What it Means to You: What is Going on in the World of Ebooks

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Everyone knows that I am a huge fan of ebooks, and how critical I am when it gets locked down beyond belief.  The goal of a book is to read it.  There is not much more to a book than lots of words on a page, virtual or not.  I understand that people have to profit from it, and I’m not against making money, but what is profit and what is gouging?

In writing this piece, I came across an old article that I wrote explaining this issue more than a year ago.

Before I start, I think The Verge did a great job explaining the problem.(pops) and the NYTimes does a good job explaining the “Lending Problem.”(pops).  I explain my issues with the “Lending Problem” too (pops).

The difference that I didn’t understand previously was the difference between the “agency model” and the “wholesale model.”  I urge you to read that article before continuing.

Wholesale Model:
When a publisher wants to sell a book, it negotiates a wholesale price.  Obviously it isn’t the MSRP that is found on the back cover. Whatever price that is, Amazon, B&N, and other big bookstores are able to charge whatever they want (profit or loss).  I’m speculating that an ebook is wholesale for $8.99/copy, and amazon and B&N marks it up to $9.99/copy.

Agency Model:
The price is set by the publisher, but it gives 30% back to the bookstore.

Most Favored Nation:
The idea that [insert ebook store here] must have the lowest price

The Verge article explains this very well, but the problem is that the publishers see the $9.99 price point as “devaluing” the product.  It also causes competition amongst the ebook stores which devalues the product even more. If the cost of an ebook is static at $9.99 then any rise in cost looks bad.

How did this start:
When Amazon took a huge gamble on ebooks, everyone laughed.  Just look at the design of the original kindle that sold for close to $400.

 Nobody wanted to leave real books. Amazon said that this was the future, and to get people on board, Amazon offered ebooks at the $9.99 rate.  The publishers didn’t care until the ebook revolution exploded. An ebook was a way to placate Amazon, and still get essentially free money for doing next to nothing.  Now that ebooks sell more than their dead tree equivalent, everyone is scrambling to see how much more money they can squeeze from it.

I’m sure (not really) that when the first kindle launched it had a slight profit margin, and the books were loss leaders. As more and more people saw the use of an ereader, the model was flipped.  The ebook because a profit and the hardware became a loss leader.  The kindle fire costs $1.50 more to make than it sells for.

In all of this, Amazon takes the gamble then gets pushed out of its own business model, and gets called a bully.  I don’t hate apple for negotiating, in fact I want more competition.  But do not call amazon a bully, for being competitive.

Competition is supposed to be good for consumers, but using an agency model with a most favored nation clause is anti competitive.  There is nothing wrong with the agency model.  If your content is so great people will have no problem paying more.  Saying that this store gets the cheapest price forces a race into mediocrity.  You can’t go lower than an imaginary floor.

Publishers are complaining that they are losing out of sales because Amazon has their huge negotiating weight behind them.  If you understood the technology you would have known that the .awz format (kindle’s PROPRIETARY format) is only allowed on kindles.  If ebook sales were not a huge revenue generating business than it is fine to lose amazon as an ebook partner, remembering that people would complain that their $400 reader is now a paperweight.  Amazon has skin in this game.  You forced them to the agency model, and they don’t want it.  Of course they will fight back.

Libraries: A Relic of Previous Life
Ebooks are single use.  You can’t lend them.  No you can’t, I don’t care how much you say I’m wrong.  Everyone that wants to read the ebook must buy it.  You won’t lend your kindle to someone, so again it forces the issue of buying another copy.  Libraries have tried to incorporate the draconian rules of ebook lending, but have been embroiled in red tape to the point that it is nearly impossible.  Publishers are destroying libraries. The licensing costs are driving up operating budgets. The idea of a library would never exist today.  Let’s tell the RIAA and the MPAA that we want to have a building where people can borrow movies and music for free for 14 days.

How many extra copies of books were purchased because people wanted the book on a kindle?

So Now What?
No one knows.  I’m happy that DOJ looked into why all of a sudden ebook prices unanimously went to $12.99 or higher.  I’ll let them fight it out in court.  All I know is that when I buy a book, I get furious when there isn’t a “large” enough discount between the paperback and the ebook.  I’m not saying $9.99 is the right price, nor $12.99, but when the paperback is less than the ebook, I’m not buying your book. If you spent year doing research that cost significant money, I am fine paying more.  Let the free market decide that. If you want to give more money to content creators, charge more for everything.  I have no problem raising costs of books if it means people will be paid more.  Don’t say production costs have gone up, and then raise ebook prices.

I’m hoping all of this will allow independent authors to self publish.  They get to set their own prices, and keep a large chunk of the profits.  The amazon self publish tool is great.  It gets me to read authors I normally would not, and I get to pay a fraction of the cost, where most profits go back to the author.  Simply, I am boycotting the high prices of ebooks without justification.


7 Responses

  1. I just have a hard time understanding the publishers argument that $13 is fair and $10 dollars is giving them away. They doesn’t sound like a tremendous undercut to me.

  2. chaimtime

    $10 is too cheap because they deem it too cheap. I think there will never be a “fair price,” but until then, they increase prices slowly. Right now $13 is fair, and in two years $15 will be fair. I think they use the increase in price to convince the authors that are getting the hardest hit, “If we increase prices, the increase goes directly to you.”

    Songs are $1.29 because $0.99 was too cheap. Coincidentally a 30% increase is fair.

  3. I think you’re wrong about lending ebooks. You can’t lend across platforms (from Kindle to Nook) and it has to be allowed by the publisher but I have downloaded several books that I am able to lend out to someone else (although only once and for a 14 day time period) and I have. My own book is loanable.

    My parents both own ereaders. A Nook and a Sony reader. They NEVER buy books. They borrow them from the library. Amazon has finally signed their deal which allows them to work with libraries so people can borrow ebooks for Kindle as well.

    Another, lesser known fact, is if two Kindles are set up using the same email address (say for a husband and wife) then ebooks can be easily swapped back and forth between the two devices and can even be read at the same time. Not exactly lending per say, but sharing if you both read the same type of books.

    As far as ebook prices go, I get why the reader thinks it’s a problem and as a reader myself, I don’t want to see them go higher than its paperback counterpart BUT one thing to keep in mind is all the people who go into the production of a traditionally published book that need to be paid. Marketing, editing, photographers, publishers, type setting, proofing, formatting for both print and digital, cover design, THE AUTHOR, etc. Yes, to put out the digital version costs less, but it still takes a lot to make it presentable to the public and then they do print copies as well and while the print version probably still outsells the digital,. it won’t always be that way, so the price will probably remain higher to cover the costs of the printing process.

    Did that makes sense?

  4. chaimtime

    Yes, that made sense. I want to know what costs are involved in the whole production of the book. As consumers, we were taught that $10 was the appropriate amount. Also as consumers we (I) get mad when the paperback is cheaper than the ebook.

    As far as lending, you can lend. I am a member of lendle.me and booklending.com. I have used their services successfully, but it is no way a simple process. The book has to be lendable (thank you for making yours lendable), and there can’t be a waiting list. You have to be blessed by a user, and no way instant. Libraries are trying, but I haven’t found a single book that had less than a 6 month waiting period. It is just impractical.

  5. Almost every publisher releases both a print version and an electronic version of a book. As eBooks continue to overtake traditional print, those lower prices (and narrower margins) will take an ever-increasing toll on the publishers’ bottom lines.

    It’s also an abuse of a monopoly to sell something at below cost to drive everyone else out of the market (to paraphrase Ian Betteridge on Twitter). Amazon was just as wrong as Apple and the publishers are – no one comes out of this clean.

  6. Re: my first paragraph, traditional print also includes signings, commercials, print ads, tours, physically printing and shipping books to stores, shelf space in retail establishments, etc…

    There’s a cost here that has to be balanced in some way. If more people are buying the eBook at a lower price instead of the print version at the “standard” price, then the publishers end up losing more money.

  7. chaimtime

    I’m approving your comment under protest.

    I still hold that if amazon wants to take a gamble into the new market of ebooks by discounting the product to create loyalty, why stop them.

    No one company has a monopoly on reading. Amazon may have the lion share of ebook purchases, but there are other ways to buy ebooks. You own a nook, so somehow you decided to go with an open format and more choices for stores. I have a kindle, and I’m content paying whatever price amazon forces me to pay.

    I agree that the prices are a problem. I don’t want starving authors, so I’m willing to pay a fair price for an ebook. With that said, I refuse to purchase an ebook that is more expensive than the hardcover with Ken Follet’s “Fall of Giants” being the standard case: http://amzn.com/0525951652

    Like your post said: http://curiousrat.com/home/2012/4/13/apple-ebooks-and-the-doj.html

    we need to know what it costs to produce a book. Until that is known, we may never know the actual fair price of a book. If that is $20, I’ll be fine with that.

    Another discussion I had was to have the ebook come out with the paperback version a few months later. It allows the hardcover to recoup the cost for “early adopters.” I will accept the cost of the ebook to be equal to the paperback.

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