Books unlike music or films are “consumed” in parts over several days/weeks. It is interesting to note that although 30 years ago dead tree books were considered cheap, 180 years ago they were considered as too expensive for many works and many of them were published as a series in magazines. Charles Dicken’s “Olivier Twist”,was first published as a serial in monthly instalments over more than 2 years (February 1837 – April 1839). Only successful series made it to the dead tree version, as a signle physical book. As dead tree books return to having a status of being expensive to produce, perhaps literary works will be again constructed to be serialized, giving rise to opportunities of returning to a former business model where episodes of a book are supported by advertising. The better ones may still be raised to the dead tree status.

I will not take this bet because I think you are probably right! The reason is that in 2015 I expect most people will still be reading paper books, and so the economics of the paper book market will still be the primary thing driving the behavior of major authors and publishers. As long as paper is the dominant medium for books, publishers’ primary concern with e-book pricing will be to avoid cannibalizing paper book sales. And since paper publishing is likely to be more profitable than e-publishing, the best authors are likely to gravitate there as long as print contracts are available.

As for why this is relevant: these posts were prompted by your request for “useful discussions of how authors make $ without DRM.” The point of this post is to explain why I don’t think selling copies of of e-books will be a major revenue source for authors in the long run. I also don’t think they’ll be a major revenue source in the short run, because I think that the vast majority of people will continue to buy paper books. I can’t predict precisely when paper book sales start to plummet, but my prediction is that with or without DRM, e-book revenues will never come close to replacing the revenue lost from falling print book sales.

This is precisely the pattern we’ve seen in the music business. The labels’ revenues from CD sales are now falling precipitously, and while iTunes revenues are growing, they’re doing so far too slowly to replace falling CD sales. I think something similar will happen in the book industry if and when it moves to a predominantly e-book format.

That seems right. Good call. Though there’s going to be some amount of not-arbitrary money that curves the quality up for books and music. (If only time as money for writing books.) It may be, say, $20,000, in terms of 3 months of writing or a recording studio, to get a significant jump in quality. In terms of bands, there touring and people paying for live music, that could recoups that in the zero-price world. How that gets recouped for writers is the big question, where I assume you are going next.

Please don’t tell me everyone just becomes a policy wonk on a long enough timeline….

I still think with search costs (even if only headaches), people would be willing to pay editors to filter writing for them, so in that sense I can see a non-zero price equilibrium for content magazines, for instances. Too many choices as a cognitive ‘cost’ and all that, behavioral rational choice as people with limited ‘bandwidth’ and all that, which I hear people are starting to play with models for.

That’s right: costs. Those people, who do those jobs *AS THEIR CAREERS*, do so for *MONEY*.

Should you be able to take the painting off the wall of the museum (or the artist’s studio) and walk out with it gratis? How about the sculpture? When you do whatever it is that puts food on your table and keeps a roof over your head, and your internet connection live, do you do it for the love of doing it, or do you expect to get *PAID*?

Why should an author, who puts considerable hours, not to meantion heart and soul, into their work, not be compensated fairly for it? You seem to think that the mere love of creating art should be enough for them. Love of creating is great, but when it’s 0F, snowing, and the pantry’s empty, fat load of good that love does. Even the authors who still have their day jobs (which is most of them) put in just as many hours, if not more, writing as they do in their day jobs — and they expect, if and when they *sell* (word choice very deliberate) a story to a publisher, to be paid for their effort.

Even the innovators and free-sharing folks you admire in the tech industry aren’t adverse to making a buck or two. Think Steve Jobs lives in a cardboard box out back of Cupertino? Wozniak hasn’t done too bad, either. Ellison? Gates (not exactly free-sharing, but still, gotta admit he set the innovation bar pretty high early on)? Yeah, thought so.

When you’re ready to do your job “for the love of the work” alone, let me know, Mr. Lee. Until then, I suggest you do a wee bit more research. You might want to start with who was the aggressor in the Amazon/Macmillan spat this past weekend. Hint: it wasn’t the publisher who acted like a petulant 5-year-old, it was the distributor. Furthermore, despite what Amazon says, if you actually *READ* the open letter from the Macmillan CEO, you’ll see that the agency pricing model offered by the publisher would ultimately result in ebooks available for *less* than Bezos’ magic $9.99 bogey. Just not new hardcover releases. It’s not exactly a novel concept: new hardback costs more than later trade paper edition costs more than still-later mass-market paper edition costs more than remainders.

And… you’ll start seeing big-name authors (your Grishams and Kings and Dan Browns) putting delayed-release-of-ebook clauses in their contracts (it’s already happening). Reason: certain retailers of large volumes of physical books have price-matching guarantees, and don’t want to take a loss on a new hardback that’s available for half the price as an ebook. Result: those certain retailers of large volumes of physical books simply *do not order* copies of those new releases, costing the authors many sales. Delay the ebook release, and you sell many dead tree copies at the large-volume retailers. THEN you get the boost from the e-books, and subsequent print editions at lower prices (because, remember, the sunk costs are essentially fixed, and resetting the typography for the smaller trade paper and mass-market paper page formats is a relatively small cost, as is the actual printing & distribution of the books themselves). I have a feeling you’ll start seeing this even among midlist authors in the next few years.

Second, video game developers typically have to pay for the privilege of developing for a console, and this tends to exclude amateurs. The labels have been struggling to prevent the commoditization of music technology, but they’ve largely failed because the basic technology for music-playing isn’t very complicated and doesn’t change much over time.

Third, modern video game development is orders of magnitude more capital-intensive than either writing a book or recording a song is. Spending $10 million on a video game will make it a significantly better game, whereas it’s hard to convert money into a better book or song. This means that my assumption of an ample supply of aspiring writers and musicians may not apply for video game development.

Finally, networked video games are subject to network effects (literally!) to a greater degree than most content. If all of your friends are playing World of Warcraft, you’re going to want to play World of Warcraft, not a technically-equivalent game. This makes consumers dramatically less price-sensitive. It’s also true that people want to read the books their friends read, but the effect is much weaker.

I haven’t paid close attention to the economics of online video games specifically, so I can’t comment specifically on trends in that market. But there are clear examples of popular zero-price video games. Second Life is one such example. The game itself is free, but you can pay for in-game currency and real estate. I wouldn’t be surprised if such business models became more common, but I think software is different enough that the arguments I made in this post don’t apply cleanly.

I will bet you $100 that the average price of e-book versions of the books on the NYT bestseller list 5 years from this week will be greater than $4.99.

I think it’s likely to be quite a while before major labels free their back catalogs. Rather, I think we’ll see new business models emerge that gradually displace the labels and eventually drive the labels out of business. It’s hard to predict how markets will evolve, but if forced to guess, I would say that we’re likely to see two trends: the growth of ad-supported models like Pandora, and the emergence of new bands that choose to give their music away as a way of building their fan base and (therefore) their concert revenues. But markets are unpredictable. There are probably other ways to make money from free music that I haven’t thought about.