What should determine the price of e-books?

On the FUTUReBOOK blog, in a recent post about app publishing and pricing, Simon Appleby mentions the dilemma facing publishers when it comes to pricing electronic editions of books:

While we know that e-books and enhanced e-books pose their own pricing challenges for the trade, at least there is a base expectation in the consumer’s mind that what they are purchasing has value as the fruits of someone’s labours – the debate is “cheaper than the book, but how much cheaper?”.

That is a good question, and I started to try and write a comment on his post but it developed into such a long comment that it became clear I should make it as a post here instead…

There is a distinction between value and price, and of course there is not necessarily any connection between cost and price (except insofar as the price needs to cover the cost but may not be limited by that cost).  I think one of the problems we have in publishing and specifically in setting the price of electronic editions of books, is derived from this confusion, especially in readers’ perception of the relationship between these different concepts rather than an understanding of the inherent risks which should really drive the discussion.

   Thus the argument that the price of an e-book edition should be less than a printed edition because there are no printing or shipping costs, not only ignores the other costs of producing an electronic edition, it also makes the assumption that price is determined by cost. That may be true for a commodity product, but we are talking here about a creative work not sugar!  

   The publisher invests in the author and the published product, in the expectation of getting a reasonable return on their investment.  Just as with any other product, they determine the appropriate price based on the perceived value.

   The value of an author’s output (to put it crudely) is a function of quality and market demand.  The publisher can have an impact on the quality (by careful choice of authors in the first place, as well as judicious editing and good quality control over all aspects of the final product) and on the demand (by good cover design, promotion and marketing, as well as by understanding the market and tailoring their product offerings to match what is fashionable/popular/trendy).  

   The value of a product (i.e. a print edition or an e-book edition) is also determined by its utility.  They each have benefits for the reader.  For example, elderly readers or those with poor eyesight have a much wider choice of reading by using an e-book device/reader and increasing font size, than is available in large-print editions.

If value is determined by the market, significant changes in the organisation or operation of that market can have far-reaching effects. A market flooded by cheap material from unaccountable sources with little in the way of overheads can be irreparably damaged; quality is devalued, especially by less-discerning consumers. When the potential market for e-books starts to systematically undervalue the creative work of the author and the ‘value added’ by the publisher’s team, the publisher has no option but to reduce the price. As the publisher is therefore risking their capital up-front on the whims of the market, a less reliable market will inevitably lead to a reduced appetite for risk (we have already seen this in recent years with the preponderance of celebrity autobiographies and other titles that are predicated on a large pre-existing market from a different medium).  This risk is, of course, one of the principal drivers behind price-setting. 

   But there is also another risk that should be factored in to this discussion.  The risk to the reader of buying an electronic edition of a book.  Unlike the printed edition, in many cases the electronic edition is not really being purchased – it is effectively an indefinite licence to have access to an electronic copy of the book while the supplier/retailer remains in business.  This is a much more legitimate reason for readers to expect an electronic edition to be cheaper than the printed edition.  I don’t expect books to vanish from the shelf in my lounge if the bookshop in the high street (where I bought them) closes down.  

So, back to the original question. How much cheaper?  That comes down to evaluating the risk.  If I, as a reader, am paying a relatively small amount for the privilege of reading a book that I’ll probably only read once and then bin, I shouldn’t have great expectations for its longevity (and I will probably be only moderately upset if everything goes belly-up and my library disappears!);  if I’m paying significantly more, a similar amount to the cost of the printed edition maybe, I will expect to be getting a similar level of utility and risk.  I don’t think most readers are thinking about this; but equally I don’t think most readers really just link price solely to cost, it is a select vociferous few.

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