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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. Jim Kukral

    In one way it kinda makes sense. I mean, I don’t want a printed book anymore. I have too many and no space left for them. I’d rather have a digital book. So I guess the thinking is that I’d pay more for it… that kinda makes sense.

    However, we all know that’s not the reason legacy publishers are doing it. They don’t do much that makes sense. It’s an obvious attempt to keep print books relevant. It’s funny, if they would spend the same amount of time on innovating and adopting to the changing industry as they do trying to slow down the inevitable, they’d be the ones in control now, not everyone else. But alas, it’s obvious they still want to act like babies who got their sucker taken away.

  2. Drew D'Amato

    this is why i didn’t keep my same publisher for my second book. They charged the same price for my ebook as they did for my hardcover one. An ebook for 19.99. It’s hard enough to get known as a new author, nevermind when you’re charging more than established writers.

  3. Ebooks should be priced lower than physical books. I go into this more in a blog post I wrote yesterday, but it comes down to the DRM, ownership, quality, and physicality issues. We don’t *own” ebooks. We lease them. (As proven by the ability for Amazon to go into MY bookshelves and remove books. Try *that* with a physical book!)

    Publishers *are* shooting themselves in the foot with this pricing model because as more self-publishers (those who write professional quality books) decide they’re worth $2.99-$5.99, there won’t be a reason for readers to pay $9.99 and up for a similar quality book. And that’s assuming it *is* similar quality. Too many traditional publishers treat the ebook version as an afterthought and formatting issues run rampant.

  4. Doug Marbo

    I don’t know what the answer is but I don’t want printed books to be priced out of existence. In 20 years, I can still have a book I bought today and it will still be readable by my kids and grand kids. Will I still be able to read the digital copy, or will I have to buy it again and again as technology changes.

    • The ideal situation seems to me that a publisher should sell the print books for a dollar or 2 more and then sweeten the deal to the consumer by saying that the e-book is free. The customer can get the e-book immediately without DRM on any of his/her devices and the print version will appear in the mailbox a little later. If the reader only wants the e-book version they can have that also for that price, but they will save the price of shipping. The reader can keep the e-book version and sell or give away the print version, just as many do presently with print books.

      • “The reader can keep the e-book version and sell or give away the print version, just as many do presently with print books.”

        No offense but you sound very child-like. What incentive would publishers have to GIVE you a free ebook with your paper version so you can SELL the paper book & keep the ebook?

        This has been brought up SO many times. You don’t value ebooks & view them as just throw-aways to be given away for free.

        When you go to see a film/movie, do ushers stand at the door passing out blue rays for you to watch at home since you already paid to see the movie? Both versions are of the same film, right?

        When you buy a T-shirt do stores throw in a jacket since they are both versions of garments? No, they don’t. And I could go on and on.

        Thankfully, the responders here are a VERY vocal (i.e. Loud) minority. And Armin, people who bought ereaders did so because they don’t want paper books. People who prefer paper don’t want the ebook. There are too few people who want both so it’s not going to happen, my friend.

        And there IS a market for $10 plus ebooks because many, many bestsellers are $12 and up. People are paying for what they want. Sorry everything is not free or $1 for you but hey, that’s life.

        P.S. I know someone will say film studios give away DVD’s with bluerays as bundles but that’s built into the cost. Also the studios are trying to get people over to blueray & using poorer DVD quality to show people that blueray is better. Once consumers switch the bundling will end.

  5. Something that has confused me about this discussion is the cost of production. You say “The difference in cost between an ebook and physical books is less than a dollar in almost all cases. ” I’ll accept that statement, but only for the first book produced. If you want to sell 12,000 ebooks and 12,000 physical books, you need to print 12,000 physical books and only one ebook. Right? So at one dollar a book, you’ve spent $12k on your books and $1.00 on ebooks. Or is there an ongoing cost for ebooks that I’m missing in this analysis?

  6. Rick Cook

    I don’t buy the argument for $10 plus ebooks. Historically the price of a good tends to fall toward price of production. With ebooks that’s closer to 99 cents than it is to $10. Also please note that if you deal with a major publisher you get a much smaller percentage of the cover price in royalties. In fact if you price your book at $2.99 and self publish through Amazon Kindle you’ll probably do better on a per copy basis. And of course your sales are likely to be higher.

    • @Richard Cook,

      Oh just stop, cheapskate! Please don’t think for a second that Stephen King, James Patterson, Sara Gruen (Water For Elephants), JK Rowling, or any other professionally trained author is going to slave away for you at 99 cents. If all you can afford is 99 cents, get a friggin’ library card.

      Libraries sell paperbacks there for $1 for you to choose from. Of course you don’t get much selection but beggars can’t be choosers & you get what you pay for.

      Also products are NOT priced based based on the cost of production. Stop making things up because you don’t want to pay for ebooks.Either that or show some hard data.

      Also, downloading ebooks from the comfort of your own home saves you gas & you don’t have to worry about driving in circles looking for a parking place. It would take you a gallon of gas to get to the bookstore & back & gas is $4 a gallon at least now. And you don’t have to wait a week or 2 for shipping (or even a couple of days) with ebooks. You get your book in seconds!

      Stop bringing up the so-called short comings of ebooks while leaving out all of the positives. If ebooks are too expensive for you, go back to paper & call it a day.

  7. Hey Mathew,

    You are welcome. I agree that different pricing between electronic and physical books is insipid.

    I’m not saying that selling an e-book solely is more expensive than selling a printed version. I’m saying that selling both versions is more expensive overall. E-books still need layout, they still need separate channels for sale, support staff and so on. I’m not comparing the cost of an e-book to a physical book, I’m look at the total cost of publishing a book in both formats. The cost of manufacture and distribution as I’ve mentioned is negligible and we’ve had decades to make these costs as small as possible.

    Your bias in saying ‘antiquated pricing model’ is telling. The difference in cost between an ebook and physical books is less than a dollar in almost all cases. The pricing model is not antiquated in the least, in fact its still quite agressive, especially for an industry that is consistently on the downturn.

    As for why an particular edition of a book costs more or less in an e-store or brick and mortar or even on Amazon. There are many variables to that equation. Pricing is still up to the distribution channel and they can lower that price below MSRP at will. Local competition, stock levels and other facets of brick and mortar business will all create pricing differences for any randomly chosen book.

    Can you think of a reason why Amazon would purposely price physical books lower than ebooks that they sell? I think you can, you point out several reasons in the article above. Amazon is unhappy with the agency model. Publishers weren’t happy with the Amazon model. There’s a happy medium in there somewhere. Unfortunately the treatise for such an agreement appears to be the dissolution of the publishers from Amazon’s purview.

    I personally feel like this is two children stomping their feet and saying they are taking their ball and bat and going home. However its very curious, don’t you think, that the publishers would choose to play hardball over a few dollars or cents per book? If publishers were indeed rolling in money, you would think they wouldn’t balk at the massive opportunity selling on Amazon presents.

    • Thanks for the clarification — I would agree that adding an e-book onto the production costs for an existing print book will add costs, but I can’t see them being that high, and certainly not high enough to justify some of the pricing we’ve seen. And even if it does justify it, I think the long-term cost of that pricing could be more severe than publishers think it is.

      • The current business model is breaking. It may seem to you like children stomping their feet, but it’s not, the sound you hear is opportunity knocking. I remember years ago hearing a lecture in a photography convention titled “Film is Dead”. At that time they laughed out loud… no-one in the industry believed it. I wonder what they think today? Fast forward to today, print is dying and publishers need to get in front of the transition or change will sweep them away.

        I’m sorry to say that publishers have proven themselves to be every bit as adroit with technology as the record industry… and THAT’s saying something, all bad.

      • Josh Miller

        @Bill, the hilarious/annoying part is that the Music industry already went through this mess, they sort of learned their lesson eventually and embraced it but they are still not as they used to be.

        Yet, both the Movie and Book industries are fighting the same way the Music industry did and they are both getting hammered by it.