The pricing model that most publishers use for books and eBooks today was received second hand from the previous generation of publishers. That pricing model and its underlying assumptions are being challenged by compound pricing models for eBooks, such as: reading device plus eBook cost, reader device plus subscription, reader device plus free download, paid download without dedicated device, and free. At the same time, paper book pricing models are breaking apart for bestsellers, as retail outlets cut cover prices to the point that the very concept of a cover price may become obsolete. Making the situation even more complicated are the pricing models for second hand eBooks and books, in those cases where eBooks can be legally and physically resold. The bizarre mathematics behind second hand paperback pricing models only has to work for the seller, but pricing for pre-owned eBooks and new books of all formats has to work for the publisher and author as well.
How is it that the publishing industry has survived with second hand book sales for as long as there have been books, but is threatened by second hand eBook sales? Two of the strongest reasons are that eBooks don’t wear out and that the Internet is a super efficient zero-cost mechanism for delivering “used” eBooks. If user-friendly eBooks are sold without Digital Rights Management (DRM) or license agreements that prevent the buyer from reselling the eBook, there’s nothing illegal in somebody establishing an eBook library or second hand eBook store, which might quickly become the first stop for eBook readers. Remember, the effectiveness of the DRM isn’t the issue since breaking the DRM is a violation of the Digital Millennium Copyright Act (DMCA) which gives the publisher a strong legal lever for preventing resale and recovering legal costs.
You might argue that book buyers buy new books to support the author and publisher and would do the same thing with eBooks. But buyers of new books buy them to get a new book, not a used book, and to get that book when they want it, rather than having to wait for a second hand copy to become available. If you believe that the Internet is a super efficient mechanism for selling used paperbacks, you’re forgetting about shipping costs. A couple dollars change hands every time a penny book is sold online. And you’re forget ing that paperback books break apart, lose their covers, and turn yellow with time. An eBook that transfers ownership without the device (laptop, reader, iPhone) it's stored on literally becomes brand new in the transfer process. If no DRM is used, resale can occur immediately with the original owner retaining a copy to read at a later date. And some enterprising readers may decide they have the right to sell as many copies as they choose, however they came by the first copy.
Let’s look at an example of how used book sales used to work. I purchased two second hand Conrad novels last week for my flight to Israel and received another one through a library discard gift. As it turned out, the cabin lights in plane decided not to work for the 10 hour flight, which means I would have been better off purchasing a USB reading lamp and one new copy of Conrad on bright white paper. In any case, it took visits to several second hand book shops to find the two used books I purchased, and the selling price turned out to be double or triple the new price when the books were printed. Over the years, I’ve paid from two to five dollars for plenty of worn out paperbacks in second hand book shops in the U.S. and in Israel that were originally priced at 25 or 35 cents. Does that mean paperback books should be the next hot investment area, maybe with their own ETF (Exchange Traded Fund)?
The pricing model for used paperbacks is structured around the overhead costs of the seller. The Conrad novel (Nostromo) that came free as a library discard was never even in the collection – they accept used books from patrons to fill out the discard rack. Current pricing for Nostromo as a Kindle eBook also starts at free, but you can pay several dollars for pricier Kindle editions. Nostromo is also available as a second hand book from Amazon where the price varies from a penny to many dollars, depending on the edition. The penny sellers make their thin margins on the shipping. Free eBooks versions of thess out-of-copyright books are available in numerous formats. Kindle sales are new sales by definition, and for out of copyright books, the republisher is the one who makes money.
While there are obvious problems with the old pricing models based on the pre-Internet world of selling returnable books to people browsing physical shelves, that’s no reason for the publishing industry to commit collective suicide by adopting a pricing model that doesn’t pay the bills. Structural change that will lower the overhead for publishers has been underway for some time. Ironically, the Internet is the technology that has made massive outsourcing of design and editorial work possible. The challenge going forward is finding a model that will allow professional authors to earn a living, while allowing publishers to make a profit publishing books. So far, the pricing model we inherited from the pre-Internet generation does a better job of this than new models that are based on wishful thinking. If you read between the lines of many suggested solutions to the pricing challenge, they make the basic assumption that authors and publishers don’t really deserve to get paid for books, and that we should all go on the public speaking tour and work as entertainers.