Wednesday, December 16, 2009

Amazon and ebooks: a Dialogue

The rise and rise of Amazon: prepare for the battle.

Rachael McDiarmid:

In the past few days several US publishers have announced they will be delaying the release of e-book versions of major releases. So what does Amazon do? Well, instead of selling for the already loss-leading price of US$9.99, let's take it even lower to $7.99!!! Let's show the publishers exactly who is in charge of this ebook market. Let's offer Under the Dome by Stephen King and Going Rogue by Sarah Palin for $7.99. The hardcover for the latter is listed on Amazon as US$28.99 slashed 50% to US$14.50. Slash it by half again if you want the ebook. Bestsellers are being slashed - Stephenie Meyer's first two Twilight books for US$4.25, Stieg Larsson's The Girl Who Played with Fire at US$7.99. Slash Slash and Slash again.

What happens next? Well surprise surprise, Barnes and Noble cut their ebook prices to match. I'm now waiting to see what Sony does. They've already admitted the US$9.99 price is NOT PROFITABLE. You can read the full article here. Yet I'm taking bets as to when they'll slash their prices! Any takers?

But back to the giant that is Amazon. I know some publishers are trying to wrestle control away from them so they can control their own ebook destinies. Can't everyone see these price points are DEVALUING the product and the whole reading experience? And what about profitability folks? It's already fragile in the bookselling and publishing industry.

It's no use discussing what percentage Amazon, Sony, Scribd etc take on ebook sales. We already know Amazon is using their pricing strategies to make the Kindle the ereader of choice, to build market share and customer loyalty. Sony has pretty much admited the same. They invest in the technology, they need people to buy it.

While publishers benefit from the lower ebook prices in the short term (through higher sales), according to Mike Shatzkin they "don't trust Amazon to keep things that way. From their perspective, Amazon is building a consumer expectation of an under-$10 price point while they are building up their audience of captive Kindle consumers. How long can it be, publishers figure, before Amazon says 'sorry, now you have to sell me these for under ten dollars?'" Mike also shared his thoughts on the possible war over the issue, including publishers not supplying or selling e-books through Amazon, Amazon suppressing the sale of their printed books, and more.

So when and where will the battle lines be drawn? It's a'comin, folks. Wait and see...

Peter Donoughue:

Frankly, I don't think there's an issue here Rachael, apart from the entirely normal one of a retail behemoth flexing its muscles (yawn).

Publishers should relax. And Mike Shatzkin, who has always been wary of Amazon, has it wrong too. Retailers will do what retailers always do - fight for market share. Amazon wants to make it hard for Barnes and Noble and their new nook, and others, and what's wrong with that?

The real story here is how publishers are getting their strategy wrong, by delaying ebook releases. Publishers Lunch had a nice dialogue on this this morning, with top publishers all agreeing delaying makes sense: 'It's like delaying the paperback release - no different'....

This doesn't make sense. It IS different - very different. We're not talking about print dynamics, with their traditional print audiences. We're talking a new digital paradigm, with a new customer dynamic, that needs to be respected. These customers resent waiting. They don't wait weeks for the SMH to put a major story on their website just to force punters to buy the printed paper. How absurd!


RachaelMc said...

Why thank you for checking out my blog Peter! I agree with you re ebook strategies. I would like to see simultaneous release for e and p products where possible. Libraries are asking for that already but publishers want to have two bites of the cherry. What? They think libraries haven't caught on to the effect on their budgets?! Taking libraries out of the equation: let readers decide how they want to source the content for more private reading activities. There are some books I will always buy print. For new authors and certain genres, I prefer to buy e. And I sometimes buy both as I want to share really good books with friends (not so easy with DRM on ebooks,for now anyway...) and love showing them off on the bookshelf for later re-reading of my own. Back to Amazon and all the others selling ebooks at these price points, I know it's their strategy to gain marketshare but it surely can't be sustainable. Something's got to give - for either the reader or the publisher. The question is WHEN?

Peter Donoughue said...

Here is a very typical example of the current mindset dominating publishers' thinking on these issues. It comes from consultant and former Perseus CEO Jack McKeown, who was commenting on a posting on Publishers Lunch:

'Thanks all for the string of very thoughtful comments. I would like to respond briefly to John Wright's post re: e-book pricing. I think it would be a tremendous mistake for the industry to fall into the trap of concluding that e-book pricing should be narrowly based on its variable costs of production and distribution. Our research, which we will highlight at Digital Book World in January, demonstrates there is a fairly wide range of attitudes toward e-book pricing among current e-book consumers. This spread is likely to persist, and even grow wider as e-books move beyond the early adopter market and into the mainstream. It is one reason why publishers are right to resist Amazon's self-serving attempt to establish a monolithic price point at $9.99. On the issue of simultaneous e-book release, remember that publishing costs are heavily front-loaded, including the cost of royalty advances, which should be treated as a fixed cost for cash flow and ROI purposes. This helps explain why publishers are so focused on preserving their higher-unit-contribution hardcover sales--they speed recoupment of their frontloaded costs. The threat of e-book cannibalization is unfortunately real in this regard. Creating separate e-book releases and enahanced e-book editions are ways to spur truly incremental e-book sales'.

There are all sorts of give-away phrases here: publishers shouldn't 'fall into the trap'; they are 'right to resist'; right to be 'so focussed on preserving'; 'the threat of ebook cannibalisation'; 'ways to spur truly incremental ebook sales'; etc.

This is all about publishers 'remaining in control'.

Well, in my humble opinion it's the CONSUMERS that are in control! And their voices are pretty loud, just as they were in the music industry. It's time for publishers to be PRO consumer, and to fashion strategies accordingly and boldly.