publisher sheep marching toward the ebook slaughterhouse to stand up and suggest that we don’t have to keep going the direction we’re heading. In fact, to survive we have to establish a different value paradigm. Her suggestion to preserve the value of content is to put it on a time line the same way books are released in hardcover before paperback—the content is available to everyone but only in a certain format for a certain price at a certain time. In other words, if you want it in paperback you wait. If you want it in ebook, you wait.
Dominique Raccah is smart enough to know the market will determine the value of an ebook and recognizes that asking someone to pay $25 for something they only value at $10 won’t work. So the next most valued currency is time. You can have it for $10 but you have to wait. Will it hold up? I don’t think so, but I don’t have a better idea. And the value of this public discussion in the WSJ, NYT, and countless industry blogs instead of blindly following the sheep in front of us is priceless.
Read more here:
Wall Street Journal
New York Times
The Business Insider