Thursday, September 13, 2012

The Price War Begins

The Department of Justice has laid out a settlement for publishers that acceded to the accusation they colluded to fix prices on ebooks. Apple filed a counterclaim that they were not part of a price-fixing scheme, but it appears that counterclaim was denied. 
So now ebook prices are beginning to inch downward. By how much? Laura Hazard Owen did the heavy work here. Read it. Decide for yourself how it may affect you.
For the consumer, this seems great! Already, the prices on hot titles are coming down (read Owen’s article linked above). Still, it isn’t quite the boon it appears to be. I don’t believe that titles under $10 in price ($9.99 and less) are going to drop very much in price. The more expensive titles, the hottest and newest books to hit the market, are the ones that are most likely to drop.
I took a look at Steve Jobs by Walter Isaacson. Amazon, Apple, and Barnes & Noble all list it for $14.99. Cheaper than the original $17.99 price when it first came out. I still stick to my notion that I will not pay hardcover  or softcover prices for an ebook. Sure, the set up costs are the same for all three, but once the ebook is generated the costs of distribution are pretty much negligible. Printed books still require materials, production, shipping and stocking. An ebook is merely a file to be downloaded from a server that is part of a system already in place. So, I feel ebooks should be at most 70% the cost of the same book in softcover.
The flip side to that argument is you charge what customers are willing to pay. If people are willing to pay $15 for an ebook, then go for it. Set the price at what the market will bear.
However, as a self-publishing author, you would make more money per copy sold if you keep your ebook prices below $10. Then you would be netting 70% royalty on each copy sold, as opposed to 35%. (See this table created by Mill City Press.) This neatly encourages most ebook pricing into at least the paperback price range.
For authors, this price war could have long range consequences that may be less than favorable, in my opinion. has long had a history of subsidizing its sales, meaning, it sells merchandise for less than it purchased the merchandise. A publisher may wholesale a book to Amazon for $8.50 per copy with a list price of $13.99, and Amazon could turn around and sell that book for $7.99 per copy. Sure, they lose money on the deal, but they lock in customers. Essentially, prices out the competition, the competitors go out of business, and can then raise prices to whatever they want, because their customers no longer have a choice of where to buy that item. That’s the whole idea behind predatory pricing.
A company that has squeezed out all the competition and alternate sales channels for a given product can then dictate to the supplier what wholesale price they will accept.
Getting caught in the squeeze of a price war could be unpleasant.
My primary concern is that I receive the royalty payment that I need in order to make a living as a writer. At $4.99 per copy to the customer, that means I will make $3.493 (70%) per copy. (Before taxes, mind you!)
If Apple and want to get into a price war, fine. Go for it. If they want to sell my ebook at $2.99 per copy to the customer, go ahead—so long as I get my $3.49 per copy.
What I don’t want to see happen is for the two companies to send me a notice that they are changing their terms in their contracts and state that they will only pay me  the royalty on the final sale price instead of the list price.
That would mean instead of my list price of $4.99 and royalty of $3.493, my ebook would be sold for that $2.99 sale price and I would get a royalty of only $2.093 per copy. They would essentially be forcing their business losses onto me using that technique.
Such a practice could potentially backfire. is working very hard to go beyond just being a distributor of books, but becoming a direct publisher as well. In this, they are trying to woo established authors as well as new authors to give them exclusivity. Piss off the writers, and a distributor/publisher could find itself without any product to sell. If writers think they are going to get screwed, they’ll take their business and product elsewhere.
Sure, the old saw about a monkey given an infinite amount of time could produce the works of Shakespeare may be theoretically possible. Let’s face it, in over four million years, at least one monkey did! With that in mind, I don’t think, Apple, Barnes & Noble or any other publisher or distributor can hang out that long for a good novel to magically appear at random out of the ether. To succeed at selling stories, you need someone with a talent for telling stories to actually create a story that people want to read and buy.
I chose $4.99 as my list price because I felt it was a fair price both to the reader and myself. My book as a paperback would sell for $7.99, the going average. Seventy percent of that is around $5.60. Because the stores want a “.99” to be at the end of the price, I chose to round down to $4.99 rather than up to $5.99 as my price.
If the distributors want to have a price war, that’s fine with me and good for the consumers looking for bargains. But if they are going to have a price war and put the burden on me by cutting the terms to me, then I will be upset. I’ve made my decision to become a writer and I need to make a living as a writer. If I can’t make enough money to survive as such, then I will have to discontinue being a writer and learn new skills. (“Wouldst thou like fries with that, Good Sir?”)
As far as the 30% Apple takes off the top? The DOJ lawsuit stated that Apple’s agency model, where Apple took 30% off the selling price as its commission, was causing publishers to raise their prices in order to make up that 30%.
My response to this is 70% of the gross is a helluva lot better than the 4% of the net I would have gotten going through traditional publishing channels. I set my price at what I thought was fair for the consumer, and I get 70% of that, before taxes. Plus, again my point that once the setup work is done for an ebook file, distribution and production costs practically don’t exist. Each sale is nearly pure profit.
The end result is now everyone will go to the way Amazon was doing things. As I stated above, this will work until the distributors start to play games with the royalty terms.