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About this weblog
Here we'll explore the nexus of legal rulings, Capitol Hill policy-making, technical standards development, and technological innovation that creates -- and will recreate -- the networked world as we know it. Among the topics we'll touch on: intellectual property conflicts, technical architecture and innovation, the evolution of copyright, private vs. public interests in Net policy-making, lobbying and the law, and more.

Disclaimer: the opinions expressed in this weblog are those of the authors and not of their respective institutions.

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In the Pipeline: Don't miss Derek Lowe's excellent commentary on drug discovery and the pharma industry in general at In the Pipeline

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December 28, 2012

Sometimes There's A Story in What Didn't Happen

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Posted by Alan Wexelblat

In this case, what didn't happen in e-book pricing. Those of you who read Jon Sargent's (Macmillan) year-end letter will know that the people opposed to settling with the DOJ have pointed out that there would be nothing to stop a precipitous plunge in e-book prices. Except somehow that didn't happen in 2012.

Since several of the big publishers settled immediately, their e-book prices have been subjected to discounting for months. Instead of maintaining the 13.99 and up price that publishers were accused of colluding to maintain, prices have slid downward a bit, but not crashed. According to David Streitfeld's piece in the Times this week, new e-book prices seem to be hovering around $11-12.50 even as sales climbed by over a third.

It's possible, of course, that Amazon is just biding its time until all the publishers are settled, but that seems unlikely. Amazon doesn't discuss its pricing strategies in public, but it has shown it has extremely fine-grained control over what prices it offers on its millions of catalog items. It is fully capable of discounting some e-books while maintaining price floors on others. Instead, Streitfeld hypothesizes, the sustained higher price may be due to another things-that-didn't-happen: e-books have not displaced physical books, at least not to the degree predicted.

The causes cited for this are the usual ones, plus frankly there may be some buying fatigue among e-book consumers. People who bought new e-books or bought e-books for the first time seemed to be stocking up a large selection and it's possible they're taking time out to digest what they've already bought before making more purchases. It will be very interesting to see what the numbers look like next month once analysts have had a chance to digest the purchasing data from this Christmas season.

The other, more interesting to me, possibility is that we're starting to understand the shape of the niche that e-books will occupy in the sales ecosystem. As Streitfeld says, the demise of retail book outlets may itself be hurting e-book sales, particularly among the majority of purchasers who are either new to e-books or who still buy both e-books and physical books. These buyers may like the idea of browsing, holding things in their hands, etc - the physical aspects of book-shopping. That they then went home and bought e-books was bad news for the retailer, but if in fact that first step is important to the e-buying process then the lack of a physical presence may spell trouble for e-book sales and for converting physical-book readers into e-book readers.

In addition, e-books are generally tied to a physical product - their reader. You can discount a book if you're selling a reader at a good margin. But if the market for readers is saturating and you're having to discount readers then you may not be able to sustain losses on e-books. Likewise if you depend on sales of a reader in order to push e-book sales then the fortunes of the two will tend to rise and fall together.

So yes I expect e-books to get cheaper in 2013, but not by much. For prices to drop significantly publishers will need to retool their businesses to be able to pass on the cost savings of digital production to end readers, and to do so in a way that doesn't destroy their physical-book pipelines in the process.

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