Yesterday brought two announcements and one rumor that all relate to the pricing of digital content: the New York Times announced that it plans to add a paywall in 2011, Amazon announced that it will offer authors a 70% royalty rate, and book publishers are apparently trying to convince Apple to act as a distributor with prices set by the publishers.  All three of these are interesting and important.

Starting with the last. It appears from the Apple discussions (if the rumor is correct) that publishers still think they can and should price ebooks close to or the same as physical books.  They are freaked out that at lower ebook prices the market would shift more quickly and profits would disappear faster than if they artificially keep ebook prices up.

Amazon is actively trying to subvert this.  They have been selling books on the Kindle for significantly below retail.  Many publishers have tried to argue that this is bad for authors who now receive less money.  But as this latest move by Amazon makes clear, it is all about who gets to keep how much of what consumers pay.  In the traditional publishing model the royalty to authors tends to be in the 20% range.  It is easy to see that at a 70% royalty rate in a direct model an author will make almost twice as much even if the Kindle book sells for half the price.

Still – this amounts to not much more than a fight over the digital pie between publishers, Amazon and Apple.  The discussion is still stuck on a ridiculous holdout from the physical era: charging every customer the same price.  In a post almost a year ago on the economics of abundance, I wrote:

One important alternative that is not receiving nearly enough attention is to stop charging the same price to everyone. In economics this is know as “price discrimination” and there is an extensive literature on when and how it is possible.   For instance, with so-called “perfect” price discrimination everyone would pay exactly what the good is worth to them.

The New York Times is taking a small step in this direction by following the Financial Times strategy of frequency capping visits.  This allows for two possible price points: free, if you use it a few times a year and $x (NYT has not announced a price), if you use it more than that.  It is a feeble attempt to distinguish between folks who value New York Times content a lot and hence visit often and those who don’t.

This is not a bad idea, it is just not a new one and not a particularly powerful one.  The real power is in letting consumers pick their own price.  This has of course long been the case in the not-for-profit world.  If you like NPR you can listen to it for free.  If you like it a lot you can contribute.  There are many different levels of contribution letting you pick just how much you like it!  Kickstarter has done a fantastic job of bringing the same model to the funding of individual projects.

Yet despite such clear examples, Amazon, Apple, the New York Times, book publishers, etc all seem stuck on essentially the one price model.  Can we please have some more imagination in pricing?  It is time to start creating offers that let readers self select based on how much they value specific content.  How would this work?  In the case of the New York Times here is just one of many possible examples.  Put on a weekly series speaker series and make priority access to limited tickets / limited realtime online viewing spots part of a higher priced subscription.