10 October 2006

Package Deals

Many publishers and other content providers seem to believe that the piracy problem results from the public's lack of respect for copyright. Although that is certainly an element of the problem, I'd like to point out a much more serious failure—and it's the industry's fault, not the consumers.' It's very simple: An unconscionably high proportion of the end-user's cost of obtaining copyrighted material goes toward packaging.

Perhaps the case-bound novel presents the best example. Consider the novel priced at $26.95. In that instance, the author is effectively earning from $2.50 to $3 per copy sold in royalties, once one allows for the typical 25% reserve against returns (that, somehow, never seems to be released back to the author, even decades later). For a 10,000-copy print run of a 480-page mid-length novel, however, the publisher is paying around $3.35 per copy, plus shipping, to get the "package" into inventory. Admittedly, economies of scale will drop that by around $1 per book, and perhaps a bit more for truly huge print runs—but getting the printing cost for a book of that size under $2 per book requires both a huge print run and cutting corners on quality. Exhibit A: Harry Potter and the Goblet of Fire's first US edition tended to fall apart after two or three readings, because it was nothing more than 88lb boards slapped onto an exceptionally cheap trade-paperback binding rated for not more than 500 pages.

Unfortunately, things are not getting better for books with e-books. The real problem is that it's impossible to get a truly economical e-book reader. One can get a pretty good MP3 player for under $30 these days; Sony's just-announced e-book reader lists for $350. And then there's the bulk issue. And the battery issue. And... well, I don't think I need to go on. Thus, for the foreseeable future, the "package" for text in the mass market is going to remain bound to paper.

This leads back to the packaging problem. Not content with an expensive package for the words, publishers tend to gild the lily... or, at least, the cover. For whatever reason, the publishing industry still subscribes to "bright and shiny is good": One purported mark that a publisher is seriously supporting a book in the marketplace is use of metallic-foil inks on the dust jacket. Then there's the issue of embossed type on the cover for something that most people store edge-on on bookshelves. These two changes alone can add $0.40 to the per-copy cost of a book, and even at extraordinary print runs that figure doesn't go below $0.30.

Of course, part of the problem is that publishers don't actually sell to the end users. They "sell" to distributors, who in turn "sell" to bookstores.1 And the buyers at distributors and bookstores are, with only the rare exception of niche bookstores, not in the target audience for the content. Thus, we've got two independent, overlapping marketing efforts going on:

  • Publisher to middleman, who is impressed by the packaging and a few glowing reviews and blurbs, and
  • Middleman to consumer, who is impressed by the content and word of mouth, and perhaps longer reviews

Does this sound like an efficient business model to you? It doesn't to me.

But how does it relate to copyright piracy? The historical way to beat piracy has been to provide substantial, real added value to the protectable content at what the consumer perceives as a minimal markup over the consumer's valuation of the content. In the publishing industry (and, for that matter, the audio and audiovisual industries, although to a slightly different extent), however, more money and effort has been sunk into the packaging than into the product. Pricing at iTunes and other online music stores is rather revealing: At least a third of the typical retail price of a full-length CD (ten to twelve songs, for the sake of comparison) has been chopped right off the top by not moving pieces in a package... and that's oligopoly pricing for pieces much smaller than the ordinary sales unit.

The publishing industry must face an even harsher reality. Music and film have a much broader market than books. That is, a much higher proportion of the total market for books is inside the top ten percent of purchasers than for recorded music or for film. That argues that content quality has a greater impact on books than on music and film (although in comparing the crap one finds at the local big-box bookstore to the crap that one finds at the local big-box media store doesn't really reveal that!). I won't pretend to have a complete, package-deal-like solution to this conundrum. However, eventually electronic and other nonpackage media will claim a more than trivial portion of the book market, even if the hardware ain't there yet. The publishing industry's recent trends toward ever more costly packaging, though, indicate that that change will be an even greater challenge for the publishing industry's practices than digital music has been for the music industry and digital video is starting to be for the film industry.

To slightly paraphrase a public figure: It's the content, stupid!

  1. Those quotation marks aren't just sarcasm. Because books are fully returnable for full credit—by both distributors and bookstores—those particular transactions are not "sales." They are "consignments." Fortunately for the industry, the courts haven't quite caught up with this particular dodge... and neither has the tax system.