The good people at Reddit recently noticed something peculiar and engaged in a spirited debate about it. The topic? A bete noir for many an e-book reader:
E-books priced more than their print edition.
How could this possibly be? Paper costs more than electrons, so surely e-books should be cheaper, right?
Believe it or not, this isn’t a glitch. And it’s not happening because publishers are asleep at the wheel either.
Come down the rabbit hole with me into the wholesale/agency tunnel, and I’ll tell you why this is happening.
Ye Olde Wholesale
First, as always, we have to start with some dry background information. For a very long time publishers have had a system where they set the suggested retail price and take roughly half of that. Whatever the bookseller wants to charge from there is their business.
So, napkin math, if a book is listed with a $24.99 cover price the publisher would get about $12.50 of that, which they would split with the author, cover their costs, hopefully make a profit, etc. (Further background here.)
If the book sells for $24.99 the bookseller also gets $12.50. Or, if the bookseller discounts it to $19.99, well, that comes out of the bookseller’s take and and the bookseller gets about $7.50. Heck, the bookseller could charge the consumer $10.00 and take a loss. That’s their business. The publisher still gets their $12.50.
For a long time this system worked without too much disruption. Then came Amazon.
Enter the Kindle
A couple of things happened in the past couple of years that had publishers rather nervous.
First came the Kindle, which enabled Amazon to jump out to a massive early lead in e-book market share. For a while there it looked like Amazon was going to win the e-book war going away, and they were using their massive scale to help further that process.
Originally Amazon was selling e-books based on the wholesale model. So take that $24.99 hardcover. For every new e-book, Amazon was paying publishers roughly 50% of the hardcover price, or $12.50. Only… for some popular titles they were selling those e-books for $9.99. They were taking a loss on some titles in order to sell Kindles, build market share, and establish a massive early lead with their proprietary e-book format.
And then during the holiday season of 2009, Amazon engaged in a price war with WalMart, Target and others, and discounted some very popular hardcovers to $9.99. Again, at a loss.
This created several very pressing concerns for publishers. For one, Amazon was helping devalue consumers’ notion of what a new book “should” cost. And two, they were growing extremely, extremely powerful. Bookstores definitely couldn’t compete with $9.99, and neither could many other e-book sellers, even massive corporations.
Publishers badly wanted to level the playing field to make sure there was competition in the marketplace. They didn’t want Amazon creating a monopoly and turning up the screws on their terms.
Publishers Say Homey Don’t Play That
Enter the agency model.
When Apple entered the e-book fray with the introduction of the iPad, they brought with them the app store model: Publisher sets the price, Apple gets 30%, publisher gets 70%. Publishers, who wanted a way to slow down all the deep discounting and create a create a leveler playing field, say heck yeah, and they tell Amazon that’s the new game in town. They raise prices to somewhere between $10.99 and $14.99 for new e-books, and e-booksellers aren’t allowed to discount off of those prices.
Makes sense, right?
Well, here’s the thing that’s kind of wacky about the wholesale model vs. the agency model: the publisher made more money per copy with the wholesale model.
Again, napkin math for a $24.99 hardcover. Let’s say the e-book would have sold for $9.99 at Amazon in the old days but now the publisher charges $12.99:
Wholesale model e-book:
Publisher: $12.50 (roughly 50% of $24.99 hardcover retail price)
Amazon: – $2.50 (selling at $9.99)
Agency model e-book:
Publisher: $9.09 (70% of $12.99)
E-bookseller: $3.90 (30% of $12.99)
See what’s happening there? Publishers left money on the table to have more control over pricing and so more e-booksellers could compete with the elephant in the Amazon.
The result: It actually seems to have worked. B&N now claims 25% market share in the e-book world, and with iBooks also going strong the competition in the e-book marketplace that publishers wanted appears to be taking place.
Where We Are Now
So now there’s a system in place where print books are still sold based on the wholesale model and e-books are sold on the agency model. This results in…. curiosities.
Let’s take one of the examples that had Reddit perplexed. The Girl Who Kicked the Hornet’s Nest is selling on Amazon for:
Doesn’t make sense, right?
Well, here’s how that breaks down between publisher and Amazon:
Publisher: $8.39 (70% of e-book price)
Amazon: $3.60 (30% of e-book price)
Publisher: $13.95 (50% of $27.95 list price)
Amazon: – $2.06 (customer price minus $13.95 paid to publisher)
So… unless there’s some sort of special arrangement there, Amazon is using the hardcover as a loss leader.
And the publisher would tell you: we can’t control that. All we can do is set our own prices, and what Amazon charges the consumer for print books is their business. Publishers make more money on the hardcover sale, they set the list price for the hardcover at $27.95 and the e-book at $11.99, and they don’t have much incentive to discount the e-book any further than it already is.
I’m not privy to the strategic discussions at publishers, but if this also has the effect of slowing down the rate e-book adoption or steering people toward the print editions…. I’m guessing they’re probably okay with that. They have print operations to consider and bookstores that they’d like to survive as long as possible. As long as it’s still primarily a print world (and it is), publishers have many rational incentives to protect their print sales.
But the biggest problem, as that Reddit discussion illustrates, is that it creates a great deal of consumer confusion and angst. It doesn’t make any intuitive sense for e-books to cost more than paper. By keeping e-book prices high, it opens up a huge opportunity for the 99-cent Kindle bestsellers to exploit. Also: As the music industry found out, annoy digital consumers at your peril.
And it just took almost a thousand words to explain why it’s happening.
And added to above, I am sure that an e-bookseller does not have the same overhead costs as a retail one, with building rent, utilities, salaries,workman's comp ins., etc. So the savings should be shared there too……….
What gets my goat is where Amazon .com charges $41.64 for an e-book (Jo Frost's Confident Toddler Care) compared to $23.67 for the hardback. Yet Amazon.co.uk only charges 8.99 (pounds) around $15 for the kindle version FOR THE SAME TITLE!!!!!!! That makes no sense to me at all.
What I'm wondering is why they demand to make the same price off an ebook? Regardless of model, ebooks still *cost* less. So why is the publisher charging the provider $12.99 for the paper book that plausibly has $5 per copy (for example) of paper and ink and printing presses and shipping and other things, but also charging $12.99 for the eBook, which costs a tenth of a cent (for example) to produce the digital copy?
When you say they "Make more money on the hardcover" this is only a half truth. They make more money selling it, yes, but there is certainly an immensely higher profit margin for ebooks.
THAT is the problem that I'm seeing.
Thanks for the blog, I was just trying to figure out what price my e.book should be sold at and came across your article.
I was actually looking for 'how much cheaper' I should sell it and thought to check how others are pricing it.
Thanks to your blog, I've made up my mind.
Thank you Nathan!
Your explanation breaks down the pricing structure nicely. My question is "why is the price the publisher is setting so high?" – without the high production costs of paper, ink, and distribution the cost of an ebook should be significantly lower than a printed version (no unsold copies to worry about either).
Kent Dayton says
There is an old joke about a vendor on the street selling apples for $1,000. A passer-by says, "You won't sell many apples at that price." To which the vendor replies, "I only have to sell one!"
For every customer willing to pay hard cover price for an E-Book, how many more are there, who WON'T buy the book because it's too expensive?
What if, for every customer willing to pay $20 for an E-book, there were four more who are not willing to pay that much – but would buy it at $5? The retailer could sell five books instead of one and the wholesaler and retailer would both make more money.
Aren't the wholesalers limiting themselves? And what does the wholesaler do when a book is published in paperback? They adjust the MSRP. They should do the same for E-books.
I am a technical person. Most everything I do is in a electronic format. With the exception of books. I paid no attention to Kindles, Nooks, etc. I paid no attention to ebook prices, etc. This season I was considering making the switch. I naturally assumed an ebook was cheaper. I was shocked to see the ebooks were more! No Thanks! I'll just keep my paper books. Besides, if things get like the TV show Revolution, I at least will have a few books to read!
Here in South Africa it is the otherway around. Few books are actually printed here as they are mostly imported from overseas. This all culminates in ebooks being the cheaper option for us.
Very peculiar indeed and I think many of us have noticed that too. I switched back to buying books because of this, but I still love to read ebooks especially free ebooks…
Considering I pay more for my ebook, can I resell it like I can a paperbook???
Lynne Schulte says
I am brand new at this. Published soft cover book and ebook on Amazon and am now finalizing my Ingram Sparks hardcover and epub book all of the same title. I aligned my epub prices with Amazon and have other countries on epub. It came back for my approval with all the other countries cost changed to match the hardcopy price (except USA which stillaligned with Amazon) Is this normal?
What about the ones that are no longer in print and are going for the prices they are?
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