the basic theory of price elasticity, which says you have to let prices fall until demand reaches the point that profits are possible. Pakman (who is also quoted in the Times article) wrote:
The bottom line is that “value” or “worth” is not decided in a board room, it is decided by the market. And low-cost digital distribution, where the marginal cost of each incremental item sold is zero, brings consumer expectation that price must fall. They don’t care if the rent on your offices at 50th and Broadway are $8M a year. Traditional media companies whose products are going digital must accept lower unit selling prices and massively cut their operating costs in order to survive.
You don’t have to dislike publishing executives as a class (though it’s hard not to, after reading stories like this 2008 New York magazine exposé) to agree with Pakman that the book business has a bloated, antiquated cost structure. This is an industry that would rather print more books than it can sell and end up pulping 25 percent of them every year, than figure out how to predict demand or be more flexible about manufacturing. It’s an industry where payola is still rampant—publishers pay bookstores for what’s called “co-op,” or placement of their top titles near the entrances or on end caps. It’s an industry that provides name authors with multi-million dollar advances that it knows it has little chance of recouping, often just for the bragging rights or the publicity value. Are those costs part of the “real” price that e-book buyers should have to pay?
I’ve been an observer of the e-book industry since about 1998, and was briefly a participant—I worked for NuvoMedia, the company that invented the pioneering Rocket eBook, from late 1999 to early 2001. I’ve always thought that e-books were the most important innovation in the publishing industry since the dime novel, given that they could eventually free publishers from all the costs that go along with printing and distribution of paper books. But throughout that time, it’s also been my belief that the optimum price for e-books, where higher demand will start to make up for lower unit prices, is far lower than publishers might wish (mainly because e-books are, well, just computer files). The refusal of publishers to significantly mark down their digital editions was a big part of what killed the Rocket eBook (though there were a lot of other culprits too). And I’m convinced that if publishers put a $15 price tag on Kindle editions, it’s going to pour cold water all over a market that was just beginning to warm up.
Even $9.99 seems to me like a lot to pay for an e-book that, after all, contains far less data than a single MP3 song or a half-hour TV episode on iTunes. My guess is that the optimum price for an e-book—the publishing equivalent of the 99-cent mobile app, where readers won’t have to agonize much over each purchase—is around $6 or $7. If that’s not enough to pay for all the work that authors and publishers say they put into producing those books, well, guess what? We’ll just have fewer authors and publishers, until somebody comes along with an idea about how to make a profit at that price level.
And even if that takes a few years, it might not be such a tragedy. In fact, it might just give everyone a chance to catch up on the thousands of perfectly free public-domain classics available from the Internet Archive and Project Gutenberg. If prices for new e-books go up to $15, that’s where you’ll find me loading up my Kindle—and I think I’ll have a lot of company.
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