eBooks and price discrimination

01Feb10

The weekend brought a bit of a storm over Amazon booting Macmillan off its platform, which has brought lots of worthy analysis from Charles Stross, Tim Bray and others.

Perhaps I’m missing something here, but it seems to me that the whole problem with eBooks is that they have only one dimension for price discrimination – time. For dead tree traditional books there tends to be a conflation of physical form discrimination (hardback versus paperback) and time discrimination (the hardback gets released first), but there’s loads of scope for making things very special indeed – author’s signed copies, custom bindings and more.

I’ve been frustrated in the past by having to buy a heavy hardcover when I want to get the latest release from one of my favourite authors. I’d have happily paid much the same cover price for the smaller lighter paperback. So maybe price discrimination on time only can be made to work for eBooks. But, the medium does constrain choice from a distribution point of view – as the eBook device owner has already chosen physical size and weight, what the outside looks like (a leather binding to fool airline stewardesses perhaps) etc. I also wonder if cover art is dead (removing some cost from the overall value chain, but also end of lifing a small creative channel)? It is clearly going to be hard to make a bunch of bits special.

This is a very different phenomenon versus what digitisation has done to the music industry, where the ‘1000 true fans‘ approach allows more performers to earn a living being creative (and not have to have a day job). Books are not performance art. I don’t necessarily want to hear my favourite author read their work (live or on an audio book), I won’t go on their stadium tour, I may buy the T-shirt (and perhaps that’s where the cover art gets displaced to). Books are also BIG compared to songs, it takes months to write a novel (and many train rides and flights for me to read one).

As the value chain between author and reader gets squeezed we need to find some new local optimum where the author earns enough to keep writing, and the other ancillary people like editors get paid. I notice that whilst many of my favourite authors like Cory Doctorow and Charles Stross are keen to see their work in eBooks, and keen to avoid nasty DRM etc., they also seem go out of their way to support their publishers, editors etc. by not providing a side channel around them (where the fan could go straight to the author and pay them for content in certain forms). This contrasts with the possibilities that digital distribution opens up, which I experienced first hand when Craig Murray took the decision to self publish The Catholic Orangemen of Togo (having been threatened with litigation under the UK’s rather onerous libel laws). Having ordered a hardcover from Amazon that clearly wasn’t going to get to me any time soon I ended up cancelling my slice of dead tree and sending Craig what he said he’d get from the cover price (if I bought direct) and printed the PDF to read on the train. The economics of this transaction are interesting – cover price £17.99 (discounted to £11.87 on Amazon), profit to Craig £3.60 (only £0.80 from Amazon), cost for me to print 226 page PDF on my duplex laser printer £1.13. So…

  • Craig doing his own distribution gets him £3.60/£17.99, or around 20% – and £14.39 is left on the table for ‘distribution’
  • Me printing Craig’s PDF gets him £3.60/£4.73, or around 76% – with nothing left on the table for ‘distribution’
    • Of course if abuse DRM hadn’t put me off buying an eBook reader then I wouldn’t have needed to do any printing at all
  • Amazon selling Craig’s book gets him £0.80/£11.87 – just 7% – and £11.07 goes into ‘distribution’

Obviously Amazon is much better at ‘distribution’ than Craig is, but more obviously self publishing eBooks could totally ruin the ‘distribution’ business. No wonder Amazon is being heavy handed, but I sense that there’s more at stake here in the long run, and that the time dimension of how we consume from established authors is just the tip of a very large iceberg.

Updated to add and moments after I pressed publish another great piece of commentary from Charles Stross. I think we can agree on the end game ‘the correct model for selling ebooks (profitably and at a fair price) is to establish a direct-to-public retail channel, like Baen’s Webscription subsidiary. Oh, and once you’re there, you can ditch the annoying DRM.’ All I’m left wondering is how much of a role publishers will have in that direct-to-public channel, especially for new authors?



One Response to “eBooks and price discrimination”

  1. 1 Killian Murphy

    Nice piece Chris.

    On the update, from Stross, on publishers selling direct: It certainly would be a nice endpoint, but there some significant challenges. Two of them:

    Can the publishers create a brand?
    Speaking for myself, I have no interest in who publishes a book, or the label of a piece of music. I just need to know what I want (author/title). I already know where I can get it. I think that’s probably true for the vast majority of muggles. Stross may be underestimating the challenge here – as an author, the publisher is more important to him than to me. Can you see the author on Oprah saying “And you can buy my book at McMillan.com” as opposed to the assumption that it’s just available on Amazon, in Walmart, B&N and Borders (or the UK equivalents). It means that in addition to remembering the name of the author and/or title, you have to remember where to buy it. I don’t know how quickly sales drop off per thing you have to remember, but I’d be willing to bet it’s exponential..

    Can the publishers give up the bigger top line revenue from the existing distribution channel to focus on the higher margins from marketing a direct-to-retail model.
    Top line revenue can be a real distraction. Avoiding this distraction is helped if the publisher is not a public company and doesn’t have to manage to quarterly earnings announcements.

    Killian.


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s


%d bloggers like this: