Sunday, July 19, 2009

Opportunities for Publishers in the eBook Discussion

The following post comes to us courtesy of Douglas Johnson, owner of Live Model Books, a company that produces reference material for figurative artists. It originally appeared as part of an ongoing LinkedIn discussion. If you are on LinkedIn and interested in this topic, I strongly suggest you join the group: Ebooks, Ebook Readers, Digital Books and Digital Content Publishing and get in on the discussion. Things are really heating up now with Barnes & Noble's new eBook push.

E-book price resistance comes from people outside the publishing industry—which, of course, is 99.99% of our customers—who don't understand that there are costs in developing books, marketing them, and maintaining a business to support them. They think e-books somehow cost nothing to publish. I've repeatedly seen people write "Publishers are greedy, there is no cost in publishing an e-book and yet publishers want to charge full price." At the same time, they frequently argue that the book should be available in their preferred format; e.g. "I spent $250 for a Kindle, I darn well want all books to be available for it as soon as they are published." In other words, customers want us to make it convenient for them while also making it cheap. Our response should be "we'll give you the format you want, but it has to be at a reasonably high price."

There are several opportunities here for publishers.

1) People have made an investment in their reading device and they need content to make that investment worthwhile. Therefore, there is a demand for e-books and we as publishers control the supply. That suggests we should set reasonably high prices for e-books, before the $9.99 expectation sets in permanently (if it hasn't already). In my own business, we've been selling e-books from our websites for years at $19.95, the softcover version is $24.95, and rarely get a complaint about price.

2) Publishers do not get any of the $250 or more initially paid for the e-reader and yet customers are factoring that in to what they are willing to pay for the books. As a result, they demand a lower price. The result is, publishers are subsidizing and other e-reader retailers by accepting the idea that we need to price our books lower. Furthermore, we're making it possible for them to develop and grow new businesses while we are forced to radically adapt ours and to accept a lower cover price. That's one reason is pushing hard for a $9.99 price point. At the same time, we are lowering their warehouse and handling costs.

Why should all of the cost savings go to the retailer? Yes, publishers have no print costs for the e-book, but that's a huge oversimplification. We still need to do large print runs to supply the print books. If those runs get smaller, the cost per book goes up. If we print the same amount and sales go down, then we have more waste and again the cost per book goes up. And, there is all the development costs of getting the book prepared plus all of the fixed costs associated with running a business.

Retailers of e-readers are making more money while publishers continually make less. I think we should strenuously resist the $9.99 or less price point by setting much higher suggested retail prices (in non-fiction, at least). After all, without us supplying e-books, where would the e-reader device be? In an ideal world, higher e-book list prices would force e-reader retailers to lower the price for their devices. If e-readers were nearly free, publishers could maintain higher prices for their books. The retailers would make more money on each book sold but more money would also go to the authors, who spend years developing the books. That would be fair. Another option would be a much, much lower discount so that publishers keep, say, 80% of list price. What discount does get for e-books?

Perhaps some publishers should develop a Kindle-like device that they give away at or below cost. If that sounds far-fetched, consider which now dominates online audio books. Early on, a low cost subscription to their site included a refund for a listening device. Once people had the free device, they were willing to pay relatively high prices for the content. That's a much closer model for us than the usual comparison to the movie and music industries. And, it is a model in which publishers can thrive!

3) Customers seem to think all of the cost of a book is in the printing and shipping. Unfortunately, I rarely, if ever, see a publisher step in to one of these "publishers are greedy" discussions and explain that finding and developing authors and books is expensive. Publishers should all make a point of explaining the true cost of publishing every time we can. Perhaps we can chip away at the perception of e-books costing nothing to develop.

4) There is greater value in e-books than print books in some respects. One device can hold hundreds or even thousands of books, which makes the books incredibly portable for reading anytime and anywhere. An e-book will never wear out, it will never get lost (if the reading device is lost, it can be replaced and all the books downloaded again). An e-book is available instantly anywhere in the world that has an internet connection. That's an incredible advantage. There's no shipping cost to the customer for an e-book. Unlike print books, a customer can buy one book now and another one ten minutes later, without worrying about aggregating their order to save on shipping.

As publishers, we should be talking about these benefits, and the reality of who is really making money on e-books, every chance we get.

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