That payment model won't work

8 Aug 2011, 10:28PM

One thing that annoys me is models of paying for goods or services that don't work. Look at e-books. The book may cost $30 in the shop or $20 as an e-book. Immediately I think, thats not worth it. You're paying $20 for an electronic document, e.g. free to create as many copies as they want.

If you break down the cost of publishing a printed book you get something like this...

  • Author – Creation. 8-15% Royalties.

  • Publisher – Being the Curator, Polishing, Manufacturing, Marketing. 45-55% (includes Author’s Royalties). Note that Printing accounts for just 10% of the book price.

  • Distributor – 10%.

  • Retailers – 40%.

  • Consumers. Just the paying part ;)


Heres another article on the costs involved...
further reading

As you can see $20 is the same that they would make on a printed book (but they don't have the printing costs) or more. It seems to me to be an old fashioned way of thinking that goes something like this...

1. Printed books (and profit from said books) are declining.

2. Lets place e-books at the price point where it is high enough to encourage people to still buy printed books (they would weigh it up and its almost not worth buying the e-book) and at a point were we make enough profit to compensate for the decline in printed books.

3. End of thinking.

Its stupid. The person purchasing looks at this and instead of seeing the two options and weighing it up they'll think...

1. That e-book is way too expensive and I don't even get the physical book with it (some people may think this is a good thing but some people still enjoy the physical thing, e.g. the colour cover).

2. The book is even more expensive.

3. Lets weigh up the $20 e-book (which is an electronic nothing in their minds) to the cost of pirating it.

4. Lets pirate it if we can.

So the conclusion? Setting the price point too high increases pirating of the product/service and reduces profits (in the long term) of the current business.

A few things to point out. Not all e-books cost that much, and prices are dropping due to competition. I see $14, $12 and $9.99 which are much better priced, but could probably go a little lower still.

The thing to note is that models like this can work. Look at smart phone apps. They are free, free with advertising, or cost a few dollars. People are happy to part with a little money for something that is really quite worthless (would you pay for the same app again in 1, 2 or 5 years time? No because it will be crap. You'd may well still buy a CD, DVD or e-book tho.

The point is mobile apps make a lot of money. Its a model that works. People are willing to separate with their money when the following conditions are met...

1. The cost feels about right for what you get (e.g. its cheap enough)
2. You get the best quality
3. The easiest way to get it is to pay for it

For 1. this is "my" feeling for price points, MP3 (50c-99c), DVD ($1-$5), e-book ($1-$5). I'm not going to pay more than $5 for a downloaded DVD, I can hire it for the same amount. If e-books cost $1 each then you'd download them here there and everywhere just to try them, you'd buy a lot more than usual.

For 2 this is things like HD-DVD, if you can download non HD via the store or HD via bit-torrent, you'll probably go bit-torrent. Similary with MP3, FLAC, etc, you may have your favourite format.

For 3, torrent searches make it easy to find films (music, etc) and download them, you need to make it just as easy to find them via a store, even easier. You have a few advantages over the torrents which is no duds, guarunteed quality
and no viruses, you just need to also have the good search and recommendations as well as fast download speeds.

Music, movies and books all cost too much in their electronic form. Its due to resistance from these industries to the change and loss of revenue they see occuring. Really I don't see why they're not adopting these new mediums rather than fighting them. I'm pretty sure I could write a better torrent search for the film industry that wanted to legally sell movies and there are a thousand others out there who could too.