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Search for chapter and verse on e-pricesBy Danuta Kean
Published: October 14 2008 21:33 | Last updated: October 14 2008 21:33
Want to know how to silence a book publisher? Ask him about his pricing strategy for electronic books. It is a subject guaranteed to send a shiver down the spine of an industry suffering from a deep-discounting retail culture that is subsidised by fat margins exacted from publishers. It is also a subject that will come under scrutiny today when publishers meet in Frankfurt for the annual book fair, the biggest in the world.
The successful launch of the Sony Reader (pictured) and Amazon Kindle has focused minds on how much consumers should pay for e-books. According to David Roth-Ey, director of digital business development at HarperCollins in the UK, being last in the digital market has advantages: “Books are late to the game of digitisation and so we can look at the way that music, film and television have faced these challenges more or less successfully.”
Top of the list of lessons learned from rival media is to resist pressure to give away a bigger slice of the pie to retailers and artists. Though publishers in North America and Europe refuse to speak on the record about the discount levels they are giving e-booksellers, privately they admit that they are being asked to match the 57 per cent and above given on physical books to the biggest players in the market – Amazon in the US and Waterstone’s in the UK. This will then fund price cuts of up to 50 per cent on the cover price.
Publishers are not against discounts to consumers, particularly if they will kick-start the nascent e-book market. Price cuts have an important role in winning over customers. “We avidly follow consumer blogs and are convinced that a discount off the physical book price is necessary to grow the market and address consumers’ expectations,” says Maja Thomas, senior vice-president of digital and audio publishing at the Hachette Book Group.
The problem is how cheap the books should be. “Consumers realise that e-books don’t incur the usual printing, shipping and return charges,” she says, “but don’t understand that the overhead, conversion costs, marketing and higher than usual royalties all represent new and different costs for digital publishing.”
Genevieve Shore, global digital director at Penguin (owned by Pearson, publisher of the Financial Times), agrees that consumer perceptions are a problem. “Ninety-nine per cent of our overheads remain unchanged,” she says. “In fact we are adding overheads, because we are having to digitise content and set up a completely new supply chain. That all costs.”
Publishers such as Ms Shore believe the music industry fundamentally undermined its credibility in price negotiations by allowing misconceptions about cheaper delivery to mushroom in the minds of consumers and artists.
In reality, publishers’ influence over retail prices is constrained, says Sara Lloyd, head of digital at Macmillan Publishers in the UK. “Pricing strategies are currently tied to the prevailing print price in the majority of cases because the publisher doesn’t control pricing, only the recommended retail price,” she says.
E-book publishers want to keep the conventional profit split between retailer and publisher. In the UK, retailers receive £4 ($7, €5) on a paperback that sells for £6.99, while the remaining £2.99 is divided between the publisher, which pays for paper production, distribution, editorial and marketing, and the author, who gets 7.5 per cent.
Authors and their literary agents are pushing for as much as a 25 per cent royalty, which they feel reflects the lower cost of delivery per unit. However, publishers argue that higher royalties will preclude the necessary investment in digitisation.
Publishers are also caught up in retailers’ desire to be the bookselling equivalent of Apple’s iTunes, Ms Lloyd adds. “Because there is a race to become the retailer to carve out the bigger slice of the e-book market, this is a particular pressure which retailers push back onto publishers in the form of discount.”
For books the magic number – the equivalent of iTunes’ charge of 99 cents a track – is tied to the price of the print product. Publishers want to use pricing more creatively as part of their marketing strategies for e-books. “We want to test things,” Mr Roth-Ey says.
He uses the example of an Ian McEwan first edition, which could be sold with the e-book, so the first edition is kept pristine by the purchaser, while the content is read electronically.
However, publishers are adamant that they will not allow Sony or Amazon to promote their respective electronic readers with free pre-loaded bestsellers.
In this, says Fritz Foy, senior vice-president of strategic technology at Macmillan US, publishers have learned from mistakes made elsewhere. “We have looked at businesses that have suffered a real loss from digitisation,” he explains.
He cites the software and educational markets. “In both, content was used to sell devices and was given away free in bundles. It gave the perception that content was worthless.” The 100 books given away with the Sony Reader are all out-of-copyright classics.
Though the market for e-books remains small – scant figures are available, but in the US e-book sales in the first six months of 2008 were estimated to be £10m – publishers report a steady increase in the second half of the year on both sides of the Atlantic thanks to the launch of the Sony Reader.
And it seems that the good news from the bestseller lists is that price may be less important than the blogs imply, says Ms Shore. “Our experience in the US is that bestsellers are bestsellers, and the bestseller list for Kindle, the Sony Reader and online sites mirror The New York Times bestseller list very closely.
“If e-books were price sensitive then e-book bestseller lists would be full of $3 e-books, but the e-books that sell the most are the same price as the physical edition, because they are the ones that people want to read.”
http://www.ft.com/cms/s/0/900b3132-9a0a-11dd-960e-000077b07658.html