The e-book industry was officially launched at a government-sponsored conference in 1998. Starry-eyed dreamers, technical pioneers, entrepreneurs, geeks and curious publishers convened with the evangelical fervor of a tent meeting. Bliss it was in that dawn to be in the e-book business, and the wave of zeal generated predictions of the end of printed books.
Alas, some hard realities set in soon afterward. Copyright issues, technical problems, muddled business models and a lack of standards hindered momentum for almost ten years. Though the industry grew at a steady double-digit rate in spite of these problems and has at last broken out, it took a decade to mature, and that’s a decade longer than most of us anticipated.
One of the problems that compromised progress was e-book pricing. No one really knew how much to charge to download a book. And the fact is, we’re still not sure. If you survey prices on various publisher and etail sites you will readily see that list prices are all over the place. A quick foray onto the website of Fictionwise, the world’s foremost book etailer, shows Janet Evanovich’s The Grand Finale e-book listing at $14.99 (discounted by Fictionwise to $12.74 for its Club members). Temptation and Surrender by Stephanie Laurens sells for $25.99 ($22.09 Club price). The Demon’s Librarian, a paranormal romance by Lilith Saintcrow, sells for $5.95 and $5.06 respectively.
As in every other business enterprise there are two schools of pricing merchandise. One is to set a target profit and peg the price to meet that target. The other is to gain an advantage over competitors by undercutting them, reducing profit to the thinnest possible margin. That easily explains the range of list prices from roughly $3.00 to $10.00. It doesn’t however account for e-books listing for $20.00 or more. We’ll examine that in a moment.
In an attempt to bring discipline to e-book pricing and do for books what Apple did for music (at least, for whole albums) via the iPod, Amazon has strongly prescribed a $9.99 cap for books carried on the Kindle. But an analysis of list prices of Kindle titles, described in a blog headlined “Paid Is a Lot More Complicated than You Think–So Is the Truth”*, reveals the following:
“Using two different methods for checking Kindle price data in Amazon’s system, we find that roughly 30 percent of the 240,000 or so Kindle titles sell for more than $9.99 (and well over 20 percent sell for more than $20).
Yes, approximately 33,000 titles sell for around the magic $9.99–but about 13,000 titles sell for between $10 and $20. Here’s is one slice of approximate numbers for the four most popular price bands:
1. $20.01 and up: 55,750
2. $10.00 and $9.01: 33,000
3. $4.00 and $3.01: 25,500
4. $8.00 and $7.01: 20,750″
The writer goes on to point out that “There are more than 7,000 free books, and another 28,000 or so titles that sell for $2 or less.” He or she goes on to say,
“Now take a look just at their hourly bestseller list, as we have done both yesterday and today. As of one slice this morning, two of the top three Kindle books (and 18 of the top 100) are free.
But the No. 4 title sells for more than the magic $9.99–Breaking Dawn, by Stephenie Meyer, at $11.38. (The print version, at No. 2 on Amazon’s overall list, sells at discount for $12.64.) The Sony eBookstore sells it for $11.99 and the iPhone app version sells for $19.99.
In all, 16 titles on the top 100 are selling for more than $9.99. Some of those are pre-orders of books by the likes of Jodi Picoult, selling now at $15.37 even though presumably those books would sell for less once they are available and hit the NYT list.”
A $15.00 or $20.00+ price for an e-book seems counterintuitive, but don’t worry, your intuition is quite sound. We know (and appreciate) that there are diehard fans so desperate to read a new book by their favorite author that they’re ready to shell out as much for a download as they would pay for the hardcover in a bookstore or on amazon.com, maybe even more. But it’s safe to say that most readers and fans feel that, confronted with a choice of paying $25.00 for either an e-book or a hard copy of the same book, they will elect the version that they can put on their bookshelf when they’re finished with it.
What’s behind that high list price for so many e-books has to do with a stubborn fact of book publishing life. The business model of traditional publishers like Random House, Simon & Schuster and Penguin, is built around printed books. The profit to be made on a successful “book-book’ is at this time far greater than that made on an e-book. Furthermore, publishers employ sales representatives who earn commissions on sales of printed books; they do not earn anything on e-book sales.
It stands to reason, then, that from the viewpoint of a publisher and its sales reps, a low e-book price will cannibalize the profit made on sale of the higher priced print edition, and deprive the sales reps of their commissions. To bring the e-book profit up to parity with that of the print book, publishers must bring the e-book list price up to parity with that of the print book as well. That explains why Temptation and Surrender, the Stephanie Laurens novel selling in e-book for 25.99, is being sold for the very same price in hardcover on amazon.com. When a hardcover edition goes out of print and a cheaper paperback is issued, the publisher will in all likelihood lower the e-book price to maintain that same parity. (And there are mystifying anomalies. The Grand Finale, the Evanovich novel mentioned above that sells for $14.99 in e-book format, can be purchased in mass market paperback for $7.99!)
If your intuition tells you that this brick and mortar mentality is a significant reason why it’s taken so long for the e-book business to prosper – well, again, you’re absolutely correct. Whether the problem can be remedied is hard to say. Traditional publishers are traditional for a good reason. Newer entries into the e-book publishing field are not hampered by the same considerations as the Simon & Schusters of the world, and price their wares without concern about cannibalizing themselves or keeping commissioned sales representatives happy. On the other hand, traditional publishers enjoy distribution advantages that are the envy of every e-book startup.
So – you pays yer money and you takes yer choice.
Our anonymous blogger also raises a cogent point about Kindle pricing: though the price of an e-book purchased on the device may be discounted, you have to build in the price of the Kindle itself in order to ascertain the true cost of the downloaded book:
Logically speaking, the overall save-money-by-buying-a-Kindle argument is also specious for most consumers; as others have pointed out, if you save an average of $7.50 a book–supposed Kindle price of a new hardcover versus discounted Amazon print price–you need to buy at least 50 books or so before recovering the purchase price of the device. Yet it’s clearly one factor in the purchase decision by many Kindle owners.
Which brings us back to the “Gillette Razor” solution we’ve championed in these pages. The inventor of the modern razor shrewdly observed that the most effective strategy to boost his product was to give away the razor and sell the blades. Giving away the e-reader and selling the books might be just the rocket boost the e-book industry needs to send it into the stratosphere.
Richard Curtis
*(Apologies to the unnamed author of this survey, which was emailed to me by a friend without a link to the source. In a rare failure of Google search capabilities I was unable to ascertain the blog’s author. If the author happens to read this, sir or madame, please identify yourself so that I can accord you well deserved recognition!)
This is a thoughtful post and it contains some interesting analysis. But the overarching message of this and other recent press about Kindle e-book pricing is off-base.
The vast majority of best-selling books on Kindle are sold for $9.99. I just did a quick check of the top sellers and only 1 of the top 10, 2 in the top 20, and 6 in the top 50 are priced above $9.99. And virtually all of the books priced above $9.99 are selling for under $12 and for under the current hardcover price. A quick check reveals that 160,000, or about 2/3′s of the total Kindle book store, is selling for under $10.
I think it is fair to say that Amazon has gotten major pushback from publishers on ebook pricing (as Apple eventually did on music track pricing) and as a result there has been some “bracket creep” up to the $11.50 to $11.99 price range for a few hot books. I’ve also noticed many times that new books come out slightly above $9.99 but later slide down to that price. But that’s not nearly as exciting a story as saying that some kind of sea-change has taken place or Amazon is lying about the $9.99 price (which Richard doesn’t quite say but others have).
I’m also concerned that the all-important value equation of owning a Kindle is miscalculated. The authors here seriously underestimate the number of people who buy a lot of books. According to the stats cited in this Randall Stross piece last year (http://www.nytimes.com/2008/01/27/business/27digi.html), over one-quarter of the US populace reads at least 15 books a year (that’s about 75 million people) and 8% read over 51 books a year (that’s about 24 million people).
Plus, when you pay $359 for the device, you also get free wireless Internet access along with the ebook reading capability. Sure, the web browser won’t work for video, but still the ability to read most web sites, check email and RSS feeds, is worth something. Say it’s just $5 a month. That’s one-third of the price in two years. If it’s worth $10 a month, that’s even more.
Finally, I question the accuracy of a lot of the stats cited here. I have NEVER seen a free book listed among the top sellers on Amazon’s Kindle best seller list and there aren’t any such books in the top 100 right now. The Stephanie Laurens book mentioned is for sale on Kindle for $14.29, a couple of bucks less than the print version.
The analysis you presented was, I am quite certain, from Michael Cader in PublishersLunch.
I recently bought from an ebook-only website that allows authors to choose what they want their wares priced at. There’s also a “name your price” option for the buyer. The site takes an 85% royalty after costs, so their margin is fixed. The rock-bottom price is their cost. When you buy a book priced at “name your price”, there’s a handy pie chart presented so you can see how much is going to costs, how much to the site, how much to the author.
The free market happening right before your eyes!
It is a well written post, however, no one has yet to break down exactly how much an ebook cost to produce.
Leave out the overhead of the brick and mortar, author advances, etc.
I did an experiment and uploaded a manuscript years ago. Using Amazons 3 step upload process – I set a price point @ .99 and was selling my first ebook in 10 minutes.
How much did it cost? Nadda. Zip.
Main Street Publishing is becoming the AIG of the book world. Readers are now paying attention to what publishers are listing the same or slightly lower price tag for an ebook compared to the DTB(dead tree book). Readers are paying attention, and they are not happy.
Seth Godin stated in an article at the Harper Studio: “If there’s infinite shelf space, zero distribution costs and no returns, the question is: do you need a NY office, $30 salads, admins, interns, editors, publishers, sales reps, buyers, typesetters, copyeditors, proofreaders, pr people etc. etc.? In fact, in a long tail world, the number of people who need to touch a book before the consumer does goes from 25 to 2 or 3.
Someone is going to figure out how to profit on $2 ebooks being read like jelly beans by millions of people.
Until you figure it out, watch the tidal wave of authors beginning to go it on their own. Just watch what happened in music.”
And Seth is right more often than he is wrong.
Thanks for responding to my letter. I appreciate the dialogue.
Madison
http://www.mad4kindle.com
I’ve seen several analyses of this sort and they miss a few points: (1) driving to the bookstore has a personal time and gas cost, often in excess of the book price! This is a substantial savings to Kindle owners; (2) publishers claim there is “a lot” of cost to develop an e-title, and that may be true if they only sell 50 copies however it will clearly become minimal with volume; and (3) the optimum price is based on elasticity of demand – which varies by title and over time. The exciting thing about eBooks is that you can vary the pricing more intelligently than before. For example, first book in a series for free, start with a hardcover price and then drop gradually over time to the paperback price or less, have a premium version of a book that is bundled with added content – author’s notes; 3D map; a signed and personalized photo from the author sent by mail; even a soundtrack! (4) although current ebookstores may be charging their traditional 50% this is a huge profit for electronic content… as more eBookstores develop, or directly on the publisher’s site, it should be possible to publish ebooks with a far smaller mark-up from publisher’s revenue.
The point is that eBooks are a boon to publishers that will enable them to sell their product at less cost and therefore price lower and sell more units thus making more profit; furthermore it will enable publishers to extract top dollar through a variety of means. In short, with a bit of imagination publishers can thrive with eBooks!