$9.99, target costing and new competencies. My take of TOC ’09

Posted on: February 18, 2009

Last week, I was fortunate to attend the annual “Tools of Change for Publishing” conference in NY. In retrospect, there were many more questions asked than actually answered by the keynote speakers, but being there was still valuable for me and helped me to form an opinion on what is going on in publishing.

In general terms, I think it is ok to say that most participants agreed upon the fact that the digital revolution will not circumvent the publishing industry and that 2009 will be the year of the ebook. This of course, has a tremendous impact on our industry in the future. Publishing has to change in order to continue to strive in this new scenario.

For me, there are three crucial issues (among others) that have to be addressed pretty soon.

  • Pricing:  This is a fundamental question. Revenues are the product of price and volume. The general perspective is that volume is fixed or even slightly decreasing in the future. ( I don’t agree, but this will be a different post ). So far so good. From my b-school management accounting classes I remember the topic of cost accounting. The prevailing school of thought right now in the publishing industry seems to be a cost+ pricing approach. One ebook sold is expected to be one hard cover book not sold. Hence, in order to maintain the economics, the ebook has to be priced equivalently to the physical book. This is a fatal mistake! Amazon is currently pushing very hard to gain a first mover advantage and build a distribution hub for ebook downloads. In contrast to the publishing guys, amazon adopts what the management accountants call a target pricing approach. This consumer centric approach tries to detect what the perceived value of an ebook to the consumer is and then re-engineers the production value chain in order to achieve the targeted return. (The US automobile industry in the 70’s  did not believe that it was possible to manufacture cars for less until Toyota conquered the US market with very aggressive prices and proved them wrong). Amazon seems to know that $9.99 is the price at which ebooks sell, and believe it or not, publishers will soon feel the squeeze once amazon gained critical mass in digital distribution. Re-engineering the publishing value chain is possible. Especially in a increasingly digital worlds. The questions we have to ask is how many participants in that value chain are really necessary in order to inject value to a story? Are upfront payments to authors the only way or would authors also work on a salary basis with participation on sales. Do we still need agents to connect with authors? Is whole-selling still needed. Is DRM worth 5%? Rethinking along these lines will be necessary to position the publishing industry as a powerful player among whoever emerges as the leader in distribution. Allen Noren talked about this @TOC and suggested that about 20% can be taken out of the current value chain.
  • New competencies for publishers: A couple of weeks ago I wrote a post on core competencies of a publisher. Many smart people at the conference lectured about the need for publishers to extend their role into new areas. Peter Bradley called it literature as a web-service others call it reader engagement. What this actually means is that the need for curation is still there, but that the way these stories are consumed will change. Curators will have to be able to tell stories not only in the form of a book but also in form of a web-service, a social network, a video game, movie or TV-show. Publishers have to become experts in these activities as they are not easily replicated by others.
  • Distribution: This is a tricky one. There seem to be an open race among amazon, Apple, Google and others for the prime spot close to the consumer. This makes sense because all the mentioned players have actually business models in place, or are in the process of building them, that do not solely depend on the sale of digital content. Amazon tries to sell devices, so does Apple and Google is in the advertising business. Publishers content is like the gas for their engines. As long as none of them becomes to powerful and determines the terms and conditions to the publishing industry, this is something we can live with. (Remember the importance of pricing here). Still, I think it is valid to think out loud about a joint effort among the major publishers to build own distribution efforts too. In the digital world this is essentially a marketing effort. Building the infrastructure for that (such as a  should not be too much of a problem. Controlling the consumer interface might also be vital when it comes to entering new channels and implementing new competencies in consumer engagements. Unfortunately our industry has a poor track record in retail.

You might also find this perspective interesting.

As well as this one from the digitalist.


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