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.”