Friday, 12 November 2010

eBooks and the Agency Pricing Model – Getting the Balance right

Wow, this year has passed with the alacrity of an elephant downhill skiing with a force ten gale behind it, blasting it down a near vertical drop.  So far it has been an interesting year, with lots of developments on the digital publishing side of books. 

The current arguments about retailers accepting the ‘agency model’ dominates the current buzzvine in never-neverland or ‘the world of publishing’ as we more commonly know it.  Do publishers have the right to set the prices of their eBooks?  To that question I adamantly say ‘yes’, but only if they are being sensible about the pricing of eBooks.

A couple of months or so back I posted a video talking about the pricing of eBooks and invited the Amazon eBook forum to take part in a discussion about pricing.  As you can imagine things got pretty heated, pretty quickly. At the time I said that if I felt our eBooks were priced to high I would review the situation.  Our eBooks, typically are priced at £4.95 against a price of £7.99 for the paper version.  This debate and the current arguments on pricing has indeed made me review.

I think consumers do have a strong argument that eBooks are overpriced but the argument has to be balanced against many factors, especially for smaller publishers who invariably have higher over-heads.  Out of the sale price comes a cut to the retailer, a cut to the distributor or aggregator, a portion to compile and conversion of the original file (Yes, this is a one-off fee, but still has to be accounted for). Most importantly, the author royalty payment which is between 45 and 50% net at Caffeine Nights has to come out of what is left.  Then there is marketing and promotion to be accounted for before the publisher get his/her reward. 

I agree some costs such as conversion and file production are one-off but many are not and when a retailer takes anywhere upwards of 30% to 60% and the distributor also takes at least a similar figure, there is not much left to pay the author or the publisher.  Small publishers won’t see the sales of the Stieg Larsson’s or James Patterson’s of this world, nowhere near it, but they do provide a valuable service and feed the market with new and up-coming talent.  For this service to continue there has to be a realistic price attributed to eBooks.  This is the question most publishers are struggling with.

eBooks, unlike their paper versions also carry VAT – a cost in the UK which is also due to rise by another 2.5% in January 2011, so 20% of the rrp will go straight to government. Whilst this can be claimed back if you qualify, smaller publishers may not initially do so.

For me, if I set an eBook retail price of £4.99 all of these factors have to be accounted for, but the bonus is that this is still a new channel, a new market which, even though eBooks have been with us for over a decade, is suddenly opening up and becoming viable. So one may argue that it is ‘extra’ revenue.  This is not entirely true, as there has been no real statistics to show the impact against actual physical paper volumes.  Having said that it can be assumed that the majority of eBook sales will be new money. 

Selling through Amazon we (Caffeine Nights) can actually be more competitive and see a decent return even when, like we have with Amazon, decided to reduce our standard eBook price from £4.95 to £3.95 or $7.99 to $5.95.   This is more possible because Amazon also acts as the distributor, thus saving the publisher extra fees.

I do believe it is the right of the publisher to set the rrp but it has to be done to ensure that the consumer is not exploited.  Many consumers have bought Kindles or eBook readers at great cost and don’t want to be blackmailed by publishers. Some leading publishers are selling eBooks at parity with their paper counterparts, this is ripping off the consumer and should be stopped, now. 

For this fledgling industry of eBook publishing to thrive we need competitive pricing but we have to listen to the consumer too.  It is odd how many of these publishers are quite happy on the other hand to give away paperbacks to supermarkets at ridiculously low prices, this is a double insult to the health of the industry as consumers then have an unrealistic expectation of prices and how much it costs to produce a book and many actual book stores are closing through lost sales. One may argue this is being hypocritical but supermarkets are not bookstores, they do not make a living by offering mass choice especially when it comes to books.  In fact they offer the direct opposite, a very limited choice, mostly of mass market titles and general pap.

Publishing is eating itself by being greedy on one hand and simply insane on the other. £1.99 paperbacks, mass pulping, stupid transportation costs and environmental impact because of over production of titles with no discernable market, leaves some publishers with the only option of pulping or giving books away in a supermarket.  All of these things are killing the industry and now the confusion over eBook pricing just confirms that this industry needs to take a long and seriously hard look at itself to avert an impending crisis.