Is the eReader Financial Model Upside Down?
By Joe Wikert
I finally started listening to the free audio version of Chris Anderson’s latest book, Free. I’m only a couple of chapters in and it’s interesting so far but since I downloaded it months ago it (once again) shows just how much I tend to ignore all the free stuff I’m hoarding, especially iPhone apps.
That’s probably a worthwhile subject for a future post… For this post, I’d rather think out loud about altering the pricing models for e-reading devices and e-content.
I won’t buy a Kindle edition of a book that’s more than $9.99. Why? Besides the fact that I’m a cheapskate, I guess I’m still bitter about paying almost $300 for an original Kindle, so I expect to “make it up” with cheaper content. I wonder how many others like me are out there.
I’d say quite a few. Look at the Kindle book bestseller list. Even though there are plenty of Kindle editions priced above $9.99 they rarely make the bestseller list. In fact, as I type these words 14 of the top 25 have a price of $0.00, one is $0.01 and the rest are at or below $9.99. I only found three books in the top 100 priced above $9.99. Three.
Why can’t a device vendor go with more of a cell phone model, where the low price of the device is subsidized by the longer-term commitment to buying content? How many Kindles do you suppose Amazon could sell if they priced it at $99, or $49? The device costs more than that to make, not to mention the cellular charges they pay Sprint, so why would Amazon price device so low? Hoping that they “make it up in volume” won’t help…they’ll just lose that much more money in total.
But what if all the ebook editions Amazon sells for the Kindle weren’t $9.99 but something much closer to the print book’s price on Amazon? So a $30 book at 33% off would be $20 for the Kindle edition (as opposed to $9.99 currently), pretty much the same as what you’d pay for the print version. Now there’s a bigger margin left over for Amazon to keep part of (to cover the loss on the sale of the device), share some with the publisher/author and even pay Sprint. And oh, btw, we’d put an end to the model where some publishers are delaying the e-version so as not to cannibalize the print version’s sales. Publishers would be indifferent, if not prefer the e-version since there’s no cost for manufacturing, inventory or returns. Hallelujah!
Additionally, in order to qualify for that low price on the device, the customer would have to commit to a minimum volume of econtent purchases over the next 2 years. Opt out early and pay a penalty. It’s sounding more and more like a cell phone plan, isn’t it?
What’s not to like about this model? The first vendor to adopt it would likely sell a boatload of devices, maybe more than they could manufacture. It would also protect the value of the intellectual property. Amazon’s $9.99 price on Kindle editions is really cheapening the value of the content. I used to think it was OK because you can’t share an ebook with a friend, but B&N is about to address that problem with the Nook (sort of). I still think we publishers need to figure out how to add value to ebooks and not just live by quickie p-to-e-conversions, but that was the subject of at least one earlier post.
What do you think? Is this in the cards? Will a hardware vendor go this route? I sure hope so.
>Editor’s Note: The above is from Joe Wikert’s Publishing 2020 Blog and is reprinted with permission. PB
November 10th, 2009 at 9:34 am
I didn’t buy a Kindle (I read on my iPhone) but I still think $9.99, NOT $20 or more, is the right price for books. Why? Because when I “buy” a book from Amazon’s Kindle store, I don’t “own” it. I can’t do the kinds of things you can do with a book that belongs to you. For example, I just bought and read Po Bronson’s new book “Nuture Shock” and I’d love for my husband to read it too. But I can’t lend it to him. I can lend him my PHONE. The other choices are log him into my Kindle account (and out of his) or he can buy his own copy. Which is probably what Amazon has in mind.
More expensive ebooks? No thanks.
November 10th, 2009 at 9:37 am
Joe has the right idea but I think he is missing the ideal vendor for such a scheme — the publisher. If I were a large publishers like S&S or a well-respected niche publisher like Baen, I would cut a deal with Sony or Astak or some other hardware vendor (or even more than one) to offer their device on a subscription basis. In the case of S&S, I would offer, say, the Sony 700 for $29 in exchange for a commitment to purchase 1-2 hardcover equivalent or 2-4 paperback equivalent S&S published ebook from the S&S bookstore every month for 24 months. I would then offer every book in the S&S catalog at the S&S bookstore at a 25% discount, with the discount being off the MSRP for the hardcover until the paperback is released, at which point I would offer a 15% discount off the paperback version.
This would greatly increase the revenue to publishers and solve some of the industry’s problems, at least temporarily, as regards the demands from Amazon.
November 10th, 2009 at 9:39 am
What’s not to like about this model? Well, the model of selling ebooks for the same price as paperbound books has been tried, and it has failed. That’s for list price, of course. But even at the same price, who would buy a crippled, DRM’d ebook that in all likelihood will be unreadable in 10 years, when for the same price they could buy a paperbound book they could resell, gift, or keep to treasure and read 100 years from now?
But let’s say that the device maker teams up with a publisher or publishing cartel, and the device is temptingly cheap, because it is subsidized. And the unsuspecting public is duped into thinking that ‘ebooks are cheaper than “real” books’ because, we all believe that ebooks ought to be cheaper. Then the public is rudely awakened.
But wait! the device reads industry standard epub files! So we can expect a flourishing market in bootleg epub editions, and owners can rediscover the joy of older (public domain) books via Google books and archive.org. So then we have a company losing money on the device, and not selling books in the bargain.
But wait! the device does NOT read epub files without DRM. And it reads no other file formats — you are locked into the content provided by the cartel that is subsidizing the device. OK, that looks like a winner … except TeleRead, and every blog on the planet, screams bloody murder. And they publish usage studies comparing the cost of buying the subsidized reader, and so many books a year, to simply buying the paperbound editions at discounted prices. And lo and behold! the added costs of the device (even subsidized) make that model more costly, because the books are not any cheaper, they are exactly the same price as the discounted paperbound books all us hardcore readers enjoy.
So then we get more cost, less utility.
Sorry, this model just won’t make it out of any company’s research, unless the company is desperate or foolish; it will then fail spectacularly and serve as an object lesson to all others in the publishing industry.
November 10th, 2009 at 9:41 am
One thing I forgot to mention. The reason why I think this would be a big win for publishers is that my experience, the experience of other ebook reading device owners that I know, and from what I have read in posts made by other ebook folk, we tend to both read and buy more books than we ever did before we owned an ebook device. The idea of the subscription would be to have a base requirement that would encourage subscribers to buy more than than the base — an idea that I think would be fact.
November 10th, 2009 at 10:08 am
This sounds like the old Columbia (or BMG) record club. Didn’t work very well and the music was expensive. I really do NOT think that Amazon/B&N are interested in monitoring any type of subscription, even through a subsidiary or sub-contract. So, this really doesn’t work. in fact, I expect the costs of the ereaders to go down (they already are), so the necessity of this becomes less compelling. Tell me what the ereader prices will be NEXT Xmas season- could be well below $199.
November 10th, 2009 at 10:46 am
I’d beg to differ.
The business model is fine.
Sell the gadget at a fair price, sell the books at a fair price; let the market and the tech take care of the rest. Subsidies distort markets and only delay the inevitable.
Looking at the state of the ebook marketplace as a whole things look pretty good: some players are winning, some are losing; all on their merits.
Amazon, in particular, is executing their first-mover stragey well enough. They could be doing better for their customers, they could be doing worse. The thing to bear in mind…
…people…
…is…
…one *more* time:
IT. IS. EARLY. IN. THE. GAME.
(If it were a baseball game, we’d be in the top of the third inning at most.)
Don’t panic.
Breathe.
All will be well in the end.
Just need to remember that the future is not the present with a different calendar. Are current ebook readers pricy? Limited in features? Functionality? Duh! Yes. So what else is new? All new gadget categories start out that way. Give it time.
Tech gadgets all share two features; they get better with time and they get cheaper.
Remember the first cellphones? The old shoulder-slung bricks? Now compare that to a contemporary flip phone like the Razr or the new Droid. Or compare an early Rio MP3 player:
http://en.wikipedia.org/wiki/Rio_PMP300
To a Zune HD:
http://en.wikipedia.org/wiki/Zune_HD
That’s what a decade in gadget-time will do; a thousand-fold improvement in capacity and several generations worth of refinements and extension of capability.
The first kindle came out two years ago at $399.
Now you can get better readers at half the price.
Give it another two years (18 months is more likely) and you’ll see another halving in price to $99.
Give it a bit more after that and you’ll see blister-pack models at drugstores. (Moore’s law of semiconductor pricing seems to apply to ebook gadgets. Nice, huh?)
It has happened before; it’ll happen again.
The money is in the books, not the gadget. No secret there. But the money is to be found in volume, not in gouging customers. That is why Amazon quickly moved Kindle-the-platform to iPhone and is now bringing it to PCs; to build up the customer base and book volume. (And note that Kindle, properly speaking, is *not* a gadget but rather a delivery system for selling ebooks. The kindle platform is the software and the services, not the gadget. The gadget is just the tip of the iceberg.)
The real issue about ebook pricing is that consumers see it as a replacement for paperbacks (reasonable enough as that is the pre-existing high-volume delivery vehicle for books) while publishers see it as cannibalizing hardcover sales (short-term true but long-term stupid; hardcover sales go to libraries and dedicated upscale readers, the same folks that are early ebook gadget adopters. But they neglect to factor in phone-, PDA-, and PC-based readers. And future mainstream–paperback–buyers moving to ebooks.).
What is going to happen, naturally, despite all the Big Publishing House efforts to the contrary, is that Kindles and Sonys and Nooks are going to set the foundation for a high-volume ebook infrastructure that will transcend the delivery vehicle, whether it be an electronic gadget or dead tree pulp. We are in a transition phase but eventually it will become clear to all that a book is, and always has been, information. The bound paper is just the transmission medium. Once you liberate the Platonic ideal of a book from the solid object, you free it to find its true audience and true market and true price. Some books may well be worth more than $10 to their natural audience; most will be worth less. A lot will be found to be worth essentially zero (Sturgeon’s Law).
We just need to get past this whole one size-fits-all thinking. Given that most current mainstream paperbacks run US$7 or so and most hardcovers run around $20, a baseline of $9.99 as a *starting point* is a fair compromise until the business builds up enough volume and stratification that we can see books properly priced on individual merit. Lost in all the hype about the $9.99 baseline is that ebook prices already vary significantly, which they should. And it should be no shock that if you look for volume sales, the volume lies in the lower prices. And yes, people love free. Focusing on that is just focusing on the smoke obscuring the reality of ever-increasing ebook sales volume and the reality that it is pbook overhead and legacy costs that are hurting the BPH’s, not ebooks.
The reality is that the ebook ecosystem is ramping up nicely without need for any market distortions (aka, subsidies). New competitors are jumping in, new consumers are committing to the new distribution channels, volume is building up. Smart publishers are moving to position themselves to better survive in the new age. Stupid BPH’s aren’t. Before anybody notices, all the hand-wringing about baseline prices will be a moot point: The dinosaurs will be gone and history will be written by smaller, nimbler mammals and published electronically.
Just give it time.
And enjoy the ride.
November 10th, 2009 at 11:24 am
I’d pay $20 to buy an electronic version of a book that costs $30 on paper, but not to rent it until such a time as Amazon discontinue support for the Kindle. They have to drop DRM if they’re going to push the prices up.
November 10th, 2009 at 12:40 pm
“Why can’t a device vendor go with more of a cell phone model, where the low price of the device is subsidized by the longer-term commitment to buying content?”
For the same reason I choose not to buy a $1500-3000 cell phone. A $70 phone at $8-12 per month is a much better deal than a free phone at $50/mo.
My $150 refurb Kindle at $0-20/mo will always be much cheaper than any “free” e-reader plan someone can come up with.
November 10th, 2009 at 2:01 pm
Um, maybe because readers (ie, people who read books) are not as stupid as people who talk on the phone?
You want to go to a model where I pay more for the same thing than I do now? How is that smarter?
There is *everything* to dislike about this model. Guess I’ll be keeping my Sony 505 until they pry it from my cold dead hands if this ever becomes reality.
November 10th, 2009 at 2:23 pm
The upside-down part of this model is expecting (no, allowing) the seller of the e-books to sell the hardware as well. The hardware should be sold by separate parties, and sold as devices that read standardized content types (like ePub, mobi, pdf, etc).
Any vendors should be able to sell readers, all with standardized functions plus whatever optional features they choose, so consumers can optimize their reading experience by choosing the device that’s best for them.
Vendors like Amazon should only be concerned with making sure their content can be read on the standardized readers. They shouldn’t have to base book pricing models on how much the reader cost… that’s an artificial connection. They should base their costs on the actual costs to produce and disseminate the e-books, period.
Amazon’s branching out into other hardware, like the iPhone and the PC, is a much better choice for all concerned, because it begins to remove the proprietary nature of the selling process, and opens up the possibilities of using the hardware of your choice to read the content. They are better off doing this, farming out manufacture and selling of the Kindle to a third party, and allowing themselves to price e-books according to their real costs, not the artificial connections to devices.
November 10th, 2009 at 4:45 pm
“Amazon’s $9.99 price on Kindle editions is really cheapening the value of the content…”
I am sure that all the books you help sell-including your very own- have nothing to do with your views on content pricing. I will say it time and time again: e-books must be cheaper than print books. It takes less ability and resources to create an e-book. Wise publishers will follow Catarina’s example and establish online supply lines that are separated from their normal supply lines. This way they don’t have to worry about cannibalizing their own hardcover sales. Simply editing and formatting submissions can result in a win situation for all parties involved.Nothing personal Joe, but if Bezos has publicly stated that the 9.99 model is sustainable, I am going to have to side with him.
November 10th, 2009 at 5:59 pm
What’s wrong with expensive e-books subsidizing cheap e-book readers?
Nothing, if you like the current “cheap cell phone with a contract that works out to thousands of dollars” model.
However, there’s a reason why I have a pay-go phone. If times get hard (it does happen sometimes), I can back the heck off using the phone and reduce its cost to near zero.
Ditto on the Kindle. I paid the full original price for mine and I’m not whining about it, but yes, I expect the content to be inexpensive–because it’s not subsidizing anything. And if times get hard I simply content myself with free public domain books.
Think that would work with your contract-model reader?
So if you like the contract model, go for it. (Once you’ve done the math to figure out what it will cost you over the life of the contract, and verfied that you will have a job for that time.) But I hope to goodness that there remain some pay-go models for people like me. And if that means waiting to use my Christmas money to buy the reader, I am totally cool with that.
November 10th, 2009 at 6:36 pm
“by the longer-term commitment to buying content”… oh god no. I don’t want to be locked in to anything. I want my device and my service to be separate. I don’t want book buying to be a repeat of the bullshit of the cellular industry.
November 11th, 2009 at 4:30 am
One advantage of eBook selling that’s usually been overlooked is that you can adjust the price instantaneously to suit the demand at any time and from any given class of purchaser. A subscriber wants to buy the book? OK, that’s a 25% discount. Registered SPCA member? Get 15% off My Friend Mittens. New Sherlock Holmes film out? All Doyle books drop 20% for that month. Turnover is low on Mondays? OK, Monday is 10% off day. The latest thriller isn’t selling well? Drop the price by 40% for people buying it before next Thursday week.
Once distributors wake up to the fact that fixed prices are no longer mandatory, we can expect to see all kinds of deals; and the price of every book will decline slowly over time as the market reaches saturation at a particular price. (We can see already with computer games.)
Ultimately the idea of books having a fixed price will become just as antiquated and charming as the idea of paying a fixed price for an air ticket from New York to London.
November 11th, 2009 at 4:45 am
As a publisher (& writer) of e-books, the beauty as Jon above alludes too is essentially supply & demand fine-tuning. In other words, if the subject is a hot one, you can adjust the price accordingly.
For example, I’m finishing off an e-book (will be a physical book too for those who prefer this) right now on how to sell your property in this really difficult market world-wide. So I can charge more while the demand is bound to be high. As time marches on and the property market picks up (being cyclical, it always does – eventually!), the price of the e-book will need to fall or I will add even more bonuses in to create greater value.
Difficult to top the current value though as we’re offering free tickets to win one of our properties!
The beauty of the online delivery of books is that it’s easy to adjust price and to add in various bonuses to boost sales by creating greater value for the consumer. A win-win!
Kind regards,
Vinden Grace
PS. When the book launches later this month, I’ll post the URL here for those whoa re interested in how I’ll market this.
November 11th, 2009 at 5:20 pm
I’d like to make a couple of comments to follow-up on my original post. First of all, I realize that one size won’t fit all. With that in mind, I could see devices sold with different financial plans, much like you see today with cell phones where you can get a trac-phone and pay-as-you-go if you don’t want to commit to monthly minimums. Today’s model is very much like that trac-phone one, where you’ll often pay more for a phone because you’re not committing to a contract. If that’s what you prefer you can ignore the other model!
Secondly, I think our industry is treating the e-book opportunity as nothing more than a way to generate additional income from the print content. Most e-books available today are nothing more than quickie conversions from print to e. As long as that’s all we’re doing, yes, I agree that we need to settle for lower e-prices vs. the print price. But why settle for that?
I’ve been told that the earliest TV shows were nothing more than radio programs in front of a camera. It apparently took awhile for the TV execs to realize they should take advantage of the medium. That’s precisely where we are with e-books today. They’re just print versions on an electronic device. Every book won’t lend itself to this, but think how much richer the customer experience can be when we start leveraging the capabilities of a sophisticated e-device. I look forward to the day when we’re past this radio-programs-in-front-of-a-TV camera era!