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Books Businesses Math The Almighty Buck

Amazon's eBook Math 306

Posted by Soulskill
from the there's-one-for-you-nineteen-for-me dept.
An anonymous reader writes: Amazon has waged a constant battle with publishers over the price of ebooks. They've now publicly laid out their argument and the business math behind it. "We've quantified the price elasticity of e-books from repeated measurements across many titles. For every copy an e-book would sell at $14.99, it would sell 1.74 copies if priced at $9.99. So, for example, if customers would buy 100,000 copies of a particular e-book at $14.99, then customers would buy 174,000 copies of that same e-book at $9.99. Total revenue at $14.99 would be $1,499,000. Total revenue at $9.99 is $1,738,000." They argue that capping most ebooks at $9.99 would be better for everyone, with the money split out 35% to the author, 35% to the publisher, and 30% to Amazon.

Author John Scalzi says Amazon's reasoning and assumptions are a bit suspect. He disagrees that "books are interchangeable units of entertainment, each equally as salable as the next, and that pricing is the only thing consumers react to." Scalzi also points out that Amazon asserts itself as the only revenue stream for authors, which is not remotely true. "Amazon's assumptions don't include, for example, that publishers and authors might have a legitimate reason for not wanting the gulf between eBook and physical hardcover pricing to be so large that brick and mortar retailers suffer, narrowing the number of venues into which books can sell. Killing off Amazon's competitors is good for Amazon; there's rather less of an argument that it's good for anyone else."
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Amazon's eBook Math

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  • Disengenous (Score:5, Insightful)

    by Moof123 (1292134) on Wednesday July 30, 2014 @05:21PM (#47570445)

    When I read through Amazon's logic, they wanted to single-handedly re-write the relationship that already exists between the author and the publisher. It is a very thinly veiled move to try and cutout the publisher. While I abhor middlemen, it really struck me as not being Amazon's place to stick their nose into. I have less and less sympathy for Amazon. It is clear they want to be the 800 lb gorilla on too many fronts for my comfort.

  • Re:Disengenous (Score:5, Insightful)

    by lgw (121541) on Wednesday July 30, 2014 @05:29PM (#47570511) Journal

    I have no problems at all with Amazon using their muscle to get me lower prices, middle-men be damned, but it's an interesting question whether this means more or less money for authors.

    What we've seen from Steam sales is that lower prices mean more revenue - often vastly more. Are books the same? I rather suspect so. Top-tier authors can demand the price they want, but there are only a handful of such in any genre. For the vast majority of e.g. SF authors, a SF book really is much like a $5 game: they aren't completely interchangeable, but I can find more that look good than I have time for.

  • by Sycraft-fu (314770) on Wednesday July 30, 2014 @05:32PM (#47570537)

    No dude, your books are not so incredible that people will buy them no matter what the price. There may be a few people who are like that, but most aren't. Price matters in entertainment. Turns out, when you make something cheap enough so that people don't need to think about spending the money and even more so they feel like they are getting a "Great deal" they'll spend very freely.

    Steam has figured this out with videogames and siphons tons of money out of people's pockets, and has people thank them for doing it. People get drawn in by the "savings" of the sales and spend tons. I should know, I'm one of them. Not only do I have games I haven't played, I have games I haven't installed. I see something that I'm interested in that is a good price and I say "Oh man, I should get that," and I do. If they are more expensive, I think about it more, I wait until I really want a new game, I go and replay something I already enjoy.

    Cheaper books will lead to bibliophiles just collecting the things. I know my mom would. You get them cheap enough and she'll drop hundreds a month on stuff she'll never read, just because she wants to have it.

    Authors/publishers/developers/etc need to get over this idea of their digital goods being "worth" a certain amount. No, you need to figure out what you need to do to maximize your profits since there is zero per unit cost. Usually, that is going to mean selling cheap, but selling lots.

  • Re:Disengenous (Score:5, Insightful)

    by rogoshen1 (2922505) on Wednesday July 30, 2014 @05:34PM (#47570549)

    I'd rather not live in a world where the only places to shop are walmart, amazon, and maybe costco. using size and supply chain efficiency to force smaller guys out of business is not a good thing in the long run.

  • by Daemonik (171801) on Wednesday July 30, 2014 @05:43PM (#47570609) Homepage
    Why is Scalzi only bringing up hardcover prices when at $9.99 the ebook is HIGHER than the paperback release, which will sell more copies than the hardcover as well. How can he argue that there is "a legitimate reason for not wanting the gulf between eBook and physical hardcover pricing to be so large that brick and mortar retailers suffer" when paperbacks sell for $6.99-$7.99?? If brick and mortar retailers can survive cheap paperbacks, why can't they survive eBooks priced $2-$3 higher? For that matter, I have never heard anyone in the publishing industry who can explain why eBooks should be priced higher than paperbacks.
  • Re:Disengenous (Score:3, Insightful)

    by sublayer (2465650) on Wednesday July 30, 2014 @06:12PM (#47570789)

    ... With the ebook you get a ... license to read the book but only in the format you purchased your license for.

    This applies equally to physical books.

  • Re:Disengenous (Score:3, Insightful)

    by Jodka (520060) on Wednesday July 30, 2014 @06:28PM (#47570869)

    ...using size and supply chain efficiency to force smaller guys out of business is not a good thing in the long run.

    Why is it bad for efficient suppliers to replace inefficient suppliers? And why bad in the long run but not the short run?

    If efficient suppliers replaced inefficient suppliers, but then in the long run inefficient suppliers returned to dominate the market, than that would be a good outcome in your view.

    Can you explain your reasoning?

  • Pots and kettles (Score:2, Insightful)

    by taustin (171655) on Wednesday July 30, 2014 @06:31PM (#47570883) Homepage Journal

    Scalzi whines (and he's a very good whiner) that Amazon is acting out of pure self interest, with any benefit to anyone else being coincidence, but I note that Scalzi, by his own accounting, makes a six figure income from the traditional publishing industry, so by his own logic, every single word out of his mouth (or keyboard) must necessarily be assumed to be for his own pure self interest, with any benefit to anyone else, including us, the readers, being coincidence.

    The bottom line is that the entire publishing industry is very, very broken, desperately trying to cling to a centuries old, thoroughly outdated business model. Amazon is the new, disruptive innovation, forcing change whether their competition, or the market, is ready for it or not. That is pretty much the only difference. Both sides are huge, publicly traded companies required by law to care more about profits than anything else, both sides are doing whatever they can to protect their shareholder's interests and CEO's egos. With the technology changes in the last 20 years, the conflict is inevitable. It cannot be avoided. The winner will be whoever is best at creating the new business model, and history says that will very likely be Amazon. For publishers, it's adapt or die.

    Thing is, pretty much all that is true of authors, too. They, too, are businessmen who are out to protect their own interests. The professionals - the real professionals, like Scalzi, who make their living off writing - are not about to let the fans' interests get in the way of their mortgage payments. Those who are part of the traditional industry, like Scalzi, will naturally see the logic of their publisher's arguments. The growing handful of those who have made it big self publishing through Amazon will naturally see the logic of Amazon's arguments. And us, the buyers of books, will naturally see whatever propaganda is packed up in the skimpiest bikini with the biggest boobs.

  • Re:Disengenous (Score:4, Insightful)

    by blackest_k (761565) on Wednesday July 30, 2014 @06:59PM (#47571019) Homepage Journal

    cheaper books , good for me, but i also like going out to book stores to find something interesting.
    in the long term, the book stores go out of business now its harder to find interesting books.

    long term the prices will tend to rise as competition has been eliminated to a large extent.

    Amazon is winning too much, it seems as if kindle is becoming synonomous with ebook reader. Thats not a good thing, no additional storage, no pdf support , no library support. Trouble is they do sell ebooks cheaper. I've jist picked up a sony their store has gone and the kobo book store app says i'm not living in a supported region. It runs a locked version of android, which could support the kindle app.
    Which might be better for sony and me.
     

  • by tompaulco (629533) on Wednesday July 30, 2014 @07:13PM (#47571107) Homepage Journal
    Yes, when I see a new hardcover book, I make a mental note to check back in 6 months when it has gone to paperback. I just don't need to spend 50% more for the same content just because it is hardbound. In my experience, paperback books last at least as long as hardbound. Which is to say, I have yet to have a paperback book fail on me, and I have some that are over 50 years old. I've had a few hardbound ones fail, because they are generally heavier and less likely to be able to stand up to their own weight.
  • Re:Disengenous (Score:5, Insightful)

    by _Sharp'r_ (649297) <sharper AT booksunderreview DOT com> on Wednesday July 30, 2014 @07:40PM (#47571235) Homepage Journal

    As an author, I can tell you that Amazon and their eBook pricing means more money (overall) for Authors. Maybe not for the "best seller"s who don't actually sell many books, but their publishing house prints lots of them and sends them out to stores, so while they end up on the bargain rack or destroyed, they still make the NY Times list based on the lay-down. Yeah, the authors people don't actually want to read will ultimately make less money, but the real authors that people like and want to buy from will make a lot more.

    There is currently a battle going on in the industry between the special favorites of the big 6 publishing houses and the midlisters and independents. There are very few authors who can get a reasonable deal out of one of the publishing houses. Everyone else is getting contracts which require them to sign away their works forever, sign away any future works in the same genre, sign away all electronic rights, etc... for a $5K advance on a one or two book contract.

    The midlisters and indies are running to ebooks and small publishing houses as fast as they can. It's not a mystery why. Amazon will pay 70% on an ebook. A publisher will typically pay maybe 15% (on poorly documented bookscan sales numbers, even on eBooks, which should be exact!) Where they used to purcahse only limited publication rights, which expired after they took the book out of print, now they want contracts where the author will never get their book back, even if the publishing house isn't actually doing anything with it.

    If you are a well-known celebrity, or you sell millions of copies, then a big 6 publisher may work with you on somewhat fair terms. Otherwise, they won't edit you (it's gotten much worse over the last few years), they won't market you and they'll barely make sure your latest book stays on store shelves for a month.

    The big 6 publishers are not only an issue in terms of IP rights and author payments, but they are also a very bad gatekeeper. Ever wonder why so many old SF authors stopped publishing and much of what is out there now is crap? It's because they're being picked by a publishing house with a NY "editor" who probably doesn't even like SF. They literally drove popular authors (who wrote what people actually wanted to read) out of the business. If an author sold too much (i.e. more than the editor projected), did they reprint and push the book? No, they'd keep the same print run and just stop publishing it when it hit the number projected as the max, usually tiny. Baen was the only real exception of any size in the industry. Jim Baen also did eBooks right from the start (gave old ones away in order to promote newer books in the same series/by the same author). That's all just starting to turn around because of Amazon, on-demand publishing and eBooks. Old famous authors are even starting to put out the books their publishing house stopped selling, or that they couldn't get published in the first place because it wasn't the editor's latest fad.

    Also, the big 6 publishing houses have a massively left-leaning bias. They've spent decades now killing the sales numbers of entire genres because the authors were required to toe the line of the latest politically correct movement. You can date books in some genres by the issues and characters the editors required. Many books that adults like have been pushed into YA categories, just because if it it's not "edgy" enough, the NY editors don't want to buy it. Forget about what will sell, they buy what they'll want to tell their NY publishing friends about at the next cocktail party.

    Scalzi is the poster-child cheerleader for the big 6 publishing houses. He's on the "inside" of the publishing establishment and does everything he can to defend them. He could care less about SF authors, just about his publishing buddies.

    You want the real scoop on Amazon and Authors? Go look at Mad Genius Club [google.com], or According to Hoyt [google.com].

  • Re:Disengenous (Score:4, Insightful)

    by Mister Liberty (769145) on Wednesday July 30, 2014 @08:29PM (#47571485)

    "If you can find what you want, then it's just about price, no?"
    Isn't the parent --implicitly, granted-- questioning the persistence, with 3 players, of that very thing, the 'finding what you want'? And here you turn it into a sort of an agreed upon premise.

  • Re:Disengenous (Score:5, Insightful)

    by Dan East (318230) on Wednesday July 30, 2014 @08:48PM (#47571561) Homepage Journal

    cheaper books , good for me, but i also like going out to book stores to find something interesting.
    in the long term, the book stores go out of business now its harder to find interesting books.

    So in other words, you would prefer for everyone to subsidize the brick and mortar shopping environment that you personally enjoy, whereas the majority of other shoppers may not have such preferences and just want to purchase at the lowest possible price. That sound about right?

    I'm not trying to sound like a jerk, because I have very fond memories of going into bookstores as a youth (and adult of course) and just the smell alone is wonderful. However like so many other things (photography via chemical coated film that must be developed and printed, etc) its days are numbered.

  • by walterbyrd (182728) on Wednesday July 30, 2014 @09:25PM (#47571711)

    Cut out the useless publisher, and the author gets 70%.

    Why do you need a publisher to sell an ebook?

    Idunno. Maybe a publisher does have some use. But does an ebook publisher deserve a whopping 30% ?

  • Re:Disengenous (Score:5, Insightful)

    by ShanghaiBill (739463) on Wednesday July 30, 2014 @10:26PM (#47571953)

    If by Middlemen you are referring to Editors (who read the book, find grammatical errors, find plot errors, etc etc), typesetters ,Graphics illustrators then they will still be there.

    There is no reason that any of these services need to be, or should be, bundled with "publishing". There are plenty of people offering these services, either per-page, or for an hourly rate. You can find them on any Freelancer website.

  • Re:Disengenous (Score:5, Insightful)

    by ThePhilips (752041) on Thursday July 31, 2014 @02:44AM (#47572607) Homepage Journal

    Amazon 30% is taking the piss

    When Amazon takes 30%, everybody's up in arms.

    When publishers take 95% or more, it's fine, the business is as usual.

    We probably should start calling that "American logic". Because even "women logic" is above the level.

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