Cheaper Than Dirt

Posted by Always Write at 10:30 PM Tagged with: ,
Mar 042011

As gas rises well above $3 a gallon, and a latte at Starbucks can run you close to $4, it got me thinking more about the prices of e-books. There is lots of debate over bestsellers selling for over $9.99 — in many cases $12.99 or $14.99, which is beyond the price range I will generally pay for e-books. But, on the other end of the spectrum, one of the perennially most popular posts at the authors’ forums I hang out at is some variation of “Should I price my e-books at $0.99 or $2.99?”

This choice always manages to depress me. I understand the appeal of pricing our work as low as possible ($0.99 is the minimum sale price on Amazon’s Kindle store) and getting as many readers as possible. At one point, I even sold my novels for $0.99 each. But I also understand it’s an unsustainable price point, one that will not support authors producing quality work. Making the choice even less appealing is the fact that novels priced between $2.99 and $9.99 now earn 70% on Amazon, but only 35% for books below that price. (Barnes & Noble’s breakdown is similar: 65% / 40%). So, you’re only making half the royalty on one-third the price — meaning you make one-sixth the royalty on $0.99 books as on $2.99 books, leaving only 35 cents per sale. You’d have to sell 100,000 copies a year just to make any kind of living (yes, royalties are taxed, including self-employment tax), and there just aren’t many authors who will manage that. (UPDATE: there are 44 indies on the planet selling that many through Amazon.)

And, really, can readers not afford $2.99 for an e-book? Isn’t that a more than reasonable price? How many readers will say, “Sure, I’ll buy it for 99 cents, but $2.99 is just out of my price range”?

This debate also got me thinking about what a great deal a full-length novel for just $2.99 really is. For that price, you get several hours of entertainment (compared to a 90-minute movie for $10 or more), an instant download, a digital copy that lasts forever, text-to-speech, and all the other cool features of e-books, like adjustable text sizes and built-in dictionaries. At $2.99, that’s cheaper than dirt. I mean, what else can you buy these days for under $3? I set out to take a look.

Dirt: twice the price of e-books

Well, you can’t buy a gallon of gas or a latte for under $3 these days, but how does $2.99 compare to the prices of a few other inexpensive items? I mean, is an e-book literally cheaper than dirt?

I checked Amazon.com, and I couldn’t find a bag of dirt for less than $2.99. Their most popular brand of dirt is $6.99 — you can buy both books in my Edge of Apocalypse Series (Right Ascension and Declination) for less than that!

This is a depressing start.

OK, this is just insulting.

OK, let’s try something lower than dirt. How about … I don’t know … how about poop? Surely an e-book will be worth more than a bag of poop! Let’s check it out on Amazon … oh, crap. Does that bat guano really cost almost 10 bucks?? That’s more than all 3 of my novels combined!

All right, I know what you’re saying now: dirt and fertilizer can actually be useful, for gardening. Fine. A depressing line of thought, but fine. So how about if we look at something totally useless, and also gross and worthless. Something like … lemme see … fake poop! Yeah! Surely my e-books are worth more than fake poop, right? Right? Wrong.

So I set out to find the most useless item I could find, something with no redeeming value whatsoever. Some product that really just … stunk. And then I found this: a foul-smelling spray called (I swear I am not making this up) “liquid ass.” Surely my e-books are worth more than — wait, that junk is almost $5? And that’s on sale? I’m in the wrong line of work.

Water? For $3.39? That's still Hydrogen and Oxygen, right?

OK, maybe I’m going about this the wrong way. All of those things, while seemingly worthless, might have some value to someone (gardeners or pranksters, I suppose). But what about stuff that is even more plentiful than dirt or bat poop … stuff that’s all around us, like water or air??

So I checked trusty Amazon.com again and found this single bottle of water for … $3.39?? Wait, guys, water is still just Hydrogen and Oxygen, right? And you’re charging over $3 (plus shipping) for one lousy bottle? You know water falls from the sky, for free, right? It’s almost as plentiful as …

Then it hit me: air. Fine, e-books are just electronic ones and zeroes, etherial and without tangible form. But at the very least I should be able to rest assured that no one would pay more than $2.99 for air.

Unfortunately, the briefest of Amazon searches informed me that, yes, people are purchasing air in a can, and they’re paying $20 for the privilege. That’s … that’s more than I charge for a combination package of all 3 of my novels in paperback form.

Since this little experiment was depressing me more than I anticipated, I figured it was time to wrap it up. What is something that literally no one would ever pay more than $2.99 for? Something worth so much less than my e-books, that there’s no way it costs as much. Something that’s only worth a few cents?

The last straw.

That’s it! What would people pay to buy, literally, a few cents? A penny. A one cent piece. You know, the things you throw away or leave on the counter when you get them in change? And not an old, rare penny with numismatic value either, I mean a brand-spanking-new, not-worth-more-than-a-penny penny.

At this point, if I told you 4 new pennies sold for $4.95, would you even be surprised?

Sigh. And some people think e-books should cost less than $2.99?

$0.99 is the new $9.99

I bet the big publishers wish they had been happy with $9.99.

As I mentioned in this post about the agency model, 5 of the “Big 6” publishers demanded that Amazon stop discounting e-books to $9.99, and insisted on controlling retail prices — immediately raising many new release e-book prices to $12.99 or $14.99.

Amazon argued that the agency model and those high prices were costing publishers sales, and I knew that readers would vote with their wallets, but for a while it appeared that publishers were doing OK with $12.99 e-books (although $14.99 pricing never really caught on). But a look at the current Amazon bestseller list shows that readers are voting with their wallets in a big way, and what they want is inexpensive e-books.

In fact, almost exactly half of the Kindle Top 100 consists of e-books that are $5 or less. (Additionally, there are several selling for about $5.50 that I’m not counting.) In fact, a quarter of the e-books on the bestseller list are $1 or less.

On top of that, the books at the very top of the list are skewed even more towards low-priced e-books than the whole list. Books $5 or less make up:

  • 4 of the Top 5  (80%)
  • 7 of the Top 10 (70%)
  • 12 of the Top 20 (60%)
  • 20 of the Top 40 (50%)
  • 49 of the Top 100 (49%)

And, more than half of those books are very low-priced: $1 or less. Books $1 or less make up:

  • 3 of the Top 20
  • 9 of the Top 40
  • 25 of the Top 100

And this does not include all the free e-books being downloaded on Amazon.

Further exacerbating the publishers’ nightmare, a decent percentage of these e-books are by independent authors, including uber-indie Amanda Hocking, who has 3 e-books in the Top 12 and reached #2 overall in the Kindle store. She sells as many books in a day as I sold last year, and the big publishers didn’t want her. But in 2011, it’s the readers, not the publishers, who have the power.

Maybe, instead of fighting with Amazon over $9.99, publishers should have been happy that Amazon had ingrained $10 as a reasonable price point for e-books. Instead of thinking they could get even more, maybe they should have thanked Amazon for getting customers to pay that much for e-books that have no printing, shipping, or returns costs. Because now readers are demanding more and more low-priced and free e-books, and don’t even feel guilty about it because they feel that publishers tried to take advantage of them with overpriced e-books, delayed releases, poor formatting, blocking lending, blocking text-to-speech, and invasive DRM. And now big publishers are being crowded out of the bestseller lists by independent authors, and are being forced to lower their own big-name titles to $5 just to compete with indie authors at $1 and $3.

I bet $9.99 is looking pretty good to them now.

Sep 292010

Where is your money going?

I was inspired to write this post by a couple of recent articles lamenting how the e-book revolution is making things tougher on authors: a WSJ article about the plight of authors, and a Futurebook description of a panel discussion about the future of books. My first thought was that the e-book revolution has increased my sales and income almost a thousandfold (OK, so it wasn’t very high to begin with!), and that the lower costs of e-books, the worldwide digital distribution they afford me, and the ability to reach readers without going through layers of middlemen (publishers and agents) has allowed me to price my e-books competitively and sell more books in a month than I used to in a decade. How can this be bad?

My second thought was that the two articles I read, and the dire predictions and “woe-is-me” lamenting therein, were mostly coming from those same middlemen: publishers and agents.

Let’s start off with some facts about where your money goes when you purchase a print book or an e-book:

  • Hardcover: These books retail for around $25, yet cost about 1/10th that amount — about $2.50 to print.
  • Trade Paperback: Retail for about $14, cost about $1.
  • Mass-Market Paperback: Retail about $8, cost about $0.75.
  • E-Books: Retail anywhere from $0.99 to $14.99, but most new releases from large publishers are $12.99. No printing costs, although they share the editing, cover design, and other costs of print books, and do have some formatting costs as well.

One interesting thing is that, as customers have clamored for lower e-book prices — rightfully claiming that there are no printing, shipping, or returns costs for publishers to account for — publishers have claimed these costs are only a small fraction of the cost of a print book (about 10%). Now, I think they’ve underestimated the costs of shipping and warehousing books, and the tremendous cost of accepting returns (for full credit) of unsold books by bookstores — sometimes paying for return shipping, sometimes having the books simply destroyed, and other times selling them in bargain bins for a fraction of the cover price. But I’ve seen enough data to convince me that the printing costs of a book are roughly in the ranges I spelled out above, when printed in large offset print runs.

One thing that jumps out at me is that hardcovers only cost a buck or two more than paperbacks, but can sell for $10 or $20 more. When Macmillan’s CEO John Sargent laments that “the value proposition goes ever downward when on screen … the perceived value decreases without a physical object,” I think what he’s really saying is that publishers can’t rip readers off for paper any more. I don’t think most readers understand that the extra $17 they pay for a hardcover is only $2 for the extra cost of the physical object (the paper and cover) and $15 as a “you want it first, you pay way more” tax. In other words, publishers were successfully able to charge triple the cost of a paperback for the hardcover version by combining the “it’s new, so it costs more” and the “look at how much nicer and more durable the hardcover book is” costs — without people realizing that the vast majority of the extra cost was the former, and the nicer paper and stiff cover was only a small fraction. With e-books, such intermingling is impossible, since the format of the book doesn’t change — not only are you getting the same words, but there’s no longer a different physical format to throw you off. And I think customers have said, “OK, I don’t mind paying a few bucks extra when a book is new, but there’s no way I’m paying that much more.”

Since I believe most readers overestimate printing costs, a related effect is that, once readers understand that printing costs of an e-book are zero, publishers can no longer exploit that lack of knowledge. Instead of being able to combine “new book tax” with “nicer, more expensive to print hardcover” costs, readers now understand there are no print costs with e-books, and can see the new book tax for what it is. Unfortunately for publishers, their industry had evolved to the point that the huge profits of hardcovers were what had kept them afloat.

So, let’s break down where your money goes a little more closely, shall we?

Cost breakdowns for print books vs. e-books

Your typical hardcover book costs around $25. The retailer (Barnes & Noble or Borders) typically pays the publisher about half the list price, so the publisher gets $12.50 (assuming the book sells, otherwise the bookstore sends it back!). Of that $12.50, it costs $2.50 to actually print the book, and the author gets a 15% royalty, which is $3.75. That leaves $6.25 to the publisher, from which they have to pay for their editors, proofreaders, cover designers, print layout people, CEOs, lawyers, advertising, and rent for big offices in New York City. Whatever is left over, is profit.

The typical trade paperback sells for about $13 (maybe a bit more, but this price will line up nicely with e-book pricing), costs about $1 to make, and provides an 8% royalty to the author ($1.04). Subtract the 50% retailer cut ($6.50), and the publisher profit is $4.46.

The numbers for a mass-market paperback book that sells for $8 would include about 75 cents for printing, an 8% royalty to the author (64 cents), and the same 50% ($4) to the retailer. That means the publisher is left with $2.61 for all their costs and profit.

E-Books used to be sold under a similar model: publishers priced them the same as hardcovers (!!!), retailers paid 50% of that price to the publishers, and then sold them for whatever they wished (list price, or some discount from list price, like how Amazon sold e-books at a loss for $9.99). Publishers insisted on the agency model, where the publishers set the sales price (not the retail price), and get 70% of the proceeds. Under this model, a $13 e-book garners 30% to the retailer (like Amazon or B&N.com), 70% ($9.10) to the publisher, and an author royalty of 25% of the publisher’s net proceeds (instead of the cover price), which works out to 17.5% of the cover price, or $2.27 in our example. The publisher has no printing costs, but let’s be generous and include 10 cents or so to account for e-book file creation (which is a one-time cost divided by the number of e-books sold). Subtract the $2.27 due to the author from the remaining $9.00, and the publisher is left with $6.73.

To recap, a hardcover nets the publisher $6.25 (or 25% of the cover price), a trade paperback $4.46 (34.3%), a mass-market paperback $2.61 (32.6%), and an e-book $6.73 (51.8%).

Wait, and publishers are complaining about e-books? They just found a way to earn more money on each $13 e-book than they used to make on a $25 hardcover. The percentage of your money they’re ending up with has more than doubled in the e-book world — and that’s the really important number, because don’t you think they can sell a lot more e-books for $13 than hardcovers for double that price?

And what about the author? Well, I may be biased, but it seems to me the author isn’t getting all he deserves here on e-book sales. First of all, publishers justify giving authors only 8-15% royalties in the print world because publishing a novel includes a lot of financial risk: to get those low per-book printing costs requires large print runs, and that involves up-front capital and the risk of paying for a bunch of books that never sell or get returned. There are also costs of storing and shipping all those books (along with the costs of editing and preparing the book), almost all of which occur before the first sale is made — and the publisher doesn’t even get paid for print sales until a month or two later! On the other hand, with e-books, there will be some editing and preparation costs, but there are NO printing costs or other huge up-front outlay of money for shipping or warehousing. There’s no way to lose money by printing more books than you sell, and publishers get paid much quicker on e-books as well. It seems to me that if publishers deserve the lion’s share of the revenue from books because of all their up-front financial risk, then the corollary is also true, and they don’t deserve as much if their financial risk is lower, as it clearly is with e-books. Instead of doing editing and cover design work, printing tens or hundreds of thousands of copies, and using their vast distribution, storage, and shipping network to get their books into thousands of bookstores across the country (and thus earning their share), publishers are now just doing the same editing and cover design work and a relatively-painless e-book conversion and upload process, and are taking 75% of the proceeds.

Now, I’ve done a lot of proofreading and editing, and designed my covers, formatted my e-books, and uploaded them to Amazon and elsewhere. And it takes a good deal of time and effort — but it does NOT take 3x as long as writing the book in the first place! For a large publisher especially, the formatting effort should be minimal — I know my third book took a lot less time to format than my first once I got the hang of it. More importantly, these jobs don’t require huge publishers with lots of money: authors can hire editors and cover designers by the hour or for flat rates, without giving up the majority of their books’ revenue forever!

I find it interesting when literary agent Simon Lipskar chides readers that they “should feel guilty if they buy a Kindle edition versus a hardcover, but not versus a paperback, in terms of what the author gets.” Whoa. Who determines how much the author gets? Right, the publishers. And, besides, even at 17.5% of gross, an author’s e-book take is still better than their hardcover take, let alone the measly 8% they get from paperback sales. (Of course, for an independent author like myself, I get the full 70% of e-book revenue after Amazon takes its 30%, so I have no complaints — I can charge readers much less for an e-book and still make a higher royalty than on a paperback, which is a win-win in my book.)

The bottom line is, e-books not only cost a lot less to produce (no printing costs, shipping, warehousing, or returns), but also require far less up-front investment and risk. Since those are costs and risks borne by publishers in the print world (and they are compensated for it), it only makes sense that removing those costs and risks should reduce the cut publishers are fairly entitled to take. Instead, publishers want the best of both worlds: reduced costs and risks, and they want to keep more of the purchase price for themselves.

Now, I do understand the publishers’ current dilemma: they’re caught between the new economic realities of e-books and their old business models, and 92% of book sales are still print. So, they may need to do a lot of painful downsizing and re-organizing, but they can’t do it all just yet and abandon their print sales model. But what frustrates me is that publishers aren’t telling us this, they’re not saying, “This is a tough transition time and we need to do certain things for the next few years and then here’s how we see things shaking out.” They’re not offering authors 17.5% of e-book royalties for the first 5 years, to increase to double that once e-book sales overtake print, or whatever. They’re not moving forward with their transition plan, they’re just trying to protect the status quo by fighting e-book adoption. And, like lots of businesses, it seems they’re more interested in protecting their own short-term profits and salaries and bonuses than in working on a long-term, sustainable business plan that’s fair to readers, authors, and publishers in the new digital world.

What Are They Thinking?

Posted by Always Write at 12:57 AM Tagged with: ,
May 222010

What a deal!

There have been numerous complaints from readers about unreasonably high e-book prices. Consumers rightfully feel that e-books, which have zero printing, storage, shipping, or returns costs, should cost less than printed books. Publishers have responded by claiming that all those costs only add up to 10% of the total cost of a book (which raises the question why we’re being charged 10x that amount, and why $2.50 hardcovers are sold for $25?). Even if we believe that 10% figure, the e-book should still cost less than the cheapest printed version (and most e-books do), no matter what kind of creative math publishers try to use.

However, a distressing number of e-books are priced at the same price as the paperback equivalents, or are often discounted from the hardcover price, but cost the same or more than the available paperback version. Also, publishers like to compare e-book prices to hardcover list prices, which almost no one pays (that $25 hardcover costs $9-$12 at Amazon, Costco, or Walmart, and even B&N offers 30% or 40% off bestsellers).

However, I recently came across an absolute abomination of pricing, one that shows just how badly the big publishers don’t get it. The book is the “authorized” sequel to Douglas Adams’ hilarious Hitchhiker’s Guide to the Galaxy. It’s called And Another Thing, by Eoin Colfer. The book was OK, but I was a little disappointed by it (true, Adams is a tough act to follow).

Anyway, check out the following price points of this book, which I bought in hardcover from a bargain bin a few months ago for just $4.48 at B&N.

  • Hardcover, new, from Amazon: $9.87
  • Paperback, new, from Amazon: $10.19
  • E-Book (Kindle version), from Amazon: $14.29

Now, let me get this straight: the e-book, which you don’t have to print or ship anywhere, costs almost 50% more than the hardcover, over $4 more than the paperback, and more than triple what I paid for the hardcover in a bookstore? (By the way, the prices are similar over at B&N and elsewhere, so it’s not just Amazon that’s wonky here.) If this isn’t proof that some large publishers are trying their best to kill e-books before e-books kill them, I don’t know what could be.

My question to the publisher (Hyperion), with all due respect, is: What the hell are you thinking??

May 062010

No such thing as a free lunch

The enticing title of this post refers to a phrase created to distinguish between two meanings of the word “free.” There is “free as in beer,” meaning free of charge, and sometimes referred to as “gratis” (from the Latin). This is contrasted with “free as in speech,” meaning free from restriction or censorship, and also referred to as “libre.” (As one who loves language, the conflation of two separate ideas into one word strikes me as an odd quirk and a fascinating bit of inefficiency in English, but I digress.)

Sadly, we’re not talking about beer today. What we’re talking about is the commonly-held idea that information on the Internet “should” be free — free as in beer. (Most of us reading this from outside the halls of the capitol at Pyongyang would agree that most information and news should be libre: free as in speech.) Visit any forum or online discussion about digital content (such as e-books, TV shows like Hulu, online newspapers, etc.), and dozens of people will tell you that information “wants” to be free, “needs” to be free, or “should” be free on the Internet. They will point out that hosting a website and transmitting data across the globe is a relatively trivial expense — and they’re right.

What many fail to realize is that producing quality content (whether it’s a well-written and well-edited novel or a well-researched news story) takes plenty of human labor, and that content is worth more than just the cost of the paper and ink to print it. Let’s look at newspapers for a moment. Newspapers everywhere are struggling. For about a decade now, most newspapers have spent a great deal of time, money, and effort developing slick websites to bring you all the news from their print versions — with additional perks like videos, more color pictures, and discussion forums — in order to enable their customers to stop paying for newspaper subscriptions. (Sure, you could argue this wasn’t the best business model, but hindsight is 20/20.) The idea was to make enough money on online advertising to recoup the lost subscription revenue plus pay for the additional web design and hosting costs they incur.

That idea has failed. Ad revenue is not enough to keep newspapers running right now. Internet advertising is just not very effective anymore, and advertisers are paying less and less per impression (how many of us totally ignore web banners and block pop-up windows?). Newspapers are taking big losses, laying off editors and reporters (which reduces the quality), and going out of business.

Of course, it’s a vicious cycle. Newspapers lose money, reduce the pay of journalists, lay off editors, stop sending reporters on fact-finding missions, and the quality of their writing goes down to the point that many are just regurgitating articles from the Associated Press — which we can get for free at dozens of places online, so why would I pay for access to The Miami Herald’s website? Now that newspapers have trained Internet users that information should be free (as in beer), it is proving very difficult to convince anyone to pay for online or digital content. Especially so long as other avenues keep giving it away for free. (Note that the continued chorus of Internet users in support of the “free” model is based on the fact that 95% of Internet users are content consumers and maybe 5% are content producers trying to pay rent. It’s kinda like having 9 wolves and a sheep vote on what’s for dinner.)

The problem is that quality, well-researched, neutral, accurate information is worth paying for. Good writing, good editing, investigative journalism, flying reporters to locations to uncover stories — that’s worth paying for. What some random blogger thinks about something he may or may not know anything about — that should be free. 🙂

On the other hand, the Wall Street Journal (to pick one example) seems to be making the same mistake LOTS of digital media (news, books, music, movies, etc.) producers are: overcharging. Customers know that it costs less to stream a TV show than create, package, and ship a DVD. It costs less to email an e-book than to print and ship a hardcover. And the WSJ’s costs go down if they can get rid of their printing presses and stop buying paper and ink by the ton.

Digital media producers are very slow in understanding that the marginal cost of selling 1 more digital download is close to zero. So it’s better to sell 5x as many (e-books, subscriptions, streaming movies) at 1/2 the cost. It’s a win-win. But, when I can get a DVD for $1 from Redbox, I’m not gonna pay $5 to stream it online. When the library is free and bargain books are a few bucks, I won’t pay over $10 for fiction e-books. When a print mag is $2 an issue, why am I paying $5 for a digital download? And why does a $3.99/week iPad WSJ subscription cost more than a $2.99/week print newspaper (that takes paper and ink and trucks and delivery people)? People aren’t stupid. I like my iPad, but I didn’t all of a sudden forget basic math.

There is a middle ground: free is an unsustainable model if you want quality content, and overcharging will kill the model just as quickly. Higher volume at lower prices is the great opportunity of digital content.

Now, if only things worked the same way for beer ….

Apr 122010

We are seeing more and more digital content, including:

  • E-Books
  • Downloadable & streaming movies and TV shows
  • Apps and games
  • Magazines
  • Newspapers

This digital content costs less to produce and distribute than the non-digital version. It eliminates printing costs, fabrication of DVDs and DVD cases, and shipping costs, just to name a few. So why isn’t this stuff getting less expensive?

The problem is that the content providers are generally overcharging. Why can I rent a DVD from RedBox for $1, or unlimited movies for a month from Netflix for $9, but on the iTunes Store I’d have to pay $5 just to stream a movie one time, or $15 to download it? Why are you charging $3 for a single TV episode I could watch for free? Why are many e-books $9.99 and up, even when they have a paperback version out for several dollars less? Do they really expect me to pay $5 for a single issue of Time magazine, or $20 a month for the Wall Street Journal? Don’t they give it away for free on their website?

And, one thing I quickly noticed on my wife’s new iPad: all those $0.99 and $1.99 and $2.99 iPhone apps have iPad versions that tack “HD” onto the title and sell for $4.99, $9.99, and $14.99. A tad greedy, methinks.

What these content providers don’t seem to realize is that the great benefit of digital content is that there is no marginal cost. Once the content itself is created, you can sell an unlimited number of digital copies for essentially no cost. Yet, many of these providers are still stuck in the tangible retail model, where they need to make a certain profit margin on each book, or CD, or magazine that they print or produce. What they fail to realize is that they could cut prices in half and probably sell 3, 5, maybe even 10 times as much content, doubling or tripling their revenue and profits. (Also, to the extent that magazines and newspapers make a lot of money on advertising, even selling only twice the content at half the cost is a huge win for them.)

I grappled with pricing issues with my e-books. I first priced them at $4.77 each. I figured that was a “fair” price for an e-book, about half the cost of a paperback, so the readers were getting a good deal. But then a funny thing happened. I tried selling them for just 99 cents each. A little voice in my head cried out that I was “devaluing” all my hard work (those books took over a year each to produce) and that they were “worth” more than that. But when I sold 7, then 20, then 35 times more copies at $0.99 than I did at $4.77, it didn’t take long for me to silence that tiny voice. But what I don’t understand is that, if I can figure that out, why can’t the movie studios, large publishers, and newspapers?

Think about it. I’m not gonna pay $5 to digitally rent a movie I can get for $1 elsewhere. But if that movie was $1 or $2, I’d probably digitally rent at least a few a month for the added convenience. So, the movie studio can make $0 off of me, or $6 a month. Remember, it costs them almost nothing to actually stream the video to me. So who’s winning with these high prices?

That doesn’t even consider the fact that higher prices increase piracy. I don’t think overcharging makes piracy okay (you’re still illegally downloading something you didn’t pay for), but it helps people justify it in their own minds when they can say, “Screw these greedy movie studios. I’d never pay $15 for that movie anyway, so they’re not really losing anything by me pirating it.” When an e-book is just 99 cents, for example, the vast majority of people would rather just pay what they consider a fair price than resort to piracy. Apple figured that out with 99 cent music downloads … and the greedy music studios forced them to raise prices to $1.29 … and (prepare to be shocked) digital music sales declined for the first time ever.

On the other end of the spectrum is the “everything should be free on the Internet” model, which people are slowly realizing doesn’t work (even newspapers are finally figuring it out as they lay off reporters and editors). The problem with everything being free is that the people who create quality content need to get paid, so you can get insightful commentary, professional journalists who can travel to report on stories, quality television and movies, and well-written novels. If even the people who are very good at creating content can’t make a living at it, they will take their talents somewhere else that pays the bills, and we’ll all be poorer for it.

So, my belief is that people are willing to pay reasonable prices for digital content (read: less than the old cost of physical content), and that lower prices (that are still above free) will result in more sales and more revenue, and will allow more people to enjoy more content. That’s a win-win in my book.

© 2010 David Derrico