THE ARRIVAL (FINALLY) OF E BOOKS AND THE QUESTIONS THAT FOLLOW
After a decade or more of false starts, it appears that e books may have finally established a foothold in the market. Amazon has experienced great success with its new Kindle reader, and others are introducing new or updated versions of their readers. Also, some publishers are exploring the possibilities of distributing works for reading on cell phones and similar devices. U.S. e book sales for the first few months of 2009 are reportedly up more than 150% over the same period last year.
Despite the new flurry of activity around e books, the old questions, as well as a few new ones, still remain:
Consumer Pricing
Will consumers pay the same price for an e book as for a regular print book? Publishers and authors argue that the true value of a book is in its content, and thus the price should be the same regardless of the packaging. However, from a consumer’s perspective, an e book is not necessarily comparable to a print book. In order to read an e book, a consumer must first make an initial investment to purchase a reader. In addition, any e books that the consumer buys can only be read on that reader, and the consumer cannot (as with a print book) transfer an e book to another person, or sell the e book at a used book store. Finally, an e book is not a tangible product. To the extent that consumers like to have something to display on a table or place on a shelf (and there are still some readers who factor this into their buying decisions), an e book comes up short.
More on Pricing
Will a few retailers ultimately control pricing? Amazon is currently buying e books from publishers at a regular trade discount off the print copy price, but is often reselling those e books below its cost. Many have speculated that Amazon is merely seeking to obtain a dominant position in the e book market, and once the Kindle reader becomes the established platform for e books, Amazon will demand that publishers sell e books to it at a lower price, either by reducing their retail list prices for e books or by granting higher discounts. Publishers and authors have pointed out that the cost to a retailer of selling an e book is less than that for a print book, and if there is to be some reduction in pricing or profit margins to account for the lower costs associated with e books, perhaps retailers should share in that reduction.
Royalties
What royalty should be paid to the author for an e book sale? Many authors’ representatives argue that, since an e book does not involve any production, storage or shipping cost, the royalty should be based on the net amount received by the publisher, and should be as high as 50% of net. In other words, e book sales should be treated the same as a license of subsidiary rights. Publishers point out that whether a book is sold in print format or as an e book, there are editorial, marketing and administrative costs, and a 50%-50% sharing of net sales does not provide an adequate return for the publisher. The question of whether to use retail list price or the publisher’s net as the royalty base becomes even murkier given the uncertainties discussed above regarding the future pricing and discounting of e books. (Whether you are a publisher or an author, you obviously need to ensure that all of your contracts contain a specific provision for the royalty to be paid on e books.)
Copyright Protection
Although this issue has plagued the music industry, and, to a lesser extent, the motion picture industry, for several years, it thus far does not seem to be a significant problem for the publishing industry. This is perhaps due in part to the length of most published works (several hundred pages of text for the average adult book vs. about 3.5 minutes for the average song), and the relative differences in market demand (compare the demand for a typical novel with the demand for a recording of a Billboard Top Ten single). Nevertheless, copyright protection still looms as an issue, especially for popular works such as Harry Potter titles, and recent news reports indicate that e book copying is becoming more common. The publishing industry will have to confront this issue sooner rather than later, as publishers are likely to steer clear of the e book market unless they can be assured that there will not be rampant copying of their books.
Timing
Traditionally publishers have released a new book first in hardcover, followed by a lower-priced paperback edition a year or more after the release of the hardcover edition. Royalty rates are typically higher for hardcover editions than for paperback editions. If e books become widespread, will publishers be able to retain the model of introducing a hardcover edition first and keeping that edition as the sole edition of the book in the marketplace for a year or longer, or will they be forced to introduce new books simultaneously in hardcover and e book formats? If the latter becomes common practice, what effect will this have on the royalties paid to authors?
Add-On Features
The latest trend to hit the e book market is the video book, or “vook,” which combines traditional text elements with video elements. The “vook” raises another subset of e book questions, including: (1) Do current publishing agreements allow the publisher to add video content to a work to create a vook?; (2) If not, will authors be likely to allow vooks to be created from their works, or will they view vooks as unacceptable alterations of their works and thus refuse to sign agreements that grant vook rights to the publisher or demand that the publisher delete such rights from their agreements before signing?; (3) What royalty should a publisher pay on a vook?; and (4) Will vooks replace books as we know them, and if so, what will be the impact on authors or publishers who refuse to go along with the vook concept?