Sunday, September 26, 2010

E-Pricing: On Agency Models, Generic Drugs and Anti-Trust Agreements

Gee, for some reason, e-publishing has been on mind lately. J.A. Konrath had some interesting posts this past week that provide sales figures for his body of self-published e-work and that not-so-subtly diss his traditional print publishers for not embracing a low-price-point, high-royalty, quantity-based sales model.

The argument for agency pricing goes something like this. Traditional publishers invest a great deal of money in the initial production of the associated print book, including editing, copyediting, layout, artwork, printing, warehousing, and promoting. No matter that these costs are mostly "recycled" when it comes to producing the digital version of the same book, publishers feel it's in the best interest of the company and the reader to maintain a high price that doesn't unfairly compete with the print copy. And if the majority of print books don't earn out their advances, then the second-string digital sales can help cushion the margin. As well, some publishers believe what they consider below-cost or loss-leader prices will harm consumers when that model can no longer be sustained (although the sustainability question is another debate entirely).

Meanwhile, writers like Konrath and small e-publishers are stocking the virtual shelves with cheaply priced product in direct competition.

Sound familiar?

I keep hearing how publishing is a unique beast with unique sales and distribution models. But aside from the whole antiquated returns business, is it really that different?

Other industries deal with unique manufacture and distribution issues, too. Two that readily come to mind are pharmaceuticals and car manufacturers.

An established pharmaceutical may spend hundred of millions of dollars in R&D to develop and test a new drug. There's generally a mandated period of a few years when the company can pretty much set its own price and try to earn back its costs without worry of competition. When that period expires, other companies may begin producing generic versions of the drug and start undercutting Big PharmaCo's prices. Some of these generic products are inferior and a few may even prove harmful. Most, however, are perfectly good substitutions at a price point that lures consumers their way.

Like publishing, the pharmaceutical industry has a high-price justifier in its back pocket. Instead of a returns wildcard playing in the equation, it has initial co-op subsidizing from insurance overshadowed by the question of when insurance company formularies will de-list their brand names and replace with generics.

American and European car manufacturers went through a similar crisis of conscience when upstarts from Japan introduced cheaper and more economical models. The old guard held its ground through eroding margins and profits.

Technology manufacturers also go through this same pricing cycle with every new device released.

So what do you call a consortium of publishers declaring a minumum price and trying to force competitors into compliance? Terms like "monopoly" and "antitrust" come readily to the non-legal mind. Is it a worrisome practice or just good business?

Logically, I can see all three sides to this triangle:

Side 1: Development - wants an acknowledgement that intellectual capital should be compensated throughout the productive lifecycle. Feels the consumer is paying not only for the end product but for all the creativity/research/whatever that went into producing the product to begin with.

Side 2: Business - wants a return on development costs without worry about competition undercutting the value of the item over the life of the product.

Side 3: Consumer - wants to pay the least amount possible for a product that satisfies their needs. Some people "need" a Mercedes, others are happy with a Hyundai.

Who'll win?

The right-brain me who wants to think my words are worth the same no matter what the medium hopes the development side. The mid-brain me who can't help but see both sides to the argument and finds each persuasive on its own hopes the business side. And the left-brain me that has always been practical -- buying generic drugs and Japanese imports and waiting to purchase technology until its price at least plateaus -- is cheerleading for the consumer.

Those latter cheers are loud. Loud enough to drown out the other arguments, IMO.

In the end, I think the lower-priced, quantity-driven sales model will survive and thrive.

What do YOU think?


Wilkins MacQueen said...

Large topic Divine Miss Phoenix. If the inhabitants of an ecosystem can't adjust to changes in their environment they generally die off.
I believe natural selection and adaptation are not confined to the biological world. Dinosaurs left the planet for a reason. They couldn't adapt when their environment changed.
An unsuccessful species is up against tremendous pressure and losses to the successful and more adaptable species that thrive under those same pressures. It may be too early in the changing environment to see the successful species at this point in time.
Thought provoking DMP, very thought provoking.

fairyhedgehog said...

I hope that lower prices will win out. The higher ones seem unrealistic to me - but what do I know?

sylvia said...

I think the worry (OK, my worry) is that e-books will have this reputation of being cheap for the wrong reasons (I keep hearing variations of "hey, they didn't need paper or ink or typesetting or a cover or any of those materials, not to mention storage"). If/when we hit an age where e-books are predominant, that expectation would be set and it would be hard to fix the prices to take into the development of the novel.