July 20, 2011
It has been said, with regard to the stock market, that Wall Street traders know the price of everything and the value of nothing. As I watch the price of e-books fall through the floor, I begin to wonder whether the traders have company.
First, a caveat: Compared to your average economist, what I know about consumer pricing you could fit in a thimble. For example, I don’t deeply comprehend the Paradox of Water and Diamonds, in which that thing most essential to our existence is almost free (except if you get if from Fiji), while nearly useless little rocks have enormous value. I do understand it has something to do with relative scarcity.
And maybe this is one problem we have with words and stories. They may be indispensable, but we currently have too many words chasing too few dollars. Of course, the quality of those words is another matter, but I’ll get to that.
In April, GalleyCat reported that certain customers of Amazon had instituted a boycott of all e-books priced over $9.99. It quoted an Amazon “reader” (perhaps “customer” would have been a better word) explaining the outrage thus: “Kindle books are kinda like movie tickets. While you can re-read the book, you cannot: donate it to a library, sell it to a used book store, sell it on Amazon’s Used Marketplace, [or] trade it to a friend … The publisher does not need to pay for paper, glue, press time, press employees, insurance, ink, boxes, or shipping. Amazon does not need to stock its warehouse, pay staff to fulfill orders, or pay shipping. The price needs to reflect these VERY important facts.”
I don’t know whether $9.99 should be the sweet spot for e-book pricing, but the above argument is notable for who and what it leaves out. The “who” it leaves out is the author, of course, the creator of the work. The “what” it leaves out is the experience of reading.
Before I argue (as I’m about to do) that pricing e-books so low as to bankrupt publishers or to deny authors a living wage is not only stupid, it is practically immoral, let us stipulate a few things about pricing.
The first thing to remember is that pricing may be a reflection of the producer’s costs in the beginning, but over time the cost of production is nearly irrelevant.
Second, the primary reason for this is that price is really set by consumers, who decide in aggregate what the market will bear. If it costs me a thousand dollars to produce a gold cup, that doesn’t mean someone is willing to pay that. Which is why there are many more (and cheaper) paper cups than gold ones on the market today.
Third, the utility of an item for the consumer may be appreciably disconnected from the ingredients it contains. If I were an economist, I might call this the Paradox of Cheese. When was the last time you saw the price on a wheel of brie and declared: “Thirty-five dollars? But that only contains fifty cents worth of milk!”
Fourth, if consumers confuse the package for what’s inside when establishing value, this can work to your advantage (if you’re a smart marketer) and to your disadvantage (if you should’ve taken that job teaching freshman English and spared the world your business skills). Guess which outcome the publishing industry has allowed to happen.
This leads me to a story that a non-publishing friend shared recently. A woman comes to Pablo Picasso and asks if he’d be willing to paint her portrait. “Of course,” the painter says. “Sit down.”
She sits and he sketches for awhile. Then he hands her the paper and says, “Here you are. That will be one million dollars.”
“A million dollars!” she protests. “But that only took you twenty minutes.”
“Madam,” Picasso explains, “that picture took me a lifetime.”
In this story, Pablo Picasso understood more about establishing value than all of us knucklehead authors put together.
The cost of producing an incremental copy of an e-book is practically zero. So what? This number is relevant when an author negotiates with his publisher about the division of proceeds and only then. For everyone else, the real value of an e-book lies in the experience of reading it. If it’s non-fiction, the words inside might provide insights that will improve that reader’s life in a thousand small ways. In the case of a novel, it might change that reader’s worldview completely. What’s that worth to you?
For the sake of people, like the Amazonian quoted above, who pass through the world under green eyeshades, permit me to note the following: even if you gave five stars both to the movie you just saw and the book you just completed, at $9.99 (or $12.99 or $29.99!) the book was the much better deal. The movie gave you two hours of entertainment; the book at least ten times that for a comparable price.
Now, it’s true that price can sometimes communicate quality. I recently bought a bestselling e-book for $2.95. It was written by a hack and had no redeeming value, not even good entertainment. I assure you, I was overcharged. Consider the free e-books on the Amazon bestseller list. If your time is worth anything to you, I am willing to bet that in most cases upon reading them you will have paid too great a price.
But authors and publishers don’t get to decide that, not entirely. I said above that price is set ultimately by what the consumer perceives as value, by what the market will bear. This is exactly why the Association of American Publishers and every writers’ organization and all similar industry groups should stop whatever they’re doing and devote all their resources to one purpose: establishing the value proposition of an e-book at any price in the minds of consumers.
The value of the cheese does not derive from the milk. Neither the cost of producing an e-book nor its package has anything to do with the experience that book will deliver to readers. The sooner publishers and authors establish this proposition in the marketplace, the better off we all will be.
Next week: Publishing Primacy — Folio 19: The Trouble with Free
Follow me on Twitter: JEFISHMAN
Visit the Verbitrage website.
Publishing Primacy posts every Wednesday by 7:00 a.m. Eastern Time