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Free is not the magic number: New trends in ebook pricing

Ebook pricing strategies are changing rapidly as the digital market grows. Self-published authors continue to shake things up, but what might have been best practice a couple of years ago is not necessarily relevant in 2013 — and as retailers amass more data and publishers experiment, there’s a new set of tips for publishers and authors to pay attention to.

Are ebook prices falling? Sometimes…

“Pricing for us is a daily, hourly, minute-by-minute discipline,” Michael Tamblyn, Kobo’s chief content officer, said in an IDPF panel at BookExpo America on Thursday. Year on year, Kobo sees an eight percent decline in the prices worldwide that consumers are paying for ebooks, but it is “by no means a straight line.” In the first quarter of this year, the global average sales price of a Kobo ebook was $7.50.

The downward trend is driven largely by self-published authors, Tamblyn said, stressing that the global prices of traditionally published ebooks have remained roughly stable, with prices varying by about $0.50. Following big publishers’ settlements with the Department of Justice in the ebook pricing case, the prices of their ebooks have settled as well — “slightly north of pre-agency” prices, Tamblyn said. “Almost all the change that we see in overall global price point today is coming from self-publishing…it’s the primary pole that has been rooting price downward over time.” (And it is a significant part of the business: Kobo says that self-published titles represent 20 percent of its unit sales, with about half of those coming from authors publishing directly through Kobo’s own platform, Writing Life.)

Kobo’s finding that traditionally published ebook prices are holding stable appears to directly contradict data presented by Dan Lubart at the Publishers Launch conference on Wednesday. Lubart, who founded technology services company Iobyte Solutions and is now the SVP of sales analytics at HarperCollins, compiles Digital Book World’s weekly ebook bestseller list, which is divided by price bands. Lubart draws his conclusions using publicly available data from the U.S. Kindle (s AMZN) and Nook (s BKS) bestseller lists. He said that the average price of a Kindle bestseller dipped starting in the 2012 holiday season and and has remained lower since, even when works below $4 (which tends to include self-published books or traditionally published books undergoing price promotions) were filtered out. Publishers “have to start lowering our prices ahead of market realities that we see coming,” Lubart said.

…and in some places

I asked Tamblyn why Lubart’s data shows traditionally published ebook prices coming down while Kobo’s data shows them rising. Tamblyn stressed that just looking at a retailer’s bestseller list can produce a “wildly distorted” picture, in part because midlist and backlist ebooks are a much larger part of the market than they were two years ago. He also reminded me that Kobo is looking at global data, not just data from the U.S.

So how do average ebook prices compare globally? “The U.S. is neither the most nor the least price-competitive market in which we operate,” Tamblyn said. “There are very different prices that customers are used to paying and willing to pay on a market by market basis.” The average selling price of a Kobo ebook in the U.S. is about $7.20; in Canada, it’s $8.12. In the U.K. — “for our money, the most ferociously competitive price market in the English language” — the average selling price of a Kobo ebook is $5.76. Consumers in the E.U., meanwhile, appear willing to pay more for ebooks whether their country has price protection laws (Germany: average price $9.90; France: $10.40) or not (the average selling price in the Netherlands, where ebook prices are not fixed, is $11.29).

Free sometimes drives sales, but it’s not worth it for everyone

Both traditional publishers and self-published authors are increasingly experimenting with offering temporary price slashes on their titles. Josh Schanker is the founder of BookBub, a site that sends its members daily email newsletters alerting them to ebook sales, and he presented some of his company’s findings in the IDPF panel alongside Tamblyn. “The greater percentage discount the publisher offers, the greater the response rate,” Schanker said. BookBub has found that ebooks discounted by 90 to 99 percent saw 300 percent more click-throughs and purchases than ebooks discounted by 60 percent.

BookBub has found that ebooks that are discounted more steeply sell more copies once they are returned to full price. “The more that people take advantage of an author,” Schanker said, “the more they will buy books by the same author.” And BookBub finds “publishers, on average, will ultimately sell a lot more books when they do a free giveaway.”

The power of free depends a lot on the author whose book is being discounted, though, Tamblyn said. “Giving away books for free if you are a bestselling author with a really well-established brand…doesn’t have nearly the effect that it does when you are a self-published author trying to get books into the hands of people who have never heard of you before.”

Readers probably won’t chase retailers for ebook sales

In July 2012, Sony (s SNE) began running a promotion in its U.K. store where it sold ebooks for just 20 pence (USD $0.30). (The promotion ended in March.) Many other retailers, including Kindle U.K., matched those prices; Kobo didn’t. “We actually saw no change in our market share as those promotions were running,” Tamblyn said. “Mostly, retailers sold 20-pence books to their own customers and didn’t generally take anyone else’s customers. They essentially did a massive margin write-down to themselves…it was an interesting lesson in the relative stability of customer bases, and customers’ loyalty to a particular platform once they’ve joined it.”

13 Responses to “Free is not the magic number: New trends in ebook pricing”

  1. It is so much fun to watch the book business learn the lessons that we who grew up in the magazine world learned decades ago. The principles of direct marketing don’t change much, regardless of medium.

  2. Dominic Tor

    The coming of ebooks has massively inflated self-publishing. Most fiction readers want to read best sellers or near. But there are a large number of readers who want to find the really good fiction (of all categories) that have been overlooked in the mass of indifferent or frankly bad books now swamping the ebook market often at $0 or $0.99.

    Sometimes excellent or very good fictional works suffer from being needles in the haystack: these can still be found with magnet (i.e. by discerning professional readers of the genre of fiction), sometimes the problem is the pervasive self-censorship of the media, publishers included, who just don’t want to touch some politically or socially “delicate” subject.

    If we are not going to lose some books of real merit then we need to arrange some way o finding them – and perhaps making it worth while to find them. Which means teams of readers for each category of fiction. Starting with publications in English, there could be teams for UK and for US for example. And press reviewers could take part, as well as publishers readers. Those who found a book in the haystack each month and sparked it into life could then be rewarded by he author or resultant commercial publisher. There would be kudos too, for the reader who had the perception to recognise a worthwhile book [email protected]

    • David Thomas

      Couple of problems here: creating teams of cultural arbiters charged with finding the needles –> that is already in place (Pulitzer, NBA, Booker, book reviewers etc.) and it is sometimes controversial depending on the make up of the judges. Who chooses to whom to be the arbiters of the teams?
      Second, the reward system: if anyone could devise such a system that would resist corruption and not subvert the intention of finding the true gold, they would win a Nobel prize.
      Discovery can be improved, but only as an approach to efficiency. A book is a complex media form unlike a song or visual narrative — even sampling requires more effort. Satisfaction guaranteed for every purchase is really a tough thing to accomplish with books.

  3. I write both non-fiction and fiction and when I came to ebooks in 2011, had a backlist of 12 titles so the idea to give away my two biggest sellers was solely to act as loss leaders. In that sense they have worked brilliantly.

    However, as someone who focusses more on screenwriting these days, one benefit I hadn’t considered was that free books also act as amazing calling cards. For me, this has resulted in three movie deals in the last six months including an adaptation of one of my own novels which will enter pre-production next month.

    The point I’m making is that authors give away books for all kinds of reasons and if I’ve learnt one thing over the last 18 months, it’s that when it comes to publishing, these days there is no ‘way’, only ‘ways’.

  4. It’s not just the author’s name that matters. Giving away a book for free is a great strategy if it’s the first book in a series. If you only have one book on the market, the only real benefit to giving the book away is that it can get you reviews and it can get your book into people’s “buying” histories, feeding the “People who bought this book also bought….” algoriothm.

    But so many people are giving away books now that it’s hard to get really good numbers. Promotions like the ones Bookbub offers can get excellent returns (I gave away more than 15,000 copies this month, thanks to Bookbub!), but you need to be sure you can benefit from giving a book away before you pay money to tell people it’s free. Marking a book down to 99 cents might be a better strategy if it’s your only title.

  5. Hey Laura–

    Great post.

    I’d just like to point out one key thing about our combined list (data from Kindle, B&N, Kobo, Google and Sony): Our average price is for the top-25 best-selling ebooks. So, we’re just looking at the books most people are buying and the books most people are seeing advertised when they look at best-seller lists. We know that it’s a flawed measure in a way.

    I’m not sure what Kobo’s methodology is, but if it’s pricing across the entire list, it’s not that useful in my opinion. Now, if it’s total revenue divided by total units sold (which Kobo could do), that would be very accurate and very useful and it would suggest to me that while best-seller prices are going down in aggregate, back- and mid-list prices are holding steady or even rising in some cases.

    Thanks for this post!

    Jeremy Greenfield
    Editorial Director, Digital Book World

    • Thanks Laura for a great article and thanks Jeremy for the question. All of the numbers I discussed were the weighted average selling price based on all unit sales and actual selling prices of those sales. You’re right that the average in the catalog wouldn’t tell us much. No criticism intended to Dan Lubart’s good work on bestseller pricing, but unlike a few years ago the mid and back list has become a much more substantial part of the business as heavy readers expand their collections and we all get better at discovery and recommendation. It’s a good thing for the business and it does mean there is a lot of action happening in pricing down below the top 500.

      Michael Tamblyn
      Chief Content Officer

    • David Thomas

      Agree. Marvelous summary reporting, with the most telling coda: for all the squawk about price being the key to mitigate the risk of purchasing an e-book, there is an indication that it may all simply be consumer habit and effort. This suggests there is a minimum price threshold where the consumer is indifferent and the only positive influence is relative to demand — the name brand, the pr, or the serial narrative. The next step to gain market share will be the intermediaries to differentiate with exclusive content.