The eBook pricing debate attracts fuzzy math

As the saying goes, if you can’t baffle them with brilliance, then befuddle them with math. Actually, that’s not the way the saying goes, but in this case, the math being “composited” (or should that be, “composted”) and the way the saying goes are the same things.

Motoko Rich, in a Monday New York Times article about the pricing of ebooks, admits that “Publishers differ on how they account for various costs” but doesn’t let that stop her from coming up with a “composite” yet “necessarily simplified” cost-model that she says was based on “interviews with executives at several publishers.” So, right off, she admits that her formula is based on information provided by the exact people who seem to believe it’s in the best interests of their business to perpetuate the perception that in book publishing, up is down.

Motoko’s composite formula might be a bit more valid if it included information and insight from others who don’t have, as we say where I’m from, a dog in that hunt.

She should, for instance, follow this link to an article on the same topic that has a formula that didn’t require “composite” and simplified cost-modeling based on information from anonymous “executives.”

That’s because it’s an analysis by Peter Olson, the former CEO of Random House and now senior lecturer at Harvard Business School and Bharat N. Anand, the Henry R. Byers professor of business administration at HBS. I’d put them up against anonymous executives any day.

You can read the analysis for yourself, but, to necessarily simplify it, I’ll quote them: “This analysis suggests that e-books could, as a stand-alone business, be priced far below Amazon’s current $9.99 pricing and dramatically lower than (paper) books.”

My point — and their’s — is that the publishers’ arguments that ebooks “cost more than people think” is ridiculous.

But don’t get me wrong: I believe publishers should be free to charge a retailer whatever they want. And the retailer should have the right to charge the reader whatever they want — even if they lose money on the deal.

I am not in the “ebooks should be $9.99 or nothing” camp. If publishers want to charge the same price as hardback books, I’m all for them doing so. If they want to charge by the chapter, that’s fine too. If they want to charge by the sentence as Stephen King writes them in real-time, that’s totally dandy. I won’t pay it, but I’d defend their right to charge the wholesaler or retailer any price they want.

But please, don’t insult me by trying to convince me that the reason you are charging whatever you are charging is because you think I’ll believe that distributing bits costs the same as distributing atoms.

  • http://gravitationalpull.net/wp/ ampressman

    Oh my gosh, when will this wave of crapulence, bad reporting and whiny scifi authors stop? Rex, please, make it stop.

    There have been some really sharp posts in the wake of Apple's entrance into the ebook pricing war, such as by law professor Geoffrey Manne (http://www.truthonthemarket.com/2010/02/07/amaz… ), former eMusic ceo David Pakman (http://dpakman.wordpress.com/2010/02/03/wading-… ) and Washington Post Pulitzer winner Steven Pearlstein (http://www.washingtonpost.com/wp-dyn/content/ar… )

    Thanks so much for shining a light on another excellent post. Hopefully, we can make a difference.

    And I absolutely agree that whichever or whatever side of the pricing debate you agree with, the number should be the numbers…

  • http://twitter.com/ralphg Ralph Grabowski

    What is missing from your discussion is authors and how little they receive in royalties, advances, and/or lump sums. We typically get 4% of the cover price of a book; in contrast, bookstores typically get 40%.

    By driving down ebook prices, Amazon will ensure that the people who do the hardest work earn even less. Amazon's real reason for driving down prices is to drive competitors out of business.

    The solution is for authors to self-publish their ebooks, as I have been doing for nearly a decade. In this model, you make close to 100% of the cover price of the book in exchange for selling fewer books.

    For one problem with this solution is that authors are not by nature business-minded or production-minded. (Having learned the business in the magazine world gave me a headstart in both those areas.)

    The other problem is distribution: book publishers have established distribution inroads that no self-published author can ever hope to acquire. Still, revenues from my ebooks sales now equal or exceed those from my book royalties.

  • http://rexblog.com Rex Hammock

    While not in this post, I've written many times about the need for authors and readers to benefit from efficiencies in distribution. I believe self-publishing will continue to grow, now that it has broken free from a history that was filled with scam artists.

  • http://www.viralhousingfix.com danielrmccarthy

    The ability of professional content-creators to make a living wage is a centering premise around the way media is evolving. (Of course, it's not a premise that most of us in management organize ourselves around.)

    In the old model, distribution gatekeepers subsidized content-creators; in return, content-creators focused on content and not on audience.

    In the new model, the gatekeepers are gone, and a new generation of content-creators are evolving. They sacrifice some degree of quality — editing, production value, etc. — in order to share the content that they've created directly. Blogging platforms, YouTube, SRiBD, Facebook and MySpace are the street corners of the digital age. Anyone can get out there.

    Then a combination of the marketplace and your ability to build distribution become the short cuts to getting into the big distribution channels. Look at Ramit Seti's approach to writing about personal finance for Gen X, or Marie Digby's ramp-up on YouTube.

    These audiences erode the distribution hegemony of the big publishers and should, over time, make some of the dialogue about pricing models moot.

    (Rex: sorry for using “content” so much.)

  • http://rexblog.com Rex Hammock

    You can use “content” all you'd like. I'm on the content boat now. I am Mr. Content.

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    As the saying goes, if you can't baffle them with brilliance, then befuddle them with math. Actually, that's not the way the saying goes, ….