Three Approaches to Pricing Digital Publishing
Posted May 20, 2011on:
Pricing is a sticky issue for publishers, particularly in the digital world. Basically, if a price is too high, you, the reader, may ask why on Earth would you want to pay that and go to your friendly neighborhood pirate for a free copy.
So how can a publisher approach pricing in the digital world? Here are three methods.
1. As Cheap As Possible
Because why not? Distribution is free and, as Clay Shirky suggests in his book Cognitive Surplus, there are almost no marginal costs. Basically, each ebook sale is added gravy. Going along in this line, ebooks can be priced fairly cheaply. While speaking at Bloomsbury Publishing in London, Cory Doctorow, author and journalist, acknowledges that there is the possibility of these cheap ebooks cannibalizing the more expensive paperbacks and hard covers, but he doubts it. Rather, he thinks he is merely hitting a market that has a lower price point. Those who want the more expensive hard covers will get them at that price point.
Though Doctorow sells his ebooks, he doesn’t lock the ebook files to one device or prevent users from doing what they want with them. He says that if I could lend and give away copies of my paper books why, when digital is supposed to give us so much more freedom, do I actually have less freedom to share the things I enjoy with my friends? He has a good point. In order to enable this, he protects his work using the Creative Commons license online. While his ebooks may be easy to find, he can still make money off of movie rights and physical book sales. Furthermore, he contends in that by allowing free distribution of his ebooks, he has actually done better in hardcover sales than he generally would. His reasoning? It’s great publicity.
People want to share the things they love. This is the motivation behind much of the digital piracy online. Seth Godin suggests in his book Tribes that pirate copies are being produced by the work’s biggest fans who want to spread the good word. Doctorow tells of how the 7th Harry Potter book was available online within 24 hours of release, and translated by fans into German within 24 hours of that. No one sits and translates a book into another language, for free, without a sizable amount of passion and love. And particularly Harry Potter and the Deathly Hallows. I mean, did you see the size of that book? Doctorow is suggesting that this passion be harnessed into good publicity by allowing fans to freely share the work in a completely legal manner, rather than having to do so illegally.
2. Price What You Can Get
Rupert Murdoch certainly does not agree with Doctorow, having put The Times behind a pay wall. The experts are divided about whether or not this will work. Vivian Schiller from nytimes.com maintains that a blanket pay wall damages publishing’s traditional revenue driver: advertising. Bear in mind, she was the one who took down the TimesSelect pay wall. But there are others who think that Murdoch has a good chance at success, such as Rob Grimshaw from FT.com and Charlie Beckett from LSE’s thinktank Polis. They basically think that it will succeed as long as the payment is easy and accommodating to the readers, either bundled in with another News Corps service or with different packages for readers to choose from. Obviously FT.com thinks pay walls work, having successfully implemented their own.
But, as Clay Shirky has said, “Financial information is one of the few kinds of information whose recipients don’t want to share.” If a pay wall is to work, it has to protect information that both the readers and the publishers want protected, such as financial advice and information that helps those in the know come out better than those who aren’t privy to the necessary info. More than that, the information has to be unique enough that it is not easily replaceable. This goes to what the doubting experts touched on. Sly Bailey from the Daily Mirror and John Temple, from the now closed Rocky Mountain News, think that trying to force payment for what is, in essence, rather standard news coverage will not work. The FT.com has a reputation for good advice and financial news coverage. This is rather hard to find. Good world news coverage? Now that’s actually pretty easy.
3. Price Based On Costs
Kent Anderson at The Scholarly Kitchen also seems to disagree with Doctorow. Anderson holds that publishers have to be able to recoup the sizable investment required to create the material in the first place, plus cover the on-going maintenance of the publishing outfit. The manufacturing mindset of costing out items based on how much they cost to produce no longer works. There is a zero marginal cost to creating a copy of a file, as Clay Shirky has pointed out, but there is an accumulated cost over time to maintaining a decent publishing website and staff.
Anderson suggests adopting more of a software-style approach to publishing that makes up this initial investment over the foreseeable lifespan of the product. This approach is already working in some industries, such as the music publishing industry, which he calls, “one of the more mature areas of digital business.” The price of an iTunes song is creeping upwards, to as much as $1.29 for the more popular releases. People are willing to pay that, and the companies can’t afford to price lower.
These three approaches to pricing each make sense, but they all can’t be right. It is possible that, thanks to the ease of reproducing digital material, we can easily hit lower price points, saving those sales, while still enjoying the more profitable sales of premium products, such as hard covers, as Doctorow suggest. It is also completely valid for publishers to try and price what they think they can get, as Murdoch is attempting to do with The Times pay wall. But it is also true that we may be approaching how we think of a publisher’s costs from the wrong direction. Perhaps what we are really looking at is a large initial cost followed by a steady stream of a lower maintenance cost, and this must be recouped via pricing, as Anderson proposed.
There is no easy way to tell which will work out in the long run. Of course, I have my ideas, though. Those are the subject of my next post. Stay tuned for Part 2!
*This post was written as part of an assignment for my
but since the topic was interesting, I decided to use it for this blog.