Tuesday, March 16, 2010

ebook pricing madness

Everyone knows the publishing industry is in the doghouse, and faces an uphill battle for survival.  See this, this, and this.
ebooks probably represent the future of books. Devices like the Kindle and the Apple iPad are probably where users will read these books. All well and fine. But what about the pricing? Well, Amazon forced a $9.99 pricing for most bestsellers on the publishers. The publishers got to keep 30%. Then came Apple with its iPad, allowing publishers to charge upto $14.99 for most books. Publishers were happy. They were also happy that they had some bargaining leverage over Amazon. Competition is always good. Or does it? The first salvo was fired by MacMillan, who forced Amazon to let them and then other publishers charge a higher price. All well and fine, you could argue.

But then the madness starts.
Consider the current Amazon #1 ranked (accessed Mar 14 2010) bestseller,is

The Big Short: Inside the Doomsday Machine

The hardcover edition of the book has a list price of $27.95, and is available on Amazon.com for $15.09, representing a discount of 40%.

Now take a look at the Kindle price for the same book.
The Kindle list price is $33.96!! That is $6 costlier than the hardcover price. And that's not all.
The discounted price for the Kindle edition is $20.68!! That is $5.59 costlier than the hardcover edition!!!

And it doesn't end there.
The Kindle edition, perhaps mercifully, is not even available for customers from the United States.

So why this pricing madness? The month of March?
Many explanations spring to mind.

One is that the publishing industry is looking to the entertainment industry for its pricing strategy. Remember the region coding scam? Where DVDs came with a region code, and DVD players would also be region enabled, and would play DVD discs only for that particular region? This was a perfect example of using technology to enable a form of price discrimination that would have been technically impossible before. The thinking was that by releasing movies to DVD in a staggered manner, companies could extract the maximum revenue for their titles across the globe. If a movie had just been released to an Asian market, even as its DVD title was available in the US, then region encoding would mean that consumers in the Asian market could not watch the movie on DVD, and would have to shell out $$$ to go watch the movie in theaters.
Smart thinking.
Except that it did not work.
DVD hardware manufacturers had no incentive to cripple their players by building in region protection. So what did they do? They either sold players without region coding enforcement, or they made it trivially easy to make the players region free, so they could play DVDs for all regions. On the other hand, the encryption on the DVDs was hacked, and pirated versions of the DVD titles would sell for pennies. So much for that pricing strategy.

So, it seems that the publishing industry is wanting to do the same with ebooks. Release a hardcover title in the US, its ebook version in other markets, and so on... Not smart. This is also, if you look at it, similar to the publishing industry's existing strategy of releasing a hardcover edition first, then an trade paperback, and finally a mass market paperback. They are looking to slot the ebook as another edition. Except that it is not so. eBooks are not simply another 'type' of books. It is not simply a case of a paper cover, thinner paper, and so on...

The other thinking may be that the publishing industry really does not understand how to make money off this digital medium, and its pricing and distribution strategy is still stuck in a thought process from the analog age. A self-evident truth of the digital age has been that the marginal cost of reproduction is zero, or close to zero. Charging MORE for a digital copy than the paper version defies logic.

Publishers may also be waiting for someone else in the industry to figure out a way to profitability, and will then follow suit. Wait. For deliverance.

But how can they go about making money off digital books?
Not so straightforward, but not as difficult also as the hare-brained actions of the publishing industry suggest.

Let us look at bundling strategies first.
If you were to buy an Amazon Kindle or an Apple iPad or the Barnes & Noble Nook reader or some other digital ebook reader, why can't publishers offer a deal where you get to choose the publisher of your choice and then select 5, 10, or some other number of books from that publisher for free? Or at a substantially discounted price of, say, $0.99, or $1.99, or $4.99?

Take the second option.
If you buy a hardcover edition of a book, why can't the publishers offer a 75% or even 90% discount off the ebook price? If it is a paperback, then offer a 50% discount of the ebook price. Take a look at the discounts offered on Amazon.com, Barnes & Noble.com, and other book sellers. Discounts anyway run at 10%, 20%, or even 40% off the list prices. That amounts to as much as $10 or more on new hardcovers. For this amount I can get the ebook version of the book. As far as I am concerned, I now have the hardcover edition, and the ebook version of the book, for the price of the hardcover. Bottom line - I, as the customer, won't feel ripped off by being forced to essentially buy the same book, twice.

Third - what about a book club? These clubs have existed for decades for the physical paper books. These clubs have existed for audio books too. Audible.com is one example.. For a flat price you get to choose a fixed number of titles as month, a year. When a customer purchases a Kindle, offer him a discounted annual membership plan. The user is plunking down $250 or more for the reader. Why not offer him a discounted one year plan for $49.99 with the option to buy 12 ebooks?

Do this in reverse too. Any time a user buys an ebook, offer a discount on the paperback or hardcover.

What about the titles I already own? I am not going to buy them again. Well, if you are Amazon.com, you already have the purchase histories of your customers going back to 1996. Offer the same discounted purchase options to them on the ebooks for the titles they have purchased.

Then there is the reading experience. Which is emasculated and strangely devoid of the experience that accompanies a paper book. Improve this experience. Bring the same typeface to the digital books as the paper books. Bring the same texture and color of paper to the ebooks too.

You could also talk about making book reading a more social experience, ala Facebook, MySpace, etc... After all, the world of book readers and book lovers is a very passionate one.

The type of pricing being pursued by publishers today is nothing short of idiotic. Like an ostrich with its head in the sand, like a pigeon with its eyes shut.

© 2010, Abhinav Agarwal. All rights reserved.