September 3rd, 2014

I don’t have much to add to the discussion of Amazon vs Hachette, since this issue has been well covered by people much more knowledgeable than I about the publishing industry. While it’s easy to get emotional and take sides, John Scalzi, who tends to be very thoughtful and rational in his analyses, has a good, balanced take on this complicated issue. I also recommend Christopher Wright’s take. He too dumps a little cold water on anyone who would see one side or the other as “evil” in this situation.

The case does, however, bring to mind a bigger issue related to this fight: the desire of publishers to set their own prices. In general, the big publishers have been fighting to keep prices higher, and this strikes me as short-sighted.

First, as Wright points out, ebooks both cost less to produce and are inherently worth less to a consumer than are physical books. You can’t lend them1, and there is no second-hand market on which you can sell them after you’ve finished them. So on the face of it, keeping prices of ebooks so close to the hardback price seems inapropriate. I will acknowledge that keeping prices high for a limited time after release is more reasonable, since new titles are always in greater demand, but I would still argue that prices for ebooks, both at release and after, are on average too high.

But that’s just theory. Hmm, if only there was another creative industry that had gone through a similar struggle in the transition from hard-copy to virtual and could shine some light on what the sales options might be for for this new paradigm…Wait a minute. Inflated prices? Resistance to new technologies? DRM? Ring any bells??

Yes, we’ve been down this road before with the music industry, and how did that work out? It basically trained an entire generation that the value of music is $0.00. Young people in the 1990s were willing put up with the hassle of downloading large files of unknown quality over slow, pre-broadband connections in order to get their music for free. That books are less popular than music would seem to be an unenviable position, yet it appears to be the main advantage the publishing industry has, in that people are far less likely to go through the trouble of stealing books. But now that a generation has grown up doing the bulk of their reading on screens, and so many readers have tablets that are great reading devices, the underground market for ebooks is bound to grow.

So what can publishing learn from this? It’s clear that the music industry is moving, kicking and screaming, to a subscription model. It’s probable that the publishing industry will have to go the same way. But before music downloads were overrun by streaming, there were some experiments in pricing that may be instructive to a publishing industry that is attempting to stave off that inevitability.

As Bezos points out in his letter to readers, since the marginal cost of an ebook is zero, lower prices can mean more profit. Bezos’ statement is, of course, self-serving and thus suspect, but we don’t have to take his word for it. Even though big music publishers aren’t willing to accept it, lowering prices has worked for digital music. When online music service Rhapsody experimented with cutting prices in half, they saw sales triple. That extra 50% in revenue is all profit since the marginal cost of selling a digital track is $0.00.2

The mainstream media industries’ resistance to new technology is not surprising. Entrenched interests have always been slow to adapt. But as technology moves increasingly fast, there is no longer time to wait and see. Adapt or be buried. Everyone loves to write an epitaph.

1 Well, sure you can sort of lend some ebooks, but it’s a hassle and the time restrictions are ridiculous.
2 Or perhaps something like $0.0001