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iPad challenges traditional publishing economics

Tony Bradley | March 11, 2010
The Apple iPad has forced publishers to reconsider pricing and revenue models

There have been various stories about the iPad emerging as the savior of print media, and an equal selection of reports that print publications have balked at the profit-sharing business model proposed by Apple. Print media appears to be making the same mistake that other traditional entertainment media have made in transitioning to a digital delivery system.

Media businesses--whether music, movies, books, magazines, or newspapers--seem to cling to a pricing model that fails to account for the significantly lower overhead of digital distribution. These entities seem hung up on pricing narcissism, rather than realizing that production costs are different and distribution is almost universal--changing the economics entirely from traditional models.

The problem is not unique to the iPad. It is indicative of traditional media reluctantly embracing digital distribution in all its forms. Amazon--which established the Kindle based on selling new release best-seller's for $9.99--recently experienced a publisher revolt and has had to agree to let major publishers set prices above the $9.99 mark for their titles.

I have written or contributed to a number of books. Royalties are generally calculated as a function of net revenue, not retail price. Distributing a book in ePub or Kindle format doesn't require the same investment in paper, printing, binding, packaging, shipping, etc. On the retail end, there is no brick and mortar store--no need for leasing space, paying employees, etc. Virtually all of the overhead in producing and selling a book is removed.

Basically, publishers should be pricing digital distribution based on what it would expect in net revenue from the traditional distribution method, not based on some calculated percentage of the traditional retail price. I don't know the exact numbers, but If Wiley is only going to net eight dollars when it sells a printed version of my book, then it should create a digital pricing scheme that nets the same.

The issue goes beyond printed media too. Music CD's typically sell for around 15 dollars. Buying the MP3 version of the songs one at a time ends up costing nearly as much as purchasing the hard copy CD. You might save a few bucks if you buy the MP3 version of the whole album, but not as much as the distributor is saving by not producing and packaging discs, and by erasing the logistical expense of getting the discs to the store shelves.

My IDG peer Robert Cringely points out that there is more to the overhead than the cost of materials and distribution. "The premium rates publications charge(d) for print advertising subsidized a great many things--like teams of researchers, fact checkers, copy editors, and multiple line editors--that online ad models simply don't support."


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