Market and Distribution Cannibalization in the General Trade Publishing Industry for eBooks, Part 1: Crafting a pricing matrix for eLending

Random House, the only member of the Big Six general trade publishers to make its ebooks available without restriction for library lending, instituted, effective March 1, 2012, a new wholesale pricing formula for its eBooks sold to libraries, usually through digital distributors like OverDrive. I believe the Library Journal's The Digital Shift blog was the first to publish the news on March 2nd at Librarians Feel Sticker Shock as Price for Random House Ebooks Rises as Much as 300 Percent (includes the full text of the statement sent to LJ by a Random House spokesperson). See also paidContent's Random House Sharply Increases Library E-Book Prices.

Ridiculous? No. Some anecdotal evidence indicates that the price increase for the typical market basket of Random House eBooks purchased by public libraries is about 200%. Still ridiculous? Not based on Random House's statement published by LJ. Random House's new pricing can be viewed as a tactical move towards a more narrowly focused pricing matrix for library circulating eBooks.

To come up with its new library lending eBook pricing model, Random House's reference point was its pricing of digital audio books for library lending. That price matrix have generated eLending copies of digital audio books at wholesale prices for institutional buyers and distributors considerably higher than the price for the same digial content purchased for individual comsumption.

Call for eBook circulation data. In his official statement for Random House, the company spokesperson stated that the Company is setting the new library ebook price with “far less definitive, encompassing circulation data” than the sell-through information used to determine retail pricing.

We are requesting data that libraries can share about their patrons’ borrowing patterns that over time will better enable us to establish mutually workable pricing levels that will best serve the overall e-book ecosystem.

In it's March 2, 2012 press release, ALA calls on Random House to reconsider major ebook price increase, ALA responded to the call for more eLending data:

ALA appreciates the data gaps that exist, and we commit to work quickly and collaboratively to address this concern. We must have better data to inform decisions that have such wide and deep implications.

(Emphasis added.)

Wait and see. Until then, in his The Digital Shift post, Michael Kelley reports:

LJ’s 2012 Book Buying Survey showed a 102 percent jump in ebook circulation, and 74 percent of the ebook patrons in LJ’s Patron Profiles report say they want even more ebooks in the ­library.

As the largest distributor of eBooks and digital audiobooks to libraries, OverDrive's stats "provide insight into the general public’s increasing appetite for digital materials in libraries," wrote paidContent's Laura Hazard Owen at New Stats: 2011 Libraries’ Digital Checkouts Up 133% Over 2010.  

In her January 2012 post, she reported on OverDrive's eLending stats. Library patrons checked out 35 million digital titles -- e-books, audiobooks and digital media -- in 2011, up from 15 million checkouts in 2010. eBbooks were not broken out separately in those OverDrive stats.

However, last October OverDrive reported that 12 million e-books were checked out between January 1 and September 30, 2011—up 200 percent over all of 2010. See Laura Hazard Owen's post, E-Book Checkouts From Libraries Up 200 Percent Over 2010.

So while there are some stats "out there," one takeaway of Random House's recent price increase may be that the Company finds the data insufficient for its internal crafting of an eBook pricing matrix for library lending purposes. Do note ALA's committment "to work quickly and collaboratively to address this concern." Was Random House's action a not too subtle nudge for better circulation data from ALA?

Consumer advocacy central to pricing issues. One may argue the case that publishers and libraries have differing but not diametrically opposing best outcome objectives for eBooks at the moment. For eBook lending purposes, publishers concerns including getting wholesale pricing right without cannibalizing their p- and e-book retail sales. For public libraries the concern is acquiring eBooks that can be circulated at a reasonable wholesale price point from all major eBook publishers.

As discussed in the next post in this series, publishers also have another major concern,  namely the cannibalization of distribution channels for selling eBooks to individual consumers. That concern really has nothing to do with library eBook lending but it may explain why Random House is the only member of the Big Six to offer eLending of eBooks at this time. 

I believe it is fair to say that all general trade industry eyes are focused on how Random House and public libraries by way of ALA "establish mutually workable pricing levels that will best serve the overall e-book ecosystem," to quote from the Random House statement. Clearly ALA is not going to be directly involved in setting Random House wholesale pricing for eBook lending or individual consumer retail pricing for eBooks. Providing eLending circulation data for eBooks to Random House (and to the wait 'n see other publishers), is, however, another illustration of how ALA engages in consumer advocacy for its instiutional buyer membership. [JH]