Entries tagged with “pricing” from Tools of Change for Publishing
"E pluribus tunum: Uniform prices for online music are no way to maximise profit"
Andrew Savikas
November 2, 2009
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"Charging an "entry fee" for use of the service and then a small, fixed per-song cost for downloads turned out to benefit both the seller and the buyer. The most revenue, according to the 2009 survey data, would be generated by charging the students $21.19 for entry and 37 cents a song. This could raise the producer surplus by 30% compared with uniform pricing. Consumer surplus would also rise in this instance, because some people would buy songs they would have not have done at a higher uniform price. Spotify, a rival to iTunes, has a model somewhat like this for its premium service, where it charges a monthly fee for songs without limit."
http://www.economist.com/businessfinance/economicsfocus/displaystory.cfm?story_id=14699573
Inside Look at RAND's $9.95 Ebook Pricing Strategy
John Warren
June 9, 2009
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Recently, the RAND Corporation announced that it has revised the suggested retail pricing on all RAND ebooks to $9.95 each. RAND ebooks are available through a wide variety of wholesale and retail partners.
The press release provided some explanation for the decision, also discussed in Publishers Weekly. I have been asked by Tools of Change to provide some additional insight into our ebook pricing strategy.
There were several things that went into our thinking on, as one of my colleagues appropriately called it, this "new math." Some of these factors will generally not apply to other publishers, though I do believe some factors should, and eventually will, affect other publishers' pricing strategies as well.
- First of all, and this is important, RAND is not a traditional publisher. RAND is a nonprofit institution that helps improve policy and decision making through research and analysis. RAND research, which spans a broad base of subjects and is funded through hundreds of resources, is dedicated to serving the public interest. RAND's focus is on conducting objective, high-quality research, and every publication endures a rigorous review processes. These exacting standards are the foundation of RAND's impeccable reputation throughout the world. No consideration is made on whether a particular topic or book might be a good title for sales -- the emphasis is on quality of the research. In addition, RAND's revenue comes primarily from its research and philanthropic support, not from the sales of books and ebooks.
- Going along with the first point, a crucial component of RAND's mission is operating in the public interest. This was written into the our charter, in 1948: "To further and promote scientific, educational, and charitable purposes, all for the public welfare and security of the United States of America." This is one of the reasons why we post all of our publicly available books and reports online for free PDF download; we had ~4.3 million PDF downloads from our site last year. Dissemination is more important than sales. (I do believe there is a compelling argument, supported by many, that free electronic dissemination helps drive sales, instead of cannibalizing sales.) We have posted all new titles since 1998 on our Web site, and sales of book sales have still increased during that period.
- Book sales help support the marketing and publishing program, but the main consideration, as a nonprofit, is to break even, not recoup a huge profit. Book sales need to recoup the costs of printing, distribution, marketing, etc., and with ebooks, conversion costs.
- Previously, we had been pricing ebooks at the price of the printed book, which in our case is nearly always paperback; we publish few hardcovers. This seems to be the most common model for publishers, price the ebook at the print price. RAND prints nearly everything print on demand (POD), and sells the majority of our print titles through our distributor, NBN, so the price of the print book factors in POD and distribution costs. POD cost rises when the book is longer in length and/or has color charts or graphs. Thus one book may be priced at $44 because of color charts, another may be $25 because it is shorter in length and entirely black and white. These factors have nothing to do with an ebook, however. Ebooks are agnostic as to length (except as the length may affect the costs of editing) and color charts and graphs have no bearing compared to black and white in terms of ebook costs.
- We have no manufacturing, distribution, or warehouse costs with ebooks, nor do we have to deal with returns, so the back end is much cleaner.
- I believe firmly that customers have an expectation, which is only likely to grow, that ebooks should cost less than printed books. I believe this is being reinforced, but not driven by, Amazon's decision to make many Kindle ebooks $9.95, even when they must pay the publisher more. I don't believe they pulled that number out of thin air, though that is possible. At $9.95, RAND hopes to make up in volume what it may lose in profits from a higher price on each ebook.
- Library funding is tight. Increasingly, libraries want to buy ebooks on demand, when a patron asks for it, not before. Jobbers and wholesalers are now entering into relationships with ebook distributors to aggregate ebook purchases, and the library market is a key market for us to reach. Libraries may balk at $35 for a printed book, or lack the shelf space to store it, but they can afford and store a $9.95 ebook.
- Since we post PDFs for free download, two reasons we are able to sell ebooks on other sites such as Amazon.com, Books 24x7, EBL/ebooks.com, ebrary, Ingram Digital/ MyiLibrary, netLibrary and Questia, and soon Sony and Overdrive, is from a convenience standpoint (customer has a particular device and wants it seamlessly integrated, or a library subscribes to an ebook service and makes all titles available to their patrons) and/or ignorance (the customer may not be aware that we post PDFs for free). I don't want to bank on customer ignorance, but the convenience factor can hold up over time.
These are the main factors influencing our decision making on this new ebook strategy. It will be interesting to see if others follow.
John Warren is marketing director, publications, at the RAND Corporation. He contributes to the Publishing Frontier blog. He was recently selected as the winner of the International Award for Excellence in the development of the book for his paper, "Innovation and the Future of ebooks," which is available for free download on the RAND Web site.
Ebook Piracy is Up Because Ebook Demand is Up
Andrew Savikas
May 12, 2009
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My email, twitter, and "real-world" information stream is abuzz today with references to a New York Times story about the increase in piracy of ebooks:
“It’s exponentially up,” said David Young, chief executive of Hachette Book Group, whose Little, Brown division publishes the “Twilight” series by Stephenie Meyer, a favorite among digital pirates. “Our legal department is spending an ever-increasing time policing sites where copyrighted material is being presented.”
John Wiley & Sons, a textbook publisher that also issues the “Dummies” series, employs three full-time staff members to trawl for unauthorized copies. Gary M. Rinck, general counsel, said that in the last month, the company had sent notices on more than 5,000 titles — five times more than a year ago — asking various sites to take down digital versions of Wiley’s books.
The reason there's an "exponential" increase in piracy of ebooks is because there's an exponential increase in demand for ebooks:
That's not a bad thing! It's an indicator of unmet demand (and in particular for non-DRM encrypted content). I know I have no interest in buying an ebook that's locked to a single vendor or device, and I'm sure many of these "pirates" feel the same. This is a good time to revisit Tim O'Reilly's seminal Piracy is Progressive Taxation, which includes the following lessons:
- Obscurity is a far greater threat to authors and creative artists than piracy.
- Piracy is progressive taxation.
- Customers want to do the right thing, if they can.
- Shoplifting is a bigger threat than piracy.
- File sharing networks don't threaten book, music, or film publishing. They threaten existing publishers.
- "Free" is eventually replaced by a higher-quality paid service.
- "There's more than one way to do it."
I'm not suggesting publishers stop sending those DMCA notices; but 3 full-time staffers? Putting those resources toward building new ways to meet that demand is a much better investment.
Coincidentally, our research report Impact of P2P and Free Distribution on Book Sales is now available.
Readers Boycotting Kindle Titles Priced Above $9.99
Andrew Savikas
April 3, 2009
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Pricing is a red-hot topic among publishers when it comes to ebooks. As I said in a Q&A for Forbes.com last week, cost-driven pricing (especially when the costs in question are calculated based on printed output) is a poor approach for ebook publishers. Readers simply don't care how much it costs a publisher to produce an ebook -- they only care how much it's worth to them. (This is especially true for the iPhone, where books must compete alongside games, music, movies, and other "apps" primarily priced well below $10.)
Now a group of readers is rebelling against books priced above $9.99 in the Kindle store (using Amazon's own tagging system, ironically) and there's a very interesting explanation of the rationale over at Electronic Cottage (all emphasis from the original):
The price also acknowledged the obvious: a Kindle edition is less valuable than a hardcover; although you cannot pass along your Kindle edition to friends, you are at least paying a significant amount less than the hardcover price. Unfortunately, short-sighted publishers feel they are losing dollars instead of realizing that a $9.99 Kindle sale doesn't usurp a hardcover sale. It is a brand new entity. A plus. Pure gravy.
...
I joined the boycott yesterday when I went to buy the new Harlen Coben book, only to be stopped by the high price. Since then, I've added the boycott tags to books over $9.99. I'm not happy about it. I'd rather buy the latest installment of Myron Bolitar's adventures and Chris Knopf's 2008 release, "Head Wounds." In fact, I was one of those who clicked Amazon's "Tell the Publisher" button to indicate that I wanted a Kindle edition of "Head Wounds." But not at $15.40. I'll wait for the paperback. Or get back into the library habit that I abandoned for my Kindle habit. I was irresistibly tempted by the lower prices of Kindle editions, I admit it. I just counted my Kindle orders since I got the reader in December 2008.144 Kindle books. Yikes. 144 books. I had no idea. Publishers, are you paying attention?
That's a very good question.
One-Question Interview at BookNet Canada Tech Forum
Andrew Savikas
March 19, 2009
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Last week I had the pleasure of speaking at the 2009 BookNet Canada Technology Forum in Toronto (motto: Even colder than you expected!), and Mark Bertils caught up with me on my way out for a quick video interview:
Two follow ups on what I said, now that I have my del.icio.us feed handy:
- The Peter Drucker reference is from his 5 Deadly Business Sins: "Cost-driven Pricing. The only thing that works is price-driven costing. The only sound way to price is to start out with what the market is willing to pay--and thus what the competition will charge--and design to that price specification."
- It was Mike Shatzkin (referencing Michael Cader) who made the recent point about the relative low cost of experimentation for publishers around pricing digital products: "You can't get rich or go broke whether you price the ebook 50% too high or 50% too low. Try everything. You'll never have a cheaper opportunity to experiment."
Expectation of Fair Pricing, Not Free
Peter Brantley
February 23, 2009
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At Dear Author, a post stating that not all content should be expected to be free; rather it must be provided, free or not, in a realistic understanding of consumer needs and expectations, which might mean changing the way you do business.
What content providers must realize is that a changing business model wherein revenues are no longer captured in the same way does not mean that content is not without value or that people will not pay, in some way, to use that content. I think many people recognize that in order to have worthwhile content, we must pay in some way for it. Consumers have reduced the value of the album, but have not determined that music itself is without value. Consumers might believe that digital books have reduced cost given the costs of production, distribution and warehousing; but it is not our belief that books are without value altogether or that all books must be provided for free. I think what consumers are looking for is a fair trade. Content creators provide the best content they possibly can and for a fair price allow the consumers to utilize it in the way that it fits into their lives.
Report: Random House Shifts Ebook Royalties to Net Receipts
Mac Slocum
October 29, 2008
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Richard Curtis says Random House has announced a shift in its ebook royalties in a letter recently sent to literary agents. From E-Reads:
Commencing December 1, 2008, the new royalty rate for sales of ebooks will be 25% of the amount received for all sales, Random's letter goes on to state. What does Random House actually receive? Most e-book retailers take a discount of approximately 50% of an e-book's list price. Therefore, the amount received by Random House -- the amount on which the new royalty will be based -- is about half of the list. [Emphasis included in original post.]
Pricing Digital Book Content: Where's the Sweet Spot?
Andrew Savikas
August 12, 2008
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A recent post from Adam Hodgkin over at the Exact Editions blog on book pricing kicked off a great thread on Peter Brantley's Reading 2.0 list. (Pricing also popped up quite quickly in the comments thread around our recent ebook pilot.) Adam argues that deriving digital prices from print ones is the wrong way to go:
At this stage in the development of the ebook market, book publishers who think about digital pricing tend to work back from the print price, to find a satisfactory, ebook price at 50% or 60% or X% of the list price of the print work (think of £195 annual subscription as the mortgage payment on a book -- I bet that is the way OUP fixed their subscription price). It will take a bit of time before publishers and marketers realise that the cost of production, in the sense of 'unit cost', has no conceivable bearing on the digital pricing, whether for outright sale or for an annual subscription. The chances are that in the medium term ebook prices will migrate to some more or less fixed pricing levels: $2.99, $4.99, $9.99, perhaps $19.99. Simplicity will be a virtue and digital books will be seen as having some natural price points (cf CDs or DVDs).
Mike Shatzkin followed up with his own insights:
This triggers a few thoughts about ebook pricing which are neither conclusive nor particularly consistent.
Ebook pricing for IP that is sold in single-title print book form (i.e.stand-alone trade and professional books) will inevitably refer to the unit cost of manufacturing the print book. Since that was a component of the print book price, it becomes a factor in the publisher's formulation of the ebook price. Why?
Because the author and the retailers will expect it to be that way and anything that fails expectations results in friction, contentious conversation with important trading partners a publisher would prefer to avoid.
Amazon is doing their best to break this linkage by having seized control of Kindle book pricing in ways that only they can. (It is highly unlikely that Sony would see value in selling a book below cost in order to establish a $9.99 pricing standard, as Amazon has done.) So far, publishers have not been forced to alter their pricing to Amazon to make wholesale prices conform to that retail price.
There is a "Soapbox" piece in this week's PW -- not available online as far as I can tell -- by superagent Andrew Wylie advocating (with flawed facts and flawed logic, in my opinion) that ebook retail prices should be the same as printed book retail prices and that the author's royalty should go up to 22.5% on the ebook. That's the author expectation I was referring to earlier, expressed by a powerful agent.
Wylie's argument is that if ebooks are cheaper than the corresponding print book, printed books will be abandoned and publishers will then and therefore no longer be necessary.
There is actually an analogy between Kindle pricing and book club pricing. Publishers told retailers for generations not to worry about lower prices offered by book clubs, because club membership (the obligations...) created a hurdle that left most book readers out and the PR generated by the clubs were a catalyst to sales elsewhere. Similarly, Kindle pricing is only available (useful) to people who plunked down their $349 or $399 for the Kindle, which relatively few people have done. So the Kindle pricing shouldn't affect the printed book pricing. In fact, with overall sales levels still having trouble cracking 1% of the total, NO ebook pricing should have much impact on printed book pricing. Yet. Despite the concerns of retailers and authors.
We are many experiments away from settling this question, which is a moving target. What makes sense when ebooks are 1% of the market may not when they are 10%, or 30% (and we'll be working our way up to those levels for a VERY long time.)
Bill Janssen, who addressed this recently in a post of his own, then weighed in:
Excellent point.
But there are many facets to this. It's interesting that many booksellers for the iPhone (well, eReader, Stanza) are essentially repeating what they did with the Palm, by distributing an app that is both a bookstore and a reader. The books are hidden behind the retailer's icon. Is that the best idea? Would authors prefer their books to be "first-class" apps? That is, the book would have its own icon on the iPhone "desktop"? Perhaps the app would have links of some sort to other works by the same author? Author branding instead of publisher/distributor branding?
I still feel that there's a powerful economic pressure for more disintermediation here...
But i2s' Alain Pierrot isn't quite ready for publishers to step aside:
I'd hate having the narrow space of any of my mobile devices clogged by a dozen or more 'disintermediated' author's egoes...
Which doesn't mean either that I'm not a faithful 'fan' of individual authors. (I used to buy anything Julio Cortázar would issue and wait for the next...) But I do appreciate branding from a publisher as the good mix between time saving, quality warranty (whatever this can mean for each individual) and serendipity: obviously, some readers used to make a safe and fast bet when they bought latin american litterature from Gallimard's "La Croix du sud" collection without having been introduced to such or such an author.
Author branding might be a very short-sighted fantasm, nearer last century's most silly situations such as Enver Hodja's control of Albania's publishing, than any realistic situation where a brand offers good value to save time and attention.
Pricing also popped up in the comments thread around our recent ebooks pilot, including this one:
It seems to me though that your attempts to price "at a discount" from print books are misguided at best and silly at worst.
You need to start thinking in terms of "at an increment" from ZERO. The web is a huge place and offers amazing content for free. You would be wise to consider how much EXTRA you want to make from your existing paper publishing business. If you were only publishing digitally then I do agree that you need to take the discount approach.
I'll add that within our own Safari Books Online (our joint venture with Pearson), subscription pricing is not directly related to print prices, though the formula for paying out royalties to publishers does include the book's MSRP.
A lot of people are trying to figure out where prices are headed for digital book content, and to date there's not much consensus (among publishers or among customers). Add your own thoughts in the comments section -- what do you think?
Amazon "Buy New" Option Removed from Publisher's Titles
Mac Slocum
May 23, 2008
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The "buy new" option has been removed from a variety of Hachette Group's Amazon UK listings, reports The BookSeller:
Amazon conducts yearly negotiations with publishers over the discounts it receives. The Hachette tussle comes in the wake of a similar dispute in January, when a number of Bloomsbury titles were temporarily removed from sale through Amazon's main channel.
The Hachette-Amazon negotiation comes in the wake of recent moves by UK publishers to attract customers to their own sites through price cuts.
Publishers and Amazon Locked in Price War
Mac Slocum
April 8, 2008
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The UK's Times Online says Penguin, Bloomsbury and other publishers are trying to woo customers with steep discounts on their own Web sites. Amazon isn't happy about the cuts:
There are fears that Amazon may retaliate by regarding a publisher’s online price as the recommended retail price and applying its trading terms to that. If a publisher discounts a £20 book to £15 online and Amazon has a contract for a 50 percent discount on the full price, Amazon would pay the company £7.50 instead of £10. Publishers say that this would be unfair and could ultimately drive up prices.
That Was Fast: $300 "Free" Album Sold Out
Andrew Savikas
March 5, 2008
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Those $300 "ultra-deluxe" packages are now sold out.
As Kevin Kelly said so succintly, "When copies are free, you need to sell things which can not be copied."
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