The New York Times wrote about Amazon’s letter to readers in its Readers United campaign.

Amazon wrote that George Orwell was against paperback format:

The famous author George Orwell came out publicly and said about the new paperback format, if ‘publishers had any sense, they would combine against them and suppress them.’ Yes, George Orwell was suggesting collusion.

What he actually said:

Here is what the writer said in the New English Weekly on March 5, 1936: “The Penguin Books are splendid value for sixpence, so splendid that if the other publishers had any sense they would combine against them and suppress them.

But wait, what he said back then actually argues against the model that Amazon is pursuing:

But Orwell then went on to undermine Amazon’s argument much more effectively than Hachette ever has. “It is of course a great mistake to imagine that cheap books are good for the book trade,” he wrote. “Actually it is just the other way about … The cheaper books become, the less money is spent on books.”

Instead of buying two expensive books, he says, the consumer will buy two cheap books and then use the rest of his money to go to the movies. “This is an advantage from the reader’s point of view and doesn’t hurt trade as a whole, but for the publisher, the compositor, the author and the bookseller, it is a disaster,” Orwell wrote.

Amazon’s argument on Readers United is flawed.

Moreover, e-books are highly price elastic. This means that when the price goes down, customers buy much more. We’ve quantified the price elasticity of e-books from repeated measurements across many titles. For every copy an e-book would sell at $14.99, it would sell 1.74 copies if priced at $9.99. So, for example, if customers would buy 100,000 copies of a particular e-book at $14.99, then customers would buy 174,000 copies of that same e-book at $9.99. Total revenue at $14.99 would be $1,499,000. Total revenue at $9.99 is $1,738,000. The important thing to note here is that the lower price is good for all parties involved: the customer is paying 33% less and the author is getting a royalty check 16% larger and being read by an audience that’s 74% larger. The pie is simply bigger.

Emphasis by Amazon. Notice how it emphasised the conclusion that it jumped to.

Amazon said that for each ebook sold at $14.99, it would sell 1.74 copies at $9.99. Where did that figure come from? Magic. Amazon could have had studies or market research that backed up its claim but for some reasons they choose not to cite any references.

Let’s assume that the price had no impact on the demand for ebooks:

  • 100,000 copies at $9.99 would bring in $999,000.
  • 100,000 copies at $14.99 would bring in $1,499,000.

By selling at $9.99 instead of $14.99, the author would see a 33% decrease in royalties paid.

It seems that George Orwells agree that price has no impact on demand:

“If our book consumption remains as low as it has been,” he wrote, “at least let us admit that it is because reading is a less exciting pastime than going to the dogs, the pictures or the pub, and not because books, whether bought or borrowed, are too expensive.”