Can A Price Be Too Low? Thoughts on the eBook Price War

In the ebook pricing war between Amazon and publisher Macmillan, Amazon has come out the loser. They insisted on holding the price for ebooks at $9.99 while Macmillan wanted the price to be $15.00. You might be inclined to think that the consumer has also come out the loser. After all, a lower price is always better than a higher price. That is certainly what we have been conditioned to believe (one might call it the Wal-Mart mentality…lower prices are ALWAYS better…no matter what damage lower prices might cause). Here are two examples where lower prices might not always be better (at least, not better in the long run).

In Ken Auletta’s book Googled: The End of the World As We Know It, Auletta and Sergey Brin (one of the founders of Google) get into a discussion about books and book publishing in general. Brin wonders Auletta’s book should be made available online for free. Auletta’s response makes one pause (even Brin, it seems). If the book was made available for free, Auletta said to Brin, who would pay for his frequent flights from New York to California to interview Google’s founders and employees? Who would pay for the motels and dinners and all of the other necessary costs associated with creating a book like Googled? How would authors support themselves if they did not get a book advance? Brin switched subjects. (pgs. 124-125 in Googled)

A book review by Malcolm Gladwell recalls the story of a discussion between the Dallas Morning News and Amazon. The newspaper would provide the daily content and Amazon would distribute the digital version of the newspaper. In addition, Amazon wanted to have all intellectual rights for the redistribution of the content. Further, they wanted to split the subscription revenue with 70% for Amazon and 30% for the newspaper publisher. So with the publisher bearing all the costs of producing ever-changing content, of maintaining a reporting staff and all its attendant costs,  Amazon would keep the bulk of the subscription money and any residual monies that might be generated. The publisher did not go for this deal. But let’s suppose the publisher DID go for this deal. How would the publisher make a profit? How would the publisher maintain the quality of the product, namely, the news?

The point here is not to make Amazon into an ogre. However, it does make us pause for a moment. If the pricing for a product – like a book – remains too low, or the profit made by a newspaper publisher remains too low, what will happen to the quality of the product? How will a publisher be able to support a writer with all that is needed to produce a quality product? How will a newspaper cover local news if there is no profit in covering such news? The bottom line is this: is there a point when a price is too low to sustain profitability so that the only logical alternative, if one is to remain in business, is to reduce the quality of the product?

Links of Interest

Here’s the view from Publisher’s Weekly

That Amazon is currently treating the bulk of Kindle editions as loss leaders—items it either breaks even on or loses on to build market share in e-book sales and to fuel the growth of the Kindle—is one of the worrisome aspects of the current system. The concern among publishers is that, at some point, when Amazon sells both the bulk of the digital reading devices and the bulk of digital books, it will refuse to pay the same discount on Kindle editions, forcing publishers to a lower price for digital editions. This scenario, the head of one of the major houses said, poses a major problem. “Right now the entire economic model for book publishing, shaky as it is, is in jeopardy from this low pricing,” he said. In this publisher’s view, lower digital prices will put pressure on publishers to increase royalty rates despite the fact that “there are no margins to do so.” Another option would be for publishers to drastically lower advances, something that would enrage authors and agents, who aren’t happy with the current split of e-book sales.

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