An American Editor

April 6, 2010

Valuing a Book: How Do Publishers Decide on Value?

Publishers claimed the high road in the pricing battle with Amazon over ebooks, constantly denigrating the $9.99 value point. Publishers feared, they claimed, that such a price point devalued ebooks.

That got me thinking. How do publishers decide the value of an ebook? Clearly they think a leased ebook has more value than an owned pbook because we haven’t heard this rallying cry before. Thus the move from the wholesale to the agency model of distributing. Why do publishers think a leased book is more valuable than an owned book? Or do they?

There is a certain lack of logic to publisher protestations. For decades the wholesale model has worked without claims of devaluing even though bookstores heavily discounted the books and forced publishers to print large quantities only to have a significant portion of the print run returned. If I were to point a single finger at a single cause of book devaluation, I would point that finger at print overruns that cause returns.

Think about it. Where do the remainder books come from? They are the remainder of the print run that didn’t sell. They are offered in bargain bins for 20% or less of the retail price, and who put them there? The publishers. Is this yet another case of the kettle calling the pot black?

Until the advent of ebooks, publishers seemed happy to sell books to retailers for the wholesale price and then let the retailers set the actual sales price. What difference did/does it make to publishers if retailers sell every book at a loss? The publisher’s revenue isn’t linked to that sales price — or is it?

The unanswered question is whether the discounted pricing moved more books for which the publisher was paid the wholesale price. Would 100,000 copies still be sold if the book wasn’t discounted to $9.99? Or would sales languish at a significantly lower number. My bet is they would languish.

The second unanswered question — and the one that publishers jump on but have no data to prove — is will the $9.99 ebook price will set a price point in the consumer’s mind above which no book — p or e — can be sold? Publishers point to the music industry, but why not look at their own history? The $7.99 paperback hasn’t done away with the $35 hardcover. Publishers are reacting from fear, not knowledge. 

But none of this addresses value. It does address market forces and the likely impact that a lack of competitive pricing may have on the book market, but not value. How do publishers ascertain a book’s value?

We know that there is the bean-counter method whereby someone adds up all the production costs, allows an accounting standard amount for intangibles, applies a percent for profit, and allows for returns, and then divides the total by the print run to establish a value. (There are variations to this bean-counter method.)

But the bean-counter method can’t really be the valuation method publishers are using because that method would work equally well with ebooks — in fact, it would be simpler with ebooks because there would be no print run intangibles or returns. So publishers must be using some other method, one that I can’t put a finger on. (Sure would be nice if they explained it!) The method must somehow be tied to an intrinsic value, a gut-feeling value.

The intrinsic value has to be unquantifiable and based on the content. But isn’t the content of the pbook version and the ebook version the same? Or are the contents different and we just aren’t being told? I expect the content is the same, so explain to me why there is no devaluation of a pbook sold at discount but there is of an ebook?

What makes a paperback worth $7.99, an ebook worth $12.99, and a hardcover worth $25.99 when all the content is identical? We know that production and distribution cost differences are not the answer; the answer must lie in the content or the format. If the content is identical, then content doesn’t account for the valuation difference. The answer must be the format. But that doesn’t make sense because the pricing schemes are reversed, since the value of the format is convenience and ebooks are certainly more convenient than pbooks, which means ebooks should cost more and hardcovers less than paperbacks. But then ebooks are leased and pbooks are owned and isn’t ownership more valuable than leasing? Shouldn’t then the value of ebooks be less than that of paperbacks?

Is this confusing? Yes, because there is no logic to applying the different pricing models — wholesale to pbooks and agency to ebooks — on the basis of value. There is no demonstrable difference in content value to any of the formats. Something is rotten in ebookland!

I don’t want to flat-out state that there isn’t an argument to be made by the publishers about preserving the financial value of books. What I do want to flat-out state is that

  1. publishers haven’t made any valid argument to date.
  2. publishers need to explain why ebook valuation is different from pbook valuation.
  3. publishers need to reassure the nascent ebook market that they truly aren’t trying to kill ebooks.

There clearly needs to be a dialogue between publishers and consumers, especially now that publishers have set the consumer, and not ebooksellers, as their market with the adoption of the agency model. But for this dialogue to occur, publishers need to define how they value books so that consumers can determine for themselves whether the agency model for ebooks is really justified by a need to save books from being devalued. The argument that ebook sales detract from hardcover sales and thus the need for the agency model is less than a weak-kneed argument. The counterargument is simple: Set the initial retail price under the wholesale model of the ebook at the same price as the hardcover and let the ebooksellers sell them for whatever price they wish, including at a loss, just as is done with the hardcovers.

Publishers need to be more forthcoming. They do not need to justify price in relation to costs; that is a business matter. What they do need to do is better explain their valuation excuse for going to the agency model. Consumers are entitled to understand why there will no longer be price competition in the ebook marketplace. Isn’t it the publishers’ own actions that are devaluing books?

11 Comments »

  1. As an editor prehaps you could answer this question for me?

    “If ebooks are so much more valuable than paperbacks, then why are so many ebooks riddled with typos and formating errors that would never be tolerated in a paper edition”?

    Sorry for being flippant but you copy went right to some deep aggrevations.

    Comment by Joe J. — April 6, 2010 @ 8:31 am | Reply

    • Joe, the answer is multifold but 3 points stand out. First, many of the older books that have been turned into ebooks have been scanned (OCRed) and not created from a digital file. Second, publishers are not hiring proofreaders to go through the scanned books (and Amazon, which introduces additional errors when it converts even a digital file to its proprietary format, doesn’t hire proofreaders to check books it has converted). Third, if the book is from a very small publisher or a vanity press or is self-published, it is often the case that no professional editor was hired — the author ran spell check or had their neighbor give it the once over. The curse of ebooks is that anyone with a computer can publish one; the blessing of ebooks is that anyone with a computer can publish one.

      Comment by americaneditor — April 6, 2010 @ 11:02 am | Reply

  2. Interesting post, and well-argued. What particularly struck me was this sentence: What makes a paperback worth $7.99, an ebook worth $12.99, and a hardcover worth $25.99 when all the content is identical? First, I think you are missing a format there. To leave out trade paperbacks at an average price of $12.99-$14.99 is missing one of the most important format categories around. I tend to think of those as the direct print competitors to e-books, not hardcovers, and certainly not mass market paperbacks.

    Second, you make the argument that with content being the same, it is format that accounts for the difference in price. I agree with that, but disagree with the conclusion that the value of e-books is based on the convenience factor of their format. Convenience is an important factor in e-books but less important in print books. Those of us who favor hardcovers–and I am one–choose them specifically for their format’s ability to incorporate glorious cover art, quality that ensures the book will have a long life, and “handability.” (However, let me know I cannot afford to pay new hardcover prices so I get either newly used copies from Powell’s or discounted and even remaindered books from Edward R. Hamilton.) Mass market paperbacks are little more than throwaways, and the quality reflects that. Trade paperbacks, however, being mid-way between the two are closer to e-books but are, as you pointed out, owned rather than leased. They can be lent. They can be shelved. Should that make a difference in price?

    Maybe. I don’t own an e-reader, and don’t anticipate owning one. I like my library far too much. I not only don’t mind lugging hardcovers around, I thrill in it. But I have a good friend who is both a Vine reviewer for Amazon, and a Kindle lover–and this woman’s home has print books (hardcovers, trade paperbacks, and to a lesser extent, mass market paperbacks) everywhere. She has simply run out of room, hence the Kindle. She loves it since it makes reading in bed easy and she no longer disturbs her sleeping husband with a variety of trial bed lights. She also has a virtual library with her at all times. But she feels that e-books should not be priced over $9.99 because they are leased. Will she continue to buy them if they go up in price? Probably, but I suspect she will seek out the sale items. She may end up buying new books she wants to read in trade paperback. Or as a Vine reviewer she will probably ask for them when they are offered as ARCS.

    What does this have to do with justifying costs? Here you have two readers: one for print, the other for e-books. Both are cost conscious. Price doesn’t stop either of us from buying, but what we both do is seek out ways to lower that cost, either by purchasing via discount at Amazon or sticking to used copies at Powell’s or remaindered at ERH. Publishers will do what they feel they must; we will continue to do what we know we must.

    Comment by Lauren — April 6, 2010 @ 8:35 am | Reply

    • Lauren, I, too, love hardcovers. I buy all my nonfiction (which is mostly what I read) only in hardcover; I buy almost all my fiction as ebooks (there are a few favorite authors whose fiction I buy in hardcover). I do not buy for myself paperbacks (my wife likes them because they are lightweight). However, no matter how you cut it, ebooks are the most convenient format for fiction; they may not be the best format or the format of choice, but they are the most convenient. It is so much easier, for example, to carry 100 ebooks when travelling, than to carry even 2 hardcovers. The primary value of ebooks is convenience; the primary value of pbooks is quality.

      Comment by americaneditor — April 6, 2010 @ 10:58 am | Reply

  3. [...] the value of the identical (except for format) pbook? (Further discussion of value is found in Valuing a Book: How Do Publishers Decide on Value?) Isn’t this where we are heading now that the floodgates have been [...]

    Pingback by Agency in eBooks: just the Start? | TeleRead: Bring the E-Books Home — April 7, 2010 @ 8:04 am | Reply

  4. Regarding “2. publishers need to explain why ebook valuation is different from pbook valuation.”

    It sometimes sounds like you’re comparing pbooks and ebooks not simply as two formats but as two entirely different processes. Nearly all the money that goes into creating a pbook is the same money that goes into an ebook, minus the printing costs but plus the cost to convert it into the various ebook formats. It does make some logical sense, then, that the cost of an ebook ought to be the same as that of a pbook minus the cost to print a single book plus a bit of money to cover conversion — another sort of bean-counter formula that would be easy to do.

    But I don’t think you’d like the price that comes out the other end with that. Books cost a lot of money to make before they’re even printed.

    As for mass-market paperbacks vs. ebooks, one main difference is shelf-life (or at least it ought to be). Mass market paperbacks are printed on lower-grade paper that isn’t meant to last so very long. And when you read a mass market paperback, you physically wear down the book. Every time you lend out a MM paperback, more wear and tear. Eventually, it falls apart.

    The same isn’t true for ebooks — or shouldn’t be. When publishers finally get their stuff together, an ebook ought to last longer than a hardcover pbook, much less a paperback. An ebook also doesn’t degrade with each reading. I agree with Lauren that an ebook is more comparable to a trade paperback than to either a MM paperback or hardcover.

    Comment by 4theist — April 7, 2010 @ 2:19 pm | Reply

  5. [...] the value of the identical (except for format) pbook? (Further discussion of value is found in Valuing a Book: How Do Publishers Decide on Value?) Isn’t this where we are heading now that the floodgates have been [...]

    Pingback by Agency in eBooks: just the Start? | Bookbee ebooks — April 7, 2010 @ 6:56 pm | Reply

  6. [...] How do publishers decide the value of a book? And how is the new “agency model” going to affect publishing and bookselling? [...]

    Pingback by Stumbling Over Chaos :: In which Mayhem taunts all of you and I include a few links — April 8, 2010 @ 2:04 am | Reply

  7. [...] sensory perceptions, value, wordsnSync This topic has been broached before (see, e.g., Valuing a Book: How Do Publishers Decide on Value?, On Books: Deciding to Buy or Not Buy (III), and The eBook Wars: The Price Battle (IV) — Value) [...]

    Pingback by Valuing eBooks: Is it a Sensory Problem? « An American Editor — July 8, 2010 @ 6:57 am | Reply

  8. [...] topic has been broached before (see, e.g., Valuing a Book: How Do Publishers Decide on Value?, On Books: Deciding to Buy or Not Buy (III), and The eBook Wars: The Price Battle (IV) — Value) [...]

    Pingback by Valuing eBooks: Is it a Sensory Problem? | The Digital Reader — July 8, 2010 @ 7:04 am | Reply

  9. [...] because they’re all well worth reading: The eBook Wars: Reality vs. Fantasy in Expectations Valuing a Book: How Do Publishers Decide on Value? and most recently: Valuing eBooks: Is it a Sensory Problem? Adin brings up a good point with his [...]

    Pingback by On Borders, and what ebooks are missing « The Value of Books — July 10, 2010 @ 5:29 pm | Reply


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