Wednesday, July 15, 2009

More Kindling On The Fire

Interesting article in Monday's WSJ on the on-going debate over pricing for e-books (sub req):

Publishers are concerned that so many successful new titles are sold for $9.99 or less on Inc.'s Kindle electronic book reader and Fictionwise, an e-book retailer owned by Barnes and Noble Inc. In contrast, new hardcover novels typically retail for $25 to $27.

Like most publishers, Sourcebooks Inc., an independent publisher based in Naperville, Ill., usually makes new books available as e-books upon print publication, but not this time. In an interview, Sourcebooks' chief executive said it will delay by at least half a year the e-book version of "Bran Hambric: The Farfield Curse," a young-readers title in the vein of Harry Potter that goes on sale Sept. 9. While the book is a debut novel, the author, Kaleb Nation, has a following with his blog.

Sourcebooks is issuing 75,000 copies of "Bran Hambric," a sizable print run in this economy, and has arranged a substantial marketing campaign and book tour for Mr. Nation.

"It doesn't make sense for a new book to be valued at $9.99," said Dominique Raccah, CEO of Sourcebooks, which issues 250 to 300 new titles annually. "The argument is that the cheaper the book is, the more people will buy it. But hardcover books have an audience, and we shouldn't cannibalize it." An e-book for "Bran Hambric" will become available in the spring, she said.

This is the conundrum that the publishing industry will face as the popularity of e-books continues to grow. While I don't think that we'll see the end of the traditional print version of books anytime soon, we are in the beginning stages of a transition to e-books that will force publishers to rethink many aspects of the business, pricing in particular.

Of the top 15 fiction books on the July 19 New York Times best-seller list, only Catherine Coulter's novel "Knockout," which ranks No. 4, is unavailable in the Kindle format. Robert Gottlieb, chairman of Trident Media Group LLC and Ms. Coulter's literary agent, said he doesn't allow any of his authors' books to be published simultaneously as an e-book when he can prevent it.

"It's no different than releasing a DVD on the same day that a new movie is released in the movie theaters," he said. "Why would you do that?"

While I can appreciate the basis for Mr. Gottlieb's argument, his analogy is not an apt one. Going to a theater to watch a movie is an experience with significant differences between watching the same movie at home. The differences between reading a book in a print or Kindle format are nowhere near the same.

Music labels went through a similar pricing fight with Apple Inc., which for years set the price of all the digital music in its iTunes store at 99 cents. In April, Apple expanded to a tiered pricing system, offering songs for 69 cents, 99 cents and $1.29.

"Publishers are in denial about the economics of digital content," said Forrester Research analyst Sarah Rotman Epps. "What we've seen in other industries and in the evolution of digital content is that consumers are not willing to pay as much for content that is separated from its physical medium."

At first blush, music does seem to offer a better comparison. However, it's not a perfect one either. If you download an e-book, you can't replicate the physical medium of the book. But it's quite easy to burn a CD after you download an album from iTunes. That's why the cost difference between purchasing a recently released album as a CD in a store or downloading the same album is relatively small. While consumers want to pay less for the electronic version of the music, they also recognize that there isn't that much cost in the CD itself. If a CD sells for $12 in a store, no one expects that they should be able to pay $4 for it on iTunes.

The problem for the publishers is trying to strike the right balance between the price they charge for a hard cover book and what they charge for the same e-book. If you look at music, the price of CDs has come down over the years while the price of digital music has remained relatively stable. Obviously, publishers have fixed and variable costs in printing hard cover books that far exceed those that music label do in making CDs.

The answer probably lies in trying to have more of the content costs (author advances, marketing, book tours, etc.) included in the price of the e-books and at the same time lowering the price of the hard cover books while still covering the costs of producing them. Which would lead to a situation where the price spread between the two versions would shrink to the point where publishers wouldn't have to worry about e-books cannibalizing their hard cover sales.

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