Pricey Bits

It’s been quite awhile since I’ve found time to write an essay, but today I just couldn’t resist.

Back in March,  I predicted two things were going to happen in publishing:

1. The prices of e-books would rise, approaching that of physical books.  At least for best-sellers and popular authors.
2. The prices of e-book readers would continue to drop, perhaps even through the use of subsidies.

This morning, the Wall Street Journal had a front-page article saying pretty much the same thing.  While the average e-book price has dropped, the pricing of major best sellers has been creeping up, and even exceeds that of hardcovers in a few cases.

The 5-year old inside me is saying, “Nyah, nyah, told you so!”

True, this may not actually be the best thing for publishers, because the wholesale pricing model that has allowed retail prices to behave this way in many cases lowers revenue for them.  Remember, however, that production costs are basically zero.   And publishers are achieving two things they want–expanding the e-book ecosystem, and maintaining a measure of market control, avoiding the Amazonification of e-book prices.

However, as I wrote earlier, the main enabler of this phenomenon  is the inelasticity of demand for popular books.  Unlike in the beginning, e-books now offer more advantages over paper books: bookmarking, definition lookups, sharing, storage, etc.  They are, in fact, a different animal.

Moreover, once people have a reader like the Kindle or Nook, they really don’t have anywhere else to go.  Unless they want to return to lugging heavy hardcovers around, they have to pay the going rate for the e-books they want.  Bits may cost less than atoms, but that doesn’t mean they have to be priced lower.

Yes, the prices of of many less-popular e-books continue to be lower than the paper version.  And yes, people will inevitably begin to sample lesser known and/or self-published authors in an attempt to save money.  Both of these are good things, in my view.

The second part of the thesis is also coming true.  With Nook and Kindle in fierce competition, and tablets going mainstream, prices for e-readers are getting lower all the time.  Only $79 for a basic Kindle these days, though that is an ad-subsidized version.   Low reader prices drives greater adoption, which expands the e-book market, which puts more people in the position of paying high prices for lower cost editions of bestsellers.

Some mornings I just really love reading the Journal.  But not on my Kindle.  At $15 per month, the electronic version from Amazon is more expensive than the print+online subscription price I pay.

Sure is a strange world.  Who’d have thought we’d be paying more for bits than atoms?

Disclosure: I hold no position, either long or short, in any stocks mentioned here.