We read that the EU is now considering harmonising VAT on ebooks across the community and that the likely solution is that they will become zero rated. This would also negate the need for tax to be levied at point of consumption in 2015 and remove one aspect of the Luxembourg magnet for digital distributors and retailers. We also are all aware that a further ratchet twist of UK ebook pricing is taking place between Sainsbury’s and Amazon, with front list ebook titles dropping to 99p. We also read about the emergence of ebook subscription models and services which would generate new revenue streams and services.
Some view the moves as being good for publishing, publishers and readers. However, does this mean that they are good for those key players, the authors?
Let’s look at the 99p best seller. Today any title distributed in the UK incurs a 20% VAT charge. If distributed from Luxemberg it incurs a 3% charge and the distributor effectively buys VAT inclusive at 20% and sells VAT inclusive at 3% and the 17% goes to…. The retailer takes say a 30% levy for the transaction and the rest goes to the publisher. The publisher then pays the agent say between 15 and 25% of their receipts. The agent takes off their say 15 to 20% fee and the author gets what is left. Not bad you may say when the starting figure was around £6 but not a lot when it plummets to 99p.
However, the price war is just temporary you may say, prices will revert upwards and not all ebooks are at 99p. Well we have seen the rapid reduction in prices over a relatively short period and it is fair to assume that when retailers start to create price points- they stick.
Recent figures demonstrated that consumers liked free, 0.99 and 2.99 but were unsure about 1.99 and their interest tailed off as prices rose. We are now seeing price point consumer perception and this will be hard to change. These are licence more than outright ownership sales and the price has to reflect this.
The move towards zero harmonisation is welcome by all, but will the money flow back to the; consumer in lower prices, the retailer through tighter margin negotiation, the publisher in retaining the RRP at zero rate, or flow back to the agent and author? We can’t assume anything other than many of the above will lay claim to it.
Finally, we have the emergence of the ebook subscription model.
Why would consumers commit to a subscription model when the pricing of ebooks is dropping and pricing is unstable? If prices were high and stable then a subscription model based on low consumption may have an appeal, but in the current climate and with relatively inconstant and low consumption rates, it makes little sense for ebooks unless the offer is coupled to other media or service subscriptions. It would make sense for someone like Sainsbury’s to tie subscriptions to other services and cross subsidise and offer a value added consumer proposition. But ebook subscriptions to remain by themselves.
Again the author will only get a slice of revenues generated for the material read. As we have pointed out earlier this week reading habits will could also hinder reads being recorded and paid out on.
We can only speculate on the outcome of these three options, but we must remember that there are two critical people in the value chain, the reader and the author and that any pricing and model for must work at not just one, but both ends of the spectrum.
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