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Settlement over e-Book Pricing to Undo Apple's Agency Model for Pricing?
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That is a common misconception and is actually false. So called dead tree sales, and I'll take one of my several books as an example, have this general breakdown:
Price $9.95
Cost of production $0.50
Dealer markup 5.00
My marginal revenue for the content: $4.45
My hourly rate is variable on how many hours a book takes to make and manage as well as how many are sold. As a rule a book is mostly passive income. Write once, sell many.
Now I will take this exact same book sold on the Apple network.
Price $9.95 (consumer perceived value, my personal choice)
Cost of production: $0.10 (more up front, less per unit)
Dealer markup $2.98
My marginal revenue for the content: $6.87
I have been selling books at different venues and price points longer than you have been alive. I can tell you that due to a limited audience for any style of work and the saturation effect that the "optimum revenue" is not at a low price for sure, and is not at a high price, except for fanboi type products, where the higher the price the better.
It turns out for most books the bell curve is skewed about 70% to the high side, where you capture the most total revenue to the owner.
That is to say if I considered a retail price of between $3 and $13 and settled on $10, I am most likely optimizing my revenue. I am not optimizing the number of copies sold. That would certainly be at $3.
I will point out Apple's model gives me, myself, both 54.4% more revenue per unit, but also about 10,000% more exposure than I get in the bookstore, library, book listing and fanboi networks I am in.
That is value added on several levels which some might call "compelling". That is what Apple brings to the table.
Rocketman
$0.50 for production? That includes publisher editing, printing and distribution? Seems very much on the low side.
I selected a book I don't sell many copies of, perhaps a print run of 5000. For books where I have a print run over 25,000 the cost is closer to 0.12 per entire book, printed, bound, boxed, FOB printer.
We're talking about a $9.95 book(let) that has about 60 pages or so. Soft cover.
Need a book published? Dead trees are a 1000 year old ubiquitous technology for a reason.
Rocketman
First of all, as the links explain, the price point i mention is relevant for ebooks, not dead-tree books. It might perfectly be that it's not the best price point for your kind of work, nobody argues that different demographics call for different pricing strategies. For the vast majority of ebooks it's true.
This means that in your case pricing at $10 is the best. For most other ebook authors it works better in the low-end price range because on the low range the sales increase a lot.
The exposure you mention is not exclusive to the Apple model. E.g: Amazon too offers exposure especially through positive reviews (if your work is appreciated).
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The OP is talking about Apple not allowing other resellers to discount Apple's products.
You mean like buying iTunes store cards with a 20-25% discount ?
Apart from that, it is NOT Apples product, it is the authors/publishers. Apple is simply saying that they must be allowed to sell at the same price as is sold anywhere else. The Publisher/Author can give the book away for free, Apple doesn't care (there are lots of free books available), this is entirely the choice of the Publisher/Author.
Unlike Amazon, the publisher/author sets the price for their book, with Amazon they do and then you get a % of that.
Go read this:
http://igdaboard.wordpress.com/2011...about-amazons-appstore-distribution-terms-2/
Many journalists have noted the unusual nature of Amazons current store terms, but little has been said about the potential implications of those terms. In brief: Amazon reserves the right to control the price of your games, as well as the right to pay you the greater of 70% of the purchase price or 20% of the List Price. While many other retailers, both physical and digital, also exert control over the price of products in their markets, we are not aware of any other retailer having a formal policy of paying a supplier just 20% of the suppliers minimum list price without the suppliers permission.[/I]
That is the Amazon way.
Have you seen any hardware product discounted anywhere?
Please, point me where I have said anything towards or against Amazon or Apple.
I keep on being told how cheap it is to do ebooks, so I am sure that someone such as you will have the numbers. Keep in mind the costs are exactly the same for free books and books that dont sell many copies. Or is this one of these "facts" that is true simply because so many people say it is true, no one actually knows of course, but it must be true because it sounds good and agrees with your point of view.
So tell me, how many servers does Apple have, 10,000...50,000, 100,000, 500,000 ????
At say 400W each thats how many GW of power ?
That power comes out as heat, so now add in the running of a multi gigawatt aircon unit. Oh and best add in some extra for all the hard drives, switches, fibrelinks, etc too.
Now add in the costs of xx many hard drives failing each week/day.
And what is the wage difference between a programmer/Sysop and a shop sales person ?
Try thinking, try working it out, and stop being lazy an simply accepting something that is on the web must be true because its what you want to be true.
How many of these do you "know" is true ?
http://www.buzzfeed.com/chrismenning/20-popular-misconceptions
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Yes, one Disk Smith Electronics often has 10% of all Apple hardware. http://dse.co.nz
I note that my 25% discounted iTunes card buys me music, movies, applications, books. My next discounted set will be enough to buy FinalCut.
Pot, kettle? Because I haven't seen any number in your post
Try linking where there is some discount
Amazon uses these servers and bandwith for a lot of additional offerings, including their cloud services. These require a lot of resources, making the impact of ebooks most likely very low.
It's just like having a 2TB HDD, which you need for your apps, games and movies. Having even thousands of ebooks will take a negligible percentage of space. Imagine this on a *much* larger scale and you'll get Amazon's situation.
uhhhh....if you stopped buying media, they would stop making media. So that's the dumbest argument I've ever heard.
http://bargainer.co.nz/content/bargains/dick-smith-10-all-apple-computers
That took 20 seconds using google.
Thats the things about specials, they are for a limited time. And yes I have bought stuff from disc smiths for the 10% discount.
So show the numbers.
Everyone says it must be so but I have never seen anyone give the numbers.
Yes, now add on the graphics for the front pages scans. reviews, etc, add on the accounting system that tells you what you have bought, add on the RAID systems, Add on the Emergency power system, add on the multiple copies of all of the servers, add on the gigabit switches, add on the Fibre channel, add on the rack space, Aircon, staff, land taxes, sales taxes, accountants fees, hell add on the databases to keep all that in order. As do the DB Admins, Sysops, programmers etc etc etc.
This is not play at home stuff and all of it costs money even if zero books are sold. Oh add on the free books, they cost exactly the same as paid for ones to store, transmit, back up, etc etc etc.
So, back to my original assertion, everyone says ebooks must be cheaper, so show the numbers, prove it.
You do not understand. You see a huge infrastructure and say "well that's needed for ebooks, so ebooks must be very expensive" but fail to understand that the infrastructure is needed for much more else.
Most of what you mention would cost money even if Amazon stops hosting and selling ebooks altoghether. RAID, redundant servers, networking infrastructure and everything else is needed already for their cloud drive and Elastic Computer Cloud services. If they stop selling ebooks and remove all of them, they would still need all the server infrastructure to offer the above mentioned services.
Apple in in the same situation, they already host music, movies, apps and their own iCloud services. To do a correct calculation you should figure out how much they would be able to reduce the cost of the infrastructure without ebooks. Given that ebooks tend to require far less resources than music and apps, and definately less than movies, it's most likely a small percentage of the costs.
Amazon offers over a million ebooks if I remember correctly. Let's take 5MB per ebooks (very generous), that's around 5TB of storage. That might look like a lot in your world, but it's most likely peanuts comparing to the petabytes of storage they need to have for Elastic Cloud. Not sure about the numbers for Apple, but given the heaps of music and movies they offer they should be in the same situation.
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Apple wanted to set the price of music when it started with itunes, and pushed through a 99c per track fixed price to all labels. It owned the market and was driving a new model and pushed that through.
with books it was facing competition from an incumbent in Amazon. So Apple's best option was to neutralise it by pushing through an agency model, because they knew that Amazon would be willing to cut margins to compete on a wholesale model.
Apple aren't choosing the agency model because its fairer to consumers, they're choosing it because its better for their competitiveness. Its anti-competitive for consumers, and of course publishers will choose it if they can, because the price they set directly affects the revenue they receive.
with books it was facing competition from an incumbent in Amazon. So Apple's best option was to neutralise it by pushing through an agency model, because they knew that Amazon would be willing to cut margins to compete on a wholesale model.
Apple aren't choosing the agency model because its fairer to consumers, they're choosing it because its better for their competitiveness. Its anti-competitive for consumers, and of course publishers will choose it if they can, because the price they set directly affects the revenue they receive.
So I wrote a book, and I think it should be sold for $9.99 and I should get $7 of every sale. That is exactly what I get from Apple. That is also what I thought I would get from Amazon, but they can change the price to $8 and pay me $5.60, or change the price to $3 and pay me $2.10, or change the price to $2 and pay me $2 if they choose to do so. Which makes Amazon look good, costs my money, and destroys the value of the books that I sell through Apple or in a bookstore, and the value of any future books that I write.
That seems like the kind of contract that you can only force upon publishers if you have a monopoly. No wonder the publishers were only too happy to break Amazon's monopoly.
No. With ebooks Apple entered a market occupied by a monopoly named Amazon. Apple offered publishers an alternative to Amazon's exploitative contracts.
It does not destroy the value at all, simply the value is not as high as you and the publishers hope.
Publishers would love to convince consumers that ebooks are worth 25-30$, that's not what consumers perceive. Even the 10$ price point is seen as pretty expensive for an ebook, and if the self-published price range which maximizes income tends to be under 5$ there must be a reason.
These self-published authors don't price that cheap because they want to look good or destroy the value of whatever, they price that way because it's the price which gives them the largest income.
If most are able to maximize their income at that price point, that's the value of an ebook. Your ebooks are special and warrant an higher price point to maximize income? Fine, your ebooks are special, that doesn't make the perceived value of the average ebook higher than 5$.
The problem is, 5$ is fine for an ebook, most likely on the low side for a dead-tree book given the production cost and logistics involved. And publishers need to keep that part of the business alive and well because once it's gone (and it's only matter of time before it will) they will find themselves basically irrelevant.
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It's not *just* because they're protecting their paper sales. (Though that *is* something they need to worry about.) They also have to cover their *costs*, which include paying the folks who do editing, layout, cover art, etc.
Here's the deal. The book publishing industry still provides vital services for authors, where the music publishing industry has stripped that concept down to the bare minimum of advertising. E-book sales have recently *increased* to about 3% of book sales. So, let's pretend for a moment that they offer the physical paperback at $8, where they can reasonably expect to recover their costs, even on a book which sells *normal* amounts. Now, let's pretend that they sell the e-book for $3. The markup between the publisher and the bookstore is about 100%, meaning that $8 book costs about $4 from the publisher to earn back their costs, make a profit, and pay royalties to the author.
Out of that $4, roughly 90% of the costs between the two products are the same. The same editing, licensing the same cover art, etc. The layout phases are different, and actually slightly *more* expensive for the e-book because there's more formats to worry about. The *only* expense the e-book doesn't share is the (roughly) 10% cost of the physical paper and binding process. (Yep, it's about $0.40 to print, bind, and ship that $8 book.)
So, with the same expenses shared across the two versions, you're looking at having to sell *more* e-books to cover the costs of publishing the book. All in a market where e-books make up *only* 3% of sales.
In other words, if you're publishing both paper and e-book editions, all of your e-book related costs have to be covered by the *paper* edition, because you simply don't sell enough of the e-books to stand a chance of recovering it's costs there. The market is still too small.
And the authors who go it alone and self-publish their book? Well, they're either trying to scrape through without an editor (not a good choice), or their paying an editor on their own, increasing their costs. If they go e-book only, they'll be able to price however they want, and still expect to never see a dime in profits. If they go with paper *and* e-books, it gets worse for them, because they'll either need to sell their POD books at ~$12 to make a profit, or have a significant outlay of expenses for a print run.
When e-books make up 20-40% of sales, you can expect to start seeing e-books priced differently than their physical counterparts because the market will be large enough to start making up for its costs. Until then, you've got to deal with the fact that taking a book from manuscript to published work has expenses. (Trust me though, you don't want to see a market where the majority of books are author-edited, it's not a pretty sight. The author is too close to the work to edit it effectively, simply because their mind will 'fill in the blanks' with what the author *meant* to write.)
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No, based on the numbers I've seen, he's talking physical production (and probably distribution). The editing, layout, cover art, etc. that a publisher handles will come out of the $4.xx that he's got listed as marginal revenue.
Your post is very informative. Even though I think and want ebooks to be less expensive by no means do I want it to be free or priced so low that the author can't make a decent profit. The problem is that we have been trained to think that if you buy ANYTHING on line it should be cheaper than going into a physical store and buying the same thing. Most times it is and that's the "perceived" reality whether right or wrong. I really hate to read a book that has not been edited properly and I guess that is where the publishers come in but it's only a matter of time before that whole business model has to change. Ebook sales might be a small percentage of the industry right now but as time marches on more people will be reading them since it's much easier to just download on the go and get whatever you want. When I'm out on the train in NYC I see people reading books using mostly kindles and other tablets with some ipads sprinkled in there.
Actually the problem is that these costs are relevant no matter what happens with the book sales. A first print is typically 5k copies, but it can (and does) happen that it doesn't sell as well as expected. After a couple of years it's basically rotten and it gets discounted very aggressively to get it out of way, recover at least some money, and you end up with a big loss. Margins on sales for traditional publishers need to be high not only because of greed, but because printing a dead-tree book is a big committment no matter what, and most of them are money sinks. The successfull books need to cover for the failures, an then some to earn the publisher his profit margins.
With self-published ebooks the initial committment can be much less onerous. You can do-it-yourself without editor and/or designer. Obviously your work will end up inferior, but since you are Mr. Nobody, it's fine. If the ebook is a failure (and most still are) you didn't lose that much nor did Amazon or Apple or whoever hosts your work. But if it's a success you gain a little (or a lot) popularity. Then you can think about paying an editor/designer since you will most likely get the sales to cover them.
You have less costs to cover for failed books, and also a much lower barrier of entry for new authors, who can publish their work with much less committment. Or better, with as much committment as they want/can afford.
The truth is, most authors don't deserve the commitment of an editor/designer yet, nor they deserve the commitment of a 5k dead-tree first print. With traditional publishers that's basically the minimum initial cost and since many bets are lost the overall price needs to be high.
That almost makes sense, except the part where SJ strong armed the record labels to drop the DRM requirement from iTunes music, so you could play your iTunes music on any MP3 player, phone, or computer.
Can you take a downloaded Amazon Kindle book (.AZW) and open it with another ebook reader? I think not.
Think again. Amazon ebooks can be DRM-free too, and many actually are. The publisher has the option of enabling the DRM on a per-title basis. Without DRM you just need to convert the proprietary format in something your reader can manage. I think (but I am not sure) iBooks offers the same situation.