Amazon's eBook Math

An anonymous reader writes: Amazon has waged a constant battle with publishers over the price of ebooks. They've now publicly laid out their argument and the business math behind it. "We've quantified the price elasticity of e-books from repeated measurements across many titles. For every copy an e-book would sell at $14.99, it would sell 1.74 copies if priced at $9.99. So, for example, if customers would buy 100,000 copies of a particular e-book at $14.99, then customers would buy 174,000 copies of that same e-book at $9.99. Total revenue at $14.99 would be $1,499,000. Total revenue at $9.99 is $1,738,000." They argue that capping most ebooks at $9.99 would be better for everyone, with the money split out 35% to the author, 35% to the publisher, and 30% to Amazon.

Author John Scalzi says Amazon's reasoning and assumptions are a bit suspect. He disagrees that "books are interchangeable units of entertainment, each equally as salable as the next, and that pricing is the only thing consumers react to." Scalzi also points out that Amazon asserts itself as the only revenue stream for authors, which is not remotely true. "Amazon's assumptions don't include, for example, that publishers and authors might have a legitimate reason for not wanting the gulf between eBook and physical hardcover pricing to be so large that brick and mortar retailers suffer, narrowing the number of venues into which books can sell. Killing off Amazon's competitors is good for Amazon; there's rather less of an argument that it's good for anyone else."

Comments

Disengenous

[Moof123]

When I read through Amazon's logic, they wanted to single-handedly re-write the relationship that already exists between the author and the publisher. It is a very thinly veiled move to try and cutout the publisher. While I abhor middlemen, it really struck me as not being Amazon's place to stick their nose into. I have less and less sympathy for Amazon. It is clear they want to be the 800 lb gorilla on too many fronts for my comfort.

Re:Disengenous

[lgw]

I have no problems at all with Amazon using their muscle to get me lower prices, middle-men be damned, but it's an interesting question whether this means more or less money for authors.

What we've seen from Steam sales is that lower prices mean more revenue - often vastly more. Are books the same? I rather suspect so. Top-tier authors can demand the price they want, but there are only a handful of such in any genre. For the vast majority of e.g. SF authors, a SF book really is much like a $5 game: they aren't completely interchangeable, but I can find more that look good than I have time for.

Re:Disengenous

[rogoshen1]

I'd rather not live in a world where the only places to shop are walmart, amazon, and maybe costco. using size and supply chain efficiency to force smaller guys out of business is not a good thing in the long run.

Re:Disengenous

[rmdingler]

I, for one, admire Amazon's chutzpah.

They're squeezing the entire book publishing industry, and asking authors and publishers what their problem is.

Look, we've done the math for you asshat. Why aren't you grateful?

Re:Disengenous

[_Sharp'r_]

As an author, I can tell you that Amazon and their eBook pricing means more money (overall) for Authors. Maybe not for the "best seller"s who don't actually sell many books, but their publishing house prints lots of them and sends them out to stores, so while they end up on the bargain rack or destroyed, they still make the NY Times list based on the lay-down. Yeah, the authors people don't actually want to read will ultimately make less money, but the real authors that people like and want to buy from will make a lot more.

There is currently a battle going on in the industry between the special favorites of the big 6 publishing houses and the midlisters and independents. There are very few authors who can get a reasonable deal out of one of the publishing houses. Everyone else is getting contracts which require them to sign away their works forever, sign away any future works in the same genre, sign away all electronic rights, etc... for a $5K advance on a one or two book contract.

The midlisters and indies are running to ebooks and small publishing houses as fast as they can. It's not a mystery why. Amazon will pay 70% on an ebook. A publisher will typically pay maybe 15% (on poorly documented bookscan sales numbers, even on eBooks, which should be exact!) Where they used to purcahse only limited publication rights, which expired after they took the book out of print, now they want contracts where the author will never get their book back, even if the publishing house isn't actually doing anything with it.

If you are a well-known celebrity, or you sell millions of copies, then a big 6 publisher may work with you on somewhat fair terms. Otherwise, they won't edit you (it's gotten much worse over the last few years), they won't market you and they'll barely make sure your latest book stays on store shelves for a month.

The big 6 publishers are not only an issue in terms of IP rights and author payments, but they are also a very bad gatekeeper. Ever wonder why so many old SF authors stopped publishing and much of what is out there now is crap? It's because they're being picked by a publishing house with a NY "editor" who probably doesn't even like SF. They literally drove popular authors (who wrote what people actually wanted to read) out of the business. If an author sold too much (i.e. more than the editor projected), did they reprint and push the book? No, they'd keep the same print run and just stop publishing it when it hit the number projected as the max, usually tiny. Baen was the only real exception of any size in the industry. Jim Baen also did eBooks right from the start (gave old ones away in order to promote newer books in the same series/by the same author). That's all just starting to turn around because of Amazon, on-demand publishing and eBooks. Old famous authors are even starting to put out the books their publishing house stopped selling, or that they couldn't get published in the first place because it wasn't the editor's latest fad.

Also, the big 6 publishing houses have a massively left-leaning bias. They've spent decades now killing the sales numbers of entire genres because the authors were required to toe the line of the latest politically correct movement. You can date books in some genres by the issues and characters the editors required. Many books that adults like have been pushed into YA categories, just because if it it's not "edgy" enough, the NY editors don't want to buy it. Forget about what will sell, they buy what they'll want to tell their NY publishing friends about at the next cocktail party.

Scalzi is the poster-child cheerleader for the big 6 publishing houses. He's on the "inside" of the publishing establishment and does everything he can to defend them. He could care less about SF authors, just about his publishing buddies.

You want the real scoop on Amazon and Authors? Go look at Mad Genius Club, or According to Hoyt.

Re:Disengenous

[Dan East]

cheaper books , good for me, but i also like going out to book stores to find something interesting.
in the long term, the book stores go out of business now its harder to find interesting books.

So in other words, you would prefer for everyone to subsidize the brick and mortar shopping environment that you personally enjoy, whereas the majority of other shoppers may not have such preferences and just want to purchase at the lowest possible price. That sound about right?

I'm not trying to sound like a jerk, because I have very fond memories of going into bookstores as a youth (and adult of course) and just the smell alone is wonderful. However like so many other things (photography via chemical coated film that must be developed and printed, etc) its days are numbered.

Re:Disengenous

[ShanghaiBill]

If by Middlemen you are referring to Editors (who read the book, find grammatical errors, find plot errors, etc etc), typesetters ,Graphics illustrators then they will still be there.

There is no reason that any of these services need to be, or should be, bundled with "publishing". There are plenty of people offering these services, either per-page, or for an hourly rate. You can find them on any Freelancer website.

Re:Disengenous

[LostMyBeaver]

While I feel your argument was probably not thought through well enough, I believe there is merit to it.

Here in Norway, we tend to suffer a great deal as consumers because of the publisher/distributor relationship. The pricing model of books is highly predatory and the book rights for Norwegian translations also allow the local publisher to own the rights to the original language within the country. This drives prices on the original language and the translation through the roof since the cost of translating is so high that unless it's a #1 best seller, all the profit has to be made on a few hundred... possibly thousand copies. What is worse is that Norway has a higher English literacy level than either the U.S. or the U.K. We don't need these translations. They are translating them for no apparent reason... and worse... as the availability of English books through Amazon or others increases, the Norwegian translation market shrinks and the quality of the translations shrink too.

Another major issue which I have is... I am willing to pay large amounts for Print-on-Demand if I need a paper book. In fact, I try to avoid purchasing books which were mass printed only to look good enough on display cases to attract sales.... then when the book cools down, they'll throw them away and recycle them. This practice is so fantastically stupid that I can't even imagine that the people who want to make this continue can even tie their shoe laces. I don't feel any personal need to help the printing business by printing documents which just don't need to be printed. Books should never be printed like that anymore. We have eBooks. I don't actually know anyone who prefers paper anymore... including wrinkle monsters.

I don't care what the eBooks cost, but here's a simple rule.... I under no circumstance am willing to pay for the printing of a book in my eBooks. Meaning if I assume the printing cost of one book to be $1 and that the idiot publisher is probably printing three copies of the book for each one he sells... so let's be fair (toss him a cookie) and say to cover his costs, he needs to pay $2.50 for the cost of printing. Then the eBook should never cost more than $2.50 less than what the printed book would cost on the shelf of a brick and mortar store which will discount the book immediately. So if the MSRP is $20, a store would discount that book 10-25% which is why we have MSRP (feels great to save that 25% right?), so $15... now, subtract $2.50 to cover printing costs... that's $12.50.

I'm willing to pay $12.50 for the eBook which is MSRP of $20.

You know what? I'm willing to pay $20 for the paper copy if it's printed on demand instead of just killing the planet for fun. Of course, I'm not going to demand that paper copy unless I need it for reference.

Re:Disengenous

[ThePhilips]

Amazon 30% is taking the piss

When Amazon takes 30%, everybody's up in arms.

When publishers take 95% or more, it's fine, the business is as usual.

We probably should start calling that "American logic". Because even "women logic" is above the level.

Maybe the author needs to get out more

[Sycraft-fu]

No dude, your books are not so incredible that people will buy them no matter what the price. There may be a few people who are like that, but most aren't. Price matters in entertainment. Turns out, when you make something cheap enough so that people don't need to think about spending the money and even more so they feel like they are getting a "Great deal" they'll spend very freely.

Steam has figured this out with videogames and siphons tons of money out of people's pockets, and has people thank them for doing it. People get drawn in by the "savings" of the sales and spend tons. I should know, I'm one of them. Not only do I have games I haven't played, I have games I haven't installed. I see something that I'm interested in that is a good price and I say "Oh man, I should get that," and I do. If they are more expensive, I think about it more, I wait until I really want a new game, I go and replay something I already enjoy.

Cheaper books will lead to bibliophiles just collecting the things. I know my mom would. You get them cheap enough and she'll drop hundreds a month on stuff she'll never read, just because she wants to have it.

Authors/publishers/developers/etc need to get over this idea of their digital goods being "worth" a certain amount. No, you need to figure out what you need to do to maximize your profits since there is zero per unit cost. Usually, that is going to mean selling cheap, but selling lots.

Amazon is right

[vanyel]

In particular, I won't pay more for an ebook than the price of a paperback, but I also generally have $10 as the cutoff point - if it's more than that, I'll read something else until the price comes down. I really think ebooks ought to be $5 but that ship has sailed.

Equally suspect

[Z34107]

Even if you don't have a background in economics, nothing in Amazon's statement should be particularly controversial. Price elasticity isn't something they pulled out of their ass, and the idea that lowering prices could make you more money (by selling even more units) is something the thinking slashdotter should be able to intuit form first principles. "Books aren't perfectly interchangeable units of entertainment" is a nice straw man, but it doesn't change the fact that entertainment spending is highly discretionary, or that his $20 e-book has an entire universe of competing alternatives vying for your attention.

Yes, publishers and middlemen have all kinds of rationalizations for trying to kill e-books, but calling any of them "legitimate" is shilling so hard you could pence a crown.

Hardcovers? What about paperbacks??

[Daemonik]

Why is Scalzi only bringing up hardcover prices when at $9.99 the ebook is HIGHER than the paperback release, which will sell more copies than the hardcover as well. How can he argue that there is "a legitimate reason for not wanting the gulf between eBook and physical hardcover pricing to be so large that brick and mortar retailers suffer" when paperbacks sell for $6.99-$7.99?? If brick and mortar retailers can survive cheap paperbacks, why can't they survive eBooks priced $2-$3 higher? For that matter, I have never heard anyone in the publishing industry who can explain why eBooks should be priced higher than paperbacks.

Re:I've got a better modell

[taustin]

People who actually work in the industry, including award winning authors will point out that as much work goes in to turning a manuscript in to a book as goes in to writing the manuscript. That's today, with the crappy level of editing and proofreading.

What you want is no editing, no proofreading, and overall shit quality. You can get, literally, millions of books like that for free all over the internet. Enjoy.

Re:I like it.

[Mister Liberty]

Elsevier won't have it.