Mythical big6 Price War

I swear most authors must not play 'game theory.' Why? If they did, we wouldn't ever hear a variation of this in the comments of JA Konrath's blog:

" what will happen to indie authors when the big brand authors and publishers finally do wake up (which they surely will do eventually) and start pricing their books at $4.99, $3.99, $2.99 and so on? When readers can get Lee Child, Harlan Coben and Tess Gerritsen for those prices, will they be so willing to take a punt on an self-published writer? In other words, can indies still be successful when their books are no longer a bargain compared to the mainstream?"

By Tom H.


"Game Theory" is when a strategy is proposed and you play the opposite as effectively as you can. Try dozens, hundreds, even thousands of scenarios to see what marketing strategy works.


So let's pretend publishers started to drop prices. Not to one price, but to $4.99, $3.99, and $2.99.

First, let us list the advantages of the big publishers:
1. Shelf space in booksstores and big-box retailers
2. Name recognition
3. 'Aura of respectability.'
4. Processes that generally produce an excellent product

Their disadvantages:
1. Costs
2. Speed (too many meetings/decisions/revisions)
3. Dependence on shelf space in the bookstores
4. Limited variety in the product

So we're pretending the publishers do an extended price war. The consequences:
1. Bookstores are undercut on price. Just as e-readers/tablets/cell phones are becoming common place
2. Permanent devaluation of ebooks. If ebooks become common at $4.99, forget taking the price back up to $9.99. This will make the publishers pine for the days of the > $9.99 protests.
3. Indie authors seek refuge in the two areas they can:
A. $0.99 ebooks
B. Continuing to publish variety


I suspect one reason publishers do very well is that every time a potential customer sees a cover, they consider buying the pbook/ebook. Sharply discounted ebooks by the big6 will pull a large variety of readers out of the bookstores to the ereaders. Do publishers really want to give up the bookstore advantage sooner than they have to?

This also throws the publishers into a 'bazaar' environment. Note: I mean bazaar as in the chaotic marketplace: http://en.wikipedia.org/wiki/Bazaar

Would they really want to compete without a storefront advantage? Their 25% of 70% (17.5%) wouldn't look very good to any established author. recall, a true long term price war would devastate the print book scene. If you doubt that, consider why the publishers *raised* ebook prices over the last year. Why would they have protected the print market at the expense of market share in the emerging market?

Now what happens to Indie authors if there is a long price war?

Advantages:
1. More customers of ebooks
2. News coverage of the ebook price war
3. Some sales to "support the under-dog."

Disadvantages:
1. Big name authors steal sales at $2.99+
2. Sales pushed down to $0.99
3. Less funds, thus likely slower ebook roll out.

But how many Indie authors are full time Indie authors? Their income wouldn't go to zero. Some would remain in the top 100 on Amazon... If the ebook market grew 6X, their income wouldn't go down a penny at $0.99 (as JA Konrath has already noted).

Some would see a drop in income. Perhaps 20% to 60%. :( But most indie authors could ride that out. They're not a corporation with high fixed expenses. Many would have to go back to full time 'at the 2nd job.' While frustrating... they wouldn't die off and they wouldn't stop producing new works.

Now take the big6. They would lose print revenue substantially. Perhaps 30% to 50% within 18 months! Suddenly print would lose 'economy of scale.' We would see a permanent increase in the price of print books as the efficiencies of ink on paper would plummet.

They would also be making less per ebook. Less than the print revenue. At some point their high fixed costs (leases, executive salaries/bonuses) would bury them.

I ignored a small number of big6 publishers participating in a price war. We've already seen discounting of individual books. It would take an across the board push to have any impact on Indie authors. So anything less than an extreme price war would just be noise.

Since the big6 publishers would lose a price war, they won't start it. I doubt we'll see the end of $2.99 to $9.99 ebook novels. They might not be in the top 100, but they'll bring in quite a bit of cash.

In my opinion, Indie authors and small publishers are far too established in ebooks to be kicked out of the market. There has been a permanent loss of market share to the 'little guys.'

So do the publishers choose:
1. Drop ebook prices to grow the ebook market at the expense of the print market.
2. Keep up prices to maintain their print book advantage?

Or put another ways:
1. Do Indie authors have their share growth slow of a fast growing market?
2. Do Indie authors have their share grow quickly of a mid-paced growth market?

#2 hasn't been bad so far.
#1 might be really nice for Indie authors.


Got Popcorn?
Neil