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Friday, April 6, 2012

The Evolution to Digital and a Brief History of E-Book Costs and Pricing

Digital Burnout!
Much has been tossed around of late RE new publishing models (think wholesale and agency), who should set the price of e-books (think publishers or retailers) and the "all shook up" transitioning, publishing landscape in general :)

It can get awfully confusing! So, to promote a better understanding of how we got to where we are today, a little history of digital publishing, including e-book models/pricing all the way up to the DOL investigation into the alleged price-fixing attributed to the big six publishers and the agency model is offered here.

This history is by no means complete --- but is heavy enough to hopefully be informative to many.

"Only time will tell where in the pricing spectrum--from best-selling $25-plus hardbacks at one end to 99-cent music downloads at the other--e-book prices will settle."

By Narasu Rebbapragada of PCWorld:

UPDATED: E-Book Prices Fuel Consumer Outrage

The Department of Justice is preparing to sue Apple and five major e-book publishers on charges that they worked together to push up e-book prices industry-wide.

UPDATE [March 8, 2012]: The Department of Justice said yesterday it plans to sue Apple and five of the largest e-book publishers in the US on charges that they acted together to push up the price of electronic books, the Wall Street Journal reports.

As discussed in this PCWorld investigative feature from last May, e-book publishers deeply resented large retailers like Amazon selling their e-books at deeply discounted rates under a "wholesale model." Apple introduced a new model--called the "agency" model--where the publisher sets the price of the e-book and the retailer sells it for that price, taking a 30 percent fee.

The Justice Department believes that Apple and the publishers may have colluded to keep the prices of all e-books high, which, if true, would be a violation of anti-trust laws. The publishers have denied the allegations of collusion, and believe that the switch to the agency model has enhanced competition by allowing more e-book publishers to survive.

Following is our investigative feature from last May describing how e-books are (over) priced.

An e-book that costs the same as a printed book doesn’t feel right. No trees died to make it. No heavy machinery ran to print it. No planes flew to ship it. You might need to buy one of those new $139 Barnes & Noble Nooks, announced this week, to be able to read it. So why should you have to spend as much as you would for a heavy hardcover book to own it?

Blame the latest phase of the digital content revolution, now more than ten years strong. As first happened with music, then movies, then print news, the book publishing industry is experiencing a shake-up of rules and roles. In particular, the changing relationship between the book publisher (the company that creates books) and the book retailer (the company that sells books) is causing a chain reaction of confusion, mistrust, and price hikes.The good news is that this phenomenon is inspiring enterprising startups to rethink aging models of book pricing.

The bad news is that it’s pissing people off.

Need proof? Look up Emma Donoghue’s Room: A Novel on Amazon. You can get a new hardcover copy for $14.49, while the downloadable Kindle edition costs slightly less at $11.99. Scroll a bit down the product page, and you’ll see that the average customer review out of 829 (at this writing) is a favorable 4.2 stars out of 5. People like the book.

On the Kindle Store page for the book, scroll some two-thirds of the way down to the “Tags Customers Associate with This Product” section, and you’ll notice that nine out of the top ten tags for this book have nothing to do with its page-turning storytelling. The book, last time I looked, had 105 tags for “too expensive for Kindle,” 85 tags for “9 99 boycott”, 65 tags for “overpriced-kindle-version,” and so on. People don’t like the price.

The 9 99 boycott tag, in particular, was created by Kindle e-book users to express their outrage that the prices of some e-books approach if not exceed the price of their hardcover versions. So far, 5892 Amazon users have tagged electronic Kindle books 36,704 times with the 9 99 boycott tag (here’s how to use the tag).

This reader revolt comes at a tipping point for the book industry. According to the Association of American Publishers, e-book sales reached $164.1 million for the months of January and February 2011, a 169.4 percent increase when compared with the same period in 2010. For the same period, sales of combined categories of print books fell 24.8 percent, with $441.7 million sold.

So while print book sales still exceed e-book sales in absolute dollars, we’re seeing their final glory days. The bankrupt Borders bookstore chain, closing 30 percent of its brick-and-mortar stores, has reported a $24.3 million loss for March. Barnes & Noble executive Marc Parrish said at the GigaOm Big Data conference that the book business was shifting to digital faster than the music, movie, and newspaper industries.

Amazon announced in January that Kindle books have overtaken paperback books as the most popular format on Amazon.com (not so much information on sales of The Kindle), and Forrester Research expects e-book consumers to spend nearly $3 billion on e-books in 2015.

Big book publishers are experiencing the shift to digital. “We've gone from a 90/10 physical and e-book split last year, to closer to 80/20, and expect that to increase again next year to 70/30,” says Maja Thomas, senior vice president of Hachette Digital at the Hachette Book Group, via e-mail while attending this week’s Book Expo. “It is too early to tell how the different paper formats will be affected--although I would expect most mass market buyers to migrate to e [e-books].”

Hachette is referred to as a big-six book publisher, along with HarperCollins, Macmillan, Penguin Group, Random House, and Simon & Schuster. Its suspense imprint Mullholland will be producing many digital-only titles, and it is making illustrated children’s books available on the Barnes & Noble Nook Color.

Publishers Strong-Arm Retailers

The move to digital has traditional book publishers scared, which has resulted in a power struggle with book retailers for the right to price books. The score right now is “advantage book publisher,” but the consequence is that e-book prices don’t reflect the normal laws of supply and demand or the current costs of producing a digital book.

“The pricing is a little wonky right now,” says James L. McQuivey, Ph.D., vice president and principal analyst at Forrester Research, about e-books. It didn’t start that way. When e-books were new, retailers set their prices the way they wanted, but lower than print books--generally at $9.99 for new book releases.

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