The e-book marketplace is redefining what people expect to pay for books
In May 2009, Participant Media released the documentary Food, Inc., highlighting the negative impact of industrial production on what we eat. The film was a considerable critical success and the DVD version is still No. 4 on Amazon's bestseller list for documentaries. PublicAffairs has an agreement with Participant to develop books intended to enhance the subject of the films, and Food, Inc. did well enough to make the New York Times paperback bestseller list, with net sales to date of 85,765 copies for the print book from all retailers, plus thousands of e-books. Amazon sold many of those copies, so PublicAffairs agreed to feature the e-book (now two years old) as an "Amazon Daily Deal" in late August, selling it to Amazon at a substantial discount. Amazon then set the price at $1.49 and heavily promoted the Kindle edition on the site and mounted a significant social media campaign to prospective customers.
In its one day on offer as a Daily Deal, Food, Inc. sold 14,158 e-book copies--an astounding number. Sales for the previous day sale were 9 copies. If there was any doubt left about the potential for mass sales of e-books, that removed it.
Amazon features a different book every day. On Labor Day, it was "a gritty noir novel" called The Grove, by John Rector, discounted from $7.99 to $1.99. The sales numbers for these books are not made public, but I have to assume that 14,000 is not an unprecedented total. One obvious conclusion to be drawn from these types of promotions is that price is a major factor in book sales. From its launch of the Kindle in 2007, Amazon has been committed to driving down the price of digital books while selling the reading device itself at a healthy mark-up from its cost of manufacture. Kindles are now available for as low as $114, if you can tolerate advertising, and the highest priced device is $379. The assumption among publishers has been that Amazon's long-term intention is to condition consumers to the lowest possible price. Selling at a loss as Amazon was doing was clearly not a viable strategy for the company, so publishers assumed that Amazon's goal was to insist that vendors drop their prices to the point where Kindle sales would be profitable. The publishers' resistance eventually led to agreement on the concept of "agency" pricing, in which Amazon takes a 30 percent cut of the price. These days, e-book sales run the gamut from free to roughly the price of a trade paperback (the Kindle price for Food, Inc. is now $8.52, and the printed book is discounted to $10.17). But selling 14,158 e-books copies in a single day is proof that price is a determining factor for consumers in choosing what books to buy.
Amazon's enormous growth has been supported at least in part by the fact that e-book sales carry no taxes, an additional discount. Lately, cash-strapped states have increasingly turned to online retailers for revenue by imposing sales taxes or enforcing laws that already exist (and almost completely ignored). In California, Amazon succeeded in gathering enough signatures to place the issue on the ballot to let its customers decide whether they want to pay sales taxes. But the political tug-of-war over the tax question is continuing and for now, taxes will not be collected until at least September 2012; what amounts to a temporary draw. In the meantime, Amazon has punished states that have already moved toward taxing sales by moving facilities and breaking off relationships with associated vendors located there, a significant blow to those businesses.
The other day I stopped by the Borders that is closing down in the Time-Warner Center on Columbus Circle. I was amazed at the crowds lined up to buy books at discounts of 40 to 60 percent -- the same customers, presumably, that have been staying away from Borders to the point of driving the chain to insolvency are now back at prices below what would be sustainable for publishers, authors, and retailers under normal circumstances.
I have always believed that readers were willing to pay prices for books (especially hardcovers) that absorbed the costs of acquisition, manufacturing, and marketing. The lowest-price paperbacks, those racks in drugstores and airports (popular genre novelists in romance, crime, and science fiction, among others) have gradually increased and became comparable to e-books. The result has been a sharp decrease in sales of printed books as the New York Times reported as front-page news the other day. Discounts have always been an appealing element in retailing--prices are often set artificially high so that they can be cut almost immediately, creating what amounts to the aura of savings. But what Amazon has shown, at least in the Food, Inc promotion, is just how powerful the pricing mechanism for books can be. I still think that there readers are prepared to pay full (or reasonably discounted) prices for books they want, and will ignore books they don't want no matter what the tab. After all, bookstores have been selling "remainders"--unsold inventory--at steep discounts for years with mixed results.
But the e-book marketplace is redefining what people expect to pay for books. Heartening as it is to see 14,158 copies of Food, Inc. sold in one day without the traditional overhead costs of printing and shipping, the loss leader concept is of short-term value should a powerful retailer demand that prices across the board be dropped below an acceptable margin. Amazon has apparently given up on that goal for now, but its vast and growing power could well make it irresistible to try that strategy again.