TOC: Pricing Digital Products

[On NPR the other day they were talking about the Kindle and the reporter said how publishers love it because it is so much cheaper for them. From my experience this is simply not the truth, but it definitely is the public perception. As you can see below Sarah Lloyd argues that the costs for a text are fairly fixed and not based much on the format. As an audience member pointed out though the price points for hardcover and paperback differ, so the industry promotes the idea that format dictates price. Sarah Lloyd said well it's about old versus new content. To an extent this is true, but what about initials published as trade paperback? Also what was completely lacking from the conversation is that most books aren't profitable. Each book cannot have its own costs built into the price given that we know so many books are write offs. Although Sarah Lloyd was arguing for author's wages, this is business. If the public demands cheap books, then maybe all authors end up being English teachers. It's a horrible scenario that I don't want to see happen, but just because it's the wrong thing it doesn't mean it's not the logical outcome when you add it all up. Maybe all writers will need day jobs in the digital world. Maybe as Nelan said publishing won't be able to afford to rent buildings on Broadway. We should strive to change the scene, but we will fail if we do not face these real potentials.]

Many potential panelists said "I'd love to talk about it, but I can't"


O'Reilly sells 3 formats in a bundle when it sells an eBook and gives free updates

45% of worldwide sales on oreilly.com electronic and 55% print
65% electronic for international only

eBooks were first sold at 50% MSRP. Bookmarked and linked all eBooks before making available, so changed price to 30% and then 20%. Basically they saw resources were being used to create it.

When talking to others it sounds like a black art for pricing eBooks. Lexical was priced at a somewhat arbitrary price and sold way beyond expectations. Publishers are calibrated for pricing based on the print world and are not ready for the digital.


Nelan - Lexical
Stanza reader has about 1.3 million downloads and 3 people at the company. O'Reilly drops a book into it and it becomes a best seller.
The way to understand pricing is where is the money going. 45% of the price is for the publisher, 10% goes to the distributor, DRM 3-5%, and credit card 3-6% - retailer gets 35% left over and has to discount with that. Should distributors really be getting 10%. Does it make sense to pay 3-6% for DRM, a lock you don't have the key to? Also consider that costs will drop as user-ship goes up.

Sarah Lloyd
We should not re-calibrate cost structure too quickly. Most of the costs in the book are ones that are about creating the content. For instance the advance given to the author is a cost that doesn't go away when you make an eBook. As time goes on some costs will go down. $1.99 ebooks can't happen for this reason [but what about sales levels, I can only fit so many books on my shelf, but I could fit millions on my computer]


Some people buy books for insurance because it might go out of print. Will we loose that with on demand availability?

Sarah Lloyd
Gifts can be made out of gift cards, but what you probably will see is print books being made more lovely and better suited as gifts and eBooks will be more like the throw away books for the beach. These two products will become more extreme.


Are we going to be looking for a new type of author/content creator? Reader expectations about corrections or embed videos or links put new pressures.

Noren
eBooks have changed our way of reading. One user was looking for the time in the margin of a printed book and another flicked the page to turn it. Maybe the price can be justified by adding extra content. A travel guide could have weather/construciton advisories built in. Also bundling digital and physical might add value.


At some point we'll need an algorithm for adjusting price versus interest.

Sarah Lloyd
Authors expect to be paid to right. Publishers have a responsibility to sustain the culture that currently exists. Whereas musicians can make money on touring, artists can only rely on the book itself. We are willing to watch the same song played over and over, but not the same painting repainted, or the same chapter rewritten.
Pricing is about what it costs to produce.

Noren
The curious case of Benjamin Button was number one on the app store. It was also available on the free side. The O'Reilly book, the missing iPhone manual was priced at 4.99 and sold really well. Much of the

We have a moment in time to assert what we feel the price of the product should be.

Traffic form India on O'Reilly is the highest, but sales are the lowest. Should they price differently?

Noren
Fictionwise uses the model of MSRP and then lots and lots of rebates. Others deal with people comparing CostCo prices to online and don't want a rebate.
Do a good job of segmentation and understand your audience.
Try different things. You have lots of titles to play around with. The missing manual as an app instead of a book in Stanza didn't seem like a great idea but it worked really well.

Sarah Lloyd
Don't listen to the people on the fringes on the industry who are trying to dictate what the books are worth. Stand up for your authors.