Wednesday, January 14, 2009

Digital Pricing

GalleyCat has lifted the stone on ebook publishing and used an ‘expert’ to tell them,

"The large publishing houses' cut is generally 45-55% of the book's list price (this is split with the author whose cut is 15% of list price). Distributors are generally taking 10% or more of list price. Amazingly, the less expensive the book, the distributor cut can grow pretty dramatically because almost all distributors include a minimum charge. DRM providers are generally taking 3-5% (and in the case of less expensive books even more) of list price. The credit card processors, even with micropayments, take 3-6% of the sales price."

Their ‘expert’ concluded that ‘these overhead costs will keep driving e-book prices higher and hurting e-book retailers’

We would offer the following thoughts.

Today the publisher takes a physical product and converts it to digital formats. This obviously costs money and the more formats or the more complex the tagging, the more it costs. However, as publishers change their editorial and production processes to a digital tagged workflow we would envisage the average pre production costs reducing by some 20 to 25% and this would obviate and post production conversion costs. These benefits could be taken as a bottom line benefit or reflected in the price.

Digital files need to be hosted, picked, packed and dispatched. The storage and the carrier may be cheaper, but it’s not free, nor is it the same as the physical world. Publishers tend to outsource digital distribution to one distributor who in turn supplies several aggregators who in turn sell through eretailers. Not an efficient distribution model and often with different players to the physical world and so incurring additional cost in itself. Digital Drop Ship would make sense, cut costs and increase asset control, but this is not the model being pursued by many.

Are we talking about the list price of the hardback or paperback? In the case of hardback and paperback pricing, we have the same content in a different package but at a different price. What is the pricing relationship and why can’t the same be applied to digital? One publisher we know sells ebooks at a fixed percentage off whatever is the current format price so when the paperback comes out, down goes the price of the ebook. Does this make sense? We also see no price difference between say an Adobe eBook and other more complex formats, even though today one costs more to produce and potentially offers more.

DRM is not cheap both in its development and its provision. If the industry wants to use DRM it is not free.

Finally, go to Amazon’s Kindle store and look at their pricing. Personally I like the $9.99 price point and although it’s not uniform, it creates an iTunes perception. Look at the difference between the publisher print price quoted, (usually the hardback) and the digital list price, (usually different) and of course the saving claimed by Amazon. This is where the rubber hits the road, consumer perceptions on pricing are created.

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