Answers to some questions from the comments

Hi out there. I have been reading through the traffic from my last post on e-book pricing and the agency model. Rather than answer you all individually, I’ll take a shot at answering four questions that encompass the general nature of the responses.

1) What is the difference between a “hardcover” and “paperback” e book? In truth…nothing. It is simply a matter of timing.

In traditional publishing we had three formats, each at a different price. They were targeted at specific channels of distribution and were released at different times. There was some discounting by retailers, but historically not much. Then discounting became more aggressive and the channels of distribution for the formats began to blur. Currently some books never appear in paperback, some books only appear in paperback, and some books are in the market simultaneously in hardcover and both paperback formats (at three different price points). The digital edition (in almost all cases at present) doesn’t change in format over time – there is no difference in what is actually being sold. So, how should the digital edition be priced?

Some argue it should be almost free as there is little physical cost of delivery. But the physical cost of the book has never been the greatest component of cost. The authors who create the work need their rightful compensation, and they need editors. The marketing and publicity are no cheaper. And given that the ink on paper aspects of the business are still here, publishers still need warehouses, infrastructure, and all the other legacy costs of the business. Digital sales as a whole are not incremental (though some of them may be).

Some argue it should be the same price as the hardcover. After all the real value is in the ideas and the words, not in the artifact that sits on the shelf. But certainly that artifact is of some value, and the digital edition is more ephemeral than a printed book.

Some argue the digital edition should be tethered to the physical book and should be priced under whatever the cheapest available format that is currently available for sale.This has a solid feeling logic behind it, but I’m not sure it makes sense in the long run given there is no differential in format (if there are three formats availble, why wouldn’t the right price be a bit cheaper than the wieghted average of the available formats)?

In the end, an e book will be priced to reflect the value consumers put on it. We believe at first release an e book is worth more and people will pay more for it. Over time it will become worth less as demand tapers. However, some digital books will retain their value over time just like print books. Some will increase their value over time (many physical books are now only available as trade paperbacks, after they have been out in the cheaper mass market formats). So our digital pricing will vary to reflect the value of the book at the time. But in general, our plan is to price books below ten dollars after there initial sales demand slows (usually within a year).

A very long way of saying, there is no hardcover or paperback e book, but the digital edition will change in price over time to reflect its value to the reader as best we can determine it.

2) Will retailers have flexibility to price books at a discount? No, the sale price will be fixed by Macmillan. Retailers will promote and market books, but we will control the price for the book.

3) How can we trust Macmillan to carry out its pricing pledge? An interesting question in that we have never made a pricing pledge. Historically, e book pricing has been driven by a number of factors, and it may well have appeared to be inconsistent. We never promised to price books in a certain way and have actually never controlled retail prices before now. And many of our decisions on list prices were driven more by our Amazon relationship than by our relationship with consumers. Looking forward, it will be a very fast moving world. I have told you our intent on e book pricing. I cannot guarantee or pledge what price we will be charging in the future. Personally I doubt that typical prices for general interest digital books will break out over $15.00. I also believe the majority of digital books will be priced below $10.00, as most Macmillan books are now and will be on day one of the agency model.

4) Will we be re-pricing e books that have a $14.00 digital list price while there is a mass market paperback edition available? Yes! To a customer price of $9.99 or below.

John Sargent

More next week, including author royalties…

Thanks for listening and writing in your concerns.