Wednesday, February 3, 2010

The Future of eBook Pricing

This past weekend we were all taken a little bit by surprise when two giants of the book world, MacMillan and Amazon, went toe-to-toe. The unseen player in this game was Apple. But who were the winners and losers in the big fight? MacMillan got its way and can set its own price up to $15 on eBooks for Kindle. Amazon "lost" its right to set its own price on what it sells, even at a loss, but gets a bigger cut of the take as a result. Apple chuckled over having broken a significant competitive barrier to doing business with Amazon when its new iPad is released.

But what about the two markets that no one talks about? Authors and Readers. The obvious impact for readers is that they will pay more for first release eBooks by major authors, or they won't buy them. Authors won't see a huge difference in what they see in their pockets as they are always paid on the publisher's revenues, not on Amazon's. But they may start looking at how eBook sales actually affect paper sales.

In the long run, there are two free-market issues. Many manufacturers set the retail price of their goods. Try to buy a pair of Levis for under $34.95. Even if you have a "storewide" discount coupon from Macy's or Penny's, the fine print will exclude Levis. So by that token, MacMillan should be able to set the retail price of their books. That whole argument speaks against a free market in which people buy at one price and set the retail price where they can compete. Sorry. The only free market is one in which no single manufacturer holds a lock on a huge percentage of the product. No small or independent publisher could have pushed the deal that MacMillan did, nor are they likely to get the same deal even if the other five big publishers get it for themselves.

My opinion, and prognostication on this runs in synch with Steve Pearlstein of the Washington Post:
While markets have their flaws, over the long run they are good at executing these technological transformations. My guess is that in the not-so-distant future, best-selling authors such as John Grisham and Malcolm Gladwell -- along with unknown authors peddling their first books -- will publish their own works, contracting with independent editors and marketers and selling directly to consumers as much as possible. Other authors will turn to smaller, more specialized publishing houses that will offer smaller advances but bigger royalties and will be built, as they once were, around great editors. Publishers will sell their books through competing online distributors and traditional hard-copy bookstores, the latter of which will continue to exist not only as places to browse and socialize, but also as places to have printed on demand. Backlists will be infinite, pricing will be dynamic, and more copies of more books will be read and sold.

I believe that the people who lead the move into the next generation, however, will not be the Grishams and Gladwells who really have nothing to gain by going independent. It will be led by good new authors and small publishers who can produce top level literary products at prices way below traditional publishing houses. Readers will pay a premium for paper content over its electronic counterpart, but it won't make a difference in what authors earn for their work.

Read the great analysis by Steven Pearlstein in "The Washington Post": The Amazon-Macmillan book saga heralds publishing's progress
Another perceptive analysis by Scott Westerfeld in "The Guardian": Amazon v Macmillan: free market fail
At Aaron Pressman's blog "Gravitational Pull": The real agenda of Apple’s ebook partners: death to ebooks
And the early story by Henry Blodget at "Business Insider": Hey, John Sargent, CEO of Macmillan Books, Screw You!

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