Ebooks and the fallacy of local pricing for Australia

Parliament has announced a probe into why Australians pay so much for computers, software, and ebooks compared to our overseas counterparts. About time.

The Sun-Herald asked Allen and Unwin to comment on why we pay more for ebooks than consumers in the US. The new JK Rowling book, The Casual Vacancy, will cost A$24.17 while it will be available in the US for US$19.99. Allen and Unwin’s head of digital publishing responded by basically saying you can amortise your fixed costs over a larger market in the US:

When you’ve got a population of 23 million compared to 300 million, the fact is you are operating in a much smaller marketplace.

There are a couple of problems with this reasoning. The most important is that there’s simply no reason for the ebook market to be considered as anything other than global. The fixed costs of editorial, production, etc aren’t being amortised over 300 million people in the US or 23 million in Australia, they’re being amortised over 323 million people between the two (and much more when you consider the entire English-speaking market). Given most people buy their ebooks from the US, through either Kindle or iBooks, there is simply no argument that the ebook market is local.

The second issue is that in a digital marketplace, the borders of a country are largely spurious. There’s really no more justification for differential pricing based on the marketplace being ‘Australia’ than on the marketplace being ‘Alaska’ and this applies even to the local costs. There are some local costs, there’s no doubt you need to do some local advertising and promotion. But those are costs that apply anywhere you’re going to sell books – and I struggle to believe that the cost of local advertising in Sydney in markedly different than in Anchorage or any other US city.

The other fixed cost is the local operation: rent, staff costs, etc. But most of those costs are remnants from the hard-copy industry when a significant local operation was required for physical printing, distribution, etc. If the consumer is buying a digital product through Amazon, all that’s required locally is a marketing operation.

Of course that, then, gives rise to the publishers’ next line of defence: that without a local operation there will be no Australian books published. Honestly, that makes no sense unless the Australian arms of the major publishing companies are publishing Australian content at a loss. Either the market can sustain a local publishing industry or it can’t – if it can’t, and we consider that a problem, then it is the job of government to step in with subsidies of one sort or another. Having local publishing subsidised by price-gouging the consumer on every other purchase just makes no sense. And it defies belief that when the local publishing operation is examining the profit margin on a particular publication they get to say a loss is acceptable because of some hidden cross-subsidy from the market. That’s just not the way major publishing houses operate.

In my view this comes down to one simple thing: the publishers are struggling to protect a revenue and profit model that was based around hard-copy distribution. While I believe that is incredibly short-sighted, they are entitled to do that. What they are not entitled to do is give spurious reasoning for their position when called on what they are doing.

See also: I wrote about this in explaining why I wont subscribe to New Scientist a couple of months ago.