The Battle for a Digital Pricing Model that Works Part 3: The Dark Side of the Force & A New Hope

By Rebekah Hunt
The book industry has been slower to evolve than other industries. The big retail chains, who had undercut the already wobbly industry’s prices on paperback books back in the 1980s, are now seeing the same thing done to them by the burgeoning digital market and Amazon.com. Advancements in e-reader technology such as the Kindle and the iPad make the transmission of print media in digital form far more practical and attractive than ever, but the industry has yet to develop a good standard for continuing to profit from the sales of these new kinds of media, as evidenced by the suit filed by the Department of Justice regarding ebook pricing.
Of course, where there is instability, there is vulnerability. One of the primary dangers presented by the lack of a good pricing model for ebooks is piracy. Despite the January 2010 unveiling of the ominous findings from research group Attributor, which showed between 1.5 and 3 million daily Google searches for pirated ebooks; the threat of ebook piracy may be more of a moon than a Death Star.
According to electronicbook-readers.com (see previous blog), “…there are a large number of consumers who are unwilling to pay the current price for ebooks, and they are willing to pirate those books rather than do without. Consumers who feel their needs are met are much more willing to part with their hard earned money than those who are frustrated with companies who simply no longer seem to ‘get’ them and their lifestyle.”
However, they go on to say, “What [publishers] do not realize is that piracy is only a problem when industry does not provide consumption models wanted by particular classes of consumers… The decision to allow her Harry Potter series to be distributed in electronic format is expected to net JK Rowling over 100 million in revenue and has probably cost her triple that amount due to her previous reticence toward ebook distribution.”
Rowling’s resistance to making her golden goose available in ebook format is the stuff of industry legend, demonstrating the entrenched backwardness and misunderstanding of the market that is a major impediment to the progress of book publishing. However, as stated, even Rowling was forced to capitulate to the demands of the market.
A New Hope: The Market Evolves
“The publishing industry… is where the music industry was seven years ago,” electronicbook-readers.com says. They advise that publishers adopt a similar strategy to the music industry and “…ignore piracy of ebooks on non-commercial sites and focus on producing content and connecting with their readers. If digital distributors were to start looking at digital piracy as a business deduction similar to advertising and charity donations and [focus] more on delivering content consumption models that encourage everyone to participate, they would discover a method to survive the massive disruption to their industry that technology has created.”
They encourage the publishing industry to look at the success of Netflix and Napster when developing new models for future business practices. “Such a move early in the fledgling ebook economic model,” they say, “would turn massive numbers of potential pirates into happy consumers paying monthly subscriptions who in turn become a new revenue stream to authors and distributors.”
For book publishers, ebooks integrated with other media are the way the market is going, and pricing models must evolve to meet the need. International publishing conglomerate, the Penguin Group, is extending their reach far into the electronic market. A recent article from appleinsider.com reports that Penguin expects their ebooks to grow from 4 percent to 10 percent of their sales next year, and they will also introduce a series of interactive ebooks for the Apple iPad.
Penguin CEO, John Makinson attributes this to the compatibility of the iPad with the company’s business model. The features of the iPad that are attracting publishers such as Penguin, fit the market trend toward integrating multimedia experiences with books in order to get consumers interested in books again. Makinson states that it is Penguin’s intention to take full advantage of the iPad’s capabilities, saying, “…we’ll be creating a lot of our digital content as applications, to sell on app stores in HTML, rather than as ebooks.” Makinson admits uncertainty concerning the success of these new strategies, however, reflecting the apprehension apparent throughout the publishing industry that the market is still in a precarious position.
Stay tuned for next week’s blog, the Return of the Jedi (an ebook pricing strategy that works)!
 
Image by Maximilian Schönherr. Used with permission under  the Creative Commons Attribution-Share Alike 3.0 Unported, 2.5 Generic, 2.0 Generic and 1.0 Generic license.

The Battle for a Digital Pricing Model that Works Part 2: The Fall of the Old Republic

By Rebekah Hunt
The Economist reported, in August of 2006, that print journalism has been in decline since 1990. Jobs in the industry fell by 18% between 1990 and 2004, Knight-Ridder sold off its newspapers, and New York Times share prices had been cut in half within four years.The obvious explanation, and the one most often given for these trends, is the mercurial rise in internet use over the past decade.
It is most likely true that the free availability of information on the internet has seriously impacted the public’s interest in reading a physical newspaper, adding up to large losses in the newspaper sector. But what about book publishers who, as the Times reports, aren’t faring much better than the papers? Has the rise in worldwide availability of digital media contributed to book industry losses as well? In the same way that Apple killed the arena-rock star, has the internet killed the print media star?
The short answer is yes, but it’s not as simple as that, so don’t go into mourning for the paper trade just yet. According to the Times, a steep decline in paperback book sales began in the 1980s, before the widespread adoption of the internet as a primary media source, “when retail chains that edged out independent bookstores successfully introduced discounts on hardcover versions of the same books.” This accomplished two things: it crippled the already wobbly publishing industry, and it changed consumer expectations of what a book should cost. I am going to repeat that, since it is essentially the crux of the entire issue: changed consumer expectations.
Reread that, breathe it in, take it to heart, because consumer expectations are the soul of the market. However much we may love our books, the print media are not the beleaguered Rebel Alliance, and the internet and Apple are not the evil Galactic Empire. It’s not a David and Goliath struggle here. Just like Sony, Geffen, and BMG, publishing houses are massive corporations with bottom lines and products to sell. The real Rebel Alliance is made up of consumers, bloggers, independent authors, self-publishers, and content creators of all types. Basically, people who write stuff and people who want to read stuff. To follow the analogy even further along this line, the internet is the Force, in that it “surrounds us and penetrates us; it binds the galaxy together” (in the immortal words of Obi-Wan Kenobi).
The most important effect the internet has had on the publishing industry is that it has changed consumer expectations of what media should cost, how easy it should be to access, the scope and variety of options that should be offered, and the level of control the consumer should have over purchasing options. The immediate availability of every type of media online, the relative difficulty of the acquisition and consumption of printed media, as compared to things like songs or television shows, and the initial resistance of publishers and authors to offer their books digitally created an uncertain place for book publishers in the market. This point was proved when book giant Borders filed for bankruptcy and shut down its stores.
Since newspapers and book publishers deal not only in information, but also in a physical product, they are experiencing some difficulties producing and selling their products in tandem with their digital content. If their digital content is offered for free, it cannot replace the revenue from sales of the physical product. By the same reasoning, the physical product cannot fund the free digital content if it is already losing money. Since publishing companies have been forced to cut budgets everywhere they can, downsize staff and reduce page counts, it seems impossible for them to retain the readership they so desperately need. The mainstay of the newspaper industry is in advertising dollars, but the book industry only sells content. So, how will the book industry harness the power of the Force and make money in the new digital universe?
Again, the music industry is a good place to look. According to a recent article on electronicbook-readers.com, the Napster/iTunes effect on the music industry is a leading indicator of what is possible for the future of book publishing. “CD sales have declined thirty percent in the last five years and digital downloads have not completely made up that gap created by the technology.” They say; however, “…different means of consumer consumption and distribution are responsible for the economic decline of the music industry.” They explain that it is the choice that consumers now have of listening to music before they purchase it, along with a sharp decrease in consumer perception of the value of digital content that are responsible for the decline in sales.
There are multiple giants for publishing houses, magazines, and other print media to slay if they don’t want to follow Borders into the tar pits of history. The largest of these, as with the music industry, are the challenges posed by digital distribution. The music industry has undergone massive change in response to the consumer-driven popularity of digital download sites. While this change was painful at first, most of those resisting it were at the top of the industry food chain making millions of dollars on overpriced, overexposed, overprocessed, records anyway, and the market has enthusiastically ignored their plight. As a result, the industry has been forced to evolve. With the rise of iTunes and pay-as-you-listen consumer sites like Pandora, the music industry is alive and well, and poised to take on any challenges the new market presents. But how will the publishing industry fare?
Stay tuned for next week’s blog, the Dark Side of the Force (digital piracy)/A New Hope (the publishing market evolves); and the week after that for the Return of the Jedi (an ebook pricing strategy that works).
Image by Declan Fleming. Used with permission under Creative Commons License: Attribution-NonCommercial 2.0 Generic.

The Battle For a Digital Pricing Model That Works. Part One: Pub Wars!

By Rebekah Hunt
In March of 2011, Jon Bon Jovi famously accused Steve Jobs of being “personally responsible for killing the music business,” in an interview with the London based Sunday Times. “Kids today,” the aging rocker said (probably after chasing some off his lawn), “have missed the whole experience of… taking your allowance money and making a decision based on the jacket, not knowing what the record sounded like, and looking at a couple of still pictures and imagining it.”
In his defense, he did acknowledge that this made him sound like an old man, but the self-awareness stopped there. Mr. Jovi failed to grasp the crux of the issue, which is the other part of the experience kids these days are missing: the experience of getting price-gouged by a greedy record company for a record that included a bunch of filler, propped up by one or two listenable songs and a ruthlessly promoted single, only to feel let down and cheated after being forced to buy it “not knowing what the record sounded like” and then being stuck with it. And it is this experience, not Steve Jobs, that really killed the music industry.
What does this have to do with the publishing industry? Everything. One of my major motivating interests in the publishing industry, specifically at this point in history, is the monumental evolution the market is undergoing. In the wake of the Napster/iTunes revolution and its palpable effects on the music industry, current developments in software, hardware, and online accessibility; other industries are quickly moving to follow suit.
Despite criticism of its bite-sized, carte-blanche style of selling media to consumers, iTunes has set the bar for consumer expectations of the availability and ease of consumption of media. Sites like Netflix and Hulu are leading the way in on-demand digital sales of television and films, even partially contributing to the Writers’ Guild strike of 2007-08 over residual payments based upon digital media downloads and online streaming content. The one industry that appears to be foundering in the current market’s sea change is the publishing industry.
This brings me to the ultimate question for the publishing industry: how is the publishing industry going to evolve to stay relevant in the current economic and technological climate? The obvious answer for now seems to be the migration of the written word away from paper and toward digital media, but the struggle over pricing and distribution of books and other publications in digital formats has been confusing at best, chaotic at worst. In order to find a solution, we first need to isolate the problem by examining the traditional publishing model and trying to assess the major factors contributing to its decline.
Stay tuned for next week’s blog, the Fall of the Old Republic (the decline of the publishing industry); and the week after that, for the Dark Side of the Force (digital piracy) and A New Hope (the publishing market evolves); and the week after that for the Return of the Jedi (an ebook pricing strategy that works).