It is as true for organizations, companies, and industries as it is for individuals that sometimes we need to be pushed to do what is best for us. That certainly appears to be the case with the publishers’ business model for e-books and its competitive strategy with Amazon.
Regardless of what the courts decide concerning a possible collusion among Apple and publishers on the pricing of e-books, the Department of Justice antitrust lawsuit provides a wonderful opportunity for publishers to re-evaluate and restructure their fundamental business strategy in what is their fastest growing format.
First to be reconsidered is the current agency pricing model. In this model, while publishers control the price paid by consumers, they also earn fewer dollars than they did before on each e-book sold. This reduced revenue model is not sustainable as print sales are being converted to e-book sales. In the wholesale pricing model, e-books were usually discounted 40%–50% from the publisher’s print list price, with Amazon setting its own retail price, which was usually heavily discounted. In that model, Amazon absorbed most (if not all) of the cost of that reduced price, and if the lower retail price was responsible for increased unit sales, the publisher enjoyed the benefit of increased sales without any additional cost.
Publishers have said that their primary reason for changing e-book pricing to the agency model is their concern about the effect on bricks-and-mortar bookstores of Amazon’s discounting. Although the potential dangers of having only a single sales channel are very real, the primary problem for physical stores is not discounted e-books but discounted print books, in which Amazon has long been a leader; that requires a completely different strategy. It is hard to imagine a future in which e-books would have a strong presence in physical bookstores. However, one thing that publishers can do to help physical stores, as well as themselves, is to strategically price their e-books in coordination with their hard and soft cover print books so that customers’ decision to buy an e-book is based on how they want to read that book, not because it is a cheaper way to read it.
For that reason, publishers should not forget the lessons they have learned in the print book world about hardcover and paperback editions. The higher price for the hardcover is due not to the difference in printing costs but to the value a certain segment of customers place on having immediate access to the book.
This pricing premium for faster access is similar to the consumer electronics market, in which early adopters are willing to pay more when the product launches. Publishers should consider establishing higher pricing for the initial launch of an e-book (perhaps to extend until the paperback edition publishes), followed by a lower e-book price thereafter. This, too, could benefit publishers and authors.
The success of traditional publishers in a market with many self-publishing options, and with Amazon trying to play an increasing role as a publisher, will depend upon how well publishers enhance their editorial and marketing skills to better help their authors create the best books they are capable of and to more effectively market and sell them using all of the new technology available. These are the parts of the publishing process that rely on the talents and time of people, rather than the automation technology and economies of scale that are the greatest strengths of Amazon.
Publishers should also recognize that not all authors are looking for the same things in a publisher, and that a one size fits all royalty model based on providing the same suite of publishing services should be reconsidered. The royalty rate for authors that have their own promotional platform and thus do not want to utilize (or pay for) the marketing services of their publisher could be different from that for authors who do value those services.
So, too, there could be a different royalty rate for an author who values frequent editorial feedback and guidance in shaping a book idea and hands-on help in translating that idea into a manuscript, and for one who does not; between an author who values an advance payment and one who does not; from one that wants both print and e-book editions and one that only cares about e-books.
Finally, traditional publishers should not try to prevent Amazon from being a publisher, but rather they should pursue the regulatory and/or courtroom avenues opened up by Amazon’s initiative to gain information about, and access to, their own customers who buy books through Amazon. That should be at the core of any settlement with the Justice Department. Address the very real issue of Amazon’s dominance in the e-book market by forcing the disclosure of the customer information that supports that dominance and hinders competition. In a world of online marketing, that customer information and relationship is critical if publishers are to enhance their ability to market individual titles, something most authors will continue to value as an alternative to Amazon’s aggregation model. That is the battle that publishers (and authors) should fight and win, now that the DOJ has provided them the opportunity to do so.
Rich Wohl is the founder of the educational publisher Wohl Publishing Inc. Previously, he worked for several Pearson Education companies as well as Lippincott Williams and Wilkins.