In his recent series of articles on the “Doom of RPGs” that caused a brief blogquake, James Mishler talks in passing about PDF pricing and specifically calls out Paizo for their plans to sell the Pathfinder RPG PDF for $10 when the printed book costs $50. This brings to mind an interesting question, which is what *should* a PDF product sell for?
The most basic calculation is to base it on the cost of goods sold. I’ll use some of the estimates from Mishler’s article. PDF products still incur the cost of authoring, editing, and art, but the printing, a large component of the COGS (about 25%), is basically free. Shipping and distribution (10% of MSRP) and retailer markup (50% of MSRP ) are greatly reduced depending on your means of sale – if it’s on your own site, like Paizo, it’s quite low; if it’s through a major online PDF clearinghouse like RPGNow (30% of MSRP) or Indie Press Revolution (15% of MSRP) it’s more. (Numbers taken from a Pelgrane Press post on the FORGE). So from a quick blush perspective, if the numbers work out for a $50 MSRP on the book, and even assuming they have to pay 10% of that to keep their online store running, the cost should be half that, or $25 – and that’s just reduction of retailer and distribution costs, it doesn’t factor in the lack of printing. That would take it down into the sub-$20 range, considering it as a pure PDF product.
Of course that doesn’t even seem super crazy given that Amazon, who squeezes their logistics down really hard (essentially optimizing the shipping, distribution, and retailer part of the price – they do it more cheaply that Joe Gaming Store can), is selling it for $31.50.
Of course, with PDF pricing, you have… We’ll politely call it an “art” at work. For a pure PDF company, maybe you can just sell that product for half what a print product’s MSRP would be and be done with it. But combined print/PDF companies don’t want to cannibalize their own print sales, so they don’t discount that deeply. Take Paizo’s usual products, the Adventure Paths – they sell the print copy for $19.99 and the PDF for $13.99 (30% cheaper). But they throw the PDF in for free with the print sales to subscribers, because the actual incremental COGS is near zero, unlike a physical product. Anyway, using a pure COGS pricing model they seemingly should sell those things for $10 or less. But why are they only taking out the “print charge” part and not reflecting the distribution and retail savings to them?
Well, some might blame the “what will someone pay” part of the supply-demand curve. If someone will pay more, then why not snap up the extra profit on those transactions? In fact, you’ll note that they charge MSRP and not their cost (even though they charge shipping), meaning that with those direct sales they are the ones making that 50% retailer markup. On those, they could be construed as “making out like bandits.” But that’s not the real reason – why don’t they at least match Amazon prices for the print version, for instance? No, if you sell print products as well as PDF, the overriding concern is that you can’t alienate retailers and distributors, who get angry if you are selling at a competitive price – it means no one will buy from them, and to be fair, they are putting some degree of marketing and placement into your product (though the amount tends to vary directly with how big a player you are…). You have to balance the increased profit on your direct sales with the potential risk of lost retailer sales. And the retail channel is usually much larger than the online channel, for decent sized print product producers (it is that way for Goodman Games, for example). Retailers hate and fear PDF for the obvious reason – see Marcus King’s article in ICv2 for one retailer’s kneejerk reaction to a free PDF giveaway from White Wolf.
So the guy who makes print and PDF – his answer tends towards “just take out the printing cost and charge full MSRP minus that” – about a 30% discount once all the details are tallied. What direct sales you do make – print or PDF – you at least get to pocket a large percent of it. You just resign yourself to doing retail at the expense of direct, which is usually a good bet.
Of course, here you start to have a problem. If you sell PDF-only, you can price your product logically based on COGS and not worry about the retailers. So you could sell the exact same 96-page, pretty high quality product that represents a Pathfinder Adventure Path – spending the exact same amount on it – for much less. (Assuming equal units sold, which is of course a big if). This is why you get people like Mishler complaining about the downward price pressure PDF products provide – because they are not just competing by removing the cost of printing, but they significantly reduce the cost of distribution and retail as well and thus have the capability of selling the exact same product – even compared to a PDF from a traditional publisher – at a much lower price. It attacks the entire distributor-retailer model.
The other problem is that I certainly won’t buy a PDF instead of print for only a 30% discount – “I can just get print from Amazon instead for that price,” I tell myself. So the combo retailer is losing out on their higher margin PDF direct sales because the price isn’t compelling. (Of course Amazon is able to do that by attacking the distributor-retailer model slightly less radically.)
The big question that drives this is, for RPGs in general, and for a given product, how elastic is the price curve really? In your high school economics courses we learn that if price falls, you sell more units. There’s an open question as to how true that is in a small market like RPGs, however.
One example – the second installment in a Paizo Adventure Path. I am willing to bet that the demand for it is very inelastic. Some percentage of people who bought Chapter 1 will buy it. Dropping its price by 50% might get a couple additional sales, but wouldn’t bring a linear flood of people to the product.
As a counterexample, the new Pathfinder RPG rules. A lot of people have heard of it, and it’s the core rulebook. One might expect price response to be more elastic. Anecdotes aren’t proof, but I have a friend who is a very occassional D&D player. We were talking and he heard about Pathfinder and how the beta’s free and the PDF will only be $10. A $50 hardback – there’s no way in hell he’d venture that on something unknown. But he read the beta, plans on getting the PDF as soon as it’s out, and is now bugging me to form another gaming group so we can play Pathfinder. There’s every reason to believe this would convert to a print sale and then other products to him and others in the group eventually. (Social networks are a huge factor in RPG sales once you get above the “I just buy it to read it” collector market.) Pricing the PDF at 30% off $50 MSRP (=Amazon retail) is certainly not going to make any incremental sales. Even pricing it at the “fair” $20 or so won’t – that’s more than the price of a random book in the bookstore I might take a chance on. Before I spend $20 on a book, video, or CD I generally need to be pretty sure I’m going to like it. It’s above my (and therefore most Americans’) impulse buy threshold. $10 becomes a “Heck, why not?” price point that for an introductory product is great. (I have yet to see a player in any of my gaming groups use a PDF copy of a core rulebook as their only reference copy in a game.)
Then on the far side is a competing commodity. A d20 monster book, for example – there are many. Price will be a big part of the buying equation here. You should really look at how many more units retail will really get you versus the lost profit on your (low priced) direct sales. If you’re really small and going to retail is just going to make you print additional units that you’ll be on the hook for when retailers stick your book in the back of a stack, PDF is the way to go.
Anyway, if the demand response to an RPG product is inelastic – you may as well do print only and charge a lot for it. If you do offer PDF, don’t bother discounting it much. If it’s highly elastic, you want to leverage the overhead reduction of cutting out print, distribution, and retail as much as possible.
There’s also the Wizards of the Coast solution, which is to just eliminate PDF sales entirely. That’s not about piracy, that’s just a convenient excuse to throw blame on an unpopular scapegoat – Wizards print products arrive OCRed and PDFed on torrent sites within days of release. It’s about making so much money from the print sales that really you don’t want to have to deal with this issue at all, and the thought of PDF sales causing any effect on print sales sends you into a sweat. This is a little strange, because you’d think something like D&D 4e would fall into the more-elastic category – it’s in bookstores and allegedly targeted at getting new gamers – but clearly the issue is complex enough that people’s feelings and assumptions get mixed all in with facts and economics. It’s easy for people to feel a need for control of the market – whether it’s Wizards saying “electronic delivery is only OK via our subscription-based D&D Insider or Amazon being able to delete purchased e-books off your Kindle.
Anyway, there’s no earthshakign conclusion here, just that:
1. “Cheap” PDF products are approriately priced from a COGS standpoint
2. Print products are/should be about twice as expensive as PDF products
3. Print retailers and distributors won’t let a print company sell PDFs at a competitive rate (and they don’t sell PDFs themselves) leading to the doom-prediction that “PDFs are too cheap.” That re not too cheap to produce, but they are too cheap to support the current predominant distributor-retailer model.
4. Therefore, the print and PDF markets are in opposition as they come from incompatible models. Kudos to people like Paizo that try innovative things to make it work, but in general they’ll have high priced PDFs and get grief from their distributors/retailers all the time. Punting on PDF sales, like Wizards, sucks but at their size 1% increase in retailer/distributor goodwill yielding a .01% increase in sales is probably worth more to them than all their PDF sales.
5. As the world becomes more virtual (Kindle, iPhone, etc.) PDF/other electronic formats will become more important. Traditional publishers will start losing out to those embracing the new model – the record companies aren’t doing so well, but Apple’s iTunes is doing great :-). This doesn’t mean the “RPG industry” will collapse, just that it will have to adapt to a new way of doing business, and there may be significant change to established roles of publishers, distributors, and retailers as a result.
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