I am publishing a collection of short stories as an e-book. Continuing a series of posts on that subject, I’m trying to work through the relevant pricing issues and set a price for that content.
Months ago, when I began idly wondering what my short story collection should sell for, I repeatedly found myself thinking in relative terms. In hindsight that approach seems to make sense given the rampant uncertainty in the e-book market , but it was more coincidence than prescience. I didn’t know how much I didn’t know, and I certainly didn’t know how much the industry didn’t know.
The comparison that popped up the most was what I took to calling hamburger pricing. Invariably this analogy would present itself while I was driving, because it’s impossible to travel anywhere in the United States for more than fourteen minutes without passing a hamburger stand. (I made that statistic up, but please feel free to quote me. The world can always use more urban myths.)
What I kept thinking at the time was that whatever my short story collection was worth, it had to at least be worth the average cost of an average hamburger at an average drive-up window. Without doing any research I pegged that number around $4, and in a lot of ways I felt like the idea made sense.
Which of course it doesn’t.
Consumers don’t compare the prices of items. I’ve seen people freak at a two-cent change in gas prices, then walk into the same gas station and buy twenty dollars worth of snacks and beverages without even looking at a price. Does it really make sense to complain about the price of gasoline, which requires a considerable amount of processing and refinement, while at the same time purchasing a small plastic bottle of water at a per-gallon rate of twelve dollars? No. It makes no sense whatsoever.
Or consider technology costs. How many people actually know the total cost of ownership for their cellphone, Blackberry or iPhone? Do you think most people factor in the cost of replacement or service life when making such purchases, let alone connection charges? Because I don’t think most people do — despite the fact that the annual cost of these devices can easily top $1,000 .
As a thought experiment, imagine that I’ve written a short e-book containing tips on how to get control of your tech addiction, and I’m offering it for sale for two dollars. Imagine also that an independent accounting firm certifies the average annual per-person savings for implementing my tips to be $250, with no decrease in service or utility. That’s two dollars spent to save $248.
How many people would pay the two bucks? That’s right: nobody. E-books and digital content are supposed to be free. Tech is supposed to be expensive.
Human beings segregate product prices for no good reason. Twenty dollars in gas that will physically transport your body all over town on a day-long errand binge is a rip-off. Twenty dollars for a high-fat, high-salt dinner-for-two at a corporate chain restaurant is fair. Twenty dollars for a snazzy pink iPhone case is a steal. Twenty dollars for an e-book containing the GPS coordinates to a million dollars in buried treasure is a laugh-out-loud insult. (And not just because you can find a pirated copy on your iPhone for free.)
Still, it’s equally clear that there is no way to approach the question of pricing an e-book without looking to the price of other products. In particular, print books loom large as a standard, in multiple ways. And yet…p-book prices primarily reflect the cost of manufacturing and distribution, almost to the exclusion of valuing content. Physical books cost what books cost to make, give or take a little wiggle room, which in turn strongly suggests that e-books, which cost little or nothing to make, should cost little or nothing.
And yet…the publishing industry is clearly trying to shore up e-book prices so they can take advantage of the cost savings themselves. In fact, publishers (and this takes some considerable gall) are trying to fix e-book prices at discount p-book prices, in the hope that they can lock in profits as they move from p-books to e-books over the long haul. From a New York Times piece last week:
Five of the country’s six largest publishers — Macmillan, Simon & Schuster, Hachette, HarperCollins and Penguin — have already reached deals with Apple to sell their books through its iBookstore, which will be featured on the iPad. (The holdout is Random House.)
Under those agreements, the publishers will set consumer prices for each book, and Apple will serve as an agent and take a 30 percent commission. E-book editions of most newly released adult general fiction and nonfiction will cost $12.99 to $14.99.
Amazon has agreed in principle that the major publishers would be able to set prices in its Kindle store as well.
These negotiations follow on the heels of the industry’s February fight to stabilize and control e-book prices. Yet this pricing strategy actually flies in the face of the publishing industry’s rationale for current print-book prices:
“The pricing genie is already out of the bottle, because if you go to Costco, you go to Walmart or Amazon.com, you’re going to find hardback books that have been available for two weeks that are on sale for $12 and $14,” McQuivey says. “How are you going to explain to a customer that they should pay the same price for a digital edition? It just doesn’t make sense.”
There has been a lot of stuff written on this issue. I particularly liked Charles Stross’s take here. On the face of it what the publishing industry is trying to do seems absurd: you can’t charge the same price for less.
Well, maybe. But before you pass judgment, think for a minute about ice cream. Back in the day ice cream at the grocery store was sold in half-gallon blocks. Go to the store today, however, and you’ll find that most ice cream is sold in 1.5-pint cartons — or, twenty-five percent less than a half-gallon. Why? Because at some point the price of half-gallon blocks started bumping up against the consumer’s innate price ceiling for ice cream. Instead of raising prices and losing market share, the sneaky ice cream people decided to do what the canned fruit and vegetable people have been doing for years: they started giving consumers less for the same price.
And it worked. Consumers didn’t protest (much) about paying the same for less ice cream. Which means it’s quite possible the base price for a new book of any kind may settle at around twelve or fourteen dollars. Granted, a twelve-dollar hardcover is an object, and its price accounts for the cost of producing that object, but at the end of the day the consumer’s interest is in the content. Even if the consumer feels like they’re getting something for their money — meaning a physical object, which they won’t get with an e-book — the reason the consumer is making the purchase in the first place is because of the content. (You read that here first.)
Consumers do understand that it costs more to make a print book than an e-book. If you ask consumers if e-books should be cheaper than p-books, they say yes. Consumers also tend to want things cheaper if they can get them. If you ask consumers if they’d rather pay Amazon’s $9.99 or Big Publishing’s $12.99, they’re going to go with the lower number. But I don’t think consumers themselves are asking those questions. Rather, what I think consumers are thinking when they buy any kind of book is that what they’re paying for is — don’t laugh — the content.
Sound insane? Well, relative to a rational world it is. But we clearly don’t live in a rational world. We live in a world driven by consumer expectations, which often have nothing to do with reality. (Consumers, like voters, tend to keep things simple, even when it’s not in their best interest. As a result they are easily led, easy to cheat, and slow to react en mass. Like voters.)
The elephant in the room is not the consumer, it’s competition. And by competition I do not mean the iron-fisted, totalitarian machinations of people like Apple’s Steve Jobs and Amazon’s Jeff Bezos. I mean real competition, where prices are driven down by a multitude of sellers all competing for the customer’s attention and money. If there’s a two-dollar profit in every e-book, somebody’s going to try to take market share by selling at a profit of only one dollar. That’s the nature of competition (and why you hate your local cable company’s service monopoly).
Tomorrow I’m going to throw down some numbers. What I’m prepared to say today is that the idea of the customer as a rational actor in the marketplace is as wrong as the idea that the average voter in America is an informed citizen. Having noodled e-book prices for two weeks now, there is nothing anyone could say or point to that would convince me that the customer is going to be the driving force in stabilizing e-book prices.
I don’t really know how the general or special theory of relativity might relate to e-book prices, but I have an inkling about the effect of quantum mechanics. To the extent that consumers probably do have a price ceiling they’re not willing to push past for your average book, I’m beginning to think that number might also be the effective floor.
— Mark Barrett