Trad Publishers and E-book Pricing

I often hear people complaining about traditional publishers ebook pricing. They had a huge fight over pricing and eventually settled. In the end, the traditional publishers received the rights to do something called “agency pricing” where they get to set the price of their ebooks.

Immediately, the ebook prices shot up. A hardback book comes out priced at $12.00 and the ebook version is priced at $13.00. This has the writer community up in arms with all sorts of accusations of nefarious dealings, ignorance or just downright spite. I wanted to clear up something that most folks just don’t think about.

Print publishers are not fools; they are not evil sociopaths who care for nothing but wringing the last penny out of their customers. They are scrambling to save their jobs. One thing everyone forgets, is their (print publishers) primary concern is protecting their existing asset base. They have a huge investment in printed book manufacturing that they can’t just let sit idle because they switched to ebooks. They have to print books to cover the cost of those factories (even though the margins are low).

Transitioning a company manufacturing base is quite a challenge. I was consulting to the world’s largest manufacturer of VHS video cassettes. They saw DVD coming and needed to find a use for billions of dollars’ worth of web coaters (the machines that made the tape). They KNEW the market was going to disappear, but scrapping those factories and cutting a workforce of tens of thousands of people would have been a disaster.

Fortunately, there was an answer. The coaters were switched over to produce Lithium Polymer batteries, a technology on the rise. Factory saved, workers jobs saved and business saved.

The print manufacturers face the same problem. They can’t simply shut down the print factories and switch over. Running them at lower capacity may even be enough to kill the profit. You can’t simply dial back a knob and slow manufacturing down. They plants are designed to be efficient at a certain capacity. Slow them down and all sorts of economics fall apart.

Thinking the print manufacturers are doing this because they are ignorant is missing the point. They are acting in their best interest. They have priced ebooks to such a high level that they can drive readers to buy the print books. That’s the strategy, and they will keep doing it until they can find an alternative. I am certain they have a lot of smart people running spread-sheet models that tell them this is the optimal strategy for the moment.

There is no nefarious or sinister motive, only a panicked scramble to salvage a business that is on the down-swing because of a technological innovation that threatens it. This is something not uncommon. Surviving one of these transitions is tough. I’m sure that a lot of folks working for these guys are agonizing over how to make the transition. Once they do, they will probably drop the price of ebooks to take advantage of demand elasticity and get their volumes up, but not until that move won’t idle their huge print factories.

One of the start-up companies I was with faces just such a shift in the market. I was with a new division they had just started and fresh out of the Navy. The company had succeeded but faced a change in the market. The original business was thriving, but the leadership saw the writing on the wall. They had started the division I was with as their bet to save the company when ultimately their original business faded. They were successful, saved the business and a lot of jobs. They were written up as a successful business case for students at Harvard to study. They were one of the rare ones who survived when the market changed. The print publishers face no greater challenges.

So be sureI won’t buy an eBook priced at $12.00 when the print book is $11.00. Unfortunately for me, my eyesight is failing and I have no alternative but to buy the ebook. I simply can’t read the print books because of size, and not many books come out in large print.

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