The $14.99 E-Book: Publishing’s Salvation, Or Just the Last Nail in the Coffin?

Last summer, when the UK National Portrait Gallery and the Wikimedia Foundation got into a kerfuffle over whether the foundation had the right to copy thousands of the gallery’s high-resolution digital images to the Wikimedia site without paying, I wrote that the foundation may have been within its rights, since the original portraits are in the public domain, but that the copying was still unfortunate, since culture isn’t free—somebody has to pay to keep the doors open at the institutions that preserve and curate art. Museums shouldn’t hold digital representations of their art hostage, but it’s not unreasonable for them to ask people to pay something to use it.

Now I’m about to make a contrasting argument. There’s a debate raging over whether publishers should raise e-book prices from their current level, around $10 (for books that are just out in hardcover), to something more like $15. The publishers say that Amazon has been keeping e-book prices unrealistically low, and that they, like art museums, have to charge more to cover their costs. They usually go on to issue vague warnings about how Amazon’s predations are threatening the entire publishing apparatus with extinction. (Struggling industries always need a scapegoat. With the music industry, it was the fans. With publishing, it’s Amazon.)

If I’m in favor of paying museums a reasonable amount for digital art, shouldn’t I also be in favor of paying authors and publishers a reasonable amount for digital books? Of course. The question is what’s reasonable.

Free clearly isn’t a workable price for art or music or books. But neither is $14.99 per title—the price that MacMillan and other publishers reportedly plan to charge now that they’ve prevailed in their recent game of chicken with Amazon. My worry is that in their haste to find ways to pay for their own elephantine and outdated ways of doing business, book publishers will squelch an important new market that could offer the industry’s only long-term salvation.

There’s been a lot of good coverage of this issue recently. Just yesterday, the New York Times‘ technology section ran a fascinating piece surveying the clashing opinions over e-book prices. The most telling quote, in my opinion, came from novelist Douglas Preston, who was attacked by Amazon commenters because his publisher withheld the Kindle version of his latest book, Impact, to bolster hardcover sales. “The sense of entitlement of the American consumer is absolutely astonishing,” Preston told the newspaper. “It’s the Wal-Mart mentality, which in my view is very unhealthy for our country. It’s this notion of not wanting to pay the real price of something.”

David Pakman, a partner at venture firm Venrock, penned a contemptuous rebuke of this line of thinking in a February 3 blog post. Forcing higher prices on consumers on the argument that the “real” cost of a book is the hardcover price, or $14.99, or whatever publishers say it is, is more than just arrogance, Pakman pointed out. It also flies in the face of the basic theory of price elasticity, which says you have to let prices fall until demand reaches the point that profits are possible. Pakman (who is also quoted in the Times article) wrote:

The bottom line is that “value” or “worth” is not decided in a board room, it is decided by the market. And low-cost digital distribution, where the marginal cost of each incremental item sold is zero, brings consumer expectation that price must fall. They don’t care if the rent on your offices at 50th and Broadway are $8M a year. Traditional media companies whose products are going digital must accept lower unit selling prices and massively cut their operating costs in order to survive.

You don’t have to dislike publishing executives as a class (though it’s hard not to, after reading stories like this 2008 New York magazine exposé) to agree with Pakman that the book business has a bloated, antiquated cost structure. This is an industry that would rather print more books than it can sell and end up pulping 25 percent of them every year, than figure out how to predict demand or be more flexible about manufacturing. It’s an industry where payola is still rampant—publishers pay bookstores for what’s called “co-op,” or placement of their top titles near the entrances or on end caps. It’s an industry that provides name authors with multi-million dollar advances that it knows it has little chance of recouping, often just for the bragging rights or the publicity value. Are those costs part of the “real” price that e-book buyers should have to pay?

I’ve been an observer of the e-book industry since about 1998, and was briefly a participant—I worked for NuvoMedia, the company that invented the pioneering Rocket eBook, from late 1999 to early 2001. I’ve always thought that e-books were the most important innovation in the publishing industry since the dime novel, given that they could eventually free publishers from all the costs that go along with printing and distribution of paper books. But throughout that time, it’s also been my belief that the optimum price for e-books, where higher demand will start to make up for lower unit prices, is far lower than publishers might wish (mainly because e-books are, well, just computer files). The refusal of publishers to significantly mark down their digital editions was a big part of what killed the Rocket eBook (though there were a lot of other culprits too). And I’m convinced that if publishers put a $15 price tag on Kindle editions, it’s going to pour cold water all over a market that was just beginning to warm up.

Even $9.99 seems to me like a lot to pay for an e-book that, after all, contains far less data than a single MP3 song or a half-hour TV episode on iTunes. My guess is that the optimum price for an e-book—the publishing equivalent of the 99-cent mobile app, where readers won’t have to agonize much over each purchase—is around $6 or $7. If that’s not enough to pay for all the work that authors and publishers say they put into producing those books, well, guess what? We’ll just have fewer authors and publishers, until somebody comes along with an idea about how to make a profit at that price level.

And even if that takes a few years, it might not be such a tragedy. In fact, it might just give everyone a chance to catch up on the thousands of perfectly free public-domain classics available from the Internet Archive and Project Gutenberg. If prices for new e-books go up to $15, that’s where you’ll find me loading up my Kindle—and I think I’ll have a lot of company.

For a full list of my columns, check out the World Wide Wade Archive. You can also subscribe to the column via RSS or e-mail, and you can download Pixel Nation, an e-book version of the first 80 columns, as a free PDF file or a $4.99 Kindle edition.

Wade Roush is the producer and host of the podcast Soonish and a contributing editor at Xconomy. Follow @soonishpodcast

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