Tag Archives: ebook pricing

The Trouble with eBooks: A Recap

Most of the blog posts put up in this space over the last two months have circled around three very major issues in regard to eBooks. Here they are, together with an account of what if any progress has been made in resolving each of them.

eBook Distribution: What’s the Deal?:
No one who is really privy to hard information about what is going on is able or willing to speak out.

Non-disclosure and Confidentiality Agreements, Most Favored Nation Clauses in distribution contracts, and then out of nowhere, the Department of Justice restraint of trade litigation against most of the biggest houses—all these things conspire to silence any informed debate about the issues. And to be blunt about it, most independent publishers feel abject terror at even the thought of confronting Amazon’s enormous market power. This part of the problem has not improved at all.

Market Share: You’d Be Surprised What the Big 6 Controls:
“The Big Six publishers, who control about half of the entire market for trade books, have been able to drive a better bargain with Amazon than the independent publishers could.”

A structural difference of that magnitude (roughly 20 points of discount) would put the independents out of business in short order (See also At What Discount Should Publishers Sell Ebooks to Resellers). This part of the problem may have eased a bit. The Department of Justice’s litigation could have the effect of largely taking away the discount advantage briefly enjoyed by the Big Six which would level the playing field. We will see.

The Oxymoronic Notion of Digital Content: Part II:
“The 50% plus take that Amazon insists on for distributing eBooks from independent publishers bears no relation at all to the cost of delivering that service.”

A free market and real competition would squeeze out excessive margins wherever they might be found in the supply chain from author to book consumer. So far we have not had anything like a free and competitive market for eBooks. On this issue, however, there is some very good news on the horizon. Microsoft’s investment in Barnes & Noble’s eBook programs is very welcome. Two other eBook programs, which look to be robust and publisher friendly, are well in the works. Of course for the reasons explained in point one above, I can’t tell you a thing about them.

Curt Matthews
CEO, IPG/Chicago Review Press, Incorporated

Curt Matthews is the founder and CEO of Chicago Review Press, Incorporated, which is the parent company of Chicago Review Press and of Independent Publishers Group (IPG), the first independent press distributor and now the second largest. Curt has served on the Independent Book Publishers Association (IBPA) board and has also served as its president.

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The Oxymoronic Notion of Digital Content: Part II

In the previous post, it was argued that the cost of the content of eBooks cannot be reduced much because the making of it is deeply artisanal in nature. Since content is in no deep sense digital, producing it at a high level cannot be automated, which is where important cost savings could have been achieved if any were possible.

On the other hand, the distribution of eBooks, the part of the publishing process the e-retailers handle, is absolutely digital, already largely automated, and should therefore be much cheaper than it is now. An eBook customer’s order is received, handled, shipped, and the payment processed, electronically. There is very little need for human intervention or judgment in any part of this operation. How then can it be reasonable for Amazon to keep over 50% of the billing?

Amazon justifies their high distribution fee by pointing out that it allows them to drastically discount the price of eBooks, which is a fine thing for consumers. Their policy of passing through to consumers most and sometimes all of the fees they charge publishers is of course a business decision they are free to make. But should these discounts to consumers be financed by distribution fees which, in the case of indie publishers, are outrageously in excess of Amazon’s costs?

If the free market is allowed to work, competition will squeeze down the price eBook distributors can charge for their services to an amount that bears some relationship to the cost of providing those services. If the free market is allowed to work. In the long run, even the small fee IPG now charges may begin to seem like too much. If a bricks-and-mortar bookstore with all its high overhead expenses can make a profit buying its stock at a 46% discount from list price, an eBook reseller certainly should be able to thrive on a much, much lower margin.

Good book content, not being in any important sense digital, is not going to get much cheaper. The distribution of eBooks, however, is profoundly digital in nature and at the moment grotesquely overpriced. The distribution channel, not the process of content creation, is where legitimate eBook cost savings can be found.

Curt Matthews
CEO, IPG/Chicago Review Press, Incorporated.

Curt Matthews is the founder and CEO of Chicago Review Press, Incorporated, which is the parent company of Chicago Review Press and of Independent Publishers Group (IPG), the first independent press distributor and now the second largest. Curt has served on the Independent Book Publishers Association (IBPA) board and has also served as its president.

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The Oxymoronic Notion of Digital Content

The current controversy about the state of the eBook industry has been unproductive for a number of reasons. Much of the information out there on the blogs is just wrong—which should not come as a surprise because the book business is complicated. What’s surprising is the sour tone of so many of the comments on such blogs. A common theme among them being that “somebody is making a lot of money out of books but I’m not.”

In addition, almost no one outside the industry seems to have any grip at all on the editorial process. How many different editors does it take to make a good book? This sounds like a bad joke about replacing light bulbs, but the answer, if you are talking about a professionally produced book, is four to seven: an acquisition editor, a substantive editor, a line editor, a copy editor, a production editor, a proofreader, an indexer, and often a lawyer to check the text for libel. Sometimes a single person can perform a number of these editorial functions, but each one requires a distinctive mindset.

There is also an insidious source of confusion and misinformation arising from people who hope to benefit financially from the intentional muddling of essential distinctions.

Let’s take a hard look at the phrase “digital content.” Do eBooks have digital content? Many people—people who are in the business of selling digital everything and who proclaim from the rooftops that everything non-digital is a dead duck—would like you to think so. It makes it easier for them to make money. But the idea that eBooks have digital content is very misleading. The content of eBooks is language, language which has been digitized. Likewise the content of the books Gutenberg printed was language set in type. These are just two different ways to make language hold still so you can read it.

The confusion about the supposed digital content of eBooks is important because it fits perfectly into the favorite transformation narrative of the “digital changes everything” cheering section: if eBook content really is digital, publishers could and should wake up from their long but highly profitable analog slumber, and allow the digital revolution to sweep away their antiquated methods of making books. When this happens, the books will be just as good but much cheaper.

But what authors and editors must do now to produce good content is exactly the same thing they have always done. Every book and every edit is a one-off, custom proposition. What authors and editors produce is no more digital than the folk-art wooden rooster a farmer might carve to decorate his weather vane. Of course word processing software has made working with texts more convenient, but these gains in efficiency were achieved a decade ago. Yes, there are some new programs that make the conversion of texts to eBooks quicker and easier, but this conversion cost has always been trivial.

If the content of eBooks was actually in some deep sense digital, the text could be written by a writing program and edited by an editing program. But they can’t be. I knew a student at the Iowa Writers Workshop back in the sixties who was trying to generate short stories out of a computer program. They were just as awful as you would imagine. I sometimes try to write a poem. The best way to know if you have come up with a good line is to check Microsoft’s opinion. Lines that could work as poetry will certainly flunk the simple-minded Grammar Checker that comes with Word.

So the cost of the content of eBooks cannot be reduced much because the making of it is deeply artisanal in nature. Since content is in no deep sense digital, producing it at a high level cannot be automated, which is where important cost savings could have been achieved if any were possible.

Curt Matthews
CEO, IPG and Chicago Review Press, Incorporated

Curt Matthews is the founder and CEO of Chicago Review Press, Incorporated, which is the parent company of Chicago Review Press and of Independent Publishers Group (IPG), the first independent press distributor and now the second largest. Curt has served on the Independent Book Publishers Association (IBPA) board and has also served as its president.

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Co-op, Advertising Allowances, Free Freight, and other Examples of Discount Creep

Co-op used to be a bookseller’s charge to a book publisher or distributor to purchase special treatment for a particular title. “Give me $3000 and I will put your title on the new and notable table in 300 stores.” This evolved into something entirely different: “Give us 4% of your last-year sales with us for co-op and we will do wonderful but unspecified marketing things for you. Otherwise we will take down all of your eBooks.” A fixed percentage fee for co-op unconnected to any particular benefit looks, to a man riding by on a horse, a lot like additional discount by another name.

The old form of co-op practiced by bricks-and–mortar bookstores actually increased sales of particular titles. You could tell this sort of co-op was a real marketing program because booksellers would not take it for just any title. These fees were a way of allocating especially productive display space in the store: end caps, special tables, front-of-store displays, dumps, next to cash-wrap displays. A successful store needed to move a lot of product through these special display spaces, and they were not about to waste them on titles that would not work.

In the early days Amazon developed many special marketing programs for which it wanted to charge participating publishers. (An example is BXGY: if you buy title X and also our suggested title Y we will give you a special discount on the two together.) If publishers or distributors were willing to pay a percentage of last-years sales in addition to the standard discount, they could choose from a cafeteria of special programs. But the price of these programs went up almost every year; and the programs themselves became steadily less defined, less relevant to particular marketing concerns, and almost certainly less effective, supposing they ever did have much effect.

Free freight, the idea that a publisher or distributor pays the cost of shipping books from a warehouse to a bookstore, has been around for many years, but it has been limited for the most part to indie booksellers and other smaller customers. Giving the small customers a break on freight has made sense because the big customers, the chains, wholesalers, and big box stores, are shipped by truck rather than UPS or FedEx, which drastically reduces their shipping costs; and if they do in some cases need small shipments, their high shipping volume has allowed them to negotiate very favorable rates with the carriers. Freight for a small bookshop can easily be above 15% of the invoice amount for a carton of books. For a truck shipment the freight will be pennies a copy. Now, of course, some wholesalers are starting to insist on free freight. Why? Are they bringing something new to the table? No. It is just the 800 lb gorilla making another appearance.

So it would seem that some versions of co-op fees, advertising allowances, and free freight are just demands for increased discount pretending to be something else. But in fact these semantic maneuvers have some important not-so-obvious consequences for publishers and distributors in addition to the obvious hits on their profitability.

These less obvious consequences will be the subject of the next post to this blog.

Curt Matthews
CEO, IPG/Chicago Review Press, Incorporated

Curt Matthews is the founder and CEO of Chicago Review Press, Incorporated, which is the parent company of Chicago Review Press and of Independent Publishers Group (IPG), the first independent press distributor and now the second largest. Curt has served on the Independent Book Publishers Association (IBPA) board and has also served as its president.

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Book Distributors in the Age of Electronic Publishing: Part II

This post is the follow-up to the previous, which addressed what distributors do now at a time when printed books still dominate book sales, and will describe the role of distributors as the industry transitions to eBooks.

The advent of the eBook changes everything. Distributors are about to be disintermediated (a fancy way of saying put out of business) along with publishers, and booksellers. Authors will self-publish and sell directly to their readers, eliminating all those parasitic middlemen. Except for Amazon.

Or maybe not. The world of e-everything requires more investment in technology, not less, and distributors once again will be able to pick up the check when indie publishers cannot. And it turns out that the sophisticated IT capacities that distributors have had to develop over the last few years to handle print books at a high level—especially databases that can seamlessly share information in-house and with client publishers and customers—has made the technical challenges of eBooks seem not especially daunting. We are used to shooting metadata and book files all around the book industry, and eBooks are just a subset of that activity.

Also, there are new opportunities for distributors that completely bypass the big e-retailers. IPG’s sales of books directly to consumers—from our own website, through the shopping cart we supply (for free) to our client publishers, to affiliated special interest groups on the internet, and to the thirty-five or so eBook resellers we work with—are growing exponentially. These expanded sales methods, and others not yet thought of, will require new technological investment and innovation, but we are ready and able to provide it.

Moreover, it seems to me, on one essential front the electronic booksellers are highly vulnerable. They have been unable to solve a gigantic problem with their business model, the problem of quality: What is good and what isn’t? Non-professional reviews posted on e-booksellers’ web sites are by now completely compromised, scammed, useless. You cannot fool all of the people all of the time. Last year over a million new titles were “published,” the great majority of them incompetent. How are readers supposed to navigate through this sea of mediocrity?

One of the most important functions of publishers, distributors, and booksellers (book agents and reviewers too) has always been to assure a certain level of quality, not necessarily as high a level as we might want, but at least a baseline far higher than the abysmal standard—in fact the non-existent standard—set by the new electronic vanity presses.

Good distributors are appreciated by their customers almost as much for what they refuse to sell as for what they do sell. IPG takes on a very small percentage of the publishers who apply. We know that weak titles will dilute the sales of strong ones. Satisfied customers come back for more. Does this mean that IPG takes on only large, well established publishers? Certainly not. Some of the best books we handle are published by start-up presses and self-publishers, and over the years IPG has helped many such ventures to grow and prosper.

Traditional booksellers are outraged by the phenomenon called “show rooming.” Customers browse the books in a bookshop and then order what they want from a web bookseller, who gets a free ride because he has paid nothing toward of the expense of providing that highly curated selection of titles. The bookseller’s taste and experience go unrewarded.

Many electronic booksellers, however, don’t think they have any obligation to their customers to separate the sheep from the goats. Since the customers who buy books from them almost always come to their sites already knowing what they want, they are free riding on the publishing professionals who do provide this essential service.

If all a web bookseller needs to do is throw everything that quacks like a book up on its website and then mindlessly process orders—will that be enough to justify its continued existence? Will customers learn to love trash if only it is cheap enough? The electronic booksellers may be the ones who in the long run get disintermediated.

Curt Matthews
CEO, IPG/Chicago Review Press, Incorporated

Curt Matthews is the founder and CEO of Chicago Review Press, Incorporated, which is the parent company of Chicago Review Press and of Independent Publishers Group (IPG), the first independent press distributor and now the second largest. Curt has served on the Independent Book Publishers Association (IBPA) board and has also served as its president.

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At What Discount Should Publishers Sell EBooks to Resellers?

Discounts matter. Here is a little history to illustrate that point:

When the mall stores—B Dalton, Walden—arrived on the scene, followed closely in the 1970s by the big box stores—Barnes & Noble, Borders—the big publishers rolled right over to their demands for better discount and of course the independents had to follow.

For the most part these demands for better discount were justified. Better discount for higher volume is a fair and time-honored principle because higher volume usually leads to lower transactional costs. And the book business in those days was very much in need of more marketing push than the small booksellers, who had long dominated the market, could deliver.

But the result was a very wide discount differential, in retrospect too wide. The chains could command a discount off list price of 48-50%. The small stores had to accept 42-44%, on average about 4 or 5% less. The higher discount allowed the chains to mark down the prices of some titles for their customers. The small stores did not have the margin to afford such markdowns. Thousands of independent booksellers went straight out of business. Most of the independent booksellers went straight out of business. The mistake was not that the chains got too much discount; it was that the independents got too little.

How smart does this discount differential look now, as we survey the gaping hole left in the market by all those empty Borders superstores? Perhaps no amount of discount would have saved Borders. But are independent publishers and distributors willing to give the eBooks resellers such favorable discounts that they can afford to lower prices enough to put what is left of the bricks-and-mortar bookstores out of their misery? Are we willing to repeat this sad discount history with eBooks?

My last note in this space compared print prices with eBook prices to try to arrive at an estimate of what eBooks really should cost. A few people commented that my numbers were not exactly right. Nor could they have been because there is no such thing as a typical book. Now let’s have a look at the costs of running a bricks-and–mortar store versus a web based operation. Here again the actual numbers will be all over the map, and the best that can be done is a rough approximation of the comparative costs.

Barnes & Noble was able to build and operate over seven hundred huge, well appointed stores working on a 50% discount arrangement with its suppliers. And the independent booksellers still in the game run shops, much loved by their local communities, on less discount. These booksellers big and small somehow even manage to collect and pay sales taxes! Shouldn’t an eBook reseller be able to thrive on a much narrower margin?

After all, most of the much-celebrated if exaggerated cost savings for publishers enjoyed by eBooks over print books—no warehousing, receiving, picking, packing, or shipping costs, no title ever out-of-stock, no expensive physical stores to build and maintain—surely also accrue to web-based eBook resellers. Can a website be as expensive to run as a shop on Main Street? Can storing just one book file in the cloud cost as much as shelving thousands of print copies in a store?

The big six publishers have used their market power to insist on an Agency Model that gives the eBook resellers 30% of the action. The independent publishers, lacking that market power, have had to settle for a deal that gives most eBook resellers over 50% of the action.

(Yes, there are some complicated side issues having to do with the Agency Model and the Wholesale Model. But the big six publishers went to the mat to get the Agency deal. Which deal would you want? The arguments for the Wholesale deal are just obfuscations offered up by those who would benefit from it.)

If this discount differential persists, many independent publishers will be driven out of business, just as so many independent bookstores had to close their doors when they were denied equitable terms. And what is at stake here is not just money.

Curt Matthews

CEO, IPG/Chicago Review Press, Incorporated

Curt Matthews is the founder and CEO of Chicago Review Press, Incorporated, which is the parent company of Chicago Review Press and of Independent Publishers Group (IPG), the first independent press distributor and now the second largest. Curt has served on the Independent Book Publishers Association (IBPA) board and has also served as its president.

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