Publishers Warned On Ebook Prices

An anonymous reader writes "The DoJ says Simon and Schuster, Hachette, Penguin, Macmillan and HarperCollins conspired to raise the prices of ebooks. The report originates from the WSJ, but the BBC adds comments from an analyst bizarrely claiming increased prices are somehow a good thing and thinking otherwise is the result of 'confusion'. I'd like to see an explanation of why the wholesale model, while continuing to work fine (presumably) for physical books, somehow didn't work for ebooks and why the agency model is better despite increasing costs for consumers."

Comments

Market Analysis

[slashgrim]

Sounds like these publishers don't know their market. I only buy ebooks because they are inexpensive. At relatively close prices I'd prefer a physical book (where at least I won't be restricted by the publisher's "loan" policy!).

Re:Market Analysis

[mws1066]

Exactly. Who would pay $18 or more for a book on iTunes that you can't even LOAN to a friend?

Re:Market Analysis

[Cinder6]

Looking at Amazon, too many of the books I would want to buy are priced identically between eBooks and print books. Besides this making absolutely no sense from a cost standpoint, I still view paper books as superior: no batteries required, no DRM, I will always be able to read it if I take decent care of it, and I can do whatever I want with it.

At the very most, eBooks should cost $(price of print book - cost of printing and shipping said book).

Re:Market Analysis

[MightyMartian]

And what they'll get is a high level of piracy of eBooks. Fucking idiots.

Re:Market Analysis

[clodney]

One time bought I book on my Kindle that I had sitting on my bookshelf, just because I wanted to reread it before starting on the sequel, and didn't want to carry the physical hardcover with me on a trip.

So I paid for the extra copy purely for my convenience. Given a choice between a physical book and an ebook at the same price, in most cases I will buy the ebook, because that is the format I prefer.

Re:Market Analysis

[ColdWetDog]

Oh, and forgot my current major beef. If you're going to charge nearly as much for an eBook as a physical copy, please pay for a copy editor to review the damn thing. I'm tired of gratuitous typos and pagination errors. Yeah, you, Amazon.

Re:Market Analysis

[meerling]

If you reduce the price of an ebook by the cost of the printing and shipping of a dead-tree book, you still have the same profit margin.
Also, a much lower cost for consumers, which will allow them to buy more books, which increases your profit.
Books are a luxury, not a necessity, as such, increasing or decreasing the price has a more drastic effect on sales than it does for a staple like food.

Re:Market Analysis

[clodney]

But then the price of the eBook would be about 1/16th the price of a paperback. Publishers can't have that, because then they'd have no PROFITS! with which to buy more books/publish (read, give to shareholders)

Paperbacks are cheap to produce - this site (http://michaelhyatt.com/why-do-ebooks-cost-so-much.html) says production and distribution accounts for 12% of the price. Even if he is cherrypicking data and it is 25%, you aren't going to see huge price breaks.

And pricing doesn't have to be reflective of costs. I might pay more for an ebook based on the fact that I can start reading it right now, vs. getting it shipped or going to a store. Or I might pay more because I have bad eyesight and like the fact that I can make the type bigger.

The rule for rational actors is that they set the price so as to maximize their total profit - production costs only enter into it as a constraint upon profitability.

Re:Market Analysis

[ultranova]

Given a choice between a physical book and an ebook at the same price, in most cases I will buy the ebook, because that is the format I prefer.

I would too, if that was actually possible. Unfortunately it isn't. Nobody sells e-goods, they're "licensed", which means that I may use them as long as the publisher lets me in ways they like (which they may change at any time they like), or as long as the publisher or some unrelated third party who happens to own them at the time doesn't mismanage its finances and disappear. Assuming, of course, that some other entity doesn't assert that they own the e-good instead, in which case it gets un-published and disappears like it never was.

But yeah, it would sure be nice to be able to buy e-books.

Re:Market Analysis

[NatasRevol]

Not the same profit margin (percentage), but the same profit. And with a lower cost, it's a much higher margin. Your numbers will actually look better without a huge printing facility in your costs.

Re:Market Analysis

[Obfuscant]

What could more ephemeral than a thin layer of rust with some magnetic fields recorded on it?

A thin layer of organic material with small amounts of organic material deposited on the surface.

I don't see any "thin layer of rust" in the flash chip that is currently storing one copy of Foundation I own, nor the USB stick that has another copy. There might be a "thin layer of rust" in the hard disk that stores a couple more copies, and the backups.

Tried making a backup of a physical book lately? I can back my "ephemeral rust" copies of books up at about 100 per minute (not 100 pages per minute, 100 books per) on a whim and without getting out of my chair.

Paper can last thousands of years if cared for.

"If cared for", when talking about paper, means initial printing on acid-free paper, and then storage of the material in an environmentally controlled facility. It does not include "reading", and certainly not "carry on the train to read while commuting".

Let me know when e-anything looks like it will archive that well.

Every ebook that I carry on a daily basis has survived for the last several years of doing so, while there are few, if any, paper books that have survived that kind of use. I'd say e-anything looks pretty good compared to paper when one is actually using the products and not just trying to keep an archive of comic books for one's great grandchildren to look at through the plastic bags.

Re:Market Analysis

[CastrTroy]

You could probably build the technology right into the kindle. Highlight a word, and have an option to send it for review. Some real person looks over the problem, and corrects as necessary. Fixes are automatically distributed to people who have the book.

Re:Market Analysis

[Anonymous Coward]

After your purchase, use Calibre & dedrm plugins to put them into a form where you have control. See http://apprenticealf.wordpress.com/2010/02/11/hello-world/ for dedrm info.
Calibre is a great piece of open source software which makes managing ebooks on multiple devices easy.

Re:Market Analysis

[mcgrew]

Given a choice between a physical book and an ebook at the same price, in most cases I will buy the ebook, because that is the format I prefer.

Not me, I try to avoid being stolen from.

With a physical book they have the cost of materials, printing costs, warehousing costs, shipping costs, retail space costs. An ebook has none of those costs, to charge the same price for something physical that costs money to get into your hands as something that is essentially free once they've paid the editing, proofreading, and other pre-production costs is nothing short of highway robbery.

And as another poster said, you own a physical book. You don't own an ebook.

Were it not for collusion, the competetion would ensure that ebook prices were far loawer than the price of a physical book.

I think they should give the ebooks away when you buy a copy of the physical book. I mean, a CD might add a nickle to the cost of the physical book. A code on the paper book's index page could lead to a download of the ebook and wouldn't cost them a penny.

Re:Market Analysis

[MickyTheIdiot]

They are allowed to "charge what they want" for ebooks.

What they aren't allowed to do by law is get together with competitors and all agree to the same prices.

Re:Market Analysis

[Caerdwyn]

With a physical book they have the cost of materials, printing costs, warehousing costs, shipping costs, retail space costs. An ebook has none of those costs.

But an e-book still has the costs of editing, marketing, royalties, a legal department to track copyright issues, a business development department to manage relationships with e-publishers, accountants, payroll... and for the e-publisher you can add data center costs, bandwidth bills, IT personnel costs, etc.

The physical part of a book is actually not the majority of the price of a book, and e-books have some costs that physical books do not. However, people tend not to value something they can't physically hold in their hands, regardless of how much the intangibles actually cost.

Re:Market Analysis

[Serious Callers Only]

Nobody sells e-goods, they're "licensed", which means that I may use them as long as the publisher lets me in ways they like

While it plays to the peanut gallery here on slashdot, this is not really true. Lots of good publishers sell their content DRM free - Oreilly, Pragmattic Programmers, Baen, Smashwords, Cool Camping, Pan Macmillan etc.

Your nightmare scenarios might hold true for books bought from ibooks or for kindle for example (particularly for kindle as the whole 1984 episode showed), but they are not true for publishers who publish books in standard formats like PDF with no DRM - you can buy good ebooks today, you just have to be discriminating, and not all books you might want are available. Hopefully more publishers will see the light and stop trying to impose DRM (which is inevitably cracked anyway).

Re:Market Analysis

[BLKMGK]

This site http://jakonrath.blogspot.com/ has some interesting things to say about eBooks from the stance of an author who has been abused by the big publishing houses and now sells via Amazon and others instead. He farms out cover art, editing, and other things - he also reveals the numbers for all to see. There's no reason why big publishing houses need to be taking more than $50 of the cost of a book sale other than to support top heavy overhead IMO. They are holding onto their position and holding down authors much like the music industry has tried to do. They secured a sweetheart deal using Apple as a lever against Amazon and it is now FINALLY blowing up in their face - but not without eBook piracy having gone rampant and many early adopters such as myself no longer buying overpriced books.

I'm happy to see this finally coming home to roost but I feel it's pretty late in the game having taken YEARS to come about. The big publishers have had it fat for awhile now, their house is about to come tumbling down and I will stand and applaud when it does. Who knows, when prices are finally sane again perhaps I'll consider buying books again much liek I am back to buying music from Amazon....

Re:Market Analysis

[ultramk]

I run a small publishing company. Our printing and shipping costs are about 1/4 of our overall production costs. The rest is in paying researchers, editors, and royalties to the authors. None of those costs change if we go to ebooks, in fact there are some added costs in producing an ebook version because there's no elegant way to export charts and tables to EPUB or MOBI from InDesign (where we do our print layout), at least not without a ton of hand tweaking. Code generators suck.

So, you know. It's anecdotal. But that's why our $35 book will probably sell for $28 or so in ebook.

Re:Market Analysis

[steveha]

But an e-book still has the costs of editing, marketing, royalties, a legal department to track copyright issues, a business development department to manage relationships with e-publishers, accountants, payroll... and for the e-publisher you can add data center costs, bandwidth bills, IT personnel costs, etc.

Absolutely correct. I agree 100%.

The physical part of a book is actually not the majority of the price of a book

I don't think you are correct here, at least not for all cases. This may be true for mass-produced paperbacks, but what about textbooks on non-mainstream subjects, where there may be hundreds of pages with equations and graphs, and not very many copies of the book are ever bought?

Also, what about the cases where a publisher thinks that a book will be a hit, prints ten billion copies, and then the book fails and all those copies get landfilled?

So, I think cost of materials is still a significant factor in the cost of books. In turn, I believe that ebooks ought to cost less than paper books: they shouldn't be free, because as you correctly noted they still have significant costs. But the cost of goods is zero, and the financial risk is greatly reduced, and those things do matter.

Even taking the above into account, obscure textbooks will still be expensive as ebooks, because they are expected to sell only a few copies, so the overhead is paid by fewer sales.

Of course, ebooks based on public domain materials really ought to be very inexpensive: extremely low production costs, no cost of materials, and no risk.

However, people tend not to value something they can't physically hold in their hands, regardless of how much the intangibles actually cost.

Hmm, I'm not sure on this one. iTunes music downloads are very popular, apps downloads are very popular, and ebooks are actually very popular.

If you are saying that people don't want to spend a whole lot on a software good, you are probably correct.

steveha

Why does an e-book need a publisher?

[TheMathemagician]

Well he got one thing right: "All the costs are the people in the publisher's HQ..." Exactly. So why don't authors just upload their e-books and cut out publishers all together?

Re:Why does an e-book need a publisher?

[Registered Coward v2]

Well he got one thing right: "All the costs are the people in the publisher's HQ..." Exactly. So why don't authors just upload their e-books and cut out publishers all together?

Probably because some of those cost are for editors, proof readers, illustrators, cover designers; all of whom play a crucial role in producing an outstanding or even good, for that matter, book. There may be a lot of extra costs that can be cut, but a writer alone, except in rare cases, can't produce a work nearly as good, or even good, without the help of others. Witness the proliferation of garbage titles now that the cost of entry is nearly zero.

Re:Why does an e-book need a publisher?

[the eric conspiracy]

Knowing the book industry, the people you have listed are paid a pittance. I used to work with Steven Hawking's ghost writer, and for him it was strictly part time pay for a lot of work.

Where the money goes is to management and marketing.

Re:Why does an e-book need a publisher?

[ColdWetDog]

Except that, at least with Amazon eBooks, they appear to have left out the copy editor and the graphics editor. Typos up the wazoo. Horridly compressed jpegs for graphics. Pagination that makes little Johnny cry.

Maybe Amazon could crowd source those problems and give people a discount or something - but it gripes me to pay nearly full paper price for a substandard product.

I won't even mention the DRM since it's conveniently so easy to crack.

Re:Why does an e-book need a publisher?

[nathan s]

This. The writing and editing parts are trivial in comparison with getting people to know your books exist. I can see the appeal of a publisher if you're writing in hopes of actually being read -- not because the publisher does any work for you, but because the fact that your book is associated with a publisher means that more people are willing to risk reading it. If you self-publish, and even if you paid to have your book edited, you're still going to have huge amounts of trouble attracting the first tiny bit of an audience unless you are writing some obscure non-fictional stuff that can be judged at a glance as useful or not, and maybe even then you'll still have trouble. I only have experience with self-publishing fiction, so I can't really say for sure on the latter.

That said, people severely underestimate the gatekeeper effect that these traditional publishers play, not just for books but for music as well. It's not that I think that publishers are actually _good_ arbiters of taste or quality, but I can't deny that people would prefer to take a chance on a crappy song that is getting radio play after being pushed by labels than they are to waste 5 minutes listening to random MP3s on some guy's website. Truthfully, it's hard to blame them. I'm a writer and I make electronica, and I still find myself hesitant to waste time on random stuff I find online, simply because of a few bad early experiences doing that. So I'm sure that I'm missing great content in the same way that some people would probably really enjoy the things I create but skip it rather than take the risk.

The short of it is, human nature is to blame here. People usually (and fairly rationally, I think) prefer the guaranteed payout in entertainment that they expect from a curated source, one that they are familiar with, to the real risk of wasting their time listening to or reading horribly flawed creations that they randomly stumble across online. The only way around this, from a creator's point of view, is to either delegate the marketing jobs to a publisher or to spend a lot of time doing it yourself. For the average writer/artist/programmer/musician/etc, I think that's something that is not really much fun when you'd rather just be making more stuff.

Send the publishers a message

[ed1park]

Why not paypal the author a few bucks and torrent the ebooks? No trees getting cut nor used books getting shipped around and the author makes money. Keep doing this until publishers realize their short sighted stupidity and change their ways.

Duh

[Daetrin]

This is why at least three quarters of my ebook purchases are from Baen. They price their regular books fairly reasonably, "hardback" books are about $10 than list price, and when they come out in paperback they're about $2-3 off the list price. And for a lot of books if you're willing to pay a small premium they'll let you get the ARC version ("Advance Reader Copy") before the publication date. They also do monthly bundles of books, five or more books packaged together for the price of two or three books, well worth it if you know you really want at least two of the books in the bundle. Plus they have a free library that will let you try out a large number of books for free (in the hopes that you'll buy more books from that author later of course) and their books are DRM free, because they understand that piracy isn't a real problem.

Hopefully if Baen continues to do well eventually the big publishers will learn from their example.

The publishers would appear to have fucked up...

[fuzzyfuzzyfungus]

According to TFA, the publishers went 'agency' in order to try to stop Amazon from 'cornering the market' by selling books cheaply. Now they are under DoJ fire for what was essentially an attempt to set an artificial price floor across the industry.

Squeeze. Crunch.

Y'know what might have been a better plan? Not Insisting on the DRM that makes it possible, and easy, for an incumbent seller to lock in large numbers of buyers and obtain the market power needed to then put the publishers on the rack... It's not as though the story of iTunes went exactly that way with team RIAA or anything...

If DRM actually magically worked, there might be some business case for accepting a smaller slice of an impregnable walled garden; but the present state of it is trivially weak for all the common book formats. Good work on stopping no pirates and giving large retailers the power to cut your throat, guys...

If I'm typical...

[Oswald McWeany]

If I'm typical, (and I probaly am not) Amazon, et al, would get more money from me by LOWERING the price.

90% of the ebooks I "buy" are free- either from Amazon, or Gutenberg, or elsewhere. The other 10% I will only buy if they are cheap. If eBooks were in the $2.99/3.99 range (for books I wanted) - I wouldn't hesitate- and the vast majority of books I read would be eBooks.

Instead of making $7 profit on me once or twice a year- they could be getting $1 profit from me 20 or so times a year. Multiply me by a few hundred thousand and that profit margain goes up.

I don't know that I am typical though- in fact I probably am not- because I actually enjoy reading HG Wells, Oscar Wilde, etc- and I don't consider it too much a hassel to not be buying the latest-pop ficiton mega-release.

Selling vs. Licensing

[Anonymous Coward]

Try Baen Books or Smashwords. They sell DRM free titles.

Baen has mostly top notch, mainstream authors, albeit only SciFi and Fantasy. Smashwords is a little more of a mixed bag, but some well established authors (like Kristine Kathryn Rusch) are publishing on Smashwords.

Re:What is "agency model"?

[Zerth]

The agency model is where publishers set the price of books and retailers get a percentage. This isn't MSRP, the publisher actually gets to set the price the book is sold for.

As opposed to the wholesale model print books use, where publishers sell books to retailers, give them a MSRP, and then the retailers get to set their own prices.

When Amazon started selling ebooks, they used the wholesale model and would frequently set the price to just over whatever the publisher charged them, or even for a loss. As this frequently put the cost of an ebook below the price of a paperback when the book was only available in hardback, publishers got worried that Amazon would get too dominant. When Apple offered to use the agency model, publishers used that to force Amazon to switch.

The thing that really annoys me is that some publishers are lazy about updating their pricelists, so you'll often see the ebook still listed at hardback prices months after the paperback version is available. That sort of crap makes me buy the paperback, use the IRC scanner, and then stuff the book in the attic. The publisher actually makes less money, but at least they kept their precious paper sales.