Summary:

$9.99 is often treated as a magic price–the cost of a New York Times bestseller on Kindle back in the good old days, before big-six publish…

The Price Is Right
photo: CBS

$9.99 is often treated as a magic price–the cost of a New York Times bestseller on Kindle back in the good old days, before big-six publishers adopted agency pricing models and ended Amazon’s discounting of their books. However, for a variety of reasons, few readers ever had the chance to buy those $9.99 e-books–in large part because e-readers themselves were so expensive.

From yesterday’s Wall Street Journal:

When *Amazon*.com Inc. introduced its first Kindle e-reader back in November 2007, the $9.99 digital best seller was a key selling point. Today, the price of a Kindle has plummeted to under $100-from $399 back then. But e-book prices for some popular titles have soared.

The WSJ says e-book prices have “soared” due to big-six publishers’ adoption of the agency pricing model, in which they set the price of their e-books and the retailer takes a commission. All the big-six publishers except Random House adopted the model in January 2010; Random House followed suit in March 2011. The practice put an end to Amazon’s pricing of big-six NYT bestsellers at $9.99.

Over at Digital Book World, Jeremy Greenfield analyzes the prices of the top 100 bestselling e-books on Kindle and Nook and finds that the average price of those books has actually dropped since 2010, due in part to the increased number of e-books at $2.99 or below on the lists.

For a broader picture, I want to focus on the big-six publishers–who are also the primary focus of the WSJ piece. Let’s go back a couple more years and see why fixating on $9.99 as the “correct” e-book price ignores the larger picture.

E-Books Weren’t $9.99 Everywhere; Amazon (NSDQ: AMZN) Sold Them At A Loss

While Amazon offered New York Times (NYSE: NYT) bestsellers at $9.99 on Kindle, that wasn’t at all the practice at other e-bookstores. In 2008, when I was working at Publishing Trends, I researched the availability of the top 30 New York Times bestsellers (for the week of March 30, 2008) as e-books through Amazon, Sony (NYSE: SNE), Mobipocket, Microsoft (NSDQ: MSFT), Adobe and Palm (NYSE: HPQ). (Yes, that list looks super-dated now and the Nook and Kobo weren’t around then. Microsoft, Mobipocket, Adobe and Palm didn’t offer dedicated e-readers; they had free e-reading apps for use on PCs and handheld devices.)

While the average price of a fiction bestseller at Amazon then was $9.99, it was much higher at the other retailers: The average price of a NYT fiction bestseller as an e-book at Sony was right around $15, and over $20 at Palm, Mobipocket, Microsoft and Adobe (NSDQ: ADBE). (This research isn’t online, but e-mail me if you’re interested in more.) Amazon sold $9.99 e-books at a loss, and as the data shows, other retailers could not afford to do the same. Agency pricing helps level the playing field. That’s why Barnes & Noble (NYSE: BKS) likes it.

Now that big-six publishers are using the agency model, generally pricing e-books between $12.99 and $14.99, those e-books look relatively expensive in comparison to the physical books that Amazon still buys using the wholesale model and prices low (taking no profit or a very small one in many cases). That’s what results in the “sticker shock” mentioned in the WSJ piece.

Fewer E-Books Were Available

At the time when Kindle sold NYT bestsellers for $9.99, e-books were less widely available than they are now, and they were available on fewer platforms. For instance, that week in March 2008, just about 80 percent of the top 30 NYT fiction bestsellers were available on Kindle and Sony (NYSE: SNE). Less than 70 percent were available on the other platforms.

Beyond frontlist bestsellers, fewer e-books were available in general. When I did my research in 2008, Hachette had 1,000 titles available as e-books; Penguin had slightly under 3,000; HarperCollins and Simon & Schuster (NYSE: CBS) each had 4,000; and Random House had about 6,800. Today those numbers are much higher. (I’ve asked each big-six publisher, including Macmillan who I did not include in 2008, for their current e-book counts and will update this post when I get them.)

The introduction of agency pricing for e-books also effectively ended debates over “windowing”–releasing an e-book later than a hardcover. Before agency pricing, publishers were concerned that releasing a cheaper e-book at the same time as a more expensive hardcover would cut into hardcover sales, and some chose to release a few months later–the way they would release paperbacks later. Readers did not like this, and agency pricing was largely responsible for bringing the practice to an end. The result: E-books are still cheaper than hardcovers, but publishers have more control.

Very Few People Bought E-Books At $9.99 Because E-Readers Themselves Were So Expensive

Sony introduced the Sony Reader in 2006, for $299.99. Amazon launched the original Kindle in 2007, for $399. Due in part to high e-reader prices, which have declined sharply over time, e-reader ownership barely reached trackable levels until 2009. Pew, for instance, began tracking e-reader ownership that year:

As did eMarketer:

These stats differ slightly–for example, the projections don’t agree on when e-reader ownership in the U.S. hit 10 percent of the population–but what matters more is that as late as 2009, both companies pegged e-reader ownership around 2 percent. Between 2007, when e-readers were available but were too expensive for most people to buy , and January 2010, when most big-six publishers adopted agency pricing, very few people were buying $9.99 e-books, because very few of them owned e-readers. (Yes, some people were reading e-books on platforms other than dedicated e-readers, but Amazon didn’t introduce the Kindle for iPhone app until April 2009 and the PC app until November 2009. And, as seen above, the e-book prices on platforms like Mobipocket and Adobe were quite high.)

Ultimately, $9.99 Is Just An Arbitrary Price

Why did Amazon choose to price NYT e-book bestsellers at $9.99? We don’t know. Probably because $9.99 sounds good and is less than $10. But that is not a good enough reason for all e-books to cost $9.99. And allowing this price (or any other price) to dominate the e-book pricing debate ignores the many changes that have taken place in the world of digital books since the first Kindle was introduced over four years ago.

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