Paperback books and e-books; more on the dispute between Hachette and Amazon

Guess what? Lowering the price on something means you can sell more of it and make more money.

That applies to paperbacks when they first came out and it applies to e-books today. Well, it actually applies to practically everything.

Know what else? Anyone who wants to publish a book can do so. Anyone. For astoundingly low cost. The publishing frontier is wide open. Thank you Amazon.

In August, Amazon sent an e-mail to people using their Kindle Direct Publishing service. (By the way, if you aren’t already a best seller and want to ever get your book published, you really, really ought to go the e-book route with KDP. It is awesome.)

Back to the e-mail.

Since it went out to tens or hundreds of thousands of people, I will take the liberty to quote it.

Some history:

Just ahead of World War II, there was a radical invention that shook the foundations of book publishing. It was the paperback book. This was a time when movie tickets cost 10 or 20 cents, and books cost $2.50. The new paperback cost 25 cents – it was ten times cheaper. Readers loved the paperback and millions of copies were sold in just the first year.

Let me adjust that to prices of movie tickets in Southern California today:

  •   $12 – movie
  •   $15 – paperback book
  • $150 – hardback book

Back to the e-mail.

With it being so inexpensive and with so many more people able to afford to buy and read books, you would think the literary establishment of the day would have celebrated the invention of the paperback, yes? Nope. Instead, they dug in and circled the wagons. They believed low cost paperbacks would destroy literary culture and harm the industry (not to mention their own bank accounts). Many bookstores refused to stock them, and the early paperback publishers had to use unconventional methods of distribution – places like newsstands and drugstores. The famous author George Orwell came out publicly and said about the new paperback format, if “publishers had any sense, they would combine against them and suppress them.” Yes, George Orwell was suggesting collusion.

Well, history doesn’t repeat itself, but it does rhyme.

E-mail then talks about the dispute between Hachette and Amazon. Amazon wants lower prices for consumers, Hachette doesn’t. I’ll skip those paragraphs.

Here’s a mind-bending idea. Books don’t just compete against books. Consider:

Many inside the echo-chamber of the industry often draw the box too small. They think books only compete against books. But in reality, books compete against mobile games, television, movies, Facebook, blogs, free news sites and more. If we want a healthy reading culture, we have to work hard to be sure books actually are competitive against these other media types, and a big part of that is working hard to make books less expensive.

Here’s the really cool economic part. Dropping the price of books increases sales so much that there is more total revenue with a lower price. Amazing, huh? Consider:

Moreover, e-books are highly price elastic. This means that when the price goes down, customers buy much more. We’ve quantified the price elasticity of e-books from repeated measurements across many titles. For every copy an e-book would sell at $14.99, it would sell 1.74 copies if priced at $9.99. So, for example, if customers would buy 100,000 copies of a particular e-book at $14.99, then customers would buy 174,000 copies of that same e-book at $9.99. Total revenue at $14.99 would be $1,499,000. Total revenue at $9.99 is $1,738,000. The important thing to note here is that the lower price is good for all parties involved: the customer is paying 33% less and the author is getting a royalty check 16% larger and being read by an audience that’s 74% larger. The pie is simply bigger.

Here’s the math for total sales:

  • $14.99 x 100,000 = $1,499,000
  • $ 9.99 x 174,000 = $1,738,000

In the Amazon program, the royalty to the author would be 70% of that, or:

  • $1,499,000 x 70% = $1,049,000
  • $1,738,000 x 70% = $1,217,000

That’s 16% more to the author at a lower price point.

Which is better for the publisher and the author?

Even dividing the sales number by a hundred or thousand, which would you prefer?

Full disclosure

Do I really need to disclose that Amazon happily has published four of my books in electronic format and three in print? They are willing to do that for an author with infinitesimal sales. And their royalty is large multiple of the big publishers.

Hachette would never, ever even bother to return my phone call. Never.

Amazon publishes e-books within hours of receiving them, just as soon as they pass technical inspection. Okay, that’s an exaggeration. It usually takes until the next day. Sometimes a whole day.

My Print on Demand books took a whopping 2 or 3 days to be available online after I approved the drafts. I ordered some author copies and received them in 3 days.

Just in case it isn’t obvious that I’m criticizing the traditional publishing industry, Amazon moves at blinding speed.

That my books are way down around the one gazillion point in the most popular list is my issue. Amazon has delivered wonderfully well.

Previously mentioned this fight here and here.

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