Over the holidays, Indie Reader ran a story on what it calls the “growing debate” about the wisdom of selling eBooks for 99 cents. It’s a good overview of the discussion, but it also joins the list of stories that equates lower prices with less revenue.
The article asks, “How do we value our writing?” There’s no single answer to that, of course.
Newer authors may seek to lower any barriers to discovery, while established writers want to find the price that maximizes total income. In both cases, lower prices can serve those ends.
As the marginal cost of a good (in this case, eBook) falls to zero, pricing becomes an exercise in revenue maximization. Digital-first and digital-only imprints and authors have no reason to defend the higher price points in place for print products.
The video-game industry understands this pricing opportunity. Kirk Biglione recently pointed me to an interview with Gabe Newell, whose company created games that include Half-Life and Portal. The company also operates Steam, sometimes considered the “iTunes of the video game industry”, a tool that gives them some insight into pricing.
Newell’s experience reveals that video-game pricing is “perfectly elastic” when the price is more or less seen as permanent. Any increase in price is offset by a decline in sales that keeps total revenue the same.
When price is used as a promotional tool – “75% off for a limited time” is his example – they found a very different result. Total revenue in those situations grew 40-fold.
That’s not a typo.
There’s at least one member of the publishing supply chain that understands the value of digital promotions. A few weeks ago, I described Amazon’s “free eBook for Prime subscribers” as an experiment that publishers could learn from. After debuting with a small selection of 5,000 titles, Amazon has expanded to offer a reported 66,000 titles, including at least some independent and digital-only authors.
With respect to price, there are no easy answers for publishers that must continue to manage both print and digital platforms. With respect to testing, though …