Reading Rage Tuesday: Ebooktroversy!

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Today’s reading rage covers a topic that annoys not only me, but just about everyone in the book industry. Even before the recent scuffle between Amazon and IPG (Independent Publishers Group), the price of ebooks has been a hotly contested issue among publishers, authors, retailers, and readers. Dramatized, it might go something like this:

Publishers: Do you have any idea how much money we don’t make? Our profit margins are so narrow they would make a supermodel feel fat.

Authors: Do you know how much time I spent writing that book, and you want to sell it for ninety-nine cents? Are you mad? I poured my soul and life into this work. Also, I’m pretty broke because I’m a starving artist and whatnot, and I’d like to get paid, please.

Retailers: Um, hey, you guys, I’m really sorry that you haven’t figured out how to make money yet, but we’re kind of doing really well making money and we think you should sell ebooks cheaper so you can sell more of them. Also, we’re kind of selling these e-readers that people need to read your books at a loss so people will buy more of them, and thus, more of these ebooks. Just sayin’.

Readers: You guys know the library still has free books, right? And what have you done for me lately? [Great article over at Dear Author that I highly suggest you read, if you haven't already.]

IPG has posted a statement on their website that explains the costs of ebook production relative to the cost of trade paperbacks. It all looks really good for them and bad for Amazon, of course. There is, as always, more to the story, though.

Amazon used to buy ebooks and sell them far cheaper than cost, which made the publishers a bit miffed. Steve Jobs, who wanted to get in on the ebook trade with Apple’s iBooks, said that Amazon  had “screwed up” its business model by selling books so cheaply. What he, of course, really meant was that Amazon had screwed things up for its competitors: Amazon sells a little bit of everything, and using the Kindle and ebooks as loss leaders, they bring customers to their site more frequently to buy more books and more everything else that Amazon sells. Amazon also has always known that people don’t want to pay as much for ebooks as they do for treebooks. Treebooks have more intrinsic value, since you can sell them (or buy them used), or repurpose or recycle the materials, or even donate them to a library; since treebooks are tangible, they also have a greater perceived value to many readers. In order to make iBooks more competitive, Steve Jobs gave Amazon the run-around and destroyed their business model, at least insofar as the major publishers go (perhaps this is why we’re seeing Amazon dipping into the publishing realm, too?):

Jobs solution was ruthless and brilliant. He told the publishers that Apple would “go to the agency model, where you set the price, and we get our 30%, and yes, the customer pays a little more, but that’s what you want anyway.”

This made the publishers happy, but it didn’t solve the problem of Amazon undercutting the iBooks store on price.

To solve this, Jobs negotiated an agreement from the publishers to allow Apple to sell the books at a lower price if any other vendor began selling them in ebook form cheaper than Apple was.

This effectively turned the publishers into Apple’s crow bar, gaining them leverage against Amazon. As Jobs explains it, “they went to Amazon and said, “You’re going to sign an agency contract or we’re not going to give you the books.” — from an article on The Next Web

In a post on their site, IPG talks about their inability to force Amazon to stick to the agency model:

Only the six biggest publishing companies have had the market power to compel Amazon to accept the Agency Model, which allows the publisher to keep 70% of the e-book list price. Independent publishers have had to accept the Wholesale Model, which has let us keep only about 50% of the suggested price. That is a 20% difference. — IPG website

First, off, thanks for the math lesson, Einstein. I never could have figured out that 70-50=20.

Secondly, I find this a little fishy, for several reasons.

When you produce a product out in the real world, and you sell it to huge distributors like Amazon, based on what I know from various business classes, it doesn’t seem like you really get to keep a full 70% of the retail price of your product. You make up for this by selling in bulk; bulk sales are the reason that resellers get access to this discount price and Joe-off-the-street doesn’t. The reason for this seems to be that if someone is willing to buy a crapload of your product off of you all at once, it’s generally smart to sell it to them, even if you make less money per unit, because you gots to get paid–especially since the longer it takes you to make back the money you sank into the product, the longer you’re not in the black. Time is money, friend.*

(*For 10 points, tell me where you’ve heard this line before.)

So, I’m a little suspicious of IPG whining about selling their books wholesale. Uh, welcome to the rest of the business world?

The wholesale model makes a hell of a lot of sense for publishers, because, barring opening up their own retail outlets, which cost a lot to staff and operate, they need someone to sell the books. And those someones need to be able to make enough money off of the books to justify even carrying them. Literature may be an art, but book-slingin’ is a business.

Enter Amazon. Everyone shops at friggin’ Amazon. Even people who think Amazon is the Great Satan still secretly shop there. Amazon has a lot of purchasing power, because it has a lot of money. It has a lot of money because everyone shops there. If you sell something, the place where everyone shops is kind of the place that you want to be. Amazon also has a lot of money because it is smart at selling things. So, I dunno, if I were a company that seemed to be having trouble meeting the bills because of slim profit margins, I might sit up and take notice when Amazon said my ebooks were overpriced.

Being “forced” into a standard wholesale contract like the rest of the business world could actually be good for IPG, for a few reasons:

• Amazon will probably buy more books if offered a better contract. What publishers lose in percentage, I bet they will make up and then some in volume. And since these are ebooks, they don’t have to pay to have them reprinted–they can keep selling them indefinitely off of the master files, which means the cost per copy sold decreases over time and the profit margin increases.
• Indie presses don’t generally (with a few exceptions) have a lot of highly-anticipated blockbusters like Harry Potter or The Hunger Games. The reason that Amazon lets the publishers who do have these books get away with charging more is that they know they have instant mega-sales when these books release–some people will buy both an e-book copy and a hardback so they don’t have to wait even a second to start reading. Those publishers don’t just publish the big-name books, though; by selling indie ebooks at a lower price point, indie books become more attractive than these publishers’ less blockbuster-y works. That means more sales. Volume, again, makes up for loss in percentage.
• Indie authors are usually authors that many readers haven’t encountered before. A lower price point may convince more new readers to take a chance on unfamiliar authors, thus creating more fans of indie authors and presses.
• More sales means more buzz about indie authors, which means even more sales. Not just for this book, but also for future books by the same author.
• Book reviewers (cough) such as myself will be able to afford to buy more indie books to review, which means more exposure, which means more sales! (P.S. Indie presses and authors, I totally accept ebooks to review. Just saying. Pitch us.)

I really think a huge part of this problem is that publishers are a little bit behind when it comes to making ebooks work for them. Publishers seem to see ebooks as having a 1:1 replacement ratio for treebooks–as in, for every ebook they sell, they fail to sell a treebook. When ebooks are priced at $10, they’re probably right about that; lowering the price on ebooks, however, has some interesting implications. What would happen, for example, if you were selling an ebook at $5.99, and instead of sacrificing one treebook to sell one ebook, you sold two or three or four ebooks to each treebook that wasn’t sold? Or if instead of buying a used copy for four or five dollars (keeping in mind that you automatically plunk down four dollars in shipping if you’re shopping used at Amazon, so even the penny used books cost at least four bucks), a person picked up a new ebook because it’s more convenient and only costs a bit more? A person might spend five or six dollars on an ebook rather than wait for the library, but likely would skip over the $10 book in favor of the wait. A person might buy two or three ebooks at a time when the price point is less expensive. There are many instances when a less expensive ebook could turn a higher profit through volume.

I hate to blaspheme the great Steve Jobs, but this is all a little annoying. Apple has always sold high-priced goods, and has profited by being insular and just a tiny bit incestuous–you get the iPod, which works with iTunes, which has an iStore where you buy iMusic or whatever. The thing about the iPad as an e-reader, though, is that you can put a Kindle app on it and get the books cheaper on Amazon (or, at least, you could have done that). So, there was really never any reason to go buy higher-priced books through Apple, unless you wanted a non-Kindle format (which, for some, is reason enough to shop iBooks, I guess). By forcing the pricing issue and putting high-percentage dollar signs in front of publishers, Steve Jobs has basically ensured that we will always pay through the nose for ebooks. Thanks, Steve.

Publishers, if you’re listening out there, here are a few ideas that could make you more profitable when it comes to ebooks:

• Sell them cheaper. We will buy more of them if they are cheaper. I swear to God, we will buy more of them. Consuming is what we do.
• Rent ebooks to us. We can get them from the library, sure, but did you know that there’s often a wait to check out digital library books because there are limited copies? (Of course you knew that, because that’s part of your contract with libraries.) Capitalize on our impatience and let us rent an ebook for a month for a $1.99 or so. The genius of renting the book is that we don’t get to keep it. That means if we want to add it to our collection–as many readers are wont to do when they read a book they love–we have to give you more money. And you will get rental sales from people who wouldn’t have bought the book at any price.
• Stop freaking out over DRM. People want to buy books. We do. Making the books more user-friendly for us will bump up the perceived value of the books, so we might be willing to pay more. We’re not thieves, we’re your customers.
• Netflix for ebooks. Think about it.
• Run more promotions on your own sites and get the word out. We’ll flock to wherever the books are cheap, and us buying directly from you means that you keep more of the money.

So, what do you think of this whole ebook situation, book fans? Am I being too hard on publishers? Am I evil for sort-of defending Amazon? How much do you think ebooks should cost? Tell me all about it in the comments!