Blog Post

Publishers still missing the point on e-book prices

When the major book publishing firms signed an agreement with Apple (s aapl) that allowed them to control the prices for their e-books — unlike the deal they had with Amazon (s amzn), which gave the online retailer the right to cut prices if it wanted to — they probably thought they had won a major battle. But as a Wall Street Journal story points out, they are still shooting themselves in the foot when it comes to e-book prices, by keeping them artificially high in an attempt to shore up their profit margins and protect their existing print business. In the long run, that pricing model could wind up doing far more damage than the model it replaced.

The Journal piece notes that e-book prices, particularly for some best-selling and popular titles, are in many cases actually higher than prices for the comparable print version. For example, author Ken Follett’s “Fall of Giants” costs $18.99 as an e-book and sells on Amazon as a paperback for $16.50. One New Yorker says he is buying fewer e-books because of the higher prices publishers are charging for them, telling the Journal:

It’s hard to justify the purchase of e-books that are priced at $10 to $15 when you can buy the real book on Amazon used for $2 or $3

Publishers are indulging in wishful thinking

And how do publishers justify doing this? Among other things, they claim that consumers are actually willing to pay more for the e-book version of a novel because of the convenience and other features that they get with an electronic edition — the ability to search, make highlights, and so on. A senior vice-president at Hachette Digital, a unit of one of the world’s largest publishing firms, tells the Journal that she believes “there has been a change in the understanding of the value of a digital book,” and that readers see the added value and are willing to pay extra for it.

This sounds like a giant case of wishful thinking, and there is mounting evidence to indicate it is just that. While it’s true that e-book sales continue to increase, that’s more likely due to the mainstream adoption of readers like the Kindle and the iPad than it is any acceptance of higher e-book prices. The WSJ piece also quotes publishing industry sources as saying they are seeing consumer resistance to e-book prices in the $10 to $15 range, and a company that tracks e-book piracy notes that the rate with which books are being scanned and uploaded to file-sharing sites is also increasing exponentially.

But another publishing industry insider has a warning that is even more important for traditional publishers than piracy: Lorraine Shanley says that high prices for mainstream e-books could easily convince more readers to try self-published novels from authors using Amazon’s Kindle publishing platform — since many of them are priced at $5 or cheaper. Self-publishing success stories such as Amanda Hocking and John Locke have shown that sales in some cases can jump by as much as 20 times when the price drops.

Does Amazon need another stick to beat publishers with?

That’s the real threat for publishers with their antiquated pricing models: Amazon is already eating into their market share on a number of fronts — by making the self-publishing of books as easy as possible (and offering self-publishers monetary incentives to sign deals with Amazon) and by signing up authors to its own digital imprints. Do publishers really want to give the company even more power by pushing consumers of their books away with artificially high prices? Do they need to give Amazon another stick to beat them with?

The irony in this approach, as the WSJ story points out, is that the “agency model” that the major publishers signed with Apple actually results in less money from many titles. In the past, Amazon would give publishers a fixed price for both the printed and the electronic version of a book, and then any discounting on the e-book version would come out of Amazon’s pocket. But under the agency model, publishers get 70 percent of the retail price, which for some titles means they wind up with less revenue.

On top of that, the Big Six publishing firms are currently embroiled in a federal antitrust investigation over the agency model, based on allegations that the deal with Apple represented collusion and illegal price-fixing and is therefore anti-competitive. Winning the ability to set prices for e-books instead of letting Amazon do so may have felt like a victory at the time, but it could turn out to be a hollow one.

Post and thumbnail photos courtesy of Flickr users Mike Licht and Marya

26 Responses to “Publishers still missing the point on e-book prices”

  1. Personally I think we as consumers are missing the point of ebook pricing.

    It is still possible to buy many used CD’s, DVD’s and books at lower prices than it is to buy or even rent the digital editions of the same thing. This does not stop me or millions of other people from simply buying the digital edition in the first place. I don’t want the hassle of a physical format, I don’t want to somehow get something onto my devices, when it finally ships weeks after I purchase it. I want it ubiquitously across all my devices, right now. For this I am willing to pay a fee and that fee is equivalent to the fee I would pay for the selfsame physical product or a little more.

    In terms of cost to the publisher, making an ebook costs more money. The formatting is different, the distribution is different, you need people to interact and do support the ebook stores, etc. etc. There is a cost of doing business even in the digital world that is wholly different than that of the physical world.

    For many media manufacturers, since 2005, the price of their products has not risen with inflation. This is despite having to overhaul business models and become part of the new digital age. If anything, these products should cost more money, not less. However culturally we believe that if its digital it *should* cost less, simply because there is no physical product attached to it. However we’ve had decades of manufacturing physical products and we’ve made it efficient and cost effective. There is still a lot of turbulence in the digital world of doing business and despite what we as consumers may feel is costing less, is actually still costing more as we have to understand channels for two separate types of products, which contain the same content.

    Ask yourself, who pays for services like monitoring pirated content, DMCA takedown notices, additional marketing costs through the web, etc.. These are the burden of the producer, not the consumer. Yet we as consumers completely expect the price of these products to drop to a fraction of their physical product cost because they are not physical products.

    Lastly why should Amazon be allowed to devalue an entire market by making people believe through consistent year over year pricing of books that ebooks are only worth a particular amount and then force publishers to sell them to Amazon for less than that.

    Products have traditionally been sold on the basis of ‘what the market will bear’. Amazon, like Walmart is forcing the hand of producers to say that their products are worth less to their clients. However in Walmarts case, they use their massive ordering quantities to force massive discounts. With ebooks, Amazon isn’t ordering massive quantities, they are simply using their massive customer base to advertise products, their is no guaranteed income for the producers. This is a noteable difference.

    • Thanks for the comment, but I don’t see how you can argue that selling an e-book is actually more expensive to publishers than selling a printed version of the same book. Do you have any evidence to support that argument? Not only do they not involve printing, but electronic books also don’t require shipping, don’t take up space in warehouses, are never returned by bookstores, etc. I don’t see how a publisher could argue that they cost more — even if you count trying to combat piracy and other factors.

    • Josh Miller

      So what do they share what? An author, maybe some marketing, typesetting, the time to write and edit. This is a fixed cost for the basic production of a book, print or digital.

      A print book, for every book made has the cost of harvesting trees, refining them into paper, ink printed on this paper, binding the paper into a book, storing the paper, the finish book, both by the publisher and the seller, shipping the book from the publisher to the seller. All physical, limited costs.

      An eBook, requires someone to write a file, attach some encryption to it, then put the file on a server, you have the cost of running the server and the digital store font, but ebooks are small, so in the space of one server, equivalent to the space of maybe 5 or 6 harback books, you can “store” millions of ebooks. Even with redundant servers etc to handle traffic, you can store enough ebooks to equal all of the print books in existence in a single room. You also don’t need to store multiple copies of the books since a digital copy is infinitely reproducible, for free.

      So yeah, they both have a basic cost, but the overhead of selling and sending the book are reduced dramatically. Gas to transport goods is not cheap. It takes power to run a server but the machines producing and binding a book also require power.

      Also, a lot of the overhead of ebooks lies with the seller anyway since they are the ones mass distributing the ebook. The publisher really doesn’t need much other than a handfull of servers to store the base copy and a few backups.

      There is also the factor that people are a lot more likely to impulse buy things they wouldn’t normally the cheaper the price is.

      Here’s an example, related to games http://arstechnica.com/gaming/news/2011/07/volume-vs-price-one-indie-dev-describes-steam-sales.ars

      I also will say from personal experience, I buy a lot of sub ten dollar games and eBooks because they are cheap, maybe of which I still have yet to actually play or read. I have had the same two dozen ebooks on my B&n wishlist since I got my Nook a year ago, hoping for a coupon or a sale or SOMETHING.

      Well, not the same list, some of them I removed because I got tired of waiting and read them from the library, for free.

  2. Thomas Baekdal

    We can all agree that selling a printed book at a lower costs than an ebook is like shooting yourself in the foot. It like the publishers is saying, “We think our customers are clueless dolts who won’t realize that we are cheating on them”. But there is a problem with this pricing discussion. Yes, there are few edge cases where a lowered produced higher sale. But selling an ebook (as a self-publishers) at $9.99 provides you with a revenue of $6.69 per book. At e.g. 99 cents, your revenue is just 35 cents per book.

    you actually need a 20 times increase in sale to make up the difference. Yes, that might be possible for a few people. But it is not possible for the ever increasing market of authors. I recently tried lowering the cost one of my books to 99 cents. It produced 6x higher sale, but I only earned 1/3 the revenue. (http://www.baekdal.com/insights/busted-the-99-cents-book-failed-miserably/)

    Another thing that is important for this discussion is the cost of print. Many people believe that if a book is priced at $14.99 … something like $10 must print alone. It’s not. The cost of printing a book (for the big publishers) is around 50-75 cents per book. If the printed book cost $14.99, the ebook should be priced at $14.25 to be comparable.

    Also, unlike artists who can profit from concerts and other performances (and thus afford to keep the price of singles low), authors do not have a secondary revenue. The book itself has to provide the full return.