The problem, as I see it, is that Amazon has so much of the market share not only for e-books but for regular books that they can dictate terms that are highly favorable to them.
While you could argue that those terms also benefit the reader -- for now -- the fact is that ultimately, consumers aren't served when one monolithic company gets to effectively call the shots. It may not be a monopoly in the legal sense, but in practice, it has many of the same negative effects.
They're using the domain "readersunited" to imply that it's readers who benefit, which is only true in a very zero-sum way because Amazon is keeping all the power to cut author/published margins so hard in the future, and not at all true in the typical sense that a new technology can cut costs and introduce benefits for everyone.
This doesn't prove what Amazon wants to claim it does.
1) Authors don't just earn royalties from ebook sales. They also earn royalties from hardcover/paperback sales.. and if dropping the ebook price causes lowered paperback sales, then the authors could earn less.
So merely showing that lower ebook prices increase ebook sales does not prove Amazon's claim that lower prices increase authors' royalties.
2) Amazon's test may not even prove that it would increase ebook sales. Hachette earns money from the sale if the book is sold at BN, Amazon, or any retailer. If only Amazon lowers it's price to $10, then Amazon may just be getting additional sales that would have gone to other retailers. So the only thing Amazon's test proves is that Amazon would be better off in a fictional world where Amazon has the lowest price in the market -- 33% lower than any other retailer.
You're right though, that it doesn't completely prove the point, but I think it definitely makes a point. People who wouldn't buy the e-book at 14.99 are probably unlikely to go out and buy the same book from another retailer for 14.99. The question is if it really increases the market share of the book, or if instead lowering the price on amazon makes everyone who would buy the book would just go to amazon for the cheaper price. (Given that e-books cost nearly nothing to distribute, I would think that the price drop would pretty easily pay for itself though)
Amazon has put forth a number that is an aggregate.. it takes into account your value judgement, mine, and 100,000 other peoples judgement of the value of an ebook.
Which reminds of a 3rd case that could affect Amazon's test: people do not purchase a generic ebook. They purchase a specific ebook, and the value of that ebook very much depends on the content. A poorly written book is worth less than a well written book.. and a book on a popular subject is worth more than a book on an unpopular subject.
If the book (or books) Amazon tested were more mispriced than the typical book (so they showed a larger increase in sales because $10 was closer to the actual value of the book.. whereas maybe $12 (or $20) represents the value of the average book).. then when all books are lowered in price, the result may be a decline for Hachett and the authors.
So I've put forth 3 cases that may affect Amazon's test. If just 2 in 13 people are affected by ANY of these 3 cases, then Amazon's conclusions are wrong, and the net result would be a decrease in revenue.
Hmm. I agree that that price is in many cases too high.
But as you say, that's because ebooks are non-transferable. Is creating and selling the devices and marketplace that make those ebooks non-transferable also on the consumer's side?
Amazon could have adopted EPUB for the Kindle instead of making their own ebook formats, and they could have pushed for higher-priced-but-transferable ebooks without DRM. They haven't done either at any point. It looks to me like Amazon is only on the consumer's side when they can strongarm the consumer into spending more money at Amazon.
Amazon isn't just encouraging lower ebook pricing, they are actively penalising authors that try to sell books above this level. Try to sell something over that price and the revenue split flips to 70/30 in their favour! They are removing the choice.
To have such a huge retailer force authors into such a cheap price bracket really devalues the content and sets consumer expectations.
1. Their arguments with regards to price elasticity are supported by (admittedly, Amazon's) data, and are intuitively plausible. Cheaper books sell more, yielding more revenue. The cost of production is substantially lower for ebooks, so passing on some of the savings to consumers seems fair, and further, so long as a literate public is seen as a good thing, there's intangible benefits to consider as well.
2. It's a dispute between two businesses, and Amazon has a legal right to not list/stock books. Honestly, it's like a caricature out of Atlas Shrugged-- you have to sell our books at these prices (of which authors get < 10%) or you're somehow the villain... as opposed to a business that just does not want to sell on those terms. Further, their contribution to the livelihoods of the authors is probably greater than the "value-add" of a publishing house. If sales and distribution from a website is such an easy thing to do, then how is it possible that a single company feels reasonably secure with delisting so many supposedly desirable books? The amount of effort necessary to make 2-day delivery so much cheaper than going to Borders is immense. They also built the Kindle (as well as its ecosystem) and sold the device at a loss, which has helped make the ebook market so big.
3. The "authors" are the only really sympathetic characters in this drama, but they appear to have no agency of their own. Why not move to a different publisher, or publish on Amazon? Because Hachette won't let them out of their contract? I can see why they would want to group together to avoid getting trampled between the two companies, but why side with Hachette? Unless their objective is "fewer books sold, higher prices, and smaller royalty payments", their collective bargaining power would seem to be better put towards forcing Hachette to either agree to terms or release them to find other representation. Agitating on Hachette's behalf is probably the easiest way to get money flowing again, but it's hardly the right thing to do.
Given that Amazon's suggested model could be more profitable for all parties, why are the publishers resisting? I suspect that it comes down to the fact that if ebooks become the main method of book distribution, the value of being a publisher would decrease substantially. Amazon (or similar businesses) could handle the printing and distribution, marketing, editing, type-setting, and similar tasks could be passed to firms whose sole purpose is that task.
Regardless of how this shakes out between Hachette and Amazon, I can't really see a future for monolithic publishers.
> 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.
So, 74,000 people choose to buy the cheaper book. Great! But without the price cut, those people might have bought other books. Maybe some other $9.99 book, maybe some $12.99 book, maybe none at all. Growing the market for an individual book is only impressive if you're selling the book to people who would not have bought a book at all, not if you're competing with other books on price.
> The pie is simply bigger.
The 'pie' they're referring to here is not publishing revenues in total, but revenues for a single book. This feels sneaky because when people refer to the 'pie' as an economic metaphor, they generally mean the total across a sector or the economy as a whole. That's probably not codified anywhere, so it's not possible to say that Amazon's usage is definitively wrong, but it's something that can be easy to misinterpret in a way very favourable to Amazon's argument.
Now, maybe Amazon really does mean that revenues across the whole industry would go up if prices were lower, as books take market share away from other sources of entertainment and information. If so, their example case is a bad one, because it doesn't demonstrate this. It feels a bit like they're talking a big talk about promoting books against other forms of entertainment, but when talking facts and numbers they're giving a subtly different story.
EDIT: I should say that I broadly agree with the rest of the OP. Ebook pricing does look high to me, and I would like to see lower prices. The general 'vision' that the OP puts across is one that I like, I'm just not sure how much it aligns with the reality of what's happening.
As the article says:
But in reality, books compete against mobile games, television, movies, Facebook, blogs, free news sites and more
Amazon has data that shows eBooks are better sold at lower prices because books aren't just competing with books. If that is not good enough, basic fairness states that a virtual good with no manufacturing, spoilage or delivery costs without a secondary market should be sold for substantially less than a physical good with manufacturing, spoilage and delivery costs with a secondary market that competes with new goods sold.
Of course, even if we just consider a price drop on a single ebook, it's still a valid point that this helps that ebook compete against other ebooks that don't change their prices, and there's nothing wrong with that.
Two books at $15 each, or three books at $10 each.
Further, cheaper books sell more yields more revenue is econ for tots version of capitalism. What book publishers are doing is classic price discrimination, and amazon is damaging it. Note that amazons statistics -- such as they are, and they certainly come with no backing data, and are hard to take at face value since they (stunningly!) support amazon's goals -- exclude sales off amazon.
Authors have seen how apple, amazon, walmart, etc behave towards suppliers. Where amazon to become more of a monopoly, they'll turn their price cutting on authors. It's well within authors' interests (and frankly mine, as a reader) to preserve a price structure that supports writing. Finally, assuming that authors somehow are agitating for "fewer books sold, higher prices, and smaller royalty payments" assumes that authors are all somehow stupid. Perhaps you should revisit your assumptions that lead you to assume that's what authors desire.
ps: since we're almost all developers here -- selling, in one form or another, software with nearly 0 marginal cost -- there's not a person here with any ground to stand on to claim that prices should reflect underlying costs.
There is no such market segmentation or opportunity to capture the consumer surplus with e-books, so potentially that money is just lost. Does greater volume of sales make up for that? Who knows, Amazon hasn't provided enough data. On the plus side, Amazon is incented to maximize their own revenue and since authors get a percentage of the book sales revenue in theory that means Amazon should be incented to maximize author revenue as well. Though, as always, it's not quite so simple.
What? If anything, it's MUCH easier to do so with e-books, with elastic pricing. Maybe it's not Amazon's current proposal, but I disagree with that part of your argument.
You do make a good point about consumer surplus.
Edit: I'm pretty sure e-book publishers can get creative ways to add to consumer surplus (be among the first 100 to buy the "premium" edition and get a character named after you in the sequel!), maybe something like kickstarter's model.
As for alternate e-book models, as you point out, there are many. And actually crowd funding is a major way to capture that latent consumer surplus (which is one of the big reasons behind its success), but even that is not necessarily a panacea.
The publishers would like to set a price. That is their right. Amazon can pay that or not. That is their right. What's happening now is that a near monopoly on book distribution is throwing their weight around. The little players on the margins are going to get hurt.
What about monolithic retailers? I might be totally mistaken, but I think Amazon has a near-monopoly on selling ebooks at this point. Here is their Kindle VP saying they have 70-80% of the market (http://www.cnet.com/news/amazon-we-have-70-80-percent-of-e-b...).
I don't understand antitrust regulation very well, but could Amazon have some sort of obligation to accept Hachette's terms because they have this near-monopoly (on what will almost certainly be the dominant form of reading in the next 20 years)?
And the solutions they then present are very admirable. However, it was still amazon that took the unilateral action to punish authors, and it was likely the backlash from that that motivated those three noble solutions. It's a shame amazon had to poison the well with that move, because everything else points to Hachette being dumb and making bad decsions that hurt authors.
"Hachette spent three months stonewalling and only grudgingly began to even acknowledge our concerns when we took action to reduce sales of their titles in our store."
Hachette stonewalled. Amazon took action. Sales of Hachettes' titles. Out store.
Clearly, the authors did not factor into these moves.
"the lower price is good for all parties involved: the customer is paying 33% less and the author is getting a royalty check 16% larger and being read by an audience that's 74% larger. The pie is simply bigger."
That's great, but it's not a justification to hurt authors. It may be more revenue and customers for amazon in the long run, but these are authors who have put their souls into their art and worked for years. Jeopardizing their release window and sales for a percentage is evil and out of touch.
"Amazon took unilateral action to punish authors" ?
The contract between Amazon and Hachette expired.
They started negotiating a new contract. They can't agree to terms hence Amazon limiting Hachette's stok because, well, they no longer have a contract to sell Hachette's books on Amazon.
There was nothing "unilateral" about it. Amazon doesn't agree to Hachette's term. Hachette doesn't agree to Amazon's terms.
Amazon didn't "punish" authors. It didn't even "punish" Hachette. 2 giant companies failed to agree on distribution terms.
It's regrettable that authors are collateral damage here but how do you put the blame fully on Amazon and none of it on Hachette?
Especially given that Amazon is the party that proposed a way to compensate the authors during negotiations. 3 proposals, actually, all of which Hachette rejected. Because Hachette cares about their authors so much.
how is this different from Walmart deciding at what price it sells its suppliers' product. Almost all the retailers decide the final selling price of suppliers' products, that is the reason they are able to undercut mom&pop retail stores. Only exception on supplier side is Apple and to some extent Bose who have the brand leverage to dictate their prices to retailers.
My guess is that they want to standardise pricing much better than they are able to rely on publishers doing (understandably on both parts). Even Apple's walled garden lets you set the price doesn't it? I guess maybe consumers see less variance in ebooks and Amazon want to simplify things.
Amazon seem to better support my best interests as a consumer - and I plan to buy a Kindle soon fwiw - but I think trying to compare Amazon to anything traditional is going to fail because their model is so different - and at the end is basically a walled garden they need to control as much as possible.
I particularly like the point that self-pub authors ought to be happy that Hatchette is at higher price points, since it leaves the more lucrative markets for them. This is a tribal dispute for most authors on both sides.
I was not making my previous comment out of self interest, BTW. In 25 years of being a published author I have only made chump change (less than $150K) on my writing. I earn my living as a software developer. I write because I enjoy it and through writing I have met some very interesting people who I would not have had a chance to meet otherwise.
The biggest 'cost' to reading a book for many is not the money spent to acquire the book, it's the several hours of leisure time required to read the book, time that could be spent doing something else.
This suggests to me that the overall book demand curve is fairly inelastic.
That Amazon sees more elasticity is not surprising: they're conducting experiments on part of the market. Price has a big influence on what book people buy and where they buy it; but I hypothesize that it has little effect on whether or not they actually buy a book.
Alternative explanations for library usage being down is that paperbacks are already pretty cheap, consumers are interested in a "long tail" of books libraries don't have, and if you want really cheap then you can easily find a long tail of used books for $1-3 on Alibris.
The fact that people are choosing an efficient way to get the books they want is hardly evidence of inelastic demand.
I can borrow e-books from my library, nearly as fast as buying them from Amazon.
I can borrow physical books by hitting their site, putting a hold on it, and then next time I'm in town, I pick it up. It's not UPSd to my door, but it's not that big of an investment. (or, more likely, Wife + kids pick it up next time they bring home 40 books from the library. We sometimes have a good couple feed of the holds shelf.)
You're saying that the middle cost is significant. That suggests that the latter cost is also significant. Therefore lowering the dollar price of the book has little effect on the total in the above equation.
Let's put it another way. When do avid readers start reading a new book? When they finish or get bored of their previous book.
Even if we agree that the total cost (including time) of acquiring and reading a book is high, that does not indicate that demand is inelastic.
Amazon is competing for my leisure time with Apps, Netflix, etc.. It's no wonder that higher priced books are losing out.
Books are in a strange place because the time invested consuming them far outweighs the equivalent cost of purchasing the book. I am not limited by price to the number of books I can consume each month; I am limited by time. Already many readers end up buying more books than they can read. In addition, free books are available at this place called the library.
Music, movies, and the rest of digital content is not like this. You can pick up a video game and play it for an hour, then put it down. (In fact, the stats show most apps are only used a few times, then never used again)
In an author-reader relationship, the author is trying to provide enough value for the reader to spend dozens of hours and many days consuming the material -- and more to the point, the express purpose is to somehow change the mindscape of the consumer. Good books require lots of time and change the reader forever.
So what Amazon is effectively doing is destroying the concept of reading by making it nothing more than an extended version of an mp3 song. But since you can't just consume a book in 3 minutes, more books will be sold and more books will remain unread. Books -- long form content -- will become superfluous. It's all low attention span, immediate pleasure consumption now. I imagine we'll see more and more readers buy an ebook and read a few pages and stop. The nature of reading will change.
And while this might result in more overall book sales, it doesn't do much for the individual relationship an author has with a particular reader.
There's nothing wrong with making books like every other form of digital content. Everything is bits, and bits gotta be free. But as a consumer of good books, Amazon does not have my best interests at heart. It's just playing a numbers game. My best interests actually might be books that cost 100x what they currently do: make me feel some pain and spend some careful thought about what I'm going to spend my time on.
I am not interested in delivering the maximum number of unread ebooks to the most number of non-readers. I am interested in choosing those 5 or 6 books each year that are worth my investment in time to experience. And as an author, I am not interested in maximizing sales. I am interested in maximizing impact. Amazon is friend to neither of us.