The Wall Street Journal’s Jeffrey Trachtenberg wrote an interesting article recently that asks the question: As more and more readers make the switch to digital books, why are so many of the most popular ones priced so high?
As physical book sales fall, publishers’ fixed costs are becoming more cumbersome. One area major publishers can cushion the blow is by keeping e-book prices higher. “If e-book prices land at 99 cents in the future we’re not going to be in good shape,” said one New York publishing executive, who asked not to be identified.
The business is changing. If publishers are having a hard time covering fixed costs today, it’s only going to get worse tomorrow. The publishers who will eventually survive are going to be those who find innovative ways to reduce their fixed costs; not devise complicated models to pay for them.
E-book prices on many new national best sellers are higher today than they were at the start of last year. That’s because the six major publishers have adopted a new pricing model, known as “agency pricing,” championed by Apple Inc. Publishers, worried about the deeply discounted $9.99 digital best-sellers promoted by Amazon.com Inc., agreed to set the consumer prices of their digital titles. Under this model, retailers act as the agent for each sale and take 30%, returning 70% to the publisher.
The major significance of agency pricing was that it made it impossible for a retailer to discount the price without the approval of the publisher. The impact was immediate. Amazon had built its market share in part on aggressive price discounting in which it actually lost money on the sale of many of the book industry’s most popular titles.
Aside from the fact that this agency pricing model sounds like pricing-fixing to me, it seems that publishers are trying exert increased pressure on both price and supply in a market that they no longer control. There are also some who would question why authors would support a model that seems to reward them less and less in the long run.
The bottom line is that the traditional publishers need to find a way become more relevant. As e-books replace traditional print, much of the traditional value provided by publishers is disappearing. Rather than placing new controls on the market through rigid price and supply models, publishers need to find a way to provide new value to the industry. In the long run, the only way they’ll grow revenues is by innovating to provide new value.
Here’s the takeaway: When the meteor hits, you either evolve or die. For today’s traditional publishers, impact time is rapidly approaching.
Patrick Lefler is the founder of The Spruance Group – a management consultancy that helps growing companies grow faster. He is a former Marine Corps officer; a graduate of both Annapolis and The Wharton School, and has over twenty years of industry expertise.