by Tobias Buckell

This is long.

Like, really long.

And talks about the intimate details of publishing in long and meandering manner.

I tried to make it shorter, I really did, but as Mark Twain once said, I didn’t have the time. So I wrote this instead.

So as of right now, you can’t buy my books via Amazon, as they have stopped selling all Macmillan books (both mailing print books to you, and selling Kindle books).

So, Amazon wants to sell books for $9.99 or less, my publisher wants to sell books for a more dynamic range of $5.99 to $14.99.

Right. So Amazon and Macmillan are in the middle of negotiations about how to sell eBooks. Amazon had, for a while, paid publishers an agreed upon price, and then discounted them to $9.99. Amazon’s reasoning: this would move eBooks, in particular Kindle eBooks (and maybe some Kindles, though I think Amazon’s creating a Kindle was to move more eBooks).

Publishers would like to be able to set eBooks at a higher price, say $15, then degrade the price over time to a much lower price. How much? CEO of Macmillan says “Our plan is to price the digital edition of most adult trade books in a price range from $14.99 to $5.99.”

This isn’t unusual. When a jacket first comes out at Macy’s it’s usually a certain price. Over the season it drops, and eventually it becomes bargain.

When a new device comes out, the initial R&D that was invested in it is recouped by an initial higher price point.

Cars sold on launch day are cheaper than cars sold a year later.

In a free market economy, dynamic pricing is not exactly a new and stunning concept. Prices are flexible, they’re something a company sets as it eyes how many units are sold in volume versus how much profit it makes off each item.

Amazon is fighting this. Using its large (pretty dominant) share of both eBooks sold and print books sold online, it has in the past dictated the terms. Amazon says it wants customers to not have to pay more than $9.99 per eBook. Obviously Macmillan has bucked this, as Macmillan eBooks come out for a price higher than $9.99.

Due to the launch of the new Apple iPad, Macmillan seems to be working to strengthen its position on variable pricing. Amazon, after an apparently tense negotiation, has decided to use the nuclear option: yanking all Macmillan books, except for the ones for sale via third parties (used books sales, other companies using Amazon marketplace).

Does Amazon have the right to do this?

I don’t do legalese, but I would assume businesses get to sell what the want to sell. Yes Amazon is a near monopoly online, but this is legal. They have every right to refuse to sell.

Isn’t Amazon just looking out for us, the reader, getting the customer the best deal?

Amazon has made noise that this is all about the customer, but I doubt that.

Here’s why:

1) Amazon still uses Digital Rights Management. This is not a customer-helpful feature. In fact, Apple iTunes has gotten rid of it, as have many other music sellers, and found that sales increase. If Amazon was doing this ‘for the little man’ then where are all their attempts to get rid of proprietary Kindle software and DRM? We know it increases sales to drop DRM, so why aren’t they doing it? Customers would love it. But Amazon would lose control.

It’s their right to use or not use DRM, I’m fairly neutral about it myself, but to cast them as some sort of consumer advocate is off the mark.

2) If Amazon is a marketplace, they would just let a publisher putting out expensive books to shoot themselves in the foot. But what we’re seeing is a very aggressive move, designed to shock and awe the publishers. This really has nothing to with what customers want and everything to do with Amazon using its very large position to leverage itself into remaining number one. They deep discount books, often at a loss, because then once they have a customer, there’s so much more to sell you. Speaking as an Amazon Prime member, I understand. If Amazon loses customers elsewhere, because of books, they lose the ability to leverage the wide of their item selling.

What Amazon wants to do is price fix books to a ceiling.

If Amazon were a smaller retailer, this probably wouldn’t be a big deal. But Amazon pretty much, right now, has a monopoly on online bookselling. They’re huge. As a result, this becomes nearly a form of de facto price fixing.

Yes, we’d all like cheap books. I’d like cheap gas too. And milk has gone up. I’m working in a recession. I know this stuff hits the wallet. But the genius of a market economy is that we let companies try to charge what the market can bear, and let sales and results sort it out.

During the 70s the government tried to put artificial prices on gas, resulting in shortages as hoarding occurred. Most economists that I’ve read demonstrate that while artificially blocking a higher price sounds like a good idea (populism), it’s actually bad economic news.

That’s why your gas, milk, and other items aren’t pegged to a maximum price ceiling.

When a manufactured thing initially comes out, the initial investments to make that thing are still there. As a result, with designed jackets, new cars, new medicine, the price is initially higher. Over time, as those investments are recouped, the unit cost comes down.

It’s not surprising that publishers would like to do this with eBooks.

When price fixing occurs, there are consequences.

In the case of books, Teresa Nielsen Hayden predicts this is what will happen if price fixing is allowed to occur:

My honest estimate is that the result would be fewer and less diverse titles overall, published less well than they are now.

$9.99 is really expensive, you suck. eBooks should never cost this much

As a buyer of eBooks, I agree. Hell, as a buyer of regular books I agree.

Here’s how I, as a reader, go about buying a book.

Is it someone I know will rock my world and I’ll love reading? I’ll buy hardcover. Heck, I’ll spend good money to right away read a favorite author. I’d pay $50 to read Vernor Vinge’s next A Fire Upon the Deep related book he’s working on. Maybe more, to be honest. I can’t. fucking. wait. for that book to come out. Hardcover, paperback, eBook, whatever, I’m a crack addict who’ll pay for this author’s book.

The next level is someone I want to read. I try to read them in paperback or eBook priced at roughly paperback equivalent prices. But sometimes the convenience of reading right away on my iPhone triggers a buy between $9-12. $14.95 is a mental trigger for me, at that price I’ll wait for the book to come down in price (which it always does), or find a cheap print copy.

Of course, I’ve been in some financial hard times in my life. Right after I was laid off the $4 difference between $9 and $14.95 was a bit much. For those times I use the US’s amazing library system, and get the book on loan. I understand if people are hard enough up they can’t afford the $4 difference. It’s mac and cheese time, ramen noodle time.

But if you’re spending more than $4 a day on Starbucks coffee and fast food, I have less sympathy!

And not every writer can be an amazing “OMG I’ll pay anything writer.” As one ‘9.99 fanatic’ got in reply to a very nasty email sent to me, “I apologize for not being a good enough writer than you feel the $12.95 spent on my words is not worth a half a day’s entertainment, compared to the couple of hours you get via a DVD for more money. I will endeavor to try and write better in the future. Thank you for your email.”

But Baen sells books really cheap, never more than $9.99, so shut up.

Well, yes and no. Baen is awesome and shows a way to really get eBooks working well for their readers. I think it should be paid damn close attention to.

But Baen sells books for a wide range of price flexible options.

For example, if you want the book as soon as possible. They sell eArcs for $15, catering to the ‘can’t wait to get it first’ crowd. As time goes by, they bundle books into packages (webscriptions) and sell individual non-DRM books for a very good price. If you buy their bundles, you can get books for mere dollars. They also do 99 cent sales. And they have a Baen Free Library. So the price of a Baen book is anywhere from $0 to $15, just glancing at their sales pages.

Again, price flexibility.

Nightshade sells books via this program at a very affordable straight $6.

That rocks.

Okay, but what price should an eBook be?

If you were paying attention to my mini lecture on free market economy, you know that it’s “as much as the market can bear.”

The truth is, the answers range dramatically depending on a lot of variables *which is why publishers want the ability to flex price!*

But isn’t an eBook ‘cheaper?’

Well. Here lets look at…

How books are made:

Let’s take a look at how this particular sausage is made. I understand readers don’t appreciate this much, I didn’t before I was published, but now I understand that a book is a group undertaking.

A book comprises of the following production investments. Just like a pill requires research to bring to market, or a jacket requires artists, designers and invention, professionally published books that look slick and readable use the services of a number of different people.

What are those costs?

An editor: the man who works with the author on the big picture of the book. How are these chapters hanging together? Does this character make sense? What book should we work on next?

A typesetter: makes the inside of the book look professional and easy to read, well put together

Designer: interior art, layout, more look and feel of the inside. The look and feel of the outside of the book and how it incorporates the cover art

Art: someone has to paint, create, or put together the graphics that sell the book

Copy editor: this person goes through and makes sure the book is readable, looks for internal consistency (your character has blue eyes here, but brown here. Suns don’t actually go nova like that).

Proofreader: this final pass looks for any final typos that have slipped through everyone else.

Those are just some of the people involved in making a professional book.

I’m not including marketing/advertising, or the author’s advance in this little mental experiment.

In this article by K.T. Bradford, Jeremy Lassen, who runs a lean, focused, smaller press, says those initial investments for a book run from $7,000 to $20,000.

If you were making an eBook only, to make a professional, slick, proofread and well edited project, let’s take that lower number. Let’s say you farm this all out and pay an up and coming artist $3000 for a painting, a proofreader $1,000 to go over and copy edit, and then later proof the manuscript, a designer $1,000 to design the book’s look and feel all throughout, and a freelance editor to help throughout all this. I have no idea what an editor costs who’s freelance, but let’s lowball this and say that person makes $2,000 a book, like the copy editor (this would mean, for an NYC based editor, that they’d edit 24 books a year to make a freelance living. A lot of hustle). That’s a $7,000 initial investment.

So you can see, even without printing the book, there are upfront ‘development’ costs in good books.

So what price point do you need to cover your costs?

Well, how many eBooks do you think you can sell? See, the question becomes one of volume. In order to cover this back on only eBook sales you have some choices.

At 99 cents it takes 7070 sales to break even.

At $9.99, it takes 701 sales to break even.

At $15 it takes 467 sales.

That’s if you’re selling direct. Amazon takes a cut, so we actually probably need to multiply these by 30% to make them real world.

That looks impressive. Only 467 sales to cover back the initial outlay. The problem is, volume. Can you guarantee 700 sales vs 300, 7070 at 99 cents?

I’ve gotten to talk to other writers, and for all that people are buying books happily on Kindles and iPhones, very few writers other than big sellers (the top tier), are seeing more than triple digit sales a year for eBooks.

The volume is so low that with Amazon taking its cut, and so forth, most people are seeing a couple hundred dollars here and there.

Could pricing be the issue you’re not getting volume?

Well, I have my eBook sales figures of Crystal Rain, a book that has sold in the five figures in print, meaning people who have purchased in print, print online and in bookstores. That’s a nice run, it’s my bestselling book of the 3 Xenowealth books (Crystal Rain, Ragamuffin, Sly Mongoose), but leaves me still a midlist writer. Ragamuffin hasn’t broken five figures yet, it sold in the high thousands of copies (that dip between them is one reason the Xenowealth books are on hiatus now).

In 2008, for a brief while, Crystal Rain was available for free via download. Number of Kindle users who downloaded it: low thousands. Number who’ve purchased it for sale after that: low hundreds.

So five figures in volume compared to three figures. That’s an order of magnitude difference.

This magnitude difference holds steady. I sell hundreds of copies of eBooks, and thousands of paper copies.

So pricing it for free reveals that there’s a very small pool of eBook readers still. In fact, eBook sales as a percent of total sales are just over 1%, up from .47% in 2008.

Again, in economics, there is the law of supply and demand, and demand is still pretty low when compared to print books.

Even assuming eBook adoption follows an exponential takeoff, and map the growth rate of 2002 having .03% of the market to today’s set up, you have eBooks being 10% of the market in 2016. At that point, I’m betting volume will start picking up enough that it gets easier to justify smaller prices per unit. But right now, eBooks sell like limited editions.

But the current volume is still low, although some people (our new superstars) are able to get sales into the thousands and break the curve (every graph has outliers).

But publishing doesn’t publish just eBooks!

Correct! Publishing spends an initial outlay for designing and editing the books (that 7-20K we talked about) plus it has offices, plus advertising, marketing, and it offers the author an advance, and it pays to print the print copies.

Then, there’s usually a person who has to be hired to do the eBook conversion process. What people have found is that even with automated export tools, they still have to create an eBook version. Amazon has software to create their Kindle version, B&N uses ePub, other people use other versions. Someone has to check that even if the automated ‘make a version of this’ works well, that there aren’t any hiccups.

So it has a larger initial investment. And eBooks aren’t the only focus, but one arm of a large initial investment.

So on the first quarter this book is for sale, what the publisher is most likely trying to do is at least not have eBooks cost more than what it took for that extra effort to create it.

And with a few hundred copies, chances are, it’s barely doing that.

So publishers, looking at supply and demand, think that there’s low enough demand that they can up the prices a bit and overall, in that first while, make a little more. There are enough people who are excited about an author no matter what the cost, that they’ll make more. This way they’re covering the cost of the guy who makes sure the books get converted into nice eBook versions. And over time, they’ll drop the price.

Just like people who sell pills. Or jackets.

And here we go back to price fixing versus flexible pricing that falls over time. When you have smaller sales, sometimes reducing price to boost volume can leave you with the margin you want. But sometimes not. Sometimes you need to raise the price.

This is why price fixing is not the answer to the eBook dilemma. Letting volume grow from the single digit percentages it is, while giving publishers the flexibility to experiment and play is not the end of the world some claim it to be.

So Amazon has the right to pull the list. It’s part of the negotiating game. They did this to Hachette UK earlier this year in the same manner to force Hachette to play the game according to Amazon’s rules, as it set them up when Amazon first started selling Kindle books. Hachette folded, Amazon views this as a way to get publishers to do what they want.

The reason Macmillan is asking for a change in the way things are done, is because Apple has released an new program, and it offers publishers a program more in line with what they think will work: including some flexibility in early release prices. This now means Kindle is not the big kid anymore, as many are assuming Apple will pull a repeat iTunes store.

Whether or not that happens, I don’t know. But Amazon seems to find the nuclear option okay, and after years of working to send them a lot of business, this is a reverse blow. Because of my online presence, over half of all my print and eBooks are sold via them. Just as they have the right to do this, I have the right to be pretty friggin’ pissed that they think this is the way to negotiate, or build good will in any way.

So tell us how you feel about all this?

Look, I use Amazon Prime because I live in the boonies. I read books via Amazon Kindle. I’m even moderate about DRM packaging (I’d prefer not to have it on my books, but as long as it doesn’t get in my way too much I’ll tolerate it).

But this looks to be very dickish, and using your size as a prime negotiating tool to play hardball. Again, Amazon has built themselves up to the size, so they have the right to use their size. It’s just business, you know? But so is my then saying, I will now be dropping all Amazon.com links from my website.

I will no longer be doing any business with them. This includes renting from video on demand, buying books both print and Kindle, as well as buying various goods. I will not use them for payments either.

Because I’ve entrusted my traffic and customers with them over the years, I do expect a slight bit of reciprocity. I don’t like to do business with people who, apparently as far as I can tell, think sucker punching you when they disagree, even if they have the right to do it, is the way to go about this.

I know the publishers are far from perfect (believe me, the handling of eBooks over the last X number of years has been frustrating, as a person who loves eBooks), but so far they haven’t behaved like giant kids throwing a temper tantrum during negotiations of anything.

What about when Apple forced everyone to buy songs for 99 cents?

I think it’s useful to compare the two, and realize that music and books are different. For one, volume seems to be different. People play music all the time, it’s electronic adoption *exploded* the moment napster arrived. Millions of downloads.

With books, even heavily pirated ones are not seeing the insane activity you saw with music. Again, that volume question. It’s a vastly different industry we’re comparing.

So even in the early days, the fight Apple was having was different than this one due to magnitudes. Even then, ultimately, in exchange for giving up on DRM, music publishers got the ability to be flexible with Apple store pricing. They actually gave up frigging DRM for it, it was that important.

Large companies, like record companies and book publishers, just wanted to screw the little guys.

Well, they want to make a profit. That’s called capitalism. And you make as much profit as the market can bear. Now what music companies did that got them labeled evil, and was stupid (besides having vastly larger volumes than books), was to become crazy about suing their consumers (crazy) and going after them. That developed bad publicity.

While some authors have done the same, have you seen publishers treating consumers the same way as the RIAA?

Publishing has very small margins, the corporations are large, but I’ve visited their offices. While Goldman Sachs is handing out billions in bonuses, overworked book editors are in small offices and worrying about layoffs.

What do you want me to do about all this?

Nothing. If you’re a reader, it’s not your problem. Buy the books you want where you can.

Listen, in the big scheme of things, this hits me in the pocketbook slightly, most likely, and Macmillan in a big way. It’s not a reader’s problem, in as much as, if you believe price fixing most of the market will lead to what Teresa Nielsen Hayden says is a reduced number of non-bestseller kinds of books/new authors and midlist authors. That may concern you. It may not. I don’t know you.

Some of you will just see that books will be price fixed at $9.99, and be happy. Much like many people would be happy to hear that gas was to be price fixed at $2. I understand that.

But if you do like the authors Macmillan puts out, now is a good time to buy one of their books from a non-Amazon source if anything you saw here made you think differently about price fixing. But I wouldn’t even encourage you to buy books that are too highly priced. Heck no. You are the consumer, you need to send the right pricing signals. This is how the free market works.

Go forth and just be your merry selves.

Then why did you write this

I’m not trying to exhort anyone to do anything, but to explain the situation I’m in, and to educate. I’m seeing a lot of people state things with certainty (points I try to knock down above) who have no involvement in the trade.
A lot of readers are going to take this out on authors, and I wanted to basically show my homework to explain things that people may not be aware of. People toss out prices of what eBooks ’should be’ who’ve never even stopped to understand how the math of something like this works. They demand things they’d never demand of a jacket salesman, just because they think economics and supply and demand and volume don’t apply to eBooks. They do.
Seriously. I’ve thought about these things a lot. Mostly because I have a novel series that has not been renewed, and I keep running the numbers to see if I could write it as an eBook, and when I run these numbers, I come up looking at making a few thousand dollars for half a year’s worth of work based on how eBook sell now. Yes, there are a few J.A. Konrath’s selling well on Amazon, but as I’ve linked, other authors aren’t automagically selling thousands of eBooks there. Most who follow these footsteps sell hundreds. Not everyone becomes JK Rowling.

What do *you* think is a good price for an eBook, then?

It depends on the author. Like I said, some authors I’d pay a lot to read. Some I won’t. I’m flexible.

But my gut instinct is that because eBooks have a slightly lower overhead than print books, I bet having them cheaper than a paperback is most comfortable. I wouldn’t be surprised if $4.99, once volume picks up over the tail end of this decade, becomes a sweet spot (under the $5 psychological breakpoint, just like $9.99 is under the magic $10 mental spot) where you could move a decent number of copies with audiences.

But right now, think of an eBook as being somewhat akin to a limited edition in terms of potential demand, with bestsellers/top sellers excluded.

One reason this focus on $9.99 is somewhat misleading is that it will allow places like Amazon to keep that as a mental target and expectation. When you look at volume, potential sales, and what eBooks sell, $9.99 is just as meaningless as $4.99. It all depends on how many copies are purchased.

Thanks for reading this crazy long ass thing…

Yeah, you think it’s taken a long time to read, here I thought I was just dashing out a quick ‘here are my thoughts on this’ sort of thing, and I’ve written a crazy ass long… thing.

Sorry about that.

—

Reprinted with permission from Tobias Buckell’s website.

Tobias S. Buckell is a Caribbean-born speculative fiction writer who grew up in Grenada, the US, and the British Virgin Islands. He now lives (through many strange twists of fate) in a small college town in Ohio with his wife, Emily.

Buckell was a first place winner for the Writers of the Future, and has been nominated for the John W. Campbell Award for Best New Writer and the Nebula Award. He is also a graduate of the Clarion Science Fiction Writing Workshop.