74%

Posted by on July 31st, 2014

The latest missile in the ongoing Amazon/Hachette dispute: Amazon have posted a blog giving the clearest insight yet into the nature of the negotiations. It’s worth reading all of it, and possibly some of the reactions (which aren’t hard to find). It clarifies certain things, while leaving others out, but I want to concentrate on one particular aspect of it in this post.

“It’s also important to understand that e-books are highly price-elastic. This means that when the price goes up, customers buy much less. We’ve quantified the price elasticity of e-books from repeated measurements across many titles. For every copy an e-book would sell at $14.99, it would sell 1.74 copies if priced at $9.99. So, for example, if customers would buy 100,000 copies of a particular e-book at $14.99, then customers would buy 174,000 copies of that same e-book at $9.99. Total revenue at $14.99 would be $1,499,000. Total revenue at $9.99 is $1,738,000.”

For every copy an e-book would sell at $14.99, it would sell 1.74 copies if priced at $9.99. That’s a fairly unequivocal statement, isn’t it? But firstly, despite the confidence of the assertion, I wonder how accurate it can really be. After all, publishing a book is an experiment without a control; you can’t go back in time and reprice it during that busy first month to see what might have been. Overall, 9.99 books might outsell 14.99 books 1.74 copies to 1. If they were mops or toasters then it would be reasonable to extrapolate from that – because mops and toasters are fairly interchangable items and the demand for them probably doesn’t fluctuate much over time – but I’m not convinced books are the same.

It reminds me a little of the pro-self-publishing argument that, had you self-published, you would have made x% more money, which is a flawed argument as it assumes you would have had the same sales numbers. This seems a similar attempt to re-run history changing only one variable, and I can’t really imagine how it can be supported.

But then, I don’t have a background in statistics, or access to Amazon’s extensive data and algorithms. For now, let’s assume it’s simply and literally true that a book priced at 9.99 sells 1.74 the number of copies of the same book priced at 14.99. If so, then as Amazon asserts in its post, the revenue is impacted accordingly. A book that sells 100k copies at 14.99 generates 1,499,000. Sold at 9.99 instead, it would generate 1,738,260, an increase in revenue of roughly 16%. Everybody – the consumer, the retailer, the publisher – appears to win. Fat bank! Big pie! Tuck in! Etc.

So 9.99 is the winner then? Hooray! Except, wait, please, hold those horses; put down those knives and forks. Because as others have pointed out, there are only two price points being compared here. What about other prices? In comparison to 14.99, we now know that 9.99 sells 74% more copies, resulting in a 16% increase in revenue. To get that same 16% increase at 10.99, 11.99, 12.99 and 13.99 we would need, respectively, an increase in copies sold of roughly 58%, 45%, 34% and 24%. Do those increases occur at those reduced prices? Only Amazon knows, and they haven’t said. But we can’t realistically decide whether 9.99 is the optimum balance of price, volume and revenue – the sweet spot, if you like, of supply and demand – without that additional data. Taken at face value, all we know is that 9.99 is better than 14.99, not that it is best.

But let’s say it is the best. Amazon’s data is drawn from a world where some books are sold at 9.99 and some at 14.99, while others are priced lower or higher still, and conclusions from that world obviously don’t map neatly onto a world where all books are suddenly being sold at 9.99. But let’s enter that world. Let’s imagine all those repriced books really are seeing an increase of 74% in sales. And let’s try to explain how the fuck that could actually happen.

Reason Number One: More Books Sold!

It’s simply people buying more books than they used to. Instead of 50 million books being sold in a year, or whatever, it’s now 75 million, or whatever. What a joyous thought! There’d be a 74% increase in bunting sales that year too. And bridges. Unfortunately, I’m not convinced it’s entirely realistic. Cheaper ebooks have no doubt contributed to some tottering digital to-be-read piles, but there’s no buffet so long that the table doesn’t end. People only have so much time. I imagine ebooks will continue to expand the market, but not quite to this extent. You may believe otherwise, which is obviously fine.

Reason Number Two: Different Books Sold!

People see bestselling traditionally published authors at 9.99 and buy those books instead of the cheaper- or same-priced book they would previously have bought by a lesser known author. In this view, the market doesn’t massively expand, more rearranges itself internally. The 74% increase in sales for those repriced 14.99 books comes at the expense of sales for midlist and self-published authors.

Reason Number Three: Less Books Sold Elsewhere!

Here, I think, we get to the crux of the matter. The 74% increase in book sales, the increased revenue, the big pie – this is solely through Amazon. (And only ebooks at that). And this seems to be the crucial point, and one possible reason why publishers (and some authors) might be responding with less enthusiasm to the apparently unshakeable (to some) logic of Amazon’s recent post. Maybe the 74% increase is at the expense of other outlets: sales sucked away from other retailers, ones that actually rely on book sales and might go under as a result, eventually leaving Amazon as a virtual monopoly for book-buyers and a monopsony for publishers.

You will have your own feelings about the latter possibility, everything it entails, and the possible effects and repercussions of ending up in such a situation. Regardless, it’s fair to say that – for me – Amazon’s latest revelations don’t really change anything. And despite the apparently impeccable logic, I understand why it doesn’t for publishers either. 

This entry was posted on Thursday, July 31st, 2014 at 3:22 pm and is filed under General. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

 

One Response to “74%”

  1. Amazon v Hachette: The enemy of your enemy is not your friend — Chocolate and Vodka Says:

    […] 2 31 July: Steve Mosby examines the implications of Amazon’s claim that “For every copy an e-book would sell at $14.99, it would sell 1.74 copies if priced at […]

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