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?

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