I posted this in January 2011 but in light of last week’s discussion, I thought it was timely to repost.
Last week we determined that ebook pricing was not based on the cost of ebooks, but rather the most that publishers thought readers would pay for ebooks in this market. What some argue is that with lower pricing there would be more purchases and thereby making up for loss of margin through volume of sales.
Volume sales in digital books weren’t really an option, however, when there were only a few digital book readers in the marketplace. As the number of digital reader owners grow, so does the possibility of volume sales of digital books. Does this mean that prices for digital books will come down with the increased number of digital book readers? I think so, but not because publishers will make the decision that lower book prices make financial sense but because there are a number of external pressures that will push prices downward.
1. Loss of ownership. Currently digital books are considered leases rather than true sales. If a sale occurred, a reader would be entitled to the rights under the first sale doctrine: resale, trade, loan. Additionally, the question of whether a reader would be able to bequeath her digital library if she passes on to her descendants (like a daughter or granddaughter) hasn’t been addressed as the term of the lease hasn’t been challenged in court.
An Australian company is offering true cloud access of digital books. You buy the books from the ebookstore but you never get to download them. Thus, you never actually own the books. The company compares their service to YouTube, which is unfortunate given that YouTube is free.
The Bookish folks declare that ownership is being redefined and DRM’ed downloadable ebooks give only illusory ownership whereas the cloud access will actually confer more rights, like sharing and even reselling. Essentially, ownership is being redefined, under cloud storage, as access rights. You don’t own the product, only access to the product.
In my opinion, the reduction of ownership rights will lead to expect lower prices. Consumers expect to pay less for occasional use of products that they do not own. However, access is what people pay for through satellite, digital cable, music, movies, and so forth. Why not books?
2. Comparable media prices. Angry Birds is the number one selling app in the iTunes App store. It provides hours and hours and hours of entertainment and the price varies between 4.99 and .99. It’s standard price is $9.99, but I’ve rarely seen it at that price in the App Store. At least one financial writer speculated that Angry Birds and similar styled game Apps are canabalizing magazine sales. Because who wants to pay $12 an issue for a magazine when you can pay far less for a game app that entertains you five times as long?
But there are only so many hours of free time in a day to be divided between tending to the Smurfs’ blueberries and reading up on menswear trends for January.
The challenge here for magazine publishers is what Matt Jones, a designer of iPad apps (among other things) at London agency Berg, calls “attention economics”: “A casual game developed by five people commands the same attention of a magazine produced by 25.”
Books will similarly suffer the same problem. Who will want to pay even $9.99 for a book when a product like a video game costs so much less? I think many people are willing to pay more for video games because of the a perceived higher value.
3. Other reading options. Other publishers such as Samhain, Baen, Carina Press, have reasonably priced, DRM-free ebooks. There are a growing number of authors self publishing DRM free books at prices around $2.99 and $3.99. Lori James of All Romance eBooks stated the following:
Although we’ve certainly realized some lost sales due to the decrease in that [Agency] inventory, data supports the fact that many readers simply found alternate content to interest them and accordingly shifted those purchasing dollars to non-Agency publishers.
So I believe that in the coming years digital books will decrease in price. This is what has happened to music. Songs are $.99 and albums are under $10. But services like Pandora and Spotify which provide unlimited access to large libraries of music, supported by ads. You can pay for a premium subscription that removes ads. Royalties are paid to authors based on usage or “plays” (versus purchase).
Another possibility is chunking or more commonly known as serialization. Publishers might charge for chunks of a novel instead of the entirety of the novel, thus increasing the overall revenue for one work. I’ve noticed in digital books that the stories have become shorter and shorter and even some authors are extending stories over several “books” instead of containing the entire arc of a romance in one “book.”
Yet another possibility is ad supported books wherein inline google ads or other ads will be inserted into books so that they appear more like website pages with ads or magazines.
I’m sure that there are other possibilities but with the amelioration of ownership and comparable media prices, digital books will come down from their current position and this, in turn, will create new business models and new pricing models. Could publishers resist the downward pressure of ebook pricing by coming up with a business model which would result in increased sense of ownership and thus value to the consumer? Is cloud access that model? What other ways could publishers and authors increase the value of ebooks to consumers?