From veteran publishing consultant Mike Shatzkin:
[Amazon]: A key objective is lower e-book prices. Many e-books are being released at $14.99 and even $19.99. That is unjustifiably high for an e-book. With an e-book, there’s no printing, no over-printing, no need to forecast, no returns, no lost sales due to out-of-stock, no warehousing costs, no transportation costs, and there is no secondary market — e-books cannot be resold as used books. E-books can be and should be less expensive.
[MS] “Unjustifiably high” is an opinion, not a fact. Everyone is welcome to their opinion, but everyone is welcome to not share it as well. Publishers pay money for the right to exploit copyrights andtheir “opinion” on pricing should be at least as important as anybody else’s. Agency publishers had a lot of experience with higher ebook prices that couldn’t be discounted before the DoJ stepped in and they apparently disagree.
[Amazon] It’s also important to understand that e-books are highly price-elastic. This means that when the price goes up, customers buy much less. 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.
[MS] This elasticity measurement considers only sales of ebooks at Amazon. What is the impact on print book sales when the ebook price goes up and ebook sales go down? What is the impact on the bookstore distribution network when ebook prices go up and ebook sales go down? It would be commercially irresponsible of publishers not to consider those effects as well.
. . . .
[Amazon] So, at $9.99, the total pie is bigger – how does Amazon propose to share that revenue pie? We believe 35% should go to the author, 35% to the publisher and 30% to Amazon. Is 30% reasonable? Yes. In fact, the 30% share of total revenue is what Hachette forced us to take in 2010 when they illegally colluded with their competitors to raise e-book prices. We had no problem with the 30% — we did have a big problem with the price increases.
[MS] It is good to hear that Amazon accepts a 30% share for retailers as reasonable. Will they now extend terms reflecting that to all the non Big-Five publishers who are trapped in “hybrid” terms, giving 50% or more in wholesale discounts to Amazon for ebooks? Of all the points raised by Amazon in this document, this is the most consequential in terms of commercial impact.
Link to the rest at The Shatzkin Files and thanks to Toby for the tip.
Once again, it’s all about keeping ebook prices high to preserve print sales through traditional bookstores – the one place those nasty self-published authors can’t go.
This is typical of the short-term thinking that characterizes industries being rendered noncompetitive via technology disruption.
The formerly dominant players in the legacy business believe they have the power to hold back the new technology and its consequences. That never works and has the perverse effect of impairing such organizations’ chances of successfully evolving with the new technology.
Amazon justifiably receives credit for making indie publishing possible and profitable via KDP. However, Big Publishing has also made a significant contribution to the growth of indieworld.
By setting high prices for ebooks in order to prop up physical bookstores and defending quarterly revenues and profits for the media coglomerates that own them, Big Publishing has left the fastest-growing portion of the market – ebooks selling for $4.99 and below – wide open for indie authors to exploit.
Big Publishing simply will not compete against indies with pricing and has the hubris to believe that it can shape consumer preferences for high-priced ebooks.
Where does this all end?
Smart money won’t invest in traditional publishing’s present model nor will anyone with financial sense come to the rescue of Barnes & Noble or other bricks-and-mortar bookstores.
PG suggests that smart money will start acquiring struggling publishers exclusively for their backlists – built on life-of-copyright publishing contracts.
The first thing the new owners of publishers will do is to fire everyone other than a tiny accounting staff, sell off physical inventory and sublease expensive office space. If you’re not going to publish new money-losing books, you don’t need most of the people in a legacy publisher.
The second action of the new owners of the publishers will be to lower the price of all ebooks to directly compete against indies.
Thereafter, the owners will collect payments from Amazon, iBooks, etc., and (possibly) remit a portion of that money to the authors who wrote the books in the first place.
In PG’s supernally humble opinion, that’s the only way to make money from a traditional publisher for more than a few years – treat the backlist as a wasting asset.