The Grand Conversation on ebooks: Elfwreck (part 3 of 3)

Elfwreck is the nom de net of an avid (some would say fanatic) ebook reader with over 10 years professional experience with digital imaging and over 25 years with document conversion and editing. She manages the [community profile] ebooks community at Dreamwidth and is active at the Mobileread forums. She lives in the SF Bay Area in California, and is also involved in tabletop RPG gaming, copyright activism, filking, and slash fandom.

READ PART 1 OF ELFWRECK’S GUEST POST HERE

READ PART 2 OF ELFWRECK’S GUEST POST HERE


“Turning Pirates Into Customers”

Part 3: Make Them Pay

Being successful as an author (on a financial level; I’m assuming the ones who only care about reaching a wide audience don’t mind piracy a bit) requires selling lots of books. That’d seem to be an obvious point, except that a lot of publishers seem to think that they don’t need to sell as many books as long as they get a big enough profit on the ones they do sell. This is a good, or at least reasonable, approach for paper books, where each book has to be printed, bound, stored, shipped, displayed, and sold to a customer, and each of those steps involves resources that cost money and people, who probably want to be paid. The fewer pbooks you sell, the less you have to pay for all those steps (assuming, of course, that sales include everything that’s printed – which they don’t, but that’s a separate issue). If publishers could sell a single book for $50,000, they wouldn’t need to print 5000 copies of it and ship them all over the country.

Ebooks don’t have those costs. The marginal cost of an ebook sale is, not counting DRM, is pennies per book … if the hosting/sales platform is expensive to run. Everything else is a cost per-title; after the title sells X copies (where X covers the costs of creating and arrange for sales of the ebook), everything else is profit. That never happens with print books: every sale requires an outlay of 12%-30% (depending on which publisher you believe) of the cover price.

The issue shifts from “how high can we make the price and still convince customers to pay us, in order to cut down the marginal costs” to “how low can we make the price and still make a profit from our expected number of sales?”

Konrath thinks that the magic price-point is $2.99. TheNextWeb thinks it’s between $3 and $10, with popularity of author playing a notable part. Teleread has some charts showing how it’s not price, but price-plus-sales, that make for profit, and that there’s a tipping point (in both directions) where a book makes less money than it could because it’s at the wrong price point. Publishers imply that $8 ebooks will lose them money, which makes some of us wonder if Baen went bankrupt years ago and just forgot to tell anyone.

They insist that Konrath is a fluke, and so are the dozens of other self-published authors who’re paying off their mortgages with $3 ebook sales.

I don’t know if Konrath and others (Hocking, Larson, Kitt, etc.) are “flukes”. Certainly, three dozen self-published authors out of the tens of thousands offering books for sale are not proof that it’s a financially viable approach for most authors.

I do know that when I’m looking for something to read, I start by looking at freebies, and move on to ebooks that cost money, and I’ve never had to go higher than $6 to find something I know I’ll thoroughly enjoy, and rarely higher than $3. Fiction ebooks priced about $6US are not on my radar. (Nonfiction’s different. I’ve spent $30 on an RPG ebook.)

Why $6? Because Baen’s maximum price for ebooks is $6, and I like a lot of Baen books (and I’m poor; I grew up on secondhand, half-cover-price books). For a lot of readers, the cap is $10 because they like mainstream bestsellers, they don’t care about DRM, and they can find bestseller ebooks for $10. But my impulse-buy level is $1-$3; I’ll buy up to a $3 ebook based on a nice cover and interesting description; I’ll only go up to $6 for authors I know or books that’ve been recommended by friends. Others have different ranges: $7 on a whim, $15 for books they’ve seen advertised on TV or have seen the movie of. Or only freebies, unless they’ve seen or heard something about a particular book, at which point they’re willing to pay no more than $5 for it.

Authors need to find their customers’ impulse-buy level, and their max price level, and find a way to sell books in that range. Publishers need to quit fearing that every ebook sold is a lost hardcover sale. Every ebook priced outside of the customer’s range is, at best, money in someone else’s pocket, and at worst, a temptation to piracy.

Convincing potential customers to change their price ranges is a lot harder than changing ebook prices, which should be bouncing all over the place. Authors and publishers should be struggling to find the sweet spot that maximizes the sales/profit ratio, not struggling to convince the public that the price they picked is what the customers should be paying.

Of course, it doesn’t matter if the price is in the customer’s range, if the book isn’t available for purchase. Right now, the business assumption is that online sales of physical contents take place at the seller’s warehouse, and are subject to those taxes and business arrangements. But sales of digital content are presumed to take place at the buyer’s location. Or the buyer’s ISP’s location. Or the buyer’s credit card’s bank’s location: A man in Australia is restricted from buying some ebooks from Amazon. Some of those books aren’t available in his local shops, either. However, he can visit the United States and buy the physical books … but Amazon has no way to sell him a digital book when he’s visiting the US.

The business contracts — not laws — that arranged these restrictions are perhaps understandable applications of copyright law and publishing contracts, but that doesn’t make them less onerous to the customers. What they see is: I visit ebookstore, I find a book I like, I click “buy” — and get told, “No! Not for the likes of you!” Sometimes, this happens after several steps of shopping-cart hassles; the bookstore doesn’t say “If your card isn’t registered in the US, you can’t use it for this book;” it just returns an error message instead of a receipt.

They don’t care how complicated publishing contracts are; they don’t care that buying the print version would indicate demand for the book in their country and maybe someone would buy the ebook distribution rights. Ebook stores that refuse to filter listings based on sales options come across as teasing, as mocking — deliberately showing off something the customer can’t have.

At best, this results in the customer buying something else. At worst, they head off to the torrent sites, secure in the knowledge that they’re not costing their favorite author any royalties. The author can’t get royalties for sales that aren’t permitted.

There’s no easy way to turn these “pirates” into customers. The contracts that govern international sales are complex and varied, and changing this system would undermine a lot of IP-based business. It probably needs to be changed, and will … slowly. In the meantime, screaming at readers who got the only version available to them is probably not going to help future sales.

And it’s unclear how “it wasn’t available for sale, so I downloaded it” differs from “it’s out of print, so I got it from a used book store.” In both cases, the author gets a new reader who paid no royalties. Yes, the physical book can only have so many readers before it falls apart, necessitating a new sale … but if it’s out of print, that new sale doesn’t win any new royalties, either.

Charlie Stross pointed out, “Historically, only 25% of readers paid into the authors revenue stream. A 75% piracy rate may therefore be seen as a continuation of business as usual.”

Digital sales might be able to change that percentage — by offering well-made ebooks, by letting the customer know what they’re buying before purchase, by keeping prices reasonable, by making purchase convenient, by not insulting the customers. This is generic business 101: Quality. Price. Convenience. And don’t call them thieves if you want to get money from them.

Commercial ebooks are still competing with free downloads. And the bottled water industry is competing with tap water. Authors and publishers have plenty of economic models to consider; they just have to figure out which ones can be applied to their craft.

The hardest part’s already done: ebook pirates care about ebooks. They want authors to write more, and they know that means somebody has to pay those authors. Many of them would like to be part of that “somebody.” They’re invested in the ebook industry, opinionated and informed (sometimes even well-informed), and willing to explain their reasons at great length. Authors should take every “justification” offered for piracy as marketing research — this is what the commercial version isn’t offering — and work to fix it. At the very least, you can count on the existence of other people who didn’t pirate, but didn’t buy the book either, for the same reasons.

You can’t turn all the pirates into customers. You might not be able to turn any pirates into customers. But you can use pirates to find out how to get more customers.

That’s what authors need: more ebook buyers. It doesn’t matter how many free copies are floating around, legitimate or not; it matters how many people are buying, and why they’re not. Find out why not. And fix whatever’s standing in their way.


Elfwreck’s writing can be found at [personal profile] elf, her Dreamwidth blog, or at the Archive Of Our Own.


The Grand Conversation on ebooks will run here at www.jiraiya.com.au until February 28. If you’d like to contribute a guest blog post, email me at shane@jiraiya.com.au.

5 Comments

  1. […] READ PART 3 OF ELFWRECK’S GUEST POST HERE Elfwreck’s writing can be found at elf, her Dreamwidth blog, or at the Archive Of Our Own. The Grand Conversation on ebooks will run here at www.jiraiya.com.au until February 28. If you’d like to contribute a guest blog post, email me at shane@jiraiya.com.au. Share […]

  2. Alan says:

    This is a great post. I agree with every part of it. I’ve been running a series of similar posts at my blog and I’ve just cross-linked this article as I think it’s essential reading.

    Just to help confirm one small part of it, my own books are selling well at $2.99. There’s been the occasional promo putting them out for 99c for limited periods, but never higher. My publisher is well aware of the pricing sweet spot and all their books are around $2.99 to $3.99 and non-DRM, available on Kindle and Smashwords (and it’s associated distributors). This needs to become normal before the industry starts to level out and ebooks really start to mainstream.

  3. Elfwreck says:

    Thanks!

    While I think that $3-5 is going to eventually settle as standard pricing for ebooks, I’ve also seen some articles about ebooks being considered “luxury items” by many people, and for those, higher prices are often considered a sign of quality or status. If a luxury item is priced too low, people wonder what’s wrong with it.

    I could see bestselling authors getting $6-10 while they’re at the top of the rankings, and having better sales than they would by pricing them lower. But I’d expect them to need to lower those prices when they’re no longer getting peak attention; $2.99-$3.99 seems to be a sustainable price; $10 doesn’t. (Which a lot of publishers seem not to care about, because they think of all books as perishable goods–the point is to max out sales in a couple of months, not to build a long-term market for that book.)

  4. PJ says:

    Excellent, Excellent, Excellent! All 3 parts. Well thought out and very common sense. I hope the authors and publishers listen.

  5. Giggleton says:

    I agree with most of what you have written, if authors want more monies they need to figure out how to generate more sales, listening to the pirates might help.

    Personally, I think an entirely new economic model is needed across all markets, focusing on community involvement and with much less of a focus on individual authors.

    Authors would submit their work, and a group of reviewers would review the work and submit it to the pool of work for sale. People could then choose to buy whichever work they desire, the monies are evenly distributed to all those authors who are in the pool regardless of how many books an individual author might have had downloaded.

    Is there a marketplace like this out there currently? The idea has been called out-there but I do think it could work, especially for a user generated content system.

    I just don’t think it’s beneficial to continue to dream up new ways to prop up the old individualized capitalism when it has so many obvious flaws, namely that one must lose for another to gain, I know that’s not how it’s supposed to work, but isn’t that how it does work in practice?

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