Random House Holding Out From iBookstore Amid Fears of Price Wars

[JGowan]

Right, because a new device is going to suddenly make people read more.

Well, with the iPhone, people are surfing the internet much more... wherever they can take out their device, they can access the websites they used to have to wait until they got home.

It's the same with books and magazines. Most people probably get through a book a little at a time because it's too heavy to carry around. And they have too many magazines to shuttle back & forth too. The iPad steps in, and suddenly, they have access to whatever they want, whenever they want. In the car, waiting for someone, at the desk, wherever...

I thought this was clear to just about everybody in the world.

 

[RalfTheDog]

This model is completely unsustainable, and flimsy foundation to make long-term business decisions on. How long do you think Amazon will sell books at a loss?

I think Apple should just wait them out... When they come crawling back, make the deal a 35% cut... ;-) well, ok... I guess they don't have to do that.

Dear publishers,

Every 28 days you wait to sign up with us, we will jack your percentage up 1%. Please take your time to decide.

Your friends,

Apple computer.

 

[mambodancer]

Sigh.

http://en.wikipedia.org/wiki/Marginal_cost

Good link and good point. I learned something more because of it.

 

[samcraig]

Royalties are a marginal cost. Every additional book sold means that royalty owner gets paid an additional amount.

Well exactly. And there could easily be provisions in contracts where royalties are on a sliding scale. 0-10,000 books = x%, 10,001-20,000 = another percentage.

Hollywood is still trying to figure out (hence all the strikes) how to compensate all the people involved with productions of TV and Film via how to word contracts/arrange splits, determine grosses/nets, etc. New media/internet has changed the game for them and they are playing catchup.

Publishing is not all that different. With a new ecosystem, to avoid lawsuits, etc - companies need to tread carefully and smartly on how they move forward.

Look at how Amazon had to handle the "read out loud" function of the Kindle 2 as it was considered a "new performance" of the copyrighted work

No company - at least no SMART company is going to jump in 100 percent without examining the big picture.

And trust me - any publisher that doesn't hop on board might lose (ie. not increase) sales for not being in the iBookstore but that doesn't mean they are losing income. It just means they aren't increasing.

And there really might not be all that much increasing to be had at this point. The iPad isn't the first eReader. They've existed for awhile now. It will divide the market - not necc increase it.

 

[gfiz]

Royalties are a marginal cost. Every additional book sold means that royalty owner gets paid an additional amount.

You're kinda right. Ignoring the fact that most authors don't get royalties for each additional book sold, there are many ways that royalties that can be measured/attained, some of which may be per book, but more than likely they're in the form of accelerators, i.e. sell x number of books, and you get y bonus. At the strictest sense of the terminology, that is not a marginal cost. That is calculated as a sunk cost factored in at the time the deal is struck based on an estimated sales number, and if that number is never reached it's written off the publisher's end.

However, there definitely are situations where an author has a deal to get x% of each book sold, and in that scenario you'd be right. This is becoming more prevalent, ironically enough, in ebook sales since there is no warehousing involved and it is a number available with precision accuracy on an almost real time basis. I think this is a model that Amazon uses for it's "self-publishing" offer to authors out there on it's Kindle, though I haven't read up enough on it to know all the details.

My reply however, was more in general to the other 4 things referenced which are NOT marginal cost.

 

[Richard Kimball]

Just a few thoughts

On the audiobooks, I went with Amazon over the iTunes store for two reasons. First, the books were usually cheaper, and second, I can download the book multiple times. This is a great feature, as if there's a crash or something, my books are safe.
There are significant advantages to the publisher for electronic books, as well as risk. They don't have to worry about overprinting or running out of stock. While hosting costs money, it costs less than printing, warehousing and shipping.
Books can be distributed much more quickly. This means if an American Idol performer, who may be hot for about a month, writes a book, it can be distributed before they're old news.
The two biggest risks to the big publishing houses are theft of product and the leveling of the playing field. Bill and Ted's Excellent Publishing House has as much a chance of having a hit as Random House, cause the infrastructure of printing, warehousing, shipping, etc., are greatly diminished.
Random House will have to get on board eventually. Whether they realize it or not, they are no longer book publishers. They are content developers and brokers.

 

[maelstromr]

Well exactly. And there could easily be provisions in contracts where royalties are on a sliding scale. 0-10,000 books = x%, 10,001-20,000 = another percentage.

Hollywood is still trying to figure out (hence all the strikes) how to compensate all the people involved with productions of TV and Film via how to word contracts/arrange splits, determine grosses/nets, etc. New media/internet has changed the game for them and they are playing catchup.

Publishing is not all that different. With a new ecosystem, to avoid lawsuits, etc - companies need to tread carefully and smartly on how they move forward.

Look at how Amazon had to handle the "read out loud" function of the Kindle 2 as it was considered a "new performance" of the copyrighted work

No company - at least no SMART company is going to jump in 100 percent without examining the big picture.

And trust me - any publisher that doesn't hop on board might lose (ie. not increase) sales for not being in the iBookstore but that doesn't mean they are losing income. It just means they aren't increasing.

And there really might not be all that much increasing to be had at this point. The iPad isn't the first eReader. They've existed for awhile now. It will divide the market - not necc increase it.

Ok, not exactly, and not to the point of your original challenge to the marginal cost post. Royalties are tiny...very tiny. Perhaps a marginal cost, but probably the only, or nearly so, and of fairly limited impact in most royalties instances.

A lot of people seem to assume that a unique venue for one book (your big name, big sellers) is going to save Random House. Well, maybe for the Steven King books, but not for most of the other run of the mill books people buy for something to read, and make more economic/convenience based choices on. For most book sales, it will handicap you versus your competitors to not be in all of the same marketplaces.

Finally. The iPod did not "divide" the market. It really created it in most meaningful senses. In fact, the Zune is probably the closest thing that ever represented a divided market after the ipod crushed generic mp3 players, and its competition was laughable. Not providing music content for the ipod, itunes, iphone is now marketing suicide, and the ipad could be very similar.

 

[JGowan]

The reason that they don't want to set the prices is because right now they have a book, they sell it to Amazon for say $20 after that its out of their hands, if Amazon decides to sell it for $8 and start a price war it doesn't affect the publisher one bit.

You're saying that a publisher sells a book to a book store (like Amazon or Barnes & Noble) for a certain price and they've made their money. Hmmm.... I truly don't think this is the way this works.

I think they pay the publisher a certain amount of money to let them have that book (it's popular and they want to make money on it) but they certainly don't PAY them for the book. Have you ever noticed at a Book Outlet Center that all those books have the UPC code cut off or ever seen the a CD with a whole punched through the code? Or even from time to time, the whole COVER torn off? That's because the Book Store couldn't sell the publisher's book, but no one wants to pay for shipping costs to get the books back to the publisher -- the publisher doesn't want them because they're not popular, but mainly because they could be sold elsewhere very cheaply (The Outlet Center)...

So the original Bookstore rips off the covers of the book (let's they had 50 copies of a paperback) -- they DO mail that to the publisher and depending on the deal they strike, they either have to destroy the book or B&N or whoever sends a check on to the publisher to have the right resell the book to the outlet company. When the publisher gets the covers of the book, it's proof that the books didn't sell and they write off the book as a loss, not expecting additional payment from B&N or whoever. Or perhaps to give credit to the bookstore and reimburse them for books they paid for.

If you were right, then there would be no need in doing any of that. What a sweet deal that would be for the publisher to simply sell the price and be done with it.

It just doesn't work that way.

 

[samcraig]

Finally. The iPod did not "divide" the market. It really created it in most meaningful senses. In fact, the Zune is probably the closest thing that ever represented a divided market after the ipod crushed generic mp3 players, and its competition was laughable. Not providing music content for the ipod, itunes, iphone is now marketing suicide, and the ipad could be very similar.

I never said the iPod divided the market. And before iTunes - online music PURCHASING was next to nothing with no MAJOR players offering the service.

That's not the case here. There are MAJOR players in eBook sales prior to Apple coming into the marketplace. It's not the same as when music entered into it.

This is why the iBookstore may or may not divide the market. I might have mistyped/mispoken when I referred to the iPad as being the actual divider...

 

[ghostlyorb]

Since everything would be a digital copy.. and you don't have to use up paper and ink... wouldn't this already be saving them money? Or is it just me? and the books would still be sold on paper too... I am one that i rather hold an iPad.. than an actual book.

 

[rdowns]

Sad. Is it me or has the average IQ been dropping for decades. I have little if any free time, but I skimp on sleep so I can read non work related books.

PS. Like your new avatar.

Thanks but it's my old avatar.

 

[SteveSparks]

Right, because a new device is going to suddenly make people read more.

I think people will opt to purchase a book, and not read it all but might use it more for refrence or partially read the content.

There are lots of books other than romance

 

[ValSalva]

Funny that they are concerned about a price war because so far the war is going in their favor with book prices going up with the release of the iPad. Amazon books sell for less. It's not as though the newcomer (Apple) has swooped in and undercut Amazon's pricing. Apple is asking higher prices.

 

[elhungarian]

Wirelessly posted (Opera/9.80 (J2ME/MIDP; Opera Mini/5.0.17405/1076; U; en) Presto/2.4.15)

I wonder how much it costs to physically print a book. Bind it etc. Ship it to a reseller.

 

[notjustjay]

currently publishers set the cost for their books and stores pay it. To reduce the price of the book the store selling it has to cut their profit, not the publisher. (this lead to many small bookstores dying out due to large chain stores like WH Smith able to made greater cuts)

However, with the apple model the publishers themselves have to cut the price and apple's 30% is simultaneously reduced as a result. This sharing the burden of lower revenue per book does not fit with their current practice of letting the retailer deal with the problem.

Thanks to you and newdeal for describing it in a way that makes sense.

I think the issue now is that the publishers are refusing to deal with the reality of selling in today's markets. As you said yourself, and as we have all seen, bookstores are closing and going out of business because the publishers insist on making their cut and "letting the retailer deal with the problem". Well, if they keep that up, soon there won't be any retailers left.

 

[gnasher729]

You're saying that a publisher sells a book to a book store (like Amazon or Barnes & Noble) for a certain price and they've made their money. Hmmm.... I truly don't think this is the way this works.

The way the Amazon deal worked: Publisher sets a suggested retail price, say $12.00. Amazon sells for whatever they like, but pays 70% of $12.00 per book sold to the publisher (actually, before the iPad arrived, Amazon paid more like 30% to the publisher). If Amazon wants to sell for $10, that's fine, they still pay $8.40 to the publisher. If the want to sell for $6, that's fine, they still pay $8.40 per book sold to the publisher.

The Apple deal: Publisher sets the price, say $12.00. Apple sells for $12.00, not a penny more or less, and sends 70% of that ($8.40) per book sold to the publisher. If the publisher thinks the book should be sold for $8, then that's fine with Apple, they will sell it for $8 and send 70% of $8 = $5.60 to the publisher. Obviously that isn't likely to happen. So it's the publisher that sets the price, not Apple.

 

[caffeinejoe]

Slightly off topic, but where is McGraw Hill in all of this, following CEO Terry McGraw shooting his mouth off with an unauthorized disclosure of the iPad on CNBC, hours before the official launch?

 

[samcraig]

Funny that they are concerned about a price war because so far the war is going in their favor with book prices going up with the release of the iPad. Amazon books sell for less. It's not as though the newcomer (Apple) has swooped in and undercut Amazon's pricing. Apple is asking higher prices.

Because the publisher is selling the book to Amazon for X. AMAZON is price cutting. The publisher makes the same no matter what.

In Apple's model - the publisher, themselves would be cutting the price and therefor their profit margin.

That's why.

 

[rdowns]

Well, with the iPhone, people are surfing the internet much more... wherever they can take out their device, they can access the websites they used to have to wait until they got home.

It's the same with books and magazines. Most people probably get through a book a little at a time because it's too heavy to carry around. And they have too many magazines to shuttle back & forth too. The iPad steps in, and suddenly, they have access to whatever they want, whenever they want. In the car, waiting for someone, at the desk, wherever...

I thought this was clear to just about everybody in the world.

Clear? Hardly, unless one only looks at things through their RDF glasses.

So, a book or magazine is too heavy to carry around but now the masses will all lug around their $500+, 1.5 lb. devices so they can now be free of the shackles of carrying around 12 oz. magazines and 1 lb. books.

 

[maelstromr]

Clear? Hardly, unless one only looks at things through their RDF glasses.

So, a book or magazine is too heavy to carry around but now the masses will all lug around their $500+, 1.5 lb. devices so they can now be free of the shackles of carrying around 12 oz. magazines and 1 lb. books.

How many pounds of magazines/books are in 16gb? 32? 64?

 

[ValSalva]

Because the publisher is selling the book to Amazon for X. AMAZON is price cutting. The publisher makes the same no matter what.

In Apple's model - the publisher, themselves would be cutting the price and therefor their profit margin.

That's why.

But in Apple's model the publisher's get to set the price of their books. The books can be more expensive offsetting the 30% Apple gets.

And Amazon is probably selling books at a loss - which is unsustainable. So aren't prices set to go up in the long run? If so, why the concern about a price war?

 

[gfiz]

But in Apple's model the publisher's get to set the price of their books. The books can be more expensive offsetting the 30% Apple gets.

And Amazon is probably selling books at a loss - which is unsustainable. So aren't prices set to go up in the long run? If so, why the concern about a price war?

selling books at a loss, but selling Kindles at a huge margin. It's certainly sustainable, or was, before they faced any competition.

 

[Jelite]

So instead of making a smaller profit they're making no profit, makes sense.

 

[ValSalva]

selling books at a loss, but selling Kindles at a huge margin. It's certainly sustainable, or was, before they faced any competition.

The only company that has sustained selling hardware at a high margin is... Apple. Amazon was inevitably going to face competition in hardware and that's why the game has changed. Seems to me this is the publisher's lifeline.

 

[samcraig]

But in Apple's model the publisher's get to set the price of their books. The books can be more expensive offsetting the 30% Apple gets.

And Amazon is probably selling books at a loss - which is unsustainable. So aren't prices set to go up in the long run? If so, why the concern about a price war?

Why concerned?

Scenario: Best Seller X

Publisher sells to Amazon for fixed price - say $13. Amazon sells for $9.99
Publisher via iBookstore sells for $13. They are already more expensive. If they drop down to 9.99, they only get appx $7 (they lose 30 percent to apple).

So to remain competitive with other etailers, the PUBLISHER loses money on Apple's structure if they want to remain competitive.

That's the concern over a price war. And why publishers, while they CAN charge more - might not be able to.

The other issue is that the deals don't just say the publishers can sell in the iBookstore for whatever they want. It also stipulates that they can't be sold for less elsewhere (I believe it was something like that - correct me if I'm wrong) Which means that publishers are forced to sell it for higher via iBookstore. Which is fine - because they still make a nice nut from Amazon. But when there are exclusivity and other factors - it becomes something that companies want to "wait and see"