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Have Publishers Shot Themselves in the Foot With Costly Ebooks?

22 January 2016

From BookBusiness:

What if the major book publishers inadvertently shot themselves in the collective foot by raising ebook prices to protect their paper book business? And in the process, hurt their 2015 profitability compared to where things stood before the ebook price hikes?

Managing price elasticity over time and by product is one of the most difficult jobs of any marketer. It’s one thing if we are talking about what to price Tide detergent for this week at Walmart and Rite Aid and quite another when talking about the same product delivered in multiple formats, which is the case for books.

Before ebooks came on the scene, publishers were practicing a smart strategy based on the core discipline of customer segmentation. No matter what the product or service, customers break into three main buckets: avids (early adopters), mainstream, and laggards.

. . . .

The age-old publishing strategy, which was under control before the advent of ebooks, was a smart one where hardcovers, trade paperbacks, and mass market paperbacks (where warranted) were timed around customer segments for release. The avids need to be the first on the block to own whatever the passionate category may be for them, so for book avids, they will pay more for a hardcover, which is their only option at product launch using the time-tested strategy. Then the much larger mainstream segment comes onboard a year or so later with the trade paperback release, paying a price that seems appropriate to them. Lastly, along stumble the less important laggards, often driven by tie-in movies that encourage them to pick up the mass market special edition. Many laggards do not pay for their books at all but read them as pass-alongs. What they read (and when they read it) is far less important to them than for the other two segments.

. . . .

The mainstream is influenced by these early adopters but they are far more practical. They actively do not want to be the first to try a new product. They rely on reviews. They are more easily influenced than they might admit. And they are price sensitive. Reading that new novel as a hardcover is simply not an option as they won’t pay $28 for a book. They can wait. And paying $12.95-$14.95 for an ebook seems too high.

So the big question is how many people wanted to read Book XYZ but put if off due to price hesitation and never actually “got there”? Maybe they watched Netflix instead. Excellent retailers conduct exit interviews to find out why someone went into the store to buy a product and left without it. I don’t believe publishers have this data. I’m not sure Barnes & Noble does either. I think Amazon might.

. . . .

We don’t yet have publisher year-end financials but my hunch is the minor unit gains realized in print last year will not offset the significant losses in ebook sales, which deliver better margins. Many cheer about this increase in print, sighing in relief, yet do they understand the impact on the bottom line of those lost ebook sales? And it seems likely those gains were achieved through sales of four or five titles. What about all the other midlist authors? Debut novelists? Who were those former ebook buyers? Were they more likely to be laggards? Mainstream book buyers? One-time purchasers who gave it a try when the ebook was in front of them at the right price at the right moment the year before? Was Amazon correct in pushing for $9.95 as the ideal starting price for an ebook? Did they create new customers for publishers that the publishers in turn have now pushed away?

I predict publisher profitability will be hurt as a result of mismanagement of this new product mix that now includes ebooks. Lost opportunity. Is that opportunity shifting outside the publishing industry to self-publishing and others, where the prices seem appropriate to the less engaged mainstream shoppers?

Link to the rest at BookBusiness

Big Publishing

36 Comments to “Have Publishers Shot Themselves in the Foot With Costly Ebooks?”

  1. “Have Publishers Shot Themselves in the Foot With Costly Ebooks?”

    Starts with a question so ‘no’ …

    They shot themselves in both feet going agency — the gift that just keeps on giving!

    “Was Amazon correct in pushing for $9.95 as the ideal starting price for an ebook?”

    Wrong again. $9.95 is the ‘high end’ for ebooks, ‘not’ a starting price. Many readers won’t touch it unless it’s something they already ‘know’ they’re going to like.

  2. Now that it’s 2016(!)someone outside of the Indieverse finally makes these SHOCKING revelations.

    Move some words around and this is a Konrath post. From 2011.

  3. On the right track, but has so much wrong in the article it’s almost laughable.

    • It’s totally laughable. A couple of lines where the laugh track grew loudest:
      “What [laggards] read (and when they read it) is far less important to them than for the other two segments.” So, library patrons and others on a budget don’t care what they read? I was never so passionate about books as I was as a broke undergraduate.
      “So the big question is how many people wanted to read Book XYZ but put if off due to price hesitation and never actually “got there”? Maybe they watched Netflix instead.”
      Because the only alternative to over-priced books is TV. Heaven forbid these laggards and cheapskates should just buy books they can afford AND love!

      • “’What [laggards] read (and when they read it) is far less important to THEM than for the other two segments.’ So, library patrons and others on a budget don’t care what they read?”

        The first time I read that sentence, I took it the same way, Anna, but when I read it again in your comment, I decided it’s a sentence suffering from pronoun mishmash, and the “them” I put in all caps refers to the publishers. The sentence makes sense if it says the pubs don’t care about the laggards.

        However, the thought doesn’t make sense. Instead of not caring about the laggards, the idea should be to bring them into the paying fold at some level, and I think some indie tricks, like cheap or free first in series and putting books into KU are probably doing at least a little of that. I know I’m doing less rereading of old favorites and more experimenting with new-to-me authors because of KU.

  4. It’s not exactly wrong but it only goes part way to explaining reader behavior. It only looks at purchasing behavior and not consumption behavior and how the price hikes (in 2010 and now) have produced effects that won’t go away when and if the BPHs move prices back down.

    Right now global oil prices are in a downward plunge because OPEC and especially the Saudis are responding to the challenge of increased US oil production by defending their market share at all costs because they value more short term revenue the long term relationships and they don’t want their buyers getting used to working with somebody else.

    That is exactly what ridiculous ebook pricing is doing: driving readers to develop new buying habits, new reading habits, new author relationships. Returning to older pricing won’t change that.
    Those changes are irreversible.

    Readers who discover new reads among Indies aren’t going to stop following the new authors they’ve found and they aren’t going to forget they can get more good reads for their money from the new sources.

    The BPHs aren’t getting their lost market share back no matter what they do now. They should’ve defended it.

    • I wasn’t hugely price-sensitive until the prices shot up to stupid levels. The new Richard Price (the name is pure coincidence) is $14.95. At $7.95 or even $9.95, they would have had me. But at $14.95, I finally got around to trying the library’s ebook-checkout process, which I had to be driven to do because I’m a creature of habit and ruled by inertia most of the time.

      That process couldn’t be easier. Now I’ll be using it a lot more rather than paying big-pub prices.

      As you say, a new habit. Thanks, BPH pricing!

      • Same for me with several authors I love, but especially “Career of Evil” by J.K. Rowling — dying to read it, but I just refuse to pay $15 for the Kindle edition. There’s just too much else out there I can read instead. I do need to follow your lead and figure out the library thing ….

        • As I say, it’s surprisingly easy. I’d assumed all along that it would involve side-loading, which isn’t that tough, but seemed like it’d be just enough of a hassle that I wouldn’t feel like doing it. But on the Kindle, at least, you just go to your library’s site and choose the Kindle format of the book. It then takes you to Amazon and sends it to your Kindle as if it’s a purchase. I’m still reading my first book, but I assume that if I don’t renew the checkout, it’ll just be removed from the Kindle (just as it’ll disappear once I’ve checked it back in).

          Now I’m wondering why I didn’t do this sooner, though there is the downside of waiting for a copy to be available, etc.

          All in all, though, I get to read a new book I wouldn’t have wanted to shell out 15 bucks for, so I’m happy.

    • That is exactly what ridiculous ebook pricing is doing: driving readers to develop new buying habits, new reading habits, new author relationships. Returning to older pricing won’t change that. Those changes are irreversible.

      Exactly this! The introduction of agency pricing; the enforcing of geographical restrictions; and the introduction of hardcover pricing changed everything for me. I went from being able to buy the US edition of pretty much any BPH eBook at a reasonable price (particularly when the exchange rates were in my favour) to being restricted to the overpriced UK edition, if a UK edition did actually exist. The prices of the UK edition eBooks are nearly always more expensive than the US editions. I’m not prepared to pay more than NZ$12 for an eBook, so those BPH UK editions that are regularly priced between NZ$13.99 and NZ$19.99, and are very rarely discounted, don’t get bought.

      I used to get upset and annoyed at not being able to purchase the eBooks of my BPH favourite authors. Now I go to the library. If the eBooks are reduced to a reasonable price then I may buy it later, or maybe not as I read less and less of those authors. My eBook reading and buying habits have changed quite a bit over the last 5-8 years – different genres; more new-to-me authors; more eBook purchases from smaller publishers or self-publishing authors; and less BPH.

      • As an Aussie reader I was hit by the same brick walls – unrealistic prices /and/ region restrictions. I responded by searching out great Indie books at very affordable prices. Now I /may/ buy one trad. pub. ebook a year…if it’s special enough. The reality, though, is that Indie writing is more innovative and interesting 99% of the time. So I’m another customer lost to the agency model.

      • My e-book spending is about half of what it used to be before agency pricing. According to the article, I’m a laggard–I usually waited for the paperback–even for my favorite authors. Not because I don’t care what I read, but because I’m price conscious. I read a lot and buy a lot of books. I always have too many books on my TBR pile so I can wait for the paperback.

        That being said, I was so happy when the first Kindle came out. At $9.99 I felt I didn’t have to wait for the paperback. Better yet, unlike the paperbacks which I didn’t have room to keep, I felt like I always had access to my ebook purchases. Anyway like several others here, I discovered the library shortly after the price fixing. Since our digital library is really good–I read all the latest releases of my favorite authors from the library. I know publishers charge libraries 3-4 times what the ebook would cost me so I’m guessing publisher’s figure they’re coming out even.

  5. Themselves, authors, readers, libraries, the industry in general . . . you name it, and those entities were all harmed by high e-book pricing.

  6. All those mid-list authors that I remember complaining and blaming Amazon for not discounting the ebook versions of their trad pubbed books, during the Hatchett war. I wonder who they’re blaming now? Are they finally understanding what was really going on?

    • Heh, who are stuck with their ebooks being forever overpriced thanks to ‘agency’?

      If the publishers have shafted them enough their next books will be self-published …

      • I do hope they are smart enough to react that way.

        • Considering they blamed Amazon and not Hatchett for the big ‘fight’, you know many of them aren’t that smart …

          (which just mean — more for us!)

          • Their next royalty statement might by the proverbial two-by-four that gets their attention.

      • If the publishers have shafted them enough their next books will be self-published …

        Unless their existing contracts include a clause (option, noncompete, you name it) which entitles their publishers to go on shafting them.

        • And they can tie those writers’ hands for years waiting for the rejection slip …

          Time for those to pick up a new pen name and start over …

  7. Contrary to everyone else I would like to congratulate the Big Publishers for protecting their paper book cartel by raising the eBook prices. And I hope they will continue doing so in 2016.
    After all, (blank) is priceless.

  8. Recently some enterprising publishers have begun reissuing the Michael Shayne and Perry Mason stories in ebook form, but, with Shayne specifically, they’re asking $9 and up–and offer no paperback alternative, for which I wouldn’t mind paying $9 or more. I’d love to read those books again as my vintage paperbacks are worn out, but I’m not paying that price. Problem is, they’ll think it’s the content and not the price, and we won’t get any more classic mystery stories.

    • No, they know their ebook price-point is killing them, but if they did lower any of their ebooks than there’d be no reason or excuse not to drop them all.

      They know they’re wrong, but they’re keeping up a united front just like they did in the Hatchett/Amazon fight.

      And just like that fight, one of them will suddenly roll over and play nice — and the others will follow suit in days if not hours, least they look like even bigger fools than they already are …

    • I was recently looking for an ebook of Mrs Dalloway. I found one free academic analysis about five times the length of the original work, a dozen or so horribly formatted 99¢ versions released by chancers, a few $2-3 well formatted versions released by universities or library associations, and a pre-order for PRH’s upcoming release for $9.99. Obviously the PRH ebook is priced to not compete with the PRH paperback being released on the same date, but it doesn’t make sense when there are already dozens of editions available.

  9. Was just talking to my mom yesterday (and she doesn’t much care/know a lot about the publishing industry – she just loves to read) and she absolutely refuses to buy expensive e-books (for her, anything $8 or higher). She said she knows that it isn’t costing the publisher hardly anything to sell it digitally, and she just can’t bring herself to pay a lot of money for them. I do think publishers have absolutely shot themselves in the foot and are trying desperately to convince the world that e-books are just a fad/phase that is going to pass quickly and then we’ll all go back to paperbacks. Not going to happen.

  10. Managing price elasticity over time and by product is one of the most difficult jobs of any marketer.

    Equally important is the cross elasticity of paper vs eBooks.

    If publishers drop eBook prices to $9.95, what is the effect on paper sales?

    If paper sales fall, how does diminished paper promotion affect eBook sales?

    If eBooks come to dominate fiction, what is the publishers’ competitive advantage?

    What is the reason for a publisher to follow a course that will eliminate his competitive advantage in the market?

    • If publishers make more profit on ebooks priced cheaper than paperbacks, why cry that paper sales fall?

      The big question is your third. What is the publishers’ competitive advantage if eBooks dominate fiction? They clearly don’t have an answer. There isn’t much evidence they’ve looked for an answer. That doesn’t mean there isn’t an answer. What it may be, I don’t know, but denying technology has transformed publishing and devalued their paper monopoly is not an answer.

      • How do we know publishers’ total profits are larger? If we don’t know the cross elasticity, there is no basis to say a change in eBook prices will generate more total profit.

        I don’t know who has denied technology has transformed publishing. Who?

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