Discounts and risk in the ebooks market

Remember that post from Evan Schnittman a few weeks back – the one titled “Why ebooks must fail”? Well, he promised to start discussing potentially workable models for the ebooks business, and that’s exactly what he’s now doing.

The first follow-up is titled “Discounts Must Align to Risks”; it looks at the current deep-discounting procedures that prevail in the dead-tree books business as it stands (which share risk between publishers and retailers), and presents three possible ways for a similar system to be applied to the otherwise intangible ebook:

The following ideas, if massaged and improved on by enough smart people, may help evolve trade ebook selling into a practice that wisely shares the risk and provides stimulus and margins for all involved. These models are not new – they are culled from today’s trade retail models. With that in mind, here are three discount models for discussion.

The first is called On Consignment, and it would operate exactly as it does today, except with shorter, perhaps dramatically shorter, discounts. Discounts should align to risk and there is very little risk being shared in this model.

The second model is called Advance Purchase (non-Returnable). Rather than rely on the timing of sell-through at the reseller, publishers are paid for ebook sales in advance. So, resellers that wish to carry an ebook of a publisher can order it as they currently do, or they can purchase the number of “sales” they believe they would make in a given period of time, and pay for this upfront at a greater discount. For this model, a retailer should receive discounts similar to those given on non-refundable sales in print.

The third model is called Refund for Credit (Returnable). Essentially it is a “returns” model for the ebook market. It’s designed to allow retailers to take risks on a larger pool of titles, as they can receive credit by “returning” some of the advance “sales.” This model helps retailers get a better discount for a title than they would if they order On Consignment, but less than the Advance Purchase model. It also helps publishers, as there would be greater incentive to pre-pay for sales for a wider variety of titles, enhancing the cash flow. Again, this model should employ discounts similar to those available for returnable sales in print.

These ideas are probably old hat to industry insiders, but for the rest of us peering in through the shop window it’s an interesting insight into the way the industry works, and the ways it might adapt to change in the near future.

Schittman makes the point that his blogging is not “sanctioned by, endorsed by, or even remotely associated with” his employers at OUP, but one wonders how many people on the inside – of the OUP, and publishing in general – are keen for this discussion to be dragged into the open, and how many would rather sit on the lid of Pandora’s box.

2 thoughts on “Discounts and risk in the ebooks market”

  1. This is the silliest thing in the world. The risks assumed by paper book retailers simply don’t exist for e-books. Having unsold books on your shelf is a risk for physical retailers of paper books because of overhead and the opportunity cost of shelf space. For e-book retailers, both of these are essentially $0.00 per title.

    A much better model for e-book distribution is something like iTunes. Music publishers and artists don’t need to insure Apple against the risk that their music won’t sell, because that costs Apple almost nothing. Furthermore, an increasing share of music on iTunes circumvents conventional publishers entirely, coming through CDBaby or something similar.

  2. This forms a sad sequel to Schnittman’s “E-books must fail” post, since it confirms that he has a bizarre dinosaurian view of publishing economics.

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