Category Archives: online publishing

Pricing for the Digital Age – A Postscript

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Last week I wrote about pricing for digital content. In the past, I’ve also written about geo-blocking.

So, I decided to conduct a (very) small experiment in price comparison by market territory.

I chose a specific book title, and compared prices of the digital and print editions, between several retail sites, in 3 markets (Australia, UK and USA).

Before I conducted the exercise, my expectation was that Australia would be the most expensive (based on current exchange rates*), and USA the cheapest, but not much cheaper than the UK. But I was surprised by the results….

First, digital version:

Apple’s iTunes store: Australia A$37.99; USA A$37.76; UK A$41.83

Amazon: Australia A$20.60; USA A$20.61; UK A$33.18

eBooks.com: Australia A$40.95; USA A$37.72; UK A$48.03

Booktopia: A$39.95

I was surprised that the iTunes price between Australia and the USA was so close – when it comes to music, iTunes Australia is usually far more expensive than either the USA or UK. Amazon appeared to have the title on sale, but I can’t work out why the UK prices are so much higher. Thanks to geo-blocking, of course, I cannot access the slightly cheaper price in the US store. But I was able to buy it from Amazon.com (and at the same, cheaper price as Amazon.com.au).

Second, print edition (based on shipping costs to/within Australia):

Amazon: Australia not available; USA A$40.89 (inc. P&P to Australia); UK A$50.37 (inc. P&P to Australia)

Book Depository: A$32.31 (inc. P&P from UK)

Angus & Robertson: A$39.99 (inc. P&P within Australia)

Readings: A$40.95 (inc. P&P within Australia)

Booktopia: A$48.45 (inc. P&P within Australia)

Clearly, Book Depository is the best option by far (and is frequently so) and seems willing to undercut its parent company, Amazon – or maybe there’s a deliberate strategy as Amazon.com.au does not yet sell physical products. However, the much higher price charged by Australia’s Booktopia might speak volumes about the state of local retail….

 

NOTE:

Prices were converted from the published local price on each website, then converted to A$ using xe.com

 

 

Pricing for the Digital Age

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Understanding the 4 Ps of marketing (Product, Price, Place, Promotion) has traditionally been critical to commercial success.

Theory has it that if you produce the right product for your target market, at the right price, make it available in the right place, and give it the right promotion, the market will buy it.

The model has worked well for both goods and services. But how is the model holding up in the digital arena?

In the Digital Age, a combination of technology, different transaction models and new marketing tools means that the Product (content), Place (internet) and Promotion (social media) not only co-exist, they are so inter-twined that in some cases they are almost one and the same thing: for example, a Justin Bieber video clip on Vevo, an in-app purchase for Angry Birds, BBC news headlines on Twitter. The boundaries are blurred between the content, the means of production, and the point of distribution and promotion.

So, how do content providers approach Pricing? If that’s the main point of differentiation, how do they compete on price (even though we sort of know that competing on price alone is often a race to the bottom, where nobody wins)?

In fact, even though the price of digital content sold via services like iTunes and Google Play is set by the content owner, they generally have to price according to set price bands and at specific price points determined by the retail platform – and often for particular territories (thanks to the practice of geo-blocking). The alternatives are to sell direct (which means creating a separate sales and distribution infrastructure) or via 3rd party platforms (which may not have the market presence of iTunes or Google Play).

With so much content available for “free” (as long as customers are willing to submit certain personal information, or are prepared to tolerate advertising) the current wisdom suggests that you have to give (some) content away in order to attract customers who might be willing to pay for it (over time). But is that a long-term strategy for success?

In my experience, pricing in the Digital Age is all about the 4 As:

  • Actual Costs – what are the costs of design, development, production and distribution (plus overheads)?
  • Acquisition Costs – what does it take to get new customers (and not just “followers” and “likes”)?
  • Adhesion Costs – what makes content “sticky” (and what will it take to keep your customers once they start paying)? Is it frequent new content? Is it service quality? Is it establishing brand loyalty?
  • Alternative Costs – what choices do your customers have (both traditional and non-traditional competition)? What are the switching costs?

Finally, when competing on price, especially if it’s not a like-for-like comparison, where are the acceptable customer trade-offs between your product and a competing service (e.g., do you know the customer drivers and the purchase decision processes)? What do your customers think they are paying for? Just because you place a high degree of value on some aspect of your content (e.g., exclusivity) does the customer value it the same way?

 

 

Publishers’ Choice: Be a Victim, or Join the Vanguard?

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I recently posted a blog about saving the Australian publishing industry, prompted by some research I was doing on government-sponsored initiatives, notably EPICS and BISG. This generated a couple of (indirect) responses, one from the Department of Industry itself, the other from a long-time colleague in the industry. More on these later.

The future of publishing - circa 2000....

The future of publishing – circa 2000….

But first, some more industrial archeology, by way of demonstrating that book publishers are not shy about new technology – remember the first electronic ink? When I was working at the Thomson Corporation in the late 1990s, we were given access to a prototype version of what we would now recognise as an e-reader. It was about the size and thickness of a mouse pad but less flexible, and could only hold a small amount of data in its memory (content was uploaded via an ethernet cable). It was described as the future of book publishing, and was predicated on the idea of portability (it could be rolled up like a newspaper if the screen was thin and pliable enough), and updating it with new content whenever it was (physically) connected to a computer or the internet.

However, whatever their apparent appetite for new technology, publishers struggle to adapt their business models accordingly, or they are fixated on “old” ways of monetizing content, and locked into traditional supply chains, archaic market territories (geo-blocking), restrictive copyright practices and arcane licensing agreements; and unlike other content providers (notably music, TV and newspapers which have shifted their thinking, albeit reluctantly) the transition to digital is still tied to specific platforms and devices, unit-based pricing and margins, and territorial restrictions.

Anyway, back to the future. In response to my enquiry about the outcome of the BISG initiative, and the creation of the Book Industry Collaborative Council (BICC), the Department of Industry offered the following:

“A key outcome of the BICC process was to have been the establishment of a Book Industry Council of Australia, an industry-led body based on the residual BICC membership that would come to be a single point of policy communication with government, though following its own reform agenda in the identified areas and unsupported by any taxpayer funding. Terms of Reference and so forth were drawn up but as nearly as we can ascertain from media monitoring and contacts, the BICA was never formed. It appears the industry is waiting to ascertain what the current government’s policy priorities might be, as expressed in the outcomes of the current Commission of Audit and Budget, before possibly resurrecting the BICA concept and/or the policy issues identified in the BICC report.” (emphasis added)

My read on this is that the industry won’t take any initiatives itself until it knows what the government might do (i.e., let’s wait to see if there are any handouts, and if not, we can plead a special case about the lack of subsidies/protection and the threat of extinction…).

This defeatist attitude is not just confined to Australia – my former colleague recently attended the 2014 Digital Book World Conference in New York. He commented:

“I was disappointed to see the general negativity of the publishing industry and the “victim” like mentality – also the focus on the arch-enemy – AMAZON! I see great opportunities for content – but companies have to get their head around smaller micro transactions and a freemium model. Big publishers are “holding on” to margins – it’s a recipe for disaster – [but] I think we can become small giants these days.”

There are some signs that the industry is taking the initiative, and even grounds for optimism such as embracing digital distribution in Australia, moving to a direct-to-consumer (“D2C”) model in the USA, and new approaches to copyright and licensing in the UK.

The choice facing the publishing industry is clear: continue to see itself as a victim (leading to a self-fulfilling prophecy of doom and extinction), or become part of the vanguard in developing leading-edge products and services for the digital age.

From EPICS to BISG: Trying to save the Australian publishing industry

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At the dawn of the century, the Australian government funded a series of research projects on the future of the local book publishing industry, under the Enhanced Printing Industry Competitiveness Scheme (EPICS). Part of that research effort included the Ad Rem Report on “The Australian Book Industry: Challenges and Opportunities”, published in September 2001.

Scenario Planning

Via consultation with publishers, printers, distributors and book sellers, Ad Rem examined a range of possible scenarios the industry would face leading up to 2010.

Using rather quaint titles for each scenario, from utopian to apocalyptic, the report made a strong case for:

  • increased collaboration and consolidation across printing and supply chain logistics;
  • adoption of new technology (including “print on demand”); and
  • increased focus on adding value through improved customer service.

So, under “Paradise Found”, a loose federation of specialist companies would focus on either printing, publishing or distribution services predicated on increased consumer demand for books and content available from multiple outlets, underpinned by happy customers served by a responsive and proactive publishing industry.

More stoically, selfless cooperation and collaboration in the form of “Shoulder to Shoulder” would ensure that despite reduced demand, the industry could become a “national model of supply chain efficiency” by sharing distribution networks and market data, and adopting industry-wide standards.

Conversely, limited cooperation and the lack of a single, dominant business model would result in a “Dog Eat Dog” scenario, with few local winners. Overall consumer demand would diminish, industry participants would seek to operate all along the supply chain (introducing some market inefficiencies), and the industry would end up competing on price alone, and fighting tooth and nail for the next major “blockbuster” title.

Alternatively, if the “Land of the Giants” was to prevail, “highly diversified global companies from outside traditional media industries would come to dominate the Australian book industry.” Demand would be driven and met by technological changes, carried forward by bundled products and services, end-to-end integrated businesses, and “predominantly proprietary industry standards”.

The reality is, we have “Land of the Giants” (as far as global businesses are concerned), while the local players are fighting it out in a “Dog Eat Dog” world.

Technology

“Print on demand” was going to be the answer, because it would minimise the supply chain logistics, improve sales margins for retailers, and enshrine the protectionism afforded local publishers and distributors under the 30-day rule written into the Copyright Act. In addition, increased training and upskilling would help the industry meet the challenges of digital content and the new means of production and distribution. (The publishing industry has traditionally invested very little into structured training – see Jo Bramble writing in “Developing Knowledge Workers In The Printing And Publishing Industries”, Cope & Freeman (Eds.), University Press/Common Ground Publishing (2002))

However, while ebooks were already on the market in 2001 (mainly read on PDAs), and although online content was already widespread, probably nothing could have prepared the industry for what has happened in the past 10 years such as:

  • the growth of ebook readers such as Kindle, Nook and Kobo,
  • the impact of Apple’s iOS/iTunes/iBook/iPad ecosystem,
  • self-publishing solutions from Amazon to Tablo, or
  • controversial online “library” projects like Google Books.

Print-on-demand never came about, partly because the dot.com boom/bust of 2001-2002 put the dampener on many digital initiatives (remember the original push for “e-Government” in Australia?), partly because internet speeds were not up to scratch, but mainly because there was little or no appetite for industry collaboration and common standards.

Retailing

Infamously, Borders came along to shake up the local market, but ended up laying waste to much of Australia’s book selling industry as it imploded under the weight of expectation (and crippling debt). While a couple of national chains remain, many independent and specialist bookshops have managed to survive – some may even be thriving – as they find ways to develop deeper engagement with their customers, and offer a range of value-added services.

However, sales of books in Australia have maintained a steady (if unspectacular) growth rate); online purchases now account for around 12% of all book sales, of which more than half are generated by overseas websites; meanwhile, ebooks have gone from 1.5% of the local market in 2010 to 10%-12% of all book sales in 2013 (of which 90% are made by offshore retailers).

Geo-blocking

Regular readers of this blog will know I have a thing about geo-blocking* – so, while I am an advocate for intellectual property protections such as copyright, I am against territorial restrictions that prevent/impede customers buying content from wherever/whomever they choose just because content owners and/or their distributors have decided to carve up the market to suit themselves. (Piracy is piracy, but parallel importation is about giving customers choice.)

Amazon finally launched its dedicated store in Australia in late 2013, but only for ebooks, and with an initial focus on Australian authors and publishers. So, for print books, local customers still need to go to the US and UK sites. For whatever reason, Amazon feels it necessary to have a local online presence (to counter protectionism? to avoid arguments over collecting local GST on overseas online purchases? to annoy local retailers who have been selling Kindles?)

What came next? Much the same really…

I can’t help thinking that the combination of an apparent lack of cooperation around standards, reluctance to collaborate on supply chain logistics and an inability to read the technology trends have all contributed to a 2-speed publishing industry in Australia: a series of small, specialist and independent print publishers and bookshops trying to compete with the global digital behemoths of Apple, Amazon and Google.

Despite the considerable effort behind the Ad Rem Report, it’s fair to say that nothing of substance materialised.

Fast forward 10 years, and along came the Book Industry Strategy Group (BISG) which reported in September 2011. Among its 21 recommendations were:

  • consolidation/streamlining within and across the supply chain – to create greater efficiencies
  • adjustments to GST – i.e., abolish/reduce the rate on Australian books, or collect GST on sales under $1,000 by overseas websites
  • increased protection(ism)  – via direct and indirect support for the local industry
  • review copyright legislation – in relation to digital content creation and distribution

Fairly predictable stuff, but not much about technology or related innovation…

NOTES:

The original Ad Rem website was decommissioned some time ago. I do have PDF copies of the various reports and working group papers if anyone if interested – although they are the copyright of Accenture, I’m sure they wouldn’t mind if I distributed a few copies in the interest of research and commentary. Meanwhile, a couple of papers are still online:

Click to access Ad_Rem_Scenario_Planning.pdf

Click to access Ad_-Rem_Value_Chain_Analysis.pdf

*GEO-BLOCKING REFERENCES:

Geo-blocking: the last digital frontier?

Australian MPs recommend a ban on geo-blocking